<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, 1998 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)
(781) 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, 1998:
Common Stock, par value $.01 16,548,995 shares outstanding
<PAGE>
AUTOIMMUNE INC.
QUARTER ENDED September 30, 1998
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page Number
Item 1 - Financial Statements
Balance Sheet
December 31, 1997 and September 30, 1998..................... 2
Statement of Operations
for the three months ended September 30, 1997 and 1998,
the nine months ended September 30, 1997 and 1998 and for
the period from inception (September 9, 1988) through
September 30, 1998........................................... 3
Statement of Cash Flows
for the nine months ended September 30, 1997 and 1998
and for the period from inception (September 9, 1988)
through September 30, 1998................................... 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
1
<PAGE>
AUTOIMMUNE INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
--------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,833,000 $ 9,860,000
Marketable securities 16,192,000 10,120,000
Interest receivable 240,000 147,000
Prepaid expenses and other current assets 143,000 530,000
-------------- --------------
Total current assets 30,408,000 20,657,000
Fixed assets, net 1,060,000 671,000
Other assets 30,000 54,000
-------------- --------------
$ 31,498,000 $ 21,382,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 476,000 $ 841,000
Accrued expenses 664,000 485,000
Current portion of obligations under capital leases 285,000 264,000
-------------- --------------
Total current liabilities 1,425,000 1,590,000
-------------- --------------
Obligations under capital leases 193,000 -
-------------- --------------
Commitments and contingencies
-------------- --------------
Stockholders' equity:
Common stock, $.01 par value; 25,000,000 shares
authorized; 16,392,896 and 16,548,995 shares issued and
outstanding at December 31, 1997 and September 30, 1998,
respectively 164,000 166,000
Additional paid-in capital 117,330,000 117,551,000
Deficit accumulated during the development stage (87,620,000) (97,939,000)
Valuation allowance for marketable securities 6,000 14,000
-------------- --------------
29,880,000 19,792,000
-------------- --------------
$ 31,498,000 $ 21,382,000
============== ==============
</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
1997 1998 1997 1998 September 30, 1998
------------ ------------ ------------ ------------ ------------------
<S> <C> <C> <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 414,000 384,000 1,486,000 984,000 17,832,000
All other (166,000) 3,016,000 15,059,000 9,108,000 80,718,000
General and administrative 375,000 447,000 1,828,000 1,288,000 12,815,000
------------ ------------ ------------ ------------ ------------------
Total costs and expenses 623,000 3,847,000 18,373,000 11,380,000 111,365,000
------------ ------------ ------------ ------------ ------------------
Interest income 428,000 258,000 1,630,000 1,066,000 10,574,000
Interest expense (16,000) (2,000) (65,000) (6,000) (300,000)
------------ ------------ ------------ ------------ ------------------
412,000 256,000 1,565,000 1,060,000 10,274,000
------------ ------------ ------------ ------------ ------------------
Net loss $ (211,000) $ (3,591,000) $(16,808,000) $(10,320,000) $ (97,936,000)
============ ============ ============ ============ ==================
Net loss per share-basic and diluted $ (0.01) $ (0.22) $ (1.03) $ (0.63)
============ ============ ============ ============
Weighted average common
shares outstanding-basic and diluted 16,390,335 16,504,773 16,383,180 16,472,392
============ ============ ============ ============
</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, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------ ------------------ --------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (16,808,000) $ (10,320,000) $ (97,936,000)
Adjustments 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 822,000 435,000 4,021,000
Loss on sale/disposal of fixed assets 568,000 2,000 606,000
Decrease in capitalized patent costs - - 563,000
(Increase) decrease in interest receivable (56,000) 93,000 (147,000)
(Increase) decrease in prepaid expenses 401,000 (387,000) (530,000)
Increase (decrease) in accounts payable (1,539,000) 365,000 841,000
Increase (decrease) in accrued expenses 291,000 (179,000) 485,000
-------------- ------------- ------------
Net cash used by operating activities (16,321,000) (9,991,000) (92,046,000)
-------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale marketable securities (25,852,000) (18,011,000) (251,537,000)
Proceeds from sale/maturity of available-for-sale marketable 41,511,000 24,091,000 230,420,000
