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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
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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
12, 1999 was 13,683,499
TRIMERIS, INC.
(A Development Stage Company)
FORM 10-Q
For the Six Months Ended June 30, 1999
INDEX
PART 1. FINANCIAL INFORMATION Page
_______________________________ ----
Item 1. Financial Statements
____________________
Balance Sheets as of June 30, 1999 (unaudited) and
December 31, 1998 1
Statements of Operations (unaudited) for the Three
and Six Months Ended June 30, 1999 and 1998 and Period
From Inception (January 7, 1993) Through June 30, 1999 2
Statements of Cash Flows (unaudited) for the Six Months
Ended June 30, 1999 and 1998 and Period From Inception
(January 7, 1993) Through June 30, 1999 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 12
___________
PART 2. OTHER INFORMATION
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Item 1. Legal Proceedings 13
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Item 2. Changes in Securities and Use of Proceeds 13
-----------------------------------------
Item 3. Defaults Upon Senior Securities 13
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Item 4. Submission of Matters to a Vote of Security Holders 13
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Item 5. Other Information 14
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Item 6. Exhibits and Reports on Form 8-K 14
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Signature Page 15
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Exhibit Index 16
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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,
1998 1999
---- ----
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 16,920 $ 28,825
Short-term investments 3,256 13,009
Accounts receivable 68 26
Prepaid expenses 321 344
-------- -------
Total current assets 20,565 42,204
Property, furniture and equipment, net 1,598 2,040
-------- -------
Other assets:
Exclusive license agreement, net 27 26
Patent costs, net 534 600
Equipment deposits 147 171
Other, net 1 0
-------- -------
Total other assets 709 797
-------- -------
Total assets $ 22,872 $45,041
======== =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,176 $ 1,404
Current installments of capital lease
obligations 471 439
Accrued compensation 829 1,311
Accrued expenses 1,527 2,219
--------- --------
Total current liabilities 4,003 5,373
Capital lease obligations, less current
installments 853 618
--------- --------
Total liabilities 4,856 5,991
-------- -------
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, 1998
and June 30, 1999 (unaudited) -- --
Common Stock at $.001 par value per share,
30,000 shares authorized, 10,637
and 13,675 shares issued and outstanding
at December 31, 1998 and
June 30, 1999 (unaudited) 11 14
Additional paid-in capital 68,406 100,66O
Deficit accumulated during the
development stage (48,395) (60,092)
Deferred compensation (1,788) (1,422)
Notes receivable from stockholders (218) (110)
--------- --------
Net stockholders' equity 18,016 39,050
--------- --------
Total liabilities and stockholders' equity $ 22,872 $ 45,041
========= ========
See accompanying notes to financial statements.
1
TRIMERIS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Cumulative
From Inception
Three Months Six Months (January 3, 1993)
Ended June 30, Ended June 30, To June 30,
1998 1999 1998 1999 1999
---- ---- ---- ---- ----
Revenue $ 85 $ -- $ 175 $ 81 $ 1,034
-------- -------- -------- -------- --------
Operating expenses:
Research and development . 4,650 5,075 7,233 9,039 47,790
General and administrative 1,187 1,469 2,227 3,142 15,170
-------- -------- -------- -------- --------
Total operating
expenses 5,837 6,544 9,460 12,181 62,960
-------- -------- -------- -------- --------
Operating loss (5,752) (6,544) (9,285) (12,100) (61,926)
-------- -------- -------- -------- --------
Other income (expense):
Interest income 454 257 1,038 488 2,949
Interest expense (32) (43) (50) (85) (1,115)
-------- -------- -------- -------- --------
422 214 988 403 1,834
-------- -------- -------- -------- --------
Net loss $ (5,330) $(6,330) $ (8,297) $(11,697) $(60,092)
======== ======== ======== ======== ========
Basic net loss per share $ (0.50) $ (0.54) $ (0.78) $ (1.05)
========== ======== ======== ========
Weighted average
shares used in per share
computations 10,632 11,621 10,627 11,170
====== ====== ====== ======
See accompanying notes to financial statements.
