<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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 Identification No.)
incorporation or organization)
170 WILLIAMS DRIVE, RAMSEY, NEW JERSEY 07446
(Address of principal executive offices) (Zip Code)
(201) 934-5000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days
Yes X No
--- ---
On August 4, 2000, 19,375,864 shares of Registrant's Common Stock were
outstanding.
Page 1 of 19 pages
The Exhibit Index is on page 17
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALTEON INC.
BALANCE SHEET
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
<S> <C> <C>
Current Assets:
Cash and cash equivalents ............................ $ 3,144,921 $ 5,335,529
Short-term investments ............................... 4,336,569 7,034,258
Other current assets ................................. 491,281 248,983
------------- -------------
Total current assets ............................... 7,972,771 12,618,770
Property and equipment, net .......................... 2,038,144 2,399,305
Deposits and other assets ............................ 2,815 2,815
------------- -------------
Total assets ....................................... $ 10,013,730 $ 15,020,890
============= =============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current Liabilities:
Accounts payable ..................................... $ 132,995 $ 431,000
Accrued expenses ..................................... 1,573,086 1,763,202
------------- -------------
Total current liabilities .......................... 1,706,081 2,194,202
------------- -------------
Stockholders' Equity:
Preferred Stock, $0.01 par value,
1,993,086 shares authorized, and 874 and 839
of Series G and 2,626 and 2,518 of Series H shares
issued and outstanding, as of June 30, 2000 and
December 31, 1999, respectively .................... 35 34
Common Stock, $0.01 par value,
40,000,000 shares authorized, and 19,368,695 and
19,189,701 shares issued and outstanding, as of
June 30, 2000 and December 31, 1999, respectively .. 193,687 191,897
Additional paid-in capital ........................... 135,899,958 134,129,513
Accumulated deficit .................................. (127,785,312) (121,496,049)
Accumulated other comprehensive (loss)/income ........ (719) 1,293
------------- -------------
Total stockholders' equity ......................... 8,307,649 12,826,688
------------- -------------
Total liabilities and stockholders' equity .............. $ 10,013,730 $ 15,020,890
============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE> 3
ALTEON INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment income ....................................... $ 142,533 $ 226,901 $ 308,669 $ 505,211
Expenses:
Research and development ............................. 1,335,313 3,167,641 3,002,803 7,697,334
General and administrative ........................... 1,066,649 1,072,259 2,161,327 2,165,694
------------ ------------ ------------ ------------
Total expenses .................................... 2,401,962 4,239,901 5,164,130 9,863,028
------------ ------------ ------------ ------------
Net loss ................................................ $ (2,259,429) $ (4,013,000) $ (4,855,461) $ (9,357,817)
------------ ------------ ------------ ------------
Preferred stock dividends and discount amortization .. 724,397 667,671 1,433,802 1,314,450
------------ ------------ ------------ ------------
Net loss applicable to common stockholders .............. $ (2,983,826) $ (4,680,671) $ (6,289,263) $(10,672,267)
============ ============ ============ ============
Basic loss per share to common stockholders ............. $ (0.15) $ (0.25) $ (0.33) $ (0.56)
============ ============ ============ ============
Diluted loss per share to common stockholders ........... $ (0.15) $ (0.25) $ (0.33) $ (0.56)
============ ============ ============ ============
Weighted average common shares used in computing
basic and diluted loss per share ..................... 19,350,086 18,971,236 19,290,607 18,920,374
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE> 4
ALTEON INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss ........................................................... $ (4,855,461) $ (9,357,817)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization ...................................... 411,296 346,055
Amortization of deferred compensation .............................. 163,794 131,818
Changes in operating assets and liabilities:
Other current assets ............................................... (242,299) (222,068)
Other assets ....................................................... 0 (10,046)
Accounts payable and accrued expenses .............................. (488,121) (232,670)
------------ ------------
Net cash used in operating activities ............................ (5,010,791) (9,344,728)
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures ............................................... (50,134) (17,782)
Purchases of marketable securities ................................. (16,465,011) (26,173,328)
Sales and maturities of marketable securities ...................... 19,160,688 36,633,952
------------ ------------
Net cash provided by investing activities ........................ 2,645,543 10,442,842
------------ ------------
Net Cash Flows From Financing Activities:
Proceeds from issuance of common stock ............................. 174,640 58,536
------------ ------------
Net (decrease)/increase in cash and cash equivalents .................. (2,190,608) 1,156,650
Cash and cash equivalents, beginning of period ........................ 5,335,529 10,839,586
------------ ------------
Cash and cash equivalents, end of period .............................. $ 3,144,921 $ 11,996,236
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE> 5
ALTEON INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 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, 2000, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. 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, 1999.
