UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-15006
AVANT IMMUNOTHERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE NO. 13-3191702
(State of Incorporation) (I.R.S. Employer Identification No.)
119 FOURTH AVENUE, NEEDHAM, MASSACHUSETTS 02494-2725
(Address of principal executive offices) (Zip Code)
(781) 433-0771
(Registrant's telephone number, including area code)
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 .
----- -----
State the number of shares outstanding of each of the registrant's classes of
common equity, as of the latest practicable date:
SHARES OUTSTANDING AS
CLASS OF MAY 1, 2001
- ----------------------------- --------------
Common Stock, $.001 par value 57,359,979
AVANT IMMUNOTHERAPEUTICS, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 2001
TABLE OF CONTENTS
PAGE
PART I -- FINANCIAL INFORMATION
Consolidated Balance Sheet at March 31, 2001 and December 31, 2000...............................3
Consolidated Statement of Operations for the Three Months Ended
March 31, 2001 and 2000.....................................................................4
Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 2001 and 2000.....................................................................5
Notes to Consolidated Financial Statements.......................................................6
Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................................9
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits..............................................................................14
(b) Reports on Form 8-K...................................................................14
Signatures......................................................................................15
2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AVANT IMMUNOTHERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 2001 AND DECEMBER 31, 2000
MARCH 31, DECEMBER 31,
2001 2000
- ----------------------------------------------------------------------------------------------------------
ASSETS (unaudited)
Current Assets:
Cash and Cash Equivalents $ 45,105,700 $ 50,177,000
Accounts Receivable 175,000 153,500
Inventories 51,100 59,200
Current Portion Lease Receivable 323,700 395,700
Prepaid Expenses and Other Current Assets 1,113,600 1,021,200
- ----------------------------------------------------------------------------------------------------------
Total Current Assets 46,769,100 51,806,600
- ----------------------------------------------------------------------------------------------------------
Property and Equipment, Net 969,000 1,037,900
Intangible and Other Assets 10,310,200 10,718,500
- ----------------------------------------------------------------------------------------------------------
Total Assets $ 58,048,300 $ 63,563,000
==========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 381,600 $ 902,300
Accrued Expenses 1,779,800 2,681,600
Current Portion Deferred Revenue 1,623,000 1,539,600
Current Portion Lease Payable 199,600 274,500
- ----------------------------------------------------------------------------------------------------------
Total Current Liabilities 3,984,000 5,398,000
- ----------------------------------------------------------------------------------------------------------
Long-Term Deferred Revenue 3,848,100 4,233,000
Stockholders' Equity:
Common Stock, $.001 Par Value; 75,000,000 Shares
Authorized; 57,317,300 Issued and Outstanding at
March 31, 2001 and 57,144,200 Issued and
Outstanding at December 31, 2000 57,300 57,100
Additional Paid-In Capital 209,482,900 209,195,300
Accumulated Deficit (159,324,000) (155,320,400)
- ----------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 50,216,200 53,932,000
- ----------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 58,048,300 $ 63,563,000
==========================================================================================================
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3
AVANT IMMUNOTHERAPEUTICS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
MARCH 31, MARCH 31,
2001 2000
- ----------------------------------------------------------------------------------------------------------
OPERATING REVENUE:
Product Development and Licensing Agreements $ 737,700 $ 153,800
Product Sales 121,300 --
- ----------------------------------------------------------------------------------------------------------
Total Operating Revenue 859,000 153,800
- ----------------------------------------------------------------------------------------------------------
OPERATING EXPENSE:
Research and Development 3,976,700 1,817,300
Selling, General and Administrative 1,214,300 1,102,400
Cost of Product Sales 10,100 --
Legal Settlements -- (500,000)
Amortization of Acquired Intangible Assets 343,900 137,300
- ----------------------------------------------------------------------------------------------------------
Total Operating Expense 5,545,000 2,557,000
- ----------------------------------------------------------------------------------------------------------
