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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NUMBER: 000-29089
ANTIGENICS INC.
(exact name of registrant as specified in its charter)
DELAWARE 06-1562417
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
630 FIFTH AVENUE, NEW YORK, NEW YORK 10111
(Address of principal executive offices including zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(212) 332-4774
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE NONE
(Title of each Class) (Name of each exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
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 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 voting stock held by non-affiliates of the
registrant as of March 19, 2001 was: $216,767,781.
There were 27,448,353 shares of the registrant's Common Stock outstanding
as of March 19, 2001.
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TABLE OF CONTENTS
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PART I
ITEM 1. OUR BUSINESS................................................................................. 2
Our Technology Platforms..................................................................... 2
Our Products for Treatment of Cancer......................................................... 5
Our Products for Treatment of Infectious Diseases............................................ 11
Our Products for Treatment of Autoimmune Disorders........................................... 12
Our Corporate Partner Programs............................................................... 12
Manufacturing................................................................................ 14
Sales and Marketing.......................................................................... 14
Our Intellectual Property Portfolio.......................................................... 15
Regulatory Considerations.................................................................... 16
Competition.................................................................................. 18
Employees.................................................................................... 18
ITEM 1A. DIRECTORS AND EXECUTIVE OFFICERS............................................................. 19
ITEM 2. PROPERTIES................................................................................... 21
ITEM 3. LEGAL PROCEEDINGS............................................................................ 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................... 21
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS..................... 21
ITEM 6. SELECTED FINANCIAL DATA...................................................................... 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................................................ 23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................... 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................................. 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE......... 49
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........................................... 49
ITEM 11. EXECUTIVE COMPENSATION....................................................................... 49
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................... 52
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................... 53
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.............................. 54
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PART I
ITEM 1. BUSINESS
OUR BUSINESS
OVERVIEW
We are developing treatments for cancers, serious infectious diseases,
autoimmune disorders and degenerative disorders using our proprietary
technologies to program the immune system and improve quality of life. These
products include immunotherapeutics based on a specific class of proteins known
as heat shock proteins, also referred to as HSPs, which activate powerful
cellular immune responses, and Stimulon(R) based products, including QS-21,
which activate superior antibody responses. We are evaluating our lead HSP-based
immunotherapeutic, Oncophage(R), in an international multi-center Phase III
clinical trial in kidney cancer and in five additional cancer indications in
Phase II or Phase I/II trials. Through our internal programs and partnerships
with GlaxoSmithKline, Aventis Pasteur, Wyeth-Lederle, Bristol-Myers Squibb,
VaxGen and Elan Pharmaceuticals, we are testing our Stimulon-based products in
11 Phase III and Phase II clinical trials for cancer, several infectious
diseases and degenerative disorders. Based upon our scientific and drug
development skills, our pioneering technology platforms and our strategic
expertise, we plan to establish a leadership position in drug discovery,
development and commercialization.
OUR TECHNOLOGY PLATFORMS
INTRODUCTION
In individuals who develop cancer, infections, and autoimmune disorders, the
immune system fails in its normal function. We designed our products to restore
this function and prevent or treat life threatening or chronic disease
conditions. We base each product upon one of five technology platforms (see
table below). The first two platforms, the heat shock proteins and QS-21
adjuvant, safely program cellular and antibody responses, the two major arms of
the immune system which together play a key role in controlling the vast
majority (at least 90%) of cancers and infectious diseases. We base our third
platform upon a recent discovery that a receptor known as CD91 is at the heart
of the pathway through which HSPs activate cellular immune response. We expect
that small molecule drugs which interact with CD91 will either downregulate or
upregulate the immune system and therefore treat autoimmune diseases, cancers,
and infections. The CD1 antigen discovery technology, our fourth platform,
represents a newly discovered immunological pathway through which T cells target
a variety of infectious diseases, including tuberculosis and chlamydia, through
the recognition of carbohydrate antigens. NK T cells, our fifth platform, are a
subset of T cells which are present in reduced numbers in cancer patients and
lack certain functions in diabetes patients. We expect that restoring the number
and function of these cells will be useful in treating these diseases.
TECHNOLOGY PLATFORM THERAPEUTIC CLASS DEVELOPMENT PHASE
1. Heat Shock Proteins Protein therapeutic Phase III
2. QS-21 Natural extract Phase III
3. CD91 Small molecule drugs Preclinical
4. CD1 antigens Carbohydrate antigens Preclinical
5. NK T cells Cell therapy Preclinical
HEAT SHOCK PROTEINS
We are the pioneer in activating T cells using heat shock protein-based
therapies. We believe that our HSP-based products will be applicable to the
treatment of all cancer types and several types of infectious diseases, such as
HIV, tuberculosis and herpes, and autoimmune disorders, such as type 1 diabetes
and multiple sclerosis. Our lead HSP product candidates consist of two
components: a variable component, consisting of peptides, which is necessary for
the targeting of specific diseases; and a constant component, consisting of a
heat shock protein, which is necessary for the activation of a T cell-based
immune response to the targeted disease. In the case of cancer, which is a
highly variable disease from one patient to another, we purify, from each
patient's own tumor tissue, heat shock proteins that are bound,
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or complexed, to peptides. Our cancer products are therefore specific to each
patient. In contrast, for each infectious disease which is generally caused by a
common pathogen, we use a human heat shock protein bound to peptides derived
from the target pathogen. Our therapeutic products for infectious diseases
therefore will be disease-specific rather than patient-specific. Our therapeutic
product for autoimmune disorders will be generic, meaning it will be intended
for the treatment of most disorders that result in T cells attacking healthy
tissue.
Heat shock proteins are a class of proteins that play a major role in
transporting peptides, including antigens, within a cell and are thus often
called chaperones. In this capacity, heat shock proteins bind to the broad
antigenic repertoire or fingerprint of the cell in which they reside. Heat shock
proteins are present in all cells of all organisms from bacteria to mammals, and
their structure and function are similar across these diverse life forms.
The ability of heat shock proteins to chaperone peptides is key to our
technology platform. When we purify heat shock proteins from tumor cells or
pathogen-infected cells according to our manufacturing protocols, the heat shock
proteins remain bound to the broad repertoire of peptides produced by the tumor
or pathogen. These purified heat shock protein-peptide complexes isolated from
diseased cells are our therapeutic products.
When purified heat shock protein-peptide complexes are injected into the skin,
they stimulate a powerful T cell-based immune response capable of targeting and
killing the cancers and pathogen-infected cells from which these complexes were
derived. Doctors or nurses inject our therapeutic products into the skin to take
advantage of the high concentration of dendritic cells in this region. These
dendritic cells express receptors that recognize heat shock proteins; therefore,
dendritic cells efficiently capture and process our therapeutic products. Once
inside dendritic cells, heat shock protein-peptide complexes separate, and the
dendritic cell displays the peptides on its surface where T cells can recognize
the peptides.
Our preclinical studies with heat shock protein based therapeutic products have
demonstrated a beneficial effect in preventing or treating 13 types of cancer in
three different species to date. The cancer types that we have tested include
cancers of the skin, colon, lung, and other tissues. Further, our therapeutic
products show therapeutic benefit in animals with metastatic disease, which is
cancer that has spread beyond the primary tumor to distant regions of the body.
Metastatic disease is often responsible for the relapse and ultimate death of
patients with cancer.
QS-21
QS-21 is our lead Stimulon adjuvant. It is a natural product, purified from the
bark of a tree called Quillaja saponaria that grows in South America. Up to 10%
of the bark from Quillaja is composed of saponins, of which QS-21 is typically
one of the more predominant. The bulk bark extract is available in the United
States. We believe QS-21 is well suited to pharmaceutical development and
formulation because it has good stability as a dried powder (at least 3 years),
is water soluble, and when rehydrated, is a clear liquid that mixes easily with
other vaccine components. QS-21 is compatible with alum and micro-particles that
are used in many experimental product formulations. QS-21 is well characterized
with a known molecular structure, thus distinguishing it from competing adjuvant
candidates, which are typically emulsions, polymers, or biologicals. Because the
FDA currently regulates QS-21 as a "constituent material" used in drug
preparation, the FDA does not require specific licensure of facilities used for
its manufacture.
The use of Stimulon adjuvants improves the quality of the immune response.
Adding QS-21 to antigens generally broadens the type of antibody produced,
increases the amount of antibodies produced, and stimulates cell mediated
responses. It is potent and active at microgram doses when used with many types
of antigens, including recombinant proteins derived from viruses and bacteria as
well as polysaccharide antigens from bacterial pathogens.
We believe that the performance of QS-21 will vary depending upon the nature of
the antigen and the target population. Initial human studies conducted by our
licensees and collaborators have focused on proving the safety of QS-21 and
experimenting with different formulations and dose levels. We and our
collaborators have completed 60 studies with over 30 antigens to date. More than
2,500 subjects have received QS-21 in various formulations. These studies have
shown that the addition of QS-21 to product formulations improves the immune
response to certain antigens, as evidenced by a patient's increased production
of antibodies.
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CD91
CD91 was recently identified by Dr. Pramod K. Srivastava, our chief scientific
officer, as the receptor responsible for the recognition and processing of heat
shock protein-peptide complexes by dendritic cells, leading to the display of
peptides on the surface of dendritic cells and activation of T cells. The
receptor is 99.9% identical in mice and humans. Based on the CD91 discovery, we
have initiated a screening program to identify small molecule drugs that
modulate HSP-receptor interaction. We expect that resultant compounds, which
either block or enhance the interaction, will represent important leads in
developing new treatments for several major diseases (see table below). We have
filed patents on various applications of the receptor technology.
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DESIRED IMMUNE
APPLICATION MODULATION ACCOMPLISHED BY DRUG TYPE
- ---------------------------------------------------------------------------------------------------------
Autoimmune disease Turn T cells off Blocking HSP-CD91 Small molecule or antibody
interaction
Small molecule or antibody
Enhancing levels of CD91
antagonists
Cancers and Infectious Activate T cells Enhancing HSP-CD91 Small molecule or antibody
Diseases interaction
Soluble CD91 receptor
Decreasing levels of CD91
antagonists
- ---------------------------------------------------------------------------------------------------------
CD1
The CD1 antigen presentation system is a new approach to the development of
immunological products. Until recently, scientists believed that peptides were
the only type of antigen that dendritic cells processed for subsequent
presentation to T cells. Recent discoveries have demonstrated that dendritic
cells also process antigens with carbohydrate and lipid components for
presentation by CD1 molecules on the dendritic cell surface. Lipid containing
antigens presented through CD1 stimulate the production of additional cytotoxic
T cells that can recognize and kill invading pathogens. We have an exclusive
license to a patent covering CD1 technology and are advancing the development of
proprietary products to prevent and treat infectious diseases, cancers, and
autoimmune disorders.
Since the initial discovery of the CD1 system, a large and growing body of
research has further characterized the CD1 pathway, suggesting that modulating
the immune system with lipid antigens has therapeutic potential for a broad
range of diseases such as tuberculosis, type I diabetes, and cancer. The
research has shown that the lipid antigen recognition pathway can be used to
activate or enhance antitumor responses. Researchers have determined the crystal
structure of mouse CD1 that provides a structural rationale that supports its
biological activity.
NK T CELLS
NK T cells are a specialized population of T cells which have been shown in
animal models and in humans to play an important role in antiviral and
anti-tumor immune responses. Defects in some types of NK T cells have been
linked to autoimmune diseases and the number of these NK T cells is dramatically
reduced in individuals with Type I diabetes, multiple sclerosis and some forms
of cancer. Increasing the number of NK T cells and restoring their activity may
provide a therapeutic benefit for these patients.
Investigators at Beth Israel Deaconess Medical Center and the Dana Farber Cancer
Institute have isolated two antibodies that can be used to specifically isolate
NK T cells and stimulate them to grow, divide and secrete specific cytokines.
Using blood samples taken from individual patients, NK T cells may be able to be
expanded in incubators by treatment with the antibodies before being reinfused
back into the same patient.
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We have established a collaborative relationship with the scientists from Beth
Israel Deaconess Medical Center and the Dana Farber Cancer Institute and
together are working towards initiating clinical studies investigate the benefit
of expanded NK T cells in cancer applications.
We are also identifying small molecules that can be used to stimulate NK T
cells. Small molecules could potentially be used as therapeutic compounds
themselves or as lead compounds for further drug discovery.
OUR INTERNAL PRODUCTS UNDER DEVELOPMENT
INTRODUCTION
The chart below summarizes the indications and status for each of our products
and development programs. We use "HSPPC" as an abbreviation for "heat shock
protein-peptide complex." The number following HSPPC is the molecular weight of
the heat shock protein used in the product. For cancer applications, we call
HSPPC-96 "Oncophage."
PRODUCTS INDICATION STATUS
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CANCER
Oncophage Renal cell carcinoma Phase III trial ongoing
Melanoma Phase II trial enrollment completed
Colorectal carcinoma Phase II trial enrollment completed
Gastric cancer Phase I/II trial ongoing
Pancreatic cancer Phase I/II trial ongoing
Low-grade non-Hodgkin's lymphoma Phase II trial ongoing
Sarcoma Phase II trial ongoing
HSPPC-70-C Various cancers Research
HSPPC-90-C Various cancers Research
HSPPC-56-C Various cancers Research
INFECTIOUS DISEASES
QS-21 Malaria Phase II
Quilimmune P Strep. pneumoniae Phase I/II
Ag-701 Genital herpes Phase I
hsppc-96-GH Genital herpes Preclinical
hsppc-56-I Various infectious diseases Research
hsppc-70-I Various infectious diseases Research
AUTOIMMUNE DISORDERS
gp96 Type 1 diabetes Research
Multiple sclerosis Research
OUR PRODUCTS FOR TREATMENT OF CANCER
Background. The American Cancer Society estimated that doctors would diagnose
approximately 1.2 million new cases of cancer in the United States in 2000.
Cancer is the second leading cause of death in the United States and is expected
to result in an estimated 552,200 deaths in 2001. The American Cancer Society
reports that since 1990 medical professionals have diagnosed nearly 13 million
cases of cancer, and cancer has killed nearly 5 million people in the United
States.
Cancer results from the uncontrolled proliferation of abnormal cells.
Eventually, these cells form a mass referred to as a tumor. As the tumor grows,
it pushes outward, often invading adjacent tissues and organs and interfering
with their normal function. In addition, small groups of cells may break away
from the primary tumor and spread or metastasize. Tumors produced at distant
sites are referred to as metastatic tumors.