NOTE 2 - CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents include highly liquid investments which have
a maturity of less than three months at the time of purchase. Short-term
investments are recorded at fair market value.
NOTE 3 - NET LOSS PER SHARE
Basic loss per share is based on the average number 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.
NOTE 4 - COMPREHENSIVE INCOME
The following sets forth comprehensive income as required by SFAS 130
for the periods ended June 30, 2000 and 1999 (dollars in thousands):
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Net Loss ................................... $(4,855) $(9,358)
Net Unrealized Loss on Marketable Securities (2) (4)
------- -------
Comprehensive Loss ......................... $(4,857) $(9,362)
======= =======
</TABLE>
5
<PAGE> 6
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 an accumulated deficit of $127,785,312 as of June 30, 2000,
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 present and former collaborative relationships, reimbursement of
certain of Alteon's research and development expenses by its collaborative
partners, investment income earned on cash balances and short-term investments
and the sale of its New Jersey State Net Operating Losses ("NOLs")
carryforwards.
In December 1999, Alteon sold $27.7 million of its gross state net
operating loss carryforwards and $645,000 of its state research and development
tax credit carryforwards under the State of New Jersey's Technology Business Tax
Certificate Transfer Program (the "Program"). The Program allowed qualified
technology and biotechnology business in New Jersey to sell unused amounts of
net operating loss carryforwards and defined research and development tax
credits for cash. The total tax value sold was $3,137,000, and the total
proceeds received by the Company were $2,588,210, which was recorded as a tax
benefit in the statement of operations.
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 JUNE 30, 2000 AND 1999
Total revenues for the three months ended June 30, 2000, and the three
months ended June 30, 1999, were $143,000 and $227,000, respectively. Revenues
were derived from interest earned on cash and cash equivalents and short-term
investments. The 37.0% decrease in investment income was attributable to the
decrease in cash, cash equivalents and short-term investment balances.
The Company's total expenses decreased to $2,402,000 for the three
months ended June 30, 2000, from $4,240,000 for the three months ended June 30,
1999, and consisted primarily of research and development expenses. Research and
development expenses were $1,335,000 for the three months ended June 30, 2000,
and $3,168,000 for the three months ended June 30, 1999, a 57.9% decrease. This
decrease was primarily due to decreased expenses related to the clinical trial
costs and personnel-related expenses.
General and administrative expenses remained constant for the three
months ended June 30, 2000 in comparison to the same period in 1999.
The Company's net loss applicable to common stockholders decreased to
$2,984,000 for the three months ended June 30, 2000, from $4,681,000 in the same
period in 1999, a decrease of 36.3%. This was primarily a result of decreased
research and development expenses offset by decreased investment income and
increased preferred stock dividends and discount amortization. Included in the
net loss applicable to common stockholders are preferred stock dividends and
discount amortization of approximately $724,000 and $668,000 for the three
months ended June 30, 2000 and 1999, respectively.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Total revenues for the six months ended June 30, 2000, and the six
months ended June 30, 1999, were $309,000 and $505,000, respectively. Revenues
were derived from interest earned on cash and cash equivalents and short-term
investments. The 38.9% decrease in investment income was attributable to the
decrease in cash, cash equivalents and short-term investment balances.
The Company's total expenses decreased to $5,164,000 for the six months
ended June 30, 2000, from $9,863,000 for the six months ended June 30, 1999, and
consisted primarily of research and development expenses. Research and
development expenses were $3,003,000 for the six months ended June 30, 2000, and
$7,697,000 for the six months ended June 30, 1999, a 61.0% decrease. This
decrease was primarily due to decreased expenses related to clinical trial costs
and personnel-related expenses.
General and administrative expenses remained constant for the six
months ended June 30, 2000 in comparison to the same period in 1999.
