<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ___________________
Commission file number: 0-28272
AVIGEN, INC.
------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3647113
-------- ----------
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
1201 HARBOR BAY PARKWAY, SUITE 1000, ALAMEDA, CALIFORNIA 94502
- -------------------------------------------------------- -----
(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 May 7, 1997, 7,286,535 shares of the registrant's Common Stock,
$.001 par value, were issued and outstanding.
<PAGE> 2
AVIGEN, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
Item 1. Condensed Financial Statements (Unaudited)
Condensed Balance Sheets
June 30, 1996 and March 31, 1997
Condensed Statements of Operations
Three and nine months ended March 31, 1996 and 1997
and for the period from October 22, 1992
(inception) to March 31, 1997.
Condensed Statements of Cash Flows Nine months ended March
31, 1996 and 1997 and for the period from October
22, 1992 (inception) to March 31, 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
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1996 1997
------------ ------------
(Note) (Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ..................................... $ 8,091,645 $ 2,369,412
Investment in marketable securities ........................... 8,351,349 11,598,796
------------ ------------
Total current assets ..................... 16,442,994 13,968,208
Property and equipment, net ................................................. 1,053,438 1,646,319
Deposits and other assets ................................................... 35,525 29,330
============ ============
Total assets ............................. $ 17,531,957 $ 15,643,857
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .............................................. $ 701,885 $ 429,062
Accrued compensation and related expenses ..................... 87,994 211,062
Other accrued liabilities ..................................... 258,265 139,464
Capital lease obligations - current portion ................... 31,061 55,316
------------ ------------
Total current liabilities ................ 1,079,205 834,904
Accrued rent ................................................................ 249,263 240,389
Capital lease obligations (less current portion) ............................ 176,266 122,001
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares authorized,
none shares issued and outstanding ....... -- --
Common Stock, $.001 par value, 30,000,000 shares authorized,
7,035,193 and 7,286,535 shares issued and
outstanding at June 30, 1996 and
March 31, 1997, respectively ............. 7,035 7,286
Additional paid-in capital .................................... 28,852,767 30,703,111
Deferred compensation ......................................... (127,453) (97,000)
Deficit accumulated during the development stage .............. (12,705,126) (16,166,834)
------------ ------------
Total stockholders' equity ............... 16,027,223 14,446,563
------------ ------------
Total liabilities and stockholders' equity $ 17,531,957 $ 15,643,857
============ ============
</TABLE>
Note: The balance sheet at June 30, 1996 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 NINE MONTHS ENDED 1992 (INCEPTION) THROUGH
MARCH 31, MARCH 31, MARCH 31, 1997
1996 1997 1996 1997
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Grant revenue ............................. $ 14,568 $ 97,783 $ 87,402 $ 97,783 $ 362,989
Expenses:
Research and development ....... 744,614 1,058,964 1,875,348 2,613,358 10,943,457
General and administrative ..... 167,892 582,354 707,955 1,479,686 5,736,816
----------- ----------- ----------- ----------- ------------
Total expenses ................. 912,506 1,641,318 2,583,303 4,093,044 16,680,273
----------- ----------- ----------- ----------- ------------
Loss from operations ...................... (897,938) (1,543,535) (2,495,901) (3,995,261) (16,317,284)
Interest expense .......................... (20,038) (6,000) (38,907) (46,236) (706,377)
Interest income ........................... 1,073 213,878 3,915 580,589 669,838
Other income .............................. -- -- (800) 186,989
----------- ----------- ----------- ----------- ------------
Net loss .................................. $ (916,903) $(1,335,657) $(2,530,893) $(3,461,708) $(16,166,834)
=========== =========== =========== =========== ============
Net Let loss per share .................... $ (0.18) $ (0.48)
=========== ===========
Shares used in calculation of net
loss per share .......................... 7,286,535 7,285,789
=========== ===========
Pro forma net loss per share .............. $ (0.17) $ (0.47)
=========== ===========
Shares used in calculation of pro
forma net loss per share ................ 5,403,652 5,432,384
=========== ===========
</TABLE>
<PAGE> 5
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED PERIOD FROM OCTOBER 22,
MARCH 31, MARCH 31, 1992 (INCEPTION) THROUGH
1996 1997 MARCH 31, 1997
----------- ------------ --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss ................................................. $(2,530,893) $ (3,461,708) $(16,166,834)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................... 323,063 402,102 1,518,653
Amortization of deferred compensation ........... 25,000 30,453 65,604
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:
Prepaids, deposits and other assets.. (343,969) 6,195 (29,330)
Accounts payable, accrued liabilities
and accrued compensation and
related expenses .................. 521,642 (268,556) 1,077,034
Accrued rent ........................ 77,666 (8,874) 240,389
----------- ------------ ------------
