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: March 31, 1997
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 April 18, 1997, 15,710,825 shares of Registrant's Common Stock
were outstanding.
<PAGE>
Alteon Inc.
Index
PART I. FINANCIAL INFORMATION Page
Item 1. - Financial Statements:
Balance sheets as of December 31, 1996
and March 31, 1997. . . . . . . . . . . . . . . . . 3
Statements of operations for the three months
ended March 31, 1996 and 1997 . . . . . . . . . . . 4
Statements of cash flows for the three months
ended March 31, 1996 and 1997 . . . . . . . . . . . 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 2. - Changes in Securities. . . . . . . . . . . . 9
Item 6. - Exhibits and Reports on Form 8-K . . . . . . 9
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . .10
2
<PAGE>
Alteon Inc.
BALANCE SHEETS
(Unaudited)
December 31, March 31,
1996 1997
ASSETS
Current Assets:
Cash and cash equivalents.............. $31,497,633 $25,595,207
Short-term investments................. 3,001,890 1,944,200
Other current Assets................... 649,169 406,719
Total current assets................ 35,148,692 27,946,126
Property and equipment, net............ 3,999,530 3,804,167
Deposits and other assets.............. 266,971 268,743
Restricted cash........................ 723,800 723,800
Total assets........................ $40,138,993 $32,742,836
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable....................... $ 1,853,400 $ 1,135,401
Accrued expenses....................... 6,447,521 5,613,099
Obligations under capital leases....... 305,321 311,175
Total current liabilities........... 8,606,242 7,059,675
Obligations under capital leases....... 161,577 81,554
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
15,702,825 and 15,710,825 shares
issued and outstanding.............. 157,028 157,108
Additional paid-in capital............. 84,018,146 84,029,784
Accumulated deficit ................... (52,800,283) (58,577,861)
Unrealized losses on short-term
investments......................... (3,717) (7,424)
Total stockholders' equity.......... 31,371,174 25,601,607
Total liabilities and
stockholders' equity................ $40,138,993 $32,742,836
See accompanying notes to financial statements
3
<PAGE>
Alteon Inc.
STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
March 31,
__________________________
1996 1997
__________ __________
Revenues:
Investment income.................. $608,241 $443,969
Expenses:
Research and development........... 2,172,700 5,256,150
General and administrative......... 849,860 956,972
Interest........................... 13,995 8,425
_________ ___________
Total expenses.................. 3,036,555 6,221,547
____________ _____________
Net loss............................. ($2,428,314) ($5,777,578)
____________ _____________
____________ _____________
Net loss per share................... ($0.16) ($0.37)
____________ ______________
Weighted average common shares
and common equivalent
shares outstanding................... 15,519,638 15,708,158
See accompanying notes to financial statements
4
<PAGE>
Alteon Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
March 31,
____________________________
1996 1997
_____________ ___________
Cash Flows from Operating Activities:
Net loss................................... $( 2,428,314) $( 5,777,578)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization............ 212,909 195,362
Amortization of deferred compensation.... ---- 4,794
Changes in operating assets
and liabilities:
Receivables from corporate partner...... 232,597 ----
Other current assets.................... (336,543) 242,450
Other assets............................ 2,835 (1,772)
Accounts payable and accrued expenses... (203,023) (1,552,421)
Net cash used in operating activities... (2,519,539) (6,889,165)
Cash Flows from Investing Activities:
Capital expenditures....................... (98,462) ----
Purchases of marketable securities......... (29,084,340) (37,412,000)
Sales and maturities of
marketable securities................... 31,665,166 38,465,983
Net cash provided by investing
activities......................... 2,482,364 1,053,983
Cash Flows from Financing Activities:
Proceeds from issuance of common stock ... 276,625 6,925
Principal payments under capital
lease obligations....................... (68,601) (74,169)
Net cash (used in) provided by
financing activities.................. 208,024 (67,244)
Net (decrease)/increase in cash and cash
equivalents............................ 170,849 (5,902,426)
Cash and cash equivalents,
beginning of period......................... 980,010 31,497,633
Cash and cash equivalents, end of period..... $1,150,859 $25,595,207
Supplemental disclosures of
cash flow information:
Cash paid for interest.................... $ 13,995 $ 8,425
See accompanying notes to financial statements
5
<PAGE>
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 three months
ended March 31, 1997, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1997. 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, 1996.
