Exhibit 99.1
Previously Announced Restatement Completed with No Impact on Cash Position
BRISBANE, Calif.--November 20, 2003.--VaxGen, Inc. (Nasdaq: VXGN) today
announced financial results for the third quarter ended September 30, 2003,
reporting a significant increase in revenue and a decrease in losses, primarily
as a result of the company's anthrax vaccine development contract. VaxGen also
provided details about a previously announced restatement of financial results
for 2001, 2002 and the first two fiscal quarters of 2003, which occurred
primarily as a result of revisions to its accounting treatment for certain
common stock warrants and beneficial conversion features relating to a 2001
preferred stock financing. The restatement had no impact on the company's cash
position.
Third-Quarter Results
Revenue for the most recent quarter totaled $5.7 million, compared to
$132,000 in the quarter ended September 30, 2002.
The company reported a consolidated net loss applicable to common
stockholders of $7.7 million, or 37 cents per share, for the quarter ended
September 30, 2003, compared to a restated net loss applicable to common
stockholders of $9.5 million, or 66 cents per share, in the comparable quarter
of 2002.
On a non-GAAP basis, which excludes non-cash charges related to VaxGen's
convertible preferred stock and warrants to purchase common stock, the company
reported a consolidated net loss of $7.4 million, or 36 cents per share, for the
quarter ended September 30, 2003, compared to a net loss of $8.7 million, or 60
cents per share, in the comparable quarter of 2002. A reconciliation of non-GAAP
results to GAAP results is provided in the financial information attached to
this press release.
For the nine months ended September 30, 2003, the company reported revenue
of $9.7 million, compared to $370,000 during the same nine months of 2002. The
consolidated net loss applicable to common stockholders for the nine months
ended September 30, 2003 was $19.4 million, or $1.08 per share, compared to a
restated net loss applicable to common stockholders of $23.9 million, or $1.66
per share, during the same period of 2002.
On a non-GAAP basis, which excludes non-cash charges related to VaxGen's
convertible preferred stock and warrants to purchase common stock, the company
reported a consolidated net loss of $16.2 million, or 90 cents per share, for
the nine months ended September 30, 2003. That compares to a non-GAAP net loss
of $21.5 million, or $1.49 per share, for the same period in 2002.
VaxGen uses non-GAAP financial measures of its performance internally to
evaluate its ongoing operations and to allocate resources within the
organization. VaxGen's management does not, nor does it suggest that investors
should, consider such non-GAAP financial measures in isolation from, or as a
substitute for, financial information presented in accordance with GAAP. VaxGen
computes its non-GAAP financial measure of net loss by adjusting the net loss
applicable to common stockholders to exclude the impact of non-cash charges
related to its
convertible preferred stock and warrants. Management does not consider these
charges to be a normal component of its expenses related to ongoing operations.
These non-GAAP financial measures may not be consistent with the presentation of
similar companies in VaxGen's industry. However, VaxGen presents such non-GAAP
financial measures in reporting its financial results to provide investors with
an additional tool to evaluate VaxGen's operating results in a manner that
focuses on what it believes to be its ongoing business operations.
VaxGen had $6.8 million in cash and investment securities as of September
30, 2003, compared to $14.6 million as of June 30, 2003, the end of the previous
quarter. The company believes that its existing cash and cash equivalents as of
September 30, 2003, together with cash receipts expected to be generated from
its existing contracts and grants from the National Institutes of Health, will
enable VaxGen to meet its forecasted expenditures through the first quarter of
2004. VaxGen expects its net cash burn to decrease in the fourth quarter of 2003
because of anticipated cash collections from its government contracts to develop
an anthrax vaccine and other sources. However, the company will need to raise
additional funds to support its product development programs, other business
opportunities and general operations.
Restatement
VaxGen has restated its financial results for 2001, 2002 and the first two
fiscal quarters of 2003. The restatement is primarily the result of revisions to
the accounting treatment for certain common stock warrants and beneficial
conversion features relating to VaxGen's Series A Redeemable Convertible
Preferred Stock financing in May 2001. The net loss applicable to common
stockholders increased by $1.8 million for the two-year period ended December
31, 2002 as a result of the non-cash charge associated with the restatement,
compared to amounts previously reported by VaxGen.
The restatement for the fiscal years 2001 and 2002 has been filed on a
Form 10-K/A for the year ended December 31, 2002. The restatement for the first
quarter of fiscal 2003 has been filed on Form 10-Q/A for the three months ended
March 31, 2003, and the restatement for the second quarter of fiscal 2003 has
been filed on Form 10-Q/A for the three months ended June 30, 2003. These forms
can be found at the Information Center in the Investor Relations section of
VaxGen's web site at http://www.vaxgen.com. The restatement has resulted in the
following adjustments to VaxGen's financial statements.
-- VaxGen reclassified $3.5 million from stockholder's equity to a
current liability as of May 23, 2001. The $3.5 million represents
the initial value assigned to warrants issued in connection with the
Series A financing.
