FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: June 30, 1996
______________________________________________
Commission File Number: 0-19529
________________________________________
Alteon Inc.
________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 13-3304550
________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
170 Williams Drive, Ramsey, New Jersey 07446
________________________________________________________________
(Address of principal executive offices) (Zip Code)
(201) 934-5000
________________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. YES: * NO:
________ ________
On July 31, 1996, 15,680,293 shares of Registrant's Common Stock
were outstanding.
-1-
Alteon Inc.
Index
PART I. FINANCIAL INFORMATION Page
Item 1 - Financial Statements:
Balance sheets as of December 31, 1995
and June 30, 1996...................................3
Statements of operations for the three
and six months ended June 30, 1995 and 1996.........4
Statements of cash flows for the six months
ended June 30, 1995 and 1996........................5
Notes to financial statements.......................6
Item 2 - Management's Discussion and
Analysis of Financial Condition and
Results of Operations....................................7
PART II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of
Security Holders........................................10
Item 6 - Exhibits and Reports on Form 8-K...............10
SIGNATURES..................................................11
-2-
Alteon Inc.
BALANCE SHEETS
(Unaudited)
December 31, June 30,
1995 1996
____________ ___________
ASSETS
Current Assets:
Cash and cash equivalents............ $ 980,010 $ 1,805,098
Short-term investments............... 44,216,701 39,552,988
Receivables from corporate partner... 602,999 526,041
Other current assets................. 667,385 836,283
___________ __________
Total current assets............. 46,467,095 42,720,410
Property and equipment, net.......... 4,668,651 4,181,097
Deposits and other assets............ 253,297 255,561
Restricted cash...................... 827,200 827,200
_____________ ____________
Total assets...................... $ 52,216,243 $47,984,268
_____________ ____________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable...................... $ 230,953 $ 337,477
Accrued expenses...................... 1,519,665 2,135,913
Obligations under capital leases...... 282,989 293,943
_____________ ___________
Total current liabilities.......... 2,033,607 2,767,333
_____________ ___________
Obligations under capital leases...... $ 466,899 317,137
____________ ___________
Stockholders' Equity:
Preferred stock, $.01 par value;
1,998,329 shares authorized,
none issued........................... - -
Common stock, $.01 par value;
30,000,000 shares authorized and
15,387,985 and 15,674,413 shares
issued andoutstanding................. 153,880 156,744
Additional paid-in capital........... 83,607,054 83,957,161
Accumulated deficit.................. (34,037,491) (39,172,203)
Unrealized losses on
short term investments................ (7,706) (41,904)
Total stockholders' equity.......... 49,715,737 44,899,798
_____________ ___________
Total liabilities and stockholders'
equity............................... $ 52,216,243 $ 47,984,268
_____________ ____________
See accompanying notes to financial statements
-3-
Alteon Inc.
STATEMENTS OF OPERATIONS
(Unaudited)
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
_______________________ _________________
1995 1996 1995 1996
___________ ___________ ________ _________
Revenues:
Investment income.....$ 357,972 $ 577,087 $837,656 $1,185,329
Expenses:
Research and
development..............2,379,347 2,382,344 4,307,652 4,555,043
General and
administrative......... 967,984 888,753 1,849,337 1,738,614
Interest............... 17,757 12,388 36,776 26,384
__________ __________ _________ _________
Total expenses......... 3,365,088 3,283,485 6,193,765 6,320,041
Net loss............ $(3,007,116) (2,706,398) (5,356,109) (5,134,712)
___________ ___________ __________ ___________
Net loss per share..$ (0.24) $ (0.17) $ (0.43) $ (0.33)
____________ ___________ ___________ _________
Weighted average common
shares and common
equivalent shares
outstanding........... 12,558,564 15,663,576 12,544,374 15,591,607
__________ ___________ __________ ___________
See accompanying notes to financial statements
-4-
Alteon Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended
June 30,
___________________________
1995 1996
___________ __________
Cash Flows from Operating Activities:
Net loss.............................. $(5,356,109) $(5,134,712)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization......... 430,245 396,934
Changes in operating assets
and liabilities:
Recievables from corporate partner.. 21,867 76,958
Other current assets................ (382,248) (168,898)
Other assets........................ 3,213 (2,264)
Accounts payable and accrued
expenses............................ 311,752 722,772
__________ __________
Net cash used in operating
activities ......................... (4,971,280) (4,109,210)
___________ __________
Cash Flows from Investing Activities:
Capital expenditures................... (89,407) (164,356)
Purchases of marketable securities..... (22,618,793) (45,034,430)
Sales and maturities of marketable
securities............................. 24,932,678 49,663,946
Restricted cash........................ ___ ___
__________ __________
Net cash (used in) provided by
investing activities................. 2,224,478 4,465,160
__________ _________
Cash flows from Financing Activities:
Proceeds from issuance of common
stock.................................. 184,048 352,971
Principal payments under capital
lease obligations...................... (131,975) (138,808)
Proceeds from sales-leaseback
financing.............................. ___ 254,975
_________ __________
Net cash (used in) provided by
financing activities................. 52,073 469,138
_________ _________
Net (decrease)/increase in cash
and cash equivalents...................... (2,694,729) 825,088
Cash and cash equivalents, beginning
of period................................. 3,049,256 980,010
____________ ________
Cash and cash equivalents, end of
period.................................... $ 354,527 $1,805,098
Supplemental disclosures of cash flow
information:
Cash paid for interest ................ $ 36,776 $ 26,384
___________ _________
See accompanying notes to financial statements
-5-
Alteon Inc.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation - The accompanying unaudited financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of Management, all
adjustments (consisting of only normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the six months ended June 30, 1996, are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1996. For further information refer to
the financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December
31, 1995.
