<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the Quarter Ended June 30, 1997 Commission File No. 0-20948
AUTOIMMUNE INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-348-9062
(State of Incorporation) (I.R.S. Employer Identification No.)
128 Spring Street, Lexington, MA 02173
(Address of Principal Executive Offices)
(617) 860-0710
(Registrant's Telephone No., 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 X NO
_________ _________
Number of shares outstanding of the registrant's
Common Stock as of July 31, 1997:
Common Stock, par value $.01 16,389,243 shares outstanding
<PAGE>
AUTOIMMUNE INC.
QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page Number
<S> <C>
Item 1 - Financial Statements
Balance Sheet
December 31, 1996 and June 30, 1997............................ 2
Statement of Operations
for the three months ended June 30, 1996 and 1997, the
six months ended June 30, 1996 and 1997 and for the period
from inception (September 9, 1988) through June 30, 1997....... 3
Statement of Cash Flows
for the six months ended June 30, 1996 and 1997
and for the period from inception (September 9, 1988)
through June 30, 1997.......................................... 4
Notes to the Unaudited Financial Statements............................. 5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations........................... 7
PART II - OTHER INFORMATION
Item 6(b) - Reports on Form 8-K.................................................. 9
Signatures....................................................................... 10
</TABLE>
1
<PAGE>
AUTOIMMUNE INC.
(A devlopment stage company)
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,432,000 $ 6,294,000
Marketable securities 42,878,000 30,311,000
Interest receivable 141,000 77,000
Prepaid expenses and other current assets 496,000 255,000
-------------- --------------
Total current assets 49,947,000 36,937,000
Fixed assets, net 2,485,000 1,921,000
Other assets 30,000 30,000
-------------- --------------
$ 52,462,000 $ 38,888,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,997,000 $ 4,043,000
Accrued expenses 782,000 3,069,000
Current portion of obligations under capital leases 715,000 594,000
-------------- --------------
Total current liabilities 4,494,000 7,706,000
-------------- --------------
Obligations under capital leases 627,000 373,000
-------------- --------------
Commitments and contingencies
-------------- --------------
Stockholders' equity:
Common stock, $.01 par value; 25,000,000 shares
authorized; 16,358,045 and 16,389,243 shares issued and
outstanding at December 31, 1996 and June 30, 1997,
respectively 164,000 164,000
Additional paid-in capital 117,238,000 117,322,000
Deficit accumulated during the development stage (70,095,000) (86,692,000)
Valuation allowance for marketable securities 34,000 15,000
-------------- --------------
47,341,000 30,809,000
-------------- --------------
$ 52,462,000 $ 38,888,000
============== ==============
</TABLE>
2
<PAGE>
AUTOIMMUNE INC.
(A development stage company)
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Period from
inception
Three months ended Six months ended (September 9, 1988)
June 30, June 30, June 30, June 30, through
1996 1997 1996 1997 June 30, 1997
------------------ ---------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenue:
Research and development
revenue under collaborative
agreements $ - $ - $ - $ - $ 955,000
License option fees - - - - 2,200,000
------------------ ---------------- ----------------- ---------------- ---------------
Total revenue - - - - 3,155,000
------------------ ---------------- ----------------- ---------------- ---------------
Costs and expenses:
Research and development:
Related party 536,000 567,000 1,070,000 1,072,000 16,040,000
Other 5,142,000 8,248,000 8,908,000 15,225,000 71,409,000
General and administrative 585,000 698,000 1,185,000 1,453,000 10,766,000
------------------ ---------------- ----------------- ---------------- ---------------
Total costs and expenses 6,263,000 9,513,000 11,163,000 17,750,000 98,215,000
------------------ ---------------- ----------------- ---------------- ---------------
Interest income 873,000 565,000 1,669,000 1,202,000 8,647,000
Interest expense (23,000) (24,000) (33,000) (49,000) (275,000)
------------------ ---------------- ----------------- ---------------- ---------------
850,000 541,000 1,636,000 1,153,000 8,372,000
------------------ ---------------- ----------------- ---------------- ---------------
Net loss $ (5,413,000) $ (8,972,000) $ (9,527,000) $ (16,597,000) $ (86,688,000)
================== ================ ================= ================ ===============
Net loss per share $ (0.33) $ (0.55) $ (0.59) $ (1.01)
================== ================ ================= ================
Weighted average common
shares outstanding 16,284,743 16,389,243 16,283,682 16,379,529
================== ================ ================= ================
</TABLE>
3
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AUTOIMMUNE INC.
