<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended March 31, 1997
- ------------------------------------------------------------
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 0-20711
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VIRUS RESEARCH INSTITUTE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3098869
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
61 Moulton Street, Cambridge, MA 02138
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(617) 864-6232
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, address and fiscal year, if changed since last report)
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.
(X) Yes ( ) No
As of April 25, 1997, there were 8,894,225 shares of Common Stock outstanding.
<PAGE> 2
VIRUS RESEARCH INSTITUTE, INC.
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Balance Sheets as of March 31, 1997 and
December 31, 1996........................................3
Statements of Operations for the Three
Months Ended March 31, 1997 and 1996, and for the
Period from Inception through March 31, 1997............4
Statements of Cash Flows for the Three Months
Ended March 31, 1997 and 1996 and for the period
from Inception through March 31, 1997....................5
Notes to Financial Statements .............................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.........................................12
Item 2. Changes in Securities.....................................12
Item 3. Defaults upon Senior Securities...........................12
Item 4. Submission of Matters to a Vote of Security Holders.......12
Item 5. Other Information.........................................12
Item 6. Exhibits and Reports on Form 8-K..........................12
SIGNATURES ...........................................................13
(2)
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,498,360 $ 15,209,180
Marketable securities 11,142,323 10,339,985
Interest receivable 185,198 218,285
Prepaid expenses 287,276 220,534
Other current assets 12,354 659
------------ ------------
Total current assets 24,125,511 25,988,643
Noncurrent assets:
Marketable securities 1,497,844 499,891
Leasehold improvements and equipment (net of
accumulated depreciation and amortization of
$2,146,090 at March 31, 1997 and
$2,015,483 at December 31, 1996) 838,059 881,363
Other assets 60,023 67,634
------------ ------------
Total noncurrent assets 2,395,926 1,448,888
------------ ------------
Total assets $ 26,521,437 $ 27,437,531
============ ============
Current liabilities:
Accounts payable $ 274,910 $ 43,809
Accrued consulting and research fees 929,821 810,677
Other accrued expenses 467,359 412,759
Deferred revenue 537,491 0
Current portion of lease obligation payable 152,127 155,079
------------ ------------
Total current liabilities 2,361,708 1,422,324
Lease obligation payable, less current portion 32,026 64,351
Stockholders' equity:
Preferred stock -- $.001 par value; 5,000,000
authorized, none issued
Common stock -- $.001 par value; 30,000,000 shares
authorized; 8,878,957 shares issued at March 31, 1997
and 8,845,027 shares issued at December 31, 1996 8,879 8,845
Additional paid-in capital 51,924,807 51,907,179
Deficit accumulated during the development stage (27,805,983) (25,965,168)
------------ ------------
Total stockholders' equity 24,127,703 25,950,856
------------ ------------
Total liabilities and stockholders' equity $ 26,521,437 $ 27,437,531
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
(3)
<PAGE> 4
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED CUMULATIVE
MARCH 31, SINCE
1997 1996 INCEPTION
-----------------------------------------------
<S> <C> <C> <C>
REVENUE:
Licensing and option revenue $ 0 $ 20,000 $ 5,990,000
Research and development revenue 387,491 525,000 2,952,689
Interest income 332,780 12,427 1,557,312
-----------------------------------------------
TOTAL REVENUE 720,271 557,427 10,500,001
EXPENSES:
Research and development 1,700,476 1,346,986 25,709,956
General and administrative 712,018 348,808 9,676,377
Depreciation 130,607 168,585 2,248,438
Other expense 17,985 59,957 671,213
-----------------------------------------------
TOTAL EXPENSE 2,561,086 1,924,336 38,305,984
-----------------------------------------------
NET LOSS $(1,840,815) $(1,366,909) $(27,805,983)
===============================================
Net loss per common share $ (0.21) $ (0.21)
Shares used in computing net loss per common share 8,861,992 6,425,559
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
(4)
<PAGE> 5
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED CUMULATIVE
MARCH 31, SINCE
1997 1996 INCEPTION
--------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss $(1,840,815) $(1,366,909) $(27,805,983)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation & amortization 132,606 181,835 2,292,971
Conversion of accrued interest to preferred stock 0 0 58,373
Changes in operating assets and liabilities:
Increase in prepaid expenses and other assets (37,738) (195,411) (421,723)
Increase in accounts payable and accrued
expenses 404,844 178,465 1,672,088
Increase in deferred revenue 537,491 312,500 537,491
--------------------------------------------
Net cash (used in) operating activities (803,612) (889,520) (23,666,783)
Cash flows from investing activities:
Purchases of marketable securities, net (1,800,291) 0 (12,640,167)
Capital expenditures (87,303) (23,879) (3,001,595)
Other 0 0 (46,182)
