<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 March 31, 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 April 30,
1997:
Common Stock, par value $.01 16,389,243 shares outstanding
<PAGE>
AUTOIMMUNE INC.
QUARTER ENDED MARCH 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page Number
<S> <C>
Item 1 - Financial Statements
Balance Sheet
December 31, 1996 and March 31, 1997..................................... 2
Statement of Operations
for the three months ended March 31, 1996 and 1997 and for the period
from inception (September 9, 1988) through March 31, 1997................ 3
Statement of Cash Flows
for the three months ended March 31, 1996 and 1997
and for the period from inception (September 9, 1988)
through March 31, 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, March 31,
1996 1997
------------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,432,000 $ 9,470,000
Marketable securities 42,878,000 33,916,000
Interest receivable 141,000 191,000
Prepaid expenses and other current assets 496,000 417,000
------------------- ------------------
Total current assets 49,947,000 43,994,000
Fixed assets, net 2,485,000 2,213,000
Other assets 30,000 30,000
------------------- ------------------
$ 52,462,000 $ 46,237,000
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,997,000 $ 4,513,000
Accrued expenses 782,000 812,000
Current portion of obligations under capital leases 715,000 667,000
------------------- ------------------
Total current liabilities 4,494,000 5,992,000
------------------- ------------------
Obligations under capital leases 627,000 489,000
------------------- ------------------
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 March 31, 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) (77,720,000)
Valuation allowance for marketable securities 34,000 (10,000)
------------------- ------------------
47,341,000 39,756,000
------------------- ------------------
$ 52,462,000 $ 46,237,000
=================== ===================
</TABLE>
2
<PAGE>
AUTOIMMUNE INC.
(A development stage company)
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Period from
inception
Three months ended (September 9, 1988)
March 31, March 31, through
1996 1997 March 31, 1997
--------------------- ------------------ ----------------------
<S> <C> <C> <C>
Revenue:
Option fees $ - $ - $ 2,200,000
Research and development
revenue under collaborative
agreements - - 955,000
--------------------- -------------------- ----------------------
Total revenue - - 3,155,000
--------------------- -------------------- ----------------------
Costs and expenses:
Research and development:
Related party 534,000 505,000 15,473,000
Other 3,766,000 6,977,000 63,161,000
General and administrative 599,000 755,000 10,068,000
--------------------- -------------------- ----------------------
Total costs and expenses 4,899,000 8,237,000 88,702,000
--------------------- -------------------- ----------------------
Interest income 796,000 637,000 8,082,000
Interest expense (11,000) (25,000) (251,000)
--------------------- -------------------- ----------------------
785,000 612,000 7,831,000
--------------------- -------------------- ----------------------
Net loss $ (4,114,000) $ (7,625,000) $ (77,716,000)
===================== ==================== ======================
Net loss per share $ (0.25) $ (0.47)
===================== ====================
Weighted average shares
outstanding 16,282,623 16,369,709
===================== ====================
</TABLE>
3
<PAGE>
AUTOIMMUNE INC.
(A devlopment stage company)
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
<TABLE>
<CAPTION>
Period from
inception
(September 9, 1988)
Three months ended through
March 31, 1996 March 31, 1997 March 31, 1997
-------------- -------------- -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (4,114,000) $ (7,625,000) $ (77,716,000)
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 207,000 295,000 2,921,000
Decrease in capitalized patent costs - - 563,000
Increase in interest receivable (141,000) (50,000) (191,000)
(Increase) decrease in prepaid expenses (131,000) 79,000 (417,000)
Increase (decrease) in accounts payable (157,000) 1,516,000 4,513,000
Increase in accrued expenses 34,000 30,000 812,000
---------------- ---------------- -----------------
Net cash used by operating activities (4,302,000) (5,755,000) (69,464,000)
---------------- ---------------- -----------------
Cash flows from investing activities:
Purchase of available-for-sale marketable securities (14,146,000) (8,928,000) (211,862,000)
Proceeds from sale/maturity of available-for-sale marketable - 17,846,000 166,925,000
securities
Proceeds from maturity of held-to-maturity marketable - - 11,011,000
securities
Purchase of fixed assets (131,000) (23,000) (5,009,000)
Increase in patent costs - - (563,000)
Increase in other assets - - (155,000)
---------------- ---------------- -----------------
Net cash provided (used) by investing activities (14,277,000) 8,895,000 (39,653,000)
---------------- ---------------- -----------------
Cash flows from financing activities:
Proceeds from sale-leaseback of fixed assets 480,000 - 2,872,000
Payments on obligations under capital leases (127,000) (186,000) (1,716,000)
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 12,000 84,000 104,920,000
Proceeds from issuance of convertible notes payable - - 2,200,000
---------------- ---------------- -----------------
Net cash provided (used) by financing activities 365,000 (102,000) 118,587,000
---------------- ---------------- -----------------
Net increase (decrease) in cash and cash equivalents (18,214,000) 3,038,000 9,470,000
Cash and cash equivalents, beginning of period 29,087,000 6,432,000 -
---------------- ---------------- -----------------
Cash and cash equivalents, end of period $ 10,873,000 $ 9,470,000 $ 9,470,000
================ ================ =================
</TABLE>
4
<PAGE>
AUTOIMMUNE INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. Interim Financial Data
The interim financial data as of March 31, 1997 and for the three
month periods ended March 31, 1996 and 1997, and for the period from
inception (September 9, 1988) through March 31, 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 March 31, 1997:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
--------------- ----------------
<S> <C> <C>
Money market $ 2,299,000 $ 1,591,000
U.S. Government debt securities 3,993,000 7,741,000
