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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
[ X ] SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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.
(F/K/A T CELL SCIENCES, INC.)
(Exact name of registrant as specified in its charter)
DELAWARE 13-3191702
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
119 FOURTH AVENUE, NEEDHAM, MASSACHUSETTS 02494
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (781) 433-0771
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of common stock held by non-affiliates as of March
10, 2000 was $657,749,278 (excludes shares held by directors and executive
officers). Exclusion of shares held by any person should not be construed to
indicate that such person possesses the power, direct or indirect, to direct or
cause the actions of the management or policies of the Registrant, or that such
person is controlled by or under common control with the Registrant. The number
of shares of common stock outstanding at March 10, 2000 was: 50,012,800 shares.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: STATEMENTS CONTAINED IN THIS REPORT, INCLUDING PART II, ITEM 5: MARKET FOR
REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS, 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 REGISTRANT. THESE FACTORS INCLUDE, BUT
ARE NOT LIMITED TO: (I) THE REGISTRANT'S ABILITY TO SUCCESSFULLY COMPLETE
PRODUCT RESEARCH AND DEVELOPMENT, INCLUDING PRE-CLINICAL AND CLINICAL STUDIES,
AND COMMERCIALIZATION; (II) THE REGISTRANT'S ABILITY TO OBTAIN SUBSTANTIAL
ADDITIONAL FUNDING; (III) THE REGISTRANT'S ABILITY TO OBTAIN REQUIRED
GOVERNMENTAL APPROVALS; (IV) THE REGISTRANT'S ABILITY TO ATTRACT MANUFACTURING,
SALES, DISTRIBUTION AND MARKETING PARTNERS AND OTHER STRATEGIC ALLIANCES; AND
(V) THE REGISTRANT'S ABILITY TO DEVELOP AND COMMERCIALIZE ITS PRODUCTS BEFORE
ITS COMPETITORS.
PART I
ITEM 1. BUSINESS
A. GENERAL
AVANT Immunotherapeutics, Inc. (f/k/a "T Cell Sciences, Inc.," herein referred
to as "AVANT") is a biopharmaceutical company that uses novel applications of
immunology to prevent and treat diseases caused by both the enemy within
(autoimmune diseases, cardiovascular diseases, cancer and inflammation) and the
enemy without (infectious diseases and organ transplant rejection). Each of our
products address large market opportunities for which current therapies are
inadequate or non-existent.
We were incorporated in the state of Delaware in 1983. On August 21, 1998, we
acquired Virus Research Institute, Inc., a Delaware corporation ("VRI"),
pursuant to an Agreement and Plan of Merger dated as of May 12, 1998 by and
among AVANT, TC Merger Corp., a Delaware corporation and our wholly-owned
subsidiary, and VRI.
Our 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. We
are 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.
All of our products are in various stages of research and development. Below is
a table of our currently active programs:
CURRENT PROGRAMS AND PARTNERSHIPS
- ---------------------------- ------------------------- ----------------------------- --------------------- -----------------
TECHNOLOGY PRODUCT INDICATION/FIELD PARTNER STATUS
- ---------------------------- ------------------------- ----------------------------- --------------------- -----------------
Complement Inhibition TP10 Transplantation Novartis Pharma Phase II
Cardiac Surgery -- Phase I/II
Heart Attacks -- Phase I
TP20 Stroke -- Preclinical
- ---------------------------- ------------------------- ----------------------------- --------------------- -----------------
Therapeutic Vaccines CETi-1 Vaccine Atherosclerosis -- Phase I
- ---------------------------- ------------------------- ----------------------------- --------------------- -----------------
Protective Vaccines Rotavirus Vaccine Rotavirus SmithKline Beecham Phase II
Cholera Vaccine Cholera US Army & NIH Phase IIb
- ---------------------------- ------------------------- ----------------------------- --------------------- -----------------
Vaccines and Adjumer(R)-RSV Vaccine Respiratory Syncytial Virus Aventis Pasteur Phase I/II
Immunotherapeutic Delivery -Cat Scratch Cat Scratch Disease Heska Corporation Clinical testing
Systems -Lyme Disease Lyme Disease Aventis Pasteur Preclinical
Therapore(TM) Viral Infection -HIV US Army Preclinical
-Hepatitis -- Preclinical
Cancer -- Preclinical
- ---------------------------- ------------------------- ----------------------------- --------------------- -----------------
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B. STRATEGY
AVANT'S strategy is to utilize our expertise to design and develop vaccine and
therapeutic products that have significant and growing market potential; to
establish governmental and corporate alliances to fund development; and to
commercialize our products either through corporate partners or, in appropriate
circumstances, by our own direct selling efforts. Implementation of this
strategy is exemplified by the following lead programs:
COMPLEMENT INHIBITORS: We are developing a new class of therapeutics that
inhibits the complement system, a key triggering mechanism for the inflammatory
response. Medical problems that result from excessive complement activation
represent multi-billion dollar market opportunities. These include reperfusion
injury, the vascular and tissue damage that occurs following a heart attack,
stroke or surgical procedure where the patient's blood supply is shut off and
then restored; hyperacute or chronic organ rejection following transplantation;
acute inflammatory injury to the lungs and autoimmune diseases. We have
developed a lead compound, TP10, through to early clinical trials before
licensing rights for organ transplant surgery to Novartis Pharma AG
("Novartis"), the world leader in organ transplant drugs. We have elected to
independently develop and commercialize TP10 for pediatric cardiac surgery,
initiating a Phase I/II trial in 1999 and aiming to commence a Phase III pivotal
trial in late 2000. We believe that this is an appropriate indication for a
small company to pursue for the following reasons:
- Orphan drug status has been sought because only 30,000 pediatric
cardiac surgeries are performed each year;
- Because the surgery is life-threatening, the TP10 compound may qualify
for priority review at the FDA; and
- Because such surgery is performed at a limited number of medical
centers, a targeted direct sales and marketing effort should be
manageable and effective.
We plan to initiate Phase II trials for adult cardiac surgery in 2000, with an
eye to partnering that program when additional clinical data are available.
ATHEROSCLEROSIS TREATMENT VACCINE: Atherosclerosis, the leading cause of
morbidity and mortality in the United States and most of the Western world, is
the accumulation of fatty deposits in the walls of blood vessels. Low blood
levels of high-density lipoprotein (HDL, the so-called "good" cholesterol) are
associated with increased risk of atherosclerosis, which in turn leads to heart
disease and stroke. We are developing a novel, treatment vaccine (CETi-1) aimed
at increasing levels of HDL. The vaccine stimulates the production of antibodies
to cholesteryl ester transfer protein ("CETP"), which mediates the balance
between HDL and LDL (low-density lipoprotein, or "bad" cholesterol). While
billions of dollars of drugs that lower LDL are sold each year, the few drugs
that increase HDL have failed to achieve market acceptance, largely due to
undesirable side effects. Thus, we believe that a therapeutic vaccine that
increases HDL with one or two injections a year would present a substantial
market opportunity. In preclinical studies in rabbits, the CETi-1 vaccine
increased HDL levels and significantly reduced atherosclerotic lesions in blood
vessels as compared to an untreated control group. Our preclinical work on the
vaccine was partially funded by almost $1 million in Small Business Innovation
Research ("SBIR") grants. The Company initiated a Phase I clinical trial in 1999
and plans to initiate a Phase II trial in 2000. As clinical data becomes
available, the Company plans to seek a corporate partner to complete development
and to commercialize the vaccine.
ROTAVIRUS VACCINE: Rotavirus is a major cause of diarrhea and vomiting in
infants and children. No vaccine against rotavirus is currently on the market.
We licensed from a non-profit institution an oral vaccine for rotavirus, and
initiated a Phase I clinical trial with the goal of licensing the vaccine to a
major vaccine company. After completing Phase I studies and commencing a Phase
II study, we licensed the vaccine to SmithKline Beecham plc ("SmithKline"); the
initial license fee from SmithKline partially funded the Phase II study. In
1999, after the study demonstrated 89% protection in a study involving 215
infants, SmithKline paid us an additional license fee and assumed full
responsibility for funding and performing all remaining clinical development.
Assuming product development and commercialization continues satisfactorily,
SmithKline will pay us additional milestones and a royalty based on sales.
CHOLERA VACCINE: We are developing a single dose, oral cholera vaccine using a
live, genetically attenuated cholera strain. Based on this technology, developed
in academia, we have developed the vaccine through early Phase II trials. We
then negotiated a collaboration agreement under which a Phase IIb trial will be
performed and funded by the Walter Reed Army Institute of Research ("WRAIR") and
the National Institutes of Health (the "NIH"). This trial, set to begin in 2000,
will test the safety, immunogenecity and protective capacity of the vaccine
against a challenge with live virulent
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cholera. We will then determine our commercialization strategy with respect to
the cholera vaccine based on clinical data from the trial.
VACCINE DELIVERY SYSTEMS: The vaccine industry is changing, with increased
emphasis on recombinant antigens, sophisticated attenuation strategies and use
of vaccines therapeutically to treat patients who are already infected. AVANT is
a leader in developing delivery systems that support these new approaches,
including:
- Adjumer(R), a water soluble polymer intended as an adjuvant to enhance
systemic immune response with fewer injections and lower antigen doses;
- Micromer(R), a polymer microsphere adjuvant designed to enhance
systemic and mucosal immune responses to oral or nasal administration;
- Therapore(TM), a genetically engineered bacterial protein vector
designed to induce cell-mediated immunity, believed to be particularly
important for therapeutic vaccines; and
- VibrioVec(TM), the attenuated bacterial strain used in the cholera
vaccine which we believe can be used to deliver other, non-cholera
bacterial antigens.
We expect to commercialize these vaccine delivery systems primarily through
commercial partners that have antigens in need of improved delivery, thereby
gaining us potential access to a wide range of antigens and shifting clinical
development expense to the partner. For example, we have licensed to Aventis
Pasteur ("Aventis"), the world's leading vaccine manufacturer, use of Adjumer(R)
and Micromer(R) in a variety of vaccines, including influenza, respiratory
syncytial virus ("RSV") and Lyme disease. Aventis has begun clinical trials on
both the influenza and RSV vaccines. In the case of Therapore(TM), the novelty
of the approach is such that partnering on commercially attractive terms would
best be done after the availability of clinical data. Thus, we have entered into
a collaborative agreement for WRAIR to fund and perform the first clinical trial
of Therapore(TM) beginning in 2000. Although we will focus on licensing vaccine
delivery systems to commercial partners, we will remain alert for opportunities
where we can develop complete vaccines, as was done with rotavirus.
Because AVANT's strategy ultimately depends on the commercial success of our
products, we assume, among other things, that end users of our products will be
able to pay for them. In the United States and other countries, in most cases,
the volume of sales of products like those we are developing depends on the
availability of reimbursement from third-party payors. These include national
health care agencies, private health insurance plans and health maintenance
organizations. Third-party payors increasingly challenge the prices charged for
medical products and services. Our success in generating revenues from sales of
products may depend on the availability of reimbursement from third-party payors
for the products. Accordingly, if we succeed in bringing products to market,
there is no means to assure their cost effectiveness or the availability of
reimbursement sufficient to sell the products on a profitable basis. If
reimbursement is not available or is insufficient, the level of market
acceptance of our products will suffer significantly.
The health care industry in the United States and in Europe is undergoing
fundamental changes as the result of political, economic and regulatory
influences. Reforms proposed from time to time include mandated basic health
care benefits, controls on health care spending through limitations on the
growth of private health insurance premiums and Medicare and Medicaid spending,
creation of large medical services and products purchasing groups and
fundamental changes to the health care delivery system.
We anticipate ongoing review and assessment of alternative health care delivery
systems and methods of payment in the United States and other countries. We
cannot predict whether any particular reform initiatives will result or, if
adopted, their impact on us. However, we expect that adoption of any reform
proposed will impair our ability to market products at acceptable prices.
Additional factors that may significantly harm our commercial success, and
ultimately the market price of our common stock, include announcements of
technological innovations or new commercial products by our competitors,
disclosure of unsuccessful results of clinical testing or regulatory proceedings
and governmental approvals, adverse developments in patent or other proprietary
rights, public concern about the safety of products developed by AVANT and
general economic and market conditions.
-4-
C. THERAPEUTIC DRUG PROGRAMS
1. COMPLEMENT INHIBITION
We are developing a new class of therapeutics that inhibit a part of the immune
system called the complement system. The complement system is a series of
proteins that are important initiators of the body's acute inflammatory response
against disease, infection and injury. Excessive complement activation also
plays a role in some persistent inflammatory conditions. When complement is
activated, it helps to identify and eliminate infectious pathogens and damaged
tissue. In some situations, however, excessive complement activation may destroy
viable and healthy tissue and tissue which, though damaged, might recover. This
excessive response compounds the effects of the initial injury or introduces
unwanted tissue destruction in clinical situations such as organ transplants,
cardiovascular surgeries and treatment for heart attacks. Independent published
studies have reported that our lead compound, TP10, a soluble form of naturally
occurring Complement Receptor 1, effectively inhibits the activation of the
complement cascade in animal models. We believe that regulating the complement
system could have therapeutic and prophylactic applications in several acute and
chronic conditions, including reperfusion injury from surgery or ischemic
disease, organ transplant, multiple sclerosis, rheumatoid arthritis, and
myasthenia gravis. In the United States, several million people are afflicted
with these complement-mediated conditions.
We started the complement program in 1988. From 1989 through 1994, TP10 was
under development in a joint program with SmithKline and Yamanouchi
Pharmaceutical Co., Ltd. ("Yamanouchi"). During 1994, AVANT and SmithKline
negotiated various amendments to the agreement and, in 1995, the two companies
agreed to a mutual termination by which we regained all rights to the program
except for co-marketing rights in Japan, which were retained by SmithKline and
Yamanouchi. In December 1999, SmithKline and Yamanouchi returned the marketing
rights for Japan to us.
Under our direction, in 1995 the first Phase I clinical trial of TP10 in 24
patients at risk for acute respiratory distress syndrome ("ARDS") was completed.
Results of this trial were presented in October 1995 at The American College of
Chest Physicians meeting. A second Phase I safety trial for reperfusion injury
was completed in late 1995 in 25 patients with first-time myocardial
infarctions. This study was presented at the American Heart Association's Joint
Conference on Thrombosis, Arteriosclerosis and Vascular Biology in February
1996. In each trial, TP10 demonstrated excellent safety and pharmacokinetic
profiles, had a terminal phase half-life of at least 72 hours and was able to
inhibit complement activity in a dose-dependent manner.
Based on these favorable results, in early 1996, we initiated a Phase IIa trial
in patients with established ARDS. This trial was an open-label, single-dose
feasibility trial to determine the potential for efficacy of TP10 in reducing
neutrophil accumulation in the lungs and improved clinical outcome of patients
with ARDS. During the second half of 1996, we initiated a series of steps,
including broadening enrollment criteria, to modify this trial to improve the
rate of patient accrual. In late 1997, we completed this Phase IIa trial after
it had enrolled nine patients with ARDS arising from a number of different
medical conditions. The trial results showed that patients receiving TP10 tended
towards improved respiratory performance and improved blood oxygenation. Because
the trial included few patients and no placebo control was used, no definitive
claims about efficacy could be made.
In 1996, we began enrollment in a Phase I/II clinical trial in patients
undergoing lung transplantation. A goal of the trial was to determine the
ability of TP10 to reduce reperfusion injury and improve lung function in
patients with end-stage pulmonary disease who were undergoing lung transplant
surgery. This study was a randomized, placebo-controlled, double-blind trial
consisting of single dosages of 10 mg/kg of TP10 as an intravenous infusion over
30 minutes. The trial was conducted at multiple centers in North America and
included a total of 59 patients. In October 1997, we presented positive
preliminary results from the efficacy portion of the trial. In April 1998, we
presented final trial results at the International Society of Heart and Lung
Transplantation conference. The final results showed that TP10 therapy appeared
safe and well tolerated and demonstrated significant efficacy. Treated patients
undergoing cardiopulmonary by-pass as part of the transplantation procedure
showed significantly decreased intubation time and time on ventilation and a
trend toward reduced time in the intensive care unit.
In 1997, we entered into a collaborative agreement with Novartis relating to the
development of TP10 for use in xenotransplantation (animal organs into humans)
and allotransplantation (human to human organ transplantation). Under the
agreement, we received annual option fees and supplies of TP10 for clinical
trials in return for granting Novartis a two-year option to license TP10 with
exclusive worldwide (except Japan) marketing rights. In July 1999, Novartis
exercised its option to license TP10 for use in the field of transplantation. In
December 1999, the Novartis agreement
-5-
was amended to include the marketing rights for Japan. The decision to license
TP10 resulted in a $6 million equity investment and license fee payment by
Novartis which was received by AVANT in January 2000. Under the agreement, we
may receive additional milestone payments based upon attainment of development
and regulatory goals, which have an approximate aggregate value of up to $14
million. We may also receive funding for research as well as royalty payments on
eventual product sales.
In September 1999, we initiated an open-label, Phase I/II trial of TP10 in
infants undergoing cardiac surgery for congenital heart defects. The trial will
evaluate the ability of TP10 to mitigate the injury to the heart and other
organs that occurs when patients are placed on cardiopulmonary bypass circuits.
If successful, we hope to initiate a Phase III pivotal trial in late 2000.
In addition to TP10, we have identified other product candidates to inhibit
activation of the complement system. The lead candidate under research
evaluation is a form of sCR1 (TP10) that has been modified by the addition of
sialyl Lewis x sLe(x) carbohydrate side chains yielding sCR1sLe(x) (TP20).
sLe(x) is a carbohydrate which mediates binding of neutrophils to selectin
proteins, which appear on the surface of activated endothelial cells and
platelets as an early inflammatory event. Selectin-mediated binding of
neutrophils to activated endothelial cells is a critical event in
inflammation. We have confirmed the presence of the desired carbohydrate
structures and confirmed the presence of both anti-complement and
selectin-binding functions in IN VITRO experiments. During 1997, we produced
additional TP20 material and began preclinical studies in disease-relevant
animal models. Research results published in the July 1999 issue of SCIENCE
showed that the TP20 molecule, which simultaneously blocks complement
activation and cell-mediated inflammatory events, can significantly limit
damage to cerebral tissue in a mouse model of ischemic stroke.
TP20 may create new and expanded opportunities for us in complement- and
selectin-dependent indications such as stroke and myocardial infarction. We
believe that TP20 has the ability to target the complement-inhibiting activity
of sCR1 to the site of inflammation and, at the same time, inhibit the
leukocyte/endothelial cell adhesion process.
2. ATHEROSCLEROSIS TREATMENT VACCINE
We are developing a therapeutic vaccine against endogenous cholesteryl ester
transfer protein ("CETP") which may be useful in reducing risks associated with
atherosclerosis. CETP is a key intermediary in the balance of HDL and LDL. We
are developing a vaccine (CETi-1) to stimulate an immune response against CETP
which we believe may improve the ratio of HDL to LDL cholesterol and reduce the
progression of atherosclerosis. We have conducted preliminary studies of rabbits
which had been administered the CETi-1 vaccine and fed a high-cholesterol,
high-fat diet. In these studies, vaccine-treated rabbits exhibited reduced
lesions in their blood vessels compared to a control group of untreated rabbits
which developed significant blood vessel lesions. These studies have
demonstrated, in animal models, the ability of CETi-1 vaccine to elevate HDL and
reduce the development of blood vessel lesions.
Atherosclerosis is one of the leading causes of morbidity and mortality in the
United States and most of the Western world. Current pharmacologic treatments
require daily administration and can result in high costs and poor patient
compliance. A vaccine directed at lowering CETP activity, such as the one we are
developing, may offer several advantages over conventional approaches, including
requiring less frequent dosing, lower costs, reduced side effects, and improved
patient compliance.
In 1996, the NIH awarded us a $100,000, Phase I SBIR grant for the development
of a novel transgenic rat atherosclerosis model, affording better comparison to
human atherosclerosis. In early 1997, the NIH awarded us a second $100,000 Phase
I SBIR grant to develop a novel plasmid-based vaccine to prevent or treat
atherosclerosis. In late 1997, the NIH awarded us a $678,000 Phase II SBIR grant
which provided funding over a two year period for the continued development of
the novel transgenic rat model of atherosclerosis. In 1998, we received a
$96,000 Phase I SBIR grant from the NIH for the development of a novel peptide
vaccine to prevent or treat atherosclerosis.