(A development stage company)
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
<TABLE>
<CAPTION>
Period from
inception
(September 9, 1988)
Six months ended through
June 30, 1996 June 30, 1997 June 30, 1997
------------------ ---------------- -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (9,527,000) $ (16,597,000) $ (86,688,000)
Adjustment to reconcile net loss to net cash
used by operating activities:
Interest expense related to demand notes
converted into Series A mandatorily
redeemable covertible preferred stock - - 48,000
Patent costs paid with junior convertible
preferred and common stock - - 3,000
Depreciation and amortization 421,000 589,000 3,215,000
Decrease in capitalized patent costs - - 563,000
(Increase) decrease in interest receivable (7,000) 64,000 (77,000)
(Increase) decrease in prepaid expenses (329,000) 241,000 (255,000)
Increase in accounts payable 1,095,000 1,046,000 4,043,000
Increase in accrued expenses 53,000 2,287,000 3,069,000
----------------- ---------------- ----------------
Net cash used by operating activities (8,294,000) (12,370,000) (76,079,000)
----------------- ---------------- ----------------
Cash flows from investing activities:
Purchase of available-for-sale marketable securities (20,267,000) (16,613,000) (219,547,000)
Proceeds from sale/maturity of available-for-sale marketable securities 11,737,000 29,161,000 178,240,000
Proceeds from maturity of held-to-maturity marketable securities - - 11,011,000
Purchase of fixed assets (617,000) (25,000) (5,011,000)
Increase in patent costs - - (563,000)
Increase in other assets - - (155,000)
----------------- ---------------- ----------------
Net cash provided (used) by investing activities (9,147,000) 12,523,000 (36,025,000)
----------------- ---------------- ----------------
Cash flows from financing activities:
Proceeds from sale-leaseback of fixed assets 480,000 - 2,872,000
Payments on obligations under capital leases (335,000) (375,000) (1,905,000)
Net proceeds from issuance of mandatorily redeemable
convertible preferred stock - - 10,011,000
Proceeds from bridge notes - - 300,000
Proceeds from issuance of common stock 22,000 84,000 104,920,000
Proceeds from issuance of convertible notes payable - - 2,200,000
----------------- ---------------- ----------------
Net cash provided by financing activities 167,000 (291,000) 118,398,000
----------------- ---------------- ----------------
Net increase (decrease) in cash and cash equivalents (17,274,000) (138,000) 6,294,000
Cash and cash equivalents, beginning of period 29,087,000 6,432,000 -
----------------- ---------------- ----------------
Cash and cash equivalents, end of period $ 11,813,000 $ 6,294,000 $ 6,294,000
================= ================ ================
</TABLE>
4
<PAGE>
AUTOIMMUNE INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. Interim Financial Data
The interim financial data for the three month periods ended June 30, 1996
and 1997, the six month periods ended June 30, 1996 and 1997, and for the
period from inception (September 9, 1988) through June 30, 1997 are
unaudited; however, in the opinion of the Company, these interim data
include all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the results for these interim periods.
These financial statements should be read in conjunction with the financial
statements and the notes thereto for the period ended December 31, 1996
included in the Company's Form 10-K. Results for interim periods are not
necessarily indicative of results for the entire year.
2. Cash Equivalents and Marketable Securities
The following is a summary of cash equivalents held by the Company. Cash
equivalents are carried at fair market value, which approximated amortized
cost at December 31, 1996 and June 30, 1997:
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
-------------- -----------
<S> <C> <C>
Money Market $2,299,000 $1,012,000
U.S. Government debt securities 3,993,000 4,222,000
-------------- -----------
$6,292,000 $5,234,000
============== ===========
</TABLE>
The following is a summary of available-for-sale marketable securities held
by the Company at December 31, 1996 and June 30, 1997 which are carried at
fair market value:
<TABLE>
<CAPTION>
Maturity Fair Unrealized Unrealized
term value gains losses Amortized cost
------------------- -------------- ----------- ------------ --------------
December 31, 1996
<S> <C> <C> <C> <C> <C>
U.S. Government
debt securities within 1 year $32,842,000 $16,000 $(6,000) $32,832,000
U.S. Government
debt securities between 1-5 years 10,036,000 24,000 - 10,012,000
-------------- ----------- ------------ --------------
$42,878,000 $40,000 $(6,000) $42,844,000
============== =========== ============ ==============
<CAPTION>
Maturity Fair Unrealized Unrealized
term value gains losses Amortized Cost
------------------- -------------- ----------- ------------ --------------
June 30, 1997
<S> <C> <C> <C> <C> <C>
U.S. Government
debt securities within 1 year $26,302,000 $10,000 $(4,000) $26,296,000
U.S. Government
debt securities between 1-5 years 4,009,000 9,000 - 4,000,000
-------------- ----------- ------------ --------------
$30,311,000 $19,000 $(4,000) $30,296,000
============== =========== ============ ==============
</TABLE>
Marketable securities which were purchased and sold in periods prior to
adoption of FAS 115 on January 1, 1994 other than held-to-maturity
marketable securities, are included in the category available-for-sale
marketable securities in the "period from inception" column of the
statement of cash flows.
