<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark one)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[ X ] SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[ ] SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-15006
AVANT IMMUNOTHERAPEUTICS, INC.
(F/K/A T CELL SCIENCES, INC.)
(Exact name of registrant as specified in its charter)
DELAWARE 13-3191702
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
119 FOURTH AVENUE, NEEDHAM, MASSACHUSETTS 02494
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (781) 433-0771
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of common stock held by non-affiliates as of March
10, 2000 was $657,749,278 (excludes shares held by directors and executive
officers). Exclusion of shares held by any person should not be construed to
indicate that such person possesses the power, direct or indirect, to direct or
cause the actions of the management or policies of the Registrant, or that such
person is controlled by or under common control with the Registrant. The number
of shares of common stock outstanding at March 10, 2000 was: 50,012,800 shares.
<PAGE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: STATEMENTS CONTAINED IN THIS REPORT: MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS, THAT ARE NOT HISTORICAL FACTS MAY BE
FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO A VARIETY OF RISKS AND
UNCERTAINTIES. THERE ARE A NUMBER OF IMPORTANT FACTORS THAT COULD CAUSE THE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING
STATEMENTS MADE BY THE REGISTRANT. THESE FACTORS INCLUDE, BUT ARE NOT LIMITED
TO: (i) THE REGISTRANT'S ABILITY TO SUCCESSFULLY COMPLETE PRODUCT RESEARCH AND
DEVELOPMENT, INCLUDING PRE-CLINICAL AND CLINICAL STUDIES, AND COMMERCIALIZATION;
(ii) THE REGISTRANT'S ABILITY TO OBTAIN SUBSTANTIAL ADDITIONAL FUNDING; (iii)
THE REGISTRANT'S ABILITY TO OBTAIN REQUIRED GOVERNMENTAL APPROVALS; (iv) THE
REGISTRANT'S ABILITY TO ATTRACT MANUFACTURING, SALES, DISTRIBUTION AND MARKETING
PARTNERS AND OTHER STRATEGIC ALLIANCES; AND (v) THE REGISTRANT'S ABILITY TO
DEVELOP AND COMMERCIALIZE ITS PRODUCTS BEFORE ITS COMPETITORS.
AVANT Immunotherapeutics, Inc. (the "Company") hereby amends Part II, Item 8 of
its Form 10-K for the year ended December 31, 1999 filed with the Securities and
Exchange Commission on March 28, 2000. The only purpose of this amendment is to
correct a typographical error made in dating the Report of the Independent
Accountants. This amended annual report on Form 10-K/A does not reflect any
changes in the Company's reported consolidated financial condition or results of
operations.
-2-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
<S> <C>
Index to Consolidated Financial Statements and Supplementary Schedules 3
Report of Independent Accountants 4
Consolidated Balance Sheet at December 31, 1999 and 5
December 31, 1998
Consolidated Statement of Operations for the Years Ended 6
December 31, 1999, December 31, 1998 and December 31, 1997
Consolidated Statement of Stockholders' Equity for the Years Ended 7
December 31, 1999, December 31, 1998 and December 31, 1997
Consolidated Statement of Cash Flows for the Years Ended 8
December 31, 1999, December 31, 1998, and December 31, 1997
Notes to Consolidated Financial Statements 9
</TABLE>
-3-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Shareholders of
AVANT Immunotherapeutics, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and of cash flows present fairly, in all
material respects, the financial position of AVANT Immunotherapeutics, Inc. and
its subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 14, 2000
-4-
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
====================================================================================================
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 13,619,000 $ 8,937,200
Marketable Securities -- 4,903,100
Current Portion Restricted Cash -- 750,000
Current Portion Lease Receivable 431,700 395,700
Prepaid and Other Current Assets, Net 439,000 629,700
----------------------------------------------------------------------------------------------------
Total Current Assets 14,489,700 15,615,700
Property and Equipment, Net 1,256,800 1,111,400
Restricted Cash 217,000 365,000
Long-Term Lease Receivable 395,700 827,300
Other Assets 3,523,500 4,730,700
----------------------------------------------------------------------------------------------------
Total Assets $ 19,882,700 $ 22,650,100
====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 575,300 $ 363,700
Accrued Expenses 1,331,500 1,184,700
Deferred Revenue -- 750,000
Short-Term Note Payable -- 750,000
Current Portion Lease Payable 293,700 269,200
----------------------------------------------------------------------------------------------------
Total Current Liabilities 2,200,500 3,317,600
----------------------------------------------------------------------------------------------------
Long-Term Lease Payable 269,200 562,900
----------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities (Notes 3 and 13)
Stockholders' Equity:
Common Stock, $.001 Par Value 75,000,000 Shares Authorized;
48,127,400 Issued and Outstanding at December 31, 1999;
42,512,400 Issued and 42,508,600 Outstanding at
December 31, 1998 48,100 42,500
Additional Paid-In Capital 150,710,300 140,777,200
Less: 0 and 3,800 Common Treasury Shares at Cost at
December 31, 1999 and 1998, respectively -- (13,800)
Accumulated Deficit (133,345,400) (122,036,300)
----------------------------------------------------------------------------------------------------
Total Stockholders' Equity 17,413,000 18,769,600
----------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 19,882,700 $ 22,650,100
====================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-5-
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
===========================================================================================================
<S> <C> <C> <C>
OPERATING REVENUE:
Product Development and
Licensing Agreements $ 1,483,500 $ 2,094,500 $ 1,147,600
Product Sales -- 55,900 44,500
-----------------------------------------------------------------------------------------------------------
Total Operating Revenue 1,483,500 2,150,400 1,192,100
-----------------------------------------------------------------------------------------------------------
OPERATING EXPENSE:
Research and Development 7,871,800 5,703,100 5,256,900
General and Administrative 4,280,200 3,808,100 3,472,900
Cost of Product Sales -- 22,300 21,000
Charge for Purchased In-Process Research & Development -- 44,630,000 --
Legal Settlement -- (165,600) 6,108,800
Amortization of Goodwill 1,275,800 546,400 --
-----------------------------------------------------------------------------------------------------------
Total Operating Expense 13,427,800 54,544,300 14,859,600
-----------------------------------------------------------------------------------------------------------
