<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 JUNE 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 Execution 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
July 31, 1998:
Common Stock, par value $.01 16,493,986 shares outstanding
<PAGE>
AUTOIMMUNE INC.
QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page Number
<S> <C>
Item 1 - Financial Statements
Balance Sheet
December 31, 1997 and June 30, 1998..................................... 2
Statement of Operations
for the three months ended June 30, 1997 and 1998, the six
months ended June 30, 1997 and 1998 and for the period
from inception (September 9, 1998) through June 30, 1998................ 3
Statement of Cash Flows
for the six months ended June 30, 1997 and 1998
and for the period from inception (September 9, 1988)
through June 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 4 - Submission of Matters to a Vote of Security Holders............................. 9
Item 5 - Other Information............................................................... 9
Item 6(b) - Reports on Form 8-K.......................................................... 9
Signatures............................................................................... 11
</TABLE>
1
<PAGE>
AUTOIMMUNE INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,833,000 $ 5,757,000
Marketable securities 16,192,000 17,721,000
Interest receivable 240,000 233,000
Prepaid expenses and other current assets 143,000 664,000
------------- -------------
Total current assets 30,408,000 24,375,000
Fixed assets, net 1,060,000 809,000
Other assets 30,000 54,000
------------- -------------
$ 31,498,000 $ 25,238,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 476,000 $ 1,125,000
Accrued expenses 664,000 492,000
Current portion of obligations under capital leases 285,000 287,000
------------- -------------
Total current liabilities 1,425,000 1,904,000
------------- -------------
Obligations under capital leases 193,000 48,000
------------- -------------
Commitments and contingencies
------------- -------------
Stockholders' equity:
Common stock, $.01 par value; 25,000,000 shares
authorized; 16,392,896 and 16,493,986 shares issued and
outstanding at December 31, 1997 and June 30, 1998,
respectively 164,000 165,000
Additional paid-in capital 117,330,000 117,465,000
Deficit accumulated during the development stage (87,620,000) (94,349,000)
Valuation allowance for marketable securities 6,000 5,000
------------- -------------
29,880,000 23,286,000
------------- -------------
$ 31,498,000 $ 25,238,000
============= =============
</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
1997 1998 1997 1998 June 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 567,000 284,000 1,072,000 601,000 17,449,000
All other 8,248,000 3,547,000 15,225,000 6,091,000 77,701,000
General and administrative 698,000 400,000 1,453,000 841,000 12,368,000
------------ ----------- ------------- ------------- -------------------
Total costs and expenses 9,513,000 4,231,000 17,750,000 7,533,000 107,518,000
------------ ----------- ------------- ------------- -------------------
Interest income 565,000 352,000 1,202,000 808,000 10,316,000
Interest expense (24,000) (2,000) (49,000) (4,000) (298,000)
------------ ----------- ------------- ------------- -------------------
541,000 350,000 1,153,000 804,000 10,018,000
------------ ----------- ------------- ------------- -------------------
Net loss $ (8,972,000) $ 3,881,000 $ (16,597,000) $ (6,729,000) $ (94,345,000)
============ =========== ============= ============= ===================
Net loss per share-basic and diluted $ (0.55) $ (0.24) $ (1.01) $ (0.41)
============ =========== ============= =============
Weighted average common
shares outstanding-basic and diluted 16,389,243 16,493,986 16,379,529 16,455,935
============ =========== ============= =============
</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)
SIX MONTHS ENDED THROUGH
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1998
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (16,597,000) $ (6,729,000) $ (94,345,000)
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 589,000 296,000 3,882,000
Loss on sale/disposal of fixed assets - 2,000 606,000
Decrease in capitalized patent costs - - 563,000
(Increase) decrease in interest receivable 64,000 7,000 (233,000)
(Increase) decrease in prepaid expenses 241,000 (521,000) (664,000)
Increase in accounts payable 1,046,000 649,000 1,125,000
Increase (decrease) in accrued expenses 2,287,000 (172,000) 492,000
--------------- -------------- ---------------
Net cash used by operating activities (12,370,000) (6,468,000) (88,523,000)
--------------- -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale marketable securities (16,613,000) (11,256,000) (244,782,000)
Proceeds from sale/maturity of available-for-sale marketable
