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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, 2000
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)
<TABLE>
<S> <C>
DELAWARE 13-3647113
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
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 October 31, 2000, 17,073,537 shares of the registrant's Common Stock,
$.001 par value, were issued and outstanding.
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AVIGEN, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Balance Sheets
September 30, 2000 and June 30, 2000...................... 1
Condensed Statements of Operations
Three months ended September 30, 2000 and 1999 and for the
period from October 22, 1992 (inception) through September
30, 2000.................................................. 2
Condensed Statements of Cash Flows
Three months ended September 30, 2000 and 1999 and for the
period from October 22, 1992 (inception) through September
30, 2000.................................................. 3
Notes to Condensed Financial Statements..................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 5
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 8
Item 2. Changes in Securities and Use of Proceeds................... 8
Item 3. Defaults upon Senior Securities............................. 8
Item 4. Submission of Matters to a Vote of Security Holders......... 8
Item 5. Other Information........................................... 8
Item 6. Exhibits and Reports on Form 8-K............................ 8
Signatures............................................................ 9
</TABLE>
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AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
------------- --------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 1,199 $ 13,361
Investment in marketable securities....................... 72,167 64,592
Other current receivable.................................. 1,631 940
-------- --------
Total current assets.............................. 74,997 78,893
Property and equipment, net................................. 6,372 4,025
Deposits and other assets................................... 2,236 2,369
-------- --------
Total assets...................................... $ 83,605 $ 85,287
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued liabilities............ $ 1,344 $ 1,656
Accrued compensation and related expenses................. 579 268
Current portion of capital lease obligations.............. 61 237
-------- --------
Total current liabilities......................... 1,984 2,161
Long-term obligation...................................... 5,104 4,113
Stockholders' equity:
Common Stock, $.001 par value, 30,000,000 shares
authorized, 17,064,096 shares issued and outstanding at
September 30, 2000, 17,000,267 shares issued and
outstanding at June 30, 2000........................... 17 17
Additional paid-in capital................................ 131,367 130,886
Other comprehensive loss.................................. (5) (80)
Deficit accumulated during the development stage.......... (54,862) (51,810)
-------- --------
Total stockholders' equity........................ 76,517 79,013
-------- --------
Total liabilities and stockholders' equity........ $ 83,605 $ 85,287
======== ========
</TABLE>
See accompanying notes.
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AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 22,
1992
THREE MONTHS ENDED (INCEPTION)
SEPTEMBER 30 THROUGH
-------------------------- SEPTEMBER 30,
2000 1999 2000
----------- ----------- -------------
<S> <C> <C> <C>
Grant/other revenue................................. $ 30 $ -- $ 636
Expenses:
Research and development.......................... 2,825 1,523 35,866
General and administrative........................ 1,468 910 19,028
In-license fees................................... -- -- 5,034
----------- ----------- --------
Total expenses............................ 4,293 2,433 59,928
----------- ----------- --------
Loss from operations................................ (4,263) (2,433) (59,292)
Interest expense.................................... (35) (28) (1,294)
Interest income, net................................ 1,246 94 5,724
----------- ----------- --------
Net loss............................................ $ (3,052) $ (2,367) $(54,862)
=========== =========== ========
Basic and diluted net loss per share................ $ (0.18) $ (0.19)
=========== ===========
Shares used in calculation of basic and diluted net
loss per share.................................... 17,030,522 12,373,477
=========== ===========
</TABLE>
See accompanying notes.
