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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
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.
(Exact name of registrant as specified in its charter)
DELAWARE NO. 13-3191702
(State of Incorporation) (I.R.S. Employer Identification No.)
119 FOURTH AVENUE, NEEDHAM, MASSACHUSETTS 02494-2725
(Address of principal executive offices)
(781) 433-0771
(Registrant's telephone number, including area code)
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 ___.
---
State the number of shares outstanding of each of the registrant's classes of
common equity, as of the latest practicable date:
Shares Outstanding as
Class of July 25, 2000
----------------------------- ----------------
Common Stock, $.001 par value 54,957,684
Exhibit index located on page 16
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AVANT IMMUNOTHERAPEUTICS, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
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Page
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PART I -- FINANCIAL INFORMATION
Consolidated Balance Sheet at June 30, 2000 and December 31, 1999................................3
Consolidated Statement of Operations for the Three Months Ended
June 30, 2000 and 1999......................................................................4
Consolidated Statement of Operations for the Six Months Ended
June 30, 2000 and 1999......................................................................5
Consolidated Statement of Cash Flows for the Six Months Ended
June 30, 2000 and 1999......................................................................6
Notes to Consolidated Financial Statements.......................................................7
Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................................10
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders....................................14
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits..............................................................................14
(b) Reports on Form 8-K...................................................................14
Signatures......................................................................................16
Index to Exhibits...............................................................................16
</TABLE>
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AVANT IMMUNOTHERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
=============================================================================================================
<S> <C> <C>
ASSETS (unaudited)
Current Assets:
Cash and Cash Equivalents $ 16,058,500 $ 13,619,000
Current Portion Lease Receivable 431,700 431,700
Prepaid Expenses and Other Current Assets 455,800 439,000
-------------------------------------------------------------------------------------------------------------
Total Current Assets 16,946,000 14,489,700
-------------------------------------------------------------------------------------------------------------
Property and Equipment, Net 1,072,600 1,256,800
Restricted Cash -- 217,000
Long-Term Lease Receivable 179,900 395,700
Other Assets 3,319,100 3,523,500
-------------------------------------------------------------------------------------------------------------
Total Assets $ 21,517,600 $ 19,882,700
=============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 256,400 $ 575,300
Accrued Expenses 813,500 1,331,500
Current Portion Deferred Revenue 615,400 --
Current Portion Lease Payable 293,700 293,700
-------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,979,000 2,200,500
-------------------------------------------------------------------------------------------------------------
Long-Term Deferred Revenue 2,769,200 --
Long-Term Lease Payable 118,900 269,200
Stockholders' Equity:
Common Stock, $.001 Par Value; 75,000,000 Shares
Authorized; 50,160,500 Issued and Outstanding at
June 30, 2000 and 48,127,400 Issued and
Outstanding at December 31, 1999 50,200 48,100
Additional Paid-In Capital 154,793,000 150,710,300
Accumulated Deficit (138,192,700) (133,345,400)
-------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 16,650,500 17,413,000
-------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 21,517,600 $ 19,882,700
=============================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3
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AVANT IMMUNOTHERAPEUTICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
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JUNE 30, JUNE 30,
2000 1999
=============================================================================================================
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OPERATING REVENUE:
Product Development and
Licensing Agreements $ 153,900 $ 847,900
-------------------------------------------------------------------------------------------------------------
OPERATING EXPENSE:
Research and Development 1,962,700 1,820,800
General and Administrative 1,041,900 1,100,900
Amortization of Goodwill 137,300 409,800
-------------------------------------------------------------------------------------------------------------
