<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended December 31,
1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
COMMISSION FILE NUMBER: 0-19454
ANERGEN, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0183594
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 PENOBSCOT DRIVE, REDWOOD CITY, CALIFORNIA 94063
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 361-8901
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE
(Title of Class)
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. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on March 14,
1997 as reported on the NASDAQ National Market System, was approximately
$30,621,705. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of March 14, 1997, Registrant had outstanding 18,787,745 shares of Common
Stock.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of this Form 10-K is
incorporated by reference to the definitive proxy statement for the annual
meeting of shareholders of the Company which will be filed no later than 120
days after December 31, 1996.
2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . 16
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . 18
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . 19
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . 28
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 41
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . 41
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . 41
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . 41
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . 41
PART IV
Item 14. Financial Statement Schedules, Reports on Form 8-K and Exhibits . . . 41
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
3
<PAGE> 4
THIS ITEM CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WHICH INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THE RESULTS ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF
CERTAIN FACTORS SET FORTH IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS", UNDER "RISK FACTORS THAT MAY AFFECT FUTURE
OPERATING PERFORMANCE" AND ELSEWHERE IN THIS REPORT.
PART I
ITEM 1. BUSINESS
GENERAL
Anergen, Inc. (the "Company" or "Anergen") is focused on the treatment
of autoimmune diseases through the discovery and development of proprietary
therapeutics that selectively interrupt the disease process. Anergen's current
research and development efforts are focused on two distinct core technologies,
AnergiX(TM) and AnervaX(TM), that the Company believes may be used to treat a
broad range of autoimmune diseases without generally suppressing the immune
system. The Company is currently conducting a Phase I clinical trial of the
Company's AnergiX compound for the treatment of multiple sclerosis (MS) and a
Phase IIa clinical trial of its AnervaX compound for the treatment of
rheumatoid arthritis (RA). Since 1993, the Company has collaborated with Novo
Nordisk A/S ("Novo Nordisk") in the development of AnergiX treatments for MS,
insulin-dependent diabetes mellitus ("IDDM"), and myasthenia gravis ("MG"). In
June 1996, the Company entered into a collaborative agreement with N. V.
Organon ("Organon") to develop an AnergiX treatment for RA.
The Company was founded in 1988 to discover and develop
biopharmaceutical compounds for the treatment of autoimmune diseases. To
achieve profitable operations, the Company, alone or with others, must
successfully develop, obtain regulatory approval for, manufacture and market
products. The Company does not have any products available for sale nor does
it expect to have any products commercially available for at least several
years, if at all. The Company's potential products are at the early stages of
research and development, with only limited human testing of certain of the
Company's products undertaken to date. The products currently under
development by the Company will require significant research, laboratory
testing and clinical trials and investment of capital prior to their
commercialization. There can be no assurance that any potential products will
be successfully developed, prove to be safe and efficacious in clinical trials,
meet applicable regulatory standards, be capable of being produced in
commercial quantities at acceptable costs or be successfully marketed.
In the body's immune system, T cells normally regulate the
identification and destruction of foreign substances and malignant cells.
Autoimmune diseases are caused by abnormal destruction of healthy body tissues
by disease-specific T cells. Anergen's results to date suggest that treatments
based on its core technologies may interrupt the chain of events fundamental to
the onset and continuation of certain autoimmune diseases. The Company's
AnergiX technology selectively destroys or inactivates (anergizes) the T cells
implicated in the disease process. Its second core technology, AnervaX,
stimulates the immune system to produce antibodies that may interfere with the
presentation of self-antigens to destructive T cells. The Company believes
that, because its potential therapeutics target only disease-specific T cells,
the normal function of the immune system should remain unaffected. In
contrast, currently available therapies for autoimmune diseases treat only the
symptoms of the disease or broadly suppress the immune system, which can
compromise the ability of the immune system to protect against foreign
substances.
Anergen initiated a Phase I clinical trial of its AnergiX compounds
for the treatment of MS in September 1996. The AnergiX compound is designed to
inactivate (anergize) or create cell death in the specific T cells of the
immune system responsible for disease progression without affecting other T
cells involved in the immune defense. The Company is collaborating with Novo
Nordisk on the development of this compound.
In April 1996, the Company initiated a multicenter, double-blind,
placebo-controlled Phase IIa clinical trial of its AnervaX compound for the
treatment of RA. The results of a Phase I clinical trial completed in October
1995 indicated that AnervaX is well tolerated and can stimulate an immune
response in RA patients. Preclinical results have also demonstrated that the
Company's AnervaX approach may prevent the onset or reduce the severity of
autoimmune disease in animal models.
The Company entered into a collaborative agreement with Novo Nordisk
in August 1993 under which Novo Nordisk, in exchange for certain marketing
rights, will support research and development of the Company's MS, MG and IDDM
programs, make milestone payments, and pay royalties on product sales, if any.
The Company has the right to co-
4
<PAGE> 5
promote any resultant products for MS and MG in North America. The Company
will receive royalties on any products in these three disease areas which are
not co-promoted. In addition, at the time of the agreement, Novo Nordisk made
an $8 million equity investment in the Company for 1,219,745 shares of the
Company's Common Stock. In March 1996, the development program with Novo
Nordisk was extended through August 1998, increasing total funds expected to be
received by the Company under the collaboration from $25 million to $35
million. These amounts do not include the cost of clinical trials that will be
borne directly by Novo Nordisk. The Company recorded $3.1 million in contract
revenues related to this agreement in 1996 as compared to $3.0 million and $2.3
million in 1995 and 1994, respectively.
In June 1996, the Company entered into a collaborative agreement with
Organon under which Organon, in exchange for certain marketing rights, will
support research and development of an AnergiX compound to treat RA that
incorporates a proprietary peptide discovered by Organon. Under the
arrangement, the Company received a one-time license fee of $2 million in
September 1996, and Organon will support research and development, make
milestone payments and pay royalties on sales, if any. The Company recorded
$412,000 in research support related to this agreement in 1996. The license
fee, research and development support, and milestone payments that the Company
may receive under this agreement are estimated to exceed $15 million. These
amounts do not include the cost of clinical trials that will be borne directly
by Organon.
AUTOIMMUNE DISEASES
Background. Normally, the immune system recognizes and distinguishes
between invading foreign substances or "antigens" and the body's own tissue.
The body is able to react continually to a wide variety of antigens, to
remember a foreign substance to which it has been exposed previously, and to
rid itself of a foreign substance. The ability of the immune system to
distinguish between its own tissue (self) and foreign substances is essential
for its normal function.
The recognition and memory processes of the immune system are
controlled by the activity of several types of cells. One of the more
important, the "T cell," plays a critical role in recognizing antigens,
initiating an immune response and regulating the resulting cascade of
immunological events. Another type of cell, the "B cell," secretes antibodies
that are involved in the recognition and neutralization of antigens. These
processes require the involvement of proteins called human leukocyte antigen
("HLA") molecules which are found on the surface of certain cells in the body.
The HLA molecules are encoded by gene complexes called a major
histocompatibility complexes ("MHC"). The terms HLA and MHC are sometimes used
interchangeably.
When a foreign substance enters the body, antigen presenting cells,
which act as scavenger cells, encounter and engulf the foreign substance.
These scavenger cells internally break down the antigen into smaller components
called "peptides". The antigen presenting cell then transports each individual
peptide, called an "epitope," bound to the HLA molecule as a complex, to its
outer cell membrane where it is presented to various T cells. Once a responsive
T cell is stimulated, it initiates an immune response that eliminates the
foreign substance from the body. T cells recognize HLA-epitope complexes
through receptors on their surfaces, with each type of T cell recognizing only
one out of millions of possible HLA-epitope complexes. There are several
classes of HLA molecules, with HLA Class II ("HLA II") molecules involved in
the presentation of self-antigens.
While the immune system is normally extremely efficient in seeking and
destroying foreign substances, in some cases, for reasons that are not yet
understood, the immune system is triggered to begin destroying the body's own
healthy tissue, resulting in autoimmune diseases such as RA, MS, IDDM and MG. In
these diseases, "self" tissue is presented to T cells which respond by
initiating an immune response that destroys healthy tissue. For example, T
cells are involved in the destruction of nerve structures in MS, joint tissue
in RA, and insulin-producing beta cells in IDDM.
Existing Therapeutic Approaches. Traditional therapies for
autoimmune diseases include steroids and other immunosuppressive drugs that
generally treat the symptoms rather than the cause of the disease and are
unable to prevent the activation of T cells that initiate the destructive
immune response. Current treatments are typically administered based on
disease severity. For mild forms of these diseases, drugs that ameliorate the
symptoms may be given. These drugs do not prevent the progression of tissue
destruction and are relatively ineffective in treating more severe symptoms.
In advanced disease stages, more powerful immunosuppressive drugs are used to
suppress the body's entire immune system. This has some therapeutic effect,
but also limits the body's ability to respond to invading foreign substances,
which substantially increases the risk of contracting other illnesses. In
addition, such drugs generally have numerous other unwanted and often severe
side effects.
5
<PAGE> 6
ANERGEN TECHNOLOGY
The Company's technology programs focus on the discovery and
development of proprietary therapeutics that destroy or inactivate T cells
involved in the disease process or selectively interrupt antigen presentation
to the T cells without affecting the protective functions of the immune system.
Anergen believes that its approaches to preventing or arresting autoimmune
diseases may result in therapies that are more specific and have fewer side
effects than currently available treatments. The two core technologies,
AnergiX and AnervaX, under development by the Company are summarized below.
AnergiX Technology. The Company's AnergiX technology is currently
being used to develop products for MS, RA, IDDM and MG. An AnergiX compound
consists of an epitope of the self-antigen that would normally be associated
with triggering an autoimmune response in a particular disease, combined with a
soluble HLA II molecule. The AnergiX compound thus has two of the three
primary elements associated with the autoimmune response, but lacks the third
element, the antigen presenting cell. It is believed that the activation of T
cells requires not only the initial signal provided by the binding to the T
cell receptor of the HLA-epitope complex which is on the surface of antigen
presenting cells, but also a "second signal" provided by the antigen presenting
cell itself. Anergen believes that the binding of its AnergiX compound to the
receptor site of the destructive T cell, in the absence of the antigen
presenting cell and its "second signal" inactivates that T cell. This
inactivated or nonresponsive state is referred to as a state of "anergy". The
Company believes that by inducing anergy, the autoimmune response can be
interrupted. In addition, the Company has shown that in the presence of
AnergiX, a significant percentage of T cells may undergo apoptosis, or
programmed cell death, which will also serve to interrupt the autoimmune
process.
The Company believes, based on its research to date, that the state of
anergy created by the introduction of the Company's AnergiX may last for
periods of up to several months. The results of the Company's research
demonstrated that a state of anergy may even be induced in T cells that have
already been activated, indicating that such T cells could be inactivated even
after the destructive chain reaction has begun. Because the Company believes
that its AnergiX compounds will bind only to T cells specific to a disease,
other T cells are not expected to be affected, and the rest of the immune
system should remain responsive to foreign substances.
AnervaX Technology. The Company's AnervaX technology is currently
being developed to treat RA. AnervaX is a synthetic peptide vaccine consisting
of a small portion of the HLA II molecule. AnervaX is designed to elicit an
immune response that interferes with the presentation of self-antigens to T
cells. This immune response is intended to stimulate the production of a
patient's own antibodies to a subset of the HLA molecules on the patient's
antigen presenting cells. The Company believes that because AnervaX targets
only the subset of HLA molecules that appear to be involved in the particular
autoimmune disease, this approach potentially will allow for the prevention or
treatment of autoimmune disease without generally suppressing the patient's
overall immune system.
PRODUCTS UNDER DEVELOPMENT
The following table sets forth the current status of Anergen's product
development programs.
<TABLE>
<CAPTION>
PATIENT POPULATION CORPORATE DEVELOPMENT
DISEASE TARGET TECHNOLOGY U.S./WORLDWIDE ALLIANCES (1) STATUS (2)
- ------------------ ---------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
Multiple Sclerosis . . . . . . . . . . . . AnergiX 300,000/650,000 Novo Nordisk Phase I
Rheumatoid Arthritis . . . . . . . . . . . AnervaX 2,500,000/8,000,000 - Phase IIa
AnergiX 2,500,000/8,000,000 Organon Preclinical
Insulin-Dependent Diabetes Mellitus . . . AnergiX 600,000/1,800,000 Novo Nordisk Research
Myasthenia Gravis . . . . . . . . . . . . AnergiX 25,000/50,000 Novo Nordisk Preclinical
Inflammatory Bowel Disease . . . . . . . . AnergiX 2,000,000/5,000,000 - Research
</TABLE>
(1) See "Business - Collaborative Arrangements" for a discussion of the
relative rights of the Company and its collaborative partners.
(2) Research: Initiation of research studies.
Preclinical: Identification of a specific molecule for potential
human testing.
Phase I: Initial phase of human clinical testing to determine
safety and measure certain biological parameters.
Phase IIa: Multicenter, double-blind, placebo-controlled clinical
trial for safety, immunogenicity, dosage determination and initial
efficacy in a limited patient population.
6
<PAGE> 7
Multiple Sclerosis. Multiple sclerosis is a progressive inflammatory
disease of the central nervous system that predominantly affects young adults
and causes increasing neurologic damage and disability throughout life.
Symptoms range from painful facial muscle spasms, vertigo and vomiting to a
myriad of motor and sensory problems. In the United States, the average
longevity of patients after diagnosis with MS is over thirty years. The care
of MS patients requires long-term medical, neurologic and psychological
treatment and support. The use of steroids and immunosuppressant drugs is the
most common treatment for MS today, but these drugs often have significant
unwanted side effects such as nausea and high blood pressure. Based on
published data and other sources, the Company believes that there are
approximately 650,000 cases of MS worldwide. The Company does not know what
side effects, if any, may result from treatment using the Company's AnergiX
approach. Such side effects, if any, will be identified during human clinical
trials. If the Company is successful in obtaining approval to market any of
its treatments, it will have to compete for market share against other
therapies which may exist at that time.
The Company and Novo Nordisk have developed a potential AnergiX
therapeutic for MS which is a compound of an HLA molecule combined with a
peptide derived from myelin basic protein, the self-antigen believed to be
involved in MS. The Company initiated Phase I clinical testing of its AnergiX
for MS in 1996. The costs of this and future trials are fully supported by
Novo Nordisk. The Company's preclinical tests demonstrated that the use of an
AnergiX compound prevented or reduced paralysis caused by the T cell-initiated
destructive autoimmune response in an animal model of MS. Additionally, in
vitro testing of AnergiX on human cells demonstrated inactivation of T cells
associated with MS. This study also indicated that patients' T cells respond
to the same antigen over time and that potentially effective doses appear to be
low.
Under the Company's collaborative agreement with Novo Nordisk, Novo
Nordisk will support research and development of the Company's MS program,
including the full cost of all clinical testing, and will pay royalties on
worldwide sales of any resulting products. The Company has retained
co-promotion rights in North America for therapeutics in MS.
Rheumatoid Arthritis. Rheumatoid arthritis is a systemic inflammatory
disease that causes joint pain, swelling and, eventually, deformities. In some
cases, people afflicted with RA experience severe musculoskeletal disability.
Over time, progression of the disease involves degradation and destruction of
the surrounding cartilage and bone. Current treatment of RA involves the use
of a variety of drugs in successive stages: first, with drugs having analgesic
actions such as aspirin and other non-steroidal and anti-inflammatory drugs;
second, with agents such as gold and penicillamine that reduce the symptoms of
RA; and third, with drugs which attempt to contain the disease, including
immunosuppressive drugs such as corticosteroids and methotrexate. Each of
these three approaches has side effects of varying intensity and risks that
increase as one moves to the more aggressive therapies. Based on published
data and other sources, the Company believes that there are approximately
8,000,000 cases of RA worldwide.
The Company completed Phase I clinical testing of its AnervaX peptide
vaccine to treat RA in October 1995 and initiated Phase IIa clinical testing in
April 1996. Preclinical testing demonstrated that Anergen's AnervaX approach
may prevent the onset of disease and reduce the severity of active disease in
certain animal models of autoimmune disease (experimental allergic
encephalomyelitis and non-obese diabetic ("NOD") mice). In vitro testing
indicates that animals treated with the AnervaX peptide vaccine generate
antibodies against HLA II molecules. The Company believes that such antibodies
bind to HLA II molecules and that this binding may interfere with the
interaction between HLA and T cells that is involved in the progression of
autoimmune disease. The results of the Phase I study show the vaccine to be
well tolerated and capable of inducing an antibody response.
In addition, the Company is developing an AnergiX compound to treat RA
in conjunction with Organon under an agreement entered into in June 1996. The
compound to be developed uses Anergen's proprietary AnergiX technology and
incorporates a proprietary peptide discovered by Organon. Under the agreement,
Organon, in exchange for certain marketing rights, will support research and
development, including the full cost of all clinical testing, pay a one-time
license fee, make milestone payments and pay royalties on product sales, if
any.
