<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
OR
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
COMMISSION FILE NUMBER: 0-28324
BIOTRANSPLANT INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 04-3119555
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
CHARLESTOWN NAVY YARD, BUILDING 75 THIRD AVENUE
CHARLESTOWN, MASSACHUSETTS 02129
(Address of principal executive offices)
(617) 241-5200
(Registrant's telephone number, 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
----- -----
As of October 31, 1998, there were 8,578,963 shares of the Registrant's
Common Stock outstanding.
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<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Page No.
--------
<S> <C> <C>
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets as of December 31, 1997 and September 30, 1998..........................3
Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 1997
and 1998, and for the period from inception (March 20, 1990) to September 30, 1998...................4
Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 1997 and 1998,
and for the period from inception (March 20, 1990) to September 30, 1998.............................5
Notes to Condensed Consolidated Financial Statements..........................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................................................8
PART II. OTHER INFORMATION
ITEM 1. - 6. .........................................................................................................12
SIGNATURES..........................................................................................13
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
December 31, 1998
1997 (Unaudited)
------------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,784,229 $ 8,890,275
Short-term investments 19,862,617 9,936,352
Prepaid expenses and other current assets 1,238,500 739,237
------------------- ----------------
Total current assets 30,885,346 19,565,864
Property and equipment - net 1,003,249 991,848
Long-term investments 1,015,202 --
Other assets 34,727 9,837
------------------- ----------------
------------------- ----------------
TOTAL ASSETS $ 32,938,524 $ 20,567,549
------------------- ----------------
------------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current obligation under capital leases $ 177,667 $ 11,754
Accounts payable 289,535 156,746
Accrued expenses 2,182,216 1,986,910
Deferred revenue 4,125,000 --
------------------- ----------------
Total current liabilities 6,774,418 2,155,410
------------------- ----------------
Long-term obligation under capital leases 10,042 1,062
------------------- ----------------
Stockholders' equity:
Preferred stock, $.01 par value, authorized 2,000,000 shares; issued and
outstanding - no shares -- --
Common stock, $.01 par value, authorized 25,000,000 shares; issued and
outstanding 8,575,390 shares at December 31, 1997 and 8,578,963 shares
at September 30, 1998
85,754 85,787
Additional paid-in capital 65,330,483 65,342,146
Accumulated deficit (39,262,173) (47,016,856)
------------------- ----------------
Total stockholders' equity 26,154,064 18,411,077
------------------- ----------------
------------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 32,938,524 $ 20,567,549
------------------- ----------------
------------------- ----------------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended Cumulative
September 30, September 30, Since
1997 1998 1997 1998 Inception
----------------- ----------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Revenues:
License fees $ -- $ -- 3,000,000 $ -- $ 14,000,000
Research and development 1,750,000 875,000 4,750,000 4,125,000 25,500,000
Interest income 427,303 285,450 1,300,105 1,044,761 4,597,639
----------------- ----------------- ---------------- ----------------- ------------------
Total revenues 2,177,303 1,160,450 9,050,105 5,169,761 44,097,639
----------------- ----------------- ---------------- ----------------- ------------------
Expenses:
Research and development 3,583,909 3,749,110 10,815,197 11,012,865 73,544,316
General and administrative 637,293 563,795 2,239,530 1,902,452 15,811,075
Interest 13,093 948 49,740 9,128 1,759,104
----------------- ----------------- ---------------- ----------------- ------------------
Total expenses 4,234,295 4,313,853 13,104,467 12,924,445 91,114,495
----------------- ----------------- ---------------- ----------------- ------------------
Net loss $ (2,056,992) $ (3,153,403) $ (4,054,362) $ (7,754,684) $ (47,016,856)
----------------- ----------------- ---------------- ----------------- ------------------
----------------- ----------------- ---------------- ----------------- ------------------
Basic and diluted net loss
per common share $ (0.24) $ (0.37) $ (0.47) $ (0.90)
----------------- ----------------- ---------------- -----------------
----------------- ----------------- ---------------- -----------------
Weighted average common shares
outstanding 8,570,916 8,578,858 8,567,136 8,578,770
----------------- ----------------- ---------------- -----------------
----------------- ----------------- ---------------- -----------------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months Ended Cumulative
September 30, Since
1997 1998 Inception