--------------------------------------------
Net cash (used in) investing activities (1,887,594) (23,879) (15,687,944)
Cash flows from financing activities:
Proceeds from notes payable 0 0 7,973,668
Sale & leaseback related to capital acquisitions 0 0 751,311
Principal payments on lease obligations (37,275) (44,722) (721,470)
Sale of common stock 17,661 122 27,707,520
Sale of preferred stock 0 500,000 19,258,613
Offering costs 0 (17,835) (3,112,941)
Founder's shares reacquired 0 0 (846)
Purchase of treasury stock 0 0 (2,768)
--------------------------------------------
Net cash provided by (used in) financing activities (19,614) 437,565 51,853,087
Net increase (decrease) in cash (2,710,820) (475,834) 12,498,360
Cash and cash equivalents, beginning of period 15,209,180 1,180,176 0
--------------------------------------------
Cash and cash equivalents, end of period $12,498,360 $ 704,342 $ 12,498,360
============================================
Supplemental disclosure of cash flow information:
Interest paid during the period $ 8,375 $ 10,219 $ 239,038
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
(5)
<PAGE> 6
VIRUS RESEARCH INSTITUTE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(1) FINANCIAL STATEMENT PRESENTATION
The unaudited financial statements of Virus Research Institute, Inc. (the
"Company") herein have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC) and, in the opinion of management,
reflect all adjustments (consisting of normal recurring accruals) necessary to
present fairly the results of operations for the interim periods presented.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principals
have been condensed or omitted pursuant to such rules and regulations; however,
management believes that the disclosures are adequate to make the information
presented not misleading. These financial statements and the notes thereto
should be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996. The results for the interim period presented are not
necessarily indicative of the results for the full fiscal year.
(2) NET LOSS PER COMMON SHARE
The net loss per common share and shares used in computing net loss per
common share for the three months ended March 31, 1996 are presented on a pro
forma basis and are based on the weighted average number of common shares
outstanding during the period presented and reflect the automatic conversion of
all preferred stock then outstanding into common stock.
(6)
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company for the three months ended March 31, 1997 and 1996
should be read in conjunction with the accompanying unaudited financial
statements and the related notes thereto.
This report may contain certain forward looking statements which involve
risks and uncertainties. Such statements are subject to certain factors which
may cause the Company's plans and results to differ significantly from the plans
and results discussed in forward looking statements. Factors that may cause such
differences include, but are not limited to, the progress of the Company's
research and development programs, the Company's ability to compete successfully
with larger companies, risks of failure inherent in product development based on
new technologies and novel delivery systems, the Company's ability to attract
and retain qualified personnel, the Company's ability to enter into and maintain
collaborations with third parties, the Company's ability to enter into and
progress in clinical trials, the time and costs involved in obtaining regulatory
approvals, the costs involved in obtaining and enforcing patents, proprietary
rights and any necessary licenses, the ability of the Company to establish
development and commercialization capacities or relationships, the costs of
manufacturing, and the Company's ability to obtain additional funds.
OVERVIEW
Virus Research Institute, Inc. (the "Company") is engaged in the discovery
and development of vaccine delivery systems and improved and novel vaccines for
adults and children. The Company is developing a portfolio of proprietary
vaccine delivery systems designed to improve the efficacy, lower the cost of
administration and improve patient compliance for a variety of vaccine products.
The Company and its collaborators currently are applying the Company's vaccine
delivery systems to develop vaccines for the prevention of influenza, Lyme
disease, and H. pylori infections. The Company has entered into long-term
collaboration agreements with Pasteur Merieux Connaught (PMC), Pasteur
Merieux-OraVax and CSL, Ltd. pursuant to which they may utilize the Company's
vaccine delivery systems in developing a number of vaccines. The Company is also
developing its own proprietary vaccines utilizing antigens licensed exclusively
by the Company. These vaccines include an oral vaccine for rotavirus infection,
which is a gastrointestinal disease of infants, and a vaccine for the virus
causing genital herpes, HSV2.
(7)
<PAGE> 8
The Company is in the development stage and has devoted substantially all
of its resources to the research and development of its vaccine delivery systems
and vaccine candidates and general and administrative expenses. Through March
31, 1997 the Company has not generated any revenue from product sales, but has
received an aggregate of $10,500,000 in revenues from licensing and option
agreements, research and development agreements and grants, and interest income.
