<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission file number: 0-28272
AVIGEN, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3647113
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1201 HARBOR BAY PARKWAY, SUITE 1000, ALAMEDA, CALIFORNIA 94502
(Address of principal executive offices and zip code)
(510) 748-7150
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 13, 1997, 7,300,252 shares of the registrant's Common
Stock, $.001 par value, were issued and outstanding.
<PAGE> 2
AVIGEN, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
Item 1. Condensed Financial Statements (Unaudited)
Condensed Balance Sheets
June 30, 1997 and September 30, 1997
Condensed Statements of Operations
Three months ended September 30, 1996 and 1997 and for
the period from October 22, 1992 (inception) through
September 30, 1997
Condensed Statements of Cash Flows Three months ended
September 30, 1996 and 1997 and for the period from
October 22, 1992 (inception) through September 30, 1997
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signatures
</TABLE>
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1997 SEPTEMBER 30, 1997
------------- ------------------
(NOTE) (UNAUDITED)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents ............................ $ 3,407,057 $ 2,134,742
Investment in marketable securities .................. 9,631,979 8,887,956
------------ ------------
Total current assets ............................. 13,039,036 11,022,698
Property and equipment, net ....................................... 1,651,205 1,628,803
Deposits and other assets ......................................... 70,112 150,872
------------ ------------
Total assets ................................. $ 14,760,353 $ 12,802,373
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ..................................... $ 434,423 $ 340,854
Accrued compensation and related expenses ............ 116,974 105,222
Other accrued liabilities ............................ 156,026 151,080
Capital lease obligations - current portion .......... 395,735 352,539
------------ ------------
Total current liabilities ........................ 1,103,158 949,695
Accrued rent ......................................... 231,680 221,822
Capital lease obligations (less current portion) ..... 1,084,206 1,285,044
Stockholders' equity:
Common Stock, $.001 par value, 30,000,000
shares authorized, 7,288,789 shares issued
and outstanding at September 30, 1997
7,288,580 shares issued and outstanding at
June 30, 1997 ................................... 7,288 7,288
Additional paid-in capital ........................... 30,704,202 30,704,294
Deferred compensation ................................ (86,849) (76,698)
Deficit accumulated during the development stage ..... (18,283,332) (20,289,072)
------------ ------------
Total stockholders' equity ....................... 12,341,309 10,345,812
------------ ------------
Total liabilities and stockholders' equity ... $ 14,760,353 $ 12,802,373
============ ============
</TABLE>
Note: The balance sheet at June 30, 1997 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. See notes to condensed financial statements.
See accompanying notes.
<PAGE> 4
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 22,
THREE MONTHS ENDED 1992
SEPTEMBER 30, (INCEPTION)
---------------------------------- THROUGH
1996 1997 SEPTEMBER 30, 1997
------------ ------------ ------------------
<S> <C> <C> <C>
Grant revenue ...................................... $ -- $ -- $ 363,190
Expenses:
Research and development ................ 631,584 1,434,423 13,797,743
General and administrative .............. 345,634 691,754 7,300,291
------------ ------------ ------------
Total expenses .......................... 977,218 2,126,177 21,098,034
------------ ------------ ------------
Loss from operations ............................... (977,218) (2,126,177) (20,734,844)
Interest expense ................................... (34,033) (58,099) (788,218)
Interest income .................................... 139,437 185,425 1,054,882
Other income (expense) ............................. -- (6,889) 179,108
------------ ------------ ------------
Net loss ........................................... $ (871,814) $ (2,005,740) $(20,289,072)
============ ============ ============
Net loss per share ................................. $ (0.12) (0.28)
============ ============
Shares used in calculation of net loss per share.... 7,252,584 7,288,585
============ ============
</TABLE>
See accompanying notes.