The Company's net loss applicable to common stockholders decreased to
$6,289,000 for the six months ended June 30, 2000, from $10,672,000 in the same
period in 1999, a decrease of 41.1%. This was primarily a result of decreased
research and development expenses offset by decreased investment income and
increased preferred stock dividends and discount amortization. Included in the
net loss applicable to common stockholders are preferred stock dividends and
discount amortization of approximately $1,434,000 and $1,314,000 for the six
months ended June 30, 2000 and 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Alteon had cash, cash equivalents and short-term investments at June
30, 2000, of $7,481,000 compared to $12,370,000 at December 31, 1999. This is a
decrease in cash, cash equivalents and short-term investments for the six months
ended June 30, 2000, of $4,889,000. This consisted of $5,011,000 of cash used in
operations consisting primarily of research and development expenses, personnel
and related costs and facility expenses and approximately $50,000 of capital
expenditures. This was offset by $175,000 of financing activities related to
proceeds from stock option exercises. As of June 30, 2000, Alteon had invested
$7,432,000 in capital equipment and leasehold improvements.
In December 1999, Alteon sold $27.7 million of its gross state net
operating loss carryforwards and $645,000 of its state research and development
tax credit carryforwards under the State of New Jersey's Technology Business Tax
Certificate Transfer Program (the "Program"). The Program allowed qualified
technology and biotechnology business in New Jersey to sell unused amounts of
net operating loss carryforwards and defined research and development tax
credits for cash. The total tax value sold was $3,137,000, and the total
proceeds received by the Company were $2,588,210, which was recorded as a tax
benefit in the statement of operations.
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 2001.
The amount of the Company's 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. If
the Company obtains funds through arrangements with collaborative partners or
others, it may be required to relinquish rights to certain of its technologies
or product candidates.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The Company's current priorities are the evaluation and possible
continued development of ALT-711, its lead A.G.E. Crosslink Breaker candidate,
and the continued development of pimagedine. The Company is focusing its
resources on the development of ALT-711 and is actively seeking one or more
corporate partners to help fund further development. After consultation with the
FDA, the Company has also decided to continue the development of pimagedine and
is actively seeking one or more corporate partners to provide necessary funding.
The Company believes that additional development of this compound and other
product candidates will require the Company to find sources of funding.
Effective December 13, 1999, the Company's Common Stock traded on the
Over-the-Counter-Bulletin-Board. Effective August 7, 2000, the Company's Common
Stock was approved for listing on the American Stock Exchange.
In January 2000 and March 2000, the Company completed a downsizing of
its associates. The Company undertook the downsizing to reduce operating
expenses in order to preserve its existing capital resources for research and
development programs.
Statements in this Form 10-Q that are not statements or descriptions of
historical facts are "forward-looking" statements under Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995 and are subject to numerous risks and
uncertainties. These forward-looking statements and other forward-looking
statements made by the Company or its representatives are based on a number of
assumptions. The words "believes," "expects," "anticipates," "intends,"
"estimates" or other expressions which are predictions of or indicate future
events and trends and which do not relate to historical matters identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements as they involve risks and uncertainties, and
actual results could differ materially from those currently anticipated due to a
number of factors, including those set forth in this section and elsewhere in,
or incorporated by reference into, this Form 10-Q. These factors include, but
are not limited to, the risks set forth below. The forward-looking statements
represent the Company's judgment and expectations as of the date of this Report.
The Company assumes no obligation to update any such forward-looking statements.
Alteon may not be able to obtain sufficient additional funding to meet its
needs or to allow it to continue the research, product development, pre-clinical
testing and clinical trials of its product candidates.
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 2001. Alteon
will require substantial new funding in order to continue the research, product
development, pre-clinical testing and clinical trials of its product candidates,
including ALT-711 and pimagedine. The Company will also require additional
funding for operating expenses, the pursuit of regulatory approvals for its
product candidates and the establishment of marketing and sales capabilities.
The Company's future capital requirements will depend on many factors, including
continued scientific progress in its research and development programs, the size
and complexity of these programs, progress with pre-clinical testing and
clinical trials, the time and costs involved in obtaining regulatory approvals,
the costs involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, the establishment of additional
collaborative arrangements, the cost of manufacturing arrangements,
commercialization activities, and the cost of product in-licensing and strategic
acquisitions, if any. There can be no assurance that the Company's cash reserves
and other liquid assets, including funding that may be received from the
Company's corporate partners and equity sales and interest income earned
thereon, will be adequate to satisfy its capital and operating requirements.