Operating Loss (11,944,300) (52,393,900) (13,667,500)
Non-Operating Income, Net 635,200 594,200 559,500
-----------------------------------------------------------------------------------------------------------
Net Loss $(11,309,100) $(51,799,700) $(13,108,000)
===========================================================================================================
Basic and Diluted Net Loss Per Common Share $ (0.26) $ (1.56) $ (0.52)
===========================================================================================================
Weighted Average Common
Shares Outstanding 44,076,400 33,177,200 25,139,900
===========================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-6-
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Common Additional Treasury Total
Stock Paid-In Stock Accumulated Stockholders'
Shares Par Value Capital Cost Deficit Equity
=======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT 24,965,400 $ 25,000 $ 72,791,800 $(69,000) $ (57,128,600) $15,619,200
DECEMBER 31, 1996
Issuance at $1.81 to $2.13
per Share upon Exercise
of Stock Options 12,000 -- 22,400 -- -- 22,400
Employee Stock Purchase
Plan Issuance at $1.38 and
$1.39 per Share -- -- (20,700) 33,200 -- 12,500
Issuance at $2.50 per Share for
Settlement of Litigation 1,500,000 1,500 3,748,500 -- -- 3,750,000
Compensation Expense Associated
with Issuance at $1.94 per
Share 10,000 -- 19,400 -- -- 19,400
Net Loss for the Year
Ended December 31, 1997 -- -- -- -- (13,108,000) (13,108,000)
-----------------------------------------------------------------------------------------------------------------------
BALANCE AT 26,487,400 $ 26,500 $ 76,561,400 $(35,800) $ (70,236,600) $ 6,315,500
DECEMBER 31, 1997
Issuance at $0.60 to $1.81
per Share upon Exercise
of Stock Options 11,400 -- 15,300 -- -- 15,300
Employee Stock Purchase
Plan Issuance at $1.65 and
$1.94 per Share -- -- (10,700) 22,000 -- 11,300
Returned Shares from Settlement
of Litigation at $2.50 per Share (66,300) -- (165,600) -- -- (165,600)
Net Proceeds from Stock Issuance 2,043,500 2,000 3,697,800 -- -- 3,699,800
Share Issued for Acquisition of
Virus Research Institute, Inc. 14,036,400 14,000 60,679,000 -- -- 60,693,000
Net Loss for the Year
Ended December 31, 1998 -- -- -- -- (51,799,700) (51,799,700)
-----------------------------------------------------------------------------------------------------------------------
BALANCE AT 42,512,400 $ 42,500 $ 140,777,200 $(13,800) $(122,036,300) $18,769,600
DECEMBER 31, 1998
Issuance at $0.10 to $1.81
per Share upon Exercise
of Stock Options 152,100 100 102,000 -- -- 102,100
Employee Stock Purchase
Plan Issuance at $1.46 to
$1.78 per Share 3,500 -- (2,200) 13,800 -- 11,600
Net Proceeds from Stock Issuance 5,459,400 5,500 9,833,300 -- -- 9,838,800
Net Loss for the Year
Ended December 31, 1999 -- -- -- -- (11,309,100) (11,309,100)
-----------------------------------------------------------------------------------------------------------------------
BALANCE AT 48,127,400 $ 48,100 $ 150,710,300 $ -- $(133,345,400) $17,413,000
DECEMBER 31, 1999
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-7-
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
Increase (Decrease) in Cash and Cash Equivalents 1999 1998 1997
========================================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (11,309,100) $ (51,799,700) $ (13,108,000)
Adjustments to Reconcile Net Loss to Cash
Used by Operating Activities:
Depreciation and Amortization 1,988,600 989,800 353,800
Write-off of Capitalized Patent Costs 105,900 337,000 51,100
Non-Cash Portion of Litigation Settlement -- (165,600) 5,250,000
Compensation Expense Associated with
Stock Issuance -- -- 19,400
Gain on Sale of Equipment -- (22,300) --
Charge for Purchased In-Process Research and
Development -- 44,630,000 --
Changes in Assets and Liabilities, Net of Acquisition:
Current Portion Restricted Cash 750,000 -- (750,000)
Prepaid and Other Current Assets 190,700 (1,529,900) 81,700
Accounts Payable and Accrued Expenses 358,400 (1,291,300) (343,400)
Deferred Revenue (750,000) -- 750,000
Lease Receivable 395,600 -- --
Lease Payable (269,200) -- --
------------------------------------------------------------------------------------------------------------------------
Net Cash Used by Operating Activities (8,539,100) (8,852,000) (7,695,400)
------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Property and Equipment (688,500) (294,800) (76,900)
Proceeds from the Sale of Equipment -- 25,200 --
Redemption of Marketable Securities 4,903,100 4,463,000 --
Increase in Patents and Licenses (344,200) (426,000) (381,200)
Decrease in Long-Term Restricted Cash, Net 148,000 160,000 160,000
Cash Received from Acquisition of Virus Research
Institute, Inc. -- 4,391,500 --
Payment of Notes Payable (750,000) (750,000) --
Payment Received on Convertible Note Receivable -- -- 1,802,700
Other -- 57,600 400
------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Investing Activities 3,268,400 7,626,500 1,505,000
------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds from Stock Issuance 9,850,400 3,711,100 12,500
Proceeds from Exercise of Stock Options 102,100 15,300 22,400
------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 9,952,500 3,726,400 34,900
------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 4,681,800 2,500,900 (6,155,500)
Cash and Cash Equivalents at Beginning of Period 8,937,200 6,436,300 12,591,800
------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 13,619,000 $ 8,937,200 $ 6,436,300
------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-8-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) NATURE OF BUSINESS
AVANT Immunotherapeutics, Inc. ("AVANT") is a biopharmaceutical company engaged
in the discovery, development and commercialization of products that harness the
human immune response to prevent and treat disease. We develop and commercialize
products on a proprietary basis and in collaboration with established
pharmaceutical partners, including Novartis Pharma AG, AstraZeneca plc,
Yamanouchi Pharmaceutical Co., Ltd., Aventis Pasteur, SmithKline Beecham plc and
Heska Corporation.
In September 1999, we completed a private placement of 5,459,400 shares of
common stock to institutional investors at a price of $1.92 per share. Net
proceeds from the common stock issuance totaled approximately $9,838,800. In
March 1998, we completed a private placement of 2,043,500 shares of common stock
to institutional investors at a price of $1.90 per share. Net proceeds from the
common stock issuance totaled approximately $3,699,800. On August 21, 1998,
AVANT acquired all of the outstanding capital stock of Virus Research Institute,
Inc. ("VRI"), a company engaged in the discovery and development of (i) systems
for the delivery of vaccines and immunotherapeutics and (ii) novel vaccines (see
Note 14).
