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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 SEPTEMBER 30, 1998
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Commission File Number 0-19529
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ALTEON INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3304550
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
170 WILLIAMS DRIVE, RAMSEY, NEW JERSEY 07446
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(Address of principal executive offices) (Zip Code)
(201) 934-5000
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(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 October 31, 1998, 18,812,740 shares of Registrant's Common Stock were
outstanding.
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ALTEON INC.
INDEX
PART I. FINANCIAL INFORMATION
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Page
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Item 1. - Financial Statements:
Balance sheets as of December 31, 1997
and September 30, 1998............................................. 3
Statements of operations for the three months and nine months ended
September 30, 1997 and 1998........................................ 4
Statements of cash flows for the nine months ended
September 30, 1997 and 1998........................................ 5
Notes to financial statements...................................... 6
Item 2. - Management's Discussion and
Analysis of Financial Condition and
Results of Operations.................................................. 8
PART II. OTHER INFORMATION
Item 4. - Submission of Matters to a Vote of
Security-Holders....................................................... 12
Item 5. - Other Information............................................ 13
Item 6. - Exhibits and Reports on Form 8-K............................. 14
SIGNATURES................................................................... 16
</TABLE>
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PART 1
Item 1. Financial Statements.
ALTEON INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents .......................................... $ 20,423,675 $ 11,090,381
Short-term investments ............................................. 8,550,063 4,507,085
Other current assets ............................................... 468,680 666,559
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Total current assets ............................................. 29,442,418 16,264,025
Property and equipment, net ........................................ 3,183,362 3,146,064
Deposits and other assets .......................................... 261,358 279,739
Restricted cash .................................................... 620,400 --
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Total Assets ..................................................... $ 33,507,538 $ 19,689,828
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................... $ 921,637 $ 840,274
Accrued expenses ................................................... 5,969,384 2,909,824
Obligations under capital leases ................................... 161,581 --
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Total current liabilities ........................................ 7,052,602 3,750,098
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STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,993,086 shares authorized and 942
and 755 of Series G, 0 and 812 of Series H shares issued and
outstanding, as of December 31, 1997 and September 30, 1998,
respectively ..................................................... 9 16
Common stock, $.01 par value; 30,000,000 shares authorized and
17,922,319 and 18,809,440 shares issued and outstanding, as of
December 31, 1997 and September 30, 1998, respectively ........... 179,223 188,094
Additional paid-in capital ......................................... 105,585,019 115,429,809
Accumulated deficit ................................................ (79,303,374) (99,682,307)
Accumulated other comprehensive income/(loss) ...................... (5,941) 4,118
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Total stockholders' equity ....................................... 26,454,936 15,939,730
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Total liabilities and stockholders' equity ......................... $ 33,507,538 $ 19,689,828
============ ============
</TABLE>
See accompanying notes to financial statements
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ALTEON INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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1997 1998 1997 1998
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Revenues:
Investment income................................................ $ 353,854 $ 270,083 $ 1,206,651 $ 943,103
Expenses:
Research and development......................................... 7,004,249 7,632,615 18,296,562 18,905,098
Elimination of previously accrued loss contingency (See Note 8).. -- -- -- (1,770,975)
General and administrative....................................... 795,879 918,793 2,477,828 3,060,546
Interest......................................................... 5,554 -- 20,983 3,610
----------- ----------- ------------ ------------
Total expenses................................................. 7,805,682 8,542,408 20,795,373 20,198,279
----------- ----------- ------------ ------------
Net loss....................................................... $(7,451,828) $(8,272,325) $(19,588,722) $(19,255,176)
----------- ----------- ------------ ------------
Preferred stock dividends........................................ 662,664 722,673 1,023,015 1,123,756
----------- ----------- ------------ ------------
Net loss applicable to common shareholders..................... $(8,114,492) $(8,994,998) $(20,611,737) $(20,378,932)
=========== =========== ============ ============
Basic loss per share to common shareholders...................... $ (0.51) $ (0.50) $ (1.31) $ (1.13)
=========== =========== ============ ============
Diluted loss per share to common shareholders.................... $ (0.51) $ (0.50) $ (1.31) $ (1.13)
=========== =========== ============ ============
Weighted average common shares used in computing
basic and diluted loss per share............................... 15,915,927 18,091,939 15,779,841 18,007,848
=========== =========== ============ ============
</TABLE>
See accompanying notes to financial statements
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ALTEON INC.