Total Operating Expenses 3,141,900 3,331,500
-------------------------------------------------------------------------------------------------------------
Operating Loss (2,988,000) (2,483,600)
Non-Operating Income, Net 264,100 127,400
-------------------------------------------------------------------------------------------------------------
Net Loss $ (2,723,900) $ (2,356,200)
=============================================================================================================
Basic and Diluted Net Loss Per Common Share $ (0.05) $ (0.06)
=============================================================================================================
Weighted Average Common Shares Outstanding 50,099,100 42,529,600
=============================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4
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AVANT IMMUNOTHERAPEUTICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
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<CAPTION>
JUNE 30, JUNE 30,
2000 1999
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OPERATING REVENUE:
Product Development and
Licensing Agreements $ 307,700 $ 1,185,800
-------------------------------------------------------------------------------------------------------------
OPERATING EXPENSE:
Research and Development 3,780,000 3,619,600
General and Administrative 2,144,300 2,163,000
Legal Settlements (500,000) --
Amortization of Goodwill 274,600 819,600
-------------------------------------------------------------------------------------------------------------
Total Operating Expenses 5,698,900 6,602,200
-------------------------------------------------------------------------------------------------------------
Operating Loss (5,391,200) (5,416,400)
Non-Operating Income, Net 543,900 318,400
-------------------------------------------------------------------------------------------------------------
Net Loss $ (4,847,300) $ (5,098,000)
=============================================================================================================
Basic and Diluted Net Loss Per Common Share $ (0.10) $ (0.12)
=============================================================================================================
Weighted Average Common Shares Outstanding 49,949,100 42,528,000
=============================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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AVANT IMMUNOTHERAPEUTICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
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JUNE 30, JUNE 30,
2000 1999
=============================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (4,847,300) $ (5,098,000)
Adjustments to Reconcile Net Loss to Net Cash
Used by Operating Activities:
Depreciation and Amortization 621,300 1,072,000
Changes in Assets and Liabilities:
Prepaid Expenses and Other Current Assets (16,800) 63,400
Accounts Payable and Accrued Expenses (836,900) (447,200)
Deferred Revenue 3,384,600 (500,000)
Lease Receivable 215,800 179,800
Lease Payable (150,300) (127,100)
-------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (1,629,600) (4,857,100)
-------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Property and Equipment (87,800) (580,400)
Redemption of Marketable Securities -- 4,903,100
Decrease in Restricted Cash 217,000 40,000
Increase in Patents and Licenses (144,900) (99,600)
-------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Investing Activities (15,700) 4,263,100
-------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the Exercise of Stock Options 1,535,700 17,200
Proceeds from the Exercise of Warrants 241,400 --
Net Proceeds from Stock Issuance 2,307,700 600
-------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 4,084,800 17,800
-------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 2,439,500 (576,200)
Cash and Cash Equivalents at Beginning of Period 13,619,000 8,937,200
-------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 16,058,500 $ 8,361,000
=============================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6
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AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(1) 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. Our lead
therapeutic program is focused on compounds that inhibit the inappropriate
activity of the complement cascade, a vital part of the body's immune defense
system. AVANT is also developing on its own a proprietary therapeutic vaccine
for the management of atherosclerosis and Therapore(TM), a novel system for the
delivery of immunotherapeutics for chronic viral infections and certain cancers.
AVANT and its collaborators are developing vaccines using the proprietary
adjuvants, Adjumer(R) and Micromer(R), for the prevention of respiratory
syncytial virus (RSV), Lyme disease and several other vaccine targets. Through
additional collaboration, we are also developing an oral human rotavirus vaccine
and an oral cholera vaccine.
The unaudited consolidated financial statements include the accounts of
AVANT Immunotherapeutics, Inc. and its wholly owned subsidiary, Polmerix, Inc.
All intercompany transactions have been eliminated.
