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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, 1996.
---------------
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.)
115 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 14, 1996
----- ------------
Common Stock, par value $.001 19,899,032
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T CELL SCIENCES, INC.
TABLE OF CONTENTS
MARCH 31, 1996
Page
----
PART I -- FINANCIAL INFORMATION
- -------------------------------
Consolidated Balance Sheets --
March 31, 1996 and December 31, 1995...................................3
Consolidated Statements of Operations --
Quarters ended March 31, 1996 and 1995.................................4
Consolidated Statements of Cash Flows --
Three months ended March 31, 1996 and 1995.............................5
Notes to Consolidated Financial Statements...................................6
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................7
PART II -- OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings...................................................9
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
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
T CELL SCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
MARCH 31, DECEMBER 31,
1996 1995
==============================================================================
ASSETS
Current Assets:
Cash and Cash Equivalents $ 9,398,814 $ 12,275,217
Accounts Receivable, Net 106,854 339,167
Inventories -- 403,293
Prepaid Expenses and Other 252,923 541,411
Current Portion Note Receivable 380,000 --
- ------------------------------------------------------------------------------
Total Current Assets 10,138,591 13,559,088
- ------------------------------------------------------------------------------
Property and Equipment, Net 567,920 1,172,137
Restricted Cash 850,000 850,000
Long-Term Note Receivable 1,649,751 --
Other Noncurrent Assets 2,925,982 2,951,062
- ------------------------------------------------------------------------------
Total Assets $ 16,132,244 $ 18,532,287
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 158,634 $ 724,944
Accrued Expenses 1,528,832 1,504,586
Deferred Revenue 80,583 121,083
- ------------------------------------------------------------------------------
Total Current Liabilities 1,768,049 2,350,613
- ------------------------------------------------------------------------------
Collaborator Advance 181,573 181,573
- ------------------------------------------------------------------------------
Stockholders' Equity:
Common Stock, $.001 Par Value 19,919 19,905
Additional Paid-in Capital 62,433,383 62,399,255
Less: Common Treasury Shares at Cost (80,523) (80,523)
Accumulated Deficit (48,190,157) (46,338,536)
- ------------------------------------------------------------------------------
Total Stockholders' Equity 14,182,622 16,000,101
- ------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 16,132,244 $ 18,532,287
==============================================================================
See accompanying notes to financial statements
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T CELL SCIENCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
MARCH 31, MARCH 31,
1996 1995
============================================================================
OPERATING REVENUE:
Product Development and Licensing Agreements $ 91,217 $ 588,676
Product Sales 497,613 596,441
- ----------------------------------------------------------------------------
Total Operating Revenue 588,830 1,185,117
- ----------------------------------------------------------------------------
OPERATING EXPENSE:
Cost of Product Sales 348,335 492,906
Research and Development 1,491,037 1,979,800
General and Administrative 863,778 1,059,372
Marketing and Sales 185,027 292,876
- ----------------------------------------------------------------------------
Total Operating Expenses 2,888,177 3,824,954
- ----------------------------------------------------------------------------
Operating Loss (2,299,347) (2,639,837)
Non Operating Income, Net 447,726 229,376
- ----------------------------------------------------------------------------
Net Loss $(1,851,621) $(2,410,461)
============================================================================
Net Loss Per Common Share $ (0.09) $ (0.14)
============================================================================
Weighted Average Common Shares Outstanding 19,909,123 17,054,222
============================================================================
See accompanying notes to financial statements
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T CELL SCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
MARCH 31, MARCH 31,
1996 1995
- ----------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,851,621) $(2,410,461)
Adjustments to Reconcile Net Loss to Net Cash
Used by Operating Activities:
Depreciation and Amortization 143,587 164,066
Gain on Sale of Research Products and Operations of
T Cell Diagnostics, Inc. (315,665) --
Net Change in Current Assets and Total Liabilities (718,997) (903,050)
- ----------------------------------------------------------------------------------------
Net Cash Used by Operating Activities (2,742,696) (3,149,445)
- ----------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Property and Equipment (981,808) (1,625)
Sale of Property and Equipment 980,494 134,353
Increase in Patents and Other Noncurrent Assets (166,534) (252,874)
Redemption of Short Term Investments -- 8,589,391
Purchase of Short Term Investments -- (49,725)
- ----------------------------------------------------------------------------------------
Net Cash Provided by Investing Activities (167,848) 8,419,520
- ----------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Exercise of Stock Options 34,141 --
- ----------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 34,141 --
- ----------------------------------------------------------------------------------------
Decrease in Cash and Cash Equivalents (2,876,403) 5,270,075
Cash and Cash Equivalents at Beginning of Period 12,275,217 7,644,653
- ----------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 9,398,814 $12,914,728
- ----------------------------------------------------------------------------------------
See accompanying notes to financial statements
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T CELL SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(1) NATURE OF BUSINESS
------------------
T Cell Sciences, Inc. (the "Company"), is a research based emerging
biotechnology company specializing in the understanding and treatment of
diseases caused by the misregulation of the body's natural defense system. The
Company was incorporated in the State of Delaware on December 9, 1983. T Cell
Diagnostics, Inc. ("TCD"), a wholly-owned subsidiary of the Company, was formed
in 1991 to capitalize on the sales of diagnostic and research products emanating
from the Company's proprietary technology. On March 5, 1996 the Company sold the
research products and operations of TCD to Endogen, Inc. while retaining the
TRAx[Registered Trademark] diagnostic franchise.
