UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
_________________________________________________________
Commission File Number 0-23155
TRIMERIS, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-1808663
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4727 University Drive
Durham, North Carolina 27707
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (919) 419-6050
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
The number of shares outstanding of the registrant's common stock as of
August 10, 2001 was 17,386,026.
TRIMERIS, INC.
(A Development Stage Company)
FORM 10-Q
For the Six Months Ended June 30, 2001
INDEX
PART 1. FINANCIAL INFORMATION Page
- ------------------------------ ----
Item 1. Financial Statements
--------------------
Balance Sheets as of December 31, 2000 and
June 30, 2001 (unaudited) 1
Statements of Operations (unaudited) for the Three and Six Months
Ended June 30, 2001 and 2000 and Period From
Inception (January 7, 1993) Through June 30, 2001 2
Statements of Cash Flows (unaudited) for the Six Months Ended
June 30, 2001 and 2000 and Period From
Inception (January 7, 1993) Through June 30, 2001 3
Notes to Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations 6
-------------------------
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
----------------------------------------------------------
PART 2. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings 16
-----------------
Item 2. Changes in Securities and Use of Proceeds 16
-----------------------------------------
Item 3. Defaults Upon Senior Securities 16
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders 16
---------------------------------------------------
Item 5. Other Information 17
-----------------
Item 6. Exhibits and Reports on Form 8-K 17
--------------------------------
Signature Page 18
- --------------
Exhibit Index 19
- -------------
PART 1. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
--------------------
TRIMERIS, INC.
(A Development Stage Company)
BALANCE SHEETS
(in thousands, except par value)
December 31, June 30,
2000 2001
----------- ---------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 31,349 $ 51,904
Short-term investments 62,025 52,324
Accounts receivable 4 64
Prepaid expenses 393 384
--------- ---------
Total current assets 93,771 104,676
Property, furniture and equipment, net 3,983 4,058
--------- ---------
Other assets:
Patent costs, net 924 1,093
Equipment deposits 255 227
--------- ---------
Total other assets 1,179 1,320
--------- ---------
Total assets $ 98,933 $ 110,054
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,476 $ 2,368
Accounts payable - Roche 9,556 7,964
Current installments of capital lease obligations 1,174 1,067
Accrued compensation 1,359 1,440
Deferred revenue - Roche 1,304 1,307
Accrued expenses 2,904 2,825
--------- ---------
Total current liabilities 19,773 16,971
Obligations under capital leases, excluding current installments 1,861 1,453
Deferred revenue - Roche 3,920 3,265
--------- ---------
Total liabilities 25,554 21,689
--------- ---------
Commitments and contingencies
Stockholders' equity:
Series A, B, C, and D preferred stock at $.001 par value per share,
10,000 shares authorized, zero shares issued and outstanding at
December 31, 2000 and June 30, 2001 (unaudited) -- --
Common Stock at $.001 par value per share, 60,000
shares authorized, 15,863 and 17,379 shares issued
and outstanding at December 31, 2000 and
June 30, 2001 (unaudited) 16 17
Additional paid-in capital 196,844 244,162
Deficit accumulated during the development stage (122,154) (152,391)
Deferred compensation (1,394) (3,506)
Accumulated other comprehensive income 76 92
Notes receivable from stockholders (9) (9)
--------- ---------
Total stockholders' equity 73,379 88,365
--------- ---------
Total liabilities and stockholders' equity $ 98,933 $ 110,054
========= =========
See accompanying notes to financial statements.
1
TRIMERIS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Period
Three Months Six Months From Inception
Ended June 30, Ended June 30, (January 3, 1993)
------------------- --------------- through June 30,
2000 2001 2000 2001 2001
---- ---- ---- ---- ----
Revenue $ 210 $ 326 $ 420 $ 652 $ 7,242
-------- --------- --------- --------- -----------
Operating expenses:
Research and development:
Non-cash compensation 3,063 2,824 6,567 (452) 8,122
Other research and
development expense 8,199 14,045 13,241 27,881 116,557
-------- --------- --------- --------- -----------
Total research and
development expense 11,262 16,869 19,808 27,429 124,679
-------- --------- --------- --------- -----------
General and administrative:
Non-cash compensation 3,438 557 7,044 1,047 11,384
Other general and
administrative expense 1,794 2,605 3,431 4,911 30,744
-------- --------- --------- --------- -----------
Total general and
administrative expense 5,232 3,162 10,475 5,958 42,128
-------- --------- --------- --------- -----------
Total operating
expenses 16,494 20,031 30,283 33,387 166,807
-------- --------- --------- --------- -----------
Operating loss (16,284) (19,705) (29,863) (32,735) (159,565)
-------- --------- --------- --------- -----------
Other income (expense):
Interest income 1,611 1,196 2,877 2,599 12,903
Interest expense (57) (56) (111) (101) (1,549)
-------- --------- --------- --------- -----------
1,554 1,140 2,766 2,498 11,354
-------- --------- --------- --------- -----------
Net loss before cumulative
effect of change in
accounting principle (14,730) (18,565) (27,097) (30,237) (148,211)
Cumulative effect of change
in accounting principle -
implementation of SAB 101 -- -- (4,180) -- (4,180)
-------- --------- ---------- --------- -----------
Net loss $(14,730) $ (18,565) $ (31,277) $ (30,237) $ (152,391)
======== ========= ========= ========= ===========
Basic and diluted net loss per share:
Before cumulative effect of
accounting change $ (0.94) $ (1.11) $ (1.77) $ (1.85)
Accounting change -- -- (0.27) --
------- --------- ---------- --------
Basic and diluted net loss per
share (0.94) $ (1.11) $ (2.04) $ (1.85)
======= ========= ========== ========
Weighted average
shares used in per share
computations 15,652 16,757 15,299 16,336
======== ========= ========== ========
See accompanying notes to financial statements.
