<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER 0-26034
ORAVAX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-3085209
(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification Number)
38 SIDNEY STREET, CAMBRIDGE, MASSACHUSETTS 02139
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 494-1339
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT: NOT APPLICABLE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
----- -----
NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUERS CLASS OF COMMON STOCK, AS OF
LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AS OF MAY 1, 1998
----- -----------------------------
COMMON STOCK, $.001 PAR VALUE 10,829,112
- --------------------------------------------------------------------------------
1
<PAGE> 2
ORAVAX, INC
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
PAGE
----
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997................................................... 3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1998 and 1997.............................. 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1998 and 1997.............................. 5
Notes to Condensed Consolidated Financial Statements.................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 7
PART II. OTHER INFORMATION............................................. 12
SIGNATURES.............................................................. 13
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORAVAX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS EXCEPT SHARE DATA
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 6,731 $ 10,274
Short-term investments 1,549 1,448
Receivable from Joint Venture 530 -
Deferred financing costs 706 847
Prepaid and other current assets 126 1,529
-------- --------
Total current assets 9,642 14,098
Property and equipment, net 3,043 3,524
Investment in joint venture (709) (535)
Other assets 257 257
-------- --------
Total assets $ 12,233 $ 17,344
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,302 $ 935
Accrued expenses 2,623 3,659
Deferred joint venture revenue 31 91
Obligation under capital leases 1,018 1,316
Obligation under installment debt 260 260
-------- --------
Total current liabilities 5,234 6,261
Obligation under capital leases, excluding current portion 338 416
Installment debt, excluding current portion 917 882
-------- --------
Total liabilities 6,489 7,559
Stockholders' equity :
Preferred stock, $.001 par value; 2,000,000 shares
authorized in 1998 and 1997; none issued or outstanding -- --
Convertible preferred stock, $.001 par value; 9,000 shares
authorized in 1998 and 1997; 6,150 and 6,300 shares issued
and outstanding in 1998 and 1997 (liquidation preference $6,300) 5,545 5,601
Common stock, $.001 par value; 25,000,000 shares authorized
in 1998 and 1997; 10,410,482 and 10,371,543 shares issued
and outstanding in 1998 and 1997 10 10
Additional paid-in capital 75,148 74,962
Deferred compensation (79) (94)
Accumulated deficit (74,880) (70,694)
-------- --------
Total stockholders' equity 5,744 9,785
-------- --------
Total liabilities and stockholders' equity $ 12,233 $ 17,344
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE> 4
ORAVAX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
-----------
THREE MONTHS ENDED MARCH 31,
1998 1997
------- -------
Revenue:
Collaborative research and
development - related party $ 1,909 $ 1,862
Government grants and other 217 121
Interest 130 235
------- -------
2,256 2,218
------- -------
Expenses:
Research and development 3,782 3,691
General and administrative 857 990
Interest 76 123
------- -------
4,715 4,804
------- -------
Loss from operations (2,459) (2,586)
Equity in operations of joint
venture (1,492) (1,657)
------- -------
Net loss from operations $(3,951) $(4,243)
======= =======
Convertible Preferred Stock
dividend 94 -
Accretion to conversion discount of
Convertible Preferred Stock 141 -
Net loss to common shareholders $(4,186) $(4,243)
======= =======
Net loss per basic and diluted
common share $ (0.40) $ (0.43)
Weighted average number of
basic and diluted shares
outstanding 10,389,744 9,977,318
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE> 5
ORAVAX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
----------
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss from operations $(3,951) $(4,243)
Adjustments to reconcile net loss from operations to net
cash used in operating activities:
Depreciation and amortization 509 553
Equity in operations of joint venture 1,492 1,657
Amortization of debt discount 35 41
Non-cash compensation 15 18
Changes in operating assets and liabilities:
Receivable from joint venture (1,849) (1,261)
Prepaid expenses and other current assets 4 (36)
Other assets -- 28
Accounts payable and accrued expenses (669) (792)
Deferred revenue - related party (60) (61)
------- -------
Net cash used in operating activities (4,474) (4,096)
------- -------
Cash flows from investing activities:
Net purchases of short-term investments (101) (1,497)
Expenditures for property and equipment (28) (113)
Investment in joint venture - (1,236)
------- -------
Net cash used in investing activities (129) (2,846)
------- -------
Cash flows from financing activities:
Proceeds from Common Stock issuances 36 20
Proceeds from Convertible Preferred Stock issuances 1,400 --
Principal payments under capital lease obligations (376) (377)
------- -------
Net cash provided by (used in) financing activities 1,060 (357)
------- -------
Net decrease in cash and cash equivalents (3,543) (7,299)
Cash and cash equivalents at beginning of period 10,274 14,916
------- -------
Cash and cash equivalents at end of period $ 6,731 $ 7,617
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE> 6
ORAVAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS
UNAUDITED.