The uncontrolled proliferation of cancer cells is due to alterations, or
mutations, in a cell's DNA. Mutations can take place when a gene is exposed to
radiation or particular drugs or chemicals, or when some as yet unexplained
internal
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change occurs. The mutations in DNA also lead to production of antigens. Because
mutations occur randomly, the antigenic fingerprint of each person's cancer is
unique.
Studies in animals have confirmed that a unique repertoire of antigens is
associated with each primary tumor. As cancers metastasize, they continue to
mutate, potentially producing new antigens not found in the primary tumor of the
same patient. However, we believe that a significant overlap exists between the
antigenic fingerprint of the metastatic cells and the primary tumor of the same
patient.
Current Treatments. Surgery, chemotherapy, and radiotherapy are the three most
commonly used methods for treating cancer. Medical professionals often
administer a combination of these treatments to a cancer patient, depending upon
the type of cancer and the extent of the disease. Surgery is curative only when
a doctor detects a tumor at a relatively early stage of growth and is able to
completely remove the tumor. Unfortunately, most tumors metastasize when they
are very small, ultimately causing relapse and death in many cancer patients.
The use of chemotherapy or radiotherapy sometimes improves survival rates;
however, these treatments have significant limitations.
High rates of treatment failure and limitations posed by severe side effects and
tumor resistance have compelled researchers to focus on alternative strategies
of cancer treatment. Technologies that specifically activate the immune system
have the ability to target and destroy widely disseminated disease without
damaging normal tissue. In addition, immune-based products do not have many of
the shortcomings of traditional cancer treatments.
Our Approach. We purify our cancer products from portions of a patient's tumor
that a doctor has surgically removed. Our cancer products are patient-specific
and therefore incorporate the entire antigenic fingerprint of each patient's own
tumor. Because our cancer products contain overlapping antigens present in both
the primary and metastatic tumors, we believe we will be effective in treating
all the tumor cells that remain in the body that are derived from the primary
tumor.
ONCOPHAGE
Oncophage is our lead cancer product. We are evaluating Oncophage in seven
different cancers in ten separate phase III, phase II, or phase I/II clinical
trials. Oncophage consists of purified, patient-specific heat shock
protein-peptide complexes designed to elicit a T cell-based immune response to a
patient's cancer. After a surgeon removes a patient's tumor, the hospital or
clinic ships a frozen portion of the tumor tissue by overnight courier to our
facility. We purify Oncophage from the tumor tissue using our proprietary
manufacturing process in less than ten hours. Depending on the dose, we require
a minimum of one to three grams of tumor tissue to yield a sufficient amount of
Oncophage for a typical course of treatment.
We formulate Oncophage in sterile saline solution and package it in standard
single injection vials in our manufacturing facility. We subject the final
product to extensive quality control testing, including sterility testing of
each lot. We ship the product frozen via overnight courier back to the hospital.
We have developed sophisticated tracking systems and procedures designed to
ensure correct delivery of Oncophage to the appropriate patient.
There are several benefits associated with the production and administration of
our autologous product:
- we can sterilize Oncophage through simple filtration; sterility is
required for FDA approval of a product that will be injected into
humans;
- the scheduling of production at our central facility is flexible
because we purify Oncophage from frozen tumor samples;
- doctors can administer Oncophage when the patient is ready to begin
treatment because Oncophage is stored frozen and has a current
shelf-life of at least six months; and
- Oncophage consists of a purified protein that we can consistently
produce from all tumor types tested to date.
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A medical professional initially administers Oncophage to a patient four to six
weeks after a doctor surgically removes the patient's primary or metastatic
tumor. The typical course of treatment consists of an injection into the skin
administered once per week for four to six weeks and every other week
thereafter. An oncologist may recommend treating a patient with more than one
course of Oncophage.
Although we believe Oncophage will be applicable to the treatment of all cancer
types, our initial focus is on cancers that are resistant to available treatment
options. Further, we have initially chosen types of cancer and stages of disease
that typically yield tumors that doctors can surgically remove. Additionally, in
order to complete clinical trials rapidly and file for regulatory approvals, we
have selected cancers and stages of disease that allow us to evaluate our
immunotherapeutics in clinical trials with near term endpoints.
We filed an IND for Oncophage in November 1996 that the FDA allowed on December
20, 1996. To date, we have treated approximately 260 advanced stage, metastatic
cancer patients with Oncophage in our clinical programs. We started enrolling
patients in our first clinical trial at Memorial Sloan-Kettering Cancer Center
in New York, New York in November 1997.
We believe the collective results from these clinical trials show that Oncophage
is generally safe, and patients tolerate it well. These results also demonstrate
preliminary indications of clinical benefit in a number of these patients.
Moreover, we have shown that Oncophage can generate an anti-tumor immunological
response.
The investigators participating in our clinical programs have documented tumor
regression using standard response criteria. A complete response means that all
tumor tissue has disappeared and the patient appears to be disease free. A
partial response means that evaluable tumor tissue has shrunk by at least 50%. A
minor response means that the tumor has shrunk by 25-50%. Stable disease means
that the tumor has either shrunk or grown by less than 25%. Progressive disease
means that the tumor has grown by more than 25%.
The investigators also document survival. Median survival refers to the time at
which 50% of patients diagnosed with a particular cancer are alive.
RENAL CELL CARCINOMA
Background. Renal cell carcinoma is the most common type of kidney cancer. The
American Cancer Society estimates that doctors will diagnose about 30,800 new
cases of kidney cancer in the United States in 2001 and that the disease will
kill approximately 12,100 people during 2001. Of the 30,800 patients expected to
be diagnosed with kidney cancer, approximately 85% will have the specific type
of kidney cancer known as renal cell carcinoma. By the time renal cell carcinoma
is diagnosed in these patients, about one-third of them have developed
metastatic disease.
The median survival of patients with metastatic renal cell carcinoma is
approximately 12 months. For patients with metastatic disease, the only FDA
approved treatment is intravenous high-dose interleukin-2, a human cytokine. The
response rate, which includes partial responses and complete responses, of
patients who are treated with high-dose interleukin-2 is approximately 15%.
Treatment with high-dose interleukin-2 often causes severe adverse effects.
These side effects often can lead to discontinuation of treatment. Although not
FDA-approved for the treatment of renal cell carcinoma, a lower-dose of
interleukin-2 injected underneath the skin, or subcutaneously, either alone or
in combination with other cytokines, has become a treatment option. This
treatment regimen has been the subject of a number of small studies with widely
varying outcomes. Generally, side effects using the subcutaneous route of
administration have been milder than those associated with high-dose,
intravenous treatment.
Our Clinical Program. In our phase I/II trial, we enrolled patients with
measurable metastatic renal cell carcinoma. We conducted this trial with
clinical investigators at the M.D. Anderson Cancer Center in Houston, Texas.
These patients did not receive prior or concurrent cancer therapy. After
surgical removal of their primary tumors, patients were treated at one of three
dose levels of Oncophage: 2.5 micrograms, 25 micrograms, or 100 micrograms. The
clinical investigators treated 38 patients, of whom 34 could be evaluated with
standard radiology measurements.
Of the 34 evaluable patients, 13 patients responded or had stable disease. Four
patients had a partial response, and one patient had a minor response. The other
eight patients showed stabilization of their disease. Three of these patients
had
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been stable for more than 10 months at the time the trial was concluded. The
response rate in this trial, which does not include patients with a minor
response or stable disease, was 12% and no adverse events were associated with
treatment with Oncophage. The median survival in this trial is 13 months.
While the analysis of immunological results is still ongoing, testing to date
shows that in four out of five patients who responded clinically, the number of
T cells increased after treatment with Oncophage. Further, in all patients who
responded clinically, the number of natural killer cells increased after
treatment with Oncophage.
In the phase I/II trial, clinical investigators found that Oncophage is
generally safe and well tolerated. Sixty-three percent of our patients received
more than one course of treatment with Oncophage.
We were able to prepare Oncophage successfully from approximately 98% of renal
cancer carcinoma samples we received at our manufacturing facility for this
phase I/II trial. Based on this result, we believe we will be able to
manufacture Oncophage for nearly all renal cell carcinoma patients whose tumors
a surgeon can remove.
Based on the results from our phase I/II clinical trial, we initiated a 60
patient phase II trial for patients with metastatic renal cell carcinoma at the
M.D. Anderson Cancer Center in March 1999. We completed enrollment for this
phase II trial in the first quarter of 2000. For this trial, we set the dose of
Oncophage at 25 micrograms, and patients received one dose once a week for four
weeks, followed by one dose every two weeks. Some patients also received an
injection of subcutaneous interleukin-2 if they had not had an adequate response
after three months of treatment with Oncophage. In an interim analysis, 35% of
the patients treated with Oncophage alone showed an improvement in the course of
the disease. This includes complete and partial responses in 10% of the patients
and stabilization of disease in an additional 25% of the patients. The addition
of IL-2 did not benefit patients. Based on the analysis of the results from the
phase I/II and phase II trials, we started a phase III trial for renal cell
carcinoma in June of 2000.
MELANOMA
Background. Melanoma is the most serious form of skin cancer. The American
Cancer Society estimates that doctors will diagnose about 51,400 new cases of
melanoma in the United States in 2001 and that the disease will kill
approximately 7,800 people during 2001. The incidence of melanoma is growing at
5-7% per year, which is substantially faster than the growth in incidence rates
of most other cancers. Oncologists treat advanced or metastatic melanoma, also
known as stage III or IV, with surgery, radiation therapy, immunotherapy, or
chemotherapy depending on the case. Approximately 20% of all melanoma patients
at the time of their first diagnosis have stage III or stage IV disease.
Existing treatments have not significantly improved overall survival of patients
with melanoma. The median survival of patients with stage III melanoma varies
widely according to published literature. At the M.D. Anderson Cancer Center,
the median survival of patients with late stage III melanoma is 24 months.
According to published literature, patients with stage IV melanoma have a median
survival of about seven months. Although oncologists use various treatment
options, the only FDA approved drug therapies for patients with metastatic
melanoma are high dose intravenous interleukin-2 and alpha interferon, another
human cytokine.
Our Clinical Program. We have treated 36 patients in a phase I/II clinical
trial, evaluating Oncophage as a treatment for late stage III and early stage IV
metastatic melanoma. Eighty-three percent of the patients in our trial were
previously treated with chemotherapy, radiotherapy, and alpha interferon. We are
conducting the trial with clinical investigators at the M.D. Anderson Cancer
Center. After surgery to remove a portion of the tumor, the clinical
investigators treated patients with 2.5 micrograms, 25 micrograms, or 100
micrograms of Oncophage.
In this trial, the clinical investigators treated 20 stage III and stage IV
patients in the adjuvant setting. This means that these patients had all of
their detectable melanoma tissue surgically removed before the clinical
investigators treated them with Oncophage. Nineteen out of 20 patients (95%) are
alive with a median follow-up of 14 months, and of those, 15 patients (75%) are
disease free.
In our melanoma trial, the clinical investigators also treated 16 stage III and
stage IV patients with "residual disease." These are patients who have had only
part of their disease surgically removed, leaving them with visible disease at
the time of Oncophage treatment. Eight of these 16 patients are alive with a
median follow-up of 14 months.
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To date, the trial has shown Oncophage to be generally safe and well tolerated
by patients. In addition, we have been able to successfully prepare Oncophage
from approximately 92% of melanoma samples we received at our manufacturing
facility for this phase I/II trial. Based on this result, we believe that we
will be able to manufacture our product for nearly all melanoma patients from
whom a surgeon can remove an adequate amount of tumor tissue.
In addition to our phase I/II trial at the M.D. Anderson Cancer Center, we have
completed enrollment in a planned 40 patient phase II trial for melanoma at the
Istituto dei Tumori in Milan, Italy. Clinical investigators have treated
patients in this trial with 5 or 50 micrograms of Oncophage. The purpose of this
trial is to confirm the route of administration of Oncophage.
COLORECTAL CANCER
Background. Colorectal cancer is cancer of the colon or rectum. The American
Cancer Society estimates that doctors will diagnose about 135,400 new cases of
colorectal cancer in the United States in 2001 and that this disease will kill
approximately 56,700 people during 2001.
For patients whose disease has not spread to other parts of the body, surgery
remains the most common treatment and can be curative in about two thirds of
these cases. For patients whose disease has metastasized to other parts of the
body, treatment options are limited, and the patients' prognosis is poor.
Patients with recurrence of advanced disease may have their metastatic lesions
removed by surgery. The median survival for these patients is approximately 12
months. Conventional cancer treatments such as chemotherapy and radiation have
shown limited benefit in treating colorectal cancer.
Our Clinical Program. We have completed enrollment of a 30 patient phase II
clinical trial evaluating Oncophage as a treatment for metastatic colorectal
cancer. We are conducting the trial at the Istituto dei Tumori. The clinical
investigators have treated patients with 2.5 micrograms, 25 micrograms or 100
micrograms of Oncophage after a surgeon removes the patients' metastatic tumors.
We are continuing to analyze the results from this trial. To date, the trial has
shown Oncophage to be generally safe and well tolerated by patients. In
addition, we have successfully prepared Oncophage from 100% of colorectal cancer
samples we received at our manufacturing facility for this trial. Based on this
result, we believe we will be able to manufacture our product for nearly all
colorectal cancer patients whose tumors a surgeon can remove.
GASTRIC CANCER
Background. Gastric cancer is cancer of the stomach. The American Cancer Society
estimates that doctors will diagnose about 21,700 new cases of gastric cancer in
the United States in 2001 and that the disease will kill approximately 12,800
people during 2001. The treatment options for gastric cancer are surgery,
chemotherapy, and radiation. Biological therapies are currently in clinical
trials. For patients with surgically removable tumors, improvements in surgical
techniques have led to increased survival. Despite these advances, as well as
the development of multi-drug chemotherapy regimens, the median survival for
patients with advanced gastric cancer, according to published research, is
approximately seven months.
Our Clinical Program. We are currently enrolling patients in a 30 patient phase
I/II clinical trial evaluating Oncophage as a treatment for metastatic gastric
cancer. We are conducting this trial with clinical investigators at the Johannes
Gutenberg-University Hospital in Mainz, Germany, Technical University of Munich
in Germany, and the Russian Oncology Research Center in Moscow, Russia.
