<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 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
October 31, 1997:
Common Stock, par value $.01 16,392,896 shares outstanding
<PAGE>
AUTOIMMUNE INC.
QUARTER ENDED September 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 September 30, 1997....................................... 2
Statement of Operations
for the three months ended September 30, 1996 and 1997, the
nine months ended September 30, 1996 and 1997 and for the
period from inception (September 9, 1988) through September 30, 1997........... 3
Statement of Cash Flows
for the nine months ended September 30, 1996 and 1997 and for
the period from inception (September 9, 1988) through September 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 development stage company)
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
-------------------- -------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,432,000 $ 5,355,000
Marketable securities 42,878,000 27,206,000
Interest receivable 141,000 197,000
Prepaid expenses and other current assets 496,000 95,000
-------------------- -------------------
Total current assets 49,947,000 32,853,000
Fixed assets, net 2,485,000 1,164,000
Other assets 30,000 30,000
-------------------- -------------------
$ 52,462,000 $ 34,047,000
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,997,000 $ 1,458,000
Accrued expenses 782,000 1,073,000
Current portion of obligations under capital leases 715,000 695,000
-------------------- -------------------
Total current liabilities 4,494,000 3,226,000
-------------------- -------------------
Obligations under capital leases 627,000 209,000
-------------------- -------------------
Commitments and contingencies
-------------------- -------------------
Stockholders' equity:
Common stock, $.01 par value; 25,000,000 shares
authorized; 16,358,045 and 16,392,896 shares issued and
outstanding at December 31, 1996 and September 30, 1997,
respectively 164,000 164,000
Additional paid-in capital 117,238,000 117,330,000
Deficit accumulated during the development stage (70,095,000) (86,903,000)
Valuation allowance for marketable securities 34,000 21,000
-------------------- -------------------
47,341,000 30,612,000
-------------------- -------------------
$ 52,462,000 $ 34,047,000
==================== ===================
</TABLE>
2
<PAGE>
AUTOIMMUNE INC.
(A development stage company)
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Period from
inception
Three months ended Nine months ended (September 9, 1988)
September 30, September 30, September 30, September 30, through
1996 1997 1996 1997 September 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 543,000 414,000 1,613,000 1,486,000 16,454,000
All other 6,871,000 (166,000) 15,779,000 15,059,000 71,243,000
General and administrative 598,000 375,000 1,783,000 1,828,000 11,141,000
------------- ---------------- --------------- ----------------- ------------------
Total costs and expenses 8,012,000 623,000 19,175,000 18,373,000 98,838,000
------------- ---------------- --------------- ----------------- ------------------
Interest income 793,000 428,000 2,462,000 1,630,000 9,075,000
Interest expense (17,000) (16,000) (50,000) (65,000) (291,000)
------------- ---------------- --------------- ----------------- ------------------
776,000 412,000 2,412,000 1,565,000 8,784,000
------------- ---------------- --------------- ----------------- ------------------
Net loss $ (7,236,000) $ (211,000) $ (16,763,000) $ (16,808,000) $ (86,899,000)
============= ================ =============== ================= ==================
Net loss per share $ (0.44) $ (0.01) $ (1.03) $ (1.03)
============= ================ =============== =================
Weighted average common
shares outstanding 16,295,718 16,390,355 16,287,723 16,383,180
============= ================ =============== =================
</TABLE>
3
<PAGE>
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)
Nine months ended through
September 30, 1996 September 30, 1997 September 30, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (16,763,000) $ (16,808,000) $ (86,899,000)
Adjustment to reconcile net loss to net cash
used by operating activities:
Interest expense related to demand notes
converted into Series A mandatorily
redeemable convertible preferred stock - - 48,000
Patent costs paid with junior convertible
preferred and common stock - - 3,000
Depreciation and amortization 670,000 822,000 3,448,000
Loss on disposal and sale of equipment - 568,000 568,000
Decrease in capitalized patent costs - - 563,000
Increase in interest receivable (127,000) (56,000) (197,000)