AVANT's cash and cash equivalents at December 31, 1999 was $13,619,000. Our
working capital at December 31, 1999 was $12,289,200. We incurred a loss of
$11,309,100 for the year ended December 31, 1999. AVANT believes that cash
inflows from existing grants and collaborations, interest income on invested
funds and our current cash, cash equivalents, and marketable securities will be
sufficient to meet estimated working capital requirements and fund operations
beyond December 31, 2000. The working capital requirements of AVANT are
dependent on several factors including, but not limited to, the costs associated
with research and development programs, preclinical and clinical studies and the
scope of collaborative arrangements. During 2000, we expect to take steps to
raise additional capital including, but not limited to, licensing of technology
programs with existing or new collaborative partners, possible business
combinations, or issuance of common stock via private placement and public
offering. There can be no assurances that such efforts will be successful.
In July 1999, Novartis exercised its option to license TP10 for use in the field
of transplantation. The decision to license TP10 resulted in a $6 million
payment by Novartis which was received by AVANT in January 2000. The payment
included an equity investment of $2,307,700 for 1,439,496 shares of our common
stock at $1.60 per share and a license fee of $3,692,300.
In March 1996, we sold substantially all of the assets of our wholly-owned
subsidiary, T Cell Diagnostics, Inc while retaining all rights to the TRAx(R)
product franchise. In August 1999, we sold the TRAx(R) line of diagnostic
products and the TRAx(R) technology to Innogenetics, Inc. for a combination of
cash and future royalty payments.
(B) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of AVANT
Immunotherapeutics, Inc. and our wholly owned subsidiary Polmerix, Inc. All
intercompany transactions have been eliminated.
(C) CASH EQUIVALENTS AND INVESTMENTS
AVANT considers all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents. Short-term investments are those with
maturities in excess of three months but less than one year. All cash
equivalents and short-term investments have been classified as available for
sale and are reported at fair market value with unrealized gains and losses
included in stockholders' equity.
In addition to cash equivalents, at December 31, 1998, we had investments in
corporate and municipal debt securities that are classified in the balance sheet
as held-to-maturity in accordance with the provisions of Statement of Financial
Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Instruments
in Debt and Equity Securities." Held-to-maturity investments are securities we
have the positive intent and ability to hold to maturity. These securities are
accounted for at amortized cost, which approximates fair value.
-9-
<PAGE>
We invest our non-operating cash in debt instruments of financial institutions,
government entities and corporations, and mutual funds. We have established
guidelines relative to credit ratings, diversification and maturities that
maintain safety and liquidity.
(D) FAIR VALUE OF FINANCIAL INSTRUMENTS
AVANT enters into various types of financial instruments in the normal course of
business. Fair values for cash, cash equivalents, short-term investments,
accounts and notes receivable, accounts and notes payable and accrued expenses
approximate carrying value at December 31, 1999 and 1998, due to the nature and
the relatively short maturity of these instruments.
(E) REVENUE RECOGNITION
AVANT has entered into various license and development agreements with
pharmaceutical and biotechnology companies. Nonrefundable revenue derived from
such agreements is recognized over the specified development period as research
and development or discovery activities are performed. Cash received in advance
of activities being performed is recorded as deferred revenue. Nonrefundable
milestone fees are recognized when they are earned in accordance with the
performance requirements and contractual terms. Revenues from product sales are
recorded when the product is shipped.
(F) RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
(G) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
(H) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated over the estimated
useful lives of the related assets using the straight-line method. Laboratory
equipment and office furniture and equipment are depreciated over a five year
period and computer equipment is depreciated over a three year period. Leasehold
improvements are amortized over the shorter of the estimated useful life or the
noncancelable term of the related lease.
(I) LICENSES, PATENTS AND TRADEMARKS
Included in other assets are some costs associated with purchased licenses and
some costs associated with patents and trademarks which are capitalized and
amortized over the shorter of the estimated useful lives or ten years using the
straight-line method. We periodically evaluate the recoverability of these
assets in accordance with Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of".
(J) LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share", which
changed the method of calculating earnings per share. SFAS 128, which we adopted
in the fourth quarter of 1997, requires the presentation of "basic" earnings per
share and "diluted" earnings per share. As a result of our net loss, both basic
and diluted earnings per share are computed by dividing the net loss available
to common shareholders by the weighted average number of shares of common stock
outstanding.
(K) STOCK COMPENSATION
AVANT's employee stock compensation plans are accounted for in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation" (see Note 7).
-10-
<PAGE>
(L) USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and disclosures. Actual results could
differ from those estimates.
2. SHORT-TERM INVESTMENTS AND RESTRICTED CASH
AVANT invests in high quality, short-term investments which are considered
highly liquid and are available to support current operations. We also invest in
high quality, debt securities which are classified as held-to-maturity. At
December 31, 1999 and 1998, our investments that met the definition of cash
equivalents were recorded at cost, which approximated fair value.
Pursuant to the terms of the settlement agreement between AVANT and our former
landlord, we pledged as collateral $750,000 at December 31, 1998 (see Note 13).
We also have $217,000 and $365,000 pledged as collateral at December 31, 1999
and 1998, respectively, in accordance with the terms of an operating lease (see
Note 3).
3. PROPERTY, EQUIPMENT AND LEASES
Property and equipment includes the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
---------------------------------------
<S> <C> <C>
Laboratory Equipment $ 2,595,400 $ 2,480,000
Office Furniture and Equipment 1,176,800 1,148,200
Leasehold Improvements 938,100 393,600
---------------------------------------
Property and Equipment, Total 4,710,300 4,021,800
Less Accumulated Depreciation and Amortization (3,453,500) (2,910,400)
---------------------------------------
$ 1,256,800 $ 1,111,400
=======================================
</TABLE>
Depreciation expense related to equipment and leasehold improvements was
approximately $543,100, $267,600 and $224,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
In May 1996, we entered into a six-year lease for laboratory and office space in
Needham, Massachusetts. The lease replaced two-year lease and sublease
agreements entered into in March 1995 for the same location and increased the
amount of office and laboratory space available.
In 1994, we entered into a lease agreement providing AVANT with the right to
lease up to $2,000,000 of equipment for up to a five-year term. The lease
agreement contains specified restrictive covenants determined at the end of each
fiscal quarter which, for the quarter ended September 30, 1995, included a
minimum cash, cash equivalents and short-term investments balance of
$10,000,000. At September 30, 1995 our cash and cash equivalents balance was
below $10,000,000. As a result, in accordance with the lease agreement, we
pledged cash as collateral to the lessor equal to the amount outstanding on the
lease which is to remain in a certificate of deposit until the end of the lease
or as otherwise agreed by the lessor and AVANT. We have recorded $217,000 and
$365,000 as long-term restricted cash at December 31, 1999 and 1998,
respectively.
