AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 20, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
TRIMERIS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 56-1808663
<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
4727 UNIVERSITY DRIVE, SUITE 100
DURHAM, NORTH CAROLINA 27707
(919) 419-6050
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
DR. DANI P. BOLOGNESI
CHIEF EXECUTIVE OFFICER
AND CHIEF SCIENTIFIC OFFICER
4727 UNIVERSITY DRIVE, SUITE 100
DURHAM, NORTH CAROLINA 27707
(919) 419-6050
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
COPIES TO:
<TABLE>
<S> <C> <C>
MERRILL M. MASON, ESQ. JOHN B. WATKINS, ESQ. ALEXANDER D. LYNCH, ESQ.
HUTCHISON & MASON PLLC WILMER, CUTLER & PICKERING BABAK YAGHMAIE, ESQ.
4011 WESTCHASE BOULEVARD, SUITE 400 2445 M STREET, N.W. BROBECK, PHLEGER & HARRISON LLP
RALEIGH, NORTH CAROLINA 27607 WASHINGTON, D.C. 20037 1633 BROADWAY, 47TH FLOOR
(919) 829-9600 (202) 663-6000 NEW YORK, NEW YORK 10019
(212) 581-1600
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement and the
Underwriting Agreement is executed.
---------------
If only the securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED OFFERING PRICE PER SHARE (1) AGGREGATE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common stock
$0.001 par value................ 2,875,000 $ 13.09 $ 37,644,531.25 $10,466
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended, on
the basis of the average of the high and low prices of Trimeris, Inc.
common stock on April 19, 1999, as reported on the Nasdaq National Market.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
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<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 20, 1999
PROSPECTUS
- ----------
2,500,000 SHARES
[Trimeris Logo Appears Here]
Trimeris, Inc.
COMMON STOCK
---------------
Trimeris is selling 2,500,000 shares of common stock.
Our shares are listed for trading on the Nasdaq National Market under the
symbol "TRMS." On April 19, 1999, the last reported sale price of our common
stock on the Nasdaq National Market was $12 3/8 per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" STARTING ON PAGE 6.
---------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS COMPLETE OR TRUTHFUL. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- ------
<S> <C> <C>
Public offering price .......................... $ $
Underwriting discounts and commissions .........
Trimeris' proceeds .............................
</TABLE>
The underwriters have an option to purchase up to an additional 375,000
shares to cover over-allotments. The underwriters expect to deliver the shares
to purchasers on , 1999.
---------------
ING BARING FURMAN SELZ LLC
BANCBOSTON ROBERTSON STEPHENS
SG COWEN
, 1999
<PAGE>
MODEL FOR T-20 INHIBITION OF HIV FUSION
In the HIV infection process, the gp120 surface protein is stripped away from
the virus after gp120 binds to host cell receptors. Two specific regions in the
gp41 protein are thus freed and can bind to one another and cause the viral
membrane to fuse with the host cell membrane. If T-20 is present in the
bloodstream, it binds tightly to one of these regions within the gp41 protein
and blocks the structural rearrangement necessary for the virus to fuse with
the host cell. Since the virus cannot fuse with the host cell, it cannot
penetrate and release its genetic material into the cell. HIV infection of the
host cell is inhibited, and HIV replication within that cell is prevented.
NOTE: The gp120 and gp41 protein structures illustrated below are enlarged in
comparison to the size of the virus to show detail.
[DESCRIPTION OF ILLUSTRATION OF MODEL OF T-20 INHIBITION OF HIV FUSION: The
illustration consists of five panels labeled "binding," "attachment,"
"drawing near," "fusion," and "inhibition." In each panel, HIV and its
components are depicted and labeled, including the surface proteins gp41
and gp120. The series of panels illustrates the progression of HIV from
binding through fusion and also demonstrates how T-20 interferes with the
fusion event.]
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL THE
INFORMATION YOU SHOULD CONSIDER BEFORE BUYING SHARES IN THE OFFERING. YOU
SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS DESCRIBED
BELOW UNDER "RISK FACTORS." CERTAIN STATEMENTS IN THIS SECTION AND OTHER
SECTIONS ARE FORWARD-LOOKING. WHILE WE BELIEVE THESE STATEMENTS ARE ACCURATE,
OUR BUSINESS IS DEPENDENT ON MANY FACTORS, SOME OF WHICH ARE DISCUSSED IN THE
"RISK FACTORS" AND "BUSINESS" SECTIONS OF THIS PROSPECTUS. MANY OF THESE
FACTORS ARE BEYOND OUR CONTROL AND ANY OF THESE AND OTHER FACTORS COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS MADE IN
THIS PROSPECTUS. THE RESULTS OF OUR PREVIOUS CLINICAL TRIALS ARE NOT
NECESSARILY INDICATIVE OF THE RESULTS OF FUTURE CLINICAL TRIALS. WE UNDERTAKE NO
OBLIGATION TO RELEASE PUBLICLY THE RESULTS OF ANY REVISIONS TO THE STATEMENTS
CONTAINED IN THIS PROSPECTUS TO REFLECT EVENTS OR CIRCUMSTANCES THAT OCCUR
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
We are engaged in the discovery and development of a new class of
therapeutics called viral fusion inhibitors. Viral fusion is a complex process
by which viruses attach to and penetrate host cells. If a virus cannot enter a
host cell, it cannot replicate. By inhibiting the fusion process of certain
types of viruses, our products under development offer a novel mechanism of
action to treat many serious viral diseases.
Human Immunodeficiency Virus - Type I, or HIV, relies on fusion to infect
host cells. Currently-approved anti-HIV drugs have been used in recent years,
in various combinations, to effectively treat HIV infection. Increasingly,
these therapies are failing to adequately address HIV infection because they
can cause severe side effects, are difficult to take and often stop suppressing
HIV replication because the virus becomes resistant to the drugs.
We believe there is a need for a new class of anti-HIV drug that:
o works by a novel mechanism of action,
o has fewer side effects than current therapies, and
o is active against strains of HIV that are resistant to
currently-approved drugs.
We believe our anti-HIV drugs under development may meet these criteria.
Our lead product candidate, T-20, inhibits fusion of HIV with host cells,
thereby impeding replication of the virus. In August 1997, we completed a
16-patient Phase I/II clinical trial in which T-20 reduced the amount of HIV in
the patients' blood, commonly referred to as viral load, by 98% in the highest
dose group. In January 1999, we completed a Phase II clinical trial of T-20.
Details of the structure and results of the trial are as follows:
o 78 HIV-infected adults with high viral loads were enrolled in the trial,
o prior to entering the trial, the patients had used, on average, nine
currently-approved anti-HIV drugs that no longer suppressed their HIV
viral loads below detectable levels,
o T-20 was safe and caused a significant and clinically-relevant reduction
of HIV viral load, which was greater in patients receiving higher doses of
T-20,
o the median maximum reduction in HIV viral load ranged from 69% to 97%
across the treatment groups, and
o twice-daily subcutaneous injection, which is injection of T-20 under the
skin, achieved consistent levels of T-20 in the blood.
We are currently conducting two other clinical trials of T-20 and will
commence additional trials throughout the year. We expect to begin a pivotal
trial for T-20 late in the fourth quarter of 1999. In January 1999, the FDA
gave T-20 "fast track" designation. This designation is granted to products
that the FDA determines may provide significant improvement in the treatment of
serious diseases and is intended to expedite the FDA's review.
We are developing T-1249, our second drug candidate in the class of HIV
fusion inhibitors. T-1249 has demonstrated potent HIV suppression in animal
models and is highly active against a wide range of HIV strains in culture. We
have filed an investigational new drug application, or IND, with the FDA and
expect to begin in the second quarter of 1999 a 14-day Phase I clinical trial
in up to 60 HIV-infected adults.
3
<PAGE>
T-20 and T-1249 are both peptides. The manufacture of peptides
historically has been complex and expensive. We have developed a novel peptide
manufacturing process, which we believe will allow us to manufacture T - 20 and
T - 1249 on a large scale and cost - efficient basis.
We are also pursuing research programs to develop fusion inhibitors that
target various other viruses, including respiratory syncytial virus, human
parainfluenza virus, influenza virus, hepatitis B and C viruses and
Epstein-Barr virus.
Our principal executive office is located at 4727 University Drive,
Durham, North Carolina 27707, and our telephone number is (919) 419-6050.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered ............................. 2,500,000 shares
Common stock outstanding after this offering ..... 13,183,355 shares
Use of proceeds .................................. To fund the clinical development of T-20 and T-1249, to fund
increased research and development, to provide working
capital and for general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol .................... TRMS
</TABLE>
The outstanding share information is based on our shares of common stock
outstanding as of March 31, 1999. This information excludes:
o 1,014,731 shares of common stock reserved for issuance pursuant to
outstanding stock options at a weighted average exercise price of $6.37,
o 184,852 shares of common stock reserved for future issuance under our Stock
Incentive Plan, and
o 11,765 shares of common stock reserved for issuance pursuant to an
outstanding warrant at an exercise price of $4.25 per share.
See note 4 to our financial statements.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue ............................................... $ 55 $ 431 $ 363
Operating expenses:
Research and development ............................. 5,146 9,734 16,421
General and administrative ........................... 1,761 2,596 4,572
-------- --------- ---------
Total operating expenses ............................ 6,907 12,330 20,993
-------- --------- ---------
Operating loss ........................................ (6,852) (11,899) (20,630)
-------- --------- ---------
Interest income ....................................... 47 584 1,755
Interest expense ...................................... (167) (113) (127)
-------- --------- ---------
Total other income (expense) ........................ (120) 471 1,628
-------- --------- ---------
Net loss .............................................. $ (6,972) $ (11,428) $ (19,002)
======== ========= =========
Basic net loss per share .............................. $ (1.48) $ (1.55) $ (1.78)
Weighted average shares used in per share computations 4,705 7,395 10,647
</TABLE>
The following table is a summary of our balance sheet data. The as
adjusted column reflects the sale of 2,500,000 shares of common stock at the
assumed public offering price of $12.375, the last reported sale price of the
common stock on the Nasdaq National Market on April 19, 1999, after deducting
the underwriting discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments ................... $ 20,176 $ 48,882
Working capital ..................................................... 16,562 45,268
Total assets ........................................................ 22,872 51,578
Obligation under capital leases, excluding current installments ..... 853 853
Deficit accumulated during the development stage .................... (48,395) (48,395)
Total stockholders' equity .......................................... 18,016 46,722
</TABLE>
5
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. IF ANY OF THE FOLLOWING RISKS MATERIALIZE, OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY
AFFECTED. AS A RESULT, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND
YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
WE ARE AN EARLY STAGE COMPANY WITH AN UNCERTAIN FUTURE.
We formed our company and began operations in January 1993. Accordingly,
we have only a limited operating history for you to evaluate our business.
There are many business risks associated with a biopharmaceutical company in
the early stage of development, such as ours. For example, we may not be able
to obtain sufficient financial, personnel and other resources to continue to
develop our product candidates. We also may not be successful in discovering or
developing any product candidates that ultimately achieve regulatory approval
or have commercial viability.
We have not yet generated any revenues from product sales or royalties. We
have never submitted a product candidate for approval by the FDA or any other
regulatory authority for commercialization. We will have to invest significant
additional time and funds in research and development and extensive clinical
trials before we can submit our product candidates for regulatory approval. Our
product candidates may never obtain regulatory approval, and therefore, may
never be commercially available.
WE HAVE NEVER MADE MONEY AND EXPECT OUR LOSSES TO CONTINUE.
We have incurred losses since we began operating. As of December 31, 1998,
our accumulated deficit was approximately $48.4 million. Since inception, we
have spent our funds on our product development efforts, relating primarily to
the development of T-20. We expect that we will incur substantial losses for
the foreseeable future. We also expect our losses to significantly increase as
we expand our research and development, preclinical testing and clinical trial
efforts. We have not yet generated any revenues from product sales or
royalties. We cannot assure you that we will ever be able to generate any such
revenues or royalties or, if we generate any revenues or royalties, that we
will ever be profitable.
WE WILL NEED TO RAISE ADDITIONAL FUNDS IN THE NEAR FUTURE.
Based on our current plan, we anticipate that our existing capital
resources, together with the net proceeds of this offering and the interest
earned, will be adequate to fund our capital requirements through 1999. We
believe that substantial additional funds will be required subsequent to 1999.
In the event this financing is not obtained, we will be required to delay,
scale-back or eliminate certain preclinical testing, clinical trials and
research and development programs.
We may raise these additional funds through equity or debt financings. If
we raise funds by selling equity, our stockholders' interest may be diluted.
Any debt financings may contain restrictive terms that limit our operating
flexibility. Additionally or alternatively, we may have to attempt to obtain
funds through arrangements with collaborative partners. These partners may
require us to relinquish rights to our technologies or product candidates. This
could have a material adverse effect on our business, financial condition and
results of operations.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS AND YOU SHOULD NOT
RELY ON THEM AS AN INDICATION OF OUR FUTURE RESULTS.
Our operating results are likely to fluctuate over time, due to a number
of factors, many of which are outside of our control. Some of these factors
include:
o the status of our research and development activities,
o the progress of our product candidates through preclinical testing and
clinical trials,
o the timing of regulatory actions,
o our ability to establish manufacturing, sales, marketing and distribution
capabilities, either internally or through relationships with third
parties,
6
<PAGE>
o technological and other changes in the competitive landscape,
o changes in our existing or future research and development relationships
and strategic alliances, and
o the commercial viability of our product candidates.
As a result, we believe that comparing financial results for one period
against another period is not necessarily meaningful, and you should not rely
on our results of operations in prior periods as an indication of our future
performance. Also, if our results of operations for a period deviate from the
levels expected by securities analysts and investors, it could have a material
adverse effect on the market price of our common stock.
WE ARE HEAVILY DEPENDENT ON OUR LEAD PRODUCT CANDIDATE, T-20.
T-20 is our lead product candidate and our only candidate that has been
tested in humans. Our success will depend, to a great degree, on the success of
T-20. In particular, we must be able to:
o establish the safety and efficacy of T-20 in humans,
o obtain regulatory approvals so that we can commercialize T-20,
o establish relationships for the commercial-scale production of T-20 at an
acceptable cost and with the appropriate quality, and
o successfully market T-20 and achieve market acceptance of T-20 by the
medical community, including health care providers and third-party payors.
We may rely on our collaborative partners in connection with many of these
matters. We may not be able to control the amount or timing of resources that
our partners may devote to these matters. If we or our collaborative partners
fail to successfully develop and commercialize T-20, our business, financial
condition and results of operations will be materially and adversely affected.
WE FACE MANY UNCERTAINTIES RELATING TO OUR HUMAN CLINICAL TRIAL RESULTS AND
CLINICAL TRIAL STRATEGY.
In order to obtain the regulatory approvals that we need to sell
commercially any of our product candidates, we must demonstrate that each
product candidate is safe and effective for use in humans for each target
indication. We attempt to demonstrate this through preclinical testing and
clinical trials for each product candidate or compound. This is a very complex
and lengthy process. To date, we have conducted initial preclinical testing of
some of our product candidates and a Phase I/II clinical trial of T-20 that
enrolled 16 patients. We have also recently completed a Phase II clinical trial
of T-20 involving 78 patients.
Because these clinical trials have been limited to a relatively small
number of patients, we cannot assure you that the results of these early
clinical trials will support further clinical trials of T-20. We may not be
able to demonstrate that potential product candidates that appeared promising
in preclinical testing and early clinical trials are safe or effective in
advanced clinical trials that involve larger numbers of patients. We also
cannot assure you that the results of the clinical trials we have conducted and
still intend to conduct will support our applications for regulatory approval.
As a result, our product development programs may be curtailed, redirected or
eliminated at any time.
We may redesign, delay or cancel our preclinical testing and clinical
trials, for some or all of the following reasons:
o unanticipated, adverse or ambiguous results from our preclinical testing or
clinical trials,
o undesirable side effects which delay or extend the trials,
o our inability to locate, recruit and qualify a sufficient number of
patients for our trials,
o difficulties in manufacturing sufficient quantities of the particular
product candidate or any other components needed for our preclinical
testing or clinical trials,
o regulatory delays or other regulatory actions,
o change in the focus of our development efforts, and
7
<PAGE>
o reevaluation of our clinical development strategy.
Accordingly, our clinical trials may not commence or proceed as
anticipated. This would have a material adverse effect on our business,
financial condition and results of operations.
HIV MAY DEVELOP RESISTANCE TO OUR DRUG CANDIDATES.
HIV is prone to genetic mutations. These mutations have produced strains
of HIV that are resistant to currently-approved therapeutics. The HIV virus may
develop similar resistance to our viral fusion inhibitor therapeutics,
including T-20 and T-1249. This could have a material adverse effect on our
business, financial condition and results of operations.
WE FACE RISKS ASSOCIATED WITH MANUFACTURING T-20 AND T-1249.
Peptide-based therapeutics are difficult and expensive to manufacture. We,
and our third-party manufacturers, are currently using a novel method to
manufacture T-20. This chemical methodology is inherently complex. We may not
be able to manufacture T-20 or T-1249 on a cost-effective basis or to develop
an alternative, more efficient manufacturing method for T-20, T-1249 or any of
our other peptide product candidates. If we are unable to manufacture T-20 or
T-1249 on a cost-effective basis, our business, financial condition and results
of operations will be materially and adversely affected. In addition,
commercial production of T-20 will require raw materials in amounts
substantially greater than those being used in the current manufacturing
campaigns. We may not be able to obtain these materials in sufficient
quantities or on a cost-effective basis to support the commercial manufacture
of T-20.
OUR BUSINESS IS BASED ON NOVEL TECHNOLOGY AND IS HIGHLY RISKY AND UNCERTAIN.
Our product development programs are based on novel technology. Our
technology platform is designed to discover product candidates which treat
viral infection by inhibiting viral fusion, a process which prevents the virus
from fusing to the cell, thereby preventing the virus from entering the cell
and replicating. We are not aware of any other approved antiviral
pharmaceutical products that target the inhibition of viral fusion.
Accordingly, developing products that use this novel approach is highly risky
and uncertain. Our products could:
o experience unanticipated developments or clinical or regulatory delays,
o produce unexpected adverse side effects, or
o provide inadequate therapeutic effectiveness.
Any of these could slow or suspend our product development efforts. If any of
these unanticipated results occurs, it could have a material adverse effect on
our business, financial condition and results of operations.
We may not be able to use our novel technology platform to discover and
successfully develop any commercially viable products. We may not be able to
complete our research or product development efforts for any particular product
candidate, or develop any product candidates that will prove to be safe and
effective. We may not be able to obtain the required regulatory approvals for
any products. Our development programs are subject to the risks inherent in the
development of new products using new technologies and approaches. We may
encounter unforeseen problems with these technologies or applications and
technological challenges in our research and development programs that we may
not be able to resolve.
WE ARE DEPENDENT ON THIRD-PARTY CONTRACT RESEARCH ORGANIZATIONS.
We have engaged, and intend to continue to engage, third-party contract
research organizations to perform some functions for us related to the
development of our product candidates. We typically design our clinical trials,
but rely on these contract research organizations to actually conduct the
clinical trials. Therefore, we rely on these contract research organizations to
perform many important aspects of our clinical trials. The failure by the
contract research organizations to perform our clinical trials satisfactorily
or their breach of their obligations to us could delay or prevent the
commercialization of our product candidates. This would have a material adverse
effect on our business, financial condition and results of operations.
8
<PAGE>
Accordingly, our preclinical testing or clinical trials may not begin or
be completed on the dates we estimate for them. Any delays in our testing and
trials could delay regulatory approval for or commercialization of our product
candidates. These delays could:
o increase our operating expenses,
o cause us to need additional capital,
o divert management's time and attention, and
o create adverse market perception about us and our product candidates.
WE HAVE NO EXPERIENCE MANUFACTURING PHARMACEUTICAL PRODUCTS.
The manufacture of pharmaceutical products requires significant expertise
and capital investment. We have no experience in manufacturing pharmaceuticals,
no commercial manufacturing capacity and only have limited experience in
manufacturing process development. As a result, we have elected to work with
third-party contract manufacturers to supply quantities of T-20 to be used in
currently planned clinical trials. We expect to rely on third-party
manufacturers throughout the clinical and initial commercialization phases of
T-20 development. We may not be able to maintain relationships with these
third-party manufacturers. Our dependence on third parties for the manufacture
of products and product candidates could have a material adverse effect on our
business, financial condition and results of operations.
WE HAVE NO SALES, MARKETING OR DISTRIBUTION CAPABILITIES.
We have no experience in sales, marketing or distribution of
pharmaceuticals and currently have no personnel employed in any of these
capacities. We may develop these capabilities in certain areas in the future.
We may rely on marketing partners or other arrangements with third parties
which have established distribution systems and direct sales forces for the
sales, marketing, and distribution of products and compounds. In the event that
we are unable to reach agreement with one or more marketing partners we may be
required to develop internal sales, marketing and distribution capabilities. We
may not be able to establish cost-effective sales, marketing or distribution
capabilities or make arrangements with third parties to perform these
activities on acceptable terms, if at all. This would have a material adverse
effect on our business, financial condition and results of operations.
If we establish sales, marketing or distribution arrangements with other
parties, they may have significant control over important aspects of the
commercialization of our products including:
o market identification,
o marketing methods,
o pricing,
o composition of sales force, and
o promotional activities.
We may not be able to control the amount or timing of resources that any
other third party may devote to our products.
OUR STOCK PRICE IS HIGHLY VOLATILE.
Our stock price has fluctuated substantially since our initial public
offering, which was completed in October 1997. The market price of our common
stock, like that of the securities of many other biotechnology and
pharmaceutical companies, is likely to remain highly volatile.
Furthermore, the stock market has from time to time experienced extreme
price and volume fluctuations that may be unrelated to the operating
performance of particular companies. In addition, in the past, class action
lawsuits have often been instituted against biotechnology and pharmaceutical
companies following periods of volatility in the market price of these
companies' stock. If litigation were instituted against us on this basis, it
could result in substantial costs and would
9
<PAGE>
divert management's attention and resources. This would have a material adverse
effect on our business, financial condition and results of operations.
WE DEPEND ON COLLABORATIONS AND LICENSES WITH OTHERS.
We have entered into license and other agreements and may enter into
additional agreements with partners or collaborators to assist us in:
o seeking regulatory approval for our product candidates, and
o developing, manufacturing and commercializing some of our product
candidates.
Accordingly, our success will depend, in part, on our partners' success
in:
o performing preclinical testing and clinical trials,
o obtaining the requisite regulatory approvals,
o scaling up manufacturing,
o successfully commercializing the product candidates we license to them, and
o otherwise performing their obligations.
We may not be able to maintain our existing collaborative arrangements or
enter into arrangements in the future on terms that are acceptable to us.
Moreover, our partners may not perform their obligations under our agreements
with them and may choose to compete with us by seeking alternative means of
developing therapeutics for the diseases we have targeted. In addition, we may
not be able to:
o obtain proprietary rights, or licenses for the proprietary rights, for any
technology or product candidates developed through these arrangements, or
o protect the confidentiality or prevent the disclosure of any proprietary
rights and information developed in our collaborative arrangements.
