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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(Mark One)
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended DECEMBER 31, 1999
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transaction period from ____________ to _______________
Commission file number 0-20988
ANTEX BIOLOGICS INC.
(Name of small business issuer in its charter)
DELAWARE 52-1563899
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 PROFESSIONAL DRIVE, GAITHERSBURG, MARYLAND 20879
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (301) 590-0129
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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 ( )
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. (X)
Issuer's revenues for the fiscal year ended December 31, 1999 were
$2,620,337.
As of MARCH 17, 2000, the aggregate market value of the voting stock
held by non-affiliates of the Issuer based upon the average bid and asked prices
of such stock on that date was $175,718,000.
At MARCH 17, 2000, there were 48,200,254 shares of Common Stock of
the Issuer outstanding.
DOCUMENT INCORPORATED BY REFERENCE
Information with respect to Directors and Officers, Executive
Compensation, and Security Ownership of Certain Beneficial Owners and Management
will be contained in the Company's Proxy Statement for the 2000 Annual Meeting
of Stockholders and is incorporated by reference in Part III hereof.
Transitional Small Business Disclosure Format Yes ( ) No (X)
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TABLE OF CONTENTS
Item Page
- ---- ----
PART I
1. Description of Business 4
2. Description of Property 25
3. Legal Proceedings 25
4. Submission of Matters to a Vote of Security Holders 25
PART II
5. Market for Common Equity and Related Stockholder Matters 26
6. Management's Discussion and Analysis of Financial Condition and
Results of Operations 27
7. Financial Statements 30
8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 51
PART III
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 51
10. Executive Compensation 51
11. Security Ownership of Certain Beneficial Owners and Management 51
12. Certain Relationships and Related Transactions 51
PART IV
13. Exhibits and Reports on Form 8-K 51
This Annual Report on Form 10-KSB contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended. For
this purpose, any statements contained herein that are not statements of
historical fact, including without limitation, the statements under "Item 1.
Description of Business" and "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere herein regarding
the Company's business, prospects, competition, results of operations or
financial position, may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes", anticipates", "plans", "expects",
and similar expressions are intended to identify forward-looking statements.
Such forward-looking statements, which represent management's current
expectations, are inherently uncertain. A number of important factors, including
those discussed below under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations", could cause actual results to
differ materially from those indicated by forward-looking statements made herein
and presented elsewhere by management from time to time. These factors include,
but are not limited to: (i) the Company's ability to fund its future operations,
(ii) the Company's
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ability to successfully complete product research and development, including
preclinical and clinical studies and commercialization; (iii) the Company's
ability to obtain required governmental approvals; (iv) the Company's ability
to attract and/or maintain manufacturing, sales, distribution and marketing
partners; and (v) the Company's ability to develop and commercialize its
products before its competitors. Investors are warned that actual results may
differ from management's expectations.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
DEVELOPMENT OF BUSINESS
Antex Biologics Inc. ("AntexBiologics"), together with Antex Pharma Inc.
("AntexPharma"), a wholly-owned subsidiary, (hereinafter referred to
collectively as "Antex" or the "Company") is a biopharmaceutical company
committed to improving human health by developing new products to prevent and
treat infections and related diseases. The Company concentrates on the
development of products for bacterial infections, particularly respiratory,
gastrointestinal and urogenital mucosal diseases, and nosocomial
(hospital-acquired) infections. At its inception, the Company was focused on
identifying key interactions between infectious bacteria and their host. Early
discoveries lead to the development of two novel platform technologies, ART(TM)
and NST(TM). Discoveries of novel proteins from these patented technologies are
enhanced through the integration of functional genomics technology to identify
similar (or "homologous") proteins. These technologies form the basis for
proprietary vaccine and therapeutic products. The first products developed
through these technologies were vaccines for chronic bacterial infections that
infect through the host mucosal system. These technologies also provide the
tools and reagents used by AntexPharma to discover and develop novel
therapeutics to treat bacterial infections and to address the ever increasing
problem of antibiotic resistance.
BUSINESS
PRODUCTS IN DEVELOPMENT
The Company is currently conducting research and development activities
with respect to various pharmaceutical products including vaccines for chronic
bacterial infections and therapeutics including broad spectrum antibiotics,
particularly addressing nosocomial infections, and specific-agent
antibacterials, to address increasing antibiotic resistance and newly emerging
bacteria.
VACCINES
One means of preventing disease and death from infectious microbes has
been immunization by vaccination. Antigens are foreign substances, such as
microbes or parts thereof, which signal to the immune system the presence of
those particular agents. Natural immunity occurs when the host immune system
encounters these antigens and initiates an immune response to recognize and
react with the foreign agent and "neutralize" the microbe. Immunity can be
induced by administering to a human or animal a microbial antigen in the form of
a vaccine. Vaccination stimulates an immune response and creates immunological
memory to provide
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protection against a potential infection. Vaccines, the most cost-effective
health-care products ever developed, have been a primary component of pediatric
health-care, and are becoming an important element of adult health-care. In
general, the current commercially available vaccines address acute infections
and do not have therapeutic potential. The Company's prophylactic and
therapeutic vaccines present a new approach to the treatment of chronic
bacterial infections.
HELIVAX(TM) (Helicobacter pylori vaccine)
Discovered in 1983, Helicobacter ("H.") pylori is now recognized as the
predominant cause of ulcers. Scientists estimate that this spiral-shaped
bacterium leads to 90 percent of duodenal ulcers and 80 percent of gastric
ulcers. This organism generally infects the young and can be present for many
years before causing symptoms. H. pylori is a chronic infection present in all
parts of the world. The prevalence of infection increases with age, with greater
than 90 percent of people by age 20 in developing countries and 50-60 percent of
people over 60 in developed countries infected with this bacteria. The Centers
for Disease Control and Prevention ("CDC") estimates that two-thirds of the
world's population is infected with H. pylori, including about 25 million
Americans. More recently, Helicobacter has been associated with stomach cancers
and is classified by the World Health Organization ("WHO") as a Class 1
carcinogen. No single agent therapy has been found to wipe out this infection,
and antibiotic resistance is increasing.
The Company is engaged in ongoing efforts to develop a vaccine for H.
pylori. Using NST technology, the Company produced H. pylori bacteria that are
antigenically enhanced when compared to conventionally grown H. pylori. HELIVAX
is composed of these NST bacteria which have been inactivated (killed) and
combined with a mucosal adjuvant. The Company has shown in preclinical animal
models that HELIVAX is well tolerated and generates both mucosal and systemic
immune responses. The animal studies showed that the vaccine works both
prophylactically and therapeutically; it prevented infection from H. pylori and
cleared H. pylori in previously infected animals. The Company has 2 US patents
and several foreign patents issued and pending claiming compositions and methods
of using the H. pylori inactivated whole cell vaccine.
A Phase I clinical trial under a U.S. Food and Drug Administration
("FDA") Investigational New Drug Application ("IND") was successfully completed
in 1999. This randomized double-blinded, placebo-controlled clinical trial was
conducted to assess the safety and immunogenicity of a three-dose regimen of
HELIVAX in volunteers with and without subclinical gastric infection. The orally
administered vaccine was generally well tolerated and caused no serious adverse
events and did not exacerbate the H. pylori infection in the asymptomatic
volunteers. HELIVAX generated strong immune responses, both systemically and
locally to H. pylori in both uninfected and asymptomatic H. pylori infected
individuals. The Company intends to initiate a Phase II clinical study in 2000
to assess the dosing regimen and other formulations.
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In addition, Company scientists have identified novel antigens from H.
pylori. The Company has cloned the genes, produced the recombinant proteins and
purified quantities of the proteins for preclinical animal testing as potential
vaccine candidates. The Company is responsible for the commercialization of
these products at the present time, but may enter into one or more
collaborations for commercialization in various geographic regions. See
"Strategy for Commercial Development."
CAMPYVAX(TM) (Campylobacter jejuni vaccine)
A major cause of death globally, diarrheal diseases are a major
world-wide concern. One of the most prevalent causes, Campylobacter, accounts
for 400-500 million cases of diarrhea throughout the world each year, and over
2.5 million cases are estimated to occur in the U.S. annually. Outbreaks of
Campylobacter gastroenteritis and diarrhea occur frequently and are a major
problem among military personnel stationed in the U.S. and deployed overseas.
Campylobacter infection is also considered to cause one of the most severe forms
of traveler's diarrhea among visitors to less developed countries. A medical
significance of a Campylobacter vaccine lies in the diseases other than diarrhea
caused by this bacteria, arthritis and Guillain Barre Syndrome, which are
debilitating and can result in paralysis and death. The increasing resistance of
Campylobacter to antibiotics is becoming a national concern, and may increase
the desirability of a safe effective oral vaccine.
The Company is engaged in ongoing efforts to develop a vaccine for
Campylobacter. Using NST technology, the Company has produced Campylobacter
bacteria that are antigenically enhanced compared to conventionally grown
Campylobacter. CAMPYVAX is an inactivated NST-Campylobacter whole cell vaccine
preparation combined with a mucosal adjuvant. The Company has shown in
preclinical animal models that CAMPYVAX is well tolerated and generates both
mucosal and systemic immune responses. The animal studies showed that the
vaccine is effective at preventing infection from Campylobacter. The Company has
3 US patents and several foreign patents issued and pending claiming
compositions and methods of using the Campylobacter inactivated whole cell
vaccine.
In 1994, the Company entered into a Cooperative Research and Development
Agreement ("CRADA") with the United States Navy whereby the Navy will clinically
test CAMPYVAX to prevent diarrhea caused by enteropathogenic Campylobacter (See
"Collaborative Agreements."). Two successful Phase I clinical trials and a Phase
II challenge trial of Campylobacter infection trial have been completed. The
first Phase I clinical study demonstrated the safety and immunogenicity of the
inactivated NST-Campylobacter whole cell preparation. The second Phase I
clinical study demonstrated the safety and immunogenicity of CAMPYVAX (the
vaccine preparation consisting of the inactivated NST-Campylobacter whole cells
in combination with a mucosal adjuvant).
The Phase II trial was a double-blinded, placebo-controlled challenge
model and evaluated the clinical and immunological outcomes of the oral vaccine
in healthy adult volunteers against
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experimental infection with Campylobacter. The sequence of clinical and
microbiological events associated with Campylobacter infection was characterized
and correlated with immune response patterns in vaccinated, previously infected
and placebo-controlled volunteers. The clinical results of this Phase II trial
with respect to safety were similar to the Phase I studies, in that there were
no reportable adverse events related to vaccination.
The results of this Phase II trial also confirmed the Phase I clinical
studies with respect to the immunogenicity of the vaccine. Like live infection,
CAMPYVAX induced Campylobacter-specific humoral and cellular immune responses in
the majority of the recipients. This experimental model of Campylobacter
infection identified, for the first time, two immune correlates of protection
that will be used to evaluate vaccine effectiveness in follow-on studies. The
trial demonstrated that CAMPYVAX was safe, immunogenic and elicited intestinal
and systemic immune responses associated with protection against disease. The
Company intends to continue the clinical development of this vaccine. Possible
modifications of the vaccine dosage and formulation will be addressed in future
trials. The Company is responsible for the commercialization of this product at
the present time, but may enter into one or more collaborations for
commercializing CAMPYVAX in various geographic regions. See "Strategy for
Commercial Development."
ACTIVAX(TM) (A Combination Traveler's vaccine)
Seemingly mild, diarrheal diseases are responsible for 2,000 to 8,000
deaths a year in the US and over 3 million globally. Enterotoxigenic E. coli
("ETEC") is the leading cause of Traveler's Disease, causing worldwide an
estimated 630 million cases of mild to severe diarrhea annually. International
public health officials estimate that Campylobacter annually causes 400 to 500
million cases of diarrhea worldwide. Shigella is another leading cause of
diarrheal disease worldwide with over 200 million cases reported worldwide.
Together, Campylobacter, Shigella and ETEC account for over 1 billion cases of
Traveler's Disease annually.
A combined multivalent vaccine for the prevention of Traveler's
diarrheal diseases is a product uniquely suited to Antex's platform
technologies. The Company believes that an effective vaccine against Traveler's
Disease should contain protective antigens against Campylobacter, Shigella and
ETEC. The Campylobacter vaccine component is described above (See "CAMPYVAX").
Using NST technology, the Company has also produced a Shigella inactivated whole
cell vaccine. The Shigella vaccine shows a strong immune response, and is
protective against infection in preclinical models of infection and disease. The
Company has 3 US patents and several foreign patents issued and pending claiming
compositions and methods of using the Shigella inactivated whole cell vaccine.
The Company plans to develop an ETEC vaccine component either through in-house
discoveries or through licensing agreements. The Company will continue the
development of each component as a separate vaccine as well as a combination
vaccine.
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In 1999, the Company, in collaboration with the Johns Hopkins
University, received a Phase I Small Business Technology Transfer Program
("STTR") contract from the US Department of Defense, Department of the Army, for
the preclinical development of the Shigella and ETEC components of this
multivalent vaccine. The Company received an invitation to submit a proposal for
a Phase II STTR contract. The Company is responsible for the commercialization
of this product at the present time, but may enter into collaborations regarding
these and other potential vaccine products. See "Strategy for Commercial
Development."
TRACVAX(TM) (Chlamydia trachomatis vaccine)
In the U.S., almost 12 million cases of sexually transmitted urogenital
diseases occur annually. By age 21, approximately one out of every five young
people has required treatment for a sexually transmitted disease. The most
prevalent sexually transmitted diseases in the world are caused by bacteria
called Chlamydia ("C.") trachomatis. Millions of people suffer from cervictitis,
pelvic inflammatory disease, sterility, ectopic pregnancies and symptomatic
urethritis caused by C. trachomatis. In the U.S. during 1995, approximately
477,000 new cases were reported to the CDC, more than any other infectious
disease. A common problem is that these infections can progress unnoticed for a
long period of time, particularly in women, until severe symptoms occur. Many
times, once the symptoms do occur the damage, such as infertility, is
irreversible. The CDC estimates there are more than 3.5 million additional cases
undiagnosed and unreported in the U.S. each year.