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AVIGEN, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS ENDED OCTOBER 22, 1992
SEPTEMBER 30, (INCEPTION)
------------------- THROUGH
2000 1999 SEPTEMBER 30, 2000
-------- ------- ------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.............................................. $ (3,052) $(2,367) $ (54,862)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization.................... 139 103 3,360
Amortization of deferred compensation............ -- 5 164
Amortization of warrants issued in connection
with building lease............................ 62 -- 134
Write-off of organization costs.................. -- -- 146
Noncash interest expense......................... -- -- 510
Common stock, warrants, and stock options issued
for services................................... 133 -- 301
Warrants issued for patent license............... -- -- 3,182
Changes in operating assets and liabilities:
Other current receivables........................ (691) 160 (1,631)
Prepaids, deposits and other assets.............. 72 (55) (632)
Accounts payable, other accrued liabilities and
accrued compensation and related expenses...... (11) (106) 2,324
-------- ------- ---------
Net cash used in operating activities................. (3,348) (2,260) (47,004)
INVESTING ACTIVITIES
Purchases of property and equipment and construction
in progress......................................... (2,485) (128) (9,653)
Purchase of marketable securities..................... (12,476) -- (236,241)
Sale and maturity of marketable securities............ 4,976 1,944 164,070
-------- ------- ---------
Net cash used in investing activities................. (9,985) (1,816) (81,824)
FINANCING ACTIVITIES
Proceeds from notes payable........................... 1,000 -- 7,133
Payments on capital lease obligations................. (176) (173) (2,093)
Proceeds from warrants and options exercised.......... 347 418 10,546
Proceeds from issuance of common stock, net of
issuance costs and repurchases...................... -- -- 104,533
Other financing activities............................ -- -- 9,908
-------- ------- ---------
Net cash provided by financing activities............. 1,171 245 130,027
Net (decrease) increase in cash and cash
equivalents......................................... (12,162) (199) 1,199
Cash and cash equivalents, beginning of period........ 13,361 2,945 --
-------- ------- ---------
Cash and cash equivalents, end of period.............. $ 1,199 $ 2,746 $ 1,199
-------- ------- ---------
SUPPLEMENTAL DISCLOSURE
Issuance of warrants in connection with building lease
extension........................................... $ -- $ -- $ 1,738
</TABLE>
See accompanying notes
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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., hereafter referred to as the
"Company", considers necessary for a fair presentation of its financial position
as of September 30, 2000 and its results of operations and cash flows for the
three months ended September 30, 2000 and 1999. 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, 2000, filed with the
Securities and Exchange Commission.
2. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
The Company considers all highly liquid investments, with a maturity of
three months or less when purchased, to be cash equivalents. The Company
accounts for its marketable securities in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The Company's marketable securities consist principally of
available-for-sale government and corporate debt securities with a minimum
short-term rating of A1/P1 and a minimum long-term rating of A, and with
maturities of less than one year. All marketable debt and equity securities are
classified as available-for-sale, and unrealized gains and losses are recorded
in other comprehensive income.
3. COMPREHENSIVE LOSS
Comprehensive loss is comprised of net loss and unrealized holding gains on
available-for-sale securities.
<TABLE>
<CAPTION>
QUARTER ENDING
SEPTEMBER 30,
----------------------
2000 1999
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Net loss............................................... (3,051) (4,735)
Other comprehensive income (loss)...................... 75 --
------ ------
Comprehensive loss..................................... (2,976) (4,735)
====== ======
</TABLE>
4. SUBSEQUENT EVENT -- COMMON STOCK OFFERING
The Company completed an offering of common stock to selected institutional
investors pursuant to a prospectus supplement dated November 1, 2000. The
Company sold 1,658,329 shares at a negotiated purchase price of $37.50 per
share. The offering raised approximately $59 million in cash (net of issuance
costs).
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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 of financial conditions and results of operations
contained in the Avigen's Annual Report on Form 10-K for the year ended June 30,
2000, filed with the Securities and Exchange Commission.
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Forward-looking statements include, but
are not limited to statements regarding Avigen's drug development programs,
clinical trials, receipt of regulatory approval, capital needs, intellectual
property, expectations and intentions. In some cases, you can identify
forward-looking statements by such terms as "may," "will," "should," "could,"
"believe," "anticipate," "expect," "intend," and similar expressions intended to
identify these statements as forward-looking statements. These statements
involve known and unknown risks, uncertainties and other factors which may cause
our actual results, performance or achievements to be materially different from
any future results, performance or achievements expressed or implied by the
forward-looking statements. Factors that might cause or contribute to such
differences include those discussed herein and under the caption "Risk Factors"
in Avigen's Annual Report on Form 10-K for the year ended June 30, 2000, filed
with the Securities and Exchange Commission.
OVERVIEW
Avigen is a leader in the development of gene therapy products for the
treatment of inherited diseases. We are developing a broad-based proprietary
gene delivery technology based on adeno-associated virus vector technology,
known as "AAV vectors," to deliver DNA into the cells of patients that are
suffering from genetic diseases. Our proposed gene therapy products are designed
for in vivo administration to achieve the production of therapeutic proteins
within the body. We believe AAV vectors can be used to deliver genes for the
treatment of hemophilia, Gaucher disease, Parkinson's disease and
beta-thalassemia.