Net cash used in operating activities .................... (1,927,491) (3,300,388) (12,627,841)
INVESTING ACTIVITIES
Purchases of property and equipment ...................... (19,874) (994,983) (2,912,864)
Disposal of property and equipment ....................... 47,033 -- 47,033
Organization costs ....................................... -- -- (218,601)
Purchase of marketable securities ........................ -- (18,041,672) (26,393,021)
Sale and maturities of marketable securities ............. -- 14,794,225 14,794,225
----------- ------------ ------------
Net cash provided by (used in) investing activities ...... 27,159 (4,242,430) (14,683,228)
FINANCING ACTIVITIES
Proceeds from notes payable .............................. 200,000 -- 2,132,800
Repayment of notes payable ............................... (200,000) -- (1,709,800)
1996 bridge financing .................................... 1,937,500 -- 1,937,500
Deferred Offering Costs .................................. (193,750) (193,750)
Repayment of 1996 bridge financing ....................... -- -- (1,937,500)
Payments on capital lease obligations .................... (7,967) (30,010) (48,964)
Proceeds from issuance of preferred stock, net of
issuance costs ......................................... 1,899,341 9,884,477
Proceeds form issuance of common stock, net of issuance
costs and repurchases .................................. (3) 1,850,595 19,615,718
----------- ------------ ------------
Net cash provided by financing activities ................ 3,635,121 1,820,585 29,680,481
Net increase (decrease) in cash and cash equivalents ..... 1,734,789 (5,722,233) 2,369,412
Cash and cash equivalents, beginning of period ........... 203,400 8,091,645 --
----------- ------------ ------------
Cash and cash equivalents, end of period ................. $ 1,938,189 $ 2,369,412 $ 2,369,412
=========== ============ ============
</TABLE>
<PAGE> 6
AVIGEN, INC.
NOTES TO CONDENSED 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 March 31, 1997 and its
results of operations and cash flows for the three and nine months ended March
31, 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 for the
fiscal year ended June 30, 1996, filed with the Securities and Exchange
Commission.
Operating results for the three and nine month periods ended March 31,
1996 and 1997, are not necessarily indicative of the results to be achieved for
the full fiscal year ending June 30, 1997.
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, except that,
pursuant to the Securities and Exchange Commission ("SEC") Staff Accounting
Bulletins, common and common equivalent shares (stock options, warrants and
preferred stock) issued during the period commencing 12 months prior to the
initial filing of the Company's initial public offering at prices below the
public offering price have been included in the calculation as if they were
outstanding for all periods prior to March 31, 1996 (using the treasury stock
method for stock options and warrants and the if-converted method for preferred
stock). Net loss per share calculated on this basis was ($0.26) for three months
ended March 31, 1996 and ($0.71) for the nine months ended March 31, 1996.
Pro forma net loss per share, as presented in the accompanying
statement of operations, has been computed as described above and also gives
effect, pursuant to policy of the Securities and Exchange Commission, to common
equivalent shares from convertible preferred stock issued more than twelve
months from the proposed initial public offering that automatically converted
upon completion of the Company's initial public offering (using the if-converted
method) from the original date of issuance.
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
<PAGE> 7
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.
4. STOCKHOLDERS' EQUITY
In July 1996, the Company issued 250,000 shares of Common Stock in
connection with the exercise of the underwriters' over-allotment option from the
initial public offering. Net proceeds from such sale were approximately
$1,850,000.
<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, 1996, 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 March 31, 1997, the Company had an accumulated
deficit of $16.2 million.
RESULTS OF OPERATION
Three months ended March 31, 1996 and 1997
Grant revenue increased from approximately $15,000 for the three month
period ended March 31, 1996 to approximately $98,000 for the three month period
ended March 31, 1997. Grant revenue consisted of reimbursements under a NIH
grant. Revenues earned under research grants are determined by the timing of the
award from the issuing agency. As a result, research
<PAGE> 9
grant revenue earned in one period is not predictive of research grant revenue
to be earned in future periods.
The Company's research and development expenses increased from
approximately $745,000 for the three month period ended March 31, 1996 to
approximately $1.1 million for the three month period ended March 31, 1997. The
increase from 1996 to 1997 was due primarily to the increased number of
personnel and associated expenses.
General and administrative expenses increased from approximately
$168,000 for the three month period ended March 31, 1996 to approximately
$582,000 for the three month period ended March 31, 1997. The increase from 1996
to 1997 was primarily due to increased personnel and associated expenses.
Interest income (expense) increased from approximately ($19,000) for
the three month period ended March 31, 1996 to approximately $208,000 for the
three month period ended March 31, 1997. The increase was due primarily to the
interest earned from the investment by the Company of the proceeds from its
initial public offering in May, 1996.