Operating Loss (4,686,000) (2,403,200)
Investment Income, Net 682,400 279,800
- ----------------------------------------------------------------------------------------------------------
Net Loss $(4,003,600) $(2,123,400)
==========================================================================================================
Basic and Diluted Net Loss Per Common Share $ (0.07) $ (0.04)
==========================================================================================================
Weighted Average Common Shares Outstanding 57,252,200 49,799,100
==========================================================================================================
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4
AVANT IMMUNOTHERAPEUTICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
MARCH 31, MARCH 31,
2001 2000
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(4,003,600) $(2,123,400)
Adjustments to Reconcile Net Loss to Net Cash
Used by Operating Activities:
Depreciation and Amortization 544,400 322,600
Write-off of Capitalized Patent Costs 22,400 --
Changes in Assets and Liabilities:
Accounts Receivable (21,500) --
Inventories 8,100 --
Prepaid Expenses and Other Current Assets (92,400) (67,100)
Accounts Payable and Accrued Expenses (1,422,500) (508,200)
Deferred Revenue (301,500) 3,538,500
Lease Receivable 72,000 107,900
Lease Payable (74,900) (73,400)
- ----------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Operating Activities (5,269,500) 1,196,900
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Property and Equipment (66,900) (45,700)
Decrease in Restricted Cash -- 217,000
Increase in Patents and Licenses (22,700) (73,000)
- ----------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Investing Activities (89,600) 98,300
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Exercise of Stock Options and Warrants 287,800 1,539,700
Net Proceeds from Stock Issuance -- 2,307,700
- ----------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 287,800 3,847,400
- ----------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents (5,071,300) 5,142,600
Cash and Cash Equivalents at Beginning of Period 50,177,000 13,619,000
- ----------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $45,105,700 $18,761,600
==========================================================================================================
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5
AVANT IMMUNOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(1) NATURE OF BUSINESS
AVANT Immunotherapeutics, Inc. ("AVANT") is a biopharmaceutical company
engaged in the discovery, development and commercialization of products that
harness the human immune response to prevent and treat disease. AVANT's most
advanced therapeutic program focuses on compounds with the potential to inhibit
inappropriate activation of the complement cascade, a vital part of the body's
immune defense system. We are also developing on our own a portfolio of oral
vaccines aimed at protecting travelers from diseases endemic in developing
areas, such as cholera and typhoid fever, as well as a proprietary therapeutic
vaccine for the management of cholesterol. Through corporate collaborations, the
company is additionally developing a variety of infectious disease vaccines,
including an oral human rotavirus vaccine.
The unaudited consolidated financial statements include the accounts of
AVANT Immunotherapeutics, Inc. and its wholly owned subsidiary, Megan Health,
Inc. All intercompany transactions have been eliminated.
(2) INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements for the
three months ended March 31, 2001 and 2000 include the consolidated accounts of
AVANT, and have been prepared in accordance with generally accepted accounting
principles and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. In the opinion of management, the information contained herein reflects all
adjustments, consisting solely of normal recurring adjustments, that are
necessary to present fairly the financial positions at March 31, 2001 and
December 31, 2000, the results of operations for the quarters ended March 31,
2001 and 2000, and the cash flows for the three months ended March 31, 2001 and
2000. The results of operations for the quarter ended March 31, 2001 are not
necessarily indicative of results for any future interim period or for the full
year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted, although we believe that the disclosures included
are adequate to make the information presented not misleading. The unaudited
consolidated financial statements and the notes included herein should be read
in conjunction with footnotes contained in AVANT's Annual Report on Form 10-K
for the year ended December 31, 2000.
(3) INVENTORIES
Inventories are stated at the lower of cost or market. Inventories
consist of finished products at March 31, 2001 and December 31, 2000. Cost is
determined using the first-in, first-out (FIFO) method.