After clinical investigators surgically remove a patient's tumor, the clinical
investigators treat the patient with 2.5 micrograms or 15 micrograms of
Oncophage. Although enrollment is still ongoing, to date, the trial has shown
Oncophage to be generally safe and well tolerated by patients. In addition, we
have been able to successfully prepare Oncophage from approximately 71% of
gastric cancer samples we received at our manufacturing facility for this trial.
Based on this result, we believe we will be able to manufacture our product for
the majority of gastric cancer patients whose tumors a surgeon can remove.
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PANCREATIC CANCER
Background. Pancreatic cancer is the fourth leading cause of cancer death in the
United States. The American Cancer Society estimates that doctors will diagnose
about 29,200 new cases of pancreatic cancer in the United States in 2001 and
that the disease will kill approximately 28,900 people during 2001.
The treatment options for pancreatic cancer are surgery and chemotherapy.
Doctors at the Memorial Sloan-Kettering Cancer Center report that patients who
have had tumors surgically removed have a median survival of 14 months. Doctors
treat patients with tumors that cannot be surgically removed, or resected, with
chemotherapy. The median survival time for patients with unresectable disease is
less than six months.
Our Clinical Program. In early 1999, we completed a pilot phase I clinical trial
evaluating Oncophage as a treatment for resectable pancreatic cancer. We
conducted the trial with clinical investigators at the Memorial Sloan-Kettering
Cancer Center and enrolled 15 patients. The clinical investigators treated five
of the 15 patients with five micrograms of Oncophage after doctors had removed
the patients' primary tumor.
Two out of five patients generated a T cell response to their tumor after
treatment with Oncophage.
One patient is alive and disease free for 33 months since surgery. A second
patient is alive with progressive disease 22 months since surgery. The three
remaining patients died 8, 17 and 36 months after surgery.
The trial showed Oncophage to be generally safe and well tolerated by patients.
We successfully prepared Oncophage from 5 of 15 pancreatic cancer samples we
received in our manufacturing facility. We were not able to prepare Oncophage
from the remaining tumor samples due to the presence of enzymes in the
pancreatic tissue that break down proteins, including heat shock proteins. Based
upon our process development advances, we have succeeded in manufacturing
Oncophage from three of three tumors received in our facility for a recently
expanded pancreatic cancer trial at Sloan-Kettering. This trial is a Phase I/II
study in which we will enroll five additional patients. The study will now
include feasibility and survival as the objectives.
NON-HODGKIN'S LYMPHOMA
Background. Non-Hodgkin's lymphoma is cancer that originates in lymph tissue.
The American Cancer Society estimates that doctors would diagnose about 56,200
new cases of non-Hodgkin's lymphoma in the United States in 2001 and that the
disease will kill approximately 26,300 people during 2001. Approximately 40% of
patients with non-Hodgkin's lymphoma have low grade indolent disease, which is a
slow growing, often fatal, lymphoma.
Doctors have traditionally treated patients with non-Hodgkin's lymphoma with
chemotherapy. Recently, the FDA approved one new antibody therapy for low grade
non-Hodgkin's lymphoma.
Our Clinical Program. We are enrolling patients in a 35 patient phase II
clinical trial evaluating Oncophage as a treatment for low grade indolent
non-Hodgkin's lymphoma. This trial is being conducted by clinical investigators
at the M.D. Anderson Cancer Center. We anticipate that the clinical
investigators will treat patients with 25 micrograms of Oncophage after a
surgeon removes the patients' tumor tissue.
SARCOMA
Background. Soft tissue sarcomas are cancerous tumors that can develop from fat,
muscle, nerve, joint, blood vessel, or deep skin tissues. The American Cancer
Society estimates that doctors will diagnose about 8,700 new cases of soft
tissue sarcomas in the United States in 2001 and that the disease will kill
approximately 4,400 people during 2001.
Doctors treat sarcoma with surgery, chemotherapy, or targeted radiotherapy. For
resectable disease, doctors perform surgery and administer chemotherapy or
targeted radiotherapy as follow up treatments. For unresectable disease, doctors
treat patients with a combination of chemotherapy and radiotherapy.
Our Clinical Program. We are conducting a 35 patient phase II clinical trial
evaluating Oncophage as a treatment for soft tissue sarcomas at Memorial
Sloan-Kettering Cancer Center and may expand it to include other sites. We
anticipate
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that the clinical investigators will treat patients with 25 micrograms of
Oncophage after a surgeon removes the patients' tumor tissue.
OTHER PRODUCTS FOR TREATMENT OF CANCER
In addition to Oncophage, we are currently researching several other autologous
cancer immunotherapeutics using different heat shock proteins, including
HSPPC-70, HSPPC-90, and HSPPC-56. These immunotherapeutics have demonstrated
efficacy in animal cancer models.
OUR PRODUCTS FOR TREATMENT OF INFECTIOUS DISEASES
Background. Infectious diseases are illnesses caused by microorganisms, or
pathogens, like viruses, bacteria, and parasites, and include HIV, tuberculosis,
hepatitis, genital herpes, and malaria. While doctors use antiviral agents and
antibiotics to treat a number of viral and bacterial diseases effectively,
medical professionals are concerned about the emergence of new strains of
pathogens that have developed resistance to all available drugs.
Our Approach. We designed our products for prevention and treatment of
infectious disease to activate antibody and/or cellular immune response,
depending on the target disease. Our products that stimulate antibody response
consist of QS-21 mixed with one or more antigens produced by the pathogen
causing the infection. Our products that stimulate cellular immune response
consist of heat shock proteins bound to peptides produced by the pathogen
causing the infection. Typically, a specific pathogen causes each infectious
disease. Consequently, our infectious disease products will be common to all
patients with a particular infection and will not be patient-specific. The
following section describes our development programs:
AG-701 FOR THE TREATMENT OF GENITAL HERPES
Background. Genital herpes is a contagious viral infection that affects an
estimated 45 million Americans. Doctors estimate that as many as 500,000 new
cases may occur each year in the United States. Genital herpes is currently
treated with palliative antiviral agents that reduce further replication of the
virus. The challenge of antiviral therapy lies not only in treatment of the
symptoms during the first and recurrent episodes but also in the long-term
suppression of the herpes virus in patients with frequent recurrences. We filed
an IND for this indication in December 2000, and the FDA has allowed us to
initiate clinical testing of our product, AG-701, in patients diagnosed with
genital herpes.
Our Approach. We currently produce Ag-701 by binding specific peptides with heat
shock proteins in vitro. We can generate the peptides in microorganisms or
produce them synthetically. This manufacturing procedure has enabled us to test
Ag-701 in preclinical studies and should enable us to produce sufficient
quantities to begin human clinical trials. Another technique to manufacture our
HSP vaccines for treatment of infectious diseases like genital herpes involves
purifying heat shock protein-peptide complexes from cells infected with the
target pathogen.
QUILVAX-FELV FOR THE PREVENTION OF FELINE LEUKEMIA
We have developed a recombinant subunit vaccine against the feline leukemia
virus. The product was approved in 1990 in the United States and in 1991 in
Europe. This product represents 100% of our current product sales. We
manufacture the product and sell it to Virbac, who markets it in Europe,
Australia, and Japan under the trademark Leucogen. Virbac has indicated that it
intends to market the product directly in the United States. Feline leukemia is
a highly contagious and commonly fatal disease of cats. Our product was the
first recombinant vaccine ever developed against a tumor-causing virus in
mammals. A patent covering Quilvax-FeLV has been issued in the United States and
in a number of other countries. We manufacture bulk formulated product for the
Australian markets and supply Virbac with bulk antigen and adjuvant for further
manufacture for the European and Japanese markets. The product is the leading
feline leukemia vaccine in Europe; and in an independent study conducted by the
University of Glasgow, Bearsden, it was found to be the most effective of three
leading feline leukemia vaccine products on the market.
QUILIMMUNE-P FOR THE PREVENTION OF PNEUMOCOCCAL INFECTIONS
Streptococcus pneumoniae infections in the elderly can cause serious disease.
There are approximately 35 million people over the age of 65 in the United
States and an additional 36 million adults with immune compromising conditions
who
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are at risk for developing disease caused by S. pneumoniae. There are over 80
recognized serotypes of pneumococci, each with varying geographic and age group
prevalence. We intend for Quilimmune-P to be used to prevent pneumococcal
infections in the elderly.
The commercially available vaccines against streptococcus pneumoniae are
under-utilized by the elderly. Reports in the medical literature and confirmed
in our own studies indicate that only 60-70% of healthy volunteers and 50-60% of
the elderly administered the current vaccine respond with a two-fold or greater
increase in the level of specific antibody.
We are initiating a phase I clinical trial of Quilimmune-P which contains QS-21
and a more immunogenic form of the bacterial antigens used in the commercial
vaccine. We believe that QS-21 will improve immune responses to the pneumococcal
antigens and thus provide protection against infection in a larger proportion of
patients.
QUILIMMUNE-M FOR THE CONTROL OF MALARIA
According to estimates in reports published by the World Health Organization,
approximately 2 billion people reside in malaria-infected areas. The yearly
incidence of malaria is estimated by the WHO at 300 to 500 million cases, with a
death toll of 1.5 to 3 million persons. While anti-malarial drugs have been in
use for decades, they are expensive and resistant malarial strains are becoming
increasingly common. The WHO has identified malaria as a priority vaccine target
in developing countries. We are involved in a number of vaccine programs that
combine QS-21 with specific malaria-related antigens. Collaborators include
GlaxoSmithKline and investigators at the Center for Disease Control and
Prevention, National Institute of Allergy and Infectious Disease and the
University of Hawaii.
OUR PRODUCTS FOR TREATMENT OF AUTOIMMUNE DISORDERS
Background. Autoimmune disorders result from an inappropriate immune response
that targets and destroys normal tissue. While researchers have not definitively
determined what triggers autoimmune responses, many believe that both genetic
and environmental factors are involved in this process. Several autoimmune
disorders, including diabetes and multiple sclerosis, result in the
proliferation of misdirected T cells that attack normal tissues. We believe that
a therapeutic product that can turn off misdirected T cell responses could treat
these disorders.
Our Approach. We have demonstrated in animal models that heat shock proteins
administered at higher doses than those required for treating cancer and
infectious diseases can turn off misguided T cells that destroy healthy tissue
in animals with some autoimmune disorders. We are currently researching the
application of heat shock proteins to treat autoimmune diseases like diabetes
and multiple sclerosis. The source of heat shock proteins we use in our
autoimmune disorders immunotherapeutic will be human cells. Our therapeutic
vaccine could also be made using recombinant DNA techniques.
CORPORATE PARTNER PROGRAMS
In addition to our internal product development programs, we have seven
corporate partners that have licensed our stimulon adjuvants for a variety of
human diseases: GlaxoSmithKline, P.L.C., Wyeth-Lederle Vaccines and Pediatrics,
Aventis Pasteur, Bristol-Myers-Squibb (Progenics Pharmaceuticals, Inc.), Vaxgen,
Inc., Elan Corporation, P.L.C. and Korea Green Cross Corporation. In return for
rights to use Stimulon adjuvant for specific diseases, the corporate partners
have agreed to pay us license fees, milestone payments, and royalties on product
sales. We have retained worldwide manufacturing rights for QS-21. In addition to
corporate partners, we have developed a number of academic collaborations to
test potential product formulations containing QS-21.
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PRODUCTS INDICATION STATUS
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CANCER
Leucogen Feline Leukemia Marketed
QS-21 Melanoma Phase III
INFECTIOUS DISEASES
gp120 HIV Phase III
QS-21 Hepatitis B Phase II
HIV Phase I/II
Genital herpes Phase I/II
Respiratory virus Phase I/II
Quilimmune-M Malaria Phase I/II
DEGENERATIVE DISORDERS
QS-21 Alzheimer's disease Phase I/II
GLAXOSMITHKLINE
GlaxoSmithKline, P.L.C. has licensed QS-21 for a number of different
applications. The world's leading manufacturer of Hepatitis B vaccine,
GlaxoSmithKline is aggressively marketing its existing portfolio of vaccines,
while developing new and improved products. GlaxoSmithKline has completed a
number of clinical trials of potential products containing QS-21 and is also
investigating the use of combinations of different adjuvants. GlaxoSmithKline
has announced plans to initiate a pediatric study of a malaria vaccine in The
Gambia.
GlaxoSmithKline has completed phase II studies of a therapeutic product for
treating people chronically infected with hepatitis B and initiated two phase
IIb studies in 2000. Phase I clinical studies of a therapeutic vaccine for
treating people with herpes infections have been completed.
WYETH-LEDERLE VACCINES AND PEDIATRICS
Wyeth-Lederle Vaccines and Pediatrics licensed QS-21 in 1992 for use in five
vaccines. Wyeth-Lederle has completed a phase I clinical trial using a product
formulated with QS-21. Wyeth has since reformulated this product and is planning
to initiate studies of the new formulation in 2000.
AVENTIS PASTEUR
Aventis Pasteur has licensed QS-21 for use in its HIV vaccine programs and has
completed a number of clinical trials with different antigens.
BRISTOL-MYERS SQUIBB
Bristol-Myers Squibb (Progenics Pharmaceuticals, Inc.) has licensed QS-21 for
use in certain therapeutic products for cancer including MGV, which contains
QS-21 and the gangliosides GD2 and GM1 along with GM2. This product is entering
phase II/III trials. Progenics expects that this product will be applicable to a
number of cancers, and it plans to initiate several trials to focus on different
cancers. We have licensed to Progenics the use of QS-21 in exchange for a
license fee, an equity interest in Progenics, and royalties; and we have a
supply agreement with Bristol-Myers Squibb.
VAXGEN, INC.
Vaxgen, Inc. (an early stage company whose major corporate shareholder is
Genentech, Inc.) has licensed QS-21 and the HIV protein gp120 for use in its
HIV-1 vaccine program. HIV gp120 is the antigen in Vaxgen's preventative AIDSVAX
vaccine for HIV, currently in two phase III trials in North America (5,400
volunteers) and Thailand (2,500 volunteers). VaxGen has conducted a number of
phase I clinical trials in healthy volunteers with a product formulated with
QS-21, under the auspices of the National Institutes of Health. Volunteers
received very low doses of gp120 antigen combined with QS-21 and/or alum. These
product formulations were well tolerated by patients and gave patients an
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immunogenicity equal to or better than the high dose gp120. A fourth trial based
on these product formulations was completed in 1999 that confirmed the early
data. Additional studies are being planned.
