UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] 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
Durham, North Carolina 27707
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (919) 419-6050
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
The number of shares outstanding of the registrant's common stock as of
November 9, 2000 was 15,814,344.
<PAGE>
TRIMERIS, INC.
(A Development Stage Company)
FORM 10-Q
For the Nine Months Ended September 30, 2000
INDEX
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Financial Statements
Balance Sheets as of September 30, 2000 (unaudited) and
December 31, 1999 1
Statements of Operations (unaudited) for the Three and Nine Months
Ended September 30, 2000 and 1999 and Period From
Inception (January 7, 1993) Through September 30, 2000 2
Statements of Cash Flows (unaudited) for the Nine Months Ended
September 30, 2000 and 1999 and Period From
Inception (January 7, 1993) Through September 30, 2000 3
Notes to Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART 2. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature Page 16
Exhibit Index 17
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
TRIMERIS, INC.
(A Development Stage Company)
BALANCE SHEETS
(in thousands, except par value)
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
----------- ----------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 37,023 $ 59,611
Short-term investments 10,775 35,416
Accounts receivable - Roche 144 -
Accounts receivable - other 24 8
Prepaid expenses 268 235
----------- ----------
Total current assets 48,234 95,270
Property, furniture and equipment, net 2,585 3,720
----------- ----------
Other assets:
Patent costs, net 643 900
Equipment deposits 188 236
----------- ----------
Total other assets 831 1,136
----------- ----------
Total assets $ 51,650 $ 100,126
=========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 6,159 $ 2,084
Accounts payable - Roche - 1,314
Current installments of capital lease obligations 717 1,016
Accrued compensation 1,028 1,651
Accrued expenses 3,474 3,019
------------- ----------
Total current liabilities 11,378 9,084
Obligations under capital leases, excluding current installments 1,206 1,411
Deferred revenue 729 72
----------- ----------
Total liabilities 13,313 10,567
----------- ----------
Commitments and contingencies
Stockholders' equity:
Series A, B, C, and D preferred stock at $.001 par value per share, 10,000
shares authorized, zero shares issued and outstanding at December 31,
1999 and September 30, 2000 (unaudited) - -
Common Stock at $.001 par value per share, 30,000
and 60,000 shares authorized, 13,765 and 15,781 shares
issued and outstanding at December 31, 1999 and
September 30, 2000 (unaudited), respectively 14 16
Additional paid-in capital 105,580 177,075
Deficit accumulated during the development stage (62,990) (84,470)
Deferred compensation (4,162) (3,037)
Notes receivable from stockholders (105) (25)
------------ -----------
Total stockholders' equity 38,337 89,559
----------- ----------
Total liabilities and stockholders' equity $ 51,650 $ 100,126
============ ==========
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
TRIMERIS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Cumulative
From Inception
Three Months Nine Months (January 3, 1993)
Ended September 30, Ended September 30, To September 30,
------------------------ -------------------
1999 2000 1999 2000 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue $ 10,000 $ - $ 10,081 $ - $ 11,034
-------- --------- --------- --------- -----------
Operating expenses:
Research and development 4,477 6,838 13,516 19,949 77,992
General and administrative 1,741 2,124 4,883 5,945 24,925
-------- --------- --------- --------- -----------
Total operating
expenses 6,218 8,962 18,399 25,894 102,917
-------- --------- --------- --------- -----------
Operating income (loss) 3,782 (8,962) (8,318) (25,894) (91,883)
-------- ---------- ---------- ---------- ------------
Other income (expense):
Interest income 633 1,702 1,121 4,579 8,769
Interest expense (28) (54) (113) (165) (1,356)
--------- ---------- ---------- ---------- ------------
605 1,648 1,008 4,414 7,413
-------- --------- --------- --------- -----------
Net income (loss) $ 4,387 $ (7,314) $ (7,310) $ (21,480) $ (84,470)
======== ========== ========== ========== ============
Basic net income (loss) per share $ 0.32 $ (0.46) $ (0.61) $ (1.39)
======== ========== ========== ==========
Basic weighted average
shares used in per share
computations 13,778 15,753 12,067 15,456
======== ========= ========= =========
Diluted net income (loss)
per share $ 0.30 $ (0.46) $ (0.61) $ (1.39)
======== ========== ========== ==========
Diluted weighted average
shares used in per share
computations 14,570 15,753 12,067 15,456
======== ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
TRIMERIS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Cumulative
From Inception