-11-
<PAGE>
Obligations for base rent, net of sublease income, under these and other
noncancelable operating leases as of December 31, 1999 are approximately as
follows:
<TABLE>
<S> <C> <C>
Year ending December 31, 2000 $ 741,200
2001 709,200
2002 252,100
-----------
Total minimum lease payments $ 1,702,500
===========
</TABLE>
Our total rent for all operating leases (including rent expense net of sublease
income) was approximately $804,900, $909,500 and $851,400 for the years ended
December 31, 1999, 1998 and 1997, respectively.
4. OTHER ASSETS
Other assets include the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
========================================
<S> <C> <C>
Capitalized Patent Costs $ 2,101,300 $ 1,890,300
Accumulated Amortization (715,300) (595,500)
----------------------------------------
Capitalized Patent Costs, Net 1,386,000 1,294,800
Goodwill and Other Intangible Assets, Net of
Accumulated Amortization of $1,822,200
and $546,400 2,013,500 3,289,300
Other Non Current Assets 124,000 146,600
----------------------------------------
$ 3,523,500 $ 4,730,700
========================================
</TABLE>
In December 1999 and 1998, in accordance with SFAS 121, we evaluated and
subsequently wrote off approximately $105,900 and $294,500 of capitalized patent
costs relating to our SMIR program and our TRAx(R) test kit program,
respectively. These writeoffs were included in operating expense as general and
administrative expense for the years ended December 31, 1999 and 1998.
Amortization expense for the years ended December 31, 1999, 1998 and 1997
relating to the capitalized costs of purchased licenses, patents and trademarks
was approximately $169,700, $175,800 and $129,800, respectively. Goodwill
amortization expense for the years ended December 31, 1999 and 1998 was
approximately $1,275,800 and $546,400, respectively.
5. ACCRUED EXPENSES
Accrued expenses include the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
=======================================
<S> <C> <C>
Accrued License Fees $ 8,300 $ 60,000
Accrued Payroll and Employee Benefits 333,200 258,700
Accrued Clinical Trials 409,200 195,500
Accrued Legal 138,100 263,800
Other Accrued Expenses 442,700 406,700
---------------------------------------
$ 1,331,500 $ 1,184,700
=======================================
</TABLE>
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<PAGE>
6. INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
==========================================================
<S> <C> <C> <C>
Income tax benefit:
Federal $ 3,628,500 $ 17,640,500 $ 4,539,100
State 189,000 3,141,500 529,000
----------------------------------------------------------
3,817,500 20,782,000 5,068,100
Deferred tax assets valuation allowance (3,817,500) (20,782,000) (5,068,100)
----------------------------------------------------------
$ -- $ -- $ --
==========================================================
</TABLE>
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
==========================================
<S> <C> <C>
Net Operating Loss Carryforwards $ 39,851,000 $ 36,821,000
Tax Credit Carryforwards 4,742,000 4,427,000
Other 645,000 172,000
------------------------------------------
Gross Deferred Tax Assets 45,238,000 41,420,000
Deferred Tax Assets Valuation Allowance (45,238,000) (41,420,000)
------------------------------------------
$ -- $ --
==========================================
</TABLE>
Reconciliation between the amount of reported income tax expenses and the amount
computed using the U.S. Statutory rate of 35% follows:
<TABLE>
<CAPTION>
1999 1998 1997
==========================================================
<S> <C> <C> <C>
Loss at Statutory Rates $ (3,866,800) $ (17,612,200) $ (4,587,800)
Research and Development Credits (200,000) (218,700) (172,100)
State tax benefit, net of federal tax
liabilities (747,200) (514,000) (591,500)
Other 438,300 190,400 283,300
Expiration of State NOLS 558,200 170,800 --
In Process R&D -- 15,174,200 --
Benefit of losses and credits not
recognized, increase in valuation
allowance 3,817,500 2,809,500 5,068,100
----------------------------------------------------------
$ -- $ -- $ --
==========================================================
</TABLE>
AVANT has provided a full valuation allowance for deferred tax assets as
management has concluded that it is more likely than not that we will not
recognize any benefits from our net deferred tax asset. The timing and amount of
future earnings will depend on numerous factors, including our future
profitability. We will assess the need for a valuation allowance as of each
balance sheet date based on all available evidence.
At December 31, 1999, we had U.S. net operating loss carryforwards of
$104,000,000, U.S. capital loss carryforwards of $1,852,000, and U.S. tax
credits of $3,467,000 which expire at various dates through 2019. Under the Tax
Reform Act of 1986, substantial changes in our ownership could result in an
annual limitation on the amount of net operating loss carryforwards, research
and development tax credits, and capital loss carryforwards which could be
utilized.
-13-
<PAGE>
7. STOCKHOLDERS' EQUITY
(A) PUBLIC AND PRIVATE STOCK OFFERINGS
On September 22, 1999, we completed a private placement of 5,459,400 newly
issued shares of common stock. Net proceeds were approximately $9,838,800 after
deducting all associated expenses.
On March 24, 1998, we completed a private placement of 2,043,500 newly issued
shares of common stock. Net proceeds were approximately $3,699,800 after
deducting all associated expenses.
(B) PREFERRED STOCK
At December 31, 1999 and 1998, AVANT had authorized preferred stock comprised of
1,163,102 shares of convertible Class B and 3,000,000 shares of convertible
Class C of which 350,000 shares has been designated as Class C-1 Junior
Participating Cumulative, the terms of which are to be determined by our Board
of Directors. There was no preferred stock outstanding at December 31, 1999 and
1998.
(C) WARRANTS
AVANT has issued warrants to purchase common stock in connection with the
acquisition of VRI on August 21, 1998. The warrants are exercisable at $6.00 per
share and expire August 22, 2003. In connection with the acquisition of VRI, we
also assumed the obligations of VRI with respect to each outstanding warrant to
purchase VRI common stock (a "VRI Warrant"). Each VRI Warrant assumed by AVANT,
which will continue to have, and be subject to, the terms and conditions of the
applicable warrant agreements and warrant certificates, has been adjusted
consistent with the ratio at which our common stock was issued in exchange for
VRI common stock in the acquisition.