5
<PAGE>
3. Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
Estimated
useful life December 31, June 30,
(years) 1996 1997
------------------ ---------------- -------------
<S> <C> <C>
Laboratory equipment 4 - 5 $3,181,000 $3,237,000
Office and computer equipment 4 - 5 667,000 686,000
Leasehold improvements 5 - 7 1,058,000 1,058,000
---------------- -------------
4,906,000 4,981,000
Less-accumulated depreciation and
amortization 2,421,000 3,060,000
---------------- -------------
$2,485,000 $1,921,000
================ =============
</TABLE>
4. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
---------------- -------------
<S> <C> <C>
Accrued employee costs $ 552,000 $ 193,000
Accrued professional fees 230,000 121,000
Accrued restructuring costs - 2,755,000
---------------- -------------
$ 782,000 $3,069,000
================ =============
</TABLE>
5. New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
Per Share." This Statement establishes and simplifies standards for
computing and presenting earnings per share. SFAS 128 will be effective
for the year ended December 31, 1997. SFAS 128 replaces primary and fully
diluted earnings per share with basic and diluted earnings per share. The
Company expects that basic and diluted earnings per share will not be
materially different from the current computation and presentation.
6. Restructuring Costs
In the second quarter of 1997, the Company recorded $3,307,000 of
restructuring costs as a result of a corporate downsizing. These charges
consist primarily of severance charges of $1,009,000 for 53 employees;
lease costs of $1,510,000; equipment disposal and write-offs of $531,000;
and the termination of certain contractual requirements of $275,000. As of
June 30, 1997, approximately $552,000 of the restructuring costs had been
paid. All restructuring payments are expected to be paid by the end of the
fourth quarter, with the exception of lease related costs. Future lease
payments have been reserved through November 1999. This reserve may be
offset in the future should the Company be successful in efforts to
sublease the property.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
Overview
Since its inception through June 30, 1997, the Company has incurred ongoing
losses from operations and has cumulative losses as of June 30, 1997 totaling
$86,688,000. To date, the Company has not recorded any revenues from the sale
of products. Revenues recorded through June 30, 1997 were earned in connection
with contract research and the granting of certain short-term rights.
The Company expects to remain in the developmental stage for the foreseeable
future and accordingly, expects to continue to incur substantial losses.
Three and Six Month Periods Ended June 30, 1996 and 1997
Research and development expenses were $5,678,000 and $8,815,000 for the three
month periods ended June 30, 1996 and 1997, respectively. The increase is due
to restructuring costs incurred as a result of a corporate downsizing. Research
and development expenses were $9,978,000 and $16,297,000 for the six month
periods ended June 30, 1996 and 1997, respectively. The increase is due to the
advancement of clinical trial activity during the first quarter of 1997 and
restructuring costs incurred during the three month period ended June 30, 1997.
General and administrative expenses were $585,000 and $698,000 for the three
month periods ended June 30, 1996 and 1997, respectively. The increase is due
to restructuring costs incurred as a result of a corporate downsizing. General
and administrative expenses were $1,185,000 and $1,453,000 for the six month
periods ended June 30, 1996 and 1997, respectively. The increase in general and
administrative expense is due primarily to increased corporate activity and
restructuring costs.
Net interest income was $850,000 and $541,000 for the three month periods ended
June 30, 1996 and 1997, respectively. Net interest income was $1,636,000 and
$1,153,000 for the six month periods ended June 30, 1996 and 1997, respectively.
The decrease is due to a lower balance of cash available for investment.