(Increase) decrease in prepaid expenses (364,000) 401,000 (95,000)
Increase (decrease) in accounts payable 2,396,000 (1,539,000) 1,458,000
Increase in accrued expenses 74,000 291,000 1,073,000
----------------- ----------------- ----------------
Net cash used by operating activities (14,114,000) (16,321,000) (80,030,000)
----------------- ----------------- ----------------
Cash flows from investing activities:
Purchase of available-for-sale marketable securities (30,774,000) (25,852,000) (228,786,000)
Proceeds from sale/maturity of available-for-sale marketable securities 28,197,000 41,511,000 190,590,000
Proceeds from maturity of held-to-maturity marketable securities - - 11,011,000
Proceeds from sale of equipment - 11,000 11,000
Purchase of fixed assets (933,000) (80,000) (5,066,000)
Increase in patent costs - - (563,000)
Increase in other assets - - (155,000)
----------------- ----------------- ----------------
Net cash provided (used) by investing activities (3,510,000) 15,590,000 (32,958,000)
----------------- ----------------- ----------------
Cash flows from financing activities:
Proceeds from sale-leaseback of fixed assets 821,000 - 2,872,000
Payments on obligations under capital leases (528,000) (438,000) (1,968,000)
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 262,000 92,000 104,928,000
Proceeds from issuance of convertible notes payable - - 2,200,000
----------------- ----------------- ----------------
Net cash provided (used) by financing activities 555,000 (346,000) 118,343,000
----------------- ----------------- ----------------
Net increase (decrease) in cash and cash equivalents (17,069,000) (1,077,000) 5,355,000
Cash and cash equivalents, beginning of period 29,087,000 6,432,000 -
----------------- ----------------- ----------------
Cash and cash equivalents, end of period $ 12,018,000 $ 5,355,000 $ 5,355,000
================= ================= ================
</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 September 30,
1996 and 1997, the nine month periods ended September 30, 1996 and 1997,
and for the period from inception (September 9, 1988) through September 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 September 30, 1997:
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
-----------------------------
<S> <C> <C>
Money Market $2,299,000 $ 971,000
U.S. Government debt securities 3,993,000 2,138,000
-------------- -------------
$6,292,000 $3,109,000
============== =============
</TABLE>
The following is a summary of available-for-sale marketable securities held
by the Company at December 31, 1996 and September 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
------------------ ------------ ----------- ----------- ---------------
September 30, 1997
<S> <C> <C> <C> <C> <C>
U.S. Government
debt securities within 1 year $16,879,000 $ 9,000 $ - $16,870,000
U.S. Government
debt securities between 1-5 years 10,327,000 13,000 (1,000) 10,315,000
-------------- ---------- ----------- --------------
$27,206,000 $22,000 $(1,000) $27,185,000
============== ========== =========== ==============
</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, September 30,
(years) 1996 1997
----------------- -------------- -------------
<S> <C> <C> <C>
Laboratory equipment 4 - 5 $3,181,000 $1,352,000
Office and computer equipment 4 - 5 667,000 522,000
Leasehold improvements 5 - 7 1,058,000 457,000
-------------- -------------
4,906,000 2,331,000
Less-accumulated depreciation and
amortization 2,421,000 1,167,000
-------------- -------------
$2,485,000 $1,164,000
============== =============
<CAPTION>
4. Accrued Expenses
Accrued expenses consist of the following:
December 31, September 30,
1996 1997
--------------- -------------
<S> <C> <C>
Accrued employee costs $ 552,000 $ 394,000
Accrued professional fees 230,000 211,000
Accrued restructuring costs - 468,000
--------------- -------------
$ 782,000 $1,073,000
=============== =============
</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. This charge
consisted of severance costs 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 $257,000. During the
third quarter of 1997, this estimated charge was adjusted to $2,251,000 to
reflect the sublease of 22,000 square feet of space and actual costs
incurred. The adjusted charge consists of severance costs of $1,138,000
for 53 employees; lease costs of $261,000; equipment disposal and write-
offs of $599,000; and the termination of certain contractual requirements
of $253,000. As of September 30, 1997, approximately $1,256,000 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, net of the sublease, have been
