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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934.
For the quarterly period ended MARCH 31, 1998
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934.
For the transition period from ________________ to ______________
Commission file number 0-18006
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THE IMMUNE RESPONSE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 33-0255679
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
5935 DARWIN COURT, CARLSBAD, CA 92008
(Address of Principal Executive Offices)
(Zip Code)
TELEPHONE (760) 431-7080
(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
--- ---
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
As of May 5, 1998, 22,868,512 shares of common stock were outstanding.
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THE IMMUNE RESPONSE CORPORATION
FORM 10-Q
QUARTERLY REPORT
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE IMMUNE RESPONSE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31,
1998 December 31,
(unaudited) 1997
------------ -------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 2,553 $ 4,872
Marketable securities-available-for-sale 20,931 25,567
Other current assets 486 773
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Total current assets 23,970 31,212
Property and equipment, net 5,529 5,810
Deposits and other assets 954 353
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$ 30,453 $ 37,375
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,372 $ 1,356
Other accrued expenses 851 917
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Total current liabilities 3,223 2,273
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized; none issued -- --
Common stock, $.0025 par value, 40,000,000 shares authorized,
22,833,715 and 22,815,054 shares issued and outstanding at
March 31, 1998 and December 31, 1997, respectively 57 57
Warrants 2,144 2,144
Additional paid-in capital 186,441 186,374
Cumulative comprehensive income 37 27
Accumulated deficit (161,449) (153,500)
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Total stockholders' equity 27,230 35,102
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$ 30,453 $ 37,375
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</TABLE>
See accompanying notes.
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THE IMMUNE RESPONSE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
1998 1997
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<S> <C> <C>
Contract research revenue $ 1,000 $ 1,000
Expenses:
Research and development 8,261 8,598
General and administrative 999 994
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9,260 9,592
Other revenue:
Investment income 311 609
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Net loss $ (7,949) $ (7,983)
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Net loss per share - basic and diluted $ (0.35) $ (0.39)
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Weighted average number of shares
outstanding 22,824,397 20,259,837
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</TABLE>
See accompanying notes.
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THE IMMUNE RESPONSE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Operating activities:
Net loss $ (7,949) $ (7,983)
Adjustments to reconcile net loss to net cash provided from
(used by) operating activities:
Depreciation and amortization 371 239
Deferred rent expense (22) (15)
Changes in operating assets and liabilities:
Other current assets 287 46
Accounts payable 1,016 150
Accrued expenses (44) (117)
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Net cash used by operating activities (6,341) (7,680)
Investing activities:
Purchase/sale of marketable securities, net 4,645 8,195
Purchase of property and equipment (89) (678)
Deposits and other assets (601) (68)
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Net cash provided from investing activities 3,955 7,449
Financing activities:
Net proceeds from exercise of stock options 67 206
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Net cash provided from financing activities 67 206
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Net decrease in cash and cash equivalents (2,319) (25)
Cash and cash equivalents at beginning of period 4,872 3,785
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Cash and cash equivalents at end of period $ 2,553 $ 3,760
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</TABLE>
See accompanying notes.
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THE IMMUNE RESPONSE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of The Immune Response
Corporation (the "Company") for the three months ended March 31, 1998 and
1997 are unaudited. These financial statements reflect all adjustments,
consisting of only normal recurring adjustments which, in the opinion of
management, are necessary to fairly present the consolidated financial
position as of March 31, 1998, and the consolidated results of operations
for the three months ended March 31, 1998 and 1997. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results to be expected for the year ended December 31,
1998. For more complete financial information, these financial
statements, and the notes thereto, should be read in conjunction with the
consolidated audited financial statements for the year ended December 31,
1997 included in the Company's Form 10-K filed with the Securities and
Exchange Commission.
2. NET LOSS PER SHARE
Net loss per share for the three months ended March 31, 1998 and 1997 is
computed using the weighted average number of common shares outstanding
during the period. Outstanding stock options and warrants are not
included in the calculation of earnings per share because as their effect
would be antidilutive. Therefore, there is no difference between basic
and diluted net loss per share.