In June 1999, we initiated a double-blinded placebo controlled, Phase I clinical
trial of our CETi-1 vaccine in adult volunteers. The object of the study is to
demonstrate the safety of single administrations of the vaccine at four
different dosage strengths.
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3. T CELL REGULATORS
In early 1992, we entered into a joint development program with AstraZeneca plc
("Astra") to develop products resulting from our proprietary TCAR technology,
which utilizes T cell antigen receptor for selectively targeting T cells
involved in autoimmune diseases such as multiple sclerosis and rheumatoid
arthritis. The original agreement was modified in 1993 with Astra assuming all
responsibility for developing the lead antibody products and AVANT retaining
leadership of the first peptide product candidate. Under the original and
modified agreements, we received funding of approximately $15 million in the
early years with the potential of up to $17 million of additional funding based
on clinical progress. By the end of 1995, we had received substantially all of
the original funding payments.
In 1996, we amended the agreement with Astra to transfer some of our rights to
the TCAR technology, including two therapeutic products, ATM-027 and ATP-012, to
Astra, which is solely responsible for further clinical development and
commercialization. Under the amended agreement, we could receive royalties from
product sales, as well as milestone payments which may total up to $4 million as
specific clinical milestones are achieved.
In 1997, we received a milestone payment from Astra because one of the products
derived from our TCAR program entered clinical trials for the treatment of
multiple sclerosis. In 1998, Astra announced that Phase I data from these trials
had shown an effect on the target cells and that there had been no serious
adverse effects in the study to date, and initiated a Phase II study. In 1999,
we announced results of the Phase II study of the TCAR monoclonal antibody
(ATM-027) being developed by Astra for the treatment of multiple sclerosis. The
results showed that ATM-027 was safe and well tolerated, however, in the view of
Astra the reduction of disease activity in the study population did not reach a
level that would be of value for those patients. Therefore, Astra made the
decision to stop further development of ATM-027 for multiple sclerosis but is
reviewing development of the TCAR peptide, ATP-012, as a vaccine for multiple
sclerosis under the terms of the TCAR agreement.
D. VACCINES, VACCINE DELIVERY SYSTEMS AND IMMUNOTHERAPEUTICS
1. OVERVIEW
THE VACCINE MARKET: Vaccines have long been recognized as a safe and
cost-effective method to prevent infection caused by some bacteria and viruses.
The Centers for Disease Control and Prevention (the "CDC") have estimated that
every dollar spent on vaccination saves $16 in healthcare costs. There are
currently 22 vaccines in routine use in the United States against
life-threatening infectious organisms such as tetanus, diphtheria, poliovirus,
hepatitis A virus, hepatitis B virus, haemophilus influenzae B, measles, mumps
and rubella. From 1990 to 1999, annual worldwide vaccine sales increased from
$1.6 billion to $5.9 billion and the market is growing at about 12% a year. We
believe that this growth rate may accelerate as a result of advances in vaccine
technologies and formulations that address the shortcomings of existing
vaccines. Areas of potential improvement include enhancement of immune
responses, which could lead to a reduction in the number of doses required for
effective protection as well as effective immunization in a higher percentage of
the population, and delivery of vaccines through methods other than injection.
The vaccine market is expected to expand due to the introduction of new vaccines
utilizing purified antigens, produced as a result of advances in molecular
biology. We also believe that the growing awareness and incidence of infectious
diseases, such as H. pylori, hepatitis C virus, HIV1 and HSV2 infection,
together with the availability of new vaccines, could further expand the vaccine
market.
THE IMMUNE SYSTEM AND VACCINES: The function of the human immune system is to
respond to pathogens, including infectious bacteria and viruses, that enter the
body. However, a pathogen may establish an infection and cause disease before it
is eliminated by an immune response. Antibodies are produced as part of the
immune response to antigens, which are components of the pathogen. These
antibodies can continue to be present in the human body for many years,
providing continued protection against reinfection by the same pathogen.
Protective antibodies can be produced in both the systemic and mucosal branches
of the immune system. The systemic immune system produces IgG antibodies to
protect against infection occurring in blood and deep tissue. The mucosal immune
system produces IgA antibodies that protect against infection occurring in the
mucosal layer lining the digestive, respiratory and genitourinary tracts.
Mucosal immunity may act as a first line of defense by attacking pathogens at
the
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point of entry into the body, prior to systemic penetration, as well as by
targeting pathogens such as H. pylori, influenza and rotavirus that propagate
exclusively at the mucosal layer.
Vaccines are a pre-emptive means of generating a protective antibody response. A
vaccine consists of either a weakened pathogen or pathogen-specific,
non-replicating antigens which are deliberately administered to induce the
production of antibodies. When weakened pathogens are used as a vaccine, they
replicate in the body, extending presentation to the immune system and inducing
the production of antibodies without causing the underlying disease. When
non-replicating antigens are used as a vaccine, they must be delivered in
sufficient quantity and remain in the body long enough to generate an effective
antibody response. To achieve this goal, many vaccines require multiple
administrations. Of the 22 vaccines currently in routine use, 20 are delivered
by injection and stimulate only systemic immunity. Only polio and typhoid
vaccines can be administered orally and induce both a mucosal and a systemic
immune response. Both of these vaccines are live, weakened pathogens that
localize in the intestines and do not require a separate vaccine delivery
system.
There is considerable research activity in developing vaccines to treat patients
already infected with the target disease. Referred to generally as
immunotherapy, this effort is directed to designing vaccines that will mobilize
the immune system in various ways to curtail or eliminate the pathogen.
Immunotherapy may have the most promise in treating cancer and chronic disease
such as HIV and HCV.
ADJUVANTS AND OTHER DELIVERY SYSTEMS: The antigens contained in many injectable
vaccines alone will not produce an immune response sufficient to protect against
infection and require the use of an adjuvant to sustain the presentation of the
antigens to the human immune system. Aluminum-based adjuvants ("alum") are the
only adjuvants currently approved by the United States Food and Drug
Administration (the "FDA") for commercial use in humans. While alum has gained
widespread use, it does not sufficiently enhance the immune response to permit
administration of many existing injected vaccines in a single dose. In the case
of some vaccines, such as influenza, alum is ineffective as an adjuvant.
We believe that alum may not be sufficiently effective for use with a number of
the new purified recombinant antigens being developed. Further, alum cannot be
used for mucosal delivery of vaccines. Therapeutic vaccines may require entirely
different systems to enhance deliver and maximize the immune response.
Accordingly, we believe that there is a significant need for new adjuvants that
are safe, work with a wide variety of antigens, and induce a protective immune
response with only one or two administrations. These attributes could result in
benefits, including cost savings and improved patient compliance.
2. VACCINE DEVELOPMENT PROGRAMS
ROTAVIRUS VACCINE: We are developing a novel vaccine against rotavirus
infection. Rotavirus, a major cause of diarrhea and vomiting in infants, affects
approximately 80% of the approximately 4 million infants born each year in the
United States. As a result, on an annual basis, about 500,000 infants require
medical attention and 50,000 are hospitalized. The economic burden in the United
States is estimated at over $1 billion in direct medical and indirect societal
costs. We anticipate that in the United States a vaccine against rotavirus
disease will become a universal pediatric vaccine. We have completed Phase I
clinical trials of the orally delivered live human rotavirus vaccine selected to
elicit a broadly protective immune response to the most prevalent strains of
rotavirus. During 1997, we completed a Phase I/II clinical trial designed to
define the optimal vaccine dose and optimal age for immunization. Based on the
assessment of the safety and immunogenicity of the vaccine, we initiated a Phase
II efficacy study in 1997. This trial, conducted at four U.S. medical centers,
was designed to examine the vaccine's ability to prevent rotavirus disease and
to further study the safety of the vaccine. A total of 215 infants were enrolled
in the study and have been immunized with the vaccine. In 1998, we announced
positive results from this trial, which were published in LANCET in July 1999.
The results showed that approximately 90 percent of the vaccinated infants were
protected from rotavirus disease and demonstrated a statistical significance at
p LESS THAN 0.001. Examination of the safety data revealed only mild transient
symptoms in a small number of infants.
AVANT and SmithKline are currently collaborating on the development and
commercialization of our oral rotavirus vaccine. As discussed under "E.
Collaborative Agreements", with the successful completion of the Phase II
clinical trial and the development by SmithKline of a viable manufacturing
process, SmithKline has assumed financial responsibility for all subsequent
clinical and development activities and paid us a milestone payment of $500,000.
Provided that
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clinical progress continues, we will be entitled to additional milestones and
royalties based on net sales of the rotavirus vaccine.
CHOLERA VACCINE: We are developing an attenuated form of the bacterium VIBRIO
CHOLERAE as a potential cholera vaccine. In several Phase I/II clinical studies,
single oral doses of the cholera vaccine, Peru-15, were administered to more
than 100 subjects and shown to be safe, immunogenic and protective against
infection with the virulent organism. In 1999, we announced the collaboration on
a Phase IIb clinical trial of the Peru-15 vaccine with WRAIR and the NIH. AVANT
and the National Institute of Allergy and Infectious Disease ("NIAID") of the
NIH also signed a Clinical Trial Agreement that allows for the clinical
evaluation of the Peru-15 vaccine formulation at Children's Hospital in
Cincinnati. The Phase IIb trial will test the safety, immunogenicity and
protective capacity of the vaccine against a challenge with live virulent
cholera. AVANT and WRAIR have successfully manufactured clinical supplies of the
vaccine at WRAIR's facility for use in the study.
OTHER VACCINE PROGRAMS: We have successfully completed early clinical studies
with a single dose oral vaccine against typhoid fever and have done preclinical
work in vaccines for genital herpes and anthrax infections. We have temporarily
reduced resources devoted to these programs to focus on more advanced projects.
3. VACCINE AND IMMUNOTHERAPEUTIC DELIVERY SYSTEMS
AVANT is developing a portfolio of proprietary vaccine delivery systems designed
to improve the efficacy of existing vaccines, and permit the development of new
vaccines and immunotherapeutics for the prevention and/or treatment of
infectious diseases and some forms of cancer.
The following table summarizes important characteristics of our two main vaccine
delivery systems and Therapore(TM):
DELIVERY DELIVERY POTENTIAL
SYSTEM COMPOSITION METHOD BENEFITS (1) STATUS (1)
------ ----------- ------ ------------------- ----------
Adjumer(R) Water Soluble Injectable Enhanced systemic Phase II influenza
Polymer immune response; conducted; under
fewer injections; review at Aventis
lower antigen doses Phase I/II RSV in process
Phase I HIV; analysis of
results ongoing
B. HENSELAE (Cat Scratch
Disease); clinical testing
Preclinical research in Lyme
Disease and other vaccine
targets
Micromer(R) Polymer Intranasal or oral Systemic and mucosal Preclinical research in
Microparticles immune response; no influenza and other
injection vaccine targets
Therapore(TM) Genetically Injectable Induction of cell-mediated Preclinical research in
Engineered immunity hepatitis, HIV and
Bacterial Protein cancer Vector
(1) The summary information included in the above table is qualified
in its entirety by the detailed discussion of each of the vaccine
and immunotherapeutic delivery systems that follows.
ADJUMER(R): We are developing Adjumer(R), a proprietary vaccine delivery system,
as an adjuvant to enhance the immune response to injected vaccines. The water
soluble nature of Adjumer(R), which utilizes a polyphosphazene polymer ("PCPP"),
facilitates a simple aqueous-based manufacturing process for vaccines, thereby
preserving the integrity of the antigen.
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In preclinical studies conducted by AVANT, Adjumer(R) demonstrated sustained
presentation of influenza, hepatitis B, HSV2, HIV1 and tetanus antigens to the
immune system. In those preclinical studies, single intramuscular injections of
Adjumer(R)-formulated vaccines elicited a higher immune response than both
alum-formulated vaccines and non-adjuvanted vaccines as measured by resulting
IgG antibody levels. In additional preclinical studies, an Adjumer(R)-formulated
influenza vaccine using lower antigen doses sustained higher antibody levels
over a longer time period than both alum-formulated vaccines and non-adjuvanted
vaccines. In other preclinical studies Adjumer(R)-formulated vaccines produced
an effective immune response in a higher percentage of animals than in animals
receiving existing vaccine formulations. Furthermore, in these studies, as well
as tests conducted using Adjumer(R) alone, we observed no material adverse
reactions when Adjumer(R) was administered at effective levels.
Based on these preclinical results, we believe that an Adjumer(R)-formulated
vaccine may provide a number of benefits over existing injected vaccines. These
benefits include reducing the number of doses required for an effective immune
response, thereby improving compliance; providing cost savings as a result of
the reduction in the number of doses and the amount of antigen required; and
increasing the time period over which immune protection can be sustained. In
addition, based on the results of these preclinical studies, we believe that an
Adjumer(R)-formulated vaccine may be able to induce an immune response in a
number of subjects who would not otherwise respond to existing vaccines. The
first human clinical trials of a vaccine using Adjumer(R) as a delivery system
commenced in 1996.
AVANT and Aventis, the leading worldwide supplier of influenza vaccine, are
currently collaborating on the development of an Adjumer(R)-formulated vaccine
for influenza. Aventis completed Phase I human clinical trials of the
Adjumer(R)-formulated influenza vaccine in France during 1997. Based on the
results of the study, which showed the Adjumer(R)-formulated vaccine was well
tolerated and elicited improved responses, a Phase II safety and immunogenicity
study was initiated in Peru by Aventis during 1997. Preliminary results of the
Phase II clinical trial confirmed that the Adjumer(R)-formulated vaccine was
well tolerated. However, results of the Phase II study appear to be inconsistent
in some respects with Phase I results. The degree of improvement in immune
responses elicited by the Adjumer(R) influenza vaccine was less in comparison to
the control group than was elicited in the Phase I study. In the Phase II study
the control group receiving the unadjuvanted vaccine generated higher immune
responses than observed in the Phase I study control group. AVANT and Aventis
are currently analyzing and assessing the results of the Phase II study to
determine the appropriate next steps to take with the clinical development of
the product.
Aventis is continuing to investigate the use of Adjumer(R) in other vaccines.
During the fourth quarter of 1998, Aventis initiated a Phase I/II trial of an
Adjumer(R)-formulated vaccine for RSV. RSV, the major cause of lower respiratory
tract infections in infants and children, hospitalizes 90,000 children and
causes 4,500 deaths annually in the United States. Initiation of the trial
resulted in a milestone payment by Aventis.
MICROMER(R): Micromer(R) is a proprietary vaccine delivery system designed to
facilitate the mucosal (intranasal or oral) delivery of antigens and stimulate
both the systemic and mucosal branches of the immune system.
In preclinical studies conducted by AVANT, several Micromer(R)-formulated
antigens delivered intranasally elicited both a mucosal ("IgA") immune response
and a systemic ("IgG") immune response. IgA antibodies were detected at all
mucosal sites, and the level of IgG antibodies was comparable to the level
obtained through Adjumer(R)-formulated injections of the same antigen. A
Micromer(R)-formulated influenza vaccine required only a single, intranasal dose
to provide an immune response sufficient to protect the animals against
subsequent infection by the influenza virus. We have currently suspended efforts
on Micromer(R) to focus on more advanced programs.
THERAPORE(TM): During 1997, we received an exclusive worldwide license to
Therapore(TM) from Harvard College. In 1998, we received a non-exclusive license
from the NIH to further secure our Therapore(TM) technology rights. We believe
that Therapore(TM) will be the core of a novel technology for the development of
immunotherapeutics. We are conducting preclinical research to evaluate this
system for the treatment of persistent viral infections, such as Hepatitis B,
Hepatitis C and HIV, and some forms of cancer.
Therapore(TM) is composed of two bacterial proteins that IN IN VIVO tests have
delivered peptides to induce potent cell-mediated immune responses. These
responses include the generation of long-lived cytotoxic T-lymphocytes ("CTL")
and alterations in the amounts of cellular cytokines produced, which may lead to
the effective treatment of persistent viral infections and the resolution of
some forms of cancer. Potential products utilizing Therapore(TM) technology
could include peptides or proteins from viruses such as Hepatitis B, Hepatitis C
and HIV, all of which cause persistent infections, and
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from a range of cancers, including breast, ovarian, melanoma and prostate. Each
of these indications represents a large market with a need for safe and
effective treatments.
Early stage preclinical research studies indicate that Therapore(TM) may be
distinguished from other delivery systems. We believe that the therapeutic and
preventative potential of Therapore(TM) is significant for two reasons: (i) the
targeting of Therapore(TM) is highly efficient, such that IN IN VIVO tests
potent cell-mediated immune responses have been induced by the delivery of
minute quantities of Therapore(TM) constructs; and (ii) Therapore(TM) has the
potential to deliver large peptides and proteins for processing by normal
cellular mechanisms, which may permit broad immune coverage in humans. As a
result of these characteristics, we believe that Therapore(TM)-delivered
antigens will be capable of producing an enhanced cell-mediated response more
efficiently and safely than other products currently under development by our
competitors.
We plan to employ Therapore(TM) to develop novel immunotherapeutics for the
treatment of chronic viral infections and cancers. We expect to initiate a human
clinical trial of our first Therapore(TM)-based product, a vaccine candidate
under development by the U.S. Army against the Human Immunodeficiency Virus
("HIV"), in the second half of 2000.
E. COLLABORATIVE AGREEMENTS
NOVARTIS: In 1997, we entered into a collaborative agreement with Novartis
relating to the development of TP10 for use in xenotransplantation (animal
organs into humans) and allotransplantation (human to human organ
transplantation). Under the agreement, we received annual option fees and
supplies of TP10 for clinical trials in return for granting Novartis a two-year
option to license TP10 with exclusive worldwide (except Japan) marketing rights.
In July 1999, Novartis exercised its option to license TP10 for use in the field
of transplantation. The decision to license TP10 resulted in a $6 million equity
investment and license fee payment by Novartis which was received by AVANT in
January 2000. Under the agreement, we may receive additional milestone payments
based upon attainment of development and regulatory goals, which has an
approximate aggregate value of up to $14 million. We may also receive funding
for research as well as royalty payments on eventual product sales.
YAMANOUCHI: We started our complement program in 1988. From 1989 through 1994,
TP10 was under development in a joint program pursuant to an agreement with
SmithKline and Yamanouchi. During 1994, AVANT and SmithKline negotiated various
amendments to the agreement and, in February 1995, the two companies agreed to a
mutual termination by which we regained all rights to the program except for
co-marketing rights in Japan, which were retained by SmithKline and Yamanouchi.
In December 1999, SmithKline and Yamanouchi returned the marketing rights for
Japan to us.
AVENTIS: We are a party to two license agreements entered into in 1994 and 1995
with Aventis relating to Adjumer(R)- and Micromer(R)-formulated vaccines,
respectively, for the prevention of a variety of infectious diseases. Under the
agreements, Aventis has been granted the exclusive right to make, use and sell
Adjumer(R)- and Micromer(R)-formulated vaccines for prevention of influenza,
Lyme disease and diseases caused by meningococcus and the co-exclusive right
(exclusive, except for the right of AVANT or one other person licensed by us) to
make, use and sell Adjumer(R)- and Micromer(R)-formulated vaccines directed
against five other pathogens, including pneumococcus and RSV. The licenses to
Aventis apply to specified territories, including North and South America,
Europe, Africa, Thailand and the countries of the former Soviet Union. We have
retained rights to make, use, sell and license Adjumer(R)- and
Micromer(R)-formulated vaccines against the subject infections in most of the
Far East, including China and Japan, subject to geographical extension rights
available to Aventis.
Aventis made a $3.0 million equity investment in AVANT in 1994 upon the
execution of the agreement relating to Adjumer(R). In addition, in connection
with this collaboration, in 1996 Aventis made milestone payments of $4.5 million
and an additional equity investment of $1.0 million in AVANT. During 1998,
Aventis made a further milestone payment to us upon initiation of a Phase I
trial using an Adjumer(R)-formulated vaccine for RSV. Contingent upon our
achieving specified milestones, Aventis has agreed to pay AVANT up to an
additional $6.2 million in connection with the development of
Adjumer(R)-formulated vaccines for influenza and Lyme disease and to make
payments, on a product by product basis with respect to the development of other
Adjumer(R)- and Micromer(R)-formulated vaccines. Aventis must fund all costs
associated with the development and commercialization, including the costs of
clinical trials, of any vaccines it elects to develop utilizing our technology.