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
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1997 1998
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Cash Flows from Operating Activities:
Net loss.................................................. $(19,588,722) $(19,255,175)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 544,997 503,212
Amortization of deferred compensation..................... 149,827 537,707
Changes in operating assets and liabilities:
Other current assets................................... 27,942 (197,879)
Other assets........................................... (13,368) (18,381)
Accounts payable and accrued expenses.................. (29,384) (3,140,923)
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Net cash used in operating activities.................. (18,908,708) (21,571,439)
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Cash Flows from Investing Activities:
Capital expenditures...................................... (6,799) (465,911)
Purchases of marketable securities........................ (77,070,394) (77,774,432)
Sales and maturities of marketable securities............. 76,593,005 81,827,469
Restricted cash........................................... -- 620,400
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Net cash provided by/(used in) investing activities.... (484,188) 4,207,526
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Cash Flows from Financing Activities:
Proceeds from issuance of common stock.................... 38,157 192,200
Proceeds from issuance of preferred stock................. 4,802,365 8,000,000
Principal payments under capital lease obligations........ (226,799) (161,581)
Proceeds from sales-leaseback financing................... 125,516 --
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Net cash provided by financing activities.............. 4,739,239 8,030,619
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Net decrease in cash and cash equivalents................... (14,653,657) (9,333,294)
Cash and cash equivalents, beginning of period.............. 31,497,633 20,423,675
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Cash and cash equivalents, end of period.................... $16,843,976 $ 11,090,381
============ ============
Supplemental disclosures of cash flow information:
Cash paid for interest.................................... $ 20,983 $ 3,610
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</TABLE>
See accompanying notes to financial statements
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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 nine months ended September 30,
1998, are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998. 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, 1997.
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
at the time of purchase. Short-term investments are recorded at fair market
value. As of September 30, 1998, 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 September 30, 1998, $4,507,000 of the Company's short-term investments
are classified as available for sale. A net unrealized gain of $4,000 relating
to the available for sale securities has been recorded as a separate component
of stockholders' equity at September 30, 1998.
3. NET LOSS PER SHARE - Effective for the year ended December 31, 1997, the
Company adopted statement of Financial Accounting Standards Board No. 128,
Earnings Per Share ("SFAS 128"). SFAS 128 requires the presentation of basic
earnings (loss) per share and diluted earnings (loss) per share. Basic loss per
share is based on the average numbers of shares outstanding during the year.
Diluted loss per share is the same as basic loss per share, as the inclusion of
common stock equivalents would be antidilutive.
4. COMPREHENSIVE INCOME - Effective January 1, 1998, the Company adopted the
provisions of Financial Accounting Standards Board No. 130, Reporting
Comprehensive Income ("SFAS 130"), which establishes standards for reporting and
displaying comprehensive income and its components. The adoption of this
statement has no effect on the Company's financial position or operating
results.
The following sets forth comprehensive income as required by SFAS 130 for
the periods ended September 30,:
<TABLE>
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1997 1998
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Net Loss................................. $(19,589,000) $(19,255,000)
Net Unrealized Gains/(Losses) on 0 4,000
Marketable Securities....................
------------ ------------
Comprehensive Loss....................... $(19,589,000) $(19,251,000)
============ ============
</TABLE>
5. EVENTS CONCERNING COLLABORATIVE PARTNERS - In December 1997, Alteon and
Genentech, Inc. ("Genentech") entered into a stock purchase agreement and a
development collaboration and license agreement providing for the development
and marketing of pimagedine and second-generation A.G.E.-formation inhibitors.
In December 1997, Genentech purchased Common Stock and Series G Preferred Stock
for an aggregate purchase price of $15,000,000. The use of these funds is
unrestricted to the
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Company. Genentech has agreed to fund the continued development of pimagedine
and support possible additional clinical trials for expanded indications of the
drug through the periodic purchase of up to $48,000,000 in Series H Preferred
Stock. The first such purchase, in the amount of $8,000,000, occurred on July
27, 1998, and on October 1, 1998, a second purchase occurred in the amount of
$14,544,000. In addition, Genentech will fund the agreed-upon development costs
for second-generation A.G.E. formation inhibitors.