The net loss was $5,413,000 and $8,972,000 for the three month periods ended
June 30, 1996 and 1997, respectively. The net loss was $9,527,000 and
$16,597,000 for the six month periods ended June 30, 1996 and 1997,
respectively. The net loss per share increased from $0.33 for the three months
ended June 30, 1996 to $0.55 for the three months ended June 30, 1997. The net
loss per share increased from $0.59 for the six months ended June 30, 1996 to
$1.01 for the six months ended June 30, 1997. The change reflects the continued
increase in research and development activity levels and restructuring costs
incurred as a result of a corporate downsizing.
Liquidity and Capital Resources
The Company's needs for funds have increased from period to period as it has
increased the scope of its research and development activities. Since
inception, the Company has funded these needs almost entirely through sales of
its equity securities.
The Company's working capital and capital requirements will depend on numerous
factors, including the progress of the Company's research and development
activities, the level of resources that the Company devotes to the development,
clinical, regulatory and marketing aspects of its products, the extent to which
it proceeds, if at all, by means of collaborative relationships with
pharmaceutical companies and its competitive environment. Based upon its
current plans, the Company believes that
7
<PAGE>
current cash and marketable securities and the interest earned from the
investment thereof, will be sufficient to meet the Company's operating expenses
and capital requirements through the Phase III clinical program of Colloral(R).
In order to preserve principal and maintain liquidity, the Company's funds are
invested in U.S. Treasury obligations and other short-term instruments. As of
June 30, 1997, the Company's cash and cash equivalents and marketable securities
totaled $36,605,000. Current liabilities June 30, 1997 were $7,706,000.
In April 1997, the Company announced the disappointing preliminary results of
its Phase III trial for Myloral(R), its product for multiple sclerosis. Based
on these results, the Company also announced a corporate downsizing by
eliminating 23 positions directly related to the Myloral program. Corporate
resources will be directed toward the clinical development of Colloral, its
product for rheumatoid arthritis. The Company recorded a charge during the
second quarter of 1997 of approximately $618,000 relating primarily to employee
severance costs and costs associated with terminating Myloral manufacturing and
clinical trial functions.
In May 1997, the Company announced preliminary results from two Phase II trials
of Colloral for rheumatoid arthritis. Both trials demonstrated positive trends
for Colloral, although statistical significance was not demonstrated versus
placebo. A subsequent restructuring plan was announced on June 13, 1997, in
order to focus the Company's strategic direction on the clinical program for
Colloral. This resulted in a further workforce reduction of 30 positions. The
Company recorded a charge during the second quarter of 1997 of approximately
$2,689,000 relating to employee severance, costs associated with vacating leased
space and equipment disposal and write-offs.
New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per
Share." This Statement establishes and simplifies standards for computing and
presenting earnings per share. SFAS 128 will be effective for the year ended
December 31, 1997. SFAS 128 replaces primary and fully diluted earnings per
share with basic and diluted earnings per share. The Company expects that basic
and diluted earnings per share will not be materially different from the current
computation and presentation.
8
<PAGE>
AUTOIMMUNE INC.
PART II - OTHER INFORMATION
Item 6(b) - REPORTS ON FORM 8-K
A Form 8-K was filed on April 21, 1997 concerning preliminary analysis
from its Phase III trial of Myloral(R) for the treatment of multiple
sclerosis. A Form 8-K was filed on May 12, 1997 concerning
preliminary results from two phase II trials of Colloral(R) for the
treatment of rheumatoid arthritis. No other reports on Form 8-K have
been filed during the quarter for which this report is filed.
9
<PAGE>
AUTOIMMUNE INC.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
AUTOIMMUNE INC.
Date: August 8, 1997 /s/ Robert C. Bishop
-------------------------------------
Robert C. Bishop
President and Chief Executive Officer
/s/ Heather A. Ellerkamp
-------------------------------------
Heather A. Ellerkamp
Director of Finance and Treasurer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,294,000
<SECURITIES> 30,311,000
<RECEIVABLES> 77,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36,937,000
<PP&E> 4,981,000
<DEPRECIATION> (3,060,000)
<TOTAL-ASSETS> 38,888,000
<CURRENT-LIABILITIES> 7,706,000
<BONDS> 0
0
0
<COMMON> 117,486,000
<OTHER-SE> (86,677,000)
<TOTAL-LIABILITY-AND-EQUITY> 38,888,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 9,513,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,972,000)
<EPS-PRIMARY> (0.55)
<EPS-DILUTED> 0
</TABLE>