Globally, the WHO estimates 89 million new cases of urogenital diseases
caused by C. trachomatis emerge each year. Because C. trachomatis also causes
trachoma, the world's most common form of preventable blindness, the WHO
estimates Chlamydia is responsible for at least 15 percent of the world's
blindness.
Using functional genomics, the Company has identified two families of
proteins that are being evaluated for their use as vaccines for this chronic
infection. The Company has cloned the genes, produced recombinant vectors, and
expressed and purified many of the proteins within the two families. These
antigens are currently undergoing evaluation in preclinical studies. The Company
is responsible for the development of these vaccine candidates but may enter
into collaborations regarding these and other potential vaccine products. See
"Strategy for Commercial Development."
Additionally, The Company identified through its proprietary ART an
outer membrane protein from C. trachomatis and has cloned the protein's gene.
The Company has shown in a preclinical animal model of disease that the subunit
vaccine generated an immune response. The experiments showed that the vaccine
protected animals from infertility caused by Chlamydial infections. Development
and commercialization of this potential vaccine product for use in humans is in
collaboration with SmithKline Beecham plc. See "Collaborative Agreements."
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TWARVAX(TM) (Chlamydia pneumoniae vaccine)
Chlamydia ("C.") pneumoniae is the third most common cause of epidemic
community-acquired pneumonia. Worldwide, 50% of the population are infected with
this organism by the age of 20, and 70-80% are infected by the age of 60.
Pneumonia is the fifth leading cause of death in the US, with approximately 2.5
million cases occurring annually. Additionally, C. pneumoniae has recently been
associated with plaques that cause cardiovascular diseases including
atherosclerosis, as well as plaques in the brain associated with Alzheimer's
Disease. There is no vaccine on the market for this chronic infection.
The Company has identified a novel protein in C. pneumoniae using
functional genomics. This protein has been cloned and expressed recombinantly,
and TWARVAX will be evaluated in preclinical models as a potential subunit
vaccine to treat and prevent this chronic infection. The Company has US and
foreign patents pending with respect to this novel vaccine. The Company is
responsible for the development of this vaccine candidate but may enter into
collaborations regarding this and other potential vaccine products. See
"Strategy for Commercial Development."
GONOVAX(TM) (Neisseria gonorrhoeae vaccine)
Gonorrhoea, caused by Neisseria ("N.") gonorrhoeae, is the second most
common sexually transmitted disease worldwide. It is the most frequently
reported communicable disease in the US, with 3-4 million cases reported
annually. This organism causes diseases including gonococcal urethritis, pelvic
inflammatory disease and pneumonia. There is no vaccine on the market for this
organism.
The Company has identified a novel protein in N. gonorrhoeae using
functional genomics. This protein has been cloned and expressed recombinantly,
and GONOVAX will be evaluated in preclinical models as a potential subunit
vaccine. The Company has US and foreign patents pending with respect to this
novel vaccine. The Company is responsible for the development of this vaccine
candidate but may enter into collaborations regarding this and other potential
vaccine products. See "Strategy for Commercial Development."
THERAPEUTICS
The Company, through AntexPharma, believes that the anti-bacterial
market presents an attractive opportunity to leverage its two proprietary
platform technologies -- ART and NST -- to develop novel therapeutics.
AntexPharma's target-based drug discovery strategy integrates ART and NST with
functional genomics, bioinformatics, molecular modeling, and combinatorial
chemistry to identify and develop novel drug targets and antibacterial compounds
to fight important bacterial infections.
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Some bacteria causing various infectious diseases are resistant to
multiple antibiotics and the number of antibiotic-resistant bacteria is
continuing to increase. The economic and human costs of antibiotic resistance
continue to rise. Mortality and hospital length of stay are at least doubled for
resistant strains of these pathogens. AntexPharma's drug discovery programs are
focused on pathogens that have increasing resistance to the currently available
antibiotics.
The Company is seeking compounds having activity that kills or reduces
the virulence for either a specific bacterium and/or a broad range of bacteria,
particularly hospital-acquired (nosocomial) infections. Major nosocomial
pathogens include Staphylococcus aureus, Streptococcus, Enterococci,
Pseudomonas, Mycobacteria and Enterobacter including Escherichia coli and
Klebsiella. Antex's current specific agent screens include those listed above as
well as H. pylori, methicillin-resistant Staphylococci ("MRSA") and
vancomycin-resistant Enterococci ("VRE").
Staphylococci are one of the most common causes of community- and
hospital- acquired infections. The most common treatments are antibiotics such
as methicillin and more recently vancomycin. Resistance to methicillin is
common. In fact, in many U.S. hospitals, strains of staphylococci are resistant
to all available antimicrobials except vancomycin. Recently, there have been
reported cases of reduced susceptibility to vancomycin. The occurrence of fully
vancomycin-resistant staphylococcal infections in a hospital could result in a
serious public health problem.
Streptococci and Enterococci are comprised of four groups of organisms,
some of which are normally harmless and some are severely pathogenic. Two of the
most severe forms of invasive Streptococci are necrotizing fascitis ("flesh
eating") and the rapidly progressing streptococcal toxic shock syndrome. Since
1989, a rapid increase in the incidence of infection and colonization with VRE
has been reported from U.S. hospitals. This increase poses several problems,
including the lack of available antimicrobials for treating infections caused by
VRE because most VRE are also resistant to multiple drug therapy, and the
possibility that the vancomycin resistance genes present in VRE may be
transferred to other microorganisms such as Staphylococcus aureus.
The Company's therapeutic research and development currently consists of
the following drug discovery programs.
ANTIBACTERIALS
Antex scientists designed four core structures of new chemical entities
("NCEs") which, according to worldwide patent and literature searches, are novel
and proprietary to Antex. Patent applications have been filed claiming
compositions, uses and processes for their preparation. Based on the scope of
the claims, the Company has a proprietary position on approximately 2.5 million
compounds per core structure, or 10 million compounds within the four series.
Over 100 compounds have been synthesized in Antex laboratories and evaluated for
activity against
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bacteria. All compounds are initially screened for minimal inhibitory
concentrations against a broad panel of gram positive and gram negative
bacteria, including antibiotic sensitive and resistance strains. Several
compounds have been identified as active specifically against Helicobacter
pylori and are being pursued as specific agent antibacterials, called
HELICINS(TM). In addition to these compounds, Antex is evaluating other core
structures for potential development; several have been identified as active
against a broad range of bacteria.
Identification of specific drug targets is also an essential step in
developing candidate compounds. The Company uses its specific functional
genomics expertise and know-how in combination with ART and NST to identify
potential molecular targets for drug discovery. Acceptable targets are either
those that are essential for the life of the pathogen or are virulence factors.
Additionally, the target must be divergent between the pathogen and host, so
that modification and/or disruption of the target will attenuate or kill the
microbe, and/or inhibit its virulence, without a detrimental impact on the host.
Antex has identified several potential drug targets and two such targets have
been validated as useful for potential drug discovery.
Access to diverse molecular libraries for screening against targets is
critical to drug discovery. The Company is committed to developing its own
library and will seek collaborative partners to provide additional libraries
that support the screening process. In addition to synthetic compounds, the
Company is investigating natural products and intends to establish a "natural
products" library, which will broaden the diversity of the compounds to be
screened.
MODULATORS
Disease of the host is caused by bacterial products and destruction of
the host tissues. The bacterial gene products causing this damage are involved
in bacterial virulence and pathogenicity and are conserved among pathogenic
bacteria. The Company believes that modulators or inhibitors of these bacterial
virulence functions should be broadly acting and detrimental to the bacteria,
thereby affecting its disease causing ability.
The Company's NST technology is targeted to the genomic elements
underlying bacterial pathogenesis and virulence. The Company has developed
biochemical, molecular and genetic procedures to identify pathogenesis targets
ex vivo and in animal models. These methods can be used to identify modulators
of pathogenesis and virulence factors in an in vitro/ex vivo environment that
are clinically relevant. Modulation of pathogenesis and virulence factors is a
novel approach to the prevention and treatment of bacterial diseases.
Anti-pathogenesis and anti-virulence modulators resulting from signal
transduction potentially offer advantages over traditional antibiotic therapy.
Additionally, an objective of this program is to discover compounds to
use in combination with existing antibiotics to improve their effectiveness or
overcome the resistance of certain bacteria to the antibiotic. The development
of resistance to an antibiotic is usually due to a specific defined resistance
pathway. The initial goal is to identify compounds for MRSA and
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VRE that may act through identified structural target mechanisms or through
functional targets not previously identified. The Company believes that
compounds identified may be developed as oral and systemic adjunctive therapy to
methicillin and vancomycin. Additionally, the Company has patented technology on
antibiotic-receptor conjugates.
ANTI-INFLAMMATORIES / ANTI-OXIDANTS
As stated above, infectious diseases not only activate the immune system
in the host, but also trigger the host's inflammatory response. These host
responses are directly caused by the infection and usually act together in a
cascading effect to fight against the invading microbe. Inflammation in a
controlled manner is important to fight against infections. However,
uncontrolled inflammation, such as psoriasis, lupus and arthritis, can be a
severe problem in some individuals. Some inflammatory diseases and other
disorders, such as peptic ulcers, cardiovascular diseases and infertility, may
occur as indirect results of an infection. For instance, disorders not
previously known to be caused by infectious diseases, such as reactive
arthritis, neurological disorders and various forms of cancers, more recently
have been linked to prior infections.
The presence of foreign microbes triggers host cells called leukocytes,
or white blood cells, which are the first host cell types involved in defense
against infection. Normally, these leukocytes are present in the blood, but
migrate from the blood to the site of infection when triggered. Leukocytes play
a vital role in both the immune and the inflammatory responses. The initial
white blood cells recruit other inflammatory cells, such as macrophages, and
immune system cells, such as B and T cells. These cells also release many other
cellular molecules including cytokines (such as interleukins - IL1, IL2 and IL8,
and TNF) and oxidative stress (reactive oxygen species ("ROS"), such as NO, O2-
and OH.) that activate the immune system and enhance the inflammatory cascade.
This cascade of inflammatory and immune response activity, when
controlled, is the host's defense system against infection. However, in some
instances this cascade escalates out of control. For instance, as stated above,
one action of ROS is to activate signal transduction pathways. However, ROS also
acts directly to damage cells by disrupting cellular structure and damaging
cellular molecules. This action of ROS is not restricted to the microbes, but
also can disrupt the host's cells as well. Thus, an overproduction of ROS is
damaging to the host's tissue. Additionally, the unregulated production of
cytokines and infiltration of inflammatory cells, such as neutrophils and
macrophages, carries with it the infiltration of fluid, causing swelling and
pain.
Therefore, the Company's drug discovery program will also involve
screening assays for identifying new anti-inflammatory and/or anti-oxidant drugs
(Antiflamoxidants(TM)) that may interfere with signal transduction pathways to
block the overproduction of cytokines and cell-mediated inflammation, and/or
block the overproduction of reactive oxygen species.
TECHNOLOGY OVERVIEW
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General
Early research focused on identifying carbohydrates, proteins and lipids that
acted as host receptors recognized by bacteria, and the particular bacterial
adhesin proteins that bound these receptors. The methods developed and the tools
identified through this research were the foundation of the Company's
proprietary platform technology, ART (TM) (Antigen-Receptor Technology). Later,
Antex scientists discovered that adding components identified in mucus and other
natural environmental signals to laboratory cultures effected certain changes in
laboratory grown bacteria. Methods were developed to analyze virulence
properties of many bacteria and to determine critical environmental signals that
affected the virulence expression in these bacteria. This research led to the
development of the Company's second platform technology called NST(TM)
(Nutriment Signal Transduction). The Company is capitalizing on the explosion of
genomics information by integrating its NST and ART technologies with its strong
capabilities in functional genomics to identify and produce recombinant proteins
for vaccine and drug discovery.
ART(TM) (Antigen-Receptor Technology)
Carbohydrates and lipids have a variety of functions within the human or animal
(collectively "mammalian") body. They serve as receptors of natural chemical
signals such as hormones and neurotransmittors; as reservoirs of nutritional
energy; others function in cell to cell adhesion and communication; and some
lipids make up the architecture of the plasma membranes of individual mammalian
cells. These particular cell membrane lipids were once thought to function only
to maintain the shape and integrity of cells and to serve as a barrier between
extracellular and intracellular environments. However, discoveries by the
Company's scientists and collaborators have revealed that certain carbohydrates,
lipids and some proteins (i.e., glycolipids and phospholipids) within mammalian
("host") cells play a major role in the pathogenesis of infection by serving as
receptors for bacterial attachment and as nutrients for growth of bacteria.
Generally, the first step in the process of microbial infection is the
attachment of microbes to the surface of host cells through a binding process
known as adhesion. The Company has developed a proprietary platform technology,
ART, to study the precise molecular events that underlie microbial adhesion to
host cell receptors. Much like a lock and key, adhesins (the "key"), which are
surface proteins on the outer membrane or cell wall of microbes recognize only
particular molecular conformations and bind to specific, complementary receptors
(the "lock") on the host cell surface. The Company believes that certain
microbial adhesins may be critical elements in providing a microbe access to the
host cell by attaching to the corresponding protein, carbohydrate or lipid
receptor, thereby facilitating the colonization (i.e., growth) and subsequent
infection of the microbes. The tools and reagents of ART technology are used by
the Company to develop products that interfere with the interactions of
bacterial attachment. These products include vaccines, particularly subunit
adhesin vaccines, novel therapeutics including receptor-antibiotic conjugate
drugs and soluble receptors, and diagnostics.
