<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 MARCH 31, 1999
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 April 30, 1999, there were 8,583,338 shares of the Registrant's
Common Stock outstanding.
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BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets as of December 31, 1998 and March 31, 1999..............................3
Condensed Consolidated Statement of Operations for the three months ended March 31, 1998
and 1999, and for the period from inception (March 20, 1990) to March 31, 1999.......................4
Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 1998 and 1999,
and for the period from inception (March 20, 1990) to March 31, 1999.................................5
Notes to Condensed Consolidated Financial Statements..........................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................................................8
ITEM 3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS....................................................11
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>
March 31,
December 31, 1999
1998 (Unaudited)
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,168,496 $ 14,363,062
Short-term investments 6,842,963 2,160,181
Accounts receivable -- 113,525
Prepaid expenses and other current assets 1,212,294 707,134
------------ ------------
Total current assets 21,223,753 17,343,902
Property and equipment - net 1,458,025 1,506,707
Other assets 1,541 1,539
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TOTAL ASSETS $ 22,683,319 $ 18,852,148
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current obligation under capital leases $ 10,042 $ 7,161
Accounts payable 227,356 45,957
Accrued expenses 2,112,658 2,482,354
Deferred revenue 3,375,000 2,250,000
------------ ------------
Total current liabilities 5,725,056 4,785,472
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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 8,581,463 shares at December 31, 1998 and 8,583,338 shares
at March 31, 1999 85,815 85,833
Additional paid-in capital 65,345,228 65,345,285
Accumulated deficit (48,472,780) (51,364,442)
------------ ------------
Total stockholders' equity 16,958,263 14,066,676
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 22,683,319 $ 18,852,148
------------ ------------
------------ ------------
</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 Cumulative
March 31, Since
1998 1999 Inception
----------- ------------ -------------
<S> <C> <C> <C>
Revenues:
License fees $ -- $ -- $ 15,000,000
Research and development 2,375,000 1,238,500 28,302,000
Interest income 416,583 225,158 5,095,815
----------- ------------ -------------
Total revenues 2,791,583 1,463,658 48,397,815
----------- ------------ -------------
Expenses:
Research and development 3,685,581 3,807,809 81,069,085
General and administrative 754,417 546,852 16,932,935
Interest 5,526 659 1,760,237
----------- ------------ -------------
Total expenses 4,445,524 4,355,320 99,762,257
----------- ------------ -------------
Net loss $(1,653,941) $(2,891,662) $(51,364,442)
----------- ------------ -------------
----------- ------------ -------------
Basic and diluted net loss
per common share $ (0.19) $ (0.34)
----------- ------------
----------- ------------
Weighted average common shares
outstanding 8,578,706 8,582,859
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</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>
Three Months Ended Cumulative
March 31, Since
1998 1999 Inception
------------ ----------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,653,941) $(2,891,662) $(51,364,442)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 131,405 93,976 3,578,256
Noncash interest expense -- -- 465,477
Noncash expenses related to options and warrants 8,297 -- 1,185,244
Changes in current assets and liabilities:
Accounts receivable -- (113,525) (113,525)
Deposits and prepaid expenses 186,607 505,160 (707,134)
Accounts payable 339,202 (181,399) 45,957
Accrued expenses 82,325 369,696 2,482,354
Deferred revenue (2,375,000) (1,125,000) 2,250,000
------------ ----------- -------------
Net cash used in operating activities (3,281,105) (3,342,754) (42,177,813)
------------ ----------- -------------
Cash flows from investing activities:
Purchases of property and equipment (56,451) (142,656) (4,461,765)
Disposal of property and equipment, net -- -- 28,040
Purchases of investments (1,023,775) (404,136) (66,541,876)
Proceeds from investments 12,177,045 5,086,918 64,381,694
------------ ----------- -------------
Net cash provided by (used in) investing activities 11,096,819 4,540,126 (6,593,907)
------------ ----------- -------------
Cash flows from financing activities:
Proceeds from convertible notes payable to stockholders -- -- 9,400,000
Payments of obligations under capital leases (87,382) (2,881) (2,187,049)
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 11,696 75 28,066,097
------------ ----------- -------------
Net cash provided by (used in) financing activities (75,686) (2,806) 63,134,782
------------ ----------- -------------
Net increase in cash and cash equivalents 7,740,028 1,194,566 14,363,062
Cash and cash equivalents, beginning of period 9,784,229 13,168,496 --
------------ ----------- -------------
Cash and cash equivalents, end of period $17,524,257 $14,363,062 $ 14,363,062
------------ ----------- -------------
------------ ----------- -------------
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 $ 4,464 $ 627 $ 1,387,998
------------ ----------- -------------
------------ ----------- -------------
</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 (the "Company") was incorporated on March 20, 1990.