Insulin-Dependent Diabetes Mellitus. IDDM, or Type I diabetes, is
caused by an autoimmune attack resulting in destruction of the
insulin-producing beta cells in the pancreas. Insulin regulates the cellular
uptake and metabolism of glucose, and its deficiency leads to hyperglycemia,
diabetic acidosis, and diabetic coma. Long-term complications include vision
loss, renal failure and peripheral neuropathy. Currently, individuals with
IDDM are given insulin to supplement their ability to produce sufficient
amounts of the hormone. IDDM usually appears in individuals before the age of
20 and affects about 0.5% of the Caucasian population worldwide. Based on
published data and other sources, the Company believes that there are
approximately 1,800,000 cases of IDDM worldwide.
7
<PAGE> 8
The Company has performed preclinical studies using an AnergiX compound
composed of an MHC molecule coupled with a synthetic glutamic acid decarboxylase
("GAD") peptide in NOD mice, an animal model of IDDM. The GAD peptide is
suspected to be the self-antigen which leads to the autoimmune attack in
diabetes. The Company tested this compound by treating NOD mice in a dosing
regimen designed to inactivate or anergize disease-causing T cells, thereby
preventing diabetes. Results of the study showed that treatment with the
AnergiX complex reduced the rate of destruction of insulin-producing beta cells
in a dose dependent manner, while treatment with the GAD peptide alone
accelerated the disease. Under the Company's collaborative agreement with Novo
Nordisk, Novo Nordisk supports research and development of the Company's program
and will pay royalties on worldwide sales of any resulting products.
Myasthenia Gravis. MG is a neuromuscular disorder that is
characterized by muscle weakness and, in severe cases, may lead to death.
Current methods of treatment of MG utilize drugs that only ameliorate the
symptoms and generally are not effective in most cases of moderate or
progressive MG. The more powerful of these drugs have significant unwanted
side effects. Based on published data and other sources, the Company believes
that there are approximately 50,000 cases of MG worldwide.
The Company has established an in vivo experimental model of autoimmune
myasthenia gravis in rats, which is considered pathologically and clinically
comparable to human MG. Initial results indicate that the Company's AnergiX for
MG significantly reduces clinical symptoms of this disease in rats.
Additionally, the Company tested its therapeutic approach for MG on human cells.
Through this study, the Company has identified what it believes to be an
appropriate antigenic peptide involved in MG. Using an AnergiX compound, the
Company has demonstrated in vitro inactivation of T cells associated with MG and
that therapeutically effective doses appear to be low. Under the Company's
collaborative agreement with Novo Nordisk, Novo Nordisk supports research and
development of the Company's MG program and will pay royalties on worldwide
sales of any resulting products. The Company has retained co-promotion rights
in North America for therapeutics in MG.
ADDITIONAL APPLICATIONS FOR ANERGEN TECHNOLOGIES
The Company believes that its core technologies could be applied to a
number of the other autoimmune diseases. To create an effective AnergiX
product intended to inactivate the T cells associated with a specific
autoimmune disease, one must correctly combine a proper epitope specific for
the target autoimmune disease with a proper HLA molecule associated with that
disease. Recent advances in the understanding of events that trigger autoimmune
diseases have accelerated the search for the epitopes associated with
particular diseases. Anergen intends to license technology developed by others
and to collaborate in the research and development of epitopes that, when
combined with the Company's HLA molecules in a proprietary soluble form, would
result in AnergiX compounds for the treatment of other autoimmune diseases.
The Company has a research collaboration with a physician at the University of
Medicine and Dentistry of New Jersey to identify the epitope associated with
Inflammatory Bowel Disease.
In order to develop additional AnervaX peptide vaccine products, the
Company must first identify the particular HLA sub-type involved with
initiation and continuation of the particular autoimmune disease. The Company
must then identify that portion of the HLA molecule sub- type that triggers an
immune response. It is this response that interferes with the presentation of
the self antigen to disease-related T cells. Based upon recent advances in the
understanding of the genetic clustering of HLA sub-types and their involvement
in other autoimmune diseases, the Company believes additional product
candidates may be developed utilizing its AnervaX core technology.
While development and commercialization of the Company's approach to
altering autoimmune disease states remains Anergen's focus, the Company is also
monitoring other opportunities that may arise out of its technology and
expertise, including the development of diagnostics for autoimmune and related
diseases and the possibility of adapting its T cell-specific drug delivery
approach to delivering compounds that would kill particular T cells, a method
that may prove useful in severe cases where an autoimmune disease has
substantially progressed. The Company expects to pursue funding from
collaborative partners prior to extensive research in any of these areas.
COLLABORATIVE ARRANGEMENTS
Novo Nordisk A/S. In August 1993, the Company entered into a
collaborative agreement with Novo Nordisk with an initial three-year
development term and Novo Nordisk made an equity investment in the Company.
Under the collaborative agreement, Novo Nordisk will make milestone payments
and support research and development of the Company's MS, MG and IDDM programs
in exchange for exclusive worldwide rights to products developed under the
collaboration, including rights to commercialize these products, subject to the
payment of royalties to the Company. The Company has retained rights of
co-promotion in North America for therapeutics in MS and MG. In the event the
Company
8
<PAGE> 9
engages in co-promotion of its MS and MG products in North America, Novo
Nordisk has agreed to modify the royalty payments made to the Company to
compensate for the level of its marketing and sales efforts in amounts to be
negotiated. In March 1996, the Company and Novo Nordisk extended the term of
the development program by an additional two-year period through August 1998.
Novo Nordisk may terminate the agreement with respect to its development rights
upon six months prior notice. The development program is subject to ongoing
review by a research committee which includes equal representation of both
partners. The development expenses incurred by the Company and reimbursable by
Novo Nordisk are significant and expected to increase. Under the original
agreement, the research and development support and milestone payments which
may be received by the Company under this agreement are estimated to total $25
million, including an $8 million equity investment made in the Company in
August of 1993 for 1,219,745 shares of the Company's Common Stock. The Company
recorded $3.1 million in contract revenues related to this agreement in 1996
compared to $3.0 million and $2.3 million in 1995 and 1994, respectively. The
extension of the term of the development program in March 1996 increased the
estimated total proceeds to the Company by an additional $10 million to $35
million.
N.V. Organon. In June 1996, the Company entered into a collaborative
agreement with Organon under which Organon paid a license fee of $2 million,
will make milestone payments, and support research and development of an
AnergiX compound intended for the treatment of RA in exchange for certain
marketing rights, including certain rights to the commercialization of these
products, subject to the payment of royalties to the Company. The compound to
be developed uses Anergen's proprietary technology and incorporates a
proprietary peptide discovered by Organon coupled with an HLA molecule. This
arrangement has no effect on the Company's ownership of its AnervaX therapeutic
intended to treat RA, which is currently in Phase IIa clinical testing. The
Company's development program under the Organon agreement has an initial
three-year term. Under the agreement, Anergen granted to Organon exclusive
worldwide rights to any products developed under the collaborative agreement,
including rights to commercialize the products. While the agreement initially
grants Organon rights to any AnergiX compounds within the field of RA, after an
initial Phase I study, Anergen has the right, at its sole discretion, to
convert Organon's rights to a non-exclusive basis, in which case milestone
payments and royalty rates would be modified.
The agreement with respect to marketing rights continues in full force
for as long as Organon is engaged in marketing such products. Organon may
terminate the development program after thirty months by giving the Company six
months prior written notice. The Company has retained certain limited rights
of co-promotion in North America for therapeutics developed under the
arrangement. In the event the Company engages in co-promotion of products in
North America, Organon has agreed to modify the royalty payments made to the
Company to compensate for the level of its marketing and sales efforts in
amounts to be negotiated. The development program is subject to ongoing review
by a research committee which includes equal representation of both partners.
The development expenses incurred by the Company and reimbursable by Organon
are expected to be significant and increase.
Other Arrangements. The Company has several collaborations with
academic and clinical researchers to perform certain research, development and
clinical trial activities. To the extent that the Company is unable to
maintain or establish such collaborative arrangements, the Company's research,
development and clinical activities and business would be adversely affected.
The Company's strategy for the development, clinical trials,
manufacturing and commercialization of its products includes maintaining
existing and establishing additional collaborations with corporate partners,
licensors, licensees and others. There can be no assurance that the Company
will be able to maintain existing collaborative arrangements in total or for
each disease area or establish new collaborative arrangements in the future.
To the extent that the Company is unable to maintain or establish such
collaborative arrangements, the Company's research and development efforts and
business would be adversely affected. In addition, the Company's collaborative
partners may develop, either alone or with others, products that compete with
the development and marketing of the Company's products. The development of
such competing products may result in the withdrawal of support with respect to
all or a portion of the Company's technology which would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors That May Affect Future Operating Performance -
Dependence on Collaborative Partners."
MANUFACTURING
Manufacture of the Company's AnergiX compounds requires the production
of two basic parts: the disease specific epitope and the HLA molecule. The
Company then combines these two component parts and puts them in a soluble form
suitable for a therapeutic product. The Company is currently synthesizing
several different epitopes related to MS, RA, IDDM and MG for use in its
research and development operations. To date, the Company has contracted with
an outside
9
<PAGE> 10
manufacturer to produce the selected MS specific peptide under GMP guidelines.
In the future the Company may consider scaling up its synthesis operations in
order to produce these epitopes internally.
Production of HLA molecules can be accomplished in one of two ways:
HLA molecules can be extracted from cells cloned from commercially available
cell lines or HLA molecules can be produced using recombinant DNA technology.
During 1993, the Company began producing HLA molecules in its pilot clinical
manufacturing facility. The initial production utilizes a mammalian cell
culture system to grow cells from a human cell line from which HLA molecules
are extracted. In 1995, the Company was inspected and granted a site license
to manufacture products for human use by the California Food and Drug
Administration. The Company, together with Novo Nordisk, is currently in the
process of evaluating production of HLA molecules using recombinant DNA
technology. The Company believes that either production methodology will
provide sufficient quantities of HLA for the Company's anticipated clinical
trials.
The Company has contracted with an outside manufacturer to fill,
finish and package its final compounds. The Company's strategy is to maintain
control over its AnergiX manufacturing technology which will facilitate seeking
of patent protection and enable timely supply of products for clinical trials.
Whether the Company will choose to develop a full-scale manufacturing facility,
rely on its corporate partner, or rely on outside contract manufacturing will
be determined in the future after consideration of the Company's financial and
scientific resources and the potential advantages and disadvantages of these
alternatives. Anergen and Novo Nordisk have agreed to share manufacturing of
AnergiX, but it is at the discretion of Novo Nordisk to determine the degree to
which the Company will share in the manufacture of AnergiX. See "Risk Factors
that May Affect Future Operating Performance - Dependence on Collaborative
Partners" and "- Need to Develop Manufacturing Capabilities."
Manufacture of the Company's AnervaX compounds is performed by an
outside contract manufacturer and the resultant product is filled and finished
by a second subcontractor. There can be no assurance that the Company will be
able to find qualified outside parties to be able to perform these functions on
a timely basis or at a quality and price level that is acceptable to the
Company in the future.
MARKETING AND SALES
The Company currently has no sales, marketing or distribution
capability. The Company has entered into collaborative relationships with Novo
Nordisk and Organon for the commercialization of its AnergiX products for MS,
MG, IDDM, and RA. For other potential products, the Company intends to rely on
relationships with one or more pharmaceutical companies with established
distribution systems and direct sales forces to market its products. In the
event that the Company is unable to reach agreement with one or more
pharmaceutical companies to market its products, it may be required to market
its products directly and to develop a marketing and sales force with technical
expertise and with supporting distribution capability. There can be no
assurance that the Company will be able to establish in-house sales and
distribution capabilities or relationships with third parties, or that it will
be successful in gaining market acceptance for its products. To the extent the
Company enters into co-promotion or other licensing arrangements, any revenues
received by the Company will also depend upon the efforts of third parties, and
there can be no assurance that such efforts will be successful. See "Risk
Factors that May Affect Future Operating Performance - Dependence on
Collaborative Partners" and "- Lack of Marketing Experience; Dependence on
Third Parties."
PATENTS AND PROPRIETARY RIGHTS
The Company is pursuing patent protection for its proprietary
technologies. In July 1992, the Company was issued a U.S. patent that covers
pharmaceutical compositions comprising MHC-peptide complexes. Four subsequent
U.S. patents have provided additional protection for these complexes, methods
of making them, and their use to induce anergy in T cells. The last patent in
this series was issued in November 1995 and all five U.S. patents in such
series expire in 2009. The Company has also been issued one other U.S. patent
based upon other aspects of its research, expiring in 2011. In June 1996, the
Company received a grant for a European patent directed to the MHC-peptide
complexes, expiring in 2008. A related patent has also been issued in Korea,
expiring in 2008. In addition, Anergen has filed other patent applications in
Canada, the EPO and Japan. Pending patent applications in the U.S. and Japan
include those covering different aspects of the Company's AnergiX and AnervaX
technologies.
The Company has also entered into a number of collaborative research
arrangements with consultants at academic institutions. These agreements
generally provide for exchanges of information and for nondisclosure of
technical information by both parties, but the Company's current agreements do
not obligate the Company to release any of its technology for use by any other
entities nor commit the Company to pay royalties on any discovery made in
connection with
10
<PAGE> 11
such research agreements. The Company has a "technology license agreement"
with a collaborator related to its AnervaX technology which provides for
payment of royalties if resultant products are commercialized. In the future,
the Company may enter into agreements which provide for royalties in exchange
for technology rights.
The Company's success will depend in part on its ability to maintain
patent protection for its therapeutic approach and for any developed products,
to preserve its trade secrets and to operate without infringing the proprietary
rights of third parties. Although the Company has obtained and applied for
patents covering certain aspects of its technology, no assurances can be given
that additional patents will be issued or, if issued, that the scope of any
patent protection will be significant, or that the patents will be held valid
if subsequently challenged. Moreover, the Company cannot ascertain with
certainty that no patent conflict will exist with other products or processes
which could compete with the Company's approaches. See "Risk Factors that May
Affect Future Operating Performance - Uncertainty Relating to Patents and
Proprietary Rights."
The terms Anergen, AnergiX, MS/AnergiX, MG/AnergiX, IDDM/AnergiX,
RA/AnergiX and AnervaX are trademarks of the Company. The Company's
registration of the trademarks Anergen, AnergiX, and AnervaX are currently
pending, and the Company intends to register the remaining trademarks.
COMPETITION
The biotechnology and pharmaceutical industries are characterized by
rapidly evolving technology and intense competition. The Company's competitors
include major pharmaceutical, chemical and specialized biotechnology companies,
most of which have financial, technical, research and development,
manufacturing, clinical and marketing resources significantly greater than
those of the Company. The Company believes that these other entities recognize
the need for effective therapies for the autoimmune diseases targeted by the
Company and are highly motivated to develop such therapies. In addition, many
specialized biotechnology companies have formed collaborations with large,
established companies to support research, development and commercialization of
products that may be competitive with those of the Company. Academic
institutions, governmental agencies and other public and private research
organizations are also conducting research activities and seeking patent
protection and may commercialize products on their own or through joint
ventures. The Company is aware of certain products in development by
competitors that are intended to be used for the prevention or treatment of
certain diseases the Company has targeted for product development. The
existence of these products, or other products of which the Company is not
aware, or products or treatments that may be developed in the future which may
be more effective, may adversely affect the commercialization or marketability
of products which may be developed by the Company or potentially render the
Company's technology obsolete or non-competitive.
The Company's competitive position will depend on its ability to
attract and retain qualified scientific and other personnel, develop effective
proprietary products, implement production and marketing plans, obtain patent
protection and secure adequate capital resources. In addition, the first
pharmaceutical product to reach the market in a therapeutic or preventive area
is often at a significant competitive advantage relative to later entrants to
the market. The Company expects its products, if approved for sale, to compete
primarily on the basis of product efficacy, safety, patent position,
reliability, price and patient convenience.
There are numerous pharmaceutical and biotechnology companies
developing therapies against autoimmune diseases. Many pharmaceutical
companies are working on products to treat MS. Current therapies, which have
limited impact on the disease state and primarily affect symptoms, include two
beta interferon drugs. Other potential therapeutics which target the
underlying disease state include oral tolerance therapy and peptide-based
therapies. In RA, there are also many approaches under development which
target the underlying disease state including oral tolerance, peptide-based
therapies, peptide vaccines to the T cell receptors and humanized antibodies.
In IDDM, one experimental approach is based on non-specific inhibition of T
cells using cyclosporin, a general immunosuppressant. In patients who already
have IDDM, transplantation of pancreas or insulin-producing # cells is also
being explored. Autoimmune diseases are a major target for many companies
developing therapeutics, and it is unclear which approaches will work most
effectively.
The Company believes that the ability of its AnergiX to inactivate
only the specific T cells related to a particular autoimmune disease may
provide, if the Company's products are successfully developed, an important
competitive advantage over companies using approaches which have broader
suppressive effects on the human immune system. Anergen also believes that its
ability to inactivate these specific T cells without the use of toxins, if
successfully demonstrated, would be advantageous. The Company also believes
that its AnervaX approach, if successfully developed, may offer a competitive
advantage if it is found to interrupt disease progression without severely
suppressing the immune system. See "Risk Factors That May Affect Future
Operating Performance - Competition and Technological Change."