securities 29,161,000 9,726,000 216,055,000
Proceeds from maturity of held-to-maturity marketable
securities - - 11,011,000
Proceeds from sale of equipment - 1,000 65,000
Purchase of fixed assets (25,000) (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 12,523,000 (1,601,000) (23,630,000)
--------------- -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale-leaseback of fixed assets - - 2,872,000
Payments on obligations under capital leases (375,000) (143,000) (2,537,000)
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 84,000 136,000 105,064,000
Proceeds from issuance of convertible notes payable - - 2,200,000
--------------- -------------- ---------------
Net cash provided (used) by financing activities (291,000) (7,000) 117,910,000
--------------- -------------- ---------------
Net increase (decrease) in cash and cash equivalents (138,000) (8,076,000) 5,757,000
Cash and cash equivalents, beginning of period 6,432,000 13,833,000 -
--------------- -------------- ---------------
Cash and cash equivalents, end of period $ 6,294,000 $ 5,757,000 $ 5,757,000
=============== ============== ===============
</TABLE>
4
<PAGE>
AUTOIMMUNE INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL DATA
The interim financial data as of June 30, 1998, for the three month periods
ended June 30, 1997 and 1998, for the six month periods ended June 30, 1997
and 1998, and for the period from inception (September 9, 1998) through
June 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 June 30, 1998:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------------- ----------------
<S> <C> <C>
Money market $ 71,000 $ 1,571,000
U.S. Government debt securities 12,391,000 3,362,000
------------------- ----------------
$12,462,000 $ 4,933,000
=================== ================
</TABLE>
The following is a summary of available-for-sale marketable securities held
by the Company at December 31, 1997 and June 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
=============== =============== ================= ==================
<CAPTION>
MATURITY FAIR UNREALIZED UNREALIZED AMORTIZED
TERM VALUE GAINS LOSSES COST
-------------------- --------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
JUNE 30, 1998
U.S. Government
debt securities within 1 year $ 14,463,000 $ 2,000 $ - $ 14,461,000
U.S. Government
debt securities between 1-5 years 3,258,000 3,000 - 3,255,000
--------------- --------------- ----------------- ------------------
$ 17,721,000 $ 5,000 $ - $ 17,716,000
=============== =============== ================= ==================
</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, JUNE 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 1,480,000
----------------- -----------------
$ 1,060,000 $ 809.000
================= =================
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
----------------- -----------------
<S> <C> <C>
Accrued employee costs $ 289,000 $ 259,000
Accrued professional fees 204,000 143,000
Accrued restructuring costs 146,000 65,000
Other 25,000 25,000
----------------- -----------------
$ 664,000 $ 492,000
================= =================
</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 operation lease commitments.
7. NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board (FASB) 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 June 30, 1997 and 1998, unrealized
gains on available-for-sale securities amounted to $25,000 and $2,000,
respectively. For the six months ended June 30, 1997 and 1998, unrealized
losses on available-for-sale securities amounted to $19,000 and $1,000,
respectively.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
RESULTS OF OPERATIONS
OVERVIEW
Since its inception through June 30, 1998, the Company has incurred ongoing
losses from operations and has cumulative losses as of June 30, 1998 totaling
$94,345,000. To date, the Company has not recorded any revenues from the sale of
products. Revenues recorded through June 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 SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1998
Research and development expenses were $8,815,000 and $3,831,000 for the three
month periods ended June 30, 1997 and 1998, respectively. Research and
development expenses were $16,297,000 and $6,692,000 for the six month periods
ended June 30, 1997 and 1998 respectively. The decrease is due to reduced
research and clinical trial activity and restructuring costs recorded in the
second quarter of 1997.
General and administrative expenses were $698,000 and $400,000 for the three
month periods ended June 30, 1997 and 1998, respectively. General administrative
expenses were $1,453,000 and $841,000 for the six month periods ended June 30,
1997 and 1998, respectively. The decrease in general and administrative expenses
is due primarily to decreased personnel costs and corporate activity.