Nine Months Ended March 31, 1996 and 1997
Grant revenue increased from approximately $87,000 for the nine month
period ended March 31, 1996 to approximately $98,000 for the nine month period
ended March 31, 1997. Grant revenue consisted of reimbursements under a NIH
grant. Revenues earned under research grants are determined by the timing of the
award from the issuing agency. As a result, research grant revenue earned in one
period is not predictive of research grant revenue to be earned in future
periods.
The Company's research and development expenses increased from
approximately $1.9 million for the nine month period ended March 31, 1996 to
approximately $2.6 million for the nine month period ended March 31, 1997. The
increase from 1996 to 1997 was due primarily to the increased number of
personnel and the associated expenses. The Company expects research and
development spending to increase significantly over the next several years as
the Company expands research and product development efforts.
General and administrative expenses increased from approximately
$708,000 for the nine month period ended March 31, 1996 to approximately $1.5
million for the nine month period ended March 31, 1997. The increase from 1996
to 1997 was primarily due to increased personnel, and costs relating to the
annual meeting and filings with the Securities and Exchange Commission. General
and administrative expenses are expected to increase as the level of the
Company's activities increases but to decrease as a percentage of total
expenses, with the expansion of the research and development efforts.
Interest income (expense) increased from approximately ($35,000) for
the nine month period ended March 31, 1996 to approximately $534,000 for the
nine month period ended March 31, 1997. The increase was due primarily to the
investment by the Company of the proceeds from its initial public offering in
May 1996.
<PAGE> 10
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 $3.3 million for the nine month period
ended March 31, 1997 compared to $1.9 million during the period ended March 31,
1996. The change was due primarily to the expansion of the Company's facilities
and personnel. During the nine month period, the Company tripled its personnel
and completed a 7,000 square foot expansion of its research and development
facilities and administrative offices.
At March 31, 1997, the Company had cash, cash equivalents and
investments in marketable securities of approximately $14 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 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
<PAGE> 11
assurance 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> 12
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:
Exhibit No. Description
11.1 Statement re: Computation of Net Loss Per Share
27 Financial Data Schedule
<PAGE> 13
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: ___________________ ______________________________________
John Monahan
Chief Executive Officer and President
Date: ___________________ ______________________________________
Thomas J. Paulson
Vice President Finance,
Chief Financial Officer, and Secretary
<PAGE> 1
LOSS PER SHARE
Exhibit 11.1 - Computation of Net Loss Per Share
AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
3/31/96 3/31/97 3/31/96 3/31/97
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net Loss ............................................. $ (917,000) $(1,336,000) $(2,531,000) $(3,462,000)
=========== =========== =========== ===========
Weighted average common shares outstanding ........... 2,014,571 7,286,535 2,020,729 7,285,789
Shares related to Staff Accounting
Bulleting Topic 4D:
Common Stock ....................................... 158,641 158,641
Common Stock Options ............................... 663,135 663,135
Preferred Stock .................................... 502,493 502,493
Common & Preferred Stock Warrants .................. 211,552 211,552
----------- ----------- ----------- -----------
Total shares outstanding for primary and fully
diluted net loss per share ......................... 3,550,392 7,286,535 3,556,550 7,285,789
=========== =========== =========== ===========
Net loss per share ................................... $(0.26) $(0.18) $(0.71) $(0.48)
=========== =========== =========== ===========
Calculation of shares outstanding for computing
pro forma net loss per share:
Shares used in computing net loss per share .......... 3,550,392 3,556,550
Adjustment to reflect the effect of the
assumed conversion of convertible preferred
stock form the date of issucance ................... 1,853,260 1,875,834
----------- -----------
Total shares outstanding for pro forma net loss
per share .......................................... 5,403,652 5,432,384
=========== ===========
Pro forma net loss per share ......................... $(0.17) $(0.47)
=========== ===========
</TABLE>
Page 1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,369,412
<SECURITIES> 11,598,796
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,968,208
<PP&E> 3,087,837
<DEPRECIATION> 1,441,518
<TOTAL-ASSETS> 15,643,857
<CURRENT-LIABILITIES> 834,904
<BONDS> 122,001
0
0
<COMMON> 7,286
<OTHER-SE> 14,439,277
<TOTAL-LIABILITY-AND-EQUITY> 15,643,857
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> (3,995,261)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (46,236)
<INCOME-PRETAX> (3,460,908)
<INCOME-TAX> (800)
<INCOME-CONTINUING> (3,461,708)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,461,708)
<EPS-PRIMARY> (.48)
<EPS-DILUTED> 0
</TABLE>