1. NATURE OF BUSINESS
OraVax, Inc. ("OraVax" or the "Company") was incorporated in Delaware in
1990 and has its principal offices and laboratories at 38 Sidney Street,
Cambridge, Massachusetts and manufacturing facilities in Canton, Massachusetts.
OraVax's mission is the discovery, development and commercialization of
biologic products for the prevention or treatment of human infectious diseases.
The Company's products are vaccines that stimulate the body's own immunity to
provide long term protection against disease, as well as antibody products that
provide immediate passive immunity to treat existing infections or to protect
against acute disease risk. The Company employs both classical biologic product
methods and innovative technologies to produce therapeutics and preventatives
that meet the challenges of each infection and disease process.
6
<PAGE> 7
The ultimate success of the Company is dependent upon its ability to raise
capital through equity financings, direct financings, corporate partnerships,
sale of product and interest income on invested capital. The Company's capital
requirements may change depending upon numerous factors, including progress of
the Company's research, development and clinical programs, time required to
obtain regulatory approvals, resources the Company devotes to self-funded
projects, proprietary manufacturing methods and advanced technologies and demand
for the Company's products, if and when approved.
While management believes that additional capital will be available to fund
operations, there can be no assurance that additional funds will be available
when required, on terms acceptable to the Company.
The Company is subject to risks common to companies in the biotechnology
industry including, but not limited to, development by the Company or its
competitors of new technological innovations, dependence on key personnel,
protection of proprietary technology, manufacturing limitations, third party
reimbursements, collaborative arrangements, and compliance with government
regulations.
2. BASIS OF PRESENTATION
The consolidated balance sheet as of March 31, 1998, and the
consolidated statements of operations and cash flows for the three months ended
March 31, 1998 and 1997 are unaudited, have been prepared on a basis
substantially consistent with the audited financial statements, and, in the
opinion of management, include all adjustments (consisting of normal, recurring
adjustments) necessary for a fair presentation of results for these interim
periods. The preparation of interim financial statements in conformity with
generally accepted accounting principles requires the use of management's
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the interim financial statements and the reported amounts of revenues and
expenses during the reporting period. The results for the three months ended
March 31, 1998 are not necessarily indicative of results for the entire year,
although the Company expects to incur a significant loss for the year ending
December 31, 1998. These interim financial statements should be read in
conjunction with the annual consolidated financial statements included in the
Company's annual report filed on Form 10-K for the year ended December 31, 1997.
3. COMPUTATION OF NET LOSS PER COMMON SHARE
For the year ended December 31, 1997, the Company adopted Statement of
Accounting Standards No. 128 ("FAS 128"), which requires the presentation of
Basic and Dilutive earnings per share, which replaces primary and fully diluted
earnings per share. Earnings per share have been restated for all periods
presented to reflect the adoption of FAS 128. Basic net loss per share is
computed using the weighted average number of common shares outstanding during
the period, plus the dilutive effect of common stock equivalents. Common stock
equivalent shares consist of Convertible Preferred Stock and stock options. The
dilutive computations do not include common stock equivalents for stock options
of 1,121,043 and 1,107,006 at March 31, 1998 and March 31, 1997, respectively,
and Convertible Preferred Stock convertible to 4,206,555 shares of Common Stock
at March 31, 1998, as there inclusion would be antidilutive.
4. CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This Statement
requires that all items recognized under accounting standards as components of
comprehensive earnings be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. This
Statement also requires that an entity classify items of other comprehensive
earnings by their nature in an annual financial statement. For example, other
comprehensive earnings may include foreign currency translation adjustments,
minimum pension liability adjustments, and unrealized gains and losses on
marketable securities classified as available-for-sale. Annual financial
statements for prior periods will be reclassified, as required. For the three
months ended March 31, 1998 and 1997 comprehensive income was the same as net
income.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since its inception in 1990, the Company has been engaged in the
discovery and development of vaccines and injected antibody products to prevent
or treat human infectious diseases.
OraVax is currently pursuing four proprietary product development programs
which target diseases that have high rates of incidence, compelling
pharmaco-economic profiles, and against which no adequate therapeutic or
preventative antibody products or vaccines are currently available. The diseases
targeted by these products include, 1) peptic ulcers, gastritis and stomach
cancer, 2) viral pneumonia in children, 3) antibiotic-associated colitis, and 4)
a group of related viral diseases including Yellow Fever, Japanese encephalitis,
dengue, tick borne encephalitis and hepatitis C. The Company's product
candidates are designed to generate either mucosal or systemic immunity, as
appropriate to each disease target. The Company has developed a portfolio of
biologic production technologies appropriate to the biology of each infectious
agent.
The Company's principal product candidates are the following:
<TABLE>
<CAPTION>
PRODUCT CANDIDATE INDICATION TECHNOLOGY STATUS
- ----------------- ---------- ---------- ------
<S> <C> <C> <C>
Helicobacter pylori Prevention and Recombinant protein Phase II trials
(H. pylori) vaccines treatment of peptic vaccine
ulcers, gastritis and
stomach cancer
HNK20 antibody Prevention of Monoclonal IgA Phase III trials
pneumonia caused by nosedrop antibody
respiratory syncytial
virus in high risk
children
CdVax vaccine and Prevention and Toxoid vaccine and Toxoid IND 1998
CdIG immune-globulin treatment of Hyper-immune globulin
antibiotic-associated
colitis
ChimeriVax(TM) Prevention of infection Chimeric live IND 1998
Japanese encephalitis by the Japanese attentuated viral
(follow-on products encephalitis and other vaccine
include dengue, flavi viruses
hepatitis C, TBE)
Arilvax(R) YF Prevention of infection Single-dose live OraVax to facilitate US
vaccine (a product of by the Yellow Fever attentuated viral registration (already
Evans Medical, Limited) virus vaccine marketed in the UK and
Europe) Phase III
</TABLE>
In addition to its proprietary products, OraVax has been indentified as
the anticipated manufacturer of certain live virus and bacterial vaccines for
the US Department of Defense, through a program known as the Joint Vaccine
Acquisition program (JVAP). The Company is currently negotiating its position
with DynPort, the prime contractor. The vaccines included are those against
smallpox, tularemia and other potential vaccines identified by the JVAP. While
these diseases are found in nature, the objective of the program is to provide
the US military with vaccines needed to protect against the potential use of
these microbes as biologic warfare agents. Candidate vaccines developed by the
Department of Defense would be transferred to OraVax for advanced development
and completion of the FDA approval process for routine manufacture at OraVax's
Canton, Massachusetts manufacturing facility.
To date, the Company has not received any revenues from the sale of
products and does not expect to receive any such revenues until late 1999. The
first product revenues are anticipated from sales of the Yellow Fever vaccine,
under the Company's partnership with Evans Medical Limited. The Company's losses
incurred since inception resulted principally from expenditures under its
research and development programs and the Company expects to incur significant
operating losses over the next several years due primarily to expanded research
and development efforts, preclinical testing and clinical trials of its product
candidates, the acquisition of additional technologies, the establishment of
manufacturing capability and the performance of commercialization activities.