Since its inception, Avigen has devoted substantially all of its resources
to research and development activities. We are a development stage company and
have not received any revenue from the sale of products, and we do not
anticipate generating revenue from the sale of products in the foreseeable
future. We expect our source of revenue, if any, for the next several years to
consist of government grants, license fees, and payments under collaborative
arrangements. We have incurred losses since our inception and expect to incur
substantial losses over the next several years due to ongoing and planned
research and development efforts, including pre-clinical studies and clinical
trials. At September 30, 2000, we had an accumulated deficit of $54.9 million.
RESULTS OF OPERATION
Three-Months Ended September 30, 2000 and 1999
Grant/other revenue was $30,000 for the three-months ended September 30,
2000 compared to no revenue for the same period in 1999. This revenue was solely
related to a single license agreement that allows the licensee to sell products
which utilize or incorporate our technology. We do not expect to receive any
further royalties under this license, or any grant revenue, for the foreseeable
future.
Our research and development expenses totaled $2.8 million for the
three-month period ended September 30, 2000, an increase of $1.3 million, or 85%
from the prior year. The increase was primarily due to increased personnel,
materials usage, and third-party fees related to the increased number of our
core research projects and clinical trial activities. Our scientific and
operations staff grew by 53% from 47 at September 30, 1999 to 72 at September
30, 2000. Facilities costs for the quarter ended September 30, 2000 were also
significantly higher than in the previous year. In March 2000, we increased our
building lease commitments to accommodate the needs of our growing staff and to
provide space for the construction of a new manufacturing facility. This new
facility has been designed to produce commercial-scale quantities of our
proprietary products. Construction of the new manufacturing was completed during
the quarter, and the validation of the facilities, utilities, and equipment is
underway.
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General and administrative expenses totaled $1.5 million for the
three-month period ended September 30, 2000, an increase of $558,000, or 61%,
from the prior year. The increase was primarily due to higher personnel and
recruitment costs for increased staff, as well as higher filing fees related to
the registration of shares in connection with our 2000 Equity Incentive Plan and
the application to extend the coverage of certain patent rights to Canada,
Japan, and Europe.
Interest expense was $35,000 for the current period, an increase from
$28,000 for the three-month period ended September 30, 1999. This increase was
primarily the result of increased debt balances.
Interest income, net rose to $1.2 million for the three-months ended
September 30, 2000, an increase from $94,000 earned in the three-months ended
September 30, 1999. This rise in interest income is a result of increased
investments in marketable securities purchased with the proceeds from equity
capital raised during the last twelve months. We raised approximately $75
million since October 1999, including proceeds from a private placement in
November 1999, a public offering of our common stock in April 2000, and on-going
exercises of previously issued warrants and options.
LIQUIDITY AND CAPITAL RESOURCES
Cash expenditures have exceeded revenue since our inception. Our operations
have principally been funded through public offerings and private placements of
equity securities. Since our initial public offering in May 1996, we have
completed four private placements of common stock and warrants to purchase
common stock, raising net proceeds of approximately $57.6 million, and completed
a follow-on public offering raising additional net proceeds of approximately
$27.6 million. Also since our inception, as a result of exercises of warrants
and options to purchase our common stock, we raised an additional $10.5 million.
The timing and size of the exercise of these warrants and options are determined
by the decisions of the respective warrant and option holders, and are not
controlled by us. Therefore, funds raised in past periods should not be
considered an indication of additional funds to be raised in any future periods.
Subsequent to the close of the three-month period ended September 30, 2000, we
completed another offering of common stock to selected institutional investors
which raised net proceeds of $59.0 million, as reported in the Notes to
Condensed Financial Statements under Subsequent Event -- Common Stock Offering.
In addition, we have attempted to contain costs and reduce cash flow
requirements by renting scientific equipment and facilities, contracting with
other parties to conduct research and development and using consultants, were
appropriate. We expect to incur additional future expenses, resulting in
significant losses, as we continue and expand our research and development
activities and undertake additional pre-clinical studies and clinical trials of
our gene therapy product candidates. We also expect to incur substantial
expenses relating to the filing, prosecution, maintenance, defense and
enforcement of patent and other intellectual property claims.
