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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 2001 Commission File No. 000-29089
ANTIGENICS INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 06-1562417
(State of Incorporation) (I.R.S. Employer Identification Number)
630 FIFTH STREET, SUITE 2100, NEW YORK, NEW YORK, 10111
(Address of Principal Executive Offices)
(212) 332-4774
(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
--------- -----------
Number of shares outstanding of the registrant's Common Stock as of August 9,
2001: 28,984,535 shares
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ANTIGENICS INC.
QUARTER ENDED JUNE 30, 2001
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
----
Item 1 - Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets (unaudited)
December 31, 2000 and June 30, 2001..............................1
Consolidated Statements of Operations (unaudited)
For the Three and Six Months ended June 30, 2000
and 2001.........................................................2
Consolidated Statements of Cash Flows (unaudited)
For the Six Months ended June 30, 2000 and 2001..................3
Notes To Unaudited Consolidated Financial Statements................4
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................8
Item 3 - Quantitative and Qualitative Disclosures About Market Risk.........11
PART II - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds from
Registered Securities...........................................11
Item 4- Submission of Matters to a Vote of Security Holders.................11
Item 6(a) - Exhibits........................................................12
Item 6(b) - Current Reports on Form 8-K.....................................12
Signatures..................................................................13
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PART I - FINANCIAL INFORMATION
Item 1 - Unaudited Consolidated Financial Statements
ANTIGENICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
2000 2001
------------- -------------
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 96,142,726 $ 81,622,462
Marketable securities 2,996,750 --
Accounts receivable 532,896 1,121,266
Inventories 669,618 1,652,419
Prepaid expenses 619,324 653,440
Other assets 631,095 771,812
Due from related party 376 3,605
------------- -------------
Total current assets 101,592,785 85,825,004
Plant and equipment, net of accumulated amortization and
depreciation of $2,942,744 and $4,294,117 at December 31,
2000 and June 30, 2001, respectively 14,640,281 14,403,779
Intangible assets, net of accumulated amortization of $156,563
and $700,932 at December 31, 2000 and June 30, 2001,
respectively 9,606,638 9,062,269
Other assets 2,125,996 2,581,017
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Total assets $ 127,965,700 $ 111,872,069
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 2,273,631 $ 2,060,243
Accrued liabilities 4,002,983 3,284,058
Current portion, long-term debt 2,334,646 2,441,445
------------- -------------
Total current liabilities 8,611,260 7,785,746
Long-term liabilities 2,650,959 1,489,290
Commitments and contingencies
Stockholders' Equity:
Preferred stock, par value $0.01 per share; 1,000,000 -- --
shares authorized; no shares issued and outstanding
Common stock, par value $0.01 per share; 100,000,000 273,162 274,362
shares authorized; 27,316,295 and 27,436,252 shares
issued and outstanding at December 31, 2000 and
June 30, 2001, respectively
Additional paid-in capital 202,253,314 203,563,081
Accumulated other comprehensive loss (199,711) (129,110)
Deferred compensation (1,277,357) (1,033,394)
Accumulated deficit (84,345,927) (100,077,906)
------------- -------------
Total stockholders' equity 116,703,481 102,597,033
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Total liabilities and stockholders' equity $ 127,965,700 $ 111,872,069
============= =============
See accompanying notes to unaudited consolidated financial statements.
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ANTIGENICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 2001
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- -----------------------------
2000 2001 2000 2001
------------ ------------ ------------ ------------
Revenue:
Product sales $ -- 675,176 -- 988,984
Research and development -- 603,290 -- 1,172,970
Expenses:
Cost of sales -- (355,066) -- (580,598)
Research and development (3,879,862) (6,457,835) (7,442,964) (12,625,764)
General and administrative (2,510,463) (3,706,940) (4,376,891) (6,655,600)
------------ ------------ ------------ ------------
Operating loss (6,390,325) (9,241,375) (11,819,855) (17,700,008)
Other income/(expense):
Interest expense (98,956) (142,954) (204,737) (305,261)
Interest income 1,643,371 959,308 2,815,486 2,273,288
------------ ------------ ------------ ------------
Net loss $ (4,845,910) (8,425,021) (9,209,106) (15,731,981)
============ ============ ============ ============
Net loss per share,
basic and diluted $ (0.20) (0.31) (0.39) (0.57)
============ ============ ============ ============
Weighted average number of shares
outstanding, basic and diluted 24,777,185 27,414,478 23,884,054 27,378,180
============ ============ ============ ============
See accompanying notes to unaudited consolidated financial statements.
