SEC Filing | Celldex Therapeutics

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, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-15006 AVANT IMMUNOTHERAPEUTICS, 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 02494-2725 (Address of principal executive offices) (Zip code) (781) 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 5, 1999 Common Stock, par value $.001 42,528,765

AVANT IMMUNOTHERAPEUTICS, INC. TABLE OF CONTENTS MARCH 31, 1999 PAGE PART I -- FINANCIAL INFORMATION Condensed Consolidated Balance Sheet at March 31, 1999 and December 31, 1998.........................3 Condensed Consolidated Statement of Operations for the Three Months Ended March 31, 1999 and 1998.....................................................................4 Condensed Consolidated Statement of Cash Flows for the Three Months Ended March 31, 1999 and 1998.....................................................................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 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 AVANT IMMUNOTHERAPEUTICS, INC. CONDENSED CONSOLIDATED BALANCE SHEET MARCH 31, 1999 AND DECEMBER 31, 1998 MARCH 31, DECEMBER 31, 1999 1998 - ----------------------------------------------------------------- --------------------- --------------------- (audited) ASSETS Current Assets: Cash and Cash Equivalents $ 10,983,100 $ 8,937,200 Marketable Securities -- 4,903,100 Current Portion Restricted Cash 750,000 750,000 Current Portion Lease Receivable 395,700 395,700 Prepaid and Other Current Assets, Net 635,400 629,700 - ----------------------------------------------------------------- --------------------- --------------------- Total Current Assets 12,764,200 15,615,700 - ----------------------------------------------------------------- --------------------- --------------------- Property and Equipment, Net 1,478,400 1,111,400 Restricted Cash 325,000 365,000 Long-Term Lease Receivable 775,400 827,300 Other Assets 4,334,300 4,730,700 - ----------------------------------------------------------------- --------------------- --------------------- Total Assets $ 19,677,300 $ 22,650,100 - ----------------------------------------------------------------- --------------------- --------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 741,600 $ 363,700 Accrued Expenses 857,900 1,184,700 Deferred Revenue 500,000 750,000 Short-Term Note Payable 750,000 750,000 Current Portion Lease Payable 269,200 269,200 - ----------------------------------------------------------------- --------------------- --------------------- Total Current Liabilities 3,118,700 3,317,600 - ----------------------------------------------------------------- --------------------- --------------------- Long-Term Lease Payable 514,000 562,900 - ----------------------------------------------------------------- --------------------- --------------------- Stockholders' Equity: Common Stock, $.001 Par Value 42,500 42,500 Additional Paid-In Capital 140,792,400 140,777,200 Less: Common Treasury Shares at Cost (12,200) (13,800) Accumulated Deficit (124,778,100) (122,036,300) - ----------------------------------------------------------------- --------------------- --------------------- Total Stockholders' Equity 16,044,600 18,769,600 - ----------------------------------------------------------------- --------------------- --------------------- Total Liabilities and Stockholders' Equity $ 19,677,300 $ 22,650,100 - ----------------------------------------------------------------- --------------------- --------------------- SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3

AVANT IMMUNOTHERAPEUTICS, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998 MARCH 31, MARCH 31, 1999 1998 - ----------------------------------------------------------------- --------------------- --------------------- OPERATING REVENUE: Product Sales, Product Development and Licensing Agreements $ 337,900 $ 361,000 - ----------------------------------------------------------------- --------------------- --------------------- OPERATING EXPENSE: Research, Development and Operations 1,891,100 1,210,000 General and Administrative 969,800 665,600 Amortization of Goodwill 409,800 -- - ----------------------------------------------------------------- --------------------- --------------------- Total Operating Expenses 3,270,700 1,875,600 - ----------------------------------------------------------------- --------------------- --------------------- Operating Loss (2,932,800) (1,514,600) Non-Operating Income, Net 191,000 99,100 - ----------------------------------------------------------------- --------------------- --------------------- Net Loss $ (2,741,800) $ (1,415,500) - ----------------------------------------------------------------- --------------------- --------------------- Net Loss Per Common Share $ (0.06) $ (0.05) - ----------------------------------------------------------------- --------------------- --------------------- Weighted Average Common Shares Outstanding 42,526,300 26,774,000 - ----------------------------------------------------------------- --------------------- --------------------- SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4