3. COMPREHENSIVE INCOME
In January 1998, the Company adopted Statement of Financial Accounting
Standards ("FAS") No. 130, "Reporting Comprehensive Income." The
components of comprehensive income are as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
March 31, March 31,
1998 1997
----------- ----------
<S> <C> <C>
Net loss $ (7,949) $ (7,983)
Net unrealized gain (loss) on
marketable securities 10 (113)
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Comprehensive loss $ (7,939) $ (8,096)
----------- ---------
----------- ---------
</TABLE>
All prior periods have been restated to reflect the adoption of this
statement.
4. SUBSEQUENT EVENT
During April 1998, the Company sold 200 shares of its Series F Convertible
Preferred Stock ("Series F Stock") in return for gross proceeds of $10
million. The Series F Stock is convertible into common stock initially at
a conversion price of $14.07 per share of common stock. If the Company's
common stock does not trade at prices higher than $14.07 per share over a
period of time, the conversion price will be adjusted downward on April 24,
1999 (or sooner if the Company issues common stock at less than $14.07 per
share) and quarterly thereafter. The Series F Stock bears a dividend of
7.5% per annum. In general, the dividend is payable in shares of common
stock. The Company has agreed to file a registration statement with the
Securities and Exchange Commission covering the resale of the common stock
issuable upon conversion of the Series F Stock. Further, the Company has
the option for one year to sell up to $10 million more of the Series F
Stock if certain conditions are met.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
SUMMARY
The Immune Response Corporation (the "Company") is a biopharmaceutical
company developing immune-based therapies to induce specific T cell responses
for the treatment of HIV, autoimmune diseases and cancer. The Company is
conducting clinical trials for its immune-based therapies for HIV, rheumatoid
arthritis, psoriasis, multiple sclerosis, colon cancer and brain cancer and
preclinical studies for prostate cancer. In addition, the Company is
developing a targeted delivery technology for gene therapy which is designed
to enable the intravenous injection of genes for delivery directly to the
liver. The Company's gene therapy program is currently focused on diseases of
the liver and is in preclinical studies for the treatment of hemophilia and
hepatitis. The Company's strategy is to retain ownership of these proprietary
technologies and to seek corporate collaborations or joint ventures for
certain disease-specific applications.
This discussion contains forward-looking statements concerning the Company's
operating results and timing of anticipated expenditures. Such statements
are subject to risks and uncertainties which could cause actual results to
differ materially from those projected. For a further description of
potential risks and uncertainties involved related to the Company, this
document should be read in conjunction with the Company's 1997 Form 10-K
filed with the Securities and Exchange Commission. These forward-looking
statements speak only as of the date hereof. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
During April 1998, the Company sold 200 shares of its Series F Convertible
Preferred Stock ("Series F Stock") in return for gross proceeds of $10
million. The Series F Stock is convertible into common stock initially at a
conversion price of $14.07 per share of common stock. If the Company's
common stock does not trade at prices higher than $14.07 per share over a
period of time, the conversion price will be adjusted downward on April 24,
1999 (or sooner if the Company issues common stock at less than $14.07 per
share) and quarterly thereafter. The Series F Stock bears a dividend of 7.5%
per annum. In general, the dividend is payable in shares of common stock.
The Company has agreed to file a registration statement with the Securities
and Exchange Commission covering the resale of the common stock issuable upon
conversion of the Series F Stock. Further, the Company has the option for
one year to sell up to $10 million more of the Series F Stock if certain
conditions are met.
The Company has not been profitable since inception and had an accumulated
deficit of $161 million as of March 31, 1998. To date, the Company has not
recorded any revenues from the sale of products. Revenues recorded through
March 31,1998 were earned in connection with contract research and investment
income. There can be no assurance that the Company will be able to generate
sufficient product revenue to become profitable at all or on a sustained
basis.
RESULTS OF OPERATIONS
The Company had $1 million in contract research revenue during the quarters
ended March 31, 1998 and 1997. Contract research revenue was received from
Bayer Corporation related to a research collaboration for a potential therapy
for hemophilia. The Company has not received any revenue from the
commercial sale of products and does not expect to derive revenue from the
sale of products for the foreseeable future.
Investment income decreased to $310,000 for the quarter ended March 31, 1998,
from $609,000 during the same period in 1997. The decrease in investment
income in 1998 compared to 1997, was due primarily to a decrease in the
Company's cash position from the first quarter of 1997 compared to 1998.
Research and development expenditures of $8.3 million during the first
quarter of 1998 decreased from $8.6 million during the same period in 1997.