Nine Months Ended (January 3, 1993)
September 30, To September 30,
---------------------
1999 2000 2000
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $(7,310) $(21,480) $(84,470)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 689 940 4,524
Other amortization 10 10 93
Amortization of deferred compensation 757 1,125 3,995
401(K) plan stock match - - 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
Changes in operating assets and liabilities:
Accounts receivable and loans to employees 41 16 (8)
Accounts receivable - Roche (2,278) 144 -
Prepaid expenses 102 33 (235)
Other assets (67) (48) (236)
Accounts payable (464) (4,075) 2,084
Accounts payable - Roche - 1,314 1,314
Accrued compensation 289 623 1,651
Accrued expenses 2,171 (455) 2,929
Deferred revenue - (657) 72
------- --------- --------
Net cash used by operating activities (6,060) (22,510) (67,288)
-------- --------- ---------
Cash flows from investing activities:
Purchases of short-term investments, net (16,542) (24,641) (35,416)
Purchases of property and equipment (442) (952) (2,456)
Equipment held for resale - - (61)
Organization costs - - (8)
Patent costs (140) (267) (931)
-------- --------- ---------
Net cash used by investing activities (17,124) (25,860) (38,872)
-------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of notes payable - - 6,150
Lease costs - - (13)
Principal payments under capital lease obligations (360) (619) (3,377)
Proceeds from issuance of Preferred Stock - - 23,896
Proceeds from issuance of Common Stock - - 31
Proceeds from public offerings, net 31,357 66,570 132,459
Proceeds from sale of options - 2,796 2,796
Proceeds from exercise of stock options 983 1,939 3,115
Proceeds from employee stock purchase plan exercise 73 192 667
Repayment of notes receivable from stockholders 110 80 243
Stock issuance costs - - (196)
------- -------- ---------
Net cash provided by financing activities 32,163 70,958 165,771
------- -------- --------
Net increase in cash and cash equivalents 8,979 22,588 59,611
Cash and cash equivalents, beginning of period 16,920 37,023 -
------- -------- --------
Cash and cash equivalents, end of period $25,899 $59,611 $ 59,611
======= ======= ========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
TRIMERIS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
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. These 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.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles and applicable
Securities and Exchange Commission regulations for interim financial
information. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission rules and regulations. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of financial position and results of operations have been
made. Operating results for interim periods are not necessarily indicative of
results which may be expected for a full year. The information included in this
Form 10-Q should be read in conjunction with the Risk Factors and Management's
Discussion and Analysis of Financial Condition and Results of Operations
sections and the 1999 financial statements and notes thereto included in the
Company's 1999 Form 10-K filed with the Securities and Exchange Commission on
March 29, 2000.
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
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. BASIC NET INCOME (LOSS) PER SHARE
In accordance with SFAS No. 128, "Earnings Per Share" ("SFAS No. 128"),
basic income (loss) per common share is calculated by dividing net income (loss)
by the weighted-average number of common shares outstanding for the period after
certain adjustments described below. Diluted net income (loss) 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
income (loss) per common share is the same as basic net income (loss) per common
share for all periods other than the three months ended September 30, 1999, as
common equivalent shares from stock options and stock warrants would have an
antidilutive effect. At September 30, 2000 there were 1,719,000 stock options
and 362,000 warrants outstanding.
3. STATEMENTS OF CASH FLOWS
Interest of approximately $113,000 and $165,000 was paid during the nine
months ended September 30, 1999 and 2000, respectively. Capital leases of
$666,000 and $1,123,000 were incurred for the nine months ended September 30,
1999 and 2000, respectively for the purchase of new furniture and equipment.
4
<PAGE>
4. STOCKHOLDERS' EQUITY
In October 1997, the Company closed its initial public offering of common
stock at $12 per share. The net proceeds of the offering, including the proceeds
received in connection with the exercise of the Underwriters' over-allotment
option which closed in November 1997, were approximately $34.5 million after
deducting applicable issuance costs and expenses. In connection with the public
offering, all the outstanding preferred stock was converted into 6,261,615
shares of the Company's common stock.