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To date, using ART the Company's scientists have identified the
molecular structure of host cell receptors, including carbohydrates, lipids and
proteins, for more than 60 microbes or microbial toxins. Once the receptor is
identified, the Company then uses it as a tool to identify and purify the
corresponding microbial adhesin. Sufficient quantities of the adhesins are
produced for preclinical and clinical testing either by isolating the "native"
protein from the original microbe or by producing a "recombinant" protein in
another microbe.
One of the most difficult problems inherent in vaccine development is
that microbes of the same species often exhibit strain-to-strain diversity with
respect to the types of antigens on their surfaces. With such diversity in the
composition of microbes of the same species, the effect of some vaccines
targeted to a single strain of the microbe may be limited. The Company believes
its proprietary ART may aid in circumventing the problems posed by strain
diversity and antigen variations within strains. The Company has discovered that
some adhesins that occur on the outer membrane or cell wall of certain species
of microbes are the same throughout various strains within a given species. In
effect, the adhesions are "conserved". Based on data from preclinical animal
models, the Company believes that vaccines aimed at stimulating the production
of antibodies against these highly conserved proteins (adhesins) should be
effective in providing immunity to a wide variety of strains of a given species.
Further, the Company believes that both the microbial adhesins and their
corresponding host cell receptors present novel targets and vehicles for the
design of new therapeutics to treat microbial infections. The Company is
developing screening assays for one such target identified through ART. The
Company has developed and patented novel conjugates of known antibiotics with
host cell receptors, with the belief that the antibiotic portion of the molecule
will be targeted to the bacteria via their receptors. In addition, biological
therapeutics, such as novel analogs of the adhesins and receptors, can be
developed to interfere with the initial step in microbial infections.
NST(TM) (Nutriment Signal Transduction)
The behavior of a microbe during entry and invasion of the host is a
balancing act between the microbe and the host. Pathogenic microbes require a
specific environment and nutrients to survive, reproduce, and cause infection.
The mucosal surface, where more than ninety (90) percent of infections start,
serves as a barrier to infections, but it can also serve as an environment for
bacteria to survive and grow. Antex scientists found that certain microbes use
substances found in the mucus as nutriment sources. This led to the development
of methodology to examine bacterial virulence properties and the discovery of
particular factors present in the host environment that were necessary for
microbes to be pathogenic. NST is the regulation of bacterial growth and/or
pathogenicity (virulence) by important physiological nutriments. Physiological
nutriments include natural chemicals and other environmental conditions, such as
temperature and oxygen content, that bacteria normally encounter in the body.
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By identifying the particular chemicals and conditions in the host that
transduce bacteria and enhance the expression of virulence properties, Antex can
duplicate in the laboratory the specific environment found in the body (host).
NST is used to produce more clinically relevant microbes. Antex has shown that
NST grown bacteria express antigens and other virulence factors that more
closely resemble those seen within the body; these antigens/virulence factors
may not be expressed in bacteria grown using traditional laboratory conditions.
Therefore, these expressed antigens or antigenically enhanced microbes create
biological mimicry important for producing more potent vaccines for inducing
immunity against an infectious agent.
Moreover, Antex has discovered that the in vitro antibiotic sensitivity
of these "biological mimics" may be more similar to that of bacteria within an
infected host than conventionally grown bacteria. Because the profile of
antibiotic susceptibility or resistance of NST-bacteria may be more closely
related to the in vivo sensitivity of bacteria, the identification of novel
antibiotics should be facilitated through the use of NST grown bacteria. Antex
has discovered that some of the newly expressed virulence factors of
NST-bacteria are metabolic proteins, which may be novel targets for drug
discovery and development of novel antibacterial compounds. Therefore, NST also
provides a platform to investigate and develop novel substances to down
regulate, or modify, the growth and/or virulence of pathogenic bacteria or kill
virulent bacteria.
Functional Genomics
The power of the genomics information is only realized when the function
of the genes being decoded is identified. The Company augments ART and NST with
its strong capabilities in functional genomics. Antex's approach is to "mine"
databases of bacterial genomic DNA sequences for "homologs" (somewhat similar
sequences) to proprietary novel proteins that were identified through either ART
or NST. Once a homologous DNA sequence is identified from the database, Antex
applies molecular biology, proteomics and bioinformatics to prepare "homolog"
proteins. These proteins are cloned, expressed, purified and characterized and
provide the potential for a broad proprietary position. Antex scientists have
identified several novel antigen homologs that may be useful as subunit
vaccines, as well as enzymes and other metabolic proteins that may be useful as
novel targets for the identification of new anti-bacterials.
Targeted Molecular Diversity
Antex scientists use a "Targeted Molecular Diversity" approach for lead
compound identification and lead optimization. From the laboratory determined
crystal structure of bacterial enzymatic targets, the Company predicts the
molecular three-dimensional ("3-D") form. Together with this predicted 3-D form,
the Company's scientists combine molecular modeling, combinatorial chemistry,
"virtual" screening and high-throughput laboratory screening to discover diverse
NCEs as antibiotics.
These technology platforms address key elements of discovery and
development of new vaccines and therapies for prevention and treatment of
bacterial diseases.
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COLLABORATIVE RESEARCH AND DEVELOPMENT PROJECTS
Respiratory Infections
Middle ear infections, known as otitis media, are the most frequent
reason children visit doctors, and the most common cause of hearing loss in
children. Eighty percent of all children will have at least one episode of
otitis media and over $2 billion is spent annually for the care of otitis media
in the U.S. Otitis media is caused primarily by bacterial infections. Two of
these bacteria are Haemophilus ("H.") influenzae (nontypeable) and Moraxella
("M.") catarrhalis. The current treatment of choice for otitis media is
antibiotic therapy. However, because of the increase in the incidence of
antibiotic resistant strains of these bacteria and the costs associated with the
treatment of this disease, the Company believes that an otitis media vaccine
would be a preferable alternative for addressing this disease.
The Pittsburgh Otitis Media Research Center estimates that H. influenzae
nontypeable is present in over 25% of otitis media infections. The Company has
identified an adhesin, Hin47, of H. influenzae and has successfully cloned the
gene for production of the recombinant adhesin. This adhesin is extremely
conserved in H. influenzae. The recombinant form of the adhesin has been shown
in animal studies to elicit an immune response.
In 1994, the Company entered into a license agreement with Pasteur
Merieux Connaught, now Aventis Pasteur, under which the Company granted to
Aventis Pasteur an exclusive worldwide license, other than the Asia-Pacific
region, to develop, manufacture and sell one or more vaccines based on the
Company's proprietary H. influenzae Hin47 protein. Aventis Pasteur is evaluating
this vaccine in human clinical studies and has completed Phase I studies that
showed the vaccine is safe and generates an immune response in healthy adults,
adolescents and infants. The Company has received three milestone payments in
accordance with the agreement. See "Collaborative Agreements".
Pneumonia is the fifth leading cause of death in the U.S., with
approximately 2.5 million cases occurring in the U.S. annually. In addition to
otitis media, H. influenzae nontypeable and M. catarrhalis are causative agents
for acute pneumonia in adults, particularly the elderly. The Company continues
to identify other novel protein antigens from H. influenzae and M. catarrhalis
using both NST and ART technologies. The Company believes that the technology
utilized to develop vaccines for H. influenzae nontypeable and M. catarrhalis
may have application against otitis media as well as acute pneumonia. The
Company has produced two proprietary outer membrane proteins for potential
subunit vaccines, which are at the preclinical development stage. The Company
has produced one lot of the two subunit proteins under FDA Good Manufacturing
Practices. These additional H. influenzae and M. catarrhalis antigens for use as
human vaccines have been licensed to SmithKline Beecham Corporation and
SmithKline Beecham Biologicals Manufacturing s.a. ("SmithKline"), which is
responsible for further development and possible commercialization of these
vaccine candidates. See "Collaborative Agreements."
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Bacterial meningitis is a rapidly evolving upper respiratory tract
infection where onset of early symptoms is very fast (0 to 4 days) and
complications can be serious, including brain damage and a high incidence of
death (greater than 15% even with antibiotic therapy). Three of the most common
infectious agents that cause bacterial meningitis include H. influenzae (Type B
and nontypeable), M. catarrhalis and N. meningitidis. N. meningitidis is a
respiratory pathogen that causes invasive meningococcal infections primarily in
children younger than 5 years of age and travelers to countries recognized to
have epidemic disease. The only vaccine currently available is one comprising
bacterial capsular polysaccharides which have been shown to cross-react with
neural cells, potentially causing severe side effects. The Company, using both
ART and NST, has identified novel adhesins to develop a subunit vaccine that may
avoid the drawbacks of the vaccine currently being used.
These potential vaccine products for use in humans have been licensed to
SmithKline for further development and possible commercialization. The Company
may enter into other collaborations regarding these and other potential products
for uses other than as human vaccines. See " Collaborative Agreements."
COLLABORATIVE AGREEMENTS
In December 1994, the Company entered into a technology license
agreement with Aventis Pasteur, whereby the Company granted an exclusive license
to develop, produce and market any product using the Company's H. influenzae
nontypeable Hin47 protein in all countries other than those in the Asia-Pacific
region, as defined. Under the license agreement, Aventis Pasteur must use
commercially reasonable efforts to develop a marketable product. However, at its
option and for good cause, Aventis Pasteur may cease development upon 6 months'
prior written notice to the Company and upon payment of all amounts due to the
Company through the termination date, at which time the licensed technology
reverts to the Company. The Company earned a license fee in 1994 and is entitled
to milestone payments based on the licensee's performance or the passage of
time. Three such milestone payments have subsequently been earned, including a
$500,000 milestone payment in December 1998. Upon commercialization, the
licensee is obligated to pay a guaranteed minimum annual royalty to the Company
on sales of any product incorporating the Company's technology. In 1999, the
Company renegotiated certain terms of this agreement regarding the timing and
amount of certain milestone payments. The licensee successfully completed a
Phase IA clinical trial in adults in 1997, a Phase IB clinical trial in children
in 1998 and a Phase IC in 1999 in infants, which evaluated the safety and
immunogenicity of the vaccine. Plans for continuing the clinical development of
this vaccine are underway.
In August 1994, the Company entered into a CRADA with the United States
Navy, whereby the Company granted Government Purpose License Rights to its
Campylobacter vaccine technology. In exchange for the rights granted, the United
States Navy agreed to conduct and fund the costs involved in Phase I, II and III
clinical trials for the vaccine, subject to the availability of required funds.
The Company retained all commercial rights to develop, produce
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and market any product involving its proprietary Campylobacter technology.
Either party may terminate the CRADA upon thirty days written notice. Two Phase
I trials and a Phase II challenge trial have been successfully completed. This
CRADA is currently being extended for another 5 years.
Effective March 1996, the Company entered into definitive agreements
with SmithKline, which established a corporate joint venture, MicroCarb Human
Vaccines Inc. ("MCHV"), to develop and commercialize human bacterial vaccines
utilizing the Company's proprietary technologies. At August 31, 1999, the
agreements provided for the following: the option by SmithKline to provide
annual funding of research and development activities for future years; an
exchange option granted by the Company to SmithKline enabling SmithKline to
convert its 26.25% equity interest in MCHV for 3,595,264 shares of the Company's
common stock, under specified conditions; and a warrant granted by the Company
to SmithKline enabling SmithKline to acquire up to 5,730,802 shares of the
Company's common stock, under specified conditions. The agreements also provided
for SmithKline to make milestone payments and pay royalties to MCHV, and for
SmithKline to reimburse the Company for expenses the Company incurred for agreed
upon production lots of vaccine for clinical trials, the conduct of agreed upon
clinical trials, and agreed upon prosecution and maintenance of the Company's
patents and patent applications. As further stipulated in the agreements,
SmithKline was responsible for conducting additional clinical trials,
manufacturing, and sales and distribution.
Effective September 1, 1999, the agreements were terminated and/or
amended and the Company entered into an Omnibus Agreement with SmithKline
Beecham plc and SmithKline Beecham Biologicals Manufacturing s.a. ("SB") and
MCHV. Under the provisions of the Omnibus Agreement and several related
documents, the following occurred: SmithKline's equity interest in MCHV was
converted into 3,595,264 shares of the Company's common stock and MCHV was
merged into the Company; a New License Agreement was executed; and the Company
granted an amended and restated warrant to SB to purchase 3,865,769 shares of
common stock at an exercise price of $.37 per share exercisable on or before
September 1, 2003.
The New License Agreement covers prophylactic and/or therapeutic
vaccines for certain designated infectious diseases and provides for the
reversion to the Company of all other technology rights previously licensed to
SmithKline. The terms of the license agreement provide for the following:
funding for research and development of $1,333,334 for the period July 1, 1999
to December 31, 1999 with SB having the option to provide annual funding of
research and development activities in the future; milestone payments and
royalties; and, subject to mutual agreement in the future, the reimbursement by
SB of expenses incurred by the Company for production lots of vaccines, the
conduct of clinical trials, and the prosecution and maintenance of the Company's
patents and patent applications pertaining to the licensed technology. As
further stipulated in the agreement, SB will be responsible for conducting
clinical trials, manufacturing, and sales and distribution for the licensed
vaccines.
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The Company may continue to grant licenses to certain of its proprietary
technologies, reagents, and vaccine and therapeutic products in exchange for
license fees, royalty payments and other compensation. The Company anticipates
seeking such arrangements with respect to technologies that it is unwilling or
unable to pursue on its own.
STRATEGY FOR COMMERCIAL DEVELOPMENT
In April 1998, the Company established AntexPharma to research and
develop novel therapeutic alternatives to address the unmet clinical needs of
antibiotic resistance and newly emerging diseases by applying the NST and ART
platform technologies. AntexPharma will also seek to license and/or acquire
additional technologies, suitable later stage development candidates, and
products to further the Company's objectives. AntexPharma will pursue strategic
alliance and financing opportunities related to therapeutic products.