reserved through November 1999.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
Overview
Since its inception through September 30, 1997, the Company has incurred ongoing
losses from operations and has cumulative losses as of September 30, 1997
totaling $86,899,000. To date, the Company has not recorded any revenues from
the sale of products. Revenues recorded through September 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 Nine Month Periods Ended September 30, 1996 and 1997
Research and development expenses were $7,414,000 and $248,000 for the three
month periods ended September 30, 1996 and 1997, respectively. The decrease is
due to favorable adjustments in estimated restructuring costs and previously
accrued expenses, as well as lower research and development activity levels
following the completion of several clinical trials. Research and development
expenses were $17,392,000 and $16,545,000 for the nine month periods ended
September 30, 1996 and 1997, respectively. The decrease reflects both
restructuring costs and overall reduced research and clinical trial activity
levels.
General and administrative expenses were $598,000 and $375,000 for the three
month periods ended September 30, 1996 and 1997, respectively. The decrease is a
result of a corporate downsizing. General and administrative expenses were
$1,783,000 and $1,828,000 for the nine month periods ended September 30, 1996
and 1997, respectively. The increase in general and administrative expense is
due primarily to increased corporate activity during the three month period
ended March 31, 1997 and restructuring costs.
Net interest income was $776,000 and $412,000 for the three month periods ended
September 30, 1996 and 1997, respectively. Net interest income was $2,412,000
and $1,565,000 for the nine month periods ended September 30, 1996 and 1997,
respectively. The decrease is due to a lower balance of cash available for
investment.
The net loss was $7,236,000 and $211,000 for the three month periods ended
September 30, 1996 and 1997, respectively. The net loss was $16,763,000 and
$16,808,000 for the nine month periods ended September 30, 1996 and 1997,
respectively. The net loss per share decreased from $0.44 for the three months
ended September 30, 1996 to $0.01 for the three months ended September 30, 1997.
The net loss per share remained at $1.03 for the nine months ended September 30,
1996 and September 30, 1997. This reflects the recent decrease in research and
development activity levels offset by restructuring costs incurred as a result
of a corporate downsizing.
Liquidity and Capital Resources
The Company's needs for funds have historically 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.
7
<PAGE>
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 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
September 30, 1997, the Company's cash and cash equivalents and marketable
securities totaled $32,561,000 and current liabilities were $3,226,000.
In April 1997, the Company announced disappointing results from the Phase III
trial of Myloral(R), its product for multiple sclerosis. Very soon thereafter,
the Company also announced a corporate downsizing by eliminating 23 positions
directly related to the Myloral program and an increased focus of resources on
the development of Colloral 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. This estimated charge was
adjusted to $615,000 during the third quarter of 1997 to reflect actual costs
incurred.
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 further restructuring plan was announced in June 1997, to further
focus the Company's efforts to 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. This estimated charge was adjusted to $1,636,000 during
the third quarter of 1997 to reflect the sublease of 22,000 square feet of space
and actual costs incurred.
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
No 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: November 10, 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> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,355,000
<SECURITIES> 27,206,000
<RECEIVABLES> 197,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 32,853,000
<PP&E> 2,331,000
<DEPRECIATION> (1,167,000)
<TOTAL-ASSETS> 34,047,000
<CURRENT-LIABILITIES> 3,226,000
<BONDS> 0
0
0
<COMMON> 117,494,000
<OTHER-SE> (86,882,000)
<TOTAL-LIABILITY-AND-EQUITY> 34,047,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 623,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (211,000)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