In June 1999, the Company closed a 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
approximately $31.4 million after deducting applicable issuance costs and
expenses.
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 $66.6 million after deducting applicable issuance costs and
expenses of $4.2 million.
In July 2000, the Company entered into a derivative transaction with a
financial institution that may be settled by selling up to 300,000 shares of its
stock to the financial institution at prices significantly higher than the
market price per share of the Company's stock at the inception of the
transaction. The Company received $2.8 million in proceeds that were accounted
for as an increase to additional paid-in capital in accordance with generally
accepted accounting principles at the time of the transaction. Concurrently, the
Company entered into a second derivative transaction with the same financial
institution on shares of its common stock at no net premium to either party.
Under this transaction, the Company may elect to settle by issuing up to 125,000
shares of its common stock to the financial institution at prescribed prices
significantly higher than the market price of the Company's stock at the date of
the transaction and receive a net cash payment from the financial institution.
Alternatively, the Company has the option to settle these contracts by making a
cash payment to the financial institution for the underlying value of the
derivative contracts to the financial institution on the settlement date. The
Company intends to settle the contracts by issuing shares. All of these
derivative transactions expire or mature in July 2001.
In September 2000, the Emerging Issues Task Force ("EITF") reached tentative
conclusions regarding issues raised in EITF Issue No. 00-19, "Determination of
Whether Share Settlement Is within the Control of the Company for Purposes of
Applying EITF Issue No. 96-13, "Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company's Own Stock", which addresses
the accounting for these types of transactions. The EITF's tentative conclusions
would require that the proceeds received in the transaction described above be
recorded as a liability rather than paid-in capital. However, if the EITF
reaches a final consensus that is the same as its tentative conclusions, such
consensus would be applied to new contracts entered into after the date the
consensus is reached. For contracts existing on that date, the consensus would
be applied on June 30, 2001. Prior periods would not be restated.
5. ROCHE COLLABORATION
In July 1999, the Company announced an agreement with F. Hoffmann-La Roche
Ltd 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
inhibitors. Outside of these two countries, Roche will fund all development
costs and pay the Company royalties on net sales of these products. Roche made
an initial cash payment to the Company of $10 million and will provide up to an
additional $78 million in cash and funding upon achievement of developmental,
regulatory and commercial milestones.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion of our financial condition and the results of operations
should be read together with the financial statements and notes contained
elsewhere in this Form 10-Q. 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 our 1999 Form 10-K filed with the
Securities and Exchange Commission on March 29, 2000. These factors include, but
are not limited to: that we are an early stage company with an uncertain future;
that we have never made money and expect our losses to continue; that we will
need to raise additional funds in the near future; that our quarterly operating
results are subject to fluctuations and you should not rely on them as an
indication of our future results; that we are heavily dependent on our lead
product candidate, T-20; that our success in commercializing T-20 and T-1249 is
dependent on our relationship with Roche; that we face many uncertainties
relating to our human clinical trial results and clinical trial strategy; that
HIV may develop resistance to our drug candidates; that we have no experience
manufacturing pharmaceutical products; that we face risks associated with
manufacturing T-20 and T-1249; that our business is based on novel technology
and is highly risky and uncertain; that we are dependent on third-party contract
research organizations; that we have no sales, marketing or distribution
capabilities; that our stock price is highly volatile; that we depend on
collaborations and licenses with others; that 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; that there is uncertainty
regarding patents and proprietary rights; that we are subject to extensive
government regulation; that our products may not receive regulatory approval;
that we face intense competition; that we use hazardous materials; that we are
exposed to product liability risks; that we depend upon certain key personnel
and face risks relating to our ability to attract and retain key personnel; that
future sales of common stock by our existing stockholders could adversely affect
our stock price; that we have implemented certain anti-takeover provisions; and
that our actual results could differ materially from those anticipated in our
forward-looking statements. 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-Q. The results of our
previous clinical trials are not necessarily indicative of the results of future
clinical trials. We undertake no obligation to release publicly the results of
any revisions to the statements contained in this Form 10-Q to reflect events or
circumstances that occur subsequent to the date hereof.
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 September 30, 2000, had an
accumulated deficit of approximately $84.5 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.