2
TRIMERIS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Period
Six Months Ended From Inception
June 30, (January 7, 1993)
----------------- through June 30,
2000 2001 2001
---- ---- ----
Cash flows from operating activities:
Net loss $ (31,277) $ (30,237) $(152,391)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 599 469 5,421
Other amortization - 8 117
Amortization of deferred revenue - Roche (420) (652) (1,608)
Non-cash compensation expense 13,611 595 19,506
401(K) plan stock match - - 914
Provision for equipment held for resale - - 61
Stock issued for consulting services - - 5
Stock issued to repay interest on notes to stockholders - - 195
Debt issued for research and development - - 194
Cumulative effect of change in accounting principle 4,180 - 4,180
Loss on disposal of property and equipment - - 16
Changes in operating assets and liabilities:
Accounts receivable 11 (60) (64)
Accounts receivable - Roche (4,871) - -
Prepaid expenses (33) 9 (384)
Other assets (40) 28 (227)
Accounts payable 921 (1,108) 2,368
Accounts payable - Roche - (1,592) 7,964
Accrued compensation 111 81 1,440
Accrued expenses 133 (79) 2,735
Deferred revenue - Roche - - 2,000
--------- --------- ---------
Net cash used by operating activities (17,075) (32,538) (107,558)
--------- --------- ---------
Cash flows from investing activities:
Sales (purchases) of short-term investments (34,451) 9,717 (52,232)
Purchases of property and equipment (578) (544) (2,764)
Equipment held for resale - - (61)
Organization costs - - (8)
Patent costs (162) (177) (1,148)
--------- --------- ---------
Net cash provided (used) by investing activities (35,191) 8,996 (56,213)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of notes payable - - 6,150
Lease costs - - (13)
Principal payments under capital lease obligations (374) (515) (4,211)
Proceeds from issuance of Common Stock 66,570 43,385 175,679
Proceeds from issuance of Preferred Stock - - 23,896
Proceeds from sale of options - - 2,796
Proceeds from exercise of stock options 1,227 1,030 4,713
Proceeds from employee stock purchase plan exercise 192 197 1,006
Repayment of notes receivable from stockholders 80 - 259
Warrant issuance - - 5,400
--------- --------- ---------
Net cash provided by financing activities 67,695 44,097 215,675
--------- --------- ---------
Net increase in cash and cash equivalents 15,429 20,555 51,904
Cash and cash equivalents, beginning of period 37,023 31,349 -
--------- --------- ---------
Cash and cash equivalents, end of period $ 52,452 $ 51,904 $ 51,904
========= ========= =========
See accompanying notes to financial statements.
3
TRIMERIS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
Trimeris, Inc. (the "Company") was incorporated on January 7, 1993 in
Delaware, to discover and develop novel therapeutic agents that block viral
infection by inhibiting viral fusion with host cells. These financial statements
have been prepared in accordance with Statement of Financial Accounting
Standards No. 7, "Accounting and Reporting by Development Stage Enterprises," to
recognize the fact that the Company is devoting substantially all of its efforts
to establishing a new business and planned principal operations have not
commenced.
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America and applicable Securities and Exchange Commission regulations for
interim financial information. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to the Securities and Exchange Commission rules
and regulations. In the opinion of management, all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of financial
position and results of operations have been made. Operating results for interim
periods are not necessarily indicative of results which may be expected for a
full year. The information included in this Form 10-Q should be read in
conjunction with the Risk Factors and Management's Discussion and Analysis of
Financial Condition and Results of Operations sections and the 2000 financial
statements and notes thereto included in the Company's 2000 Annual Report on
Form 10-K filed with the Securities and Exchange Commission on April 2, 2001, as
amended on July 24, 2001.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. BASIC NET INCOME (LOSS) PER SHARE
In accordance with SFAS No. 128, "Earnings Per Share" ("SFAS No. 128"),
basic loss per common share is calculated by dividing net loss by the
weighted-average number of common shares outstanding for the period after
certain adjustments described below. Diluted net income per common share
reflects the maximum dilutive effect of common stock issuable upon exercise of
stock options, stock warrants, and conversion of preferred stock. Diluted net
loss per common share is not shown, as common equivalent shares from stock
options, and stock warrants, would have an antidilutive effect. At June 30, 2001
there were 2,083,000 options to purchase common stock outstanding and 362,000
warrants to purchase common stock outstanding. At June 30, 2000 there were
1,678,000 options to purchase common stock outstanding and 362,000 warrants to
purchase common stock outstanding.
3. STATEMENTS OF CASH FLOWS
Interest of approximately $111,000 and $101,000 was paid during the six
months ended June 30, 2000 and 2001, respectively. Capital leases of $804,000
and $0 were incurred for the six months ended June 30, 2000 and 2001,
respectively for the purchase of new furniture and equipment.
4
4. OFFERINGS OF STOCK
In October 1997, the Company closed its initial public offering of common
stock at $12 per share. The net proceeds of the offering, including the proceeds
received in connection with the exercise of the Underwriters' over-allotment
option which closed in November 1997, were approximately $34.5 million after
deducting applicable issuance costs and expenses. In connection with the public
offering, all the outstanding preferred stock was converted into 6,261,615
shares of the Company's common stock.
In June 1999, the Company closed a public offering of common stock at $11.75
per share. The net proceeds of the offering, including the proceeds received in
connection with the exercise of the Underwriters' over-allotment option, were
approximately $31.4 million after deducting applicable issuance costs and
expenses.
In February 2000, the Company closed a private placement of 1.75 million
shares of common stock at $40.50 per share. The net proceeds of the offering
were approximately $66.6 million after deducting applicable issuance costs and
expenses.
In May 2001, the Company closed a private placement of approximately 1.4
million shares of common stock at $33.00 per share. The net proceeds of the
offering were approximately $43.4 million after deducting applicable issuance
costs and expenses.