The 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 financial statements for the three month periods ended
March 31, 1996 and 1995 include the consolidated accounts of the Company, and
have been prepared in accordance with generally accepted accounting principles
for interim reporting information 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, 1996 and December 31, 1995, the results of operations for the three
month periods ended March , 1996 and 1995, and the cash flows for the three
month periods ended March 31, 1996 and 1995. The results of operations for the
three month period ended March 31, 1996 is 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
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, 1995.
(3) EQUIPMENT OPERATING LEASE
-------------------------
In August 1994, the Company entered into a five-year lease agreement to
lease up to $2,000,000 of equipment. The lease agreement requires that the
Company maintain certain restrictive covenants determined at the end of each
fiscal quarter, including a cash, cash equivalents and short-term investments
balance of not less than $10,000,000 and certain financial ratios. At September
30, 1995 the Company's cash, cash equivalents and short-term investments balance
was below the minimum covenant requirement. In accordance with the lease
agreement, in November 1995, the Company pledged as collateral to the lessor the
cash amount outstanding on the lease. In March 1996, the Company repaid
approximately $980,000 of the outstanding total obligation under the lease in
conjunction with the sale of the research products and operations of TCD, which
increased the amount of lease financing available to the Company. At March 31,
1996, $850,000 has been recorded as restricted cash.
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(4) LITIGATION
----------
In December 1994, the Company filed a lawsuit in the Superior Court of
Massachusetts against the landlord of its former Cambridge, Massachusetts
headquarters, to recover the damages incurred by the Company resulting from the
evacuation of the building, due to air quality problems which caused skin and
respiratory irritation to a significant number of employees. The landlord
defendant has filed counterclaims, alleging the Company has breached its lease
obligations. The landlord's mortgagor has filed claims against the Company for
payment of the same rent alleged to be owed. The Company believes at this time
that it will prevail on the merits of the lawsuits and is vigorously defending
the claims brought against it. Due to the pre-trial stage of the lawsuits, a
range of potential losses, which the Company believes are unlikely, can not be
estimated at this time. Accordingly, no accrual has been made in the financial
statements relative to any potential effects on the Company's future operating
results. The Company's insurance carrier is reimbursing the Company for certain
legal expenses associated with the counterclaims, under reservation of rights.
(5) DISPOSITION OF ASSETS
---------------------
On March 5, 1996, the Company sold the research products and operations of
TCD to Endogen, Inc. ("Endogen") for a purchase price of approximately
$2,900,000. The sale did not include the TRAx product franchise and related
assets. The purchase price was paid in the form of a convertible subordinated
note in the principal amount of $1,900,000, due in ten semi-annual installments
commencing September 1, 1996 with interest receivable thereon at the rate of 7%
per annum. The outstanding principal of the note is convertible at any time at
the option of the Company into shares of common stock of Endogen. Endogen also
paid the Company approximately $528,000 in cash and provided a $452,000 short
term note receivable to fund the Company's purchase of certain property and
equipment outstanding under an operating lease. These assets were transferred to
Endogen upon closing of the sale. The short term note receivable was
subsequently collected on March 27, 1996.