Warrants outstanding at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Exercise
Number of Price
Security Shares Per Share Expiration Date
============================================================================================
<S> <C> <C> <C>
Common stock 35,657 $ .62 February 9, 2004
Common stock 76,842 1.26 December 14, 2005
Common stock 17,050 6.19 April 12, 2001
Common stock 1,811,843 6.00 August 22, 2003
</TABLE>
(D) STOCK COMPENSATION AND EMPLOYEE STOCK PURCHASE PLANS
STOCK COMPENSATION
On May 6, 1999, AVANT's 1999 Stock Option and Incentive Plan (the "1999 Plan")
was adopted. The 1999 Plan replaces the Amended and Restated 1991 Stock
Compensation Plan, which was an amendment and restatement of our 1985 Incentive
Option Plan. The 1999 Plan permits the granting of incentive stock options
(intended to qualify as such under Section 422A of the Internal Revenue Code of
1986, as amended), non-qualified stock options, stock appreciation rights,
performance share units, restricted stock and other awards of restricted stock
in lieu of cash bonuses to employees, consultants and outside directors.
The 1999 Plan allows for a maximum of 2,000,000 shares of common stock to be
issued prior to May 6, 2009. The Board of Directors determines the term of each
option, option price, number of shares for which each option is granted and the
rate at which each option vests. All options vested either on the first
anniversary date or over a four year period and the term of each option cannot
exceed ten years (five years for options granted to holders of more than 10% of
the voting stock of AVANT). The exercise price of stock options shall not be
less than the fair market value of the common stock at the date of grant (110%
of fair market value for options granted to holders of more than 10% of the
voting stock of AVANT).
-14-
<PAGE>
In connection with the acquisition of VRI, we assumed the obligations of VRI
under VRI's 1992 Equity Incentive Plan (the "VRI Plan") and each outstanding
option to purchase VRI common stock (a "VRI Stock Option") granted under the VRI
Plan. Each VRI Stock Option assumed by AVANT is deemed to constitute an option
to acquire, on the same terms and conditions as were applicable under the VRI
Plan, shares of AVANT's common stock which has been adjusted consistent with the
ratio at which our common stock was issued in exchange for VRI's common stock in
the acquisition. As of the date the acquisition was completed we assumed options
to acquire 1,532,055 shares of our common stock at a weighted average exercise
price of $2.34.
EMPLOYEE STOCK PURCHASE PLAN
The 1994 Employee Stock Purchase Plan (the "1994 Plan") was adopted on June 30,
1994. All full time employees of AVANT are eligible to participate in the 1994
Plan. A total of 150,000 shares of common stock are reserved for issuance under
this plan. Under the 1994 Plan, each participating employee may contribute up to
15% of his or her compensation to purchase up to 500 shares of common stock per
year in any public offering and may withdraw from the offering at any time
before stock is purchased. Participation terminates automatically upon
termination of employment. The purchase price per share of common stock in an
offering is 85% of the lower of its fair market value at the beginning of the
offering period or the applicable exercise date.
A summary of stock option activity for the years ended December 31, 1999, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
Shares Per Share Shares Per Share Shares Per Share
=======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1, 3,354,708 $ 2.65 1,773,242 $ 3.20 2,303,196 $ 5.94
Granted 557,500 1.60 638,250 1.99 492,750 1.77
Assumed in acquisition -- -- 1,532,055 2.34 -- --
Exercised (152,056) 0.67 (11,355) 1.34 (12,000) 1.86
Canceled (621,593) 3.76 (577,484) 2.82 (1,010,704) 8.78
-----------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 3,138,559 $ 2.34 3,354,708 $ 2.65 1,773,242 $ 3.20
=======================================================================================================================
At December 31,
Options exercisable 2,091,562 2,542,950 1,039,437
Available for grant 2,833,818 1,095,206 1,296,716
Weighted average fair value of
options granted during year $ 0.83 $ 1.10 $ 0.92
</TABLE>
-15-
<PAGE>
The following tables summarize information about the stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding
-----------------------------------------------------------------------------------
Number Weighted Average Weighted Average
Outstanding at Remaining Exercise Price
Range of Exercise Prices December 31, 1999 Contractual Life per Share
======================================================================================================================
<S> <C> <C> <C>
$ 0.30 - 0.64 556,062 4.46 $ 0.63
0.95 - 1.67 579,477 8.83 1.47
1.81 - 2.06 686,210 8.23 1.91
2.44 - 3.59 720,063 6.41 2.75
3.81 - 7.81 596,747 4.98 4.77
----------------------------------------------------------------------------------------------------------------------
$ 0.30 - 7.81 3,138,559 6.64 $ 2.34
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
-------------------------------------------------------
Number Weighted Average
Exercisable at Exercise Price
Range of Exercise Prices December 31, 1999 per Share
======================================================================================================================
<S> <C> <C>
$ 0.30 - 0.64 556,062 $ 0.63
0.95 - 1.67 115,291 1.58
1.81 - 2.06 225,711 1.88
2.44 - 3.59 597,751 2.79
3.81 - 7.81 596,747 4.77
----------------------------------------------------------------------------------------------------------------------
$ 0.30 - 7.81 2,091,562 $ 2.62
======================================================================================================================
</TABLE>
FAIR VALUE DISCLOSURES
Had compensation costs for AVANT's stock compensation plans been determined
based on the fair value at the grant dates, consistent with SFAS 123, our net
loss, and net loss per share for the years ending December 31, 1999, 1998 and
1997 would be as follows:
<TABLE>
<CAPTION>
1999 1998 1997
=======================================================================================================
<S> <C> <C> <C>
Net Loss:
As reported $ 11,309,100 $ 51,799,700 $ 13,108,000
Pro forma 11,416,700 52,150,800 13,514,100
Basic and Diluted Net Loss
Per Share:
As reported $ 0.26 $ 1.56 $ 0.52
Pro forma 0.26 1.57 0.54
</TABLE>
The fair value of the option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
=======================================================================================================
<S> <C> <C> <C>
Expected dividend yield 0% 0% 0%
Expected stock price volatility 63% 63% 57%
Risk-free interest rate 5.0% - 6.1% 4.5% - 5.6% 5.5% - 6.4%
Expected option term 2.5 Years 2.5 Years 2.7 Years
</TABLE>
Because the determination of the fair value of all options granted includes an
expected volatility factor in addition to the factors detailed in the table
above, and because additional option grants are expected to be made each year,
the above pro forma disclosures are not representative of pro forma effects of
reported net income for future years.
-16-
<PAGE>
(E) SHAREHOLDER RIGHTS PLAN
On November 10, 1994, AVANT's Board of Directors declared a dividend of one
preferred share purchase right for each share of common stock outstanding. Each
right entitles the holder to purchase from AVANT one-one thousandth of a share
of Series C-1 Junior Participating Cumulative Preferred Stock (a "Unit"), par
value $0.01 at a price of $16.00 per one-one thousandth of a share, subject to
specified adjustments. The Units are exercisable only if a person or a group
acquires 15% or more of the outstanding common stock of AVANT or commences a
tender offer which would result in the ownership of 15% or more of our
outstanding common stock. Once a Unit becomes exercisable, the plan allows our
shareholders to purchase common stock at a substantial discount. Unless earlier
redeemed, the Units expire on November 10, 2004. AVANT is entitled to redeem the
Units at $0.01 per Unit subject to adjustment for any stock split, stock
dividend or similar transaction.