Alteon intends to seek funding initially through arrangements with
corporate collaborators. It may in the future seek funding through public or
private sales of the Company's securities, including equity securities, when and
if conditions permit. In addition, the Company may pursue opportunities to
obtain debt financing, including capital leases, in the future. There can be no
assurance, however, that additional funding will be available on reasonable
terms, if at all. Any additional equity financing would be dilutive to the
Company's stockholders. If adequate funds are not available, Alteon may be
required to curtail significantly or eliminate one or more of its research and
development programs. If Alteon obtains funds through arrangements with
collaborative partners or others, it may be required to relinquish rights to
certain of its technologies or product candidates.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Alteon may not successfully develop or derive revenues from any products.
All of the Company's product candidates are in the research or
development stage, and all revenues to date have been generated from
collaborative research agreements and financing activities, or interest income
earned on these funds. No revenues have been generated from product sales. There
can be no assurance that product revenues can be realized on a timely basis, if
at all.
Alteon has not yet requested or received regulatory approval for any
product from the FDA or any other regulatory body. Before obtaining regulatory
approvals for the commercial sale of any of its products under development, the
Company must demonstrate through pre-clinical studies and clinical trials that
the product is safe and effective for use in each target indication. The results
from pre-clinical studies and early clinical trials may not be predictive of
results that will be obtained in large-scale testing, and there can be no
assurance that any clinical trials undertaken by the Company will demonstrate
sufficient safety and efficacy to obtain the requisite regulatory approvals or
will result in marketable products.
There can be no assurance that Alteon will succeed in the development
and marketing of any therapeutic or diagnostic product. To achieve profitable
operations, the Company must, alone or with others, successfully identify,
develop, introduce and market proprietary products. Such products will require
significant additional investment, development and pre-clinical and clinical
testing prior to potential regulatory approval and commercialization.
The development of new pharmaceutical products is highly uncertain and
subject to a number of significant risks. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons. Potential products may be found ineffective or cause harmful side
effects during pre-clinical testing or clinical trials, fail to receive
necessary regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical, fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of third parties. There can be no
assurance that the Company will undertake additional clinical trials or that the
Company's product development efforts will be successfully completed, that
required regulatory approvals can be obtained or that any products, if
introduced, will be successfully marketed or achieve customer acceptance.
Commercial availability of any Alteon products, including ALT-711 and
pimagedine, is not expected for a number of years, if at all.
Alteon may never generate profits.
At June 30, 2000, the Company had an accumulated deficit of
$127,785,312. The Company anticipates that it will incur substantial,
potentially greater losses in the future. There can be no assurance that the
Company's products under development will be successfully developed or that its
products, if successfully developed, will generate revenues sufficient to enable
the Company to earn a profit. Alteon expects to incur substantial additional
operating expenses over the next several years as its research, development and
clinical trial activity increases. Alteon does not expect to generate revenues
from the sale of products, if any, for a number of years. The Company's ability
to achieve profitability depends in part on its ability to enter into agreements
for product development, obtain regulatory approval for its products and develop
the capacity, or enter into agreements, for the manufacture, marketing and sale
of any products. There can be no assurance that Alteon will obtain required
regulatory approvals, or successfully develop, manufacture, commercialize and
market product candidates or that the Company will ever achieve product revenues
or profitability.
The Company may not be able to form and maintain collaborative
relationships, which its business strategy requires.
The Company's strategy for development and commercialization of certain
of its products is dependent upon entering into various arrangements with
research collaborators, corporate partners and others and upon the subsequent
success of these third parties in performing their obligations.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Alteon has established collaborative arrangements with Yamanouchi,
Roche, IDEXX and Gamida with respect to the development of drug therapies and
diagnostics utilizing the Company's scientific platforms. Alteon is seeking to
establish new collaborative relationships to provide the funding necessary for
continuation of its product development but there can be no assurance that such
effort will be successful. The Company will be, in some cases, dependent upon
these outside partners to conduct pre-clinical testing and clinical trials and
to provide adequate funding for the Company's development programs. Under
certain of these arrangements, the Company's corporate partners may have all or
a significant portion of the development and regulatory approval
responsibilities. Failure of the corporate partners to develop marketable
products or to gain the appropriate regulatory approvals on a timely basis, if
at all, would have a material adverse effect on the Company's business,
financial condition and results of operations.