Product sales and the cost of product sales related to the research
products and operations sold to Endogen, and included in the consolidated T Cell
Sciences amounts for the three month periods ended March 31, 1996 and 1995, are
as follows:
For the Three Month
Period Ended March 31,
1996 1995
Sales $390,459 $586,541
Cost of Product Sales 273,259 484,725
--------------------------------------------------
Gross Profit 117,200 101,816
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
OVERVIEW
On March 5, 1996, the Company sold to Endogen, Inc., the research
products and operations of TCD, exclusive of the TRAx product franchise and
related assets, for a purchase price of approximately $2,900,000. Consequently,
the Company will further focus its resources on the development of therapeutic
products including its lead therapeutic program which is developing compounds
that inhibit a part of the immune system called the complement system. The
Company will also continue the development of its TRAx product franchise and in
1996 expects to file a 510(k)
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application with the FDA for clearance to market TRAx CD8. The Company's future
operating results and liquidity requirements will be dependent on the Company's
ability to establish strategic partnering relationships to assist with the
further development of the Company's therapeutics and TRAx technology and its
ability to advance these technologies through the clinical trial process.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1996 COMPARED TO QUARTER ENDED MARCH 31, 1995 --
The Company reported a consolidated net loss of $1,851,621 or $.09 per share for
the quarter ended March 31, 1996, compared with a net loss of $2,410,461 or $.14
per share for the quarter ended March 31, 1995. The decrease in net loss was
primarily due to the sale of the research products and operations of TCD to
Endogen on March 5, 1996, which resulted in a gain of $316,000 and reduced
operating expenses for the quarter. Reduced expenses due to discretionary
spending controls and a restructuring program implemented in 1995 partially
offset by anticipated lower product development revenue combined with the gain
to reduce the loss $563,000 or 23.3% in the first quarter of 1996 compared to
the same period in 1995.
Product development revenue decreased 84.5% or $497,000 to $91,000 for the
quarter ended March 31, 1996 compared to the same quarter last year. The
decrease for the quarter ended March 31, 1996 is primarily the result of
anticipated lower revenue from the Company's collaborative partner, Astra AB. In
accordance with its agreement with Astra, at March 31, 1996, the Company has
approximately $81,000 of deferred revenue to recognize and will not receive
additional research and development revenue funding. Product sales revenue was
$498,000 for the quarter ended March 31, 1996 reflecting a 16.6% decrease
compared to the same period last year. The decrease in product sales for the
quarter ended March 31, 1996 is attributable to the sale of the research
products and operations of TCD to Endogen, partially offset by an increase in
TRAx product sales. As a result of the sale of the research products and
operations of TCD to Endogen, the Company's product sales revenue for the
quarter included research product sales for the first two months of the year
only, compared with three months last year. The Company will not have any
additional research product sales.
Gross margins increased to 30.0% for the quarter ended March 31, compared
to 17.4% for the quarter ended March 31, 1995 . The increase for the quarter
compared to last year is primarily due to the impact of the restructuring
program implemented in the second half of 1995 which partially offset the
inefficiencies from producing at lower volumes.
Research and development expenses were $1,491,000 for the quarter ended
March 31, 1996 compared to $1,980,000 for the same period last year. The
decrease is primarily attributable to the restructuring program implemented in
the second half of 1995 which further focused the Company on priority projects
combined with the sale of the research products and operations of TCD on March
5, 1996. In January 1996, the Company announced the start of a Phase IIa
clinical trial evaluating the use of TP10, the Company's lead complement
inhibitor, in patients with Adult Respiratory Distress Syndrome ("ARDS") and the
Company expects to file a 510(k) application with the FDA during 1996 for
clearance to market TRAx CD8, the second in the TRAx product line of in vitro
diagnostic products.
General and administrative expenses decreased $174,000 to $844,000 for the
quarter ended March 31, 1996 from $1,018,000 for the comparable period last
year. The decrease is mainly attributable to staff reductions combined with
discretionary spending controls across all functional areas.
Marketing and sales expenses decreased 36.8% to $185,000 for the quarter
ended March 31, 1996 compared to $293,000 for the quarter ended March 31, 1995.
Marketing and sales costs escalated through 1995 primarily due to the product
launch of the TRAx CD4 test kit. In December 1995, the Company entered into an
exclusive sales and distribution contract with Diamedix Corporation for the
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TRAx CD4 and CD8 microtiter plate format products in the United States
which, combined with the sale of the research products and operations of TCD in
March 1996, minimized the Company's marketing and sales costs related to both
the retained TRAx product franchise and the research product line for the
quarter. As a result of the Company's reduced marketing and sales
responsibilities for the TRAx products and the sale of the research products and
operations of TCD, the Company expects marketing and sales expense to remain
lower through 1996 compared to 1995.
Non-operating income of $448,000 for the quarter ended March 31, 1996
includes a gain of $316,000 recognized from the sale of the research products
and operations to Endogen. Interest income decreased 37.2% to $132,000 for the
quarter ended March 31, 1996 compared with $229,000 for the quarter ended March
31, 1995. The decrease in interest income is primarily the result of lower cash
balances during the quarter ended March 31, 1996 compared to the same period
last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at March 31, 1996 decreased
$2,876,000 to $9,399,000 from $12,275,000 at December 31, 1995. The decrease is
primarily due to the net operating loss of $2,299,000 for the quarter ended
March 31, 1996. Cash used in operations was $2,743,000 for the quarter ended
March 31, 1996 compared to $3,149,000 for the quarter ended March 31, 1995. The
$406,000 decrease in cash used is mainly due to a $345,000 decrease in net
operating loss compared to 1995.