2
TRIMERIS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Cumulative
From Inception
Six Months Ended (January 3, 1993)
June 30, To June 30,
1998 1999 1999
---- ---- ----
Cash flows from operating activities:
Net loss $ (8,297) $(11,697) (60,092)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 239 413 3,208
Other amortization 10 10 59
Amortization of deferred compensation 300 366 1,459
401(K) plan stock match -- -- 236
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
Loss on disposal of property and equipment -- -- 16
Changes in operating assets and liabilities:
Accounts receivable and loans to employees (9) 42 (26)
Prepaid expenses (9) (23) (344)
Other assets (30) (32) (180)
Accounts payable (513) 228 1,404
Accrued compensation (130) 482 1,311
Accrued expenses (34) 692 2,129
-------- -------- --------
Net cash used by operating activities (8,473) (9,519) (50,365)
-------- -------- --------
Cash flows from investing activities:
Purchases of short-term investments (1,031) (9,753) (13,009)
Purchases of property and equipment (130) (855) (1,702)
Equipment held for resale -- -- (61)
Organization costs -- -- (8)
Patent costs (64) (66) (614)
-------- -------- --------
Net cash provided (used) by investing
activities (1,225) (10,674) (15,394)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of notes payable -- -- 6,150
Lease costs -- -- (13)
Principal payments under capital lease obligations (212) (267) (2,505)
Proceeds from issuance of Common Stock -- -- 31
Proceeds from issuance of Preferred Stock -- -- 23,896
Proceeds from public offerings, net -- 31,357 65,889
Proceeds from exercise of stock options 5 827 846
Proceeds from employee stock purchase plan exercise 182 73 328
Repayment of notes receivable from stockholders -- 108 158
Stock issuance costs -- -- (196)
-------- -------- --------
Net cash provided (used) by financing
activities (25) 32,098 94,584
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents (9,723) 11,905 28,825
Cash and cash equivalents, beginning of period 32,557 16,920 --
-------- -------- --------
Cash and cash equivalents, end of period $ 22,834 $ 28,825 $ 28,825
======== ======== ========
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 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 generally accepted accounting principles 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 generally accepted accounting
principles 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 1998 financial statements and notes thereto included in the
Company's 1998 Form 10-K filed with the Securities and Exchange Commission on
March 31, 1999 and the Company's Registration Statement on Form S-3 as declared
effective by the Securities and Exchange Commission on May 26, 1999.
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 LOSS PER SHARE
For periods beginning with the year ended December 31, 1997, the Company
adopted SFAS No. 128, "Earnings Per Share" ("SFAS No. 128"). In accordance with
this statement, primary net loss per common share is replaced with basic loss
per common share which is calculated by dividing net loss by the
weighted-average number of common shares outstanding for the period after
certain adjustments described below. Fully diluted net income per common share
is replaced with diluted net income per common share reflecting 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. Prior period per share data has
been restated to reflect the adoption of SFAS No. 128. In accordance with
Securities and Exchange Commission Staff Accounting Bulletin No. 83 ("SAB 83"),
all common shares and common equivalent shares issued during the twelve-month
period prior to the initial filing of the registration statement relating to the
Company's initial public offering, even when anti-dilutive, have been included
in the calculation as if they were outstanding for all periods, using the
treasury stock method. The basic net loss per common share gives retroactive
effect to the conversion of all outstanding shares of Preferred Stock into
6,261,615 shares of Common Stock upon the completion of the Company's initial
public offering in October 1997.
3. STATEMENTS OF CASH FLOWS
4
Interest of approximately $50,000 and $85,000 was paid during the six months
ended June 30, 1998 and 1999, respectively. Capital leases of $760,000 and $0
were incurred for the six months ended June 30, 1998 and 1999, respectively for
the purchase of new furniture and equipment.
4. PUBLIC 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.
5. STOCK SPLIT
Effective July 11, 1997, the Company declared a one for eight and one-half
reverse stock split for common stockholders. This stock split has been
retroactively applied and all periods presented have been restated.
6. SUBSEQUENT EVENT
In July 1999, the Company announced an agreement with Hoffmann-La Roche to
develop and market T20 and T1249 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 will make an initial cash payment to the Company of $10 million and up to
an additional $78 million in cash and funding upon achievement of developmental,
regulatory and commercial milestones.