AVANT IMMUNOTHERAPEUTICS, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 MARCH 31, MARCH 31, 1999 1998 - ----------------------------------------------------------------- --------------------- --------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ (2,741,800) $ (1,415,500) Adjustments to Reconcile Net Loss to Net Cash Used by Operating Activities: Depreciation and Amortization 564,100 86,400 Net Change in Current Assets and Current Liabilities (204,700) (532,800) - ----------------------------------------------------------------- --------------------- --------------------- Net Cash Used by Operating Activities (2,382,400) (1,861,900) - ----------------------------------------------------------------- --------------------- --------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Property and Equipment (482,000) (27,800) Other Noncurrent Assets (49,700) (91,600) Decrease in Restricted Cash 40,000 25,000 Redemption of Marketable Securities 4,903,100 -- - ----------------------------------------------------------------- --------------------- --------------------- Net Cash Provided (Used) by Investing Activities 4,411,400 (94,400) - ----------------------------------------------------------------- --------------------- --------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the Exercise of Stock Options 16,300 -- Net Proceeds from Stock Issuance 600 3,701,900 - ----------------------------------------------------------------- --------------------- --------------------- Net Cash Provided by Financing Activities 16,900 3,701,900 - ----------------------------------------------------------------- --------------------- --------------------- Increase in Cash and Cash Equivalents 2,045,900 1,745,600 Cash and Cash Equivalents at Beginning of Period 8,937,200 6,436,300 - ----------------------------------------------------------------- --------------------- --------------------- Cash and Cash Equivalents at End of Period $ 10,983,100 $ 8,181,900 - ----------------------------------------------------------------- --------------------- --------------------- SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5

AVANT IMMUNOTHERAPEUTICS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 (1) NATURE OF BUSINESS AVANT Immunotherapeutics, Inc. ("AVANT" or the "Company") is a biopharmaceutical company engaged in the discovery, development and commercialization of products that harness the human immune response to prevent and treat disease. The Company's lead therapeutic program is focused on compounds that inhibit the inappropriate activity of the complement cascade which is a vital part of the body's immune defense system. The Company is also engaged in the development of Therapore(TM), a novel system for the delivery of immunotherapeutics for chronic viral infections and certain cancers. The Company and its collaborators are developing vaccines using the proprietary adjuvants, Adjumer(TM) and Micromer(TM), for the prevention of influenza, Lyme disease, and respiratory syncytial virus (RSV). In a further collaboration, the Company is developing an oral human rotavirus vaccine, and is developing its own proprietary vaccine for the management of atherosclerosis. The condensed consolidated financial statements include the accounts of AVANT Immunotherapeutics, 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, 1999 and 1998 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, 1999 and December 31, 1998, the results of operations for the quarters ended March 31, 1999 and 1998, and the cash flows for the three months ended March 31, 1999 and 1998. The results of operations for the quarter ended March 31, 1999 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, 1998. 6

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 MAY BE FORWARD-LOOKING STATEMENTS 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 The Company is engaged in the discovery, development and commercialization of products that harness the human immune response to prevent and treat disease. The Company's products derive from a broad set of complementary technologies with the ability to inhibit the complement system, regulate T and B cell activity, and enable the creation and delivery of preventative and therapeutic vaccines. The Company is using these technologies to develop vaccines and immunotherapeutics that prevent or treat disease caused by infectious organisms, and drugs and treatment vaccines that modify undesirable activity by the body's own proteins or cells. On August 21, 1998 the Company acquired Virus Research Institute, Inc. ("VRI"), a company engaged in the discovery and development of systems for the delivery of vaccines and immunotherapeutics, and novel vaccines for adults and children. AVANT issued 14,036,400 shares and warrants to purchase 1,811,200 shares of its common stock in exchange for all of the outstanding common stock of VRI, on the basis of 1.55 shares and .20 of a warrant to purchase one share of AVANT's common stock for each share of VRI common stock. ERSULTS OF OPERATIONS The Company reported a consolidated net loss of $2,741,800, or $.06 per share, for the first quarter ended March 31, 1999, an increase of $1,326,300, or 93.7%, compared with a net loss of $1,415,500, or $.05 per share, for the first quarter ended March 31, 1998. The increase in net loss for the first quarter of 1999 compared to the first quarter of 1998 is primarily due to an increase in operating expense resulting from the acquisition of VRI combined with a $409,800 charge for the amortization of goodwill. Total operating revenue decreased $23,100, or 6.4%, to $337,900 for the first quarter of 1999 compared to $361,000 for the first quarter of 1998. Operating revenue for the first quarter of 1998 included product sales revenue of $27,400 from sales of the company's TRAx(R) test kit. The company has suspended further development and sales efforts of its TRAx(R) product franchise while it continues to focus its efforts on establishing a partnership for the TRAx(R) technology. Total operating expense increased $1,395,100, or 74.4%, to $3,270,700 for the first quarter of 1999 compared to $1,875,600 for the first quarter of 1998. The increase in operating expense is primarily due to expanded operations resulting from the acquisition of VRI combined with goodwill amortization of $409,800. Research and development expense increased $681,100, or 56.3%, to $1,891,100 for the first quarter of 1999 compared to $1,210,000 for the first quarter of 1998. The increase in research and development expense is due to increased spending associated with the Company's vaccine for the management of atherosclerosis combined with costs attributable to the Company's Therapore(TM) and novel polymer vaccine delivery system programs 7

