UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 0-23155
TRIMERIS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-1808663
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4727 UNIVERSITY DRIVE, SUITE 100
DURHAM, NORTH CAROLINA 27707
(Address of principal executive offices, including Zip Code)
(919) 419-6050
Registrant's telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.001 par value (Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of March 23, 2000 was approximately $659,508,000 (based on the
last sale price of such stock as reported by the Nasdaq National Market System):
The number of shares of the registrant's Common Stock outstanding as of
March 23, 2000 was 15,647,182
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement to be filed by the
Company with the Securities and Exchange Commission within 120 days after the
end of the fiscal year are incorporated by reference in Part III of this Form
10-K.
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TRIMERIS, INC.
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
Table of Contents
<TABLE>
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Item Number Page
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PART I.
<S> <C> <C>
Item 1. BUSINESS 1
Item 2. PROPERTIES 27
Item 3. LEGAL PROCEEDINGS 27
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 27
PART II.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 28
Item 6. SELECTED FINANCIAL DATA 30
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 31
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 36
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 36
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 36
PART III.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 37
Item 11. EXECUTIVE COMPENSATION 37
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 37
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 37
PART IV.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 38
SIGNATURE PAGE II-1
EXHIBIT INDEX II-2
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PART I.
Item 1. BUSINESS
STATEMENTS IN THIS FORM 10-K THAT ARE NOT HISTORICAL FACT ARE
FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS
REGARDING TRIMERIS, INC.'S EXPECTATIONS, HOPES, BELIEFS, INTENTIONS OR
STRATEGIES REGARDING THE FUTURE AND ARE SUBJECT TO A NUMBER OF KNOWN AND UNKNOWN
RISKS AND UNCERTAINTIES, MANY OF WHICH ARE BEYOND OUR CONTROL. 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
FORM 10-K. 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 FORM 10-K. THE RESULTS OF OUR PREVIOUS
CLINICAL TRIALS ARE NOT NECESSARILY INDICATIVE OF THE RESULTS OF FUTURE CLINICAL
TRIALS. PLEASE READ THE "RISK FACTORS" SECTION IN THIS 1999 FORM 10-K FOR
FURTHER INFORMATION REGARDING THESE FACTORS. WE UNDERTAKE NO OBLIGATION TO
RELEASE PUBLICLY THE RESULTS OF ANY REVISIONS TO THE STATEMENTS CONTAINED IN
THIS REPORT TO REFLECT EVENTS OR CIRCUMSTANCES THAT OCCUR SUBSEQUENT TO THE DATE
OF THIS FORM 10-K.
OVERVIEW
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 treat HIV infection. Increasingly, these
therapies are failing to adequately treat 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 investigational drugs under development may
meet these criteria. Our lead drug, 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 T20-003, a Phase II clinical trial of
T-20. Details of the structure and results of the trial are as follows:
o 75 HIV-infected adults with high viral loads who had previously
used, on average, nine currently-approved anti-HIV drugs that no
longer suppressed their HIV viral loads below detectable levels,
received T-20 therapy,
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.
In 1999 and 2000, we presented data from T20-205, a Phase II rollover trial for
patients who had received T-20 in previous clinical trials. Details of the
structure and results of the trial are as follows:
o patients received T-20 via twice daily subcutaneous injection in
combination with other anti-HIV drugs,
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o at 16 weeks, 33 of 55, or 60%, of patients responded with
significant and clinically relevant reductions of HIV viral load,
and 30% had viral load reduced to undetectable levels of less than
400 copies/microliter,
o at 32 weeks, the decline in HIV viral load remained consistent with
the decline observed at 16 weeks and the patients continued to
tolerate T-20,
o data suggest a substantial increase in human immune cells known as
CD4+ T-cells, and
o data from 16 weeks show that T-20 does not appear to produce an
immune response in the body that could compromise T-20's efficacy.
In all clinical studies to date, the most common adverse events were
mild to moderate in severity. The most frequent adverse events include injection
site reaction, headache, nausea, fever, increased energy levels, weakness,
diarrhea, and dizziness. We are unable to determine whether T-20 caused some of
these results because there were no patients in our trials to date for
comparison who received combinations that did not include T-20.
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 drug development process. We are currently conducting two other
clinical trials of T-20 and plan to commence additional trials throughout the
year. We expect to begin a pivotal trial for T-20 in mid-2000.
We are developing T-1249, our second drug 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. In May 1999,
the FDA gave T-1249 "fast track" designation. In July 1999, we began a 14-day
Phase I clinical trial in up to 60 HIV-infected adults. This clinical trial is
ongoing.
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 have transferred the
manufacturing process to four third party contract manufacturers who have
produced various quantities of T-20.
In July 1999, we announced an agreement with F. Hoffmann-La Roche Ltd.,
or Roche, to develop and market T-20 and T-1249 worldwide. We will share
development expenses and profits for T-20 and T-1249 in the United States and
Canada equally with Roche. Outside of these two countries, Roche will fund all
development costs and pay us royalties on net sales of these products. Roche
paid us $10 million up front and will provide up to an additional $58 million in
cash upon achievement of developmental, regulatory and commercial milestones.
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.
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.
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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.
OVERVIEW OF HIV
Approximately 850,000 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 newly 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, which 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 fewer 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 1997 deaths attributable to
HIV infection were reduced to approximately 16,000 from 32,000 in 1996 due to
improvements in treatment regimens. Because of the powerful results achieved by
the combined use of RT and protease inhibitors, 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. Of the total number of people infected with HIV in the U.S.,
current estimates suggest that only approximately 350,000 patients are receiving
anti-HIV drug therapy. In addition, 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 the 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 some HIV-infected patients refuse to
commence or have withdrawn from taking RT and protease inhibitors, either alone
or in combination, because of 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 nightmares,
o gastrointestinal disorders, such as diarrhea and nausea,
o diabetes-like symptoms, and
o abnormal redistribution of body fat and elevated cholesterol counts.
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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
numerous times during the day,
o specific dosing provisions such as taking pills with food or large volumes
of liquid,
o interrupting normal activiities to take pills, and
o inability to take other drugs at the same time because of 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 within that same chemical or functional class becomes more likely. This
phenomenon is known as cross-resistance. Attempts to re-establish 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% to 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 are not likely to 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 anti-HIV drugs currently in
clinical development are RT and protease inhibitors and may be subject to some
degree of 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 may meet all
of these criteria. We further believe that T-1249 may also meet these criteria.
4
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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 2000. The FDA has granted fast track designation for T-20.
MECHANISM OF ACTION
T-20 is a 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.
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.
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 also announced data for our T20-205 trial,
which is ongoing. We have two additional Phase II trials ongoing and plan to
commence additional trials during 2000, including a pivotal trial for T-20.
COMPLETED T-20 CLINICAL TRIALS
PHASE I/II - T20-001. 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 3.0 mg, 10.0 mg, 30.0 mg or 100.0 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 copies/ml, or
98%. Log10 copies/ml means the number of HIV virus particles per milliliter of
blood. 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.
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PHASE II - T20-003. 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 12.5 mg, 25.0 mg, 50.0 mg or 100.0 mg per day. The other two groups received
T-20 via subcutaneous injections twice a day in doses of either 50.0 mg or 100.0
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, those
other drugs incompletely suppressed 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.
Of the 78 patients screened for the trial, three withdrew before
receiving T-20 therapy, and five withdrew during the course of therapy; three
because of intolerance of the continuous subcutaneous infusion administration
and two because of adverse events.
PHASE II - T20-205. T20-205 is a Phase II trial in which T-20 was given
in combination with oral anti-HIV drugs to 71 HIV-1 infected adults who had
received T-20 during earlier trials. Fifty mg of T-20 was given twice daily via
subcutaneous injection. Combinations of the oral anti-HIV drugs were
individualized to each patient and were chosen based on genotypic analysis
evaluating patients' resistance to anti-HIV medications. A genotypic resistance
analysis involves examination of the genetic sequence of the strains of virus
present in the sample.
In September 1999, we announced data from T20-205. Sixty percent, or 33
of 55, of evaluable patients on therapy at sixteen weeks responded with a
clinically significant reduction of HIV in the blood, defined as either a
reduction of greater than 1.0 log(10), or 90%, from baseline or reduction below
the level at which the virus can be measured, 400 copies/ml, using the Roche
Amplicor Assay. Furthermore, 20 of 55 or 36% of patients had virus levels below
the level at which the virus can be measured. The average decrease in viral load
for all patients was greater than 90% over the 16-week period. At entry into the
trial, these patients had previously been treated with an average of 9 anti-HIV
drugs and 78% had a clinical history of exposure to drugs from all three
currently approved classes. Ninety-three percent of patients demonstrated
genotypic evidence associated with resistance to protease inhibitors with an
average of five mutations per patient, and 87% demonstrated mutations associated
with resistance to reverse transcriptase inhibitors with an average of four
mutations per patient. In addition, data from 16 weeks show that T-20 does not
appear to produce an immune response in the body that could compromise T-20's
efficacy.
In January 2000, we extended T20-205 beyond the initial 48 week
duration because patients in the trial appeared to continue to receive clinical
benefit. At 32 weeks, the decline of HIV in the blood remained consistent with
the decline observed at 16 weeks and the patients continued to tolerate T-20. At
32 weeks, the data also suggests a substantial increase in CD4+ T-cells.
SIDE EFFECTS. In all T-20 clinical studies to date, the most common
adverse events were mild to moderate in severity. The most frequent adverse
events include injection site reaction, headache, nausea, fever, increased
energy levels, weakness, diarrhea, and dizziness. We are unable to determine
whether T-20 caused some of these results because there were no patients in our
trials to date for comparison who received combinations that did not include
T-20.
PHARMACOKINETIC ANALYSES. 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.
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ANTIBODIES. We have examined patient samples taken throughout the
trials to assess potential antibody responses to T-20. Data at 16 weeks in the
T20-205 trial show that T-20 does not appear to produce an immune response in
the body that could compromise T-20's efficacy.
RESISTANCE. We are currently conducting genotypic and phenotypic
analyses of patients' blood samples taken throughout the T20-003 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 caused by strains of a virus grown
in culture. It is too early in our analyses to draw any specific conclusions
from the T20-003 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.
ONGOING T-20 CLINICAL TRIALS
PHASE II -- T20-205. In January 2000, we extended T20-205 beyond the
initial 48 week duration because patients in the trial appeared to continue
receiving clinical benefit. Patients will continue to receive T-20 therapy at
their election, as long as they show clinical benefit.
PHASE II -- T20-204. In November 1999, in collaboration with the
Division of AIDS of the National Institute for Allergy and Infectious Diseases,
or NIAID, we initiated a clinical trial to evaluate the safety and
pharmacokinetics of T-20 in children living with HIV infection. The trial will
be managed by the Pediatric AIDS Clinical Trial Group, or PACTG, and has been
designated as a fast-track study within the PACTG system.
The study is designed to investigate the safety, tolerability and
pharmacokinetics of T-20 in pediatric patients. The trial is conducted in two
parts and will enroll up to twelve pediatric patients ages 3 to 12. The first
part examines safety parameters to establish a well-tolerated pediatric dose
that provides target concentrations of T-20 in the blood. The second part
evaluates the safety and tolerability of T-20 in combination with other anti-HIV
drugs over a 24-week period. In this study, T-20 is administered via
subcutaneous injections twice daily in conjunction with other oral anti-HIV
drugs.
PHASE II -- T20-206. In June 1999, we initiated T20-206, a Phase II
clinical trial for T-20 that will assess the antiviral activity and long-term
safety of T-20 when used in combination with other anti-HIV drugs. T20-206
evaluates four groups of patients over a one-year period with planned interim
analyses. Three different doses of T-20 will be combined with a background
regimen of amprenavir, efavirenz, ritonavir and abacavir. The control group will
receive the background regimen without T-20. T20-206 will enroll up to 68
HIV-infected individuals at several sites in the United States. At entry in the
trial, all enrolled patients will have prior exposure to nucleoside reverse
transcriptase inhibitors and protease inhibitors, but no prior exposure to
non-nucleoside reverse transcriptase inhibitors. Data from an interim analysis
of this trial is expected during 2000.
PHASE II -- T20-208. In March 2000, we initiated T20-208, a Phase II
clinical trial for T-20 that will evaluate alternative formulations of T-20,
which could lead to a simpler dosing regimen. The trial is designed to enroll up
to 60 patients, and will evaluate two formulations of T-20 compared to the
formulation presently used in other ongoing clinical trials. All three
formulations will be given as twice daily subcutaneous injections in combination
with oral anti-HIV agents selected for each patient on an individualized basis.
FUTURE T-20 CLINICAL TRIALS
Throughout the remainder of 2000, we expect to initiate additional
Phase II trials. We expect to begin a pivotal trial during 2000.
PIVOTAL TRIAL. Based on the results of the Phase II trials, we intend
to begin a pivotal trial during 2000 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 to 400 patients and have taken
approximately 18 months to complete.
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T-1249
We are developing T-1249, our second drug candidate for HIV fusion
inhibition. 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 the region 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 believe
enhances 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 quantities and less frequent dosing. 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.
T-1249 CLINICAL DEVELOPMENT
In July 1999, we initiated T1249-101, a Phase I clinical trial designed
to assess the safety and pharmacokinetics of T-1249. Three different daily doses
of T-1249 will be administered as monotherapy for 14 days to HIV-infected adults
by once or twice daily subcutaneous injection. T1249-101 will enroll up to 60
HIV-infected individuals at up to eleven sites in the United States. At entry
these patients will have received no other anti-HIV drugs for at least two weeks
prior to entering the study. This trial is ongoing and we expect data from this
trial to be available during 2000.
FDA FAST TRACK DESIGNATION
The FDA gave fast track designation for the treatment of HIV-infected
individuals to T-20 in January 1999 and to T-1249 in May 1999. 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 drug development
process. Throughout the clinical trial process, we intend to work with the FDA
to design and implement a clinical trial strategy involving the administration
of T-20 and T-1249 to HIV-infected patients in combination with approved HIV
antiviral agents. T-20 and T-1249 may never be approved by the FDA for marketing
on an accelerated basis, or at all.
COLLABORATION WITH ROCHE
In July 1999, we announced an agreement with F. Hoffmann-La Roche Ltd.,
or Roche, to develop and market T-20 and T-1249 worldwide. We will share
development expenses and profits for T-20 and T-1249 in the United States and
Canada equally with Roche. Outside of these two countries, Roche will fund all
development costs and pay us royalties on net sales of these products. Roche
paid us $10 million up front and will provide up to an additional $58 million in
cash upon achievement of developmental, regulatory and commercial milestones.
For further information regarding the Roche collaboration, see "Licensing and
Collaborative Agreements."
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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 peptides prescribed in other
indications. We have developed a novel peptide manufacturing process, which we
believe will allow us to produce T-20 and T-1249 on a large scale and
cost-efficient basis. We have an issued patent on this process. We have
transferred the manufacturing process to four third-party contract manufacturers
who have produced various quantities of T-20. 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 inhibit fusion 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.
o RESPIRATORY SYNCYTIAL VIRUS. RSV causes pediatric bronchiolitis and
pneumonia. 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 laboratory tests.
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 laboratory tests. T-205, our lead anti-HPIV peptide,
shows potent, specific and selective inhibition of HPIV infection in
laboratory tests. 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.
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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, licensors or other 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 additional drug product candidates,
o access to libraries of diverse compounds, and
o clinical development, manufacturing, sales, marketing and distribution
capabilities.