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ANTIGENICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 2001
(UNAUDITED)
JUNE 30,
------------------------------
2000 2001
------------ ------------
Cash flows from operating activities:
Net loss $ (9,209,106) (15,731,981)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 720,048 1,895,742
Stock options 1,685,695 889,782
Changes in operating assets and liabilities:
Other assets (177,700) (15,804)
Prepaid assets (351,551) (34,116)
Inventories -- (982,801)
Accounts receivable -- (588,370)
Accounts payable 599,637 (213,388)
Accrued liabilities (65,728) (718,925)
Due to/from related party, net 12,589 (3,229)
------------ -----------
Net cash used in operating activities (6,786,116) (15,503,090)
------------ -----------
Cash flows from investing activities:
Purchase of plant and equipment (914,151) (1,114,871)
Investments (300,000) (225,000)
Deferred acquisition costs -- (292,421)
Proceeds from sale of marketable securities -- 2,996,750
------------ -----------
Net cash (used in) provided by investing
activities (1,214,151) 1,364,458
------------ -----------
Cash flows from financing activities:
Net proceeds from sale of equity 66,788,578 115,696
Exercise of stock options and warrants 326,473 549,452
Payments of long-term debt (391,912) (1,046,780)
------------ -----------
Net cash provided by (used in) financing
activities 66,723,139 (381,632)
------------ -----------
Net increase (decrease) in cash and cash 58,722,872 (14,520,264)
equivalents
Cash and cash equivalents at beginning of period 46,417,942 96,142,726
------------ -----------
Cash and cash equivalents at end of period $105,140,814 81,622,462
============ ===========
Supplemental cash flow information:
Interest paid $ 204,737 305,261
See accompanying notes to unaudited consolidated financial statements.
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ANTIGENICS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Antigenics Inc.
and subsidiaries have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and
with the instructions to Article 10 of Regulation S-X and include the accounts
of Antigenics Inc. and our wholly-owned subsidiaries. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete annual financial statements. In the opinion
of management, all adjustments considered necessary for a fair presentation have
been included. All significant intercompany balances have been eliminated.
Operating results for the three and six-month periods ended June 30, 2001 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2001. For further information, refer to the consolidated
financial statements and footnotes thereto for the year ended December 31, 2000
included in our annual report on Form 10-K filed with the Securities and
Exchange Commission on March 28, 2001.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, as amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. SFAS No. 133, as amended, is
effective for our fiscal year beginning January 1, 2001. The adoption of SFAS
No. 133 did not have an effect on our financial position or results of
operations as we have no derivative or hedging transactions.
NOTE B - MERGER AGREEMENT WITH AQUILA BIOPHARMACEUTICALS, INC.
On November 16, 2000, we acquired all of the outstanding common stock, options
and warrants of Aquila Biopharmaceuticals, Inc., a biotechnology company engaged
in the discovery, product development and commercialization of products to
prevent, treat, or control infectious diseases, autoimmune disorders and
cancers. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the results of operations of Aquila
Biopharmaceuticals have been included in our consolidated financial statements
from the date of the acquisition. A portion of the purchase price of
$44,819,000, was allocated to the identifiable net assets acquired based on
their estimated fair values.
NOTE C - INITIAL PUBLIC OFFERING
On February 9, 2000, we completed our initial public offering (the "IPO") of
4,025,000 shares of common stock at $18 per share. We received $72,450,000
before the deduction of offering expenses of approximately $6,221,000.