This decrease in costs from 1997 was due primarily to the initial costs
incurred to enroll the final clinical trial sites related to the Phase III
clinical endpoint trial for HIV infection using REMUNE during the first
quarter of 1997. The Company expects research and development
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expenditures to rise as it continues its Phase IIb rheumatoid arthritis
clinical trial, expected to be completed by year-end 1998, and its Phase II
psoriasis clinical trial, expected to be completed during the third quarter
of 1998. Research and development expenditures should also continue to rise
in the foreseeable future due to expanding preclinical and clinical testing
of the Company's proposed gene therapy and cancer treatments. Research and
development expenses related to advancing REMUNE are also expected to
increase due to the continuance of the Company's ongoing large scale Phase
III clinical endpoint trial with REMUNE and to pre-marketing activities as
the Company approaches possible commercialization of REMUNE. There can be no
assurance that REMUNE will be successfully developed or commercialized.
General and administrative expenses for the first quarter of 1998 were
$999,000 as compared to $994,000 for the same period in 1997. General and
administrative expenses for the remainder of 1998 necessary to support the
Company's expanded research and development activities are expected to remain
consistent with first quarter levels.
For the quarter ended March 31, 1998, the Company's net loss was $7.9
million, or $.35 per share, as compared to a net loss of $8.0 million, or
$.39 per share, for the same period in 1997. The change in the earnings per
share in 1998 from 1997, despite comparable net loss results, was primarily
due to the additional shares issued in a private stock offering in April
1997.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had working capital of $21.6 million,
including $23.5 million of cash, cash equivalents and marketable securities.
This compares with working capital at December 31, 1997, of $28.9 million,
including $30.4 million of cash, cash equivalents and marketable securities.
The decrease in working capital was due to the costs of operating the
business. In April 1998, the sale of 200 shares of Series F Stock resulted in
net proceeds to the Company of approximately $9 million.
The Company will need to raise additional funds to conduct research and
development, preclinical studies and clinical trials necessary to bring its
potential products to market and establish manufacturing and marketing
capabilities. The Company anticipates that in 1998, the REMUNE clinical
trials will continue to represent a significant portion of the Company's
overall expenditures. The Company also anticipates that costs related to the
development of REMUNE will continue to increase as the Company approaches
possible commercialization. The anticipated costs with respect to REMUNE
will depend on many factors, including the results of interim analyses of the
data from the Phase III clinical endpoint trial, the potential for
accelerated approval and certain other factors which will influence the
Company's determination of the appropriate continued investment of the
Company's financial resources in this program. The Company's future capital
requirements will depend on many factors, including continued scientific
progress in its research and development programs, the scope and results of
preclinical studies and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in filing, prosecuting and
enforcing patent claims, competing technological and market developments, the
cost of manufacturing scale-up, effective commercialization activities and
arrangements and other factors not within the Company's control. The Company
intends to seek additional funding, in addition to the recently completed
Series F Stock transaction, through public or private financings,
arrangements with corporate collaborators or other sources. If funds are
acquired through collaborations, the Company will likely be required to
relinquish some or all rights to products that the Company may have otherwise
developed itself. Adequate funds may not be available when needed or on
terms acceptable to the Company. Insufficient funds may require the Company
to scale back or eliminate some or all of its research and development
programs or license to third parties products or technologies that the
Company would otherwise seek to develop itself. The Company believes that
its existing resources, the resources received from the Series F Stock
transaction completed in April 1998, and interest thereon, will enable the
Company to maintain its current and planned operations beyond 1998.
YEAR 2000
The Company is conducting a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and has
created a plan to resolve the issue. The Year 2000 problem is the result of
computer programs being written using two digits rather than four digits to
define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system failure or
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miscalculations. The Company presently believes that the Year 2000 problem
will not pose significant operational problems for the Company's computer
systems.
CERTAIN RISK FACTORS (For a discussion of additional Risk Factors applicable
to the Company, see the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.)
UNCERTAINTY OF PRODUCT DEVELOPMENT AND CLINICAL TESTING. The Company has
not completed the development of any products and there can be no assurance
any products will be successfully developed. The Company has been in
existence since 1986, and to date only six of its product candidates have
entered clinical trials. The Company's potential immune-based therapies for
HIV, autoimmune disease, cancer and gene therapy products currently under
development will require significant additional research and development
efforts and regulatory approvals prior to potential commercialization. To
achieve profitable operations, the Company must successfully develop,
manufacture, introduce and market products. There can be no assurance that
any of the Company's potential products will prove to be safe and effective
in clinical trials, that Food and Drug Administration ("FDA") or other
regulatory approvals will be obtained or that such products will achieve
market acceptance.