(2) INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements for the
three months and six months ended June 30, 2000 and 1999 include the
consolidated accounts of AVANT and have been prepared in accordance with
generally accepted accounting principles and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. In the opinion of management, the information
contained herein reflects all adjustments, consisting solely of normal recurring
adjustments, that are necessary to present fairly the financial positions at
June 30, 2000 and December 31, 1999, the results of operations for the quarters
and six months ended June 30, 2000 and 1999, and the cash flows for the six
months ended June 30, 2000 and 1999. The results of operations for the quarter
and six months ended June 30, 2000 are not necessarily indicative of results for
any future interim period or for the full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted, although we believe that the disclosures included
are adequate to make the information presented not misleading. The unaudited
consolidated financial statements and the notes included herein should be read
in conjunction with footnotes contained in AVANT's Annual Report on Form 10-K
for the year ended December 31, 1999.
(3) NEW ACCOUNTING PRONOUNCEMENTS
During April 2000, the Financial Accounting Standards Board issued
Financial Interpretation ("FIN") No. 44, "Accounting for Certain Transactions
Involving Stock Compensation - an Interpretation of Accounting Principles Board
("APB") No. 25. Among other issues, FIN 44 clarifies (a) the definition of an
employee, (b) criteria for determining whether a stock award plan qualifies as
non-compensatory, and (c) the accounting consequences of various award
modifications. This interpretation became effective July 1, 2000. We evaluated
the effects of FIN 44 on our financial position and results of operations and
have determined any such effects to be immaterial.
During June 2000, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101B, an amendment to SAB 101, "Revenue Recognition in
Financial Statements." SAB 101B defers the
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required implementation of SAB 101 until the fiscal quarter ended December 31,
2000. We are currently evaluating the effects, if any, of SAB 101 on our
financial position and results of operations.
(4) PROPERTY AND EQUIPMENT
Property and equipment includes the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
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<S> <C> <C>
Laboratory Equipment $ 2,626,600 $ 2,595,400
Office Furniture and Equipment 1,232,500 1,176,800
Leasehold Improvements 939,000 938,100
-------------------------------------------
Property and Equipment, Total 4,798,100 4,710,300
Less Accumulated Depreciation and Amortization (3,725,500) (3,453,500)
-------------------------------------------
$ 1,072,600 $ 1,256,800
===========================================
</TABLE>
(5) OTHER ASSETS
Other assets include the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
============================================
<S> <C> <C>
Capitalized Patent Costs $ 2,246,300 $ 2,101,300
Accumulated Amortization (790,000) (715,300)
--------------------------------------------
Capitalized Patent Costs, Net 1,456,300 1,386,000
Goodwill and Other Intangible Assets, Net of
Accumulated Amortization of $2,096,800
and $1,822,200 at June 30, 2000 and
December 31, 1999, respectively 1,738,900 2,013,500
Other Non Current Assets 124,000 124,000
--------------------------------------------
$ 3,319,200 $ 3,523,500
============================================
</TABLE>
(6) COMMON STOCK
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. We are
amortizing the license fee over twenty-four quarters, the projected development
period for the licensed field.
(7) NET INCOME (LOSS) PER SHARE
Consistent with SFAS 128, basic earnings (loss) per share amounts are
based on the weighted average number of shares of common stock outstanding
during the period. Diluted earnings (loss) per share amounts are based on the
weighted average number of shares of common stock and the potential common stock
outstanding during the period. We have excluded all of the potential common
stock shares from the calculation of diluted weighted average share amounts for
the three-month and six-month periods ended June 30, 2000 and 1999 as its
inclusion would have been anti-dilutive.
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(8) SUBSEQUENT EVENT
On July 17, 2000, AVANT completed a private placement of approximately
4,650,000 shares of common stock to institutional investors at $7.85 per share.
