UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-15006
T CELL SCIENCES, INC.
(Exact name of registrant as specified in charter)
Delaware No. 13-3191702
(State of Incorporation) (I.R.S. Employer Identification No.)
119 Fourth Avenue, Needham, Massachusetts 02194-2725
(Address of principal executive offices) (Zip code)
(617) 433-0771
(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 .
--- ---
Outstanding as of
Class May 8, 1998
----- -----------
Common Stock, par value $.001 28,531,285
1
T CELL SCIENCES, INC.
Table of Contents
March 31, 1998
Page
Part I -- Financial Information ----
- -------------------------------
Condensed Consolidated Balance Sheet at March 31, 1998 and December 31, 1997............... 3
Condensed Consolidated Statement of Operations for the Quarters Ended
March 31, 1998 and 1997........................................................... 4
Condensed Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 1998 and 1997........................................................... 5
Notes to Condensed Consolidated Financial Statements....................................... 6
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................... 8
Part II -- Other Information
- ----------------------------
Item 1. Legal Proceedings................................................................. 10
Item 2. Changes in Securities............................................................. 10
Item 3. Defaults Upon Senior Securities................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders............................... 10
Item 5. Other Information................................................................. 10
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits...................................................................... 10
B. Reports on Form 8-K........................................................... 10
Signatures................................................................................. 11
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
T CELL SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1998 and December 31, 1997
March 31, December 31,
1998 1997
- ----------------------------------------------------------------------------------------------------------
ASSETS (audited)
Current Assets:
Cash and Cash Equivalents $ 8,181,900 $ 6,436,300
Current Portion Restricted Cash 750,000 750,000
Accounts Receivable 12,600 22,900
Inventories 7,300 15,000
Prepaid Expenses and Other 187,800 165,400
- ----------------------------------------------------------------------------------------------------------
Total Current Assets 9,139,600 7,389,600
- ----------------------------------------------------------------------------------------------------------
Property and Equipment, Net 346,400 364,500
Restricted Cash 500,000 525,000
Other Noncurrent Assets 1,598,600 1,547,500
- ----------------------------------------------------------------------------------------------------------
Total Assets $ 11,584,600 $ 9,826,600
- ----------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 225,700 $ 201,200
Accrued Expenses 757,000 1,059,900
Deferred Revenue 500,000 750,000
Short-Term Note Payable 750,000 750,000
- ----------------------------------------------------------------------------------------------------------
Total Current Liabilities 2,232,700 2,761,100
- ----------------------------------------------------------------------------------------------------------
Long-Term Note Payable 750,000 750,000
- ----------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Common Stock, $.001 Par Value 28,500 26,500
Additional Paid-in Capital 80,256,800 76,561,400
Less: Common Treasury Shares at Cost (31,300) (35,800)
Accumulated Deficit (71,652,100) (70,236,600)
- ----------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 8,601,900 6,315,500
- ----------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 11,584,600 $ 9,826,600
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
3
T CELL SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Quarters Ended March 31, 1998 and 1997
March 31, March 31,
1998 1997
- ----------------------------------------------------------------------------------------------------------
OPERATING REVENUE:
Product Development and Licensing Agreements $ 333,600 $ 62,100
Product Sales 27,400 1,300
- ----------------------------------------------------------------------------------------------------------
Total Operating Revenue 361,000 63,400
- ----------------------------------------------------------------------------------------------------------
OPERATING EXPENSE:
Cost of Product Sales 13,100 400
Research and Development 1,108,800 1,335,900
General and Administrative 735,700 774,100
Marketing and Sales 18,000 40,800
- ----------------------------------------------------------------------------------------------------------
Total Operating Expenses 1,875,600 2,151,200
- ----------------------------------------------------------------------------------------------------------
Operating Loss (1,514,600) (2,087,800)
Non-Operating Income, Net 99,100 152,200
- ----------------------------------------------------------------------------------------------------------