We currently have an agreement with Duke University that provides for an
exclusive, worldwide license to certain discoveries and inventions, including
patent rights, in the field of antiviral therapeutics developed before February
2000 by several researchers at Duke University. The license for each of
these discoveries or inventions expires upon the expiration of the life of
the patent related to the relevant discovery or invention. Unless the
Duke agreement is renewed, we will not be entitled to any additional
technologies developed after February 2000. Expiration of our right to obtain a
license to inventions developed until February 2000 will not impact the licenses
that have already been granted pursuant to the agreement.If we fail to develop
the technologies licensed to us, the agreement may be terminated early. If the
agreement is terminated early or if we are unable to renew the agreement on
terms that are acceptable to us, our business, financial condition and results
of operations could be materially adversely affected.
In the future, we may find that we need additional licenses from these or
other parties to effectively develop potential product candidates. We may not
be able to maintain our existing license agreements or obtain additional
licenses on acceptable terms.
THERE IS UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT AND HEALTH CARE
REFORM MEASURES WHICH COULD LIMIT THE AMOUNT WE CHARGE FOR OUR PRODUCTS.
In the United States and elsewhere, sales of prescription drugs are
dependent, in part, on the consumer's ability to be reimbursed for the cost of
the drugs by third-party payors, such as government agencies and private
insurance plans. Third-party payors are increasingly challenging the prices
charged for medical products and services in an effort to promote cost
containment measures and alternative health care delivery systems. As a result,
third-party payor reimbursements may not be available or may not be available
at a level that will allow us or our potential collaborative partners to sell
our products on a competitive basis.
Economic, political and regulatory influences, including the efforts of
governments and third-party payors to contain or reduce the cost of health care
through various means, will continue to affect the business and financial
condition of pharmaceutical companies. A number of legislative and regulatory
proposals aimed at changing the health care system
10
<PAGE>
have been proposed in recent years. Because of the high cost of the treatment
of HIV, many state legislatures are reassessing reimbursement policies for this
therapy. In addition, an increasing emphasis in the United States to reduce the
overall costs of health care through managed care has and will continue to
increase the pressure on pharmaceutical pricing. We cannot predict whether
legislative or regulatory proposals will be adopted or the effect that those
proposals or managed care efforts may have. However, there is a risk that the
announcement and/or adoption of these types of proposals or efforts could have
a material adverse effect on our business, financial condition and results of
operations.
THERE IS UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS.
Our success will depend, in part, on our ability and the ability of our
licensors to obtain and to keep protection for our products and technologies
under the patent laws of the United States and other countries, so that we can
prevent others from using our inventions. Our success also will depend on our
ability to prevent others from using our trade secrets. In addition, we must
operate in a way that does not violate the patent, trade secret, or other
intellectual property rights of other parties.
The pharmaceutical and biotechnology industries place considerable
importance on obtaining and maintaining patent and trade secret protection for
new technologies, products and processes. We have obtained rights to certain
patents and patent applications and may, in the future, seek rights from third
parties to additional patents and patent applications. The standards used by
the U.S. Patent and Trademark Office and the patent offices of other countries
to grant patents may change. Consequently, we cannot be certain as to the type
and extent of patent claims that may be issued to us in the future.
The standards which courts use to interpret patents may change,
particularly as new technologies develop. Consequently, we cannot be certain as
to how much protection, if any, will be given to patents owned or licensed by
us, if they are challenged in court. If we choose to go to court to stop
someone else from using the inventions claimed in these patents, that
individual or company has the right to ask the court to rule that the patents
are invalid and should not be enforced against them. Such lawsuits are
expensive and will consume time and other resources, even if we are successful
in stopping the violation of the patents. In addition, there is a risk that the
court will decide that some or all of the claims of these patents are not valid
and that we do not have the right to stop the other party from using the
inventions. There is also a risk that, even if the validity of the patents is
upheld, the court will refuse to stop the other party on the grounds that its
activities are not covered by the patent claims.
In addition, a third party may claim that we are using inventions covered
by their patents and may go to court to stop us from engaging in our normal
operations and activities, such as research and development and the manufacture
and sale of products. Such lawsuits are expensive and will consume time and
other resources. There is a risk that the court will decide that we are
violating the third party's patent and will order us to pay the other party
damages for having violated their patent. There is also a risk that the court
will order us to stop the activities covered by the patent. In this case, we
may attempt to obtain a license from the third party so that we may continue to
use the invention. However, we cannot assure you that if this occurs we would
be able to obtain the licenses we need or that we could negotiate the licenses
on terms acceptable to us, or at all.
Another risk we face in this area is that the laws of certain countries
may not protect our proprietary rights to the same extent as United States law.
We also rely in our business on trade secrets, know-how and other
proprietary information. We seek to protect this information, in part, through
the use of confidentiality agreements with employees, consultants, advisors and
others. Nonetheless, we cannot assure you that those agreements will provide
adequate protection for our trade secrets, know-how or other proprietary
information and prevent their unauthorized use or disclosure. There is also the
risk that our employees, consultants, advisors or others will not maintain the
confidentiality of such trade secrets or proprietary information, or that this
information may become known in some other way or be independently developed by
our competitors.
The occurrence of these risks could have a material adverse effect on our
business, financial condition and results of operations. See "Business --
Licensing and Collaborative Agreements."
11
<PAGE>
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION; OUR PRODUCTS MAY NOT RECEIVE
REGULATORY APPROVAL.
Human pharmaceutical products must undergo lengthy and rigorous
preclinical testing and clinical trials and other extensive, costly and
time-consuming procedures mandated by the FDA and foreign regulatory
authorities. To have a product candidate approved, we must establish that the
product candidate is safe and effective for each target indication. The FDA
must confirm that we and our clinical testing and manufacturing partners
maintained good laboratory, clinical and manufacturing practices. The
regulatory approval process typically takes a number of years, varying based on
the type, complexity and novelty of the pharmaceutical product. Because of the
considerable time and expense required, this process gives larger companies
with greater financial resources a competitive advantage over us.
To date, none of our product candidates has been submitted for approval by
the FDA or any other regulatory authority for commercialization. Our products
may never be approved by the FDA or any other regulatory authority. T-20 has
received fast track designation from the FDA for the treatment of HIV-infected
individuals. Fast track designation is granted to products that may provide a
significant improvement in the safety or effectiveness of the treatment for a
serious or life-threatening disease, and this designation is intended to
expedite the review of these drugs. However, fast track designation does not,
in any way, mean that T-20 will be approved for commercialization by the FDA in
the future.
Our estimates of future regulatory submission dates may also prove to be
inaccurate. Our regulatory submissions can be delayed or we may cancel plans to
submit proposed products for a number of reasons, including:
o unanticipated preclinical testing or clinical trial reports,
o changes in regulations, or the adoption of new regulations,
o unanticipated enforcement of existing regulations,
o unexpected technological developments, and
o developments by our competitors.
Consequently, we cannot assure you that our anticipated submissions will
be made on their target dates, or at all. Delays in these submissions would
have a material adverse effect on our business, financial condition and results
of operations.
A number of federal, state and local laws regulate safe working
conditions, laboratory and manufacturing practices, the experimental use of
animals and the use and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious disease agents. We
must comply with these laws. We use some of these hazardous substances in our
product development programs. It is expensive and time-consuming to comply with
these laws. If we fail to comply, our business, financial condition and results
of operations could be materially and adversely affected.
WE FACE INTENSE COMPETITION.
We are engaged in segments of the biopharmaceutical industry, including
the treatment of HIV, that are intensely competitive and change rapidly. We
expect that new developments in the areas in which we are conducting our
research and development will continue at a rapid pace in both industry and
academia.
If we successfully develop our product candidates and gain approval for
those products, they will compete with numerous existing therapies. For
example, at least 16 drugs are currently approved for the treatment of HIV. We
also believe that a significant number of drugs are currently under development
and will become available in the future for the treatment of HIV. We expect to
face intense and increasing competition in the future as these new products
enter the market and advanced technologies become available. Even if we are
able to successfully develop T-20 or T-1249 and either product candidate
receives regulatory approval, we cannot assure you that existing or new
products for the treatment of HIV developed by our competitors will not be more
effective, less expensive or more effectively marketed and sold, than T-20,
T-1249 or any other therapeutic for HIV that we may develop.
Many of our competitors have significantly greater financial, technical,
human and other resources than we do. Smaller companies may also prove to be
significant competitors, particularly through collaborative arrangements with
large pharmaceutical and biotechnology companies. Furthermore, academic
institutions, governmental agencies and other public and private research
organizations are becoming increasingly aware of the value of their inventions
and are more actively seeking to commercialize the technology they have
developed.
12
<PAGE>
Several factors will help determine whether we will be able to compete
successfully in our market, including the following:
o the safety and effectiveness of our products,
o the speed with which we can gain regulatory approval for our products and
the scope of those approvals,
o our ability to manufacture, sell, market and distribute our products, or to
find someone else to handle these functions for us in a timely and
cost-efficient manner,
o the availability of reimbursement coverage for our products,
o whether we are able to offer our products at a competitive price, and
o the strength of our patents and the speed with which we can obtain patents
on our products and technologies.
We may not be able to effectively compete with our competitors in some or
all of these areas. This could have a material adverse effect on our business,
financial condition and results of operations.
WE USE HAZARDOUS MATERIALS.
We use hazardous materials, chemicals, viruses and various radioactive
compounds in our product development programs. We believe that our handling and
disposal of these materials comply with the standards prescribed by state and
federal regulations, but we cannot completely eliminate the risk of accidental
contamination or injury from these materials. If there were such an accident or
injury, we could be held liable for any damages or penalized with fines. The
amount of the liability and fines could exceed our resources. Additionally, if
we develop internal manufacturing capability, we may incur substantial
additional costs to comply with environmental regulations.
WE ARE EXPOSED TO PRODUCT LIABILITY RISKS.
Our business exposes us to potential product liability risks that are
inherent in the testing, manufacturing and marketing of pharmaceutical
products. We cannot assure you that product liability claims will not be
asserted against us. In addition, the use in our clinical trials of
pharmaceutical products that our potential collaborators may develop and the
subsequent sale of these products by us or our potential collaborators may
cause us to bear a portion of product liability risks. A successful product
liability claim or series of claims brought against us could have a material
adverse effect on our business, financial condition and results of operations.
We do not currently have any product liability insurance relating to
clinical trials or any products or compounds we may develop. We cannot assure
you that we will be able to obtain or maintain adequate product liability
insurance on acceptable terms, if at all, or that such insurance will provide
adequate coverage against our potential liabilities. Furthermore, our
collaborators or licensees may not be willing to indemnify us against these
types of liabilities and may not themselves be sufficiently insured or have a
net worth sufficient to satisfy any product liability claims. Claims or losses
in excess of any product liability insurance coverage that may be obtained by
us could have a material adverse effect on our business, financial condition
and results of operations.
WE DEPEND UPON CERTAIN KEY PERSONNEL AND FACE RISKS RELATING TO OUR ABILITY TO
ATTRACT AND RETAIN KEY PERSONNEL.
We depend on members of our senior management and scientific staff,
including Dr. Dani P. Bolognesi, our Chief Executive Officer and Chief
Scientific Officer. Dr. Bolognesi has limited experience acting as an executive
officer at a company such as ours, and has held these positions at Trimeris
only since March 1999.
The future recruitment and retention of management personnel and qualified
scientific personnel is also critical to our success. We cannot be certain that
we will attract and retain qualified personnel on acceptable terms given the
competition among biotechnology, pharmaceutical and health care companies,
universities and non-profit research institutions for experienced management
personnel and scientists. In addition, we rely on scientific advisors and other
consultants to assist us in formulating our research and development strategy.
These consultants are employed by other parties and may have commitments to, or
advisory or consulting agreements with, other entities, which may limit their
availability to us.
13
<PAGE>
WE MAY BE ADVERSELY AFFECTED BY YEAR 2000.
Beginning on January 1, 2000, some computer systems and software will
produce erroneous results or fail unless they have been modified or upgraded to
process date information correctly. We have adopted a Year 2000 compliance plan
and formed a team assigned to the task of identifying and resolving any Year
2000 issues that may affect our business. The plan includes identifying all
critical applications, including those of vendors and suppliers, assessing
their compliance with Year 2000 issues, and developing contingency plans for
any non-compliant critical applications.
We expect to have completed our review and assessment of all critical
systems and applications by mid-1999. To date, we have not identified any
critical applications or vendors that are Year 2000 non-compliant. Our most
significant Year 2000 risk is that the systems of other parties on which we
rely, specifically our key suppliers, will not be compliant on a timely basis.
This could result in a disruption in our business or cause us to incur
significant expenses to remedy any problems. In addition, we may encounter some
unexpected costs or encounter delays during the completion of our Year 2000
plan. These costs or delays could have a material adverse effect on our
business, financial condition and results of operations.
FUTURE SALES OF COMMON STOCK BY OUR EXISTING STOCKHOLDERS COULD ADVERSELY
AFFECT OUR STOCK PRICE.
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of common stock in the market after this
offering, or the perception that these sales could occur. These sales also
might make it more difficult for us to sell equity securities in the future at
a time and at a price that we deem appropriate. Please see "Shares Eligible for
Future Sale."
WE HAVE IMPLEMENTED CERTAIN ANTI-TAKEOVER PROVISIONS.
Certain provisions of our Certificate of Incorporation and Bylaws and
Delaware law could make it more difficult for a third party to acquire us, even
if the acquisition would be beneficial to our stockholders.
OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN OUR
FORWARD-LOOKING STATEMENTS.
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about our business and
industry. Our actual results could differ materially from those anticipated in
these forward-looking statements as a result of various factors, including all
the risks and uncertainties discussed above and elsewhere in this prospectus.
We do not undertake to update publicly any forward-looking statements for any
reason, even if new information becomes available or other events occur in the
future.
14
<PAGE>
USE OF PROCEEDS
The net proceeds we will receive from the sale of these 2,500,000 shares
of common stock offered by us are estimated to be $28.7 million, assuming a
public offering price of $12.375 per share and after deducting the estimated
underwriting discount and offering expenses. If the underwriters'
over-allotment option is exercised in full, we estimate that the net proceeds
will be $33.1 million.
We intend to use the net proceeds of this offering as follows:
o to fund clinical development of T-20 and T-1249,
o to fund increased research and development,
o to provide working capital, and
o for general corporate purposes.
We have not determined the amount of net proceeds to be used for each of
the specific purposes indicated. Accordingly, we will have broad discretion to
use the proceeds as we see fit. Pending any use, the net proceeds of this
offering will be invested in investment grade, interest-bearing securities,
which may include obligations of the U.S. government or U.S. government
agencies and other highly-rated liquid debt instruments.
DIVIDEND POLICY
We have never paid any dividends on our common stock, and we do not plan
to pay any in the foreseeable future.
15
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock is quoted on the Nasdaq National Market under the symbol
"TRMS." The following table sets forth, for the periods indicated, the high and
low closing bid prices per share of our common stock, as reported on the Nasdaq
National Market since our initial public offering.
<TABLE>
<CAPTION>
HIGH LOW
------------ ------------
<S> <C> <C>
1997
Fourth Quarter (from October 10, 1997) .......... $ 16.875 $ 11.875
1998
First Quarter ................................... 13.875 7.000
Second Quarter .................................. 9.875 5.380
Third Quarter ................................... 7.185 3.875
Fourth Quarter .................................. 11.250 3.500
1999
First Quarter ................................... 27.685 11.125
Second Quarter (through April 19, 1999) ......... 14.000 11.125
</TABLE>
As of March 31, 1999, there were 186 stockholders of record. On April 19,
1999, the last reported sale price of our common stock on the Nasdaq National
Market was $12 3/8 per share.
16
<PAGE>
CAPITALIZATION
The following table shows our capitalization as of December 31, 1998:
o on an actual basis, and
o on an as adjusted basis after giving effect to the sale of the 2,500,000
shares of common stock at an assumed public offering price of $12.375 per
share, after deducting the underwriting discounts and commissions and
estimated offering expenses.
You should carefully read our financial statements and notes to those
statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------
ACTUAL AS ADJUSTED
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Obligations under capital lease, excluding current installment ................... $ 853 $ 853
--------- ---------
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000 shares authorized, no shares issued and
outstanding .................................................................... -- --
Common stock, $0.001 par value, 30,000 shares authorized, 10,637 shares issued
and outstanding actual; 13,137 shares issued and outstanding, as adjusted ...... 11 13
Additional paid-in capital ....................................................... 68,406 97,110
Deficit accumulated during the development stage ................................. (48,395) (48,395)
Deferred compensation ............................................................ (1,788) (1,788)
Notes receivable from stockholders ............................................... (218) (218)
--------- ---------
Total stockholders' equity ...................................................... 18,016 46,722
--------- ---------
Total capitalization ............................................................ $ 18,869 $ 47,575
========= =========
</TABLE>
Based on shares of common stock outstanding as of March 31, 1999. The
number of shares outstanding as adjusted excludes:
o 1,014,731 shares of common stock reserved for issuance pursuant to
outstanding stock options at a weighted average exercise price of $6.37,
o 184,852 shares of common stock reserved for future issuance under our Stock
Incentive Plan, and
o 11,765 shares of common stock reserved for issuance pursuant to an
outstanding warrant at an exercise price of $4.25 per share.
See note 4 to our financial statements.
17
<PAGE>
DILUTION
Our net tangible book value as of December 31, 1998 was approximately
$17.5 million, or $1.65 per share. After the sale of the 2,500,000 shares of
common stock at a public offering price of $12.38 per share and after deducting
the underwriting discounts and commissions and estimated offering expense, our
pro forma net tangible book value as of December 31, 1998 would have been
approximately $46.2 million, or $3.52 per share. This represents an immediate
increase in net tangible book value of $1.87 per share to existing stockholders
and an immediate dilution in net tangible book value of $8.855 per share to
purchasers in this offering. Net tangible book value represents the amount of
tangible assets less total liabilities. Dilution represents the difference
between the amount per share paid by purchasers in this offering and the pro
forma net tangible book value per share upon completion of this offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Public offering price per share ...................................... $ 12.38
Net tangible book value per share as of December 31, 1998 .......... $ 1.65
Increase in book value per share attributable to new investors ..... 1.87
-------
Net tangible book value per share after this offering ................ 3.52
--------
Dilution per share to new investors .................................. $ 8.86
========
</TABLE>
If the underwriters' over-allotment is exercised in full, the dilution to
new investors will be $8.64 per share.
The following table sets forth as of December 31, 1998, the difference
between the number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid by the existing holders
of common stock and by the new investors, before deducting the underwriting
discounts and commissions and estimated offering expenses, at an offering price
of $12.375 per share:
<TABLE>
<CAPTION>
GE
SHARES PURCHASED TOTAL CONSIDERATION AVERA
------------------------ -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------ ----------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders ......... 10,637,000 81.0% $65,536,000 68.0% $ 6.16
New investors ................. 2,500,000 19.0% 30,938,000 32.0% 12.38
---------- ----- ----------- ----- ------
Total ....................... 13,137,000 100.0% $96,474,000 100.0% $ 7.34
========== ===== =========== ===== ======
</TABLE>
These tables assume no exercise of outstanding options or warrants. As of March
31, 1999,
o 1,014,731 shares of common stock were issuable upon exercise of outstanding
stock options at a weighted average exercise price of $6.37 per share,
o 184,852 shares of common stock reserved for future issuance under our Stock
Incentive Plan, and
o 11,765 shares of common stock were issuable upon the exercise of an
outstanding warrant at an exercise price of $4.25 per share.
To the extent the outstanding options are exercised, there will be further
dilution to new investors. See "Capitalization," and "Management -- Stock
Option Plans," "Description of Capital Stock" and note 4 to our financial
statements.
18
<PAGE>
SELECTED FINANCIAL DATA
The statements of operations data set forth below for the years ended
December 31, 1996, 1997, and 1998 and the balance sheet data as of December 31,
1997 and 1998 have been derived from our audited financial statements that have
been included elsewhere in this prospectus and are qualified by those financial
statements and notes. The statements of operations data for the years ended
December 31, 1994 and 1995 and the balance sheet data as of December 31, 1994,
1995 and 1996 have been derived from our audited financial statements that are
not included in this prospectus. The historical results are not necessarily
indicative of the results of operations to be expected in the future. The
following selected financial data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and our financial statements and the notes to those statements
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- ----------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue .................................................... $ -- $ 104 $ 55 $ 431 $ 363
Operating expenses:
Research and development expenses ........................ 2,747 4,012 5,146 9,734 16,421
General and administrative expenses ...................... 947 1,520 1,761 2,596 4,572
-------- -------- -------- --------- ---------
Total operating expenses ................................ 3,694 5,532 6,907 12,330 20,993
-------- -------- -------- --------- ---------
Operating loss ............................................. (3,694) (5,428) (6,852) (11,899) (20,630)
-------- -------- -------- --------- ---------
Other income (expense):
Interest income .......................................... 8 49 47 584 1,755
Interest expense ......................................... (258) (360) (167) (113) (127)
-------- -------- -------- --------- ---------
Total other income (expense) ............................ (250) (311) (120) 471 1,628
-------- -------- -------- --------- ---------
Net loss ................................................... $ (3,944) $ (5,739) $ (6,972) $ (11,428) $ (19,002)
======== ======== ======== ========= =========
Basic net loss per share ................................... $ (1.48) $ (1.55) $ (1.78)
Weighted average shares used in per share computations ..... 4,705 7,395 10,647
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .................................. $ 277 $ 1,343 $ 132 $ 32,557 $ 16,920
Working capital (deficiency) ............................... (4,067) 322 (1,305) 34,733 16,562
Total assets ............................................... 1,873 3,058 1,684 38,844 22,872
Long-term notes payable and capital lease obligations, less
current portion ........................................... 751 703 575 240 853
Deficit accumulated during development stage ............... (5,254) (10,994) (17,965) (29,393) (48,395)
Total stockholders' equity (deficit) ....................... (3,236) 1,324 (409) 35,810 18,016
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS DISCUSSION OF OUR FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
SHOULD BE READ TOGETHER WITH THE FINANCIAL STATEMENTS AND NOTES CONTAINED
ELSEWHERE IN THIS PROSPECTUS. CERTAIN STATEMENTS IN THIS SECTION AND OTHER
SECTIONS ARE FORWARD-LOOKING. WHILE WE BELIEVE THESE STATEMENTS ARE ACCURATE,
OUR BUSINESS IS DEPENDENT ON MANY FACTORS, SOME OF WHICH ARE DISCUSSED IN THE
"RISK FACTORS" AND "BUSINESS" SECTIONS OF THIS PROSPECTUS. MANY OF THESE
FACTORS ARE BEYOND OUR CONTROL AND ANY OF THESE AND OTHER FACTORS COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS MADE IN
THIS PROSPECTUS. THE RESULTS OF OUR PREVIOUS CLINICAL TRIALS ARE NOT
NECESSARILY INDICATIVE OF THE RESULTS OF FUTURE CLINICAL TRIALS. PLEASE
CAREFULLY READ THE "RISK FACTORS" SECTION IN THIS PROSPECTUS. WE UNDERTAKE NO
OBLIGATION TO RELEASE PUBLICLY THE RESULTS OF ANY REVISIONS TO THE STATEMENTS
CONTAINED IN THIS PROSPECTUS TO REFLECT EVENTS OR CIRCUMSTANCES THAT OCCUR
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
OVERVIEW
We began our operations in January 1993 and are a development stage
company. Accordingly, we have a limited operating history. Since our inception,
substantially all of our resources have been dedicated to:
o the development, patenting, preclinical testing and clinical trials of
T-20,
o the development of a manufacturing process for T-20,
o production of drug material for future clinical trials, and
o research and development and preclinical testing of other potential product
candidates and compounds.