ELAN CORPORATION
Elan Corporation, p.l.c., through its wholly owned subsidiary, Neuralab Limited,
has licensed QS-21 for use with an antigen in the field of alzheimer's disease.
We receive fees and milestone payments plus royalties on future product sales. A
phase I clinical trial was initiated in the United States in late 1999 and was
completed this year. A second phase I trial was initiated in Europe in early
2000 to evaluate multiple immunizations of the product formulation.
KOREA GREEN CROSS CORPORATION
Korea Green Cross Corporation sublicensed Wyeth's rotavirus vaccine program that
includes rights to use QS-21 for this product. This program is in preclinical
development.
MANUFACTURING
We manufacture our vaccine products and adjuvants in a 30,225 square foot
manufacturing and research and development facility located in Woburn,
Massachusetts and a 41,000 square foot facility in Framingham, Massachusetts. We
are in the process of preparing the Woburn facility for the commercialization of
Oncophage.
ONCOPHAGE
Our process development group is currently working on improving the process by
which we manufacture heat shock protein-based therapeutic vaccines, including
Oncophage. Efforts in this area to date have resulted in a 50% reduction in the
time required to purify Oncophage from individual patients' tumors and a 40%
increase in the quantity of Oncophage we can produce from tumor tissue. These
efforts in our cancer program should also benefit preparation of our heat shock
protein-based therapeutic vaccines for treatment of infectious diseases.
QS-21
We currently manufacture QS-21 for commercial animal health use and for use in
human clinical trials. We have scaled the critical steps of the process to
produce a batch size suitable for large-scale commercial production up to
2,000,000 doses.
As part of each stimulon adjuvant licensing agreement, we have retained the
right to be the exclusive supplier of stimulon adjuvants. The license agreements
stipulate supply prices, within certain ranges. Pursuant to the license
agreements, we also will receive royalties on each licensee's product sales.
The FDA classifies QS-21 as a constituent material used in vaccine preparation.
As a result, the FDA does not require licensure of facilities used for the
manufacture of QS-21. We believe that this classification affords flexibility in
the timing of investment in commercial manufacturing facilities. After the
safety and effectiveness of QS-21 has been demonstrated, we expect to be in a
position to reasonably project the capital investment required and can adjust
the scale of manufacturing as additional products reach the market.
We also currently manufacture FeLV antigen and vaccine, which the USDA licensed
for sale in the United States in 1990 and for European sales in the European
Community in 1991. We produce commercial quantities at the 400 liter
fermentation scale.
SALES AND MARKETING
To commercially market our products once we obtain the necessary regulatory
approvals, we must either develop our own sales and marketing force or enter
into arrangements with third parties. Currently, our sales and marketing plans
consist of the following:
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- Commercialize cancer therapeutic vaccines in the United States through
our own sales force. Due to the concentration of the United States
oncology market, we believe that we can build a United States sales
force to market our cancer therapeutic vaccines.
- Maintain and continue to form collaborations with pharmaceutical
companies for commercializing cancer therapeutic vaccines outside the
United States. For example, we have entered into an agreement with
Sigma-Tau Industrie Farmaceutiche Riunite S.p.A., under which
Sigma-Tau has agreed to pay for two clinical trials in return for
rights that include an option to enter into an agreement to market
Oncophage in Italy, Spain, Portugal, and Switzerland. We have also
signed an agreement with Medison Pharma Ltd. for marketing Oncophage
in Israel.
- Maintain and continue to form collaborations with pharmaceutical
companies for infectious diseases and autoimmune and degenerative
disorders. The number of doctors and health care institutions
prescribing treatments for infectious diseases and other immune
disorders is large and fragmented, and we will need a large sales
force to effectively market our products. We have ongoing partnerships
with GlaxoSmithKline, Wyeth, Aventis Pasteur, Bristol Myers Squibb
(Progenics Pharmaceuticals), Elan Corporation, VaxGen and Korean
Green Cross.
OUR INTELLECTUAL PROPERTY PORTFOLIO
We devote significant resources to protecting and expanding our intellectual
property portfolio. We seek to protect our core technologies through a
combination of patents, trade secrets, and know-how. As a result of an exclusive
worldwide license with Fordham University and one with Mount Sinai School of
Medicine of New York University, we have exclusive rights to 30 issued United
States patents, and foreign counterpart patents and patent applications,
relating to our heat shock protein technology. Prior to directing the Center for
Immunotherapy of Cancer at the University of Connecticut, Dr. Srivastava, the
Chairman of our Scientific Advisory Board, was an assistant professor of
immunology at Mount Sinai School of Medicine, and, then, a professor of
immunology at Fordham University.
We also have licensed rights to 106 pending United States patent applications,
and corresponding foreign counterpart patents and applications, from Mount Sinai
School of Medicine of New York University, Fordham University, Duke University,
and the University of Miami. Under the license agreements with these
institutions, we have exclusive, worldwide rights to inventions using heat shock
proteins in the treatment and prevention of cancer, infectious diseases,
autoimmune disorders, and other indications. If we commercialize any of the
inventions, we will pay the licensors a royalty on sales of the commercialized
product. In addition, pursuant to a research agreement with the University of
Connecticut Health Center, we will fund the laboratory directed by Dr.
Srivastava at the University through December 31, 2002. The agreement calls for
payments to the University totaling a minimum of $5,000,000, payable in
quarterly installments of $250,000. In return, we have an option to obtain an
exclusive license to new inventions as that term is defined in the research
agreement, with the royalty rates and other terms to be determined by
negotiation between the parties. We also have an option to obtain an exclusive
license to certain types of "improvement" inventions as that term is defined in
the research agreement, at already-determined royalty rates, but with the other
terms to be determined by negotiation between the parties. We must exercise
these options within 180 days from the date of filing a United States patent
application on each such invention.
We also have exclusive rights to 31 issued and 59 pending United States and
foreign patents and patent applications, respectively, relating to our Saponin
and CD1 technology.
It is worth noting that:
- patent applications in the United States are currently maintained in
secrecy until patents are issued;
- patent applications in other countries generally are not published
until 18 months after they are first filed in any country;
- publication of technological developments in the scientific or patent
literature often lags behind the date of these developments; and
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- searches of prior art may not reveal all relevant prior inventions.
Although we have licensed 61 issued United States patents and 165 pending United
States patent applications, we cannot be certain that our licensors' inventors
were the first to invent the subject matter covered by these patents and patent
applications or that they were the first to file patent applications for those
inventions or that a court or patent authority will not determine that these
patent rights are invalid or unpatentable.
REGULATORY CONSIDERATIONS
Governmental authorities in the United States and other countries extensively
regulate the preclinical and clinical testing, manufacturing, labeling, storage,
record keeping, advertising, promotion, export, marketing and distribution,
among other things, of our therapeutic vaccines. In the United States, the FDA
under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act
and other federal statutes and regulations, subjects pharmaceutical products to
rigorous review. If we do not comply with applicable requirements we may be
fined, our products may be recalled or seized, our production may be totally or
partially suspended, the government may refuse to approve our marketing
applications or allow us to distribute our products, and we may be criminally
prosecuted. The FDA also has the authority to revoke previously granted
marketing authorizations.
In order to obtain approval of a new product from the FDA, we must, among other
requirements, submit proof of safety and efficacy as well as detailed
information on the manufacture and composition of the product. In most cases,
this proof entails extensive preclinical, clinical, and laboratory tests. This
testing, the preparation of necessary applications and the FDA's processing of
those applications are expensive and typically take several years to complete.
We cannot assure you that the FDA will act quickly or favorably in reviewing
these applications, and we may encounter significant difficulties or costs in
our efforts to obtain FDA approvals that could delay or preclude us from
marketing any products we may develop. The FDA may also require post-marketing
testing and surveillance to monitor the effects of approved products or place
conditions on any approvals that could restrict the commercial applications of
these products. Regulatory authorities may withdraw product approvals if we fail
to comply with regulatory standards or if we encounter problems following
initial marketing. With respect to patented products or technologies, delays
imposed by the governmental approval process may materially reduce the period
during which we will have the exclusive right to exploit them.
The first stage of the FDA approval process for a new biologic or drug involves
completion of preclinical studies and the submission of the results of these
studies to the FDA, together with proposed clinical protocols, manufacturing
information, analytical data and other information, in an investigational new
drug application, which must become effective before human clinical trials may
commence. The investigational new drug application is automatically effective 30
days after receipt by the FDA, unless the FDA before that time requests an
extension to review the application, or raises concerns or questions about the
conduct of the trials as outlined in the application. In the latter case, the
sponsor of the application and the FDA must resolve any outstanding concerns
before clinical trials can proceed. We cannot guarantee that submission of an
investigational new drug application will result in the FDA's authorizing us to
commence clinical trials in any given case.
Preclinical studies involve laboratory evaluation of product characteristics and
animal studies to assess the efficacy and safety of the product. The FDA
regulates preclinical studies under a series of regulations called the current
"Good Laboratory Practices" regulations. If the sponsor violates these
regulations, in some cases, the FDA may invalidate the studies and require that
the sponsor replicate those studies.
After the investigational new drug application becomes effective, a sponsor may
commence human clinical trials. The sponsor typically conducts human clinical
trials in three sequential phases, but the phases may overlap. In phase I
trials, the sponsor tests the product in a small number of patients or healthy
volunteers, primarily for safety at one or more doses. In phase II, in addition
to safety, the sponsor evaluates the efficacy of the product in a patient
population somewhat larger than phase I trials. Phase III trials typically
involve additional testing for safety and clinical efficacy in an expanded
population at geographically dispersed test sites. The sponsor must submit to
the FDA a clinical plan, or "protocol," accompanied by the approval of the
institution participating in the trials, prior to commencement of each clinical
trial. The FDA may order the temporary or permanent discontinuation of a
clinical trial at any time.
The sponsor must submit to the FDA the results of the preclinical and clinical
testing, together with, among other things, detailed information on the
manufacture and composition of the product, in the form of a new drug
application or, in the
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case of a biologic, a biologics license application. In a process which
generally takes several years, the FDA reviews this application and, when and if
it decides that adequate data is available to show that the new compound is both
safe and effective and that other applicable requirements have been met,
approves the drug or biologic for marketing. The amount of time taken for this
approval process is a function of a number of variables, including the quality
of the submission and studies presented, the potential contribution that the
compound will make in improving the treatment of the disease in question, and
the workload at the FDA. We cannot guarantee that any of our therapeutic
vaccines will successfully proceed through this approval process or that the FDA
will approve them in any specific period of time, or at all.
Congress enacted the Food and Drug Administration Modernization Act of 1997 in
part to ensure the availability of safe and effective drugs, biologics, and
medical devices by expediting the FDA review process for new products. The
Modernization Act establishes a statutory program for the approval of fast track
products, including biologics. A fast track product is defined as a new drug or
biologic intended for the treatment of a serious or life-threatening condition
that demonstrates the potential to address unmet medical needs for this
condition. Under the fast track program, the sponsor of a new drug or biologic
may request the FDA to designate the drug or biologic as a fast track product at
any time during the clinical development of the product.
The Modernization Act specifies that the FDA must determine if the product
qualifies for fast track designation within 60 days of receipt of the sponsor's
request. The FDA can base approval of a marketing application for a fast track
product on an effect on a clinical endpoint or on another endpoint that is
reasonably likely to predict clinical benefit. The FDA may subject approval of
an application for a fast track product to:
- post-approval studies to validate the surrogate endpoint or confirm
the effect on the clinical endpoint; and
- prior review of all promotional materials.
In addition, the FDA may withdraw its approval of a fast track product on a
number of grounds, including the sponsor's failure to conduct any required
post-approval study with due diligence.
If a preliminary review of the clinical data suggests that a fast track product
may be effective, the FDA may initiate review of sections of a marketing
application for a fast track product before the sponsor completes the
application. This rolling review is available if the applicant provides a
schedule for submission of remaining information and pays applicable user fees.
However, the time periods specified under the Prescription Drug User Fee Act
concerning timing goals to which the FDA has committed in reviewing an
application, do not begin until the sponsor submits the application.
We may request fast track designation for our therapeutic vaccines. We cannot
predict whether the FDA will grant that designation, nor can we predict the
ultimate impact, if any, of the fast track process on the timing or likelihood
of FDA approval of our therapeutic vaccines.
The FDA may, during its review of a new drug application or biologics license
application, ask for additional test data. If the FDA does ultimately approve
the product, it may require post-marketing testing, including potentially
expensive phase IV studies, and surveillance to monitor the safety and
effectiveness of the drug. In addition, the FDA may in some circumstances impose
restrictions on the use of the drug that may be difficult and expensive to
administer, and may require prior approval of promotional materials.
Before approving a new drug application or biologics license application, the
FDA will inspect the facilities at which the product is manufactured and will
not approve the product unless the manufacturing facilities are in compliance
with current Good Manufacturing Practices. In addition, the manufacture,
holding, and distribution of a product must be in compliance with current Good
Manufacturing Practices. Manufacturers must continue to expend time, money, and
effort in the area of production and quality control and record keeping and
reporting to ensure full compliance with those requirements. The labeling,
advertising, promotion, marketing, and distribution of a drug or biologic
product must be in compliance with FDA regulatory requirements. Failure to
comply with applicable requirements can lead to the FDA demanding that
production and shipment cease, and, in some cases, that the manufacturer recall
products, or to enforcement actions that can include seizures, injunctions, and
criminal prosecution. These failures can also lead to FDA withdrawal of approval
to market the product.
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We are also subject to regulation by the Occupational Safety and Health
Administration and the Environmental Protection Agency and to regulation under
the Toxic Substances Control Act, the Resource Conservation and Recovery Act and
other regulatory statutes, and may in the future be subject to other federal,
state or local regulations. Either or both OSHA and/or the EPA may promulgate
regulations that may affect our research and development programs. We are unable
to predict whether any agency will adopt any regulation which could have a
material adverse effect on our operations.
Sales of pharmaceutical products outside the United States are subject to
foreign regulatory requirements that vary widely from country to country.
Whether or not we have obtained FDA approval, we must obtain approval of a
product by comparable regulatory authorities of foreign countries prior to the
commencement of marketing the product in those countries. The time required to
obtain this approval may be longer or shorter than that required for FDA
approval. The foreign regulatory approval process includes all the risks
associated with FDA regulation set forth above as well as country-specific
regulations.