Other changes in additional paid-in capital during the six months ended June
30, 2001 were primarily $622,000 debited to additional paid-in capital related
to non-cash compensation charges, and $3.3 million credited to additional
paid-in capital related to deferred compensation recorded for a former
consultant who became an employee.
5. ROCHE COLLABORATION
In July 1999, the Company announced an agreement with F. Hoffmann-La Roche
Ltd ("Roche") to develop and market T-20 and T-1249 worldwide. In the United
States and Canada, the Company and Roche will share equally development expenses
and profits for the two fusion inhibitors. Outside of these two countries, Roche
will fund all development costs and pay the Company royalties on net sales of
these products. Roche made an initial cash payment to the Company of $10 million
during 1999 and a milestone payment of $2 million in 2000. Roche will provide up
to an additional $56 million in cash and funding upon achievement of
developmental, regulatory and commercial milestones. In accordance with Staff
Accounting Bulletin No. 101, the initial cash payment, net of the $5.4 million
fair value of the warrant granted to Roche, is being amortized into revenue over
the research and development term of the Roche agreement.
In June 2001, the Company announced a research agreement with Roche to
discover, develop and commercialize novel generations of HIV fusion inhibitor
peptides. Roche and Trimeris will equally fund worldwide research, development
and commercialization costs, as well as share equally in profits from worldwide
sales of new HIV fusion inhibitor peptides discovered after July 1, 1999.
6. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", establishes rules for the reporting and display of comprehensive income
or loss and its components. This Statement requires that unrealized gains or
losses on the Company's available-to-sale securities be included in other
comprehensive income. Comprehensive income (loss) totaled ($30,221,000) for the
six months ended June 30, 2001. For the six months ended June 30, 2000,
comprehensive income is equal to the Company's net loss.
5
Item 2. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------
Results of Operations
---------------------
This discussion of our financial condition and the results of operations
should be read together with the financial statements and notes contained
elsewhere in this Form 10-Q. Certain statements in this section and other
sections are forward-looking. While we believe these statements are accurate,
our business is dependent on many factors, some of which are discussed in the
"Risk Factors" and "Business" sections of our 2000 Annual Report on Form 10-K
filed with the Securities and Exchange Commission on April 2, 2001, as amended
on July 24, 2001. These factors include, but are not limited to: that we are a
development stage company that has sustained losses since our inception, and
expect our losses to continue; that if we cannot raise additional funds in the
future, our ability to develop our drug candidates will suffer; that any
additional financing we obtain may dilute our stockholders, restrict our
operating flexibility, or result in a transfer of rights to our technologies or
drug candidates; that if we are unable to commercialize T-20, our business will
be materially harmed; that if our clinical trials are delayed or achieve
unfavorable results, we may never generate any revenue; that if sufficient
amounts of our drug candidates cannot be manufactured on a cost-effective basis
or we cannot obtain the appropriate quantities of raw materials, our financial
condition and results of operations will be materially and adversely affected;
that if Roche does not meet its contractual obligations to us, our research and
development efforts and the regulatory approval and commercialization of our
drug candidates could be delayed or otherwise materially and adversely affected;
that if we cannot maintain commercial manufacturing agreements with third
parties on acceptable terms, or if these third parties do not perform as agreed,
the commercial development of our drug candidates could be delayed or otherwise
materially and adversely affected; that our business is based on a novel
technology called fusion inhibition, and unexpected side effects or other
characteristics of this technology may delay or otherwise adversely affect the
development, regulatory approval and/or commercialization of our drug
candidates; that even if we are successful in developing a commercially viable
drug, in order to become profitable we will need to maintain arrangements with
third parties for the sale, marketing and distribution of our drug candidates or
expend significant resources to develop these capabilities; that the HIV virus
is likely to develop resistance to some of our drug candidates, which could
adversely affect demand for those drug candidates and harm our competitive
position; that our stock price is highly volatile; that we depend on patents and
proprietary rights, which may offer only limited protection against
infringement, and if we are unable to protect these rights, our assets and
business could be materially harmed; that we are subject to extensive and
complex government regulation, including regulation by the FDA, which can entail
significant costs and could delay, limit or prevent commercialization of our
drug candidates; that we face intense competition in our efforts to develop
commercially successful drugs in the biopharmaceutical industry and if we are
unable to compete successfully, our business will suffer; that our drugs may not
achieve market acceptance; that uncertainty relating to third-party
reimbursement and health care reform measures could limit the amount we will be
able to charge for our drugs and adversely affect our results of operations;
that if an accident or injury involving hazardous materials occurs, we could
incur fines or liability, which could materially and adversely affect our
business and our reputation; that if the testing or use of our drug candidates
harms people, we could face costly and damaging product liability claims far in
excess of our liability and indemnification coverage; that our quarterly
operating results are subject to fluctuations, and if our operating results for
a particular period deviate from the levels expected by securities analysts and
investors, it could adversely affect the market price of our common stock; that
if we lose any of our executive management or other key employees, we will have
difficulty replacing them, and if we cannot attract and retain qualified
personnel on acceptable terms, the development of our drug candidates and our
financial position may suffer; and future sales of common stock by our existing
stockholders or key management could adversely affect our stock price. Many of
these factors are beyond our control and any of these and other factors could
cause actual results to differ materially from the forward-looking statements
made in this Form 10-Q. The results of our previous clinical trials are not
necessarily indicative of the results of future clinical trials. We undertake no
obligation to release publicly the results of any revisions to the statements
contained in this Form 10-Q to reflect events or circumstances that occur
subsequent to the date hereof.
6
Overview
We began our operations in January 1993 and are a development stage
company. Accordingly, we have a limited operating history. Since our inception,
substantially all of our resources have been dedicated to:
o the development, patenting, preclinical testing and clinical trials of
our drug candidates, T-20 and T-1249,
o the development of a manufacturing process for T-20 and T-1249,
o production of drug material for future clinical trials, and
o research and development and preclinical testing of other potential
product candidates.