In most cases, the Company cannot control the amount and timing of
resources that its corporate partners devote to the Company's programs or
potential products. If any of the Company's corporate partners breach or
terminate their agreements with the Company or otherwise fail to conduct their
collaborative activities in a timely manner, the pre-clinical or clinical
development or commercialization of product candidates or research programs will
be delayed, and the Company will be required to devote additional resources to
product development and commercialization or terminate certain development
programs. The termination of collaborative arrangements would have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that disputes will not arise in the future
with respect to the ownership of rights to any technology developed with
third-parties. These and other possible disagreements between collaborators and
the Company could lead to delays in the collaborative research, development or
commercialization of certain product candidates or could require or result in
litigation or arbitration, which would be time-consuming and expensive and would
have a material adverse effect on the Company's business, financial condition
and results of operations.
Alteon's corporate 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 may not be able to protect the proprietary rights that are
critical to its success.
The Company's success will depend on its ability to obtain patent
protection for its products, preserve its trade secrets, prevent third parties
from infringing upon its proprietary rights and operate without infringing upon
the proprietary rights of others, both in the United States and abroad.
The degree of patent protection afforded to pharmaceutical inventions
is uncertain and the Company's potential products are subject to this
uncertainty. Pimagedine is not a novel compound and is not covered by a
composition-of-matter patent. The patents covering pimagedine are use patents
containing claims covering therapeutic indications and the use of specific
compounds and classes of compounds to inhibit A.G.E. formation. Use patents may
afford a lesser degree of protection in certain foreign countries due to their
patent laws. Competitors may develop and commercialize pimagedine or
pimagedine-like products for indications outside of the protection provided by
the claims of the Company's use patents. Physicians, pharmacies and wholesalers
could then substitute for the Company's pimagedine products. Substitution for
the Company's pimagedine products would have a material adverse effect on the
Company's business, financial condition and results of operations.
Alteon has obtained several patents covering certain novel compounds in
the A.G.E. Crosslink Breaker category. These patents and additional patent
applications contain compound, composition and method of treatment claims for
several chemical classes of Crosslink Breaker compounds. There can be no
assurance, however, that these patents will provide any significant protection
of the Company's technology or products, or that the Company will enjoy any
patent protection beyond the expiration dates of its currently issued patents.
There can be no assurance that competitors will not develop competitive
products to pimagedine and/or ALT-711 outside the protection that may be
afforded by the claims of the Company's patents. The Company is aware that other
parties have been issued patents and have filed patent applications in the
United States and foreign countries with respect to other agents, which impact
A.G.E. or A.G.E. crosslink formation.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The Company also relies upon unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to maintain, develop
and expand its competitive position, which it seeks to protect, in part, by
confidentiality agreements with its corporate partners, collaborators, employees
and consultants. The Company also has invention or patent assignment agreements
with its employees and certain, but not all, corporate partners and consultants.
There can be no assurance that relevant inventions will not be developed by a
person not bound by an invention assignment agreement. There can be no assurance
that binding agreements will not be breached, that the Company would have
adequate remedies for such breach, or that the Company's trade secrets will not
otherwise become known to or be independently discovered by competitors.
The Company cannot be certain that regulatory approvals will be obtained
for its products.
Alteon's research, pre-clinical testing and clinical trials of its
product candidates are, and the manufacturing and marketing of its products will
be, subject to extensive and rigorous regulation by numerous governmental
authorities in the United States and in other countries where the Company
intends to test and market its product candidates.
Prior to marketing, any product developed by the Company must undergo
an extensive regulatory approval process. This regulatory process, which
includes pre-clinical testing and clinical trials, and may include
post-marketing surveillance, of each compound to establish its safety and
efficacy, can take many years and can require the expenditure of substantial
resources. Data obtained from pre-clinical and clinical activities are
susceptible to varying interpretations, which could delay, limit or prevent
regulatory approval. In addition, delays or rejections may be encountered based
upon changes in FDA policy for drug approval during the period of product
development and FDA regulatory review of each submitted NDA. Similar delays may
also be encountered in foreign countries.