Net Loss $ (1,415,500) $(1,935,600)
- ----------------------------------------------------------------------------------------------------------
Net Loss Per Common Share $ (0.05) $ (0.08)
- ----------------------------------------------------------------------------------------------------------
Weighted Average Common Shares Outstanding 26,774,000 24,948,400
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
4
T CELL SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 1998 and 1997
March 31, March 31,
1998 1997
- ----------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net Loss $(1,415,500) $(1,935,600)
Adjustments to Reconcile Net Loss to Net Cash
Used by Operating Activities:
Depreciation and Amortization 86,400 88,400
Write-off of Capitalized Patent Costs -- 51,100
Net Change in Current Assets and Current Liabilities (532,800) (288,700)
- ----------------------------------------------------------------------------------------------------------
Net Cash Used by Operating Activities (1,861,900) (2,084,800)
- ----------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Acquisition of Property and Equipment (27,800) (47,100)
Other Noncurrent Assets (91,600) (22,800)
Decrease in Restricted Cash 25,000 --
Sale of Investment in Common Stock of Endogen, Inc. -- 1,802,700
- ----------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Investing Activities (94,400) 1,732,800
- ----------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from Issuance of Common Stock 3,701,900 2,500
- ----------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 3,701,900 2,500
- ----------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 1,745,600 (349,500)
Cash and Cash Equivalents at Beginning of Period 6,436,300 12,591,800
- ----------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 8,181,900 $12,242,300
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
5
T CELL SCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 1998
(1) Nature of Business
------------------
T Cell Sciences, Inc. (the "Company") is a biopharmaceutical company
engaged in the discovery and development of innovative drugs using novel
applications of immunology to prevent and treat cardiovascular, pulmonary and
immune disorders. The Company develops and commercializes products on a
proprietary basis and in collaboration with pharmaceutical partners, including
Novartis Pharma AG, Astra AB and Yamanouchi Pharmaceutical Co., Ltd.
The condensed consolidated financial statements include the accounts of
T Cell Sciences, Inc. and its wholly owned subsidiary, T Cell Diagnostics, Inc.
All intercompany transactions have been eliminated.
(2) Interim Financial Statements
----------------------------
The accompanying condensed consolidated financial statements for the
three months ended March 31, 1998 and 1997 include the consolidated accounts of
the Company, and have been prepared in accordance with generally accepted
accounting principles and with the instructions to Form 10-Q and article 10 of
Regulation S-X. In the opinion of management, the information contained herein
reflects all adjustments, consisting solely of normal recurring adjustments,
that are necessary to present fairly the financial positions at March 31, 1998
and December 31, 1997, the results of operations for the quarters ended March
31, 1998 and 1997, and the cash flows for the three months ended March 31, 1998
and 1997. The results of operations for the quarter ended March 31, 1998 are not
necessarily indicative of results for any future interim period or for the full
year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted, although the Company believes that the disclosures
included are adequate to make the information presented not misleading. The
condensed consolidated financial statements and the notes included herein should
be read in conjunction with footnotes contained in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
(3) Issuance of Common Stock
------------------------
In March 1998, the Company completed a private placement of
approximately 2,043,000 shares of common stock to institutional investors at a
price of $1.90 per share. Net proceeds from the common stock issuance totaled
approximately $3,699,900. The Company believes that its current cash and cash
equivalents, which includes the private placement proceeds, together with cash
flows from existing SBIR grants and collaborations, and interest income on
invested funds will be sufficient to meet working capital requirements and fund
operations into 1999. The working capital requirements will depend on several
factors including, but not limited to, the progress and costs associated with
research and development programs, preclinical and clinical studies, and the
timing and scope of collaborative arrangements.
6
(4) Statement of Financial Accounting Standards Nos. 130 and 131
------------------------------------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement
of Accounting Standards Nos. 130, "Reporting Comprehensive Income" ("SFAS 130"),
and 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131") to become effective for interim and annual periods beginning after
December 15, 1997. The Company adopted SFAS 130 and SFAS 131 on January 1, 1998.