In July 1999, we announced an agreement with Roche, to develop and market
T-20 and T-1249 worldwide. We will share development expenses and profits for
T-20 and T-1249 in the United States and Canada equally with Roche. Outside of
these two countries, Roche will fund all development costs and pay royalties to
us on net sales of T-20 and T-1249. Roche paid $10 million up front and will
provide up to an additional $58 million in cash upon achievement of certain
developmental, regulatory and commercial milestones.
Our agreement with Roche grants them an exclusive, world-wide license for
T-20 and T-1249, and certain other compounds. Under the Roche agreement, a joint
management committee consisting of members from Trimeris and Roche oversees the
strategy for the collaboration. Roche may terminate its license for a particular
country in its sole discretion with advance notice. If Roche decides to
terminate the license for T-20 or T-1249 in a particular country, this could
have a material and adverse effect on our business, financial condition and
results of operations. For further information see - "Risk Factors - Our success
in commercializing T-20 and T-1249 is dependent on our relationship with Roche."
Our success could depend, in part, on the subsequent success of third
parties in performing their obligations under collaborative and licensing
arrangements. We expect to rely on Roche for many of these capabilities under
our collaboration agreement with them. We cannot assure that the Roche
collaboration or any other 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.
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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 licenses that have already
been granted to us under the agreement, including the license for T-20, will not
be affected by our ability or inability to obtain certain rights to discoveries
and inventions developed after February 2000. The license for the Duke
inventions, including T-20, terminates upon the last-to-expire patent covering
such inventions. Duke University may terminate the agreement if we fail to
perform our obligations under the agreement, which include pursuing the
development of the technologies licensed to us, or if we engage in fraud,
willful misconduct or illegal conduct. If Duke University were to terminate the
agreement, we would lose our license granted under that agreement. This would
have a material and adverse effect on our business, financial condition and
results of operations.
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 T20-003 trial.
Under the MiniMed agreement, a joint management committee determines 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. We expect to rely on Roche for many of these functions. We may
develop capabilities in some of these areas. In other areas, however, we may
rely on Roche or other marketing partners or other arrangements with third
parties. In the event that Roche does not market our product candidates, or 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 capabilities 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 collaborator 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.
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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 2018. 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
The New York Blood Center. In addition, we have granted to Roche an exclusive
license to certain patents and patent applications. For further information
regarding the terms of these license agreements, see "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 Factors -- There is uncertainty regarding patents and
proprietary rights."
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.
The need for drugs that have a novel mechanism of action has stimulated
interest in the inhibition of HIV entry into the cell. We believe that several
companies are developing or attempting to develop HIV drug candidates that
inhibit entry of the virus into the cell via mechanisms other than fusion.
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. These competitors also
operate large, well-funded research and development programs. In addition,
smaller companies may 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.
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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 can, 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, depending 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 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.
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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.
We, Roche and any 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.
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 potential future collaborative partners could have a material adverse effect
on our business, financial condition and results of operations.
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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, the emphasis
in the United States on reducing the overall costs of health care through
managed care has increased, 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 March 15, 2000, we had 71 full-time employees, including a
technical scientific staff of 52. None of our employees are covered by
collective bargaining arrangements, and management considers relations with its
employees to be good.
SCIENTIFIC ADVISORY BOARD
We have assembled a Scientific Advisory Board, or SAB, comprised of
individuals we call Scientific Advisors. The Scientific Advisors are leaders in
the fields of viral disease research and treatment.
Members of our SAB review our research, development and operating
activities and are available for consultation with management and staff relating
to their respective areas of expertise. Our SAB holds regular meetings. Several
of our 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. Certain of our
Scientific Advisors own our common stock and/or hold options to purchase our
common stock. Our Scientific Advisors are expected to devote only a small
portion of their time to our business.
Our Scientific Advisors are all employed by other entities. Each Scientific
Advisors has entered into a letter agreement with us that contains
confidentiality and non-disclosure provisions that prohibit the disclosure of
confidential information to anyone else. Such letter agreements also provide
that all inventions, discoveries or other intellectual property that come to the
attention of or are discovered by our Scientific Advisors while performing
services under this letter agreement will be assigned to us. The current members
of our SAB are as follows:
Robert C. Gallo, M.D. Professor and Director, Institute of Human Virology --
University of Maryland Biotechnology Institute.
Martin Hirsch, M. D., Professor of Medicine, Director of AIDS Clinical Trials
Unit/Retrovirus Laboratory - Harvard Medical School
Eric Hunter, Ph.D. Professor of Microbiology, Director, Center for AIDS Research
- -- The University of Alabama at Birmingham.
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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 Pharmacokinetics 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.
RISK FACTORS
This Form 10-K contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors,
including the risks described below and elsewhere in this Form 10-K.
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,
1999, our accumulated deficit was approximately $63 million. Since inception, we
have spent our funds on our product development efforts, relating primarily to
the development of T-20 and T-1249. 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 will be adequate to fund our capital requirements through 2000. We
believe that substantial additional funds will be required after 2000. 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.
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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. Roche or other
collaborative 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 and progress of our collaborative agreement with Roche,
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,
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. 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 acceptance of T-20 by the
medical community, including health care providers and third-party
payors.
We may rely on our colloborative partner, Roche, in connection with
many of these matters. We may not be able to control the amount or timing of
resources that Roche may devote to these matters. If we or Roche fail to
successfully develop and commercialize T-20, our business, financial condition
and results of operations will be materially and adversely affected.
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OUR SUCCESS IN COMMERCIALIZING T-20 AND T-1249 IS DEPENDENT ON OUR RELATIONSHIP
WITH ROCHE.
In July 1999, we announced an agreement with Roche, to develop and market T-20
and T-1249 worldwide. We will share development expenses and profits for T-20
and T-1249 in the United States and Canada equally with Roche. Outside of these
two countries, Roche will fund all development costs and pay royalties to us on
net sales of T-20 and T-1249. Roche paid $10 million up front and will provide
up to an additional $58 million in cash upon achievement of certain
developmental, regulatory and commercial milestones. Our reliance on Roche poses
a number of risks, including:
o Roche may not devote sufficient resources to the development or
marketing of our products;
o disagreements with Roche could lead to delays in or termination of
the development or commercialization of our products, or result in
litigation or arbitration;
o Roche has considerable discretion in electing whether to pursue the
development of any products and may pursue alternative technologies
or products either on its own or in collaboration with our
competitors;
o Roche may choose to devote fewer resources to the development and
marketing of our products than it does to products of its own
development; and
o disputes may arise in the future with respect to the ownership of
rights to technology developed with Roche.
Given these risks, there is a great deal of uncertainty regarding the
success of our collaboration with Roche. If these efforts fail, our product
development or commercialization of T-20 or T-1249 could be delayed. Any delay
could have a material adverse affect on our business, financial condition and
results of operation. Our agreement with Roche grants them an exclusive,
world-wide license for T-20 and T-1249, and certain other compounds. Under the
Roche agreement, a joint management committee consisting of members from
Trimeris and Roche oversees the strategy for the collaboration. Roche may
terminate its license for a particular country in its sole discretion with
advance notice. If Roche decides to terminate the license for T-20 or T-1249 in
a particular country, this could have a material and adverse effect on our
business, financial condition and results of operations.
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. This is a very complex and lengthy
process. To date, we have conducted initial preclinical testing of some of our
product candidates, a Phase I/II clinical trial of T-20 that enrolled 16
patients and several Phase II clinical trials of T-20 involving over 100
patients. We have also begun a Phase I/II clinical trial of T-1249.
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 or T-1249. We may
not be able to demonstrate that potential product candidates that appeared
promising in preclinical testing and early clinical trials will be 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.
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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 change in the focus of our collaborative partner, Roche,
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
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. Also, if the results of our
clinical trials or our clinical trial strategy deviates from the expectations of
securities analysts and investors, the market price of our common stock could be
adversely affected. In addition, due to uncertainties that are part of the
clinical development process, we may underestimate the costs associated with
clinical development of T-20 or T-1249. Delays or unanticipated increases in
costs of clinical development or failure to obtain regulatory approval or market
acceptance for our products could adversely affect our operating results.
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 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 and
T-1249 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 and T-1249 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.
19
<PAGE>
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 develop an
alternative, more efficient manufacturing method for T-20, T-1249 or any of our
other peptide product candidates. 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. If we are unable to manufacture T-20 or T-1249
on a cost-effective basis or are unable to obtain the necessary quantities of
raw materials, our business, financial condition and results of operations will
be materially and adversely affected.
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 or Roche 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 or Roche to actually conduct
the clinical trials. The failure by the contract research organizations or Roche
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.
20
<PAGE>
Because we rely on third-party contract research organizations and
Roche, 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 SALES, MARKETING OR DISTRIBUTION CAPABILITIES.
We have no experience in sales, marketing or distribution of
pharmaceuticals. We may develop these capabilities in certain areas in the
future. We may rely on Roche or other arrangements with third parties which have
established distribution systems and direct sales forces for the sales,
marketing and distribution of products. In the event that Roche does not market
our product candidates or 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 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 divert management's attention and resources. This
would have a material adverse effect on our business, financial condition and
results of operations.
21
<PAGE>
WE DEPEND ON COLLABORATIONS AND LICENSES WITH OTHERS.
We may enter into license, development, or other agreements with Roche,
new 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 arrangement
with Roche or enter into arrangements in the future on terms that are acceptable
to us. Moreover, Roche may not perform its obligations under our agreement with
it 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 under the proprietary rights
which belong to others, for any technology or product candidates
developed through this arrangement, or
o protect the confidentiality or prevent the disclosure of any
proprietary rights and information developed in our collaborative
arrangement.
Our agreement with Roche grants them an exclusive, world-wide license for
T-20 and T-1249, and certain other compounds. Under the Roche agreement, a joint
management committee consisting of members from Trimeris and Roche oversees the
strategy for the collaboration. Roche may terminate its license for a particular
country in its sole discretion with advance notice. If Roche decides to
terminate the license for T-20 or T-1249 in a particular country, this could
have a material and adverse effect on our business, financial condition and
results of operations.
We currently have an agreement with Duke University pursuant to which
we have received an exclusive, worldwide, royalty-free license to certain
discoveries and inventions, including patent rights, in the field of antiviral
therapeutics that have been developed by certain researchers at Duke University.
The license for the Duke inventions, including T-20, terminates upon the
last-to-expire patent covering such inventions. Duke University may terminate
the agreement if we fail to perform our obligations under the agreement, which
include pursuing the development of the technologies licensed to us, or if we
engage in fraud, willful misconduct or illegal conduct. If Duke University were
to terminate the agreement, we would lose our license granted under that
agreement. This would have a material and adverse effect on our business,
financial condition and results of operations.
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.
22
<PAGE>
THERE IS UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT AND HEALTH CARE
REFORM MEASURES WHICH COULD LIMIT THE AMOUNT WE WILL BE ABLE TO 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 , Roche, 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 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 others 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.
23
<PAGE>
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.
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 maintain
good laboratory, clinical and manufacturing practices. The regulatory approval
process typically takes a number of years, depending 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 and
T-1249 have 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 or T-1249 will be approved for
commercialization by the FDA in the future.
24
<PAGE>
Our estimates of future regulatory submission dates may 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 antiretroviral drugs are currently approved in the United States 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.
25
<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 our ability 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 an 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 have or 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.
26
<PAGE>
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 this position 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.
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, 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.
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 Annual Report on Form 10-K 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. 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.
ITEM 2. PROPERTIES
We currently lease approximately 21,000 square feet of laboratory and
office space at 4727 University Drive, Suite 100, Durham, North Carolina. We
lease this space under a lease agreement that expires on September 30, 2002. We
also lease approximately 15,000 square feet of office space in Durham under a
sublease agreement that expires on December 31, 2001. In March 2000, we entered
into an lease for approximately 8,000 square feet of laboratory space adjacent
to our current laboratory space which expires October 31, 2003. We believe that
there will be suitable facilities available should additional space be needed.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings as of the date of this
Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
27
<PAGE>
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock has traded on the Nasdaq National Market System under the
Nasdaq symbol "TRMS" since our initial public offering at $12.00 per share was
consummated on October 7, 1997. We have not paid cash dividends in the past and
none are expected to be paid in the future. As of March 23, 2000 we had
approximately 160 shareholders of record, and believe we had approximately 1,000
beneficial shareholders. The following table sets forth the high and low bid
prices for our common stock for 1998 and 1999. Such quotations reflect
inter-dealer prices without mark-up, mark-down or commissions and may not
necessarily represent actual transactions.
YEAR ENDED DECEMBER 31,
-----------------------
1998 1999
HIGH LOW HIGH LOW
--------- ---------- --------- --------
1st Quarter.............. $13.88 $ 7.00 $27.69 $11.13
2nd Quarter.............. $9.88 $ 5.38 $17.00 $10.56
3rd Quarter.............. $7.19 $ 3.88 $25.88 $14.25
4th Quarter.............. $11.25 $ 3.50 $25.19 $16.38
For the 1st quarter of 2000 through March 23, 2000, the high bid was $67.75 and
the low bid was $24.00.
USE OF PROCEEDS:
The effective date of our Registration Statement on Form S-1,
registering 2,875,000 shares of Common Stock of the Company, was October 6,
1997. A subsequent registration statement on Form S-1, SEC File No. 333-37319,
filed pursuant to Rule 462(b) promulgated under the Securities Act and
registering 287,500 additional shares of Common Stock, was filed and became
effective on October 7, 1997.
The date of the commencement of the offering of such registered shares was
October 7, 1997, and the offering terminated on November 12, 1997, upon the
closing of the underwriters' exercise of their over-allotment option with
respect to 412,500 of the registered shares. The managing underwriters in the
offering were UBS Securities LLC and NationsBanc Montgomery Securities, Inc.
Information concerning the registered shares as of the date of this
report is set forth below:
TITLE OF SECURITY: COMMON STOCK
Amount Registered:........................................ 3,162,500
Aggregate Price of the Offering Amount Registered:....... $ 37,950,000
Amount Sold:.............................................. 3,162,500
Aggregate Offering Price of Amount Sold:.................. $ 37,950,000
28
<PAGE>
Actual expenses incurred to date by the Company in connection with the issuance
and distribution of the registered shares are as follows:
Underwriting Discounts and Commissions:.............. $ 2,656,500
Finders' Fee:........................................ --
Expenses Paid To or For Underwriters:................ --
Other Expenses:...................................... 761,500
------------------
Total:............................................... $ 3,418,000
==================
All of the expenses listed above were direct or indirect payments to others and
not payments to directors, officers, affiliates or 10% stockholders of the
Company. The amount of net offering proceeds to the Company after the total
expenses listed above is approximately $34,532,000.
A reasonable estimate of the amount of the net offering proceeds used by the
Company from the effective date of the Registration Statement on Form S-1 to the
date of this report for each of the purposes listed below is as follows:
Construction of Plant, Building and Facilities:............... $ -
Purchase and Installation of Machinery and Equipment........ $ -
Purchase of Real Estate:...................................... $ -
Acquisition of Other Businesses:............................. $ -
Repayment of Indebtedness:.................................... $ -
Working Capital:.............................................. $ 18,541,000
Temporary Investments:........................................ $ -
Short Term:................................................... $ 15,991,000
Long Term:.................................................... $ -
Other (specify):.............................................. $ -
Other Purposes for which at least 5% of the Total Proceeds
(or $100,000, whichever is less) Has Been Used............. $ -
All of the above-referenced payments were direct or indirect payments to
others and not payments to directors, officers, affiliates or 10% stockholders
of the Company. The use of proceeds listed above does not represent a material
change in the use of proceeds described in the Company's Prospectus filed as a
part of the Registration Statement on Form S-1.
