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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(mark one)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1996
or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER: 0-19454
ANERGEN, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0183594
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 PENOBSCOT DRIVE
REDWOOD CITY, CALIFORNIA 94063
(Address of principal executive offices) (Zip Code)
Telephone number: (415) 361-8901
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
At September 30, 1996, Registrant had outstanding 18,734,754 shares of Common
Stock.
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ANERGEN, INC.
INDEX
Part I: Financial Information Page No.
- ------- --------------------- --------
ITEM 1. Condensed Consolidated Financial Statements (unaudited)
Condensed balance sheets - September 30, 1996
and December 31, 1995....................................... 3
Condensed statements of operations - three and nine months
ended September 30, 1996 and 1995........................... 4
Condensed statements of cash flows - nine months ended
September 30, 1996 and 1995................................. 5
Notes to condensed financial statements....................... 6
ITEM 2. Management's discussion and analysis of
financial condition and results of operations............... 7
Part II: Other Information
ITEM 6. Exhibits and reports on Form 8-K.............................. 9
Signatures.................................................... 10
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Part I: Financial Information
ANERGEN, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS )
ASSETS
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
(UNAUDITED)
Current assets:
Cash and equivalents ........................................ $ 138 $ 468
Short-term investments ...................................... 17,387 11,024
Contract receivables - related party ........................ 993 815
Prepaid expenses ............................................ 145 102
-------- --------
Total current assets ........................... 18,663 12,409
Property and equipment, net ...................................... 1,648 2,010
Other assets ..................................................... 36 36
-------- --------
$ 20,347 $ 14,455
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities .................... $ 1,108 $ 1,040
Current portion of capital lease obligations and debt ....... 722 883
-------- --------
Total current liabilities ...................... 1,830 1,923
Long-term portion of capital lease obligations and debt .......... 275 818
Commitments
Shareholders' equity:
Preferred stock, no par value; none issued and outstanding . -- --
Common stock, no par value; 40,000,000 shares authorized;
18,734,025 issued and outstanding (14,967,680 at
December 31, 1995).O .................................. 57,362 47,359
Additional paid-in-capital .................................. 659 648
Unrealized gain (loss) on investments ....................... (41) 16
Accumulated deficit ......................................... (39,738) (36,309)
-------- --------
Total shareholders' equity ..................... 18,242 11,714
-------- --------
$ 20,347 $ 14,455
======== ========
See accompanying notes.
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ANERGEN, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Contract revenues - related party ... $ 864 $ 627 $ 2,286 $ 2,189
License fee ......................... 2,000 -- 2,000 --
Interest income ..................... 167 185 426 352
-------- -------- -------- --------
3,031 812 4,712 2,541
Expenses:
Research and development ............ 2,389 2,101 6,229 6,331
General and administrative .......... 716 448 1,775 1,375
Interest expense .................... 38 92 137 244
-------- -------- -------- --------
3,143 2,641 8,141 7,950
-------- -------- -------- --------
Net loss ................................. $ (112) $ (1,829) $ (3,429) $ (5,409)
-------- -------- -------- --------
Net loss per
share .................................... $ (0.01) $ (0.12) $ (0.22) $ (0.45)
-------- -------- -------- --------
Shares used in calculating per share data 17,077 14,943 15,714 12,149
-------- -------- -------- --------
See accompanying notes.