5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
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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 Form 10-Q for the three months
ended March 31, 1999 filed with the Securities and Exchange Commission on May
17, 1999 and our Registration Statement on Form S-3 as declared effective by the
Securities and Exchange Commission on May 26, 1999. These factors include, but
are not limited to: that we are an early stage company with an uncertain future;
that we have never made money and expect our losses to continue; that we will
need to raise additional funds in the future; that our quarterly operating
results are subject to fluctuations and you should not rely on them as an
indication of our future results; that we are heavily dependent on our lead
product candidate, T20; that we face many uncertainties relating to our human
clinical trial results and clinical trial strategy; that HIV may develop
resistance to our drug candidates; that we have no experience manufacturing
pharmaceutical products; that we face risks associated with manufacturing T20
and T1249; that our business is based on novel technology and is highly risky
and uncertain; that we are dependent on third-party contract research
organizations; that we have no sales, marketing or distribution capabilities;
that our stock price is highly volatile; that we depend on collaborations and
licenses with others; that there is uncertainty relating to third-party
reimbursement and health care reform measures which could limit the amount we
will be able to charge for our products; that there is uncertainty regarding
patents and proprietary rights; that we are subject to extensive government
regulation; that our products may not receive regulatory approval; that we face
intense competition; that we use hazardous materials; that we are exposed to
product liability risks; that we depend upon certain key personnel and face
risks relating to our ability to attract and retain key personnel; that we may
be adversely affected by Year 2000 issues; that future sales of common stock by
our existing stockholders could adversely affect our stock price; and that we
have implemented certain anti-takeover provisions. 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 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.
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
T20,
o the development of a manufacturing process for T20,
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, 1999, had an
accumulated deficit of approximately $60.1 million. We have received revenue
only from federal small business innovative research grants, otherwise known as
SBIR grants, and an investigative contract 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
6
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 Hoffmann-LaRoche to manufacture, develop,
sell, market and distribute T20 and T1249,
o technological and other changes in the competitive landscape,
o changes in our existing research and development relationships and
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 partners'
ability to successfully develop and obtain regulatory approval for T20 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.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 AND 1999
REVENUE. Total revenue was $85,000 for the three months ended June 30, 1998 and
was entirely derived from SBIR grants. There was no revenue for the three months
ended June 30, 1999 due to the completion of the SBIR grant.
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses were
$4.7 million and $5.1 million for the three months ended June 30, 1998 and 1999,
respectively. Expenses increased during the three months ended June 30, 1999
because we:
o initiated a Phase II clinical trial for T20,
o initiated a Phase I clinical trial for T1249, and
o continued manufacturing process development and purchase of drug material
from third party manufacturers to supply future clinical trials.
Total research personnel were 43 and 47 at June 30, 1998 and 1999, respectively.
We expect research and development expenses to increase substantially in the
future due to:
7
o continued preclinical research and testing of product candidates,
o expanded clinical trials for T20, T1249 and other product candidates,
o the manufacture of drug material for these trials, and
o increased number of personnel to support these activities.
GENERAL AND ADMINISTRATIVE EXPENSES. Total general and administrative expenses
were $1.2 million and $1.5 million for the three months ended June 30, 1998 and
1999, respectively. Expenses increased during the three months ended June 30,
1999 because we:
o added personnel to support our growth, and
o incurred professional fees in the patent application process.
We expect administrative expenses to increase in the future to support the
anticipated expansion of product development activities.
OTHER INCOME (EXPENSE). Other income (expense) consists of interest income and
expense. Total other income was $422,000 and $214,000 for the three months ended
June 30, 1998 and 1999, respectively. The decrease was due to decreased interest
income because of lower cash and investment balances during 1999.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 AND 1999
REVENUE. Total revenue was $175,000 and $81,000 for the six months ended June
30, 1998 and 1999, respectively and was entirely derived from SBIR grants.