We have lost money since inception and, as of December 31, 1998, had an
accumulated deficit of approximately $48.4 million. We have received revenue
only from federal small business innovative research grants, otherwise known as
SBIR grants, and an investigative contract and have not generated any revenue
from product sales or royalties. We may never generate any revenue from product
sales or royalties.
Development of current and future drug candidates will require significant
additional, time-consuming and costly research and development, preclinical
testing and extensive clinical trials prior to submission of any regulatory
application for commercial use. We expect to incur substantial losses for the
foreseeable future and expect losses to increase as our research and
development, preclinical testing, drug production, and clinical trial efforts
expand. The amount and timing of our operating expenses will depend on many
factors, including:
o the status of our research and development activities,
o product candidate discovery and development efforts, including preclinical
testing and clinical trials,
o the timing of regulatory actions,
o the costs involved in preparing, filing, prosecuting, maintaining,
protecting and enforcing patent claims and other proprietary rights,
o our ability to establish, internally or through relationships with third
parties, manufacturing, sales, marketing and distribution capabilities,
o technological and other changes in the competitive landscape,
o changes in our existing research and development relationships and
strategic alliances,
o evaluation of the commercial viability of potential product candidates, and
o other factors, many of which are outside of our control.
As a result, we believe that period-to-period comparisons of our financial
results in the future are not necessarily meaningful. The past results of
operations and results of previous clinical trials should not be relied on as
an indication of future performance. If we fail to meet the clinical and
financial expectations of securities analysts and investors, it could have a
material adverse effect on the market price of our common stock. Our ability to
achieve profitability will depend,
20
<PAGE>
in part, on our own or our collaborative partners' ability to successfully
develop and obtain regulatory approval for T-20 and other product candidates
and compounds, and our ability to develop the capacity, either internally or
through relationships with third parties, to manufacture, sell, market and
distribute approved products, if any. We may never generate significant
revenues or achieve profitable operations.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
REVENUE. Total revenue was $55,000, $431,000 and $363,000 in 1996, 1997
and 1998, respectively. Revenue in 1996 and 1998 was entirely derived from SBIR
grants. In 1997, approximately $331,000 was received under SBIR grants, and
$100,000 was received under an investigative contract.
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses
were $5.1 million, $9.7 million and $16.4 million in 1996, 1997 and 1998,
respectively. The increases from each year to the next were due to increased
expenditures for clinical trials for T-20. During 1996, we began a Phase I/II
clinical trial for T-20 and incurred costs associated with these clinical
trials which continued into 1997. To supply the clinical trials during 1997, we
purchased drug material from third party manufacturers, and created an in-house
group dedicated to the development of an improved manufacturing process. In
1998, we:
o began a Phase II clinical trial for T-20,
o increased the number of personnel in our clinical support group, and
o continued manufacturing process development and purchase of drug material
from third party manufacturers to supply future clinical trials.
Total research personnel were 25, 29 and 41 at December 31, 1996, 1997 and
1998, respectively. We expect research and development expenses to increase
substantially in the future due to:
o continued preclinical research and testing of product candidates,
o expanded clinical trials for T-20 and other product candidates,
o the manufacture of drug material for these trials, and
o increased number of personnel to support these activities.
GENERAL AND ADMINISTRATIVE EXPENSES. Total general and administrative
expenses were $1.8 million, $2.6 million and $4.6 million in 1996, 1997 and
1998, respectively. These increases from each year to the next were primarily
due to:
o increased costs related to additional personnel to support our product
development activities,
o professional fees incurred in the patent application process, and
o costs to support our obligations as a publicly traded company.
We expect administrative expenses to increase in the future to support the
expansion of product development activities.
OTHER INCOME (EXPENSE). Other income (expense) consists of interest income
and expense. Total other expense was $120,000 in 1996 and consisted primarily
of interest expense on capital leases. Total other income was $471,000 and $1.6
million in 1997 and 1998, respectively. The increase in interest income in 1997
and 1998 resulted from an increase in cash, cash equivalents and short-term
investments due to proceeds received in our initial public offering completed
in October 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through the
private placement of equity securities, the issuance of notes to stockholders,
equipment lease financing and an initial public offering in October 1997. Net
cash used by operating activities was $5.8 million, $9.0 million and $16.8
million in 1996, 1997 and 1998, respectively. The cash used by operating
activities was used primarily to fund research and development relating to T-20
and other product
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candidates. Cash provided by financing activities was $4.8 million and $46.5
million in 1996 and 1997, respectively. The cash provided by financing
activities was primarily from the sale of equity securities and notes to
stockholders. Cash used in financing activities was $146,000 in 1998.
As of December 31, 1998, we had $20.2 million in cash and cash equivalents
and short-term-investments, compared to $37.4 million as of December 31, 1997.
The decrease was primarily a result of the use of approximately $16.8 million
by operations.
We have experienced negative cash flows from operations since our
inception and do not anticipate generating sufficient positive cash flows to
fund our operations in the foreseeable future. We have expended, and expect to
continue to expend in the future, substantial funds to pursue our product
candidate and compound discovery and development efforts, including:
o expenditures for clinical trials of T-20 and other product candidates,
o research and development and preclinical testing of other product
candidates,
o manufacture of drug material, and
o the development of our proprietary technology platform.
As of December 31, 1998, we had commitments of approximately $4 million to
purchase product candidate materials and fund various clinical studies, and
expect to expend approximately $1 million in capital expenditures during 1999.
These expenditures will be financed with the proceeds of this offering. Based
on our current plan, we expect that existing capital resources, together with
the net proceeds of the offering and the interest earned on those proceeds,
will be adequate to fund our capital requirements through 1999.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1998, we had a net operating loss carryforward of
approximately $45.6 million. We have recognized a valuation allowance equal to
the deferred asset represented by this net operating loss carryforward and
therefore recognized no tax benefit. Our ability to utilize these net operating
loss carryforwards may be subject to an annual limitation in future periods
pursuant to the "change in ownership rules" under Section 382 of the Internal
Revenue Code of 1986, as amended. See note 5 to our financial statements.
ACCOUNTING AND OTHER MATTERS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial
statements. The statement of operations included in the financial statements
includes all elements of comprehensive income.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which requires that public business
enterprises report certain information about operating segments in complete
sets of financial statements issued to shareholders. It also requires that
public business enterprises report certain information about their products and
services, the geographic areas in which they operate and their major customers.
We currently operate in one segment in one geographic area and have no
customers.
The FASB also issues exposure drafts for proposed statements of financial
accounting standards. Such exposure drafts are subject to comment from the
public, to revisions by the FASB and to final issuance by the FASB as
statements of financial accounting standards. Management considers the effect
of the proposed statements on our financial statements and monitors the status
of changes to issued exposure drafts and to proposed effective dates.
YEAR 2000 COMPLIANCE
STATE OF READINESS. We have adopted a Year 2000 compliance plan and formed
a team assigned to the task of identifying and resolving any Year 2000 issues
that may affect our business. Our compliance plan has four phases: inventory,
assessment, remediation and testing. We have completed an inventory of all of
our computer systems, computer-related equipment and equipment with embedded
processors. We are currently in the process of assessing those systems. We have
completed this assessment with respect to most of our systems and expect to
complete our assessment
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of the remaining systems by mid-1999. Although we cannot control whether and
how third parties will address the Year 2000 issue, we also are in the process
of contacting critical vendors and suppliers to assess their ability to ensure
smooth delivery of products without disruptions caused by Year 2000 problems.
In the course of our assessment, we have not yet identified any Year 2000
issues that would affect our ability to do business; however, our assessment is
not complete, and there can be no assurance that there are no Year 2000 issues
that may affect us. Once we complete the assessment phase, we will prioritize
and implement necessary repairs or replacements to equipment and software to
achieve Year 2000 compliance. We expect to complete this phase by mid-1999. The
final phase will consist of a testing program for all repairs. We anticipate
that all testing will be completed by October 1999.
COSTS. We have not prepared estimates of costs to remediate Year 2000
problems; however, based on currently available information, including the
results of our assessment to date and our replacement schedule for equipment,
we do not believe that the costs associated with Year 2000 compliance will have
a material adverse effect on our business, financial condition and results of
operations.
RISKS. Although we believe that our Year 2000 compliance plan is adequate
to address Year 2000 concerns, we may experience negative consequences as a
result of undetected defects or the non-compliance of third parties with whom
we interact. Furthermore, there may be a delay in, or increased costs
associated with, the implementation of corrections as the Year 2000 compliance
plan is performed, such as unexpected costs of correcting equipment that has
not yet been fully evaluated. If realized, these risks could result in a
material adverse effect on our business, financial condition and results of
operations.
We believe that our greatest risk stems from the potential non-compliance
of our suppliers. We depend on a limited number of suppliers for certain
materials, components, services, including electrical service, and equipment
necessary to operate our research effort and our clinical trials. Accordingly,
if those suppliers are unable to process or fill our orders, provide us with
services, or otherwise interact with us because of Year 2000 problems, we could
experience material adverse effects to our business. We are in the process of
assessing the Year 2000 status of our suppliers and are investigating
alternative sources of supply.
CONTINGENCIES. We have not yet developed a contingency plan to address
what would happen in the event we are unable to address the Year 2000 issue.
The contingency plan is expected to be completed after the inquiry of vendors
and customers is completed.
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BUSINESS
OVERVIEW
We are engaged in the discovery and development of a new class of
therapeutic agents called viral fusion inhibitors. Viral fusion is a complex
process by which viruses attach to and penetrate host cells. By inhibiting the
fusion process of certain types of viruses, our products under development
offer a novel mechanism of action to treat many serious viral diseases.
Our lead product candidate, T-20, inhibits fusion of HIV with host cells
thereby impeding replication of the virus. T-20 treats HIV infection by means
of a mechanism of action that differs from all currently-approved anti-HIV
drugs. In January 1999, we completed a Phase II clinical trial of T-20 with 78
HIV-infected adults. These patients had high viral loads and exhibited
resistance to many anti-HIV drugs. Prior to entering the trial, the patients
had used, on average, nine currently-approved anti-HIV drugs that no longer
suppressed their HIV viral loads below detectable levels. The trial showed that
T-20 caused a significant, clinically-relevant and dose-dependent reduction of
HIV viral load, and was safe and well-tolerated. Among the patients in two of
the higher dosage groups in the trial, T-20 reduced HIV viral load by more than
90% without serious side effects. The data from the trial also demonstrated
that twice-daily subcutaneous injection achieved consistent levels of T-20 in
the blood. Based on these results, we have chosen to use subcutaneous injection
as the method of delivery of T-20 in our ongoing and future clinical trials.
We are currently conducting two Phase II trials of T-20 and plan to
commence additional trials during 1999. We expect to begin our pivotal trial
for T-20 in the fourth quarter of 1999. In January 1999, the FDA gave T-20 fast
track designation. This designation is granted to products that the FDA
determines may provide significant improvement in the safety or effectiveness
of the treatment of a serious or life-threatening disease and is intended to
expedite the FDA's review. In addition, we have developed a manufacturing
process for T-20 that we believe will improve cost-efficiencies in the
production of the compound at quantities sufficient for potential
commercialization.
Based on our expertise in viral fusion inhibition, we have also developed
a proprietary platform technology that we use to design highly selective and
potent peptide or small molecule fusion inhibitors. Using our platform
technology, we have designed T-1249, a second-generation HIV fusion inhibitor,
which has demonstrated very potent activity against HIV in preclinical studies.
We have filed with the FDA an IND for T-1249. In the second quarter of 1999, we
intend to commence a Phase I clinical trial in which T-1249 will be
administered once or twice daily, depending on the patient group, by
subcutaneous injection in up to 60 HIV-infected adults for 14 days.
Additionally, we are pursuing research programs to develop fusion
inhibitors that target various other viruses, including respiratory syncytial
virus, or RSV, human parainfluenza virus, influenza virus, hepatitis B and C
viruses and Epstein-Barr virus. We have identified a series of peptide fusion
inhibitors and small molecules that have been shown in preclinical testing to
be highly active against RSV, which is a significant cause of pediatric
bronchiolitis and pneumonia.
OVERVIEW OF VIRAL FUSION
Viruses are infectious particles that rely on host cells to maintain their
life cycles. After infecting a host cell, a virus exploits the internal
processes of the cell to make new infectious virus particles that can infect
other cells. If a virus is prevented from entering a cell, it cannot replicate.
Viral fusion is a complex process by which some viruses attach to and
penetrate host cells. Certain types of viruses have on their surface viral
proteins that undergo very specific structural rearrangements upon contact with
a potential host cell. The structural rearrangements draw the virus to the cell
and allow the viral membrane to fuse with the host cell membrane. Once fused,
the virus releases its genetic material into the host cell and the viral
replication process begins.
By interfering with the structural rearrangements of the proteins that are
critical to viral fusion, we have developed ways to prevent viruses that are
dependent on the fusion mechanism from entering host cells and replicating. HIV
relies on fusion to infect host cells. T-20 inhibits fusion of HIV to host
cells and prevents HIV from infecting new cells within the body of an
HIV-infected patient.
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OVERVIEW OF HIV
Approximately 900,000 people in the U.S. and nearly 500,000 people in
Europe are infected with HIV. It is estimated that an additional 40,000 people
are infected with HIV each year in the U.S. alone. HIV attacks primarily the
human immune cells known as CD4+ T-cells and macrophages. Without effective
treatment, HIV-infected individuals ultimately experience degradation of their
immune systems, which results in opportunistic infections, neurological
dysfunctions, malignancies and death. In treating HIV infection, it is critical
to reduce the patient's viral load, because it has been shown to prolong
survival. While significant progress has been made in combating HIV,
noncompliance with and resistance to current therapies have created a
heightened demand for new HIV therapies that work by novel mechanisms of
action, have unique resistance profiles and have tolerable side effects.
Currently-approved anti-HIV drugs inhibit two viral enzymes, reverse
transcriptase, or RT, and HIV protease. These enzymes are necessary for HIV
replication within a host cell. Approved RT inhibitors include AZT, 3TC, ddI,
ddC, d4T, nevirapine, delavirdine, efavirenz and abacavir. Approved HIV
protease inhibitors include indinavir, ritonavir, saquinavir, nelfinavir and
amprenavir. Use of RT and protease inhibitors in various combinations has been
shown to cause significant reduction of viral load in most patients and can
significantly improve these patients' overall health. Therapies based on
certain combinations of RT and protease inhibitors have driven HIV viral loads
in many patients to below detectable levels for sustained periods. In 1996,
approximately 32,000 HIV-infected patients in the U.S. died. In 1997,
approximately two years after the introduction of protease inhibitors, deaths
attributable to HIV infection had been reduced to 16,000. Because of the
powerful results achieved by the combined use of these drugs, total worldwide
sales of approved RT and protease inhibitors exceeded $3.5 billion in 1998.
Despite the success of these drugs, many HIV-infected patients do not
undergo therapy and an increasing number of patients on combination therapy are
beginning to fail. Studies have shown that combination therapy fails to
suppress viral load below detectable levels in approximately 50% of patients
within two years of beginning such therapy. Two major reasons that
currently-approved anti-HIV drugs are not adequately addressing the
HIV-infected population are NONCOMPLIANCE and RESISTANCE.
NONCOMPLIANCE. Data suggest that approximately 5%-10% of HIV-infected
patients have refused to commence or have withdrawn from taking RT and protease
inhibitors, either alone or in combination, due to side effects and difficult
dosing regimens. Among those patients who do attempt to adhere to regimens of
combination therapy, the harsh side effects and difficult dosing regimens often
cause some patients to miss doses or stop treatment for extended periods.
Severe side effects commonly associated with currently-approved anti-HIV drugs
include:
o neurological disorders, including frequent nightmares,
o gastrointestinal disorders, such as diarrhea and nausea,
o diabetes-like symptoms induced by protease inhibitors, and
o abnormal redistribution of body fat and elevated cholesterol counts.
Dosing regimens that are common with many combination therapies can be onerous
and can include:
o up to 30 pills, including anti-HIV drugs and other medications, taken at
six to eight specific times during the day,
o specific dosing provisions such as taking pills with food or large volumes
of liquid,
o waking in the middle of the night to take pills, and
o inability to take other drugs at the same time due to adverse drug
interactions.
Importantly, even brief instances of noncompliance with the strict drug dosing
regimens associated with these combination therapies may reduce the
effectiveness of therapy and can accelerate the emergence of resistance.
RESISTANCE. HIV is prone to genetic mutations that produce strains of HIV
that are resistant to currently-approved RT and protease inhibitors. In
approximately 50% of HIV-infected patients, combination therapies fail to
suppress viral loads below detectable levels within two years of initiating
therapy. Additionally, other studies have shown that within the first year of
initiating combination therapy, approximately 50% of patients change their
therapy due to intolerance, incomplete suppression or total resistance. In a
majority of patients that fail one particular anti-HIV drug, resistance to
other drugs
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within that same chemical or functional class becomes more likely. This
phenomenon is known as cross-resistance. Attempts to reestablish suppression of
HIV viral load, commonly known as salvage therapy, by substituting different RT
and protease inhibitors often fail because of cross-resistance. Finally, new
studies suggest that 10%-20% of newly-infected HIV patients are infected with a
strain of HIV that is resistant to at least one currently-approved anti-HIV
drug.
T-20 and T-1249 inhibit viral fusion whereas RT and protease inhibitors
inhibit the function of two viral enzymes necessary for HIV replication. Since
fusion inhibitors and RT and protease inhibitors address different targets
which are encoded by different HIV genes, strains of virus resistant to each of
these classes of drugs result from different HIV mutations. Therefore, the
resistance patterns of each of these classes of drugs will not likely overlap.
We expect that fusion inhibitors will be fully active against strains of HIV
that are resistant to RT and protease inhibitors.
NEED FOR NEW CLASS OF DRUGS. If the side effects of currently-approved
drugs prove too severe, or if a patient's virus becomes resistant to
combinations of RT and protease inhibitors, there are currently no other
classes of anti-HIV drugs available. Furthermore, most, if not all, anti-HIV
drugs currently in clinical development are RT and protease inhibitors and are
subject to cross-resistance. We believe that there is a need for a new class of
anti-HIV drug that:
o works by a novel mechanism of action,
o has fewer side effects,
o is active against strains of HIV that are resistant to RT and protease
inhibitors, and
o may be effectively and safely prescribed in combination with existing
therapies.
Based on the results of our clinical trials, we believe that T-20 meets all of
these criteria. We further believe that T-1249 may meet these criteria.
HIV VIRAL FUSION INHIBITORS
T-20
T-20 is a peptide that has been shown in clinical trials to cause a
dose-dependent decrease in HIV viral load. T-20 inhibits HIV viral fusion with
host cells and therefore operates by a completely different mechanism of action
than any other currently-approved anti-HIV drug. T-20 interacts with HIV
outside potential host cells in contrast to currently-approved anti-HIV drugs
which inhibit HIV replication within a host cell only after it is already
infected. In the higher dose groups in the trials completed to date, T-20
caused a significant and clinically-relevant decrease in HIV viral load. We
have completed two clinical trials for T-20 and expect to commence a pivotal
trial during the fourth quarter of 1999. The FDA has granted T-20 fast track
designation.
MECHANISM OF ACTION
T-20 is a patented 36 amino acid synthetic peptide that binds to a key
region of an HIV surface protein called gp41. T-20 blocks HIV viral fusion by
interfering with certain structural rearrangements within gp41 that are
required for HIV to fuse to and enter a host cell. The following diagram
illustrates the mechanism by which T-20 inhibits viral fusion and prevents
infection.
MODEL FOR T-20 INHIBITION OF HIV FUSION
[DESCRIPTION OF ILLUSTRATION OF T-20 INHIBITION OF HIV FUSION: The
illustration consists of five panels labeled "binding," "attachment,"
"drawing near," "fusion," and "inhibition." In each panel, HIV and its
components are depicted and labeled, including the surface proteins gp41
and gp120. The series of panels illustrates the progression of HIV from
binding through fusion and also demonstrates how T-20 interferes with the
fusion event.]
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In the HIV infection process, the gp120 surface protein is stripped away from
the virus after gp120 binds to host cell receptors. Two specific regions in the
gp41 protein are thus freed and can bind to one another and cause the viral
membrane to fuse with the host cell membrane. If T-20 is present in the
bloodstream, it binds tightly to one of these regions within the gp41 protein
and blocks the structural rearrangement necessary for the virus to fuse with
the host cell. Since the virus cannot fuse with the host cell, it cannot
penetrate and release its genetic material into the cell. HIV infection of the
host cell is inhibited, and HIV replication within that cell is prevented.
NOTE: The gp120 and gp41 protein structures illustrated above are enlarged in
comparison to the size of the virus to show detail.
T-20 CLINICAL DEVELOPMENT
We have completed two clinical trials of T-20: a 16-patient, Phase I/II
clinical trial and a 78-patient, Phase II trial. In both trials, T-20 exhibited
dose-dependent anti-HIV activity without causing serious drug-related adverse
events or dose-limiting toxicities during the treatment period. In the higher
dose groups in each trial, T-20 caused a significant and clinically-relevant
decrease in HIV viral load. We have two Phase II trials ongoing, and we plan to
commence additional trials during 1999, including our pivotal trial for T-20
which we expect to start in the fourth quarter.
COMPLETED T-20 CLINICAL TRIALS
PHASE I/II -- TRI-001. In August 1997, we concluded a Phase I/II clinical
trial in which T-20 was administered for 14 days to 16 HIV-infected patients.
T-20 was the only anti-HIV drug administered to these patients, commonly
referred to as monotherapy. The trial consisted of four groups of four
patients, with each group receiving a different dose of T-20. Patients received
doses of either 3 mg, 10 mg, 30 mg or 100 mg by intravenous infusion every 12
hours. No serious drug-related adverse events were recorded and no
dose-limiting toxicities were observed for any patient during the treatment
period. Furthermore, a dose-dependent decrease in HIV viral load and a
dose-dependent increase in CD4+ T-cell count were observed. All patients in the
100 mg dose group achieved a decrease in HIV viral load of at least 1.90 log10,
or 98%. T-20 reduced HIV viral load in the patients in the 100 mg dose group at
a rate comparable to that achieved by the most potent anti-HIV drugs, including
three- and four-drug regimens.
PHASE II -- TRI-003. In January 1999, we completed a Phase II clinical
trial in which T-20 was administered to HIV-infected adults with high viral
loads. The trial consisted of six groups of 13 patients with a dosing period of
28 days. Four groups received T-20 by continuous subcutaneous infusion at doses
of either 12.5 mg, 25 mg, 50 mg or 100 mg per day. The other two groups
received T-20 via subcutaneous injections twice a day in doses of either 50 mg
or 100 mg. For approximately 60% of the patients in the trial, T-20 was added
to a regimen of other anti-HIV drugs that they had already been taking; for the
other 40%, T-20 was administered as the only anti-HIV drug.
The results for all patients in this trial were attributable to T-20,
because even for those patients who were taking other anti-HIV drugs, these
therapies were incompletely suppressing HIV viral load. The average viral load
of the study population was approximately 100,000 copies/ml prior to entering
the trial. Most patients in the trial had extensive prior exposure to anti-HIV
drugs. On average, the patients in this trial had previously failed nine
anti-HIV drugs, including three protease inhibitors. Only one patient in the
trial had not received any prior anti-HIV drug. The median maximum reduction in
HIV viral load ranged from 69% to 97% across the treatment groups. Further
details of the trial are set forth in the table below.