At September 30, 2000, we had cash, cash equivalents and investments in
marketable securities of approximately $73.4 million compared to approximately
$78.0 million at June 30, 2000, which represents a decrease of $4.6 million.
This decrease primarily reflects payments made toward construction of our new
manufacturing facility and the funding of regular operating expenses.
Our current office and research facility includes approximately 46,000
square feet of space leased through May 2008, with lease payments totaling
$679,000 for fiscal 2001 and increasing each year to approximately $1.1 million
for fiscal 2008. We also have available a $10 million revolving line of credit
with Wells Fargo Bank, which is intended to provide financial support for
construction related activities. The line of credit is available through June 1,
2003. As of September 30, 2000, we had borrowed $5.0 million from the line of
credit.
We believe we will require substantial additional funding in order to
complete the research and development activities currently contemplated and to
commercialize our proposed products. We anticipate that our capital resources as
of September 30, 2000, in addition to the proceeds from the subsequent offering
of common stock on November 1, 2000, will be adequate to fund our needs through
at least the next three to
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four years. However, this forward-looking statement is based upon our current
plans and assumptions, which may change. Our future operating and capital
requirements will depend on many factors, including:
- continued scientific progress in research and development programs;
- the scope and results of pre-clinical studies and clinical trials;
- the time and costs involved in obtaining regulatory approvals;
- the costs involved in filing, prosecuting and enforcing patent claims and
other intellectual property rights;
- competing technological developments;
- the cost of manufacturing scale-up;
- the cost of commercialization activities; and
- other factors which may not be within our control.
We intend to continue to seek additional funding through public or private
equity or debt financing, when market conditions allow, or through collaborative
arrangements with corporate partners. If we raise additional funds by issuing
equity securities, there may be further dilution to existing stockholders. We
cannot assure our investors that we will be able to enter into such financing
arrangements on acceptable terms or at all. Without such additional funding, we
may be required to delay, reduce the scope of, or eliminate one or more of our
research or development programs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not hold derivative financial investments, derivative commodity
investments or other financial investments or engage in foreign currency hedging
or other transactions that exposes us to material market risk. We have also
evaluated the risk associated with our Wells Capital Management investments in
marketable securities and have deemed this market risk to be immaterial.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three month's ended September 30, 2000, Avigen issued a total of
14,636 shares of its common stock upon the exercise of warrants previously sold
in private placements. The purchase price of these shares was as follows:
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
SHARES EXERCISE PRICE PURCHASE PRICE
--------- -------------- --------------
<S> <C> <C> <C>
10,000 $6.40 $64,000
1,659 $7.50 $12,443
2,977 $2.65 to $4.76 $13,386
------ -------------- -------
Total............................... 14,636 $2.65 to $7.50 $89,829
</TABLE>
These shares were issued to Hare & Co., T. Tanigawa, H. Feinstein, and E.
Sappin in reliance on Section 4(2) under the Securities Act in that they were
issued to the original purchasers of the warrants. These purchasers represented,
in connection with such purchases of the warrants, that they were accredited
investors as defined in Regulation D under the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On November 6, 2000, Avigen closed the sale of 1,658,329 shares of its
common stock to selected institutional investors pursuant to a prospectus
supplement dated November 1, 2000. The offering raised approximately $59 million
in cash, net of issuance costs.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1* Amended and Restated Certificate of Incorporation
3.2* Restated Bylaws of the Registrant
27 Financial Data Schedule
</TABLE>
---------------
* Filed as an exhibit to Avigen's Registration Statement on Form S-1 (No.
333-3220) and incorporated herein by reference.
(b) Reports on Form 8-K
None.
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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)
<TABLE>
<S> <C>
Date: November 9, 2000 /s/ JOHN MONAHAN
--------------------------------------------------------
John Monahan
Chief Executive Officer and President
Date: November 9, 2000 /s/ THOMAS J. PAULSON
--------------------------------------------------------
Thomas J. Paulson
Vice President Finance, Chief Financial and
Accounting Officer, and Secretary
</TABLE>
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1* Amended and Restated Certificate of Incorporation
3.2* Restated Bylaws of the Registrant
27 Financial Data Schedule
</TABLE>
---------------
* Filed as an exhibit to Avigen's Registration Statement on Form S-1 (No.
333-3220) and incorporated herein by reference.