--------------- ----------------
$ 6,292,000 $ 9,332,000
=============== ================
</TABLE>
The following is a summary of available-for-sale marketable
securities held by the Company at December 31, 1996 and March 31,
1997 which are carried at fair market value:
<TABLE>
<CAPTION>
Maturity Fair Unrealized Unrealized Amortized
term value gains losses cost
--------------------- ---------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
December 31, 1996
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 Amortized
term value gains losses cost
--------------------- ---------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
March 31, 1997
U.S. Government
debt securities within 1 year $ 5,010,000 $ 9,000 - $ 5,001,000
U.S. Government
debt securities between 1-5 years 28,906,000 3,000 $ (22,000) 28,925,000
---------------- ----------------- --------------- ----------------
$ 33,916,000 $ 12,000 $ (22,000) $ 33,926,000
================ ================= =============== ================
</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>
AUTOIMMUNE INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
3. Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
Estimated
useful life December 31, March 31,
(years) 1996 1997
-------------------- -------------------- -----------------
<S> <C> <C> <C>
Laboratory equipment 4 - 5 $ 3,181,000 $ 3,211,000
Office and computer equipment 4 - 5 667,000 685,000
Leasehold improvements 5 - 7 1,058,000 1,058,000
-------------------- -----------------
4,906,000 4,954,000
Less-accumulated depreciation and
amortization 2,421,000 2,741,000
-------------------- -----------------
$ 2,485,000 $ 2,213,000
==================== =================
<CAPTION>
4. Accrued Expenses
Accrued expenses consist of the following:
December 31, March 31,
1996 1997
-------------------- -----------------
<S> <C> <C>
Accrued employee costs $ 552,000 $ 581,000
Accrued professional fees 230,000 231,000
-------------------- -----------------
$ 782,000 $ 812,000
==================== =================
</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. As
the Company has historically reported net losses, earnings per share as
computed under the provision SFAS 128 is not expected to differ from the
earnings per share amounts previously reported by the Company.
6. Subsequent Event
In April 1997, the Company announced the disappointing preliminary results
of its Phase III trial for Myloral, 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. The
Company expects to record a charge during the second quarter of 1997 of
approximately $800,000 relating primarily to employee severance costs and
costs associated with terminating Myloral manufacturing and clinical trial
functions.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
Overview
Since its inception through March 31, 1997, the Company has incurred ongoing
losses from operations and has cumulative losses as of March 31, 1997 totaling
$77,716,000. To date, the Company has not recorded any revenues from the sale of
products. Revenues recorded through March 31, 1997 were earned in connection
with contract research and the granting of certain short-term rights. The
Company expects to remain in the development stage for the foreseeable future
and accordingly, expects to continue to incur substantial losses.
Three Month Periods Ended March 31, 1996 and 1997
Research and development expenses were $4,300,000 and $7,482,000 for the three
month periods ended March 31, 1996 and 1997, respectively. The increase is due
to the advancement of clinical trial activity.
Marketing, general and administrative expenses were $599,000 and $755,000 for
the three month periods ended March 31, 1996 and 1997, respectively. The
increase in general and administrative expense is due primarily to increased
personnel costs and corporate activity.
Net interest income was $785,000 and $612,000 for the three month periods ended
March 31, 1996 and 1997 respectively. The decrease is due to a lower balance of
cash available for investment.
The net loss was $4,114,000 and $7,625,000 for the three month periods ended
March 31, 1996 and 1997, respectively. The change reflects the continued
increase in research and development activity levels. The net loss per share
increased from $0.25 for the three months ended March 31, 1996 to $0.47 for the
three months ended March 31, 1997.
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 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 filing of the
Company's Product License Application for its lead product. The Company intends
to seek additional funding through public or private equity or debt financings,
collaborative arrangements with pharmaceutical companies or from other sources.
If adequate funds are not available, the Company will have to reduce certain
areas of research, product development, manufacturing or marketing activity, or
otherwise modify its business strategy, and its business will be materially
adversely affected.
7
<PAGE>
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
March 31, 1997, the Company's cash and cash equivalents and marketable
securities totaled $43,386,000. Current liabilities at March 31, 1997 were
$5,992,000.
In April 1997, the Company announced the disappointing preliminary results of
its Phase III trial for Myloral, 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 expects to record a charge during the second
quarter of 1997 of approximately $800,000 relating primarily to employee
severance costs and costs associated with terminating Myloral manufacturing and
clinical trial functions.
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.
/s/ Robert C. Bishop
Date: May 9, 1997 -------------------------------------
Robert C. Bishop
President and Chief Executive Officer
/s/ Michael W. Rogers
-------------------------------------
Michael W. Rogers
Vice President, Chief Financial
Officer and Treasurer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,470,000
<SECURITIES> 33,916,000
<RECEIVABLES> 191,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 43,994,000
<PP&E> 4,954,000
<DEPRECIATION> (2,741,000)
<TOTAL-ASSETS> 46,237,000
<CURRENT-LIABILITIES> 5,992,000
<BONDS> 0
0
0
<COMMON> 117,486,000
<OTHER-SE> (77,730,000)
<TOTAL-LIABILITY-AND-EQUITY> 46,237,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 8,237,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,625,000)
<EPS-PRIMARY> (0.47)
<EPS-DILUTED> 0
</TABLE>