Net proceeds from the offering totaled approximately $34,594,400
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: STATEMENTS CONTAINED IN THE FOLLOWING, ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, 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 AVANT. THESE FACTORS INCLUDE, BUT ARE NOT
LIMITED TO: (i) OUR ABILITY TO SUCCESSFULLY COMPLETE PRODUCT RESEARCH AND
DEVELOPMENT, INCLUDING PRE-CLINICAL AND CLINICAL STUDIES, AND COMMERCIALIZATION;
(ii) OUR ABILITY TO OBTAIN SUBSTANTIAL ADDITIONAL FUNDING; (iii) OUR ABILITY TO
OBTAIN REQUIRED GOVERNMENTAL APPROVALS; (iv) OUR ABILITY TO ATTRACT
MANUFACTURING, SALES, DISTRIBUTION AND MARKETING PARTNERS AND OTHER STRATEGIC
ALLIANCES; AND (v) OUR ABILITY TO DEVELOP AND COMMERCIALIZE OUR PRODUCTS BEFORE
OUR COMPETITORS.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
We are engaged in the discovery, development and commercialization of
products that harness the human immune response to prevent and treat disease.
Our products derive from a broad set of complementary technologies with the
ability to inhibit the complement system, regulate T and B cell activity, and
enable the creation and delivery of preventative and therapeutic vaccines. We
are using these technologies to develop vaccines and immunotherapeutics that
prevent or treat disease caused by infectious organisms, and drugs and treatment
vaccines that modify undesirable activity by the body's own proteins or cells.
ACQUISITION
On August 21, 1998, we acquired Virus Research Institute, Inc. ("VRI"),
a company engaged in the discovery and development of systems for the delivery
of vaccines and immunotherapeutics, and novel vaccines for adults and children.
AVANT issued 14,036,400 shares and warrants to purchase 1,811,200 shares of its
common stock in exchange for all of the outstanding common stock of VRI, on the
basis of 1.55 shares and .20 of a warrant to purchase one share of AVANT's
common stock for each share of VRI common stock. The acquisition has been
accounted for as a purchase. Consequently, the purchase price was allocated to
the acquired assets and assumed liabilities based upon their fair value at the
date of acquisition. The excess of the purchase price over the tangible assets
acquired was assigned to collaborative relationships, work force and goodwill
and is being amortized on a straight line basis over 12 to 60 months. An
allocation of $44,630,000 was made to in-process research and development
("IPR&D") which represented purchased in-process technology which had not yet
reached technological feasibility and had no alternative future use. The amount
was charged as an expense in our financial statements during the third quarter
of 1998.
NEW DEVELOPMENTS
COMPLEMENT INHIBITORS: In 1997, we entered into an agreement with
Novartis relating to the development of TP10 for use in xenotransplantation
(animal organs into humans) and allotransplantation (human organs into humans).
We granted Novartis a two-year option to license TP10 with exclusive worldwide
marketing rights (except Japan) in the fields of xenotransplantation and
allotransplantation. In July 1999, Novartis exercised its option to license TP10
for use in the field of transplantation. In December 1999, the Novartis
agreement was amended to include marketing rights for Japan. The decision to
license TP10 resulted in a $6 million equity investment and license payment by
Novartis which was received by AVANT in January 2000. Under the agreement, we
may receive additional milestone payments of up to $14 million upon attainment
of certain development and regulatory goals. We will also be entitled to
royalties on product sales under the agreement.
We have elected to independently develop and commercialize TP10 for
pediatric cardiac surgery. In September 1999, we initiated an open-label, Phase
I/II trial of TP10 in infants undergoing cardiac surgery for congenital heart
defects. The trial evaluated the ability of TP10 to mitigate the injury to the
heart and other organs that occurs when patients are placed on cardiopulmonary
bypass circuits. TP10 was
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well tolerated in the study population and results of this Phase I/II trial were
presented at the Society of Cardiovascular Anesthesiologists Annual Meeting in
May 2000. In March 2000, we received orphan drug designation for TP10 in infants
undergoing cardiac surgery. We currently expect to initiate a pivotal trial in
this indication around the end of 2000. AVANT additionally plans to refine the
TP10 dosing regimen in additional infants prior to starting this pivotal study.
We also plan to initiate Phase II trials for adult cardiac surgery
during the second half of 2000, with an expectation to partnering that program
when additional clinical data are available.