Concurrent with the completion of our IPO, we were converted from a limited
liability company to a corporation. All members of the limited liability company
exchanged their respective member interests for shares of common stock in the
corporation. Our consolidated financial statements have been retroactively
adjusted to reflect the conversion from a limited liability company to a
corporation and the exchange of each unit of members' equity into 172.0336
shares of common stock.
NOTE D - INCOME TAXES
Prior to converting to a corporation in February 2000, we were a limited
liability company, and, as such, no federal, state or local income taxes were
levied on the company. Each member of the limited liability company was
individually responsible for reporting their share of the company's net income
or loss on their personal tax returns. As a result, we will not be able to
offset future taxable income, if any, against losses incurred prior to the
conversion to a corporation.
Income taxes are accounted for under the asset and liability method. Beginning
February 9, 2000, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be
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reversed or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Deferred tax assets are recorded when they more likely than not
are able to be realized.
Given our history of incurring operating losses, management believes that it is
more likely than not that any deferred tax assets, net of deferred tax
liabilities, will not be realized. Therefore, there is no income tax benefit
recognized in the accompanying consolidated financial statements because of a
loss before income taxes and the need to recognize a valuation allowance on our
net deferred tax assets.
NOTE E - EARNINGS PER SHARE
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," requires the calculation and presentation of "Basic" and "Diluted"
earnings per share. Basic earnings per share is calculated by dividing net loss
by the weighted average number of common shares outstanding. Diluted earnings
per share is calculated by dividing net loss by the weighted average common
shares outstanding plus the dilutive effect of outstanding stock options, stock
warrants and other potentially dilutive securities. Because we report a net
loss, diluted earnings per share is the same as basic earnings per share because
the effect of adding our outstanding stock options, stock warrants and other
potentially dilutive securities to our weighted average shares outstanding would
reduce the net loss per share. Therefore, our outstanding stock options, stock
warrants and other potentially dilutive securities are not included in the
calculation.
NOTE F - STOCK-BASED COMPENSATION PLANS
During the six months ended June 30, 2001, we granted approximately 237,000
non-qualified stock options and approximately 192,000 incentive stock options to
employees and directors with exercise prices at the fair value of the underlying
shares at the date of grant. These options were granted at a weighted average
exercise price of $12.63 per share. In addition, we granted 32,000 non-qualified
stock options to outside advisors of which 2,000 options vested immediately and
the remainder vest over periods of three and five years. These options were
granted at a weighted average exercise price of $13.08 per share. Approximately
105,000 options were exercised and approximately 20,000 options were forfeited
during the six months ended June 30, 2001.
We recorded a charge to operations related to the grants of options to employees
and directors for the three months ended June 30, 2000 and 2001, of
approximately $130,000 and $136,000, respectively, and $258,000 and $350,000
for the six months ended June 30, 2000 and 2001, respectively. For the three
months ended June 30, 2000 and 2001, the charge to operations related to options
granted and earned by outside advisors totaled approximately $685,000 and
$347,000, respectively, and approximately $1,427,000 and $586,000 for the six
months ended June 30, 2000 and 2001, respectively.
NOTE G - INVENTORY
Inventories consist of the following at June 30, 2001:
Finished Goods $1,377,000
Work-in-process 229,000
Raw materials & supplies 46,000
----------
$1,652,000
==========
NOTE H - COMMITMENTS AND RELATED PARTY TRANSACTIONS
On May 18, 2000, we committed $3,000,000 to become a limited partner in a
limited partnership which will invest principally in companies that apply
genomic technologies and information in their offerings of products and services
or that are engaged in research and development and efforts involving genomic
technologies with a view to developing such products and services. Contributions
to the limited partnership are made as authorized by the general partner. As of
June 30, 2001, we have invested $525,000, $225,000 of which was invested during
the six months ended June 30, 2001, and have included this amount in non-current
other assets. We account for this investment under the cost method. The general
partner of the limited partnership is
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AGTC Partners, L.P. and NewcoGen Group Inc. is the general partner of AGTC
Partners, L.P. Noubar Afeyan, Ph.D., who is one of our directors, is the
president of NewcoGen Group Inc. and is also a principal of the limited
partnership. In addition, Garo H. Armen, Ph.D., our chief executive officer and
one of our directors, is a director of NewcoGen Group Inc.