<PAGE> 5
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 22,
THREE MONTHS ENDED 1992
SEPTEMBER 30, (INCEPTION)
---------------------------------- THROUGH
1996 1997 SEPTEMBER 30, 1997
------------ ------------ ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss .............................................. $ (871,814) $ (2,005,740) $(20,289,072)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................. 114,947 164,994 1,840,044
Amortization of deferred compensation ......... 10,151 10,151 85,906
Write-off of organization costs ............... -- -- 145,741
Noncash interest expense ...................... -- -- 509,652
Common stock issued for services .............. -- -- 11,250
Changes in operating assets and liabilities:
Deposits and other assets ........... (14,690) (80,760) (150,872)
Accounts payable, other accrued
liabilities and accrued
compensation and related expenses.. 197,828 (110,265) 894,602
Accrued rent ........................ (2,958) (9,858) 221,822
------------ ------------ ------------
Net cash used in operating activities ................. (566,536) (2,031,478) (16,730,927)
INVESTING ACTIVITIES
Purchases of property and equipment ................... (553,298) (142,592) (3,216,739)
Disposal of property and equipment .................... -- -- 47,033
Organization costs .................................... -- -- (218,601)
Purchase of marketable securities ..................... (9,768,892) (2,915,875) (33,780,978)
Sale of marketable securities ......................... 1,460,545 3,659,898 24,893,022
------------ ------------ ------------
Net cash provided by (used in) investing activities ... (8,861,645) 601,431 (12,276,263)
FINANCING ACTIVITIES
Proceeds from notes payable ........................... -- -- 2,132,800
Repayment of notes payable ............................ -- -- (1,709,800)
Proceeds from 1996 bridge financing ................... -- -- 1,937,500
Payment of bridge financing costs ..................... -- -- (193,750)
Repayment of 1996 bridge financing .................... -- -- (1,937,500)
Proceeds from equipment lease ......................... -- 284,196 1,721,482
Payments on capital lease obligations ................. (20,056) (126,556) (310,180)
Proceeds from issuance of preferred stock, ............ --
net of issuance costs ............................... -- -- 9,884,477
Proceeds from issuance of common stock, ............... --
net of issuance costs and repurchases ............... 1,850,000 92 19,616,903
------------ ------------ ------------
Net cash provided by financing activities ............. 1,829,944 157,732 31,141,932
Net (decrease) increase in cash and cash
equivalents ......................................... (7,598,237) (1,272,315) 2,134,742
Cash and cash equivalents, beginning of period ........ 8,091,645 3,407,057 --
------------ ------------ ------------
Cash and cash equivalents, end of period .............. $ 493,408 $ 2,134,742 $ 2,134,742
============ ============ ============
</TABLE>
See accompanying notes
<PAGE> 6
AVIGEN, INC.
NOTES TO FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying financial
statements include all adjustments, consisting only of normal recurring
adjustments and accruals, that Avigen, Inc. (the "Company") considers necessary
for a fair presentation of its financial position as of September 30, 1997 and
its results of operations and cash flows for the three months ended September
30, 1996 and 1997. These unaudited interim financial statements should be read
in conjunction with the audited financial statements of the Company and the
notes thereto included in the Company's Annual Report on Form 10-K/A for the
fiscal year ended June 30, 1997, filed with the Securities and Exchange
Commission.
Operating results for these months ended September 30, 1997, are not
necessarily indicative of the results to be achieved for the full fiscal year
ending June 30, 1998.
2. GRANT REVENUE
Revenue consists of revenue from grants which are recognized in
accordance with the terms of the related agreements.
3. NET LOSS PER SHARE
Except as noted below, net loss per share is computed using the weighted
average number of common shares outstanding. Common equivalent shares are
excluded from the computation as their effect is antidilutive.
<PAGE> 7
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. There will be no impact
on the Company from the adoption of Statement No. 128 as stock options are
currently excluded from the computation as their effect is antidilutive.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion may be understood more fully by reference to
the financial statements, notes to the financial statements, and management's
discussion and analysis contained in the Company's Annual Report on Form 10-K
for the year ended June 30, 1997, filed with the Securities and Exchange
Commission.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause or
contribute to such differences include, but are not limited to, those discussed
herein and under the caption "Risk Factors" in the Company's Annual Report on
Form 10-K.
OVERVIEW
Avigen is a leader in the development of gene therapy products derived
from adeno-associated virus ("AAV") for the treatment of inherited and acquired
diseases. The Company's proposed gene therapy products are designed for in vivo
administration to achieve the production of therapeutic proteins within the
body. The Company is developing two broad-based proprietary gene delivery
technologies: AAV vectors and the Targeted Vector Integration ("TVI") system.
The Company believes AAV vectors can be used to deliver genes for the treatment
of brain, liver and prostate cancer, anemia, hemophilia, hyperlipidemia and
metabolic storage diseases. The Company also believes its TVI system will allow
it to pursue more effective treatments for blood cell-related diseases,
including sickle cell anemia, beta-thalassemia and human immunodeficiency virus
("HIV") infection.
Since its inception, the Company has devoted substantially all of its
resources to research and development activities. The Company is a development
stage company and has not received any revenue from the sale of products. The
Company does not anticipate generating revenue from the sale of products in the
foreseeable future. The Company expects its source of revenue, if any, for the
next several years to consist of government grants and payments under
collaborative arrangements. The Company has incurred losses since its inception
and expects to incur substantial losses over the next several years due to
ongoing and planned research and development efforts, including preclinical
studies and clinical trials. At September 30, 1997, the Company had an
accumulated deficit of $20.3 million.