----------------- ----------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (4,054,362) $ (7,754,684) $ (47,016,856)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 439,243 272,986 3,399,213
Noncash interest expense -- -- 465,477
Noncash expenses related to options and warrants 24,891 24,890 1,176,948
Changes in current assets and liabilities:
Accounts receivable -- -- --
Deposits and prepaid expenses 162,494 499,263 (739,237)
Accounts payable 107,783 (132,789) 156,746
Accrued expenses 1,193,970 (195,306) 1,986,910
Deferred revenue 2,000,000 (4,125,000) --
----------------- ----------------- ----------------
Net cash used in operating activities (125,981) (11,410,640) (40,570,799)
----------------- ----------------- ----------------
Cash flows from investing activities:
Purchases of property and equipment (243,457) (261,584) (3,767,865)
Disposal of property and equipment, net -- -- 28,040
Purchases of investments (16,115,728) (8,118,416) (65,369,134)
Proceeds from investments 15,318,327 19,059,883 55,432,782
----------------- ----------------- ----------------
Net cash provided by (used in) investing activities (1,040,858) 10,679,883 (13,676,177)
----------------- ----------------- ----------------
Cash flows from financing activities:
Proceeds from convertible notes payable to stockholders -- -- 9,400,000
Payments of obligations under capital leases (316,392) (174,893) (2,181,395)
Proceeds from sale/leaseback of equipment -- -- 771,968
Net proceeds from equipment leases -- -- 1,422,240
Net proceeds from sale of redeemable convertible preferred stock -- -- 25,661,526
Proceeds from sale of common stock 37,981 11,696 28,062,912
----------------- ----------------- ----------------
Net cash provided by (used in) financing activities (278,411) (163,197) 63,137,251
----------------- ----------------- ----------------
Net increase (decrease) in cash and cash equivalents (1,445,250) (893,954) 8,890,275
Cash and cash equivalents, beginning of period 6,563,957 9,784,229 --
----------------- ----------------- ----------------
Cash and cash equivalents, end of period $ 5,118,707 $ 8,890,275 $ 8,890,275
----------------- ----------------- ----------------
----------------- ----------------- ----------------
Supplemental disclosures and noncash transactions:
Increase in equipment under capital leases $ -- $ -- $ (2,210,270)
----------------- ----------------- ----------------
----------------- ----------------- ----------------
Conversion of convertible notes payable to stockholders and
accrued interest into redeemable convertible preferred stock $ -- $ -- $ 9,905,710
----------------- ----------------- ----------------
----------------- ----------------- ----------------
Conversion of preferred stock into common stock $ -- $ -- $ 36,202,290
----------------- ----------------- ----------------
----------------- ----------------- ----------------
Issuance of warrants $ -- $ -- $ 741,737
----------------- ----------------- ----------------
----------------- ----------------- ----------------
Interest paid during the period $ 45,706 $ 6,557 $ 1,393,928
----------------- ----------------- ----------------
----------------- ----------------- ----------------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Operations and Basis of Presentation
BioTransplant Incorporated ("BioTransplant" or the "Company") was incorporated
on March 20, 1990. The Company is developing proprietary pharmaceuticals and
organ transplantation systems which represent a comprehensive approach to
inducing functional tolerance in humans.
The Company is in the development stage and is devoting substantially all of its
efforts toward product research and development and raising capital. The Company
is subject to a number of risks similar to those of other development stage
companies, including dependence on key individuals, competition from larger
companies, the development of commercially usable products, obtaining regulatory
approval for products under development, the development and marketing of
commercial products, and the need to obtain adequate additional financing
necessary to fund the development of its products.
The interim financial statements herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") and include, in the opinion of management, all
adjustments, consisting of normal, recurring adjustments, necessary for a fair
representation of interim period results. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The results for the interim periods
presented are not necessarily indicative of results to be expected for the
fiscal year or any future period. These condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1997, as filed with the SEC.
2. Cash Equivalents and Investments
Cash equivalents include short-term, highly liquid investments with original
maturities of less than three months from the date of purchase. Short-term
investments consist primarily of corporate notes and securities issued by the
United States Treasury or other United States government agencies with original
maturities of greater than three months and remaining maturities of less than
one year. Long-term investments consist primarily of corporate notes with
remaining maturities of greater than one year. In accordance with Financial
Accounting Standards Board Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", the Company's investments are
classified as held-to-maturity and are stated at amortized cost, which
approximates market value.