NOTE I - SUBSEQUENT EVENT
On July 12, 2001, we completed our acquisition of Aronex Pharmaceuticals, Inc.
The acquisition was structured as a merger of a wholly-owned subsidiary of
Antigenics with and into Aronex Pharmaceuticals pursuant to an Agreement and
Plan of Merger among Antigenics, Nasa Merger Corp. and Aronex Pharmaceuticals
dated as of April 23, 2001. The merger was a tax-free reorganization and is
being accounted for as a purchase.
As consideration for the merger, in exchange for each of their shares of Aronex
Pharmaceuticals common stock, the stockholders of Aronex Pharmaceuticals
received (i) 0.0594 shares of Antigenics common stock and (ii) a contingent
value right to receive additional shares of Antigenics common stock in the event
a certain milestone is achieved on or before July 6, 2002. Cash is payable in
lieu of any fractional shares of Antigenics common stock otherwise issuable in
the merger in the amount of the fraction times $17.41, the closing price of
Antigenics's common stock on July 12, 2001. All outstanding options and warrants
to purchase shares of Aronex Pharmaceuticals common stock were automatically
converted into options and warrants to purchase Antigenics common stock at the
exchange ratio described above. Additionally, an outstanding $2.5 million note
previously convertible into shares of Aronex Pharmaceuticals common stock is now
convertible into shares of Antigenics common stock at a rate adjusted in
accordance with the exchange ratio described above.
The estimated purchase price of $33,400,000 is the sum of (i) $28,647,000
representing the assumed issuance of approximately 1,548,000 shares of
Antigenics common stock valued at $18.505 per share, which represents the
average closing price per share of Antigenics common stock for the ten trading
days ending the second trading day before July 12, 2001, to be issued at the
exchange ratio of 0.0594 shares of Antigenics common stock for each of the
approximate 26,061,000 outstanding shares of Aronex Pharmaceuticals common stock
as of July 11, 2001, (ii) $1,958,000 representing the fair value of Aronex
Pharmaceuticals options and warrants to acquire Aronex Pharmaceuticals common
stock which will be vested upon the consummation of the merger and exchanged for
options and warrants to purchase approximately 282,000 shares of Antigenics
common stock and (iii) an estimated $2,795,000 of Antigenics's costs of the
merger, costs to sever the employment of certain Aronex Pharmaceuticals
employees, and costs associated with the closing of Aronex Pharmaceuticals's
facility. The fair value of the Aronex Pharmaceuticals options and warrants has
been calculated using an option pricing model with the following weighted
average assumptions: life of the option or warrant -- employees and directors
options -- 4 years and non-employee options and warrants -- remaining
contractual life of 6 years; dividend yield -- nil; risk-free interest rate --
5.50%; price volatility -- 74.0%. The final purchase price will be dependent
upon the number of shares of Antigenics common stock actually exchanged and the
other costs of the transaction.
The merger is being accounted for under the purchase method of accounting, which
means the purchase price will be allocated to the assets and liabilities of
Aronex Pharmaceuticals, including its intangible assets, based upon their fair
values. Valuations of specifically identifiable intangible assets and acquired
in-process research and development are in progress. The preliminary valuation
of acquired in-process research and development is $30,600,000; this represents
the estimated fair value of products under development at Aronex Pharmaceuticals
calculated using an income approach. This approach involves estimating the fair
value of the acquired in-process research and development using the present
value of the estimated after-tax cash flows expected to be generated by the
purchased in-process research and development projects. The risk adjusted
discount rates range from 45% to 55%, depending on the risks associated with
each specific project. Cash inflows from projects are assumed to begin primarily
in 2005 and 2006, the expected dates of product approvals. Gross margins on
products are estimated at levels consistent with industry expectations. The
preliminary fair values of the acquired non-current assets, $4,300,000, and
acquired in-process research and development have been proportionately reduced
by the amount that the estimated fair value of the net assets acquired exceeds
the estimated purchase price (negative goodwill). The results of operations and
cash flows of Aronex Pharmaceuticals will be included in our consolidated
financial statements prospectively as of the closing of the merger. In addition,
we will be recognizing a non-recurring charge to operations on July 12, 2001 for
the immediate write-off of acquired in-process research and development.