Pursuant to the development collaboration and license agreement, Alteon
has granted Genentech an exclusive license to use and sell pimagedine in all
areas of the world except for Japan, China, South Korea and Taiwan, territories
covered under Alteon's agreement with Yamanouchi Pharmaceutical Co., Ltd.
("Yamanouchi"), and Israel, Jordan, Bulgaria, Cyprus and South Africa,
territories covered under Alteon's agreement with Gamida (the "Genentech
Territory"). Alteon has also granted Genentech an exclusive license to use and
sell second-generation A.G.E.-formation inhibitor products (and any future
Alteon compounds in this class), to be selected by Genentech after review of
Alteon's A.G.E.-formation inhibitor portfolio, in the Genentech Territory. In
consideration of the license, Alteon will receive $50,000,000 in payments from
Genentech upon meeting milestones relating to U.S. and European regulatory
filings and approvals for pimagedine product and an additional $50,000,000 upon
meeting milestones relating to U.S. and European regulatory filings and
approvals for a second-generation A.G.E.-formation inhibitor product. Following
commercialization, Alteon will receive royalties on net sales of pimagedine and
second-generation A.G.E.-formation products within the Genentech Territory.
The development collaboration and license agreement provides that all
development activities in the United States for pimagedine and second-generation
A.G.E.-formation inhibitors will be jointly managed by a steering committee with
representatives from Alteon and Genentech. Genentech will be responsible for
development outside the United States and for marketing and sales of the
licensed products in the Genentech Territory. Alteon has granted Genentech the
right to manufacture pimagedine for its pre-clinical, clinical and commercial
supplies of licensed products and has agreed to supply all pimagedine for
pre-clinical and clinical trials in the United States. The parties have agreed
to enter into a manufacturing and supply agreement covering supplies on terms to
be agreed upon.
The development collaboration and license agreement may be terminated upon
six months' notice by Genentech in its entirety or with respect to any licensed
product. If terminated after the Series H funds are received, certain of the
funds may be refundable to Genentech, as defined in the agreement. If terminated
prior to the receipt of Series H funds, Genentech would be required to pay
certain amounts, as defined in the agreement. Genentech's license expires as to
each product in each country in the Genentech Territory upon the later of the
expiration of the last patent applicable to the product in such country or
twelve and one-half years after the first commercial sale of the product in such
country.
6. PREFERRED STOCK TRANSACTIONS - In December 1997, the Company and Genentech
entered into a stock purchase agreement pursuant to which Genentech agreed to
buy shares of Common Stock, Series G Preferred Stock and Series H Preferred
Stock (the "Securities"). On December 19, 1997, the Company sold to Genentech
837,314 shares of Common Stock and 939 shares of Series G Preferred Stock for an
aggregate purchase price of $15,000,000. The Securities were offered and sold to
a single accredited investor in compliance with the requirements of Rule 506
under the Securities Act of 1933, and accordingly the transaction was exempt
from registration under such Act. Each share of Series G Preferred Stock is
convertible at any time upon seventy days' written notice into a number of
shares of Common Stock determined by dividing $10,000 by the average of the
closing sales price of the Common Stock, as reported on the Nasdaq National
Market, for the twenty business days immediately preceding the date of
conversion. As of September 30, 1998, Genentech converted 243 shares of Series G
Preferred Stock into 822,204 shares of Common Stock. The shares of Series H
Preferred Stock will be convertible on the same basis at any time after the
earlier of (i) the granting of approval by the U.S. Food and Drug
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Administration for the marketing and sale of any pimagedine product specified in
the development collaboration and license agreement between the Company and
Genentech, (ii) termination by Genentech of the development collaboration and
license agreement or (iii) December 1, 2002.
7. OTHER RELATED PARTY TRANSACTIONS - In July 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 the purpose of purchasing a home.
The loan is secured by a second mortgage on the premises purchased by the
officer. In February 1998, the terms of the loan were amended so that interest
will stop accruing as of July 1999 and the principal and interest shall be paid
in equal installments in July, 1999, 2000 and 2001. 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 September 30, 1998, $276,925, including accrued
interest, remained outstanding. A $25,000 payment was made on December 31, 1997.
8. CONTINGENCIES - 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. 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 technology.
In June 1998, the Company and HMRI resolved various open issues arising from the
termination of their collaboration. As a result, the previously established
accrual in the amount of $1.8 million has been eliminated and credited to the
Statement of Operations.