The Company's potential HIV immune-based therapy, REMUNE, is in a Phase III
clinical endpoint trial designed to provide evidence of efficacy based on
clinical endpoints. There can be no assurance that the results of such
clinical trial will demonstrate that REMUNE is safe and efficacious or, that
even if the results of the clinical trial are considered successful by the
Company, that the Food and Drug Administration ("FDA") will not require the
Company to conduct additional large scale clinical trials with REMUNE before
the FDA will consider approving REMUNE for commercial sale. Failure to
successfully complete the Phase III clinical endpoint trial in a timely
fashion and a failure to obtain FDA approval of REMUNE will materially and
adversely affect the Company. There can be no assurance that the results of
the Phase III trial will be consistent with Phase II results. Even if
results of the Phase III trial are consistent with the Phase II trial
results, there can be no assurance that the FDA would approve REMUNE for
marketing. In addition, REMUNE is being tested in a Phase II clinical trial
in Thailand, in a pediatric Phase I clinical trial in the United States and
in combination trials with approved HIV therapies in the United States,
Spain, Switzerland and Great Britain. Failure of these trials to demonstrate
the safety and effectiveness of REMUNE could have a material adverse effect
on the regulatory approval process for this potential product. The Company's
other potential immune-based therapies and gene therapy technologies are at a
much earlier stage of development than REMUNE. The Company's gene therapy
technology and certain of its technologies for the treatment of cancer have
not yet been tested in humans and there can be no assurance that human
testing of potential products based on such technologies will be permitted by
regulatory authorities or, that even if human testing is permitted, that
products based on such technologies will be developed and shown to be safe or
efficacious. Potential immune-based therapies based on certain of the
Company's autoimmune technology and certain of its cancer technologies are at
an early stage of clinical testing and there can be no assurance that such
products will be shown to be safe, efficacious or receive regulatory approval.
There can be no assurance that the results of the Company's preclinical
studies and clinical trials will be indicative of future clinical trial
results. A commitment of substantial resources to conduct time-consuming
research, preclinical studies and clinical trials, including the REMUNE Phase
III clinical endpoint trial will be required if the Company is to develop any
products. Delays in planned patient enrollment in the Company's current
clinical trials or future clinical trials may result in increased costs,
program delays or both. There can be no assurance that any of the Company's
potential products will prove to be safe and effective in clinical trials,
that FDA or other regulatory approvals will be obtained or that such products
will achieve market acceptance. Any products resulting from these programs
are not expected to be successfully developed or commercially available for a
number of years, if at all.
There can be no assurance that unacceptable toxicities or side effects will
not occur at any time in the course of human clinical trials or, if any
products are successfully developed and approved for marketing, during
commercial use of the Company's products. The appearance of any such
unacceptable toxicities or side effects could interrupt, limit, delay or
abort the development of any of the Company's products or, if previously
approved, necessitate their withdrawal from the market. Furthermore, there
can be no assurance that disease resistance will not limit the efficacy of
potential products.
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ADDITIONAL FINANCING REQUIREMENTS AND ACCESS TO CAPITAL. The Company will
need to raise additional funds to conduct research and development,
preclinical studies and clinical trials necessary to bring its potential
products to market and establish manufacturing and marketing capabilities.
The Company anticipates that in 1998, the REMUNE clinical trials will
continue to represent a significant portion of the Company's overall
expenditures. The Company also anticipates that costs related to the
development of REMUNE will continue to increase as the Company approaches
possible commercialization. The anticipated costs with respect to REMUNE
will depend on many factors, including the results of interim analyses of the
data from the Phase III clinical endpoint trial, the potential for
accelerated approval and certain other factors which will influence the
Company's determination of the appropriate continued investment of the
Company's financial resources in this program. The Company's future capital
requirements will depend on many factors, including continued scientific
progress in its research and development programs, the scope and results of
preclinical studies and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in filing, prosecuting and
enforcing patent claims, competing technological and market developments, the
cost of manufacturing scale-up, effective commercialization activities and
arrangements and other factors not within the Company's control. The Company
intends to seek additional funding, in addition to the recently completed
Series F Stock transaction, through public or private financings,
arrangements with corporate collaborators or other sources. If funds are
acquired through collaborations, the Company will likely be required to
relinquish some or all rights to products that the Company may have otherwise
developed itself. Adequate funds may not be available when needed or on terms
acceptable to the Company. Insufficient funds may require the Company to
scale back or eliminate some or all of its research and development programs
or license to third parties products or technologies that the Company would
otherwise seek to develop itself. The Company believes that its existing
resources, the resources received from the Series F Stock transaction
completed in April 1998, and interest thereon, will enable the Company to
maintain its current and planned operations beyond 1998.