11
<PAGE> 12
GOVERNMENT REGULATION
The Company's research and development activities are subject to
regulation by numerous governmental authorities in the United States and other
countries. Further, the future production and marketing of any products
developed by the Company would also be regulated. In the United States,
vaccines, drugs and biologics are subject to rigorous review by the Food and
Drug Administration ("FDA"). The Federal Food, Drug, and Cosmetic Act, the
Public Health Service Act and other federal statutes and regulations govern or
influence the testing, manufacture, safety, labeling, storage, record keeping,
approval, advertising and promotion of such products. Noncompliance with
applicable requirements can result in fines, recall or seizure of products,
clinical study holds, total or partial suspension of production, refusal of the
government to approve New Drug Applications ("NDA"), Product License
Applications ("PLA"), Establishment License Applications ("ELA") or allow the
Company to enter into supply contracts and criminal prosecution. The FDA also
has the authority to revoke PLAs and ELAs previously granted.
In order to obtain FDA approval of a new biological product, the
Company must submit proof of safety, purity, potency and efficacy. In most
cases such proof entails extensive pre-clinical, clinical and laboratory tests.
The testing, preparation of necessary applications and processing of those
applications by the FDA is expensive and time consuming, can vary based on the
type of product, and may take several years to complete. There is no assurance
that the FDA will act favorably or quickly in making such reviews, and
significant difficulties or costs may be encountered by the Company in its
efforts to obtain FDA approvals that could delay or preclude the Company from
marketing any products it may develop or furnish an advantage to competitors.
The FDA may also require post-marketing testing and surveillance to monitor the
effects of approved products or place conditions on any approvals that could
restrict the commercial applications of such products. Product approvals may
be withdrawn if compliance with regulatory standards is not maintained or if
problems occur following initial marketing. In addition, delays imposed by the
governmental approval process may materially reduce the period during which the
Company may have the exclusive right to exploit patented products or
technologies.
The FDA approval process for a new biological drug involves completion
of pre-clinical studies which include laboratory tests and animal studies to
assess safety and effectiveness of the drug. Among other things, the results
of these studies as well as how the product will be manufactured are submitted
to the FDA as part of an IND. Unless the FDA objects human clinical trials may
then be conducted 30 days following the receipt of the IND by the FDA. There
can be no assurance that submission of an IND will result in FDA authorization
to commence clinical trials. The results of the clinical trials are submitted
to the FDA as part of a PLA. In addition to obtaining FDA approval for each
AnergiX indication, an ELA must be filed and the FDA must approve the
manufacturing facilities for the product. Product sales may commence if the
PLA and ELA are approved. Regulatory requirements for obtaining such FDA
approvals are rigorous and there can be no assurance that such approvals will
be obtained on a timely basis or at all.
Human clinical trials are typically conducted in three sequential
phases, but the phases may overlap. Phase I trials consist of testing the
product in a small number of patients primarily for safety at one or more
dosage levels. In Phase II, in addition to safety, the efficacy of the product
is evaluated in a patient population slightly larger than Phase I trials, and
appropriate dosage is established. Phase III trials typically involve
additional testing for safety and clinical efficacy in an expanded patient
population at geographically dispersed test sites, and with dosage that will be
submitted for approval. A clinical plan, or "protocol", accompanied by the
approval of the institutional review board at the institution participating in
the trials, and patient informed consent form must be submitted to the FDA
prior to commencement of each clinical trial. The FDA may order the temporary
or permanent discontinuation of a clinical trial at any time if it believes
patient safety is at risk. The Company's regulatory strategy is to seek input
from the FDA at all stages of clinical testing and manufacturing process
development.
The results of the pre-clinical and clinical studies on biological
drugs such as the Company's AnergiX are submitted to the FDA in the form of a
PLA and ELA for approval to commence commercial sales. After completion of the
FDA's review of the PLA submission, the submission may be sent to an FDA
selected scientific advisory panel composed of physicians and scientists with
expertise in the particular field. The FDA scientific advisory panel issues a
recommendation to the FDA that includes conditions for approval of the PLA.
Although the recommendation is not binding, the agency generally follows an
advisory panel's advice. Toward the end of the PLA review process, the FDA
will conduct an inspection of the manufacturer's facilities to ensure they are
in compliance with the applicable GMP requirements. If the FDA evaluation of
both the ELA application and manufacturing facilities contained in the PLA
application are favorable, the FDA will issue an approval letter, which usually
contains a number of conditions which must be met in order to secure final
approval. In responding to the PLA, the FDA may grant marketing approval,
require additional testing or information, or deny the application.
Governmental approval of products developed by the Company may entail
limitations on the indicated uses for which such products may be marketed.
Continued compliance with all FDA requirements and the conditions in an
approved application, including product specification, manufacturing process,
labeling and promotional material and record
12
<PAGE> 13
keeping and reporting requirements, is necessary for all products. Failure to
comply, or the occurrence of unanticipated adverse effects during commercial
marketing, could lead to the need for product recall or other FDA-initiated
action, which could delay further marketing until the products are brought into
compliance.
Under the Orphan Drug Act, the FDA may designate a drug as an orphan
drug. An orphan drug is a drug intended to treat a "rare disease or
condition," which is a disease or condition that affects populations of fewer
than 200,000 individuals in the United States or, if victims of a disease
number more than 200,000, the sponsor establishes that it does not
realistically anticipate that its product sales will be sufficient to recover
its costs. If a product is designated as an orphan drug, then the sponsor is
entitled to receive certain incentives to undertake the development and
marketing of the product, including limited tax credits and high priority FDA
review of an NDA. In addition, the sponsor that obtains the first marketing
approval for a designated orphan drug for a given rare disease is eligible to
receive marketing exclusivity for a period of seven years. There may be
multiple designations of an orphan drug; however, only the sponsor of the
first approved NDA for a given drug for its use in treating a given rare
disease may receive marketing exclusivity. The Company may apply for orphan
drug designation for some of its products and indications in development.
There is no assurance that the FDA would grant orphan drug designation or
marketing exclusivity for any such indications or products.
The Company is also subject to regulation by the Occupational Safety
and Health Administration ("OSHA") and the Environmental Protection Agency
("EPA") and to regulation under the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other regulatory statutes, and may in the
future be subject to other federal, state or local regulations. Although the
Company believes that its safety procedures for handling and disposing of
hazardous materials comply with the standards prescribed by current laws and
regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident,
the Company could be held liable for any damages that result and any such
liability could exceed the resources of the Company. In addition, regulations
may be promulgated governing biotechnology that may affect the Company's
research and development programs. The Company is unable to predict whether
any agency will adopt any regulation which would have a material adverse effect
on the Company's operations. See "Risk Factors That May Affect Future
Operating Performance - Government Regulation; No Assurance of Obtaining
Product Approvals."
Sales of pharmaceutical products outside the United States are subject
to foreign regulatory requirements that vary widely from country to country.
The time required to obtain approvals required by foreign countries may be
longer or shorter than that required for FDA approval, and requirements for
licensing may differ from FDA requirements.
Satisfaction of these FDA requirements, or similar requirements by
foreign regulatory agencies, typically takes several years and the time needed
to satisfy them may vary substantially, based upon the type, complexity and
novelty of the pharmaceutical product. The effect of government regulation may
be to delay or to prevent marketing of potential products for a considerable
period of time and to impose costly procedures upon the Company's activities.
There can be no assurance that the FDA or any other regulatory agency will
grant approval for any products being developed by the Company on a timely
basis, or at all. Success in preclinical or early stage clinical trials does
not assure success in later stage clinical trials. Data obtained from
preclinical or clinical activities are susceptible to varying interpretations
which could delay, limit or prevent regulatory approval. If regulatory
approval of a product is granted, such approval may impose limitations on the
indicated uses for which a product may be marketed. Further, even if
regulatory approval is obtained, later discovery of previously unknown problems
with a product may result in restrictions on the product, including withdrawal
of the product from the market. Delay in obtaining or failure to obtain
regulatory approvals would have a material adverse effect on the Company's
business financial condition or results of operations.
PHARMACEUTICAL PRICING AND REIMBURSEMENT
Political, economic and regulatory influences are subjecting the
health care industry in the United States to fundamental change. Initiatives
to reduce the federal deficit and to reform health care delivery are increasing
these cost containment efforts. The Company anticipates that Congress, state
legislatures and the private sector will continue to review and assess
alternative benefits, controls on health care spending through limitations on
the growth of private health insurance premiums and Medicare and Medicaid
spending, the creation of large insurance purchasing groups, price controls on
pharmaceuticals and other fundamental changes to the health care delivery
system. Any such proposed or actual changes could cause any potential partners
of the Company to limit or eliminate spending on collaborative development
projects. Legislative debate is expected to continue in the future, market
forces are expected to demand reduced costs and Anergen cannot predict what
impact the adoption of any federal or state health care reform measures or
future private sector reforms may have on its business.
13
<PAGE> 14
In both domestic and foreign markets, sales of the Company's proposed
products will depend in part upon the availability of reimbursement from
third-party payors, such as government health administration authorities,
private health insurers and other organizations. In addition, third-party
payers are increasingly challenging the price and cost effectiveness of medical
products and services. Significant uncertainty exists as to the reimbursement
status of newly approved health care products. There can be no assurance that
the Company's potential products or products discovered in collaboration with
the Company will be considered cost-effective or that adequate third-party
reimbursement will be available to enable Anergen to maintain price levels
sufficient to realize an appropriate return on its investment in product
research, discovery and development. Legislation and regulations affecting the
pricing of pharmaceuticals may change before the Company's proposed products
are approved for marketing. Adoption of such legislation could further limit
reimbursement for medical products. If adequate coverage and reimbursement
levels are not provided by the government and third-party payors for the
Company's products, the market acceptance of these products would be adversely
affected, which would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors That May
Affect Future Operating Performance - Uncertainty Related to Pharmaceutical
Pricing and Reimbursement."
PRODUCT LIABILITY INSURANCE
The testing, marketing and sale of human health care products entail
an inherent risk of exposure to product liability claims in the event that the
use of the Company's technology or prospective products is alleged to have
resulted in adverse effects. While the Company has taken, and will continue to
take, what it believes are appropriate precautions to minimize exposure to
product liability, there can be no assurance that it will avoid significant
liability. The Company possesses limited general liability and product
liability insurance related to its clinical trials of AnervaX for RA and
AnergiX for MS, and certain other types of insurance customarily obtained by
business organizations. There can be no assurance that the existing insurance
coverage is adequate or that it will avoid liability. The Company intends to
seek insurance against product liability risks associated with the testing,
manufacturing or marketing of its products. However, there can be no assurance
that it will be able to obtain such insurance in the future, or that if
obtained, such insurance will be sufficient in amount. Consequently, a product
liability claim or other claims with respect to uninsured liabilities or in
excess of insured liabilities could have a material adverse effect on the
business, financial condition or results of operations of the Company.
EMPLOYEES
As of December 31, 1996, the Company had 65 full-time employees, of
whom thirteen hold doctoral degrees. Of the 65 full-time employees, 54 are
engaged in, or directly support, the Company's research and development
activities. The Company also employs several part-time workers. The Company
considers relations with its employees to be good. None of the Company's
employees is covered by a collective bargaining agreement. See "Risk Factors
That May Affect Future Operating Performance - Dependence on and Need for
Additional Key Personnel; Reliance on Academic Collaborators."
SCIENTIFIC ADVISORY BOARD
Anergen benefits from the advice and assistance of its Scientific
Advisory Board, most of whom are involved in ongoing discussions with the
Company's researchers and all of whom are involved in full-time teaching and
research at academic institutions. The names of the members of the scientific
advisory board and some background information about them are set forth below.
Mark Davis, Ph.D., Professor, Department of Microbiology and
Immunology, Stanford University School of Medicine. Dr. Davis has been
involved in research on the structure and function of the T cell receptor. His
group isolated and characterized a T cell receptor gene and succeeded in
expressing both T cell antigen receptor and HLA II molecules in a soluble form
to facilitate analysis of their properties.
Patricia Jones, Ph.D., Professor, Department of Biological Sciences,
Stanford University. Dr. Jones has been involved in research on the
biochemistry and molecular biology of HLA II molecules.
Harden McConnell, Ph.D., Robert Eckels Swain Professor in the
Department of Chemistry, Stanford University. Dr. McConnell has been involved
in research on the properties, structure and functioning of cell membrane
components including HLA II proteins. He is also a director of the Company.
Subramaniam Sriram, M.D., Professor of Neurology, Vanderbilt
University Medical Center. Dr. Sriram's research efforts are directed towards
elucidating immunological mechanisms of autoimmune diseases of the central
nervous system.
14
<PAGE> 15
He has been involved in advancing the concept that HLA II molecules and helper
T cells are necessary parts of the pathology of autoimmune diseases.
The Company believes it has a good working relationship with its
Scientific Advisory Board. Communication with many members of the Scientific
Advisory Board takes place on a regular basis and in some cases at least
weekly. In accordance with consulting agreements the Company has with these
advisors, information conveyed to the Company as part of the consulting
activity is the property of the Company. Should scientific discoveries be made
by a member of the Scientific Advisory Board in conjunction with other research
at another institution rather than while acting as a consultant to the Company,
that discovery would generally be owned by the researcher or that institution.
If such a discovery were deemed to be helpful in the Company's own research,
the Company would have to enter into a license agreement in order to utilize
the discovery. The Company relies on its scientific advisors to assist the
Company in formulating its research and development strategy. Retaining and
attracting qualified advisors will be critical to the Company's success. Each
of the Scientific Advisory Board members is paid $12,000 annually for his or
her services.
ITEM 2. PROPERTIES
Anergen's laboratory and administrative facilities occupy
approximately 27,000 square feet of space in Redwood City, California. The
majority of these facilities are subject to a lease which expires on January
31, 1999, with a two-year renewal option. The Company believes that this space
is adequate for its immediate needs, and that it will be able to obtain
additional space as necessary.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
15
<PAGE> 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the shareholders of the
Company during the fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, who serve at the discretion of
the Board of Directors, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY OFFICER SINCE
- ---- --- ------------------------- -------------
<S> <C> <C> <C>
Barry M. Sherman, M.D. 55 President, Chief Executive Officer, 1996
Secretary and Director
John W. Varian 37 Vice President, Finance and 1991
Chief Financial Officer
Jeffrey L. Winkelhake, Ph.D. 52 Vice President, Pharmaceutical Development 1993
Michael G. Shulman, M.D. 57 Vice President, Medical Affairs 1997
</TABLE>
Barry M. Sherman, M.D., joined the Company as President and Chief
Executive Officer and as a director in May 1996. Dr. Sherman previously served
as Senior Vice President and Chief Medical Officer at Genentech, Inc.
("Genentech"), a biotechnology company. Dr. Sherman joined Genentech in 1985,
and while there served as a member of the Operations Committee and was
responsible for the company's overall clinical development activities. Since
1986, Dr. Sherman has also been a Clinical Professor of Internal Medicine at
Stanford University. From 1971 to 1985, Dr. Sherman was a professor of
Internal Medicine, Director of the Clinical Research Center and Associate
Chairman of the Department of Internal Medicine at the University of Iowa
College of Medicine. Dr. Sherman received his M.D. in 1966 from the University
of Michigan.
John W. Varian joined the Company as Vice President, Finance and Chief
Financial Officer in August 1991. Prior to joining the Company, and since
1987, Mr. Varian was a Senior Manager with Ernst & Young LLP. Mr. Varian is a
certified public accountant and received his BBA from Western Michigan
University. As of April 30, 1997, Mr. Varian will be resigning as an executive
of the Company.
Jeffrey Winkelhake, Ph.D., joined the Company in April 1993 as Vice
President, Pharmaceutical Development. Prior to joining the Company, Dr.
Winkelhake served for three years as Director of Program Management at Cytel
Corporation, a biotechnology company. Prior to that, he served for over six
years as Director of Pharmacology at Cetus Corporation, also a biotechnology
company. Dr. Winkelhake received his Ph.D. in Immunochemistry/Pharmacology
from the University of Illinois in 1974.
Michael G. Shulman, M.D., joined the Company in January 1997 as Vice
President, Medical Affairs. Prior to joining the Company, Dr. Shulman served
from June 1995 as a Medical Director and consultant to SangStat Medical
Corporation. From January 1994 to December 1996, Dr. Shulman served as
Marketing Agent for the Mercer University School of Pharmacy. From February
1994 to December 1994, he served as Associate Medical Director of Syntex
Development Research, a pharmaceutical company. Prior to that, Dr. Shulman
served for over two years as Associate Director of Immunohematology and
Cardiovascular for Sandoz Pharmaceuticals Corporation.
There are no family relationships among the executive officers of
Anergen, Inc.
16
<PAGE> 17
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the NASDAQ National Market
System under the symbol "ANRG". The following table sets forth, for the
periods indicated, the low and high closing sale prices for the Company's
Common Stock as reported on the NASDAQ National Market:
<TABLE>
<CAPTION>
1995 Low High
---- --- ----
<S> <C> <C>
First Quarter . . . . . . . . . . . . $ 1.88 $ 4.00
Second Quarter . . . . . . . . . . . . 2.13 4.13
Third Quarter . . . . . . . . . . . . 3.13 5.38
Fourth Quarter . . . . . . . . . . . . 2.63 5.25
1996
----
First Quarter . . . . . . . . . . . . 3.56 4.38
Second Quarter . . . . . . . . . . . . 3.25 6.00
Third Quarter . . . . . . . . . . . . 3.06 5.25
Fourth Quarter . . . . . . . . . . . . 2.81 4.13
</TABLE>
As of March 7, 1997, 18,782,327 shares of the Company's Common Stock
were issued and outstanding and held of record by approximately 357
shareholders and were beneficially owned by over 400 shareholders.