NOTE J - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
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In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies the
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that any
purchase price allocable to an assembled workforce may not be accounted for
separately. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead that they be tested
for impairment at least annually in accordance with the provisions of Statement
142. Statement 142 will also require that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.
We are required to adopt the provisions of Statement 142 effective January 1,
2002. Goodwill and intangible assets acquired in business combinations completed
before July 1, 2001 will continue to be amortized prior to the adoption of
Statement 142.
Statement 141 will require, upon adoption of Statement 142, that we evaluate our
existing intangible assets and goodwill that were acquired in a prior purchase
business combination, and to make any necessary reclassifications in order to
conform with the new criteria in Statement 141 for recognition apart from
goodwill. Upon adoption of Statement 142, we will be required to reassess the
useful lives and residual values of all intangible assets acquired in purchase
business combinations, and make any necessary amortization period adjustments by
the end of the first interim period after adoption. In addition, to the extent
an intangible asset is identified as having an indefinite useful life, we will
be required to test the intangible asset for impairment in accordance with the
provisions of Statement 142 within the first interim period. Any impairment loss
will be measured as of the date of adoption and recognized as the cumulative
effect of a change in accounting principle in the first interim period.
In connection with the transitional goodwill impairment evaluation, Statement
142 will require us to perform an assessment of whether there is an indication
that goodwill is impaired as of the date of adoption. Any transitional
impairment loss will be recognized as the cumulative effect of a change in
accounting principle in our consolidated statement of operations.
As of the date of adoption, we expect to have unamortized goodwill in the amount
of $2,664,000 and unamortized other intangible assets in the amount of
$5,854,000, before the accounting for the acquisition of Aronex (see Note I),
all of which will be subject to the transition provisions of Statements 141 and
142. Amortization expense related to goodwill and other intangible assets was
$91,000 and $544,000 for the year ended December 31, 2000 and the six months
ended June 30, 2001, respectively. Because of the extensive effort needed to
comply with adopting Statements 141 and 142, it is not practical at the date of
this report to reasonably estimate the impact of adopting these Statements on
our consolidated financial statements, including whether any transitional
impairment losses will be required to be recognized as the cumulative effect of
a change in accounting principle.
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Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
We are developing treatments for cancers, serious infectious diseases,
autoimmune disorders and degenerative disorders using our proprietary
technologies that program the immune system and improve quality of life. Since
our inception in March 1994, our activities have primarily been associated with
the development of our heat shock protein technology and our lead therapeutic
vaccine, Oncophage(R). Our business activities have included, product research
and development, intellectual property prosecution, establishing manufacturing
capabilities, manufacturing therapeutic vaccines for clinical trials, and
regulatory and clinical affairs.
We have incurred significant losses since our inception and first generated
revenues during the year ended December 31, 2000. As of June 30, 2001, we had an
accumulated deficit of approximately $100,078,000 inclusive of accumulated
non-cash charges of $13,407,000 related to grants of stock options, warrants and
common stock grants and $25,800,000 of acquired in-process research and
development. We expect to continue to incur net losses over the next several
years as we complete our clinical trials, apply for regulatory approvals,
continue development of our technology and expand our operations, including
increased expenses associated with the development of the technologies and
product pipeline that were acquired as a result of the acquisitions of Aquila
Biopharmaceuticals and Aronex Pharmaceuticals. We have been dependent
principally on equity and debt financings to fund our business activities. Our
financial results may vary depending on many factors, including:
- the progress of our drugs or vaccines in the regulatory process;
- the acceleration of other product candidates into preclinical and
clinical trials;
- our investment in manufacturing process development and in
manufacturing capacity for Oncophage and other product candidates;
- development of a sales and marketing staff and sales activities if
Oncophage or other product candidates are approved for
commercialization; and
- the progress of our other research and development efforts.