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T-20 PHASE II -- TRI-003 CLINICAL TRIAL RESULTS
<TABLE>
<CAPTION>
MEDIAN MAXIMUM DECLINE IN
HIV
METHOD OF DELIVERY NUMBER OF PATIENTS (INTENT TO TREAT ANALYSIS)
----------------------------- ---------------------- ---------------------------
CONTINUOUS TWICE-DAILY
SUBCUTANEOUS SUBCUTANEOUS INITIATED COMPLETED
DOSE INFUSION INJECTION ON T-20 TRIAL LOG10 COPIES/ML % CHANGE
- ------------ -------------- -------------- ----------- ---------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C>
12.5 mg (check) 12 10 -0.5 69%
25.0 mg (check) 13 12 -0.5 69%
50.0 mg (check) 13 13 -0.7 80%
100.0 mg (check) 12 11 -0.9 87%
50.0 mg (check) 12 12 -1.0 90%
100.0 mg (check) 13 12 -1.6 97%
</TABLE>
Of the 78 patients screened for the trial, three withdrew before being
initiated on T-20, and five withdrew during the course of therapy: three due to
intolerance of the continuous subcutaneous infusion administration and two due
to adverse events. In the table above, intent to treat analysis refers to the
fact that the data from each patient are included within the group in which the
patient started the trial, regardless of whether the patient completed the full
course of therapy. Log10copies/ml means the numbers of HIV virus particles per
milliliter of blood.
In addition to the data set forth above, preliminary analysis indicates
that patients with viral loads less than 100,000 copies/ml at the start of the
trial achieved greater viral load reductions and more sustained viral
suppression than patients with baseline viral loads greater than 100,000
copies/ml.
SIDE EFFECTS. In the TRI-003 trial, most patients experienced mild to
moderate local skin irritation at the site of infusion or injection, which was
often characterized as a firmness under the skin and typically went away within
a few days. Some patients were able to reduce the incidence of irritation by
massaging the site after injection. Only two patients discontinued T-20 due to
side effects during this trial: one patient who had been receiving 100 mg of
T-20 per day via continuous subcutaneous infusion experienced pain at the site
of infusion, and another patient who had been receiving 100 mg twice daily via
subcutaneous injections experienced a rash. No treatment-related Grade 3 or 4
toxicities were observed. Grade 3 or 4 toxicities are severe reactions
characterized by a need to cease therapy and sometimes require hospitalization.
PHARMACOKINETIC ANALYSES. Preliminary analyses of drug levels in the
blood, commonly known as pharmacokinetic analyses, indicate that both
continuous subcutaneous infusion and twice-daily subcutaneous injection
resulted in consistent blood levels of T-20, with little variation throughout
the dosing period. Therefore, continuous infusion is not necessary for the
efficient delivery of T-20, and we have chosen subcutaneous injection as the
method of delivery in the ongoing and future trials.
ANTIBODIES. We have examined patient samples taken throughout the trials
to assess potential antibody responses to T-20. Our preliminary findings
indicate that T-20 administration does not cause antibody formation within
14-28 days. We will be able to draw more specific conclusions about potential
antibody response only after we complete a clinical trial of longer duration.
RESISTANCE. We are currently conducting genotypic and phenotypic analyses
of patients' blood samples taken throughout the TRI-003 trial to test for
existence of strains of HIV resistant to T-20. A genotypic resistance analysis
involves examination of the genetic sequence of the strains of virus present in
the sample. A phenotypic resistance analysis involves an assessment of the
ability of a drug to block infection of virus strains of a virus grown in
culture. It is too early in our analyses to draw any specific conclusions from
the TRI-003 trial about resistance as it relates to T-20. We expect, however,
that any resistance profile of T-20 will not overlap with the resistance
profiles of currently-approved anti-HIV drugs because of T-20's novel mechanism
of action.
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ONGOING T-20 CLINICAL TRIALS
PHASE II -- TRI-002. In July 1998, we began a single site Phase II trial.
T-20 was given by continuous subcutaneous infusion at a dose of 50 mg per day.
T-20 was administered alone for 10 days and then a triple combination regimen
of nevirapine, nelfinavir and saquinavir was added to the T-20 regimen. Prior
to this trial, this patient had never taken any of these other three drugs. One
patient is currently enrolled in this trial and has been in the trial for over
six months. Prior to participation in this trial, this patient had failed four
anti-HIV drugs (AZT, 3TC, d4T and indinavir), had a baseline viral load of
approximately 481,000 copies/ml and a baseline CD4+ cell count of 260. To date,
we have completed analyses of the data from this patient through the first five
months of therapy. During this period, the patient sustained a greater than 99%
decrease in viral load and a 380 cell increase in CD4+ cells, with no evidence
of systemic toxicities associated with T-20 therapy. We found no detectable
T-20 antibodies during that treatment period.
PHASE II -- T20-205. In March 1999, we initiated a roll-over Phase II
trial to continue T-20 therapy for patients who participated in the TRI-001
trial or the TRI-003 trial. The primary purpose of this trial is to collect
data relating to the safety of long-term administration of T-20. Patients in
this trial will add T-20 to their individualized anti-HIV drug combinations and
will remain on therapy for as long as they demonstrate acceptable safety and
antiviral responses. Approximately two-thirds of the patient population
eligible for enrollment has already enrolled in this study, and enrollment is
still ongoing. We expect to have our initial long-term safety data from this
trial in the third quarter of 1999.
FUTURE T-20 CLINICAL TRIALS
Throughout the remainder of 1999, we expect to initiate additional Phase
II trials. We expect to begin a pivotal trial by the end of 1999.
PHASE II -- T20-204 (PEDIATRIC). In cooperation with the Division of AIDS
of the National Institute of Allergy and Infectious Diseases, we are planning
to commence a clinical trial in 1999 to assess the safety, pharmacokinetics and
preliminary antiviral activity of T-20 in children. We expect to enroll 12
HIV-infected children. We will assess safety and pharmacokinetics following
administration of one dose of T-20 by both intravenous and subcutaneous
injection. Based on this assessment, we will choose an appropriate dose and
begin chronic dosing of the patients in this trial. We expect to begin this
pediatric trial in the second quarter of 1999 and complete it by early 2000. We
will use the results from this trial to design larger scale pediatric trials
that we expect to commence following culmination of the safety and
pharmacokinetic trial.
PHASE II -- T20-206. Based on the results of TRI-003, a Phase II trial is
planned for 1999 that should assess the long-term safety and efficacy of T-20
when used in combination with other anti-HIV drugs. The trial is designed to
run for 48 weeks, with formal data collection at 16 and 48 weeks. It will be a
multi-site, randomized, controlled comparison of 3 different doses of T-20 in
combination with a background regimen of a nucleoside RT inhibitor, a protease
inhibitor and a non-nucleoside RT inhibitor. The control group will receive the
background regimen of anti-HIV drugs without T-20. We intend to collect data
from up to 68 patients who complete treatment. Entry criteria will require that
enrolled patients have prior exposure to nucleoside RT inhibitors and protease
inhibitors, but no prior exposure to non-nucleoside RT inhibitors. We expect to
commence the trial in the second quarter of 1999.
PIVOTAL TRIAL. Based on the results of these Phase II trials, we intend to
begin a pivotal trial late in the fourth quarter of 1999 in a larger population
of HIV-infected patients who are either resistant to, or intolerant of,
currently-approved anti-HIV drugs. Historically, pivotal trials of this type
involving anti-HIV drugs have included approximately 300-400 patients and have
taken approximately 18 months to complete.
FDA FAST TRACK DESIGNATION
In January 1999, the FDA gave T-20 fast track designation for the
treatment of HIV-infected individuals. Fast track designation is granted to
products that may provide a significant improvement in the safety or
effectiveness of the treatment for a serious or life-threatening disease, and
this designation is intended to expedite FDA review. Throughout the T-20
clinical trial process, we intend to work with the FDA to design and implement
a clinical trial strategy involving the administration of T-20 to HIV-infected
patients in combination with approved HIV antiviral agents. T-20 may never be
approved by the FDA for marketing on an accelerated basis, or at all.
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T-1249
We are developing T-1249, our second drug candidate for HIV fusion
inhibition. T-20 is the first drug candidate in a novel class of antiviral
therapeutics, fusion inhibitors. The history of HIV treatment has demonstrated
that the existence of multiple drugs within the RT and protease inhibitor
classes has allowed for a variety of treatment options and improved patient
treatment. We believe that multiple HIV fusion inhibitors may enhance HIV
therapy by providing an even broader range of treatment options. We intend to
be a leader in HIV fusion inhibitors and to develop multiple drug candidates
within this class.
T-1249 binds to a region of the HIV gp41 surface protein that differs from
that bound by T-20. Based on our knowledge of the structure of the gp41
protein, we designed T-1249, a 39 amino acid peptide, to bind more tightly to
the gp41 protein, and we included an amino acid sequence that we believed would
enhance the pharmacokinetic properties of the T-1249 peptide. T-1249 has
demonstrated favorable pharmacokinetics and potent HIV suppression in
preclinical testing and is highly active against a wide range of HIV strains in
culture, commonly referred to as IN VITRO. Increased potency may allow for
lower drug dosing and simpler drug delivery options. The broad range of
activity against many different strains of HIV IN VITRO suggests that T-1249
may possess a resistance profile distinct from RT and protease inhibitors as
well as T-20.
We have filed an IND for T-1249, and we expect to begin a Phase I clinical
trial in the second quarter of 1999. In the trial, T-1249 will be administered
once or twice daily, depending on the patient group, by subcutaneous injection
in up to 60 HIV-infected adults for 14 days.
ANTI-HIV SMALL MOLECULES
We have developed advanced solution-based screens to search for small
molecule fusion inhibitors of HIV and are currently screening various compounds
to test for HIV fusion inhibiting capabilities.
COMMERCIALIZATION STRATEGY
We are continuing to examine all our opportunities, either independently
or in conjunction with strategic partners, that we believe will allow for the
successful development and commercialization of our anti-HIV compounds, if they
are approved. We may be able independently to further develop T-20 and T-1249
and to commercialize these compounds if they are approved. We are also in
negotiations with several potential strategic partners. We expect that any
arrangement with a strategic partner would entail a relationship in which some
of the costs of the development and commercialization of our anti-HIV product
candidates would be borne by the strategic partner in exchange for a portion of
any earnings derived from sales. Such a partnership may not materialize on the
terms that we believe to be appropriate.
MANUFACTURING
The synthetic manufacture of peptides historically has been complex and
expensive. This constraint does not limit the commercialization of most peptide
therapeutics, which are administered in relatively small doses. We anticipate
dosing levels of T-20 to be relatively higher than other peptides. We have
developed a novel peptide manufacturing process in order to make greater
quantities of T-20 than were traditionally feasible and to reduce production
costs.
We believe our new production process will allow us to take advantage of
the scale and cost efficiencies experienced in the manufacture of conventional
pharmaceuticals. Two third-party manufacturers are currently using this process
to produce multi-kilogram quantities of T-20. We plan to increase the scale of
this process to support the market demand that we anticipate for T-20, if it is
approved by the FDA. We plan to apply our novel process to the manufacture of
T-1249. Because of the complexity of manufacturing peptides, we may not be able
to manufacture commercial quantities of T-20 or T-1249 on a cost-efficient
basis.
OTHER VIRAL FUSION INHIBITOR PROGRAMS
Using our proprietary viral fusion platform technology, we have identified
target sequences that appear to cause fusion inhibition for several viruses. We
have identified, and filed patent applications disclosing, numerous discrete
peptide sequences which include potential fusion targets in certain viruses
that rely on fusion to penetrate host cells. Our research programs for certain
fusion viruses are set forth below.
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o RESPIRATORY SYNCYTIAL VIRUS. RSV causes pediatric bronchiolitis and
pneumonia. Each year in the United States, 11% of children younger than
one year of age are infected with RSV. More than 90,000 infants are
hospitalized with RSV infections, and deaths of over 4,500 children each
year are attributed to RSV. In addition, RSV affects the elderly and
immune-compromised individuals and is also thought to be a co-factor in
causing inner ear infections.
We have identified a series of peptide RSV fusion inhibitors and small
molecules that may be effective in treating RSV infection. The anti-RSV
peptides have shown potent, specific and selective inhibition of RSV
infection in preclinical animal model testing. The anti-RSV small
molecules have exhibited potent activity against RSV IN VITRO. In
addition, we have developed proprietary molecular screens, which will
enable us to search for additional small molecule fusion inhibitors that
are active against RSV.
o HUMAN PARAINFLUENZA VIRUS. Human parainfluenza virus, or HPIV, causes
respiratory disease in young infants. No currently-approved drugs
effectively treat HPIV infection. We have developed a series of peptides
that inhibit HPIV IN VITRO. T-205, our lead anti-HPIV peptide, shows
potent, specific and selective inhibition of HPIV infection IN VITRO. We
intend to evaluate T-205 and other peptide candidates for possible
advancement to preclinical development.
o INFLUENZA VIRUS. We have initiated an early-stage discovery program to
create a high-throughput screening assay to identify potential small
molecule fusion inhibitors of influenza. We have established a
collaboration with Dr. Judith White at the University of Virginia to
assist in the discovery and development of fusion inhibitors for influenza
virus.
o HEPATITIS B AND C VIRUSES. We have initiated early-stage discovery programs
to create high-throughput screening assays that can identify potential
small molecule fusion inhibitors of the hepatitis B and C viruses.
o EPSTEIN-BARR VIRUS. We have initiated an early-stage discovery program in
EBV through a collaboration with Dr. Joseph Pagano of the University of
North Carolina at Chapel Hill. EBV causes infectious mononucleosis and has
been linked to a variety of cancers. Dr. Pagano is working with us to
develop a strategy to inhibit the function of a key protein required for
EBV replication. We have identified interactive peptide regions within
this molecular target and have synthesized peptide inhibitors that are
active IN VITRO.
LICENSING AND COLLABORATIVE AGREEMENTS
We have an ongoing program of business development which may lead to the
establishment of collaborative and licensing arrangements with collaborative
partners, licensees and third parties. The purpose of these arrangements would
be to seek regulatory approval of and to develop, manufacture and commercialize
selected product candidates. These collaborations could provide us with:
o funding,
o research and development resources,
o access to libraries of diverse compounds, and
o clinical development, manufacturing, sales, marketing and distribution
capabilities.
Our success could depend, in part, on the subsequent success of such third
parties in performing their obligations under collaborative and licensing
arrangements. We cannot assure that such arrangements will be successful or
will produce their intended results. We may not be able to maintain our
existing arrangements or enter into new collaborative and license arrangements
on acceptable terms.
In February 1993, we entered into an agreement with Duke University,
pursuant to which we have an exclusive, worldwide, royalty-free license to
certain discoveries and inventions, including patent rights, in the field of
antiviral therapeutics developed before February 2000 in the laboratories of
Drs. Dani Bolognesi, Thomas J. Matthews, Michael Greenberg and Kent Weinhold of
the Duke University Center for AIDS Research. The license for each of these
discoveries or inventions, including T-20, expires upon the expiration of the
life of the patent related to the relevant discovery or invention. We have
received multiple discoveries and inventions under the Duke agreement, some of
which have been patented. We believe, but cannot assure you, that we will be
able to successfully negotiate an extension or
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renewal of the Duke agreement for inventions developed after February 2000, but
we may not be able to. If the Duke agreement were to terminate early, or we are
unable to renew the Duke agreement on acceptable terms, it could have a
material adverse effect on our business, financial condition and results of
operations. Expiration of our right to obtain a license to inventions developed
until February 2000 will not impact the licenses that have already been granted
pursuant to the agreement, including the license for T-20.
In April 1997, we entered into an agreement with MiniMed Inc. under which
we collaborate with MiniMed in the development and delivery of therapies for
the treatment of certain diseases by using the continuous infusion delivery
pump developed by MiniMed with our antiviral product candidates. The first
collaborative project was the continuous delivery of T-20 in the TRI-003 trial.
Under the MiniMed agreement, a joint management committee will determine an
implementation strategy for each collaborative project. The MiniMed agreement
contains certain exclusivity and noncompetition provisions relating to the use
of a continuous subcutaneous infusion pump.
In September 1997, we obtained from The New York Blood Center an
exclusive, worldwide, royalty-bearing license to certain United States and
foreign patents and patent applications relating to HIV peptides. In addition
to annual minimum royalty payments, we are obligated to pay a one-time fee to
the Blood Center in the event that a pivotal clinical trial utilizing a product
covered by the license is not commenced by September 2002. The license
agreement further provides that we may pay the Blood Center money to fund a
sponsored research program as payment for up to a certain percentage of
royalties otherwise due. If we choose to sponsor a research program, we will
have a right of first negotiation for an exclusive, royalty-bearing license to
all intellectual property arising from that program.
SALES, MARKETING AND DISTRIBUTION
We have no experience in sales, marketing or distribution of
pharmaceuticals and currently have no personnel employed in any of these
capacities. We may develop capabilities in some of these areas. In other areas,
however, we may rely on marketing partners or other arrangements with third
parties. In the event that we are unable to reach agreement with one or more
marketing partners to market these products, we may be required to develop
internal sales, marketing and distribution capabilities. We may not be able to
make arrangements with third parties on acceptable terms, if at all, or to
establish cost-effective sales, marketing or distribution capablities of our
own.
If we establish sales, marketing or distribution arrangements with other
parties, they may have significant control over important aspects of the
commercialization of our products. We may not be able to control the amount and
timing of resources that any other third party may devote to our products or
prevent any third party from pursuing alternative technologies or products that
could result in the development of products that compete with our products.
PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS
Our success will depend, in part, on our ability, and the ability of our
collaborators or licensors, to obtain protection for our products and
technologies under United States and foreign patent laws, to preserve our trade
secrets and to operate without infringing the proprietary rights of third
parties.
We own or have exclusive licenses to several issued United States patents,
pending United States patent applications, and certain corresponding foreign
patents and patent applications. Our issued United States patents expire
between 2013 and 2016. Some of the patents and patent applications which cover
aspects of our products and process belong to Duke University and are licensed
to us. We also have a license to certain patents and patent applications from
New York Blood Center. For further information regarding the terms of these
license agreements, see "Business -- Licensing and Collaborative Agreements."
We also rely on trade secrets, know-how and other proprietary information,
which we seek to protect, in part, through the use of confidentiality
agreements with employees, consultants, advisors and others. These agreements
may not provide adequate protection for our trade secrets, know-how, or other
proprietary information in the event of any unauthorized disclosure. Our
employees, consultants or advisors could disclose our trade secrets or
proprietary information to competitors, which would be detrimental to us. For
further information regarding the risks associated with our intellectual
property, see "Risk Factor -- There is uncertainty regarding patents and
proprietary rights."
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COMPETITION
We are engaged in segments of the biopharmaceutical industry, including
the treatment of HIV, that are intensely competitive and change rapidly. If
successfully developed and approved, our products will compete with numerous
existing therapies. For example, at least 16 drugs are currently approved in
the United States for the treatment of HIV. In addition, a number of companies
are pursuing the development of novel pharmaceutical products that target the
same diseases that we are targeting. Some companies, including several
multi-national pharmaceutical companies, are simultaneously marketing several
different drugs and may therefore be able to market their own combination drug
therapies. We believe that a significant number of drugs are currently under
development and will become available in the future for the treatment of HIV.
We believe that there is a significant future market for therapeutics that
treat HIV and other viral diseases. However, we anticipate that we will face
intense and increasing competition in the future as new products enter the
market and advanced technologies become available. Existing products or new
products for the treatment of HIV developed by our competitors may be more
effective, less expensive or more effectively marketed than any products
eventually commercialized by us.
Many of our competitors have significantly greater financial, technical
and human resources than we have and may be better able to develop,
manufacture, sell, market and distribute products. Many of these competitors
have products that have been approved or are in late-stage development and
operate large, well-funded research and development programs. Smaller companies
may also prove to be significant competitors, particularly through
collaborative arrangements with large pharmaceutical and biotechnology
companies. Furthermore, academic institutions, governmental agencies and other
public and private research organizations are becoming increasingly aware of
the commercial value of their inventions and are more actively seeking to
commercialize the technology they have developed.
New developments in our areas of research and development are expected to
continue at a rapid pace in both industry and academia. If our product
candidates are successfully developed and approved, we will face competition
based on:
o the safety and effectiveness of the products,
o the timing and scope of regulatory approvals,
o availability of manufacturing, sales, marketing and distribution
capabilities,
o reimbursement coverage,
o price, and
o patent position.
Our competitors may develop more effective or more affordable technology or
products, or achieve earlier patent protection, product development or product
commercialization than we can. Our competitors may succeed in commercializing
products more rapidly or effectively than we do, which could have a material
adverse effect on our business, financial condition and results of operations.
GOVERNMENT REGULATION
Human pharmaceutical products are subject to lengthy and rigorous
preclinical testing and clinical trials and other extensive, costly and
time-consuming procedures mandated by the FDA and foreign regulatory
authorities. The regulatory approval process includes:
o the establishment of the safety and effectiveness of each product
candidate, and
o confirmation by the FDA that good laboratory, clinical and manufacturing
practices were maintained during testing and manufacturing.
This process typically takes a number of years, varying based upon the type,
complexity and novelty of the pharmaceutical product. This process is expensive
and gives larger companies with greater financial resources a competitive
advantage over us. We have never submitted a product candidate for approval by
the FDA or any other
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regulatory authority for commercialization, and our product candidates may
never be approved for commercialization or obtain the desired labeling claims.
The steps required by the FDA before new drugs may be marketed in the
United States include:
o preclinical studies,
o the submission to the FDA of a request for authorization to conduct
clinical trials on an IND,
o adequate and well-controlled clinical trials to establish the safety and
efficacy of the drug for its intended use,
o submission to the FDA of an New Drug Application, or NDA, and
o review and approval of the NDA by the FDA before the drug may be shipped or
sold commercially.
In the United States, preclinical testing includes both culture and animal
laboratory evaluation and characterization of the safety and efficacy of a drug
and its formulation. Laboratories involved in preclinical testing must comply
with FDA regulations regarding good laboratory practices. Preclinical testing
results are submitted to the FDA as part of the IND and, unless there is
objection by the FDA, the IND will become effective 30 days following its
receipt by the FDA. Submission of an IND may never result in the commencement
of human clinical trials.
Clinical trials involve the administration of the investigational drug to
healthy volunteers or to patients under the supervision of a qualified
principal investigator. These trials typically are conducted in three
sequential phases, although the phases may overlap with one another.
Phase I clinical trials represent the initial administration of the
investigational drug to a small group of healthy human subjects or, more
rarely, to a group of selected patients with a targeted disease or disorder.
The goal of Phase I clinical trials is typically to test for safety, dose
tolerance, absorption, bio-distribution, metabolism, excretion and clinical
pharmacokinetics.
Phase II clinical trials involve a small sample of the actual intended
patient population and seek to assess the effectiveness of the drug for the
specific targeted indications, to determine dose tolerance and the optimal dose
range and to gather additional information relating to safety and potential
adverse effects.
Phase III clinical trials are initiated to establish further clinical
safety and effectiveness of the investigational drug in a broader sample of the
general patient population at geographically dispersed study sites in order to
determine the overall risk-benefit ratio of the drug and to provide an adequate
basis for all physician labeling. The results of the research and product
development, manufacturing, preclinical testing, clinical trials and related
information are submitted to the FDA in the form of an NDA for approval of the
marketing and shipment of the drug.