2. Cash, Cash Equivalents and Short-term Investments - Cash and
cash equivalents include highly liquid investments which have a
maturity of less than ninety days. Short-term investments are
recorded at fair market value. As of June 30, 1996, short-term
investments were invested in debt instruments of the U.S.
Government, government agencies and financial institutions and
corporations with strong credit ratings.
At June 30, 1996, $39,552,988 of the Company's short term
investments are classified as available for sale. A net unrealized
loss of $41,904 relating to the available for sale securities has
been recorded as a separate component of stockholders' equity at
June 30, 1996.
3. Net Loss Per Share - Net loss per share is calculated using the
weighted average number of common shares and common stock
equivalents, as applicable, outstanding during the period. In 1995
and 1996 common stock equivalents are excluded from the computation
of loss per share since their inclusion would be antidilutive.
4. Events Concerning Collaborative Partners - In 1990, the Company
and Marion Merrell Dow, Inc. (MMD) formed a strategic alliance to
develop and commercialize the Company's A.G.E.-formation and
cross-linking technology for therapeutics in the areas of diabetes
and age-related diseases. The arrangements included a research and
development collaboration to conduct clinical trials jointly,
including those on pimagedine, an agreement for joint promotion and
sale of drugs developed pursuant to the collaboration and a
manufacturing supply agreement. In 1995, MMD was acquired by
Hoechst Marion Roussel, Inc. (HMRI). On June 10, 1996, HMRI and
the Company announced that they have ended their collaboration, and
the Company has regained all rights granted to HMRI covering the
Company's core technology. This includes pimagedine, which is in
Phase III clinical trials for diabetic nephropathy. HMRI's decision
to withdraw from the collaboration, following a 60-day transition
period, is a result of its continuing prioritization of HMRI's new
product pipeline. The Company is in active collaboration
discussions with other pharmaceutical companies. The Company
received reimbursement of research and development expenses from
HMRI of $537,000, $587,000, $1,217,000, $515,000 and $788,000 for
the years ended December 31, 1993, 1994, 1995, and the six months
ended June 30, 1995, and 1996, respectively. In addition to the
reimbursement of certain of the Company's research and development
expenses, HMRI also had incurred the significant portion of the
expenses of the Company's clinical trials. Until the Company
enters into a collaborative agreement with a new pharmaceutical
company, these costs (which could exceed $1.5 million per month)
will be the responsibility of the Company.
-6-
5. Other Related Party Transactions - In 1993, a Company officer
received a loan which bore interest at a rate equal to the prime
rate, adjusted quarterly, for the purpose of purchasing a home.
The principal amount of the loan together with the interest is
included in deposits and other assets. The loan and related
interest are payable at the end of five years or upon termination
of employment. The loan and accrued interest balance is $251,000
as of June 30, 1996.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Overview
Since its inception in October 1986, Alteon has devoted
substantially all of its resources to its research, drug discovery
and development programs. To date, Alteon has not generated any
revenues from the sale of products and does not expect to generate
any such revenues for several years, if at all. Alteon has
incurred a cumulative net loss of $39,172,203 as of June 30, 1996,
and expects to incur operating losses, potentially greater than
losses in prior years, for a number of years.
Alteon has financed its operations through proceeds from an
initial public offering of Common Stock in 1991, a follow-on
offering of Common Stock completed in October and November 1995,
private placements of preferred equity securities, revenue from its
collaborations with Hoechst Marion Roussel, Inc. ("HMRI"),
Yamanouchi Pharmaceutical Co., Ltd. ("Yamanouchi"), reimbursement
of certain of Alteon's research and development expenses by its
collaborative partners, and investment income earned on cash
balances and short-term investments.