All of the Company's proposed products are in discovery, research,
preclinical or clinical development. The Campylobacter vaccine, CAMPYVAX, will
be in a Phase II clinical trial in 2000, with two Phase I clinical trials and a
Phase II challenge trial having been successfully completed. A vaccine for H.
pylori, HELIVAX, has successfully completed a Phase I clinical trial, and the
Company intends to intiate a Phase II clinical trial in 2000. All potential
vaccine and therapeutic products will require substantial additional research
and development, preclinical testing, clinical trials and/or regulatory
approvals from the appropriate governmental agencies prior to commercialization.
See "Government Regulation." The process from research to marketing could
require significant expenditures over a number of years.
The Company's long term objective is to manufacture and market certain
of its products and to rely on independent third parties for the manufacture and
marketing of certain other of its products or for certain geographic regions.
For certain products under development, the Company may seek to enter into
development and marketing agreements which grant certain rights to its corporate
partners in return for royalties to be received on sales, if any. No assurances
can be given that the Company will enter into any such agreements on acceptable
terms or that such future partners will be successful in commercializing
products.
PRODUCTION FACILITY
The Company contracts for the services of a FDA-approved pilot plant.
This facility initially has been used for the production of the Company's
Campylobacter and H. pylori inactivated whole cell preparations for clinical
trial purposes and for the Company's M. catarrhalis subunit vaccine. The pilot
plant was established and operates in compliance with the FDA's current Good
Manufacturing Practices. See "Government Regulation." The Company anticipates
that it will produce pilot and clinical trial lots of its other proposed
vaccines at this or another third-party pilot facility.
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PRODUCT LIABILITY INSURANCE
The testing, marketing and sale of human health care products entail an
inherent risk of allegations of product liability, and there can be no assurance
that product liability claims will not be asserted against the Company. The
Company intends to obtain product liability insurance for its ongoing clinical
trials. Such coverage may not be adequate as and when the Company further
develops products. There can be no assurance that the Company will be able to
obtain, maintain or increase its insurance coverage in the future on acceptable
terms or that any claims against the Company will not exceed the amount of such
coverage.
GOVERNMENT REGULATION
The production and marketing of the Company's products and its research
and development activities are subject to regulation by numerous governmental
authorities in the United States and other countries. In the United States,
vaccines, drugs and certain diagnostic products are subject to FDA review of
safety and efficacy. The Federal Food, Drug and Cosmetic Act, the Public Health
Service Act and other federal statutes and regulations govern or influence the
testing, manufacture, safety, labeling, storage, record keeping, approval,
advertising and promotion of such products. Noncompliance with applicable
requirements can result in criminal prosecution and fines, recall or seizure of
products, total or partial suspension of production, refusal of the government
to approve Product License Applications ("PLAs"), New Drug Applications ("NDAs")
or refusal to allow the Company to enter into supply contracts. The FDA also has
the authority to revoke product licenses and establishment licenses previously
granted.
In order to obtain FDA approval to market a new biological or
pharmaceutical product, the Company or its licensees must submit proof of
safety, purity, potency and efficacy, which will require the Company or its
licensees to conduct extensive laboratory, preclinical and clinical tests. This
testing, as well as preparation and processing of necessary applications, is
expensive, time-consuming and often take several years to complete. There is no
assurance that the FDA will act favorably in making such reviews. The Company or
its licensees may encounter significant difficulties or costs in their efforts
to obtain FDA approvals, which could delay or preclude the Company or its
licensees from marketing any products that it may develop. The FDA may also
require postmarketing testing and surveillance to monitor the effects of
marketed products or place conditions on any approvals that could restrict the
commercial applications of such products. Product approvals may be withdrawn if
problems occur following initial marketing, such as, compliance with regulatory
standards is not maintained. With respect to patented products or technologies,
delays imposed by governmental marketing approval processes may materially
reduce the period during which the Company or its licensees will have the
exclusive right to exploit patented products or technologies. See "Patents and
Other Rights." Refusals or delays in the regulatory process in one country may
make it more difficult and time consuming for the Company or its licensees to
obtain marketing approvals in other countries.
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The FDA approval process for a new biological or pharmaceutical drug
involves completion of preclinical studies and the submission of the results of
these studies to the FDA in an IND, which must be approved before human clinical
trials may be conducted. The results of preclinical and clinical studies on
biological or pharmaceutical drugs are submitted to the FDA in the form of a PLA
or NDA for product approval to commence commercial sales. In responding to a PLA
or NDA, the FDA may require additional testing or information, or may deny the
application. In addition to obtaining FDA approval for each biological or
chemical product, an Establishment License Application ("ELA") must be filed and
the FDA must inspect and license the manufacturing facilities for each product.
Product sales may commence only when both PLA/NDA and ELA are approved.
In certain instances in which a treatment for a rare disease or
condition is concerned, the manufacturer may request the FDA to grant the drug
product Orphan Drug status for a particular use. In this event, the developer of
the drug may request grants from the government to defray the costs of certain
expenses related to the clinical testing of such drug and be entitled to
marketing exclusivity and certain tax credits. The Company or its licensees may
seek Orphan Drug designation in the future for proposed products. If these
products are the first such products approved, the Company or its licensees may
be entitled to seven year marketing exclusivity for these products once
regulatory approval has been obtained. The seven year period of exclusivity
applies only to the particular drug for the rare disease or condition for which
the FDA has designated the product an Orphan Drug. Therefore, another
manufacturer could obtain approval of the same drug for an indication other than
the Company's or could seek Orphan Drug status for a different drug for the same
indication.
Sales of biological and pharmaceutical products and medical devices
outside the United States are subject to foreign regulatory requirements that
vary widely from country to country. Whether or not FDA approval has been
obtained, approval of a product or a device by a comparable regulatory authority
of a foreign country must generally be obtained prior to the commencement of
marketing in that country.
The Company is also subject to regulation by the Occupational Safety and
Health Administration ("OSHA") and the Environmental Protection Agency ("EPA")
and to regulation under the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other regulatory statutes, and may in the
future be subject to other federal, state or local regulations. The Company
believes that it is in compliance with regulations regarding the disposal of its
biological, radioactive and chemical waste. The Company voluntarily complies
with NIH guidelines regarding research involving recombinant DNA molecules. Such
guidelines, among other things, restrict or prohibit certain recombinant DNA
experiments and establish levels of biological and physical containment that
must be met for various types of research.
The Company, either alone or in conjunction with its collaborators, has
filed INDs for Campylobacter and H. pylori vaccines. The applications were
accepted by the FDA. The Company has entered into, and anticipates that it may
in the future enter into, joint ventures,
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licensing or similar collaborative arrangements with one or more companies that
will assume the costs and responsibility for clinical testing and for FDA and
comparable foreign regulatory approval of any product which the Company may have
in development. See "Strategy for Commercial Development." To the extent that
the Company is unable to enter into such arrangements or to raise additional
capital, it may not have the resources to complete the regulatory approval
process for such products.
PATENTS AND OTHER RIGHTS
The Company has 26 allowed or issued U.S. patents and 100 allowed or
issued international patents. Currently there are seven pending patent
applications in the United States, with corresponding international patent
applications. The patent applications relate to novel proteins, their
corresponding genes and uses thereof, new chemical entities and to the Company's
ART and NST technologies. Collectively, the applications include composition
claims for enhanced bacteria, receptors and their corresponding adhesins or
toxins, method of use claims for the use of these compositions, for vaccines and
for other antimicrobial products.
Two of the issued patents and their corresponding foreign patent
applications, are co-owned with other entities. The Company holds exclusive
rights to a US patent covering one of its targets for antibiotic discovery and
non-exclusive rights to 1 U.S. and 2 foreign patents covering VeroTest(R) and
related technologies. Additionally the Company holds a non-exclusive license to
7 additional U.S. patents related to carbohydrate receptors for microorganisms.
The Company has made initial payments to the licensors, and royalty payments
must be made if the Company markets products or services incorporating the
licensed technologies.
There can be no assurance that the Company's pending patent applications
will result in issued patents, that any of its issued patents will afford
protection against a competitor, or that any patents issued or licensed to the
Company could not be challenged, invalidated or circumvented by others. Further,
the patent position worldwide of biotechnology firms generally is highly
uncertain, involving complex legal and factual questions. Since patent
applications in the United States are maintained in secrecy until patents issue,
and since publication of discoveries in the scientific or patent literature
tends to lag behind actual discoveries by several months or even years, the
Company cannot be certain that others have not filed patent applications
directed toward inventions covered by its pending patent applications or that it
was the first to file patent applications on such inventions. There can also be
no assurance that any application of the Company's technologies will not
infringe patents or proprietary rights of others or that licenses that might be
required for the Company's processes or products would be available on
reasonable terms. Furthermore, there can be no assurance that challenges will
not be instituted against the validity or enforceability of any patent owned or
licensed by the Company or, if instituted, that such challenges will not be
successful or that the Company will have the financial resources to defend
against any such challenge. The extent to which the Company or its licensees may
be required to obtain licenses under other proprietary rights, the cost and the
availability of such licenses are unknown.
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Patent litigation is becoming more widespread in the biotechnology
industry. There can be no assurance that others could not bring legal actions
against the Company or its licensees for patent infringement. If the Company or
its licensees becomes involved in such litigation, it could consume a
substantial portion of the Company's resources. The Company also may lack the
financial resources to defend its patents against infringements by others.
The Company believes that obtaining foreign patents may be more
difficult than obtaining domestic patents because of differences in U.S. and
foreign patent laws. In addition, foreign patents, if obtained, may not provide
the level of protection provided by domestic patents.
The Company's success depends, in large part, on its ability to obtain
patents, maintain trade secrets and operate without infringing on the
proprietary rights of third parties. If patents do not issue from present or
future patent applications, the Company will likely be subject to greater
competition. The Company also relies upon unpatented proprietary technology, and
in the future may determine in some cases that its interest would be better
served by reliance on trade secrets or confidentiality agreements rather than
patents. In such circumstances, no assurance can be made that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to such proprietary technologies or disclose
such technologies or that the Company or its licensees can meaningfully protect
its rights in such unpatented proprietary technologies.
The Company requires each of its employees, consultants, and advisors to
execute a confidentiality agreement and an invention agreement upon the
commencement of an employment or consulting relationship with the Company. The
employee agreements generally provide that all inventions conceived by the
individual and all confidential or proprietary technology, including information
and materials, developed or made known to the individual during the term of the
relationship shall be the exclusive property of the Company and shall be kept
confidential and not disclosed to third parties except under specified
circumstances. The term of ownership of inventions by consultants and advisors
varies depending primarily upon the policies of the academic and other
institutions with which the consultants and advisors are associated. The Company
has entered into nondisclosure agreements which are intended to protect its
confidential information delivered to third parties for research or other
purposes. There can be no assurance that these agreements will provide
meaningful protection of the Company's confidential or proprietary technology in
the case of unauthorized use or disclosure. Even if others do not gain
unauthorized access to the Company's confidential or proprietary technology,
there can be no assurance that others will not independently develop
substantially equivalent proprietary technology. In addition, to the extent that
strategic partners or consultants apply technological information developed
independently by them or others to Company projects or apply Company technology
to other projects, disputes may arise as to the ownership of proprietary rights
to such technology.
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COMPETITION
Competition in the biotechnology and pharmaceutical industry is intense.
While the Company is only aware of a limited number of companies that are
pursuing the development of new bacterial vaccines and antimicrobial products,
competition from other biotechnology and pharmaceutical companies for the
development of products for prevention and/or treatment of the same infectious
diseases targeted by the Company is intense and expected to increase. Many of
the Company's competitors have substantially greater financial resources and
larger research and development staffs than the Company, as well as
substantially greater experience in developing products, in obtaining regulatory
approvals, and in manufacturing and marketing pharmaceutical products than the
Company. Competition with these companies involves not only product development,
but also acquisition of products and technologies from universities and other
research institutions. The Company also competes with universities and other
institutions in the development of products, technologies and processes.
Competitors have developed, or may be in the process of developing technologies
that are, or in the future may be, the basis for competitive products. There can
be no assurance that the Company's competitors will not succeed in developing
technologies and products that are more effective or affordable than those being
developed by the Company and its licensees. In addition, one or more of the
Company's competitors may achieve product commercialization or patent protection
earlier than the Company.
To the extent the Company has exclusively licensed to other parties
applications of the technology to address potential alternatives for treatment
of certain infectious diseases, such alternatives are no longer available to the
Company, thereby impacting the Company's ability to compete in the market for
certain therapies for infectious diseases.
The Company expects products approved for sale to compete primarily on
the basis of product efficacy, safety, reliability, and patent position. Certain
of the infectious diseases that the Company has chosen to target for its
research and development efforts are currently being treated with therapies that
have varying degrees of success. Accordingly, the success of the Company will be
dependent upon the acceptance of a developed product by the medical community as
a preferable method of treatment which in turn will depend upon the marketing
and education efforts made by or on behalf of the Company. In addition, the
first pharmaceutical product to reach the market in a therapeutic or preventive
area is often at a significant competitive advantage relative to later entrants
to the market. The Company's competitive position also will depend on its
ability to attract and retain qualified scientific and other personnel, develop
effective proprietary products, obtain patent protection and have its licensees
be successful at implementing production and marketing plans.
BACKGROUND
In March 1988, BioCarb Inc., the Company's predecessor, was established
as a wholly-owned subsidiary of BioCarb AB, a Swedish biotechnology company. In
August 1991, the
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Company was acquired by a then officer in a management buy-out and began doing
business as MicroCarb Inc. Subsequent to the management buy-out, the Company has
been operating as a development stage enterprise. In 1996, the Company changed
its name to Antex Biologics Inc. In 1998, the Company formed a wholly-owned
subsidiary, Antex Pharma Inc.