PATENTS AND PROPRIETARY TECHNOLOGY. The Company has filed, or participated
as licensee, in the filing of a number of patent applications in the United
States and many international countries. The Company files applications as
appropriate for patents covering its products and processes. The Company has
been issued patents, or has licensed patents, covering certain aspects of its
proposed immune-based therapies for HIV, autoimmune disease, cancer and gene
therapy technologies. The Company's success may depend in part on its
ability to obtain patent protection for its products and processes. The
Company is aware that a group working with Connetics Corporation has received
a United States patent related to autoimmune disease research that covers
technology similar to that used by the Company
There can be no assurance that the Company will be able to negotiate any
necessary cross licenses, and if not successful, failure to do so could have
a negative impact on the Company. There can be no assurance that the
Company's patent applications will be issued as patents or that any of its
issued patents, or any patent that may be issued in the future, will provide
the Company with adequate protection for the covered products, processes or
technology.
The patent positions of biotechnology and pharmaceutical companies can be
highly uncertain, and involve complex legal and factual questions.
Therefore, the breadth of claims allowed in biotechnology and pharmaceutical
patents cannot be predicted. The Company also relies upon unpatented trade
secrets and know how, and no assurance can be given that others will not
independently develop substantially equivalent trade secrets or know how. In
addition, whether or not the Company's patents are issued, or issued with
limited coverage, others may receive patents which contain claims applicable
to the Company's product. There can be no assurance that any of the
Company's patents, or any patents issued to the Company in the future, will
afford meaningful protection against competitors. Defending any such patent
could be costly to the Company, and there can be no assurance that the patent
would be held valid by a court of competent jurisdiction.
The Company also relies on protecting its proprietary technology in part
through confidentiality agreements with its corporate collaborators,
employees, consultants and certain contractors. There can be no assurance
that these agreements will not be breached, that the Company will have
adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known or independently discovered by its competitors.
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It is possible that the Company's products or processes will infringe, or
will be found to infringe, patents not owned or controlled by the Company,
such as the patent owned by Connetics Corporation. If any relevant claims of
third-party patents are upheld as valid and enforceable, the Company could be
prevented from practicing the subject matter claimed in such patents, or
would be required to obtain licenses or redesign its products or processes to
avoid infringement. There can be no assurance that such licenses would be
available at all or on terms commercially reasonable to the Company or that
the Company could redesign its products or processes to avoid infringement.
Litigation may be necessary to defend against claims of infringement, to
enforce patents issued to the Company or to protect trade secrets. Such
litigation could result in substantial costs and diversion of management
efforts regardless of the results of such litigation and an adverse result
could subject the Company to significant liabilities to third parties,
require disputed rights to be licensed or require the Company to cease using
such technology.
LENGTHY APPROVAL PROCESS AND UNCERTAINTY OF GOVERNMENT REGULATORY
REQUIREMENTS. Clinical testing, manufacture, promotion and sale of the
Company's drug products are subject to extensive regulation by numerous
governmental authorities in the United States, principally the FDA, and
corresponding state and foreign regulatory agencies. The Company believes
that REMUNE and most of its other potential immune-based therapies will be
regulated by the FDA as biological drug products under current regulations of
the FDA. Biological products must be shown to be safe, pure and potent
(i.e., effective) and are subject to the same regulatory requirements as
nonbiological products under the Food and Drug Administration Act, as amended
by the FDA Modernization Act, except that a biological product licensed under
the Public Health Services Act ("PHS Act") is not required to have an
approved New Drug Application under the Federal Food, Drug and Cosmetic Act
("FDC Act"). The FDA Modernization Act directed the FDA to take measures to
minimize the differences in the review and approval of marketing applications
for biological and nonbiological products. The FDA Modernization Act also
made significant revisions to the statutory requirements with regard to the
approval of new biological and nonbiological products. Among other things,
the FDA Modernization Act established a new statutory program for the
approval of fast track drugs, streamlined clinical research, and revised the
content of product approval applications and the FDA review process. The FDA
is required to issue regulations and guidelines in order to implement certain
of these new requirements. Until the FDA implements these regulations and
guidelines, it is impossible to predict the impact of the FDA Modernization
Act on the review and approval of any marketing applications that the Company
may submit to the FDA. The FDC Act, the PHS Act and other federal and state
statutes and regulations govern or influence the testing, manufacture,
safety, effectiveness, labeling, storage, recordkeeping, approval,
advertising, distribution and promotion of biological prescription drug
products. Noncompliance with applicable requirements can result in, among
other things, fines, injunctions, seizure of products, total or partial
suspension of product marketing, failure of the government to grant premarket
approval, withdrawal of marketing approvals and criminal prosecution.