As of December 31, 1999 and 1998, we have authorized the issuance of 350,000
shares of Series C-1 Junior Participating Cumulative Preferred Stock for use in
connection with the shareholder rights plan.
(F) ACQUISITION OF VIRUS RESEARCH INSTITUTE, INC.
AVANT issued 14,036,400 shares of our common stock and warrants to purchase
approximately 1,811,200 shares of our common stock on August 21, 1998, in
exchange for all of the outstanding common stock of VRI (see Note 14).
8. RESEARCH AND LICENSING AGREEMENTS
AVANT has entered into licensing agreements with several universities and
research organizations. Under the terms of these agreements, we have received
licenses or options to license technology, specified patents or patent
applications. We have made required payments of nonrefundable license fees and
royalties which amounted to approximately $221,500, $100,000 and $65,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
9. PRODUCT DEVELOPMENT AND DISTRIBUTION AGREEMENTS
AVANT's product development revenues were received from contracts with different
organizations. Total revenue received by us in connection with these contracts
for the years ended December 31, 1999, 1998 and 1997 were approximately
$1,483,500, $2,094,500 and $1,147,600, respectively. A summary of these
contracts follows:
(A) NOVARTIS PHARMA AG
In 1997, we entered into an option agreement with Novartis Pharma AG
("Novartis"), a worldwide pharmaceutical company headquartered in Basel,
Switzerland, relating to the development of TP10 for use in xenotransplantation
(animal organs into humans) and allotransplantation (human to human). Under the
agreement, we received annual option fees and supplies of TP10 for clinical
trials in return for granting Novartis a two-year option to license TP10 with
exclusive worldwide (except Japan) marketing rights. In July 1999, Novartis
exercised its option to license TP10 for use in the field of transplantation.
The decision to license TP10 resulted in a $6 million equity investment and
license fee payment by Novartis which was received by AVANT in January 2000.
Under the agreement, we may receive additional milestone payments based upon
attainment of specified development and regulatory goals, which has an
approximate aggregate value of up to $14 million. We may also receive funding
for research as well as royalty payments on eventual product sales.
(B) SMITHKLINE BEECHAM
During 1997, AVANT entered into an agreement with SmithKline Beecham plc
("SmithKline") to collaborate on the development and commercialization of our
oral rotavirus vaccine. Under the terms of the agreement, SmithKline received an
exclusive worldwide license to commercialize AVANT's rotavirus vaccine. We were
responsible for continuing the Phase II clinical efficacy study of the rotavirus
vaccine, which was completed in August 1998. Subject to the development by
SmithKline of a viable manufacturing process, SmithKline is required to assume
responsibility for all
-17-
<PAGE>
subsequent clinical trials and all other development activities. SmithKline made
an initial license payment in 1997 upon execution of the agreement and has
agreed to make further payments upon the achievement of specified milestones. In
addition, we will be entitled to royalties based on net sales of the rotavirus
vaccine. In June 1999, we received a milestone payment of $500,000 from
SmithKline for the successful completion of the Phase II clinical efficacy study
and the establishment of a commercially viable process for manufacture of the
vaccine.
(C) ASTRAZENECA
In 1992, we entered into a product development and distribution agreement with
AstraZeneca plc ("Astra"), a worldwide pharmaceutical company headquartered in
Sodertalje, Sweden, for the joint development and marketing of therapeutic
products using our proprietary T cell antigen receptor ("TCAR") technology. The
products developed exclusively and jointly with Astra were monoclonal antibodies
and protein-derived immunomodulators that may have efficacy in treating
autoimmune diseases such as multiple sclerosis, Crohn's disease, and rheumatoid
arthritis.
In 1996, we suspended further internal funding of the research and development
of the TCAR program and further amended our agreement with Astra to transfer
some of our rights to the TCAR technology to Astra in addition to sole
responsibility for further development and commercialization of the TCAR
technology. Under the amended agreement, we received an initial signing fee of
$100,000 and could receive future milestone and royalty payments upon Astra's
successful development and commercialization of the TCAR technology. In 1997, we
recognized revenue from milestone payments from Astra of $650,000. In December
1999, we announced results of a Phase II study of the TCAR monoclonal antibody
(ATM-027) being developed by Astra for the treatment of multiple sclerosis. The
results showed that ATM-027 was safe and well tolerated, however, in the view of
Astra, the reduction of disease activity in the study population did not reach a
level that would be of value for those patients. Therefore, Astra made the
decision to stop further development of ATM-027 for multiple sclerosis but is
reviewing development of the TCAR peptide as a vaccine for multiple sclerosis
under the terms of the TCAR agreement.
(D) AVENTIS PASTEUR
In 1994, AVANT entered into a license agreement with Aventis Pasteur ("Aventis")
which granted Aventis the exclusive right to make, use and sell
Adjumer(R)-formulated vaccines for prevention of influenza, Lyme disease and
diseases caused by meningococcus and the co-exclusive right (exclusive, except
for the right of AVANT or one other person licensed by AVANT) to make, use and
sell Adjumer(R)-formulated vaccines directed against five other pathogens,
including pneumococcus and RSV. We have retained rights to make, use, sell and
license Adjumer(R)-formulated vaccines against the subject infections in most of
the Far East, including China and Japan, subject to geographical extension
rights available to Aventis. In December 1998, we received a milestone payment
of $600,000 from Aventis upon commencement of the first Phase I clinical trial
of the Adjumer(R)-formulated vaccine for RSV.
(E) HESKA CORPORATION
In January 1998, AVANT entered into an agreement with Heska Corporation
("Heska") whereby Heska was granted the right to use PCPP in specified animal
health vaccines. The agreement provides for the payment of license fees,
milestone and royalties based on net sales of PCPP-formulated animal vaccines.
In September 1999, we received a payment from Heska for the achievement of a
major milestone in efforts to develop and utilize the PCPP polymer as an
adjuvant in Heska's animal health vaccine against B. henselae, the bacterium
that causes Cat Scratch Disease in humans.