The Company is developing pharmaceuticals and systems based on its unique and
proprietary enabling technologies, which are designed to re-educate the body's
immune system to accept foreign tissue, allowing safer, more enduring organ
transplantation and also creating potentially valuable new treatments for other
diseases such as blood cell cancers. BioTransplant is initially focused on
enhancing the safety and expanding access to organ transplants, and is advancing
the development of a range of products with multiple indications, both alone and
in partnership with leading pharmaceutical companies.
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, 1998, 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, 1998 and March 31,
1999:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------ -----------
<S> <C> <C>
Cash and cash equivalents: $13,168,496 $14,363,062
------------ -----------
Short-term Investments:
Corporate Bonds (average maturity of 2 and 1 months) $ 6,842,963 $ 2,160,181
------------ -----------
Total cash and cash equivalents and investments $20,011,459 $16,523,243
------------ -----------
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</TABLE>
6
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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. Antidilutive securities not included consist of 61,544 shares
issuable pursuant to common stock options and 127,680 shares issuable pursuant
to common stock warrants.
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. Borrowings
under the term note bear annual floating interest at the bank's Prime Rate
(7.75% at March 31, 1999) 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") (5.00% at March 31, 1999) plus 2.25%.
Borrowings under the term note are secured by equipment and fixtures purchased
using the proceeds of the note. The Company did not borrow against this term
note during the drawdown period, which expired during 1998, and is now in the
process of extending the drawdown period and increasing its availability to $1.0
million under the same conditions of this term note. There were no borrowings
outstanding under this term note at March 31, 1999.
6. SEGMENT REPORTING
The Company has adopted Financial Accounting Standards Board Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131") which establishes standards for reporting information about operating
segments. In accordance with FAS 131, the Company believes that it operates in
one operating segment.
7. NEW ACCOUNTING STANDARDS
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133").
The statement is effective for the year ended December 31, 2000. FAS 133
establishes accounting and reporting standards for derivative instruments
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. The
Company does not expect adoption of this statement to have a material impact on
the Company's financial statements.
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 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, if ever. The Company
will be required to conduct significant additional 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, all of which had been received as of March 31,
1999, and agreed to pay license fees of $10.0 million, all of which had been
received as of March 31, 1999. Novartis has also agreed to fund certain
development and premarketing costs and products which may be developed as a
result of the collaboration, portions of which, under certain circumstances, may
be repayable from the Company's operating profits from sales of any such
products.
In October 1997, the Company and Novartis expanded their relationship by
entering into a collaboration and license agreement to develop and commercialize
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
million assuming the agreement continues for its full term. As of March 31,
1999, research funding of $8.0 million and license fees of $3.0 million had been
received. In addition to research funding, Novartis has also agreed to fund
certain development and premarketing costs of products which may be developed
pursuant to the collaboration, portions of which may be repayable under certain
circumstances.