29
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
The selected financial data below is taken from the audited Financial
Statements of the Company which are included elsewhere in this Form 10-K, or
from audited Financial Statements not included in this Form 10-K. Please read
the Financial Statements and Notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" while reading this selected
financial data.
<TABLE>
<CAPTION>
CUMULATIVE
FROM
INCEPTION
(JANUARY 7,
FOR THE YEARS ENDED DECEMBER 31, 1993) TO
-------------------------------------------------------- DECEMBER 31,
1995 1996 1997 1998 1999 1999
-------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
Data:
Revenue $ 104 $ 55 $ 431 $ 363 $ 10,081 $ 11,034
-------- -------- -------- -------- -------- --------
Operating expense:
Research and development
expenses ................. 4,012 5,146 9,734 16,421 19,292 58,043
General and administrative
expenses ................. 1,520 1,761 2,596 4,572 6,952 18,980
-------- -------- -------- -------- -------- --------
Total operating expenses .... 5,532 6,907 12,330 20,993 26,244 77,023
-------- -------- -------- -------- -------- --------
Operating loss .............. (5,428) (6,852) (11,899) (20,630) (16,163) (65,989)
-------- -------- -------- -------- -------- --------
Interest income ............. 49 47 584 1,755 1,729 4,190
Interest expense ............ (360) (167) (113) (127) (161) (1,191)
-------- -------- -------- -------- -------- --------
Total other income (expense) (311) (120) 471 1,628 1,568 2,999
-------- -------- -------- -------- -------- --------
Net loss .................... $ (5,739) $ (6,972) $(11,428) $(19,002) $(14,595) $(62,990)
======== ======== ======== ======== ======== ========
Basic net loss per share (1). $ (1.55) $ (1.78) $ (1.17)
======== ======== ========
Weighted average shares
used in computing basic net
loss per share (1) .......... 7,395 10,647 12,511
======== ======== ========
(1) Computed on the basis described in Note 1 to Financial Statements.
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .......... $ 1,343 $ 132 $ 32,557 $ 16,920 $ 37.023
Working capital (deficiency) ....... 322 (1,305) 34,733 16,562 36,856
Total assets ....................... 3,058 1,684 38,844 22,872 51,650
Long-term notes payable and capital
lease obligations, less current
portion........................... 703 575 240 853 1,206
Accumulated deficit ................ (10,994) (17,965) (29,393) (48,395) (62,990)
Total stockholders' equity (deficit) 1,324 (409) 35,810 18,016 38,337
</TABLE>
30
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
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 FORM 10-K. 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 FORM 10-K. 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
FORM 10-K. THE RESULTS OF OUR PREVIOUS CLINICAL TRIALS ARE NOT NECESSARILY
INDICATIVE OF THE RESULTS OF FUTURE CLINICAL TRIALS. PLEASE READ THE "RISK
FACTORS" SECTION IN THIS FORM 10-K. WE UNDERTAKE NO OBLIGATION TO RELEASE
PUBLICLY THE RESULTS OF ANY REVISIONS TO THE STATEMENTS CONTAINED IN THIS REPORT
TO REFLECT EVENTS OR CIRCUMSTANCES THAT OCCUR SUBSEQUENT TO THE DATE OF THIS
FORM 10-K.
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
and T-1249,
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.
We have lost money since inception and, as of December 31, 1999, had an
accumulated deficit of approximately $63.0 million. We have received revenue
only from federal small business innovative research grants, otherwise known as
SBIR grants, an investigative contract, and an initial collaboration payment
from Roche, and have not generated any revenue from product sales or royalties.
We may never generate any revenue from product sales or royalties.
31
<PAGE>
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 work with Roche to manufacture, develop, sell, market and
distribute T-20 and T-1249,
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, in part, on our own or Roche's ability to
successfully develop and obtain regulatory approval for T-20 and other product
candidates, 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
COMPARISON OF YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
REVENUE. Total revenue was $431,000, $363,000 and $10.1 million for 1997,
1998 and 1999, respectively. Total revenue for 1998 resulted from SBIR grants.
During 1997, $331,000 was received under SBIR grants, and $100,000 was received
under an investigative contract. Total revenue for 1999 consisted of the $10
million non-refundable payment from Roche for past development costs for the
initiation of our collaboration for the development of T-20 and T-1249, and
$81,000 received under SBIR grants.
32
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses
were $9.7 million, $16.4 million and $19.3 million for 1997, 1998 and 1999,
respectively. During 1997 we completed a Phase I/II clinical trial for T-20 and
purchased drug material for future clinical trials. Research and development
expenses increased from 1997 to 1998 because during 1998 we:
o began a Phase II clinical trial for T-20,
o increased the number of people 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.
Gross research and development expenses increased from 1998 to 1999 because
during 1999 we:
o continued a Phase II clinical trial and initiated three additional Phase II
clinical trials for T-20,
o completed preclinical studies and initiated a Phase I clinical trial for
T-1249,
o continued manufacturing process development and purchase of drug material
from third party manufacturers to supply future clinical trials, and
o increased the number of personnel to support these activities.
The net increase in research and development expenses from 1998 to 1999 was less
than the increase from 1997 to 1998 as a result of our collaboration with Roche,
which was initiated on July 1, 1999. Roche paid 50% of the development costs
incurred during the period from July 1, 1999 until December 31, 1999 for T-20
and T-1249 as required by our collaboration agreement.
Total research personnel were 29, 41 and 52 at December 31, 1997, 1998 and 1999,
respectively. We expect research and development expenses, net of the
reimbursements for T-20 and T-1249 development costs from Roche, to increase
substantially in the future due to:
o continued preclinical research and testing of product candidates,
o expanded clinical trials for T-20, T-1249 and other product candidates,
o the manufacture of drug material for these trials, and
o increased number of personnel to support these activities.
33
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. Total general and administrative
expenses were $2.6 million, $4.6 million and $7.0 million for 1997, 1998 and
1999, respectively. Expenses increased from 1997 to 1998 because in 1998 we:
o incurred costs to support our obligations as a publicly traded company,
o added personnel to support our growth, and
o incurred additional professional fees in the patent application process.
Expenses increased from 1998 to 1999 because in 1999 we:
o accrued severance costs for our former Chief Executive Officer and our
former President and Chief Financial Officer,
o incurred professional fees in connection with our collaboration efforts,
o performed market research,
o added personnel to support our growth, and
o incurred professional fees related to our patent portfolio.
We expect administrative expenses to increase in the future to support the
anticipated expansion of product development activities.
OTHER INCOME (EXPENSE). Other income (expense) consists of interest
income and expense. Total other income was $471,000, $1.6 million and $1.6
million for 1997, 1998 and 1999, respectively. The increase in 1998 was due to
increased interest income because of higher cash and investment balances due to
our public offering of stock closed in October 1997. The amount in 1999 was
similar to 1998 due to our public offering of stock closed in June 1999, net of
the use of cash during 1999.
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, an initial public offering of common stock in October
1997, a public offering of common stock in June 1999 and a private placement of
common stock in February 2000. Net cash used by operating activities was $9.0
million, $16.8 million and $3.9 million for 1997, 1998 and 1999, respectively.
The cash used by operating activities was used primarily to fund research and
development relating to T-20, T-1249, and other product candidates, and
decreased for 1999 because of the $10.0 million non-refundable payment from
Roche for the initiation of our collaboration for the development of T-20 and
T-1249. Cash used by investing activities was $5.0 million for 1997 and $8.3
million for 1999. Cash provided by investing activities was $1.3 million for
1998. The increase in the amount used in 1997 and 1999 was due to the purchase
of short-term investments as a result of our public offerings of common stock in
1997 and 1999.
As of December 31, 1999, we had $47.8 million in cash and cash equivalents
and short-term-investments, compared to $20.2 million as of December 31, 1998.
The increase is primarily a result of the closing of a public offering of common
stock in June 1999, which resulted in net proceeds of approximately $31.4
million, and the $10.0 million non-refundable payment from Roche for the
initiation of our collaboration for the development of T-20 and T-1249, less
cash used by operating activities. In February 2000, the Company closed a
private placement of 1.75 million shares of common stock at $40.50 per share
resulting in net proceeds of approximately $66.4 million.
34
<PAGE>
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. Although we expect to receive
reimbursement for 50% of the development costs for T-20 and T-1249 from Roche,
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, T-1249 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, 1999, we had commitments of approximately $30.0 million
to purchase product candidate materials and fund various clinical studies over
the next fifteen months. Substantially all of these expenditures will be shared
equally by Roche under our collaborative agreement. Under this collaborative
agreement, we are obligated to share equally the future development expenses for
T-20 and T-1249 for the United States and Canada. We also expect to have capital
expenditures of approximately $3.0 million during 2000. Our share of these
expenditures may be financed with capital or operating leases, debt or working
capital. We expect that our existing capital resources, together with the
interest earned thereon, will be adequate to fund our capital requirements
through 2000. We believe that substantial additional funds will be required
after 2000.
If adequate funds are not available, we will be required to delay,
scale-back or eliminate certain preclinical testing, clinical trials and
research and development programs, including our collaborative efforts with
Roche. In addition, we will be required to obtain additional funds, which may be
raised 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
new or existing collaborative partners. These partners may require us to
relinquish rights to our technologies or product candidates or to reduce our
share of potential profits. This could have a material adverse effect on our
business, financial condition or results of operations.
Our future capital requirements and the adequacy of available funds will
depend on many factors, including the availability of funds from Roche under our
collaboration agreement, the results of clinical trials relating to T-20, the
progress and scope of our product development programs, the magnitude of these
programs, the results of preclinical testing and clinical trials, the need for
additional facilities based on the results of these clinical trials and other
product development programs, changes in the focus and direction of our product
development programs, the costs involved in preparing, filing, processing,
maintaining, protecting and enforcing patent claims and other intellectual
property rights, competitive factors and technological advances, the cost,
timing and outcome of regulatory reviews, changes in the requirements of the
FDA, administrative and legal expenses, evaluation of the commercial viability
of potential product candidates and compounds, the establishment of capacity,
either internally or through relationships with third parties, for
manufacturing, sales, marketing and distribution functions, and other factors,
many of which are outside of our control.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1999, we had a net operating loss carryforward of
approximately $57.4 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 6 of Notes to Financial Statements.
35
<PAGE>
ACCOUNTING AND OTHER MATTERS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement 133"). Statement 133 establishes
standards for valuation and disclosure of derivative financial instruments and
is effective for fiscal quarters beginning after June 15, 2000. The Company does
not believe that this pronouncement will have a material impact on its financial
position or results of operations.
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.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
Our exposure to market risk is primarily in our investment portfolio. We do
not use derivative financial instruments for speculative or trading purposes. We
have an investment policy that sets minimum credit quality standards for our
investments. The policy also limits the amount of money we can invest in any one
issue, issuer or type of instrument. We have not experienced any material loss
in our investment portfolio.
The table below presents the carrying value, which is approximately equal
to fair market value, and related weighted-average interest rates for our
investment portfolio at December 31, 1999. Substantially all of our investments
mature in twelve months or less.
Carrying Average
Amount Interest
(thousands) Rate
----------- ----
Cash equivalents - fixed rate $36,463 6.01 %
Short-term investments - fixed rate 10,775 6.60 %
Overnight cash investments - fixed rate 981 4.43 %
------- ------
Total investment securities $48,219 6.11 %
======= ======
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is included in Item 14 of this Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with the Company's
independent auditors, KPMG LLP.
36
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 as to directors and executive officers
is incorporated by reference from the Company's Proxy Statement to be filed by
the Company with the Securities and Exchange Commission within 120 days after
the end of the fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from the
Company's Proxy Statement to be filed by the Company with the Securities and
Exchange Commission within 120 days after the end of the fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference from the
Company's Proxy Statement to be filed by the Company with the Securities and
Exchange Commission within 120 days after the end of the fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from
the Company's Proxy Statement to be filed by the Company with the Securities and
Exchange Commission within 120 days after the end of the fiscal year.
37
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
<TABLE>
<CAPTION>
Page Number
-----------
(a)1. Financial Statements
<S> <C>
Independent Auditors' Report........................................................F-1
Balance Sheets as of December 31, 1998 and 1999....................................F-2
Statements of Operations for the Years Ended December 31, ..........................
1997, 1998 and 1999 and for the period from Inception to December 31, 1999......F-3
Statements of Stockholders' Equity (Deficit) for the period from Inception to
December 31, 1996, and for the Years Ended December 31, 1997, 1998 and
1999............................................................................F-4
Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999 and for the period from Inception to December 31, 1999......F-5
Notes to Financial Statements.......................................................F-6
</TABLE>
(a)2. Financial Statement Schedules
All financial statement schedules required under Regulation S-X are
omitted as the required information is not applicable.
(a)3. Exhibits
The Exhibits filed as part of this Form 10-K are listed on the Exhibit
Index immediately preceding such Exhibits and are incorporated by
reference.
(b) Reports on Form 8-K
We filed a report on Form 8-K on September 10, 1999 under Item 5
describing certain changes in management. On September 7, 1999, Mr.
Robert Bonczek was appointed Acting Chief Administrative Officer and
Acting Chief Financial Officer.
38
<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, 1998 and 1999, 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, 1999 and for the
cumulative period from the date of inception to December 31, 1999. 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,
1998 and 1999, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1999, and for the
cumulative period from the date of inception to December 31, 1999, in conformity
with generally accepted accounting principles.