COMPETITION
Competition in the pharmaceutical and biotechnology industries is intense. Many
pharmaceutical or biotechnology companies have products on the market and are
actively engaged in the research and development of products for the treatment
of cancer, infectious diseases, and autoimmune disorders. In addition, many
competitors focus on immunotherapy as a treatment for cancer, infectious
diseases, and autoimmune disorders. In particular, some of these companies are
developing autologous cancer vaccines. Others are focusing on developing heat
shock protein products. We compete for funding, access to licenses, personnel,
and third-party collaborations. In addition, many competitors have substantially
greater financial, manufacturing, marketing, sales, distribution, and technical
resources, and more experience in research and development, clinical trials and
regulatory matters, than we do. A competing company developing, or acquiring
rights to, a more efficacious therapeutic product for the same diseases we
targeted, or one which offers significantly lower costs of treatment, could
render our products noncompetitive or obsolete.
Academic institutions, governmental agencies, and other public and private
research institutions conduct significant amounts of research in biotechnology,
medicinal chemistry, and pharmacology. These entities have become increasingly
active in seeking patent protection and licensing revenues for their research
results. They also compete with us in recruiting and retaining skilled
scientific talent.
We are aware of certain programs and products under development by others which
may compete with the our programs and products. Several companies, including
Cell Genesys Inc., Gilead Sciences Inc., Imclone Systems, Inc., Immunex
Corporation, Ligand Pharmaceuticals Incorporated and Vical Inc., have expertise
in immunology and/or are developing treatments for cancer based on modulation of
the immune system.
Merck Laboratories, Wyeth-Lederle, GlaxoSmithKline, Aventis Pasteur, and others
are in human clinical trials with conjugate pneumococcal vaccines and have
existing nonadjuvanted products on the market. The existence of products
developed by these and other competitors, or other products of which we are not
aware or which other companies may develop in the future, may adversely affect
the marketability of products we develop.
Certain of our corporate partners are also licensees of Coley, Corixa, and
Avant.
EMPLOYEES
As of February 15, 2001, we had 162 employees, of whom 23 have Ph.D.s and 2 have
M.D.s. Out of the 162 total, 46 are manufacturing and quality control staff, 42
are research and development staff, 16 are clinical affairs staff, 12 are
corporate executives, 10 are information technology staff, 10 are administrative
staff, 6 are finance staff, 6 are facilities staff, 5 are business and
technology development staff, 4 are regulatory affairs staff, 3 are human
resources staff, and 2 are project management staff. None of our employees are
subject to a collective bargaining agreement. We believe that we have good
relations with our employees.
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ITEM 1A. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information regarding our executive officers
and directors, including their age as of March 19, 2001:
NAME AGE TITLE
- -------- --- ------------
Garo H. Armen, Ph.D.............................. 48 Chairman of the Board and Chief Executive Officer
Pramod K. Srivastava, Ph.D....................... 46 Director, Chief Scientific Officer and Chairman of
Scientific Advisory Board
Gamil G. de Chadarevian.......................... 49 Vice Chairman of the Board, Executive Vice
President International
Elma Hawkins, Ph.D............................... 44 Vice Chairman
Russell H. Herndon............................... 42 Chief Operating Officer
Neal Gordon, Ph.D................................ 38 Vice President of Operations
Donald Panoz(1)(2)............................... 65 Director, Honorary Chairman
Noubar Afeyan, Ph.D.............................. 38 Director
Tom Dechaene(2).................................. 41 Director
Sanford M. Litvack(1)............................ 64 Director
Martin Taylor(1)(2).............................. 48 Director
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
GARO ARMEN, PH.D. co-founded Antigenics in 1994 and has been the Chairman of the
board and Chief Executive Officer since inception. Dr. Armen was previously a
Senior Vice President of Research for Dean Witter Reynolds, focusing on the
chemical and pharmaceutical industries. Dr. Armen has also served as an
Associate Professor at the Merchant Marine Academy and as a research associate
at the Brookhaven National Laboratory. He currently serves as a director of Elan
Corporation, Plc. and Color Kinetics Inc. and is managing general partner of
Armen Partner L.P. Dr. Armen received his Ph.D. degree in physical chemistry
from the City University of New York in 1979.
PRAMOD SRIVASTAVA, PH.D. co-founded Antigenics in 1994, has served as the
Chairman of the scientific advisory board since inception and is our Chief
Scientific Officer. Dr. Srivastava is the Director of the Center for
Immunotherapy of Cancer and Infectious Diseases at the University of
Connecticut. He has held positions at Fordham University and the Mount Sinai
School of Medicine. He performed his postdoctoral training at Yale University
and the Sloan-Kettering Institute for Cancer Research. Dr. Srivastava serves on
the Scientific Advisory Council of the Cancer Research Institute, New York, and
was a member of the Experimental Immunology Study Section of the National
Institutes of Health of the United States Government from 1994 until 1999. Dr.
Srivastava is a past recipient of the First Independent Research Support &
Transition Award of the National Institutes of Health (1987), the Irma T.
Hirschl Scholar Award (1988), the Investigator Award of the Cancer Research
Institute, New York (1991), the Mildred Scheel Lectureship (1994), and the Sigma
Tau Foundation Speakership (1996). In 1997, he was inducted into the Roll of
Honor of the International Union against Cancer and was listed in the Who's Who
in Science and Engineering. He is among the twenty founding members of the
Academy of Cancer Immunology. Dr. Srivastava earned his Ph.D. in Biochemistry
from the Centre for Cellular and Molecular Biology, Hyderabad, India. Dr.
Srivastava is a director of Ikonisys, Inc. and CambriaTech Holding S.A.
GAMIL DE CHADAREVIAN has served as Vice Chairman of the Board since 1995 and as
Executive Vice President International since 1998. Until April of 1998, he was
Managing Director of Special Projects at Alza International, responsible for
creating new business opportunities in Europe. From 1992 to 1993, Mr. de
Chadarevian was the Vice President of Corporate Development for Corange London
Limited. Prior to 1992, Mr. de Chadarevian held positions at Pasfin Servizi
Finanziara SpA, GEA Consulenza and Credit Suisse. He is also co-founder and
serves as an advisor to several private health care companies in the United
States and Europe. Mr. de Chadarevian is the co-founder and currently the Vice
Chairman of Ikonisys, Inc. and CambriaTech Holding S.A., which are privately
held companies. He also serves on the Advisory Board of Syntek Capital AG. Mr.
de Chadarevian received a Lic. Oec. Publ. Degree from the University of Zurich
in Switzerland.
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ELMA HAWKINS, PH.D. has served as our Vice Chairman since January 2001 and as
our Senior Vice President from August 1998 until January 2001. From July 1996
through August 1998, Dr. Hawkins served as our Chief Operating Officer. Prior to
her employment with us, Dr. Hawkins served in a number of senior positions at
Genzyme Corporation, including Director of Corporate Development. Dr. Hawkins
has also held positions in preclinical and clinical research at
Warner-Lambert/Parke-Davis and at the Center for the Study of Drug Development
at Tufts Medical School. Dr. Hawkins holds a Ph.D. in Medicinal Chemistry from
the University of Alabama and an M.B.A. from Boston University. Dr. Hawkins is a
director of Nalari Computing Corporation.
RUSSELL H. HERNDON has served as our Chief Operating Officer since January 2001.
Mr. Herndon was with Genzyme Corporation from 1989 through 2000, holding various
management positions including, most recently, President of the Genzyme Tissue
Repair Division and, from 1997 to 1999, Senior Vice President of Genzyme. During
his tenure at Genzyme, Mr. Herndon identified and organized major programs to
streamline and improve operations, implement cost reductions and flexibly and
efficiently expand production capacity. Mr. Herndon received a bachelor's degree
in biology from Barton College and attended Harvard Business School for its
Program in Management and Development.
NEAL GORDON, PH.D. has served as Vice President of Operations since May 1999.
Prior to this position he served as our Vice President Process Development from
July 1998. Previously, he was Senior Director of Chromatography R&D at
PerSeptive Biosystems, a division of PE Corp., formerly Perkin-Elmer
Corporation. Over his ten-year career at PerSeptive, Dr. Gordon was involved in
the development and application of innovative technologies for the purification
and analysis of biopolymers, most notably the development of the BioCAD
Chromatography Workstation. Dr. Gordon received his Ph.D. in biochemical
engineering from the Massachusetts Institute of Technology and a bachelors
degree in Chemical Engineering from McGill University.
DONALD PANOZ has been a director since 1995 and is the Honorary Chairman of the
board of directors. In 1969, Mr. Panoz founded Elan Corporation, Plc., a
pharmaceutical research and development company. Mr. Panoz was Chairman and
Chief Executive Officer of Elan Corporation from 1969 until his retirement in
1996. Mr. Panoz is currently a Lecturer of Pharmacy at the University of Georgia
and he is Chairman of the board of directors of Sicor Inc. In January 1995, Mr.
Panoz was named Honorary Irish Consul General to Bermuda. Mr. Panoz attended
Pittsburgh University and Duquesne University in Pennsylvania.
NOUBAR AFEYAN, PH.D. has been a director since 1998. Dr. Afeyan is Chairman and
CEO of NewcoGen Group, Managing Partner of AGTC Funds, and is a partner at
OneLiberty Ventures. Dr. Afeyan was Senior Vice President and Chief Business
Officer of Applera Corp. (formerly PE Corp.) until August 1999. Prior to its
acquisition by PE Corp., Dr. Afeyan was the Chairman and Chief Executive Officer
of PerSeptive Biosystems, a company that he founded in 1987 to develop,
manufacture and market instruments and chemical reagents used to purify, analyze
and synthesize biomolecules. Dr. Afeyan served as Chairman of the Board of
ChemGenics Pharmaceuticals, Inc. during 1996 and 1997. He is also a member of
the board of directors of EXACT Science Corp. and several private companies. Dr.
Afeyan received his undergraduate degree in Chemical Engineering from McGill
University and his Ph.D. in Biochemical Engineering from the Massachusetts
Institute of Technology.
TOM DECHAENE has been a director since 1999. Mr. Dechaene is currently the Chief
Financial Officer of SurfCast, Inc. He was with Deutsche Bank from 1991 through
1999, most recently as a director in the Principal Investments Group within the
Equity Capital Markets division. Mr. Dechaene is a director of Color Kinetics
Inc., and Ikonisys, Inc. Mr. Dechaene holds a law degree from Ghent University,
Belgium, a degree in Applied Economics from the University of Antwerp and an MBA
from INSEAD, France.
SANFORD M. LITVACK has been a director since March 2001. From 1994 until 1999,
Mr. Litvack held the position of senior executive vice president and chief of
corporate operations of The Walt Disney Company. Mr. Litvak also served on the
board of directors of The Walt Disney Company, most recently as vice chairman of
the board. Prior to joining Disney, Mr. Litvak was a member of the executive
committee and chairman of the litigation department of the law firm of Dewey
Ballantine. Mr. Litvack is currently a member of the board of directors of
Pacificare Health Systems, Inc. and Compaq Computer Corporation. Mr. Litvack
received a bachelor's degree from the University of Connecticut and a law degree
from Georgetown Law Center.
MARTIN TAYLOR has been a director since June 1999. From 1993 until 1998, Mr.
Taylor held the position of Chief Executive Officer of Barclays Bank PLC. Mr.
Taylor was a member of the Council for Science and Technology from 1995 to 2000
and, since November 1999, has been chairman of the W.H. Smith Group PLC. In
October 1999, he became an advisor to Goldman Sachs International. He is also a
member of the board of directors of Syngenta A.G. and RTL. Mr. Taylor was
educated at Balliol College, Oxford University.
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ITEM 2. PROPERTIES
We lease approximately 30,225 square feet of laboratory, office and
manufacturing space in Woburn, Massachusetts under a lease agreement that
terminates in August 2003. We have an option to renew the lease for an
additional five-year period with the landlord's consent. During 2000, we entered
into a short-term lease for 4,000 square feet of office space in an adjacent
building which expires in November 2001. We also lease approximately 41,000
square feet of laboratory, office and manufacturing space in Framingham,
Massachusetts under a lease agreement that terminates in July 2010. We have an
option to renew the lease for two additional five year periods. We maintain our
executive offices in New York, New York, in an office building in which we lease
approximately 10,000 square feet. Our New York lease terminates with respect to
2000 square feet in July 2004 and with respect to 8,000 square feet in December
2006.
ITEM 3. LEGAL PROCEEDINGS
In 1995, the European Patent Office issued a European patent, with claims
directed to the use of heat shock proteins to produce or enhance immune
responses to cancer and infectious diseases, to the Whitehead Institute for
Biomedical Research and the Medical Research Council. This patent is exclusively
licensed to StressGen Biotechnologies Corporation. We have successfully sought
to have this patent revoked in its entirety in an opposition proceeding in the
European Patent Office. After an oral hearing at the European Patent Office
before the Opposition Division, the Opposition Division revoked the patent in
its entirety. The holders of the patent have the right to appeal the decision to
revoke the patent in its entirety. Even if the decision to revoke the patent
were to be reversed on appeal, we should be free to practice its autologous
cancer business in Europe. However, the patent owners or their licensee might
try to enforce the revoked patent against our infectious disease business in
Europe during any appeal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to stockholders for a vote during the fourth quarter
of 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock has been traded on The Nasdaq National Market under the symbol
"AGEN" since February 4, 2000; prior to that date there was no public trading
market for the stock.
The following table sets forth the range of the high and low closing prices for
our common stock for the quarterly periods during which the stock has been
publicly traded:
HIGH LOW
-------- --------
2000
First Quarter.......................................... $ 71.500 $ 18.250
Second Quarter......................................... 22.500 10.000
Third Quarter.......................................... 21.750 12.563
Fourth Quarter......................................... 16.500 10.250
As of March 19, 2001, there were approximately 1,423 holders of record and
approximately 12,812 beneficial holders of our common stock.
On February 3, 2000, the Securities and Exchange Commission declared our
registration statement on Form S-1 (File No. 333-91747) effective in connection
with the initial public offering of our common stock.
On February 9, 2000, we sold 4,025,000 shares of our common stock (including the
underwriters' overallotment option) at $18 per share to the underwriters. We
received net proceeds in the initial public offering of approximately
$66,229,000 reflecting gross proceeds of $72,450,000 net of underwriter
commissions of approximately $5,071,500 and other offering costs of
approximately $1,149,500.