Our product candidates under development may never receive
commercialization approval in any country on a timely basis, or at all, even
after substantial time and expenditures. If we are unable to demonstrate the
safety and effectiveness of our product candidates to the satisfaction of the
FDA or foreign regulatory authorities, we will be unable to commercialize our
product candidates. This would have a material adverse effect on our business,
financial condition and results of operations. Even if regulatory approval of a
product candidate is obtained, the approval may limit the indicated uses for
which the product candidate may be marketed.
Both we and our existing and potential future collaborative partners are
also subject to various federal, state and local laws and regulations relating
to:
o safe working conditions,
o laboratory and manufacturing practices,
o the experimental use of animals, and
o the use and disposal of hazardous or potentially hazardous substances,
including radioactive compounds and infectious disease agents.
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Compliance with these laws, regulations and requirements may be costly and
time-consuming and the failure to maintain such compliance by us or our
existing and future collaborative partners could have a material adverse effect
on our business, financial condition and results of operations.
THIRD-PARTY REIMBURSEMENT AND HEALTH CARE REFORM MEASURES
In the United States and elsewhere, sales of prescription pharmaceuticals
are dependent, in part, on the consumer's ability to be reimbursed for the cost
of the drugs by third-party payors, such as government agencies and private
insurance plans. Third-party payors are increasingly challenging the prices
charged for medical products and services in an effort to promote cost
containment measures and alternative health care delivery systems. A majority
of HIV-infected patients taking anti-HIV drugs, however, are reimbursed by
third-party payors for the cost of their therapies. If we succeed in bringing
one or more products to the market, these products may not be considered
cost-effective and reimbursement to the consumer may not be sufficient to allow
us to sell our products on a competitive basis. Economic, political and
regulatory influences, including the efforts of governments and third-party
payors to contain or reduce the cost of health care through various means, will
continue to affect the business and financial condition of pharmaceutical
companies. A number of legislative and regulatory proposals aimed at changing
the health care system have been proposed in recent years. Because of the high
cost of the treatment of HIV, many state legislatures are reassessing
reimbursement policies for this therapy. In addition, an increasing emphasis in
the United States to reduce the overall costs of health care through managed
care has and will continue to increase the pressure on pharmaceutical pricing.
We cannot predict whether legislative or regulatory proposals will be adopted
or the effect such proposals or managed care efforts may have on our business.
However, the announcement and/or adoption of these proposals or efforts could
have a material adverse effect on our business, financial condition and results
of operations.
HUMAN RESOURCES
As of December 31, 1998, we had 56 full-time employees, including a
technical scientific staff of 41. None of our employees is covered by
collective bargaining arrangements, and management considers relations with its
employees to be good.
PROPERTIES
We currently lease approximately 21,000 square feet of laboratory and
office space at 4727 University Drive, Durham, North Carolina. We lease this
space under a sublease agreement that expires on September 30, 1999. We are
currently negotiating the extension of this lease and a lease on additional
office space. We believe that there will be suitable facilities available if we
need additional space.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth the name, age and position of our executive
officers, directors and key employees as of March 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- ----- ---------------------------------------------------------------
<S> <C> <C>
Dani P. Bolognesi, Ph.D. ........... 57 Chief Executive Officer, Chief Scientific Officer and Director
Matthew A. Megaro .................. 41 President, Chief Financial Officer and Secretary
Samuel Hopkins, Ph.D. .............. 40 Vice President of Medical Affairs
Dennis M. Lambert, Ph.D. ........... 51 Vice President of Biological and Molecular Sciences
M.C. Kang, Ph.D. ................... 47 Vice President of Development
Michael A. Recny, Ph.D. ............ 43 Vice President of Corporate Development
Timothy J. Creech .................. 38 Director of Finance and Administration
Jesse I. Treu, Ph.D.(1) ............ 52 Chairman of the Board of Directors
Jeffrey M. Lipton .................. 56 Vice Chairman of the Board of Directors
Brian H. Dovey(2) .................. 57 Director
Charles A. Sanders, M.D.(1)(2) ..... 67 Director
J. Richard Crout, M.D. ............. 69 Director
</TABLE>
- -------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
DANI P. BOLOGNESI, PH.D. is a founder of Trimeris, has been a director
since its inception and was named Chief Executive Officer and Chief Scientific
Officer in March 1999. Dr. Bolognesi held a number of positions at Duke
University since 1971, and served as James B. Duke Professor of Surgery,
Professor of Microbiology/Immunology, Vice Chairman of the Department of
Surgery for Research and Development and Director of the Duke University Center
for AIDS Research from 1989 to March 1999. From 1988 to March 1999, Dr.
Bolognesi was the Director of the Central Laboratory Network that supports all
HIV vaccine clinical trials sponsored by the National Institutes of Health. Dr.
Bolognesi received his Ph.D. degree in Virology from Duke University.
MATTHEW A. MEGARO joined Trimeris as Chief Financial Officer and Vice
President of Business Development in March 1995, was named Chief Operating
Officer, Executive Vice President and Secretary of Trimeris in June 1997 and
was named President of Trimeris in March 1999. Prior to joining Trimeris, Mr.
Megaro was Chief Operating Officer of Parnassus Pharmaceuticals, Inc., a
biopharmaceutical company, from January 1994 to October 1994. In October 1994,
Parnassus filed for protection under the United States Bankruptcy Code. From
1988 to January 1994, Mr. Megaro was Chief Financial Officer and Vice President
of Finance and Administration of Athena Neurosciences, Inc., a
biopharmaceutical company.
SAMUEL HOPKINS, PH.D. joined Trimeris as Director of Drug Development in
April 1995 and was named Vice President of Medical Affairs in June 1997. From
1991 to April 1995, Dr. Hopkins held various positions at Cato Research, Ltd.,
a contract research organization, most recently serving as Director of Oncology
and Antiviral Drug Product Development and Senior Clinical Research Scientist.
From 1987 to 1991, Dr. Hopkins was a Senior Research Scientist in the Division
of Virology at Burroughs Wellcome Co., a multinational pharmaceutical company.
Dr. Hopkins received his Ph.D. degree in Biochemistry and Biophysics from the
Medical College of Virginia.
DENNIS M. LAMBERT, PH.D. joined Trimeris as Director of Virology in March
1993, was named Senior Director of Virology and Molecular Biology in September
1995, and was named Vice President of Biological Molecular Sciences in June
1997. From 1988 to July 1993, Dr. Lambert was Assistant Director, Department of
Molecular Virology and Host Defense, at SmithKline Beecham Corp., a
pharmaceutical company. Dr. Lambert received his Ph.D. degree in
Microbiology/Virology from Indiana State University at Terre Haute.
M.C. KANG, PH.D. joined Trimeris as a consultant in October 1995 and was
named Director of Chemistry in August 1996 and Vice President of Development in
September 1998. Prior to joining Trimeris, Dr. Kang held various positions at
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Glaxo plc from 1990 to October 1995, most recently serving as Director of
Chemical Development. From 1986 to 1990, Dr. Kang was a Development Chemist in
the Medical Products Division at E.I. DuPont de Nemours & Co., a chemical
company. Dr. Kang received his Ph.D. degree in Synthetic Organic Chemistry from
Oregon State University.
MICHAEL A. RECNY, PH.D. joined Trimeris as Director of Biochemical
Sciences in March 1995, was named Director of Business Development in November
1996 and Vice President of Corporate Development in January 1999. Prior to
joining Trimeris, Dr. Recny was Senior Director of Biological Sciences at
Parnassus from November 1993 to October 1994. From 1988 to November 1993, Dr.
Recny was Director of Protein Biochemistry at Procept, Inc., a
biopharmaceutical company. Prior to joining Procept, Inc., Dr. Recny was a
Staff Scientist/Laboratory Head at Genetics Institute Inc., a biopharmaceutical
company. Dr. Recny received his Ph.D. degree in Biochemistry from the
University of Illinois at Urbana-Champaign.
TIMOTHY J. CREECH, C.P.A. joined Trimeris as Director of Finance and
Administration in July 1997. From July 1996 to June 1997, prior to joining
Trimeris, Mr. Creech was Corporate Controller at Performance Awareness
Corporation, a software company. From December 1993 to July 1996, Mr. Creech
was Director of Finance at Avant! Corporation, a software company. From 1990 to
December 1993, Mr. Creech was a senior manager at KPMG LLP, independent
auditors for Trimeris.
JESSE I. TREU, PH.D. has been Chairman of the Board of Directors of
Trimeris since its inception. Dr. Treu will resign as Chairman of the Board of
Directors in June 1999 at the annual meeting of stockholders, but will seek
re-election to the Board at the annual meeting. Since 1986, Dr. Treu has been a
Managing Member of Domain Associates, LLC, a venture capital firm specializing
in investments in life sciences. Dr. Treu serves on the Boards of Directors of
Focal, Inc. and GelTex Pharmaceuticals, Inc. Dr. Treu received his Ph.D. degree
in Physics from Princeton University.
JEFFREY M. LIPTON has been a director of Trimeris since June 1998. Mr.
Lipton has been Vice Chairman of the Board since March 1999 and will be
appointed Chairman of the Board of Directors in June 1999 at the annual meeting
of stockholders. Since July 1998, Mr. Lipton has been President and Chief
Executive Officer of NOVA Chemicals Corporation, a commodity chemicals company
headquartered in Calgary, Alberta, Canada. Mr. Lipton was President of NOVA
Corporation, a worldwide natural gas services and petrochemicals company from
September 1994 until July 1998, a director from April 1996 until July 1998,
Senior Vice President from 1993 until February 1994 and Senior Vice President
and Chief Financial Officer until September 1994. Prior to NOVA, Mr. Lipton was
with E.I. Du Pont De Nemours & Co. for 29 years, holding a number of senior
management positions, including Vice President, Medical Products, Vice
President, Polymer Products, Vice President, Corporate Marketing and Continuous
Improvement, and Vice President, Corporate Plans. Mr. Lipton is a director of
NOVA Chemical Corporation, Chairman of the Board of Directors of Methanex
Corporation, and a Director of Dynergy Corporation, Calgary Laboratory
Services, American Plastics Council, Public Policy Forum, and the Chemical
Manufacturers' Association.
BRIAN H. DOVEY has been a director of Trimeris since its inception. Since
1988, Mr. Dovey has been a Managing Member of Domain Associates, LLC, a venture
capital firm specializing in investments in life sciences. Mr. Dovey is
Chairman of the National Venture Capital Association and is a member of the
Boards of Trustees of the Coriell Institute, the Wistar Institute, and the
University of Pennsylvania School of Nursing. Mr. Dovey is Chairman of the
Board of Directors of Creative BioMolecules, Inc. and also serves on the Boards
of Directors of Connetics Corporation, NABI, U.S. Bioscience, Inc. and Vivus,
Inc.
CHARLES A. SANDERS, M.D. has been a director of Trimeris since October
1996. From 1989 to May 1995, Dr. Sanders was Chairman of the Board of Directors
and Chief Executive Officer of Glaxo and a member of the Board of Directors of
Glaxo. Prior to joining Glaxo, Dr. Sanders held a number of positions at Squibb
Corporation, a multi-national pharmaceutical corporation, including Vice
Chairman, Chief Executive Officer of the Science and Technology Group and
Chairman of the Science and Technology Committee of the Board. Dr. Sanders
serves on the Boards of Directors of Magainin Pharmaceuticals, Vertex
Pharmaceuticals, Kendle International, Inc., Scios, Inc., Pharmacopeia, Inc.,
and Staff Mark, Inc. Dr. Sanders received an M.D. degree from Southwestern
Medical College of the University of Texas.
J. RICHARD CROUT, M.D. has been a director of Trimeris since November
1998. Since 1994, Dr. Crout has been President of Crout Consulting, a firm that
provides consulting advice to pharmaceutical and biotechnology companies on the
development of new products. From 1984 to 1993, Dr. Crout was Vice President,
Medical and Scientific Affairs with Boehringer Mannheim Pharmaceuticals Corp.
From 1973 to 1982, Dr. Crout was Director of the Bureau of Drugs, now known as
the Center for Drug Evaluation and Research at the U.S. Food and Drug
Administration. Dr. Crout serves on
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the Boards of Directors of Genelabs Technologies, Inc, and GelTex Corporation.
Dr. Crout received an M.D. degree from Northwestern University Medical School.
SCIENTIFIC ADVISORY BOARD
We have assembled a Scientific Advisory Board comprised of seven
scientific advisors who are leaders in the fields of viral disease research and
treatment. Members of the Scientific Advisory Board review our research,
development and operating activities and are available for consultation with
management and staff relating to their respective areas of expertise. The
Scientific Advisory Board holds regular meetings. Several of the individual
scientific advisors have separate consulting relationships with us and meet
more frequently, on an individual basis, with management and staff to discuss
our ongoing research and development projects. Some of the scientific advisors
own common stock and/or hold options to purchase common stock. The scientific
advisors are expected to devote only a small portion of their time to our
business.
The scientific advisors are all employed by other entities. Each
scientific advisor has entered into a letter agreement with us that contains
confidentiality and non-disclosure provisions that prohibit the disclosure of
our confidential information to anyone else. These letter agreements also
provide that all inventions, discoveries or other intellectual property that
come to the attention of or are discovered by the scientific advisor while
performing services for us will be assigned to us. The current members of the
Scientific Advisory Board are as follows:
<TABLE>
<S> <C>
Name Title/Institution
- ----------------------------------- --------------------------------------------------------------------------------
Robert C. Gallo, M.D. ............. Professor and Director, Institute of Human Virology -- University of Maryland
Biotechnology Institute
Eric Hunter, Ph.D. ................ Professor of Microbiology, Director, Center for AIDS Research -- The University
of Alabama at Birmingham
Thomas J. Matthews, Ph.D. ......... Associate Professor of Experimental Surgery -- Duke University
Joseph S. Pagano, M.D. ............ Professor of Medicine and Microbiology and Immunology, Director of The
Lineberger Comprehensive Cancer Center -- The University of North Carolina
at Chapel Hill
Jerome J. Schentag, Pharm. D. ..... Professor of Pharmacy and Pharmaceutics, Director, The Clinical Pharmaco-
kinetics Laboratory, Millard Fillmore Hospital, Director, Center for Clinical
Pharmacy Research -- The State University of New York at Buffalo School of
Pharmacy
Judith M. White, Ph.D. ............ Professor of Cell Biology and Microbiology -- University of Virginia
Richard J. Whitley, M.D. .......... Loeb Eminent Scholar Chair in Pediatrics, Professor of Pediatrics, Microbiology
and Medicine -- The University of Alabama at Birmingham
</TABLE>
38
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid by Trimeris
during the fiscal year ended December 31, 1998 to our Chief Executive Officer
and to our most highly compensated executive officers whose salary and bonus
for 1998 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
----------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION
- ------------------------------------------------------ ------ ------------ --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Dani P. Bolognesi (1) ................................ 1998 117,654 -- -- --
Chief Executive Officer and Chief Scientific Officer
Matthew A. Megaro .................................... 1998 186,000 --(3) 70,000 (4)
President, Chief Financial Officer and Secretary
M. Ross Johnson (2) .................................. 1998 260,004 65,000(5) 135,000 (4)
Former President, Chief Executive Officer and Chief
Scientific Officer
</TABLE>
- -------
(1) Dr. Bolognesi was named Chief Executive Officer and Chief Scientific
Officer in March 1999. From September through December 1998, Dr. Bolognesi
was a temporary employee and was compensated at an annual rate of
$240,000. Prior to September 1998, Dr. Bolognesi was paid $65,154 for his
services as a consultant, a director and a member of the Scientific
Advisory Board.
(2) Dr. Johnson was named President and Chief Executive Officer in March 1996,
and resigned as President, Chief Executive Officer and Chief Scientific
Officer in March 1999.
(3) During 1998, we accrued approximately $600,000 for the payment of bonuses
to our executive officers and employees. The bonuses will be payable upon
the completion of certain financing or collaborative transactions,
including the closing of this offering. Accordingly, Mr. Megaro may be
eligible to receive a bonus for 1998.
(4) Beginning in 1998, we matched 100% of a participant's contributions to the
Trimeris Employee 401(k) Plan with common stock, provided the participant
was employed on the last day of the year. The number of shares issued is
based on the contributions to be matched divided by the closing price of
the common stock on the last trading day of the year, which was $11.75 on
December 31, 1998. Dr. Johnson received 851 shares of stock and is vested
in those shares. Mr. Megaro received 851 shares and is vested in 638 of
those shares.
(5) Pursuant to his severance agreement, Dr. Johnson will be paid a bonus of
$65,000 for 1998.
STOCK OPTION INFORMATION
The following table contains information concerning stock options granted
during the fiscal year ended December 31, 1998 to our Chief Executive Officer
and to each of our most highly compensated executive officers, whose salary and
bonus for 1998 exceeded $100,000. We have never granted any stock appreciation
rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED TO PRICE FOR OPTION TERM (2)
OPTIONS EMPLOYEES IN PER EXPIRATION -------------------------
NAME GRANTED (#)(1) 1998 SHARE DATE 5% 10%
- --------------------------- ---------------- --------------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Dani P. Bolognesi ......... 52,000 --(3) $ 8.00 4/3/2008 $262,000 $ 663,000
2,500 --(3) 7.56 6/17/2008 12,000 30,000
Matthew A. Megaro ......... 70,000 14% 8.00 4/3/2008 352,000 892,000
M. Ross Johnson ........... 135,000 26 8.00 4/3/2008 679,000 1,721,000
</TABLE>
- -------
39
<PAGE>
(1) Each option represents the right to purchase one share of common stock. The
options shown in this column were all granted pursuant to our Stock
Incentive Plan. The options shown in this table become exercisable ratably
on a monthly basis over four years from the date of grant. Upon the
occurrence of certain events that result in a change of control, all
outstanding options granted to all employees, including executive
officers, will vest fully.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The 5% and
10% assumed annual rates of compounded stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent an estimate or projection of our future common stock prices.
These amounts represent certain assumed rates of appreciation in the value
of our common stock from the fair market value on the date of grant.
Actual gains, if any, on stock option exercises are dependent on the
future performance of the common stock and overall stock market
conditions. The amounts reflected in the table may not necessarily be
achieved.
(3) During 1998, Dr. Bolognesi was granted non-qualified stock options to
purchase an aggregate of 54,500 shares of common stock in his capacity as
a member of the Board of Directors and the Scientific Advisory Board and
as consultant to Trimeris. The options have exercise prices equal to the
fair market values on the date of grant, generally vest over a period of
four years and have a term of ten years.
AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR ENDED DECEMBER 31, 1998 AND
YEAR-END OPTION VALUES
The following table contains information regarding stock options held by
our Chief Executive Officer and each of our most highly compensated executive
officers whose salary and bonus for 1998 exceeded $100,000, and the number of
and value of any in-the-money options as of December 31, 1998. No options were
exercised by any of these executive officers during 1998. The value of
unexercised in-the-money options at December 31, 1998 is based on a value of
$11.75 per share, the fair market value of our common stock as reflected by the
closing price on the Nasdaq National Market on December 31, 1998, less the per
share exercise price, multiplied by the number of shares issuable upon exercise
of the option.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1998 (#) DECEMBER 31, 1998
----------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Dani P. Bolognesi ......... 50,691 41,451 $427,099 $207,871
Matthew A. Megaro ......... 13,125 56,875 49,219 213,281
M. Ross Johnson ........... 25,313 109,687 94,924 411,326
</TABLE>
STOCK INCENTIVE PLAN
The Trimeris, Inc. Amended and Restated Stock Incentive Plan was adopted
by the Board of Directors and approved by the stockholders in September 1997.
Our Stock Incentive Plan provides for the grant of incentive stock options,
restricted stock or other stock based awards to our employees, including
directors who are employees, and for the grant of nonstatutory stock options,
restricted stock or other stock-based awards to our employees, officers,
directors, consultants and advisors. Our Stock Incentive Plan is administered
by our compensation committee. A maximum of 1,602,941 shares are authorized for
issuance under the Stock Incentive Plan. The exercise price of incentive stock
options granted under our Stock Incentive Plan must be at least equal to the
fair market value of the common stock on the date of grant.
In the event an optionee ceases to be employed for any reason other than
death or disability, each outstanding option held by the optionee will
terminate and cease to be exercisable no later than three months after the date
the optionee ceases to be employed by us. If an optionee dies, his or her
options vest immediately. The Stock Incentive Plan provides that any option
granted to a participant who is subject to the provisions of Section 16 of the
Exchange Act shall not become exercisable for a period of at least six months
following the date of grant.
In the event that:
o we merge with or consolidate into another corporation, which results in
our stockholders owning less than 60% of the voting power of the voting
securities of the surviving or successor corporation following the
transaction,
o we sell all or substantially all of our assets,
o we completely liquidate, or
40
<PAGE>
o someone acquires 50% or more of the voting power of our outstanding
securities, except through a merger, consolidation or an acquisition of
our securities directly from us,
then all restricted stock awards shall become fully vested and free of all
restrictions and all other stock-based awards shall become fully vested,
exercisable or free of all restrictions, as the case may be.
In the event of an acquisition of 50% or more of the voting power of our
outstanding securities, except through a merger, consolidation or an
acquisition of our securities directly from us, then all options and stock
appreciation rights become fully vested and exercisable. If we:
o execute an agreement for a merger or consolidation and our stockholders
before the transaction own less than 60% of the voting power of the voting
securities of the surviving or successor corporation following the
transaction,
o sell all or substantially all of our assets, or
o completely liquidate,
then all options and stock appreciation rights become fully vested and
exercisable and the Board of Directors may, in its discretion, terminate any
unexercised awards, or permit the acquiring or succeeding corporation to assume
or substitute equivalent options or stock appreciation rights for ours.
The Board of Directors may terminate or amend the Stock Incentive Plan at
any time. Our stockholders must approve any increase in the total number of
shares available under the Stock Incentive Plan. No awards may be made under
the Stock Incentive Plan after September 2007.
As of March 31, 1998, we had outstanding 3,531 nonqualified stock options
under our previous stock option plan, the Trimeris, Inc. Stock Option Plan, at
a weighted average exercise price of $0.425 per share. The Board of Directors
has determined not to grant additional options under this plan.
EMPLOYEE STOCK PURCHASE PLAN
The 1997 Employee Stock Purchase Plan, or ESPP, was adopted and approved
by the Board of Directors and the stockholders in August 1997. We intend to
encourage ownership of common stock by employees through the ESPP. A maximum of
250,000 shares of common stock have been reserved for purchase under the ESPP,
subject to adjustments.
The ESPP, which is intended to qualify under Section 423 of the Internal
Revenue Code, is administered by the Compensation Committee of the Board of
Directors. The ESPP provides for the automatic grant of options to purchase
shares of common stock on the first day of an offering period. Each offering
period currently runs for 24 months, commencing on the first trading day on or
after December 1 and June 1 of each year and including four six-month purchase
periods. An individual who is an employee on the first day of an offering
period is eligible to participate in the ESPP. Under the ESPP, on the
employee's request, we withhold up to 10% of each salary payment due to that
participating employee including overtime, bonuses and commissions. The
purchase price under the ESPP is equal to the lower of 85% of the fair market
value of the common stock either on the first day of the offering period or on
the last day of the purchase period. Employees may end their participation at
any time during the offering period, and participation ends automatically upon
termination of employment, retirement or death. The maximum number of shares
that a participant may purchase on the last day of any purchase period is
determined by dividing the payroll deductions accumulated during the period by
the purchase price rounded down to the nearest whole number. However, no
participant may purchase shares having a fair market value exceeding $25,000 in
any calendar year or to the extent that such person would own 5% or more of the
total combined voting power or value of all classes of our capital stock.