The market price of the Company's Common Stock, similar to the
securities of other biotechnology companies, has been and is likely to continue
to be highly volatile. Announcements regarding the results of regulatory
approval filings, clinical trials or other testing, technological innovations
or new commercial products by the Company or its competitors, patents and
intellectual property rights by the Company or its competitors, developments
as to current or future collaborations by the Company or its competitors,
government regulations, the status of health care initiatives, fluctuations in
operating results, changes in recommendations by financial analysts, and
general market conditions for biotechnology stocks could have a significant
impact on the future price of the Common Stock. Trading volume of the Common
Stock has been relatively limited and sales of substantial amounts of Common
Stock could have an adverse effect on the price of the Common Stock.
No dividends have been declared or paid on the Common Stock. The
Company currently intends to retain all future earnings, if any, for use in its
business and does not anticipate paying any cash dividends in the foreseeable
future.
17
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------
STATEMENTS OF OPERATIONS DATA 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues:
Contract revenues, primarily from related party $ 3,519 $ 3,001 $ 2,325 $ 339 $ --
License fee .................................... 2,000 -- -- -- --
Interest income................................. 653 533 207 312 544
---------- ---------- ---------- ---------- ----------
6,172 3,534 2,532 651 544
Expenses:
Research and development........................ 9,278 8,322 7,423 5,553 4,525
General and administrative...................... 2,521 1,976 1,831 1,716 1,494
Interest expense................................ 170 322 238 226 78
---------- ---------- ---------- ---------- -----------
11,969 10,620 9,492 7,495 6,097
--------- --------- --------- --------- ----------
Net loss........................................ $ (5,797) $ (7,086) $ (6,960) $ (6,844) $ (5,553)
========= ========= ========= ========= =========
Net loss per share.............................. $ (0.35) $ (0.55) $ (0.97) $ (1.12) $ (0.99)
========= ========= ========= ========= =========
Shares used in calculating per share data....... 16,482 12,859 7,202 6,118 5,599
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash, cash equivalents and short-term investments.. $ 16,400 $ 11,492 $ 3,756 $ 9,585 $ 8,918
Total assets....................................... 18,423 14,455 6,797 11,763 10,724
Long-term portion of capital lease
obligations and debt.......................... 366 818 990 956 1,112
Shareholders' equity............................... 16,003 11,714 3,870 9,251 7,857
</TABLE>
18
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WHICH INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THE RESULTS ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF
CERTAIN FACTORS SET FORTH HEREUNDER.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its operations primarily through
private placements of its equity securities with venture capitalists (which
raised an aggregate of approximately $7.6 million in net proceeds), through an
initial public offering of its Common Stock in October of 1991 (which raised
approximately $14.2 million in net proceeds), through the sale of its Common
Stock to its corporate partner, Novo Nordisk A/S in August of 1993 (which
raised approximately $8 million in net proceeds), through the sale of its
Common Stock and Warrants to purchase its Common Stock through a private
placement in June of 1994 (which raised $1.5 million in proceeds), and in April
of 1995 through the issuance of 7,317,073 shares of the Company's Common Stock
to two new investors in exchange for approximately $14.7 million in net
proceeds. In August 1996 the Company issued 3,500,000 shares of the Company's
Common Stock in a follow-on public offering in exchange for approximately $9.4
million in net proceeds, and in September 1996 the Company issued an additional
168,000 shares of Common Stock in connection with the exercise of the
underwriters' overallottment option for approximately $500,000 in net proceeds.
At December 31, 1996, the Company's cash, cash equivalents and short-term
investments were approximately $16.4 million and the Company had shareholders'
equity of approximately $16.0 million. As of December 31, 1996 the Company had
net borrowings of $964,000 under two loan agreements with Silicon Valley Bank
of California. On December 27, 1996 the Company amended a loan agreement with
Silicon Valley Bank to provide an additional $1,500,000 in financing available
through December 31, 1997. As of December 31, 1996 the Company had borrowed
$276,000 under the amended agreement. Lease lines and loans have been and will
continue to be used by the Company to the extent that their terms are
commercially attractive; however, there can be no assurance that additional
borrowing facilities will be available. At December 31, 1996 the Company had
no material commitments for capital expenditures.
The Company anticipates that its current cash, cash equivalents,
short-term investments and expected revenues under its collaborative agreements
will be sufficient to fund its operations through approximately 1998.
Thereafter, the Company will require substantial additional funds to continue
its operations. The Company anticipates that its current resources will be
primarily used to fund clinical testing of AnervaX(TM) for Rheumatoid Arthritis
("RA") and AnergiX(TM) for Multiple Sclerosis ("MS"), and continued research
and development and preparation for clinical testing of AnergiX for the
treatment of RA, Type I Diabetes and Myasthenia Gravis. The balance of such
resources will be used to fund continued limited research on other autoimmune
diseases and general and administrative activities, including those associated
with seeking collaborative arrangements to enable the Company to increase its
research and development activities in other autoimmune diseases. These
foregoing forward-looking statements involve risks and uncertainties that could
cause actual results to differ materially. In particular, the Company's
capital requirements will vary depending upon numerous factors many of which
are outside the Company's control. These factors include the progress of the
Company's research and development programs, manufacturing activities, the
progress of the Company's clinical programs, the results of laboratory testing,
the time and cost required to seek regulatory approvals to commence clinical
trials for the Company's initial products, the need to obtain licenses to other
proprietary rights, any required adjustments to the Company's operating plan to
respond to competitive pressures or technological advances, developments with
respect to the Company's existing or future collaborative arrangements, and the
availability of various methods of financing. The Company expects to seek to
raise additional capital through equity or debt financing, research and
development collaborations with other pharmaceutical companies or through other
sources. Any additional equity financing may be dilutive to shareholders, and
debt financing, if available, may involve restrictions on stock dividends and
other restrictions on the Company. Adequate funds for the Company's
operations, whether from equity or debt, collaborative or other arrangements
with corporate partners or from other sources, may not be available when needed
or on terms attractive to the Company. Insufficient funds may require the
Company to delay, scale back or eliminate some or all of its research and
product development programs or to license third parties to commercialize
products or technologies that the Company would otherwise seek to develop
itself. The Company's liquidity will be reduced as amounts are expended for
continuing research and development.
19
<PAGE> 20
RESULTS OF OPERATIONS
The Company's net losses increased from $7.0 million in 1994 to $7.1
million in 1995, and decreased to $5.8 million in 1996. The Company expects to
incur substantial and increasing operating losses for at least the next several
years. The Company's total expenses increased from $9.5 million in 1994 and
$10.6 million in 1995 to $12.0 million in 1996. In 1996, increased expenses
were offset by contract revenues totaling approximately $3.5 million and a
license fee of approximately $2.0 million from its corporate partners.
The Company began earning contract revenues in 1993 under its
collaborative agreement with Novo Nordisk A/S. Contract revenues represent
reimbursement of certain research and development costs and totaled $3.1
million in 1996 compared with $3.0 million for fiscal 1995 and $2.3 million in
1994.
The Company began earning contract revenues in September 1996 under
its collaborative agreement with N.V. Organon which totaled $412,000 for the
year. In September 1996, the Company received a license fee of approximately
$2.0 million related to this agreement.
Research and development expenses increased from $7.4 million in 1994
and $8.3 million in 1995 to $9.3 million in 1996. The 12% increase from 1994 to
1995 was primarily due to clinical trial costs for the Phase I trial for the
Company's AnervaX product for RA, preclinical costs associated with the
Company's filing of an IND for its AnergiX product for MS and increased
activities related to the Company's research project involving Type I Diabetes.
The 12% increase from 1995 to 1996 was primarily due to clinical trial costs
for the completion of Phase I and initiation of Phase IIa trials for the
Company's AnervaX product, costs associated with the preparation for and
initiation of a Phase I trial for its AnergiX product for MS and initial
activities related to the Company's research project involving its AnergiX
product for RA. The Company expects research and development spending to
continue to increase during the next several years.
General and administrative expenses were approximately $1.8 million,
$2.0 million and $2.5 million in 1994, 1995 and 1996, respectively. These
increases were due to adding personnel and providing necessary business,
administrative and finance resources to support increased research and
development activities, to costs associated with the retirement of John W.
Fara, Ph.D., the former President and CEO, the recruitment and hiring of Barry
M. Sherman, M.D., as President and CEO, and to increased corporate development
activities. The Company expects general and administrative expenses to
increase over the next several years to support its expanded research and
development efforts and to pursue strategic relationships and continued funding
for the Company's operations.
The Company's interest income increased to $533,000 in 1995 from
$207,000 in 1994 due to higher cash, cash equivalents and short-term investment
balances. In 1996 interest income rose to $653,000 due to an increase in cash,
cash equivalents and short-term investment balances resulting from proceeds
received from the follow-on financing completed in August 1996, a license fee
received in September 1996, and earlier payments of corporate partner contract
revenues. Interest expense rose from $238,000 in 1994 to $322,000 in 1995 due
to debt financing of the Company's facility expansion and addition of
laboratory equipment. Interest expense decreased in 1996 to $170,000 due to
decreasing debt balances in 1996.
At December 31, 1996, the Company had federal and state net operating
loss carryforwards of approximately $38.7 million and $13.9 million,
respectively, which expire at various dates beginning 2003 through 2011, if not
utilized. The Company's stock offering in April 1995 resulted in a change in
ownership and it is expected that the entire net operating loss and credit
carryforwards as of April 1995 may be subject to an annual limitation based on
the Company's pre-change value. The annual limitation will result in the
expiration of the net operating losses and credits before utilization. See
Note 8 of the December 31, 1996 Financial Statements for a discussion of these
limitations.
RISK FACTORS THAT MAY AFFECT FUTURE OPERATING PERFORMANCE
EARLY STAGE OF PRODUCT DEVELOPMENT; LACK OF COMMERCIAL PRODUCTS; NO ASSURANCE
OF SUCCESSFUL PRODUCT DEVELOPMENT
The Company was founded in 1988 to discover and develop
biopharmaceutical compounds for the treatment of autoimmune diseases. To
achieve profitable operations, the Company, alone or with others, must
successfully develop, obtain regulatory approval for, manufacture and market
products. The Company does not have any products available for sale nor does
it expect to have any products commercially available for at least several
years, if at all. The Company's potential products are at the early stages of
research and development, with only limited human testing of certain of the
Company's products undertaken to date. The products currently under
development by the Company will require significant additional research,
laboratory testing and clinical trials and investment of capital prior to their
commercialization. There can be no assurance that any potential products will
be successfully developed, prove to be safe and efficacious in clinical trials,
meet applicable regulatory standards, be capable of being produced in
commercial quantities at acceptable costs or be successfully marketed. See
"Business -- Products Under Development."
20
<PAGE> 21
LIMITED OPERATING HISTORY; HISTORY OF LOSSES
The Company has experienced significant net losses every year since
its inception in 1988. Net losses for the fiscal years ended December 31, 1995
and 1996 were approximately $7.1 million and $5.8 million, respectively, and
the Company had an accumulated deficit of approximately $42.1 million as of
December 31, 1996. The Company expects to incur substantial and increasing
operating losses for at least the next several years. The amount of net losses
and the time required by the Company to reach profitability are highly
uncertain. There can be no assurance that the Company will ever be able to
generate product revenue or achieve profitability on a substantial basis or at
all. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
FUTURE REQUIREMENT FOR SIGNIFICANT ADDITIONAL CAPITAL
The Company anticipates that its current cash, cash equivalents,
short-term investments and expected revenues under its collaborative agreements
will be sufficient to fund its operations through approximately 1998.
Thereafter, the Company will require substantial additional funds to continue
its operations. The Company anticipates that its current resources will be
primarily used to fund clinical testing of AnervaX for RA and AnergiX for MS,
and continued research and development and preparation for clinical testing of
AnergiX for the treatment of RA, IDDM and MG. The balance of such resources
will be used to fund continued limited research on other autoimmune diseases
and general and administrative activities, including those associated with
seeking collaborative arrangements to enable the Company to increase its
research and development activities in other autoimmune diseases. The
Company's working capital requirements over the next two years may vary
depending upon numerous factors, including the progress of the Company's
research and development programs, manufacturing activities, the progress of
the Company's clinical programs, the results of laboratory testing, the time
and cost required to seek regulatory approvals to commence clinical trials for
the Company's initial products, the need to obtain licenses to other
proprietary rights, any required adjustments to the Company's operating plan to
respond to competitive pressures or technological advances, developments with
respect to existing or future collaborative arrangements and the availability
of various methods of financing. The Company expects to seek to raise
additional capital through equity or debt financing, research and development
collaborations with corporate partners or through other sources. Any
additional equity financing may be dilutive to shareholders, and debt
financing, if available, may involve restrictions on stock dividends and other
restrictions on the Company. Adequate funds for the Company's operations,
whether from equity or debt financings, collaborative or other arrangements
with corporate partners or from other sources, may not be available when needed
or on terms attractive to the Company. Insufficient funds may require the
Company to delay, scale back or eliminate some or all of its research and
product development programs or to license third parties to commercialize
products or technologies that the Company would otherwise seek to develop
itself. The Company's liquidity will be reduced as amounts are expended for
continuing research and development. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
UNCERTAINTIES RELATED TO PRECLINICAL AND CLINICAL TRIALS
Before obtaining regulatory approvals for the commercial sale of any
of its products under development, the Company must demonstrate through
preclinical studies and clinical trials that the product is safe and
efficacious for use in each target indication. The results from preclinical
studies and early clinical trials may not be predictive of results that will be
obtained in large-scale testing, and there can be no assurance that the
Company's clinical trials will demonstrate the safety and efficacy of any
products or will result in any marketable products. A number of companies in
the biotechnology industry have suffered significant setbacks in advanced
clinical trials, even after promising results in earlier trials. The failure
to adequately demonstrate the safety and efficacy of a therapeutic product
under development could delay or prevent regulatory approval of the product and
could have a material adverse effect on the Company.
The rate of completion of the Company's clinical trials is dependent
upon, among other factors, the FDA's willingness to allow Anergen to proceed;
the results of Anergen's continued research and development, including test
results and success in producing the epitopes and HLA molecules for each
AnergiX compound; the number of skilled scientists, clinicians, and consultants
the Company is able to employ in its efforts and the general interest in the
medical community in a therapeutic using the Company's approach for treatment
of the diseases targeted by the Company. Currently, the Company does not
anticipate establishing its own clinical trials facility. The rate of
completion of clinical trials is also dependent on patient enrollment, which is
a function of many factors, including the size of the patient population, the
proximity of patients to clinical sites and the existence of competitive
trials. If the Company is unable to successfully complete its clinical trials,
its business, financial condition and results of operations could be materially
and adversely affected. See "Business -- Government Regulation."
UNCERTAINTY OF MARKET ACCEPTANCE
Even if the requisite regulatory approvals are obtained for the
Company's potential products or for products developed in collaboration with
the Company, uncertainty exists as to whether such products will be accepted by
the market. A number of factors also may limit the market acceptance of a
product which may be developed by, or discovered through collaboration with,
the Company, including the rate of adoption by health care practitioners, the
indications for which the product is approved, the rate of the product's
acceptance by the target population, the timing of market entry relative to
21
<PAGE> 22
competitive products, the availability of alternative therapies, the price of
the Company's product relative to alternative therapies, the availability of
third-party reimbursement and the extent of marketing efforts by the Company
and third-party distributors or agents retained by the Company. Side effects
or unfavorable publicity concerning a Company product or any similar product
could have an adverse effect on the Company's ability to obtain physician,
patient or third-party payor acceptance and on efforts to sell that product.
There can be no assurance of the Company's ability, or the length of time
required, to achieve commercialization of the Company's products or that
physicians, patients or third party payors will accept any of the Company's
products as readily as alternative therapies, or at all. See "Business --
Products Under Development" and " -- Pharmaceutical Pricing and Reimbursement."
GOVERNMENT REGULATION; NO ASSURANCE OF OBTAINING PRODUCT APPROVALS
The Company's research and development activities are subject to
regulation by numerous governmental authorities in the United States and other
countries. Further, the future production and marketing of any products
developed by the Company would also be regulated, particularly as to safety and
efficacy. In the United States, vaccines, drugs and biologics are subject to
rigorous FDA review. The Federal Food, Drug, and Cosmetic Act, the Public
Health Service Act and other federal statutes and regulations govern or
influence the testing, manufacture, safety, labeling, storage, record keeping,
approval, advertising and promotion of such products. Noncompliance with
applicable requirements can result in fines, recall or seizure of products,
clinical study holds, total or partial suspension of production, refusal of the
government to approve NDAs, PLAs, ELAs or allow the Company to enter into
supply contracts and criminal prosecution. The FDA also has the authority to
revoke PLAs and ELAs previously granted.
In order to obtain FDA approval of a new biological product, the
Company must submit proof of safety, purity, potency and efficacy. In most
cases such proof entails extensive pre-clinical, laboratory, and clinical
tests. The testing, preparation of necessary marketing applications and
processing of those applications by the FDA is expensive and time consuming,
can vary based on the type of product, and may take several years to complete.