Net interest income was $541,000 and $350,000 for the three month periods ended
June 30, 1997 and 1998, respectively. Net interest income was $1,153,000 and
$804,000 for the six month periods ended June 30, 1997 and 1998, respectively.
The decrease is due to a lower balance of cash available for investment.
The net loss was $8,972,000 and $3,881,000 for the three month periods ended
June 30, 1997 and 1998, respectively. The net loss was $16,597,000 and
$6,729,000 for the six months ended June 30, 1997 and 1998, respectively. The
change reflects a decrease in personnel costs, research and clinical trial
activity and restructuring costs recorded in the second quarter of 1997. The net
loss per share decreased from $0.55 for the three months ended June 30, 1997 to
$0.24 for the three months ended June 30, 1998. The net loss per share decreased
from $1.01 for the six months ended June 30, 1997 to $0.41 for the six months
ended June 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,
although its current needs have been reduced as a result of the restructuring
which occurred in the first half of 1997. 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 Phase III
clinical program of Colloral.
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
June 30, 1998, the Company's cash and cash equivalents and marketable securities
totaled $23,478,000. Current liabilities at June 30, 1998 were $1,904,000.
8
<PAGE>
AUTOIMMUNE INC.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were approved at AutoImmune's annual meeting of
shareholders on May 28, 1998:
a) Election of the following Board of Directors:
<TABLE>
<CAPTION>
Votes
-----------------------
For Against
-----------------------
<S> <C> <C>
Barry Weinberg 13,681,904 1,731,519
Hugh A. D'Andrade 15,275,990 137,433
Robert C. Bishop 15,289,310 124,113
Allan R. Ferguson 15,274,990 138,433
R. John Fletcher 15,275,990 137,433
Henri A. Termeer 15,288,590 124,833
</TABLE>
b) Approval of the AutoImmune 1998 Stock Option Plan
<TABLE>
<CAPTION>
Votes
------------------------------------
Broker Non-
For Against Votes
------------------------------------
<S> <C> <C>
6,986,395 2,320,433 6,083,155
</TABLE>
Item 5. Other Information
The By-laws of the Company specify when a stockholder must submit
nominations for director or proposals for consideration at a
stockholders' meeting in order for those nominations or proposals to
be considered at the meeting. In order for the nominations or
proposals to be considered at a stockholders' meeting, the stockholder
making them must have given timely notice in writing to the Secretary
of the Company. To be timely, a stockholder's notice must be delivered
to or mailed and received at the principal executive office of the
Company, 128 Spring Street, Lexington, MA 02173, not less than 60 days
nor more than 90 days prior to the meeting; except that in the event
that less than 70 days' notice or prior public disclosure of the date
of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be received no later than the close of
business on the 10th day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made.
A stockholder's notice to the Secretary concerning nominations for
director shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed
in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including such person's written
consent to being named in the proxy statement as a nominee and to
serving as a director if elected); and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the
Company's books, of such stockholder and (ii) the class and number of
shares of the Company which are beneficially owned by such
Stockholder.
9
<PAGE>
A stockholder's notice to the Secretary with respect to other proposals
shall set forth as to each matter the stockholder proposes to bring before
the meeting (a) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the
meeting, (b) the name and address, as they appear on the Company's books,
of the stockholder proposing such business, (c) the class and number of
shares of the Company which are beneficially owned by the stockholder and
(d) any material interest in the stockholder in such business.
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.
10
<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 5, 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
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,757,000
<SECURITIES> 17,721,000
<RECEIVABLES> 233,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,375,000
<PP&E> 2,289,000
<DEPRECIATION> (1,480,000)
<TOTAL-ASSETS> 25,238,000
<CURRENT-LIABILITIES> 1,904,000
<BONDS> 0
0
0
<COMMON> 117,630,000
<OTHER-SE> (94,344,000)
<TOTAL-LIABILITY-AND-EQUITY> 23,286,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 4,231,000
<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> (3,881,000)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