6
(4) PROPERTY AND EQUIPMENT
Property and equipment includes the following:
March 31, December 31,
2001 2000
--------------------------------
Laboratory Equipment $ 2,850,100 $ 2,800,500
Office Furniture and Equipment 1,366,100 1,355,600
Leasehold Improvements 969,000 962,200
---------------------------------
Property and Equipment, Total 5,185,200 5,118,300
Less Accumulated Depreciation and Amortization (4,216,200) (4,080,400)
--------------------------------
$ 969,000 $ 1,037,900
================================
(5) INTANGIBLE AND OTHER ASSETS
Intangible and other assets include the following:
March 31, December 31,
2001 2000
-----------------------------------
Capitalized Patent Costs $ 2,323,200 $ 2,322,900
Accumulated Amortization (948,600) (883,900)
---------------------------------
Capitalized Patent Costs, Net 1,374,600 1,439,000
Acquired Intangible Assets:
Goodwill 2,275,700 2,275,700
Collaborative Relationships 1,090,000 1,090,000
Assembled Workforce 625,400 625,400
Core Technology 1,786,900 1,786,900
Developed Technology 3,263,100 3,263,100
Strategic Partner Agreement 2,563,900 2,563,900
Accumulated Amortization (2,784,200) (2,440,300)
---------------------------------
Acquired Intangible Assets, Net 8,820,800 9,164,700
Other Non Current Assets 114,800 114,800
---------------------------------
$10,310,200 $10,718,500
=================================
(6) REVENUE RECOGNITION
AVANT has entered into various license and development agreements with
pharmaceutical and biotechnology companies. Nonrefundable revenue derived from
such agreements is recognized over the specified development period as research
and development or discovery activities are performed. Milestone payments are
recognized as revenue upon receipt, provided we have no continuing involvement
in accordance with the related agreement. Option fees are recognized over the
related option period. Payments received in advance of activities being
performed are recorded as deferred revenue. Revenues from product sales are
recorded when the product is shipped provided no significant post-delivery
obligations remain and collection of the related receivable is reasonably
assured.
7
(7) NET INCOME (LOSS) PER SHARE
Consistent with SFAS 128, basic earnings (loss) per share amounts are
based on the weighted average number of shares of common stock outstanding
during the period. Diluted earnings (loss) per share amounts are based on the
weighted average number of shares of common stock and the potential common stock
outstanding during the period. We have excluded all of the potential common
stock shares from the calculation of diluted weighted average share amounts for
the three-month periods ended March 31, 2001 and 2000 as its inclusion would
have been anti-dilutive.
8
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: STATEMENTS CONTAINED IN THE FOLLOWING, ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, THAT ARE NOT
HISTORICAL FACTS MAY BE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO A VARIETY
OF RISKS AND UNCERTAINTIES. THERE ARE A NUMBER OF IMPORTANT FACTORS THAT COULD
CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY
FORWARD-LOOKING STATEMENTS MADE BY AVANT. THESE FACTORS INCLUDE, BUT ARE NOT
LIMITED TO: (I) OUR ABILITY TO SUCCESSFULLY COMPLETE PRODUCT RESEARCH AND
DEVELOPMENT, INCLUDING PRE-CLINICAL AND CLINICAL STUDIES, AND COMMERCIALIZATION;
(II) OUR ABILITY TO OBTAIN SUBSTANTIAL ADDITIONAL FUNDING; (III) OUR ABILITY TO
OBTAIN REQUIRED GOVERNMENTAL APPROVALS; (IV) OUR ABILITY TO ATTRACT
MANUFACTURING, SALES, DISTRIBUTION AND MARKETING PARTNERS AND OTHER STRATEGIC
ALLIANCES; AND (V) OUR ABILITY TO DEVELOP AND COMMERCIALIZE OUR PRODUCTS BEFORE
OUR COMPETITORS.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are engaged in the discovery, development and commercialization of
products that harness the human immune response to prevent and treat disease.
Our products derive from a broad set of complementary technologies with the
ability to inhibit the complement system, regulate T and B cell activity, and
enable the creation and delivery of preventative and therapeutic vaccines. We
are using these technologies to develop vaccines and immunotherapeutics that
prevent or treat disease caused by infectious organisms, and drugs and treatment
vaccines that modify undesirable activity by the body's own proteins or cells.
We develop and commercialize products on a proprietary basis and in
collaboration with established pharmaceutical partners, including Novartis
Pharma AG, Aventis Pasteur, GlaxoSmithKline plc and Pfizer Inc.