-18-
<PAGE>
10. NON-OPERATING INCOME
Non-operating income includes the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
================================================
<S> <C> <C> <C>
Interest and Dividend Income $ 635,200 $ 571,900 $ 577,300
Gain on Sale of Equipment -- 22,300 --
Loss on Sale of Investments -- -- (17,800)
------------------------------------------------
$ 635,200 $ 594,200 $ 559,500
================================================
</TABLE>
11. DEFERRED SAVINGS PLAN
Under section 401(k) of the Internal Revenue Code of 1986, as amended, the Board
of Directors adopted, effective May 1990, a tax-qualified deferred compensation
plan for employees of AVANT. Participants may make tax deferred contributions up
to 15%, or $10,000, of their total salary in 1999. AVANT may, at its discretion,
make contributions to the plan each year matching up to 1% of the participant's
total annual salary. AVANT contributions amounted to $30,100, $20,100 and
$20,600 for the years ended December 31, 1999, 1998 and 1997, respectively.
12. FOREIGN SALES
Product sales were generated geographically as follows:
<TABLE>
<CAPTION>
NET PRODUCT SALES FOR THE
TWELVE MONTHS ENDED EUROPE USA ASIA OTHER TOTAL
===========================================================================================================
<S> <C> <C> <C> <C> <C>
December 31, 1999 $ -- $ -- $ -- $ -- $ --
December 31, 1998 5,000 31,000 -- 20,000 56,000
December 31, 1997 5,000 29,000 -- 11,000 45,000
</TABLE>
13. LITIGATION
In December 1994, AVANT filed a lawsuit in the Superior Court of
Massachusetts against the landlord of our former Cambridge, Massachusetts
headquarters to recover the damages incurred by AVANT resulting from the
evacuation of the building due to air quality problems, which caused skin and
respiratory irritation to a significant number of employees. The landlord
defendant filed counterclaims, alleging we breached our lease obligations. The
court ordered a limited trial between AVANT and the landlord on factual issues
which began on November 20, 1996. Closing arguments for the limited trial were
heard on January 13, 1997. In a separate lawsuit, the landlord's mortgagee filed
claims against AVANT for payment of the same rent alleged to be owed. A motion
for summary judgment filed by the bank was denied by the court. In August 1997,
the Superior Court of Massachusetts entered findings of fact and conclusions of
law on the limited trial of AVANT's lawsuit against the landlord. In its
findings, the Court concluded that we had not proved, as alleged by us, that any
fireproofing fibers contaminated our space, our space was not uninhabitable
because of contamination from fireproofing fibers and we were not justified in
terminating its lease on the grounds that our office and laboratories were
uninhabitable. In November 1997, AVANT reached a settlement of the litigation
with our former landlord and the landlord's mortgagee. We agreed to pay $858,800
in cash on November 17, 1997 and issue a total of 1,500,000 shares of our common
stock. In addition, we signed a note for $750,000 payable on November 16, 1998
secured by $750,000 cash collateral and a note for $750,000 due November 15,
1999, secured by 132,500 shares of
-19-
<PAGE>
common stock. The total settlement, valued at $6,108,800, is comprised of the
cash and notes totaling $2,358,800 and common stock valued at $3,750,000 as of
October 31, 1997 and is included in operating expense for the year ended
December 31, 1997. The common stock issued is subject to restrictions on
transfer per the settlement agreement. The settlement agreement also provides
for specific registration rights for the shares of common stock to become
effective no later than September 30, 1998. Upon such registration, however, the
settlement agreement limits the number of shares that may be sold over a given
period of time.
In May 1998, we used cash as collateral for a $750,000 note due November 15,
1999 issued in connection with a settlement agreement with our former landlord
and the landlord's mortgagee. In accordance with the settlement agreement,
66,250 shares of our common stock issued to secure the note were returned to
AVANT. The common stock was valued at $165,600 as of October 31, 1997 and its
return is included as a reduction of operating expense in 1998. In November
1999, the note was paid in full.
14. ACQUISITION OF VIRUS RESEARCH INSTITUTE, INC.
On August 21, 1998, AVANT acquired all of the outstanding capital stock of VRI,
a company engaged in the discovery and development of (i) systems for the
delivery of vaccines and immunotherapeutics and (ii) novel vaccines. We issued
approximately 14,036,400 shares of AVANT's common stock and warrants to
purchase approximately 1,811,200 shares of AVANT's common stock in exchange for
all of the outstanding common stock of VRI, on the basis of 1.55 shares of
AVANT's common stock and .20 of an AVANT warrant for each share of VRI common
stock. The purchase price of $63,004,700 consisted of (i) the issuance of
14,036,400 shares of AVANT common stock valued at $51,686,800 and 1,811,200
AVANT warrants valued at $4,980,700 for all outstanding VRI capital stock, (ii)
the issuance of AVANT warrants valued at $387,600 in exchange for all of the
outstanding VRI warrants, (iii) the issuance of options to purchase AVANT
common stock valued at $3,637,900 for all of the outstanding options to
purchase VRI common stock assumed by us, and (iv) severance and transaction
costs totaling $2,311,700. As of the date of the acquisition of VRI, the
Company had already begun to formulate a plan to assess which activities of VRI
to continue and to identify all significant actions to be taken to terminate a
number of VRI employees and to relocate the remaining employees from the VRI
facility in Cambridge, MA (which was to be closed) to our facility in Needham,
MA. The costs associated with this plan, including severance costs of
approximately $243,000, were recognized upon consummation of the merger and are
included in the $2,311,700 referenced above. The plan was finalized and
implemented during 1998 and the first quarter of 1999. Actual costs were not
materially different from those accrued at the acquisition date and were paid
in 1998 and early 1999.
The acquisition has been accounted for as a purchase. Consequently, the
operating results of VRI from the acquisition date have been included in our
consolidated results of operations. The purchase price was allocated to the
acquired assets and assumed liabilities, based upon their fair value at the
date of acquisition, as follows:
<TABLE>
<S> <C>
Net tangible assets acquired $ 14,539,000
Intangible assets acquired:
Work force 470,000
Collaborative relationships 1,090,000
Goodwill 2,275,700
In-process technology 44,630,000
---------------------------------------------------------------------
Total $ 63,004,700
=====================================================================
</TABLE>
The values assigned to the intangible assets acquired, including the IPR&D, were
determined based on fair market value using a risk adjusted discounted cash flow
approach. VRI was a development stage biotechnology enterprise and its resources
were substantially devoted to research and development at the date of
acquisition. Management is responsible for determining the fair value of the
acquired IPR&D.
Each of VRI's six research and development projects in-process was valued
through detailed analysis of product development data concerning the stage of
development, time and resources needed to complete the project, expected
income-generating ability and associated risks. The significant assumptions
underlying the valuations included potential revenues, costs of completion, the
timing of product releases and the selection of an appropriate discount rate.