6
<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 our collaborative partner's
ability to successfully develop and obtain regulatory approval for T-20 or
T-1249 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.
7
<PAGE>
Results of Operations
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
REVENUE. Total revenue was $10 million and $0 for the three months ended
September 30, 1999 and 2000, respectively. Total revenue for the three months
ended September 30, 1999 consisted entirely of the non-refundable payment from
Roche for the initiation of our collaboration for the development of T-20 and
T-1249.
RESEARCH AND DEVELOPMENT EXPENSES. Total net research and development expenses
were $4.5 million and $6.8 million for the three months ended September 30, 1999
and 2000, respectively. Gross research and development expenses increased during
the three months ended September 30, 2000 because we:
o continued four Phase II clinical trials for T-20,
o prepared for the commencement of pivotal trials for T-20,
o continued 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 our personnel to support these activities.
Net research and development expenses include gross research and development
expenses less reimbursements from Roche. Roche paid 50% of the development costs
incurred since July 1, 1999 for T-20 and T-1249 as required by our collaboration
agreement.
Total research personnel were 54 and 60 at September 30, 1999 and 2000,
respectively. We expect research and development expenses, net of 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, including initiation of pivotal
trials,
o expanded clinical trials for 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.
GENERAL AND ADMINISTRATIVE EXPENSES. Total general and administrative expenses
were $1.7 million and $2.1 million for the three months ended September 30, 1999
and 2000, respectively. During the three months ended September 30, 1999, we
made a non-recurring accrual of severance costs for our former president. Total
expenses increased during the three months ended September 30, 2000 because in
2000 we:
o continued several market research studies which are shared equally with
Roche,
o expensed deferred compensation relating to stock options granted to
consultants during 1999,
o added personnel to support our growth, and
o incurred professional fees to support our growth.
8
<PAGE>
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 (expense) was $605,000 and $1.6 million for the
three months ended September 30, 1999 and 2000, respectively. The increase was
due to increased interest income because of higher cash and investment balances
during the three months ended September 30, 2000 relating to net proceeds from
our stock offering that closed in February 2000.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
REVENUE. Total revenue decreased from $10.1 million for the nine months ended
September 30, 1999 to $0 for the nine months ended September 30, 2000. Total
revenue for the nine months ended September 30, 1999 was derived from SBIR
grants which were completed as of June 30, 2000 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.
RESEARCH AND DEVELOPMENT EXPENSES. Total net research and development expenses
were $13.5 million and $19.9 million for the nine months ended September 30,
1999 and 2000, respectively. Gross research and development expenses increased
during the nine months ended September 30, 2000 because we:
o continued three Phase II clinical trials for T-20,
o initiated a fourth Phase II clinical trial for T-20,
o prepared for the commencement of pivotal trials for T-20,
o continued 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 our personnel to support these activities.
Net research and development expenses include gross research and development
expenses less reimbursements from Roche. Roche paid 50% of the development costs
incurred since July 1, 1999 for T-20 and T-1249 as required by our collaboration
agreement.
Total research personnel were 54 and 60 at September 30, 1999 and 2000,
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, including initiation of pivotal
trials,
o expanded clinical trials for 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.
9
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. Total general and administrative expenses
were $4.9 million and $5.9 million for the nine months ended September 30, 1999
and 2000, respectively. During 1999, we made a non-recurring accrual of
severance costs for our former chief executive officer and our former president.
Total expenses increased during the nine months ended September 30, 2000 because
we:
o initiated several market research studies which are shared equally with
Roche,
o expensed deferred compensation relating to stock options granted to
consultants during 1999,
o added personnel to support our growth, and
o incurred professional fees to support our growth.
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 (expense) was $1.0 million and $4.4 million for the
nine months ended September 30, 1999 and 2000, respectively. The increase was
due to increased interest income because of higher cash and investment balances
during the six months ended September 30, 2000 relating to net proceeds from our
stock offerings closed in June 1999 and February 2000.
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 $6.1
million and $22.5 million for the nine months ended September 30, 1999 and 2000,
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 increased for the nine months ended September 30, 2000 because of increased
research and development activities, and the non-recurring $10.0 million payment
received from Roche in 1999. Cash used by investing activities was $17.1 million
and $25.9 million for the nine months ended September 30, 1999 and 2000,
respectively. The increase for the nine months ended September 30, 2000 was due
to the purchase of short-term investments as a result of proceeds from our
private placement of common stock in February 2000.