HISTORICAL RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2000
Revenue: As a result of the acquisition of Aquila Biopharmaceuticals in November
2000, we generated $675,000 of product revenue and $603,000 of research and
development revenue during the three months ended June 30, 2001. We had no
revenues during the three months ended June 30, 2000. Product revenues consist
of sales of the feline leukemia antigen and vaccine to our marketing partner
Virbac, S.A., a French company which has exclusive worldwide rights to market
the product. Revenues from research and development activities consist of
shipments of our adjuvant QS-21 to be used in clinical trials by our partners
and grant and milestone payments received.
Cost of Sales: Cost of sales, which is related entirely to product revenue, was
$355,000 for the three months ended June 30, 2001. We had no cost of sales for
the three months ended June 30, 2000. For the three months ended June 30, 2001,
cost of sales was 53% of product sales.
Research and Development: Research and development expense increased 66% to
$6,458,000 for the three months ended June 30, 2001 from $3,880,000 for the
three months ended June 30, 2000. The Aquila Biopharmaceuticals acquisition
increased research costs by $911,000 for the three months ended June 30, 2001.
The increase was also due to the increase in staff to support our expanded
research and development activities increasing costs by $625,000. Costs
associated with our clinical trials increased $1,040,000 over the three months
ended June 30, 2000, particularly due to the initiation of a phase III clinical
trial. Other increases in our ongoing development activities were $109,000
higher than in 2000. These increases were partially offset by the decrease in
the non-cash charge for options granted and earned by outside advisors,
directors and employees from $403,000 for the three months ended June 30, 2000
to $296,000 for the three months ended June 30, 2001. Research and development
expenses consist primarily of compensation for employees and outside advisors
conducting research and
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development work, funding paid to institutions, including the University of
Connecticut where we sponsor research, costs associated with the operation of
our manufacturing and laboratory facilities and funding paid to support our
clinical trials.
General and Administrative: General and administrative expenses increased 48% to
$3,707,000 for the three months ended June 30, 2001 from $2,510,000 for the
three months ended June 30, 2000. The Aquila Biopharmaceuticals acquisition
increased general and administrative costs by $478,000 for the three months
ended June 30, 2001. The increase was also due to the growth in the number of
employees to support our expanded business operations which increased costs by
$457,000, legal expenses related to general corporate and patent activities
which were $50,000 higher for the three months ended June 30, 2001 as compared
to the same period in 2000 and other increases in our general and administrative
expenses which were $483,000 higher for the three months ended June 30, 2001
than for the same period in 2000. These increases were partially offset by the
decrease in the non-cash charge for options granted and earned by outside
advisors, directors and employees to $143,000 for the three months ended June
30, 2001 from $414,000 for the three months ended June 30, 2000. General and
administrative expenses consisted primarily of personnel compensation, office
expenses and professional fees.
Interest expense: Interest expense increased 44% to $143,000 for the three
months ended June 30, 2001 from $99,000 for the three months ended June 30, 2000
due to the increased borrowings under credit facilities to partially fund the
construction of our manufacturing and laboratory facilities.
Interest Income: Interest income decreased 42% to $959,000 for the three months
ended June 30, 2001 from $1,643,000 for the three months ended June 30, 2000.
This decrease is attributable to a decreasing average cash and cash equivalents
balance during the three months ended June 30, 2001 as compared to the three
months ended June 30, 2000.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2000
Revenue: We generated $989,000 in product revenue and $1,173,000 of research and
development revenue during the six months ended June 30, 2001 and no revenue
during the six months ended June 30, 2000.
Cost of Sales: Cost of sales related entirely to product revenue was $581,000
for the six months ended June 30, 2001. We had no cost of sales for the six
months ended June 30, 2000. For the six months ended June 30, 2001, cost of
sales was 59% of product sales.