assumed in the acquisition of VRI. General and administrative expense increased $304,200, or 45.7%, to $969,800 for the first quarter of 1999 compared to $665,600 for the first quarter of 1998. The increase is primarily attributed to increased patent legal expense combined with increased corporate development and administrative support costs. Non-operating income increased $91,900, or 92.7% to $191,000 for the first quarter of 1999 compared to $99,100 for the first quarter of 1998. The increase is primarily due to an increase in interest income due to higher cash balances for the first quarter of 1999 compared to the first quarter of 1998. LIQUIDITY AND CAPITAL RESOURCES The Company ended the first quarter of 1999 with cash and cash equivalents of $10,983,100 compared to cash, cash equivalents and marketable securities of $13,840,300 at December 31, 1998. The decrease in cash is attributable to net cash used in operations of $2,382,400 combined with the acquisition of property and equipment of $482,000 for the first quarter of 1999. The Company believes that cash inflows from existing SBIR grants and collaborations, interest income on invested funds and its current cash and cash equivalents, net of restricted amounts, will be sufficient to meet estimated working capital requirements and fund operations beyond December 31, 1999. The working capital requirements of the Company are dependent on several factors including, but not limited to, the costs associated with research and development programs, preclinical and clinical studies and the scope of collaborative arrangements. During 1999, the Company expects to take steps to raise additional capital including, but not limited to, licensing of technology programs with existing or new collaborative partners, possible business combinations, or issuance of common stock via private placement and public offering. THE STATEMENTS IN THE FOLLOWING SECTION INCLUDE THE "YEAR 2000 READINESS DISCLOSURE" WITHIN THE MEANING OF THE YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT. YEAR 2000 THIS SECTION CONTAINS CERTAIN STATEMENTS THAT ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY'S YEAR 2000 COMPLIANCE, AND THE EVENTUAL AFFECTS OF THE YEAR 2000 ON THE COMPANY MAY BE MATERIALLY DIFFERENT THAN CURRENTLY PROJECTED. THIS MAY BE DUE TO, AMONG OTHER THINGS, DELAYS IN THE IMPLEMENTATION OF THE COMPANY'S YEAR 2000 PLAN AND THE FAILURE OF KEY THIRD PARTIES WITH WHOM THE COMPANY HAS A SIGNIFICANT BUSINESS RELATIONSHIP TO ACHIEVE YEAR 2000 COMPLIANCE. The "Year 2000" issue affects computer systems that have date sensitive programs that may not properly recognize the year 2000. Systems that do not properly recognize such information could generate data or cause a system to fail, resulting in business interruption. The Company is currently developing a plan to provide assurances that its computer systems are Year 2000 compliant, and expects full compliance by the end of 1999. Given the relatively small size of the Company's internal systems and the relatively new hardware, software and operating systems, management does not anticipate any significant delays in becoming Year 2000 compliant. Further, management believes at present that the costs associated with modifications to become Year 2000 compliant will be immaterial to the Company's continued internal operations. The Year 2000 issue is expected to affect the systems of various entities with which the Company interacts, including the Company's research and development partners, suppliers and vendors. The Company's assessment of third party anticipated risks and responses to those risks is not complete. There can be no assurance that the systems of other companies on which the Company's system rely will be timely converted, or that a failure by another company's system to be Year 2000 compliant would not have a material adverse affect on the Company's business, operating results and financial condition. The Company does not have a contingency plan in the event Year 2000 compliance cannot be achieved in a timely manner. A contingency plan will be developed upon completion of the Company's Year 2000 compliance assessment. 8

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In January 1997, the Securities and Exchange Commission issued Financial Reporting Release No. 48, which expands the disclosure requirements for certain derivatives and other financial instruments. The Company does not utilize derivative financial instruments. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None 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 None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS 27 Financial Data Schedule B. REPORTS ON FORM 8-K None 9

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/ Una S. Ryan --------------------- Una S. Ryan, Ph. D. President, and Chief Executive Officer 10

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED FINANCIAL STATEMENTS OF AVANT IMMUNOTHERAPEUTICS, INC. FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.

3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 10,983,100 0 3,800 (6,000) 0 12,764,200 4,503,800 (3,025,400) 19,677,300 3,118,700 0 42,500 0 0 16,002,100 19,677,300 0 337,900 0 0 3,270,700 0 (191,000) (2,741,800) 0 (2,741,800) 0 0 0 (1,415,500) (0.06) (0.06)