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We have used the following net offering proceeds as of December 31, 2000:
approximately $2,400,000 for fixed asset additions, $300,000 for investments,
$749,000 for debt obligations, $1,210,000 for acquisition costs and $13,184,000
for operations.
We have never paid cash dividends on our common stock and we do not anticipate
paying any cash dividends in the foreseeable future. We currently intend to
retain future earnings, if any, to fund the development of our business.
ITEM 6. SELECTED FINANCIAL DATA
We have derived the selected consolidated balance sheet data set forth below as
of December 31, 1999 and 2000, and the consolidated statement of operations data
for each of the years in the three-year period ended December 31, 2000, from our
audited consolidated financial statements included elsewhere in this filing. We
have derived the selected consolidated balance sheet data as of December 31,
1996, 1997, and 1998, and selected consolidated statement of operations data
from our audited consolidated financial statements, which are not included in
this filing. These consolidated financial statements have been audited by KPMG
LLP, independent certified public accountants.
You should read the selected consolidated financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financials statements and the notes to those
consolidated financial statements included elsewhere in this filing.
Prior to Antigenics converting to a corporation in February 2000, as a limited
liability company, no federal, state or local income taxes were levied on
Antigenics. Each member of the limited liability company was individually
responsible for reporting his share of our net income or loss on their personal
tax returns. As a result, Antigenics will not be able to offset future taxable
income, if any, against losses incurred prior to the closing of the conversion
to a corporation.
Given our history of incurring operating losses, management believes that it is
more likely than not that any deferred tax assets, net of deferred tax
liabilities, will not be realized. Therefore, there is no income tax benefit in
the financial statements for periods ended after February 2000 because of a loss
before income taxes and the need to recognize a valuation allowance on net
deferred tax assets.
Increases in cash and cash equivalents, total current assets, total assets and
stockholders' equity in the periods presented below include the effects of the
receipt of net proceeds from our equity offerings that totaled approximately
$7.6 million, $18.0 million, $41.1 million and $66.8 million in 1997, 1998, 1999
and 2000, respectively.
1996 1997 1998 1999 2000
-------- -------- -------- ---------- --------
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Revenue............................ $ -- $ -- $ -- $ -- $ 443
Operating expenses:
Cost of goods sold................ -- -- -- -- (363)
Research and development.......... (2,077) (2,725) (5,947) (11,377) (17,575)
General and administrative........ (1,800) (1,589) (3,693) (7,480) (9,190)
Acquired in-process research and
development...................... -- -- -- -- (25,800)(1)
-------- -------- -------- -------- --------
Loss from operations............... (3,877) (4,314) (9,640) (18,857) (52,485)
Interest income, net............... 281 481 736 723 5,756
Non-operating income............... 250 -- -- 10 --
-------- -------- -------- ---------- -------
Net loss(2)........................ $ (3,346) $ (3,833) $ (8,904) $(18,124) $(46,729)
======== ======== ======== ======== ========
Net loss per share, basic and
diluted........................... $ (0.23) $ (0.25) $ (0.54) $ (1.00) $ (1.90)
======== ======== ======== ======== ========
Weighted average number of
shares outstanding, basic and
diluted........................... 14,602 15,401 16,459 18,144 24,659
======== ======== ======== ======== ========
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-------- -------- -------- ---------- --------
1996 1997 1998 1999 2000
-------- -------- -------- ---------- --------
(in thousands)
BALANCE SHEET DATA:
Cash, cash equivalents and
marketable securities............. $ 9,588 $13,086 $22,168 $46,418 $99,139
Total current assets............... 9,639 13,246 22,447 47,672 101,593
Total assets....................... 10,041 14,090 26,636 56,004 127,966
Total current liabilities.......... 883 878 2,285 2,171 8,611
Long-term liabilities, less
current portion................... -- -- 709 2,155 2,651
Stockholders' equity............... 9,158 13,212 23,641 51,678 116,703
(1) We recorded a non-recurring charge to operations for the write-off of
in-process research and development acquired in our merger with Aquila
Biopharmaceutical Inc. in November 2000.
(2) Prior to our conversion from a limited liability company to a corporation in
February 2000, in accordance with federal, state and local income tax
regulations which provide that no income taxes are levied on United States
limited liability companies, each member of the limited liability company
was individually responsible for reporting his share of the company's net
income or loss. Accordingly, we have not provided for income taxes in our
financial statements for periods before February 2000. Given our history of
incurring operating losses, no income tax benefit is recognized in its
financial statements for periods after February 2000 because of a loss
before income taxes and the need to recognize a valuation allowance on net
deferred tax assets.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are currently developing treatments for cancers, serious infectious diseases,
and autoimmune and degenerative disorders using our proprietary technologies
that program the immune system and improve the quality of life. Since our
inception in March 1994, our activities have primarily been associated with the
development of our heat shock protein technology and our lead therapeutic
vaccine, Oncophage. Our business activities have included, product research and
development, intellectual property prosecution, establishing manufacturing
capabilities, manufacturing therapeutic vaccines for clinical trials, and
regulatory and clinical affairs.
During 2000 we completed our merger with Aquila Biopharmaceuticals, Inc. The
stock acquisition, accounted for using the purchase method of accounting,
resulted in the issuance of approximately 2.5 million shares of our common stock
based on an exchange ratio of 0.2898 shares of our stock for each outstanding
share of Aquila stock.
We have incurred significant losses since our inception and have first generated
revenues of $443,000 for the year ended December 31, 2000. As of December 31,
2000, we had an accumulated deficit of approximately $84,346,000. We expect to
continue to incur net losses over the next several years as we complete our
Oncophage clinical trials, apply for regulatory approvals, continue development
of our technology and expand our operations. We have been dependent on equity
and debt financings to fund our business activities. Our financial results may
vary depending on many factors, including:
- the progress of Oncophage in the regulatory process;
- the acceleration of other therapeutic vaccine candidates into
preclinical and clinical trials;
- our investment in manufacturing process development and in
manufacturing capacity for Oncophage and other product
candidates;
- development of a sales and marketing staff and initial sales
activities if Oncophage or other product candidates are
approved for commercialization; and
- the progress of our other research and development efforts.
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HISTORICAL RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
Revenue. Total revenues were $443,000 for the year ended December 31, 2000. We
had no revenues for the year ended December 31, 1999. The revenues in 2000
resulted from sales of product for the period from the date of the merger with
Aquila (November 16, 2000) to December 31, 2000.
Cost of Sales. Cost of sales was $363,000 for the year ended December 31, 2000.
We had no cost of sales for the year ended December 31, 1999. For the year ended
December 31, 2000, cost of sales was 82% of product sales.
Research and Development. Research and development expenses increased 54% to
$17,575,000 for the year ended December 31, 2000 from $11,377,000 for the year
ended 1999. The increase was primarily due to the increase in staff to support
the company's expanded research and development activities increasing costs by
$3,717,000. Costs of operating the manufacturing and research facility were
$1,017,000 higher in 2000 than for the year ended December 31, 1999, as were
costs associated with our clinical trials, which increased $621,000 over 1999.
The Aquila acquisition increased research costs by $586,000 for the year ended
December 31, 2000. Other increases in our ongoing development activities were
$974,000 higher than in 1999. These increases were partially offset by the
decrease in the non-cash charge for options granted and earned by outside
advisors, directors and employees from $1,814,000 for the year ended December
31, 1999 to $1,097,000 for the year ended December 31, 2000. Research and
development expenses consisted primarily of compensation for employees and
outside advisors conducting research and development work, funding paid to the
University of Connecticut, where we sponsor research, costs associated with the
operation of our manufacturing and laboratory facility and funding paid to
support Oncophage clinical trials.
General and Administrative. General and administrative expenses increased 23% to
$9,190,000 for the year ended December 31, 2000 from $7,480,000 for the year
ended December 31, 1999. The increase was primarily due to the growth in the
number of employees to support our expanded business operations which increased
costs by $771,000, legal expenses related to general corporate and patent
activities which were $662,000 higher for the year ended December 31, 2000 as
compared to the same period in 1999 and increased costs related to operating as
a public company which were $436,000 in 2000. The Aquila acquisition increased
general and administrative costs by $463,000 for the year ended December 31,
2000. These increases were partially offset by the decrease in the non-cash
charge for options granted and earned by outside advisors, directors and
employees to $1,368,000 for the year ended December 31, 2000 from $3,213,000 for
the year ended December 31, 1999. General and administrative expenses consisted
primarily of personnel compensation, office expenses and professional fees.
Acquired in-process Research and Development. Acquired in-process research and
development of $25,800,000 was a non-recurring, non-cash charge related to our
merger with Aquila. A component of the total purchase price of the merger
($44,819,000) was allocated to incomplete technology due to the early stage of
the acquired technologies under development but not yet technologically feasible
or commercialized and expensed at the acquisition date. The acquired in-process
research and development and related accounting is further described in note 3
to our consolidated financial statements included in this report.
Interest Income. Interest income increased 510% to $6,181,000 for the year ended
December 31, 2000 from $1,014,000 for the year ended December 1999. This
increase was principally attributable to a higher average cash and cash
equivalents balance during the year ended December 31, 2000 as compared to the
year ended December 31, 1999 as a result of the net proceeds of $38,922,000 from
a private equity financing completed in November 1999 and $66,229,000 from our
initial public offering completed in February 2000.
Interest Expense. Interest expense increased 46% to $425,000 for the year ended
December 31, 2000 from $291,000 for the year ended December 31, 1999 due to the
increased borrowings under a credit facility to partially fund the construction
of our manufacturing and laboratory facilities.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
Revenue. We generated no revenue during the year ended December 31, 1999 or
during the year ended December 31, 1998.
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Research and Development. Research and development expense increased 91% to
$11,377,000 for the year ended December 31, 1999 from $5,947,000 for the year
ended December 31, 1998. This increase was partially attributable to the
increase in the non-cash charge for options granted and earned by outside
advisors, directors and employees to $1,814,000 for the year ended December 31,
1999 from $314,000 for the year ended December 31, 1998. The remainder of the
increase was primarily due to the number of later stage Oncophage clinical
trials in process that increased costs by $1,055,000, an increase in staff to
support our expanded business activities that increased costs by $1,342,000,
increased depreciation expense of $619,000 related to our new 30,225 square foot
manufacturing and laboratory facility and related equipment, and other ongoing
development activities that increased costs by $914,000.
General and Administrative. General and administrative expenses increased 103%
to $7,480,000 for the year ended December 31, 1999 from $3,692,000 for the year
ended December 31, 1998. This increase was partially due to the increase in the
non-cash charge for options granted and earned by outside advisors, directors
and employees to $3,213,000 for the year ended December 31, 1999 from $795,000
for the year ended December 31, 1998. The remainder of the increase was
primarily due to the growth in the number of employees to support our expanded
business operations that increased costs by $595,000.
Interest Income. Interest income increased 37.8% to $1,014,000 for the year
ended December 31, 1999 from $736,000 for the year ended December 31, 1998. This
increase was principally attributable to a higher average cash and cash
equivalents balance during the year ended December 31, 1999 as compared to the
year ended December 31, 1998 due to a $28,000,000 private equity financing
completed in January 1999 and a $39,200,000 private equity financing completed
in November 1999.
Interest expense. Interest expense was $291,000 during the year ended December
31, 1999 due to borrowings under a credit facility to fund the construction of
our manufacturing and laboratory facility. We incurred no interest expense
during the year ended December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred annual operating losses since inception, and at December 31,
2000, we have incurred an accumulated deficit of $84,346,000, inclusive of
accumulated non-cash charges of $12,517,000 related to grants of stock options,
warrants and common stock grants and $25,800,000 of acquired in-process research
and development. Since our inception, we have financed our operations primarily
through the sale of equity, interest income earned on cash and cash equivalent
balances and debt provided through a credit line secured by some of our
manufacturing and laboratory assets. Most recently, we completed an initial
public offering that raised net proceeds of $66,229,000. From our inception
through December 31, 2000, we raised aggregate net proceeds of $146,075,000
through the sale of equity and the exercise of stock options and warrants, and
borrowed $3,481,000 under our $5,000,000 credit facility. We expect that we will
fund our capital expenditures and growing operations over the next two years
with current working capital. We may, however, raise money in the capital
markets. Our future capital requirements include, but are not limited to,
supporting our Oncophage clinical trial efforts and continuing our other
research and development programs. Satisfying our long-term liquidity needs will
require the successful commercialization of Oncophage or other products and may
require additional capital.
Our cash, cash equivalents and marketable securities at December 31, 2000 were
$99,139,000, an increase of $52,722,000 from December 31, 1999. During the year
ended December 31, 2000, we used cash primarily to finance operations, including
our Oncophage clinical trials.
Net cash used in operating activities for the year ended December 31, 1999 and
2000 was $13,457,000 and $15,134,000, respectively. The increase resulted from
the increase in our staff to support operations, our increased activity of
Oncophage clinical trials and general expansion of operations.
Net cash used in investing activities for the year ended December 31, 1999 and
2000 was $4,926,000 and $1,625,000, respectively. The investments were primarily
for the purchase of equipment, furniture and fixtures, and in 1999 the
construction of our manufacturing and laboratory facility, which was primarily
completed during the second quarter of 1999. During 1999, we partially financed
our new manufacturing and laboratory facility in Woburn, Massachusetts through
the $5,000,000 credit facility discussed below and available cash balances.
During the second quarter of 2000, for investment and strategic purposes, we
invested $300,000 to become a limited partner in a limited partnership which
25
27
will invest principally in companies that apply genomic technologies and
information in their offerings of products and services or that are engaged in
research and development and efforts involving genomic technologies with a view
to developing such products and services. Our total commitment to this limited
partnership is $3,000,000 with contributions made as authorized by the general
partner. During January 2001, we contributed an additional $225,000 to this
limited partnership. These uses of cash are partially offset by the cash
acquired in the Aquila merger of $2,527,000, net of acquisition costs of
$1,210,000.
Net cash provided by financing activities was $42,633,000 and $66,484,000 for
the year ended December 31, 1999 and 2000, respectively. Since inception, our
primary source of financing has been from equity investments. During the year
ended December 31, 1999 and 2000, sales of equity and, in 2000, exercises of
stock options and warrants, totaled approximately $41,134,000 and $67,390,000.