ATHEROSCLEROSIS TREATMENT VACCINE: We are developing a therapeutic
vaccine against endogenous cholesteryl ester transfer protein ("CETP") which may
be useful in reducing risks associated with atherosclerosis. CETP is a key
intermediary in the balance of HDL and LDL. We are developing a vaccine (CETi-1)
to stimulate an immune response against CETP which we believe may improve the
ratio of HDL to LDL cholesterol and reduce the progression of atherosclerosis.
We have conducted preliminary studies of rabbits which have demonstrated the
ability of CETi-1 vaccine to elevate HDL and reduce the development of blood
vessel lesions. In June 1999, we initiated a double-blind placebo controlled,
Phase I clinical trial of our CETi-1 vaccine in adult volunteers. The object of
the study is to demonstrate the safety of single administrations of the vaccine
at four different dosage strengths. Patient enrollment in this Phase I trial was
completed in February 2000 and we expect to announce trial results in the fourth
quarter of 2000. We plan to initiate a Phase II study during the second half of
2000. As clinical data becomes available, we plan to seek a corporate partner to
complete development and to commercialize the vaccine.
ROTAVIRUS VACCINE: Rotavirus is a major cause of diarrhea and vomiting
in infants and children. No vaccine against rotavirus is currently on the
market. In 1997, we licensed our oral rotavirus vaccine to SmithKline Beecham
plc ("SmithKline"). In 1999, after our Phase II study demonstrated 89%
protection in a study involving 215 infants, SmithKline paid us an additional
license fee and assumed full responsibility for funding and performing all
remaining clinical development. SmithKline has initiated Phase I/II bridging
studies in Europe using its newly manufactured rotavirus vaccine, called
Rotarix(TM), and is now planning to start Phase III safety and efficacy studies
in 2001 after review with health authorities. Assuming product development and
commercialization continues satisfactorily, SmithKline will pay us additional
milestones and a royalty based on sales.
CHOLERA VACCINE: We are developing a single dose, oral cholera vaccine
using a live, genetically attenuated cholera strain. Based on this technology,
developed in academia, we have developed the vaccine through early Phase II
trials. We then negotiated a collaboration agreement under which a Phase IIb
trial will be performed and funded by the Walter Reed Army Institute of Research
("WRAIR") and the National Institutes of Health (the "NIH"). This trial, set to
begin in the second half of 2000, will test the safety, immunogenecity and
protective capacity of the vaccine against a challenge with live virulent
cholera. We will then determine our commercialization strategy with respect to
the cholera vaccine based on clinical data from the trial.
RESULTS OF OPERATIONS
Three-Month Period Ended June 30, 2000 as Compared
with the Three-month Period Ended June 30, 1999
--------------------------------------------------
AVANT reported consolidated net loss of $2,723,900, or $.05 per share,
for the second quarter ended June 30, 2000, compared with a net loss of
$2,356,200, or $.06 per share, for the second quarter ended June 30, 1999. The
weighted average common shares outstanding used to calculate net loss per common
share was 50,099,100 in 2000 and 42,529,600 in 1999.
OPERATING REVENUE: Total operating revenue decreased $694,000, or
81.8%, to $153,900 for the second quarter of 2000 compared to $847,900 for the
second quarter of 1999. This decrease is due primarily to differences in
amortization between quarterly periods of revenue recognized from license and
option payments received from Novartis in 2000 and 1999, respectively. During
the second quarter of 2000, AVANT recognized revenue from a Novartis license
payment which is being amortized over the
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projected development period of the licensed field or twenty-four quarters.
During the second quarter of 1999, AVANT recognized revenue from a Novartis
one-year option payment which was amortized over the option term and a milestone
payment received from SmithKline Beecham.