We have lost money since inception and, as of June 30, 2001, had an
accumulated deficit of approximately $152.4 million. We have received revenue
only from federal small business innovative research grants, otherwise known as
SBIR grants, an investigative contract, and an initial collaboration payment and
a milestone payment from Roche, and have not generated any revenue from product
sales or royalties. We may never generate any revenue from product sales or
royalties.
Development of current and future drug candidates will require significant
additional, time-consuming and costly research and development, preclinical
testing and extensive clinical trials prior to submission of any regulatory
application for commercial use. We expect to incur substantial losses for the
foreseeable future and expect losses to increase as our research and
development, preclinical testing, drug production and clinical trial efforts
expand. The amount and timing of our operating expenses will depend on many
factors, including:
o the status of our research and development activities,
o product candidate discovery and development efforts, including
preclinical testing and clinical trials,
o the timing of regulatory actions,
o the costs involved in preparing, filing, prosecuting, maintaining, protecting
and enforcing patent claims and other proprietary rights,
o our ability to work with Roche to manufacture, develop, sell, market
and distribute T-20 and T-1249,
o technological and other changes in the competitive landscape,
o changes in our existing or research and development relationships and
strategic alliances,
o development of any future research and development relationships or
strategic alliances,
o evaluation of the commercial viability of potential product candidates, and
o other factors, many of which are outside of our control.
As a result, we believe that period-to-period comparisons of our financial
results in the future are not necessarily meaningful. The past results of
operations and results of previous clinical trials should not be relied on as an
indication of future performance. If we fail to meet the clinical and financial
expectations of securities analysts and investors, it could have a material
adverse effect on the market price of our common stock. Our ability to achieve
profitability will depend, in part, on our own or our collaborative partner's
ability to successfully develop and obtain regulatory approval for T-20 or
T-1249 and other product candidates, and our ability to develop the capacity,
either internally or through relationships with third parties, to manufacture,
sell, market and distribute approved products, if any. We may never generate
significant revenues or achieve profitable operations.
7
Results of Operations
COMPARISON OF THREE MONTHS ENDED JUNE 30, 2000 AND 2001
REVENUE. Total revenue increased from $210,000 for the three months ended June
30, 2000 to $326,000 for the three months ended June 30, 2001. Total revenue for
the three months ended June 30, 2000 represents the amortization of the $10
million initial collaboration payment from Roche, net of the $5.4 million
assigned to the warrant, over the research and development term of the
agreement. Total revenue for the three months ended June 30, 2001 includes this
amortization and amortization of a $2.0 million milestone payment received from
Roche in 2000 over the research and development term of the Roche agreement.
RESEARCH AND DEVELOPMENT EXPENSES. Total net research and development expenses
were $11.3 million and $16.9 million for the three months ended June 30, 2000
and 2001, respectively. Gross research and development expenses excluding
non-cash compensation charges increased from $8.2 million during the three
months ended June 30, 2000 to $14.0 million during the three months ended June
30, 2001 primarily because we:
o continued and expanded two Phase III clinical trials for T-20 which
were initiated in late 2000, and
o increased the number of our personnel to support our clinical trial and
manufacturing process development activities.
During the three months ended June 30, 2001 we also:
o continued four Phase II clinical trials for T-20,
o continued a Phase I clinical trial for T-1249, and
o continued manufacturing process development and purchase of drug
material from third party manufacturers to supply future clinical
trials.
Non-cash compensation expense decreased from $3.1 million for the three months
ended June 30, 2000 to $2.8 million for the three months ended June 30, 2001 due
to the effect that the higher market value of our stock at June 30, 2000
compared to the market value of our stock at June 30, 2001, had on the
calculation of this expense under EITF 96-18 for non-employees. Total research
and development expenses include gross research and development expenses less
Roche's share of development costs for T-20 and T-1249. Under our collaboration
agreement, we and Roche shared the development costs incurred during the period
from July 1, 1999 until June 30, 2001 for T-20 and T-1249 equally.
Total research personnel were 57 and 66 at June 30, 2000 and 2001, respectively.
We expect research and development expenses, net of reimbursements for T-20 and
T-1249 development costs from Roche, to increase substantially in the future due
to:
o continuation of the two Phase III clinical trials for T-20,
o preparation of materials for anticipated submission of a New Drug
Application for T-20 to the US Food and Drug Administration following
receipt of data from our Phase III clinical trials,
o expanded clinical trials for T-20, T-1249 and other product candidates,
o the manufacture of drug material for these trials,
o increased preclinical research and testing of potential product
candidates, and
o increased number of personnel to support these activities.
8
GENERAL AND ADMINISTRATIVE EXPENSES. Total general and administrative expenses
were $5.2 million and $3.2 million for the three months ended June 30, 2000 and
2001, respectively. Expenses excluding non-cash compensation charges increased
from $1.8 million for the three months ended June 30, 2000 to $2.6 million for
the three months ended in June 30, 2001 because during the three months ended
June 30, 2001 we:
o performed market research and pre-marketing activities with respect to
T-20 which are shared equally with Roche,
o added administrative personnel to support our growth, and
o incurred increased professional fees to support our growth.
Non-cash compensation expense decreased from $3.4 million for the three months
ended June 30, 2000 to $557,000 for the three months ended June 30, 2001 due to
the effect that the higher market value of our stock at June 30, 2000 compared
to the market value of our stock at June 30, 2001, had on the calculation of
this expense under EITF 96-18 for non-employees, and the fact that a former
consultant became an employee during this period. We expect administrative
expenses to increase in the future to support the anticipated expansion of
product development activities, including pre-marketing activities undertaken in
anticipation of the commercialization of T-20 to be shared equally with Roche.