At December 31, 2000, we had outstanding $4,774,000 under our credit facilities,
which was used to finance the construction of the company's manufacturing and
laboratory facilities and to purchase related equipment. Loans that were drawn
down on the credit facilities are secured by specific assets, including
leasehold improvements, which they finance.
OTHER
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133, as amended, will be
effective for the company's fiscal year beginning January 1, 2001. The adoption
of SFAS No. 133 is not expected to have a material effect on our financial
position or results of operations.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" (FIN 44). FIN 44 provides
guidance on the accounting for stock-based compensation grants to employees and
directors. Generally, the Interpretation was applied prospectively beginning
July 1, 2000. The adoption of FIN 44 did not have a material effect on our
consolidated financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, we are exposed to fluctuations in interest
rates as we seek debt financing to make capital expenditures and invest in cash
equivalents and marketable debt securities. In addition, our investment in a
marketable equity security of a public company is subject to changes in the
market price of this stock. Our cash equivalents and other marketable
investments are carried at fair value on our consolidated balance sheets. We do
not employ specific strategies, such as the use of derivative instruments or
hedging to manage our interest rate or other exposures. Further, we do not
expect our market risk exposures to change in the near term.
The information below summarizes our market risks associated with debt
obligations as of December 31, 2000. Fair values included herein have been
estimated taking into consideration the nature and terms of each instrument and
the prevailing economic and market conditions at December 31, 2000. The table
presents cash flows by year of maturity and related interest rates based on the
terms of the debt.
YEAR OF MATURITY
ESTIMATED FAIR CARRYING AMOUNT ------------------------------------
VALUE DECEMBER 31, 2000 2001 2002 2003
-------------- ----------------- ---------- ---------- ----------
Long-term debt (1).............. $5,265,000 $4,978,000 $2,335,000 $2,449,000 $194,000
(1) Fixed interest rates from 13.449% to 15.084%
FACTORS AFFECTING FUTURE OPERATING RESULTS
Our future operating results could differ materially from the results described
above due to the risks and uncertainties described in exhibit 99.1 to this
Annual Report on Form 10-K.
26
28
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report..................................................................... 28
Consolidated Balance Sheets as of December 31, 1999 and 2000..................................... 29
Consolidated Statements of Operations for the years ended December 31, 1998, 1999 and 2000....... 30
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1999
and 2000...................................................................................... 31
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1999 and 2000....... 32
Notes to Consolidated Financial Statements....................................................... 33
27
29
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Antigenics Inc.:
We have audited the accompanying consolidated balance sheets of Antigenics Inc.
and subsidiary as of December 31, 1999 and 2000, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 2000. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Antigenics Inc. and
subsidiary as of December 31, 1999 and 2000 and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States of America.
/s/ KPMG LLP
Short Hills, New Jersey
February 20, 2001
28
30
ANTIGENICS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 2000
1999 2000
---- ----
ASSETS
Cash and cash equivalents............................................. $46,417,942 $96,142,726
Marketable securities................................................. -- 2,996,750
Accounts receivable................................................... 581,461 532,896
Inventories........................................................... -- 669,618
Prepaid expenses...................................................... 103,204 619,324
Deferred public offering costs........................................ 559,417 --
Other assets.......................................................... 9,673 631,095
Due from related party................................................ 240 376
----------- ----------
Total current assets............................................... 47,671,937 101,592,785
Plant and equipment, net.............................................. 8,034,598 14,640,281
Goodwill, net of accumulated amortization of $24,895.................. -- 2,962,472
Core and developed technology, net of accumulated
amortization of $51,667............................................ -- 6,148,333
Assembled workforce, net of accumulated amortization of $14,167....... -- 495,833
Other assets.......................................................... 297,646 2,125,996
------- ---------
Total assets.......................................................... $56,004,181 $127,965,700
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable...................................................... $424,673 $2,273,631
Accrued liabilities................................................... 933,440 4,002,983
Current portion, long-term debt....................................... 812,702 2,334,646
------- ---------
Total current liabilities.......................................... 2,170,815 8,611,260
Long-term debt........................................................ 2,155,005 2,642,869
Other long-term liabilities........................................... -- 8,090
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01 per share, 1,000,000
shares authorized; no shares issued and outstanding................ -- --
Common stock, par value $0.01 per share, 100,000,000
shares authorized; 20,715,942 and 27,316,295 shares issued
and outstanding at December 31, 1999 and 2000, respectively........ 207,159 273,162
Additional paid-in capital............................................ 89,747,036 202,253,314
Deferred compensation................................................. (659,081) (1,277,357)
Accumulated other comprehensive loss.................................. -- (199,711)
Accumulated deficit................................................... (37,616,753) (84,345,927)
------------ ------------
Total stockholders' equity............................................ 51,678,361 116,703,481
---------- -----------
Total liabilities and stockholders' equity............................ $56,004,181 $127,965,700
=========== ============
See accompanying notes to consolidated financial statements.
29
31
ANTIGENICS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
1998 1999 2000
---- ---- ----
Revenue ................................. $ -- $ -- $ 442,627
Expenses:
Cost of Sales ...................... -- -- (363,202)
------------ ------------ ------------
Research and development:
Related party .................. -- (33,000) (61,066)
Other .......................... (5,947,427) (11,343,856) (17,514,078)
------------ ------------ ------------
(5,947,427) (11,376,856) (17,575,144)
------------ ------------ ------------
General and administrative:
Related party ................. (211,152) (248,000) (207,457)
Other ......................... (3,481,231) (7,232,032) (8,982,150)
------------ ------------ ------------
(3,692,383) (7,480,032) (9,189,607)
------------ ------------ ------------
Acquired in-process research and
development ..................... -- -- (25,800,000)
------------ ------------ ------------
Total operating loss .................... (9,639,810) (18,856,888) (52,485,326)
Other income:
Non-operating income ................ -- 10,000 --
Interest income ..................... 735,778 1,014,008 6,180,798
Interest expense .................... -- (291,397) (424,646)
------------ ------------ ------------
Net loss ................................ $ (8,904,032) $(18,124,277) $(46,729,174)
============ ============ ============
Net loss per common share, basic and
diluted ................................. $ (0.54) $ (1.00) $ (1.90)
============ ============ ============
Weighted average number of common
shares outstanding, basic and diluted ... 16,458,985 18,143,966 24,658,802
============ ============ ============
See accompanying notes to consolidated financial statements.
30
32
ANTIGENICS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
Common Stock ADDITIONAL SUBSCRIPTION
Number of PAID-IN NOTES DEFERRED
Shares Par Value CAPITAL RECEIVABLE COMPENSATION
---------- --------- ------------ ------------- ------------
Balance at December 31, 1997 ........................ 16,060,025 $160,600 $ 24,029,244 $ -- $ (389,631)
Net loss ............................................ -- -- -- --
Deferred compensation on stock options .............. -- -- 493,701 -- (493,701)
Grant and recognition of stock options .............. -- -- 838,654 -- 269,787
Exercise of stock options ........................... 38,535 385 249,615 -- --
Issuance of common stock in private placement from
January 1, 1998 to December 31, 1998,
$11.17 per share ................................. 1,797,063 17,971 20,059,014 (2,102,000) --
---------- -------- ------------ ----------- -----------
Balance at December 31, 1998 ........................ 17,895,623 178,956 45,670,228 (2,102,000) (613,545)
Net loss ............................................ -- -- -- -- --
Payment of subscription notes receivable ............ -- -- -- 2,102,000 --
Deferred compensation on stock options .............. -- -- 354,009 -- (354,009)
Grant and recognition of stock options .............. -- -- 4,718,582 -- 308,473
Exercise of stock options ........................... 1,720 17 83 -- --
Issuance of common stock in private placement in
January 1999, $11.17 per share ................... 9,806 98 109,902 -- --
Issuance of common stock and warrants in private
placement on November 30, 1999, $13.96 per
share (net of issuance costs of $293,000) ........ 2,808,793 28,088 38,894,232 -- --
---------- -------- ------------ ----------- -----------
Balance at December 31, 1999 ........................ 20,715,942 207,159 89,747,036 -- (659,081)
Comprehensive loss
Net loss ......................................... -- -- -- -- --
Unrealized loss on marketable securities ......... -- -- -- -- --
Comprehensive loss ............................. -- -- -- -- --
Deferred compensation on stock options .............. -- -- 1,148,487 -- (1,148,487)
Grant and recognition of stock options and warrants . -- -- 1,935,606 -- 530,211
Exercise of stock options and warrants .............. 66,637 666 499,288 -- --
Issuance of common stock in initial public
offering on February 9, 2000, $18 per share
(net of issuance costs of $6,220,830) ............ 4,025,000 40,250 66,188,911 -- --
Issuance of common stock in merger on November
16, 2000, $15.98 per share ....................... 2,497,934 24,979 42,632,709 -- --
Shares issued under employee stock
purchase program ................................. 10,782 108 101,277 -- --
---------- -------- ------------ ----------- -----------
Balance at December 31, 2000 ........................ 27,316,295 $273,162 $202,253,314 $ -- $(1,277,357)
========== ======== ============ =========== ===========
ACCUMULATED
OTHER
COMPREHENSIVE ACCUMULATED
LOSS DEFICIT TOTAL
------------- ------------- -------------
Balance at December 31, 1997 ........................ $ -- $(10,588,444) $ 13,211,769
Net loss ............................................ -- (8,904,032) (8,904,032)
Deferred compensation on stock options .............. -- -- --
Grant and recognition of stock options .............. -- -- 1,108,441
Exercise of stock options ........................... -- -- 250,000
Issuance of common stock in private placement from
January 1, 1998 to December 31, 1998,
$11.17 per share ................................. -- -- 17,974,985
--------- ----------- -------------
Balance at December 31, 1998 ........................ -- (19,492,476) 23,641,163
Net loss ............................................ -- (18,124,277) (18,124,277)
Payment of subscription notes receivable ............ -- -- 2,102,000
Deferred compensation on stock options .............. -- -- --
Grant and recognition of stock options .............. -- -- 5,027,055
Exercise of stock options ........................... -- -- 100
Issuance of common stock in private placement in
January 1999, $11.17 per share ................... -- -- 110,000
Issuance of common stock and warrants in private
placement on November 30, 1999, $13.96 per
share (net of issuance costs of $293,000) ........ -- -- 38,922,320
------------ -------------
Balance at December 31, 1999 ........................ -- (37,616,753) 51,678,361
Comprehensive loss
Net loss ......................................... -- (46,729,174) (46,729,174)
Unrealized loss on marketable securities (199,711) -- (199,711)
-------------
Comprehensive loss ............................. -- -- $ (46,928,885)
-------------
Deferred compensation on stock options .............. -- -- --
Grant and recognition of stock options and warrants . -- -- 2,465,817
Exercise of stock options and warrants .............. -- -- 499,954
Issuance of common stock in initial public
offering on February 9, 2000, $18 per share
(net of issuance costs of $6,220,830) ............ -- -- 66,229,161
Issuance of common stock in merger on November
16, 2000, $15.98 per share ....................... -- -- 42,657,688
Shares issued under employee stock
purchase program ................................. -- -- 101,385
--------- ------------ -------------
Balance at December 31, 2000 ........................ $(199,711) $(84,345,927) $ 116,703,481
========= ============ =============
See accompanying notes to consolidated financial statements.
31
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ANTIGENICS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
1998 1999 2000
---- ---- ----
Cash flows from operating activities:
Net loss ....................................... $ (8,904,032) $(18,124,277) $(46,729,174)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization .................. 360,285 1,005,411 1,675,816
Stock options and warrants ..................... 1,108,441 5,027,055 2,465,817
Acquired in-process research and development ... -- -- 25,800,000
Changes in operating assets and
liabilities, excluding the effects of the
acquired company:
Other assets ................................... (28,885) (212,059) 152,800
Accounts receivable ............................ -- (581,461) (10,157)
Inventories .................................... -- -- 219,562
Prepaid assets ................................. (91,638) 127,428 (284,921)
Accounts payable ............................... 1,791,212 (1,612,141) 1,203,848
Accrued liabilities ............................ (522,735) 885,306 372,177
Due to/from related party, net ................. (89,263) 27,365 (136)
------------ ------------ ------------
Net cash used in operating activities .......... (6,376,615) (13,457,373) (15,134,368)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of plant and equipment ................ (3,704,168) (4,925,941) (2,641,852)
Investment in AGTC ............................. -- -- (300,000)
Net cash acquired in merger .................... -- -- 1,316,733
Proceeds from the sale of plant and equipment .. 27,942 -- --
------------ ------------ ------------
Net cash used in investing activities .......... (3,676,226) (4,925,941) (1,625,119)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from sale of equity ............... 17,974,985 41,134,320 66,788,578
Exercise of stock options and warrants ......... 250,000 100 499,954
Deferred public offering costs ................. -- (559,417) --
Employee stock purchase plan ................... -- -- 101,385
Payments of long-term debt ..................... -- (512,835) (905,646)
Proceeds from long-term debt ................... 909,503 2,571,039 --
------------ ------------ ------------
Net cash provided by financing activities: ..... 19,134,488 42,633,207 66,484,271
------------ ------------ ------------
Net increase in cash and cash
equivalents .................................... 9,081,647 24,249,893 49,724,784
Cash and cash equivalents at beginning of
period ......................................... 13,086,402 22,168,049 46,417,942
------------ ------------ ------------
Cash and cash equivalents at end of
period ......................................... $ 22,168,049 $ 46,417,942 $ 96,142,726
============ ============ ============
Supplemental cash flow information:
Cash paid for interest ......................... $ -- $ 291,397 $ 409,001
============ ============ ============
Non-cash investing and financing activities:
Sale of equity financed by notes receivable ... $ 2,102,000 $ -- $ --
============ ============ ============
Issuance of equity for Aquila
Biopharmaceuticals Inc. ........................ $ -- $ -- $ 42,657,688
============ ============ ============
See accompanying notes to consolidated financial statements.
32
34
ANTIGENICS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS
The business was formed on March 31, 1994 through the creation of a Delaware
corporation (the Predecessor Company). In July 1995, the founders of the
Predecessor Company formed Antigenics Inc., formerly, Antigenics L.L.C.
(Antigenics or the Company), a Delaware limited liability company, and
subsequently transferred to the Company all of the assets, liabilities,
properties and rights of the Delaware corporation in exchange for an initial
81.5% equity interest in the Company. The accounting for this recapitalization
was recorded at the Predecessor Company's historical cost.