Results of operations may vary significantly from quarter to quarter depending
on, among other factors, the progress of the Company's research and development
efforts, the receipt, if any, of milestone payments, the timing of certain
expenses and the establishment of collaborative research agreements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1997
The Company's total revenues increased to $2,256,000 in the three
months ended March 31, 1998 from $2,218,000 in the three months ended March 31,
1997. In the three months ended March 31, 1998, the Company's revenues consisted
of $1,909,000 of collaborative research revenues earned under the Company's
collaboration (the "Joint Venture") with Pasteur Merieux Connaught ("PMC"),
$217,000 from government grants and other, and $130,000 in interest earned on
invested funds. In the three months ended March 31, 1997, the Company's revenues
consisted of $1,862,000 of collaborative research revenues earned under the
Joint Venture, $121,000 from government grants and $235,000 in interest earned
on invested funds. The increased revenue was attributable to an increase in 1998
budgeted research and development activities of the Joint Venture with PMC and
an increase in grant revenue resulting from the October 1997 award of a
C.difficile Phase II Small Business Innovation Research (SBIR) grant from the
National Institute of Health (NIH) offset by a decrease in interest income as a
result of declining cash investments.
The Company's total costs and expenses decreased to $4,715,000 in the
three months ended March 31, 1998 from $4,804,000 in the three months ended
March 31, 1997. Research and development expenses increased 2% to $3,782,000 in
the three months ended March 31, 1998 from $3,691,000 in the three months ended
March 31, 1997. Significant contributors to the Company's research and
development expenditures in the first quarter of 1998, versus the first quarter
of 1997, included the conduct of three small-scale Phase II clinical studies
under its H.pylori program and advanced activities under its Japanese
encephalitis program, including the investment in other aspects of the
Chimerivax family of vaccine opportunities. These expenditures were offset by a
decrease in costs resulting from expenses that were incurred in the first
quarter of 1997 that were not incurred in the first quarter of 1998, and from
aggressive cost control. The 13% decrease in general and administrative expenses
to $857,000 in the three months ended March 31, 1998 from $990,000 in the three
months ended March 31, 1997 is principally due to a decrease in expenses
associated with the Company's workforce reduction in the second quarter of 1997.
Interest expense decreased to $76,000 in the three months ended March 31, 1998
from $123,000 in the three months ended March 31, 1997.
8
<PAGE> 9
The Company accounts for its investment in the Joint Venture
Partnerships under the equity method of accounting. Accordingly, the Company
recorded its $1,492,000 and $1,657,000 share of the Joint Venture Partnerships'
losses in the first quarter of 1998 and 1997, respectively. The decreased loss
is principally due to third party obligations, incurred by the Joint Venture
Partnerships' in the first quarter of 1997 as compared to the same period in
1998, which were offset by an increase in the 1998 budgeted research and
development activities of both OraVax and PMC.
The Company incurred a net loss from operations of $3,951,000 in the
three months ended March 31, 1998 compared to a net loss from operations of
$4,243,000 in the three months ended March 31, 1997.
In the first quarter of 1998, the Company began recognizing the annual
cumulative 6% dividend that accrues in stock and the amortization of the
conversion discount recorded as deferred financing costs, related to the
December 1997 Convertible Preferred Stock financing.
The Company incurred a net loss to common shareholders of $4,186,000
in the three months ended March 31, 1998 compared to a net loss to common
shareholders of $4,243,000 in the three months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's aggregate cash and investments were $8,280,000 at March 31,
1998, a decrease of $3,442,000 since December 31, 1997. Cash used by operations
during the three months ended March 31, 1998, principally to support research
and development, was $4,474,000. In early 1998, the Company received the
$1,400,000 remainder of cash proceeds from the December 1997 Convertible
Preferred Stock financing. In addition, the Company repaid $376,000 of its
capital lease obligations during the period.