Research and Development: Research and development expense increased 70% to
$12,626,000 for the six months ended June 30, 2001 from $7,443,000 for the six
months ended June 30, 2000. The Aquila Biopharmaceuticals acquisition increased
research costs by $2,086,000 for the six months ended June 30, 2001. The
increase was also due to the increase in our staff to support our expanded
research and development activities, which increased costs by $1,471,000. Costs
associated with our clinical trials increased $1,275,000 over the six months
ended June 30, 2000, particularly due to the initiation of a phase III clinical
trial. Other ongoing development activities increased costs by $602,000. These
increases are partially offset by a decrease in the non-cash charge for options
granted and earned by outside advisors, directors and employees to $592,000 for
the six months ended June 30, 2001 from $843,000 for the six months ended June
30, 2000. Research and development expenses consist primarily of compensation
for our employees and outside advisors conducting research and development work,
funding paid to institutions, including the University of Connecticut where we
sponsor research, costs associated with the operation of our manufacturing and
laboratory facilities and funding paid to support our clinical trials.
General and Administrative: General and administrative expenses increased 52% to
$6,656,000 for the six months ended June 30, 2001 from $4,377,000 for the six
months ended June 30, 2000. The Aquila Biopharmaceuticals acquisition increased
general and administrative costs by $2,086,000 for the six months ended June 30,
2001. The increase was also due to the growth in the number of our employees to
support our expanded business operations which increased costs by $447,000, and
legal expenses related to general corporate and patent activities which were
$291,000 higher for the six months ended June 30, 2001 as compared to the same
period in 2000. These increases are partially offset by the decrease in the
non-cash charge for options granted and earned by outside advisors, directors
and employees from $843,000 for the six months ended June 30, 2000 to $298,000
for the six months ended June 30, 2001. General and administrative expenses
consisted primarily of personnel compensation, office expenses and professional
fees.
Interest expense: Interest expense increased 49% to $305,000 for the six months
ended June 30, 2001 from $205,000 for the six months ended June 30, 2000 due to
the increased borrowings under credit facilities to partially fund the
construction of our manufacturing and laboratory facilities.
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Interest Income: Interest income decreased 19% to $2,273,000 for the six months
ended June 30, 2001 from $2,815,000 for the six months ended June 30, 2000. This
decrease is attributable to a lower average cash and cash equivalents balance
during the six months ended June 30, 2001 as compared to the six months ended
June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred annual operating losses since inception, and, at June 30, 2001,
we have an accumulated deficit of $100,078,000. Since our inception, we have
financed our operations primarily through the sale of equity, interest income
earned on cash and cash equivalent balances and debt provided through a credit
facility secured by some of our manufacturing and laboratory assets. From our
inception through June 30, 2001, we raised aggregate net proceeds of
$146,740,000 through the sale of equity and the exercise of stock options and
warrants, and borrowed $3,481,000 under our $5,000,000 credit facility. We also
assumed a term loan agreement with an outstanding balance of $2,712,000 in
connection with the merger of Aquila Biopharmaceuticals. We expect that we will
fund our capital expenditures and growing operations over the next two years
with current working capital. We may, however, raise money in the capital
markets. Our future capital requirements include, but are not limited to,
supporting our clinical trial efforts and continuing our other research and
development programs, including increased expenses associated with the
development of the technologies and product pipeline acquired as a result of the
Aquila Biopharmaceuticals and Aronex Pharmaceuticals transactions. Satisfying
our long-term liquidity needs will require the successful commercialization of
Oncophage or other products and may require additional capital.
Our cash and cash equivalents at June 30, 2001 were $81,622,000, a decrease of
$14,520,000 from December 31, 2000. During the six months ended June 30, 2001,
we used cash primarily to finance operations, including our Oncophage clinical
trials. Net cash used in operating activities for the six months ended June 30,
2000 and 2001 was $6,786,000 and $15,503,000, respectively. The increase
resulted from the increase in the activity of our Oncophage clinical trials,
development activity and general expansion of our operations.