In the event that we:
o dissolve or liquidate,
o merge, consolidate or reorganize in a transaction where we are not the
surviving corporation,
o sell substantially all of our assets, or
o obtain Board of Directors approval for any transaction that results in
any person or entity owning 100% of the combined voting power of all
classes of our stock,
41
<PAGE>
then the ESPP and the offering period in progress will terminate. However, the
successor corporation may elect in writing to assume or continue outstanding
elections or substitute options or grants of options covering securities of the
successor corporation. The Board of Directors may terminate or amend the ESPP
at any time, however, any material amendment that increases the benefits or the
number of securities issued or modifies the eligibility requirements must be
approved by the stockholders.
If any change is made to the stock issuable under the ESPP by reason of
any recapitalization, reclassification, stock split, reverse stock split,
combination of shares, exchange of shares, stock dividend or other distribution
payable in capital stock, or some other increase or decrease in the common
stock occurs without our receiving consideration, appropriate adjustment will
be made to the shares subject to the ESPP and the number of shares that a
participant may purchase with respect to an option.
401(K) PLAN
In January 1994, we adopted the Trimeris, Inc. Employees' 401(k) Plan
covering our full-time employees. The 401(k) Plan is intended to qualify under
Section 401(k) of the Internal Revenue Code so that contributions to the 401(k)
Plan by employees or by us, and the investment earnings thereon, are not
taxable to employees until withdrawn from the 401(k) Plan, and so that we can
deduct our contributions, if any, when made. Pursuant to the 401(k) Plan,
employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit, equal to $10,000 in 1999, and to have the
amount of such reduction contributed to the 401(k) Plan. The 401(k) Plan
permits, but does not require, that we provide additional matching
contributions to the 401(k) Plan on behalf of all participants in the 401(k)
Plan. During 1998, we matched 100% of employees contributions with common stock
based on their contribution divided by the closing price of our common stock on
December 31, 1998. Approximately 20,000 shares were issued in 1998.
EMPLOYMENT AND SEVERANCE AGREEMENTS
In February 1995, we entered into an employment arrangement with Mr.
Megaro, our President, Chief Financial Officer, and Secretary. Pursuant to this
arrangement, if Mr. Megaro's employment is terminated for any reason other than
for cause, Mr. Megaro is entitled to receive his base salary and all health
insurance and other benefits generally made available to employees for up to
six months from the date of such termination.
In March 1999, Dr. Johnson resigned as an officer and director of Trimeris
and entered into a severance agreement with us. Dr. Johnson will receive salary
and benefits until March 2000 based on his annual salary of $271,704 at the
time of his resignation. Dr. Johnson will also receive a bonus payment of
$65,000 for 1998 and additional compensation of $1,000. In addition, we have
agreed to terminate our right of repurchase and other restrictions with respect
to approximately 94,414 shares of common stock held by Dr. Johnson for which
such restrictions would not otherwise have lapsed at the time of his
resignation. We also accelerated vesting on stock options to purchase
approximately 67,500 shares of common stock. Dr. Johnson has agreed not to
compete with us for a period of two years from March 12, 1999.
COMPENSATION OF DIRECTORS
We reimburse our directors for all reasonable and necessary travel and
other incidental expenses incurred in connection with their attendance at
meetings of the Board. Beginning in 1998, directors received $1,500 per meeting
attended. In addition, beginning with the 1998 annual meeting of stockholders,
all eligible non-employee directors automatically receive an option to purchase
2,500 shares of common stock at each annual meeting of stockholders. These
options have an exercise price equal to 100% of the fair market value of common
stock on the grant date and become exercisable after the completion of one year
of service following the grant. During 1998, directors holding office
immediately before the 1998 annual meeting were each granted an option to
purchase 20,000 shares of common stock, 10,000 of which were immediately vested
in recognition of prior service, with the remaining 10,000 options vesting
ratably over the next two years. These options have an exercise price equal to
100% of the fair market value of common stock on the grant date. Newly elected
directors will be granted an option to purchase 20,000 shares of common stock,
with the options vesting ratably over the director's three year term. These
options will have an exercise price equal to 100% of the fair market value of
common stock on the grant date.
42
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Effective April 10, 1997, the Board of Directors established a
Compensation Committee which is responsible for determining the salaries and
incentive compensation of the executive officers and providing recommendations
for the salaries and incentive compensation of all other employees and
consultants. The Compensation Committee also administers our benefit plans,
including the Stock Incentive Plan. Mr. Dovey serves as the Chairman of the
Compensation Committee and the other member of the committee is Dr. Sanders.
Neither Mr. Dovey nor Dr. Sanders was an officer or employee of Trimeris during
1998 or any prior year. Dr. Bolognesi was a member of the Compensation
Committee until March 1999. From September through December 1998, he served as
a temporary employee of Trimeris and was compensated at an annual rate of
$240,000 which was approved by other members of the Compensation Committee.
Prior to 1998, Dr. Bolognesi was not an employee or officer of Trimeris.
CERTAIN TRANSACTIONS
Since February 1995, we have issued an aggregate of 274,514 shares of
common stock to Dr. Johnson, our former President, Chief Executive Officer and
Chief Scientific Officer, at an aggregate purchase price of $123,300. In June
1997, we issued to Dr. Johnson an aggregate of 127,060 shares of common stock
at an aggregate purchase price of $54,000 in consideration for a full recourse
secured promissory note payable to Trimeris, which bears interest at 8% per
annum and is due in June 1999. In May 1997, we issued to Dr. Johnson an
aggregate of 117,648 shares of common stock upon the exercise of stock options
granted to Dr. Johnson at an aggregate exercise price of $40,000 in
consideration for a full recourse secured promissory note payable to Trimeris,
which bears interest at 8% per annum and is due in May 1999. In April 1997, we
issued to Dr. Johnson an aggregate of 33,333 shares of Series C preferred stock
which converted into a total of 3,922 shares of common stock upon the
completion of our initial public offering at an aggregate purchase price of
$20,000. In February 1995 and October 1996, we issued to Dr. Johnson an
aggregate of 25,884 shares of common stock at an aggregate purchase price of
$9,300.
In March 1999, Dr. Johnson resigned as an officer and director of Trimeris
and entered into a severance agreement with us. See "Management -- Employment
and Severance Agreements".
Since March 1995, we have issued an aggregate of 146,080 shares of common
stock to Mr. Megaro, our President and Chief Financial Officer, at an aggregate
purchase price of $80,000. In June 1997, we issued to Mr. Megaro an aggregate
of 76,470 shares of common stock at an aggregate purchase price of $32,500, in
consideration for a full recourse secured promissory note payable to us, which
bears interest at 8% per annum and is due in June 1999. In May 1997, we issued
to Mr. Megaro an aggregate of 51,766 shares of common stock upon the exercise
of certain options granted to Mr. Megaro at an aggregate exercise price of
$17,600, in consideration for a full recourse secured promissory note payable
to us, which bears interest at 8% per annum and is due in May 1999. In April
1997, we issued to Mr. Megaro an aggregate of 41,667 shares of Series C
preferred stock, which converted into a total of 4,902 shares of common stock
at the time of our initial public offering at an aggregate purchase price of
$25,000. In March 1995 and October 1996, we issued to Mr. Megaro an aggregate
of 12,942 shares of common stock at an aggregate purchase price of $4,900.
Certain shares of common stock purchased by Mr. Megaro are subject to our right
of repurchase and certain other restrictions which lapse over a period of time.
Between January and April 1997, we sold an aggregate of 5,000,001 shares
of Series C preferred stock to Domain Partners II, L.P., Domain Partners III,
L.P., DP III Associates and Biotechnology Investments Limited at an aggregate
purchase price of approximately $3,000,000. Dr. Treu and Mr. Dovey, who are
members of our Board of Directors, are general partners of the general partners
of Domain Partners II, L.P., Domain Partners III, L.P. and DP III Associates,
L.P. Domain Associates, of which Dr. Treu and Mr. Dovey are general partners,
is the U.S. venture capital advisor to Biotechnology Investments Limited. All
of these shares of preferred stock that were issued and outstanding prior to
our initial public offering were converted into shares of common stock upon the
completion of that offering.
For information regarding employment agreements with our executive
officers, see "Management -- Employment and Severance Agreements." For
information regarding compensation of directors, see "Management --
Compensation of Directors." For information regarding stock options, see
"Management -- Stock Option Information."
43
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information we know with respect to the
beneficial ownership of our common stock as of March 31, 1999, and as adjusted
to reflect the sale of our common stock hereby, for each person or group of
affiliated persons, who we know to beneficially own more than 5% of our common
stock. The table also sets forth such information for our directors and
executive officers, individually and as a group.
Beneficial ownership is determined in accordance with the rules of the
SEC. Except as indicated by footnote, to our knowledge, the persons named in
the table have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them. Options to purchase shares of
common stock that are exercisable within 60 days of March 31, 1999 are deemed
to be beneficially owned by the person holding such options for the purpose of
computing ownership of such person, but are not treated as outstanding for the
purpose of computing the ownership of any other person. Applicable percentage
of beneficial ownership is based on 10,683,355 shares of common stock
outstanding as of March 31, 1999 and 13,183,355 shares of common stock
outstanding after completion of this offering.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
--------------------
PERCENT PERCENT
NUMBER OF SHARES BEFORE AFTER
BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
- -------------------------------------------------------- -------------------- ---------- ---------
<S> <C> <C> <C>
Four Partners (1) ................................. 725,700 6.8% 5.5%
Putnam Investments, Inc. (2) ...................... 620,300 5.8 4.7
Capital Guardian Trust Company (3) ................ 597,000 5.6 4.5
Dani P. Bolognesi (4) ............................. 139,025 1.3 1.0
M. Ross Johnson (5) ............................... 234,277 2.2 1.8
Matthew A. Megaro (6) ............................. 169,359 1.6 1.3
Jesse I. Treu (7) ................................. 472,234 4.4 3.6
Jeffrey M. Lipton ................................. 137,255 1.3 1.0
Brian H. Dovey (7) ................................ 472,234 4.4 3.6
Charles A. Sanders (8) ............................ 30,123 * *
J. Richard Crout .................................. -- * *
All executive officers and directors as a group
(seven persons) (9) .............................. 963,412 8.9 7.2
</TABLE>
- -------
* Less than one percent.
(1) Based on Schedule 13G filed with the SEC on March 18, 1999, stockholder
held sole voting power and sole dispositive power as to all of such
shares. Four Partners' address is c/o Thomas J. Tisch, 667 Madison Avenue,
New York, New York 10021.
(2) Based on Schedule 13G filed with the SEC on February 11, 1999, stockholder
held sole voting power and sole dispositive power as to all of such
shares. Putnam Investments, Inc.'s address is One Post Office Square,
Boston, Massachusetts 02109.
(3) Based on Schedule 13G filed with the SEC on February 12, 1999, stockholder
held sole voting power and sole dispositive power as to all of such
shares. Capital Guardian Trust Company's address is 11000 Santa Monica
Boulevard, Los Angeles, California 90025-3384.
(4) Includes 59,612 shares that Dr. Bolognesi may acquire pursuant to stock
options exercisable within 60 days after March 31, 1999. Includes the
following shares as to which Dr. Bolognesi disclaims beneficial ownership:
11,765 shares beneficially owned by James C. Bolognesi Irrevocable Trust,
for which James C. Bolognesi, Dr. Bolognesi's son, is the sole beneficiary
and Sarah Bolognesi, Dr. Bolognesi's wife, is the sole trustee; 11,765
shares beneficially owned by Michael P. Bolognesi Irrevocable Trust, for
which Michael P. Bolognesi, Dr. Bolognesi's son, is the sole beneficiary
and Sarah Bolognesi is the sole trustee; and 10,329 shares that Sarah
Bolognesi may acquire pursuant to certain stock options exercisable within
60 days after March 31, 1999.
(5) Does not include an aggregate of 85,518 shares beneficially owned by
Michael Johnson and Greg Johnson, Dr. Johnson's sons, who have sole voting
and investment power of such shares and as to which shares Dr. Johnson
disclaims beneficial ownership. Includes 39,375 shares than Dr. Johnson
may acquire pursuant to stock option exercisable within 60 days after
March 31, 1999. See "Certain Transactions."
(6) Includes 47,755 shares subject to certain contractual restrictions, which
restrictions lapse with respect to 4,330 shares within 60 days after March
31, 1999, and an aggregate of 47,076 shares beneficially owned by Matthew
A. Megaro
44
<PAGE>
as custodian for Anthony Megaro and Arianna Megaro, Mr. Megaro's son and
daughter. Includes 20, 417 shares that Mr. Megaro may acquire pursuant to
stock option exercisable within 60 days after March 31, 1999.
(7) Consists of shares held by affiliated entities as follows: 90,971 shares
beneficially owned by Domain Partners III, L.P., whose general partner is
One Palmer Square Associates III, L.P.; 3,147 shares beneficially owned by
DP III Associates, L.P., whose general partner is One Palmer Square
Associates III, L.P.; 30,453 shares beneficially owned by One Palmer
Square Associates III, L.P.; and 332,246 shares beneficially owned by One
Palmer Square Associates II, L.P. Dr. Treu and Mr. Dovey are general
partners of One Palmer Square Associates II, L.P. and One Palmer Square
Associates III, L.P. In such capacities, Dr. Treu and Mr. Dovey may each
be deemed to be the beneficial owner of such shares, although each
disclaims such beneficial ownership except to the extent of his pecuniary
interest, if any. Also includes 15,417 shares that Dr. Treu and 15, 417
shares than Mr. Dovey may acquire pursuant to stock option exercisable
within 60 days after March 31, 1999. The address for Domain Partners II,
L.P., Domain Partners III, L.P., DP III Associates, L.P., One Palmer
Square Associates III, L.P., One Palmer Square Associates II, L.P., Dr
Treu and Mr. Dovey is One Palmer Square, Princeton, New Jersey 08542.
(8) Includes 20,319 shares that Dr. Sanders may acquire pursuant to stock
options exercisable within 60 days after March 31, 1999.
(9) See notes (1) - (8).
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 30,000,000 shares of common
stock, par value $0.001 per share, and 10,000,000 shares of preferred stock,
par value $0.001 per share. The following description of our capital stock is a
summary, does not purport to be complete, is subject to, and qualified in its
entirety by, the provisions of our charter, which is an exhibit to the
registration statement of which this prospectus is a part and by applicable
law.
COMMON STOCK
As of March 31, 1999, there were 10,683,355 shares of common stock
outstanding, held of record by 186 stockholders.
The holders of common stock are entitled to one vote for each share held
on all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Holders of common stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of legally available funds, subject to any preferential dividend
rights applicable to any outstanding preferred stock that may be issued in the
future. We have not declared or paid cash dividends on our capital stock. We
currently intend to retain any future earnings to fund our operations and,
therefore, do not anticipate paying any cash dividends in the foreseeable
future. See "Dividend Policy."
In the event of liquidation, dissolution or winding up of Trimeris, the
holders of common stock are entitled to share ratably in all of our assets
remaining after the payment of all debts and other liabilities, subject to the
prior distribution rights of shares of preferred stock, if any then
outstanding. There are no preemptive, subscription or conversion rights
applicable to the common stock. The outstanding shares of common stock are, and
the shares offered by us in this offering will be, when issued and paid for,
validly issued, fully paid and nonassessable. The rights, preferences and
privileges of holders of common stock are subject to the rights of the holders
of shares of any class or series of preferred stock that we may designate and
issue in the future.
PREFERRED STOCK
The Board of Directors has the authority, without action by the
stockholders, to designate and issue up to 10,000,000 shares of preferred stock
in one or more series and to designate the rights, preferences and limitations
of all series, any or all of which may be superior to the rights of the common
stock. It is not possible to state the actual effect of the issuance of any
shares of preferred stock upon the rights of the holders of common stock until
the Board of Directors determines the specific rights of the holders of
preferred stock. However, effects of the issuance of preferred stock include
restricting dividends on common stock, diluting the voting power of the common
stock, impairing the liquidation rights of the common stock, and making it more
difficult for a third party to acquire Trimeris, which could have the effect of
discouraging a third party from acquiring, or deterring a third party from
paying a premium to acquire, a majority of our outstanding voting stock. We
have no present plans to issue any shares of preferred stock.
WARRANT
As of March 31, 1999, there was an outstanding warrant to purchase a total
of 11,765 shares of common stock at an exercise price of $4.25 per share. The
warrant expires in July 2005.
REGISTRATION RIGHTS
The holders, or their permitted transferees, of shares of common stock
which were issued upon the conversion of preferred stock at the time of our
initial public offering and shares of common stock issuable upon exercise of a
warrant are entitled to rights with respect to the registration of these shares
under the Securities Act. These rights are provided under the terms of
agreements between Trimeris and the holders of these securities. Subject to
certain limitations set forth in the agreements, holders of these securities
may require us, at our expense, on not more than two occasions, to file a
registration statement under the Securities Act with respect to the public
resale of securities. If we propose to register any of our securities under the
Securities Act, either for our own account or for the account of other security
holders, the holders of the securities are entitled to notice of the
registration and are entitled to include, at our expense, their shares in the
registration. Further, these holders may require us, at our expense, to
register their shares on a registration statement on Form S-3 when the use of
such form becomes available to us, subject to certain conditions and
limitations. All
46
<PAGE>
registration expenses must be borne by us and all selling expenses relating to
the securities registered must be borne by the holder of the securities being
registered.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
We are subject to the provisions of Section 203 the Delaware General
Corporation Law which, subject to certain exceptions, prohibits us from
engaging in certain business combinations with interested stockholders for a
period of three years after the date of the transaction in which the
stockholder became an interested stockholder, unless the business combination
is approved in a prescribed manner. A "business combination" includes a merger,
asset sale or other transaction resulting in a financial benefit to the
stockholder. For purposes of Section 203, an "interested stockholder" is a
person who, together with affiliates and associates, owns or within three years
prior, did own, 15% or more of the corporation's voting stock. The application
of Section 203 could have the effect of delaying or preventing a change of
control of Trimeris.
Our charter provides that each director will serve for a three-year term
and that approximately one-third of the directors are to be elected annually.
Candidates for directors may be nominated only by the Board of Directors or by
a stockholder who gives written notice to us in the manner prescribed by the
bylaws. The number of directors may be fixed by resolution of the Board of
Directors. The Board currently consists of six members and the Board may
appoint new directors to fill vacancies or newly created directorships between
stockholder meetings. Our charter does not provide for cumulative voting at
stockholder meetings for election of directors. A director may be removed from
office with cause by the affirmative vote of at least 75% of all eligible votes
present in person or by proxy at a meeting of stockholders at which a quorum is
present or without cause by the affirmative vote of 75% of all eligible votes
present in person or by proxy at a meeting of stockholders at which a quorum is
present, provided that removal without cause is recommended to the stockholders
by the Board of Directors pursuant to a vote of not less than 75% of the
directors then in office. Any action required or permitted to be taken by
stockholders of Trimeris must be effected at a duly called annual or special
meeting of stockholders and may not be effected by written consent. The
staggered Board of Directors, our charter and certain other provisions of the
Delaware General Corporation Law may have the effect of delaying, deterring or
preventing a change in control of Trimeris, may discourage bids for common
stock at a premium over the market price and may adversely affect the market
price, and the voting and other rights of the holders, of our common stock.
TRANSFER AGENT
The transfer agent for our common stock is Boston EquiServe, L.P., the
telephone number is 781-575-2000. .
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock in the public market after
the offering, or the possibility of such sales occurring, could adversely
affect the prevailing market price and our ability to raise equity capital in
the future.
Upon the completion of this offering, we will have 13,183,355 shares of
common stock outstanding assuming no exercise of options after March 31, 1999.
Of these shares, those freely tradable without restriction include:
o 2,500,000 shares sold in this offering,
o 3,162,500 shares of common stock which were sold in our initial public
offering,
o approximately 1,197,407 additional shares of common stock which will not
be subject to the lock-up agreement described below and will be available
for immediate sale pursuant to Rule 144, and
o approximately 419,000 registered shares of common stock issued upon
exercise of options, unless held by our affiliates, as that term is
defined in Rule 144 promulgated under the Securities Act of 1933.
The remaining shares were issued and sold by us in private transactions
and are eligible for public sale only if registered under the Securities Act of
1933 or sold in accordance with Rule 144 thereunder.
Our directors, officers, entities affiliated with our directors and a
consultant, who in the aggregate hold approximately 1,084,000 of the shares of
our common stock outstanding immediately prior to the completion of this
offering, have entered into lock-up agreements. As of March 31, 1999, 1,043,731
shares were subject to outstanding options. Of these shares, 445,555 held by
officers, directors and a consultant are subject to the lock-up agreements. The
lock-up agreements require that the locked-up person not dispose of any shares
of common stock or rights to purchase the common stock owned by them for a
period of 90 days after the date of this prospectus, without the prior written
consent of the placement agent.
In general, under Rule 144 a person who has beneficially owned shares for
at least on year is entitled to sell in brokers' transactions or to market
makers, within any three-month period, a certain number of shares. This number
may not exceed the greater of:
o 1% of the number of shares of common stock then outstanding, or
o the average weekly trading volume of the common stock during the four
calendar weeks preceding the required filing of a Form 144 with respect to
such sale.
Under Rule 144(k), a person who is not deemed to have been our affiliate at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell such
shares without having to comply with the matter of sale, public information,
volume limitation or notice provisions of Rule 144.
48
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, for whom ING Baring Furman Selz LLC, BancBoston
Robertson Stephens Inc. and SG Cowen Securities Corporation are acting as
representatives, have severally agreed to purchase from us the following
respective number of shares of common stock at the public offering price less
the underwriting discounts and commissions set forth on the cover page of this
prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------------------------------------------------ ----------
<S> <C>
ING Baring Furman Selz LLC .................
BancBoston Robertson Stephens Inc. .........
SG Cowen Securities Corporation ............
Total ...................................... 2,500,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent and that the
underwriters will purchase all shares of the common stock offered hereby if any
of such shares are purchased.
We have been advised by the underwriters that the underwriters propose to
offer the shares of common stock to the public at the public offering price set
forth on the cover page of this prospectus and to certain dealers at such price
less a concession not in excess of $ per share. The underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain other dealers. After the public offering, the public offering
price and other selling terms may be changed by the underwriters.
We have granted the several underwriters an option, exercisable not later
than 30 days after the date of this prospectus, to purchase up to 375,000
additional shares of common stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. To the extent that the underwriters exercise such option, each of
the underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of common stock to be purchased by
it shown in the table above bears to 2,500,000. To the extent the underwriters
exercise such option, we will be obligated, pursuant to the option, to sell
such shares to the underwriters. The underwriters may exercise such option only
to cover over-allotments, if any, made in connection with the sale of the
common stock offered hereby. If purchased, the underwriters will offer such
additional shares on the same terms as those on which the 2,500,000 shares of
common stock are being offered.
In connection with this offering, certain underwriters may engage in
passive market making transactions in the common stock on Nasdaq immediately
prior to the commencement of sales in this offering in accordance with Rule 103
of Regulation M. Passive market making consists of displaying bids on Nasdaq
limited by the bid prices of independent market makers and making purchases
limited by such prices and effected in response to order flow. Net purchases by
a passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the common stock during
a specified period and must be discontinued when such limit is reached. Passive
market making may stabilize the market price of the common stock at a level
above that which might otherwise prevail and, if commenced, may be discontinued
at any time.