In addition, we will be entitled to royalties based on net sales of any vaccine
products developed and sold by Aventis pursuant to these agreements.
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In connection with our agreement relating to Micromer(R), Aventis sponsored
research at AVANT into Micromer(R)-formulated vaccines directed against
influenza and parainfluenza virus ("PIV"). This arrangement, pursuant to which
we received $2.5 million, covered a two-year period that ended in 1997.
Under the agreement relating to Adjumer(R), we were required to use commercially
reasonable efforts to establish a process capable of yielding quantities of
clinical grade PCPP for use by Aventis in clinical studies. We have satisfied
this requirement. In addition, we have facilitated the production of commercial
grade PCPP in a contractor's current Good Manufacturing Practice ("cGMP")
compliant manufacturing facility according to agreed upon specifications. The
Aventis agreement, while reserving to Aventis the right to manufacture PCPP,
anticipates that we will supply PCPP under a cost-plus supply agreement.
PASTEUR MERIEUX-ORAVAX: We have a collaborative arrangement with Pasteur
Merieux-Oravax ("PM-O") for the use of our VibrioVec(TM) bacterial delivery
system. The agreement grants to PM-O a worldwide license to use VibrioVec(TM)
for the delivery of specific H. pylori antigens. A license issue fee as well as
research support payments totaling $1.0 million, has been paid to us under this
agreement. The agreement also provides for future milestone payments and
royalties on net sales of any future products developed by PM-O using
VibrioVec(TM). An option previously granted to PM-O for the use of PCPP in the
delivery of H. pylori vaccines has expired.
SMITHKLINE: During 1997, we entered into an agreement with SmithKline to
collaborate on the development and commercialization of our oral rotavirus
vaccine. Under the terms of the agreement, SmithKline received an exclusive
worldwide license to commercialize our rotavirus vaccine. We were responsible
for continuing the Phase II clinical efficacy study of the rotavirus vaccine,
which was completed in August 1998. Subject to the development by SmithKline of
a viable manufacturing process, SmithKline must assume responsibility for all
subsequent clinical trials and all other development activities. SmithKline made
an initial license payment in 1997 upon execution of the agreement and has
agreed to make further payments upon the achievement of specified milestones. In
addition, we will be entitled to royalties based on net sales of the rotavirus
vaccine. In June 1999, the Company received a milestone payment of $500,000 from
SmithKline for successfully completing the Phase II clinical efficacy study and
establishing a commercially viable process to manufacture the vaccine.
HESKA CORPORATION: In 1998, we entered into an agreement with Heska Corporation
("Heska") whereby Heska was granted the right to use PCPP in specified animal
health vaccines. The agreement provides for the payment of license fees,
milestone and royalties based on net sales of PCPP-formulated animal vaccines.
In September 1999, we received a payment from Heska for achieving a major
milestone in efforts to develop and utilize the PCPP polymer as an adjuvant in
Heska's animal health vaccine against B. HENSELAE, the bacterium that causes Cat
Scratch Disease ("CSD") in humans.
We depend on our collaborative relationships and may enter into more of them in
the future. Some of the above referenced agreements give our collaborator
substantial responsibility to commercialize a product and to make decisions
about the amount and timing of resources that are devoted to developing and
commercializing a product. As a result, we do not have complete control over how
resources are used toward some of our products.
In addition, some of these agreements relate to products in the early stages of
research and development. Others require AVANT and our collaborator to jointly
decide on the feasibility of developing a particular product using our
technologies. In either case, these agreements may terminate without benefit to
us if the underlying products are not fully developed. Moreover, once specific
products are chosen for development, the agreements relating to them may require
AVANT to meet specified milestones, to invest money and other resources in the
development process or to negotiate additional licenses and other agreements,
which may not be possible or advantageous. If we fail to meet our obligations
under those agreements, they could terminate and we might need to enter into
relationships with other collaborators and to spend additional time, money, and
other valuable resources in the process.
Moreover, we cannot predict whether our collaborators will continue their
development efforts or, if they do, whether their efforts will achieve success.
Many of our collaborators face the same kinds of risks and uncertainties in
their business that we face. A delay or setback to a collaborator will, at a
minimum, delay the commercialization of any affected products, and may
ultimately prevent it. Moreover, any collaborator could breach its agreement
with us or otherwise not use best efforts to promote our products. A
collaborator may choose to pursue alternative technologies or products that
compete with our technologies or products. In either case, if a collaborator
failed to successfully develop
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one of our products, we would need to find another collaborator. Our ability to
do so would depend on our legal right to do so at the time and whether the
product remained commercially viable.
F. RISK FACTORS
You should consider carefully these risk factors together with all of the
information included or incorporated by reference in this Annual Report. This
section includes some forward-looking statements.
OUR HISTORY OF LOSSES AND UNCERTAINTY OF FUTURE PROFITABILITY MAKE OUR COMMON
STOCK A HIGHLY SPECULATIVE INVESTMENT
We have had no commercial revenues to date from sales of our products and cannot
predict when we will. We have accumulated net operating losses since inception
of approximately $133.3 million, as of December 31, 1999. We expect to spend
substantial funds to continue research and product testing of the following
products we have in the pre-clinical and clinical testing stages of development:
Product Use Stage
- ------------------------------------------ ---------------------------------------- -------------------------
TP10 Organ transplantation clinical phase II
TP10 Pediatric cardiac surgery clinical phase I/II
TP10 Heart attacks clinical phase I
TP20 Stroke preclinical
CETi-1 vaccine Atherosclerosis clinical phase I
Rotavirus vaccine Rotavirus infection clinical phase II
Cholera vaccine Cholera infection clinical phase II
Adjumer(R) Influenza clinical phase II
Adjumer(R) Respiratory syncytial virus clinical phase I/II
Adjumer(R) Lyme disease preclinical
Therapore(TM) Hepatitis preclinical
Therapore(TM) HIV preclinical
Therapore(TM) Cancer preclinical
TCAR Multiple sclerosis clinical phase II
If and when any of these products receive Food and Drug Administration approval,
we will need to make substantial investments to establish sales, marketing,
quality control, and regulatory compliance capabilities. We cannot predict how
quickly our lead products will progress through the regulatory approval process.
As a result, we may continue to lose money for several years. We will disclose
the progress each product is making through pre-clinical and clinical testing,
and the preparations we are making for products that are nearing approval for
sale in our periodic reports under the Securities Exchange Act of 1934.
IF WE CANNOT SELL CAPITAL STOCK TO RAISE NECESSARY FUNDS, IT MAY FORCE US TO
LIMIT OUR RESEARCH, DEVELOPMENT AND TESTING PROGRAMS
We will need to raise more capital from investors to advance our lead products
through the clinical testing and pre-commercialization stages of development
before they generate revenues for us. However, based on our history of losses,
we may have difficulty attracting sufficient investment interest. We may also
try to obtain funding through research grants and agreements with commercial
collaborators. This kind of funding is at the discretion of other organizations
and companies which have limited funds and many companies compete with us for
those funds. As a result, we may not receive any research grants or funds from
collaborators. We will provide specific information about the sources and
adequacy of funding for our active research and development programs in our
periodic reports under the Securities Exchange Act of 1934.
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IF SELLING STOCKHOLDERS CHOOSE TO SELL SHARES IN LARGE VOLUME, THE TRADING PRICE
OF OUR COMMON STOCK COULD SUFFER
In September 1999, we sold 5,459,375 shares of our common stock in a private
placement at $1.92 per share. This was the latest of several private placements
of our common stock. Those shares plus among others, 2,043,494 shares we sold in
a March 1998 private placement at $1.90 per share, 1,433,750 shares we issued in
June 1998 in settlement of a contract dispute with a landlord, and 3,138,559
shares that employees may purchase under stock options at prices ranging from
$0.30 to $7.81 per share, can be resold in the public securities markets without
restriction. These shares in total account for approximately 27.4 % of our total
common stock outstanding as of December 31, 1999. If large numbers of shares are
sold over a short period of time, the price of our stock may decline rapidly or
fluctuate widely.
IF OUR PRODUCTS DO NOT PASS REQUIRED TESTS FOR SAFETY AND EFFECTIVENESS, WE WILL
NOT BE ABLE TO DERIVE COMMERCIAL REVENUE FROM THEM
For AVANT to succeed, we will need to derive commercial revenue from the
products we have under development. The FDA has not approved any of our lead
products for sale to date. Our lead drug, TP10, is undergoing phase II clinical
testing for use in pediatric cardiac surgery and organ transplantation. TP10 has
also undergone phase I clinical testing for use in treating heart attacks. Other
products in our vaccine programs are in various stages of preclinical and
clinical testing. Preclinical tests are performed at an early stage of a
product's development and provide information about a product's effectiveness on
laboratory animals. Preclinical tests can last years. If a product passes its
preclinical tests satisfactorily, we file an investigational new drug
application for the product with the FDA, and if the FDA gives its approval we
begin phase I clinical tests. Phase I testing generally lasts between six and 12
months. If phase I test results are satisfactory and the FDA gives its approval,
we can begin phase II clinical tests. Phase II testing generally lasts between
six and 18 months. If phase II test results are satisfactory and the FDA gives
its approval, we can begin phase III pivotal studies. Phase III studies
generally last between 12 and 36 months. Once clinical testing is completed and
a new drug application is filed with the FDA, it may take several more years to
receive FDA approval. We will disclose the progress of our ongoing tests and any
FDA action on our products in our periodic reports under the Securities Exchange
Act of 1934.
In all cases we must show that a pharmaceutical product is both safe and
effective before the FDA, or drug approval agencies of other countries where we
intend to sell the product, will approve it for sale. Our research and testing
programs must comply with drug approval requirements both in the United States
and in other countries, since we are developing our lead products with
companies, including Novartis Pharma AG, Yamanouchi Pharmaceutical and Aventis
Pasteur, which intend to commercialize them both in the U.S. and abroad. A
product may fail for safety or effectiveness at any stage of the testing
process. The key risk we face is that none of our products under development
will come through the testing process to final approval for sale, with the
result that we cannot derive any commercial revenue from them after investing
significant amounts of capital in multiple stages of pre-clinical and clinical
testing.
PRODUCT TESTING IS CRITICAL TO THE SUCCESS OF OUR PRODUCTS BUT SUBJECT TO DELAY
OR CANCELLATION IF WE HAVE DIFFICULTY ENROLLING PATIENTS
As our portfolio of potential products moves from pre-clinical testing to
clinical testing, and then through progressively larger and more complex
clinical trials, we will need to enroll an increasing number of patients with
the appropriate characteristics. At times we have experienced difficulty
enrolling patients and we may experience more difficulty as the scale of our
clinical testing program increases. The factors that affect our ability to
enroll patients are largely uncontrollable and include principally the
following:
- the nature of the clinical test
- the size of the patient population
- the distance between patients and clinical test sites
- the eligibility criteria for the trial
As clinical tests currently in progress continue and new tests begin, we will
disclose in our periodic reports under the Securities Exchange Act of 1934 our
progress in enrolling sufficient patients to keep our various programs moving
forward, including any specific difficulties we face from time to time and their
expected consequences on the affected program. If we cannot enroll patients as
needed, our costs may increase or it could force us to delay or terminate
testing for a product.
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WE DEPEND GREATLY ON THE INTELLECTUAL CAPABILITIES AND EXPERIENCE OF OUR KEY
EXECUTIVES AND SCIENTISTS AND THE LOSS OF ANY OF THEM COULD AFFECT OUR ABILITY
TO DEVELOP OUR PRODUCTS
The loss of Dr. Una S. Ryan, our president and chief executive officer, or other
key members of our staff could harm us. We have an employment agreement with Dr.
Ryan. We do not have any key-person insurance coverage. We also depend on our
scientific collaborators and advisors, all of whom have outside commitments that
may limit their availability to us. In addition, we believe that our future
success will depend in large part upon our ability to attract and retain highly
skilled scientific, managerial and marketing personnel, particularly as we
expand our activities in clinical trials, the regulatory approval process and
sales and manufacturing. We face significant competition for this type of
personnel from other companies, research and academic institutions, government
entities and other organizations. We cannot predict our success in hiring or
retaining the personnel we require for continued growth.
WE RELY ON THIRD PARTIES TO PLAN, CONDUCT, MONITOR AND SUPPLY OUR CLINICAL
TESTS, AND THEIR FAILURE TO PERFORM AS REQUIRED WOULD INTERFERE WITH OUR PRODUCT
DEVELOPMENT
We rely on third parties, including Duke University Medical Center, The Chicago
Center for Clinical Research and SmithKline Beecham to conduct our clinical
tests. If any one of those third parties fails to perform as we expect or if
their work fails to meet regulatory standards, our testing could be delayed,
cancelled or rendered ineffective. We also depend on third party suppliers,
including Walter Reed Army Institute of Research, Marathon Biopharmaceuticals,
Inc., and Multiple Peptide Systems, to provide us with suitable quantities of
materials necessary for clinical tests. If these materials are not available in
suitable quantities of appropriate quality, in a timely manner, and at a
feasible cost, our clinical tests will face delays.
WE DEPEND GREATLY ON THIRD PARTY COLLABORATORS TO LICENSE, DEVELOP AND
COMMERCIALIZE SOME OF OUR PRODUCTS, AND THEY MAY NOT MEET OUR EXPECTATIONS
We have agreements with other companies, including Heska Corporation,
Innogenetics, Inc., Novartis Pharma AG, Aventis Pasteur, SmithKline Beecham, and
Yamanouchi Pharmaceutical, for the licensing, development and ultimate
commercialization of most of our products. Some of those agreements give
substantial responsibility over the products to the collaborator. Some
collaborators may be unable or unwilling to devote sufficient resources to
develop our products as their agreements require. They often face business risks
similar to ours, which could interfere with their efforts. Also, collaborators
may choose to devote their resources to products that compete with ours. If a
collaborator does not successfully develop any one of our products, we will need
to find another collaborator to do so. Our search for a new collaborator will
depend on our legal right to do so at the time and whether the product remains
commercially viable.
WE MAY FACE DELAYS, DIFFICULTIES OR UNANTICIPATED COSTS IN ESTABLISHING SALES,
DISTRIBUTION AND MANUFACTURING CAPABILITIES FOR OUR COMMERCIALLY READY PRODUCTS
We have chosen to retain, rather than license, all rights to some of our lead
products, such as TP10 for pediatric cardiac surgery. If we proceed with this
strategy, we will have full responsibility for commercialization of these
products if and when they are approved for sale. We currently lack the
marketing, sales and distribution capabilities that we will need to carry out
this strategy. To market any of our products directly, we must develop a
substantial marketing and sales force with technical expertise and a supporting
distribution capability. We have little expertise in this area, and we may not
succeed. We may find it necessary to enter into strategic partnerships on
uncertain but potentially unfavorable terms to sell, market and distribute our
products when they are approved for sale.
We do not currently plan to develop internal manufacturing capabilities to
produce any of our products if they are approved for sale. To the extent that we
choose to market and distribute products ourselves, this strategy will make us
dependent on other companies to produce our products in adequate quantities, in
compliance with regulatory requirements, and at a competitive cost. We may not
find third parties capable of meeting those manufacturing needs.
OUR RELIANCE ON THIRD PARTIES REQUIRES US TO SHARE OUR TRADE SECRETS, WHICH
INCREASES THE POSSIBILITY THAT A COMPETITOR WILL DISCOVER THEM
Because we rely on third parties to develop our products, we must share trade
secrets with them. We seek to protect our proprietary technology in part by
confidentiality agreements and, if applicable, inventor's rights agreements with
our collaborators, advisors, employees and consultants. If these agreements are
breached, our competitors may discover our
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trade secrets. A competitor's discovery of our trade secrets would impair our
competitive position. Moreover, we conduct a significant amount of research
through academic advisors and collaborators who are prohibited from entering
into confidentiality or inventor's rights agreements by their academic
institutions.
WE LICENSE TECHNOLOGY FROM OTHER COMPANIES TO DEVELOP OUR PRODUCTS, AND THOSE
COMPANIES COULD RESTRICT OUR USE OF IT
Companies that license to us technologies we use in our research and development
programs may require us to achieve milestones or devote minimum amounts of
resources to develop products using those technologies. They may also require us
to make significant royalty and milestone payments, including a percentage of
any sublicensing income, as well as payments to reimburse them for patent costs.
The number and variety of our research and development programs require us to
establish priorities and to allocate available resources among competing
programs. From time to time we may choose to slow down or cease our efforts on
particular products. If in doing so we fail to perform our obligations under a
license fully, the licensor can terminate the licenses or permit our competitors
to use the technology. Moreover, we may lose our right to market and sell any
products based on the licensed technology.
WE HAVE MANY COMPETITORS IN OUR FIELD AND THEY MAY DEVELOP TECHNOLOGIES THAT
MAKE OURS OBSOLETE
Biotechnology, pharmaceuticals and therapeutics are rapidly evolving fields in
which scientific and technological developments are expected to continue at a
rapid pace. We have many competitors in the U.S. and abroad, including Alexion
Pharmaceutical, Bayer, Merck, Pfizer, Immune Response and Wyeth-Lederle. Our
success depends upon our ability to develop and maintain a competitive position
in the product categories and technologies on which we focus. Many of our
competitors have greater capabilities, experience and financial resources than
we do. Competition is intense and is expected to increase as new products enter
the market and new technologies become available. Our competitors may:
- develop technologies and products that are more effective than ours,
making ours obsolete or otherwise noncompetitive
- obtain regulatory approval for products more rapidly or effectively
than us
- obtain patent protection or other intellectual property rights that
would block our ability to develop competitive products
WE RELY ON PATENTS, PATENT APPLICATIONS AND OTHER INTELLECTUAL PROPERTY
PROTECTIONS TO PROTECT OUR TECHNOLOGY AND TRADE SECRETS; THEY ARE EXPENSIVE AND
MAY NOT PROVIDE SUFFICIENT PROTECTION
Our success depends in part on our ability to obtain and maintain patent
protection for technologies that we use. Biotechnology patents involve complex
legal, scientific and factual questions and are highly uncertain. To date, there
is no consistent policy regarding the breadth of claims allowed in biotechnology
patents, particularly in regard to patents for technologies for human uses like
those we use in our business. We cannot predict whether the patents we seek will
issue. If they do issue, a competitor may challenge them and limit their scope.
Moreover, our patents may not afford effective protection against competitors
with similar technology. A successful challenge to any one of our patents could
result in a third party's ability to use the technology covered by the patent.
We also face the risk that others will infringe, avoid or circumvent our
patents. Technology that we license from others is subject to similar risks,
which could harm our ability to use that technology. If we, or a company that
licenses technology to us, were not the first creator of an invention that we
use, our use of the underlying product or technology will face restrictions,
including elimination.
If we must defend against suits brought against us or prosecute suits against
others involving intellectual property rights, we will incur substantial costs.
In addition to any potential liability for significant monetary damages, a
decision against us may require us to obtain licenses to patents or other
intellectual property rights of others on potentially unfavorable terms. If
those licenses from third parties are necessary but we cannot acquire them, we
would attempt to design around the relevant technology, which would cause higher
development costs and delays, and may ultimately prove impracticable.
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OUR BUSINESS REQUIRES US TO USE HAZARDOUS MATERIALS, WHICH INCREASES OUR
EXPOSURE TO DANGEROUS AND COSTLY ACCIDENTS
Our research and development activities involve the use of hazardous chemicals,
biological materials and radioactive compounds. Although we believe that our
safety procedures for handling and disposing hazardous materials comply with the
standards prescribed by applicable laws and regulations, we cannot completely
eliminate the risk of accidental contamination or injury from these materials.
In the event of an accident, an injured party will likely sue us for any
resulting damages with potentially significant liability. The ongoing cost of
complying with environmental laws and regulations is significant and may
increase in the future. In addition, in connection with our merger with Virus
Research Institute, Inc. in 1998, we assumed the real property lease at Virus
Research Institute, Inc.'s former site. We understand that this property has a
low level of oil-based and other hazardous material contamination. We believe
that the risks posed by this contamination are low, but we cannot predict
whether additional hazardous contamination exists at this site, or that changes
in applicable law will not require us to clean up the current contamination of
the property.