There can be no assurance that the Company will receive such revenue in the
future.
The Company has realized losses in every year since inception, principally
as a result of expenditures incurred in its research and development programs.
The Company expects to continue to incur significant operating losses over the
next several years due primarily to expanded research and development efforts,
preclinical and clinical testing of its product candidates, investment in new
technologies, investment in production capabilities for certain product
candidates and expenditures for commercialization activities. The Company's
results of operations may vary significantly from quarter to quarter due to the
timing of license and milestone payments, development expenditures and other
factors.
NEW DEVELOPMENTS
The Company completed its initial public during 1996 in which it sold
2,300,000 shares of Common Stock at a price of $12.00 per share. The net
proceeds to the Company from such sale totaled approximately $24.7 million, a
portion of which was used to repay indebtedness and the balance of which is
being devoted to research and development activities and for working capital and
other general corporate purposes.
Preliminary results from the Company's Phase I/II clinical trial of its
rotavirus vaccine candidate became available during the first quarter of 1997.
The clinical trial was a double-blinded, placebo controlled study designed to
define the optimal vaccine dose and optimal age for immunization. The results
demonstrated that the vaccine was generally well tolerated in younger infants
and elicited broad immune responses in all infants. Based on these findings and
the results of an earlier Phase I study, the Company plans to initiate a Phase
II efficacy study later this year.
(8)
<PAGE> 9
In April 1997, VRI and the Company's collaborator, PMC, announced the
successful completion of a Phase I clinical trial of an Adjumer(TM) formulated
influenza vaccine. The study, which was conducted in France by PMC, was designed
to evaluate the safety and level of immune response of an influenza vaccine
formulated with Adjumer. The results showed that the vaccine was well tolerated
and elicited improved immune responses in the vaccinated volunteers. Based on
these findings, PMC plans to initiate a Phase II study of the Adjumer-formulated
vaccine later this year.
RESULTS OF OPERATIONS
Total revenue increased by 29% or $163,000 to $720,000 for the three months
ended March 31,1997 from $557,000 for the same period in 1996. The increase is
attributable to a $321,000 increase in interest income, from $12,000 for the
quarter ended March 31, 1996 to $333,000 for the 1997 quarter, due to an
increase in cash, cash equivalents and investments derived principally from the
proceeds of the Company's 1996 initial public offering. No licensing and option
revenue was earned in the three months ended March 31, 1997 compared to $20,000
for the same period in 1996. Research and development revenue declined 26% or
$138,000 to $387,000 for the three months ended March 31, 1997 from $525,000 in
1996. During 1996, the Company received $138,000 pursuant to an agreement with
SmithKline Beecham plc. No such revenue was recorded in 1997.
The Company's total expenses for the quarter ended March 31, 1997 increased
by 33% or $637,000 to $2,561,000 in 1997 from $1,924,000 in 1996. Research and
development expenses increased $353,000 to $1,700,000 in 1997 from $1,347,000
for the three months ended March 31, 1996 principally due to an increase in
outside manufacturing and services costs associated with the polyphosphazene
manufacturing process and increased expenditures related to rotavirus clinical
studies. General and administrative expenses increased by $363,000 to $712,000
for the three
(9)
<PAGE> 10
months ended March 31, 1997 from $349,000 in 1996 principally due to increases
in compensation costs, legal and patent expenditures, and corporate
communication costs. Depreciation expense declined $38,000 to $131,000 for the
first quarter of 1997 from $169,000 for the same quarter in 1996 primarily as a
result of the full depreciation of various leasehold improvements. Interest
expense declined by $42,000 to $18,000 in 1997 from $60,000 in 1996 due to
reduced interest costs associated with certain short term loans entered into in
1995 and 1996. These short term loans were converted into common stock upon the
completion of the Company's 1996 initial public offering.
LIQUIDITY AND CAPITAL RESOURCES
From inception (February 11, 1991) through March 31, 1997, the Company's
cash expenditures have exceeded revenues. The Company's operations have been
funded principally through the sale of equity, loans from stockholders,
equipment lease financing and payments under licensing, option and research and
development agreements. Net cash used by the Company's operations since
inception through March 31, 1997 was $23,667,000, primarily to fund research and
development efforts and general and administrative expenses. Since inception,
the Company has incurred $3,002,000 in capital expenditures, primarily for
leasehold improvements and equipment for the Company's laboratories. During the
three months ended March 31, 1997 the Company incurred $87,000 in capital
expenditures principally for equipment necessary for the scale up of
polyphosphazene manufacturing. The Company currently anticipates incurring
approximately $400,000 in capital expenditures during the remainder of 1997,
primarily on additional polyphosphazene manufacturing equipment.