ACQUISITIONS
MEGAN HEALTH, INC.: On December 1, 2000, AVANT acquired all of the
outstanding capital stock of Megan Health, Inc. ("Megan"), a company engaged in
the discovery and development of human and animal vaccines using patented gene
modification technologies. We issued approximately 1,841,200 shares of AVANT's
common stock in exchange for all of the outstanding capital stock of Megan, on
the basis of 0.763542977 shares of AVANT common stock for each share of Megan
preferred stock and 0.08115304 shares of AVANT common stock for each share of
Megan common stock. We also assumed all of the outstanding options to purchase
common stock of Megan under Megan's stock option plan. The purchase price of
$17,332,000 consisted of (i) the issuance of 1,841,200 shares of AVANT common
stock valued at $15,803,400, (ii) cash distributed to certain Megan
shareholders in lieu of AVANT common stock totaling $236,700, (iii) the
issuance of fully vested options to purchase AVANT common stock valued at
$239,400 and (iv) severance and transaction costs totaling $1,052,500.
The acquisition of Megan has been accounted for as a purchase.
Consequently, the purchase price was allocated to the acquired assets and
assumed liabilities based upon their fair value at the date of acquisition. The
excess of the purchase price over the tangible assets acquired was assigned to
acquired intangible assets, the components of which include core technology,
developed technology, strategic partner agreement and assembled work force.
These acquired intangible assets are being amortized on a straight-line basis
over their estimated lives which range from 5 to 17 years. An allocation of
$9,012,300 was made to in-process research and development ("IPR&D"), which
represented purchased in-process technology which had not yet reached
technological feasibility and had no alternative future use. The amount was
charged as an expense in our financial statements during the fourth quarter of
2000.
As of the date of the acquisition, Megan was engaged in three
significant research and development projects. The value of IPR&D was determined
by estimating the costs to develop the purchased in-process technology into
commercially viable products, estimating the net cash flows from such projects
and discounting the net cash flows back to their present values. The probability
of success and discount rates used for each project take into account the
uncertainty surrounding the successful development and commercialization of the
purchased in-process technology. The resulting net cash flows
9
for these projects were based on our best estimates of revenue, cost of sales,
research and development costs, selling, general and administrative costs, and
income taxes for each project, and the net cash flows reflect assumptions that
would be used by market participants.
Substantial additional research and development will be required prior
to reaching technological feasibility on any of these products. In addition,
each product needs to successfully complete a series of clinical trials and to
receive USDA or other regulatory approval prior to commercialization. We are
also dependent upon the activities of our collaborators in developing and
marketing our products. There can be no assurance that these projects will ever
reach feasibility or develop into products that can be marketed profitably, nor
can there be assurance AVANT and our collaborators will be able to develop and
commercialize these products before our competitors. If these products are not
successfully developed and do not become commercially viable, our financial
condition and results of operations could be materially adversely affected.
VIRUS RESEARCH INSTITUTE, INC.: On August 21, 1998, we acquired Virus
Research Institute, Inc. ("VRI"), a company engaged in the discovery and
development of systems for the delivery of vaccines and immunotherapeutics, and
novel vaccines for adults and children. AVANT issued 14,036,400 shares and
warrants to purchase 1,811,200 shares of it's common stock in exchange for all
of the outstanding common stock of VRI, on the basis of 1.55 shares and .20 of a
warrant to purchase one share of AVANT's common stock for each share of VRI
common stock. The acquisition has been accounted for as a purchase.
Consequently, the purchase price was allocated to the acquired assets and
assumed liabilities based upon their fair value at the date of acquisition. The
excess of the purchase price over the tangible assets acquired was assigned to
collaborative relationships, work force and goodwill and is being amortized on a
straight line basis over 12 to 60 months. An allocation of $44,630,000 was made
to IPR&D which represented purchased in-process technology which had not yet
reached technological feasibility and had no alternative future use. The amount
was charged as an expense in our financial statements during the third quarter
of 1998.