SFAS 130 establishes standards for the reporting of comprehensive income and its
components in the consolidated financial statements. To date the Company has not
had material adjustments between net income as reported and comprehensive income
as defined by SFAS 130. SFAS 131 establishes standards for the reporting of
information on operating segments in interim and annual financial statements
beginning with the annual financial statements for the year ending December 31,
1998.
7
Safe Harbor Statement under the Private Securities Litigation Reform
Act of 1995: Statements contained in the following, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations, that
are not historical facts are forward-looking statements within the meaning of
section 2xx of the Securities Exchange Act of 1934 that are subject to a variety
of risks and uncertainties. There are a number of important factors that could
cause the actual results to differ materially from those expressed in any
forward-looking statements made by the Company. These factors include, but are
not limited to: (i) the Company's ability to successfully complete product
research and development, including pre-clinical and clinical studies, and
commercialization; (ii) the Company's ability to obtain substantial additional
funding; (iii) the Company's ability to obtain required governmental approvals;
(iv) the Company's ability to attract manufacturing, sales, distribution and
marketing partners and other strategic alliances; and (v) the Company's ability
to develop and commercialize its products before its competitors.
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
-----------------------------------------------------------------------
Of Operations
-------------
Overview
T Cell Sciences is a biopharmaceutical company engaged in the discovery
and development of innovative drugs using novel applications of immunology to
prevent and treat cardiovascular, pulmonary and immune disorders. The Company's
technology platforms are based on its understanding of the ways in which the
body triggers its natural defense mechanisms. Product development efforts focus
on three therapeutic programs: (i) developing compounds that inhibit
inappropriate complement activation, which is part of the body's immune defense
system; (ii) discovery and development of T cell activation inhibitors for the
prevention of transplant rejection and treatment of autoimmune diseases; and
(iii) development of a therapeutic vaccine for the management of
atherosclerosis.
The Company concluded clinical trials in November 1997 for its lead
complement inhibitor, TP10, in patients undergoing lung transplantation. Final
results released in April 1998 showed that TP10 therapy appears safe and well
tolerated and demonstrated significant efficacy. The Company's collaborative
partner, Astra AB, completed a Phase I clinical trial for ATM027 in patients
with multiple sclerosis. ATM027 is one of the products derived from the
Company's T cell antigen receptor (TCAR) program. The Phase I data showed that
ATM027 had an effect on the target cells and there have been no serious adverse
effects in the study to date. In January the Company was awarded its fourth
Small Business Innovation Research (SBIR) grant from the National Institutes of
Health. The grant, in the amount of $96,000, will support the development of a
peptide vaccine to prevent or treat atherosclerosis. In March 1998, the Company
completed a private placement of approximately 2,043,000 shares of common stock
to institutional investors at a price of $1.90 per share. Net proceeds from the
common stock issuance totaled approximately $3,699,900.
Results of Operations
The Company reported a consolidated net loss of $1,415,500, or $.05 per
share, for the first quarter ended March 31, 1998, a decrease of $520,000, or
26.9%, compared with a net loss of $1,935,600, or $.08 per share, for the first
quarter ended March 31, 1997. The decrease in net loss for the first quarter of
1998 compared to the first quarter of 1997 is due to a increase in operating
revenue of $297,600, or 469.4%, to $361,000 in 1998 from $63,400 in 1997
combined with a decrease in operating expense of $275,600, or 12.8%, to
$1,875,600 in 1998 from $2,151,200 in 1997. The Company reported a net operating
loss of $1,514,600 for the first quarter of 1998 a decrease of $573,200, or
27.5%, compared with a net operating loss of $2,087,800 for the first quarter of
1997. The decrease in net operating loss was partially offset by a decrease in
non-operating income of $53,100 to $99,100 in 1998 compared to $152,200 in 1997.
Total operating revenue increased $297,600 to $361,000 for the first
quarter of 1998 compared to $63,400 for the first quarter of 1997. The increase
in operating revenue for the quarter was primarily due
8
to the option payment received from Novartis Pharma AG in November 1997 which is
being recognized over the option term. Product sales revenue was $27,400 for the
quarter compared to $1,300 for the same period last year.