Subject to applicable limitations, the underwriters, in connection with
this offering, may place bids for or make purchases of the common stock in the
open market or otherwise, for long or short account, or cover short positions
incurred, to stabilize, maintain or otherwise affect the price of the common
stock, which may be higher than the price that might otherwise prevail in the
open market. There can be no assurance that the price of the common stock will
be stabilized, or that stabilizing, if commenced, will not be discontinued at
any time. Subject to applicable limitations, the underwriters may also place
bids, or make purchases on behalf of the underwriting syndicate to reduce a
short position created in connection with this offering. The underwriters are
not required to engage in these activities and may end these activities at any
time.
The underwriting agreement contains covenants of indemnity among the
underwriters and us against certain civil liabilities, including liabilities
under the Securities Act.
We and each of our directors and executive officers and certain of our
securityholders, who in the aggregate will hold, following this offering
1,084,000 shares of common stock and options to purchase 445,555 shares of
common stock, have agreed that they will not directly or indirectly, without
the prior written consent of ING Baring Furman Selz LLC, offer, sell, offer to
sell, contract to sell, or otherwise dispose of any shares of common stock or
securities exchangeable
49
<PAGE>
for or convertible into common stock for a period of 90 days after the date of
this prospectus, except that we may issue, and grant options to purchase,
shares of common stock under our current stock option plan and other currently
outstanding options.
The underwriters have informed us that they do not intend to confirm the
sales to any accounts over which they exercise discretionary authority.
LEGAL MATTERS
The validity of the shares of common stock offered will be passed upon for
us by Hutchison & Mason PLLC, Raleigh, North Carolina, our counsel. Certain
legal matters will be passed upon for us by Wilmer, Cutler & Pickering,
Washington D.C., our special counsel. Certain legal matters in connection with
this offering will be passed upon for the underwriters by Brobeck, Phleger &
Harrison LLP.
As of the date of this prospectus, lawyers with Hutchison & Mason PLLC
beneficially own an aggregate of 6,470 shares of our common stock and 500
options to purchase shares of common stock exercisable within 60 days after
March 31, 1999. A partner of Wilmer, Cutler & Pickering beneficially owns 9,804
shares of our common stock. One of our consultants who beneficially owns 27,864
shares of our common stock and has options to purchase 18,529 shares of common
stock exercisable within 60 days after March 31, 1999, serves as a consultant
to Wilmer, Cutler & Pickering on matters unrelated to us.
EXPERTS
The financial statements included in this prospectus and incorporated in
this prospectus by reference to the annual report on Form 10-K of Trimeris,
Inc. for the year ended December 31, 1998, have been included and incorporated
by reference in reliance upon the report of KPMG LLP, independent certified
public accountants, appearing elsewhere in this prospectus, and upon the
authority of KPMG LLP as experts in accounting and auditing.
The statements in this prospectus under the captions "Risk Factors --
There is uncertainty regarding patents and proprietary rights" and "Business --
Patents, Proprietary Technology and Trade Secrets", relating to U.S. patent
matters, have been reviewed and approved by Pennie & Edmonds LLP, New York, New
York, our patent counsel, and are included herein in reliance upon such review
and approval by the firm as experts in U.S. patent law.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-3 with the SEC in
connection with this offering. In addition, we file annual, quarterly and
current reports, proxy statements and other information with the SEC. You may
read and copy the registration statement and any other documents filed by us at
the SEC's Public Reference Room at 450 Fifth Street, N. W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
Public Reference Room. Our Securities and Exchange Commission filings are also
available to the public at the SEC's Internet site at http://www.sec.gov.
This prospectus is part of the registration statement and does not contain
all of the information included in the registration statement. Whenever a
reference is made in this prospectus to any contract or other document of the
Trimeris, the reference may not be complete and you should refer to the
exhibits that are a part of the registration statement for a copy of the
contract or document.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by us with the SEC are hereby incorporated
by reference in this prospectus:
o the Annual Report of Trimeris, Inc. on Form 10-K for the fiscal year
ended December 31, 1998,
o the Current Reports of Trimeris, Inc. on Form 8-K filed March 26, 1999
and March 16, 1999, and
o the description of the common stock contained in its Registration
Statement on Form 8-A filed on October 1, 1997.
50
<PAGE>
All reports and other documents subsequently filed by us pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
prospectus and prior to the termination of the offering shall be deemed to be
incorporated by reference in this prospectus and to be a part of this
prospectus from the date of filing of such reports and documents. Any statement
contained in any document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this prospectus to the extent that a statement contained in this prospectus or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference in this prospectus modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this prospectus.
We will provide without charge to each person to whom this prospectus is
delivered, upon written or oral request a copy of any or all of the foregoing
documents incorporated by reference in this prospectus, except for exhibits to
these documents, unless the exhibits are specifically incorporated by reference
into any such document. You should direct your requests for such documents to
Investor Relations at Trimeris, Inc., 4727 University Drive, Suite 100, Durham,
North Carolina 27707 or by telephone at (919) 419-6050.
51
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report ............................................................. F-2
Balance Sheets at December 31, 1997 and 1998 ............................................. F-3
Statements of Operations for the Years Ended December 31, 1996, 1997, and 1998 and for
the period from
Inception to December 31, 1998 .......................................................... F-4
Statements of Stockholders' Equity (Deficit) for the period from Inception to December
31, 1995, and for the
Years Ended December 31, 1996, 1997 and 1998 ............................................ F-5
Statements of Cash Flows for the Years Ended December 31, 1996, 1997, and 1998 and for
the period from
Inception to December 31, 1998 .......................................................... F-6
Notes to Financial Statements ............................................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Trimeris, Inc.:
We have audited the accompanying balance sheets of Trimeris, Inc. (A
Development Stage Company) (the "Company") as of December 31, 1997 and 1998,
and the related statements of operations, stockholders' equity (deficit), and
cash flows for each of the years in the three-year period ended December 31,
1998 and for the cumulative period from the date of inception to December 31,
1998. 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1997 and 1998, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 1998, and for the
cumulative period from the date of inception to December 31, 1998, in
conformity with generally accepted accounting principles.
KPMG LLP
February 4, 1999
Raleigh, North Carolina
F-2
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................................... $ 32,557 $ 16,920
Short-term investments .................................................................. 4,863 3,256
Accounts receivable ..................................................................... 101 68
Prepaid expenses ........................................................................ 6 321
--------- ---------
Total current assets .................................................................. 37,527 20,565
--------- ---------
Property, furniture and equipment, net of accumulated depreciation of $2,169 and $2,775 at
December 31, 1997 and 1998, respectively ................................................ 756 1,598
--------- ---------
Other assets:
Exclusive license agreement, net of accumulated amortization of $11 and $14 at December
31,
1997 and 1998, respectively ........................................................... 30 27
Patent costs, net of accumulated amortization of $6 and $13 at December 31, 1997 and
1998,
respectively .......................................................................... 442 534
Equipment deposits ...................................................................... 86 147
Other assets, net of accumulated amortization of $18 and $20 at December 31, 1997 and
1998,
respectively .......................................................................... 3 1
--------- ---------
Total other assets .................................................................... 561 709
--------- ---------
Total assets .......................................................................... $ 38,844 $ 22,872
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ........................................................................ $ 722 $ 1,176
Current installments of obligations under capital leases ................................ 259 471
Accrued compensation .................................................................... 608 829
Accrued expenses ........................................................................ 1,205 1,527
--------- ---------
Total current liabilities ............................................................. 2,794 4,003
Obligations under capital leases, excluding current installments ......................... 240 853
--------- ---------
Total liabilities ..................................................................... 3,034 4,856
--------- ---------
Stockholders' equity (deficit):
Preferred Stock at $0.001 par value per share 10,000 shares authorized; issued and
outstanding
zero shares at December 31, 1997 and 1998 ............................................. -- --
Common Stock at $0.001 par value per share. Authorized 30,000 shares; issued and
outstanding
10,549 and 10,637 shares at December 31, 1997 and 1998, respectively .................. 11 11
Additional paid-in capital .............................................................. 67,360 68,406
Deficit accumulated during the development stage ........................................ (29,393) (48,395)
Deferred compensation ................................................................... (1,950) (1,788)
Notes receivable from stockholders ...................................................... (218) (218)
--------- ---------
Total stockholders' equity ............................................................ 35,810 18,016
--------- ---------
Commitments and contingencies (notes 2 and 9)
Total liabilities and stockholders' equity ............................................ $ 38,844 $ 22,872
========= =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CUMULATIVE FROM
INCEPTION
FOR THE YEARS ENDED DECEMBER 31, (JANUARY 7, 1993)
------------------------------------- TO DECEMBER 31,
1996 1997 1998 1998
----------- ------------ ------------ ------------------
<S> <C> <C> <C> <C>
Revenue ............................................... $ 55 $ 431 $ 363 $ 953
-------- --------- --------- ---------
Operating expenses:
Research and development ............................. 5,146 9,734 16,421 38,751
General and administrative ........................... 1,761 2,596 4,572 12,028
-------- --------- --------- ---------
Total operating expenses ........................... 6,907 12,330 20,993 50,779
-------- --------- --------- ---------
Operating loss ....................................... (6,852) (11,899) (20,630) (49,826)
-------- --------- --------- ---------
Other income (expense):
Interest income ...................................... 47 584 1,755 2,461
Interest expense ..................................... (167) (113) (127) (1,030)
-------- --------- --------- ---------
Total other income (expense) ......................... (120) 471 1,628 1,431
-------- --------- --------- ---------
Net loss ............................................. $ (6,972) $ (11,428) $ (19,002) $ (48,395)
======== ========= ========= =========
Basic net loss per share .............................. $ (1.48) $ (1.55) $ (1.78)
======== ========= =========
Weighted average shares used in per share computations 4,705 7,395 10,647
======== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION TO DECEMBER 31, 1995 AND THE YEARS ENDED DECEMBER
31, 1996 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------- --------------------
ADDITIONAL
NUMBER OF PAR NUMBER OF PAR PAID-IN
SHARES VALUE SHARES VALUE CAPITAL
----------- ------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C>
Balance at January 7, 1993 ........................................ -- $ -- -- $ -- $ --
Issuances of Common Stock ......................................... -- -- 246 -- 15
Issuances of Series A Preferred Stock ............................. 3,000 3 -- -- 1,997
Issuances of Series B Preferred Stock ............................. 20,636 21 -- -- 10,297
Stock issuance costs .............................................. -- -- -- -- (61)
Common Stock issued in exchange for exclusive license ............. -- -- 96 -- 41
Common Stock issued in exchange for consulting services ........... -- -- 11 -- 4
Loss for the period ............................................... -- -- -- -- --
------ ----- ----- ---- -------
Balance as of December 31, 1995 ................................... 23,636 24 353 -- 12,293
Issuances of Common Stock ......................................... -- -- 84 1 28
Issuances of Series B Preferred Stock ............................. 6,500 6 -- -- 3,244
Issuances of Series C Preferred Stock ............................. 3,333 3 -- -- 1,997
Stock issuance costs .............................................. -- -- -- -- (26)
Loss for the period ............................................... -- -- -- -- --
Notes receivable from stockholders for the purchase of shares ..... -- -- -- -- --
------ ----- ----- ---- -------
Balance as of December 31, 1996 ................................... 33,469 33 437 1 17,536
Issuances of Series C Preferred Stock ............................. 9,984 10 -- -- 5,981
Issuances of Series D Preferred Stock ............................. 9,048 9 -- -- 6,777
Issuances of Common Stock ......................................... -- -- 656 1 255
Conversion of Preferred Stock to Common Stock ..................... (52,501) (52) 6,262 6 46
Issuance of shares in initial public offering, net ................ -- -- 3,163 3 34,529
Exercise of stock options ......................................... -- -- 32 -- 9
Repayment of notes receivable from Stockholders ................... -- -- -- -- --
Repurchase of Common Stock ........................................ -- -- (1) -- --
Stock issuance costs .............................................. -- -- -- -- (109)
Issuances of Common Stock and options at below market value ....... -- -- -- -- 2,336
Amortization of deferred compensation ............................. -- -- -- -- --
Loss for the period ............................................... -- -- -- -- --
------- ----- ------- ---- -------
Balance as of December 31, 1997 ................................... -- -- 10,549 11 67,360
Exercise of stock options ......................................... -- -- 28 -- 10
Issuance of stock options to consultants .......................... -- -- -- -- 545
Issuance of stock for 401(K) match ................................ -- -- 20 -- 236
Issuance of stock under Employee Stock Purchase Plan .............. -- -- 40 -- 255
Amortization of deferred compensation ............................. -- -- -- -- --
Loss for the period ............................................... -- -- -- -- --
------- ----- ------- ---- -------
Balance as of December 31, 1998 ................................... -- $ -- 10,637 $ 11 $68,406
======= ===== ======= ==== =======
<CAPTION>
DEFICIT
ACCUMULATED NOTES NET
DURING THE RECEIVABLE STOCKHOLDERS
DEVELOPMENT DEFERRED FROM EQUITY
STAGE COMPENSATION STOCKHOLDERS (DEFICIT)
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at January 7, 1993 ........................................ $ -- $ -- $ -- $ --
Issuances of Common Stock ......................................... -- -- -- 15
Issuances of Series A Preferred Stock ............................. -- -- -- 2,000
Issuances of Series B Preferred Stock ............................. -- -- -- 10,318
Stock issuance costs .............................................. -- -- -- (61)
Common Stock issued in exchange for exclusive license ............. -- -- -- 41
Common Stock issued in exchange for consulting services ........... -- -- -- 4
Loss for the period ............................................... (10,993) -- -- (10,993)
--------- -------- ------ ----------
Balance as of December 31, 1995 ................................... (10,993) -- -- 1,324
Issuances of Common Stock ......................................... -- -- -- 29
Issuances of Series B Preferred Stock ............................. -- -- -- 3,250
Issuances of Series C Preferred Stock ............................. -- -- -- 2,000
Stock issuance costs .............................................. -- -- -- (26)
Loss for the period ............................................... (6,972) -- -- (6,972)
Notes receivable from stockholders for the purchase of shares ..... -- -- (14) (14)
--------- -------- ------ ----------
Balance as of December 31, 1996 ................................... (17,965) -- (14) (409)
Issuances of Series C Preferred Stock ............................. -- -- -- 5,991
Issuances of Series D Preferred Stock ............................. -- -- -- 6,786
Issuances of Common Stock ......................................... -- -- (254) 2
Conversion of Preferred Stock to Common Stock ..................... -- -- -- --
Issuance of shares in initial public offering, net ................ -- -- -- 34,532
Exercise of stock options ......................................... -- -- -- 9
Repayment of notes receivable from Stockholders ................... -- -- 50 50
Repurchase of Common Stock ........................................ -- -- -- --
Stock issuance costs .............................................. -- -- -- (109)
Issuances of Common Stock and options at below market value ....... -- (2,336) -- --
Amortization of deferred compensation ............................. -- 386 -- 386
Loss for the period ............................................... (11,428) -- -- (11,428)
--------- -------- ------ ----------
Balance as of December 31, 1997 ................................... (29,393) (1,950) (218) 35,810
Exercise of stock options ......................................... -- -- -- 10
Issuance of stock options to consultants .......................... -- (545) -- --
Issuance of stock for 401(K) match ................................ -- -- -- 236
Issuance of stock under Employee Stock Purchase Plan .............. -- -- -- 255
Amortization of deferred compensation ............................. -- 707 -- 707
Loss for the period ............................................... (19,002) -- -- (19,002)
--------- -------- ------ ----------
Balance as of December 31, 1998 ................................... $ (48,395) $ (1,788) $ (218) $ 18,016
========= ======== ====== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE FROM
INCEPTION
YEARS ENDED DECEMBER 31,
---------------------------------------- (JANUARY 7, 1993) TO
1996 1997 1998 DECEMBER 31, 1998
------------ ------------- ------------- ---------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................. $ (6,972) $ (11,428) $ (19,002) $(48,395)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization of property, furniture and
equipment ............................................ 690 558 606 2,795
Amortization of deferred compensation .................. -- 386 707 1,093
Other amortization ..................................... 9 11 12 49
401(K) plan stock match ................................ -- -- 236 236
Provision for equipment held for resale ................ -- -- -- 61
Stock issued for consulting services ................... -- -- -- 5
Stock issued to repay interest on notes to stockholders -- -- -- 195
Debt issued for research and development ............... 194 -- -- 194
Loss on disposal of property and equipment ............. -- -- -- 16
Decrease (increase) in assets:
Accounts receivable and loans to employees ............. (35) (65) 33 (68)
Prepaid expenses ....................................... (36) 39 (315) (321)
Other assets ........................................... -- (18) (61) (148)
Increase (decrease) in liabilities:
Accounts payable ....................................... 137 467 454 1,176
Accrued compensation ................................... 329 279 221 829
Accrued expenses ....................................... (145) 771 322 1,437
-------- --------- --------- --------
Net cash used by operating activities .................. (5,829) (9,000) (16,787) (40,846)
-------- --------- --------- --------
Cash flows from investing activities:
Purchase of property, furniture and equipment ............ (27) (205) (212) (847)
Net sale (purchase) of short-term investments ............ -- (4,863) 1,607 (3,256)
Equipment held for resale ................................ 7 54 -- (61)
Organizational costs ..................................... -- -- -- (8)
Patent costs ............................................. (116) (34) (99) (548)
-------- --------- --------- ----------
Net cash provided (used) by investing activities ....... (136) (5,048) 1,296 (4,720)
-------- --------- --------- ----------
Cash flows from financing activities:
Proceeds (payments) from notes payable ................... 92 (259) -- 6,150
Lease costs .............................................. -- -- -- (13)
Principal payments under capital lease obligations ....... (577) (529) (411) (2,238)
Proceeds from issuance of Common Stock ................... 15 2 -- 31
Proceeds from issuance of Preferred Stock ................ 5,250 12,777 -- 23,896
Proceeds from initial public offering, net ............... -- 34,532 -- 34,532
Proceeds from exercise of stock options .................. -- 9 10 19
Employee stock purchase plan stock issuance .............. -- -- 255 255
Repayment of notes receivable from stockholders .......... -- 50 -- 50
Stock issuance costs ..................................... (26) (109) -- (196)
-------- --------- --------- ----------
Net cash provided (used) by financing activities ....... 4,754 46,473 (146) 62,486
-------- --------- --------- ----------
Net increase (decrease) in cash and cash equivalents ..... (1,211) 32,425 (15,637) 16,920
Cash and cash equivalents at beginning of period ........... 1,343 132 32,557 --
-------- --------- --------- ----------
Cash and cash equivalents at end of period ................. $ 132 $ 32,557 $ 16,920 $ 16,920
======== ========= ========= ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ................... $ 154 $ 126 $ 127 $ 944
======== ========= ========= ==========
</TABLE>
Supplemental disclosures of noncash investing and financing activities are
described in Note 7.
See accompanying notes to financial statements.
F-6
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Trimeris, Inc. (the "Company") was incorporated on January 7, 1993 to
discover and develop novel therapeutic agents that block viral infection by
inhibiting viral fusion with host cells. The financial statements have been
prepared in accordance with Statement of Financial Accounting Standards No. 7,
"Accounting and Reporting by Development Stage Enterprises," to recognize the
fact that the Company is devoting substantially all of its efforts to
establishing a new business and planned principal operations have not
commenced.
Management expects to raise adequate capital to fund its research and
development and administrative expenses. The ability of the Company to raise
these funds is dependent on current and potential investors and corporate
partners. These financial statements do not include any adjustments that might
be necessary if the Company is unable to raise these funds.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents. Cash equivalents are
stated at cost and consist primarily of overnight commercial paper, variable
rate demand notes, commercial paper, and short-term debt securities. The
carrying amount of cash and cash equivalents approximates fair value.
SHORT-TERM INVESTMENTS
Short-term investments, which consist of short-term corporate debt
securities, are reported at fair value, and are classified as
available-for-sale securities. The cost of securities sold is determined using
the specific identification method when computing realized gains and losses.
Fair value is determined using available market information. At December 31,
1997 and 1998, cost approximated the fair value of short-term investments.
There were no realized gains or losses on investments sold during 1996, 1997 or
1998.
CONCENTRATION OF CREDIT AND MARKET RISK AND OFF BALANCE SHEET RISK
The Company invests its excess cash primarily in short-term marketable
securities, and, in accordance with its investment policy, limits the amount of
credit exposure with any one issuer. These investments are generally not
collateralized and typically mature within one year. There were no realized
gains or losses on these investments during 1996, 1997 or 1998.
PROPERTY, FURNITURE AND EQUIPMENT
Property, furniture and equipment are recorded at cost. Property,
furniture and equipment under capital leases are initially recorded at the
present value of minimum lease payments at the inception of the lease.
Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets. Property, furniture and equipment held
under capital leases and leasehold improvements are amortized using the
straight line method over the lesser of the lease term or estimated useful life
of the asset.
INTANGIBLE ASSETS
The recoverability of the carrying values of intangible assets is
evaluated on an ongoing basis, primarily by comparing the estimated
profitability related to the asset compared to its carrying value. Provision
against the carrying value of the asset is recorded when impairment is
identified.
The exclusive license is amortized using the straight-line method over
seventeen years. The costs of patents are capitalized and are amortized using
the straight-line method over the remaining lives of the patents from the date
the patents are granted. Financing costs were incurred as part of the Company's
capital lease agreements and are amortized straight-line over the lease term.
F-7
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
RESEARCH AND DEVELOPMENT
Research and development costs, including the cost of producing drug
material for clinical trials, are charged to operations as incurred.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities, and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
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.
NET LOSS PER SHARE
In accordance with SFAS No. 128, "Earnings Per Share" ("SFAS No. 128"),
basic loss per common share is calculated by dividing net loss by the
weighted-average number of common shares outstanding for the period after
certain adjustments described below. Diluted net income per common share
reflects the maximum dilutive effect of common stock issuable upon exercise of
stock options, stock warrants, and conversion of preferred stock. Diluted net
loss per common share is not shown, as common equivalent shares from stock
options, and stock warrants, would have an antidilutive effect. In accordance
with Securities and Exchange Commission Staff Accounting Bulletin No. 83 ("SAB
83"), all common shares and common equivalent shares issued during the
twelve-month period prior to the initial filing of the registration statement
relating to the Company's initial public offering, even when anti-dilutive,
have been included in the calculation as if they were outstanding for all
periods, using the treasury stock method. The basic net loss per common share
gives retroactive effect to the conversion of all outstanding shares of
Preferred Stock into 6,261,615 shares of Common Stock upon the completion of
the Company's initial public offering.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), encourages, but does not require
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for
stock-based compensation using the method prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. Accordingly, compensation cost for stock options is measured
as the excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock.
However, in accordance with SFAS No. 123, compensation costs for stock options
granted to certain non-employees is recorded at fair value.
STOCK SPLIT
Effective July 11, 1997, the Company declared a one for eight and one-half
reverse stock split for common stockholders. This stock split has been
retroactively applied and all periods presented have been restated. The
conversion prices for the Preferred Stock were adjusted for this reverse stock
split.
F-8
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. LEASES
The Company is obligated under various capital leases for furniture and
equipment that expire at various dates during the next four years. The gross
amount of furniture and equipment and related accumulated amortization recorded
under capital leases and included in property, furniture and equipment were as
follows at December 31, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Furniture and equipment ........... $ 2,326 $ 1,996
Less accumulated amortization. .... (1,655) (630)
-------- -------
$ 671 $ 1,366
======== =======
</TABLE>
The Company also has several non-cancelable operating leases, primarily
for office space and office equipment, that extend through September 1999.