The Company received a $1,900,000 convertible subordinated note receivable
in the principal amount of $1,900,000 in connection with the sale of the
research products and operations of TCD to Endogen. Payments are due in ten
semi-annual installments commencing September 1, 1996 with interest receivable
thereon at the rate of 7% per annum. The outstanding principal amount of the
note is convertible at any time at the option of the Company into shares of
common stock of Endogen.
The Company has no long-term debt. During 1995, the Company entered into
an operating lease agreement with a five year term to lease up to $2 million of
equipment. The lease arrangement requires that the Company maintain certain
restrictive financial covenants, determined at the end of each fiscal quarter.
At September 30, 1995 the Company's cash, cash equivalents and short term
investment balances were below the minimum covenant requirement. In November
1995, in accordance with the lease agreement, the Company pledged as collateral
cash equal to the amount outstanding on the lease. At March 31, 1996 the Company
had approximately $850,000 outstanding on the lease. The Company intends to
continue to draw against the lease during 1996 to meet its capital requirements.
The Company believes its current cash and cash equivalents combined with
anticipated net cash provided by operations and other planned activities will be
adequate to meet the Company's cash requirements for operations through 1996.
The Company is considering alternative sources of funding and capital such as
through partnering opportunities and financings.
Certain of the statements set forth above and elsewhere in this report,
including statements regarding anticipated revenue, expenses and cash
projections, are forward-looking and are based upon the Company's current belief
about future activities and events.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
-----------------
No material changes since the Company's annual report on Form 10-K for the
year ended December 31, 1995.
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ITEM 5. OTHER INFORMATION:
-----------------
On January 2, 1996 the Company announced the start of a Phase IIa clinical
trial evaluating the use of the Company's lead complement inhibitor, TP10 in
patients with Adult Respiratory Distress Syndrome (ARDS). The objectives of the
study are to determine the effect of TP10 on neutrophil accumulation in the
lungs of patients with ARDS and to study the ability of TP10 to improve the
clinical outcome of patients with established ARDS.
The Company announced on February 19, 1996 results of its second Phase I
clinical trial evaluating TP10. The trial was for patients with first-time acute
myocardial infarction. The objectives of the Phase I myocardial infarction trial
were to determine the safety, pharmacokinetics and immunogenicity of TP10 in
first-time, acute myocardial infarction patients.
In March 1996, the Company announced a joint discovery and development
agreement with ArQule, Inc. and a collaborative agreement with MYCOsearch, Inc.
The ArQule agreement is aimed at identifying small molecules that can suppress
or activate T cells. Both the Company and ArQule will jointly own the rights to
any compounds resulting from the collaboration. The collaborative agreement
signed with MYCOsearch is designed to utilize the Company's proprietary
screening and functional assay technology to identify small molecule
immunoregulatory therapeutic compounds using MYCOsearch's proprietary fungus and
actinomycete fermentation extracts and natural products chemistry. Both the
Company and MYCOsearch will share any commercialization opportunities associated
with the collaboration.
On April 25, 1996, the Company jointly announced with CytoTherapeutics,
Inc. that the Company has licensed portions of its patent and technology rights
regarding CR1 (Complement Receptor 1) to CytoTherapeutics for use in
CytoTherapeutics' cell-based products for the delivery of therapeutic substances
to the central nervous system. Under the agreement, the Company granted
non-exclusive rights for the use of CR1 in any encapsulated-cell product. The
license does not include rights to use CR1 for therapeutic effects. The
agreement includes signing, milestone and royalty payments to the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
A. EXHIBITS
None
B. REPORTS ON FORM 8-K
The Company reported on Form 8-K, dated March 5, 1996, the sale of the
research products and operations of its wholly-owned subsidiary, T Cell
Diagnostics, Inc., to Endogen, Inc. for a purchase price of approximately $2.9
million.
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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/ Alan W. Tuck
----------------
Alan W. Tuck
President, Chief Executive Officer
and Acting Chief Financial Officer
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1
U.S. DOLLARS
3-MOS
DEC-31-1996
JAN-01-1996
MAR-31-1996
1
9,398,814
0
106,854
0
0
10,138,591
2,892,815
(2,324,895)
16,132,244
1,768,049
0
19,919
0
0
14,162,703
16,132,244
497,613
588,830
348,335
2,888,177
(315,665)
0
(132,061)
(1,851,621)
0
(1,851,621)
0
0
0
(1,851,621)
(0.09)
(0.09)