Since inception, the Company's cash expenditures have exceeded its
revenues. Operations have been funded principally through public and private
placements of equity securities, equipment lease financing, revenues from the
Company's Joint Venture with PMC, government grants and interest income. The
Company's future capital requirements will depend on many factors, including,
but not limited to, the progress of its research and development programs, the
progress of preclinical and clinical testing, the time and costs involved in
obtaining regulatory approvals, the funding of the Company's share of the
expenses of collaborative arrangements, the cost of filing, prosecuting,
defending and enforcing any patent claims and other intellectual property
rights, competing technological and market developments, changes in the
Company's existing research relationships, the ability of the Company to
establish collaborative arrangements, the development of commercialization
activities and arrangements, and the acquisition of additional facilities and
capital equipment.
The Company plans to finance these cash needs in the near term principally
through its existing cash reserves, together with interest earned thereon, and
revenues from the Joint Venture with PMC and previously awarded government
grants. Also, the anticipated near term revenues from the development and
manufacturing of selected live virus and bacterial vaccines for the US
Department of Defense, through a program known as the Joint Vaccine Acquisition
Program (JVAP), would provide funds to finance the Company's activities under
JVAP. JVAP was developed to ensure that the US military will have access to a
supply of FDA-approved vaccines effective against the consequences of biological
warfare agents. The Company believes, based upon its current operating plan,
that, in addition to its available cash balances and known revenues, it will
need additional financing in the second half of 1998 in order to fund the
Company's operations. The Company will require additional funds to conduct, if
planned, a Phase III trial of its HNK20 product candidate and for HNK20
manufacturing start up. Moreover, changes in the Company's research and
development plans or other events affecting the Company's operations may result
in accelerated or unexpected expenditures. In addition, the Company will need
substantial additional capital to fund its operations for the manufacturing and
marketing of any of its successful product candidates. The Company is actively
pursuing additional funding through public or private equity financings, direct
financings, formation of new corporate partnerships and the award of new
government grants. If additional funds are raised by issuing equity securities,
further dilution to existing stockholders may result and future investors may be
granted rights superior to those of existing stockholders. There can be no
assurance, however, that additional financing will be available from any of
these sources, or if available, will be available on terms satisfactory to the
Company. The Company's inability to obtain needed funding on satisfactory terms
may require the Company to delay, curtail or eliminate one or more of its
planned product development programs, scale back its planned manufacturing
operations or enter into collaborative arrangements that may require the Company
to issue additional equity or relinquish rights to certain technologies or
product candidates that the Company would not otherwise issue or relinquish.
9
<PAGE> 10
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's future operating results are difficult to predict and may be
affected by a number of factors, including the following, that could cause
actual results to differ materially from those indicated by the forward-looking
statements made herein and presented elsewhere by management from time to time.
EARLY STAGE OF PRODUCT DEVELOPMENT. The products under development by the
Company will require significant additional research and development efforts,
including extensive clinical testing and regulatory approval, prior to
commercial use. The Company's potential products are subject to the risks of
failure inherent in the development of pharmaceutical products based on new
technologies. These risks include the possibilities that the Company's
therapeutic approach will not be successful, that any or all of the Company's
potential products will be found to be unsafe, ineffective, toxic or otherwise
fail to meet applicable regulatory standards or receive necessary regulatory
clearances, that the potential products, if safe and effective, will be
difficult to develop into commercially viable products, to manufacture on a
large scale or be uneconomical to market, that proprietary rights of competitors
or other parties will preclude the Company from marketing such products; or that
competitors or other parties will market superior or equivalent products.
FUTURE CAPITAL NEEDS. In addition, the Company will require substantial
additional funds in order to continue its research and development programs,
preclinical and clinical testing of its product candidates and to conduct full
scale manufacturing and marketing of any pharmaceutical products that may be
developed. The Company's capital requirements depend on numerous factors,
including but not limited to the progress of its research and development
programs, the progress of preclinical and clinical testing, the time and costs
involved in obtaining regulatory approvals, the cost of filing, prosecuting,
defending and enforcing any patent claims and other intellectual property
rights, competing technological and market developments, changes in the
Company's existing research relationships, the ability of the Company to
establish collaborative arrangements, the development of commercialization
activities and arrangements, and the purchase of additional facilities and
capital equipment. The Company believes, based upon its current operating plan,
that, in addition to its available cash balances and known revenues, it will
need to raise additional capital in the second half of 1998 in order to fund
operations. There can be no assurance, however, that changes in the Company's
research and development plans, acquisitions or other events affecting the
Company's operations will not result in accelerated or unexpected expenditures.