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 an accumulated deficit of $99,682,000 as of September 30, 1998, 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 common and preferred equity securities, revenue
from its collaborations with Hoechst Marion Roussel, Inc. ("HMRI") and
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.
In December 1997, Alteon and Genentech entered into a stock purchase
agreement and a development collaboration and license agreement providing for
the development and marketing of pimagedine and second-generation
A.G.E.-formation inhibitors. The agreements were amended in April 1998. In
December 1997, Genentech purchased Common Stock and Series G Preferred Stock for
an aggregate purchase price of $15,000,000. The use of these funds is
unrestricted to the Company. Genentech has agreed to fund continued development
of pimagedine and support possible additional clinical trials for expanded
indications of the drug through the periodic purchase of up to $48,000,000 in
Series H Preferred Stock. The first such purchase, in the amount of $8,000,000,
occurred on July 27, 1998, and on October 1, 1998, a second purchase occurred in
the amount of $14,544,000. Genentech will also fund agreed-upon development
costs for second-generation A.G.E.-formation inhibitors. Genentech may terminate
the license agreement upon six months' notice to the Company.
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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 pre-clinical 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. 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 product
pricing and reimbursement levels, (vi) technological change and competition,
(vii) manufacturing uncertainties, and (viii) dependence on collaborative
partners and other 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 prove 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 SEPTEMBER 30, 1998 AND 1997
Total revenues for the three months ended September 30, 1998, and the
three months ended September 30, 1997 were $270,000 and $354,000, respectively.
Revenues were derived from interest earned on cash and cash equivalents and
short-term investments. The 23.7% decrease in investment income was attributed
to the decrease in cash and cash equivalents and short-term investments.
The Company's total expenses increased to $8,542,000 for the three months
ended September 30, 1998, from $7,806,000 for the three months ended September
30, 1997, and consisted primarily of research and development expenses. Research
and development expenses were $7,624,000 for the three months ended September
30, 1998, and $7,004,000 for the three months ended September 30, 1997, a 8.9%
increase. This increase was primarily due to expenses related to the clinical
trial costs.
General and administrative expenses increased to $919,000 for the three
months ended September 30, 1998, from $796,000 for the three months ended
September 30, 1997, a 15.5% increase. This increase is due primarily to an
increase in personnel-related expenses and insurance expenses offset by
decreased legal expenses.
The Company's net loss applicable to common shareholders increased to
$8,995,000 for the three months ended September 30, 1998, from $8,114,000 in the
same period in 1997, an increase of 10.9%. This was primarily a result of
increased research and development expenses, general and administrative expenses
and decreased investment income. Included in the net loss applicable to common
shareholders are the preferred stock dividends of $722,673 and $662,664 for the
three months ended September 30, 1998 and 1997, respectively. The three months
ended, September 30, 1998 amount included a deemed dividend of $443,272 related
to the Series H transaction.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Total revenues for the nine months ended September 30, 1998, and the nine
months ended September 30, 1997, were $943,000 and $1,207,000, respectively.
Revenues were derived from interest earned on cash and cash equivalents and
short-term investments. The 21.9% decrease in investment income was attributed
to the decrease in cash and cash equivalents and short-term investment balances.
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The Company's total expenses decreased to $20,198,000 for the nine months
ended September 30, 1998, from $20,795,000 for the nine months ended September
30, 1997, and consisted primarily of the elimination of a previously accrued
loss contingency (see Note 8 - Notes to Financial Statements) offset by
increased research and development expenses and general and administrative
expenses. Research and development expenses were $18,905,000 for the nine months
ended September 30, 1998, and $18,297,000 for the nine months ended September
30, 1997, a 3.3% increase.
General and administrative expenses increased to $3,061,000 for the nine
months ended September 30, 1998, from $2,478,000 for the nine months ended
September 30, 1997, a 23.5% increase. This increase is due primarily to an
increase in personnel-related expenses and investor relations expenses offset by
decreased legal and depreciation expenses.