There is no assurance that the FDA will act favorably or quickly in making such
reviews, and significant difficulties or costs may be encountered by the
Company in its efforts to obtain FDA approvals that could delay or preclude the
Company from marketing any products it may develop or furnish an advantage to
competitors. The FDA may also require post-marketing testing and surveillance
to monitor the effects of approved products or place conditions on any
approvals that could restrict the commercial applications of such products.
Product approvals may be withdrawn if compliance with regulatory standards is
not maintained or if problems occur following initial marketing. In addition,
delays imposed by the governmental approval process may materially reduce the
period during which the Company may have the exclusive right to exploit
patented products or technologies.
The FDA approval process for a new biological drug involves completion
of pre-clinical studies which include laboratory tests and animal studies to
assess safety and effectiveness of the drug. Among other things, the results
of these studies as well as how the product will be manufactured, are submitted
to the FDA in an IND and, unless the FDA objects, the IND becomes effective 30
days following receipt by the FDA. FDA cleared human clinical trials may then
be conducted. The results of the clinical trials are submitted to the FDA as
part of a PLA. In addition to obtaining FDA approval for each AnergiX
indication, an ELA must be filed and the FDA must approve the manufacturing
facilities for the product. Product sales may commence only if the PLA and ELA
are approved. Regulatory requirements for obtaining such FDA approvals are
rigorous and there can be no assurance that such approvals will be obtained on
a timely basis or at all.
Sales of pharmaceutical products outside the United States are subject
to foreign regulatory requirements that vary widely from country to country.
The time required to obtain approvals required by foreign countries may be
longer or shorter than that required for FDA approval, and requirements for
licensing may differ from FDA requirements.
If approval is obtained, the Company will be subject to continuing FDA
obligations. When manufacturing biologics, the Company will be required to
adhere to regulations setting forth current Good Manufacturing Practices
("GMP"), which require that the Company manufacture its products and maintain
its records in a prescribed manner with respect to manufacturing, testing and
quality control activities. Further, the Company must pass a preapproval
inspection of its manufacturing facilities by the FDA before obtaining
approval.
Satisfaction of these FDA requirements, or similar requirements by
foreign regulatory agencies, typically takes several years and the time needed
to satisfy them may vary substantially, based upon the type, complexity and
novelty of the pharmaceutical product. The effect of government regulation may
be to delay or to prevent marketing of potential products for a considerable
period of time and to impose costly procedures upon the Company's activities.
There can be no assurance that the FDA or any other regulatory agency will
grant approval for any products or indications being developed by the Company
on a timely basis, or at all. Success in preclinical or early stage clinical
trials does not assure success in later stage clinical trials. Data obtained
from preclinical and clinical activities are susceptible to varying
interpretations which could delay, limit or prevent regulatory approval. If
regulatory approval of a product is granted, such approval may impose
limitations on the indicated uses for which a product may be marketed.
Further, even if regulatory approval is obtained, later discovery of previously
unknown problems with a product may result in restrictions on the product,
including withdrawal of the product from the market. Delay in obtaining or
failure to obtain regulatory approvals would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business - Government Regulation."
22
<PAGE> 23
DEPENDENCE UPON COLLABORATIVE PARTNERS
The Company's strategy for the development, clinical trials,
manufacturing and commercialization of its products includes maintaining and
entering into various collaborations with corporate partners, licensors,
licensees and others. To date, the Company has entered into collaborative
arrangements with Novo Nordisk with respect to the Company's AnergiX compounds
for the treatment of MS, MG and IDDM, and with Organon with respect to an
AnergiX compound for the treatment of RA. There can be no assurance that the
interests and motivations of the Company's collaborators are, or will remain,
aligned with those of the Company or that such collaborators will successfully
perform their development, regulatory compliance, manufacturing or marketing
functions or that such collaborations in whole or in part will continue. There
can also be no assurance that the Company will be able to negotiate additional
collaborative arrangements in the future on acceptable terms, if at all, or
that any such collaborative arrangements will be successful. To the extent
that the Company is not able to maintain or establish such arrangements, the
Company would be required to undertake such activities at its own expense,
which would significantly increase the Company's capital requirements and limit
the programs the Company is able to pursue. In addition, the Company may
encounter significant delays in introducing its products into certain markets
or find that the development, manufacture or sale of its products in such
markets is adversely affected by the absence of such collaborative agreements.
The Company cannot control the amount and timing of resources which
its collaborative partners devote to the Company's program or potential
products, which can vary because of factors unrelated to the potential product.
Collaborator participation will depend not only on the achievement of research
objectives by the Company and its collaborators, which cannot be assured, but
also on each collaborator's own financial, competitive, marketing and strategic
considerations, which are outside the Company's control. Such strategic
considerations may include the relative advantages of alternative products
being marketed or developed by others, including relevant patent and
proprietary positions. The Company's collaborative partners may develop,
either alone or with others, products that compete with the development and
marketing of the Company's products. Competing products, either developed by
the collaborative partners or to which the collaborative partners have rights,
may result in their withdrawal of support with respect to all or a portion of
the Company's technology, which would have a material adverse effect on the
Company's business, financial condition and results of operations. If Novo
Nordisk, Organon or any future collaborative partner breaches or terminates
their agreements with the Company or otherwise fails to conduct their
collaborative activities in a timely manner, the preclinical or clinical
development or commercialization of product candidates or research programs
will be delayed, and the Company will be required to devote additional
resources to product development and commercialization or terminate certain
development programs. There also can be no assurance that disputes will not
arise in the future with respect to the ownership of rights to any technology
developed with third parties. These and other possible disagreements between
collaborators and the Company could lead to delays in the collaborative
research, development and commercialization of certain product candidates or
could require or result in litigation or arbitration, which would be time
consuming and expensive, and would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Collaborative
Arrangements" and " -- Manufacturing."
UNCERTAINTY RELATING TO PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend in significant part on its ability
to maintain patent protection for its therapeutic approach and for any
developed products, to preserve its trade secrets and to operate without
infringing the proprietary rights of third parties. Although the Company has
obtained patents covering certain aspects of its technology, no assurance can
be given that additional patents will be issued or, if issued, that the scope
of any patent protection will be significant, or that the patents will be held
valid if subsequently challenged. Moreover, the Company cannot ascertain with
certainty that no patent conflict will exist with other products or processes
which could compete with the Company's approaches.
Because of the length of time and expense associated with bringing new
products through development and to the marketplace, and the length of time
required for the governmental approval process, the pharmaceutical industry has
traditionally placed considerable importance on obtaining and maintaining
patent and trade secret protection for significant new technologies, products
and processes. The Company and other biotechnology and pharmaceutical firms
have applied, and are applying, for patents for their products and certain
aspects of their technologies. The enforceability of patents issued to
biotechnology and pharmaceutical firms is highly uncertain. Federal court
decisions indicating legal considerations surrounding the validity of patents
in the field are in transition, and there can be no assurance that the
historical legal standards surrounding questions of validity will continue to
be applied or that current defenses as to issued patents in the field will
offer protection in the future. In addition, there can be no assurance as to
the degree and range of protection any patents will afford, whether patents
will issue or the extent to which the Company will be successful in not
infringing patents granted to others.
While the Company pursues patent protection for products and processes
where appropriate, it also relies on trade secrets, know-how and continuing
technological advancement to develop and maintain its competitive position.
The Company's policy is to have each employee enter into an agreement that
contains provisions prohibiting the disclosure of confidential information to
anyone outside the Company. Research and development contracts and
relationships between the
23
<PAGE> 24
Company and its scientific consultants provide access to aspects of the
Company's know-how that is protected generally under confidentiality agreements
with the parties involved. There can be no assurance, however, that these
confidentiality agreements will be honored or that the Company can effectively
protect its rights to its unpatented trade secrets. Moreover, there can be no
assurance that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the
Company's trade secrets.
The Company may be required to obtain licenses to patents or other
proprietary rights from third parties. There can be no assurance that any
licenses required under any patents or proprietary rights will be made
available on terms acceptable to the Company, if at all. If the Company does
not obtain required licenses, it could encounter delays in product development
while it attempts to redesign products or methods or it could find that the
development, manufacture or sale of products requiring such licenses could be
foreclosed.
The Company is aware of a European patent and corresponding U.S. and
Australian patents which contain claims that relate to certain of the Company's
proposed products and their uses. In accordance with European Patent Office
("EPO") procedures, third parties can oppose an EPO patent grant by presenting
information which they believe justifies narrowing or revoking the grant of the
patent. The Company is opposing the aforementioned grant in the EPO. There
can, however, be no assurance that the granted EPO claims will be revoked or
significantly narrowed in scope as a result of the opposition proceeding. If
valid claims in these patents are found to be infringed by the Company's
products, the Company's ability to make, use, offer to sell, or sell, such
products could be materially and adversely affected.
In addition, the Company could incur substantial costs in defending
any patent litigation brought against it or in asserting the Company's patent
rights, including those licensed to the Company by others, in a suit against
another party. The United States Patent and Trademark Office (the "USPTO")
could institute interference proceedings in connection with one or more of the
Company's patents or patent applications which proceedings could result in an
adverse decision as to priority of an invention. The USPTO also could
institute reexamination proceedings in connection with one or more of the
Company's patents or patent applications, which could result in an adverse
decision as to the patents' validity or scope. See "Business -- Patents and
Proprietary Rights."
NEED TO DEVELOP MANUFACTURING CAPABILITIES
The Company has no volume manufacturing capacity or experience in
volume manufacturing of pharmaceutical or other biological products.
Establishing its own volume manufacturing capabilities would require
significant scale-up expenses and additions to facilities and personnel. In
addition, the Company must successfully develop the process required for volume
manufacturing. The pharmaceutical products under development by the Company
have never been manufactured on a commercial scale and there can be no
assurance that such products can be manufactured at a cost or in quantities to
make them commercially viable. The Company will be required to establish
arrangements with contract manufacturers to supply a portion of its compounds
for subsequent clinical trials as well as the manufacture, packaging, labeling
and distribution of finished products. If the Company is unable to contract
for sufficient supply of a portion of its compounds on acceptable terms, and it
is unable to develop the capability to produce the epitopes internally, the
Company's human clinical testing schedule would be delayed, resulting in the
delay of submission of products for regulatory approval and initiation of new
development programs, which would have a material adverse effect on the
Company. If the Company should encounter delays or difficulties in
establishing relationships with manufacturers to produce, package and
distribute its finished products, market introduction and subsequent sales of
such products would be adversely affected. Moreover, contract manufacturers
that the Company may use must adhere to current GMP regulations enforced by the
FDA through its facilities inspection program. If these facilities cannot pass
a pre-approval plant inspection, the FDA pre-market approval of the products
will be adversely affected.
LACK OF MARKETING EXPERIENCE; DEPENDENCE ON THIRD PARTIES
The Company currently has no sales, marketing or distribution
capability. The Company intends to rely on relationships with one or more
pharmaceutical companies with established distribution systems and direct sales
forces to market its products. In the event that the Company is unable to
reach agreement with one or more pharmaceutical companies to market its
products, it may be required to market its products directly and to develop a
marketing and sales force with technical expertise and supporting distribution
capability. There can be no assurance that the Company will be able to
establish in-house sales and distribution capabilities or relationships with
third parties, or that it will be successful in gaining market acceptance for
its products. To the extent that the Company decides to utilize existing or
future co-promotion or other licensing arrangements, the Company must develop
its own sales, marketing or distribution capability, and there can be no
assurance that such efforts will be successful. See "Business --
Collaborative Arrangements" and " -- Marketing and Sales."
COMPETITION AND TECHNOLOGICAL CHANGE
The biotechnology and pharmaceutical industries are characterized by
rapidly evolving technology and intense competition. The Company's competitors
include major pharmaceutical, chemical and specialized biotechnology companies,
most of which have financial, technical, research and development,
manufacturing, clinical and marketing resources
24
<PAGE> 25
significantly greater than those of the Company. The Company believes that
these other entities recognize the need for effective therapies for the
autoimmune diseases targeted by the Company and are highly motivated to develop
such therapies. In addition, many specialized biotechnology companies have
formed collaborations with large, established companies to support research,
development and commercialization of products that may be competitive with
those of the Company. Academic institutions, governmental agencies and other
public and private research organizations are also conducting research
activities and seeking patent protection and may commercialize products on
their own or through joint ventures. The Company is aware of certain products
in development by competitors that are intended to be used for the prevention
or treatment of certain diseases the Company has targeted for product
development.
The existence of these products, or other products or treatments of
which the Company is not aware, or products or treatments that may be developed
in the future which may be more effective, may adversely affect the
commercialization or marketability of products which may be developed by the
Company or potentially render the Company's technology obsolete or
non-competitive.
The Company's competitive position will depend on its ability to
attract and retain qualified scientific and other personnel, develop effective
proprietary products, implement production and marketing plans, obtain patent
protection and secure adequate capital resources. In addition, the first
pharmaceutical product to reach the market in a therapeutic or preventive area
is often at a significant competitive advantage relative to later entrants to
the market. The Company expects its products, if approved for sale, to compete
primarily on the basis of product efficacy, safety, patent position,
reliability, price and patient convenience. See "Business Competition."
UNCERTAINTY RELATED TO PHARMACEUTICAL PRICING AND REIMBURSEMENT
Political, economic and regulatory influences are subjecting the
health care industry in the United States to fundamental change. Initiatives
to reduce the federal deficit and to reform health care delivery are increasing
these cost containment efforts. The Company anticipates that Congress, state
legislatures and the private sector will continue to review and assess
alternative benefits, controls on health care spending through limitations on
the growth of private health insurance premiums and Medicare and Medicaid
spending, the creation of large insurance purchasing groups, price controls on
pharmaceuticals and other fundamental changes to the health care delivery
system. Any such proposed or actual changes could cause existing and potential
partners of the Company to limit or eliminate spending on collaborative
development projects. Legislative debate is expected to continue in the
future, market forces are expected to demand reduced costs and Anergen cannot
predict what impact the adoption of any federal or state health care reform
measures or future private sector reforms may have on its business.
In both domestic and foreign markets, sales of the Company's proposed
products will depend in part upon the availability of reimbursement from
third-party payors, such as government health administration authorities,
private health insurers and other organizations. In addition, other
third-party payors are increasingly challenging the price and cost
effectiveness of medical products and services. Significant uncertainty exists
as to the reimbursement status of newly approved health care products. There
can be no assurance that the Company's potential products or products
discovered in collaboration with the Company will be considered cost-effective
or that adequate third-party reimbursement will be available to enable Anergen
to maintain price levels sufficient to realize an appropriate return on its
significant investment in product research and development. Legislation and
regulations affecting the pricing of pharmaceuticals may change before the
Company's proposed products are approved for marketing. Adoption of such
legislation could further limit reimbursement for medical products. If
adequate coverage and reimbursement levels are not provided by the government
and third-party payors for the Company's products, the market acceptance of
these products would be adversely affected, which would have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business -- Pharmaceutical Pricing and Reimbursement."
DEPENDENCE ON AND NEED FOR ADDITIONAL KEY PERSONNEL; RELIANCE ON ACADEMIC
COLLABORATORS
The success of the Company and of its business strategy is dependent
in large part on the ability of the Company to attract and retain key
management and operating personnel. Such persons are in high demand and are
often subject to competing offers. The Company will need to develop expertise
and add skilled employees or retain consultants in such areas as research and
development, clinical testing, government approvals, marketing and
manufacturing in the future. There can be no assurance that the Company will
be able to attract and retain the qualified personnel or develop the expertise
needed for its business. The loss of the services of one or more of the
Company's officers or other members of the research or management group or the
inability to hire additional personnel and develop expertise as needed would
have a material adverse effect on the Company.
A significant portion of the Company's research and development and
clinical trials is conducted under sponsored research programs with several
universities. The Company depends on the availability of the principal
investigator for each such program, and the Company cannot assure that these
individuals or their research staffs will be available to conduct research and
development or clinical trials. The Company's academic collaborators are not
employees of the Company. As a result, the Company has limited control over
their activities and can expect that only limited amounts of their time will be
dedicated to Company activities. In addition, the Company's academic
collaborators are employed by major institutions
25
<PAGE> 26
which have collaborative relationships with other parties, some of which may be
competitors of the Company. Accordingly, there can be no assurance that
research and development, preclinical and clinical testing performed by these
collaborators will be completed in a timely manner, if at all, and any
inability to do so could have a material adverse effect on the Company.
POTENTIAL PRODUCT LIABILITY
The testing, marketing and sale of human health care products entail
an inherent risk of exposure to product liability claims in the event that the
use of the Company's technology or prospective products is alleged to have
resulted in adverse effects. While the Company has taken, and will continue to
take, what it believes are appropriate precautions to minimize exposure to
product liability, there can be no assurance that it will avoid significant
liability. The Company possesses limited general liability and product
liability insurance related to its clinical trials of AnervaX for RA and
intends to seek such insurance related to its clinical trials of AnergiX for MS
and certain other types of insurance customarily obtained by business
organizations. There can be no assurance that the existing insurance coverage
is adequate or that it will avoid liability. The Company intends to seek
insurance against product liability risks associated with the testing,
manufacturing or marketing of its products. However, there can be no assurance
that it will be able to obtain such insurance in the future, or that if
obtained, such insurance will be sufficient in amount. Consequently, a product
liability claim or other claims with respect to uninsured liabilities or in
excess of insured liabilities could have a material adverse effect on the
business or financial condition of the Company.