G. COMPETITION
Competition in the biotechnology and vaccine industries is intense. We face
competition from many companies in the United States and abroad, including a
number of large pharmaceutical companies, firms specialized in the development
and production of vaccines, adjuvants and vaccine and immunotherapeutic delivery
systems and major universities and research institutions. Most of our
competitors have substantially greater resources, more extensive experience in
conducting preclinical studies and clinical testing and obtaining regulatory
approvals for their products, greater operating experience, greater research and
development and marketing capabilities and greater production capabilities than
those of AVANT. There can be no assurance that our competitors will not develop
technologies and products that are safer or more effective than any which are
being developed by us or which would render our technology and products obsolete
and noncompetitive, and our competitors may succeed in obtaining FDA approval
for products more rapidly than AVANT. There can be no assurance that the
vaccines and immunotherapeutic products under development by us and our
collaborators will be able to compete successfully with existing products or
products under development by other companies, universities and other
institutions or that they will obtain regulatory approval in the United States
or elsewhere. We believe that the principal competitive factors in the vaccine
and immunotherapeutic market are product quality, measured by efficacy and
safety, ease of administration and price.
Our competitive position will also depend upon our ability to attract and retain
qualified personnel, obtain patent protection or otherwise develop proprietary
products or processes and secure sufficient capital resources for the often
lengthy period between technological conception and commercial sales. We will
require substantial capital resources to complete development of some or all of
our products, obtain the necessary regulatory approvals and successfully
manufacture and market its products. In order to secure capital resources, we
anticipate having to sell additional capital stock, which would dilute existing
stockholders. We may also attempt to obtain funds through research grants and
agreements with commercial collaborators. However, these types of fundings are
uncertain because they are at the discretion of the organizations and companies
that control the funds. As a result, we may not receive any funds from grants or
collaborations. Alternatively, we may borrow funds from commercial lenders,
likely at high interest rates, which would increase the risk of any investment
in AVANT.
H. MANUFACTURING
We have no manufacturing facilities, no experience in volume manufacturing and
plan to rely upon collaborators or contractors to manufacture our proposed
products for both clinical and commercial purposes. We believe that there is
currently sufficient capacity worldwide for the production of our potential
products by our collaborators or through contract manufacturers.
To date, we have been arranging with contract manufacturers for the manufacture
of PCPP in quantities sufficient for preclinical and clinical studies, and for
clinical trial supplies of our rotavirus vaccine candidate. Future manufacture
of our rotavirus vaccine is the responsibility of SmithKline, which has received
from us a world-wide exclusive license to commercialize this vaccine.
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We have contracted for the development and initial supply of the starting
materials for PCPP but do not yet have a written contract with a manufacturer
for commercial production of PCPP. We have facilitated the production of
commercial grade PCPP in a contractor's cGMP manufacturing facility according to
agreed upon specifications. The Aventis agreement, while reserving to Aventis
the right to manufacture PCPP, anticipates that we may supply PCPP under a
cost-plus supply agreement. We have also entered into a collaborative
arrangement with WRAIR for the manufacture of a Therapore(TM) -HIV product.
WRAIR will manufacture the HIV-specific component for this product and we have
contracted with Marathon Biopharmaceuticals, Inc. to manufacture the other
component. WRAIR has made Cholera Peru-15 and Bengal-15 vaccines under a
collaborative agreement with us. The CETi-1 vaccine is made under contracts with
Multiple Peptide Services and Bioconcepts, Inc. The manufacturing processes for
our other vaccine and immunotherapeutic delivery systems and vaccines utilize
known technologies. We believe that the products we currently have under
development can be readily scaled up to permit manufacture in commercial
quantities. However, there can be no assurance that we will not encounter
difficulties in scaling up the manufacturing processes.
Use of third party manufacturers limits our control over and ability to monitor
the manufacturing process. As a result, we may not be able to detect a variety
of problems that may arise. If third party manufacturers fail to meet our
manufacturing needs in an acceptable manner, we would face delay and additional
costs while it develops internal manufacturing capabilities or finds alternative
third party manufacturers.
We intend to establish manufacturing arrangements with manufacturers that comply
with the FDA's requirements and other regulatory standards, although there can
be no assurance that we will be able to do so. In the future, we may, if it
becomes economically attractive to do so, establish our own manufacturing
facilities to produce any vaccine products that we may develop. In order for us
to establish a manufacturing facility, we will require substantial additional
funds and will be required to hire and retain significant additional personnel
and comply with the extensive cGMP regulations of the FDA applicable to such
facility. The product manufacturing facility would also need to be licensed for
the production of vaccines by the FDA.
I. MARKETING
Under the terms of existing and future collaborative agreements, we rely and
expect to continue to rely on the efforts of our collaborators for the sale and
marketing of our products. There can be no assurance that our collaborators will
market vaccine products incorporating our technologies, or, if marketed, that
such efforts will be successful. The failure of our collaborators to
successfully market products would harm our business.
We have retained, and in the future intend to retain, marketing rights to some
of our product candidates, including vaccine and immunotherapeutic delivery
systems and vaccine candidates, in selected geographic areas and for specified
indications. We intend to seek marketing and distribution agreements and/or
co-promotion agreements for the distribution of our products in these geographic
areas and for these indications. We believe that these arrangements could enable
us to generate greater financial return than might be obtained from early stage
licensing and collaboration agreements. We have no marketing and sales staff and
limited experience relating to marketing and distribution of commercial
products, including vaccines. If we determine in the future to engage in direct
marketing of our products, we will be required to recruit an experienced
marketing group, develop a supporting distribution capability and incur
significant additional expenditures. There can be no assurance that we will be
able to establish a successful marketing force. We may choose or find it
necessary to enter into strategic partnerships on uncertain, but potentially
unfavorable, terms to sell, market and distribute our products. Any delay in the
marketing or distribution of our products, whether it results from problems with
internal capabilities or with a collaborative relationship, could harm the value
of an investment in AVANT.
J. PATENTS, LICENSES AND PROPRIETARY RIGHTS
AVANT's policy is to protect our technology by filing patent applications and
obtaining patent rights covering our own technology, both in the United States
and in foreign countries. In addition, we have acquired and will seek to acquire
as needed or desired, exclusive rights of others through assignment or license
to complement our portfolio of patent rights. We also rely on trade secrets,
unpatented know-how and technological expertise and innovation to develop and
maintain our competitive position.
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PATENTS: The successful development and marketing of products by AVANT will
depend in part on our ability to create and maintain intellectual property,
including patent rights. We have established a proprietary patent position in
the areas of complement inhibitor technology, vaccine technologies and
diagnostic technologies, and we are the owner or exclusive licensee of numerous
patents and pending applications around the world. Although we continue to
pursue patent protection for our products, no assurance can be given that any
pending application will issue as a patent, that any issued patent will have a
scope that will be of commercial benefit, or that we will be able to
successfully enforce our patent position against competitors.
In the area of complement molecules, we are co-owner with The Johns Hopkins
University and Brigham & Women's Hospital, whose rights AVANT has exclusively
licensed, of patents and applications covering inventions relating to complement
receptor type 1 (CR1). These rights are based in part on the work of Dr. Douglas
Fearon and include U.S. and foreign patents which claim nucleic acid sequences
encoding CR1, sCR1 and active fragments; purification methods; and therapeutic
uses of sCR1. We also own or have rights to a number of other issued patents and
patent applications relating to sCR1, sCR1sLe x and other complement inhibitor
molecules and their uses.
In 1996, we licensed portions of our patent and technology rights regarding CR1
to CytoTherapeutics, Inc. ("CytoTherapeutics") for use in protecting
CytoTherapeutics' proprietary cell-encapsulation products for the delivery of
therapeutic substances to the central nervous system.
In 1996, we amended our agreement with Astra to transfer some of our patent
rights and licenses to the TCAR technology to Astra. This transfer includes
patent applications which have resulted to date in U.S. patents covering the
DNA, proteins, protein fragments and antibodies relating to the Alpha TCAR and
the DNA, full-length proteins and antibodies relating to Beta TCAR, and two
European patents covering Beta TCAR inventions. In addition, we have transferred
filings on T cell antigen receptor inventions resulting from the partnership
with Astra.
In July 1999, we entered into a transfer and sale agreement with Innogenetics,
Inc. ("Innogenetics") in which we conveyed to Innogenetics our rights in the
TRAx(R) technology for detection of cell surface markers, such as CD4 and CD8 on
T cells. This agreement gave Innogenetics the exclusive rights to sell the
TRAx(R) CD4 and CD8 diagnostic products worldwide, with AVANT receiving payments
and the rights to receive future royalties on sales.
In the area of vaccine technology, we own issued U.S. patents and corresponding
foreign applications directed to the use of vaccines incorporating our
Adjumer(R) vaccine delivery technology, and directed to the use of vaccines
incorporating our Micromer(R) vaccine delivery technology. Further, we own and
have licensed other U.S. patents and patent applications, and corresponding
foreign applications, directed to technology that may be useful for our
Micromer(R) and Adjumer(R) vaccine delivery systems. We have an exclusive
license to a United States patent application, and corresponding foreign
applications, directed to a vector construct that is used in our VibrioVec(TM)
vaccine delivery system; we have an exclusive license to an issued U.S. patent
directed to a rotavirus strain antigen which forms the basis of our rotavirus
vaccine; and we have an exclusive license to a U.S. patent application, and
corresponding foreign applications, directed to a defective HSV2 virus for use
in our vaccine directed against genital herpes. We also have an exclusive
license to U.S. patent applications and a non-exclusive license to US and
foreign patents and applications directed to technology that may be useful for
our Therapore(TM) system. We have two issued patents in foreign countries and
additional pending patent applications in the U.S. and selected foreign
countries relating to control of CETP activity through vaccination.
There can be no assurance that patent applications owned by or licensed to AVANT
will result in granted patents or that, if granted, the resultant patents will
afford protection against competitors with similar technology. It is also
possible that third parties may obtain patent or other proprietary rights that
may be necessary or useful to AVANT. In cases where third parties are first to
invent a particular product or technology, it is possible that those parties
will obtain patents that will be sufficiently broad to prevent us from using
important technology or from further developing or commercializing important
vaccine and immunotherapeutic systems and vaccine candidates. If licenses from
third parties are necessary but cannot be obtained, commercialization of the
covered products might be delayed or prevented. Even if these licenses can be
obtained, they would probably require us to pay ongoing royalties and other
costs, which could be substantial.
Although a patent has a statutory presumption of validity in the United States,
the issuance of a patent is not conclusive as to validity or as to the
enforceable scope of the patent claims. The validity or enforceability of a
patent after its issuance by the Patent and Trademark Office can be challenged
in litigation. As a business that uses a substantial amount of intellectual
property, we face a heightened risk of intellectual property litigation. If the
outcome of the litigation is
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adverse to the owner of the patent, third parties may then be able to use the
invention covered by the patent without payment. There can be no assurance that
our issued patents or any patents subsequently issued to or licensed by us will
not be successfully challenged in the future. In addition, there can be no
assurance that our patents will not be infringed or that the coverage of our
patents will not be successfully avoided by competitors through design
innovation.
We are aware that others, including universities and companies, have filed
patent applications and have been granted patents in the United States and other
countries which claim subject matter potentially useful or necessary to the
commercialization of our products. The ultimate scope and validity of existing
or future patents which have been or may be granted to third parties, and the
availability and cost of acquiring rights in those patents necessary to the
manufacture, use or sale of our products presently cannot be determined by
AVANT.
We use a mutated Vibrio cholerae in our VibrioVec(TM) vaccine delivery system.
We are aware of an issued U.S. patent which claims a culture of mutated Vibrio
cholerae. We believe that only one claim (the "Claim") of the patent may be
pertinent to our VibrioVec(TM) system. The remaining claims of the patent cover
other cultures which we believe are not pertinent to VibrioVec(TM). We have
received an opinion of counsel from Fish & Richardson, P.C. that, based on the
analysis set forth in their opinion and the facts known to them, the Claim is
invalid. It should be noted that a party challenging validity of a patent has
the burden of proving invalidity and that the outcome of any litigation cannot
be predicted with certainty. Accordingly, there can be no assurance that, if
litigated, a court would conclude that the Claim is invalid.
In addition, we are aware of a foreign patent with claims that could conflict
with AVANT's vaccine candidates and vaccine delivery systems. We believe that
the relevant claims under this patent do not extend to or restrict our
activities, however there can be no assurance that a foreign court would reach
the same conclusion. We are also aware of an issued U.S. patent relating to the
same technology covered by a patent application to which we have been granted an
exclusive license, and in January 2000, an interference was declared in the U.S.
Patent and Trademark Office to determine who is entitled to a U.S. patent on the
herpes vaccine technology.
In addition to the patents referred to in the previous two paragraphs, there may
be other patent applications and issued patents belonging to competitors that
may require us to alter our vaccine candidates and vaccine and immunotherapeutic
delivery systems, pay licensing fees or cease some of our activities. If our
product candidates conflict with patents that have been or may be granted to
competitors, universities or others, the patent owners could bring legal actions
against us claiming damages and seeking to enjoin manufacturing and marketing of
the patented products. If any of these actions are successful, in addition to
any potential liability for damages, we could be required to obtain a license in
order to continue to manufacture or market the affected products. There can be
no assurance that we would prevail in any such action or that any license
required under any such third party patent would be made available on acceptable
terms or at all. We believe that there may be significant litigation in the
biotechnology and vaccine industries regarding patent and other intellectual
property rights. If we become involved in that litigation, we could consume
substantial resources.
LICENSES: We have entered into several significant license agreements relating
to technology that is being developed by AVANT and/or its collaborators,
including licenses from: Massachusetts Institute of Technology covering
proprietary technologies for vaccine delivery related to PCPP microparticles;
Penn State Research Foundation covering the production of polyphosphazene
polymer; Harvard College relating to proprietary technology involving
genetically altered Vibrio cholera and Salmonella strains; Cincinnati Children's
Hospital involving proprietary rights and technologies relating to an attenuated
rotavirus strain for a rotavirus vaccine; Harvard College and the Dana Farber
Cancer Institute relating to a genetically-altered HSV2 virus for use in a
genital herpes virus vaccine; and Harvard College and the NIH for the
proprietary technology related to Therapore(TM), a novel immunotherapy delivery
system to be developed for delivery of products for the treatment of persistent
viral infections and some forms of cancer. In general, these institutions
(except the NIH) have granted us an exclusive worldwide license (with right to
sublicense) to make, use and sell products embodying the licensed technology,
subject to the reservation by the licensor of a non-exclusive right to use the
technologies for non-commercial purposes. Generally, the term of each license is
through the expiration of the last of the patents issued with respect to the
technologies covered by the license. We have generally agreed to use reasonable
efforts to develop and commercialize licensed products and to achieve specified
milestones and pay license fees, milestone payments and royalties based on the
net sales of the licensed products or to pay a percentage of sublicense income.
If we breach our obligations, the licensor has the right to terminate the
license, and, in some cases, convert the license to a non-exclusive license.
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PROPRIETARY RIGHTS: We also rely on unpatented technology, trade secrets and
confidential information, and no assurance can be given that others will not
independently develop substantially equivalent information and techniques or
otherwise gain access to our know-how and information, or that we can
meaningfully protect our rights in such unpatented technology, trade secrets and
information. We require each of our employees, consultants and advisors to
execute a confidentiality agreement at the commencement of an employment or
consulting relationship with AVANT. The agreements generally provide that all
inventions conceived by the individual in the course of employment or in
providing services to AVANT and all confidential information developed by, or
made known to, the individual during the term of the relationship shall be the
exclusive property of AVANT and shall be kept confidential and not disclosed to
third parties except in limited specified circumstances. There can be no
assurance, however, that these agreements will provide meaningful protection for
our information in the event of unauthorized use or disclosure of such
confidential information.
K. GOVERNMENT REGULATION
Our activities and products are significantly regulated by a number of
governmental entities, including the FDA in the United States and by comparable
authorities in other countries and by the USDA with respect to products
developed by Heska. These entities regulate, among other things, the
manufacture, testing, safety, effectiveness, labeling, documentation,
advertising and sale of our products. We must obtain regulatory approval for a
product in all of these areas before we can commercialize the product. Product
development within this regulatory framework takes a number of years and
involves the expenditure of substantial resources. Many products that initially
appear promising ultimately do not reach the market because they are found to be
unsafe or ineffective when tested. Our inability to commercialize a product
would impair our ability to earn future revenues.
In the United States, vaccines and immunotherapeutics for human use are subject
to FDA approval as "biologics" under the Public Health Service Act and "drugs"
under the Federal Food, Drug and Cosmetic Act. The steps required before a new
product can be commercialized include: preclinical studies in animals, clinical
trials in humans to determine safety and efficacy and FDA approval of the
product for commercial sale.
Data obtained at any stage of testing is susceptible to varying interpretations
which could delay, limit or prevent regulatory approval. Moreover, during the
regulatory process, new or changed drug approval policies may cause
unanticipated delays or rejection of our product. We may not obtain necessary
regulatory approvals within a reasonable period of time, if at all, or avoid
delays or other problems in testing its products. Moreover, even if we received
regulatory approval for a product, the approval may require limitations on use,
which would restrict the size of the potential market for the product.
The FDA provides that human clinical trials may begin thirty (30) days after
receipt and review of an Investigational New Drug ("IND") application, unless
the FDA requests additional information or changes to the study protocol within
that period. An IND must be sponsored and filed by AVANT for each of our
proposed products. Authorization to conduct a clinical trial in no way assures
that the FDA will ultimately approve the product. Clinical trials are usually
conducted in three sequential phases; in a Phase I trial, the product is given
to a small number of healthy volunteers to test for safety (adverse effects).
Phase II trials are conducted on a limited group of the target patient
population; safety, optimal dosage and efficacy are studied. A Phase III trial
is performed in a large patient population over a wide geographic area to prove
that significant efficacy exists. The FDA has ongoing oversight over all these
trials and can order a temporary or permanent discontinuation if that action is
warranted. Such an action could materially harm AVANT. Clinical tests are
critical to the success of our products but are subject to unforeseen and
uncontrollable delay, including delay in enrollment of patients. Any delay in
clinical trials could delay our commercialization of a product.
A product's safety and effectiveness in one test does not necessarily indicate
its safety and effectiveness in any other test, including more advanced ones.
Moreover, we may not discover all potential problems with a product even after
completing testing on it. Some of our products and technologies have undergone
only preclinical testing. As a result, we do not know whether they are safe or
effective for humans. Also, regulatory authorities may decide, contrary to our
findings, that a product is unsafe or not as effective in actual use as its test
results indicated. This could prevent the product's widespread use, require its
withdrawal from the market or expose us to liability.
The results of the clinical trials and all supporting data are submitted to the
FDA for approval. A Biologics License Application ("BLA") is submitted for a
biologic product; a New Drug Application (an "NDA") for a drug product. The
interval between IND filing and BLA/NDA filing is usually at least several years
due to the length of the clinical trials;
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and the BLA/NDA review process can take over a year. During this time the FDA
may request further testing, additional trials or may turn down the application.
Even with approval, the FDA frequently requires post-marketing safety studies
(known as Phase IV trials) to be performed.
The FDA requires that the manufacturing facility that produces a licensed
product meet specified standards, undergo an inspection and obtain an
establishment license prior to commercial marketing. Subsequent discovery of
previously unknown problems with a product or its manufacturing process may
result in restrictions on the product or the manufacturer, including withdrawal
of the product from the market. Failure to comply with the applicable regulatory
requirements can result in fines, suspensions of regulatory approvals, product
recalls, operating restrictions and criminal prosecution.
The Advisory Committee on Immunization Practices ("ACIP") of the CDC has a role
in setting the public market in the United States for the vaccine products we
intend to develop. The ACIP makes recommendations on the appropriate use of
vaccines and related products and the CDC develops epidemiologic data relevant
to vaccine requirements and usage.
To market our products abroad, we are subject to varying foreign regulatory
requirements. Although international efforts are being made to harmonize these
requirements, applications must currently be made in each country. The data
necessary and the review time varies significantly from one country to another.
Approval by the FDA does not ensure approval by the regulatory bodies of other
countries.
Our collaborators are subject to all of the above-described regulations in
connection with the commercialization of products utilizing our technology.
L. PRODUCT LIABILITY
The risk of product liability claims, product recalls and associated adverse
publicity is inherent in the testing, manufacturing, marketing and sale of
medical products. If and when we manufacture vaccines that are recommended for
routine administration to children, we will be required to participate in the
National Vaccine Injury Compensation Program. This program compensates children
having adverse reactions to some routine childhood immunizations with funds
collected through an excise tax from the manufacturers of these vaccines.