EMPLOYEES
At December 31, 1999, the Company had 28 full-time employees and
contract personnel, of which 23 were in research and development. Of these
personnel, 11 hold Ph.D. degrees. None of the employees is represented by a
labor union. The Company considers its employee relations to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 24,000 square feet of laboratory and
office space in Gaithersburg, Maryland, pursuant to a ten-year lease entered
into in December 1998 which extended the term and expanded the space under its
expiring lease. The lease provides for 2000 annual rent of approximately
$657,000, with specified annual increases. In addition, the lease requires the
Company to pay its pro-rata share of building operating expenses and
administrative charges estimated at approximately $225,000 for 2000. The
facility is equipped as a state-of-the-art biotechnology research facility. The
Company believes that its space will provide facilities sufficient for the
Company's planned activities for at least the next twelve months, with the
exception of the need for a small animal facility and pilot plant. The Company
currently contracts for these services from existing facilities and intends to
continue to do so for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
The common stock, par value $.01, of the Company ("Common Stock") traded
on the Nasdaq Small-Cap Market until January 11, 1995 at which time it was
deleted. The Common Stock currently is quoted on the OTC Bulletin Board under
its symbol ANTX. The range of high and low closing bid prices for the Common
Stock for the years ended December 31, 1998 and 1999 as reported by Nasdaq is
presented below. Such quotations reflect interdealer prices, without retail
mark-up, mark-down, or commission, and may not represent actual transactions.
1998 High Low
---- ---- ---
1st Quarter 1-1/4 27/32
2nd Quarter 1-5/32 11/16
3rd Quarter 23/32 9/32
4th Quarter 35/64 37/128
1999
----
1st Quarter 13/16 23/64
2nd Quarter 15/32 9/32
3rd Quarter 15/32 7/32
4th Quarter 5/8 3/8
As of March 17, 2000, there were approximately 250 holders of record of
the Common Stock.
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock and does not
anticipate that any cash dividends will be paid in the foreseeable future.
26
<PAGE> 27
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The Company commenced operations in August 1991.
Effective March 1996, the Company executed definitive agreements with
SmithKline Beecham which established a corporate joint venture, MicroCarb Human
Vaccines Inc., to develop and commercialize human bacterial vaccines utilizing
the Company's proprietary technologies. Effective September 1, 1999, these
agreements were terminated and/or amended and new definitive agreements were
entered into to develop and commercialize related human bacterial vaccines (see
Note 6 to the financial statements).
The strategic alliances with SmithKline Beecham and Aventis Pasteur are
consistent with one aspect of the Company's overall strategy which, since its
inception, has been to establish strategic partnerships and to focus on
researching technologies with the goal of developing new products to prevent and
treat infectious diseases and their related disorders. The Company is operating
as a development stage enterprise.
RESULTS OF OPERATIONS
Revenues for 1999 totaled $2,620,337 consisting of human bacterial
vaccine research and development support of $1,970,744 and reimbursable expenses
incurred of $549,594 pursuant to the strategic alliance with SmithKline Beecham,
a $50,000 material transfer fee and $49,999 from a Small Business Technology
Transfer contract.
Revenues for 1998 totaled $4,507,029 consisting of human bacterial
vaccine research and development support of $3,168,286 and reimbursable
expenses incurred of $679,711 pursuant to the strategic alliance with
SmithKline Beecham, $159,032 from a Small Business Innovation Research grant,
and a $500,000 milestone payment from Aventis Pasteur.
The decrease in human bacterial vaccine research and development support
is due to a reduction in the services requested by SmithKline Beecham.
Research and development expenses in 1999 decreased $432,937, or 9.6%, to
$4,092,835 in comparison to $4,525,772 in 1998. The decrease is due primarily to
the nonrecurrence of the $250,000 buy-back in 1998 of therapeutic technology
previously licensed, and to reduced production lot expenditures in 1999 related
to the strategic alliance with SmithKline.
General and administrative expenses in 1999 increased $283,067, or 20.9%,
to $1,640,260 in comparison to $1,357,193 in 1998. The increase is attributable
primarily to fees incurred in 1999 in connection with overseas patent
application filings and to increased general legal fees.
The noncash expense of $502,540 in 1999 attributable to the issuance of
the SmithKline Beecham warrant is a nonrecurring event. The noncash expense of
$1,711, 814 arising from the
27
<PAGE> 28
cashless exercise of the Placement Agent's unit purchase option in 1998 was a
nonrecurring event.
The decrease in interest income in 1999 in comparison to 1998 reflects
the decrease in cash available for investing.
LIQUIDITY AND CAPITAL RESOURCES
As a development stage company, the Company's operating activities have
been limited primarily to research and development involving its proprietary
technologies, and accordingly, have generated limited revenues. The Company
received $2,000,000 in 1999 in research and development payments from SmithKline
Beecham covering the period March 1, 1999 to December 31, 1999. Additionally,
the costs incurred by the Company in connection with a completed Phase I
clinical trial for Helicobacter pylori and the agreed upon prosecution of the
Company's applicable patents and patent applications were reimbursed by
SmithKline Beecham.
With respect to the Company's renovation and expansion of its facility,
which was substantially completed at December 31, 1999, the landlord paid for
the cost of tenant improvements in 1999 of approximately $1,400,000.
For 2000, the Company will rely primarily upon estimated net proceeds of
approximately $15,000,000 from a private placement completed in March 2000 to
fund its operations (see Note 12 to the financial statements). During 2000, the
Company will continue to assess to which human bacterial vaccine projects and
antibacterials projects resources will be allocated. The Company anticipates
that its research and development expenses related to these projects will be
substantial for the foreseeable future. It is anticipated that in 2000
SmithKline Beecham will limit its funding to the reimbursement of certain agreed
upon patent-related expenses. The Company intends to pursue additional strategic
alliances, technology licenses, and grants and contracts to help fund its
research and development expenses.
The Company currently anticipates that it will increase its total
employees and contract personnel from its 1999 year-end total of 28 to
approximately 35 in 2000. The annual rent and pro-rata share of building
operating expenses and administrative charges for the Company's facility are
estimated at approximately $882,000 for 2000.
In order to sustain its research and development programs beyond 2001, as
well as to fund its future operations, the Company will continue to seek
additional financing. The Company has no lines of credit. In seeking additional
funding, the Company continues to examine a range of possible transactions,
including: additional strategic alliances; additional equity or debt public
offerings and private placements; the exercise of currently outstanding
warrants; additional grants and contracts; the sale and leaseback of existing
assets; and research and development funding from third parties. However, there
is no assurance that additional funds will be available from these or any other
sources or, if available, that, with the exception of the warrants, the terms on
which such funds can be obtained will be acceptable to the Company.
28
<PAGE> 29
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued a new standard.
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for
Derivative Instruments and Hedging Activities, which becomes effective for years
beginning after June 15, 2000, requires that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement requires that changes in the derivative's fair value
be recognized in earnings unless specific hedge accounting criteria are met. The
Company believes that the effect of adoption of SFAS 133 will not be material to
the Company's financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB No. 101"), Revenue Recognition in Financial
Statements, which summarizes certain of the staff's views on revenue
recognition. The Company's revenue recognition policies have been and continue
to be in accordance with SAB No. 101.
29
<PAGE> 30
ITEM 7. FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
Antex Biologics Inc.
<TABLE>
<S> <C>
Report of Independent Accountants 31
Consolidated Balance Sheets as of December 31, 1998 and 1999 32
Consolidated Statements of Operations for the years ended December 31, 1998 and
1999 and the period August 3, 1991
(inception) to December 31, 1999 33
Consolidated Statements of Stockholders' Equity (Deficit) for the period
August 3, 1991 (inception) to December 31, 1999 34-35
Consolidated Statements of Cash Flows for the years ended December 31, 1998 and
1999 and the period August 3, 1991
(inception) to December 31, 1999 36-37
Notes to Consolidated Financial Statements 38-50
</TABLE>
30
<PAGE> 31
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Antex Biologics Inc.
In our opinion the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows present fairly, in all material respects, the financial position
of Antex Biologics Inc. (a development stage enterprise) and its subsidiaries
at December 31, 1999 and 1998, and the results of their operations and their
cash flows for the years then ended and for the period January 1, 1993 to
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of the Company for the period August 3, 1991 (inception) to December
31, 1992. The financial statements for the period August 3, 1991 (inception) to
December 31, 1992 were audited by other auditors, whose report, dated February
28, 1993, expressed an unqualified opinion on those statements. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
McLean, Virginia
March 30, 2000
31
<PAGE> 32
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
ASSETS 1998 1999
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,856,479 $ 1,706,275
Accounts and other receivables 78,251 104,766
Prepaid expenses 98,689 62,087
Deferred compensation trust 264,920 -
------------ ------------
Total current assets 5,298,339 1,873,128
Property and equipment, net 665,442 734,051
Restricted cash 146,600 146,600
Other 73,944 27,291
------------ ------------
$ 6,184,325 $ 2,781,070
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 458,194 $ 297,171
Deferred research and development revenue 528,900 558,156
Deferred gain on equipment 39,588 49,590
Deferred compensation 264,920 -
------------ ------------
Total current liabilities 1,291,602 904,917
Deferred gain on equipment 107,994 103,419
Other 75,562 44,701
------------ ------------
Total liabilities 1,475,158 1,053,037
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none outstanding - -
Common stock, $.01 par value; 95,000,000 shares
authorized; 29,287,353 and 29,458,990 shares
issued 292,874 294,590
Additional paid-in capital 20,694,942 19,911,906
Deficit accumulated during the development stage (14,994,789) (18,478,463)
Treasury stock - 3,423,627 shares and none (1,283,860) -
------------ ------------
Total stockholders' equity 4,709,167 1,728,033
------------ ------------
$ 6,184,325 $ 2,781,070
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
32
<PAGE> 33
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 3, 1991
DECEMBER 31 (INCEPTION)
----------- TO
1998 1999 DECEMBER 31, 1999
---- ---- -----------------
<S> <C> <C> <C>
Revenues $ 4,507,029 $ 2,620,337 $ 16,582,264
------------ ------------ ------------
Expenses:
Research and development 4,525,772 4,092,835 21,877,358
General and administrative 1,357,193 1,640,260 11,595,511
------------ ------------ ------------
Total Expenses 5,882,965 5,733,095 33,472,869
------------ ------------ ------------
Loss from operations (1,375,936) (3,112,758) (16,890,605)
Other income (expense):
Interest income 254,063 131,624 1,334,853
Expense recorded on issuance of warrant - (502,540) (502,540)
Cost of treasury shares in excess
of fair value (1,711,814) - (1,711,814)
Interest expense - - (708,357)
------------ ------------ ------------
Net loss $ (2,833,687) $ (3,483,674) $(18,478,463)
============ ============ ============
Loss per share:
Basic and diluted $ (0.12) $ (0.13)
============ ============
Weighted average shares outstanding:
Basic and diluted 23,184,075 27,065,431
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 34
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Period August 3, 1991 (inception) to December 31, 1999
<TABLE>
<CAPTION>
PREFERRED STOCK
-------------------------------
SHARES PAR VALUE
-------------------------------
<S> <C> <C>
Initial capitalization ($.20 per share) - $ -
Net loss - -
-------------------------------
Balance at December 31, 1991 - -
Sale of common stock for cash, January 1992 ($4.61 per share) - -
Sale of common stock for cash, February 1992 ($6.90 per share) - -
Issuance of common stock for services, March 1992 to July 1992 ($2.00 per share) - -
Conversion of notes payable into preferred stock, September 1992 ($4.48 per share) 113,700 1,137
Sale of preferred stock for cash, September 1992 ($4.48 per share) 89,328 893
Issuance of preferred stock upon exercise of warrants, September 1992
($1.92 per share) 46,900 469
Issuance of common stock for cash ($1.00 per share) and services ($1.00 per share),
October 1992 - -
Conversion of preferred stock into common stock, December 1992 (249,928) (2,499)
Sale of common stock and warrants for cash, December 1992 ($4.84 per unit,
net of offering costs of $1,396,893 or $1.16 per unit) - -
Net loss - -
-------------------------------
Balance at December 31, 1992 - -
Sale of common stock and warrants for cash, January 1993 ($5.27 per unit, net
of offering costs of $131,723 or $.73 per unit) - -
Compensation and consulting expense in connection with options granted - -
Net loss - -
-------------------------------
Balance at December 31, 1993 - -
Net loss - -
-------------------------------
Balance at December 31, 1994 - -
Sale of common stock and warrants for cash, March and April 1995 ($39,972 per
unit, net of offering costs of $706,971 or $10,028 per unit) - -
Required registration of common stock and warrants, October 1995
($1,525 per unit) - -
Net loss - -
-------------------------------
Balance at December 31, 1995 - -
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE> 35
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK DURING THE TREASURY STOCK
- ------------------------ ADDITIONAL DEVELOPMENT ----------------------------
SHARES PAR VALUE PAID-IN CAPITAL STAGE SHARES COST TOTAL
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
390,830 $ 3,908 $ 74,093 $ - - $ - $ 78,001
- - - (941,145) - - (941,145)
- -------------------------------------------------------------------------------------------------------
390,830 3,908 74,093 (941,145) - - (863,144)
43,430 435 199,565 - - - 200,000
115,801 1,158 798,842 - - - 800,000
- - 383,014 - - - 383,014
- - 507,972 - - - 509,109
- - 399,296 - - - 400,189
- - 89,531 - - - 90,000
75,000 750 149,250 - - - 150,000
249,928 2,499 - - - - -
1,200,000 12,000 5,791,227 - - - 5,803,227
- - - (2,415,723) - - (2,415,723)
- -------------------------------------------------------------------------------------------------------
2,074,989 20,750 8,392,790 (3,356,868) - - 5,056,672
180,000 1,800 946,477 - - - 948,277
- - 64,011 - - - 64,011
- - - (2,725,902) - - (2,725,902)
- -------------------------------------------------------------------------------------------------------
2,254,989 22,550 9,403,278 (6,082,770) - - 3,343,058
- - - (3,040,032) - - (3,040,032)
- -------------------------------------------------------------------------------------------------------