OTHER INCOME (EXPENSE). Other income (expense) consists of interest income and
expense. Total other income (expense) was $1.6 and $1.1 million for the three
months ended June 30, 2000 and 2001, respectively. The decrease was primarily
due to lower interest income because of lower interest rates on our investment
portfolio during the three months ended June 30, 2001 compared to the three
months ended June 30, 2000.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2000 AND 2001
REVENUE. Total revenue increased from $420,000 for the six months ended June 30,
2000 to $652,000 for the six months ended June 30, 2001. Total revenue for the
six months ended June 30, 2000 represents the amortization of the $10 million
initial collaboration payment from Roche, net of the $5.4 million assigned to
the warrant, over the research and development term of the agreement. Total
revenue for the six months ended June 30, 2001 includes this amortization and
amortization of a $2.0 million milestone payment received from Roche in 2000
over the research and development term of the Roche agreement.
RESEARCH AND DEVELOPMENT EXPENSES. Total net research and development expenses
were $19.8 million and $27.4 million for the six months ended June 30, 2000 and
2001, respectively. Gross research and development expenses excluding non-cash
compensation charges increased from $13.2 million during the six months ended
June 30, 2000 to $27.9 million during the six months ended June 30, 2001 because
we:
o continued and expanded two Phase III clinical trials for T-20 which
were initiated in late 2000, and
o increased the number of our personnel to support our clinical trial
and manufacturing process development activities.
During the six months ended June 30, 2001 we also:
o continued four Phase II clinical trials for T-20,
o continued a Phase I clinical trial for T-1249, and
o continued manufacturing process development and purchase of drug
material from third party manufacturers to supply future clinical
trials.
9
Non-cash compensation expense decreased from $6.6 million for the six months
ended June 30, 2000 to $452,000 in expense reversal for the six months ended
June 30, 2001 due to the effect that the higher market value of our stock at
June 30, 2000 compared to the market value of our stock at June 30, 2001, had on
the calculation of this expense under EITF 96-18 for non-employees. The expense
reversal resulted because the cumulative expense under EITF 96-18 for non-
employees was greater at December 31, 2000 than at June 30, 2001 because of the
reduction in the market value of our stock during the first half of 2001. Total
research and development expenses include gross research and development
expenses less Roche's share of development costs for T-20 and T-1249. Under our
collaboration agreement, we and Roche shared the development costs incurred
during the period from July 1, 1999 until June 30, 2001 for T-20 and T-1249
equally.
Total research personnel were 57 and 66 at June 30, 2000 and 2001, respectively.
We expect research and development expenses, net of the reimbursements for T-20
and T-1249 development costs from Roche, to increase substantially in the future
due to:
o continuation of the two Phase III clinical trials for T-20,
o preparation of materials for anticipated submission of a New Drug
Application for T-20 to the US Food and Drug Administration following
receipt of data from our Phase III clinical trials,
o expanded clinical trials for T-20, T-1249 and other product candidates,
o the manufacture of drug material for these trials,
o increased preclinical research and testing of potential product
candidates, and
o increased number of personnel to support these activities.
GENERAL AND ADMINISTRATIVE EXPENSES. Total general and administrative expenses
were $10.5 million and $6.0 million for the six months ended June 30, 2000 and
2001, respectively. Expenses excluding non-cash compensation charges increased
from $3.4 million for the six months ended June 30, 2000 to $4.9 for the six
months ended June 30, 2001 because during the six months ended June 30, 2001 we:
o performed market research and pre-marketing activities with respect to T-20
which are shared equally with Roche,
o added administrative personnel to support our growth, and
o incurred increased professional fees to support our growth.
Non-cash compensation expense decreased from $7.0 million for the six months
ended June 30, 2000 to $1.0 million for the six months ended June 30, 2001 due
to the effect that the higher market value of our stock at June 30, 2000
compared to the market value of our stock at June 30, 2001, had on the
calculation of this expense under EITF 96-18 for non-employees, and the fact
that a former consultant became an employee during this period. We expect
administrative expenses to increase in the future to support the anticipated
expansion of product development activities, including pre-marketing activities
undertaken in anticipation of the commercialization of T-20 to be shared equally
with Roche.
OTHER INCOME (EXPENSE). Other income (expense) consists of interest income and
expense. Total other income (expense) was $2.8 million and $2.5 million for the
six months ended June 30, 2000 and 2001, respectively. The decrease was
primarily due to lower interest income because of lower interest rates on our
investment portfolio during the six months ended June 30, 2001 compared to the
six months ended June 30, 2000.
10
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through the
private placement of equity securities, the issuance of notes to stockholders,
equipment lease financing, an initial public offering of common stock in October
1997, a public offering of common stock in June 1999, a private placement of
common stock in February 2000, and a private placement of common stock in May
2001. Net cash used by operating activities was $17.1 million and $32.5 million
for the six months ended June 30, 2000 and 2001, respectively. The cash used by
operating activities during the six months ended June 30, 2001 was used
primarily to fund research and development relating to T-20, T-1249, and other
product candidates, and increased for the six months ended June 30, 2001 because
of increased research and development activities primarily related to the
development of T-20 and T-1249. Cash used by investing activities was $35.2
million for the six months ended June 30, 2000. Cash provided by investing
activities was $9.0 million for the six months ended June 30, 2001. The amount
used for the six months ended June 30, 2000 resulted from the purchase of
short-term investments, using the proceeds from our private placement of common
stock in February 2000. The amount provided for the six months ended June 30,
2001 resulted from the net sale of short-term investments to fund our
operations. Cash provided by financing activities for the six months ended June
30, 2000 was primarily the proceeds from our private placement of common stock
in February 2000. Cash provided by financing activities for the six months ended
June 30, 2001 was primarily the proceeds of our private placement of common
stock in May 2001.