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 March 31, 1997, 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 March 31, 1997, $1,944,200 of the Company's short term investments are
classified as available for sale. A net unrealized loss of $7,424
relating to the available for sale securities has been recorded as a
separate component of stockholders' equity at March 31, 1997.
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 1996 and 1997 common
stock equivalents are excluded from the computation of loss per share
since their inclusion would be antidilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
(SFAS 128). This Statement establishes standards for computing and
presenting earnings per share and applies to entities with publicly
traded common stock or potential common stock. SFAS 128 is effective for
financial statements for both interim and annual periods ending after
December 15, 1997 and early adoption is not permitted. When adopted, the
statement will require restatement of prior years' earnings per share.
The Company will adopt this statement for its year ended December 31,
1997.
4. Events Concerning Collaborative Partners - In December 1990, the
Company and Marion Merrell Dow, Inc., which was subsequently acquired by
an affiliate of Hoechst AG and renamed Hoechst Marion Roussel, Inc.
("HMRI"), formed a strategic alliance to develop and commercialize the
Company's A.G.E. technology for therapeutics in the areas of diabetic and
aging complications. The arrangements included a research and
development collaboration to conduct clinical trials jointly, including
funding by HMRI of trials on pimagedine, an agreement for the joint
promotion and sale in the United States, Canada and Western Europe of
drugs developed pursuant to the collaboration, and a manufacturing and
supply agreement. In 1996, HMRI ended the collaboration as a result of
HMRI's continuing prioritization of its new product pipeline, and the
Company regained all rights granted to HMRI covering the Company's
6
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technology. As a result of the termination of the strategic alliance
with HMRI, the Company has assumed full responsibility for the
continuation of clinical trials which has been funded by HMRI. The
estimated costs of the clinical trials are $1.4 million per month. The
Company and HMRI are negotiating various open issues arising from the
termination of their collaboration. This includes the rights of the
parties under certain patents and amounts which may be payable by the
Company to HMRI and by HMRI to the Company. HMRI has invoiced the
Company certain amounts which the Company believes are without merit.
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 $267,000 as of March 31, 1997.
In 1993, a Company officer received a loan which bore interest at a
rate equal to the prime rate as published in the Wall Street Journal,
adjusted quarterly, for purpose of purchasing a home. The loan is
secured by a second mortgage on the premises purchased by the officer.
In July 1996, the terms of the loan were amended so that interest will
stop accruing as of July 1998 and the principal and interest shall be
paid in equal installments in July, 1998, 1999 and 2000. In the event
an installment is not paid when due, interest shall accrue at a rate of
one percent per month until payment is made. As of March 31, 1997, the
entire loan amount of $267,000 including accrued interest, remained
outstanding.
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 $58,578,000 as of March 31, 1997, 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 1995, private placements of preferred equity
securities (including the sale of $5,000,000 of its 6% Cumulative
Convertible Preferred Stock in April 1997), revenue from its
collaborations with Hoechst Marion Roussel, Inc. ("HMRI") and 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.
Effective August 10, 1996, HMRI and Alteon ended their
collaboration, and Alteon regained all rights granted to HMRI covering
the Company's core technology and assumed full responsibility for the
continuation of clinical trials which had been funded by HMRI. HMRI's
decision to withdraw from the collaboration was a result of its
continuing prioritization of its new product pipeline. The Company is
seeking one or more collaborative partners to replace HMRI. 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
7
<PAGE>
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") conducted, at its own
expense, a Phase II clinical trial in Israel to evaluate pimagedine in
patients with diabetes and elevated serum cholesterol levels which was
completed in April 1997. Yamanouchi does not fund Alteon's research or
early product development expenses.