Thereafter, the Company will need to raise substantial additional capital to
fund its operations. There can be no assurance, however, that additional
financing will be available, or if available, will be available on acceptable or
affordable terms.
MANUFACTURING LIMITATIONS. At present, the Company's ability to manufacture
its products is limited to clinical trial quantities. The Company currently does
not have the capability to manufacture commercial quantities of products. The
Company's strategy is to develop its manufacturing facilities, initially through
the manufacturing agreements for products funded by the US Department of
Defense's Joint Vacccine Acquisition Program ("JVAP"), for producing both
pilot-scale and commercial quantities of its products. To ensure compliance with
current Good Manufacturing Practices ("cGMP") imposed by the FDA, OraVax will
need to establish sufficient technical staff to oversee all product operations,
including quality control, quality assurance, technical support and
manufacturing management. The Company may enter into arrangements with contract
manufacturing companies to expand its own production capacity in order to meet
requirements for its product candidates. If the Company chooses to contract for
manufacturing services and encounters delays or difficulties in establishing
relationships with manufacturers to produce, package and distribute its finished
pharmaceutical or other medical products (if any), clinical trials, market
introduction and subsequent sales of such products would be adversely affected.
Moreover, contract manufacturers must operate in compliance with cGMP. The
Company's potential dependence upon third parties for the manufacture of its
products may adversely affect the Company's profit margins and its ability to
develop and deliver such products on a timely and competitive basis.
10
<PAGE> 11
RISKS ASSOCIATED WITH COLLABORATIVE ARRANGEMENTS. The Company's product
development strategy may require the Company to enter into various additional
arrangements with corporate, government and academic collaborators, licensors,
licensees and others. Therefore, the Company may be dependent upon the
subsequent success of these outside parties in performing their
responsibilities. There can be no assurance that the Company will be able to
establish additional collaborative arrangements or license agreements that the
Company deems necessary or acceptable to develop and commercialize its potential
pharmaceutical products or that such collaborative arrangements or license
agreements will be successful.
PATENT AND PROPRIETARY RIGHTS. The Company seeks to protect its trade
secrets and proprietary know-how, in part, through confidentiality agreements
with its employees, consultants, advisors and collaborators. There can be no
assurance that these agreements will not be violated by the other parties, that
OraVax will have adequate remedies for any breach, or that the Company's trade
secrets will not otherwise become known or be independently developed by
competitors. Certain of the technology that may be used in the products of
OraVax is not covered by any patent or patent application. There can be no
assurance that any pending patent applications relating to the Company's product
candidates will result in patents being issued. Moreover, there can be no
assurance that any such patents will afford protection against competitors with
similar technology. There may be pending or issued third-party patents relating
to the product candidates of OraVax. OraVax may need to acquire licenses to, or
to contest validity of, any such third party patents. It is likely that
significant funds would be required to defend any claim that OraVax infringes a
third-party patent, and any such claim could adversely affect sales of the
challenged product of OraVax until the claim is resolved. There can be no
assurance that any license required under any such patent would be made
available.