February 10, 2000 KPMG LLP
Raleigh, North Carolina
F-1
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1998 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................... $ 16,920 $ 37,023
Short-term investments ....................................................... 3,256 10,775
Accounts receivable - Roche .................................................. -- 144
Accounts receivable .......................................................... 68 24
Prepaid expenses ............................................................. 321 268
--------- ---------
Total current assets ......................................................... 20,565 48,234
--------- ---------
Property, furniture and equipment, net of accumulated depreciation and
amortization of $2,775 and $3,564 at December 31, 1998 and 1999, respectively .... 1,598 2,585
--------- ---------
Other assets:
Exclusive license agreement, net of accumulated amortization of $14 at
December 31, 1998 ............................................................ 27 --
Patent costs, net of accumulated amortization of $13 and $20 at December 31,
1998 and 1999, respectively .................................................. 534 643
Equipment deposits ................................................................. 147 188
Other assets, net of accumulated amortization of $20
at December 31, 1998 .......................................................... 1 --
--------- ---------
Total other assets .......................................................... 709 831
--------- ---------
Total assets ................................................................ $ 22,872 $ 51,650
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable .................................................................. $ 1,176 $ 6,159
Current installments of obligations under capital leases .......................... 471 717
Accrued compensation .............................................................. 829 1,028
Accrued expenses .................................................................. 1,527 3,474
--------- ---------
Total current liabilities .................................................... 4,003 11,378
Obligations under capital leases, excluding current installments ...................... 853 1,206
Deferred revenue ...................................................................... -- 729
--------- ---------
Total liabilities ............................................................ 4,856 13,313
--------- ---------
Stockholders' equity (deficit):
Preferred Stock at $0.001 par value per share, authorized 10,000 shares; issued and
outstanding zero shares at December 31, 1998 and 1999 ....................... -- --
Common Stock at $0.001 par value per share, authorized 30,000 shares; issued
and outstanding 10,637 and 13,765 shares at December 31, 1998 and
1999, respectively ......................................................... 11 14
Additional paid-in capital ........................................................ 68,406 105,580
Deficit accumulated during the development stage .................................. (48,395) (62,990)
Deferred compensation ............................................................. (1,788) (4,162)
Notes receivable from stockholders ................................................ (218) (105)
--------- ---------
Total stockholders' equity .................................................. 18,016 38,337
--------- ---------
Commitments and contingencies (notes 2 and 10)
Total liabilities and stockholders' equity .................................. $ 22,872 $ 51,650
========= =========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CUMULATIVE
FROM INCEPTION
(JANUARY 7,
FOR THE YEARS ENDED DECEMBER 31, 1993) TO
------------------------------------ DECEMBER 31,
1997 1998 1999 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue ........................ $ 431 $ 363 $ 10,081 $ 11,034
-------- -------- -------- --------
Operating expenses:
Research and development ... 9,734 16,421 19,292 58,043
General and administrative . 2,596 4,572 6,952 18,980
-------- -------- -------- --------
Total operating expenses 12,330 20,993 26,244 77,023
-------- -------- -------- --------
Operating loss ............. (11,899) (20,630) (16,163) (65,989)
-------- -------- -------- --------
Other income (expense):
Interest income ........ 584 1,755 1,729 4,190
Interest expense ....... (113) (127) (161) (1,191)
-------- -------- -------- --------
471 1,628 1,568 2,999
-------- -------- -------- --------
Net loss .................. $(11,428) $(19,002) $(14,595) $(62,990)
======== ======== ======== ========
Basic net loss per share ...... $ (1.55) $ (1.78) $ (1.17)
======== ======== ========
Weighted average shares used
in per share computations . 7,395 10,647 12,511
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION TO DECEMBER 31, 1996 AND THE YEARS ENDED
DECEMBER 31, 1997, 1998, AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEFICIT
PREFERRED STOCK COMMON STOCK ACCUMULATED
---------------------- ---------------------- DURING
NUMBER PAR NUMBER ADDITIONAL THE
OF VALUE OF PAR PAID-IN DEVELOPMENT
SHARES SHARES VALUE CAPITAL STAGE
--------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 7, 1993 ............. -- $ -- -- $ -- $ -- $ --
Issuances of Common Stock .............. -- -- 330 1 43 --
Issuances of Series A Preferred Stock .. 3,000 3 -- -- 1,997 --
Issuances of Series B Preferred Stock .. 27,136 27 -- -- 13,541 --
Issuances of Series C Preferred Stock .. 3,333 3 -- -- 1,997 --
Stock issuance costs ................... -- -- -- -- (87) --
Common Stock issued in exchange for
exclusive license ................... -- -- 96 -- 41 --
Common Stock issued in exchange
for consulting services ........... -- -- 11 -- 4 --
Loss for the period .................... -- -- -- -- -- (17,965)
Notes receivable from stockholders
for the purchase of shares ......... -- -- -- -- -- --
--------- --------- --------- --------- --------- --------
Balance as of December 31, 1996 ........ 33,469 33 437 1 17,536 (17,965)
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 .................... -- -- -- -- -- (11,428)
--------- --------- --------- --------- --------- --------
Balance as of December 31, 1997 ........ -- -- 10,549 11 67,360 (29,393)
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 .................... -- -- -- -- -- (19,002)
--------- --------- --------- --------- --------- --------
Balance as of December 31, 1998 ........ -- $ -- 10,637 $ 11 $ 68,406 $ (48,395)
Issuance of shares in public offering,
net ................................ -- -- 2,875 3 31,354 --
Exercise of stock options .............. -- -- 189 -- 1,157 --
Issuance of stock options to
employees and consultants .......... -- -- -- -- 4,151 --
Issuance of stock for 401(K) match ..... -- -- 12 -- 292 --
Issuance of stock under Employee
Stock Purchase Plan ................ -- -- 22 -- 220 --
Repayment of notes receivable from
stockholders ....................... -- -- -- -- -- --
Exercise of warrant, net ............... -- -- 30 -- -- --
Amortization of deferred
compensation ....................... -- -- -- -- -- --
Loss for the period .................... -- -- -- -- -- (14,595)
--------- --------- --------- --------- --------- --------
Balance as of December 31, 1999 ........ -- $ -- 13,765 $ 14 $ 105,580 $ (62,990)
========= ========== ========= ========== ========= =========
<CAPTION>
NOTES NET
RECEIVABLE STOCKHOLDERS'
DEFERRED FROM EQUITY
COMPENSATION STOCKHOLDERS (DEFICIT)
------------ ------------ ------------
<S> <C> <C> <C>
Balance at January 7, 1993 ............. $ -- $ -- $ --
Issuances of Common Stock .............. -- -- 44
Issuances of Series A Preferred Stock .. -- -- 2,000
Issuances of Series B Preferred Stock .. -- -- 13,568
Issuances of Series C Preferred Stock .. -- -- 2,000
Stock issuance costs ................... -- -- (87)
Common Stock issued in exchange for
exclusive license ................... -- -- 41
Common Stock issued in exchange
for consulting services ........... -- -- 4
Loss for the period .................... -- -- (17,965)
Notes receivable from stockholders
for the purchase of shares ......... -- (14) (14)
------------ ------------ ------------
Balance as of December 31, 1996 ........ -- (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)
------------ ------------ ------------
Balance as of December 31, 1997 ........ (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)
------------ ------------ ------------
Balance as of December 31, 1998 ........ $ (1,788) $ (218) $ 18,016
Issuance of shares in public offering,
net ................................ -- -- 31,357
Exercise of stock options .............. -- -- 1,157
Issuance of stock options to
employees and consultants .......... (4,151) -- --
Issuance of stock for 401(K) match ..... -- -- 292
Issuance of stock under Employee
Stock Purchase Plan ................ -- -- 220
Repayment of notes receivable from
stockholders ....................... -- 113 113
Exercise of warrant, net ............... -- -- --
Amortization of deferred
compensation ....................... 1,777 -- 1,777
Loss for the period .................... -- -- (14,595)
------------ ------------ ------------
Balance as of December 31, 1999 ........ $ (4,162) $ (105) $ 38,337
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE FROM
INCEPTION
FOR THE YEARS ENDED DECEMBER 31, (JANUARY 7,
------------------------------------------------------- 1993) TO
1997 1998 1999 DECEMBER 31, 1999
----------------- ------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................... $ (11,428) $ (19,002) $ (14,595) $ (62,990)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization of property,
furniture and equipment.................. 558 606 789 3,584
Amortization of deferred compensation...... 386 707 1,777 2,870
Other amortization......................... 11 12 34 83
401 (K) plan stock match................... -- 236 292 528
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
Loss on disposal of property and
equipment................................ -- -- -- 16
Decrease (increase) in assets:
Accounts receivable and loans to
employees............................. (65) 33 44 (24)
Accounts receivable Roche -- -- (144) (144)
Prepaid expenses........................... 39 (315) 53 (268)
Other assets............................... (18) (61) (40) (188)
Increase (decrease) in liabilities:
Accounts payable........................... 467 454 4,983 6,159
Accrued compensation....................... 279 221 199 1,028
Accrued expenses........................... 771 322 1,947 3,384
Deferred revenue........................... -- -- 729 729
------------- ------------- ---------------- ------------------
Net cash used by operating
activities.............................. (9,000) (16,787) (3,932) (44,778)
------------- ------------- ---------------- ------------------
Cash flows from investing activities:
Purchase of property, furniture
and equipment.............................. (205) (212) (657) (1,504)
Net sale (purchase) of short-term
investments................................ (4,863) 1,607 (7,519) (10,775)
Equipment held for resale.................... 54 -- -- (61)
Organizational costs......................... -- -- -- (8)
Patent costs............................... (34) (99) (116) (664)
------------- ------------- ---------------- ------------------
Net cash provided (used) by
investing activities.............. (5,048) 1,296 (8,292) (13,012)
------------- ------------- ---------------- ------------------
Cash flows from financing activities:
Proceeds (payments) from notes payable....... (259) -- -- 6,150
Lease costs.................................. -- -- -- (13)
Principal payments under capital lease
obligations................................ (529) (411) (520) (2,758)
Proceeds from issuance of Common Stock....... 2 -- -- 31
Proceeds from issuance of Preferred
Stock...................................... 12,777 -- -- 23,896
Proceeds from public offerings, net.......... 34,532 -- 31,357 65,889
Proceeds from exercise of stock options...... 9 10 1,157 1,176
Employee stock purchase plan stock
issuance................................... -- 255 220 475
Repayment of notes receivable from
stockholders .............................. 50 -- 113 163
Stock issuance costs......................... (109) -- -- (196)
------------- ------------- ---------------- ------------------
Net cash provided (used) by financing
activities................................. 46,473 (146) 32,327 94,813
------------- ------------- ---------------- ------------------
Net increase (decrease) in cash and cash
equivalents................................ 32,425 (15,637) 20,103 37,023
Cash and cash equivalents at beginning of
period....................................... 132 32,557 16,920 --
------------- ------------- ---------------- ------------------
Cash and cash equivalents at end of period ..... $32,557 $16,920 $37,023 $37,023
============= ============= ================ ==================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest. ....... $ 126 $ 127 $ 161 $1,105
============= ============= ================ ==================
</TABLE>
Supplemental disclosures of noncash investing and financing activities are
described in Note 9.
See accompanying notes to financial statements.
F-5
<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 additional capital to adequately fund its
research and development and administrative expenses. The ability of the Company
to raise these funds is dependent on a number of factors including 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.
FINANCIAL INSTRUMENTS
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.
Statement of Financial Accounting Standards ("SFAS") No. 107,
"Disclosures about Fair Value of Financial Instruments," as amended by SFAS No.
119, "Disclosures about Derivative Financial Instruments and Fair Value of
Financial Instruments," requires disclosure of fair value information about
financial instruments, whether or not recognized in the balance sheet, for which
it is practicable to estimate fair value. Fair value is defined in the SFAS as
the amount at which the instruments could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale. Fair value
is determined using available market information. At December 31, 1998 and 1999,
cost approximated the fair value of short-term investments. There were no
realized gains or losses on investments sold during 1997, 1998 or 1999.
Other financial instruments held by the Company include accounts
receivable, notes receivable, accounts payable and obligations under capital
leases. The Company believes that the carrying amount of these financial
instruments approximates their fair value due to the short-term maturity of
these instruments.
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 1997, 1998 or 1999.
F-6
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -CONTINUED
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, generally three years.
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 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.
DEFERRED REVENUE
Deferred revenue represents reimbursements for clinical trial drug
inventory that has not yet been consumed.
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.
F-7
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
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.
SEGMENT REPORTING
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," establishes standards for reporting information about the
Company's operating segments. The Company operates in one business segment, the
business of discovery, development and commercialization of novel
pharmaceuticals.
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, 1998 and 1999 (in thousands):
1998 1999
------- -------
Furniture and equipment ..................... $ 1,996 $ 2,556
Less accumulated amortization ............... (630) (1,053)
------- -------
$ 1,366 $ 1,503
======= =======
The Company also has several non-cancelable operating leases, primarily
for office space and office equipment, that extend through September 2002.
Rental expense, including maintenance charges, for operating leases during 1997,
1998 and 1999 was $612,000, $638,000, and $782,000 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, 1999 (in thousands) are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------------------- ---------------------
<S> <C> <C>
Year ending December 31:
2000.............................................. $ 896 $ 716
2001.............................................. 772 728
2002.............................................. 420 341
2003.............................................. 125 --
--------------------- ---------------------
Total minimum lease payments......................... 2,213 $ 1,785
=====================
Less amount representing interest.................... 290
---------------------
Present value of net minimum capital lease payments.. 1,923
Less current installments of obligations under capital
leases............................................... 717
---------------------
Obligations under capital leases, excluding current
installments..................................... $ 1,206
=====================
</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. These
warrants converted to warrants to purchase common stock at the time of the
Company's initial public offering. The shares were issued during 1999.
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 warrants converted to warrants to
purchase common stock at the time of the Company's initial public offering.
These shares were issued during 1999.
F-9
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -CONTINUED
3. PROPERTY, FURNITURE AND EQUIPMENT
Property, furniture and equipment consists of the following at December
31, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
--------------------- ---------------------
<S> <C> <C>
Furniture and equipment.............................. $ 2,115 $ 3,290
Leasehold improvements............................... 262 303
Furniture and equipment under capital lease.......... 1,996 2,556
--------------------- ---------------------
4,373 6,149
Less accumulated depreciation and amortization....... (2,775) (3,564)
--------------------- ---------------------
$ 1,598 $ 2,585
===================== =====================
</TABLE>
4. 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.
At December 31, 1998 and 1999, loans with an interest rate of 8%
totaling $218,000 and $105,000, respectively, 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).
PUBLIC OFFERINGS OF STOCK
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.
In June 1999, the Company closed a follow-on public offering of common
stock at $11.75 per share. The net proceeds of the offering, including the
proceeds received in connection with the exercise of the Underwriters'
over-allotment option, were $31,357,000 after deducting applicable issuance
costs and expenses.
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.
F-10
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -CONTINUED
5. 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
and replaced the 1993 plan. Under the Stock Option Plan, as amended, the Company
may grant non-qualified or incentive stock options for up to 2,602,941 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 $20.88 per share. The
vesting period generally occurs ratably over four years. At December 31, 1999,
there were approximately 316,000 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.
Stock option transactions for the years ended December 31, 1997, 1998 and 1999
are as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
1997 PRICE 1998 PRICE 1999 PRICE
------- ---------- ------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
at January 1............ 483,000 $0.34 267,000 $0.75 1,035,000 $6.31
Granted.................... 144,000 1.56 820,000 7.91 961,000 12.88
Exercised.................. (341,000) 0.34 (28,000) 0.35 (189,000) 6.12
Cancelled.................. (19,000) 0.34 (24,000) 6.16 (95,000) 7.84
------- ---- ------- ---- ------- ----
Options outstanding at end of
period.................. 267,000 $0.75 1,035,000 $6.31 1,712,000 $9.93
======= ===== ========= ===== ========= =====
</TABLE>
The following summarizes information about stock options outstanding as of
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- -------------------------------
WEIGHTED
AVERAGE
NUMBER REMAINING WEIGHTED WEIGHTED
RANGE OF EXERCISE OUTSTANDING CONTRACTUAL AVERAGE NUMBER AVERAGE
PRICE AS OF LIFE EXERCISE PRICE EXERCISABLE EXERCISE
12/31/99 PRICE
- --------------------- ------------ ------------ --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
$ 0.34 147,000 6.61 $ 0.34 128,000 $ 0.34
$ 1.00 29,000 7.65 $ 1.00 18,000 $ 1.00
$ 5.88-9.75 572,000 8.35 $ 7.87 275,000 $ 7.94
$ 11.624-20.88 964,000 9.38 $ 12.88 142,000 $ 12.48
------------ ------------ --------------- ------------ -------------
$ 0.34-20.88 1,712,000 8.77 $ 9.93 563,000 $ 7.14
============ ============ =============== ============ =============
</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. For the year ended December 31, 1999, the Company
recorded a deferred charge of $2,331,000, representing the difference between
the fair value of the Company's Common Stock on the date of grant and the fair
value of the Company's Common Stock on the date of shareholder approval. The
Company recorded deferred charges of $545,000 and $1,820,000 for the years ended
December 31, 1998 and 1999, respectively, for the fair value of Common Stock
options granted to certain non-employees in accordance with SFAS No. 123. The
deferred compensation will be amortized to expense over the period the shares
and options vest, generally four years.