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ANERGEN, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
---- ----
Cash flows used in operating activities:
Net loss ............................................ $ (3,429) $ (5,409)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ..................... 813 793
Deferred compensation amortization ................ 11 36
Changes in operating assets and liabilities:
Contract receivables - related party .............. (178) 112
Prepaid expenses .................................. (43) 62
Other assets ...................................... -- (16)
Accounts payable and accrued liabilities .......... 68 18
-------- --------
Net cash used in operating activities .................. (2,758) (4,404)
Cash flows provided by (used in) investing activities:
Purchase of investments available-for-sale .......... (21,985) (27,353)
Sale of investments available-for-sale .............. 15,565 16,952
Purchase of property and equipment .................. (451) (747)
-------- --------
Net cash used in investing activities .................. (6,871) (11,148)
-------- --------
Cash flows provided by (used in) financing activities:
Proceeds from facility and equipment debt financing -- 497
Repayments of capital lease obligations and debt .... (704) (745)
Issuance of common stock, net ....................... 10,003 14,734
-------- --------
Net cash provided by financing activities .............. 9,299 14,486
Net decrease in cash ................................... (330) (1,066)
Cash and equivalents at beginning of period ........... 468 1,248
-------- --------
Cash and equivalents at end of period ................. 138 182
Short-term investments at end of period ................ 17,387 12,999
-------- --------
Cash and short-term investments at end of period ....... $ 17,525 $ 13,181
-------- --------
See accompanying notes.
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ANERGEN, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. NATURE OF BUSINESS
Anergen, Inc. (the "Company") was incorporated on April 26, 1988 for
the purpose of developing therapies using biopharmaceutical compounds
for the treatment of autoimmune diseases.
2. BASIS OF PRESENTATION
The interim financial statements included herein have been prepared by
the Company without audit, pursuant to the rules and regulations
promulgated by the Securities and Exchange Commission (the
"Commission"). Certain information and footnote disclosures, normally
included in financial statements prepared in accordance with generally
accepted accounting principles, have been omitted pursuant to
Commission rules and regulations; nevertheless, the Company believes
that the disclosures are adequate to make the information presented not
misleading. These condensed financial statements should be read in
conjunction with the audited financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present
fairly the financial position of the Company (subject to year-end
adjustments) with respect to the interim financial statements, and of
the results of its operations and cash flows for the interim periods
then ended, have been included. The results of operations for the
interim periods are not necessarily indicative of the results for the
full year.
Loss Per Share
Net loss per share is computed using the weighted average number of
shares of common stock outstanding. Common equivalent shares from
outstanding stock options and warrants are excluded from the
computation as their effect is anti-dilutive.
3. SIGNIFICANT EVENTS
On August 9, 1996 the Company completed a follow-on offering of
3,500,000 shares of its Common Stock in exchange for gross proceeds of
$10.5 million. On September 12, 1996 the underwriters of the follow-on
offering exercised a portion of their over-allotment option totaling
168,000 shares of Common Stock, raising the total gross proceeds from
the offering to approximately $11.0 million.
On September 2, 1996 the Company received a $2 million license fee
related to its collaborative agreement which it entered into on June
28, 1996 with N.V. Organon, of Oss, The Netherlands. Under the
collaboration, the parties intend to develop a product to treat
rheumatoid arthritis by utilizing a peptide discovered by N.V. Organon
using the Company's proprietary AnergiX technology.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations contains certain forward-looking statements which involve risks
and uncertainties. The Company's actual results could differ materially from the
results anticipated in these forward looking statements as a result of certain
factors set forth hereunder, in the Company's Annual Report as filed on Form
10-K and Form 10-K/A filed with the Securities and Exchange Commission, and in
the Registration Statement as filed on Form S-1 by the Company in August 1996.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its operations primarily through
private placements of its equity securities with venture capitalists
(which raised an aggregate of approximately $7.6 million in net
proceeds), through the sale of its Common Stock to Novo Nordisk A/S
(which raised approximately $8 million in net proceeds), through the
issuance of its Common Stock and Warrants to purchase shares of Common
Stock through a private placement in exchange for $1.5 million in
proceeds, and through public offerings of its Common Stock which have
raised an aggregate of $38.8 million in net proceeds, including $9.5
million in net proceeds from the sale of 3.5 million shares of Common
Stock to the public in August 1996 (the "1996 Follow-on Offering") and
an additional $469,000 from the underwriters' exercise of the
over-allotment option in September 1996. The Company's cash, cash
equivalents and short-term investments at September 30, 1996 were
approximately $17.5 million, representing an increase from the end of
the previous quarter of approximately $9.8 million. The Company had
shareholders' equity at September 30, 1996 of approximately $18.2
million. Accounts payable and accrued liabilities increased to
$1,108,000 at September 30, 1996 from $1,040,000 at December 31, 1995.