On June 10, 1996, HMRI and Alteon announced that they have
ended their collaboration and that Alteon has regained all rights
granted to HMRI covering the Company's core technology and will
assume full responsibility for the continuation of clinical trials
which had been funded by HMRI. HMRI's decision to withdraw from
the collaboration, following a 60-day transition period, is a
result of its continuing prioritization of its new product
pipeline. The Company is in active collaboration discussions with
other pharmaceutical companies. There is no assurance that the
Company will be able to enter into such an agreement or that if
such an agreement is reached, it will provide the level of funding
which had been provided by HMRI.
Although the Company anticipates increased expenditures in
research and development expenses as it develops products and
extends its clinical trials, a portion of such development expenses
is expected to be reimbursed by Alteon's collaborative partners.
Yamanouchi has agreed to fund preclinical studies, including most
toxicology studies, on pimagedine and any other products that the
parties jointly agree to develop including a second generation
A.G.E.-formation inhibitor and a macrophage stimulator. Gamida for
Life ("Gamida") has agreed to conduct, at its own expense, a Phase
II clinical trial in Israel to evaluate pimagedine in patients with
diabetes and elevated serum cholesterol levels. Yamanouchi and
Gamida do not fund Alteon's research or early product development
expenses.
The Company's business is subject to significant risks
including, but not limited to, the risks inherent in its research
and development efforts, including clinical trials, uncertainties
associated both with obtaining and enforcing its patents and with
the patent rights of others, the lengthy, expensive and uncertain
process of seeking regulatory approvals, uncertainties regarding
government reforms and of product pricing and reimbursement levels,
technological change and competition, manufacturing uncertainties
and dependence on third parties. Even if the Company's product
candidates appear promising at an early stage of development, they
may not reach the market for numerous reasons. Such reasons
include the possibilities that the products will be ineffective or
unsafe during clinical trials, will fail to receive necessary
-7-
regulatory approvals, will be difficult to manufacture on a large
scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties.
Results of Operations
Three Months Ended June 30, 1996 and 1995
Total revenues for the three months ended June 30, 1996, and
the three months ended June 30, 1995, were $577,000 and $358,000,
respectively, and were derived from interest earned on cash, cash
equivalents and short-term investments. The 61.2% increase in
investment income was attributed to the increase in cash, cash
equivalents and short-term investments from a follow-on offering
of Common Stock which was completed in October and November 1995.
The Company's total expenses decreased to $3,283,000 for the
three months ended June 30, 1996, from $3,365,000 for the three
months ended June 30, 1995, and consisted primarily of research and
development expenses. Research and development expenses were
$2,382,000 for the three months ended June 30, 1996, and $2,379,000
for the three months ended June 30, 1995, a 0.1% increase. This
reflects increased clinical research studies offset by increased
collaborative reimbursements and decreased research supplies.
(See Liquidity and Capital Resources.)
General and administrative expenses decreased to $889,000 for
the three months ended June 30, 1996, from $968,000 for the three
months ended June 30, 1995, an 8.2% decrease. This decrease is due
primarily to a decrease in personnel related costs and patent costs
offset by increased legal expenses.
The Company's net loss decreased to $2,706,000 for the three
months ended June 30, 1996, from $3,007,000 in the same period in
1995, a decrease of 10.0%, as a result of increased investment
income and decreased general and administrative expenses offset by
increased research and development expenses.
Six Months Ended June 30, 1996 and 1995
Total revenues for the six months ended June 30, 1996, and the
six months ended June 30, 1995, were $1,185,000 and $838,000,
respectively. The 41.4% increase in investment income was
attributed to the increase in cash, cash equivalents and short-term
investments from a follow-on offering of Common Stock which was
completed in October and November 1995.
The Company's total expenses increased to $6,320,000 for the
six months ended June 30, 1996, from $6,194,000 for the six months
ended June 30, 1995, and consisted primarily of research and
development expenses. Research and development expenses were
$4,555,000 for the six months ended June 30, 1996, and $4,308,000
for the six months ended June 30, 1995, a 5.7% increase. This
increase was primarily the result of increased clinical research
studies offset by increased collaborative reimbursements and
decreased research supplies. (See Liquidity and Capital Resources.)
General and administrative expenses decreased to $1,739,000
for the six months ended June 30, 1996, from $1,849,000 for the six
months ended June 30, 1995, a 5.9% decrease. This decrease is due
primarily to a decrease in personnel related costs offset by an
increase in corporate expenses including legal and insurance
expenses.
-8-
The Company's net loss decreased to $5,135,000 for the six
months ended June 30, 1996, from $5,356,000 in the same period in
1995, a decrease of 4.1%, as a result of increased investment
income and decreased general and administrative expenses offset by
increased research and development expenses.