F-11
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -CONTINUED
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:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Net loss:
As reported................. $(11,428) $ (19,002) $(14,595)
Compensation cost recorded
under APB 25 and SFAS
123...................... 386 707 1,777
Additional compensation cost
resulting from:
Common Stock Options... (100) (821) (2,396)
Restricted Stock....... (240) (415) (415)
-------------------- -------------------- --------------------
Pro forma .................. $(11,382) $ (19,531) $(15,629)
==================== ==================== ====================
Basic Loss Per Share:
As reported.............. $ (1.55) $ (1.78) $ (1.17)
Pro forma................ $ (1.54) $ (1.83) $ (1.25)
</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:
Estimated dividend yield 0.00%
Expected stock price volatility 29.00%-86.00%
Risk-free interest rate 5.07-6.00%
Expected life of options 5-7 years
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 1997, 1998 and 1999 and does not consider compensation cost for stock
options granted prior to January 1, 1995.
6. INCOME TAXES
At December 31, 1999, the Company has net operating loss carryforwards
(NOL's) for federal income tax purposes of approximately $57.4 million which
expire in varying amounts between 2008 and 2019. The Company has NOL's for state
tax purposes of approximately $57.4 million which expire in varying amounts
between 2008 and 2014. Additionally, the Company has research and development
credits of $1.9 million which expire in varying amounts between 2008 and 2014.
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
F-12
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -CONTINUED
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.
The components of deferred tax assets and deferred tax liabilities as
of December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
-------------------- ------------------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Tax loss carryforwards $ 17,777 $ 22,201
Tax credits 1,123 1,927
Reserves and accruals 1,028 1,118
-------------------- ------------------
19,928 25,246
Valuation allowance (19,928) (25,246)
-------------------- ------------------
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.
The increase in the valuation allowance was approximately $8.2 million and $5.3
million for the years ended December 31, 1998 and 1999, respectively.
7. 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. During 1999, 12,000 shares were issued and compensation
expense of $292,000 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.
F-13
<PAGE>
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
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 1997, 40,000 and 22,000
shares were issued under this plan in 1998 and 1999, respectively.
8. ROCHE COLLABORATION
In July 1999, the Company announced an agreement with F. Hoffmann-La
Roche Ltd., or Roche, to develop and market T-20 and T-1249 worldwide. In the
United States and Canada, the Company and Roche will share equally development
expenses and profits for T-20 and T-1249. Outside of these two countries, Roche
will fund all development costs and pay the Company royalties on net sales of
these products. Roche made a nonrefundable initial cash payment to the Company
of $10 million which was recognized as income during 1999. Roche will provide up
to an additional $58 million in cash upon achievement of developmental,
regulatory and commercial milestones.
The Company has a $20 million financing agreement with Roche accessible
at the Company's option on a quarterly basis beginning prior to December 31,
2000. Any outstanding principal and accrued interest is due on July 1, 2002. The
loan balance is convertible into the Common Stock of the Company at Roche's
option. No borrowings had been made under this agreement at December 31, 1999.
The Company granted Roche warrants to purchase 362,000 shares of Common Stock at
a purchase price of $20.72 per share. The warrants are exercisable prior to the
tenth annual anniversary of the grant date and were not exercised at December
31, 1999.
9. SUPPLEMENTARY CASH FLOW INFORMATION
Capital lease obligations of $211,000, $1,236,000 and $1,119,000 were
incurred in 1997, 1998 and 1999, respectively, for leases of new furniture and
equipment.
10. COMMITMENTS AND CONTINGENCIES
The Company is involved in certain claims 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.
The Company is in dispute with a consultant regarding the amount of
payment of a fee for services rendered. The Company has recorded its estimate of
the amount due for the services provided, however the ultimate resolution of
this matter cannot presently be determined.
11. SUBSEQUENT EVENTS (UNAUDITED)
In February 2000, the Company closed a private placement of 1.75
million shares of common stock at $40.50 per share. The net proceeds of the
offering were approximately $66.4 million after deducting applicable issuance
costs and expenses. In March 2000, the Company entered into an operating leasing
arrangement for laboratory space. The future minimum lease payments under the
lease total $381,000.
F-14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Trimeris, Inc.
--------------
(Registrant)
March 28, 2000 /s/ DANI P. BOLOGNESI
- --------------- -----------------------
Dani P. Bolognesi, Ph.D.
Chief Executive Officer
and Chief Scientific Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ DANI P. BOLOGNESI Chief Executive Officer (principal March 28, 2000
- ----------------------------- executive officer), Chief
Dani P. Bolognesi, Ph.D. Scientific Officer and Director
/s/ ROBERT R. BONCZEK Acting Chief Administrative March 28, 2000
- ----------------------------- Officer, and Chief Financial Officer
Robert R. Bonczek (principal financial officer)
/s/ TIMOTHY J. CREECH Director of Finance and Administration March 28, 2000
- ----------------------------- and Secretary (principal accounting officer)
Timothy J. Creech
/s/ JEFFREY M. LIPTON Chairman of the Board of Directors March 28, 2000
- -----------------------------
Jeffrey M. Lipton
/s/ JESSE I. TREU Director March 28, 2000
- -----------------------------
Jesse I. Treu, Ph.D.
/s/ E. GARY COOK Director March 28, 2000
- -----------------------------
E. Gary Cook, Ph.D.
/s/ CHARLES A. SANDERS Director March 28, 2000
- -----------------------------
Charles A. Sanders, M.D.
s/ J. RICHARD CROUT Director March 28, 2000
- -----------------------------
J. Richard Crout, M.D.
</TABLE>
II-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
3.1 * Second Restated Certificate of Incorporation of the Registrant.
3.2 * Third Amended and Restated Certificate of Incorporation of the Registrant.
3.3 * Bylaws of the Registrant.
3.4 * Amended and Restated Bylaws of the Registrant.
4.1 * Specimen certificate for shares of Common Stock.
4.2 * Description of Capital Stock (contained in the Third
Amended and Restated Certificate of Incorporation of the
Corporation of the Registrant, filed as Exhibit 3.2).
10.1 * License Agreement dated February 3, 1993, between the Registrant and Duke University.
10.2 * Sublease Agreement dated November 19, 1993, by and among the Registrant, Sphinx
Pharmaceutical Corporation and University Place Associates
and as amended by the Lease Amendment dated August 15, 1994,
and Second Agreement of Sublease dated January 16, 1995.
10.3 * Cooperation and Strategic Alliance Agreement dated April
21, 1997, between the Registrant and MiniMed Inc.
10.4 ****** Trimeris, Inc. Amended and Restated Stock Incentive Plan.
10.5 * Trimeris, Inc. Employee Stock Purchase Plan.
10.6 * Form of Promissory Notes executed by certain executive
officers in favor of the Registrant, and related collateral
documents.
10.7 * Form of Stock Restriction Agreements between the Registrant and certain executive officers.
10.8 * Form of Stock Pledge Agreement between the Registrant and certain executive officers.
10.9 * Employment Offer Letter with M. Ross Johnson dated December 15, 1994.
10.10 * Employment Offer Letter with Matthew A. Megaro dated February 23, 1995.
10.11 * Sixth Amended and Restated Registration Rights Agreement dated June 27, 1997, by and among
the Registrant and certain stockholders of the Registrant.
10.12 * Agreement with Max N. Wallace dated July 10, 1997.
10.13 * Form of Indemnification Agreements.
10.14 * License Agreement dated September 9, 1997 between the Registrant and The New York Blood
Center.
10.15 ** Master Lease Agreement dated May 28, 1998 between the Company and Finova Technology Finance,
Inc.
10.16 ** Prototype Defined Contribution Plan and Trust for the Trimeris, Inc. Employee 401 (k) Plan.
10.17 ** Adoption Agreement for the Trimeris, Inc. Employee 401 (k) Plan.
10.18*** Employment Termination and General Release Agreement between Trimeris and M. Ross Johnson
dated April 13, 1999.
10.19*** Chief Executive Employment Agreement between Trimeris and Dani P. Bolognesi dated April 21,
1999.
10.20**** Development and License Agreement between Trimeris and
Hoffmann-La Roche dated July 1, 1999 (Portions of this
exhibit have been omitted pursuant to an order of the
Commission granting confidential treatment.).
10.21**** Financing Agreement between Trimeris, Inc. and Roche Finance Ltd. dated as of July 9, 1999.
10.22**** Registration Rights Agreement between Trimeris, Inc. and Roche Finance Ltd. dated as of July
9, 1999.
10.23**** Lease between Trimeris, Inc. and University Place Associates dated April 14, 1999
10.24**** Sublease Agreement between Trimeris, Inc. and Blue Cross and Blue Shield of North Carolina
dated May 15, 1999.
10.25**** Lease Agreement between Hamad Jassim Althani and Blue Cross and Blue Shield of North
Carolina, relating to Sublease Agreement filed as Exhibit 10.24 hereto
II-2
<PAGE>
10.26***** Employment Termination and General Release Agreement between Trimeris and Matthew A. Megaro
dated September 3, 1999.
10.27 Executive Agreement between Trimeris and Robert R. Bonczek dated January 7, 2000.
11.1 Computation of Basic Net Loss Per Share.
23 Consent of KPMG LLP
27 Financial Data Schedule
----------------
* Incorporated by reference to Trimeris' Registration Statement on Form S-1 (File No. 333-31109)
initially filed with the Commission on July 11, 1997.
** Incorporated by reference to Trimeris' Quarterly Report on Form
10-Q for the quarter ended June 30, 1998.
*** Incorporated by reference to Trimeris' Quarterly Report on Form
10-Q for the quarter ended March 31, 1999.
**** Incorporated by reference to Trimeris' Quarterly Report on Form
10-Q for the quarter ended June 30, 1999.
***** Incorporated by reference to Trimeris' Quarterly Report on Form
10-Q for the quarter ended September 30, 1999.
****** Incorporated by reference to Trimeris' Registration Statement on Form S-8 (File No. 333- )
initially filed with the Commission on November 5, 1999.
</TABLE>
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.
II-3
Exhibit 10.27
EXECUTIVE AGREEMENT
THIS AGREEMENT is made and entered into this the 7th day of January,
2000, by and between TRIMERIS, Inc., a Delaware corporation (the "Company"), and
ROBERT R. BONCZEK ("Bonczek").
W I T N E S S E T H:
WHEREAS, Bonczek and the Company deem it to be in their respective best
interests to enter into an agreement providing for the Company's appointment of
Bonczek as an officer of the Company pursuant to the terms herein stated;
NOW, THEREFORE, in consideration of the premises and the mutual
promises and agreements contained herein, it is hereby agreed as follows:
1. Effective Date. This Agreement shall be effective as of the 2nd day of
September, 1999, which date shall be referred to herein as the
"Effective Date".
2. Position and Duties.
(a) The Company hereby appoints Bonczek as its Acting Chief
Administrative Officer and Acting Chief Financial Officer commencing as
of the Effective Date for the "Term" (as herein defined below). In this
capacity, Bonczek shall devote his best efforts and attention to the
performance of the services customarily incident to such offices and
positions and to such other services of a senior executive nature as
may be reasonably requested by the Chief Executive Officer (CEO) and
Chief Scientific Officer (CSO) of the Company which may include
services for one or more subsidiaries or affiliates of the Company.
Bonczek shall in his capacity as an officer of the Company be
responsible to and obey the reasonable and lawful directives of the CEO
and CSO. Bonczek shall use his best efforts during the Term to protect,
encourage, and promote the interests of the Company.
(b) The Company and Bonczek agree that the position, salary
and duties outlined in subsection 2(a) above and subsections 3(a) and
(b) below are transitional in nature. The Company, in its sole
discretion, shall have the ability to reassign Bonczek to other duties
or offices (including a reassignment to a lesser role), to reduce
Bonczek's salary or to change Bonczek's position or title at any time
without Bonczek's consent, provided that:
(i) In the case of a reassignment or change of
position or title in which Bonczek remains an officer of the
Company, such reassignment or change of position or title
leaves Bonczek in a position at least comparable to Bonczek's
status and compensation under the Initial Consulting Agreement
between Bonczek and Company dated August 25, 1997 and as
amended on January 23, 1998 and April 28, 1999 (the "Initial
Consulting Agreement"); and
<PAGE>
(ii) In the case of a reassignment or change of
position or title in which Bonczek is no longer an officer of
the Company, such reassignment or change of position or title
leaves Bonczek in a position at least comparable to Bonczek's
status and compensation under the Initial Consulting Agreement
for a period of at least twenty-four (24) full months
following the reassignment or change (the "Protected Period").
The Company and Bonczek agree that any such reassignment, reduction of
salary or change in position or title permitted under this paragraph (a
"Permitted Reassignment") shall not entitle Bonczek to the payment of
severance benefits under the Severance Agreement (as herein defined
below).
3. Compensation.
(a) Base Salary. The Company shall pay to Bonczek during the
Term a minimum salary at the rate of Two Hundred Ten Thousand dollars
($210,000.00) per year and agrees that such salary shall be reviewed at
least annually. Such salary shall be subject to discretionary annual
increases as determined by the Compensation Committee of the Board of
Directors. Such salary shall be payable monthly and in accordance with
the Company's normal payroll procedures. (Bonczek's annual salary, as
set forth above or as it may be increased from time to time as set
forth herein, shall be referred to hereinafter as "Base Salary").
(b) Performance Bonus. In addition to the compensation
otherwise payable to Bonczek pursuant to this Agreement, Bonczek shall
be eligible to receive an annual bonus ("Bonus") pursuant to a
performance bonus plan (the "Bonus Plan") which may be established by
the Company for its senior executive officers and which shall provide
for bonus compensation to be payable based upon the financial and other
performance of the Company and Bonczek. Bonczek's Bonus shall be in an
amount up to forty-five percent (45%) of his Base Salary, provided that
the Company, in computing Bonczek's annual bonus, shall have the right
to make such adjustments as it may deem appropriate to reflect any
mid-year changes in Bonczek's salary or position pursuant to subsection
2(b) above.
(c) Long Term Stock Options. The Company has recommended that
the Compensation Committee of the Board grant Bonczek nonqualified
stock options to purchase One Hundred Thousand (100,000) shares of the
Company's common stock at a price equal to the fair market value of the
common stock on the date of grant, vesting monthly in an equal number
of shares over a period of four (4) years beginning August 17, 1999,
and further subject to the terms set forth in this paragraph. Such
options shall continue to vest so long as Bonczek remains an officer or
on the payroll of the Company. In the event of termination of both
Bonczek's appointment as an officer and on the payroll of the Company,
no additional options shall vest, but stock options previously vested
shall remain exercisable in accordance with the option agreement.
Notwithstanding the foregoing, if Bonczek's is terminated under
circumstances entitling Bonczek to severance benefits under the
Severance Agreement (as herein defined below), Bonczek's options shall
continue to vest during the Continuation Period (as defined in the
Severance Agreement) following termination in accordance with the
vesting schedule set
2
<PAGE>
forth in this paragraph and the option agreement, and shall remain
exercisable for the remainder of the option term. All options will be
subject to the terms and conditions of the Trimeris, Inc. Amended and
Restated Stock Incentive Plan.