securities
Proceeds from maturity of held-to-maturity marketable - - 11,011,000
securities
Proceeds from sale of equipment 11,000 1,000 65,000
Purchase of fixed assets (80,000) (48,000) (5,237,000)
Increase in patent costs - - (563,000)
Increase in other assets - (24,000) (179,000)
-------------- ------------- ------------
Net cash provided (used) by investing activities 15,590,000 6,009,000 (16,020,000)
-------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale-leaseback of fixed assets - - 2,872,000
Payments on obligations under capital leases (438,000) (214,000) (2,608,000)
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 92,000 223,000 105,151,000
Proceeds from issuance of convertible notes payable - - 2,200,000
-------------- ------------- ------------
Net cash provided (used) by financing activities (346,000) 9,000 117,926,000
-------------- ------------- ------------
Net increase (decrease) in cash and cash equivalents (1,077,000) (3,973,000) 9,860,000
Cash and cash equivalents, beginning of period 6,432,000 13,833,000 -
-------------- ------------- ------------
Cash and cash equivalents, end of period $ 5,355,000 $ 9,860,000 $ 9,860,000
============== ============= ============
</TABLE>
4
<PAGE>
AUTOIMMUNE INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL DATA
The interim financial data as of September 30, 1998, for the three month
periods ended September 30, 1997 and 1998, for the nine month periods ended
September 30, 1997 and 1998, and for the period from inception (September
9, 1988) through September 30, 1998 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, 1997 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, 1997 and September 30, 1998:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Money market $ 71,000 $1,752,000
U.S. Government debt securities 12,391,000 7,511,000
------------ --------------
$12,462,000 $9,263,000
============ ==============
</TABLE>
The following is a summary of available-for-sale marketable securities held
by the Company at December 31, 1997 and September 30, 1998 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, 1997
U.S. Government
debt securities within 1 year $10,935,000 $ 5,000 $ (1,000) $10,931,000
U.S. Government
debt securities between 1-5 years 5,257,000 2,000 - 5,255,000
----------- ---------- ---------- -----------
$16,192,000 $ 7,000 $ (1,000) $16,186,000
=========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
MATURITY FAIR UNREALIZED UNREALIZED AMORTIZED
TERM VALUE GAINS LOSSES COST
---------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1998
U.S. Government
debt securities within 1 year $ 7,862,000 $11,000 $ - $ 7,851,000
U.S. Government
debt securities between 1-5 years 2,258,000 3,000 - 2,255,000
----------- ---------- ---------- -----------
$10,120,000 $14,000 $ - $10,106,000
=========== ========== ========== ===========
</TABLE>
Marketable securities which were purchased and sold in periods prior to
adoption of Statement of Financial Accounting Standards (SFAS) No. 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>
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
3. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE DECEMBER 31, SEPTEMBER 30,
(YEARS) 1997 1998
----------- ------------ -------------
<S> <C> <C> <C>
Laboratory equipment 2 - 5 $ 1,359,000 $ 1,394,000
Office and computer equipment 4 - 5 425,000 434,000
Leasehold improvements 5 - 7 461,000 461,000
------------ -------------
2,245,000 2,289,000
Less-accumulated depreciation and
amortization 1,185,000 1,618,000
------------ -------------
$ 1,060,000 $ 671,000
============ =============
</TABLE>
During 1998, the Company sold assets with an original cost of $4,000 and a
net book value of $3,000 for $1,000.
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Accrued employee costs $ 289,000 $ 298,000
Accrued professional fees 204,000 162,000
Accrued restructuring costs 146,000 -
Other 25,000 25,000
------------ -------------
$ 664,000 $ 485,000
============ =============
</TABLE>
5. 1998 STOCK OPTION PLAN
On May 28, 1998 the Company's shareholders approved the 1998 stock option
plan. This plan provides for the granting of incentive stock options and
non-qualified stock options to employees and other individuals performing
services on behalf of the Company. The number of shares of common stock of
the Company reserved for issuance with the terms of the 1998 Stock Option
Plan is 1,300,000.
6. COMMITMENTS AND CONTINGENCIES
In July 1998, the Company terminated its sublease relationship with its
subtenant. The Company was concurrently released from its lease obligation
for the same facilities, resulting in no impact upon the Company's future
net minimum operating lease commitments.
7. NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
(SFAS 130), "Reporting Comprehensive Income." This Statement requires
disclosure of comprehensive income and its components and is effective for
the year ended December 31, 1998. Comprehensive income includes all changes
in stockholders' equity during a period except those resulting from
investments by stockholders and distributions to stockholders. Accordingly,
the components of comprehensive income include net income and unrealized
gains and losses on available-for-sale securities. For the three months
ended September 30, 1997 and 1998, unrealized gains on available-for-sale
securities amounted to $6,000 and $9,000, respectively. For the nine months
ended September 30, 1997 and 1998, unrealized gains (losses) on available-
for-sale securities amounted to ($13,000) and $8,000, respectively.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Since its inception through September 30, 1998, the Company has incurred ongoing
losses from operations and has cumulative losses as of September 30, 1998
totaling $97,936,000. To date, the Company has not recorded any revenues from
the sale of products. Revenues recorded through September 30, 1998 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.
The sections of "Management's Discussion and Analysis of Financial Condition and
Results of Operations" captioned "Overview" and "Liquidity and Capital
Resources" contain forward-looking statements which involve risks and
uncertainties. What may occur in the future may differ significantly from what
is discussed in the forward-looking statements due to a number of important
factors, including, but not limited to, the developmental stage of the Company's
products and uncertainties of clinical trial results and regulatory approval;
the Company's capital requirements, history of operating losses and lack of
product revenue and its limited manufacturing and marketing experience; and the
risks of technological change and competition. These factors are more fully
discussed in the Company's most recent Annual Report on Form 10-K filed with the
Securities and Exchange Commission in the section captioned "Business - Factors
to be Considered". The discussion in the Annual Report on Form 10-K is hereby
incorporated by reference into this Quarterly Report.
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1998
Research and development expenses were $248,000 and $3,400,000 for the three
month periods ended September 30, 1997 and 1998, respectively. The increase is
due to favorable adjustments made in the third quarter of 1997 in estimated
restructuring costs and other previously accrued expenses. Research and
development expenses were $16,545,000 and $10,092,000 for the nine month periods
ended September 30, 1997 and 1998 respectively. The decrease is due to lower
levels of research and clinical trial activity in 1998 and restructuring costs
in 1997.
General and administrative expenses were $375,000 and $447,000 for the three
month periods ended September 30, 1997 and 1998, respectively. The increase is
due to higher levels of corporate activity. General and administrative expenses
were $1,828,000 and $1,288,000 for the nine month periods ended September 30,
1997 and 1998, respectively. The decrease in general and administrative expenses
is due primarily to decreased personnel costs and corporate activity and
restructuring costs recorded in 1997.
Net interest income was $412,000 and $256,000 for the three month periods ended
September 30, 1997 and 1998, respectively. Net interest income was $1,565,000
and $1,060,000 for the nine month periods ended September 30, 1997 and 1998,
respectively. The decrease is due to a lower balance of cash available for
investment.
The net loss was $211,000 and $3,591,000 for the three month periods ended
September 30, 1997 and 1998, respectively. The change is due to favorable
adjustments made in the third quarter of 1997 in estimated restructuring costs
and other previously accrued expenses. The net loss was $16,808,000 and
$10,320,000 for the nine months ended September 30, 1997 and 1998, respectively.
The change reflects a decrease in personnel costs, research and clinical trial
activity and estimated restructuring costs. The net loss per share increased
from $0.01 for the three months ended September 30, 1997 to $0.22 for the three
months ended September 30, 1998. The net loss per share decreased from $1.03 for
the nine months ended September 30, 1997 to $0.63 for the nine months ended
September 30, 1998.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's needs for funds have historically increased from period to period
as it had increased the scope of its research and development activities. Its
current needs have been reduced, however, as a result of the restructuring which
occurred in the first half of 1997 in which the Company focused its efforts on
Colloral(R). 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 presently available 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 and filing of a Biological License
Application for Colloral(R).
At the appropriate time, 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 necessary
but 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.
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, 1998, the Company's cash and cash equivalents and marketable
securities totaled $19,980,000. Current liabilities at September 30, 1998 were
$1,590,000.
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 Exchange 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 6, 1998 /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-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,860,000
<SECURITIES> 10,120,000
<RECEIVABLES> 147,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,657,000
<PP&E> 2,289,000
<DEPRECIATION> (1,618,000)
<TOTAL-ASSETS> 21,382,000
<CURRENT-LIABILITIES> 1,590,000
<BONDS> 0
0
0
<COMMON> 117,717,000
<OTHER-SE> (97,925,000)
<TOTAL-LIABILITY-AND-EQUITY> 21,382,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 3,847,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,591,000)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