There can be no assurance that regulatory approval will be obtained for
any drugs developed by the Company. Moreover, regulatory approval may entail
limitations on the indicated uses of the drug. Further, even if regulatory
approval is obtained, a marketed drug and its manufacturer are subject to
continuing review and discovery of previously unknown problems with a product or
manufacturer which may have adverse effects on the Company's business, financial
condition and results of operations, including withdrawal of the product from
the market. Violations of regulatory requirements at any stage, including
pre-clinical testing and clinical trials, the approval process or post-approval,
may result in various adverse consequences including the FDA's delay in
approving, or its refusal to approve, a product withdrawal of an approved
product from the market and the imposition of criminal penalties against the
manufacturer and NDA holder. None of the Company's products has been approved
for commercialization in the United States or elsewhere. No assurance can be
given that the Company will be able to obtain FDA approval for any products.
Failure to obtain requisite governmental approvals or failure to obtain
approvals of the scope requested will delay or preclude the Company or its
licensees or marketing partners from marketing the Company's products or limit
the commercial use of such products and will have a material adverse effect on
the Company's business, financial condition and results of operations.
There is intense competition for cures and therapies for diabetes,
cardiovascular diseases and the other conditions for which the Company seeks to
develop products.
The Company is engaged in pharmaceutical fields characterized by
extensive research efforts and rapid technological progress. Many established
pharmaceutical and biotechnology companies with resources greater than those of
the Company are attempting to develop products that would be competitive with
the Company's products. Other companies may succeed in developing products that
are safer, more efficacious or less costly than any that may be developed by
Alteon and may be more successful than Alteon in production and marketing. Rapid
technological development by others may result in the Company's products
becoming obsolete before the Company recovers a significant portion of the
research, development or commercialization expenses incurred with respect to
those products.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Certain technologies under development by other pharmaceutical
companies could result in a cure for diabetes or the reduction of the incidence
of diabetes and its complications. For example, a number of companies are
investigating islet cell transplantation as a possible cure for Type I diabetes.
Results of a study conducted by the National Institutes of Health, known as the
DCCT, published in 1993, showed that tight glucose control reduced the incidence
of diabetic complications. Numerous companies are pursuing methods to control
glucose levels. In addition, several large companies have initiated or expanded
research, development and licensing efforts to build a diabetic pharmaceutical
franchise focusing on diabetic nephropathy, neuropathy, retinopathy and related
conditions. An example of this is research seeking anti-angiogenesis drugs for
the potential treatment of diabetic retinopathy. Furthermore, the Company is
aware of several pharmaceutical companies that are developing and marketing
thiazolidinedione derivatives ("glitazones") for the treatment of Type II
diabetes. It is possible that one or more of these initiatives may reduce or
eliminate the market for some of the Company's products.
In addition, a broad range of cardiovascular drugs is under development
by many pharmaceutical and biotechnology companies. It is possible that one or
more of these initiatives may reduce or eliminate the market for some of the
Company's products.
Efforts to reduce healthcare costs may affect our operations.
The Company's business, financial condition and results of operations
may be materially adversely affected by the continuing efforts of government and
third-party payers to contain or reduce the costs of health care through various
means. For example, in certain foreign markets, pricing and/or profitability of
prescription pharmaceuticals are subject to government control. In the United
States, the Company expects that there will continue to be federal and state
initiatives to control and/or reduce pharmaceutical expenditures. In addition,
increasing emphasis on managed care in the United States will continue to put
pressure on pharmaceutical pricing. Cost control initiatives could decrease the
price that the Company receives for any products it may develop and sell in the
future and have a material adverse effect on the Company's business, financial
condition and results of operations. Further, to the extent that cost control
initiatives have a material adverse effect on the Company's corporate partners,
the Company's ability to commercialize its products may be adversely affected.