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses were
$7.2 million and $9.0 million for the six months ended June 30, 1998 and 1999,
respectively. Expenses increased during the six months ended June 30, 1999
because we:
o completed one Phase II clinical trial and initiated two additional
Phase II clinical trials for T20,
o completed preclinical studies, filed an IND and initiated a Phase I
clinical trial for T1249, and
o continued manufacturing process development and purchase of drug material
from third party manufacturers to supply future clinical trials.
Total research personnel were 43 and 47 at June 30, 1998 and 1999, respectively.
We expect research and development expenses to increase substantially in the
future due to:
o continued preclinical research and testing of product candidates,
o expanded clinical trials for T20, T1249 and other product candidates,
o the manufacture of drug material for these trials, and
o increased number of personnel needed to support these activities.
8
GENERAL AND ADMINISTRATIVE EXPENSES. Total general and administrative expenses
were $2.2 million and $3.1 million for the six months ended June 30, 1998 and
1999, respectively. Expenses increased during the six months ended June 30, 1999
because we:
o accrued severance costs for our former Chief Executive Officer,
o initiated and completed market research on the sales potential of T20,
o added personnel to support our growth, and
o incurred professional fees in the patent application process.
We expect administrative expenses to increase in the future to support the
expansion of product development activities.
OTHER INCOME (EXPENSE). Other income (expense) consists of interest income and
expense. Total other income was $988,000 and $403,000 for the six months ended
June 30, 1998 and 1999, respectively. The decrease was due to decreased interest
income because of lower cash and investment balances during 1999.
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 in October 1997 and a
public offering of common stock in June 1999. Net cash used by operating
activities was $8.5 million and $9.5 million for the six months ended June 30,
1998 and 1999, respectively. The cash used by operating activities was used
primarily to fund research and development relating to T20, T1249, and other
product candidates. Cash used by financing activities was $1.2 million and $10.7
million for the six months ended June 30, 1998 and 1999, respectively. The
increase for the six months ended June 30, 1999 was due to the purchase of
short-term investments as a result of a our public offering of common stock in
June 1999.
As of June 30, 1999, we had $41.8 million in cash and cash equivalents and
short-term-investments, compared to $20.2 million as of December 31, 1998. The
increase is primarily a result of the closing of a public offering of common
stock in June 1999 which resulted in net proceeds of approximately $31.4
million, less cash used by operating activities.
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. 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 T20, T1249 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.
9
As of June 30, 1999, we had commitments of approximately $9 million to
purchase product candidate materials and fund various clinical studies, and
expect to expend approximately $750,000 in capital expenditures during the
remainder of 1999. The majority of these expenditures will be shared equally by
Hoffmann-La Roche under a development and license agreement signed in July 1999.
Under this development and license agreement, we are obligated to share equally
the future development expenses for T20 and T1249 for the United States and
Canada. Our share of these expenditures may be financed with capital or
operating leases, debt or working capital. We expect that our existing capital
resources, together with the interest earned thereon, will be adequate to fund
our capital requirements through 1999. We believe that substantial additional
funds will be required after 1999.
If adequate funds are not available, we will be required to delay, scale-back
or eliminate certain preclinical testing, clinical trials and research and
development programs, including our collaborative efforts with Hoffmann-La
Roche. In addition, we will be required to obtain additional funds, which may be
raised through equity or debt financings. If we raise funds by selling equity,
our stockholders' interest may be diluted. Any debt financings may contain
restrictive terms that 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 or to reduce our share of potential
profits. This could have a material adverse effect on our business, financial
condition or results of operations.
YEAR 2000 COMPLIANCE
STATE OF READINESS. We have adopted a Year 2000 compliance plan and formed a
team to identify and resolve any Year 2000 issues that may affect our business.
Our compliance plan has four phases: inventory, assessment, remediation and
testing. We have completed an inventory of all of our computer systems,
computer-related equipment and equipment with embedded processors. We are
currently in the process of assessing those systems. We have completed this
assessment with respect to most of our systems and expect to complete our
assessment of the remaining systems by September 1999. Although we cannot
control whether and how third parties will address the Year 2000 issue, we have
contacted our critical vendors and suppliers to assess their ability to ensure
smooth delivery of products without disruptions caused by Year 2000 problems. In
the course of our assessment, we have not yet identified any Year 2000 issues
that would affect our ability to do business; however, our assessment is not
complete, and there can be no assurance that there are no Year 2000 issues that
may affect us. Once we complete the assessment phase, we will prioritize and
implement necessary repairs or replacements to equipment and software to achieve
Year 2000 compliance. We expect to complete this phase by October 1999. The
final phase will consist of a testing program for all repairs. We anticipate
that all testing will be completed by November 1999.