OPERATING EXPENSE: Total operating expense decreased $189,600, or 5.7%,
to $3,141,900 for the second quarter of 2000 compared to $3,331,500 for the
second quarter of 1999. The decrease in total operating expense is primarily due
to the reduction of goodwill amortization by $272,500 in the second quarter of
2000 compared with the same period last year due to certain acquired assets
having shorter useful lives. Research and development expense increased
$141,900, or 7.8%, to $1,962,700 for the second quarter of 2000 compared to
$1,820,800 for the second quarter of 1999. The increase in research and
development expense is primarily due to increased costs for clinical materials,
offset in part by lower consultant and personnel costs during the 2000 quarter.
General and administrative expense decreased $59,000, or 5.4%, to $1,041,900 for
the second quarter of 2000 compared to $1,100,900 for the second quarter of
1999. The decrease is primarily attributed to lower personnel costs in 2000.
NON-OPERATING INCOME, NET: Non-operating income increased $136,700, or
107.3%, to $264,100 for the second quarter of 2000 compared to $127,400 for the
second quarter of 1999. The increase is primarily due to an increase in interest
income as a result of higher interest rates and higher average cash balances
during the second quarter of 2000 compared to the second quarter of 1999.
Six-Month Period Ended June 30, 2000 as Compared
With the Six-month Period Ended June 30, 1999
------------------------------------------------
AVANT reported consolidated net loss of $4,847,300, or $.10 per share,
for the six months ended June 30, 2000, compared with a net loss of $5,098,000,
or $.12 per share, for the six months ended June 30, 1999. The weighted average
common shares outstanding used to calculate net loss per common share was
49,949,100 in 2000 and 42,528,000 in 1999.
OPERATING REVENUE: Total operating revenue decreased $878,100, or
74.1%, to $307,700 for the first six months of 2000 compared to $1,185,800 for
the first six months of 1999. This decrease is due primarily to differences in
amortization of revenue recognized from license, option and milestone payments
from our collaborators between the comparable six-month periods. During the
first six months of 2000, AVANT recognized revenue from a Novartis license
payment which is being recognized over the projected development period of the
licensed field or twenty-four quarters. During the first six months of 1999,
AVANT recognized revenue from a Novartis one-year option payment which was
amortized over the option term and a milestone payment received from SmithKline
Beecham.
OPERATING EXPENSE: Total operating expense decreased $903,300, or
13.7%, to $5,698,900 for the first six months of 2000 compared to $6,602,200 for
the first six months of 1999. The decrease in total operating expense is
primarily due to the receipt of legal settlement payments totaling $500,000 in
the first quarter of 2000 and the reduction of goodwill amortization by $545,000
in the first six months of 2000 compared with the same period last year due to
certain acquired assets having shorter useful lives. Research and development
expense increased $160,400, or 4.4%, to $3,780,000 for the first six months of
2000 compared to $3,619,600 for the first six months of 1999. The increase in
research and development expense is due to higher costs for clinical materials
and laboratory supplies, offset in part by lower consultant and personnel costs.
General and administrative expense decreased $18,700, or 0.9%, to $2,144,300 for
the first six months of 2000 compared to $2,163,000 for the first six months of
1999. The decrease is primarily attributed to lower personnel costs offset by
increased general and patent legal expenses combined with increased corporate
development and investor relations costs.
NON-OPERATING INCOME, NET: Non-operating income increased $225,500, or
70.8%, to $543,900 for the first six months of 2000 compared to $318,400 for the
first six months of 1999. The increase is primarily due to an increase in
interest income as a result of higher interest rates and higher average cash
balances during the first six months of 2000 compared to the first six months of
1999.
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LIQUIDITY AND CAPITAL REOURCES
AVANT ended the second quarter of 2000 with cash and cash equivalents
of $16,058,500 compared to cash and cash equivalents of $13,619,000 at December
31, 1999. Cash used in operations was $1,629,600 in the first six months of 2000
compared to $4,857,100 used in operations in the first six months of 1999.
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 and a license fee of
$3,692,300.