The Company's net loss applicable to common shareholders decreased to
$20,379,000 for the nine months ended September 30, 1998, from $20,612,000 in
the same period in 1997, a decrease of 1.1%. This was primarily a result of the
elimination of a previously accrued loss contingency (see Note 8 - Notes to
Financial Statements) offset by 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 September
30, 1998, of $15,597,000 compared to $28,974,000 at December 31, 1997. This is a
decrease in cash, cash equivalents and short-term investments for the nine
months ended September 30, 1998, of $13,377,000. This consisted of $21,572,000
of cash used in operations consisting primarily of research and development
expenses, personnel and related costs and facility expenses and $466,000 of
capital expenditures. This was offset by $8,031,000 of financing activities
primarily related to proceeds from the Genentech preferred stock purchase
agreement, $620,000 resulting from the release of escrow funds and $10,000 of
unrealized gains. As of September 30, 1998, Alteon had invested $7,806,000 in
capital equipment and leasehold improvements, of which a cumulative $1,347,000
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, pre-clinical 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.
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 at least into the second
half of 1999. In December 1997, Alteon and Genentech entered into a stock
purchase agreement and a development collaboration and license agreement
providing for the development and marketing of pimagedine and second-generation
A.G.E.-formation inhibitors. In December 1997, Genentech purchased Common Stock
and Series G Preferred Stock for an aggregate purchase price of $15,000,000. The
use of these funds is unrestricted to the Company. Genentech has agreed to fund
the continued development of pimagedine and support possible additional clinical
trials for expanded indications of the drug through the periodic purchase of up
to $48,000,000 in Series H Preferred Stock. The first such purchase, in the
amount of $8,000,000, occurred on July 27, 1998, and on October 1, 1998, a
second purchase occurred in the amount of $14,544,000. In addition, Genentech
will fund agreed-upon development costs for second-generation A.G.E.-formation
inhibitors. Genentech may terminate the license agreement on six months' notice
to the Company.
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Future capital requirements will depend on numerous factors, including the
progress of the Company's research and development programs, the conduct of
pre-clinical 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 of 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 corporate partners or to
which the corporate 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.
The Company is conducting a review of its computer systems to identify the
systems that could be affected by the Year 2000 issue and is currently
implementing a plan, which includes a review of all hardware/software vendors,
as well as other Alteon suppliers, vendors and business partners. The Company
believes that, with minor hardware modifications, the Year 2000 issue will not
pose significant operational problems for the Company's internal computer
systems as so modified.
In areas where the Company is dependent on third party vendors, the
Company is assessing the possible effects on its operations. Currently, the
Company is in discussion with these organizations regarding their Year 2000
readiness. The Company will be developing business continuity plans for the
areas which are critical in preventing or mitigating any serious disruptions to
its business. However, the potential impact and related costs, if any, are not
known at this time.
The Year 2000 disclosures discussed above depend on numerous expectations
which are subject to uncertainties. Certain risk factors which could have a
material adverse effect on the Company's results of operations and financial
condition include, but are not limited to: (i) unexpected failures by
significant third party vendors, (ii) failures by governmental agencies causing
delays in approval of new products or sales of approved products, (iii) failures
in global banking systems and capital markets, (iv) failures by public and
private utility companies supplying services to the Company, and (v) failures in
identifying critical systems within the Company.
PART II
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
The following information is furnished as to equity securities of the
Company sold by the Company during the period covered by this report that were
not registered under the Securities Act of 1933.
c) (1) On July 27, 1998 the Company sold 800 shares of its Series H
Preferred Stock (the "Preferred Stock").
11
<PAGE> 12
c) (2) The Preferred Stock was sold in a private placement to Genentech.
c) (3) The aggregate purchase price for the Preferred Stock was
$8,000,000. There were no underwriting discounts or commissions.
c) (4) The Preferred Stock was offered and sold exclusively to an
accredited investor in compliance with the requirements of Rule 506 under the
Securities Act of 1933 and accordingly the transaction was exempt from
registration under such Act.