We have clinical trial liability insurance coverage in the amount of $5 million.
However, there can be no assurance that such insurance coverage is or will
continue to be adequate or available. We may choose or find it necessary under
our collaborative agreements to increase our insurance coverage in the future.
We may not be able to secure greater or broader product liability insurance
coverage on acceptable terms or at reasonable costs when needed. Any liability
for mandatory damages could exceed the amount of our coverage. A successful
product liability claim against us could require us to pay a substantial
monetary award. Moreover, a product recall could generate substantial negative
publicity about our products and business and inhibit or prevent
commercialization of other product candidates.
M. EMPLOYEES; SCIENTIFIC CONSULTANTS
As of March 10, 2000, we employed 50 full time persons, 16 of whom have doctoral
degrees. Of these employees, 36 were engaged in or directly support research and
development activities.
We have also retained a number of scientific consultants and advisors in various
fields and have entered into consulting agreements with each of them. These
consultants include the following members of the Scientific Advisory Board: Dr.
Mark Davis, Stanford University; Dr. Tak Mak, Ontario Cancer Institute; Dr.
Peter Ward, University of Michigan School of Medicine; Dr. Hans Wigzell,
Karolinska Institute; Dr. Peter Henson, National Jewish Center for Immunology
and Respiratory Medicine; Dr. Peter Libby, Brigham and Women's Hospital; and Dr.
Robert Langer, Massachusetts Institute of Technology.
ITEM 2. PROPERTIES
We lease approximately 54,000 square feet of laboratory and office space in
Needham, Massachusetts, of which we sublease approximately 13,000 square feet of
excess laboratory and office space to a tenant. The lease has an initial
six-year term which expires in April 2002. Under the lease agreement, the
Company is obligated to pay a base annual rent of
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$756,400 until the end of the initial term. The sublease relating to the 13,000
square feet of excess space has an initial four-year term which expires in April
2000 with an option to extend the lease to April 2002. Under the sublease
agreement, which was extended by the subtenant to April 2002, we will receive
base annual sub-rental income of $134,500 until the end of the initial term.
Aggregate net base rental payments for the years ended December 31, 1999 and
1998 for this facility were $580,600 and $662,000, respectively.
We also lease approximately 17,800 square feet of laboratory and office space in
Cambridge, Massachusetts. The lease has a five-year term, which commenced on
December 1, 1996. Under the lease agreement, we are obligated to pay a base
annual rent of $293,700 until the end of the lease term. Effective February 1,
1999, we sublet the entire Cambridge, Massachusetts facility through the end of
the lease term. Under the sublease agreement, we will receive base annual
sub-rental income of $431,700 of which approximately $36,000 will be payable to
the landlord as additional rent.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common Stock of AVANT Immunotherapeutics, Inc. ("AVANT") began trading on
the Nasdaq National Market (the "Nasdaq") under the symbol "AVAN" on August 24,
1998. Prior to that date, we were traded on the Nasdaq under the symbol "TCEL".
The following table sets forth for the periods indicated the high and low
closing sales prices for our common stock as reported by Nasdaq.
FISCAL PERIOD HIGH LOW
YEAR ENDED DECEMBER 31, 1998
1Q (Jan. 1- March 31, 1998) $ 2.94 $ 1.81
2Q (April 1 - June 30, 1998) 4.50 2.38
3Q (July 1 - Sept. 30, 1998) 2.81 1.19
4Q (Oct. 1 - Dec. 31, 1998) 1.78 1.06
YEAR ENDED DECEMBER 31, 1999
1Q (Jan. 1- March 31, 1999) $ 2.41 $ 1.06
2Q (April 1 - June 30, 1999) 2.13 1.13
3Q (July 1 - Sept. 30, 1999) 3.13 1.69
4Q (Oct. 1 - Dec. 31, 1999) 2.47 1.50
As of March 10, 2000, there were approximately 671 shareholders of record of our
common stock. The price of the common stock was $14.44 as of the close of the
market on March 10, 2000. We have not paid any dividends on our common stock
since our inception and do not intend to pay any dividends in the foreseeable
future. Declaration of dividends will depend, among other things, upon the
operating and future earnings of AVANT, our capital requirements and general
business conditions.
On September 22, 1999, we closed a private placement of approximately 5.5
million shares of common stock at $1.92 per share for a total amount of $10.5
million. Nomura was the placing agent for the offering that included several
European and U.S. institutional investors. The transaction was not registered
under the Securities Act of 1933, as amended, in reliance on an exemption from
registration provided by Rule 506 of that Act, which was available because,
among other things, there were fewer than thirty five purchasers of common stock
and more than six months had elapsed from the date of any previous offerings.
Proceeds from the private placement are being used to support clinical
development of our lead complement inhibitor, TP10, in infants undergoing
cardiac surgery on cardiopulmonary bypass and other company activities.
-24-
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below for the years ended
December 31, 1999, 1998, 1997, 1996 and 1995 have been derived from the audited
consolidated financial statements of AVANT. The results of operations for 1999
and 1998 include the operating results of Virus Research Institute, Inc. ("VRI")
from August 21, 1998, the date on which AVANT acquired VRI, through the present
(see Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations"). All amounts are in thousands except per share data.
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
OPERATING REVENUE:
Product Sales, Product Development
and Licensing Agreements $ 1,484 $ 2,150 $ 1,192 $ 1,115 $ 3,963
- -------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSE:
Research and Development 7,872 5,703 5,257 6,036 8,005
Charge for Purchased In-Process
Research & Development -- 44,630 -- -- --
Legal Settlement -- (166) 6,109 -- (2,900)
Other Operating Expense 5,556 4,377 3,494 6,549 7,821
- -------------------------------------------------------------------------------------------------------------------------
Total Operating Expense 13,428 54,544 14,860 12,585 12,926
- -------------------------------------------------------------------------------------------------------------------------
Non-Operating Income, Net 635 594 560 680 705
- -------------------------------------------------------------------------------------------------------------------------
Net Loss $ (11,309) $ (51,800) $ (13,108) $ (10,790) $ (8,258)
=========================================================================================================================
Basic and Diluted Net Loss Per
Common Share $ (0.26) $ (1.56) $ (0.52) $ (0.50) $ (0.47)
=========================================================================================================================
Weighted Average Common
Shares Outstanding 44,076 33,177 25,140 21,693 17,482
=========================================================================================================================
CONSOLIDATED BALANCE
SHEET DATA December 31,
- -------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
Working Capital $ 12,289 $ 12,298 $ 4,629 $ 11,673 $ 11,208
Total Assets 19,883 22,650 9,827 17,224 18,532
Other Long Term Obligations 269 563 750 -- 182
Accumulated Deficit (133,345) (122,036) (70,237) (57,129) (46,339)
Total Stockholders' Equity 17,413 18,770 6,316 15,619 16,000
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. We do not utilize derivative
financial instruments. See Notes 1 and 2 to the Consolidated Financials
Statements for a description of our use of other financial instruments.
-25-
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: STATEMENTS CONTAINED IN THE FOLLOWING, ITEM 7. 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 AVANT. THESE FACTORS INCLUDE, BUT ARE NOT
LIMITED TO: (I) OUR ABILITY TO SUCCESSFULLY COMPLETE PRODUCT RESEARCH AND
DEVELOPMENT, INCLUDING PRE-CLINICAL AND CLINICAL STUDIES, AND COMMERCIALIZATION;
(II) OUR ABILITY TO OBTAIN SUBSTANTIAL ADDITIONAL FUNDING; (III) OUR ABILITY TO
OBTAIN REQUIRED GOVERNMENTAL APPROVALS; (IV) OUR ABILITY TO ATTRACT
MANUFACTURING, SALES, DISTRIBUTION AND MARKETING PARTNERS AND OTHER STRATEGIC
ALLIANCES; AND (V) OUR ABILITY TO DEVELOP AND COMMERCIALIZE ITS PRODUCTS BEFORE
ITS COMPETITORS.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
AVANT's principle activity since our inception has been research and product
development conducted on our own behalf, as well as through joint development
programs with several pharmaceutical companies. We were incorporated in the
State of Delaware in December 1983.
A significant portion of AVANT's revenue has consisted of payments by others to
fund sponsored research, milestone payments under joint development agreements,
license fees, payments for material produced for preclinical and clinical
studies, and sales of test kits and antibodies. Certain portions of the
collaborative payments are received in advance, recorded as deferred revenue and
recognized when earned in later periods.
Inflation and changing prices have not had a significant effect on continuing
operations and are not expected to have any in the near future.
OVERVIEW
We are engaged in the discovery, development and commercialization of products
that harness the human immune response to prevent and treat disease. Our
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. We are 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.
ACQUISITION
On August 21, 1998 AVANT acquired 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. We issued 14,036,400 shares of AVANT's
common stock and warrants to purchase 1,811,200 shares of AVANT's common stock
in exchange for all of the outstanding common stock of VRI, on the basis of 1.55
shares of our common stock and .20 of an AVANT warrant for each share of VRI
common stock. The acquisition has been accounted for as a purchase.
Consequently, the purchase price was allocated to the acquired assets and
assumed liabilities based upon their fair value at the date of acquisition. The
excess of the purchase price over the tangible assets acquired was assigned to
collaborative relationships, work force and goodwill and is being amortized on a
straight line basis over 12 to 60 months. An allocation of $44,630,000 was made
to in-process research and development ("IPR&D") which represented purchased
in-process technology which had not yet reached technological feasibility and
had no alternative future use. The amount was charged as an expense in our
financial statements during the third quarter of 1998.
As of the date of acquisition, VRI was engaged in the following six significant
research and development projects:
1. Adjumer(R) -- a vaccine delivery system being developed with a
collaborator, Aventis, as an adjuvant to enhance the immune response to
injected vaccines.
2. Micromer(R) -- a vaccine delivery system designed to facilitate the mucosal
(intranasal or oral) delivery of antigens and stimulate both the systemic
and mucosal branches of the immune system.
3. Vibrio Vec(TM)-- a vaccine and immunotherapeutic system that uses a \
bacterial vector for the oral delivery of antigens.
4. Rotavirus vaccine -- a vaccine against rotavirus infection being developed
with a collaborator, SmithKline.
-26-
5. Herpes vaccine - a vaccine for the prevention of genital herpes.
6. Therapore(TM) - a novel technology for the development of
immunotherapeutics.
As of the acquisition date, the IPR&D value assigned to each project, the
estimated cost to reach technological feasibility and the projected product
release date was as set forth below:
Project Adjumer(R) Micromer(R) Vibrio Vec(TM) Rotavirus Herpes Therapore(TM)
- ------- ---------- ----------- -------------- --------- ------ -------------
Value Assigned $15,450,000 $ 3,260,000 $ 2,450,000 $ 3,120,000 $ 2,240,000 $18,110,000
Estimated
Cost to
Complete $ 9,500,000 $ 3,300,000 $ 900,000 $ 1,200,000 $ 1,600,000 $41,200,000
Estimated
Project
Release Date 2001-2004 2002-2004 2003 2002 2007 2004
As of December 31, 1999, technological feasibility had not yet been reached on
any of the major projects acquired, and no significant departures from the
assumptions included in the valuation analysis had occurred. Substantial
additional research and development will be required prior to reaching
technological feasibility. In addition, each project will need to successfully
complete a series of clinical trials and will need to receive Food & Drug
Administration ("FDA") approval prior to commercialization. There can be no
assurance these projects will ever reach feasibility or develop into products
that can be marketed profitably, nor can there be assurance that AVANT and our
collaborators will be able to develop and commercialize these products before
our competitors. If these products are not successfully developed and do not
become commercially viable, our financial condition and results of operations
could be harmed.
The acquisition of VRI represents the only purchase of historical IPR&D by
AVANT. As of December 31, 1999, we have no immediate plans to acquire additional
IPR&D, although we expect to raise additional capital, as required, through
licensing of technology programs with existing or new collaborative partners,
possible business combinations, or issuance of common stock via private
placement and public offering.
NEW DEVELOPMENTS
Positive Phase I/II results of AVANT's lead drug candidate, TP10, in patients
undergoing lung transplantation were presented in April 1998. Results in these
patients showed that TP10 therapy appears safe and well tolerated and
demonstrated significant efficacy. TP10 is our product name for sCR1, a
therapeutic compound which inhibits the complement system, a key triggering
mechanism for the inflammatory response. In 1997, we entered into an agreement
with Novartis relating to the development of TP10 for use in xenotransplantation
(animal organs into humans) and allotransplantation (human organs into humans).
We granted Novartis a two-year option to license TP10 with exclusive worldwide
marketing rights (except Japan) in the fields of xenotransplantation and
allotransplantation. We received our second option fee payment in November 1998
which initiated year two of the option agreement. In July 1999, Novartis
exercised its option to license TP10 for use in the field of transplantation. In
December 1999, the Novartis agreement was amended to include marketing rights
for Japan. The decision to license TP10 resulted in a $6 million equity
investment and license payment by Novartis which was received by AVANT in
January 2000. Under the agreement, we may receive additional milestone payments
of up to $14 million upon attainment of certain development and regulatory
goals. We will also be entitled to royalties on product sales under the
agreement.
In September 1999, we initiated an open-label, Phase I/II trial of TP10 in
infants undergoing cardiac surgery for congenital heart defects. The trial will
evaluate the ability of TP10 to mitigate the injury to the heart and other
organs that occurs when patients are placed on cardiopulmonary bypass circuits.
In August 1998, AVANT announced positive results of our Phase II efficacy study
of our vaccine for the prevention of rotavirus disease in infants. Rotavirus is
a major cause of acute diarrhea and dehydration in infants for which there are
currently no approved vaccines, although several are under development. The
rotavirus vaccine is being developed and commercialized in collaboration with
SmithKline. Following successful completion of the Phase II trial, SmithKline
has assumed responsibility for and funds all subsequent clinical and other
development activities. In June 1999, we received
-27-
a milestone payment of $500,000 for the successful completion of the Phase II
clinical efficacy study and the establishment of a commercially viable process
for manufacture of the vaccine. We will be entitled to receive additional
milestone payments and royalties on vaccine sales under the agreement which
grants SmithKline exclusive worldwide marketing rights to the rotavirus vaccine.
AVANT is a party to two license agreements with Aventis pursuant to which
Aventis has been granted the exclusive and co-exclusive right (exclusive, except
for the right of AVANT or one other person licensed by AVANT) to make, use and
sell certain of our vaccines. We received a milestone payment of $600,000 from
our collaborator Aventis in the fourth quarter of 1998. The milestone payment
relates to a Phase I clinical trial using our Adjumer(R)-formulated RSV vaccine
initiated by Aventis in 1998.
Based on encouraging results from a Phase I clinical trial of the humanized
monoclonal antibody, ATM-027, in patients with multiple sclerosis, our
collaborator Astra initiated a Phase II clinical trial for ATM-027 in patients
with multiple sclerosis in 1998. ATM-027 is one of the products derived from our
T cell antigen receptor (TCAR) program, now under development by Astra. In
December 1999, we announced results of the Phase II study of ATM-027 which
showed that ATM-027 was safe and well tolerated, however, in the view of Astra
the reduction of disease activity in the study population did not reach a level
that would be of value for those patients. Therefore, Astra made the decision to
stop further development of ATM-027 for multiple sclerosis but is reviewing
development of the TCAR peptide as a vaccine for multiple sclerosis under the
terms of the TCAR agreement.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED WITH FISCAL YEAR ENDED DECEMBER 31,
1998
AVANT reported a net loss of $11,309,100, or $0.26 per share, for the year ended
December 31, 1999, compared to a net loss of $51,799,700, or $1.56 per share,
for the year ended December 31, 1998. The net loss for the year ended December
31, 1998, includes a charge of $44,630,000 for purchased in-process research and
development related to the acquisition of VRI in August 1998. Excluding the
charge for purchased in-process research and development in 1998, the net loss
for 1999 increased 57.7% to $11,309,100, or $0.26 per share, compared to a net
loss of $7,169,700, or $0.22 per share, for 1998. The weighted average common
shares outstanding used to calculate the net loss per common share was
44,076,400 in 1999 and 33,177,200 in 1998.
OPERATING REVENUE
Total operating revenue decreased $666,900, or 31.0%, to $1,483,500 in 1999 from
$2,150,400 in 1998.
Product development and licensing revenue decreased $611,000, or 29.2%, to
$1,483,500 in 1999 from $2,094,500 in 1998. Product development and licensing
revenue in 1999 consisted primarily of a $750,000 nonrefundable option fee
associated with our agreement with Novartis, a milestone payment of $500,000
from SmithKline and $193,500 received in connection with our SBIR grants. In
1998, we recognized $1,000,000 of a nonrefundable option fee from Novartis in
product development and licensing revenue, milestone payments totaling $600,000
from Aventis and $494,500 received in connection with our SBIR grants.
There were no product sales recorded in 1999. Product sales for 1998 totaled
$55,900 and were derived from sales of our TRAx(R) test kits. In August 1999,
AVANT sold the TRAx(R) line of diagnostic products and the TRAx(R) technology.
OPERATING EXPENSE
Total operating expense for 1999 was $13,427,800 compared to $54,544,300 for
1998. Operating expense for 1998 included a charge of $44,630,000 for purchased
in-process research and development in connection with the acquisition of VRI in
August 1998. Excluding the purchased in-process research and development charge
in 1998, operating expense increased $3,513,500, or 35.4%, to $13,427,800 for
1999 compared to $9,914,300 for 1998. The increase in total operating expense
for 1999 compared to 1998 is primarily due to: (i) a full year of operations of
VRI in 1999 versus four months in 1998, combined with an increase of goodwill
amortization expense of $729,400; (ii) an increase in clinical trials cost; and
(iii) an increase in expense associated with the manufacture of clinical
materials for AVANT-funded clinical studies.
-28-
Research and development expense increased $2,168,700, or 38.0%, to
$7,871,800 in 1999 from $5,703,100 in 1998. The increase in 1999 compared to
1998 is primarily due to a full year of operations of VRI in 1999 versus four
months in 1998, costs associated with conducting the Phase I clinical trial
of CETi-1 vaccine and the Phase I/II clinical trial of TP10, both ongoing in
1999, and an increase in expense associated with the manufacture of clinical
materials.
General and administrative expense increased $472,100, or 12.4%, to $4,280,200
in 1999 compared to $3,808,100 in 1998. Included in general and administrative
expense in 1999 and 1998 are charges of $105,900 and $294,500 for the write-off
of certain capitalized patent costs associated with our SMIR program and our
TRAx(R) technology, respectively. Excluding the writeoff of patent costs in 1999
and 1998, general and administrative expense increased $660,700, or 18.8%, to
$4,174,300 for 1999 compared to $3,513,600 for 1998. The increase in 1999
compared to 1998 is primarily due to a full year of operations of VRI in 1999
versus four months in 1998.
NON-OPERATING INCOME, NET
Non-operating income, net increased $41,000, or 6.9%, to $635,200 for 1999
compared to $594,200 in 1998. Interest income increased $63,300, or 11.1%, to
$635,200 for 1999 compared to $571,900 for 1998. The increase in interest income
is primarily due to higher average cash balances in 1999.
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED WITH FISCAL YEAR ENDED DECEMBER 31,
1997
AVANT reported a net loss of $51,799,700, or $1.56 per share, for the year ended
December 31, 1998, compared to a net loss of $13,108,000, or $0.52 per share,
for the year ended December 31, 1997. The net loss for the year ended December
31, 1998, includes a charge of $44,630,000 for purchased in-process research and
development related to the acquisition of VRI in August 1998. The net loss for
the year ended December 31, 1997 includes a charge of $6,108,800 for the
settlement of litigation with our former landlord and the landlord's mortgagee.
Excluding the charge for purchased in-process research and development in 1998
and the charge for the settlement of our litigation in 1997, the net loss for
1998 increased 2.4% to $7,169,700, or $0.22 per share, compared to $6,999,200,
or $0.28 per share, for 1997. The weighted average common shares outstanding
used to calculate the net loss per common share was 33,177,200 in 1998 and
25,139,900 in 1997.
OPERATING REVENUE
Total operating revenue increased $958,300, or 80.4%, to $2,150,400 in 1998 from
$1,192,100 in 1997.