RESULTS OF OPERATION
Periods Ended September 30, 1996 and 1997
The Company's research and development expenses increased from
approximately $632,000 for the period ended September 30, 1996 to approximately
$1,434,000 for the period ended September 30, 1997. The increase from 1996 to
1997 was due primarily to the increased number of personnel and research and
development costs related to Vector production and patent expenditures.
<PAGE> 9
General and administrative expenses increased from approximately
$346,000 for the period ended September 30, 1996 to approximately $692,000 for
the period ended September 30, 1997. The increase from 1996 to 1997 was
primarily due to the hiring of key personnel and increased use of consultants.
Interest income (expense), net increased from approximately $105,000 for
the period ended September 30, 1996 to approximately $127,000 for the period
ended September 30, 1997, primarily as a result of the Company's investment of
the proceeds from its initial public offering in May 1996.
LIQUIDITY AND CAPITAL RESOURCES
In May 1996, the Company consummated an initial public offering (the
"Offering") of 2,500,000 shares of Common Stock with net proceeds to the Company
of approximately $17.7 million, net of expenses. In July 1996, the Company
issued 250,000 additional shares of Common Stock in connection with the exercise
of the underwriters' over-allotment option. Net proceeds from such sale were
approximately $1,850,000.
Prior to May 1996, the Company financed its operations primarily through
private placements of Common Stock and Preferred Stock and a bridge financing
which was completed on March 29, 1996, in which the Company issued promissory
notes, which were fully paid with the proceeds from the offering and warrants,
including placement agent warrants, which expire in May 2001. Through March 31,
1996, the Company had raised approximately $11.0 million, net of financing
costs, from the sale of Common Stock and Preferred Stock and approximately $1.9
million from the 1996 Bridge Financing.
Cash used in operations was approximately $600,000 during the period
ended September 30, 1996 compared to approximately $2 million for period ended
September 30, 1997. The increase was due primarily to the expansion of the
Company's research and development efforts and an increase in personnel.
At September 30, 1997, the Company had cash, cash equivalents and
investments in marketable securities of approximately $11 million. The Company
expects its cash requirements to increase significantly in future periods. The
Company will require substantial funds to conduct the research and development
activities and preclinical studies and clinical testing of its potential
products and to manufacture and market any products that are developed. The
Company's facility is approximately 23,000 square feet leased through May 2003.
The Company presently anticipates that it will either be able to renew the lease
of this facility or find suitable alternate facilities in the same general area
without a material disruption of its operations. To the extent the Company
decides to develop its own manufacturing facilities, it would require
substantial additional capital.
The Company's cash requirements may vary materially from those now
planned because of the results of research, development and clinical trials, the
time and costs involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights, competing technological and market developments, changes in the
Company's existing research relationships, the ability of the Company to
establish
<PAGE> 10
collaborative arrangements, the development of commercialization activities and
arrangements and the purchase or lease of additional capital equipment.
The Company believes that the available cash and cash equivalents and
short-term investments will be sufficient to meet the Company's operating
expenses and capital requirements for at least the next 12 months. The Company
will be required to seek additional funds through public or private financings
or collaborative arrangements with corporate partners. Issuances of additional
equity securities could result in substantial dilution to stockholders. There
can be no assurances that additional funding will be available on terms
acceptable to the Company, if at all. The failure to fund its capital
requirements would have a material adverse effect on the Company's business.
<PAGE> 11
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
11.1 Statement re: Computation of Net Loss Per Share
27 Financial Data Schedule
</TABLE>
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVIGEN, INC.
(Registrant)
Date: November 14, 1997 /s/ JOHN MONAHAN
---------------------- -----------------------------------
John Monahan
Chief Executive Officer and President
Date: November 14, 1997 /s/ THOMAS J. PAULSON
---------------------- -----------------------------------
Thomas J. Paulson
Vice President Finance,
Chief Financial Officer, and Secretary
<PAGE> 1
Exhibit 11.1 - Computation of Net Loss Per Share
Three months ended
--------------------------
9/30/96 9/30/97
--------------------------
Net Loss (871,814) (2,005,740)
Outstanding 7,252,584 7,288,585
Total share outstanding for primary
and fully diluted net loss per share 7,252,584 7,288,585
==========================
Net loss per share ($0.12) ($0.28)
==========================
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,134,742
<SECURITIES> 8,887,956
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,022,698
<PP&E> 3,391,712
<DEPRECIATION> 1,762,909
<TOTAL-ASSETS> 12,802,373
<CURRENT-LIABILITIES> 949,695
<BONDS> 352,539
0
0
<COMMON> 7,288
<OTHER-SE> 10,345,812
<TOTAL-LIABILITY-AND-EQUITY> 12,802,373
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 2,126,177
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127,326
<INCOME-PRETAX> 2,005,740
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,005,740
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 2,005,740
<EPS-DILUTED> (0.28)
</TABLE>