26
<PAGE> 27
HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS
The Company is subject to regulation by the Occupational Safety and
Health Administration ("OSHA") and the Environmental Protection Agency ("EPA")
and to regulation under the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other regulatory statutes, and may in the
future be subject to other federal, state or local regulations. Although the
Company believes that it has complied with these laws, regulations and policies
in all material respects and has not been required to take any significant
action to correct any material noncompliance, there can be no assurance that
the Company will not be required to incur significant costs to comply with
environmental and health and safety regulations in the future. The Company's
research and development involves the controlled use of hazardous materials,
including but not limited to certain hazardous chemicals and radioactive
materials. Although the Company believes that its safety procedures for
handling and disposing of such materials comply with the standards prescribed
by state and federal regulations, the risk of accidental contamination or
injury from these materials cannot be eliminated. In the event of such an
accident, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company. In addition,
regulations may be promulgated governing biotechnology that may affect the
Company's research and development programs. The Company is unable to predict
whether any agency will adopt any regulation which would have a material
adverse effect on the Company's business, financial condition and results of
operations.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock, similar to the
securities of other biotechnology companies, has been and is likely to continue
to be highly volatile. Announcements regarding the results of regulatory
approval filings, clinical trials or other testing, technological innovations
or new commercial products by the Company or its competitors, patents and
intellectual property rights by the Company or its competitors, developments as
to current or future collaborations by the Company or its competitors,
government regulations, the status of health care reform initiatives,
fluctuations in operating results, changes in recommendations by financial
analysts, and general market conditions for biotechnology stocks could have a
significant impact on the future price of the Common Stock. Trading volume of
the Company's Common Stock has been relatively limited and sales of substantial
amounts of Common Stock could have an adverse effect on the price of the Common
Stock.
CONTROL BY EXISTING STOCKHOLDERS
The Company's officers, directors and principal shareholders, namely
Warburg, Pincus Ventures, L.P. ("Warburg"), International Biotechnology Trust
PLC ("IBT"), and Novo Nordisk, collectively beneficially own approximately 50%
of the Company's outstanding Common Stock. Under a March 1995 common stock
purchase agreement with Warburg and IBT ("Warburg/IBT Purchase Agreement"), the
Company is currently obligated to include in the slate of nominees recommended
by the Company's Board of Directors and management, at each election of
directors, two candidates selected by Warburg, one candidate selected by IBT
and one candidate mutually agreed to by IBT and Warburg. Additionally, while
not obligated to do so, since 1993, the Company has included a representative
of Novo Nordisk in its slate of nominees for the Board of Directors. The
ownership of the Company's Common Stock, and the ability to designate
candidates for the Company's recommended slate of nominees for the Board of
Directors, of Warburg, IBT and Novo Nordisk will enable such shareholders to
have significant influence over major corporate transactions as well as the
election of directors of the Company and control over board decisions and could
have the effect of delaying, deterring or preventing a change in control of the
Company.
ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK OR ACCELERATION
OF OPTION VESTING
The Board of Directors has authority, without further action by
shareholders, to issue up to 10,000,000 shares of Preferred Stock with rights,
preferences and privileges designated by the Board of Directors. This
Preferred Stock could be issued quickly with terms calculated to delay or
prevent a change in control of the Company or to make removal of management
more difficult. In certain circumstances, such issuance could have the effect
of decreasing the market price of the Common Stock or of delaying, deterring or
preventing a change in control of the Company. The Company has no present plan
to issue any shares of Preferred Stock. Further, pursuant to the Company's
option plans, in the event of certain mergers of the Company with other
entities, transfers of voting control of the Company's capital stock or sale of
all or substantially all of the Company's assets, the Company's Board of
Directors has the right under certain circumstances to cause all outstanding
options to become fully vested prior to the event causing such acceleration and
all unexercised options will terminate upon completion of such event. See
"Management -- Employment Agreements and Change of Control Arrangements."
27
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Item Page
- ---- -----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors 29
Balance Sheets at December 31, 1996 and December 31, 1995 30
Statements of Operations for each of the three years in the period ended December 31, 1996 31
Statement of Shareholders' Equity for each of the three years in the period ended December 31, 1996 32
Statements of Cash Flows for each of the three years in the period ended December 31, 1996 33
Notes to Financial Statements 34-40
</TABLE>
28
<PAGE> 29
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Anergen, Inc.
We have audited the accompanying balance sheets of Anergen, Inc. as of
December 31, 1996 and 1995, and the related statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Anergen, Inc. at
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Francisco, California
February 7, 1997
29
<PAGE> 30
ANERGEN, INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $ 3,963 $ 468
Short-term investments ..................................... 12,437 11,024
Contract receivables-related party ......................... 320 815
Prepaid expenses ........................................... 208 102
------- -------
Total current assets .......................... 16,928 12,409
Property and equipment, net .................................... 1,459 2,010
Other assets ................................................... 36 36
------- -------
$ 18,423 $ 14,455
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities .................... $ 1,326 $ 1,040
Current portion of capital lease obligations and debt ....... 728 883
--------- --------
Total current liabilities ...................... 2,054 1,923
Long-term portion of capital lease obligations and debt ......... 366 818
Commitments
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares authorized;
none issued and outstanding............................... -- --
Common stock, no par value; 40,000,000 shares authorized;
18,780,697 and 14,967,680 shares issued and outstanding
in 1996 and 1995, respectively .......................... 57,484 47,359
Additional paid-in-capital .................................. 659 648
Unrealized gain (loss) on investments ....................... (34) 16
Accumulated deficit ......................................... (42,106) (36,309)
-------- --------
Total shareholders' equity ..................... 16,003 11,714
-------- --------
$ 18,423 $ 14,455
======== ========
</TABLE>
See accompanying notes.
30
<PAGE> 31
ANERGEN, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Revenues:
Contract revenues, primarily from related party... $ 3,519 $ 3,001 $ 2,325
License fee....................................... 2,000 -- --
Interest income................................... 653 533 207
------- ------- -------
6,172 3,534 2,532
------- ------- -------
Expenses:
Research and development.......................... 9,278 8,322 7,423
General and administrative........................ 2,521 1,976 1,831
Interest expense.................................. 170 322 238
------- ------- -------
11,969 10,620 9,492
------- ------- -------
Net loss.............................................. $(5,797) $(7,086) $(6,960)
======= ======= =======
Net loss per share.................................... $ (0.35) $ (0.55) $ (0.97)
======= ======= =======
Shares used in calculating per share data............. 16,482 12,859 7,202
======= ======= =======
</TABLE>
See accompanying notes.
31
<PAGE> 32
ANERGEN, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Additional Unrealized Total
Preferred Common paid - in Deferred gain(loss) on Accumulated shareholders'
stock stock capital compensation investments deficit equity
--------- ------ --------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ -- $31,104 $ 648 $ (168) $ (70) $(22,263) $ 9,251
Issuance of 413,965 shares of common
stock and 206,984 warrants to private
investors, net -- 1,370 -- -- -- -- 1,370
Issuance of common stock to employees
under option and purchase plans -- 98 -- -- -- -- 98
Amortization of deferred compensation -- -- -- 132 -- -- 132
Unrealized loss on investments
available-for-sale -- -- -- -- (21) -- (21)
Net loss -- -- -- -- -- (6,960) (6,960)
-----------------------------------------------------------------------------------
Balance, December 31, 1994 -- 32,572 648 (36) (91) (29,223) 3,870
Issuance of 7,317,073 shares of common
stock in follow-on offering, net -- 14,651 -- -- -- -- 14,651
Issuance of common stock to employees
under option and purchase plans -- 136 -- -- -- -- 136
Amortization of deferred compensation -- -- -- 36 -- -- 36
Unrealized gain on investments
available-for-sale -- -- -- -- 107 -- 107
Net loss -- -- -- -- -- (7,086) (7,086)
-----------------------------------------------------------------------------------
Balance, December 31, 1995 -- 47,359 648 -- 16 (36,309) 11,714
Issuance of 3,668,000 shares of common
stock in follow-on offering, net -- 9,880 -- -- -- -- 9,880
Issuance of common stock to employees
under option and purchase plans -- 245 -- -- -- -- 245
Deferred compensation related to a grant
of options -- -- 11 -- -- -- 11
Unrealized loss on investments
available-for-sale -- -- -- -- (50) -- (50)
Net loss -- -- -- -- -- (5,797) (5,797)
-----------------------------------------------------------------------------------
Balance, December 31, 1996 $ -- $57,484 $ 659 $ -- $ (34) $(42,106) $16,003
===================================================================================
</TABLE>
See accompanying notes.
32
<PAGE> 33
ANERGEN, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash used in operating activities:
Net loss .......................................................... $ (5,797) $ (7,086) $ (6,960)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ................................... 1,096 1,031 781
Deferred compensation ........................................... 11 36 132
Loss on sale of equipment ....................................... -- -- 4
Changes in operating assets and liabilities:
Contract receivables-related party .............................. 495 (223) (253)
Prepaid expenses ................................................ (106) 76 (50)
Other assets .................................................... -- (16) --
Accounts payable and accrued liabilities ........................ 286 63 10
-------- -------- --------
Net cash used in operating activities......................... (4,015) (6,119) (6,336)
Cash provided by (used in) investing activities:
Purchase of investments available-for-sale ........................ (21,783) (30,172) (10,784)
Sales and maturities of investments available-for-sale ............ 20,320 21,763 16,654
Proceeds from sale of equipment ................................... -- -- 41
Purchase of equipment ............................................. (545) (790) (1,386)
-------- -------- --------
Net cash provided by (used in) investing activities .......... (2,008) (9,199) 4,525
Cash provided by financing activities:
Repayments of capital lease obligations and debt .................. (883) (1,038) (688)
Proceeds from facility and equipment debt financing ............... 276 789 1,093
Issuance of common stock, net ..................................... 10,125 14,787 1,468
-------- -------- --------
Net cash provided by financing activities .................... 9,518 14,538 1,873
-------- -------- --------
Net increase (decrease) in cash and cash equivalents .................. 3,495 (780) 62
Cash and cash equivalents at beginning of period ...................... 468 1,248 1,186
-------- -------- --------
Cash and cash equivalents at end of period ............................ 3,963 468 1,248
Short-term investments at end of period ............................... 12,437 11,024 2,508
-------- -------- --------
Cash, cash equivalents and short-term investments
at end of period .................................................. $ 16,400 $ 11,492 $ 3,756
======== ======== ========
</TABLE>
See accompanying notes.
33
<PAGE> 34
ANERGEN, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Anergen, Inc. (the "Company") was incorporated on April 26, 1988 for
the purpose of developing therapies using biopharmaceutical compounds for the
treatment of autoimmune diseases. The Company devotes its efforts to research
and development on its own behalf and also on behalf of its corporate partners,
Novo Nordisk A/S and N.V. Organon.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents are carried at cost which approximates fair
value (based on quoted market prices) and include primarily interest bearing
demand deposits and U.S. Government notes with original maturities of three
months or less.
Securities available-for-sale
The Company accounts for its short-term investments in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities"("Statement 115"). Under Statement
115 management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity. Marketable
securities and debt securities not classified as held-to-maturity are
classified as available-for-sale. To date, all marketable securities have been
classified as available-for-sale. Available-for-sale securities are carried at
fair value, with unrealized gains and losses, net of tax, reported in a
separate component of shareholders' equity. The amortized cost of debt
securities in this category is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in interest
income. The cost of securities sold is based on the specific identification
method. Interest and dividends on securities classified as available-for-sale
are included in interest income.
Property and equipment
Property and equipment is stated at cost, less accumulated
depreciation and amortization. Depreciation of property and equipment is
provided over the estimated useful lives (3 to 4 years) of the respective
assets using the straight-line method. Leasehold improvements are amortized
over the shorter of the life of the lease or their estimated useful lives using
the straight-line method.
Contract and license fee revenues
Contract and license fee revenues consist of revenues from the
Company's corporate partners, Novo Nordisk A/S and N.V. Organon. Contract
revenues derived from the corporate partner agreements are recorded as earned
based on the level of research effort performed by the Company. License fees
that are non-refundable and not tied to future performance are recorded when
received. The Company is also entitled to receive from both partners (i)
development milestone payments upon the occurrence of certain events and (ii)
royalties on product sales, if any.
Research and development
Research and development costs are expensed as incurred and include
personnel costs, materials consumed in research and development activities,
depreciation on equipment used and the cost of facilities used for research and
development as well as outside services.
34
<PAGE> 35
ANERGEN, INC.
NOTES TO FINANCIAL STATEMENTS
Income Taxes
The Company accounts for income taxes using the liability method as
prescribed by Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes." Research and Experimentation tax credits will
be accounted for under the "flow through" method when utilized.
Net loss per share
Net loss per share is computed using the weighted average number of
shares of common stock outstanding. Common equivalent shares from stock
options and warrants are excluded from the computation as their effect is
anti-dilutive.
2. COLLABORATIONS
Collaboration with N.V. Organon
In June 1996, the Company entered into a development and license
agreement ("Organon Agreement") with N.V. Organon for the purpose of developing
and commercializing a product for the treatment of rheumatoid arthritis ("RA")
using the Company's AnergiX technology combined with a peptide discovered by
Organon. Under the Organon Agreement, the Company is entitled to receive (i) a
license fee, (ii) research and development cost reimbursement, (iii)
development milestone payments and (iv) royalties on product sales, if any.
The Company has granted to N.V. Organon exclusive worldwide rights to products
developed under the Organon Agreement, including rights to commercialize these
products although the Company retains certain co-promotion rights in North
America. The Company received and recorded a $2 million license fee in
September 1996 and recorded contract revenues of $412,000 for the year ended
December 31, 1996 under this agreement.
Collaboration with Novo Nordisk A/S - related party
In August 1993, the Company entered into a development and license
agreement ("Novo Nordisk Agreement") with Novo Nordisk A/S for the purpose of
developing and commercializing the Company's AnergiX(TM) products for multiple
sclerosis ("MS"), myasthenia gravis ("MG"), and insulin-dependent diabetes
mellitus ("IDDM"). Under the Novo Nordisk Agreement, the Company is entitled
to receive (i) research and development cost reimbursement, (ii) development
milestone payments and (iii) royalties on product sales, if any. For the years
ended December 31, 1996, 1995 and 1994, the Company recorded contract revenues
of $3,107,000, $3,001,000 and $2,325,000, respectively, under this agreement.
The Company has granted to Novo Nordisk A/S exclusive worldwide rights to
products developed under the Novo Nordisk Agreement, including rights to
commercialize these products. The Company has retained rights of co-promotion
in North America for therapeutics in MS and MG. In April 1996, the Novo
Nordisk Agreement was expanded to include increased milestones was extended
through August of 1998. In August of 1993, Novo Nordisk A/S purchased
1,219,745 shares of common stock for $8 million, and an officer of Novo Nordisk
A/S became a member of the Company's Board of Directors.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996 and 1995
(in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Research and office leasehold improvements $ 1,028 $ 998
Research and office equipment 3,202 2,843
Pilot manufacturing facility leasehold improvements 600 600
Pilot manufacturing facility equipment 1,143 987
------- -------
5,973 5,428
Less accumulated depreciation and amortization (4,514) (3,418)
------- -------
$ 1,459 $ 2,010
======= =======
</TABLE>
35
<PAGE> 36
ANERGEN, INC.
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENTS
The following is a summary of short-term investments (available-for-sale
securities) (in thousands):
<TABLE>
<CAPTION>
Available-for-Sale Securities
---------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
U.S. corporate securities $ 6,148 $14 $(35) $ 6,127
U.S. government obligations 6,323 -- (13) 6,310
------- --- ---- -------
Total debt securities $12,471 $14 $(48) $12,437
======= === ==== =======
DECEMBER 31, 1995
U.S. corporate securities $ 7,671 $11 $ -- $ 7,682
U.S. government obligations 3,337 5 -- 3,342
------- --- ---- -------
Total debt securities $11,008 $16 $ -- $11,024
======= === ==== =======
</TABLE>
The net adjustment to unrealized holding gains (losses) on available-for-sale
securities included as a separate component of shareholders' equity was
($50,000) and $107,000 in 1996 and 1995, respectively. Realized gains and
losses for the years ended December 31, 1996 and 1995 were immaterial.
The amortized cost and estimated fair value of debt and marketable equity
securities at December 31, 1996 and 1995, by contractual maturity, are shown
below (in thousands). Expected maturities will differ from contractual
maturities because the issuers of the securities may have the right to prepay
obligations without prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Fair
Cost Value
------- ---------
<S> <C> <C>
DECEMBER 31, 1996
AVAILABLE-FOR-SALE
Due in one year or less $11,971 $11,936
Due after one year through three years 500 501
Due after three years -- --
------- -------
$12,471 $12,437
======= =======
DECEMBER 31, 1995
AVAILABLE-FOR-SALE
Due in one year or less $ 5,825 $ 5,828
Due after one year through three years 5,183 5,196
Due after three years -- --
------- -------
$11,008 $11,024
======= =======
</TABLE>
5. LEASE AND DEBT OBLIGATIONS
The Company leases its facilities under noncancelable operating
leases. Facilities rent expense for 1996, 1995, and 1994 was $589,000,
$551,000 and $321,000, respectively.