Total operating expense decreased $275,600, or 12.8%, for the first
quarter of 1998 compared to $2,151,200 for the first quarter of 1997. The
decrease in operating expense is primarily due to a $227,100, or 17.0%, decrease
in research and development expense to $1,108,800 in 1998 compared to $1,335,900
in 1997. The decrease in research and development expense is primarily due to
lower costs associated with clinical trials. During the first quarter of 1997,
there was an ongoing Phase IIa clinical trial for TP10 in patients with ARDS and
a Phase I/II clinical trial for TP10 in patients undergoing lung transplant. The
Phase IIa clinical trial was completed in December 1997 and the Phase I/II
clinical trial was completed in November 1997 following a six month safety
review. There were no ongoing clinical trials during the first quarter of 1998.
Non-operating income decreased $53,100, or 34.9%, to $99,100 for the
first quarter ended March 31, 1998 compared to non-operating income of $152,200
for the first quarter ended March 31, 1997. The decrease in non-operating income
is primarily the result of a $71,000, or 41.7% decrease in interest income
primarily due to lower cash balances for the first quarter of 1998 compared to
the first quarter of 1997. Included in non-operating income for the first
quarter of 1997 is a gain recognized from the conversion of the convertible
note receivable from Endogen, Inc. and subsequent sale of the stock received.
Liquidity and Capital Resources
The Company ended the first quarter of 1998 with cash and cash
equivalents of $8,181,900 compared to $6,436,300 at December 31, 1997. Net cash
used in operations decreased 10.7% to $1,861,900 for the first quarter of 1998
compared to $2,084,800 for the first quarter of 1997. For the first quarter of
1998, net cash used in operations was offset by net proceeds of $3,699,900 from
the private placement of 2,043,000 shares of common stock. For the first quarter
of 1997, net cash used in operations was partially offset by $1,829,000 received
from the conversion and subsequent sale of the convertible note receivable from
Endogen, Inc.
In March 1998, the Company completed a private placement of
approximately 2,043,000 shares of common stock to institutional investors at a
price of $1.90 per share. Net proceeds from the private placement totaled
approximately $3,699,900. The Company believes that its current cash and cash
equivalents, which includes the private placement proceeds, together with cash
flows from existing SBIR grants and collaborations, and interest income on
invested funds will be sufficient to meet working capital requirements and fund
operations into 1999. The working capital requirements will depend on several
factors including, but not limited to, the progress and costs associated with
research and development programs, preclinical and clinical studies, and the
timing and scope of collaborative arrangements.
9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
No material changes since the Company's annual report of Form 10-K for
the year ended December 31, 1997.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submissions of Matters to a Vote of Security Holders
----------------------------------------------------
None
Item 5. Other Information
-----------------
On May 12, 1998, the Company entered into a definitive merger agreement
whereby it will acquire Virus Research Institute, Inc. (VRI). Under the terms of
the merger agreement, which is subject to shareholder and regulatory approval,
the Company will issue 1.55 shares of its common stock and 0.2 warrants for each
share of VRI common stock. Each warrant represents the right to purchase one
share of the Company's common stock for $6.00 per share and will expire five
years from the closing date. The number of shares of common stock outstanding on
May 12, 1998 was 28,531,285 and 9,039,355 for T Cell Sciences and VRI,
respectively.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A. Exhibits
None
B. Reports on Form 8-K
None
10
SIGNATURES
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.
T CELL SCIENCES, INC.
BY: /s/ Norman W. Gorin
---------------------------
Norman W. Gorin
Vice President, Finance
and Chief Financial Officer
Dated: May 14, 1998
11
5
US Dollars
3-MOS
DEC-31-1998
JAN-01-1998
MAR-31-1998
1
8,181,900
0
18,600
(6,000)
7,300
9,139,600
3,130,700
(2,784,300)
11,584,600
2,232,700
0
0
0
28,500
8,573,400
11,584,600
27,400
361,000
13,100
1,875,600
0
0
(99,100)
(1,415,500)
0
(1,415,500)
0
0
0
(1,415,500)
(0.05)
(0.05)