As of June 30, 2001, we had $104.2 million in cash and cash equivalents and
short-term-investments, compared to $93.4 million as of December 31, 2000. The
increase is primarily a result of the closing of a private placement of common
stock in May 2001, which resulted in net proceeds of approximately $43.4
million, less cash used by operating activities.
In July 2000, we entered into a derivative transaction with a financial
institution that provided for settlement by the sale of up to 300,000 shares of
our stock to the financial institution at prices significantly higher than the
market price per share of our stock at the inception of the transaction. We
received $2.8 million in proceeds that were accounted for as an increase to
additional paid-in capital in accordance with generally accepted accounting
principles at the time of the transaction. Concurrently, we entered into a
second derivative transaction with the same financial institution on shares of
our common stock at no net premium to either party. These contracts expired
unexercised during July 2001.
We have experienced negative cash flows from operations since our inception
and do not anticipate generating sufficient positive cash flows to fund our
operations in the foreseeable future. Although we expect to receive
reimbursement for 50% of the development costs for T-20 and T-1249 from Roche,
we have expended, and expect to continue to expend in the future, substantial
funds to pursue our product candidate and compound discovery and development
efforts, including:
o expenditures for clinical trials of T-20, T-1249 and other product
candidates,
o research and development and preclinical testing of other product
candidates,
o manufacture of drug material, and
o the development of our proprietary technology platform.
As of June 30, 2001, we had commitments of approximately $7.5 million to
purchase product candidate materials and fund various clinical studies over the
next 11 months. Substantially all of these expenditures will be shared equally
by Roche under our collaborative agreement. Under this collaborative agreement,
we are obligated to share equally the future development expenses for T-20 and
T-1249. We also expect to have capital expenditures of approximately $1.5
million during the remainder of 2001 that will not be shared with Roche. These
expenditures may be financed with capital or operating leases, debt or working
capital. In May 2001, we closed a private placement of approximately 1.4 million
shares of common stock at a price of $33.00 per share. The net proceeds of the
offering were approximately $43.4 million after deducting applicable issuance
costs and expenses. Barring unforeseen developments, we expect that our existing
capital resources, together with the interest earned thereon, will be adequate
to fund our capital requirements through the middle of 2002. We believe that
substantial additional funds will be required after the middle of 2002.
11
We will be required to obtain additional funds, which may be raised through
equity or debt financings. Since our initial public offering in 1997, we have
obtained the majority of our funding through public or private offerings of our
common stock. The public capital markets in which shares of our common stock are
traded have been volatile and the general ability of companies to obtain
additional financing has become more difficult thus far in 2001 compared to
2000. If and when we raise funds by selling equity, our stockholders' interest
may be diluted. Any debt financings may contain restrictive terms that would
limit our operating flexibility. Additionally or alternatively, we may have to
attempt to obtain funds through arrangements with collaborative partners. These
partners may require us to relinquish rights to our technologies or product
candidates. If adequate funds are not available through debt or equity
financings, we may be required to delay, scale-back or eliminate certain
preclinical testing, clinical trials and research and development programs,
including our collaborative efforts with Roche. This could have a material
adverse effect on our business, financial condition or results of operations.
Our future capital requirements and the adequacy of available funds will
depend on many factors, including the availability of funds from Roche under our
collaboration agreement, the condition of public capital markets, the results of
clinical trials relating to T-20 and T-1249, the progress and scope of our
product development programs, the magnitude of these programs, the results of
preclinical testing and clinical trials, the need for additional facilities
based on the results of these clinical trials and other product development
programs, changes in the focus and direction of our product development
programs, the costs involved in preparing, filing, processing, maintaining,
protecting and enforcing patent claims and other intellectual property rights,
competitive factors and technological advances, the cost, timing and outcome of
regulatory reviews, changes in the requirements of the FDA, administrative and
legal expenses, evaluation of the commercial viability of potential product
candidates and compounds, the establishment of capacity, either internally or
through relationships with third parties, for manufacturing, sales, marketing
and distribution functions, and other factors, many of which are outside of our
control.
Accounting and Other Matters
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement 133"). Statement 133 establishes
standards for valuation and disclosure of derivative financial instruments and
is effective for fiscal quarters of fiscal years beginning after June 15, 2000.
The Company adopted this statement on January 1, 2001 and it had no effect on
the Company's financial statements.
In July 2001, the FASB issued Statement No. 141, "Business Combinations",
and Statement No. 142, "Goodwill and Other Intangible Assets." Statement 141
requires that all business combinations be accounted for under the purchase
method and prohibits use of the pooling-of-interests method. Statement 141
requires that the purchase method be used for business combinations initiated
after June 30, 2001. Statement 142 requires that goodwill (and intangible assets
with indefinite useful lives) no longer be amortized to earnings, but instead be
reviewed for impairment. The amortization of goodwill ceases upon adoption of
the Statement, which will be January 1, 2002. We do not expect the adoption of
Statement No. 141 or Statement No. 142 to have a material impact on our
financial statements.
Factors That May Affect Future Results and Financial Condition
Clinical Development
The following discussion highlights certain aspects of our on-going and
planned clinical development programs. The results of our previous clinical
trials are not necessarily indicative of the results of future clinical trials.
T-20
We are developing T-20, our first drug candidate for HIV fusion inhibition,
which has been granted fast track designation by the FDA. T-20 is currently in
Phase III clinical trials. We currently expect to collect clinically relevant
data from our Phase III trials during the first half of 2002, and, subject to
the results of such trials, we currently expect to submit a New Drug Application
to the FDA with respect to T-20 in the second half of 2002. Ongoing T-20
Clinical Trials
12
Phase III -- T20-301. In June 2001, we completed enrollment of T20-301,
a 48-week Phase III clinical trial in North America, Mexico, and Brazil, that
will evaluate the safety and pharmacokinetics of T-20 in up to 525 HIV-infected
patients who had previously used all three classes of currently-approved
anti-HIV drugs, with a planned interim analysis at 24 weeks. In this trial,
patients will be randomly assigned to receive an optimized background regimen of
other anti-HIV drugs alone or in combination with twice daily subcutaneous
injection delivering 90 mg of T-20 each. The background regimen will be
optimized based on the genotype and phenotype of the patient's virus. T20-301 is
ongoing and we expect data from this trial to be available during the first half
of 2002.