On April 18, 1994 the Company entered into a loan agreement with
Silicon Valley Bank of California ("SVB") which provided $1,200,000 in
financing available through December 31, 1994. As of December 31, 1994
$957,000 had been drawn down upon under this agreement, all of which is secured
by equipment purchased by the Company. At December 31, 1996, the Company had
net borrowings of $242,000 under the loan.
36
<PAGE> 37
ANERGEN, INC.
NOTES TO FINANCIAL STATEMENTS
On June 23, 1995 the Company entered into a second loan agreement with
SVB which provided $800,000 in financing available through December 31, 1995,
all of which is secured by equipment purchased by the Company. At December 31,
1996, the Company had net borrowings of $446,000 under the original loan
agreement.
On December 27, 1996 the Company entered into an amendment to the
above agreement with SVB to provide $1,500,000 in additional financing
available through December 31, 1997. As of December 31, 1996 the Company had
borrowed $276,000 of the additional funding available under this agreement, all
of which is secured by equipment purchased by the Company. The fair value of
the debt obligation approximates its carrying value at December 31, 1996.
Future minimum payments, by year and in the aggregate, under the debt
and capital leases and noncancelable operating leases consisted of the
following at December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
Debt and Capital Operating
leases leases
----------------- ------------
<S> <C>
1997 $ 803 $ 547
1998 296 511
1999 97 40
---------- ---------
Total minimum debt and lease payments 1,196 $ 1,098
========
Less amount representing interest 102
---------
Present value of future minimum debt and capital lease payments 1,094
Less current portion of debt and capital lease obligations 728
---------
Long-term debt and capital lease obligations $ 366
========
</TABLE>
6. SHAREHOLDERS' EQUITY
1988 Stock Option Plan, 1995 Director Option Plan and 1996 Stock Option Plan
The Company has granted certain officers, employees and consultants
options to purchase shares of the Company's common stock at prices ranging from
$.16 to $11.00 per share under its 1988 Stock Option Plan, 1995 Director Option
Plan and 1996 Stock Option Plan ("option plans"). The Company has reserved
3,000,000 shares of common stock for issuance under the option plans, of which
1,236,000 are available for grant at December 31, 1996. These options vest
over periods of up to four years and, once vested, can be exercised at any time
for a period of 9 or 10 years from the date of grant. The activity under the
option plans are as follows:
<TABLE>
<CAPTION>
Number of Price per
Shares Share
------------- -----------------
<S> <C> <C>
Balance at December 31, 1993 835,000 $ .16-11.00
Granted 109,000 2.62-5.75
Exercised (45,000) .16-.27
Forfeited (94,000) .21-10.75
------------ -------------
Balance at December 31, 1994 805,000 $ .21-11.00
Granted 283,000 2.00-3.25
Exercised (168,000) .21-2.62
Forfeited (41,000) 2.62-11.00
------------ -------------
Balance at December 31, 1995 879,000 $ .21-11.00
Granted 535,000 3.06-4.13
Exercised (76,000) .27-4.75
Forfeited (11,000) 2.62-10.75
------------ -------------
Balance at December 31, 1996 1,327,000 $ 2.00-11.00
=========== ============
Vested at December 31, 1996 609,000 $ 2.00-11.00
=========== ============
</TABLE>
37
<PAGE> 38
ANERGEN, INC.
NOTES TO FINANCIAL STATEMENTS
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its stock options because, as discussed
below, the alternative fair market value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"),
requires the use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of
the Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
The Company's option plans have authorized the grant of options to
Company personnel, consultants and directors for up to 3,000,000 shares of the
Company's common stock. Options granted have 9 or 10 year terms and vest and
typically become fully exercisable at the end of 4 years of continued
employment.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options and its employee stock purchase plan
subsequent to December 31, 1994 under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1995 and 1996, respectively; risk-free interest rates of 6.72%
and 6.83%; no dividend yields; volatility factor of the expected market price
of the Company's common stock of .73; and a weighted-average expected life of
the options of 6.87 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands except for loss per share
information):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Pro forma net loss $ (6,659) $ (7,302)
Pro forma loss per share $ (0.40) $ (0.57)
</TABLE>
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1998.
A summary of the Company's stock option activity, and related
information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------- --------------------------
Options Weighted-Average Options Weighted Average
(000) Exercise Price (000) Exercise Price
------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding-beginning
of year 879 $4.94 805 $4.83
Granted 535 $3.72 283 $2.98
Exercised (76) $0.97 (168) $0.24
Forfeited (11) $3.86 (41) $7.61
---- ----
Outstanding-end of year 1,327 $4.69 879 $4.94
Exercisable at end of year 609 $5.92 430 $5.72
Weighted-average fair
value of options granted
during the year $2.74 $2.19
</TABLE>
38
<PAGE> 39
ANERGEN, INC.
NOTES TO FINANCIAL STATEMENTS
Exercise prices for options outstanding as of December 31, 1996 ranged
from $2.00 to $11.00. The weighted-average remaining contractual life of those
options is 6.90 years.
Warrants
Warrants to purchase 16,919 and 8,577 shares of the Company's common
stock at an exercise price of $9.93 and $5.83 per share, respectively, were
issued under a loan agreement and amendment. No value was assigned to these
warrants due to immateriality; these warrants remain unexercised as of
December 31, 1996.
In June, 1994 the Company issued warrants to purchase an adjusted
248,464 shares of Common Stock at an adjusted exercise price of $3.32 per share
through a private placement to two purchasers; these warrants remain
unexercised as of December 31, 1996.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan under which a total of
250,000 shares of common stock have been reserved and made available for
purchase by eligible employees.
Eligible employees may have up to 10% of their wages withheld for
purchases of common stock of the Company. On September 30 and March 31 of each
year, the funds then in each employee's account are applied to the purchase of
shares of common stock at 85% of the fair market value at such date or at six
month retroactive intervals up to 24 months, whichever is less. As of December
31, 1996, 161,667 shares had been purchased with such funds.
Under Statement 123, the fair value for these purchase options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for 1995 and 1996, respectively;
risk-free interest rates of 5.96% and 5.52%; no dividend yields; volatility
factor of the expected market price of the Company's common stock of .73; and a
weighted-average expected life of the options of 1.25 years. The weighted
average fair value of those purchase rights granted in 1995 and 1996 was $0.93
and $1.22, respectively.
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities include the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------------- ----------
<S> <C> <C>
Accounts payable $ 231 $ 559
Accrued collaborative expenses 569 87
Accrued vacation pay 114 114
Accrued professional fees 189 157
Other 223 123
-------- --------
Total accounts payable and accrued liabilities $ 1,326 $ 1,040
======= =======
</TABLE>
39
<PAGE> 40
ANERGEN, INC.
NOTES TO FINANCIAL STATEMENTS
8. INCOME TAXES
At December 31, 1996, the Company had federal and state net operating
loss carryforwards of approximately $38.7 million and $13.9 million,
respectively. Additionally, the Company has research and development tax
credit carryforwards for federal tax purposes of approximately $1.4 million.
The net operating loss and credit carryforwards will expire at various dates
beginning 2003 through 2011, if not utilized.
The Company's stock offering in April 1995 resulted in a change in
ownership and it is expected that the entire net operating loss and credit
carryforwards as of April 1995 may be subject to an annual limitation based on
the Company's pre-change value. The annual limitation will result in the
expiration of the net operating losses and credits before utilization.
Net operating losses incurred subsequent to April 1995 may be subject
to annual limitation such that the net operating losses may expire before
utilization.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets as
of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards $ 13,900,000 $ 12,500,000
Research credits 2,000,000 1,700,000
Other deferred tax assets 700,000 200,000
------------ ------------
Net deferred tax assets 16,600,000 14,400,000
Valuation allowance for deferred tax
assets (16,600,000) (14,400,000)
------------ ------------
Total deferred tax assets $ -- $ --
============ ============
</TABLE>
The net valuation allowance increased by $3,200,000 during the year
ended December 31, 1995 ($2,508,000 in 1994).
40
<PAGE> 41
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
Certain information required by Part III is omitted from this Report
because the registrant will file a definitive proxy statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this Report, and certain information included
therein is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this
Item is incorporated by reference to the Company's Proxy Statement for the
Annual Meeting of Shareholders scheduled to be held on or around May 2, 1997.
The information concerning the Company's executive officers required
by this Item is incorporated by reference to the section in Part I hereof
entitled "Executive Officers of the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
the Company's Proxy Statement for the Annual Meeting of Shareholders scheduled
to be held on or around May 2, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the Company's Proxy Statement for the Annual Meeting of Shareholders scheduled
to be held on or around May 2, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
the Company's Proxy Statement for the Annual Meeting of Shareholders scheduled
to be held on or around May 2, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements.
The following financial statements of Anergen, Inc. are filed as a
part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors 29
Balance Sheets at December 31, 1996 and 1995 30
Statements of Operations for the years ended December 31, 1996
1995 and 1994. 31
Statement of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994 32
Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994. 33
Notes to Financial Statements 34-40
</TABLE>
41
<PAGE> 42
2. Financial Statement Schedules.
Schedules have been omitted because they are not applicable or are not
required or the information required to be set forth therein is
included in the Financial Statements or Notes thereto.
3. Exhibits.
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
3.1(1) Restated and Amended Articles of Incorporation.
3.2(1) Bylaws, as amended.
4.1(1) Form of Common Stock Certificate.
10.1(1) Form of Indemnification Agreement for directors and officers.
10.2(1) 1988 Stock Option Plan (as amended) and form of agreements thereunder.
10.3(1) 1991 Employee Stock Purchase Plan, as amended.
10.4(2) 1992 Consultant Stock Plan
10.5(13) 1996 Stock Plan and form of agreement.
10.6A(1) Sublease dated December 15, 1989 between the Registrant and Invitron Corporation, with
amendment dated February 28,1990.
10.6B(1) Landlord's Consent to Sublease dated March 2, 1990 among the Registrant, Invitron Corporation and
Seaport Centre Venture Phase II.
10.6C(1) Ten-Year Industrial Net Lease Agreement dated June 5, 1987 between Invitron Corporation and
Seaport Centre Venture Phase II, with amendments dated November 9, 1987; October 31, 1988;
August 1989; and February 28,1990.
10.6D(7) Amendments to Seaport Center Standard Lease between the Registrant and Metropolitan Life
Insurance Company dated January 10, 1995; and March 24, 1995.
10.6E(10) Industrial Lease Agreement dated March 15, 1993 between the Registrant and East Bayshore
Investment Group, with amendments dated March 31, 1993; and June 17, 1994.
10.7(1) Master Lease Agreement dated July 8, 1988 between the Registrant and Comdisco, Inc. with
Equipment Schedule No. VL-1 dated July 8, 1988 and Equipment Schedule No. VL-2 dated
April 4, 1990.
10.8A(3) Loan and Security agreement dated December 29, 1992 between the Registrant and MMC/GATX Partnership No. I.
10.8B(3) Secured Promissory Note dated December 29, 1992 issued by the Registrant to MMC/GATX Partnership No. I.
10.8C(3) Warrant dated December 29,1992 issued by the Registrant to MMC/GATX Partnership No. I.
10.8D(4) Amendment to the Loan and Security agreement dated December 30, 1993 between the Registrant and MMC/GATX
Partnership No. I.
10.8E(4) Warrant dated December 30, 1993 issued by the Registrant to MMC/GATX Partnership No. I.
10.9A(5)+ Development and License agreement dated August 17, 1993 between the Registrant and Novo Nordisk A/S.
10.9B(5) Common Stock Purchase Agreement dated August 17, 1993 between the Registrant and Novo Nordisk A/S.
10.9C(11)+ Amendment No. 1 dated March 26, 1996 to the Development and License Agreement between
the Registrant and Novo Nordisk A/S.
10.9D(11)+ Addendum dated March 26, 1996 to the Development and License Agreement between
the Registrant and Novo Nordisk A/S.
10.10A(6) Loan and Security agreement dated April 18, 1994 between the Registrant and Silicon Valley Bank.
10.10B(9) Loan and Security agreement dated June 23, 1995 between the Registrant and Silicon Valley Bank.
10.10C(10) Loan Modification Agreement dated August 31, 1994 between the Registrant and Silicon Valley Bank.
10.10D Amendment to the Loan and Security agreement June 23, 1995 between the Registrant and Silicon Valley Bank.
10.11A(6) Securities Purchase Agreement dated May 11, 1994 between the Registrant and certain Purchasers.
10.11B(8) Warrant dated June 30, 1994 issued to Ortelius Trading L.P.
10.11B-1(9) Letter related to Warrant issued to Ortelius Trading L.P.
10.11B-2 Letter related to Warrant issued to Ortelius Trading L.P.
10.11C(8) Warrant dated June 30, 1994 issued to GDK, Inc.
</TABLE>
42
<PAGE> 43
<TABLE>
<S> <C>
10.11C-1(9) Letter related to Warrant issued to GDK, Inc.
10.11C-2 Letter related to Warrant issued to GDK, Inc.
10.11D(8) Amendment to Securities Purchase Agreement dated June 30, 1994 between the Registrant and certain purchasers.
10.11E(7) Amendment to Securities Purchase Agreement dated February 15, 1995 between the Registrant
and certain purchasers.
10.12A(7) Common Stock Purchase Agreement dated March 10, 1995 between the Registrant and Warburg,
Pincus Ventures, L.P. and International Biotechnology Trust PLC.
10.12B(7) Amendment to Common Stock Purchase Agreement dated March 15, 1995.
10.13(10) 1995 Director Option Plan.
10.14(10)+ Transition Agreement and Mutual Release between the Company and John W. Fara, Ph.D.
10.15(12)+ Product Development and License Agreement dated June 28, 1996 between the Registrant and
N. V. Organon.
10.16(12) Employment Agreement of Barry M. Sherman, M.D.
23.1 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the exhibit filed with Registrant's
Registration Statement on Form S-1 (No. 33-42107), as amended.
(2) Incorporated by reference to exhibit filed with the Company's Form
S-8 (No. 33-52186).
(3) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10K for the year ended December 31, 1992.
(4) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10Q for the quarter ended September 30,
1993.
(5) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10K for the year ended December 31, 1993.
(6) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10Q for the quarter ended March 31, 1994.
(7) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10K for the year ended December 31, 1994.
(8) Incorporated by reference to the exhibit filed with Registrant's
Registration Statement on Form S-1 (No. 33-84310), as amended.
(9) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10Q for the quarter ended June 30, 1995.
(10) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10K for the year ended December 31, 1995.
(11) Incorporated by reference to the exhibit filed with the Company's
amendment to its Annual Report on Form 10-K/A for the year ended
December 31, 1995.
(12) Incorporated by reference to the exhibit filed with Registrant's
Registration Statement on Form S-1 (No. 33-42107), as amended.
(13) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10Q for the quarter ended September 30,
1996.
+ Confidential treatment granted for portions of this exhibit.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the fiscal year ended December 31, 1996.
43
<PAGE> 44
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.
ANERGEN, INC.
By: /s/ BARRY M. SHERMAN
----------------------------------
Barry M. Sherman, M.D.
President, Chief Executive Officer
and Director
Dated: March 24, 1997
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Barry M. Sherman, M.D., and John W. Varian, and
each of them, his attorneys-in-fact, and agents, each with the power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Report on Form 10-K, and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and conforming all
that said attorneys-in-fact and agents of any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ BARRY M. SHERMAN President, Chief Executive Officer and March 24, 1997
- ------------------------- Director (Principal Executive Officer)
Barry M. Sherman M.D.
/s/ JOHN W. VARIAN Chief Financial Officer (Principal March 24, 1997
- ------------------------- Financial and Accounting Officer)
John W. Varian
/s/ BRUCE L. A. CARTER Director March 24, 1997
- -------------------------
Bruce L. A. Carter, Ph.D.
/s/ NICHOLAS J. LOWCOCK Director March 24, 1997
- -------------------------
Nicholas J. Lowcock
/s/ HARDEN M. McCONNELL Director March 24, 1997
- -------------------------
Harden M. McConnell, Ph.D.
/s/ HARRY H. PENNER JR. Director March 24, 1997
- -------------------------
Harry H. Penner, Jr.
/s/ JAMES E. THOMAS Director March 24, 1997
- -------------------------
James E. Thomas
/s/ NICOLE VITULLO Director March 24, 1997
- -------------------------
Nicole Vitullo
</TABLE>
44
<PAGE> 45
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
3.1(1) Restated and Amended Articles of Incorporation.
3.2(1) Bylaws, as amended.
4.1(1) Form of Common Stock Certificate.
10.1(1) Form of Indemnification Agreement for directors and officers.
10.2(1) 1988 Stock Option Plan (as amended) and form of agreements thereunder.
10.3(1) 1991 Employee Stock Purchase Plan, as amended.
10.4(2) 1992 Consultant Stock Plan
10.5(13) 1996 Stock Plan and form of agreement.
10.6A(1) Sublease dated December 15, 1989 between the Registrant and Invitron Corporation, with
amendment dated February 28,1990.
10.6B(1) Landlord's Consent to Sublease dated March 2, 1990 among the Registrant, Invitron Corporation and
Seaport Centre Venture Phase II.
10.6C(1) Ten-Year Industrial Net Lease Agreement dated June 5, 1987 between Invitron Corporation and
Seaport Centre Venture Phase II, with amendments dated November 9, 1987; October 31, 1988;
August 1989; and February 28,1990.