The Company held the following investments at December 31, 1997 and September
30, 1998:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
--------------- ----------------
<S> <C> <C>
Short-term:
United States Treasury and Agency Securities
(average maturity of 2 months) $ 2,000,000 $ --
Corporate Bonds (average maturity of 4 and 3 months) 16,862,948 9,936,352
Commercial Paper (average maturity of 8 months) 999,669 --
--------------- ----------------
$ 19,862,617 $ 9,936,352
--------------- ----------------
--------------- ----------------
Long-term:
Corporate Bonds (average maturity of 16 months) $ 1,015,202 $ --
--------------- ----------------
--------------- ----------------
</TABLE>
6
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Unaudited)
3. Net Loss Per Common Share
Net loss per common share is based on the weighted average number of common
shares outstanding during the periods presented, in accordance with Financial
Accounting Standards Board Statement No. 128, "Earnings Per Share". Diluted net
loss per common share is the same as basic net loss per common share as the
inclusion of stock issuable pursuant to options and warrants would be
antidilutive.
4. Revenue Recognition
Substantially all of the Company's license and research and development revenues
are derived from two collaborative research arrangements. Annual research and
development payments are recognized on a straight-line basis over the period of
the contract, which approximates when work is performed and costs are incurred.
License fee revenue represents technology transfer fees received for rights to
certain technology of the Company. License fees are recognized as revenue when
earned. Deferred revenue represents amounts received in advance of revenue
recognition for research and development. Research and development expenses in
the accompanying consolidated statements of operations include funded and
unfunded expenses.
5. Term Note
In September 1997, the Company entered into a term note with a bank, whereby the
Company may borrow up to $500,000 for certain equipment and fixtures during a
specified drawdown period, after which time the outstanding balance will become
payable in 36 equal monthly principal installments plus interest. This term note
bears annual floating interest at the Bank's Prime Rate (8.25% at September 30,
1998) during the drawdown period with an option to convert during the repayment
period to an annual fixed rate at the three month London Interbank Offered Rate
("LIBOR") (5.31% at September 30, 1998) plus 2.25%. This term note is secured by
equipment and fixtures purchased under these borrowings. There were no
borrowings outstanding under this term note at September 30, 1998.
7
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Since commencement of operations in 1990, the Company has been a development
stage company engaged primarily in the research and development of proprietary
pharmaceuticals and organ transplantation systems which represent a
comprehensive approach to inducing functional tolerance in humans. The major
sources of the Company's working capital have been the proceeds from sales of
equity securities, sponsored research funding and license fees and capital lease
financings. The Company has not generated any revenues from the sale of products
to date, and does not expect to receive any product revenues for several years.
The Company will be required to conduct significant research, development,
testing and regulatory compliance activities that, together with general and
administrative expenses, are expected to result in significant and increasing
operating losses for at least the next several years.
In 1993, and as amended and restated in September 1995, the Company and Novartis
Pharma AG ("Novartis") entered into a collaboration agreement for the
development and commercialization of xenotransplantation products utilizing gene
transduction. Under the agreement, Novartis committed research funding through
March 1998 of $20.0 million and agreed to pay license fees of $10.0 million. All
funds were received as of March 31, 1998. Novartis has also agreed to fund
certain development and premarketing costs of such products, portions of which,
under certain circumstances, may be repayable from the Company's operating
profits from sales of such products.
In October 1997, the Company and Novartis expanded their relationship in
xenotransplantation by entering into a collaboration and license agreement for
the development and commercialization of xenotransplantation products utilizing
the Company's proprietary mixed bone marrow chimerism technology. Under the
agreement, the Company may receive from Novartis research funding, license fees,
and milestone payments of up to $36.0 million. As of September 30, 1998,
research funding of $3.5 million and license fees of $2.0 million had been
received. In addition to research funding, Novartis will also fund certain
development and premarketing costs of such products. Portions of these costs may
be repayable under certain circumstances.