COSTS. We have not prepared estimates of costs to remediate Year 2000
problems; however, based on currently available information, including the
results of our assessment to date and our replacement schedule for equipment, we
do not believe that the costs associated with Year 2000 compliance will have a
material adverse effect on our business, financial condition and results of
operations.
RISKS. Although we believe that our Year 2000 compliance plan is adequate to
address Year 2000 concerns, we may experience negative consequences as a result
of undetected defects or the non-compliance of third parties with whom we
interact. Furthermore, there may be a delay in, or increased costs associated
with, the implementation of corrections as the Year 2000 compliance plan is
performed, such as unexpected costs of correcting equipment that has not yet
been fully evaluated. If realized, these risks could result in a material
adverse effect on our business, financial condition and results of operations.
We believe that our greatest risk stems from the potential non-compliance of
our suppliers. We depend on a limited number of suppliers for certain materials,
components, services, including electrical service, and equipment necessary to
operate our research effort and our clinical trials. Accordingly, if those
suppliers are unable to process or fill our orders, provide us with services, or
otherwise interact with us because of Year 2000 problems, we could experience
material adverse effects to our business. We are in the process of assessing the
Year 2000 status of our suppliers and are investigating alternative sources of
supply.
CONTINGENCIES. We have not yet developed a contingency plan to address what
would happen in
10
the event we are unable to address the Year 2000 issue. The contingency plan is
expected to be completed after the assessment of vendor and customer responses
is completed.
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.
T20
PHASE II - T20-205
In March 1999, we initiated a roll-over Phase II trial to continue T20
therapy for patients who participated in the earlier clinical trials of T20. The
primary purpose of this trial is to collect data relating to the safety of
long-term administration of T20. Patients in this trial will add T20 to their
individualized anti-HIV drug combinations and will remain on therapy for as long
as they demonstrate acceptable safety and antiviral responses. Approximately
three quarters of the patient population eligible for enrollment enrolled in
this study. We expect to have our initial long-term safety data from this trial
in the third quarter of 1999.
PHASE II - T20-204 (PEDIATRIC)
In cooperation with the Division of AIDS of the National Institute of Allergy
and Infectious Diseases, we are planning to commence a clinical trial in 1999 to
assess the safety, pharmacokinetics and preliminary antiviral activity of T20 in
children. We expect to enroll 12 HIV-infected children. We expect to begin this
pediatric trial in the third quarter of 1999 and complete it by early 2000. We
will use the results from this trial to design larger scale pediatric trials
that we expect to commence following culmination of the safety and
pharmacokinetic trial.
PHASE II - T20-206
In June 1999, we initiated a Phase II trial that should assess the long-term
safety and efficacy of T20 when used in combination with other anti-HIV drugs.
The trial is designed to run for 48 weeks, with formal data collection at 16 and
48 weeks. It is a multi-site, randomized, controlled comparison of three
different doses of T20 in combination with a background regimen of a nucleoside
RT inhibitor, a protease inhibitor and a non-nucleoside RT inhibitor. We intend
to collect data from up to 68 patients who complete treatment. We expect to have
our initial data from this trial in early 2000.
PIVOTAL TRIAL
Based on the results of these Phase II trials, we intend to begin a pivotal
trial late in the fourth quarter of 1999 in a larger population of HIV-infected
patients who are either resistant to, or intolerant of, currently-approved
anti-HIV drugs. Historically, pivotal trials of this type involving anti-HIV
drugs have included approximately 300 to 400 patients and have taken
approximately 18 months to complete.
T1249
We are developing T1249, our second drug candidate for HIV fusion inhibition.
We have filed an IND for T1249 with the FDA.