Phase III -- T20-302. In August 2001, we completed enrollment of
T20-302, a 48-week Phase III clinical trial in Western Europe and Australia,
with a planned interim analysis at 24 weeks. The protocol for T20-302 is
substantially similar to T20-301 and will also involve up to 525 HIV-infected
patients. T20-302 is ongoing and we expect data from this trial to be available
during the first half of 2002.
Phase II -- T20-205. T20-205 is an ongoing Phase II trial that has been
extended beyond its initial 48-week protocol. This trial involves 71 patients
from earlier T-20 Phase I/II studies. In T20-205, 50 mg of T-20 is administered
via subcutaneous injection in combination with oral anti-HIV drugs. Combinations
of the oral anti-HIV drugs were optimized based on genotypic and phenotypic
analysis of each patient's virus.
At 48 weeks, 41 of the 71 patients were evaluated. No patients
discontinued this trial due to T-20 related toxicity, but 14 patients
discontinued this trial due to a virologic failure, or HIV viral load less than
- -0.5 log10 from baseline at the beginning of the trial. At 48 weeks, 23 of 41
patients or 56 % exhibited a decrease in HIV viral load of more than 1.0 log10
or less than 400 copies/ml, and 16 of 41 patients or 39 % had an HIV viral load
below 400 copies/ml.
At 48 weeks, the patients continued to tolerate T-20. Data suggest that
T-20 in combination with other anti-HIV drugs may contribute to a lasting and
clinically relevant suppression of HIV in the blood in patients with extensive
prior anti-HIV treatment.
Phase II -- T20-204. In November 1999, in collaboration with the
Division of AIDS of the National Institute for Allergy and Infectious Diseases,
or NIAID, we initiated a Phase I/II trial to evaluate the safety, tolerability
and pharmacokinetics of T-20 in children living with HIV infection. The trial is
managed by the Pediatric AIDS Clinical Trial Group, or PACTG, and has been
designated as a fast-track study within the PACTG system.
In T20-204, 12 pediatric patients were randomly assigned to two
treatment groups to receive T-20 at different dosage levels in combination with
a background regimen of other anti-HIV drugs. At eight weeks, this trial showed
that T-20 was well tolerated by children and that children receiving the higher
dose experienced a ten-fold reduction in viral load from baseline viral load. A
ten-fold reduction in viral load from baseline viral load means that the number
of copies of the HIV virus circulating in the patient's bloodstream was reduced
by 90%, to one-tenth of the original number.
T20-204 is ongoing and the next analysis of data is scheduled to occur
based on 24-week data.
Phase II -- T20-206. In June 1999, we initiated T20-206, a 48 week
Phase II clinical trial for T-20 to assess the antiviral activity and long-term
safety of T-20 when used in combination with other anti-HIV drugs. Patients in
T20-206 were randomly separated into four treatment arms with the control arm
receiving a potent background regimen consisting of abacavir, amprenavir,
efavirenz, and ritonavir. The remaining three treatment arms are receiving
various dosage levels of T-20 via twice daily subcutaneous injection along with
the background regimen. T20-206 enrolled 71 HIV-infected individuals at several
sites in the United States. At entry in the trial, all enrolled patients had
prior exposure to NRTIs and PIs, but no prior exposure to NNRTIs.
In February 2001, we presented 16 week interim data from T20-206. At 16
weeks, the median reduction of viral load in the patient's blood from the viral
load at the beginning of the trial, commonly referred to as baseline viral load,
for all patients across the three T-20 treatment groups was 99.9%, compared to a
median reduction of 99.3% for the control arm.
13
T20-206 is ongoing and the next analysis of data is scheduled to occur
based on 48-week data.
Phase II - T-20-208. In March 2000, we initiated T-20-208, a Phase II
clinical trial for T-20 that will evaluate alternative formulations of T-20,
which could lead to a simpler dosing regimen. The trial is designed to enroll
approximately 60 patients in the United States, and will evaluate two
formulations of T-20 compared to the formulation presently used in other ongoing
clinical trials. All three formulations will be given as twice daily
subcutaneous injections in combination with oral anti-HIV agents selected for
each patient on an individualized basis.
Future T-20 Clinical Trials
Throughout the remainder of 2001, we expect to initiate additional
Phase II trials.
T-1249
We are also developing T-1249, our second drug candidate for HIV fusion
inhibition, which has been granted fast track designation by the FDA. T-1249 is
currently in a Phase I clinical trial.
Phase I - T-1249-101
In July 1999, we initiated T1249-101, a Phase I/II clinical trial
designed to assess the safety and pharmacokinetics of T-1249. T1249-101 enrolled
72 HIV-infected individuals at several sites in the United States, with 61
patients completing the study. Four different daily doses of T-1249 were
administered alone and not in combination with any other anti-HIV drugs for 14
days to HIV-infected adults by once or twice daily subcutaneous injection. Of
the 72 patients entering the trial, nine withdrew before receiving T-1249
therapy, and two withdrew during the course of the therapy. For at least two
weeks prior to entering the study, these patients had not received any other
anti-HIV drugs. This trial protocol has been amended in order to evaluate
further different daily doses of T-1249 by once daily subcutaneous injection and
is ongoing.
In February 2001, we announced interim data from T1249-101. Patients
received T-1249 via once or twice daily subcutaneous injections alone and not in
combination with any other anti-HIV drugs for 14 days at doses ranging from 6.25
mg per day to 50 mg per day. At entry into the trial, 98%, or 62 of 63, patients
had a clinical history of exposure to a mean number of ten anti-HIV drugs.