Long-term debt decreased from $818,000 at December 31, 1995 to $275,000
at September 30, 1996.
The Company anticipates that its current cash, short-term investments
and expected revenues under its collaborative agreements, combined with
the net proceeds from the 1996 Follow-on Offering, will be sufficient
to fund its operations for approximately two years. Thereafter, the
Company will require substantial additional funds to continue its
operations. The Company anticipates that its current resources will be
primarily used to fund the Company's ongoing Phase II clinical trials
of AnervaX(TM) for rheumatoid arthritis, manufacturing of GMP grade
material for the Phase I clinical trial of the Company's AnergiX(TM)
for multiple sclerosis and the conduct of such clinical trial, research
activities in its core AnervaX and AnergiX technologies to further
current programs in rheumatoid arthritis, multiple sclerosis, insulin
dependent diabetes mellitus and myasthenia gravis and to develop
programs in other autoimmune diseases, and to support research
activities in academic institutions. The balance of such resources will
be used to fund continued limited research on other autoimmune diseases
and general and administrative activities, including those associated
with seeking collaborative arrangements to enable the Company to
increase its research and development activities in other autoimmune
diseases. The foregoing forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially. In
particular, the Company's working capital requirements may vary
depending on numerous factors that are beyond the Company's control.
These factors include the progress of the Company's research and
development programs, manufacturing activities, the progress of the
Company's clinical programs, the results of laboratory testing, the
time and cost required to seek regulatory approvals to commence
clinical trials for the Company's initial products, the need to obtain
licenses to other proprietary rights, any required adjustments to the
Company's operating plan to respond to competitive pressures or
technological advances, developments with respect to the Company's
existing or future collaborative arrangements and the availability of
various methods of financing. The Company expects to seek to raise
additional capital either from the public equity market, private
placements, and/or R&D collaborations with other pharmaceutical
companies. Any additional equity financing may be dilutive to
shareholders, and debt financing, if available, may involve
restrictions on stock dividends. Adequate funds for the Company's
operations, whether from financial markets, collaborative or other
arrangements with corporate partners or from other sources, may not be
available when needed or on terms attractive to the Company.
Insufficient funds may require the Company to delay, scale back or
eliminate some or all of its research and product development programs
or to license third parties to commercialize products or technologies
that the Company would otherwise seek to develop itself. The Company's
liquidity will be reduced as amounts are expended for continuing
research and development.
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RESULTS OF OPERATIONS
The Company's net loss decreased by 94% to $112,000 in the fiscal
quarter ended September 30, 1996 compared to a $1,829,000 loss in the
corresponding period in the previous year due to an increase in
revenues of 273% to $3,031,000 in the fiscal quarter ended September
30, 1996 compared to $812,000 in the corresponding period in the
previous year. This increase in revenues was primarily due to a $2
million license fee received in the third quarter related to the
Company's collaborative agreement with N.V. Organon. Total expenses
increased by 19% from $2,641,000 to $3,143,000 due primarily to
increased expenses related to clinical trial and corporate development
activities. The Company expects total operating expenses to increase as
it increases research and development efforts.
Research and development expenses increased 14% to $2,389,000 for the
quarter ended September 30, 1996 from $2,101,000 in the corresponding
period in the previous year. This is due to an increase in clinical
activities related to the Company's AnergiX for multiple sclerosis
which is in Phase I testing, and to an increase in clinical costs
associated with the Company's ongoing Phase II clinical trial of
AnervaX for rheumatoid arthritis. The Phase II clinical trial of
AnervaX was initiated in June of 1996.