NEW DEVELOPMENTS
COMPLEMENT INHIBITORS: In 1997, we entered into an agreement with
Novartis Pharma AG ("Novartis") relating to the development of TP10 for use in
xenotransplantation (animal organs into humans) and allotransplantation (human
organs into humans). We granted Novartis a two-year option to license TP10 with
exclusive worldwide marketing rights (except Japan) in the fields of
xenotransplantation and allotransplantation. In July 2000, Novartis exercised
its option to license TP10 for use in the field of transplantation. In December
2000, the Novartis agreement was amended to include marketing rights for Japan.
The decision to license TP10 resulted in a $6 million equity investment and
license payment by Novartis which was received by AVANT in January 2000. Under
the agreement, we may receive additional milestone payments of up to $14 million
upon attainment of certain development and regulatory goals. We will also be
entitled to royalties on product sales under the agreement.
We have elected to independently develop and commercialize TP10 for
pediatric cardiac surgery. In September 2000, we initiated an open-label, Phase
I/II trial of TP10 in infants undergoing cardiac surgery for congenital heart
defects. The trial evaluated the ability of TP10 to mitigate the injury to the
heart and other organs that occurs when patients are placed on cardiopulmonary
bypass circuits. TP10 was well tolerated in the study population and results of
this Phase I/II trial were presented at the Society of Cardiovascular
Anesthesiologists Annual Meeting in May 2000 and at the American Heart Annual
Association's Meeting in November 2000. In March 2000, we received orphan drug
designation for TP10 in infants undergoing cardiac surgery.
AVANT expects to complete two Phase IIb studies of its lead complement
inhibitor, TP10, in pediatric cardiac surgery utilizing cardiopulmonary bypass
in a total of 40-70 patients before moving to a pivotal Phase III trial. The
first study, which was initiated at the end of 2000, is enrolling babies born
with hypoplastic left heart syndrome who often have high morbidity and mortality
after heart surgery. The second study, which is being conducted in a lower risk
infant population, is planned to begin shortly and
10
will allow us to further define our clinical endpoints. We are looking to the
results of these trials to support a mortality endpoint for the high risk infant
population in the larger pivotal Phase III study and to allow for a possible
broadening of the product label for TP10 to cover all babies under one year
requiring cardiac surgery to repair congenital heart defects.
In addition, in November 2000, AVANT initiated a placebo-controlled
Phase II trial in approximately 600 adult patients undergoing cardiac surgery
utilizing cardiopulmonary bypass. This 30-center study is a dose-ranging study
that will allow us to further define our clinical endpoints in the adult patient
population before moving ahead to a number of pivotal clinical trials. This
adult study is intended to investigate the efficacy and safety in a population
known to be at high risk of medically important adverse outcomes that have a
real effect on the long-term health of a substantial population. AVANT may
partner the adult program when additional clinical data becomes available.
CHOLESTEROL TREATMENT VACCINE: We are developing a therapeutic vaccine
against endogenous cholesteryl ester transfer protein (CETP), which may be
useful in reducing risks associated with atherosclerosis. CETP is a key
intermediary in the balance of HDL and LDL. We are developing a vaccine (CETi-1)
to stimulate an immune response against CETP, which we believe may improve the
ratio of HDL to LDL cholesterol and reduce the progression of atherosclerosis.
We have conducted preliminary studies of rabbits, which have demonstrated the
ability of CETi-1 vaccine to elevate HDL and reduce the development of blood
vessel lesions. In September 1999, we initiated a double-blind placebo
controlled, Phase I clinical trial of our CETi-1 vaccine in adult volunteers.
The object of the study was to demonstrate the safety of single administrations
of the vaccine at four different dosage strengths. Patient enrollment in this
Phase I trial was completed in February 2000 and we announced trial results in
January 2001.
The vaccine was very well tolerated in the 48 adult volunteers who
participated in the study. The only serious adverse reaction reported during the
study (allergic reaction to shower gel) was not related to study medication.