As of September 30, 2000, we had $95.0 million in cash and cash equivalents
and short-term investments, compared to $47.8 million as of December 31, 1999.
The increase is primarily a result of the closing of a private placement of
common stock in February 2000, which resulted in net proceeds of approximately
$66.6 million, less cash used by operating activities.
In July 2000, we entered into a derivative transaction with a financial
institution that may be settled by selling up to 300,000 shares of our stock to
the financial institution at prices significantly higher than the market price
per share of our stock at the inception of the transaction. We received $2.8
million in proceeds that were accounted for as an increase to additional paid-in
capital in accordance with generally accepted accounting principles at the time
of the transaction. Concurrently, we entered into a second derivative
transaction with the same financial institution on shares of our common stock at
no net premium to either party. Under this transaction, we may elect to settle
by issuing up to 125,000 shares of our common stock to the financial institution
at prescribed prices significantly higher than the market price of our stock at
the date of the transaction and receive a net cash payment from the financial
institution. Alternatively, we have the option to settle these contracts by
making a cash payment to the financial institution for the underlying value of
the derivative contracts to the financial institution on the settlement date. We
intend to settle the contracts by issuing shares. All of these derivative
transactions expire or mature in July 2001. The financial institution has
advised us that it has engaged and may continue to engage in transactions,
including the buying and selling of shares of our common stock, to offset its
risks related to these transactions, which may or may not affect the market
price of our stock.
10
<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, including initiation of
pivotal trials,
o expenditures for clinical trials of 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 September 30, 2000, we had commitments of approximately $20.0 million
to purchase clinical drug materials and fund various clinical studies over the
next twenty 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 $750,000 during the remainder of 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 2001. We believe that substantial additional funds will be required
after 2001.
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 and
T-1249, 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.
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Effects of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). In June 2000, the FASB issued
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities," ("SFAS 138") which addresses implementation issues related to SFAS
No. 133. SFAS 133 and SFAS 138 establish standards for valuation and disclosure
of derivative financial instruments and are effective for fiscal years beginning
after June 15, 2000. We do not believe the adoption of this pronouncement will
have a material impact on our financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements" which summarizes the SEC's views in applying generally accepted
accounting principles to revenue recognition in financial statements.
Management is evaluating the impact of SAB 101 and will adopt this statement
in the fourth quarter of 2000.
In March 2000 the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions involving Stock Compensation an
interpretation of APB Opinion No. 25." FIN 44 clarifies the application of
Accounting Principles Board Opinion 25 "Accounting for Stock Issued to
Employees" for certain issues regarding stock issued to employees and is
effective July 1, 2000. We do not believe this pronouncement will have a
material impact on our 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.
Factors That May Affect Future Results and Financial Condition
Clinical Development
The following discussion highlights certain aspects of our on-going and
planned clinical development programs. The results of our previous clinical
trials are not necessarily indicative of the results of future clinical trials.
T-20
We are developing T-20, our first drug candidate for HIV fusion inhibition,
which has been granted fast track designation by the FDA. T-20 is currently
beginning Phase III clinical trials.
Ongoing T-20 Clinical Trials
Phase II -- T20-205. T20-205 is a Phase II trial initiated in January
1999 in which T-20 was given in combination with oral anti-HIV drugs to 71
treatment experienced 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. 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. In July 2000, we reported data
from this trial. At 48 weeks, 23 of 41 patients exhibited reductions in the
amount of HIV in their blood that were 10-fold lower than baseline and/or were
reduced below the lower limit of the Roche AMPLICOR HIV-1 MONITORTM assay. This
translates to a response rate of 56% of patients completing 48 weeks of
treatment or 33% of the entire population who entered the study.
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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 is
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 has enrolled twelve pediatric patients ages 3 to 12. Enrollment for
the first part is complete. 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. We expect to reports data from this trial during
2001.