The regulatory process for new therapeutic drug products, including the
required preclinical studies and clinical testing, is lengthy and expensive
and there can be no assurance that necessary FDA clearances will be obtained
in a timely manner, if at all. There can be no assurance as to the length of
the clinical trial period or the number of patients the FDA will require to
be enrolled in the clinical trials in order to establish the safety and
efficacy of the Company's products. The Company may encounter significant
delays or excessive costs in its efforts to secure necessary approvals, and
regulatory requirements are evolving and uncertain. Future United States or
foreign legislative or administrative acts could also prevent or delay
regulatory approval of the Company's products. There can be no assurance
that the Company will be able to obtain the necessary approvals for clinical
trials, manufacturing or marketing of any of its products under development.
Even if commercial regulatory approvals are obtained, they may include
significant limitations on the indicated uses for which a product may be
marketed. In addition, a marketed product is subject to continual FDA
review. Later discovery of previously unknown problems or failure to comply
with the applicable regulatory requirements may result in restrictions on the
marketing of a product or withdrawal of the product from the market, as well
as possible civil or criminal sanctions.
The steps required before a biological drug product may be marketed in the
United States generally include preclinical studies and the filing of an
Investigational New Drug application with the FDA. Reports of results of
preclinical studies and clinical trials for biological drug products are
submitted to the FDA in the form of a Biologics Licensing Application ("BLA")
for approval for marketing and commercial shipment. Submission of a BLA does
not assure FDA approval for marketing. The BLA review process may take a
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number of years to complete, although reviews of applications for treatments
of AIDS, cancer and other life-threatening diseases may be accelerated or
expedited. Failure of the Company to receive FDA marketing approval for
REMUNE or any of its other products under development on a timely basis could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition to obtaining approval for each
biological drug product, an Establishment License Application usually must be
filed and approved by the FDA.
Among the other requirements for BLA approval is the requirement that
prospective manufacturers conform to the FDA's Good Manufacturing Practices
("GMP") requirements specifically for biological drugs, as well as for other
drugs. In complying with the FDA's GMP requirements, manufacturers must
continue to expend time, money and effort in production, recordkeeping and
quality control to assure that the product meets applicable specifications
and other requirements. Failure to comply with the FDA's drug GMP
requirements subjects the manufacturer to possible FDA regulatory action.
There can be no assurance that the Company or its contract manufacturers, if
any, will be able to maintain compliance with the FDA's drug GMP requirements
on a continuing basis. Failure to maintain such compliance could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company believes its proprietary GeneDrug and cancer treatment therapies
will likely be regulated as biological products. As with the Company's other
potential products, the gene therapy and cancer products will be subject to
extensive FDA regulation throughout the product development process, and
there can be no assurance that any of these products will be successful at
securing the requisite FDA marketing approval on a timely basis, if at all.
The FDA Modernization Act also amended the FDC Act to permit expanded access
to individuals and larger groups to unapproved new therapeutic and diagnostic
products. Although the new law largely codifies existing FDA regulations in
this area, it expands access to all investigational therapies under certain
conditions. Although the FDA has granted expanded access to REMUNE for those
patients who are ineligible to enroll in the Phase III clinical endpoint
trial, the FDA has to date not designated expanded access protocols for
REMUNE as "treatment" protocols. Either expanded access or a treatment
protocol designation might permit third party reimbursement of some of the
costs associated with making REMUNE available to patients in such an expanded
access context. There can be no assurance that the FDA will determine that
REMUNE meets all of the FDA's criteria for use of an investigational drug for
treatment use or that, even if the product is allowed for treatment use, that
third party payers will provide reimbursement for any of the costs of
treatment with REMUNE .