There were no differences in the safety profiles of placebo groups and active
vaccine groups. In addition there was limited evidence of an immune response in
one subject treated with the highest dose. In addition, AVANT recently announced
preliminary results from a double-blinded placebo controlled extension of the
earlier completed Phase I trial of our CETTi-1 vaccine in healthy adult
volunteers. Results from the extension study showed measurable antibody titers
in all dose groups treated with study medication, suggesting a dose-response
relationship. These data will be extremely helpful in designing a Phase II study
of patients with low levels of HDL, which we plan to begin in the summer of
2001. As clinical data becomes available, we plan to seek a corporate partner to
complete development and to commercialize the vaccine.
CHOLERA VACCINE: We are developing a single dose, oral cholera vaccine
using a live, genetically attenuated cholera strain. Based on this technology,
developed in academia, we have developed the vaccine through early Phase II
trials. We then negotiated a collaboration agreement under which a Phase IIb
trial will be performed and funded by the Walter Reed Army Institute of Research
(WRAIR) and the National Institute of Health (NIH). This trial, initiated in
October 2000, will test the safety, immunogenecity and protective capacity of
the vaccine against a challenge with live virulent cholera. If results from this
study are positive, we will move rapidly to complete the manufacture of cGMP
grade clinical material in 2001 and to initiate a pivotal challenge trial in the
first half of 2002. Development of a safe, effective cholera vaccine is the
first step in establishing AVANT's travelers' vaccine franchise. AVANT has also
conducted initial clinical studies of our single dose, oral typhoid vaccine and
has a shigella vaccine in pre-clinical development. With the acquisition of
Megan Health Inc., AVANT has gained access to technologies for developing
vaccines against CAMPYLOBACTER and E. COLI, two additional causes of serious
diarrheal diseases worldwide.
ROTAVIRUS VACCINE: Rotavirus is a major cause of diarrhea and vomiting
in infants and children. No vaccine against rotavirus is currently on the
market. In 1997, we licensed our oral rotavirus vaccine to GlaxoSmithKline plc
("Glaxo"). In 2000, after our Phase II study demonstrated 89% protection in a
study involving 215 infants, Glaxo paid us an additional license fee and assumed
full responsibility for funding and performing all remaining clinical
development. Glaxo has initiated Phase I/II bridging studies in Europe using its
newly manufactured rotavirus vaccine, called Rotarix(TM), and is now planning to
start Phase III safety and efficacy studies in the second half of 2001, after
review with health authorities. Assuming
11
product development and commercialization continues satisfactorily, we expect
that Glaxo will pay us additional milestones and a royalty based on sales.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 2001 AS COMPARED
WITH THE THREE MONTH PERIOD ENDED MARCH 31, 2000
AVANT reported consolidated net loss of $4,003,600, or $.07 per share,
for the first quarter ended March 31, 2001, compared with a net loss of
$2,123,400, or $.04 per share, for the first quarter ended March 31, 2000. The
weighted average common shares outstanding used to calculate net loss per common
share was 57,252,200 in 2001 and 49,799,100 in 2000.
OPERATING REVENUE: Total operating revenue increased $705,200 to
$859,000 for the first quarter of 2001 compared to $153,800 for the first
quarter of 2000.
Product development and licensing revenue increased $583,900 to
$737,700 in 2001 from $153,800 in 2000. In 2001, we recognized $384,900 in the
amortization of nonrefundable license fees from Novartis and Pfizer, $164,000
from Innogenetics, Inc. in connection with its acquisition of the TRAx business
in 1999, $167,000 in funded research and development from Pfizer and $21,800
received in connection with a government grant. In 2000, product development and
licensing revenue consisted primarily of the amortization of a nonrefundable
license fee associated with our agreement with Novartis.
Product sales for 2001 totaled $121,300 and were derived from sales of
our Megan(R)Vac 1 product, a vaccine for use in chickens for protection against
multiple strains of SALMONELLA bacteria, which we acquired in connection with
our acquisition of Megan. There were no product sales recorded in 2000.
OPERATING EXPENSE: Total operating expense increased $2,988,000, or
116.9%, to $5,545,000 for the first quarter of 2001 compared to $2,557,000 for
the first quarter of 2000. The increase in total operating expense for 2001
compared to 2000 is primarily due to increased clinical trials costs and
clinical materials costs incurred in connection with AVANT's TP10 and CETi-1
clinical programs and the addition of Megan operations in 2001. During the first
quarter of 2000, we received legal settlement payments totaling $500,000 from
the resolution of disputes arising from contractual arrangements.