Phase II -- T20-206. In June 1999, we initiated T20-206, a Phase II
clinical trial to 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 are combined with a background regimen of amprenavir,
efavirenz, ritonavir and abacavir. The control group receives the background
regimen without T-20. T20-206 enrolled approximately 68 HIV-infected individuals
at several sites in the United States. At entry in the trial, all enrolled
patients had prior exposure to nucleoside reverse transcriptase inhibitors and
protease inhibitors, but no prior exposure to non-nucleoside reverse
transcriptase inhibitors. The trial is fully enrolled and data from an interim
analysis of this trial is expected during 2001.
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 approximately 60 patients in the United States, and will evaluate two
formulations of T-20 compared to the formulation presently used in our other
ongoing clinical trials. All three formulations are given as twice daily
subcutaneous injections in combination with oral anti-HIV agents selected for
each patient on an individualized basis. We expect to report data from this
trial during 2001.
Pivotal Trials. Based on the results of the Phase II trials, we are
beginning pivotal trials in a larger population of HIV-infected patients who are
either resistant to, or intolerant of, currently-approved anti-HIV drugs. These
studies will form the basis of the regulatory submissions to health authorities
around the world and will evaluate T-20 when used as part of combination therapy
in both HIV-infected adults and children. The pivotal trials will provide access
to T-20 for approximately 700 advanced, antiretroviral experienced adults living
with HIV/AIDS in over 100 sites around the world. The primary efficacy
comparison in the pivotal studies will be the change in the amount of virus in
the blood among patients who do and do not receive T-20 when given as a twice
daily subcutaneous injection over a 24-week period.
The most common adverse events observed with T-20 to date have been
mild to moderate in severity. The most frequent adverse events include injection
site reaction, headache, nausea, fever, increased energy levels, asthenia,
diarrhea, and dizziness, although a causal relationship to T-20 cannot be
established for some of these events.
T-1249
We are also developing T-1249, our second drug candidate for HIV fusion
inhibition, which has been granted fast track designation by the FDA. T-1249 is
currently in a Phase I clinical trial.
Phase I - T1249-101
In June 1999, we initiated T1249-101, a Phase I clinical trial designed
to assess the safety and pharmacokinetics of T-1249. Four different daily doses
of T-1249 were administered as monotherapy for 14 days to HIV-infected adults by
once or twice daily subcutaneous injection. T1249-101 enrolled approximately 72
HIV-infected individuals at several sites in the United States. At entry, these
patients had
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received no other anti-HIV drugs for at least two weeks prior to
entering the study. The open cohorts in this trial are fully enrolled. We expect
to report results from this trial during 2001.
Risk Factors
Our business is subject to certain risks and uncertainties. Please read the
"Risk Factors" and "Business" sections of our 1999 Form 10-K filed with the
Securities and Exchange Commission on March 29, 2000, which highlight some of
these risks. If any of these risks materialize, our business, financial
condition and results of operations could be materially adversely affected.
Item 3. Quantitative and Qualitative Disclosures About 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.
In July 2000, we entered into a series of call transactions with respect to
our common stock. These transactions are described in detail under Item 2
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
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 September 30, 2000. All of our investments mature in
eighteen months or less.
Carrying Average
Amount Interest
(thousands) Rate
Cash equivalents - fixed rate $ 59,246 6.74 %
Short-term investments - fixed rate 35,416 6.93 %
Overnight cash investments - fixed rate 365 6.21 %
---------- ----------
Total investment securities $ 95,027 6.80 %
========== ==========
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits filed as part of this Quarterly Report on Form 10-Q
are listed on the Exhibit Index immediately preceding such
exhibits and such list is incorporated herein by reference.
(b) Reports on Form 8-K
None.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Trimeris, Inc.
--------------
(Registrant)
November 13, 2000 By: /s/ DANI P. BOLOGNESI
----------------- ---------------------------
Dani P. Bolognesi
Chief Executive Officer,
and Chief Scientific Officer
November 13, 2000 /s/ ROBERT R. BONCZEK
----------------- --------------------------
Robert R. Bonczek
Chief Financial Officer (Principal
Financial Officer) and General
Counsel
November 13, 2000 /s/ TIMOTHY J. CREECH
----------------- --------------------------
Timothy J. Creech
Director of Finance
and Secretary (Principal
Accounting Officer)
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EXHIBIT INDEX
Number Description
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27.1 Financial Data Schedule
17