10.6D(7) Amendments to Seaport Center Standard Lease between the Registrant and Metropolitan Life
Insurance Company dated January 10, 1995; and March 24, 1995.
10.6E(10) Industrial Lease Agreement dated March 15, 1993 between the Registrant and East Bayshore
Investment Group, with amendments dated March 31, 1993; and June 17, 1994.
10.7(1) Master Lease Agreement dated July 8, 1988 between the Registrant and Comdisco, Inc. with
Equipment Schedule No. VL-1 dated July 8, 1988 and Equipment Schedule No. VL-2 dated
April 4, 1990.
10.8A(3) Loan and Security agreement dated December 29, 1992 between the Registrant and MMC/GATX Partnership No. I.
10.8B(3) Secured Promissory Note dated December 29, 1992 issued by the Registrant to MMC/GATX Partnership No. I.
10.8C(3) Warrant dated December 29,1992 issued by the Registrant to MMC/GATX Partnership No. I.
10.8D(4) Amendment to the Loan and Security agreement dated December 30, 1993 between the Registrant and MMC/GATX
Partnership No. I.
10.8E(4) Warrant dated December 30, 1993 issued by the Registrant to MMC/GATX Partnership No. I.
10.9A(5)+ Development and License agreement dated August 17, 1993 between the Registrant and Novo Nordisk A/S.
10.9B(5) Common Stock Purchase Agreement dated August 17, 1993 between the Registrant and Novo Nordisk A/S.
10.9C(11)+ Amendment No. 1 dated March 26, 1996 to the Development and License Agreement between
the Registrant and Novo Nordisk A/S.
10.9D(11)+ Addendum dated March 26, 1996 to the Development and License Agreement between
the Registrant and Novo Nordisk A/S.
10.10A(6) Loan and Security agreement dated April 18, 1994 between the Registrant and Silicon Valley Bank.
10.10B(9) Loan and Security agreement dated June 23, 1995 between the Registrant and Silicon Valley Bank.
10.10C(10) Loan Modification Agreement dated August 31, 1994 between the Registrant and Silicon Valley Bank.
10.10D Amendment to the Loan and Security agreement June 23, 1995 between the Registrant and Silicon Valley Bank.
10.11A(6) Securities Purchase Agreement dated May 11, 1994 between the Registrant and certain Purchasers.
10.11B(8) Warrant dated June 30, 1994 issued to Ortelius Trading L.P.
10.11B-1(9) Letter related to Warrant issued to Ortelius Trading L.P.
10.11B-2 Letter related to Warrant issued to Ortelius Trading L.P.
10.11C(8) Warrant dated June 30, 1994 issued to GDK, Inc.
</TABLE>
<PAGE> 46
EXHIBIT INDEX (Continued)
<TABLE>
<S> <C>
10.11C-1(9) Letter related to Warrant issued to GDK, Inc.
10.11C-2 Letter related to Warrant issued to GDK, Inc.
10.11D(8) Amendment to Securities Purchase Agreement dated June 30, 1994 between the Registrant and certain purchasers.
10.11E(7) Amendment to Securities Purchase Agreement dated February 15, 1995 between the Registrant
and certain purchasers.
10.12A(7) Common Stock Purchase Agreement dated March 10, 1995 between the Registrant and Warburg,
Pincus Ventures, L.P. and International Biotechnology Trust PLC.
10.12B(7) Amendment to Common Stock Purchase Agreement dated March 15, 1995.
10.13(10) 1995 Director Option Plan.
10.14(10)+ Transition Agreement and Mutual Release between the Company and John W. Fara, Ph.D.
10.15(12)+ Product Development and License Agreement dated June 28, 1996 between the Registrant and
N. V. Organon.
10.16(12) Employment Agreement of Barry M. Sherman, M.D.
23.1 Consent of Ernst & Young LLP, Independent Auditors
27.1 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the exhibit filed with Registrant's
Registration Statement on Form S-1 (No. 33-42107), as amended.
(2) Incorporated by reference to exhibit filed with the Company's Form
S-8 (No. 33-52186).
(3) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10K for the year ended December 31, 1992.
(4) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10Q for the quarter ended September 30,
1993.
(5) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10K for the year ended December 31, 1993.
(6) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10Q for the quarter ended March 31, 1994.
(7) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10K for the year ended December 31, 1994.
(8) Incorporated by reference to the exhibit filed with Registrant's
Registration Statement on Form S-1 (No. 33-84310), as amended.
(9) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10Q for the quarter ended June 30, 1995.
(10) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10K for the year ended December 31, 1995.
(11) Incorporated by reference to the exhibit filed with the Company's
amendment to its Annual Report on Form 10-K/A for the year ended
December 31, 1995.
(12) Incorporated by reference to the exhibit filed with Registrant's
Registration Statement on Form S-1 (No. 33-42107), as amended.
(13) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10Q for the quarter ended September 30,
1996.
+ Confidential treatment granted for portions of this exhibit.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company
during the fiscal year ended December 31, 1996.
<PAGE> 1
EXHIBIT 10.10D
AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This Amendment to Loan and Security Agreement is entered into as of
December 27, 1996, by and between Silicon Valley Bank ("Bank") and Anergen,
Inc. ("Borrower").
RECITALS
Borrower and Bank are parties to that certain Loan and Security Agreement dated
as of June 23, 1995, as may have been or may be amended from time to time (the
"Agreement"). Borrower and Bank desire to amend the Agreement in accordance
with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Amendments
(a) Section 1.1 of the Agreement is hereby amended by (i)
renumbering the existing paragraph therein as subsection (a), (ii) replacing
each reference in such subsection (a) to "Loan" or "Loans" with "Facility A
Loan" or "Facility A Loans," (iii) replacing the reference therein to "Note"
with "Facility A Note," and (iv) adding a new subsection (b) as follows:
"(b) At any time from the date hereof through December 31,
1997, Borrower may from time to time request up to six (6)
advances (each a "Facility B Loan" and, collectively, the
"Facility B Loans"), each in a minimum amount of One Hundred
Thousands Dollars ($100,000) from Bank in an aggregate principal
amount of up to One Million Five Hundred Thousand Dollars
($1,500,000). Facility B Loans will be subject to the terms of
this Agreement. Principal, interest and all other sums owing to
Bank under this Agreement shall be evidenced by a promissory
note in substantially the form attached as Exhibit A-1 hereto
(the "Facility B Note") and by entries in records maintained by
Bank. Each payment on, and any other credits with respect to
principal, interest and all other sums owing to Bank under, this
Agreement shall be evidenced by entries in such records.
Borrower may prepay any amounts due hereunder without penalty or
premium; provided, however, that Bank shall have the right to
include a prepayment premium in connection with the quote of any
fixed rate as described in Section 1.3(b)."
(b) Section 1.2.1 of the Agreement is hereby amended by (i)
renumbering the existing paragraph therein as subsection (a), (ii) replacing
each reference in such subsection (a) to "Loan" or "Loans" with "Facility A
Loan" or "Facility A Loans," and (iii) adding a new subsection (b) as follows:
"(b) The Facility B Loans shall be used to purchase
machinery and equipment (the "Equipment"), and up to Three
Hundred Twenty-Five Thousand Dollars ($325,000) of the Facility
B Loans may be used to finance tenant improvements
("Improvements"). Advances for Equipment hereunder shall not
exceed One Hundred Percent (100%) of the cost of Equipment
approved from time to time by Bank excluding installation
expense, freight and taxes. All Equipment shall be or have been
accepted under invoices dated on or after the date which is
ninety (90) days prior to the date Borrower requests the
Facility B Loan, except for the initial Facility B Loan for
which the applicable number of days shall be one hundred and
eighty (180)."
1
<PAGE> 2
(c) Section 1.2.2 of the Agreement is hereby amended by
(i) renumbering the existing paragraph therein as subsection (a), (ii)
replacing each reference in such subsection (a) to "Loan" or "Loans" with
"Facility A Loan" or "Facility A Loans," and (iii) adding a new subsection (b)
as follows:
"(b) Interest shall accrue from the date of each Facility B
Loan at the rate specified in Section 1.3(b). Each Facility B
Loan shall be payable in thirty-six (36) equal monthly
installments of principal, plus accrued interest, in the
thirtieth (30th) calendar day of each month (except for the
month of February in which payment shall be due on the 28th)
beginning on thirtieth calendar day of the month after such Loan
is advanced. All Facility B Loans under this Section 1 and all
other amounts due under this Agreement shall be immediately due
and payable on December 31, 2000."
(d) Section 1.3 of the Agreement is hereby amended by (i)
renumbering the existing paragraph therein as subsection (a), (ii) replacing
each reference in such subsection (a) to "Loan" or "Loans" with "Facility A
Loan" or "Facility A Loans," and (iii) adding a new subsection (b) as follows:
"(b) Each Facility B Loan shall bear interest on the
outstanding principal amount thereof, from the date such
Facility B Loan is made until it is repaid in full, at a rate
per annum equal to, at the option of Borrower, (i) the rate
announced by Bank from time to time as its prime rate (the
"Prime Rate") plus one percent (1.0%), which rate shall change
contemporaneously with any change in the Prime Rate or (ii) the
rate of interest equal to the U.S. Treasury note yield to
maturity for a term equal to thirty-six months as quoted in the
Western edition of The Wall Street Journal three days prior to
the date of the requested Facility B Loan, plus three and
one-half percent (3.50%). Interest will be computed daily on the
basis of a 360-day year for the actual number of days elapsed.
Interest shall be payable monthly in arrears on the 30th day of
each month (except for the month of February in which payment
shall be due on the 28th) (contemporaneously with principal
payments) and when such Facility B Loan is due (whether at
maturity, by reason of acceleration or otherwise). Any amounts
not paid when due shall bear interest at a rate per annum equal
to five percent (5%) above the highest rate then applicable to
the Facility B Loans, which interest shall be payable on
demand."
(e) Section 3.1.3 of the Agreement is hereby amended by
replacing the numerical reference to "$5,000,000" with "Six Million Dollars
($6,000,000)".
(f) Section 3.11 of the Agreement is hereby amended in its
entirety to read as follows:
"3.11 Tangible Net Worth. Maintain, as of the last day of each
of Borrower's fiscal quarters, a Tangible Net Worth of not
less than Five Million Dollars ($5,000,000)."
2
<PAGE> 3
(g) Section 3 of the Agreement is hereby amended to add a
new Section 3.15 thereto as follows:
"3.15 Debt/Tangible Net Worth. Maintain, as of the last day of
each of Borrower's fiscal quarters, a ratio of Total
Liabilities less Subordinated Debt to Tangible Net Worth
plus Subordinated Debt of not more than .50 to 1.00."
(h) Section 9.1 of the Agreement is hereby amended by
adding the following definitions in proper alphabetical order thereto:
"'Loan' or 'Loans' means a Facility A Loan or a
Facility B Loan."
"'Note' means the Facility A Note and the Facility B
Note."
"'Subordinated Debt' means any debt incurred by
Borrower that is subordinated to the debt owing by Borrower to
Bank on terms acceptable to Bank (and identified as being such
by Borrower and Bank)."
"'Total Liabilities' means at any date as of which the
amount thereof shall be determined, all obligations that should,
in accordance with GAAP be classified as liabilities on the
consolidated balance sheet of Borrower, including in any event
all indebtedness, but specifically excluding Subordinated Date."
(i) The Agreement is hereby amended by adding a new Exhibit
A-1 attached hereto.
(j) Exhibit C of the Agreement is hereby amended and
replaced in its entirety with the Exhibit C attached hereto.
2. Conditions Precedent to Effectiveness. The effectiveness of
this Amendment is subject to further conditions precedent that:
(a) Borrower shall have paid to Bank an amendment fee of Seven
Thousand Five Hundred Dollars ($7,500) and all Bank Expenses incurred
through the date hereof, including reasonable attorney's fees and
expenses; and
(b) Bank shall have received, in form and substance satisfactory
to Bank:
(i) a certificate of the secretary of Borrower with respect
to incumbency and resolutions authorizing the execution,
delivery and performance of this Amendment, and confirming
that the copies of the Articles of Incorporation and By Laws
previously delivered to Bank have not been amended and remain
in full force and effect;
(ii) a promissory note in substantially the form of Exhibit
A-1 duly executed by Borrower; and
(iii) a copy of this Amendment duly executed by Borrower.
3. No Defenses of Borrower. Borrower agrees, as of this date, that
it has no defenses against the obligations to pay any amounts under the
Indebtedness.
3
<PAGE> 4
4. Interpretation. Unless otherwise defined, all capitalized terms
in this Amendment shall be as defined in the Agreement.
5. Representations. Borrower represents and warrants that the
Representations and Warranties contained in the Agreement are true and correct
as of the date of this Amendment, and that no Event of Default has occurred and
is continuing.
6. MISCELLANEOUS.
1. Successors and Assigns. This Amendment shall be
binding upon and shall inure to the benefit of Borrower and Bank and their
respective successors and assigns; provided, however, that the foregoing shall
not authorize any assignment by Borrower of its rights or duties hereunder.
2. Entire Agreement. This Amendment and the Loan
Documents contain the entire agreement of the parties hereto and supersede any
other oral or written agreements or understandings.
3. Course of Dealing; Waivers. No course of dealing on the
part of Bank or its officers, nor any failure or delay in the exercise of any
right by Bank, shall operate as a waiver thereof, and any single or partial
exercise of any such right shall not preclude any later exercise of any such
right. Bank's failure at any time to require strict performance by Borrower of
any provision shall not affect any right of Bank thereafter to demand strict
compliance and performance. Any suspension or waiver of a right must be in
writing signed by an officer of Bank.
4. Legal Effect. Except as amended by this Amendment, the
Loan Documents remain in full force and effect. If any provision of this
Amendment conflicts with applicable law, such provision shall be deemed severed
from this Amendment, and the balance of this Amendment shall remain in full
force and effect.
5. Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the first date above written.
ANERGEN, INC.
By [SIG]
---------------------------------
Title VP Finance and CFO
------------------------------
SILICON VALLEY BANK
By [SIG]
---------------------------------
Title Senior Vice President
------------------------------
4
<PAGE> 1
EXHIBIT 10.11B-2
February 25, 1997
Paresco, Inc.
1001 Hudson Street
Suite 3700
Jersey City, NJ 07302
Attn: Robert Olsen
Gentlemen:
In accordance with Section 13 of the Stock Purchase Warrant issued pursuant to
the Securities Purchase Agreement dated May 11, 1994, we hereby notify you that
the terms of your warrant have been adjusted such that rather than having the
right to purchase 117,154 shares at $3.521, you now have the right to purchase
124,232 shares at $3.319 each. All other terms of the warrant agreement remain
in effect.
Please call me if you have any questions.
Very Truly Yours,
/s/ JOHN W. VARIAN
- ------------------------------
John W. Varian
Vice President, Finance & CFO
JWV/cb
<PAGE> 1
EXHIBIT 10.11C-2
February 25, 1997
GDK, Inc.
c/o Caxton Corporation
667 Madison Ave, 10th Floor
New York, NY 10021
Attn: Andy Waldman
Gentlemen:
In accordance with Section 13 of the Stock Purchase Warrant issued pursuant to
the Securities Purchase Agreement dated May 11, 1994, we hereby notify you that
the terms of your warrant have been adjusted such that rather than having the
right to purchase 117,154 shares at $3.521, you now have the right to purchase
124,232 shares at $3.319 each. All other terms of the warrant agreement remain
in effect.
Please call me if you have any questions.
Very Truly Yours,
/s/ JOHN W. VARIAN
- ------------------------------
John W. Varian
Vice President, Finance & CFO
JWV/cb
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-44941) pertaining to the 1991 Employee Stock Purchase Plan and
the 1988 Stock Option Plan, the Registration Statement (Form S-8 No. 33-52186)
pertaining to the 1992 Consultant Stock Option Plan, the Registration Statement
(Form S-8 No. 33-70586) pertaining to the 1988 Stock Option Plan of Anergen,
Inc. and the Registration Statement (Form S-8 No. 33-95660) pertaining to the
1995 Director Option Plan of our report dated February 7, 1997 with respect to
the financial statements of Anergen, Inc. included in the Annual Report (Form
10-K) for the year ended December 31, 1996.
ERNST & YOUNG
San Francisco, California
March 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS OF ANERGEN, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT FILED ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 3,963 468
<SECURITIES> 12,437 11,024
<RECEIVABLES> 320 815
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 16,928 12,409
<PP&E> 5,973 5,428
<DEPRECIATION> (4,514) (3,418)
<TOTAL-ASSETS> 18,423 14,455
<CURRENT-LIABILITIES> 2,054 1,923
<BONDS> 366 818
0 0
0 0
<COMMON> 57,484 47,359
<OTHER-SE> (41,481) (35,645)
<TOTAL-LIABILITY-AND-EQUITY> 18,423 14,455
<SALES> 0 0
<TOTAL-REVENUES> 6,172 3,534
<CGS> 0 0
<TOTAL-COSTS> 11,799 10,298
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 170 322
<INCOME-PRETAX> (5,797) (7,086)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,797) (7,086)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,797) (7,086)
<EPS-PRIMARY> (0.35) (0.55)
<EPS-DILUTED> (0.35) (0.55)
</TABLE>