(d) Relocation Expenses. If Bonczek decides to relocate his
primary residence to the Raleigh/Durham/Chapel Hill area during the
term of this Agreement, the Company shall reimburse Bonczek for all
conventional and reasonable relocation expenses. In addition, the
Company shall also pay Bonczek an additional amount of up to
Twenty-Five Thousand dollars ($25,000.00) for miscellaneous expenses
and charges not capable of being itemized.
(e) Reimbursement of Lost Income. In consideration of Bonczek
forgoing the supplemental income and career enhancement opportunities
normally attendant to him, Company agrees to award Bonczek upon
execution of this Agreement, a one time payment of Sixteen Thousand
dollars ($16,000.00).
4. Benefits During the Term.
(a) During the Term, Bonczek shall not be eligible to
participate in any life, health and long-term disability insurance
programs, pension and retirement programs, stock option and other
incentive compensation programs, and other fringe benefit programs made
available to senior executive employees of the Company from time to
time. However, Bonczek shall be entitled to receive such other fringe
benefits as may be granted to him from time to time by the Company's
Board of Directors.
(b) During the Term, Bonczek shall be allowed four (4) weeks
of vacation with pay and leaves of absence with pay.
(c) During the Term, the Company shall reimburse Bonczek for
reasonable business expenses incurred in performing Bonczek's duties
and promoting the business of the Company, including, but not limited
to, reasonable entertainment expenses, travel and lodging expenses,
following presentation of documentation in accordance with the
Company's business expense reimbursement policies.
5. Term; Termination. As used herein, the phrase "Term" shall mean the
period commencing on the Effective Date and ending on the same date two (2)
years later; provided, however, that as of the expiration date of each of (i)
the initial Term and (ii) if applicable, any Renewal Period (as defined below),
the Term shall automatically be extended for a two (2) year period (each a
"Renewal Period") unless either the Company or Bonczek provides two (2) months'
written notice to the contrary. Notwithstanding the foregoing, the Term shall
expire on the first to occur of the following:
(a) Reassignment. The Company may, at any time and without
prior notice, terminate Bonczek's appointment as an officer for the
purpose of reassigning Bonczek to a lesser capacity so long as such
reassignment satisfies the conditions of a Permitted Reassignment
pursuant to subsection 2(b)(ii) of this Agreement. Upon such Permitted
3
<PAGE>
Reassignment, Bonczek's Term hereunder shall expire on the last day of
the Protected Period.
(b) Termination by the Company. Notwithstanding anything to
the contrary in this Agreement, whether express or implied, the Company
may, at any time, terminate Bonczek's appointment (as an officer or
otherwise) for any reason other than Cause, Death or Disability by
giving Bonczek at least 60 days' prior written notice of the effective
date of termination. Company may terminate Employee's appointment (as
an officer or otherwise) for Cause, Death or Disability without prior
notice, except that Bonczek may not be terminated for substantial and
willful failure to perform specific and lawful directives of the CEO
and CSO, as reasonably determined by the CEO and CSO, unless and until
the CEO and CSO has given him reasonable written notice of his intended
actions and specifically describing the alleged events, activities or
omissions giving rise thereto and with respect to those events,
activities or omissions for which a cure is possible, a reasonable
opportunity to cure such breach; and provided further, however, that
for purposes of determining whether Cause is present, no act or failure
to act by Bonczek shall be considered "willful" if done or omitted to
be done by Bonczek in good faith and in the reasonable belief that such
act or omission was in the best interest of the Company and/or required
by applicable law. The terms "Cause" and "Disability" shall have the
meaning given them under the Severance Agreement.
(c) Termination by Bonczek. In the event that Bonczek's
appointment (as an officer or otherwise) with the Company is
voluntarily terminated by Bonczek, the Company shall have no further
obligation hereunder from and after the effective date of termination
except as may be provided in the Severance Agreement (as herein defined
below) and the Company shall have all other rights and remedies
available under this Agreement or any other agreement and at law or in
equity. Bonczek shall give the Company at least 30 days' advance
written notice of his intention to terminate his appointment hereunder.
(d) Salary and Benefits Upon Termination. In the event of
termination of appointment (as an officer or otherwise), Bonczek shall
receive all regular Base Salary due up to the date of termination, and
if it has not previously been paid to Bonczek, Bonczek shall be paid
any Bonus to which Bonczek had become entitled under the Bonus Plan
prior to the effective date of such termination and the Company shall
have no further obligation hereunder from and after the effective date
of termination except as may be provided in the Severance Agreement and
the Company shall have all other rights and remedies available under
this Agreement or any other agreement and at law or in equity.
Bonczek's stock options with respect to the Company's stock shall be
subject to the terms of the Trimeris, Inc. Amended and Restated Stock
Incentive Plan and applicable option agreements thereunder, or any
successor plans and agreements, which are not part of this Agreement.
Bonczek's right to severance benefits, if any, shall be governed by the
terms of the Separation and Severance Agreement attached hereto as
Exhibit B (the "Severance Agreement"); provided, however, Bonczek,
shall be entitled to de novo review of any material violation
of the Severance Agreement, or denial of any claim, or eligibility for
any claim thereunder exclusively as provided in the Resolution of
Dispute provisions of Section 12 of this Agreement.
4
<PAGE>
(e) Agreement. The Severance Agreement is incorporated in this
Agreement by reference and is hereby made a part of this Agreement as
if fully set forth herein.
6. Confidential Information, Non-Solicitation and Non-Competition.
(a) During the Term and at all times thereafter, Bonczek shall
not, except as may be required to perform his duties hereunder or as
required by applicable law, disclose to others or use, whether directly
or indirectly, any Confidential Information regarding the Company.
"Confidential Information" shall mean information about the Company,
its subsidiaries and affiliates, and their respective clients and
customers that is not available to the general public and that was
learned by Bonczek in the course of his appointment by the Company (as
an officer or otherwise), including (without limitation) (i) any
proprietary knowledge, trade secrets, ideas, processes, formulas, cell
lines, sequences, developments, designs, assays and techniques, data,
formulae, and client and customer lists and all papers, resumes,
records (including computer records), (ii) information regarding plans
for research, development, new products, marketing and selling,
business plans, budgets and unpublished financial statements, licenses,
prices and costs, suppliers and customers (iii) information regarding
the skills and compensation of other employees of Company and (iv) the
documents containing such Confidential Information. Bonczek
acknowledges that such Confidential Information is specialized, unique
in nature and of great value to the Company, and that such information
gives the Company a competitive advantage. Upon the termination of his
appointment for any reason whatsoever, Bonczek shall promptly deliver
to the Company all documents, slides, computer tapes and disks (and all
copies thereof) containing any Confidential Information.
(b) During the Term and for two (2) years thereafter, Bonczek
shall not, directly or indirectly in any manner or capacity (e.g., as
an advisor, principal, agent, partner, officer, director, shareholder,
employee, member of any association or otherwise) engage in, work for,
consult, provide advice or assistance or otherwise participate in any
activity which is competitive with the business of the Company which is
worldwide ("Competing Business" or "Competitor"). Bonczek further
agrees that during such period he will not assist or encourage any
other person in carrying out any activity that would be prohibited by
the foregoing provisions of this Section 6 if such activity were
carried out by Bonczek and, in particular, Bonczek agrees that he will
not induce any employee of the Company to carry out any such activity;
provided, however, that the "beneficial ownership" by Bonczek, either
individually or as a member of a "group," as such terms are used in
Rule 13d of the General Rules and Regulations under the Securities
Exchange Act of 1934, of not more than five percent (5%) of the voting
stock of any publicly held corporation shall not be a violation of this
Agreement. It is further expressly agreed that the Company will or
would suffer irreparable injury if Bonczek were to compete with the
Company or any subsidiary or affiliate of the Company in violation of
this Agreement and that the Company would by reason of such competition
be entitled to injunctive relief in a court of appropriate
jurisdiction.
"Competing Business" is defined as the business of the
discovery, development, testing, manufacturing, and/or marketing
therapeutic components for the treatment of
5
<PAGE>
human viral diseases based on a viral fusion protein target and any
other business in which the Company may engage or propose to engage
during the term of this Agreement.
(c) During the Term and for two (2) years thereafter, Bonczek
shall not, directly or indirectly, influence or attempt to influence
customers or suppliers of the Company or any of its subsidiaries or
affiliates, to divert their business to any Competitor of the Company.
(d) Bonczek recognizes that he will possess confidential
information about employees of the Company relating to their education,
experience, skills, abilities, compensation and benefits, and
interpersonal relationships with customers of the Company. Bonczek
recognizes that the information he will possess about these employees
is not generally known, is of substantial value to the Company in
developing its business and in securing and retaining customers, and
will be acquired by him because of his business position with the
Company. Bonczek agrees that, during the Term, and for a period of two
(2) years thereafter, he will not, directly or indirectly, solicit or
recruit any employee of the Company for the purpose of being employed
by him or by any Competitor of the Company on whose behalf he is acting
as an agent, representative or employee and that he will not at any
time convey any such confidential information or trade secrets about
other employees of the Company to any other person.
(e) Bonczek agrees and understands that Company has received,
and in the future will receive, from third parties confidential or
proprietary information ("Third Party Information") subject to a duty
on Company's part to maintain the confidentiality of such information
and to use it only for certain limited purposes. During the Term and
thereafter, Bonczek will hold Third Party Information in the strictest
of confidence and will not disclose (to anyone other than Company
personnel who need to know such information in connection with their
work for Company), or use, except in connection with any work for
Company, Third Party Information unless expressly and specifically
authorized to do so prior to any proposed disclosure by an officer of
Company.
(f) Inventions:
(i) Assignment. Bonczek hereby assigns to Company all
his right, title and interest in and to any and all
inventions (and all patent rights, copyright, trade
secret rights and all other rights throughout the
world in connection therewith, whether or not
patentable or registerable under copyright,
trademark or similar statutes), together with all
goodwill associated therewith, (all of the foregoing
being hereinafter referred to collectively as
"Proprietary Rights"), made, conceived, reduced to
practice or learned by Bonczek, either alone or
jointly with others, during his period of
appointment or engagement with Company. Proprietary
Rights assigned under this Section 6 are hereinafter
referred to as "Company Inventions". Bonczek agrees
to assist Company in every necessary way to obtain
or enforce any patents, copyrights or any
proprietary rights relating to Company Inventions
and to execute all documents and applications
necessary to
6
<PAGE>
vest in Company's full legal title to such Company
Inventions, and Bonczek agrees to continue this
assistance after the termination of his appointment
or engagement with Company. Furthermore, Bonczek
hereby designates and appoints Company and its
officers and agents as his agents and
attorneys-in-fact to execute and file any
certificates, applications or documents and to do
all other lawful acts reasonably necessary in the
opinion of Company to protect Company's rights in
Company Inventions. Bonczek expressly acknowledges
that the foregoing power of attorney is coupled with
an interest and is therefore irrevocable and will
survive Bonczek's termination of appointment or
engagement, death or incompetency.
(ii) Government. Bonczek also will assign to or as
directed by Company all his right, title and
interest in and to any and all Proprietary Rights,
full title to which may required to be in the United
States by a contract between Company and the United
States or any of its agencies.
(iii) Independent Proprietary Rights. Notwithstanding
anything in this Agreement to the contrary,
Bonczek's obligation to assign or offer to assign
Bonczek's rights in Proprietary Rights to Company
will not extend or apply to Proprietary Rights that
Bonczek has developed entirely on Bonczek's own time
without using Company's equipment, supplies,
facilities or trade secret information unless such
Proprietary Right: (a) relates to Company's business
or actual demonstrably anticipated research or
development or (b) results from any work performed
by Bonczek for Company. Bonczek will bear the burden
of proof in establishing that the Proprietary Right
qualifies for exclusion under this subsection
6(f)(iii).
(iv) Assignment of Company Inventions. Bonczek will
assist Company in every proper way to obtain and
from time to time enforce United States and foreign
Proprietary Rights related to Company Inventions in
any and all countries. Bonczek's obligation to
assist Company with respect to Proprietary Rights
relating to such Company Inventions will continue
beyond the termination of Bonczek's appointment or
engagement, but Company will compensate Bonczek at a
reasonable rate after Bonczek's termination for the
time actually spent by Bonczek at Company's request
on such assistance.
Bonczek hereby waives and quitclaims to Company all
claims, of any nature whatsoever, which Bonczek may
or may hereafter have for infringement, including
past infringements, of any Proprietary Rights
assigned hereunder to Company.
(v) Obligation to Keep Company Informed. During the
period of Bonczek's appointment or engagement,
Bonczek will promptly disclose to Company fully and
in writing, and will hold in trust for the
7
<PAGE>
sole right and benefit of Company, any and all
Proprietary Rights. In addition, after termination
of Bonczek's appointment or engagement, Bonczek will
disclose all patent applications filed by Bonczek
within a year after termination of such appointment
or engagement.
(vi) Prior Proprietary Rights. Proprietary Rights, if
any, patented or unpatented, which Bonczek made
prior to Bonczek's commencement of appointment or
engagement with Company are excluded from the scope
of this Agreement. To preclude any possible
uncertainty, Bonczek has set forth on the attached
Exhibit A, a complete list of all Proprietary Rights
that Bonczek has, alone or jointly with others,
conceived, developed or reduced to practice or
caused to be conceived, developed or reduced to
practice prior to the commencement of Bonczek's
appointment or engagement with Company, that Bonczek
considers to be Bonczek's property or the property
of the third parties, and Bonczek wishes to have
excluded from the scope of this Agreement. If
disclosure of any such Proprietary Right on Exhibit
A would cause Bonczek to violate any prior
confidentiality agreement with another party,
Bonczek understands that he is not to list such
Inventions in Exhibit A but that he is to inform
Company in writing that all such Proprietary Rights
have not been listed for that reason.
(g) If it is determined by a court of competent jurisdiction
in any state that any restriction in this Section 6 is excessive in
duration or scope or is unreasonable or unenforceable under the laws of
that state, it is the intention of the parties that such restriction
may be modified or amended by the court to render it enforceable to the
maximum extent permitted by the law of that state.
7. Return of Company Documents. In the event Bonczek leaves the Company
for whatever reason, Bonczek agrees to deliver to Company any and all laboratory
notebooks, drawings, notes, memoranda, specifications, devices, software,
databases, formulas, molecules, cells and documents, together with all copies
thereof, and any other material containing or disclosing any Company Inventions,
Third Party Information or Confidential Information of Company. Bonczek further
agrees that any property situated on Company's premises and owned by Company
including disks and other storage media, filing cabinets or other work areas, is
subject to inspection by Company personnel at any time, with or without notice,
for the purpose of protecting Company's rights and interests in its intellectual
property.
8. Miscellaneous. This Agreement shall also be subject to the following
miscellaneous considerations:
(a) Bonczek and the Company each represent and warrant to the
other that he or it has the authorization, power and right to deliver,
execute, and fully perform his or its obligations under this Agreement
in accordance with its terms.
(b) This Agreement (including attached Exhibits A and B)
contains a complete statement of all the arrangements between the
parties with respect to Bonczek's
8
<PAGE>
appointment by the Company, this Agreement supersedes all prior and
existing negotiations and agreements between the parties concerning
Bonczek's appointment as an officer (including but not limited to the
Initial Consulting Agreement), and this Agreement can only be changed
or modified pursuant to a written instrument duly executed by each of
the parties hereto.