The FDA also has issued regulations to accelerate the approval of or to
expedite the review of new biological drug products for serious or
life-threatening illnesses that provide meaningful therapeutic benefit to
patients over existing treatments. Under the accelerated approval program,
the FDA may grant marketing approval for a biological or nonbiological drug
product earlier than would normally be the case. In addition to the
accelerated approval process, the FDA has established procedures designed to
expedite the development, evaluation and marketing of new therapies intended
to treat persons with life-threatening and severely-debilitating illnesses,
especially when no satisfactory alternative therapy exists. In addition, the
FDA Modernization Act established a new statutory program for the approval of
fast track drugs, including biological products. There can be no assurance
that the FDA will consider REMUNE or any other of the Company's products
under development to be an appropriate candidate for accelerated approval,
expedited review or fast track designation.
To market any drug products outside of the United States, the Company is also
subject to numerous and varying foreign regulatory requirements, implemented
by foreign health authorities, governing the design and conduct of human
clinical trials and marketing approval. The approval procedure varies among
countries and can involve additional testing, and the time required to obtain
approval may differ from that required to obtain FDA approval. The foreign
regulatory approval process includes all of the risks associated with
obtaining FDA approval set forth above, and approval by the FDA does not
ensure approval by the health authorities of any other country.
TECHNOLOGICAL CHANGE AND COMPETITION. The biotechnology industry continues
to undergo rapid change and competition is intense in the fields of HIV,
autoimmune disease, cancer and gene therapy, and such
12
<PAGE>
competition is expected to increase. The Company will compete with fully
integrated pharmaceutical companies, small biotechnology companies,
universities and research organizations. There can be no assurance that
competitors have not or will not succeed in developing technologies and
products that are more effective than any which have been or are being
developed by the Company or which would render the Company's technology and
products obsolete and noncompetitive. Many of the Company's competitors have
substantially greater experience, financial and technical resources and
production, marketing and development capabilities than the Company.
Accordingly, certain of the Company's competitors may succeed in obtaining
regulatory approval for products more rapidly or effectively than the
Company. If the Company commences commercial sales of its products, it will
also be competing with respect to manufacturing efficiency and sales and
marketing capabilities, areas in which it currently has no experience. There
can be no assurance that competitors will not develop and commercialize more
effective or affordable products.
DEPENDENCE ON THIRD PARTIES. The Company's strategy for the research,
development and commercialization of its products requires entering into
various arrangements with corporate collaborators, licensors, licensees and
others, and the Company's commercial success is dependent upon these outside
parties performing their respective contractual responsibilities, including
the analysis of the data generated in the Company's clinical trials. The
amount and timing of resources such third parties will devote to these
activities may not be within the control of the Company. There can be no
assurance that such parties will perform their obligations as expected and
the failure of third parties to perform their obligations would have a
material adverse effect on the Company. Although the Company has
collaborative agreements with several universities and research institutions,
the Company's agreement with Bayer is the only collaborative agreement that
provides the Company with contract revenue. There can be no assurance that
these collaborations will result in the development of any commercial
products. Immune Response intends to seek additional collaborative
arrangements to develop and commercialize certain of its products. There can
be no assurance that the Company will be able to negotiate collaborative
arrangements on favorable terms, or at all, in the future, or that its
current or future collaborative arrangements will be successful.
LACK OF COMMERCIAL MANUFACTURING AND MARKETING EXPERIENCE. The Company has a
manufacturing facility for REMUNE located in King of Prussia, Pennsylvania,
and a pilot manufacturing facility in Carlsbad, California for its other
products. The Company has not yet manufactured its product candidates in
commercial quantities. No assurance can be given that the Company, on a
timely basis, will be able to make the transition from manufacturing clinical
trial quantities to commercial production quantities successfully or be able
to arrange for contract manufacturing. The Company believes it will be able
to manufacture REMUNE for initial commercialization, if the product obtains
FDA approval, but it has not yet demonstrated the capability to manufacture
REMUNE in commercial quantities, or its autoimmune disease, cancer and gene
therapy treatments in large-scale clinical or commercial quantities. The
Company has no experience in the sales, marketing and distribution of
pharmaceutical products. There can be no assurance that the Company will be
able to establish sales, marketing and distribution capabilities or make
arrangements with its collaborators, licensees or others to perform such
activities or that such efforts will be successful. There can be no assurance
of market acceptance of the Company's products, if they are developed and
approved for commercialization.