The Company's business is subject to significant risks including,
but not limited to, (i) its ability to obtain funding, (ii) the risks
inherent in its research and development efforts, including clinical
trials, (iii) uncertainties associated both with obtaining and enforcing
its patents and with the patent rights of others, (iv) the lengthy,
expensive and uncertain process of seeking regulatory approvals, (v)
uncertainties regarding government reforms and of product pricing and
reimbursement levels, (vi) technological change and competition, (vii)
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
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 March 31, 1997 and 1996
Total revenues for the three months ended March 31, 1997, and the
three months ended March 31, 1996, were $444,000 and $608,000,
respectively. Revenues were derived from interest earned on cash and
cash equivalents and short-term investments. The 27.0% decrease in
investment income was attributed to the decrease in cash, cash
equivalents and short-term investment balances.
The Company's total expenses increased to $6,222,000 for the three
months ended March 31, 1997, from $3,037,000 for the three months ended
March 31, 1996, and consisted primarily of research and development
expenses. Research and development expenses were $5,256,000 for the
three months ended March 31, 1997, and $2,173,000 for the three months
ended March 31, 1996, a 141.9% increase. This increase was primarily due
to the Company's assumption of the ACTION trial costs as a result of the
termination of the Company's collaborative agreements with HMRI on August
10, 1996.
General and administrative expenses increased to $957,000 for the
three months ended March 31, 1997 from $850,000 for the three months
ended March 31, 1996, a 12.6% increase. This increase is due primarily
to increased legal expenses.
The Company's net loss increased to $5,778,000 for the three months
ended March 31, 1997, from $2,428,000 in the same period in 1996, an
increase of 137.9%, as a result of increased research and development
expenses, general and administrative expenses and decreased investment
income.
Liquidity and Capital Resources
Alteon had cash, cash equivalents and short-term investments at
March 31, 1997 of $27,539,000 compared to $34,500,000 at December 31,
1996. This is a decrease in cash, cash equivalents and short-term
investments for the three months ended March 31, 1997, of $6,961,000.
This consisted of $6,889,000 of cash used in operations consisting
primarily of research and development expenses, personnel and related
costs and facility expenses. In addition, the Company incurred $68,000
of financing activities primarily related to capital lease obligations
8
<PAGE>
and $4,000 of unrealized losses. As of March 31, 1997, Alteon had
invested $7,507,000 in capital equipment and leasehold improvements, of
which a cumulative $1,375,000 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. The Company
anticipates that it will be 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. The estimated costs of
the clinical trials, which is now the responsibility of the Company, is
estimated to be $1.4 million per month.
Alteon anticipates that its existing available cash and cash
equivalents and short-term investments will be adequate to satisfy its
working capital requirements for its current and planned operations into
the first quarter of 1998. The Company completed the sale of $5,000,000
of its 6% Cumulative Convertible Preferred Stock in April 1997 and is in
discussion with potential private purchasers of its debt or equity
securities to provide additional financing. There can be no assurance
that such additional financing can be obtained.
Future capital requirements will depend on numerous factors,
including the progress of the Company's research and development
programs, the conduct of preclinical tests and clinical trials, the
development of regulatory submissions, the costs associated with
protecting 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 it its research or development programs or
obtain funds through 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.
Part II
Item 2. Changes in Securities
b) The Preferred Stock Investment Agreement, pursuant to which Alteon
sold $5,000,000 of its 6% Cumulative Convertible Preferred Stock in
April 1997 provides that so long as over 20% of such Preferred Stock is
9
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outstanding, Alteon shall not declare, nor pay any dividends or make any
distributions to any holder of its Common Stock.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits
Exhibit
No. Description of Exhibit
3.1 Restated Certificate of Incorporation.
(Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement Form S-1 (File
Number 33-42574) which became effective on
November 1, 1991).