Product development and licensing revenue increased $946,900 in 1998, or 82.5%,
to $2,094,500 from $1,147,600 in 1997. Product development and licensing revenue
in 1998 consisted primarily of a $1,000,000 nonrefundable option fee associated
with our agreement with Novartis, a milestone payment of $600,000 from Aventis
and $494,500 received in connection with our SBIR grants. In 1997, we recognized
$250,000 of a nonrefundable option fee from Novartis in product development and
licensing revenue, milestone payments totaling $650,000 from Astra and $247,600
received in connection with our SBIR grants.
Product sales for 1998 and 1997 totaled $55,900 and $44,500, respectively, and
were derived from sales of our TRAx(R) test kits.
OPERATING EXPENSE
Operating expense of $54,544,300 for 1998 included a charge of $44,630,000 for
purchased in-process research and development in connection with the acquisition
of VRI in August 1998. In May 1998, we used cash as collateral for a $750,000
note due November 15, 1999 issued in connection with a settlement agreement with
its former landlord and the landlord's mortgagee. In accordance with the
settlement agreement, 66,250 shares of our common stock issued to secure the
note were returned to AVANT. The common stock was valued at $165,600 as of
October 31, 1997 and its return is included as a reduction of operating expense
in 1998. Operating expense of $14,859,600 for 1997 included a charge of
$6,108,800 for the settlement of litigation with our former landlord and the
landlord's mortgagee. Excluding the purchased in-process research and
development charge in 1998 and the legal settlement in 1997, operating expense
increased $1,163,500, or 13.3%, to $9,914,300 for 1998 compared to $8,750,800
for 1997. The increase in operating
-29-
expense for 1998 compared to 1997 is primarily due to four months of operations
of VRI combined with goodwill amortization expense of $546,400 and the write-off
of certain capitalized patent costs relating to our TRAx(R) technology.
Research and development expense increased $446,200, or 8.5%, to $5,703,100 in
1998 from $5,256,900 in 1997. The increase in 1998 compared to 1997 is primarily
due to four months of operations of VRI, partially offset by costs associated
with Phase I and Phase I/II clinical trials of TP10 ongoing in 1997.
General and administrative expense increased $335,200, or 9.7%, to $3,808,100 in
1998 compared to $3,472,900 in 1997. Included in general and administrative
expense in 1998 is a charge of $294,500 for the write-off of certain capitalized
patent costs associated with our TRAx(R) technology. Reductions in legal costs
in 1998 primarily due to the settlement of litigation in 1997 and lower
consulting costs in 1998 compared to 1997 were offset by certain general and
administrative costs associated with four months of operations of VRI.
NON-OPERATING INCOME, NET
Non-operating income, net increased $34,700, or 6.2%, to $594,200 for 1998
compared to $559,500 in 1997. Interest income decreased $5,400, or 0.9%, to
$571,900 for 1998 compared to $577,300 for 1997. The reductions in interest
income are primarily due to lower cash balances combined with lower interest
rates in 1998.
LIQUIDITY AND CAPITAL RESOURCES
AVANT's cash, cash equivalents and marketable securities at December 31, 1999
was $13,619,000 compared to $13,840,300 at December 31, 1998. Cash used in
operations was $8,539,100 in 1999 compared to $8,852,000 in 1998 and $7,695,400
in 1997.
In July 1999, Novartis exercised its option to license TP10 for use in the field
of transplantation. The decision to license TP10 resulted in a $6 million
payment by Novartis which was received by AVANT in January 2000.
In September 1999, we completed a private placement of 5,459,400 shares of
common stock to institutional investors at a price of $1.92 per share. Net
proceeds from the common stock issuance totaled approximately $9,838,900. In
March 1998, we completed a private placement of 2,043,500 shares of common stock
to institutional investors at a price of $1.90 per share. Net proceeds from the
common stock issuance totaled approximately $3,699,800.
In November 1997, AVANT reached a settlement of the litigation with our former
landlord and the landlord's mortgagee. As part of the settlement, we agreed to
pay $858,800 in cash on November 17, 1997 and issue a total of 1,500,000 shares
of our common stock. In addition, we signed a note for $750,000, due on November
16, 1998 secured by $750,000 cash and a note for $750,000 due November 15, 1999
secured by 132,500 shares of common stock. The total settlement, valued at
$6,108,800, is comprised of the cash and notes totaling $2,358,800 and common
stock valued at $3,750,000 as of October 31, 1997. The common stock is subject
to restrictions on transfer in accordance with the settlement agreement and
limits the number of shares that may be sold over a given period of time. In May
1998, in accordance with the settlement agreement, we elected to secure the note
for $750,000 due November 15, 1999 by $750,000 cash in exchange for the return
of 66,250 shares or one half of the common stock originally used to secure the
note. The cash collateral is recorded as short-term restricted cash at December
31, 1998. In November 1999, the note was paid in full.
During 1994, we entered into an agreement providing AVANT with the right to
lease up to $2,000,000 of equipment for up to a five-year term. The lease
arrangement contains certain restrictive covenants, determined at the end of
each fiscal quarter which, for the quarter ended September 30, 1995 included a
minimum cash, cash equivalents and short-term investments balance of
$10,000,000. At September 30, 1995 our cash, cash equivalents and short-term
investment balance was below $10,000,000. As a result, in accordance with the
lease agreement, we pledged as collateral cash equal to the amount outstanding
on the lease which is to remain in a certificate of deposit until the end of the
lease, or as otherwise agreed by the lessor and AVANT. At December 31, 1999, we
had $217,000 pledged as collateral recorded as long-term restricted cash.
AVANT believes that cash inflows from existing collaborations, interest income
on invested funds and our current cash and cash equivalents, net of restricted
amounts, will be sufficient to meet estimated working capital requirements and
fund operations beyond December 31, 2000 and into the first half of 2001. The
working capital requirements of AVANT 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 2000, we expect to take steps to raise
-30-
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
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. Through the first ten weeks of the year
2000, AVANT's operations are fully functioning and have not experienced any
significant issues associated with the Year 2000 problem discussed above. Costs
associated with modifications made by AVANT to be Year 2000 compliant were
immaterial. There can be no assurance, however, that a failure by another
company's system to be Year 2000 compliant would not have a material adverse
affect on our business, operating results and financial condition.
-31-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Index to Consolidated Financial Statements and Supplementary Schedules 32
Report of Independent Accountants 33
Consolidated Balance Sheet at December 31, 1999 and 34
December 31, 1998
Consolidated Statement of Operations for the Years Ended 35
December 31, 1999, December 31, 1998 and December 31, 1997
Consolidated Statement of Stockholders' Equity for the Years Ended 36
December 31, 1999, December 31, 1998 and December 31, 1997
Consolidated Statement of Cash Flows for the Years Ended 37
December 31, 1999, December 31, 1998, and December 31, 1997
Notes to Consolidated Financial Statements 38
-32-
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Shareholders of
AVANT Immunotherapeutics, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and of cash flows present fairly, in all
material respects, the financial position of AVANT Immunotherapeutics, Inc. and
its subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 14, 1999
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CONSOLIDATED BALANCE SHEET
DECEMBER 31, DECEMBER 31,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 13,619,000 $ 8,937,200
Marketable Securities -- 4,903,100
Current Portion Restricted Cash -- 750,000
Current Portion Lease Receivable 431,700 395,700
Prepaid and Other Current Assets, Net 439,000 629,700
- ------------------------------------------------------------------------------------------------------------------------
Total Current Assets 14,489,700 15,615,700
Property and Equipment, Net 1,256,800 1,111,400
Restricted Cash 217,000 365,000
Long-Term Lease Receivable 395,700 827,300
Other Assets 3,523,500 4,730,700
- ------------------------------------------------------------------------------------------------------------------------
Total Assets $ 19,882,700 $ 22,650,100
========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 575,300 $ 363,700
Accrued Expenses 1,331,500 1,184,700
Deferred Revenue -- 750,000
Short-Term Note Payable -- 750,000
Current Portion Lease Payable 293,700 269,200
- ------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 2,200,500 3,317,600
- ------------------------------------------------------------------------------------------------------------------------
Long-Term Lease Payable 269,200 562,900
- ------------------------------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities (Notes 3 and 13)
Stockholders' Equity:
Common Stock, $.001 Par Value 75,000,000 Shares Authorized; 48,127,400
Issued and Outstanding at December 31, 1999; 42,512,400 Issued and
42,508,600 Outstanding at
December 31, 1998 48,100 42,500
Additional Paid-In Capital 150,710,300 140,777,200
Less: 0 and 3,800 Common Treasury Shares at Cost at
December 31, 1999 and 1998, respectively -- (13,800)
Accumulated Deficit (133,345,400) (122,036,300)
- ------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 17,413,000 18,769,600
- ------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 19,882,700 $ 22,650,100
========================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
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CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
--------------------------------------------------------------------------------------------------------------------------
OPERATING REVENUE:
Product Development and
Licensing Agreements $ 1,483,500 $ 2,094,500 $ 1,147,600
Product Sales -- 55,900 44,500
--------------------------------------------------------------------------------------------------------------------------
Total Operating Revenue 1,483,500 2,150,400 1,192,100
--------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSE:
Research and Development 7,871,800 5,703,100 5,256,900
General and Administrative 4,280,200 3,808,100 3,472,900
Cost of Product Sales -- 22,300 21,000
Charge for Purchased In-Process Research & Development -- 44,630,000 --
Legal Settlement -- (165,600) 6,108,800
Amortization of Goodwill 1,275,800 546,400 --
--------------------------------------------------------------------------------------------------------------------------
Total Operating Expense 13,427,800 54,544,300 14,859,600
--------------------------------------------------------------------------------------------------------------------------
Operating Loss (11,944,300) (52,393,900) (13,667,500)
Non-Operating Income, Net 635,200 594,200 559,500
--------------------------------------------------------------------------------------------------------------------------
Net Loss $ (11,309,100) $ (51,799,700) $ (13,108,000)
==========================================================================================================================
Basic and Diluted Net Loss Per Common Share $ (0.26) $ (1.56) $ (0.52)
==========================================================================================================================
Weighted Average Common
Shares Outstanding 44,076,400 33,177,200 25,139,900
==========================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
-35-
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Common Additional Treasury Total
Stock Paid-In Stock Accumulated Stockholders'
Shares Par Value Capital Cost Deficit Equity
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT 24,965,400 $ 25,000 $ 72,791,800 $(69,000) $ (57,128,600) $15,619,200
DECEMBER 31, 1996
Issuance at $1.81 to $2.13
per Share upon Exercise
of Stock Options 12,000 -- 22,400 -- -- 22,400
Employee Stock Purchase
Plan Issuance at $1.38 and
$1.39 per Share -- -- (20,700) 33,200 -- 12,500
Issuance at $2.50 per Share for
Settlement of Litigation 1,500,000 1,500 3,748,500 -- -- 3,750,000
Compensation Expense Associated
with Issuance at $1.94 per
Share 10,000 -- 19,400 -- -- 19,400
Net Loss for the Year
Ended December 31, 1997 -- -- -- -- (13,108,000) (13,108,000)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT 26,487,400 $ 26,500 $ 76,561,400 $(35,800) $ (70,236,600) $ 6,315,500
DECEMBER 31, 1997
Issuance at $0.60 to $1.81
per Share upon Exercise
of Stock Options 11,400 -- 15,300 -- -- 15,300
Employee Stock Purchase
Plan Issuance at $1.65 and
$1.94 per Share -- -- (10,700) 22,000 -- 11,300
Returned Shares from Settlement
of Litigation at $2.50 per (66,300) -- (165,600) -- -- (165,600)
Share
Net Proceeds from Stock Issuance 2,043,500 2,000 3,697,800 -- -- 3,699,800
Share Issued for Acquisition of
Virus Research Institute, Inc. 14,036,400 14,000 60,679,000 -- -- 60,693,000
Net Loss for the Year
Ended December 31, 1998 -- -- -- -- (51,799,700) (51,799,700)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT 42,512,400 $ 42,500 $ 140,777,200 $(13,800) $(122,036,300) $18,769,600
DECEMBER 31, 1998
Issuance at $0.10 to $1.81
per Share upon Exercise
of Stock Options 152,100 100 102,000 -- -- 102,100
Employee Stock Purchase
Plan Issuance at $1.46 to
$1.78 per Share 3,500 -- (2,200) 13,800 -- 11,600
Net Proceeds from Stock Issuance 5,459,400 5,500 9,833,300 -- -- 9,838,800
Net Loss for the Year
Ended December 31, 1999 -- -- -- -- (11,309,100) (11,309,100)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT 48,127,400 $ 48,100 $ 150,710,300 $ -- $(133,345,400) $17,413,000
DECEMBER 31, 1999
=========================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
-36-
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
Increase (Decrease) in Cash and Cash Equivalents 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (11,309,100) $ (51,799,700) $ (13,108,000)
Adjustments to Reconcile Net Loss to Cash
Used by Operating Activities:
Depreciation and Amortization 1,988,600 989,800 353,800
Write-off of Capitalized Patent Costs 105,900 337,000 51,100
Non-Cash Portion of Litigation Settlement -- (165,600) 5,250,000
Compensation Expense Associated with
Stock Issuance -- -- 19,400
Gain on Sale of Equipment -- (22,300) --
Charge for Purchased In-Process Research and
Development -- 44,630,000 --
Changes in Assets and Liabilities, Net of Acquisition:
Current Portion Restricted Cash 750,000 -- (750,000)
Prepaid and Other Current Assets 190,700 (1,529,900) 81,700
Accounts Payable and Accrued Expenses 358,400 (1,291,300) (343,400)
Deferred Revenue (750,000) -- 750,000
Lease Receivable 395,600 -- --
Lease Payable (269,200) -- --
- --------------------------------------------------------------------------------------------------------------------------
Net Cash Used by Operating Activities (8,539,100) (8,852,000) (7,695,400)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Property and Equipment (688,500) (294,800) (76,900)
Proceeds from the Sale of Equipment -- 25,200 --
Redemption of Marketable Securities 4,903,100 4,463,000 --
Increase in Patents and Licenses (344,200) (426,000) (381,200)
Decrease in Long-Term Restricted Cash, Net 148,000 160,000 160,000
Cash Received from Acquisition of Virus Research
Institute, Inc. -- 4,391,500 --
Payment of Notes Payable (750,000) (750,000) --
Payment Received on Convertible Note Receivable -- -- 1,802,700
Other -- 57,600 400
- --------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Investing Activities 3,268,400 7,626,500 1,505,000
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds from Stock Issuance 9,850,400 3,711,100 12,500
Proceeds from Exercise of Stock Options 102,100 15,300 22,400
- --------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 9,952,500 3,726,400 34,900
- --------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 4,681,800 2,500,900 (6,155,500)
Cash and Cash Equivalents at Beginning of Period 8,937,200 6,436,300 12,591,800
- --------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 13,619,000 $ 8,937,200 $ 6,436,300
==========================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
-37-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) NATURE OF BUSINESS
AVANT Immunotherapeutics, Inc. ("AVANT") is a biopharmaceutical company engaged
in the discovery, development and commercialization of products that harness the
human immune response to prevent and treat disease. We develop and commercialize
products on a proprietary basis and in collaboration with established
pharmaceutical partners, including Novartis Pharma AG, AstraZeneca plc,
Yamanouchi Pharmaceutical Co., Ltd., Aventis Pasteur, SmithKline Beecham plc and
Heska Corporation.
In September 1999, we completed a private placement of 5,459,400 shares of
common stock to institutional investors at a price of $1.92 per share. Net
proceeds from the common stock issuance totaled approximately $9,838,800. In
March 1998, we completed a private placement of 2,043,500 shares of common stock
to institutional investors at a price of $1.90 per share. Net proceeds from the
common stock issuance totaled approximately $3,699,800. On August 21, 1998,
AVANT acquired all of the outstanding capital stock of Virus Research Institute,
Inc. ("VRI"), a company engaged in the discovery and development of (i) systems
for the delivery of vaccines and immunotherapeutics and (ii) novel vaccines (see
Note 14).
AVANT's cash and cash equivalents at December 31, 1999 was $13,619,000. Our
working capital at December 31, 1999 was $12,289,200. We incurred a loss of
$11,309,100 for the year ended December 31, 1999. AVANT believes that cash
inflows from existing grants and collaborations, interest income on invested
funds and our current cash, cash equivalents, and marketable securities will be
sufficient to meet estimated working capital requirements and fund operations
beyond December 31, 2000. The working capital requirements of AVANT 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 2000, we expect 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. There can be no assurances that such efforts will be successful.
In July 1999, Novartis exercised its option to license TP10 for use in the field
of transplantation. The decision to license TP10 resulted in a $6 million
payment by Novartis which was received by AVANT in January 2000. The payment
included an equity investment of $2,307,700 for 1,439,496 shares of our common
stock at $1.60 per share and a license fee of $3,692,300.
In March 1996, we sold substantially all of the assets of our wholly-owned
subsidiary, T Cell Diagnostics, Inc while retaining all rights to the TRAx(R)
product franchise. In August 1999, we sold the TRAx(R) line of diagnostic
products and the TRAx(R) technology to Innogenetics, Inc. for a combination of
cash and future royalty payments.
(B) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of AVANT
Immunotherapeutics, Inc. and our wholly owned subsidiary Polmerix, Inc. All
intercompany transactions have been eliminated.
(C) CASH EQUIVALENTS AND INVESTMENTS
AVANT considers all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents. Short-term investments are those with
maturities in excess of three months but less than one year. All cash
equivalents and short-term investments have been classified as available for
sale and are reported at fair market value with unrealized gains and losses
included in stockholders' equity.
In addition to cash equivalents, at December 31, 1998, we had investments in
corporate and municipal debt securities that are classified in the balance sheet
as held-to-maturity in accordance with the provisions of Statement of Financial
Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Instruments
in Debt and Equity Securities."
-38-
Held-to-maturity investments are securities we have the positive intent and
ability to hold to maturity. These securities are accounted for at amortized
cost, which approximates fair value.
We invest our non-operating cash in debt instruments of financial institutions,
government entities and corporations, and mutual funds. We have established
guidelines relative to credit ratings, diversification and maturities that
maintain safety and liquidity.
(D) FAIR VALUE OF FINANCIAL INSTRUMENTS
AVANT enters into various types of financial instruments in the normal course of
business. Fair values for cash, cash equivalents, short-term investments,
accounts and notes receivable, accounts and notes payable and accrued expenses
approximate carrying value at December 31, 1999 and 1998, due to the nature and
the relatively short maturity of these instruments.
(E) REVENUE RECOGNITION
AVANT has entered into various license and development agreements with
pharmaceutical and biotechnology companies. Nonrefundable revenue derived from
such agreements is recognized over the specified development period as research
and development or discovery activities are performed. Cash received in advance
of activities being performed is recorded as deferred revenue. Nonrefundable
milestone fees are recognized when they are earned in accordance with the
performance requirements and contractual terms. Revenues from product sales are
recorded when the product is shipped.
(F) RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
(G) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method.
(H) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated over the estimated
useful lives of the related assets using the straight-line method. Laboratory
equipment and office furniture and equipment are depreciated over a five year
period and computer equipment is depreciated over a three year period. Leasehold
improvements are amortized over the shorter of the estimated useful life or the
noncancelable term of the related lease.
(I) LICENSES, PATENTS AND TRADEMARKS
Included in other assets are some costs associated with purchased licenses and
some costs associated with patents and trademarks which are capitalized and
amortized over the shorter of the estimated useful lives or ten years using the
straight-line method. We periodically evaluate the recoverability of these
assets in accordance with Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of".
(J) LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share", which
changed the method of calculating earnings per share. SFAS 128, which we adopted
in the fourth quarter of 1997, requires the presentation of "basic" earnings per
share and "diluted" earnings per share. As a result of our net loss, both basic
and diluted earnings per share are computed by dividing the net loss available
to common shareholders by the weighted average number of shares of common stock
outstanding.
(K) STOCK COMPENSATION
AVANT's employee stock compensation plans are accounted for in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company adopted the disclosure requirements of
-39-
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation" (see Note 7).
(L) USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and disclosures. Actual results could
differ from those estimates.
2. SHORT-TERM INVESTMENTS AND RESTRICTED CASH
AVANT invests in high quality, short-term investments which are considered
highly liquid and are available to support current operations. We also invest in
high quality, debt securities which are classified as held-to-maturity. At
December 31, 1999 and 1998, our investments that met the definition of cash
equivalents were recorded at cost, which approximated fair value.
Pursuant to the terms of the settlement agreement between AVANT and our former
landlord, we pledged as collateral $750,000 at December 31, 1998 (see Note 13).