From inception through March 31, 1997, the Company raised net proceeds of
approximately $51,823,000 through the sale of equity securities. Included in
this amount are net proceeds of $24,743,000 from the Company's initial public
offering in 1996 and the conversion to common stock of an aggregate of
$7,974,000 in notes payable to certain stockholders. In addition, from inception
the Company has funded $751,000 of capital expenditures through sale and
leaseback transactions and has made $721,000 in principal payments on lease
obligations.
(10)
<PAGE> 11
The Company expects to incur substantial additional costs, including those
related to research and development activities, preclinical studies, clinical
trials, obtaining regulatory approvals, process scale up and manufacture, and
the expansion of its facilities. The Company anticipates that its existing
funds, which include the proceeds from its initial public offering and interest
earned thereon, should be sufficient to fund its operating and capital
requirements as currently planned through the end of 1998. However, the
Company's cash requirements may vary materially from those now planned, due to
many factors, including, but not limited to, the progress of the Company's
research and development programs, the scope and results of preclinical and
clinical testing, changes in existing and potential relationships with corporate
collaborators, the time and cost in obtaining regulatory approvals, the costs
involved in obtaining and enforcing patents, proprietary rights and any
necessary licenses, the ability of the Company to establish development and
commercialization capacities or relationships, the costs of manufacturing and
other factors. In the future, the Company may need to raise substantial
additional funds through additional financing, including public or private
equity offerings and collaborations with corporate partners. There can be no
assurance that funds will be available on terms acceptable to the Company, if at
all. If adequate funds are not available, the Company may be required to delay,
scale back, or eliminate certain of its product development programs or to
license to others the right to commercialize products or technologies the
Company would otherwise seek to develop and commercialize itself, any of which
could have a material adverse effect on the Company.
(11)
<PAGE> 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11.1 Statement regarding computation of earnings per share
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 1997
(12)
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 7, 1997
VIRUS RESEARCH INSTITUTE, INC.
a Delaware Corporation
(Registrant)
By: /S/ J. Barrie Ward
--------------------------------------------------
J. Barrie Ward
Chief Executive Officer
By: /S/ William A. Packer
--------------------------------------------------
William A. Packer
President, Chief Financial Officer
(13)
<PAGE> 1
ITEM 6
EXHIBIT 11.1 STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
VIRUS RESEARCH INSTITUTE, INC.
(A DEVELOPMENT STAGE COMPANY)
COMPUTATION OF NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
-----------------------------
<S> <C> <C>
Net loss $(1,840,815) $(1,366,909)
Shares used in computing net loss per common share:
Weighted average common stock
outstanding during the period 8,861,992 690,046
Conversion of redeemable
convertible preferred stock (1) 0 5,448,730
Dilutive effect of common
equivalent shares -- "cheap stock" (2) N/A 286,783
Common stock equivalents (3) N/A N/A
-----------------------------
Weighted average common shares outstanding 8,861,992 6,425,559
Net loss per common share $ (0.21) $ (0.21)
=============================
</TABLE>
(1) Effective with the closing of the Company's initial public offering of
common stock, redeemable convertible preferred stock converted into shares
of common stock. Accordingly, the equivalent number of weighted average
common shares that would have been outstanding during the three months
ended March 31, 1996 have been included as outstanding.
(2) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common stock, preferred stock, stock options and warrants issued at
prices below the initial public offering price per share ("cheap stock")
during the twelve month period immediately preceding the filing of the
Company's Registration Statement for its initial public offering have been
included as common equivalents for periods prior to the initial public
offering.
(3) No common stock equivalents have been included in the periods presented as
their effect would be antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VIRUS
RESEARCH INSTITUTE, INC.'S 1997 FIRST QUARTER 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K 12/31/96.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 12,498,360
<SECURITIES> 12,640,167
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,125,511
<PP&E> 2,984,149
<DEPRECIATION> (2,146,090)
<TOTAL-ASSETS> 26,521,437
<CURRENT-LIABILITIES> 2,361,708
<BONDS> 0
0
0
<COMMON> 8,879
<OTHER-SE> 24,118,824
<TOTAL-LIABILITY-AND-EQUITY> 26,521,437
<SALES> 0
<TOTAL-REVENUES> 720,271
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,561,086
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,840,815)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,840,815)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,840,815)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