None of
-20-
<PAGE>
VRI's projects have reached technological feasibility nor do they have any
alternative future use. Consequently, in accordance with generally accepted
accounting principles, the amount allocated to IPR&D was charged as an expense
in the AVANT consolidated financial statements for the year ended December 31,
1998. The remaining intangible assets arising from the acquisition are being
amortized on a straight line basis over 12 months and 60 months.
A discussion of the in-process research and development projects identified at
the time of acquisition follows. The projected costs to complete the projects
represent costs to be incurred by AVANT and do not include any costs to be
expended by our collaborators. (i) Adjumer(R) vaccine delivery system.
Adjumer(R) is being developed as an adjuvant to enhance the immune response to
injected vaccines. AVANT and our collaborator, Aventis, are conducting research
on the development of Adjumer(R)-formulated vaccines utilizing a variety of
Aventis' antigens, including influenza, lyme disease, pneumococcus,
meningococcus, RSV and hepatitis B. As of the acquisition date, with projected
release dates ranging from 2001 to 2004, the estimated cost to complete the
project for all antigens exceeded $9,500,000. In addition, substantial
additional work is required by Aventis prior to commercialization. Discount
rates ranging from 42.5% to 47.5% were used in determining the IPR&D value of
$15,450,000 which was assigned to the Adjumer(R) vaccine delivery system. (ii)
Micromer(R) vaccine delivery system. Micromer(R) is a proprietary vaccine
delivery system designed to facilitate the mucosal (intranasal or oral) delivery
of antigens and stimulate both the systemic and mucosal branches of the immune
system. AVANT is conducting research on a number of Micromer(R)-formulated
vaccines, including influenza and RSV. As of the acquisition date, the estimated
cost to complete the development of Micromer(R)-formulated vaccines for
influenza and RSV exceeded $3,300,000 with projected release dates of 2002 and
2004, respectively. A discount rate of 45% was utilized in determining the IPR&D
value of $3,260,000 which was assigned to Micromer(R). (iii) Vibrio Vec(TM)
vaccine delivery system. Vibrio Vec(TM) is a proprietary vaccine and
immunotherapeutic system that uses a bacterial vector for the oral delivery of
antigens. AVANT is conducting research on a number of antigens proposed to be
delivered by Vibrio Vec(TM), including, in conjunction with our collaborators,
Pasteur Merieux-Oravax and CSL, Ltd., a vaccine targeting H. pylori. At the
acquisition date, the projected product release date was 2003 and the
approximate research and development cost required to complete the Vibrio
Vec(TM) project totaled approximately $900,000. A discount rate of 45% was used
in determining the IPR&D value of $2,450,000 which was assigned to Vibrio
Vec(TM) at the time of acquisition. (iv) Rotavirus vaccine. A collaboration with
SmithKline was established by AVANT to develop and commercialize our novel,
proprietary vaccine against rotavirus infection, a major cause of diarrhea and
vomiting in infants. At the acquisition date, a project release date was
projected of 2002, with $1,200,000 in additional research and development
expenditures anticipated. In addition, substantial work is required to be
completed by SmithKline prior to commercialization of the rotavirus vaccine. An
IPR&D value of $3,120,000 was assigned to the rotavirus vaccine utilizing a
discount rate of 45%. (v) Herpes vaccine. The herpes vaccine is a proprietary
vaccine for the prevention of genital herpes ("HSV2"). At the time of
acquisition, the vaccine was in a preclinical development stage with a projected
product release date of 2007 and an estimated cost to complete of $1,600,000. A
discount rate of 45% was utilized in determining the IPR&D value of $2,240,000
which was assigned to the herpes vaccine. (vi) Therapore(TM). AVANT was granted
an exclusive worldwide license from Harvard for Therapore(TM), a novel
technology for the development of immunotherapeutics. We are conducting
preclinical research to evaluate this system for the treatment of persistent
viral infections, such as Hepatitis B, Hepatitis C and HIV, and some forms of
cancer including melanoma. The first release date for a Therapore(TM) product is
estimated to be in 2004 and the projected research and development cost to
complete all indications of Therapore(TM) approximated $41,200,000 at the
acquisition date. A discount rate of 50% was utilized in determining the IPR&D
value of $18,110,000 which was assigned to Therapore(TM).
As of December 31, 1999, the technological feasibility of the projects had not
yet been reached and no significant departures from the assumptions included in
the valuation analysis had occurred. Substantial additional research and
development will be required prior to reaching technological feasibility. In
addition, each product needs to successfully complete a series of clinical
trials and to receive FDA approval prior to commercialization. We are also
dependent upon the activities of our collaborators in developing and marketing
our products. There can be no assurance that these projects will ever reach
feasibility or develop into products that can be marketed profitably, nor can
there be assurance AVANT and our collaborators will be able to develop and
commercialize these products before our competitors. If these products are not
successfully developed and do not become commercially viable, our financial
condition and results of operations could be materially affected.
-21-
<PAGE>
The following unaudited pro forma financial summary is presented as if the
operations of AVANT and VRI were combined as of January 1, 1998 and 1997,
respectively. The unaudited pro forma combined results are not necessarily
indicative of the actual results that would have occurred had the acquisition
been consummated at that date, or of the future operations of the combined
entities. Nonrecurring charges, such as the acquired in-process research and
development charge of $44,630,000, are not reflected in the following pro forma
financial summary.
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1997
==============================================================================================
<S> <C> <C>
Operating Revenue $ 2,206,500 $ 3,697,600
Net Loss (13,389,800) (21,311,500)
Basic and diluted net loss per share (0.32) (0.54)
</TABLE>
-22-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
AVANT IMMUNOTHERAPEUTICS, INC. DATE
by: s/UNA S. RYAN July 20, 2000
-----------------------------
Una S. Ryan
President and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
s/J. BARRIE WARD Chairman July 20, 2000
--------------------
(J. Barrie Ward)
s/UNA S. RYAN President, Chief Executive Officer, July 20, 2000
------------- and Director
(Una S. Ryan)
s/AVERY W. CATLIN Senior Vice President, Chief Financial July 20, 2000
-------------------- Officer and Treasurer
(Avery W. Catlin)
s/FREDERICK W. KYLE Director July 20, 2000
--------------------
(Frederick W. Kyle)
-------------------- Director
(John W. Littlechild)
-------------------- Director
(Thomas R. Ostermueller)
s/HARRY H. PENNER, JR. Director July 20, 2000
----------------------
(Harry H. Penner, Jr.)
s/PETER A. SEARS Director July 20, 2000
--------------------
(Peter A. Sears)
</TABLE>
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