PHASE I - T1249-101
In June 1999, we initiated a Phase I dose escalation trial to assess the
safety and pharmacokinetics of T1249. Three different daily doses of T1249 will
be administered as monotherapy for 14 days to HIV-infected adults by once or
twice daily subcutaneous injection. T1249-101 will enroll up to 60 HIV-infected
individuals at up to eight sites in the United States.
RISK FACTORS
11
Our business is subject to certain risks and uncertainties. Please read the
"Risk Factors" and "Business" sections of our Form 10-Q for the three months
ended March 31, 1999 filed with the Securities and Exchange Commission on May
17, 1999 and our Registration Statement on Form S-3 as declared effective by the
Securities and Exchange Commission on May 26, 1999, 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. 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.
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, 1999. All of our investments mature in eighteen
months or less.
Carrying Average
Amount Interest
(thousands) Rate
Cash equivalents - fixed rate $ 28,571 5.15 %
Short-term investments - fixed rate 13,009 6.37 %
Overnight cash investments - fixed rate 346 4.93 %
----------- ----------
Total investment securities $ 41,926 5.52 %
=========== ==========
12
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) Not applicable.
(d) Use of Proceeds:
Initial Public Offering, October 1997
The following information updates and supplements the information
regarding use of proceeds originally filed in our Form 10-Q for the
quarter ended September 30, 1997, as updated and supplemented in our
subsequent periodic reports to date. The registration statement on
Form S-1 (File No. 333-31109) to which this use of proceeds relates
was declared effective on October 6, 1997. A subsequent registration
statement on Form S-1 (File No. 333-37319) was filed pursuant to
Rule 462(b) and declared effective on October 7, 1997. Through March
31, 1999, we have expended for working capital approximately
$24,362,000 of the total net proceeds from our initial public
offering of $34,532,000. The unused proceeds of $10,170,000 are
invested in temporary investments, primarily short-term corporate
debt securities. All proceeds used or invested were direct or
indirect payments to others or payments to directors and officers in
the ordinary course of business. This use of proceeds does not
represent a material change in the use of proceeds described in our
prospectus filed as a part of the registration statement for our
initial public offering.
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 23, 1999:
FOR AGAINST WITHHELD
Election of the following Directors:
Jesse I. Treu, Ph.D. 7,646,808 N/A 1,039,604
Charles A. Sanders, M.D. 8,569,414 N/A 116,998
Appointment of KPMG
LLP as independent accountants for
the year ended December 31, 1999 8,649,777 29,552 7,083
Amendment to the Company's Amended
And Restated Stock Incentive Plan 5,489,863 1,279,334 19,670
13
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 17, 1999 under Item 5 describing
developments for T1249.
14
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, 1999 By: /s/ DANI P. BOLOGNESI
- --------------- ----------------------
Dani P. Bolognesi
Chief Executive Officer,
and Chief Scientific Officer
August 13, 1999 By: /s/ MATTHEW A. MEGARO
- --------------- ----------------------
Matthew A. Megaro
President,
Chief Financial Officer,
and Secretary (Principal
Accounting and Financial
Officer)
15
EXHIBIT INDEX
Number Description
- ------ -----------
10.1 Development and License Agreement between Trimeris
and Hoffmann-La Roche dated July 1, 1999 (Portions
of this exhibit have been omitted pursuant to a
request for confidential treatment filed with the
Commission.)
10.2 Financing Agreement between Trimeris, Inc. and Roche
Finance Ltd. dated as of July 9, 1999
10.3 Registration Rights Agreement between Trimeris, Inc.
and Roche Finance Ltd. dated as of July 9, 1999
10.4 Lease between Trimeris, Inc. and University Place
Associates dated April 14, 1999
10.5 Sublease Agreement between Trimeris, Inc. and Blue
Cross and Blue Shield of North Carolina dated
May 15, 1999
10.6 Lease Agreement between Hamad Jassim Althani and
Blue Cross and Blue Shield of North Carolina,
relating to Sublease Agreement filed as Exhibit 10.5
hereto
11.1 Computations of Basic Loss Per Share
27.1 Financial Data Schedule
16