c) (5) Each share of Series H Preferred Stock is convertible by the holder
thereof at any time after the earlier of (i) the granting of approval by the
U.S. Food and Drug Administration (or any successor thereto) for the marketing
and sale of any pimagedine product specified in the development collaboration
and license agreement between the Company and Genentech; (ii) termination by
Genentech of the development collaboration and license agreement; or (iii)
December 1, 2002 upon 70 days' notice to the Company into a number of shares of
Common Stock determined by dividing $10,000 by the average of the closing sales
prices of the Common Stock, as reported on the Nasdaq National Market, for the
20 business days preceding the date of conversion (such average being referred
to as the "Conversion Value"). The Preferred Stock is convertible into Common
Stock or cash by the Company on the basis of the Conversion Value. The Preferred
Stock may not be converted into Common Stock if after such conversion the holder
and its affiliates would be the beneficial owners of more than 40% of the
outstanding Common Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Annual Meeting of Stockholders of Alteon (the "Meeting") was held on
July 22, 1998. The following matters were voted upon at the Meeting: (i) the
election of two directors, (ii) the amendment to the Restated Certificate of
Incorporation to increase the number of authorized shares of Common Stock from
30,000,000 shares to 40,000,000 shares, (iii) the removal of certain limitations
regarding the Company's Series G Preferred Stock and Series H Preferred Stock
and (iv) the ratification of the appointment of Arthur Andersen, LLP as
independent public accountants for the fiscal year ending December 31, 1998.
(i) 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
---- --------- --------------
Marilyn G. Breslow 15,240,645 189,316
Alan J. Dalby 15,276,445 153,516
(ii) The votes cast for, against, abstaining or non-votes regarding the
amendment to the Restated Certificate of Incorporation to increase the number of
authorized shares of Common Stock from 30,000,000 shares to 40,000,000 shares
were as follows:
Votes For Votes Against Abstentions Non-Votes
--------- ------------- ----------- ---------
14,931,218 364,291 134,452 0
12
<PAGE> 13
(iii) The votes cast for, against, abstaining or non-votes regarding the
removal of certain limitations on the purchase and conversion of the Company's
Series G Preferred Stock and Series H Preferred Stock were as follows:
Votes For Votes Against Abstentions Non-Votes
--------- ------------- ----------- ---------
4,741,385 1,996,248 153,805 8,538,523
(iv) 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, 1998 were as follows:
Votes For Votes Against Abstentions
--------- ------------- -----------
15,317,233 87,463 25,265
ITEM 5. OTHER INFORMATION
The proxy solicited by the Board of Directors of the Company for the 1999
Annual Meeting of Stockholders will confer discretionary authority to vote on
any stockholder proposal presented at that meeting unless the Secretary of the
Company receives written notice of such proposal no later than March 17, 1999
which is 45 days prior to the expected proxy mailing date.
13
<PAGE> 14
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 on 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 Certificate of Designations of Series G Preferred Stock of Alteon
Inc. (Incorporated by reference to Exhibit 3.4 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997).
3.4 Certificate of Amendment of Certificate of Designations of Series G
Preferred Stock of Alteon Inc. (Incorporated by reference to Exhibit
3.4 to the Company's Quarterly Report on Form 10-Q for the three
months ended June 30, 1998).
3.5 Certificate of Designations of Series H Preferred Stock of Alteon
Inc. (Incorporated by reference to Exhibit 3.5 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997).
3.6 Amended Certificate of Designations of Series H Preferred Stock of
Alteon Inc. (Incorporated by reference to Exhibit 3.6 to the
Company's Quarterly Report on Form 10-Q for the three months ended
June 30, 1998).
3.7 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).
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 Amendment to Stockholders' Rights Agreement dated as of April 24,
1997 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).
4.3 Amendment to Stockholders' Rights Agreement dated as of December 1,
1997 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 December 10, 1997).
14
<PAGE> 15
27 Financial Data Schedule.
b) Reports on Form 8-K filed during the quarter ended September 30, 1998:
None.
15
<PAGE> 16
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: November 12, 1998
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)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS, STATEMENT OF OPERATIONS, AND STATEMENT OF CASH FLOW, FILED AS PART OF
ALTEON'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER END SEPTEMBER 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM
10-Q.
</LEGEND>
<CIK> 0000878903
<NAME> ALTEON INC.
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 11,090,381
<SECURITIES> 4,507,085
<RECEIVABLES> 0
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<CURRENT-ASSETS> 16,264,025
<PP&E> 3,146,064
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<TOTAL-ASSETS> 19,689,828
<CURRENT-LIABILITIES> 3,750,098
<BONDS> 0
0
16
<COMMON> 188,094
<OTHER-SE> 15,751,620
<TOTAL-LIABILITY-AND-EQUITY> 19,689,828
<SALES> 0
<TOTAL-REVENUES> 943,103
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<INCOME-PRETAX> (20,378,932)
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