3.2 Certificate of the Voting Powers, Designations,
Preference and Relative Participating, Optional and
Other Special Rights and Qualifications, Limitations
or Restrictions of Series F Preferred Stock of the
Company. (Incorporated by reference to Exhibit 4.2
to the Company's Current Report on Form 8-K filed on
August 4, 1995).
3.3 By-laws, as amended. (Incorporated by reference to
Exhibit 3.1 to the Company's Current Report on Form
8-K filed on April 22, 1996).
3.4 Certificate of Designations of 6% Cumulative
Convertible Preferred Stock for Alteon Inc.
(Incorporated by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K filed on May 9,
1997).
4.1 Stockholders' Rights Agreement dated as of July 27,
1995, between Alteon Inc. and Registrar and Transfer
Company, as Rights Agent. (Incorporated by reference
to Exhibit 4.1 to the Company's Current Report on
Form 8-K filed on August 4, 1995).
4.2 Registration Rights Agreement dated as of Apri 24,
1997 between Alteon Inc. and the investors named on
the signature page thereof (Incorporated by reference
to Exhibit 4.1 to the Company's Current Report on
Form 8-K filed on May 9, 1997).
4.3 Form of Common Stock Purchase Warrant (Incorporated
by reference to Exhibit 4.2 to the Company's Current
Report on Form 8-K filed on May 9, 1997).
4.4 Form of Common Stock Purchase Delisting Warrant
(Incorporated by reference to Exhibit 4.3 to the
Company's Current Report on Form 8-K filed on May 9,
1997).
4.5 Amendment to Stockholders' Rights Agreement between
Alteon Inc. and Registrar and Transfer Company, as
Rights Agent (Incorporated by reference to Exhibit
4.4 to the Company's Current Report on Form 8-K filed
on May 9, 1997).
10.1 Letter Agreement dated January 17, 1997 between the
Company and Veronica Mallon amending Employment
Agreement dated January 17, 1995. (Incorporated by
reference to Exhibit 10.30 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1996).
10
<PAGE>
10.2 Letter Agreement dated January 29, 1997 between the
Company and Kenneth Cartwright amending Employment
Agreement dated March 27, 1995. (Incorporated by
reference to Exhibit 10.31 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1996).
10.3 Letter Agreement dated January 29, 1997 between the
Company and Elizabeth A. O'Dell amending Employment
Agreement dated October 21, 1995. (Incorporated by
reference to Exhibit 10.32 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1996).
10.4 Letter Agreement dated January 30, 1997 between the
Company and James M. Mauzey amending Employment
Agreement dated February 28, 1994. (Incorporated by
reference to Exhibit 10.33 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1996).
10.5 Letter Agreement dated March 27, 1997 between the
Company and Kenneth Cartwright amending Employment
Agreement dated March 27, 1995, as amended.
(Incorporated by reference to Exhibit 10.34 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1996).
10.6 Preferred Stock Investment Agreement dated as of
April 24, 1997 between Alteon Inc. and the investors
named on the signature page thereof (Incorporated by
reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed on May 9, 1997).
27 Financial Data Schedule
b) No reports on Form 8-K were filed during the quarter ended March 31, 1997.
11
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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: May 14, 1997
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)
12
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<TABLE> <S> <C>
<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'S QUARTERLY REPORT ON FORM 10-Q FOR
THE QUARTER ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 25,595,207
<SECURITIES> 1,944,200
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27,946,126
<PP&E> 3,804,167
<DEPRECIATION> 0
<TOTAL-ASSETS> 32,742,836
<CURRENT-LIABILITIES> 7,059,675
<BONDS> 0
0
0
<COMMON> 157,108
<OTHER-SE> 25,444,499
<TOTAL-LIABILITY-AND-EQUITY> 32,742,836
<SALES> 0
<TOTAL-REVENUES> 443,969
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,213,122
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,425
<INCOME-PRETAX> (5,777,578)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,777,578)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,777,578)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