-- Beginning on June 30, 2001 and in each subsequent quarter, the
restated financial statements reflect a non-cash expense or credit
and a corresponding change in current liabilities based on the
change in fair market value of the warrants measured as of the end
of each quarter.
-- The value of the beneficial conversion features associated with the
preferred stock, which totals $12.7 million, was originally recorded
as a beneficial conversion feature charge of
$734,000 in 2001, $11.1 million in 2002, and $893,000 in the second
quarter of 2003. As restated, these amounts have been reclassified
as a discount to the Redeemable Convertible Preferred Stock and have
been amortized over the period from the issuance of the preferred
stock and warrants through the mandatory redemption date, May 23,
2004. Upon conversion of the preferred stock, the pro-rata portion
of the unamortized beneficial conversion features have been
immediately recognized as a beneficial conversion charge. All of the
remaining preferred stock was converted to common stock during the
third quarter of this year.
-- In the second quarter of 2003, VaxGen properly reflected $606,000 of
costs incurred for validation procedures related to the company's
manufacturing facility, VaxGen-Celltrion, Inc. As restated, this
amount has been capitalized as property and equipment.
Recent Highlights
-- VaxGen received an $80.3 million contract on September 30 to
continue development of its recombinant Protective Antigen anthrax
vaccine candidate, rPA102. The contract from the National Institute
of Allergy and Infectious Diseases (NIAID) will fund two Phase II
trials, additional animal studies, manufacturing scale-up and
validation, and production of 3 million doses of the vaccine
candidate.
-- VaxGen completed the vaccination of all volunteers associated with
its Phase I trial for rPA102. Preliminary results from the trial
were submitted as part of the company's bid for the $80.3 million
contract.
-- VaxGen signed a license agreement with the U.S. Army Medical
Research Institute of Infectious Diseases (USAMRIID) that gives
VaxGen exclusive, worldwide rights to develop and commercialize a
recombinant anthrax vaccine candidate based on technology developed
by USAMRIID. It is the same technology VaxGen is using to develop
rPA102 under contracts from the NIAID. VaxGen's rights are subject
to royalty and milestone payments to USAMRIID. The agreement is also
subject to certain rights retained by the government.
-- VaxGen and the Health Protection Agency (HPA) for England and Wales
signed a binding letter of intent (LOI) to negotiate terms under
which VaxGen would license United Kingdom (U.K.) rights to, and
transfer technology for rPA102 to HPA. The agreement would give HPA
the right to manufacture the vaccine in the U.K. as well as to
market the vaccine there and possibly to other territories. The LOI
envisages that VaxGen will continue to manufacture rPA102 in the
U.S. and HPA would establish manufacture in the U.K., with each
party acting as a back-up supplier of anthrax vaccine to the other,
thus increasing the supply security of this strategically important
product. VaxGen would receive a royalty on sales of rPA102, if it is
approved by the U.K. regulatory authority. The royalty payable to
VaxGen may be supplemented by reciprocal rights to product
technologies under development by HPA.
-- VaxGen initiated the first in what is expected to be at least four
animal studies to determine the efficacy of a safer smallpox vaccine
that the company intends to license for use in the United States and
potentially elsewhere. VaxGen is developing the vaccine, LC16m8, in
cooperation with the Chemo-Sero-Therapeutic Research Institute
(Kaketsuken) of Kumamoto, Japan. VaxGen intends to initiate clinical
trials of the vaccine next year with the goal of responding,
beginning in 2004, to potential U.S. government contracts for the
purchase of attenuated smallpox vaccine. According to estimates by
the Congressional Budget Office, the U.S. government intends to
spend $1.9 billion on such a vaccine during the next 10 years.
VaxGen will hold a conference call and web cast today to review this press
release. VaxGen will be discussing additional financial and statistical
information during the call. Participants are asked to dial in to the live call
five minutes before the start of the presentation. The following phone numbers
will provide access to the call or a taped version, which will be available
until the announcement of VaxGen's next quarterly financial call.
Live Call: Domestic: 800 404-1354
International: 706-643-0825
No passcode required.
Replay: Domestic: 800-642-1687
International: 706-645-9291
Passcode: 3332128
The webcast can be found by clicking on "Third-Quarter Conference Call and
Webcast" under "Events/Webcasts" in the Investor Relations section of VaxGen's
web site at http://www.vaxgen.com/invest. This will bring up a window from CCBN.
Then, click on the webcast link to view the accompanying slide presentation.
About VaxGen
VaxGen, Inc. is a biopharmaceutical company engaged in the development,
manufacture and commercialization of biologic products for the prevention and
treatment of human infectious disease. Based in Brisbane, Calif., the company is
developing preventive vaccines against anthrax and smallpox. The company is also
the largest shareholder in Celltrion, Inc., a joint venture formed to build
operations for the manufacture of biopharmaceutical products, including those
from VaxGen, should they be licensed. For more information, please visit the
company's web site at: http://www.vaxgen.com.