2,254,989 22,550 9,403,278 (9,122,802) - - 303,026
10,071,630 100,716 2,717,314 - - - 2,818,030
- - (107,530) - - - (107,530)
- - - (3,131,059) - - (3,131,059)
- -------------------------------------------------------------------------------------------------------
12,326,619 123,266 12,013,062 (12,253,861) - - (117,533)
(Continued)
</TABLE>
34
<PAGE> 36
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Period August 3, 1991 (inception) to December 31, 1999
<TABLE>
<CAPTION>
PREFERRED STOCK
------------------------------------
SHARES PAR VALUE
------------------------------------
<S> <C> <C>
Issuance of exchange option, May 1996 ($.37 per share, net of costs of $351,082) - $ -
Issuance of common stock upon exercise of Class B Warrants and stock options,
May - August 1996, ($.50 per share, net of related costs of $214,811) - -
Net income - -
------------------------------------
Balance at December 31, 1996 - -
Issuance of common stock upon excise of stock options, October 1997 - -
Net loss - -
------------------------------------
Balance at December 31, 1997 - -
Forfeiture of escrowed shares, May 1998 - -
Cashless exercise of Placement Agent's unit purchase option, September 1998
($121,430 per unit) - -
Issuance of common stock for services, October 1998 ($.29 per share) - -
Net loss - -
------------------------------------
Balance at December 31, 1998 - -
Exercise of exchange option, September 1999 - -
Issuance of amended and restated warrant, September 1999 - -
Cancellation of treasury stock, September 1999 - -
Net loss - -
------------------------------------
Balance at December 31, 1999 - $ -
====================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE> 37
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK DURING THE TREASURY STOCK
- ------------------------------------ ADDITIONAL DEVELOPMENT ------------------------------
SHARES PAR VALUE PAID-IN CAPITAL STAGE SHARES COST TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ - $ - $ 979,166 $ - - $ - $ 979,166
- - -
10,153,060 101,531 4,760,188 - - - 4,861,719
- - - 535,435 - - 535,435
- ------------------------------------------------------------------------------------------------------------------------------
22,479,679 224,797 17,752,416 (11,718,426) - - 6,258,787
625 6 423 - - - 429
- - - (442,676) - - (442,676)
- ------------------------------------------------------------------------------------------------------------------------------
-
22,480,304 224,803 17,752,839 (12,161,102) - - 5,816,540
(291,663) (2,916) 2,916 - - - -
7,048,712 70,487 2,925,187 - 3,423,627 (1,283,860) 1,711,814
50,000 500 14,000 - - - 14,500
- - - (2,833,687) - - (2,833,687)
- ------------------------------------------------------------------------------------------------------------------------------
29,287,353 292,874 20,694,942 (14,994,789) 3,423,627 (1,283,860) 4,709,167
3,595,264 35,953 (35,953) - - - -
- - 502,540 - - - 502,540
(3,423,627) (34,237) (1,249,623) - (3,423,627) 1,283,860 -
- - - (3,483,674) - - (3,483,674)
- ------------------------------------------------------------------------------------------------------------------------------
29,458,990 $ 294,590 $ 19,911,906 $ (18,478,463) - $ - $ 1,728,033
==============================================================================================================================
</TABLE>
35
<PAGE> 38
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 3, 1991
DECEMBER 31 (INCEPTION)
------------------------ TO
1998 1999 DECEMBER 31, 1999
---- ---- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,833,687) $ (3,483,674) $ (18,478,463)
Adjustments to reconcile net loss to net
cash used in development stage activities:
Depreciation and amortization of
property and equipment, net of
amortization of deferred gain on
sale/leaseback and equipment 99,230 128,551 424,646
Amortization of deferred credits (70,830) (30,861) (443,651)
Expense recorded on cashless exercise
of common stock options and warrants 1,711,814 - 1,711,814
Writedown of construction in progress 174,400 - 174,400
Expense recorded on issuance of
common stock and warrant
and vesting of options 14,500 502,540 1,048,174
Changes in operating assets and liabilities:
Accounts and other receivables 588,002 (26,515) (104,766)
Prepaid expenses 152,651 36,602 54,155
Other assets (5,714) 46,653 (27,291)
Accounts payable and accrued expenses (47,579) (161,023) (109,837)
Deferred research and development 5,314 29,256 558,156
Due from affiliate - - 420,448
----------- ----------- -----------
Net cash used in development stage activities (211,899) (2,958,471) (14,772,215)
----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment (482,178) (191,733) (1,180,089)
Increase in restricted cash (146,600) - (146,600)
----------- ----------- -----------
Net cash used in investing activities (628,778) (191,733) (1,326,689)
----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. (Continued)
</TABLE>
36
<PAGE> 39
Antex Biologics Inc.
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 3, 1991
DECEMBER 31 (INCEPTION)
--------------------------- TO
1998 1999 DECEMBER 31, 1999
---- ---- -----------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net proceeds from sales of common stock
and warrants and the exchange option $ - $ - $ 11,606,170
Net proceeds from exercise of warrants
and stock options - - 4,862,148
Proceeds from sale and leaseback agreement - - 2,164,792
Principal repayments on sale and leaseback
agreement - - (2,164,792)
Proceeds from issuance of notes payable - - 500,000
Proceeds from sale of preferred stock - - 400,189
------------ ----------- ------------
Net cash provided by financing activities - - 17,368,507
------------ ----------- ------------
Net increase (decrease) in cash and cash
equivalents (840,677) (3,150,204) 1,269,603
Cash and cash equivalents at beginning
of period 5,697,156 4,856,479 436,672
------------ ----------- ------------
Cash and cash equivalents at end of period $ 4,856,479 $ 1,706,275 $ 1,706,275
============ =========== ===========
Supplemental cash flows disclosures:
Cashless exercise of common stock
options and warrants $ 2,995,674 $ - $ 2,995,674
Treasury stock acquired from cashless
exercise of common stock options
and warrants/(canceled) $ 1,283,860 $ (1,283,860) $ -
Notes payable and accrued interest
converted to preferred stock $ - $ - $ 509,109
Sale and leaseback of property and
equipment $ - $ - $ 2,099,175
Capitalized equipment $ 45,110 $ 50,015 $ 247,957
Deferred compensation $ 35,515 $ (264,920) $ -
Interest paid $ - $ - $ 699,248
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE> 40
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
1. BUSINESS
Antex Biologics Inc. (the "Company") is a biopharmaceutical company
committed to improving human health by developing new products to prevent and
treat infections and related diseases. With respect to its human bacterial
vaccine research and development, the Company currently has strategic alliances
with SmithKline Beecham, Aventis Pasteur and the United States Navy.
Since inception, the Company's revenues have been generated solely
in support of its research and development activities and as of December 31,
1999, the Company's research and products are not sufficiently developed to
enable the Company to generate sufficient revenues on an ongoing basis. As a
result, the Company is considered to be in the development stage.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The financial statements include the accounts of Antex Biologics Inc.
and its wholly-owned subsidiary, Antex Pharma Inc., incorporated in April 1998.
The Company's 73.75% owned subsidiary, MicroCarb Human Vaccines Inc., was
merged into the Company in September 1999 (see Note 6). All intercompany
transactions have been eliminated.
CASH EQUIVALENTS
The Company considers all short-term, highly liquid investments with
a maturity of three months or less on the date of purchase to be cash
equivalents. The Company invests its excess cash in a money market fund with a
major bank. This fund invests in securities of the U.S. Government and other
short-term, high quality fixed income, money market investments. The Company has
not had any losses on its cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment acquired are stated at cost and depreciated
on a straight-line basis over estimated useful lives of five years. When assets
are retired or sold, the cost and related accumulated depreciation are removed
from the accounts, and any related gain or loss is reflected in operations.
Expenditures for maintenance, repairs and minor renewals are charged to
operations.
REVENUE RECOGNITION
Cash payments received in advance of performing contracted research
and development services are recorded as deferred revenue until the services are
performed.
38
<PAGE> 41
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
Revenue equal to expenses incurred by the Company which are directly
reimbursable pursuant to the provisions of strategic alliances is recognized
when the related expenses are incurred.
Milestone payments are recognized as revenue when earned.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce net deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable for the period and the change
during the period in deferred tax assets and liabilities.
EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed by
dividing net income (loss) available to common shareholders by the weighted
average number of common shares outstanding after giving effect to all dilutive
potential common shares that were outstanding during the period. The Company
did not have any dilutive potential common shares during the years ended
December 31, 1998 and 1999; and excluded 14,986,594 and 10,436,463 shares,
repectively, represented by stock options, an exchange option and a warrant
from the earnings per share calculation as they are anti-dilutive. Net loss as
reported is applicable to common shareholders and was not adjusted for the
computation of basic or diluted earnings per share.
The following table reconciles the weighted average number of common
shares outstanding during each year with the number for basic and diluted
earnings per share.
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Weighted average shares outstanding 23,294,348 27,065,431
Escrowed shares (110,273) -
----------- ----------
Weighted average shares outstanding -
Basic and diluted 23,184,075 27,065,431
========== ==========
</TABLE>
COMPREHENSIVE INCOME
The Company does not have items of comprehensive income other than
net loss.
39
<PAGE> 42
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued a new standard.
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for
Derivative Instruments and Hedging Activities, which becomes effective for years
beginning after June 15, 2000, requires that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement requires that changes in the derivative's fair value
be recognized in earnings unless specific hedge accounting criteria are met. The
Company believes that the effect of adoption of SFAS 133 will not be material to
the Company's financial statements.
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 ("SAB No. 101"), Revenue Recognition in
Financial Statements, which summarizes certain of the staff's views on revenue
recognition. The Company's revenue recognition policies have been and continue
to be in accordance with SAB No. 101.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications were made to the 1998 financial statements
to conform to the 1999 presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1999
---- ----
<S> <C> <C>
Research and development equipment $ 2,510,524 $ 2,628,206
Office equipment 113,013 169,446
Leasehold improvements 320,772 54,915
Construction in progress 166,764 64,112
---------- ----------
3,111,073 2,916,679
Accumulated amortization and depreciation (2,445,631) (2,182,628)
---------- ----------
$ 665,442 $ 734,051
========== ==========
</TABLE>
40
<PAGE> 43
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
4. INCOME TAXES
Significant components of the net deferred tax asset are as follow:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1999
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards
generated $ 5,010,500 $ 6,206,300
Research and development tax credit
carryforwards 226,100 226,100
Other deferred tax assets 452,800 459,600
--------- ---------
5,689,400 6,892,000
Valuation allowance (5,689,400) (6,892,000)
---------- ----------
Net deferred tax asset $ - $ -
========== ==========
</TABLE>
Management has provided a full valuation allowance against total
deferred tax assets as of the balance sheet dates because the Company's ability
to generate sufficient future taxable income is uncertain.
As of December 31, 1999, the Company has net operating loss
carryforwards of approximately $16,000,000 for federal and state tax reporting
purposes which will expire in years 2006 to 2019. Due to certain changes in
ownership, including the financing completed in March 2000, the Company's
ability to utilize tax net operating loss carryforwards arising prior to
December 1999 is limited.
5. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATION
Effective December 1, 1998, the Company entered into a cancelable
operating lease for approximately 24,000 square feet expiring in November 2008,
with an option to extend an additional five years, covering its research
facilities/office space The lease provides for a tenant improvement allowance
for renovation and expansion; such allowance being repayable as additional rent
over the term of the lease and option. The lease requires the Company to pay its
pro-rata share of building operating expenses and administrative charges, and
provides for an annual increase in the base rent.
The terms of the lease provide the Company a one-time right to
terminate at the forty-eighth month. If the Company elects to terminate and does
not relocate to another building owned by the landlord, as defined, then the
Company will be required to reimburse the landlord the unamortized balance of
the tenant improvement allowance, as defined, (approximately
41
<PAGE> 44
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
$1,300,000) and the unamortized balance of the broker's fee (approximately
$84,000). Future minimum lease payments, including repayment of the tenant
improvement allowance, assuming the termination right is exercised and the
Company relocates to another building owned by the landlord are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
2000 $ 657,000
2001 670,000
2002 626,000
-------
$ 1,953,000
=========
</TABLE>
Rent expense was approximately $219,000, $389,000 and $1,958,000 for the years
ended December 31, 1998 and 1999 and for the period August 3, 1991 (inception)
to December 31, 1999, respectively.
6. STRATEGIC ALLIANCE
Effective March 1996, the Company entered into definitive agreements
with SmithKline Beecham Corporation and SmithKline Beecham Biologicals
Manufacturing s.a. ("SmithKline") which established a corporate joint venture,
MicroCarb Human Vaccines Inc. ("MCHV"), to develop and commercialize human
bacterial vaccines utilizing the Company's proprietary technologies. At August
31, 1999, the agreements provided for the following: the option by SmithKline to
provide annual funding of research and development activities for future years;
an exchange option granted by the Company to SmithKline enabling SmithKline to
convert its 26.25% equity interest in MCHV for 3,595,264 shares of the Company's
common stock, under specified conditions; and a warrant granted by the Company
to SmithKline enabling SmithKline to acquire up to 5,730,802 shares of the
Company's common stock, under specified conditions. The agreements also provided
for SmithKline to make milestone payments and pay royalties to MCHV; and for
SmithKline to reimburse the Company for expenses the Company incurred for agreed
upon production lots of vaccines for clinical trials, the conduct of agreed upon
clinical trials, and agreed upon prosecution and maintenance of the Company's
patents and patent applications. As further stipulated in the agreements,
SmithKline was responsible for conducting additional clinical trials,
manufacturing, and sales and distribution.