Liquidity and Capital Resources
Alteon had cash, cash equivalents and short-term investments
at June 30, 1996 of $41,358,000 compared to $45,197,000 at December
31, 1995. This is a decrease in cash, cash equivalents and
short-term investments for the six months ended June 30, 1996, of
$3,839,000. This consisted of $4,109,000 of cash used in
operations consisting primarily of research and development
expenses, personnel and related costs and facility expenses. In
addition, the Company incurred $165,000 for capital expenditures
and $34,000 of unrealized losses, offset by $469,000 of financing
activities. As of June 30, 1996, Alteon had invested $7,305,000
in capital equipment and leasehold improvements, of which a
cumulative $1,395,000 had been funded through capital leases.
The Company's research and development expenses, to date, have
been funded primarily by research and development collaborative
arrangements and sales of equity securities. In programs that are
subject to joint development agreements, the Company expects to
incur substantial additional research and development costs,
including costs related to drug discovery, preclinical research and
clinical trials. In the past the Company has been able to offset
a portion of its research and development expenses and its clinical
development expenses with funding from its collaborative partners.
However, as described above, the Company and one of its
collaborative partners, HMRI, have terminated their collaboration.
In addition to the reimbursement of certain of the Company's
research and development expenses, HMRI had also incurred the
significant portion of the expenses of the Company's clinical
trials. Until the Company enters into a collaborative agreement
with a new pharmaceutical company, these costs (which could exceed
$1.5 million per month) will be the responsibility of the Company.
Alteon anticipates that its existing available cash and cash
equivalents and short-term investments, including the net proceeds
from the follow-on offering in 1995, will be adequate to satisfy
its working capital requirements for its current and planned
operations into 1997.
The Company's current and future capital needs depend on the
Company's ability to enter into a new collaborative agreement with
a new pharmaceutical company for the Company's core technology.
There is no assurance that the Company will be able to enter into
such an agreement or that if such an agreement is reached, it will
provide the level of funding which had been provided by HMRI. In
addition, future capital requirements will depend on numerous other
factors, including the progress of its research and development
programs, the conduct of preclinical tests and clinical trials, the
development of regulatory submissions, the costs associated with
protecting its patents and other proprietary rights, the development
of marketing and sales capabilities and the availability of
third-party funding.
Because of the Company's long-term capital requirements, it
may seek access to the public or private equity markets whenever
conditions are favorable. The Company may also seek additional
funding through corporate collaborations and other financing
vehicles, potentially including off-balance sheet financing through
limited partnerships or corporations. There can be no assurance
that such funding will be available at all or on terms acceptable
to the Company. If adequate funds are not available, the Company
may be required to curtail significantly one or more of its
research or development programs or obtain funds through
-9-
arrangements with collaborative partners or others. This may
require the Company to relinquish rights to certain of its
technologies or product candidates.
Alteon's commercial 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 commercial partners or to which the commercial 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.
Item 4. Submission of Matters to a Vote of Security-Holders.
The Annual Meeting of Stockholders of Alteon (the "Meeting")
was held on June 5, 1996. The following matters were voted upon
at the Meeting: (i) the election of three directors and (ii) the
ratifications of the appointment of Arthur Andersen LLP as
independent public accountants for the year ending December 31,
1996.
The following table sets forth the names of the nominees who
were elected to serve as directors and the number of votes cast for
or withheld from the election of each such nominee:
Number of Number of
Name Votes For Votes Withheld
____ _________ ______________
James J. Mauzey 13,541,787 19,851
Jere E. Goyan, Ph.D. 13,541,787 19,851
Anthony Cerami, Ph.D. 13,541,787 19,851
The votes cast for, against or abstaining from the ratification of
the appointment of Arthur Andersen LLP as independent public
accountants for the year ending December 31, 1996 were as follows:
Votes For Votes Against Abstentions
_________ _____________ ___________
13,539,217 13,376 9,045
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibit 27: Financial Data Schedule
b) The following reports on Form 8-K were filed during the quarter
ended June 30, 1996:
On April 22, 1996, the Company filed a Current Report on Form 8-K
which reported amendments to the Company's Bylaws.
On June 28, 1996, the Company filed a Current Report on Form 8-K
which reported (I) the termination of the collaborative relationship
between Hoechst Marion Roussel, Inc. and the Company, (ii) the
appointment of Robert N. Butler, M.D., to the Board of Directors of
the Company and (iii) the discovery of a new class of glucose lowering
drugs for diabetes.
-10-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date:
Alteon Inc.
/s/ James J. Mauzey
_____________________________
By: James J. Mauzey
Chairman of the Board,
Chief Executive Officer and Director
(principal executive officer)
/s/ Kenneth I. Moch
______________________________
By: Kenneth I. Moch
Senior Vice President,
Finance and Business Development
and Chief Financial Officer
(principal financial officer)
-11-
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE
BALANCE SHEETS, STATEMENTS OF OPERATIONS AND STATEMENTS OF CASH
FLOW FILED
AS PART OF ALTEON INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER
ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH
QUARTERLY REPORT ON FORM 10-Q.
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