We also have $217,000 and $365,000 pledged as collateral at December 31, 1999
and 1998, respectively, in accordance with the terms of an operating lease (see
Note 3).
3. PROPERTY, EQUIPMENT AND LEASES
Property and equipment includes the following:
December 31, December 31,
1999 1998
---------------------------------------
Laboratory Equipment $ 2,595,400 $ 2,480,000
Office Furniture and Equipment 1,176,800 1,148,200
Leasehold Improvements 938,100 393,600
---------------------------------------
Property and Equipment, Total 4,710,300 4,021,800
Less Accumulated Depreciation and Amortization (3,453,500) (2,910,400)
---------------------------------------
$ 1,256,800 $ 1,111,400
=======================================
Depreciation expense related to equipment and leasehold improvements was
approximately $543,100, $267,600 and $224,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
In May 1996, we entered into a six-year lease for laboratory and office space in
Needham, Massachusetts. The lease replaced two-year lease and sublease
agreements entered into in March 1995 for the same location and increased the
amount of office and laboratory space available.
In 1994, we entered into a lease agreement providing AVANT with the right to
lease up to $2,000,000 of equipment for up to a five-year term. The lease
agreement contains specified restrictive covenants determined at the end of each
fiscal quarter which, for the quarter ended September 30, 1995, included a
minimum cash, cash equivalents and short-term investments balance of
$10,000,000. At September 30, 1995 our cash and cash equivalents balance was
below $10,000,000. As a result, in accordance with the lease agreement, we
pledged cash as collateral to the lessor equal to the amount outstanding on the
lease which is to remain in a certificate of deposit until the end of the lease
or as otherwise agreed by the lessor and AVANT. We have recorded $217,000 and
$365,000 as long-term restricted cash at December 31, 1999 and 1998,
respectively.
-40-
Obligations for base rent, net of sublease income, under these and other
noncancelable operating leases as of December 31, 1999 are approximately as
follows:
Year ending December 31, 2000 $ 741,200
2001 709,200
2002 252,100
------------------
Total minimum lease payments $ 1,702,500
==================
Our total rent for all operating leases (including rent expense net of sublease
income) was approximately $804,900, $909,500 and $851,400 for the years ended
December 31, 1999, 1998 and 1997, respectively.
4. OTHER ASSETS
Other assets include the following:
DECEMBER 31, DECEMBER 31,
1999 1998
----------------------------------------
Capitalized Patent Costs $ 2,101,300 $ 1,890,300
Accumulated Amortization (715,300) (595,500)
----------------------------------------
Capitalized Patent Costs, Net 1,386,000 1,294,800
Goodwill and Other Intangible Assets, Net of
Accumulated Amortization of $1,822,200
and $546,400 2,013,500 3,289,300
Other Non Current Assets 124,000 146,600
----------------------------------------
$ 3,523,500 $ 4,730,700
========================================
In December 1999 and 1998, in accordance with SFAS 121, we evaluated and
subsequently wrote off approximately $105,900 and $294,500 of capitalized patent
costs relating to our SMIR program and our TRAx(R) test kit program,
respectively. These writeoffs were included in operating expense as general and
administrative expense for the years ended December 31, 1999 and 1998.
Amortization expense for the years ended December 31, 1999, 1998 and 1997
relating to the capitalized costs of purchased licenses, patents and trademarks
was approximately $169,700, $175,800 and $129,800, respectively. Goodwill
amortization expense for the years ended December 31, 1999 and 1998 was
approximately $1,275,800 and $546,400, respectively.
5. ACCRUED EXPENSES
Accrued expenses include the following:
DECEMBER 31, DECEMBER 31,
1999 1998
---------------------------------------
Accrued License Fees $ 8,300 $ 60,000
Accrued Payroll and Employee Benefits 333,200 258,700
Accrued Clinical Trials 409,200 195,500
Accrued Legal 138,100 263,800
Other Accrued Expenses 442,700 406,700
---------------------------------------
$ 1,331,500 $ 1,184,700
=======================================
-41-
6. INCOME TAXES
YEAR ENDED DECEMBER 31,
1999 1998 1997
----------------------------------------------------------
Income tax benefit:
Federal $ 3,628,500 $ 17,640,500 $ 4,539,100
State 189,000 3,141,500 529,000
----------------------------------------------------------
3,817,500 20,782,000 5,068,100
Deferred tax assets valuation allowance (3,817,500) (20,782,000) (5,068,100)
----------------------------------------------------------
$ -- $ -- $ --
==========================================================
Deferred tax assets are comprised of the following:
December 31, December 31,
1999 1998
------------------------------------------
Net Operating Loss Carryforwards $ 39,851,000 $ 36,821,000
Tax Credit Carryforwards 4,742,000 4,427,000
Other 645,000 172,000
------------------------------------------
Gross Deferred Tax Assets 45,238,000 41,420,000
Deferred Tax Assets Valuation Allowance (45,238,000) (41,420,000)
------------------------------------------
$ -- $ --
==========================================
Reconciliation between the amount of reported income tax expenses and the amount
computed using the U.S. Statutory rate of 35% follows:
1999 1998 1997
----------------------------------------------------------
Loss at Statutory Rates $ (3,866,800) $ (17,612,200) $ (4,587,800)
Research and Development Credits (200,000) (218,700) (172,100)
State tax benefit, net of federal tax
liabilities (747,200) (514,000) (591,500)
Other 438,300 190,400 283,300
Expiration of State NOLS 558,200 170,800 --
In Process R&D -- 15,174,200 --
Benefit of losses and credits not
recognized, increase in valuation
allowance 3,817,500 2,809,500 5,068,100
----------------------------------------------------------
$ -- $ -- $ --
==========================================================
AVANT has provided a full valuation allowance for deferred tax assets as
management has concluded that it is more likely than not that we will not
recognize any benefits from our net deferred tax asset. The timing and amount of
future earnings will depend on numerous factors, including our future
profitability. We will assess the need for a valuation allowance as of each
balance sheet date based on all available evidence.
At December 31, 1999, we had U.S. net operating loss carryforwards of
$104,000,000, U.S. capital loss carryforwards of $1,852,000, and U.S. tax
credits of $3,467,000 which expire at various dates through 2019.
-42-
Under the Tax Reform Act of 1986, substantial changes in our ownership could
result in an annual limitation on the amount of net operating loss
carryforwards, research and development tax credits, and capital loss
carryforwards which could be utilized.
7. STOCKHOLDERS' EQUITY
(A) PUBLIC AND PRIVATE STOCK OFFERINGS
On September 22, 1999, we completed a private placement of 5,459,400 newly
issued shares of common stock. Net proceeds were approximately $9,838,800 after
deducting all associated expenses.
On March 24, 1998, we completed a private placement of 2,043,500 newly issued
shares of common stock. Net proceeds were approximately $3,699,800 after
deducting all associated expenses.
(B) PREFERRED STOCK
At December 31, 1999 and 1998, AVANT had authorized preferred stock comprised of
1,163,102 shares of convertible Class B and 3,000,000 shares of convertible
Class C of which 350,000 shares has been designated as Class C-1 Junior
Participating Cumulative, the terms of which are to be determined by our Board
of Directors. There was no preferred stock outstanding at December 31, 1999 and
1998.
(C) WARRANTS
AVANT has issued warrants to purchase common stock in connection with the
acquisition of VRI on August 21, 1998. The warrants are exercisable at $6.00 per
share and expire August 22, 2003. In connection with the acquisition of VRI, we
also assumed the obligations of VRI with respect to each outstanding warrant to
purchase VRI common stock (a "VRI Warrant"). Each VRI Warrant assumed by AVANT,
which will continue to have, and be subject to, the terms and conditions of the
applicable warrant agreements and warrant certificates, has been adjusted
consistent with the ratio at which our common stock was issued in exchange for
VRI common stock in the acquisition.
Warrants outstanding at December 31, 1999 are as follows:
Exercise
Number of Price
Security Shares Per Share Expiration Date
-------------------------- ---------------- ----------------- ----------------------------------
Common stock 35,657 $ .62 February 9, 2004
Common stock 76,842 1.26 December 14, 2005
Common stock 17,050 6.19 April 12, 2001
Common stock 1,811,843 6.00 August 22, 2003
(D) STOCK COMPENSATION AND EMPLOYEE STOCK PURCHASE PLANS
STOCK COMPENSATION
On May 6, 1999, AVANT's 1999 Stock Option and Incentive Plan (the "1999 Plan")
was adopted. The 1999 Plan replaces the Amended and Restated 1991 Stock
Compensation Plan, which was an amendment and restatement of our 1985 Incentive
Option Plan. The 1999 Plan permits the granting of incentive stock options
(intended to qualify as such under Section 422A of the Internal Revenue Code of
1986, as amended), non-qualified stock options, stock appreciation rights,
performance share units, restricted stock and other awards of restricted stock
in lieu of cash bonuses to employees, consultants and outside directors.
-43-
The 1999 Plan allows for a maximum of 2,000,000 shares of common stock to be
issued prior to May 6, 2009. The Board of Directors determines the term of each
option, option price, number of shares for which each option is granted and the
rate at which each option vests. All options vested either on the first
anniversary date or over a four year period and the term of each option cannot
exceed ten years (five years for options granted to holders of more than 10% of
the voting stock of AVANT). The exercise price of stock options shall not be
less than the fair market value of the common stock at the date of grant (110%
of fair market value for options granted to holders of more than 10% of the
voting stock of AVANT).
In connection with the acquisition of VRI, we assumed the obligations of VRI
under VRI's 1992 Equity Incentive Plan (the "VRI Plan") and each outstanding
option to purchase VRI common stock (a "VRI Stock Option") granted under the VRI
Plan. Each VRI Stock Option assumed by AVANT is deemed to constitute an option
to acquire, on the same terms and conditions as were applicable under the VRI
Plan, shares of AVANT's common stock which has been adjusted consistent with the
ratio at which our common stock was issued in exchange for VRI's common stock in
the acquisition. As of the date the acquisition was completed we assumed options
to acquire 1,532,055 shares of our common stock at a weighted average exercise
price of $2.34.
EMPLOYEE STOCK PURCHASE PLAN
The 1994 Employee Stock Purchase Plan (the "1994 Plan") was adopted on June 30,
1994. All full time employees of AVANT are eligible to participate in the 1994
Plan. A total of 150,000 shares of common stock are reserved for issuance under
this plan. Under the 1994 Plan, each participating employee may contribute up to
15% of his or her compensation to purchase up to 500 shares of common stock per
year in any public offering and may withdraw from the offering at any time
before stock is purchased. Participation terminates automatically upon
termination of employment. The purchase price per share of common stock in an
offering is 85% of the lower of its fair market value at the beginning of the
offering period or the applicable exercise date.
A summary of stock option activity for the years ended December 31, 1999, 1998
and 1997 is as follows:
1999 1998 1997
--------------------------- --------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
Shares Per Share Shares Per Share Shares Per Share
- ----------------------------------- -------------- ------------ -------------- ------------ -------------- ------------
Outstanding at January 1, 3,354,708 $ 2.65 1,773,242 $ 3.20 2,303,196 $ 5.94
Granted 557,500 1.60 638,250 1.99 492,750 1.77
Assumed in acquisition -- -- 1,532,055 2.34 -- --
Exercised (152,056) 0.67 (11,355) 1.34 (12,000) 1.86
Canceled (621,593) 3.76 (577,484) 2.82 (1,010,704) 8.78
- ----------------------------------- -------------- ------------ -------------- ------------ -------------- ------------
Outstanding at December 31, 3,138,559 $ 2.34 3,354,708 $ 2.65 1,773,242 $ 3.20
=================================== ============== ============ ============== ============ ============== ============
At December 31,
Options exercisable 2,091,562 2,542,950 1,039,437
Available for grant 2,833,818 1,095,206 1,296,716
Weighted average fair value of
options granted during year $ 0.83 $ 1.10 $ 0.92
-44-
The following tables summarize information about the stock options outstanding
at December 31, 1999:
Options Outstanding
-----------------------------------------------------------------------------------
Number Weighted Average Weighted Average
Outstanding at Remaining Exercise Price
Range of Exercise Prices December 31, 1999 Contractual Life per Share
- ---------------------------------- --------------------------- --------------------------- ---------------------------
$ 0.30 - 0.64 556,062 4.46 $ 0.63
0.95 - 1.67 579,477 8.83 1.47
1.81 - 2.06 686,210 8.23 1.91
2.44 - 3.59 720,063 6.41 2.75
3.81 - 7.81 596,747 4.98 4.77
- ---------------------------------- --------------------------- --------------------------- ---------------------------
$ 0.30 - 7.81 3,138,559 6.64 $ 2.34
================================== =========================== =========================== ===========================
Options Exercisable
-------------------------------------------------------
Number Weighted Average
Exercisable at Exercise Price
Range of Exercise Prices December 31, 1999 per Share
- -------------------------------------------------------------- --------------------------- ---------------------------
$ 0.30 - 0.64 556,062 $ 0.63
0.95 - 1.67 115,291 1.58
1.81 - 2.06 225,711 1.88
2.44 - 3.59 597,751 2.79
3.81 - 7.81 596,747 4.77
- -------------------------------------------------------------- --------------------------- ---------------------------
$ 0.30 - 7.81 2,091,562 $ 2.62
============================================================== =========================== ===========================
FAIR VALUE DISCLOSURES
Had compensation costs for AVANT's stock compensation plans been determined
based on the fair value at the grant dates, consistent with SFAS 123, our net
loss, and net loss per share for the years ending December 31, 1999, 1998 and
1997 would be as follows:
1999 1998 1997
------------------------------------- --------------------- --------------------- ---------------------
Net Loss:
As reported $ 11,309,100 $ 51,799,700 $ 13,108,000
Pro forma 11,416,700 52,150,800 13,514,100
Basic and Diluted Net Loss
Per Share:
As reported $ 0.26 $ 1.56 $ 0.52
Pro forma 0.26 1.57 0.54
The fair value of the option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
1999 1998 1997
------------------------------------- --------------------- --------------------- ---------------------
Expected dividend yield 0% 0% 0%
Expected stock price volatility 63% 63% 57%
Risk-free interest rate 5.0% - 6.1% 4.5% - 5.6% 5.5% - 6.4%
Expected option term 2.5 Years 2.5 Years 2.7 Years
-45-
Because the determination of the fair value of all options granted includes an
expected volatility factor in addition to the factors detailed in the table
above, and because additional option grants are expected to be made each year,
the above pro forma disclosures are not representative of pro forma effects of
reported net income for future years.
(E) SHAREHOLDER RIGHTS PLAN
On November 10, 1994, AVANT's Board of Directors declared a dividend of one
preferred share purchase right for each share of common stock outstanding. Each
right entitles the holder to purchase from AVANT one-one thousandth of a share
of Series C-1 Junior Participating Cumulative Preferred Stock (a "Unit"), par
value $0.01 at a price of $16.00 per one-one thousandth of a share, subject to
specified adjustments. The Units are exercisable only if a person or a group
acquires 15% or more of the outstanding common stock of AVANT or commences a
tender offer which would result in the ownership of 15% or more of our
outstanding common stock. Once a Unit becomes exercisable, the plan allows our
shareholders to purchase common stock at a substantial discount. Unless earlier
redeemed, the Units expire on November 10, 2004. AVANT is entitled to redeem the
Units at $0.01 per Unit subject to adjustment for any stock split, stock
dividend or similar transaction.
As of December 31, 1999 and 1998, we have authorized the issuance of 350,000
shares of Series C-1 Junior Participating Cumulative Preferred Stock for use in
connection with the shareholder rights plan.
(F) ACQUISITION OF VIRUS RESEARCH INSTITUTE, INC.
AVANT issued 14,036,400 shares of our common stock and warrants to purchase
approximately 1,811,200 shares of our common stock on August 21, 1998, in
exchange for all of the outstanding common stock of VRI (see Note 14).
8. RESEARCH AND LICENSING AGREEMENTS
AVANT has entered into licensing agreements with several universities and
research organizations. Under the terms of these agreements, we have received
licenses or options to license technology, specified patents or patent
applications. We have made required payments of nonrefundable license fees and
royalties which amounted to approximately $221,500, $100,000 and $65,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
9. PRODUCT DEVELOPMENT AND DISTRIBUTION AGREEMENTS
AVANT's product development revenues were received from contracts with different
organizations. Total revenue received by us in connection with these contracts
for the years ended December 31, 1999, 1998 and 1997 were approximately
$1,483,500, $2,094,500 and $1,147,600, respectively. A summary of these
contracts follows:
(A) NOVARTIS PHARMA AG
In 1997, we entered into an option agreement with Novartis Pharma AG
("Novartis"), a worldwide pharmaceutical company headquartered in Basel,
Switzerland, relating to the development of TP10 for use in xenotransplantation
(animal organs into humans) and allotransplantation (human to human). Under the
agreement, we received annual option fees and supplies of TP10 for clinical
trials in return for granting Novartis a two-year option to license TP10 with
exclusive worldwide (except Japan) marketing rights. In July 1999, Novartis
exercised its option to license TP10 for use in the field of transplantation.
The decision to license TP10 resulted in a $6 million equity investment and
license fee payment by Novartis which was received by AVANT in January 2000.
Under the agreement, we may receive additional milestone payments based upon
attainment of specified development and regulatory goals, which has an
approximate aggregate value of up to $14 million. We may also receive funding
for research as well as royalty payments on eventual product sales.
-46-
(B) SMITHKLINE BEECHAM
During 1997, AVANT entered into an agreement with SmithKline Beecham plc
("SmithKline") to collaborate on the development and commercialization of our
oral rotavirus vaccine. Under the terms of the agreement, SmithKline received an
exclusive worldwide license to commercialize AVANT's rotavirus vaccine. We were
responsible for continuing the Phase II clinical efficacy study of the rotavirus
vaccine, which was completed in August 1998. Subject to the development by
SmithKline of a viable manufacturing process, SmithKline is required to assume
responsibility for all subsequent clinical trials and all other development
activities. SmithKline made an initial license payment in 1997 upon execution of
the agreement and has agreed to make further payments upon the achievement of
specified milestones. In addition, we will be entitled to royalties based on net
sales of the rotavirus vaccine. In June 1999, we received a milestone payment of
$500,000 from SmithKline for the successful completion of the Phase II clinical
efficacy study and the establishment of a commercially viable process for
manufacture of the vaccine.
(C) ASTRAZENECA
In 1992, we entered into a product development and distribution agreement with
AstraZeneca plc ("Astra"), a worldwide pharmaceutical company headquartered in
Sodertalje, Sweden, for the joint development and marketing of therapeutic
products using our proprietary T cell antigen receptor ("TCAR") technology. The
products developed exclusively and jointly with Astra were monoclonal antibodies
and protein-derived immunomodulators that may have efficacy in treating
autoimmune diseases such as multiple sclerosis, Crohn's disease, and rheumatoid
arthritis.
In 1996, we suspended further internal funding of the research and development
of the TCAR program and further amended our agreement with Astra to transfer
some of our rights to the TCAR technology to Astra in addition to sole
responsibility for further development and commercialization of the TCAR
technology. Under the amended agreement, we received an initial signing fee of
$100,000 and could receive future milestone and royalty payments upon Astra's
successful development and commercialization of the TCAR technology. In 1997, we
recognized revenue from milestone payments from Astra of $650,000. In December
1999, we announced results of a Phase II study of the TCAR monoclonal antibody
(ATM-027) being developed by Astra for the treatment of multiple sclerosis. The
results showed that ATM-027 was safe and well tolerated, however, in the view of
Astra, the reduction of disease activity in the study population did not reach a
level that would be of value for those patients. Therefore, Astra made the
decision to stop further development of ATM-027 for multiple sclerosis but is
reviewing development of the TCAR peptide as a vaccine for multiple sclerosis
under the terms of the TCAR agreement.
(D) AVENTIS PASTEUR
In 1994, AVANT entered into a license agreement with Aventis Pasteur ("Aventis")
which granted Aventis the exclusive right to make, use and sell
Adjumer(R)-formulated vaccines for prevention of influenza, Lyme disease and
diseases caused by meningococcus and the co-exclusive right (exclusive, except
for the right of AVANT or one other person licensed by AVANT) to make, use and
sell Adjumer(R)-formulated vaccines directed against five other pathogens,
including pneumococcus and RSV. We have retained rights to make, use, sell and
license Adjumer(R)-formulated vaccines against the subject infections in most of
the Far East, including China and Japan, subject to geographical extension
rights available to Aventis. In December 1998, we received a milestone payment
of $600,000 from Aventis upon commencement of the first Phase I clinical trial
of the Adjumer(R)-formulated vaccine for RSV.