(c) If any provision of this Agreement or any portion thereof
is declared invalid, illegal, or incapable of being enforced by any
court of competent jurisdiction, the remainder of such provisions and
all of the remaining provisions of this Agreement shall continue in
full force and effect.
(d) This Agreement shall be governed by and construed in
accordance with the internal, domestic laws of the State of North
Carolina.
(e) The Company may assign this Agreement to any direct or
indirect subsidiary or parent of the Company or joint venture in which
the Company has an interest, or any successor (whether by merger,
consolidation, purchase or otherwise) to all or substantially all of
the stock, assets or business of the Company and this Agreement shall
be binding upon and inure to the benefit of such successors and
assigns. Except as expressly provided herein, Bonczek may not sell,
transfer, assign, or pledge any of his rights or interests pursuant to
this Agreement.
(f) Any rights of Bonczek hereunder shall be in addition to
any rights Bonczek may otherwise have under benefit plans, agreements,
or arrangements of the Company to which he is a party or in which he is
a participant. Provisions of this Agreement shall not in any way
abrogate Bonczek's rights under such other plans, agreements, or
arrangements.
(g) For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by
United States certified or registered mail, return receipt requested,
postage prepaid, addressed to the named Bonczek at the address set
forth below under his signature; provided that all notices to the
Company shall be directed to the attention of the CEO and CSO with a
copy to the Secretary of the Company, or to such other address as
either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective
only upon receipt.
(h) Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
(i) Failure to insist upon strict compliance with any of the
terms, covenants, or conditions hereof shall not be deemed a waiver of
such term, covenant, or condition, nor shall any waiver or
relinquishment of, or failure to insist upon strict compliance with,
any right or power hereunder at any one or more times be deemed a
waiver or relinquishment of such right or power at any other time or
times.
9
<PAGE>
(j) This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
9. Legal and Equitable Remedies. Because Bonczek's services are
personal and unique, and because Bonczek will have access to and become
acquainted with Proprietary and Confidential Information of Company, Company
will have the right to enforce this Agreement and any of its provisions by
injunction, specific performance or other equitable relief in any court of
competent jurisdiction, without prejudice to any other rights and remedies that
Company may have for a breach of this Agreement.
10. Survival of Provisions. The executory provisions of this Agreement
will survive the termination of this Agreement or the assignment of this
Agreement by Company to any successor in interest or other assignee.
11. Resolution of Disputes. Except as otherwise specifically provided
in Sections 8 and 10 of the Severance Agreement attached hereto, any dispute or
controversy arising under or in connection with this Agreement and Severance
Agreement shall be settled exclusively by arbitration administered by the
American Arbitration Association and conducted before a panel of three
arbitrators in Raleigh, Wake County, North Carolina, all in accordance with its
Commercial Arbitration rules then in effect. The Company and Bonczek hereby
agree that the arbitrator will not have the authority to award punitive damages,
damages for emotional distress or any other damages that are not contractual in
nature. Judgment shall be final and binding upon the parties and judgement may
be entered on the arbitrator's award in any court having jurisdiction; provided,
however, that (a) the Company shall be entitled to seek a restraining order or
injunction in any court of competent jurisdiction to prevent any violation or
the continuation thereof, of the provisions of Section 6 of this Agreement, and
Bonczek consents that such restraining order or injunction may be granted
without the necessity of the Company's posting any bond except to the extent
otherwise required by applicable law; and (b) notwithstanding anything in the
Severance Agreement to the contrary, Bonczek, shall be entitled by arbitration
to seek de novo review of any material violation of the Severance Agreement or
any denial of a claim or obligation to pay a claim thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ROBERT R. BONCZEK COMPANY
TRIMERIS, INC.
BY: /S/ ROBERT R. BONCZEK BY: /S/ DANI P. BOLOGNESI
--------------------------- ---------------------
TITLE: ACTING CHIEF ADMINISTRATIVE NAME: DANI P. BOLOGNESI, PH.D
OFFICER AND ACTING CHIEF FINANCIAL OFFICER TITLE: CHIEF EXECUTIVE OFFICER
AND CHIEF SCIENTIFIC OFFICER
10
<PAGE>
EXHIBIT A
TO
EXECUTIVE AGREEMENT
1. The following is a complete list of all inventions or improvements
relevant to the subject matter of my appointment or engagement by the Company
that have been made or conceived or first reduced to practice by me alone or
jointly with others prior to my appointment or engagement by the Company and
therefore should be excluded from the coverage of this Agreement:
____ Additional sheets attached.
X No pertinent inventions or improvements.
____
____ Due to confidentiality agreements with one or more prior
employers, I cannot disclose certain inventions that would
otherwise be included on the above-described list.
2. I propose to bring to my appointment or engagement the following
devices, materials and documents of a former employer or other person to whom I
have an obligation of confidentiality and that are not generally available to
the public. These materials and documents may be used in my appointment or
engagement pursuant to the express written authorization of my former employer
or such other person (a copy of which is attached hereto). If no such
authorization is in place, I will consult with the Company management to
determine what steps should be taken to protect the interests of all parties
concerned:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Additional sheets attached.
-----
X No material.
-----
Date: 7 January 2000
ROBERT R. BONCZEK:
/S/ ROBERT R. BONCZEK
- ---------------------------
Robert R. Bonczek
<PAGE>
EXHIBIT B TO EXECUTIVE AGREEMENT
EXECUTIVE SEPARATION AND SEVERANCE AGREEMENT
THIS SEPARATION AND SEVERANCE AGREEMENT (the "Severance Agreement") is
made a part of that Executive Agreement (the "Agreement"), entered into and
effective as of the 2nd day of September, 1999, by and between ROBERT R.
BONCZEK, an individual resident of the State of Delaware ("Bonczek"), and
TRIMERIS, INC., a Delaware corporation (the "Company").
W I T N E S S E T H:
-------------------
WHEREAS, the Company desires to provide for severance benefits under
the terms and conditions set forth herein; and
WHEREAS, this Severance Agreement constitutes part of the Agreement and
is incorporated therein by reference and fully set forth therein.
COVENANTS
NOW, THEREFORE, in consideration of the premises, mutual promises
contained herein, and other valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
1. Certain Definitions. The following terms shall have the meanings set
forth herein.
(a) "Administrator" shall mean the Company. The Company shall
also be the "named fiduciary" hereunder. The Company shall have the
authority to designate one or more of its officers, employees or
directors to act on its behalf in administering this Severance
Agreement.
(b) "Base Salary" shall mean Bonczek's regular pay (in the
form of salary or fees, as the case may be) at the time of termination.
Base Salary shall not include bonus or incentive plans, overtime pay,
relocation allowances or the value of any other benefits for which
Bonczek may be eligible.
(c) "Good Reason" shall mean, without the express written
consent of Bonczek, the occurrence of any of the following events
unless such events are fully corrected within 30 days following written
notification by Bonczek to the Company that he intends to terminate his
appointment as an officer hereunder for one of the reasons set forth
below:
(i) a material breach by the Company of any provision of
the Agreement or Severance Agreement, including, but
not limited to, the assignment to Bonczek of any
duties inconsistent with Bonczek's position in the
Company or a material adverse alteration in the
nature or status of
<PAGE>
Bonczek's responsibilities, except for a Permitted
Reassignment as permitted in subsection 2(b) of the
Agreement;
(ii) the Company's requiring Bonczek to be based anywhere
other than the metropolitan area where the Company
is currently located; and
(iii) the occurrence of a "Change in Control" as defined
below.
For purposes of this Agreement a "Change in Control" shall mean an
event as a result of which: (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act")), is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act, except that a person shall be deemed
to have "beneficial ownership" of all securities that such person has
the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than
50% of the total voting power of the voting stock of the Company; (ii)
the Company consolidates with, or merges with or into another
corporation or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any person, or
any corporation consolidates with, or merges with or into, the Company,
in any such event pursuant to a transaction in which the outstanding
voting stock of the Company is changed into or exchanged for cash,
securities or other property, other than any such transaction where (A)
the outstanding voting stock of the Company is changed into or
exchanged for (i) voting stock of the surviving or transferee
corporation or (ii) cash, securities (whether or not including voting
stock) or other property, and (B) the holders of the voting stock of
the Company immediately prior to such transaction own, directly or
indirectly, not less than 50% of the voting power of the voting stock
of the surviving corporation immediately after such transaction; or
(iii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of the Company
(together with any new directors whose election by such Board or whose
nomination for election by the stockholders of the Company was approved
by a vote of 66-2/3% of the directors then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of the Company then in
office; or (iv) the Company is liquidated or dissolved or adopts a plan
of liquidation, provided, however, that a Change in Control shall not
include any going private or leveraged buy-out transaction which is
sponsored by Bonczek or in which Bonczek acquires an equity interest
materially in excess of his equity interest in the Company immediately
prior to such transaction (each of the events described in (i), (ii),
(iii) or (iv) above, except as provided otherwise by the preceding
clause being referred to herein as a "Change in Control"). In the event
of a sale of the assets or stock of the Company, Bonczek shall have the
option of electing to terminate his appointment or engagement due to a
Change in Control and receive such severance benefits or electing to
remain employed under the terms of this Severance Agreement, but not
both. Bonczek's right to terminate his appointment or engagement for
Good Cause due to any "Change in Control" must be exercised within
sixty (60) days after receiving written notice or his receiving actual
knowledge of such Good Cause.
(d) "Cause" shall mean:
2
<PAGE>
(i) fraud, misappropriation, embezzlement, or other act
of material misconduct against the Company or any of
its affiliates;
(ii) substantial and willful failure to perform specific
and lawful directives of the CEO and CSO;
(iii) willful and knowing violation of any rules or
regulations of any governmental or regulatory body,
which is materially injurious to the financial
condition of the Company;
(iv) conviction of or plea of guilty or nolo contendere
to a felony; or
(v) a material breach of the terms and conditions of the
Agreement;
provided, however, that with regard to subparagraphs (ii) and
(v) above, Bonczek may not be terminated for Cause unless and
until the CEO and CSO have given him reasonable written notice
of their intended actions and specifically describing the
alleged events, activities or omissions giving rise thereto
and with respect to those events, activities or omissions for
which a cure is possible, a reasonable opportunity to cure
such breach; and provided further, however, that for purposes
of determining whether any such Cause is present, no act or
failure to act by Bonczek shall be considered "willful" if
done or omitted to be done by Bonczek in good faith and in the
reasonable belief that such act or omission was in the best
interest of the Company and/or required by applicable law.
(e) "Disability" shall mean that as a result of Bonczek's
incapacity due to physical or mental illness (as determined in good
faith by a physician acceptable to the Company and Bonczek), Bonczek
shall have been absent from the performance of his duties with the
Company for 120 consecutive days during any twelve (12) month period or
if a physician acceptable to the Company and Bonczek advises the
Company that it is likely that Bonczek will be unable to return to the
performance of his duties for 120 consecutive days during the
succeeding twelve (12) month period.
2. Responsibility for Benefits. The Company will pay the entire cost of
all benefits provided under this Severance Agreement, solely from its general
assets. The benefits made available by this Severance Agreement are "unfunded,"
and Bonczek is not required or permitted to make any contribution with respect
to this Severance Agreement.
3. Payment of Benefits. In the event Bonczek's appointment as an
officer of the Company is terminated (a) by the Company other than for Cause,
Disability, Death or Permitted Reassignment, or (b) by Bonczek for Good Reason
(as defined herein), Bonczek shall receive the following severance benefits upon
his satisfaction of the condition in Section 4 hereof: (i) his Base Salary
during the period commencing on the effective date of such termination and
ending on the second anniversary of the date of such termination or, if earlier,
the last day of the Protected Period (the "Continuation Period"), as if Bonczek
were still employed or providing services to the Company, as the case may be,
during the Continuation Period.
3
<PAGE>
4. Conditions to Receipt of Benefits. Upon the occurrence of an event
described in Section 3 above, Bonczek will be eligible for severance benefits
hereunder only if Bonczek executes and delivers to the Company a Settlement
Agreement and Release in the form of Exhibit 1 attached hereto and made a part
hereof.
5. Termination Events Not Covered; Termination of this Severance
Agreement. Notwithstanding anything to the contrary contained herein, the
Company shall not pay Bonczek severance benefits under this Severance Agreement
if:
(a) Bonczek dies during the Term;
(b) Bonczek's appointment or engagement is terminated for
Cause or Disability;
(c) Bonczek's appointment as an officer is terminated in a
Permitted Reassignment;
(d) Bonczek terminates his appointment with the Company for a
reason other than Good Reason as defined herein;
(e) Bonczek revokes his agreement to release the Company from
any and all claims related to his appointment pursuant to the
Settlement Agreement and Release executed in satisfaction of Section 4
hereof; or
This Severance Agreement shall terminate and be of no further force or effect
upon the occurrence of an event described in paragraphs (a), (b), (d) or (e) of
this Section. Following an event described in paragraph (c) of this Section,
this Severance Agreement shall terminate and be of no further force or effect at
the end of the Protected Period unless Bonczek becomes entitled to severance
benefits pursuant to Section 3 of this Severance Agreement prior to the end of
such Period.
6. How Severance Benefits Are Paid. The Company will pay severance
benefits in installments through the Company's regular payroll procedure
according to Bonczek's pay schedule at the time of termination of appointment;
provided however, the Administrator shall have the discretion to cause the
Company to pay all severance benefits in a lump sum payment, or to cause the
Company to postpone commencement of benefits until the eighth (8th) day
following Bonczek's execution of the Settlement Agreement and Release. Bonczek's
severance benefits may be subject to mandatory withholding, including federal,
state and local income taxes, as well as FICA and withholding for applicable
insurance premiums.
7. Administration. The Administrator shall have all powers necessary or
helpful to administering this Severance Agreement in all its details, and shall
have full discretionary authority in exercising such powers. This authority
includes, but is not limited to, the power:
(a) To make rules and regulations for the administration of
this Severance Agreement;
4
<PAGE>
(b) To make any finding of fact necessary or appropriate for
any purpose under this Severance Agreement, including, but not limited
to, the determination of eligibility for and the amount of any benefit
payable under this Severance Agreement; and
(c) To interpret the terms and provisions of this Severance
Agreement and to determine any and all questions arising out of this
Severance Agreement or in connection with its administration. This
authority shall include, but is not limited to, the right to remedy or
resolve possible ambiguities, inconsistencies or omissions, by general
rule or particular decision.
(d) The Administrator shall exercise the powers conferred by
this Severance Agreement in its sole and absolute discretion, and all
its acts and determinations will be final and binding upon all
interested parties subject to the de novo review by arbitration as
provided in this Severance Agreement and Agreement.
8. Benefit Claims and Appeal Procedures. Bonczek has the right to make
a written claim for benefits under this Severance Agreement. If all or part of
Bonczek's claim for benefits is denied, or if there is a dispute regarding
Bonczek's rights under this Severance Agreement, the Administrator will notify
Bonczek in writing of the reasons for the denial of Bonczek's claim. The notice
will refer to the appropriate provision of this Severance Agreement on which the
denial or decision is based. The notice will also describe how claims are
reviewed and outline the steps for an appeal. Usually, the Administrator will
give Bonczek written notice of its decision within ninety (90) days of receipt
of the claim. However, the Administrator may in some cases require additional
time to complete its review, due to special circumstances. The Administrator
will notify Bonczek if additional time is required for review of the claim. If
Bonczek disagrees with the Administrator's decision, Bonczek may appeal and
request a review of the case by the Administrator. Bonczek must request a review
of the claim in writing within sixty (60) days after the Administrator notifies
Bonczek of its decision. Bonczek's request must state why Bonczek disagrees with
the decision, and Bonczek must include any information, questions or comments to
support his appeal. Bonczek or his legal representative may review any documents
related to the claim. The Administrator will review the appeal and notify
Bonczek of its decision within sixty (60) days after receipt of the appeal;
however, the Administrator may in some cases require additional time to complete
its review, due to special circumstances. The Administrator will notify Bonczek
if additional time is required for review of the appeal. The Administrator will
notify Bonczek of its final decision and the reasons for the decision.