Research and development expense increased $2,159,400, or 118.8%, to
$3,976,700 in 2001 from $1,817,300 in 2000. The increase in 2001 compared to
2000 is primarily due to costs associated with conducting clinical trials of
CETi-1 and TP10, an increase in expense associated with the manufacture of
clinical materials for these programs and the addition of Megan's research and
development expense in 2001.
Selling, general and administrative expense increased $111,900, or
10.2%, to $1,214,300 in 2001 compared to $1,102,400 in 2000. The increase in
expense in 2001 compared to 2000 is primarily attributed to the addition of
Megan's selling, general and administrative expense in 2001, offset in part by a
reduction in personnel and related costs. Amortization expense of acquired
intangible assets increased $206,600 to $343,900 in 2001 from $137,300 in 2000
as a result of the acquisition of Megan.
NON-OPERATING INCOME, NET: Interest income increased $402,600, or
143.9%, to $682,400 for the first quarter of 2001 compared to $279,800 for the
first quarter of 2000. The increase is primarily due to higher average cash
balances during the first quarter of 2001 compared to the first quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
AVANT ended the first quarter of 2001 with cash and cash equivalents of
$45,105,700 compared to cash and cash equivalents of $50,177,000 at December 31,
2000. Cash used in operations was $5,269,500 in the first quarter of 2001
compared to $1,196,900 provided by operations in the first quarter of 2000.
12
AVANT believes that cash inflows from existing collaborations, interest
income on invested funds and our current cash and cash equivalents will be
sufficient to meet estimated working capital requirements and fund operations
beyond December 31, 2001. The working capital requirements of AVANT are
dependent on several factors including, but not limited to, the costs associated
with research and development programs, preclinical and clinical studies and the
scope of collaborative arrangements. During 2001, we expect to take steps to
raise additional capital including, but not limited to, licensing of technology
programs with existing or new collaborative partners, possible business
combinations, or issuance of common stock via private placement and public
offering.
13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We own financial instruments that are sensitive to market risk as part of
our investment portfolio. Our investment portfolio is used to preserve our
capital until it is used to fund operations, including our research and
development activities. None of these market-risk sensitive instruments are held
for trading purposes. We invest our cash primarily in money market mutual funds
and U.S. Government and other investment grade debt securities. These
investments are evaluated quarterly to determine the fair value of the
portfolio. Our investment portfolio includes only marketable securities with
active secondary or resale markets to help insure liquidity. We have implemented
policies regarding the amount and credit ratings of investments. Due to the
conservative nature of these policies, we do not believe we have material
exposure due to market risk. The impact to our financial position and results of
operations from likely changes in interest rates is not material.
We do not utilize derivative financial instruments. The carrying amounts
reflected in the consolidated balance sheet of cash and cash equivalents,
accounts receivables and accounts payable approximates fair value at March 31,
2001 and December 31, 2000 due to the short-term maturities of these
instruments.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
(B) REPORTS ON FORM 8-K
We filed a Current Report on Form 8-K on December 12, 2000
reporting our acquisition of Megan Health, Inc., pursuant to an Agreement and
Plan of Merger dated as of November 20, 2000 by and among AVANT, AVANT
Acquisition Corp. and Megan Health, Inc. Under the terms of the Agreement, Megan
Health, Inc. became a wholly owned subsidiary of AVANT. We amended the Current
Report on Form 8-K on January 30, 2001 and the amendment includes proforma
financial statements.
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SIGNATURES
Pursuant to 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.
AVANT IMMUNOTHERAPEUTICS, INC.
BY:
Dated: May 9, 2000 /s/ Una S. Ryan
-------------------------------------
Una S. Ryan, Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
Dated: May 9, 2000 /s/ Avery W. Catlin
-------------------------------------
Avery W. Catlin
Senior Vice President, Treasurer
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
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