During the 14 day monotherapy treatment period, the median maximum reduction in
viral load reduction from baseline at the beginning of the trial ranged from 0.1
log10 or 20.5% to 1.5 log10 or 96.8% across the treatment groups. Data suggest
that T-1249 was well-tolerated over a 14-day period and there were dose-related
decreases in HIV viral load.
Risk Factors
Our business is subject to certain risks and uncertainties. Please read the
"Risk Factors" and "Business" sections of our 2000 Annual Report on Form 10-K
filed with the Securities and Exchange Commission on April 2, 2001, as amended
on July 24, 2001, which highlight some of these risks. If any of these risks
materialize, our business, financial condition and results of operations could
be materially adversely affected.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Our exposure to market risk is primarily in our investment portfolio. We do
not use derivative financial instruments for speculative or trading purposes.
Substantially all of our contracts are denominated in US dollars, therefore we
have no material foreign currency risk. We have an investment policy that sets
minimum credit quality standards for our investments. The policy also limits the
amount of money we can invest in any one issue, issuer or type of instrument. We
have not experienced any material loss in our investment portfolio, and we
believe the market risk exposure in our investment portfolio has remained
consistent over this period.
The table below presents the carrying value, which is approximately equal
to fair market value, and related weighted-average interest rates for our
investment portfolio at June 30, 2001. Our investments are
14
generally most vulnerable to changes in short-term interest rates in the United
States. Substantially all of our investments mature in twelve months or less,
therefore we believe that the risk of material loss of principal due to changes
in interest rates is minimal.
Carrying Average
Amount Interest
(thousands) Rate
---------- ----
Cash equivalents - fixed rate $ 50,028 4.05 %
Short-term investments - fixed rate 52,324 4.91 %
Overnight cash investments - fixed rate 1,876 3.62 %
-------- ----
Total investment securities $104,228 4.47 %
======== ====
In July 2000, we entered into a series of call transactions with respect to
our common stock. These transactions are described in detail under Item 2
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." These contracts expired
unexercised during July 2001.
15
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings
- ------- -----------------
None.
Item 2. Changes in Securities and Use of Proceeds
- ------- -----------------------------------------
(a) Not applicable.
(b) Not applicable.
(c) On May 10, 2001, we completed a private placement financing by
issuing approximately 1.4 million shares of common stock at
$33.00 per share to new and current stockholders for an
aggregate offering price of approximately $46.1 million (less
estimated offering costs, including placement agent fees, of
approximately $2.7 million). Lehman Brothers, Inc. acted as
placement agent for the shares issued in connection with the
private placement financing. The registration statement on
Form S-3 (File No. 333-31662) to register the resale of the
common stock issued in this financing was filed on May 11,
2001, and the SEC declared this registration statement
effective on July 24, 2001. An exemption from registration was
claimed pursuant to Section 4(2) of the Securities Act of
1933, as amended, and Rule 506.
(d) Use of Proceeds:
---------------
Not applicable.
Item 3. Defaults Upon Senior Securities
- ------- -------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
The following matters were voted upon at the Company's Annual
Stockholders' Meeting held on June 27, 2001:
FOR AGAINST WITHHELD
Election of the following Directors:
Jeffrey M. Lipton 12,174,343 N/A 31,390
E. Gary Cook, Ph.D 12,174,343 N/A 31,390
Appointment of KPMG
LLP as independent accountants for
the year ended December 31, 2001 12,269,293 47,471 5,948
Amendment to the Company's Amended
and Restated Stock Incentive Plan 9,043,419 3,276,990 2,303
In addition, the terms of the following directors continued after the date of
the meeting: Dani P. Bolognesi, Ph. D., Charles A. Sanders, M.D., and J. Richard
Crout, M.D.
16
Item 5. Other Information
- ------- -----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
The exhibits filed as part of this Quarterly Report on Form 10-Q
are listed on the Exhibit Index immediately preceding such
exhibits and such list is incorporated herein by reference.
(b) Reports on Form 8-K
We filed a report on Form 8-K on May 8, 2001 under Item 5
describing our plans to complete a private placement of our common
stock to new and current shareholders in order to raise net
proceeds of up to approximately $43.4 million.
We filed a report on Form 8-K on May 11, 2001 under Item 5 to
report our financial results for the quarter ended March 31, 2001.
We filed a report on Form 8-K on May 11, 2001 under Item 5 to
report the terms and conditions of the form of the purchase
agreement filed as an exhibit to that report pursuant to which we
closed a private placement of 1,395,609 shares of common stock to
new and current shareholders at a price per share of $33.00 on May
10, 2001.
17
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Trimeris, Inc.
-----------------
(Registrant)
August 13, 2001 By: /s/ DANI P. BOLOGNESI
- --------------- -----------------------------
Dani P. Bolognesi
Chief Executive Officer,
and Chief Scientific Officer
August 13, 2001 /s/ ROBERT R. BONCZEK
- --------------- --------------------------
Robert R. Bonczek
Chief Financial Officer
(Principal Financial Officer)
August 13, 2001 /s/ TIMOTHY J. CREECH
- --------------- --------------------------
Timothy J. Creech
Director of Finance
and Secretary (Principal
Accounting Officer)
18
EXHIBIT INDEX
-------------
Number Description
- ------ -----------
10.1 Research Agreement between Trimeris, Inc., F. Hoffmann-
La Roche Ltd, and Hoffmann-La Roche, Inc. dated January 1,
2000 (portions of this exhibit have been omitted pursuant to a
request for confidential treatment filed with the Commission).
10.2 Form of Purchase Agreement dated as of May 7, 2001 by and
between Trimeris, Inc. and the purchasers set forth on the
signature page thereto (1).
(1) Filed as an exhibit to Trimeris' Current Report on Form 8-K filed on
May 11, 2001.
19