In October 1995, the Company and MedImmune Inc. ("MedImmune") formed a
collaborative research agreement for the development of products to treat and
prevent organ rejection. MedImmune paid the Company a $2.0 million license fee
at the time of execution of the agreement, and agreed to fund and assume
responsibility for clinical testing and commercialization of BTI-322/MEDI-507
and other related products. MedImmune has agreed to provide research support and
make milestone payments which could total up to an additional $14.0 million, up
to $12.0 million of which is repayable from royalties on such products.
Results of Operations
Three months Ended September 30, 1998 and 1997
Revenues decreased to $1.2 million for the three months ended September 30, 1998
from $2.2 million for the three months ended September 30, 1997. The anticipated
decrease in revenues was primarily due to $875,000 in sponsored research funding
from Novartis during the three months ended September 30, 1998, compared to $1.5
million in sponsored research funding from Novartis and $250,000 in sponsored
research funding from MedImmune during the three months ended September 30,
1997. Interest income decreased to $285,000 for the three months ended September
30, 1998 from $427,000 for the three months ended September 30, 1997. The
decrease was due primarily to lower cash balances available for investment.
Research and development expenses increased to $3.7 million for the three months
ended September 30, 1998 from $3.6 million for the three months ended September
30, 1997. This increase was primarily due to increases in research and
development staff and related research supplies.
General and administrative expenses decreased to $564,000 for the three months
ended September 30, 1998 from $637,000 for the three months ended September 30,
1997. This decrease was primarily due to decreases in outside professional
services rendered in connection with market research and business development in
the three months ended September 30, 1998 compared to the three months ended
September 30, 1997.
Interest expense decreased to $1,000 for the three months ended September 30,
1998 from $13,000 for the three months ended September 30, 1997. The decrease
was primarily due to decreasing balances on existing obligations under capital
leases.
As a result of the above factors the Company generated a net loss for the three
months ended September 30, 1998 of $3.2 million, or $0.37 per share, compared to
a net loss of $2.1 million, or $0.24 per share for the three months ended
September 30, 1997.
8
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
Nine months Ended September 30, 1998 and 1997
Revenues decreased to $5.2 million for the nine months ended September 30, 1998
from $9.1 million for the nine months ended September 30, 1997. The anticipated
decrease in revenues was due to decreased research and development revenues
which primarily consisted of funding from Novartis of $4.2 million for the nine
months ended September 30, 1998 compared to $7.0 million for the nine months
ended September 30, 1997. The nine months ended September 30, 1997 included a
$3.0 million license fee for certain gene therapy related technology. Interest
income decreased to $1.0 million for the nine months ended September 30, 1998
from $1.3 million for the nine months ended September 30, 1997. The decrease was
due primarily to lower cash balances available for investment.
Research and development expenses increased to $11.0 million for the nine months
ended September 30, 1998 from $10.8 million for the nine months ended September
30, 1997. This increase was primarily due to increases in research and
development staff and related research supplies.
General and administrative expenses decreased to $1.9 million for the nine
months ended September 30, 1998 from $2.2 million for the nine months ended
September 30, 1997. This decrease was primarily due to decreases in outside
professional services rendered in connection with market research and business
development in the nine months ended September 30, 1998 compared to the nine
months ended September 30, 1997.
Liquidity and Capital Resources
In May 1996, the Company completed an initial public offering of 3,220,000
shares of common stock at a price of $9.50 per share, and received net proceeds
of approximately $28.0 million. In addition, all outstanding shares of
redeemable convertible preferred stock were automatically converted into
5,202,154 shares of common stock upon the closing of the initial public
offering.
Since its inception and prior to the completion of the Company's initial public
offering, the Company's operations had been funded principally through the net
proceeds of an aggregate of $36.2 million from private placements of equity
securities. The Company has also received $35.5 million from research and
development and collaboration agreements with Novartis, $4.0 million from an
alliance agreement with MedImmune and $2.2 million in equipment lease financing.
The proceeds of the private placements, notes payable and capital leases and
cash generated from the corporate collaborations with Novartis and MedImmune
have been used to fund operating losses of approximately $47.0 million and the
investment of approximately $4.2 million in equipment and leasehold improvements
through September 30, 1998. In September 1997, the Company entered into a term
note with a bank, whereby the Company may borrow up to $500,000 for certain
equipment and fixtures. There were no borrowings outstanding under this term
note at September 30, 1998. The Company had no material commitments as of
September 30, 1998 for capital expenditures.