GOVERNMENT REGULATION. The rigorous preclinical and clinical testing
requirements and regulatory approval process of the FDA and of foreign
regulatory authorities can take a number of years and require the expenditure of
substantial resources. The Company has limited experience in conducting and
managing preclinical and clinical testing necessary to obtain government
approvals. There can be no assurance that the Company will be able to obtain the
necessary approvals for clinical testing or for the manufacturing and marketing
of any products that it develops. Additional government regulation may be
established that could prevent or delay regulatory approval of the Company's
product candidates. Delays in obtaining regulatory approvals would adversely
affect the marketing of any products developed by the Company and the Company's
ability to receive product revenues or royalties. If regulatory approval of a
potential product is granted, such approval may include significant limitations
on the indications for which such product may be marketed. Even if initial
regulatory approvals for the Company's product candidates are obtained, the
Company, its products and its manufacturing facilities are subject to continual
review and periodic inspection. The regulatory standards for manufacturing are
applied stringently by the FDA. Discovery of previously unknown problems with a
product, manufacturer or facility may result in restrictions on such product,
manufacturer or facility, including warning letters, fines, suspensions of
regulatory approvals, product recalls, operating restrictions, delays in
obtaining new product approvals, withdrawal of the product from the market, and
criminal prosecution. Other violations of FDA requirements can result in similar
penalties.
UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT. Government and other third-party
payers are increasingly attempting to contain healthcare costs by limiting both
coverage and the level of reimbursement for new products approved for marketing
by the FDA and by refusing, in some cases, to provide any coverage for uses of
approved products for disease indications for which the FDA has not granted
marketing approval. If adequate coverage and reimbursement levels are not
provided by government and third party payers for uses of the Company's
products, the market acceptance of these products would be adversely affected.
YEAR 2000 ISSUES. The approaching millennium ("Year 2000") could result in
challenges related to the Company's computer software, accounting records and
relationships with suppliers, collaborative partners and licensees. The
Company's management is studying Year 2000 issues and is seeking to avoid such
problems. Based on the Company's review of its business and operating systems,
the Company does not expect to incur material costs with respect to assessing
and remediating Year 2000 problems. However,
11
<PAGE> 12
there can be no assurance that such problems will not be encountered or that
costs incurred to resolve such problems will not be material.
Because of these and other factors, past financial performance should not
be an indicator of future performance. Investors should not use historical
trends to anticipate future results and should be aware that the trading price
of the Company's common stock may be subject to wide fluctuations in response to
quarter-to-quarter variations in operating results, changes in the biotechnology
and pharmaceutical industries and recommendations by analysts or other events.
PART II: OTHER INFORMATION
ITEM 1. Legal Proceedings
Not Applicable
ITEM 2. Changes in Securities
Not Applicable
ITEM 3. Default Upon Senior Securities
ITEM 4. Submission of Matters to a Vote of Securities Holders
The Company held a Special Meeting of Stockholders on
March 10, 1998. At this meeting the stockholders of the
Company approved the issuance of shares of the Company's 6%
Convertible Preferred Stock pursuant to the terms of several
Preferred Stock agreements (by a vote of 4,710,733 shares of
common stock in favor, 300,938 shares of common stock
against, and 300,028 shares of common stock abstaining.)
ITEM 4. Submission of Matters to a Vote of Securities Holders
Not Applicable
ITEM 5. Other Information
Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during
the quarter ended March 31, 1998.
12
<PAGE> 13
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OraVax, Inc.
Date: May 15, 1998 /s/ Lance K. Gordon
------------------- -------------------------------------------
Lance K. Gordon
President and Chief Executive Officer
Date: May 15, 1998 /s/ Lisa M. Bruneau
------------------- -------------------------------------------
Lisa M. Bruneau
Controller (controller and principle
accounting officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,731
<SECURITIES> 1,549
<RECEIVABLES> 555
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,642
<PP&E> 7,530
<DEPRECIATION> 4,487
<TOTAL-ASSETS> 12,233
<CURRENT-LIABILITIES> 5,234
<BONDS> 0
0
5,545
<COMMON> 10
<OTHER-SE> 189
<TOTAL-LIABILITY-AND-EQUITY> 12,233
<SALES> 0
<TOTAL-REVENUES> 2,256
<CGS> 0
<TOTAL-COSTS> 3,782
<OTHER-EXPENSES> 2,349
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76
<INCOME-PRETAX> (3,951)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,951)
<DISCONTINUED> 0
<EXTRAORDINARY> 235
<CHANGES> 0
<NET-INCOME> (4,186)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> (.40)
</TABLE>