9. Additional Information Regarding this Severance Agreement.
(a) This Severance Agreement shall not be amended except by a
written agreement executed by Bonczek and by an authorized officer of
the Company (other than Bonczek).
(b) The Agreement and this Severance Agreement provides the
sole and exclusive agreement concerning severance benefits for Bonczek
in the event of a
5
<PAGE>
termination and replaces any and all prior plans, policies and
practices relating to severance pay that may exist now or may have
existed in the past.
(c) To the extent not preempted by ERISA, the Agreement and
this Severance Agreement shall be governed by and construed according
to the laws of the State of North Carolina.
(d) If a provision of this Severance Agreement shall be held
illegal or invalid, the legality or invalidity shall not affect the
remaining provisions of this Severance Agreement, and this Severance
Agreement shall be construed and enforced as if the illegal or invalid
provision had not been included.
(e) Bonczek acknowledges that no representation, promise or
inducement has been made other than as set forth in the Agreement and
this Severance Agreement, and that he does not enter into this
Agreement and Severance Agreement in reliance upon any representation,
promise or inducement not set forth herein and the Agreement. The
Agreement and this Severance Agreement supersedes all prior
negotiations and understandings of any kind with respect to the subject
matter and contains all of the terms and provisions of the agreement
between Bonczek and the Company with respect to the subject matter
hereof. Any representation, promise or condition, whether written or
oral, not specifically incorporated herein, shall be of no binding
effect.
(f) Capitalized terms used in this Severance Agreement shall
have the meanings specified in the Agreement, unless expressly provided
otherwise herein.
10. Bonczek's Rights Under ERISA. As a participant under this Severance
Agreement, Bonczek is entitled to certain rights and protections under ERISA.
Bonczek may examine all documents relating to the Severance Agreement without
charge. These may include annual financial reports, plan descriptions and all
other official documents filed with the United States Department of Labor (if
any). Bonczek may obtain copies of documents relating to this Severance
Agreement and certain other information by writing to the Administrator. The
Administrator may impose a reasonable charge for the copies. In addition to
creating rights for Bonczek as a participant under this Severance Agreement,
ERISA imposes certain duties on the people who are responsible for operating
this Severance Agreement. These people are called "fiduciaries." The fiduciaries
have a duty to operate the Severance Agreement prudently and in the interest of
Bonczek. The Company may not terminate Bonczek's appointment or engagement or
otherwise discriminate against Bonczek in any way to prevent him from obtaining
a severance benefit or exercising rights under ERISA. Under ERISA, Bonczek may
take the following steps to enforce his rights: (a) if Bonczek requests certain
materials from the administrator regarding this Severance Agreement and does not
receive them within 30 days, Bonczek may file suit in a federal court; in such a
case, the court may require the Administrator to provide the materials and pay
Bonczek up to $100 a day until Bonczek receives the materials, unless the
materials were not sent due to reasons beyond the control of the Administrator;
(b) if Bonczek's claim for benefits is denied or ignored in whole or in part,
Bonczek may file suit in federal court; (c) if Bonczek is discriminated against
for pursuing a benefit or exercising ERISA rights, Bonczek may seek help from
the United States Department of Labor or file suit in a federal court. If
Bonczek files a suit, the court will decide who should pay court costs and legal
6
<PAGE>
fees. If Bonczek has any questions about this statement or about ERISA rights,
Bonczek should contact the Administrator. Bonczek may also contact the nearest
area office of the Pension and Welfare Benefit Administration, United States
Department of Labor.
11. Miscellaneous Information About this Severance Agreement. This
section provides general information about this Severance Agreement required by
the Employee Retirement Income Security Act of 1974 ("ERISA"). Participation in
this Severance Agreement is subject to the execution by Bonczek of a Settlement
Agreement and Release with the Company. This Agreement shall not be construed in
any manner to give any Company employee other than Bonczek the right to
severance benefits upon termination of appointment.
Plan Sponsor: Trimeris, Inc.
Tax ID Number: 56-6017737
Plan Name: Trimeris, Inc. 1999 Executive Agreement and
Separation and Severance Plan
Plan Number: _______
Plan Year: Calendar year
Plan Type: Welfare benefit plan
Effective Date: September 2, 1999
Agent For Service
of Legal Process: Trimeris, Inc.
Attention: Secretary
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK. SIGNATURE PAGE TO FOLLOW.]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Severance
Agreement under seal as of the date first set forth above (the individual party
adopting the word "SEAL" as his seal).
COMPANY:
TRIMERIS, INC.
By: /s/ Dani P. Bologensi
----------------------
Dani P. Bolognesi, Ph.D.
Chief Executive Officer and
Chief Scientific Officer
ROBERT R. BONCZEK:
/s/ Robert R. Bonczek (SEAL)
-----------------------------------
Name: Robert R. Bonczek
8
<PAGE>
EXHIBIT 1
SETTLEMENT AGREEMENT AND RELEASE
THIS SETTLEMENT AGREEMENT AND RELEASE ("Settlement Agreement") sets out
the complete agreement and understanding between TRIMERIS, INC. (the "Company")
and ROBERT R. BONCZEK ("Bonczek") regarding the termination of Bonczek's
appointment as an officer with the Company.
I. RELEASE AND WAIVER: For and in consideration of the severance
payments described in that certain Separation and Severance Agreement dated as
of the 2nd day of September, 1999 between the Company and Bonczek (the
"Severance Agreement"), to be paid beginning no sooner than the eighth day
following execution of this document, Bonczek hereby releases, waives and
forever discharges the Company, its parent, affiliates and subsidiaries, and all
of its benefit plans, plan administrators, trustees, agents, subsidiaries,
affiliates, employees, officers, shareholders, successors and assigns (hereafter
the "Releasees") from any and all liability, actions, charges, causes of action,
demands, damages, attorneys fees or claims for relief or remuneration of any
kind whatsoever, whether known or unknown at this time, arising out of or in any
way connected with Bonczek's appointment or engagement, or the termination of
appointment or engagement, with the Company. These include, but are not limited
to, any claim (including related attorneys' fees and costs) under the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the
Americans with Disabilities Act, the Worker's Adjustment and Retraining
Notification Act, the Equal Pay Act, the Post Civil War Civil Rights Act, the
Fair Labor Standards Act, the Family and Medical Leave Act, the North Carolina
Wage and Hour Act, the North Carolina Hazardous Chemicals Right to Know Act, the
North Carolina Retaliatory Employment Discrimination Act, all as amended, or any
other federal, state or local law or ordinance, and any claim for benefits or
other claims under the Employee Retirement Income Security Act of 1974, as
amended (except as expressly provided below). This waiver, release and discharge
also includes without limitation, any wrongful or unlawful discharge claims,
discipline or retaliation claims, any claims relating to any contract of
employment, whether express or implied, any claims related to promotions or
demotions, any claims for or relating to relocation, compensation including
commissions, short term or long term incentives, the Company's Bonczek benefit
plans and the management thereof (except as expressly provided below), any
claims for defamation, slander, libel, invasion of privacy, misrepresentation,
fraud, infliction of emotional distress, any claims based on stress to the
extent permitted by law, any claims for breach of any covenant of good faith and
fair dealing, and any other claims relating to Bonczek's appointment or
engagement with the Company and termination thereof. This Settlement Agreement
does not apply to any claims or rights that may arise under the Age
Discrimination in Employment Act after the date that this Settlement Agreement
is signed.
Bonczek expressly waives all claims, including those which he/she does
not know or suspect to exist in his/her favor as of the date of this Settlement
Agreement. As used in this Settlement Agreement, the parties understand the word
"claims" to include all actions, claims and grievances, whether actual or
potential, known or unknown, and specifically but not exclusively including all
claims against the Releasees arising from Bonczek's appointment or engagement
with the Company, the termination thereof or any other conduct by the Releasees
occurring on or prior to the date Bonczek signs this Settlement Agreement. All
such claims are
<PAGE>
forever barred by this Settlement Agreement whether they arise in contract or
tort or under a statute or any other law.
Bonczek also understands and agrees that this release extinguishes all
claims, whether known or unknown, foreseen or unforeseen, and expressly waives
any rights or benefits under any law or judicial decision providing that, in
substance, a general release does not extend to claims which a creditor does not
know or suspect to exist in his/her favor at the time of executing the release,
which if known by him must have materially affected his/her settlement with a
debtor. It is expressly understood and agreed by the parties that this
Settlement Agreement is in full accord, satisfaction and discharge of any and
all doubtful and/or disputed claims by Bonczek against the Releasees, and that
this Settlement Agreement has been signed with the express intent of
extinguishing all claims, obligations, actions or causes of action as herein
described.
Bonczek's waiver of claims relating to or arising under the Employee
Retirement Income Security Act of 1974, as amended, or the Company's 401(k)
Plan, shall not be construed as a waiver of Bonczek's right to receive his/her
vested benefits under such plan, if any, in accordance with the terms and
provisions of such plan, or as a waiver of Bonczek's right to reimbursement for
covered expenses under and in accordance with the terms and provisions of the
Company's health or dental insurance plans, to the extent such covered expenses
were incurred during a period in which Bonczek was eligible to participate and
in fact was participating in such plans.
II. VOLUNTARY AGREEMENT AND OTHER ACKNOWLEDGMENTS: Bonczek acknowledges
that:
I have read this Settlement Agreement, and I understand its legal and binding
effect. I am knowingly and voluntarily executing this Settlement Agreement of my
own free will.
The severance benefits under the Severance Agreement are in addition to and in
excess of benefits to which I am otherwise entitled.
I have had the opportunity to seek, and the Company has expressly advised me to
seek, legal counsel prior to signing this Settlement Agreement.
I have been given at least 45 days from the date I received this form to
consider the severance benefits being offered to me and the terms of this
Settlement Agreement.
At the beginning of that 45 day period, I also received a description of: (1)
the class, unit, or group of individuals covered by the severance and separation
plan (if any), the eligibility factors for this program, and any time limits
applicable to the program; and (2) the job titles and ages of all individuals
being asked to execute this Settlement Agreement in exchange for payment of
severance benefits (if any) and the job titles and ages of all individuals in
the same job classification or organizational unit who are not being asked to
execute this Settlement Agreement.
I understand that in signing this Settlement Agreement, I am releasing the
Releasees from any and all claims I may have against them (except as expressly
provided herein), including but not limited to claims under the Age
Discrimination in Employment Act.
2
<PAGE>
III. REVOCATION OF SETTLEMENT AGREEMENT: I understand that I can change
my mind and revoke my signature on this Settlement Agreement within seven days
after signing it by hand delivering notice of such revocation to the Chairman of
the Compensation Committee of the Company. I understand that if I revoke this
Settlement Agreement, I will not be entitled to any severance benefits under the
Severance Agreement. I understand that, unless properly revoked by me during
this seven-day period, the release and waiver in the first section above will
become effective seven days after I sign the Settlement Agreement.
IV. COMPLETE AGREEMENT: I acknowledge that no representation, promise
or inducement has been made other than as set forth in this Settlement
Agreement, and that I do not enter into this Settlement Agreement in reliance
upon any representation, promise or inducement not set forth herein. This
Settlement Agreement supersedes all prior negotiations and understandings of any
kind with respect to the subject matter and contains all of the terms and
provisions of agreement between Bonczek and the Company with respect to the
subject matter hereof. Any representation, promise or condition, whether written
or oral, not specifically incorporated herein, shall be of no binding effect.
V. GOVERNING LAW: This Settlement Agreement shall be governed by the
Employee Retirement Income Security Act and, where applicable, the law of the
State of North Carolina.
VI. SEVERABILITY: In the event any provision of this Settlement
Agreement shall be held to be void, voidable, unlawful or, for any reason,
unenforceable, the remaining portions shall remain in full force and effect. The
unenforceability or invalidity of a provision of this Settlement Agreement in
one jurisdiction shall not invalidate or render that provision unenforceable in
any other jurisdiction. If Bonczek's release and waiver pursuant to Section I of
this Settlement Agreement is found to be unenforceable, however, Bonczek agrees
that he/she will either sign a valid release and waiver of claims in favor of
the Company and the Releasees or promptly return the severance benefits received
by Bonczek.
VII. BINDING EFFECT: This Settlement Agreement is binding upon, and
shall inure to the benefit of, the parties and their respective heirs,
executors, administrators, successors and assigns.
VIII. NO ADMISSIONS: This Settlement Agreement is not intended as, and
shall not be construed, as an admission that the Company and Releasees or any of
them have violated any federal, state or local law, ordinance or regulation,
breached any contract, or committed any wrong whatsoever against Bonczek.
AGREED AND UNDERSTOOD:
ROBERT R. BONCZEK:
- ------------------------- -----------------------
Name: Robert R. Bonczek Date
3
EXHIBIT 11.1 COMPUTATIONS OF BASIC NET LOSS PER SHARE.
TRIMERIS, INC.
STATEMENTS RE: COMPUTATIONS OF BASIC NET LOSS PER SHARE
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1998 1999
-------------- -------------- -------------
<S> <C> <C> <C>
Common shares outstanding (weighted average)....... 7,295 10,547 12,411
Common stock equivalents
(using the treasury stock method):
Stock Options and Awards (weighted average)
Pursuant to Staff Accounting Bulletin No. 83 (A) 100 100 100
-------------- -------------- -------------
Total.............................................. 7,395 10,647 12,511
============== ============== =============
Net loss........................................... $ (11,428) $ (19,002) $ (14,595)
============== ============== =============
Basic net loss per common share.................... $ (1.55) $ (1.78) $ (1.17)
============== ============== =============
</TABLE>
(A) Treated as if outstanding for all periods presented.
The Board of Directors and Stockholders
Trimeris, Inc.:
We consent to incorporation by reference in the Registration Statements (No.
333-66401 and No. 333-44147) on Forms S-8 and the Registration Statement (No.
333-31662) on Form S-3 of Trimeris, Inc. of our report dated February 10, 2000,
relating to the balance sheets of Trimeris, Inc. as of December 31, 1998 and
1999, and the statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1999, which report
appears in the December 31, 1999, annual report on Form 10-K of Trimeris, Inc.
KPMG LLP
Raleigh, North Carolina
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 37,023
<SECURITIES> 10,775
<RECEIVABLES> 168
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 48,234
<PP&E> 6,149
<DEPRECIATION> 3,564
<TOTAL-ASSETS> 51,650
<CURRENT-LIABILITIES> 11,378
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 38,323
<TOTAL-LIABILITY-AND-EQUITY> 51,650
<SALES> 0
<TOTAL-REVENUES> 10,081
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 26,244
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 161
<INCOME-PRETAX> (14,595)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,595)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,595)
<EPS-BASIC> (1.17)
<EPS-DILUTED> (1.17)
</TABLE>