The Company had cash and cash equivalents and investments of $18.9 million as of
September 30, 1998.
The Company anticipates that its existing funds should be sufficient to fund its
operating and capital requirements as currently planned through at least March
31, 2000. However, the Company's cash requirements may vary materially from
those now planned, due to many factors, including, but not limited to, the
progress of the Company's research and development programs, the scope and
results of preclinical and clinical testing, changes in existing and potential
relationships with corporate collaborators, the time and cost in obtaining
regulatory approvals, the costs involved in obtaining and enforcing patents,
proprietary rights and any necessary licenses, the ability of the Company to
establish development and commercialization capacities or relationships, the
costs of manufacturing and other factors, including those discussions below
under "Factors Affecting Future Operating Results".
The Company expects to incur substantial additional costs, including costs
related to research and development activities, preclinical studies, clinical
trials, obtaining regulatory approvals, manufacturing and the expansion of its
facilities. The Company will need to raise substantial additional funds through
additional financings including public or private equity offerings and
collaborative arrangements with corporate partners. There can be no assurance
that funds will be available on terms acceptable to the Company, if at all. If
adequate funds are not available, the Company may be required to delay, scale
back or eliminate certain of its product development programs or to license to
others the right to commercialize products or technologies that the Company
would otherwise seek to develop and commercialize itself, any of which would
have a material and adverse effect on the Company's business, results of
operations or financial condition.
9
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
Year 2000 Readiness
Historically, certain computer programs have been written using two digits
rather than four digits, to define the applicable year. This could lead, in many
cases, to a computer's recognition of a date using "00" as 1900 rather than the
year 2000. This phenomenon could result in significant computer system failures
or miscalculations, and is generally referred to as the "Year 2000" problem or
issue.
The Company is currently in the process of assessing its exposure to the Year
2000 problem, and is establishing a comprehensive response to that exposure.
Generally, the Company has Year 2000 exposure in three areas: (i) financial
and management operating computer systems used to manage the Company's
business, (ii) microprocessors and other equipment used by the Company
("embedded chips") and (iii) computer systems used by third parties, in
particular financial institutions, vendors and suppliers of the Company.
At September 30, 1998, the Company had completed an inventory of its
financial and management operating systems and made a preliminary
determination of which programs were or were not Year 2000 compliant. Prior
to June 30, 1999, the company intends to test each significant program which
is believed to be Year 2000 compliant and to remediate all significant
programs that are not Year 2000 compliant. In some cases, Year 2000 issues
will be corrected in the development of new programs, which enhance or
provide new functionality to these financial and management operating
systems. The Company expects to substantially complete Year 2000 testing and
remediation on its financial and management operating systems by June 30,
1999.
The Company has begun an inventory and assessment of its exposure to embedded
chips in its facilities or equipment used in those facilities and capability of
vendors of such equipment to successfully remediate Year 2000 problems in
equipment with embedded chips. The Company expects to substantially complete
remediation efforts of its exposure to embedded chips in its facilities or
equipment by June 30, 1999.
The Company estimates that the cost to remediate its financial and management
operating systems and embedded chips in its facilities or equipment should not
exceed $25,000, including potential capital costs for new computers and related
equipment. This amount does not include costs for computer software developed in
order to provide or improve functionality.
The Company has also recently begun interviewing third parties, vendors and
suppliers of the Company to determine their exposure to Year 2000 issues, their
anticipated risks and responses to those risks. The Company expects to
substantially complete this process and address any significant risks by June
30, 1999.
If the Company is unsuccessful in completing remediation of non-compliant
systems, correcting embedded chips and if any third parties, vendors or
suppliers cannot rectify Year 2000 issues, the Company could incur additional
costs, which may be substantial, to develop alternative methods of managing its
business and replacing non-compliant equipment. The Company is in the process of
establishing a contingency plan in the event of any such noncompliance.
Factors Affecting Future Operating Results
This Quarterly Report on Form 10-Q contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," "intends,"
and similar expressions are intended to identify forward-looking statements.
There are a number of important factors that could cause the Company's actual
results to differ materially from those indicated by such forward-looking
statements. These factors include, without limitation, those set forth below and
elsewhere in this Quarterly Report on Form 10-Q and in the Section titled
"Business - Factors That May Affect Results" in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, as filed with the SEC, which
Section is incorporated herein by reference.