General and administrative expenses increased 60% to $716,000 for the
quarter ended September 30, 1996 compared to $448,000 in the
corresponding period in the previous year primarily due to compensation
costs associated with the retirement of John Fara, Ph.D., the former
President and CEO, the recruitment and compensation costs related to
the hiring of Barry Sherman, M.D., as President and CEO, costs related
to additional recruitment efforts and increased corporate development
activities.
Interest income decreased to $167,000 for the quarter ended September
30, 1996 as compared to $185,000 in the corresponding period in the
previous year due to lower average cash balances in 1996. Interest
expense decreased to $38,000 for the quarter ended September 30, 1996
as compared to $92,000 in the corresponding period in the previous year
due to lower debt balances. Interest income is expected to increase as
a result of the investment of the net proceeds from the 1996 Follow-on
Offering, and to decline gradually over future periods as invested
capital is used for operating activities.
The Company expects to incur substantial and increasing operating
losses for at least the next several years. The Company's losses on a
quarter-by-quarter basis may vary depending upon a variety of factors,
any of which may fluctuate, including the level of research activities,
the timing of hiring of additional scientific and management personnel,
the retention of consultants, the purchase or leasing of laboratory
equipment, the licensing of any required technology and other factors.
Accordingly, the Company believes that quarter-by-quarter losses will
not be a useful indicator of the performance of the Company.
FACTORS THAT MAY AFFECT FUTURE OPERATING PERFORMANCE
The factors discussed in Item 1 and Item 7 of the Company's Annual
Report on Form 10-K and Form 10-K/A for fiscal year 1995 and the
section entitled "Risk Factors" in the Company's Registration Statement
as filed on Form S-1 in August 1996 are hereby incorporated by
reference. Readers are cautioned that such factors, among others, in
some cases have affected, and in the future could cause the Company's
actual results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company.
Factors that could cause actual results to differ include but are not
limited to (i) the Company's ability to successfully develop and market
its products, (ii) the extent to which the Company's products, if any,
prove to be safe and efficacious in clinical trials, meet applicable
regulatory standards and are capable of being produced in commercial
quantities at acceptable costs, (iii) uncertainties related to
preclinical and clinical trials including the rate of completion of the
Company's clinical trials, (iv) market acceptance of the Company's
products, if any, (v) government regulation and future health care
legislation, (vi) the Company's success in maintaining existing and
developing collaborations with corporate partners, licensors,
licensees, and others, (vii) the Company's ability to maintain patent
protection for its therapeutic approach and for any developed products,
to preserve its trade secrets and to operate without infringing the
proprietary rights of third parties, (viii) competition and
technological change, (ix) general economic conditions, (x) the
Company's ability to attract and retain key management and skilled
employees and (xi) potential liability claims and other litigation.
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ANERGEN, INC.
PART II: Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon senior securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and reports on Form 8-K
a) Exhibits
Exhibit Description Page
------- ----------- ----
3.1 Restated and Amended Articles of Incorporation. (1)
3.2 Bylaws, as amended. (1)
4.1 Form of Common Stock Certificate. (1)
10.15 Employment Agreement of Barry M. Sherman, M. D.
10.16 1996 Stock Plan and form of agreement.
27.1 Financial Data Schedule
(1) Incorporated by reference to the exhibit filed with
Registrant's Registration Statement on Form S-1
(No. 33-42107), as amended.
b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
quarter ended September 30, 1996.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANERGEN, INC.
Date: November 8, 1996 By:/s/ JOHN W. VARIAN
--------------------------------
John W. Varian
Vice President,
Finance and Chief Financial Officer
on behalf of the Company and
as principal financial and accounting
officer
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EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
3.1 Restated and Amended Articles of Incorporation (1)
3.2 Bylaws, as amended. (1)
4.1 Form of Common Stock Certificate. (1)
10.15 Employment Agreement of Barry M. Sherman, M.D.
10.16 1996 Stock Plan and form of agreement.
27.1 Financial Data Schedule
(1) Incorporated by reference to the exhibit filed with
Registrant's Registration Statement on Form S-1 (No. 33-42107),
as amended.