(E) HESKA CORPORATION
In January 1998, AVANT entered into an agreement with Heska Corporation
("Heska") whereby Heska was granted the right to use PCPP in specified animal
health vaccines. The agreement provides for the payment of license fees,
milestone and royalties based on net sales of PCPP-formulated animal vaccines.
In September 1999, we received a payment from Heska for the achievement of a
major milestone in efforts to develop and utilize the PCPP polymer as an
adjuvant in Heska's animal health vaccine against B. HENSELAE, the bacterium
that causes Cat Scratch Disease in humans.
-47-
10. NON-OPERATING INCOME
Non-operating income includes the following:
YEAR ENDED DECEMBER 31,
1999 1998 1997
------------------------------------------------
Interest and Dividend Income $ 635,200 $ 571,900 $ 577,300
Gain on Sale of Equipment -- 22,300 --
Loss on Sale of Investments -- -- (17,800)
------------------------------------------------
$ 635,200 $ 594,200 $ 559,500
================================================
11. DEFERRED SAVINGS PLAN
Under section 401(k) of the Internal Revenue Code of 1986, as amended, the Board
of Directors adopted, effective May 1990, a tax-qualified deferred compensation
plan for employees of AVANT. Participants may make tax deferred contributions up
to 15%, or $10,000, of their total salary in 1999. AVANT may, at its discretion,
make contributions to the plan each year matching up to 1% of the participant's
total annual salary. AVANT contributions amounted to $30,100, $20,100 and
$20,600 for the years ended December 31, 1999, 1998 and 1997, respectively.
12. FOREIGN SALES
Product sales were generated geographically as follows:
NET PRODUCT SALES FOR THE
TWELVE MONTHS ENDED EUROPE USA ASIA OTHER TOTAL
- ----------------------------------------- ------------ ------------ ------------- ------------ ------------
December 31, 1999 $ -- $ -- $ -- $ -- $ --
December 31, 1998 5,000 31,000 -- 20,000 56,000
December 31, 1997 5,000 29,000 -- 11,000 45,000
13. LITIGATION
In December 1994, AVANT filed a lawsuit in the Superior Court of
Massachusetts against the landlord of our former Cambridge, Massachusetts
headquarters to recover the damages incurred by AVANT 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 filed counterclaims, alleging we breached our lease obligations. The
court ordered a limited trial between AVANT and the landlord on factual issues
which began on November 20, 1996. Closing arguments for the limited trial were
heard on January 13, 1997. In a separate lawsuit, the landlord's mortgagee filed
claims against AVANT for payment of the same rent alleged to be owed. A motion
for summary judgment filed by the bank was denied by the court. In August 1997,
the Superior Court of Massachusetts entered findings of fact and conclusions of
law on the limited trial of AVANT's lawsuit against the landlord. In its
findings, the Court concluded that we had not proved, as alleged by us, that any
fireproofing fibers contaminated our space, our space was not uninhabitable
because of contamination from fireproofing fibers and we were not justified in
terminating its lease on the grounds that our office and laboratories were
uninhabitable. In November 1997, AVANT reached a settlement of the litigation
with our former landlord and the landlord's mortgagee. We agreed to pay $858,800
in cash on November 17, 1997 and issue a total of
-48-
1,500,000 shares of our common stock. In addition, we signed a note for $750,000
payable on November 16, 1998 secured by $750,000 cash collateral and a note for
$750,000 due November 15, 1999, secured by 132,500 shares of common stock. The
total settlement, valued at $6,108,800, is comprised of the cash and notes
totaling $2,358,800 and common stock valued at $3,750,000 as of October 31, 1997
and is included in operating expense for the year ended December 31, 1997. The
common stock issued is subject to restrictions on transfer per the settlement
agreement. The settlement agreement also provides for specific registration
rights for the shares of common stock to become effective no later than
September 30, 1998. Upon such registration, however, the settlement agreement
limits the number of shares that may be sold over a given period of time.
In May 1998, we used cash as collateral for a $750,000 note due November 15,
1999 issued in connection with a settlement agreement with our former landlord
and the landlord's mortgagee. In accordance with the settlement agreement,
66,250 shares of our common stock issued to secure the note were returned to
AVANT. The common stock was valued at $165,600 as of October 31, 1997 and its
return is included as a reduction of operating expense in 1998. In November
1999, the note was paid in full.
14. ACQUISITION OF VIRUS RESEARCH INSTITUTE, INC.
On August 21, 1998, AVANT acquired all of the outstanding capital stock of VRI,
a company engaged in the discovery and development of (i) systems for the
delivery of vaccines and immunotherapeutics and (ii) novel vaccines. We issued
approximately 14,036,400 shares of AVANT's common stock and warrants to
purchase approximately 1,811,200 shares of AVANT's common stock in exchange for
all of the outstanding common stock of VRI, on the basis of 1.55 shares of
AVANT's common stock and .20 of an AVANT warrant for each share of VRI common
stock. The purchase price of $63,004,700 consisted of (i) the issuance of
14,036,400 shares of AVANT common stock valued at $51,686,800 and 1,811,200
AVANT warrants valued at $4,980,700 for all outstanding VRI capital stock, (ii)
the issuance of AVANT warrants valued at $387,600 in exchange for all of the
outstanding VRI warrants, (iii) the issuance of options to purchase AVANT
common stock valued at $3,637,900 for all of the outstanding options to
purchase VRI common stock assumed by us, and (iv) severance and transaction
costs totaling $2,311,700. As of the date of the acquisition of VRI, the
Company had already begun to formulate a plan to assess which activities of VRI
to continue and to identify all significant actions to be taken to terminate a
number of VRI employees and to relocate the remaining employees from the VRI
facility in Cambridge, MA (which was to be closed) to our facility in Needham,
MA. The costs associated with this plan, including severance costs of
approximately $243,000, were recognized upon consummation of the merger and are
included in the $2,311,700 referenced above. The plan was finalized and
implemented during 1998 and the first quarter of 1999. Actual costs were not
materially different from those accrued at the acquisition date and were paid
in 1998 and early 1999.
The acquisition has been accounted for as a purchase. Consequently, the
operating results of VRI from the acquisition date have been included in our
consolidated results of operations. The purchase price was allocated to the
acquired assets and assumed liabilities, based upon their fair value at the
date of acquisition, as follows:
Net tangible assets acquired $ 14,539,000
Intangible assets acquired:
Work force 470,000
Collaborative relationships 1,090,000
Goodwill 2,275,700
In-process technology 44,630,000
---------------------------------------------------------------------------------------
Total $ 63,004,700
=======================================================================================
The values assigned to the intangible assets acquired, including the IPR&D, were
determined based on fair market value using a risk adjusted discounted cash flow
approach. VRI was a development stage biotechnology enterprise and its resources
were substantially devoted to research and development at the date of
acquisition. Management is responsible for determining the fair value of the
acquired IPR&D.
-49-
Each of VRI's six research and development projects in-process was valued
through detailed analysis of product development data concerning the stage of
development, time and resources needed to complete the project, expected
income-generating ability and associated risks. The significant assumptions
underlying the valuations included potential revenues, costs of completion, the
timing of product releases and the selection of an appropriate discount rate.
None of VRI's projects have reached technological feasibility nor do they have
any alternative future use. Consequently, in accordance with generally accepted
accounting principles, the amount allocated to IPR&D was charged as an expense
in the AVANT consolidated financial statements for the year ended December 31,
1998. The remaining intangible assets arising from the acquisition are being
amortized on a straight line basis over 12 months and 60 months.
A discussion of the in-process research and development projects identified at
the time of acquisition follows. The projected costs to complete the projects
represent costs to be incurred by AVANT and do not include any costs to be
expended by our collaborators. (i) ADJUMER(R) VACCINE DELIVERY SYSTEM.
Adjumer(R) is being developed as an adjuvant to enhance the immune response to
injected vaccines. AVANT and our collaborator, Aventis, are conducting research
on the development of Adjumer(R)-formulated vaccines utilizing a variety of
Aventis' antigens, including influenza, lyme disease, pneumococcus,
meningococcus, RSV and hepatitis B. As of the acquisition date, with projected
release dates ranging from 2001 to 2004, the estimated cost to complete the
project for all antigens exceeded $9,500,000. In addition, substantial
additional work is required by Aventis prior to commercialization. Discount
rates ranging from 42.5% to 47.5% were used in determining the IPR&D value of
$15,450,000 which was assigned to the Adjumer(R) vaccine delivery system. (ii)
MICROMER(R) VACCINE DELIVERY SYSTEM. Micromer(R) is a proprietary vaccine
delivery system designed to facilitate the mucosal (intranasal or oral)
delivery of antigens and stimulate both the systemic and mucosal branches of
the immune system. AVANT is conducting research on a number of
Micromer(R)-formulated vaccines, including influenza and RSV. As of the
acquisition date, the estimated cost to complete the development of
Micromer(R)-formulated vaccines for influenza and RSV exceeded $3,300,000 with
projected release dates of 2002 and 2004, respectively. A discount rate of 45%
was utilized in determining the IPR&D value of $3,260,000 which was assigned to
Micromer(R). (iii) VIBRIO VEC(TM) VACCINE DELIVERY SYSTEM. Vibrio Vec(TM) is a
proprietary vaccine and immunotherapeutic system that uses A bacterial vector
for the oral delivery of antigens. AVANT is conducting research on a number of
antigens proposed to be delivered by Vibrio Vec(TM), including, in conjunction
with our collaborators, Pasteur Merieux-Oravax and CSL, Ltd., a vaccine
targeting H. pylori. At the acquisition date, the projected product release
date was 2003 and the approximate research and development cost required to
complete the Vibrio Vec(TM) project totaled approximately $900,000. A discount
rate of 45% was used in determining the IPR&D value of $2,450,000 which was
assigned to Vibrio Vec(TM) at the time of acquisition. (iv) ROTAVIRUS VACCINE.
A collaboration with SmithKline was established by AVANT to develop and
commercialize our novel, proprietary vaccine against rotavirus infection, a
major cause of diarrhea and vomiting in infants. At the acquisition date, a
project release date was projected of 2002, with $1,200,000 in additional
research and development expenditures anticipated. In addition, substantial
work is required to be completed by SmithKline prior to commercialization of
the rotavirus vaccine. An IPR&D value of $3,120,000 was assigned to the
rotavirus vaccine utilizing a discount rate of 45%. (v) HERPES VACCINE. The
herpes vaccine is a proprietary vaccine for the prevention of genital herpes
("HSV2"). At the time of acquisition, the vaccine was in a preclinical
development stage with a projected product release date of 2007 and an
estimated cost to complete of $1,600,000. A discount rate of 45% was utilized
in determining the IPR&D value of $2,240,000 which was assigned to the herpes
vaccine. (vi) THERAPORE(TM). AVANT was granted an exclusive worldwide license
from Harvard for Therapore(TM), a novel technology for the development of
immunotherapeutics. We are conducting preclinical research to evaluate this
system for the treatment of persistent viral infections, such as Hepatitis B,
Hepatitis C and HIV, and some forms of cancer including melanoma. The first
release date for a Therapore(TM) product is estimated to be in 2004 and the
projected research and development cost to complete all indications of
Therapore(TM) approximated $41,200,000 at the acquisition date. A discount rate
of 50% was utilized in determining the IPR&D value of $18,110,000 which was
assigned to Therapore(TM).
As of December 31, 1999, the technological feasibility of the projects had not
yet been reached and no significant departures from the assumptions included in
the valuation analysis had occurred. Substantial additional research and
development will be required prior to reaching technological feasibility. In
addition, each product needs to successfully complete a series of clinical
trials and to receive FDA approval prior to commercialization. We are also
dependent upon the activities of our collaborators in developing and marketing
our products. There can be no assurance that these projects will ever reach
feasibility or develop into products that can be marketed profitably, nor can
there be assurance
-50-
AVANT and our collaborators will be able to develop and commercialize these
products before our competitors. If these products are not successfully
developed and do not become commercially viable, our financial condition and
results of operations could be materially affected.
The following unaudited pro forma financial summary is presented as if the
operations of AVANT and VRI were combined as of January 1, 1998 and 1997,
respectively. The unaudited pro forma combined results are not necessarily
indicative of the actual results that would have occurred had the acquisition
been consummated at that date, or of the future operations of the combined
entities. Nonrecurring charges, such as the acquired in-process research and
development charge of $44,630,000, are not reflected in the following pro forma
financial summary.
Year Ended December 31, 1998 1997
-------------------------------------------- --------------------- -------------------- ---------------------
Operating Revenue $ 2,206,500 $ 3,697,600
Net Loss (13,389,800) (21,311,500)
Basic and diluted net loss per share (0.32) (0.54)
-51-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the Sections "Proposal 1 - Election of Directors" and
"Management" in the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 8, 2000, is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the Section "Management" of the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 8, 2000, is
hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the Section "Beneficial Ownership of Common Stock" of the
Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held
on May 8, 2000, is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the Sections "Proposal 1 - Election of Directors" and
"Management" of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 8, 2000, is hereby incorporated by reference.
-52-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) The following documents are filed as part of this Form 10-K:
(1) FINANCIAL STATEMENTS:
See "Index to Consolidated Financial Statements" at Item 8.
(2) FINANCIAL STATEMENT SCHEDULES:
Schedules are omitted since the required information is not applicable or
is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the
Consolidated Financial Statements or Notes thereto.
(3) EXHIBITS:
No. Description Page No.
- --------------------------------------------------------------------------------------------------------------------------
2.1 Agreement and Plan of Merger, dated as of May 12, Incorporated by reference to Exhibit 2.1 of the
1998, by and among the Company, TC Merger Corp., Company's Registration Statement on Form S-4 (Reg.
Virus Research Institute, Inc. No. 333-59215)
3.1 Third Restated Certificate of Incorporation of the Incorporated by reference to Exhibit 3.1 of the
Company Company's Registration Statement on Form S-4 (Reg.
No. 333-59215)
3.2 Certificate of Amendment of Third Restated Incorporated by reference to Exhibit 3.1 of the
Certificate of Incorporation of the Company Company's Registration Statement on Form S-4 (Reg.
No. 333-59215)
3.3 Certificate of Designation for series C-1 Junior Incorporated by reference to Exhibit 3.1 of the
Participating Cumulative Preferred Stock Company's Registration Statement on Form S-4 (Reg.
No. 333-59215)
3.4 Second Certificate of Amendment of Third Restated Incorporated by reference to Exhibit 3.2 of the
Certificate of Incorporation of the Company Company's Registration Statement on Form S-4 (Reg.
No. 333-59215)
3.5 Amended and Restated By-Laws of the Company as of Incorporated by reference to Exhibit 3.3 of the
November 10, 1994 Company's Registration Statement on Form S-4 (Reg.
No. 333-59215)
4.1 Shareholder Rights Agreement dated November 10, Filed herewith
1994 between the Company and State Street Bank and
Trust Company as Rights Agent
4.2 Form of Stock Purchase Agreement dated March 20, Incorporated by reference to Exhibit 4.1 of the
1998 relating to the Company's private placement Company's Registration Statement on Form S-3 (Reg.
of Common Stock No. 333-56755)
10.1 Amended and Restated 1991 Stock Compensation Plan Incorporated by reference to the Company's Annual
dated as of April 1, 1995 Report on Form 10K for the fiscal year ended
December 31, 1995
10.2 1994 Employee Stock Purchase Plan Incorporated by reference to the Company's
Registration Statement on Form S-8 filed June 8,
1994
10.3 AVANT Immunotherapeutics, Inc. 1999 Stock Option Incorporated by reference to Exhibit A to the
and Incentive Plan Company's Proxy Statement on Schedule 14A filed on
April 1, 1999
10.4 Virus Research Institute, Inc. 1992 Equity Filed herewith
Incentive Plan as amended and restated
10.5 Performance Plan of the Company Filed herewith
10.6 Form of Agreement relating to Change of Control Filed herewith
10.7 Termination Agreement between the Company and Incorporated by reference to the Company's report
SmithKline Beecham p.l.c. relating to sCR1 dated on Form 8-K filed April 27, 1995
April 7, 1995, portions of which are subject to
confidential treatment
-53-
10.8 Pledge Agreement between the Company and Fleet Incorporated by reference to the Company's report
Credit Corporation dated October 24, 1995 on Form 10-Q for the quarter period ended September
30, 1995
10.9 Amended and Restated Employment Agreement between Incorporated by reference to the Company's Annual
the Company and Una S. Ryan, Ph.D. dated August Report on Form 10-K for the fiscal year ended
20, 1998. December 31, 1998
10.10 Second Amended and Restated Product Development Incorporated by reference to the Company's Annual
and Distribution Agreement between Astra AB and Report on Form 10-K for the fiscal year ended
the Company dated May 1, 1996, portions of which December 31, 1996 are
subject to confidential treatment
10.11 Commercial Lease Agreement of May 1, 1997 between Incorporated by reference to the Company's report
the Company and Fourth Avenue Ventures Limited on Form 10-Q for the quarterly period ended
September 30, 1996
10.12 Option Agreement by and between the Company and Incorporated by reference to the Company's report
Novartis Pharma AG dated as of October 31, 1997, on Form 10-Q/A for the quarterly period ended
portions of which are subject to confidential September 30, 1997
treatment
10.13 Settlement Agreement between the Company and Incorporated by reference to the Company's Annual
Forest City 38 Sidney Street, Inc.; Forest City Report on Form 10-K for the fiscal year ended
Management, Inc.; and Forest City Enterprises, Inc. December 31, 1997
10.14 Lease dated December 1, 1996 between Virus Filed herewith.
Research institute, Inc. and Moulton Realty
Company as amended.
10.15 License Agreement dated as of May 1, 1992 between Filed herewith.
Virus Research Institute, Inc. and the President
and Fellows of Harvard College ("Harvard") as
amended.
10.16 License and Clinical Trials Agreement dated as of Filed herewith.
February 27, 1995 between Virus Research Institute,
Inc. and The James N. Gamble Institute of Medical
Research (assigned to Children's Hospital of
Cincinnati).
10.17 License Agreement dated December 6, 1991 between Filed herewith.
Section Virus Research Institute, Inc. and Massachusetts
Institute of Technoloby
10.18 License Agreement dated as of December 13, 1994 Filed herewith.
Section between Virus Research Institute, Inc. and Pasteur
Merieux Serums & Vaccins S.A. ("Pasteur Merieux").
10.19 License Agreement dated as of August 2, 1995 Filed herewith.
Section between Virus Research Institute, Inc. and Pasteur
Merieux.
10.20 License Agreement dated as of December 1, 1997 Filed herewith.
Section between Virus Research Institute, Inc. and
SmithKline Beecham PLC.
10.21 License Agreement dated as of March 28, 1997 among Filed herewith.
Section Virus Research Institute, Inc. and Harvard.
21.0 List of Subsidiaries Filed herewith
23.0 Consent of Independent Accountants Page 333
27.0 Financial Data Schedule Page 334
Section Confidential treatment requested.
(B) Reports on Form 8-K.
AVANT did not file any current reports on Form 8-K during the last quarter of
the period covered by this Form 10-K.
-54-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AVANT IMMUNOTHERAPEUTICS, INC. Date
by: s/UNA S. RYAN March 15, 2000
-------------
Una S. Ryan
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
s/J. BARRIE WARD Chairman March 15, 2000
----------------
(J. Barrie Ward)
s/UNA S. RYAN President, Chief Executive Officer, March 15, 2000
-------------
(Una S. Ryan) and Director
s/AVERY W. CATLIN Senior Vice President, Chief Financial March 15, 2000
-----------------
(Avery W. Catlin) Officer and Treasurer
s/FREDERICK W. KYLE Director March 15, 2000
-------------------
(Frederick W. Kyle)
s/JOHN W. LITTLECHILD Director March 15, 2000
---------------------
(John W. Littlechild)
s/THOMAS R. OSTERMUELLER Director March 15, 2000
------------------------
(Thomas R. Ostermueller)
s/HARRY H. PENNER, JR. Director March 15, 2000
----------------------
(Harry H. Penner, Jr.)
s/PETER A. SEARS Director March 15, 2000
----------------
(Peter A. Sears)
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