The Company is in the early development stage and has been engaged, to date,
primarily in organizational and research and development activities. The
Company has not yet completed the development of, or conducted significant
human testing with respect to, any product. In particular, the Company's
AlloMuneTM and XenoMuneTM Systems are based upon approaches which are novel
and, to the Company's knowledge, have never been achieved in humans,
including by the Company. There can be no assurance that any of the Company's
products will be successfully developed, prove to be safe and efficacious in
clinical trials, meet applicable regulatory standards, obtain required
regulatory approvals, be capable of being produced in commercial quantities
at reasonable costs or be successfully marketed.
10
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
The Company has a substantial accumulated deficit. The Company expects to incur
losses for at least the next several years and that such losses will increase as
the Company expands its research and development activities. The Company will
require substantial additional funds for its research and product development
programs, operating expenses, the pursuit of regulatory approvals and expansion
of its production, sales and marketing capabilities. Adequate funds for these
purposes, whether through equity or debt financings, collaborative or other
arrangements with corporate partners or from other sources, may not be available
when needed or on terms acceptable to the Company. Insufficient funds could
require the Company to delay, scale back or eliminate certain of its research
and product development programs or to license to third parties to commercialize
products or technologies that the Company would otherwise develop or
commercialize itself.
The Company's strategy for development and commercialization of its products
entails entering into arrangements with third parties. There can be no assurance
that the Company will be able to maintain its existing arrangements or establish
additional arrangements that the Company deems necessary or acceptable to
develop and commercialize its potential pharmaceutical products or that such
arrangements will be successful. If any of the Company's strategic partners were
to breach or terminate its agreement with the Company or otherwise fail to
conduct its collaborative activities successfully in a timely manner, such delay
or termination could have a material adverse effect on the Company's business,
financial condition and results of operations.
Proprietary rights relating to the products of BioTransplant will be protected
from unauthorized use by third parties only to the extent that they are covered
by valid and enforceable patents or are maintained in confidence as trade
secrets. There may be pending or issued third-party patents relating to the
products of BioTransplant and BioTransplant may need to acquire licenses to, or
to contest the validity of, any such patents. It is likely that significant
funds would be required to defend any claim that BioTransplant infringes a
third-party patent. There can be no assurance that any license required under
any such patent would be made available.
Other factors that may affect the Company's future operating results include the
inherent risk of product liability claims which may result from the testing,
marketing and sale of human therapeutic products, the Company's fluctuations in
quarterly operating results, the Company's ability to continue to attract and
retain qualified management and scientific staff, risks associated with the
regulatory approval process, and its ability to anticipate or respond adequately
to rapid and significant technological changes that may develop in the field of
human therapeutic products.
11
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Response: None
ITEM 2. CHANGES IN SECURITIES
Response: None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Response: None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Response: None
ITEM 5. OTHER INFORMATION
Any proposal submitted pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended, that a stockholder wishes to be
considered for inclusion in the Company's proxy materials for its
1999 Annual Meeting of Stockholders must be received by the
Secretary of the Company at the principal offices of the Company
no later than December 16, 1998.
Written notice of shareholder proposals submitted outside the
processes of Rule 14a-8 for consideration at the 1999 Annual
Meeting of Stockholders must be received by the Company on or
before March 1, 1999, in order to be considered timely for
purposes of Rule 14a-4. The persons designated in the Company's
proxy statement shall be granted discretionary authority with
respect to any shareholder proposals of which the Company does not
receive timely notice.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27 Financial Data Schedule.
b) Reports on Form 8-K
None.
12
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
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.
BioTransplant Incorporated
(Registrant)
Date: November 12, 1998 /s/ Elliot Lebowitz
----------------------------------------------
Elliot Lebowitz
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Richard V. Capasso
----------------------------------------------
Richard V. Capasso
Vice President, Finance and Treasurer
(Principal Financial and Accounting Officer)
13
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<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEET OF SEPTEMBER 30, 1998 AND THE CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 8,890,275
<SECURITIES> 9,936,352
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<PP&E> 4,327,372
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<SALES> 0
<TOTAL-REVENUES> 5,169,761
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<INCOME-PRETAX> (7,754,684)
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