Effective September 1, 1999, the agreements were terminated and/or
amended and the Company entered into an Omnibus Agreement with SmithKline
Beecham plc and SmithKline Beecham Biologicals Manufacturing s.a. ("SB") and
MCHV. Under the provisions of the Omnibus Agreement and several related
documents, the following occurred: SmithKline's equity interest in MCHV was
converted into 3,595,264 shares of the Company's common stock and MCHV was
merged into the Company; a new license agreement was executed; and the Company
granted an amended and restated warrant to SB to purchase 3,865,769 shares of
common stock at an exercise price of $.37 per share exercisable on or before
September 1, 2003. The issuance of the warrant resulted in the recognition of a
noncash expense of $502,540, as determined by using the Black-Scholes valuation
model.
42
<PAGE> 45
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
The new license agreement covers prophylactic and/or therapeutic
vaccines for certain designated infectious diseases and provides for the
reversion to the Company of all other technology rights previously licensed to
SmithKline. The terms of the license agreement provide for the following:
funding for research and development of $1,333,334 for the period July 1, 1999
to December 31, 1999 with SB having the option to provide annual funding of
research and development activities in the future; milestone payments and
royalties; and, subject to mutual agreement in the future, the reimbursement by
SB of expenses incurred by the Company for production lots of vaccines, the
conduct of clinical trials, and the prosecution and maintenance of the Company's
patents and patent applications pertaining to the licensed technology. As
further stipulated in the agreement, SB will be responsible for conducting
clinical trials, manufacturing, and sales and distribution for the licensed
vaccines.
Provision was made in the new agreements for the number of shares of
common stock purchasable by SB under the amended and restated warrant agreement
to be increased by an additional 866,189 shares, provided that SB made the
scheduled research and development funding payment of $666,667 on or before
October 1, 1999. The payment was received subsequent to October 1, 1999, and
accordingly, no increase occurred. SB has subsequently notified the Company it
disagrees that the delay in receipt of the payment should have negated SB's
right to the increase. The Company and SB are in discussions on this matter and
the ultimate outcome is unknown.
The Company recognized revenue related to human bacterial vaccine
research and development and qualifying reimbursable expenses pursuant to these
agreements of $3,847,977, $2,520,338, and $12,362,104 for the years ended
December 31, 1998 and 1999, and for the period August 3, 1991 (inception) to
December 31, 1999, respectively.
7. TECHNOLOGY LICENSE AGREEMENTS
In 1994, the Company entered into a cancelable technology license
agreement with Aventis Pasteur (formerly Pasteur Merieux Connaught), whereby the
Company granted an exclusive license to develop, produce and market any product
using the Company's Haemophilus influenzae nontypeable Hin47 protein in all
countries other than those in the Asia-Pacific region, as defined. The Company
earned a license fee in 1994 and is entitled to milestone payments based on the
licensee's performance or the passage of time. Three such milestone payments
have subsequently been earned, including a $500,000 milestone payment in
December 1998. Upon commercialization, the licensee is obligated to pay a
guaranteed minimum annual royalty to the Company on sales of any product
incorporating the Company's technology. During 1999, the Company renegotiated
certain terms of the agreement pertaining to the timing and amount of certain
milestone payments.
In 1994, the Company entered into a cancelable Cooperative Research
and Development Agreement ("CRADA") with the United States Navy, whereby the
Company granted Government Purpose License Rights to its Campylobacter vaccine
technology. In exchange for
43
<PAGE> 46
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
the rights granted, the United States Navy agreed to conduct and fund the costs
involved in Phase I, II and III clinical trials for the vaccine, subject of the
availability of required funds. The Company retained all commercial rights to
develop, produce and market any product involving the Campylobacter technology.
The CRADA is currently being extended for another five years.
8. CAPITAL TRANSACTIONS
INITIAL PUBLIC OFFERING
In December 1992, the Company closed an initial public offering of
1,200,000 units at $6.00 per unit, each unit consisting of one share of the
Company's common stock and one warrant to purchase one share of the Company's
common stock at $7.50 per share. In January 1993, the Company sold an additional
180,000 units at $6.00 per unit. In December 1997, the warrants related to these
units expired.
PRIVATE PLACEMENT
In April 1995, the Company completed a private placement resulting
in gross proceeds to the Company of $3,525,000. Pursuant to the terms of the
private placement, the Company issued 70.5 units, each unit consisting of
142,860 shares of common stock and an equal number of Class B warrants. Each
Class B warrant entitled the holder thereof to purchase one share of common
stock at an exercise price of $0.50 per share. The Class B warrants were
exercised in their entirety in 1996 resulting in gross proceeds to the Company
of approximately $5,072,000.
In connection with the private placement, the Company issued to the
Placement Agent a unit purchase option granting the Placement Agent and any of
its designees the option to purchase 24.67 units from the Company at a purchase
price of $50,000 per unit. The unit purchase option was not subject to
redemption by the Company and was exercisable for a two-year period commencing
on March 24, 1998.
In June 1998, the Company offered the Placement Agent and its
designees the opportunity to exercise the units in their entirety on a cashless
basis at the then current price of the Company's common stock of $0.875 per
share. The offer was subsequently accepted and the units were exercised in their
entirety. The Company issued 7,048,712 shares of common stock under the terms of
the Placement Agent's unit purchase option, including 3,524,356 common shares
for the assumed exercise of the Class B warrants. As consideration for the
exercise of the Placement Agent's unit purchase option, the Company withheld
3,423,627 shares of common stock based upon the total consideration due of
$2,995,674 at the June 1998 common stock price of $0.875 per share. The shares
withheld were recorded as treasury shares.
Because the fair value of the common stock at September 23, 1998,
the date of issuance of the common stock, was $0.375, the Company recorded a
charge of $1,711,814 in the
44
<PAGE> 47
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
consolidated statement of operations, representing the excess of the cost of the
treasury shares over the fair value of the common stock.
REVERSE STOCK SPLIT
On June 10, 1999, the stockholders approved resolutions authorizing
the Board of Directors, at its discretion, to effect by amendment of the
Certificate of Incorporation, prior to the next Shareholders Meeting, a reverse
stock split in the range of one-for-four to one-for-ten. To date, no reverse
stock split has been effected.
COMMON STOCK
As of December 31, 1999, common stock reserved for future issuance
includes the following:
SB warrant 3,865,769
Stock option plans 9,189,375
---------
Total 13,055,144
==========
9. STOCK OPTION PLANS
1992 DIRECTORS' STOCK OPTION PLAN
In 1992, the Company adopted the 1992 Directors' Stock Option Plan
(the "Directors' Plan"). The Directors' Plan, as amended, provides for the grant
of options to purchase up to an aggregate of 1,700,000 shares of the Company's
common stock to nonemployee directors. Under the Directors' Plan, upon initial
election to the Board, a director is granted an option to purchase the number of
shares of common stock equal to $20,000 ($10,000 if elected on or after the
six-month anniversary of the most recent annual shareholders meeting) divided by
the greater of the market price of the common stock on the date of grant or
$0.50. At the time of reelection to serve or upon continuing to hold office for
the following year, a director is granted an additional option to purchase the
number of shares of common stock equal to $20,000 divided by the greater of the
market price of the common stock on the date of the grant or $0.50. For
directors who have served for at least three years, this basic annual grant is
supplemented every third year by an additional grant of an option to purchase a
number of shares of common stock equal to 150% of the number of shares covered
by the basic grant. Vesting occurs quarterly in four equal installments over a
period of one year following the date of grant. Options granted under the
Directors' Plan have a term of five years.
1992 STOCK OPTION PLAN
In 1992, the Company adopted the 1992 Stock Option Plan (the
"Plan"). The Plan, as amended, provides for the grant of options to purchase up
to an aggregate of 7,500,000 shares of the Company's common stock. The Plan
provides for the issuance of incentive stock options
45
<PAGE> 48
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
("ISOs") to employees and non-qualified stock options ("NQSOs") to employees and
others. The exercise price of ISOs must be at least equal to the fair market
value of the Company's common stock on the date of grant. Under the Plan, ISOs
and NQSOs may have a term of up to ten years.
STOCK OPTIONS OUTSTANDING
Stock options outstanding under these plans are as follows:
<TABLE>
<CAPTION>
DIRECTORS' PLAN PLAN
--------------- ----
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ ----- ------ -----
<S> <C> <C> <C> <C>
December 31, 1997 202,352 $1.32 4,132,511 $1.01
Granted 120,001 $0.75 1,365,000 $0.29
Expired (8,000) $6.00 (151,336) $0.64
--------- -----------
December 31, 1998 314,353 $0.98 5,346,175 $0.84
Granted 260,000 $0.50 784,000 $0.50
Expired (37,834) $1.11 (96,000) $0.36
--------- ---- ----------- ----
December 31, 1999 536,519 $0.74 6,034,175 $0.80
========= ==== =========== ====
</TABLE>
The range of exercise prices for options outstanding as of December 31, 1999 was
$0.50 to $1.81 and $0.29 to $6.00 for the Directors' Plan and the Plan,
respectively. Additional information regarding options outstanding and
exercisable as of December 31, 1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE OUTSTANDING EXERCISE LIFE EXERCISABLE EXERCISE
PRICE SHARES PRICE REMAINING SHARES PRICE
----- ------ ----- --------- ------ -----
<S> <C> <C> <C> <C> <C>
$0.29 1,269,000 $0.29 8.8 years 356,935 $0.29
$0.37 725,000 $0.37 6.0 years 722,920 $0.37
$0.50 2,769,000 $0.50 6.4 years 1,860,000 $0.50
$0.56 500,000 $0.56 6.8 years 442,708 $0.56
$0.59 to $0.87 561,719 $0.74 5.6 years 456,781 $0.74
$0.97 to $1.81 378,808 $1.12 5.8 years 253,808 $1.20
$2.00 to $4.00 32,167 $2.82 3.7 years 32,167 $2.82
</TABLE>
46
<PAGE> 49
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
$6.00 335,000 $6.00 4.0 years 335,000 $6.00
------- -------
6,570,694 $0.80 4,460,319 $0.96
========= =========
</TABLE>
STOCK BASED COMPENSATION DISCLOSURE
The Company has adopted the disclosure-only provisions of SFAS 123
for its stock options plans. The Plan provides for the issuance of stock options
that generally vest over a four year period and have a maximum term of ten
years. The Directors' Plan provides for the issuance of stock options that vest
over a one year period and have a maximum term of five years. Had compensation
cost for the Company's stock option plans been determined on the fair value at
the grant date for awards in 1998 and 1999, consistent with the provisions of
SFAS 123, the Company's net loss would have been adjusted to the pro forma
amounts indicated below.
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Net loss - as reported $(2,833,687) $(3,483,674)
SFAS 123 pro forma adjustment (564,452) (431,323)
----------- -----------
Net loss - pro forma $(3,398,139) $(3,914,997)
=========== ===========
Loss per share - basic and diluted,
as reported $(0.12) $(0.13)
====== ======
Loss per share - basic and diluted,
Proforma $(0.15) $(0.14)
====== ======
</TABLE>
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Expected life (years) 9.60 8.75
Interest rate 4.32% 6.04%
Volatility 223.0% 96.36%
Dividend yield 0% 0%
</TABLE>
The weighted average remaining contractual life of options
outstanding is 7.34 years and 6.67 years at December 31, 1998 and 1999,
respectively. The weighted average fair value of the options granted was $0.33
and $0.50 per option for 1998 and 1999, respectively. The expense related to the
value ascribed to the stock options is recognized over the vesting period of one
to four years.
47
<PAGE> 50
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
10. 401(k) PLAN
The Company has a 401(k) Plan which covers all employees who have
completed six months of service and are at least 21 years of age. Each eligible
employee may potentially contribute up to 15% of their salary, subject to
certain annual limits. The Company does not match employee contributions.
As part of a deferred compensation plan adopted in 1993, the Company
established a "Rabbi Trust" to hold the assets of the plan. In 1999, the Board
of Directors approved the termination of the deferred compensation plan and the
trust.
11. OPERATING SEGMENTS
Prior to 1998, the Company devoted substantially all its efforts to
a single product segment, bacterial vaccines. In 1998, the Company established a
second reportable product segment, therapeutics. The therapeutics segment
focuses on research and development of drugs for infections and related
diseases. For 1998 and 1999, only direct costs and fixed asset acquisitions were
attributed to the therapeutics segment.
The following tables present information regarding the two segments
for 1998 and 1999:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------
Bacterial Reconciling
Category Vaccines Therapeutics Items Total
-------- -------- ------------ ----- -----
<S> <C> <C> <C> <C>
Revenues $ 4,286,664 $ - $ 220,365 $ 4,507,029
Research and development
expenses $ 3,909,964 $ 615,808 $ - $ 4,525,772
Profit (loss) from
operations $ 376,700 $ (615,808) $ (1,136,828) $ (1,375,936)
Fixed asset acquisitions $ 179,970 $ 11,250 $ 290,958 $ 482,178
</TABLE>
Reconciling items include reimbursable patent costs of $220,365; general and
administrative expenses, net of reimbursable patent costs, of $1,136,828; and
corporate fixed asset acquisitions and construction in progress expenditures of
$290,958.
48
<PAGE> 51
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Year Ended December 31, 1999
----------------------------
Bacterial Reconciling
Category Vaccines Therapeutics Items Total
-------- -------- ------------ ----- -----
<S> <C> <C> <C> <C>
Revenues $ 2,256,523 $ - $ 363,814 $ 2,620,337
Research and development
expenses $ 3,361,187 $ 731,648 $ - $ 4,092,835
Loss from operations $ (1,104,664) $ (731,648) $ (1,276,446) $ (3,112,758)
Fixed asset acquisitions $ 158,927 $ 11,547 $ 21,259 $ 191,733
</TABLE>
Reconciling items include reimbursable patent costs of $363,814; general and
administrative expenses, net of reimbursable patent costs, of $1,276,446; and
net corporate fixed asset acquisitions and construction in progress expenditures
of $21,259.