Rental expense, including maintenance charges, for operating leases during
1996, 1997 and 1998 was $552,000, $612,000, and $638,000 respectively.
Future minimum lease payments under non-cancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of December 31, 1998 (in thousands) are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ----------
<S> <C> <C>
Year ending December 31:
1999 ............................................................. $ 608 $ 463
2000 ............................................................. 512 --
2001 ............................................................. 386 --
2002 ............................................................. 44 --
------ -----
Total minimum lease payments ...................................... 1,550 $ 463
=====
Less amount representing interest ................................. 226
------
Present value of net minimum capital lease payments ............... 1,324
Less current installments of obligations under capital leases ..... 471
------
Obligations under capital leases, excluding current
installments ..................................................... $ 853
======
</TABLE>
Additionally, under a warrant agreement dated August 24, 1993 with a
lessor, the Company issued warrants to acquire Series B Preferred Stock at the
initial Series B Preferred Stock per share offering price, such that the
aggregate purchase price for the shares equals $119,000. The warrants shall be
exercisable prior to the earlier of the tenth annual anniversary date of the
grant date or fifth anniversary date of Trimeris' Initial Public Offering. The
shares have not been issued as of December 31, 1998.
During the year ended December 31, 1995, the lease with the aforementioned
lessor was amended to increase the credit limit by $750,000 to $2.0 million. As
part of this amendment, Trimeris granted the lessor additional warrants to
purchase shares valued at $71,000 of Series B Preferred Stock at the initial
per share offering price. These shares have not been issued at December 31,
1998.
3. STOCKHOLDERS' EQUITY (DEFICIT)
In connection with the Company's initial public offering, the Company's
Certificate of Incorporation was restated to grant the Company the authority to
issue 40,000,000 shares of stock consisting of 30,000,000 shares of Common
Stock, par value $0.001 per share, and 10,000,000 shares of Preferred Stock,
par value $0.001 per share.
F-9
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. STOCKHOLDERS' EQUITY (DEFICIT), CONTINUED
At December 31, 1997 and 1998, loans with an interest rate of 8% totaling
$218,000 were outstanding to employees of the Company for purchase of shares of
the Company's Common Stock. This amount has been presented as contra-equity in
the statement of stockholders' equity (deficit).
INITIAL PUBLIC OFFERING
In October 1997, the Company closed its initial public offering of common
stock at $12 per share. The net proceeds of the offering were $34,532,000 after
deducting applicable costs and expenses. In connection with the public
offering, all outstanding shares of Preferred Stock were converted into
6,261,615 shares of Common Stock.
PREFERRED STOCK
Prior to the conversion of the Preferred Stock into Common Stock in
connection with the initial public offering, Preferred Stockholders had certain
rights regarding dividends, liquidation preferences, conversion rights, voting
rights, and restrictions on future debt or equity issuances. The Board of
Directors has the authority to issue future shares of Preferred Stock and to
fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, conversion rights, voting rights, terms of redemption, and
liquidation preferences, without any further vote or action by the
stockholders.
EQUITY FINANCING
An initial investment of $2 million was provided by Domain Partners II,
L.P. ("Domain") and Biotechnology Investments Limited ("BIL") to fund the
start-up phase of the Company.
During the year ended December 31, 1995, Domain, BIL and others invested
an additional $3.9 million to fund continued operations of the Company through
the purchase of shares of Series B Preferred Stock. In addition, the Company
exchanged notes payable, including accrued interest, of $6.4 million for shares
of Series B Preferred Stock. These notes were payable to Domain and BIL and
were entered into during the years ended December 31, 1994 and 1995. A total of
20,635,564 shares were issued for a total consideration of $10.3 million.
In March and October 1996 and April, 1997, Domain, BIL, and others
invested an additional $11.3 million to fund continued operations of the
Company through the purchase of Series B Preferred Stock and Series C Preferred
Stock. In June, 1997, various other investors invested $6.8 million through the
purchase of Series D Preferred Stock.
Common Stock was issued during 1994, 1995, and 1996 through the purchase
by Company personnel and through the exercise of stock options.
4. STOCK OPTION PLAN
In 1993, the Company adopted a stock option plan which allows for the
issuance of non-qualified and incentive stock options. During 1996, the
Trimeris, Inc. New Stock Option Plan (the "Stock Option Plan") was implemented
that replaced the 1993 plan. Under the Stock Option Plan, as amended, the
Company may grant non-qualified or incentive stock options for up to 1,602,941
shares of Common Stock. The exercise price of each incentive stock option shall
not be less than the fair market value of the Company's Common Stock on the
date of grant and an option's maximum term is ten years. Outstanding incentive
stock options have been issued at prices ranging from $.34 to $12.56 per share.
The vesting period occurs ratably over four years. At December 31, 1998 there
were approximately 181,000 options remaining available for grant. All incentive
stock options which had been granted under the 1993 plan were cancelled at
inception of the Stock Option Plan while the non-qualified stock options remain
outstanding at an exercise price of $.43. No more grants will be made under the
1993 plan.
F-10
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. STOCK OPTION PLAN, CONTINUED
Stock option transactions for the years ended December 31, 1996, 1997 and
1998 are as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
1996 PRICE 1997 PRICE 1998 PRICE
------------ ---------- ------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
at January 1 .......... 166,000 $ 0.34 483,000 $ 0.34 267,000 $ 0.75
Granted ............... 572,000 0.34 144,000 1.56 820,000 7.91
Exercised ............. (28,000) 0.34 (341,000) 0.34 (28,000) 0.35
Cancelled ............. (227,000) 0.34 (19,000) 0.34 (24,000) 6.16
-------- -------- -------- -------- ------- --------
Options outstanding
at end of period ...... 483,000 $ 0.34 267,000 $ 0.75 1,035,000 $ 6.31
======== ======== ======== ======== ========= ========
</TABLE>
The following summarizes information about stock options outstanding as of
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------- -------------------------------
WEIGHTED
AVERAGE
NUMBER REMAINING WEIGHTED WEIGHTED
RANGE OF EXERCISE OUTSTANDING CONTRACTUAL AVERAGE NUMBER AVERAGE
PRICE AS OF 12/31/98 LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ------------------- ---------------- ------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 0.34 195,000 7.72 $ 0.34 133,000 $ 0.34
$ 1.00 31,000 8.65 $ 1.00 11,000 $ 1.00
$ 5.88-9.75 802,000 9.33 $ 7.91 168,000 $ 7.94
$ 12.00-$12.56 7,000 8.93 $ 12.36 3,000 $ 12.23
------- ---- -------- ------- --------
$ 0.34-$12.56 1,035,000 9.00 $ 6.31 315,000 $ 4.54
========= ==== ======== ======= ========
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. Accordingly, compensation cost related to stock
options issued to employees would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. For
the year ended December 31, 1997, the Company recorded a deferred charge of
$2,336,000, representing the difference between the exercise price and the
deemed fair value of the Company's Common Stock for 348,000 shares of Common
Stock and 132,000 shares subject to Common Stock Options granted in the second
and third quarters of 1997. The deferred compensation will be amortized to
expense over the period the shares and options vest, generally four years.
SFAS 123, Accounting for Stock-Based Compensation, permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows entities
to continue to apply the provisions of APB Opinion No. 25 and provide pro forma
net income and pro forma earnings per share disclosures for employee stock
option grants as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the provisions of
APB Opinion No. 25. Had the Company determined compensation expense based on
the fair value at the grant date for its stock options under SFAS 123, the
Company's net loss and basic loss per share would have been increased to the
pro forma amounts indicated below for the years ended December 31:
F-11
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. STOCK OPTION PLAN, CONTINUED
<TABLE>
<CAPTION>
1996 1997 1998
------------- -------------- --------------
<S> <C> <C> <C>
Net loss:
As reported ................ $ (6,972) $ (11,428) $ (19,002)
Compensation cost recorded
under APB 25 and SFAS
123 ............................. -- 386 707
Additional compensation cost
resulting from:
Common Stock Options ............ -- (100) (821)
Restricted Stock ................ -- (240) (415)
--------- ---------- ----------
Pro forma .................. $ (6,972) $ (11,382) $ (19,531)
========= ========== ==========
Basic Loss Per Share:
As reported ..................... $ (1.48) $ (1.55) $ (1.78)
Pro forma ....................... $ (1.48) $ (1.54) $ (1.83)
</TABLE>
The fair value of common stock options and restricted stock is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following assumptions used:
<TABLE>
<S> <C>
Estimated dividend yield 0.00%
Expected stock price volatility 29.00%-72.00%
Risk-free interest rate 5.07-6.00%
Expected life of options 5-7 years
</TABLE>
The effects of applying SFAS 123 for disclosing compensation cost may not
be representative of the effects or reported net income for future years
because pro forma net loss reflects compensation costs only for stock options
granted in 1996, 1997 and 1998 and does not consider compensation cost for
stock options granted prior to January 1, 1995.
5. INCOME TAXES
At December 31, 1998, the Company has net operating loss carryforwards
(NOL's) for federal income tax purposes of approximately $45.6 million which
expire in varying amounts between 2010 and 2018. The Company has NOL's for
state tax purposes of approximately $45.6 million which expire in varying
amounts between 2000 and 2013. Additionally, the Company has research and
development credits of $1.1 million which expire in varying amounts between
2008 and 2013.
The Tax Reform Act of 1986 contains provisions which limit the ability to
utilize net operating loss carryforwards in the case of certain events
including significant changes in ownership interests. If the Company's NOL's
are limited, and the Company has taxable income which exceeds the permissible
yearly NOL, the Company would incur a federal income tax liability even though
NOL's would be available in future years.
F-12
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES, CONTINUED
The components of deferred tax assets and deferred tax liabilities as of
December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Tax loss carryforwards ......... $ 11,094 $ 17,777
Tax credits .................... 339 1,123
Reserves and accruals .......... 257 1,028
Start-up costs ................. 76 --
--------- ---------
11,766 19,928
Valuation allowance ............ (11,766) (19,928)
--------- ---------
Net deferred asset ............. -- --
Deferred tax liabilities:
Deferred tax liability ......... -- --
--------- ---------
Net deferred tax assets and
(liability) .......................... $ -- $ --
========= =========
</TABLE>
The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
6. EMPLOYEE BENEFIT PLANS
401 (K) PLAN
The Company has adopted a 401(k) Profit Sharing Plan (the "Plan") covering
all qualified employees. The effective date of the Plan is January 1, 1994.
Participants may elect a salary reduction from 1% to 12% as a contribution
to the Plan. Modifications of the salary reductions may be made quarterly. The
Plan permits the Company to match participants' contributions. Beginning in
1998, the Company matched 100% of a participant's contributions with Company
stock, provided the participant was employed on the last day of the year. The
number of shares issued is based on the contributions to be matched divided by
the closing price of the Company's stock on the last trading day of the year.
During 1998, 20,000 shares were issued, and compensation expense of $236,000
was recognized. These shares vest ratably based on a participant's years of
service and are fully vested after four years of service.
The normal retirement age shall be the later of a participant's 65th
birthday or the fifth anniversary of the first day of the Plan year in which
participation commenced. The Plan does not have an early retirement provision.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan which permits eligible
employees to purchase newly issued common stock of the Company up to an
aggregate of 250,000 shares. Under this plan, employees may purchase from the
Company a designated number of shares through payroll deductions at a price per
share equal to 85% of the lesser of the fair market value of the Company's
common stock as of the date of the grant or the date the right to purchase is
exercised. No shares were issued under this plan during 1996 or 1997, and
40,000 shares were issued under this plan in 1998.
7. SUPPLEMENTARY CASH FLOW INFORMATION
Capital lease obligations of $330,000, $211,000 and $1,236,000 were
incurred in 1996, 1997 and 1998, respectively, for leases of new furniture and
equipment.
F-13
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. SUPPLEMENTARY CASH FLOW INFORMATION, CONTINUED
During 1995, the Company exchanged notes payable to stockholders,
including accrued interest of $6.4 million for Series B Preferred Stock.
Shares issued under the license and consulting agreements have been valued
by the Board of Directors taking into consideration the fair value of the most
recently issued preferred stock or the value of the services, whichever is more
readily determinable.
8. COMMITMENTS AND CONTINGENCIES
The Company is involved in certain claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
financial position or results of operations of the Company.
F-14
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH
WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE
ACCURATE ON THE DATE OF THIS DOCUMENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT
IS LEGAL TO SELL THESE SECURITIES.
--------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary ........................................ 3
Risk Factors .............................................. 6
Use of Proceeds ........................................... 15
Dividend Policy ........................................... 15
Price Range of Common Stock ............................... 16
Capitalization ............................................ 17
Dilution .................................................. 18
Selected Financial Data ................................... 19
Management's Discussion and Analysis of
Financial Condition and Results of Operations .......... 20
Business .................................................. 24
Management ................................................ 36
Certain Transactions ...................................... 43
Principal Stockholders .................................... 44
Description of Capital Stock .............................. 46
Shares Eligible for Future Sale ........................... 48
Underwriting .............................................. 49
Legal Matters ............................................. 50
Experts ................................................... 50
Where You Can Find More Information ....................... 50
Information Incorporated by Reference ..................... 50
Index to Consolidated Financial Statements ................ F-1
</TABLE>
2,500,000 SHARES
[Trimeris logo appears here]
Trimeris, Inc.
COMMON STOCK
--------------------------------
P R O S P E C T U S
--------------------------------
ING BARING FURMAN SELZ LLC
BANCBOSTON ROBERTSON STEPHENS
SG COWEN
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimate of the fees and expenses
relating to the issuance and distribution of the securities being registered
hereby, other than underwriting discounts and commissions, all of which shall
be borne by Trimeris, Inc. (the "Registrant" or the "Company"). All of such
fees and expenses, except for the SEC Registration Fee, are estimated:
<TABLE>
<S> <C>
SEC Registration Fee ............................................ $ 10,466
Filing Fee -- National Association of Securities Dealers, Inc ... 4,265
Listing Fee -- Nasdaq National Market ........................... 17,500
Transfer agent's fees and expenses .............................. 5,000
Legal fees and expenses ......................................... 100,000
Printing fees and expenses ...................................... 125,000
Accounting fees and expenses .................................... 50,000
Blue Sky Fees and Expenses (including legal fees) ............... 10,000
Miscellaneous expenses .......................................... 52,769
--------
Total ........................................................... $375,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law (the "DGCL"), a
corporation may indemnify its directors, officers, employees and agents and its
former directors, officers, employees and agents and those who serve, at the
corporation's request, in such capacities with another enterprise, against
expenses (including attorneys' fees), as well as judgments, fines and
settlements in non-derivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The DGCL provides,
however, that such person must have acted in good faith and in a manner he or
she reasonably believed to be in (or not opposed to) the best interests of the
corporation and, in the case of a criminal action, such person must have had no
reasonable cause to believe his or her conduct was unlawful. In addition, the
DGCL does not permit indemnification in an action or suit by or in the right of
the corporation, where such person has been adjudged liable to the corporation,
unless, and only to the extent that, a court determines that such person fairly
and reasonably is entitled to indemnity for costs the court deems proper in
light of liability adjudication. Indemnity is mandatory to the extent a claim,
issue or matter has been successfully defended. Section 145 of the DGCL also
provides that a corporation has the power to purchase and maintain insurance on
behalf of its officers and directors against any liability asserted against
such person and incurred by him or her in such capacity, or arising out of his
or her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under the provisions of Section 145
of the DGCL.
The Company's Third Amended and Restated Certificate of Incorporation
contains certain provisions permitted under the DGCL relating to the liability
of directors. These provisions eliminate a director's personal liability for
monetary damages resulting from a breach of fiduciary duty, except in certain
circumstances involving certain wrongful acts, such as (i) for any breach of
the director's duty of loyalty to the Company or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the Delaware law, (iv)
for any transaction from which the director derives an improper personal
benefit or (v) acts or omissions occurring prior to the date of these
provisions. These provisions do not limit or eliminate the rights of the
Company or any stockholder to seek equitable relief, such as an injunction or
rescission, in the event of a breach of a director's fiduciary duty. These
provisions will not alter a director's liability under federal securities laws.
The Company's Third Amended and Restated Certificate of Incorporation also
contain provisions indemnifying the directors and officers of the Company to
the fullest extent permitted by DGCL.
The Company's bylaws provide that the Company shall indemnify its
directors and executive officers to the fullest extent permitted by the DGCL.
The rights to indemnity thereunder continue as to a person who has ceased to be
a director, officer, employee or agent and inure to the benefit of the heirs,
executors and administrators of the person. In addition, expenses incurred by a
director or officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding by reason of the fact that he or she
is or was a director or officer of the Company (or was serving at
II-1
<PAGE>
the Company's request as a director or officer of another corporation) shall be
paid by the Company in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he or
she is not entitled to be indemnified by the Company as authorized by the
relevant section of the DGCL.
The Company has entered into indemnification agreements with each of its
directors and executive officers. Generally, these indemnification agreements
provide the maximum protection available under DGCL, as it may be amended from
time to time. Under these indemnification agreements, however, individuals do
not receive indemnification for judgments, settlements or expenses if he or she
is found liable to the Company (except to the extent the court determines he or
she is fairly and reasonably entitled to indemnity for expenses), for
settlements not approved by the Company or for settlements and expenses if the
settlement is not approved by the court. The indemnification agreements provide
for the Company to advance to the individual any and all reasonable expenses
(including legal fees and expenses) incurred in investigating or defending any
such action, suit or proceeding. In order to receive an advance of expenses,
the individual must submit to the Company copies of invoices presented to him
or her fur such expenses. Also, the individual must repay such advances upon a
final judicial decision that he or she is not entitled to indemnification.
ITEM 16. EXHIBITS
The exhibits to this registration statement are listed in the Exhibit
Index to this registration statement, which Exhibit Index is hereby
incorporated by reference.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
II-2
<PAGE>
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
[the remainder of this page is intentionally left blank]
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Durham, County of Durham, State of North Carolina on
this 20th day of April, 1999.
TRIMERIS, INC.
By: /s/ DANI P. BOLOGNESI
-----------------------------------
DANI P. BOLOGNESI, PH.D.
CHIEF EXECUTIVE OFFICER AND
CHIEF SCIENTIFIC OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Dani P. Bolognesi and Matthew A. Megaro as his
true and lawful attorneys-in-fact each acting alone, with full power of
substitution and resubstitution, for him and in his name, place and stead in
any and all capacities to sign any or all amendments (including post-effective
amendments) to this registration statement, and any registration statement
filed pursuant to Rule 462(b) under the Securities Act of 1933 in connection
with the registration under the Securities Act of 1933 of equity securities of
Trimeris, Inc., and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact, or
their substitutes, each acting alone, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ---------------------------------------- ---------------
<S> <C> <C>
/s/ DANI P. BOLOGNESI Chief Executive Officer (principal April 20, 1999
---------------------------------- executive officer), Chief Scientific
DANI P. BOLOGNESI, PH.D. Officer and Director
/s/ MATTHEW A. MEGARO President, Chief Financial Officer and April 16, 1999
---------------------------------- Secretary (principal accounting officer
MATTHEW A. MEGARO and principal financial officer)
/s/ JESSE I. TREU Chairman of the Board April 20, 1999
----------------------------------
JESSE I. TREU, PH.D.
/s/ JEFFREY M. LIPTON Vice Chairman of the Board April 19, 1999
----------------------------------
JEFFREY M. LIPTON
/s/ BRIAN H. DOVEY Director April 20, 1999
----------------------------------
BRIAN H. DOVEY
/s/ CHARLES A. SANDERS Director April 20, 1999
----------------------------------
CHARLES A. SANDERS, M.D.
/s/ J. RICHARD CROUT Director April 19, 1999
----------------------------------
J. RICHARD CROUT, M.D.
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- ---------------- -------------------------------------------------------------------------------
<S> <C>
1.1+ Form of Underwriting Agreement
4.1* Specimen certificate for shares of Common Stock
4.2* Description of Capital Stock
5 Opinion of Hutchison & Mason PLLC as to the legality of the securities being
registered
23.1 Consent of Hutchison & Mason PLLC (included in Exhibit 5)
23.2 Consent of KPMG LLP
23.3 Consent of Pennie & Edmonds
24 Power of attorney (included on signature pages of this registration statement)
27 Financial Data Schedule
</TABLE>
- -------
* Incorporated by reference to Trimeris' Registration Statement on Form S-1
(File No. 333-31109).
+ To be filed by amendment.
All financial statement schedules have been omitted because either they
are not required, are not applicable, or the information is otherwise set forth
in the Financial Statements and Notes thereto.
Trimeris, Inc.
4727 University Drive
Suite 100
Durham, North Carolina 27707
Re: 2,875,000 Shares of Common Stock of Trimeris, Inc.
Ladies and Gentlemen:
We have acted as counsel to Trimeris, Inc., a Delaware corporation (the
"Company"), in connection with the proposed issuance and sale by the Company of
up to 2,875,000 shares of the Company's Common Stock (the "Shares"), pursuant to
the Company's Registration Statement on Form S-3 filed on April 20, 1999 (the
"Registration Statement").
In connection with this opinion, we have examined the Registration
Statement and related Prospectus, the Company's Third Amended and
Restated Certificate of Incorporation, the Company's Amended and Restated
Bylaws, and the originals, or copies certified to our satisfaction, of such
records, documents, certificates, memoranda and other instruments as in our
judgment are necessary or appropriate to enable us to render the opinion
expresses below (the "Documents"). We are relying (without any independent
investigation thereof) upon the truth and accuracy of the statements, covenants,
representations and warranties set forth in the Documents.
On the basis of the foregoing, and in reliance thereon, we are of the
opinion that the Shares have been duly authorized, and if, as and when issued in
accordance with the Registration Statement and Prospectus (as amended and
supplemented through the date of issuance), will be validly issued, fully paid
and nonassessable.
The opinion expressed herein does not extend to compliance with state
and federal securities laws relating to the sale of these securities.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement, the Prospectus and any further amendments thereto. Subject to the
foregoing sentence, this opinion is given as of the date hereof solely for your
benefit and may not be relied upon, circulated, quoted or otherwise referred to
for any purposes without our prior written consent. Our opinion is as of the
date hereof, and we do not
undertake to advise you of matters that might come to our attention subsequent
to the date hereof which may affect our legal opinion expressed herein.
Very truly yours,
/s/ HUTCHISON & MASON PLLC
------------------------------
HUTCHISON & MASON PLLC
The Board of Directors
Trimeris, Inc.
We consent to the use of our reports included herein and incorporated herein by
reference and to the reference to our firm under the heading "Experts" in the
prospectus.
KPMG LLP
Raleigh, NC
April 20, 1999
CONSENT OF COUNSEL
The undersigned hereby consents to the use of our name and the statement with
respect to us appearing under the heading "Experts" in the Registration
Statement on Form S-3 of Trimeris, Inc.
PENNIE & EDMONDS LLP
New York, New York
April 20, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000911326
<NAME> Trimeris
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 16,920
<SECURITIES> 3,256
<RECEIVABLES> 68
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,565
<PP&E> 4,373
<DEPRECIATION> 2,775
<TOTAL-ASSETS> 22,872
<CURRENT-LIABILITIES> 4,003
<BONDS> 0
0
0
<COMMON> 11
<OTHER-SE> 18,005
<TOTAL-LIABILITY-AND-EQUITY> 22,872
<SALES> 0
<TOTAL-REVENUES> 363
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 20,993
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127
<INCOME-PRETAX> (19,002)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,002)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,002)
<EPS-PRIMARY> (1.78)
<EPS-DILUTED> (1.78)
</TABLE>