The Company's ability to commercialize pharmaceutical products may
depend in part on the extent to which reimbursement for the products will be
available from government health administration authorities, private health
insurers and other third-party payers. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and third-party
payers, including Medicare, are increasingly challenging the prices charged for
medical products and services. There can be no assurance that any third-party
insurance coverage will be available to patients for any products developed by
the Company. Government and other third-party payers are increasingly attempting
to contain health care costs by limiting both coverage and the level of
reimbursement for new therapeutic products and by refusing in some cases to
provide coverage for uses of approved products for disease indications for which
the FDA has not granted labeling approval. If adequate coverage and
reimbursement levels were not provided by government and other third-party
payers for the Company's products, the market acceptance of these products would
be adversely affected.
Alteon has no experience in marketing or sales and may have to rely on
others to market and sell any products the Company may develop.
For certain of its products, the Company has licensed exclusive
marketing rights to its corporate partners or formed collaborative marketing
arrangements within specified territories in return for royalties to be received
on sales, a share of profits or beneficial transfer pricing. These agreements
are terminable at the discretion of the Company's partners upon as little as 90
days' prior written notice. If the licensee or marketing partner terminates an
agreement or fails to market a product successfully, the Company's business,
financial condition and results of operations may be adversely affected.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Alteon currently has no experience in marketing or selling
pharmaceutical products. In order to achieve commercial success for any approved
product, Alteon must either develop a marketing and sales force or, where
appropriate or permissible, enter into arrangements with third parties to market
and sell its products. There can be no assurance that Alteon will develop
successfully marketing and sales experience or that it will be able to enter
into marketing and sales agreements with others on acceptable terms, if at all,
or that any such arrangements, if entered into, will not be terminated. If the
Company develops its own marketing and sales capability, it will compete with
other companies that currently have experienced, well funded and larger
marketing and sales operations. To the extent that the Company enters into
co-promotion or other sales and marketing arrangements with other companies, any
revenues to be received by Alteon will be dependent on the efforts of others,
and there can be no assurance that their efforts will be successful.
Alteon has no experience in manufacturing products and may have to rely on
others to manufacture any products the Company may develop.
The Company has no experience in manufacturing products for commercial
purposes and does not have manufacturing facilities. Consequently, the Company
is dependent on contract manufacturers for the production of products for
development and commercial purposes. The manufacture of the Company's products
for clinical trials and commercial purposes is subject to cGMP regulations
promulgated by the FDA. The Company has contracted or will be contracting with
third parties for the manufacture and distribution of ALT-711 and pimagedine.
However, in the event that the Company is unable to obtain or retain third-party
manufacturing for its products, it will not be able to proceed with clinical
trials or commercialize such products as planned. There can be no assurance that
the Company will be able to enter into agreements for the manufacture of future
products with manufacturers whose facilities and procedures comply with cGMP and
other regulatory requirements. The Company's current dependence upon others for
the manufacture of its products may adversely affect its profit margin, if any,
on the sale of future products and the Company's ability to develop and deliver
such products on a timely and competitive basis.
Use of any products the Company develops may result in liability claims.
The use of any of the Company's potential products in clinical trials
and the sale of any approved products, including the testing and
commercialization of ALT-711 or pimagedine, may expose the Company to liability
claims resulting from the use of products or product candidates. These claims
might be made directly by consumers, pharmaceutical companies or others. The
Company maintains product liability insurance coverage for claims arising from
the use of its products in clinical trials. However no assurance can be given
that the Company will be able to maintain insurance or, if maintained, that
insurance can be acquired at a reasonable cost or in sufficient amounts to
protect the Company against losses due to liability that could have a material
adverse effect on the Company's business, financial conditions and results of
operations. There can be no assurance that the Company will be able to obtain
commercially reasonable product liability insurance for any product approved for
marketing in the future or that insurance coverage and the resources of the
Company would be sufficient to satisfy any liability resulting from product
liability claims. A successful product liability claim or series of claims
brought against the Company could have a material adverse effect on its
business, financial condition and results of operations.
Alteon may be unable to attract and retain the key personnel on whom its
success depends.
The Company is highly dependent on the principal members of its
management and scientific staff. The loss of services of any of these personnel
could impede the achievement of the Company's development objectives.
Furthermore, recruiting and retaining qualified scientific personnel to perform
research and development work in the future will also be critical to the
Company's success. There can be no assurance that the Company will be able to
attract and retain personnel on acceptable terms given the competition between
pharmaceutical and health care companies, universities and non-profit research
institutions for experienced scientists. In addition, the Company relies on
consultants to assist the Company in formulating its research and development
strategy. All of Alteon's consultants are employed outside the Company and may
have commitments to or consulting or advisory contracts with other entities that
may limit their availability to the Company.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Alteon's operations involve a risk of injury or damage from hazardous
materials.