The manufacture of the Company's products involves a number of steps and
requires compliance with stringent quality control specifications imposed by
the Company itself and by the FDA. Moreover, the Company's products can only
be manufactured in a facility that has undergone a satisfactory inspection by
the FDA. For these reasons, the Company would not be able quickly to replace
its manufacturing capacity if it were unable to use its manufacturing
facilities as a result of a fire, natural disaster (including an earthquake),
equipment failure or other difficulty, or if such facilities are deemed not
in compliance with the FDA's drug GMP requirements and the non-compliance
could not be rapidly rectified. The Company's inability or reduced capacity
to manufacture its products would have a material adverse effect on the
Company's business and results of operations.
The Company may enter into arrangements with contract manufacturing companies
to expand its own production capacity in order to meet requirements for its
products, or to attempt to improve manufacturing efficiency. If the Company
chooses to contract for manufacturing services and encounters delays or
difficulties in establishing relationships with manufacturers to produce,
package and distribute its finished
13
<PAGE>
products, clinical trials, market introduction and subsequent sales of such
products would be adversely affected. Further, contract manufacturers must
also operate in compliance with the FDA's drug GMP requirements; failure to
do so could result in, among other things, the disruption of product
supplies. Until recently, biologic product licenses could not be held by any
company unless it performed significant manufacturing operations. The FDA
recently amended its regulations in this regard, and the Company believes
that under these new regulations it can now hold licenses for its biological
products without performing significant manufacturing steps. Nonetheless, the
Company's potential dependence upon third parties for the manufacture of its
products may adversely affect the Company's profit margins and its ability to
develop and deliver such products on a timely and competitive basis.
UNCERTAINTY OF PRODUCT PRICING, REIMBURSEMENT AND RELATED MATTERS. The
Company's ability to earn sufficient returns on its products will depend in
part on the extent to which reimbursement for the costs of such products and
related treatments will be available from government health administration
authorities, private health coverage insurers, managed care organizations and
other organizations. Third party payors are increasingly challenging the
price of medical products and services. If purchasers or users of the
Company's products are not able to obtain adequate reimbursement for the cost
of using such products, they may forego or reduce such use. Significant
uncertainty exists as to the reimbursement status of newly approved health
care products, and there can be no assurance that adequate third party
coverage will be available. Failure to obtain appropriate reimbursement would
have a material adverse effect on the Company.
VOLATILITY OF STOCK PRICE AND ABSENCE OF DIVIDENDS. The market price of the
Company's common stock, like that of the common stock of many other
biopharmaceutical companies, has been and is likely to be highly volatile.
Factors such as the results of preclinical studies and clinical trials by the
Company, its collaborators or its competitors, other evidence of the safety
or efficacy of products of the Company or its competitors, announcements of
technological innovations or new products by the Company or its competitors,
governmental regulatory actions, changes or announcements in reimbursement
policies, developments with the Company's collaborators, developments
concerning patent or other proprietary rights of the Company or its
competitors (including litigation), concern as to the safety of the Company's
products, period-to-period fluctuations in the Company's operating results,
changes in estimates of the Company's performance by securities analysts,
market conditions for biopharmaceutical stocks in general and other factors
not within the control of the Company could have a significant adverse impact
on the market price of the common stock. The Company has never paid cash
dividends on its common stock and does not anticipate paying any cash
dividends in the foreseeable future.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. -- EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27.1 Financial Data Schedule
b) Reports on Form 8-K
Not applicable
15
<PAGE>
SIGNATURE
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.
THE IMMUNE RESPONSE CORPORATION
5/8/98 /s/ Charles J. Cashion
Date: ____________________________ ______________________________________
Charles J. Cashion
Sr. Vice President
Secretary and Treasurer
16
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THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATE STATEMENTS OF OPERATIONS EXTRACTED
FROM ITEM 1 OF 10-Q FOR THE PERIOD ENDED MARCH 31, 1998, FOR THE YEAR-TO-DATE,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
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<SECURITIES> 20,931
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