In October 1995, the Company and MedImmune Inc. ("MedImmune") entered into 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 and other
related products. MedImmune has provided $2.0 million of non-refundable research
support and has agreed to make milestone payments which could total up to an
additional $11.0 million. Any milestone payments which are received are
repayable from royalties on such products.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Revenues decreased to $1.5 million for the three months ended March 31, 1999
from $2.8 million for the three months ended March 31, 1998. The decrease in
revenues was primarily due to $1.1 million in sponsored research funding from
Novartis during the three months ended March 31, 1999, compared to $2.4 million
in sponsored research funding from Novartis during the three months ended March
31, 1998. Additionally, interest income decreased to $225,000 for the three
months ended March 31, 1999 from $417,000 for the three months ended March 31,
1998. The decrease was due primarily to lower cash balances available for
investment.
Research and development expenses increased to $3.8 million for the three months
ended March 31, 1999 from $3.7 million for the three months ended March 31,
1998. This increase was primarily due to additional external research support
combined with increases in research and development staff and associated
increases in supplies and support services.
General and administrative expenses decreased to $547,000 for the three months
ended March 31, 1999 from $754,000 for the three months ended March 31, 1998.
This decrease was primarily due to decreases in outside consulting services
rendered in connection with business development activities and savings related
to the Company's general corporate expenditures in the three months ended March
31, 1999 compared to the three months ended March 31, 1998.
As a result of the above factors the Company generated a net loss for the three
months ended March 31, 1999 of $2.9 million, or $0.34 per share, compared to a
net loss of $1.7 million, or $0.19 per share for the three months ended March
31, 1998.
8
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A Development Stage Company)
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company's operations have been funded principally
through the net proceeds of an aggregate of $64.2 million from sales of equity
securities. The Company has also received $41.4 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 sales of equity securities, 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 $51.4 million and the
investment of approximately $5.0 million in equipment and leasehold improvements
through March 31, 1999. The Company is in the process of extending and
increasing its term note with a bank from $500,000 to $1.0 million for certain
equipment and fixtures borrowing. There were no borrowings outstanding under
this term note at March 31, 1999. The Company had no significant commitments as
of March 31, 1999 for capital expenditures.
The Company had cash and cash equivalents and short-term investments of $16.5
million as of March 31, 1999.
The Company anticipates that its existing funds should be sufficient to fund its
operating and capital requirements as currently planned through 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.
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.
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 March 31, 1999, 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 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 September 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, 1998, 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.
ITEM 3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company owns financial instruments that are sensitive to market risks as
part of its investment portfolio. The investment portfolio is used to preserve
the Company's capital until it is required to fund operations, including the
Company's research and development activities. All of these market-risk
sensitive instruments are classified as held-to-maturity and are not held for
trading purposes. The Company does not own derivative financial instruments in
its investment portfolio. The investment portfolio contains instruments that are
subject to the risk of a decline in interest rates.
INTEREST RATE RISK: The Company's investment portfolio includes investment grade
debt instruments. These bonds are subject to interest rate risk, and could
decline in value if interest rates fluctuate. Due to the short duration and
conservative nature of these instruments, the Company does not believe that it
has a material exposure to interest rate risk.
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
Response: None
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: May 14, 1999 /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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed balance sheet of March 31, 1999 and the condensed consolidated
statement of operations for the three months ended March 31, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 14,363,082
<SECURITIES> 2,160,181
<RECEIVABLES> 113,525
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,343,902
<PP&E> 5,021,273
<DEPRECIATION> 3,514,566
<TOTAL-ASSETS> 18,852,148
<CURRENT-LIABILITIES> 4,785,472
<BONDS> 0
0
0
<COMMON> 85,833
<OTHER-SE> 65,345,285
<TOTAL-LIABILITY-AND-EQUITY> 18,852,148
<SALES> 0
<TOTAL-REVENUES> 1,463,658
<CGS> 0
<TOTAL-COSTS> 4,355,320
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 659
<INCOME-PRETAX> (2,891,662)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,891,662)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,891,662)
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