Net cash used in investing activities for the six months ended June 30, 2000 was
$1,214,000 as compared to net cash provided by investing activities of
$1,364,000 for the six months ended June 30, 2001. During the six months ended
June 30, 2001, we invested $1,115,000 for the purchase of equipment, furniture
and fixtures and an additional $225,000 was contributed to a limited
partnership, of which we became a member during the second quarter of 2000. Our
total commitment to this limited partnership is $3,000,000 with contributions
made as authorized by the general partner. During the six months ended June 30,
2001, we received proceeds from the sale of marketable securities of $2,997,000.
Net cash provided by financing activities was $66,723,000 for the six months
ended June 30, 2000 as compared to net cash used in financing activities of
$382,000 for the six months ended June 30, 2001. Since inception, our primary
source of financing has been from equity investments. During the six months
ended June 30, 2000 and 2001, sales of equity and exercises of stock options and
warrants totaled approximately $67,115,000 and $665,000. At June 30, 2001, we
had outstanding $1,482,000 under our credit facilities, which were used to
finance the construction of our manufacturing and laboratory facilities and to
purchase related equipment. Loans that were drawn down on the credit facilities
are secured by specific assets, including leasehold improvements, which they
finance.
OTHER
The Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements reflecting management's current
expectations regarding our future performance. These expectations are based on
certain assumptions regarding the timing of our clinical trials, the efficacy of
products, the availability of capital and other factors relating to our growth.
These expectations may not materialize if product development efforts are
delayed or suspended or if other assumptions prove incorrect. These factors are
more fully discussed in our annual report on Form 10-K filed with the Securities
and Exchange Commission on March 28, 2001.
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Item 3 - Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, we are exposed to fluctuations in interest
rates as we seek debt financing to make capital expenditures. We do not employ
specific strategies, such as the use of derivative instruments or hedging, to
manage our interest rate exposures. There has been no change since the fiscal
year ended December 31, 2000 with respect to our interest rate exposures or our
approach toward those exposures. Further, we do not expect our market risk
exposures to change in the near term.
PART II - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds
On February 9, 2000, we sold 4,025,000 shares of our common stock
(including the underwriters' overallotment option) at $18 per share. We
received net proceeds in the initial public offering of approximately
$66,229,000 reflecting gross proceeds of $72,450,000, net of underwriter
commissions of approximately $5,071,500 and other offering costs of
approximately $1,149,500.
We have used the following net offering proceeds as of June 30, 2001:
approximately $3,515,000 for fixed asset additions, $525,000 for
investments, $633,000 for debt obligations, $1,210,000 for acquisition
costs and $28,687,000 for operations.
Item 4 - Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on May 24, 2001, our
stockholders voted as follows:
Number of Number of
Votes For Votes Withheld
---------- --------------
Proposal to elect the following
nominees as directors:
Donald Panoz 19,431,735 985,908
Noubar Afeyan, Ph.D. 20,411,315 6,328
Pramod Srivastava, PhD. 19,649,632 768,011
Each nominee received a plurality of the votes cast by the stockholders
entitled to vote thereon and, therefore, Mr. Panoz, Dr. Afeyan and Dr.
Srivastava were re-elected to the Board of Directors. In addition, the
terms in office of Garo H. Armen, Ph.D., Gamil G. de Chadarevian, Martin
Taylor, Sanford M. Litvack and Tom Dechaene continued after the meeting.
Mr. Panoz resigned from the Board of Directors effective July 13, 2001.
Item 6- Exhibits and Current Reports on Form 8-K
(a) Exhibits
None.
(b) Current Reports on Form 8-K
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On April 24, 2001, we filed a Current Report on Form 8-K dated April 23,
2001 to disclose that we entered into an agreement to acquire Aronex
Pharmaceuticals, Inc.
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ANTIGENICS INC.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
ANTIGENICS INC.
Date: August 13, 2001 /s/ Garo H. Armen
-------------------------------------
Garo H. Armen
President and Chief Executive Officer
(Principal Accounting Officer)
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