The Company's research and development activities involve the
controlled use of hazardous materials, chemicals and various radioactive
compounds. Although the Company believes that its safety procedures for handling
and disposing of hazardous materials comply with the standards prescribed by
state and federal regulations, the risk of accidental contamination or injury
from these materials cannot be completely eliminated. In the event of an
accident, the Company could be held liable for any damages or fines that result.
Such liability could have a material adverse effect on the Company's business,
financial condition and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's investment in marketable securities. The
Company does not use derivative financial instruments in its investments. The
Company's investments consist primarily of debt instruments of the U.S.
government, government agencies, financial institutions and corporations with
strong credit ratings. The Company prepared a detailed market risk disclosure of
these investments in the Company's 1999 annual report on Form 10-K. There have
been no material changes in the Company's market risk position since December
31, 1999.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Annual Meeting of Stockholders of Alteon (the "Meeting") was held
on June 12, 2000. The following matters were voted upon at the Meeting: (i) the
election of two directors and (ii) the ratification of the appointment of Arthur
Andersen, LLP as independent public accountants for the fiscal year ending
December 31, 2000.
(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 such nominee:
<TABLE>
<CAPTION>
Name Number of Votes For Number of Votes Withheld
---- ------------------- ------------------------
<S> <C> <C>
Mark Novitch 17,939,906 143,078
David McCurdy 17,926,206 156,778
</TABLE>
(ii) The votes cast for, against and abstaining from the ratification
of the appointment of Arthur Andersen, LLP as independent public accountants for
the fiscal year ending December 31, 2000, were as follows:
<TABLE>
<CAPTION>
Votes For Votes Against Abstentions
--------- ------------- -----------
<S> <C> <C>
18,026,746 50,601 5,637
</TABLE>
There were no broker non-votes as to either matter.
ITEM 5. OTHER INFORMATION
The Company's Common Stock was approved for listing on the American
Stock Exchange, effective August 7, 2000, under the symbol "ALT."
14
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
------- ----------------------
<S> <C>
3.1 Restated Certificate of Incorporation, as amended.
(Incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q filed on November 10, 1999.)
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 Report on Form 10-Q
filed on August 14, 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 Report on Form 10-Q filed on August 14,
1998.)
3.7 By-laws, as amended. (Incorporated by reference to Exhibit 3.7
to the Company's Report on Form 10-Q filed on May 12, 1999.)
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.)
27 Financial Data Schedule.
</TABLE>
b) The following reports on Form 8-K were filed during the quarter ended June
30, 2000:
On April 12, 2000, the Company filed a Current Report on Form
8-K, dated March 29, 2000, which reported 1999 financial results and
announced that the Company's technology platform, the A.G.E. pathway,
impacts broad medical applications.
On April 12, 2000, the Company filed a Current Report on Form
8-K, dated April 6, 2000, which reported that the Company had initiated
Phase II clinical trial of its lead A.G.E. Crosslink Breaker, ALT-711, for
potential reversal of cardiovascular disease in aging and diabetes.
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: August 11, 2000
ALTEON INC.
By: /s/ Kenneth I. Moch
----------------------------------------
Kenneth I. Moch
President and Chief Executive Officer
(principal executive officer)
By: /s/ Elizabeth A. O'Dell
----------------------------------------
Elizabeth A. O'Dell
Vice President Finance and Administration,
Secretary and Treasurer
(principal finance and accounting officer)
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
------- ----------------------
<S> <C>
3.1 Restated Certificate of Incorporation, as amended. (Incorporated by
reference to Exhibit 3.1 to the Company's Quarterly Report on Form
10-Q filed on November 10, 1999.)
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 Report on Form 10-Q filed on August
14, 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 Report on Form 10-Q filed on August 14, 1998.)
3.7 By-laws, as amended. (Incorporated by reference to Exhibit 3.7 to
the Company's Report on Form 10-Q filed on May 12, 1999.)
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.)
27 Financial Data Schedule.
</TABLE>
17