NOTE: This press release contains "forward-looking statements" within the
meaning of the federal securities laws. These forward-looking statements include
without limitation, projections of future cash balances and revenue and
statements regarding the company's future capital resources, the timing and
progress of completion of development efforts for VaxGen's anthrax or smallpox
vaccine candidates; future uses of its manufacturing subsidiary; the Company's
ability to obtain future government contracts; the timing and progress of U.S.
government spending on biodefense vaccines; These statements are subject to
risks and uncertainties that could cause actual results and events to differ
materially from those anticipated. Reference should be made
to VaxGen's Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on November 19, 2003, under the heading "Risk Factors," and
the company's Annual Report on Form 10-K/A, filed with the Securities and
Exchange Commission on November 19, 2003, under the heading "Business" for a
more detailed description of such factors. Readers are cautioned not to place
undue reliance on these forward-looking statements that speak only as of the
date of this release. VaxGen undertakes no obligation to update publicly any
forward-looking statements to reflect new information, events, or circumstances
after the date of this release except as required by law.
VaxGen, Inc.
Condensed Consolidated Statements of Operations (unaudited)
(In thousands, except for per share data)
Quarter Quarter Nine Months Nine Months
Ended Ended Ended Ended
Sept. 30, Sept. 30, Sept. 30 Sept. 30,
2003 2002 2003 2002
(As Restated) (As Restated) (As Restated)
Revenues:
Contract revenue $ 5,612 $ 132 $ 9,289 $ 370
Related party revenue 132 -- 439 --
Total revenue 5,744 132 9,728 370
Operating Expenses:
Research and
development (5,877) (4,942) (15,238) (13,898)
General and
administrative (4,363) (3,608) (12,828) (9,677)
Loss from operations (4,496) (8,418) (18,338) (23,205)
Other income, net (2,931) (286) 1,499 1,731
Net loss before
minority interest (7,427) (8,704) (16,839) (21,474)
Minority interest
in subsidiary 41 -- 625 --
Net loss (7,386) (8,704) (16,214) (21,474)
Charges attributable
to redeemable
convertible preferred
stock (323) (827) (3,187) (2,420)
Net loss applicable
to common
stockholders $ (7,709) $ (9,531) $(19,401) $(23,894)
Net loss per share,
basic and diluted (A) $ (0.36) $ (0.60) $ (0.90) $ (1.49)
Net loss per share
applicable to common
stockholders, basic
and diluted $ (0.37) $ (0.66) $ (1.08) $ (1.66)
Weighted average shares
used in computing
basic and diluted
loss per share 20,561 14,472 17,939 14,378
(A) Non-GAAP "Net loss per share, basic and diluted" was calculated by
dividing "Net loss" by "Weighted average shares used in computing
basic and diluted loss per share."
VaxGen, Inc.
Condensed Consolidated Balance Sheets (unaudited)
(In thousands)
September 30, December 31,
2003 2002
(As Restated)
Assets:
Cash and investment securities $ 6,828 $18,021
Accounts receivable (contracts and related party) 3,414 1,742
Deferred costs 1,693 1,379
Property and equipment, net 17,808 3,309
Other assets 5,593 3,586
Total Assets $35,336 $28,037
Liabilities and Stockholders' Equity:
Current liabilities $14,293 $14,450
Deferred revenues 5,729 917
Other liabilities 517 606
Minority interest in subsidiary 6,050 --
Redeemable convertible preferred stock -- 1,497
Stockholders' equity 8,747 10,567
Total Liabilities and Stockholders' Equity $35,336 $28,037
VAXGEN
112003 3Q 03 Earnings Release Tables
QTR by QTR
Quarter Quarter Quarter Nine Months
Ended Ended Ended Ended
March 31, June 30, Sept. 30, Sept. 30,
2003 2003 2003 2003
Revenues:
Contract revenue $ 1,112 $ 2,565 $ 5,612 $ 9,289
Related party revenue 101 206 132 439
Total revenue 1,213 2,771 5,744 9,728
Operating Expenses:
Research and
development (4,025) (5,336) (5,877) (15,238)
General and
administrative (3,909) (4,010) (4,363) (12,282)
Loss from operations (6,721) (6,575) (4,496) (17,792)
Other income, net 5,148 (848) (2,931) 1,369
Net loss before
minority interest (1,573) (7,423) (7,427) (16,423)
Minority interest
in subsidiary -- 168 41 209
Net loss (1,573) (7,255) (7,386) (16,214)
Charges attributable
to redeemable
convertible preferred
stock (464) (2,400) (323) (3,187)
Net loss applicable to
common stockholders $ (2,037) $ (9,655) $ (7,709) $(19,401)
Net loss per share,
basic and diluted (A) $ (0.10) $ (0.42) $ (0.36) $ (0.90)
Net loss per share
applicable to common
stockholders, basic
and diluted $ (0.13) $ (0.56) $ (0.37) $ (1.08)
Weighted average shares
used in computing
basic and diluted
loss per share 15,846 17,358 20,561 17,939
(A) Non-GAAP "Net loss per share, basic and diluted" was calculated by
dividing "Net loss" by "Weighted average shares used in computing basic
and diluted loss per share."
SOURCE VaxGen, Inc.
Lance Ignon, Vice President
Corporate Communications
VaxGen
650-624-1041