Also, during the first six months of 2000, AVANT raised approximately
$1,535,700 and $241,400 in additional equity investment through the exercise of
stock options and warrants, respectively.
After the end of the second quarter of 2000, on July 17, 2000, AVANT
completed a private placement of approximately 4,650,000 shares of common stock
which generated net proceeds totaling approximately $34,594,400.
AVANT believes that cash inflows from existing collaborations, interest
income on invested funds and our current cash and cash equivalents together with
the funds raised by the private placement completed in July 2000 will be
sufficient to meet estimated working capital requirements and fund operations
for the next two years. 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 may 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.
YEAR 2000
THE STATEMENTS IN THIS SECTION INCLUDE THE "YEAR 2000 READINESS
DISCLOSURE" WITHIN THE MEANING OF THE YEAR 2000 INFORMATION AND READINESS
DISCLOSURE ACT. THIS SECTION CONTAINS CERTAIN STATEMENTS THAT ARE
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED. AVANT'S YEAR 2000 READINESS, AND THE EVENTUAL AFFECTS OF THE YEAR
2000 ON AVANT MAY BE MATERIALLY DIFFERENT THAN CURRENTLY PROJECTED. THIS MAY BE
DUE TO, AMONG OTHER THINGS, THE INABILITY OF AVANT OR OF KEY THIRD PARTIES WITH
WHOM WE HAVE A SIGNIFICANT BUSINESS RELATIONSHIP TO ACHIEVE OR MAINTAIN YEAR
2000 READINESS.
The "Year 2000" issue affects computer systems that have date sensitive
programs that may not properly recognize the year 2000. Systems that do not
properly recognize such information could generate data or cause a system to
fail, resulting in business interruption. Through the first six months of the
year 2000, AVANT's operations are fully functioning and have not experienced any
significant issues associated with the Year 2000 problem discussed above. Costs
associated with modifications made by AVANT to be Year 2000 compliant were
immaterial. There can be no assurance, however, that a failure by another
company's system to be Year 2000 compliant would not have a material adverse
affect on our business, operating results and financial condition.
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<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In January 1997, the Securities and Exchange Commission issued
Financial Reporting Release No. 48, which expands the disclosure requirements
for certain derivatives and other financial instruments. The Company does not
utilize derivative financial instruments.
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 8, 2000, the AVANT held its Annual Meeting of Stockholders at
which the voters elected seven directors to its Board of Directors.
At AVANT's Annual Meeting of Stockholders, the following votes were
tabulated for the one proposal before AVANT's Stockholders:
PROPOSAL I
Election of Directors:
<TABLE>
<CAPTION>
NUMBER OF SHARES/VOTES
--------------------------------------
For Authority Withheld
---------- ------------------
<S> <C> <C>
J. Barrie Ward 39,668,324 93,510
John W. Littlechild 39,668,088 93,746
Una S. Ryan 39,643,024 118,810
Thomas R. Ostermueller 39,668,845 92,989
Frederick W. Kyle 39,669,438 92,396
Harry H. Penner, Jr. 39,669,699 92,135
Peter Sears 39,669,838 91,996
</TABLE>
The number of shares issued, outstanding and eligible to vote as of the
record date of March 24, 2000 were 50,084,075. A quorum was present with
39,761,834 shares represented by 209 proxies or 79.39% of the eligible voting
shares.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27.1 Financial Data Schedule
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the
quarter for which this report is filed.
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<PAGE>
SIGNATURES
Pursuant to the requirements 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.
AVANT IMMUNOTHERAPEUTICS, INC.
BY:
Dated: July 25, 2000 /s/ Una S. Ryan
-----------------------------------
Una S. Ryan, Ph. D.
President and Chief Executive Officer
(Principal Executive Officer)
Dated: July 25, 2000 /s/ Avery W. Catlin
-----------------------------------
Avery W. Catlin
Senior Vice President, Treasurer
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
27.1 Financial Data Schedule.
16