12. SUBSEQUENT FINANCING
On March 15, 2000, the Company completed a private placement
resulting in gross proceeds to the Company of $15,293,790. Pursuant to the terms
of the private placement, the Company offered and sold 18,717,864 A Units and
4,454,545 B Units, in each case at a price of $0.66 per Unit.
Each A Unit consisted of one share of common stock and one Class A
Warrant. Each Class A Warrant has a five-year term and is exercisable
immediately upon issuance to purchase one share of common stock at an exercise
price of $1.50 per share. At the election of the Company, the Class A Warrants
may be redeemed, upon 30 days prior written notice to the holders, at a
redemption price of $0.10 per warrant, if (i) after September 15, 2001, the
average market price of the common stock exceeds $7.50 per share for 20
consecutive trading days or (ii) after March 15, 2002, the average market price
of the common stock exceeds $4.50 per share for 20 consecutive trading days.
Each B Unit consisted of (i) one-one hundredth (1/100) of a share of
Series A Convertible Preferred Stock and (ii) one Class B Warrant. Effective
March 15, 2001, each one-one hundredth (1/100) of a share of preferred stock is
convertible, at the option of the holder, into one share of common stock. The
preferred stock has no dividend rights, has no voting rights (except as required
by law), and is entitled to participate in a dissolution and liquidation of the
Company with the holders of common stock on an as converted basis. The Class B
Warrants are identical to the Class A Warrants, except that the Class B Warrants
do not become exercisable until March 15, 2001.
49
<PAGE> 52
Antex Biologics Inc.
(a development stage enterprise)
Notes to Consolidated Financial Statements
The redemption of the Class A Warrants and the Class B Warrants is
contingent upon the effectiveness of a registration statement registering for
resale the shares of common stock issuable upon the exercise of the warrants.
The Company has agreed to file such a registration statement with the Securities
and Exchange Commission, and to use its best efforts to have it declared
effective.
In connection with the financing, the Company paid compensation of
1,666,666 B Units; 3,409,091 Class C Warrants, each having a five-year term and
exercisable March 15, 2001 to purchase one share of common stock at an exercise
price of $.66 per share; 3,409,091 Class D Warrants, each having a five-year
term and exercisable March 15, 2001 to purchase one share of common stock at an
exercise price of $1.50 per share; and $100,000. Neither the Class C Warrants
nor the Class D Warrants are redeemable by the Company.
The issuance of the shares of preferred stock and the exercise of
the warrants related to compensation is subject to the approval by the
stockholders of the Company of an amendment to the Company's Certificate of
Incorporation increasing the number of shares of common stock that the Company
is authorized to issue.
In addition, the Company will enter into a two-year consulting
agreement with one of the entities receiving compensation pursuant to which the
entity will provide strategic consulting advice to the Company for a fee of
$3,000 per month.
50
<PAGE> 53
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information with respect to the identification of directors and
executive officers will be contained under the captions "Election of Director"
and "Executive Officers" in the Company's proxy statement for the 2000 Annual
Meeting of the Stockholders and is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
Information with respect to executive compensation will be contained
under the caption "Executive Compensation" in the Company's proxy statement for
the 2000 Annual Meeting of the Stockholders and is incorporated herein by
reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to the security ownership of certain
beneficial owners and management will be contained under the caption "Voting
Securities and Principal Stockholders" in the Company's proxy statement for the
2000 Annual Meeting of the Stockholders and is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information, if any, with respect to certain relationships and
related transactions will be contained under the caption "Certain Relationships
and Related Transactions" in the Company's proxy statement for the 2000 Annual
Meeting of the Stockholders and is incorporated herein by reference.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
51
<PAGE> 54
EXHIBITS
Exhibit
No. Description
------- -----------
3.1 Certificate of Incorporation (1)
3.2 Certificate of Merger relating to merger of BioCarb Inc.
with and into the Registrant as filed with the Delaware
Secretary of State on September 21, 1992 (1)
3.3 Certificate of Amendment to Certificate of Incorporation
(6)
3.4 Certificate of Ownership and Merger Merging Virgo
Biologicals Inc. into MicroCarb Inc., dated August 16,
1996 (effecting the change in the corporate name from
MicroCarb Inc. to Antex Biologics Inc.) (8)
3.5 ByLaws, as amended (3)
4.1 Form of common Stock Certificate (3)
*10.1 Amended and Restated Stock option Plan, as amended (7)
*10.2 1992 Directors' Stock Option Plan, as amended (7)
*10.3 Employment Agreement dated as of January 1, 1996 by and
between the Company and V. M. Esposito (4)
*10.4 Employment Agreement dated as of May 1, 1998 by and
between the Company and Gregory C. Zakarian (10)
*10.5 Employment Agreement effective as of October 1, 1997 by
and between the Company and Theresa M. Stevens (Smith)
(9)
*10.6 Employment Agreement effective as of December 1, 1998 by
and between the Company and Larry R. Ellingsworth (11)
10.7 Form of Confidentiality Agreement by and between the
Company and its employees (1)
10.8 Form of Inventions Disclosure Agreement by and between
the Company and its employees (1)
10.9 Form of Non-disclosure and Invention Assignment
Agreement by and between the Company and its employees
(1)
10.10 Stock Purchase Agreement dated as of July 17, 1991 by
and between BioCarb AB and Howard C. Krivan, Ph.D. (2)
52
<PAGE> 55
10.11 Lease effective December 1, 1998 by and between ARE-QRS
Corp. and the Company (11)
10.12 MicroCarb Human Vaccines Inc. Stockholders Agreement
dated May 6, 1996, effective March 1, 1996, by and
between the Company, SmithKline Beecham Biologicals
Manufacturing s.a., and MicroCarb Human Vaccines Inc.
(5)
10.13 Stock Purchase Agreement dated May 6, 1996, effective
March 1, 1996, by and between MicroCarb Human Vaccines
Inc., the Company and SmithKline Beecham Biologicals
Manufacturing s.a. (Certain confidential information
omitted) (5)
10.14 SKB Transitory License Agreement dated May 6, 1996,
effective March 1, 1996, by and between the Company and
SmithKline Beecham Biologicals Manufacturing s.a.
(Certain confidential information omitted) (5)
10.15 MicroCarb Vaccines License Agreement dated May 6, 1996,
effective March 1, 1996, by and between MicroCarb Human
Vaccines Inc. and the Company (Certain confidential
information omitted( (5)
10.16 Assignment of Transitory License Agreement and
Restatement of Rights and Obligations Under the Vaccines
License Agreement dated May 6, 1996, effective March 1,
1996, by and between SmithKline Beecham Biologicals
Manufacturing s.a., MicroCarb Human Vaccines Inc. and
the Company (5)
10.17 Research and Development, Research Support and License
Agreement dated May 6, 1996, effective March 1, 1996, by
and between MicroCarb Human Vaccines Inc., the Company
and SmithKline Beecham Corporation (Certain confidential
information omitted (5)
10.18 Exchange Option Agreement dated May 6, 1996, effective
March 1, 1996, by and between SmithKline Beecham
Biologicals Manufacturing s.a., the Company and
MicroCarb Human Vaccines Inc. (5)
10.19 Warrant to Purchase Common Stock of the Company dated
May 6, 1996, effective March 1, 1996, issued to
SmithKline Beecham Biologicals Manufacturing s.a.
(Certain confidential information omitted) (5)
10.20 Registration Rights Agreement dated May 6, 1996,
effective March 1, 1996, by and between the Company and
SmithKline Beecham Biologicals Manufacturing s.a. (5)
10.21 Omnibus Agreement, dated September 13, 1999, by and
among the Company, SmithKline Beecham Biologicals
Manufacturing s.a., SmithKline Beecham plc, and
MicroCarb Human Vaccines Inc. (12)
53
<PAGE> 56
10.22 Research and Development, Research Support and License
Agreement, dated September 13, 1999, between the Company
and SmithKline Beecham plc (Certain confidential
information omitted) (12)
10.23 Amended and Restated Warrant, dated September 13, 1999,
issued by the Company to SmithKline Beecham Biologicals
Manufacturing s.a. (12)
10.24 Amended and Restated Registration Rights Agreement,
dated September 13, 1999, between the Company and
SmithKline Beecham Biologicals Manufacturing s.a. (12)
10.25 Warrant Agreement, dated as of March 15, 2000, between
the Company and American Stock Transfer & Trust Company,
as warrant agent, with forms of Class A Warrant, Class B
Warrant, Class C Warrant, and Class D Warrant attached
(13)
10.26 Registration Rights Agreement, dated as of March 15,
2000, between the Company and each purchaser of Units or
recipient of Warrants (13)
10.27 Agreement, dated as of March 15, 2000, between the
Company and David Blech (13)
10.28 Certificate of the Voting Powers, Designations,
Preferences and Relative Participating, Optional and
Other Special Rights and Qualifications, Limitations or
Restrictions of Series A Convertible Preferred Stock of
Antex Biologics Inc., dated March 15, 2000 (13)
21.1 Subsidiaries of Registrant (14)
23.1 Consent of PricewaterhouseCoopers LLP (14)
27.1 Financial Data Schedule (14)
* Management plan or compensatory plan or arrangement
- ------------------------------------------------------------------------------
(1) Incorporated by reference to an exhibit to the Company's
Registration Statement on Form S-1 (Reg No. 33-53774) filed on
October 27, 1992.
(2) Incorporated by reference to an exhibit to Amendment No. 1 to the
Company's Registration Statement on Form S-1 filed on December 2,
1992.
(3) Incorporated by reference to an exhibit to Amendment No. 2 to the
Company's Registration Statement on form S-1 filed on December 15,
1992.
(4) Incorporated by reference to an exhibit to Form 10-QSB for the
quarter ended March 31, 1996 filed on May 20, 1996.
54
<PAGE> 57
(5) Incorporated by reference to an exhibit to Form 8-K filed on May 22,
1996.
(6) Incorporated by reference to an exhibit to Form 10-QSB for the
quarter ended March 31, 1997 filed on May 14, 1997.
(7) Incorporated by reference to an exhibit to Form S-8 (Registration
No. 333-32377) filed on July 30, 1997.
(8) Incorporated by reference to an exhibit to Form 8-K filed on
September 9, 1996.
(9) Incorporated by reference to an exhibit to Form 10-QSB for the
quarter ended September 30, 1997 filed on November 6, 1997.
(10) Incorporated by reference to an exhibit to Form 10-QSB for the
quarter ended June 30, 1998 filed on August 12, 1998.
(11) Incorporated by reference to an exhibit to Form 10-KSB for the year
ended December 31, 1998 filed on March 25, 1999.
(12) Incorporated by reference to an exhibit to Form 8-K filed on October
28, 1999.
(13) Incorporated by reference to an exhibit to Form 8-K filed on March
22, 2000.
(14) Filed herewith.
- --------------------------------------------------------------------------------
REPORTS ON FORM 8-K
The Company filed a Form 8-K on October 28, 1999 which contained a
description of the transaction that was entered into with SmithKline Beecham plc
and SmithKline Beecham Biologicals Manufacturing s.a. on September 13, 1999, and
included the definitive agreements as exhibits.
55
<PAGE> 58
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
<TABLE>
<S> <C> <C>
ANTEX BIOLOGICS INC.
Date: April 13, 2000 By: /s/V. M. Esposito
------------------------------------------------------
V. M. Esposito, President and Chief Executive Officer
(Principal Executive Officer)
Date: April 13, 2000 By: /s/Gregory C. Zakarian
------------------------------------------------------
Gregory C. Zakarian, Treasurer and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
</TABLE>
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
<TABLE>
<S> <C> <C>
Date: April 13, 2000 By: /s/V. M. Esposito
------------------------------------------------------
V. M. Esposito
Date: April 13, 2000 By: /s/Charles J. Coulter
------------------------------------------------------
Charles J. Coulter, Director
Date: April 13, 2000 By: /s/Robert L. Curry
------------------------------------------------------
Robert L. Curry, Director
Date: April 13, 2000 By: /s/Donald G. Stark
------------------------------------------------------
Donald G. Stark, Director
</TABLE>
56
<PAGE> 59
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
21.1 Subsidiaries of Registrant
23.1 Consent of PricewaterhouseCoopers LLP
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
1) MicroCarb Human Vaccines Inc. - incorporated in the State of
Delaware; merged with and into Antex Biologics Inc. on September 14,
1999.
2) Antex Pharma Inc. - incorporated in the State of Delaware;
wholly-owned by Antex Biologics Inc.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-32377) of Antex Biologics Inc. of our report
dated March 30, 2000 relating to the financial statements, which appears in this
Form 10-KSB.
PricewaterhouseCoopers LLP
McLean, Virginia
April 13, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,706,275
<SECURITIES> 0
<RECEIVABLES> 104,766
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,873,128
<PP&E> 2,916,679
<DEPRECIATION> 2,182,628
<TOTAL-ASSETS> 2,781,070
<CURRENT-LIABILITIES> 904,917
<BONDS> 0
0
0
<COMMON> 294,590
<OTHER-SE> 1,433,443
<TOTAL-LIABILITY-AND-EQUITY> 2,781,070
<SALES> 0
<TOTAL-REVENUES> 2,620,337
<CGS> 0
<TOTAL-COSTS> 5,733,095
<OTHER-EXPENSES> 370,916
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,483,674)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,483,674)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,483,674)
<EPS-BASIC> $(0.13)
<EPS-DILUTED> $(0.13)
</TABLE>