Since the reorganization in 1995, the Predecessor Company has directly or
indirectly owned a majority of our common stock. As of December 31, 2000, the
Predecessor Company owns approximately 79% of a limited liability company that
in turn owns approximately 41% of our outstanding common stock. Certain of our
board members and executive officers own significant interests in these related
parties.
We are engaged in the discovery, development and commercialization of products
to prevent, treat or control cancers, serious infectious diseases, and
autoimmune and degenerative disorders using our proprietary technologies. We are
primarily engaged in the development of heat shock protein technology and our
lead immunotherapeutic product, Oncophage(R). The related business activities
include product research and development activities, regulatory and clinical
affairs, establishing manufacturing capabilities, production for clinical
trials, and administrative and corporate development activities.
We have incurred annual operating losses since inception and, as a result, at
December 31, 2000 have an accumulated deficit of approximately $84.3 million.
Prior to our acquisition of Aquila Biopharmaceutical Inc. ("Aquila") in the
fourth quarter of 2000 (see note 3), we were in the development stage. Our
operations have been funded principally by stockholders' equity. While we
believe that our working capital resources are sufficient to satisfy our
liquidity requirements over at least the next 12 months, satisfying our
long-term liquidity needs will require the successful commercialization of
Oncophage or other products and may require additional capital.
Our immunotherapeutics require clinical trials and approvals from regulatory
agencies as well as acceptance in the marketplace. We are conducting clinical
trials in various cancer indications. Although we believe our patents, patent
rights and patent applications are valid, the invalidation of our patents or
failure of certain of its pending patent applications to issue as patents could
have a material adverse effect upon our business. We compete with specialized
biotechnology companies, major pharmaceutical and chemical companies and
universities and research institutions. Many of these competitors have
substantially greater resources than we do.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation and Principles of Consolidation
The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of
America and include the accounts of Antigenics Inc. and our wholly-owned
subsidiary. All significant intercompany transactions and accounts have
been eliminated. Certain amounts in the prior year consolidated financial
statements have been reclassified to conform with the 2000 financial
statement presentation.
33
35
ANTIGENICS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(b) Segment Information
We are managed and operated as one business. The entire business is
managed by a single management team that reports to the chief executive
officer. We do not operate separate lines of business or separate
business entities with respect to any of our product candidates.
Accordingly, we do not prepare discrete financial information with
respect to separate product areas or by location and do not have
separately reportable segments as defined by SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information."
(c) Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
(d) Cash and Cash Equivalents
We consider all highly liquid investments purchased with maturities at
acquisition of three months or less to be cash equivalents. Cash
equivalents at December 31, 1999 and 2000 consist of investments in money
market accounts, commercial paper and short-term investments.
(e) Investments
We classify investments in marketable securities at the time of purchase.
At December 31, 2000, all marketable securities were classified as
available-for-sale.
Investments of less than 20% of the voting control of companies or other
entities over whose operating and financial policies the Company does not
have the power to exercise significant influence, are accounted for by
the cost method. Pursuant to this method, we record our investment at
cost and recognize dividends received as income. The carrying values of
investments are periodically reviewed to determine whether a decline in
value is other than temporary.
(f) Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk are primarily cash and cash equivalents,
investments and accounts receivable. Cash and cash equivalents are
restricted to financial institutions and corporations with high credit
standings. Credit risk on accounts receivable is minimized by the strong
financial position of the entities with whom we do business.
(g) Inventories
Inventories are stated at the lower of cost or market. Cost has been
determined using standard costs that approximate the first-in, first-out
method.
(h) Plant and Equipment
Plant and equipment, including software developed for internal use, are
carried at cost. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets. Amortization of leasehold
34
36
ANTIGENICS INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
improvements is computed over the shorter of the lease term or estimated
useful life of the asset. Additions and improvements are capitalized,
while repairs and maintenance are charged to expense as incurred.
(i) Organization Costs
Prior to 1999, organization costs, consisting primarily of legal fees,
were amortized using the straight-line method over a five-year period.
Effective January 1, 1999, the Company adopted the provisions of the
American Institute of Certified Public Accountants' Statement of Position
No. 98-5 (SOP 98-5), "Reporting on the Costs of Start-Up Activities". SOP
98-5 requires that the costs of start-up activities and organizational
costs be expensed as incurred and that previously capitalized
organizational costs be charged to operations. The adoption of SOP 98-5
had an immaterial effect on our 1999 financial statements.
(j) Long-Lived Assets
Our policy is to record long-lived assets at cost, amortizing these costs
over the expected useful lives of the related assets. These assets are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amounts of the assets may not be recoverable.
The assets are evaluated for continuing value and proper useful lives by
comparison to expected undiscounted future net cash flows. If such assets
are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed
the fair value of the assets, calculated as expected discounted future
cash flows. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
(k) Fair Value of Financial Instruments
The fair value of a financial instrument represents the amount at which
the instrument could be exchanged in a current transaction between
willing parties, other than in a forced sale or liquidation. Significant
differences can arise between the fair value and carrying amounts of
financial instruments that are recognized at historical cost amounts. The
estimated fair values of all of our financial instruments, excluding
debt, approximate their carrying amounts in the balance sheets. The fair
value of our long-term debt was derived by evaluating the nature and
terms of each term note and considering the prevailing economic and
market conditions at the balance sheet date. The carrying amount of debt,
including current portions, is approximately $2,968,000 and $4,978,000 at
December 31, 1999 and 2000, respectively; and the fair value is estimated
to be approximately $3,026,000 and $5,265,000 at December 31, 1999 and
2000, respectively.
(l) Intangibles
Intangibles arising from our acquisition of Aquila include core and
developed technology and assembled workforce. The purchased technology
and assembled workforce are amortized on a straight-line basis over their
estimated useful lives of ten and three years, respectively.
(m) Goodwill
The excess cost over the identifiable net assets of the acquired business
(goodwill) is amortized on a straight-line basis over ten years.
(n) Revenue Recognition
Revenue from product sales is recognized at the time of product shipment.
35
37
ANTIGENICS INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(o) Stock-Based Compensation
We account for options granted to employees and directors in accordance
with Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. As such,
compensation expense is recorded on fixed stock option grants only if the
current fair value of the underlying stock exceeds the exercise price of
the option at the date of grant and recognized on a straight-line basis
over the vesting period.
We account for stock options granted to non-employees on a fair value
basis in accordance with Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation" and Emerging
Issues Task Force Issue No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services". As a result, the non-cash charge to
operations for non-employee options with vesting or other performance
criteria is affected each reporting period by changes in the fair value
of our common stock.
As required, we also provide pro forma net loss and pro forma net loss
per common share disclosures for employee and director stock option
grants as if the fair-value-based method defined in SFAS No. 123 had been
applied (see note 10).
(p) Research and Development
Research and development expenses include the costs associated with our
internal research and development and research and development conducted
for us by outside advisors, sponsored university-based research partners,
and clinical study partners. All research and development costs discussed
above are expensed as incurred. Amounts received under research and
development contracts, which are not refundable, are recorded as a
reduction to research and development expense in the consolidated
statement of operations.
(q) Income Taxes
Prior to converting to a corporation, as a Delaware limited liability
company, no federal, state and local income taxes were levied on the
Company. Each member of the Company was individually responsible for
reporting his or her share of our net income or loss on their personal
tax returns. Therefore, no provision for income taxes and no deferred tax
assets or liabilities are recognized in the accompanying consolidated
financial statements for the years ending prior to December 31, 1999.
Beginning February 9, 2000, income taxes are accounted for under the
asset and liability method with deferred tax assets and liabilities
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be reversed or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in operations in the
period that includes the enactment date. Deferred tax assets are recorded
when they more likely than not are able to be realized.
(r) Net Loss Per Share
Basic earnings or loss per share (EPS) is computed using the weighted
average number of shares of common stock outstanding during the period
being reported on. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue shares were exercised or
converted into stock at the beginning of the period being reported on and
the effect was dilutive. Net loss and weighted average common stock used
for computing diluted EPS were the same as those used for computing basic
EPS for each of the years ended December 31, 1998, 1999 and 2000 because
our stock options and warrants were not included in the calculation since
the inclusion of
36
38
ANTIGENICS INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
such potential shares (approximately 1,690,000 potential shares of common
stock at December 31, 2000) would be antidilutive.
(s) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities",
which establishes accounting and reporting standards for derivative
instruments, including derivatives instruments embedded in other
contracts, and for hedging activities. SFAS No. 133, as amended, is
effective for all the Company's fiscal quarters beginning January 1,
2001. Adoption of this statement will not affect us as we currently do
not have derivative instruments or engage in hedging activities.
(3) MERGER AGREEMENT WITH AQUILA BIOPHARMACEUTICALS, INC.
On November 16, 2000, we acquired all of the outstanding common stock, options
and warrants of Aquila, a biotechnology company engaged in the discovery,
product development and commercialization of products to prevent, treat, or
control infectious diseases, autoimmune disorders and cancers. The results of
operations of Aquila have been included in the Company's consolidated financial
statements from the date of acquisition.
The purchase price of $44,819,000 is the sum of (i) $39,936,000 representing
approximately 2,498,000 shares of our common stock valued at approximately
$15.98 per share, which represents the average closing price per share of our
common stock for the five days before and after the announcement of the merger
on August 18, 2000, issued at an exchange ratio of 0.2898 shares of our common
stock for each of the 8,619,000 outstanding shares of Aquila stock as of
November 16, 2000 (the consummation date of the merger), (ii) $2,722,000
representing the fair value of Aquila options and warrants to acquire Aquila
stock which was vested upon the consummation of the merger and exchanged for
options and warrants to purchase 264,000 shares of our common stock and (iii) an
estimated $2,161,000 of our costs of the merger and the cost to sever the
employment of Aquila's president. The fair value of the Aquila options and
warrants has been calculated using an option pricing model with the following
weighted average assumptions: life of the options - 6 years; dividend yield -
nil; risk-free interest rate - 5.50%; price volatility - 74.0%.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, a portion of the purchase price was allocated to the identifiable
net assets acquired based on their estimated fair values. The fair value of the
tangible assets acquired and liabilities assumed were $14,628,000 and
$5,306,000, respectively. In addition, $25,800,000 of the purchase price was
allocated to in-process research and development projects as described below;
such amount was charged to operations at the date of acquisition. The balance of
the purchase price was allocated as follows: core and developed technology of
$6,200,000, assembled work force of $510,000 and goodwill of $2,987,000. Such
intangible assets will be amortized on a straight-line basis over their
estimated useful lives of ten years, three years and ten years, respectively.
The value of acquired in-process research and development related to this
acquisition represents the fair value of Aquila's products under development.
These products are associated with Aquila's proprietary core technologies --
the Stimulon family of adjuvants, including QS-21. The Stimulon family of
adjuvants allows scientists to design products that can activate specific
antibody and T cell responses with the objective of creating new, highly
effective vaccines for both therapeutic and prophylactic applications.
At the date of acquisition, none of the products under development by Aquila
that were included in our in-process research and development charge had
achieved technological feasibility and none were being sold on the market. There
still remained substantial risks and significant uncertainty concerning the
remaining course of technical development. We need to conduct extensive
additional research, preclinical and clinical testing of these products, and
obtain regulatory approval, prior to any commercialization. Because of the great
uncertainty associated with these issues and the remaining effort associated
with development of these products, the Aquila development projects had not
established technological feasibility at the acquisition date. Further, these
partially completed products had no alternative future uses at the valuation
date if the contemplated programs were to fail, as the technology was highly
specialized to the targeted products.
The value of the in-process research and development projects was determined
using an income approach which involves projecting the expected completion costs
for the development projects as well as projected cash flows resulting from
their commercialization. A risk adjusted discount rate of 60% has been utilized
for each specific product. Cash inflows from projects are estimated to begin
primarily in 2003 and 2004, the projected dates of product approvals. Gross
margins on products are estimated at levels consistent with industry
expectations.
The following table reflects unaudited pro forma combined results of operations
of the Company and Aquila as if the merger had occurred as of January 1, 1999:
1999 2000
---- ----
Revenue $ 2,068,000 $ 4,543,000
Net loss, before non-recurring charge $27,342,000 $26,916,000
Net loss, before non-recurring charge,
per common share, basic and diluted $ (1.32) $ (1.00)
=========== ===========
These unaudited pro forma combined results have been prepared for comparative
purposes only and include certain adjustments, such as additional amortization
expense as a result of the new basis in intangible assets and goodwill. These
unaudited pro forma combined results exclude the related acquired in-process
research and development charge of $25,800,000.
37
39
ANTIGENICS INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
They do not purport to be indicative of the results of operations which actually
would have occurred had the merger been consummated at the beginning of 1999, or
of future results of operations of the consolidated company.
(4) INVENTORIES
Inventories consist of the following at December 31, 2000:
Finished goods............................................................ $425,092
Work in process........................................................... 175,353
Raw materials and supplies................................................ 69,173
--------
$669,618
========
(5) INVESTMENTS
On May 18, 2000, we committed $3,000,000 to become a limited partner in a
limited partnership which will invest principally in companies that apply
genomic technologies and information in their offerings of products and services
or that are engaged in research and development and efforts involving genomic
technologies with a view to developing such products and services. Contributions
to the limited partnership are made as authorized by the general partner. As of
December 31, 2000, we have invested $300,000 and have included this amount in
non-current other assets. We account for this investment under the cost method.
The general partner of the limited partnership is AGTC Partners, L.P. and
NewcoGen Group Inc. is the general partner of AGTC Partners, L.P. Noubar Afeyan,
Ph.D., who is one of our directors, is the president of NewcoGen Group Inc. and
is also a principal of the limited partnership. In addition, Garo H. Armen,
Ph.D., our chief executive officer and one of our directors, is a director of
NewcoGen Group Inc.
Other non-current assets also include 22,500 shares of restricted common stock
of Progenics Pharmaceuticals, Inc. carried at its market price at December 31,
2000 of $388,000.
(6) PLANT AND EQUIPMENT, NET
Plant and equipment, net at December 31, 1999 and 2000 consists of the
following:
ESTIMATED
DEPRECIABLE
1999 2000 LIVES
---- ---- -----
Furniture, fixtures and other.......................... $575,989 $1,466,793 3 to 10 years
Laboratory and manufacturing equipment................. 2,915,053 7,542,560 3 to 10 years
Leasehold improvements................................. 5,901,213 8,043,508 2 to 12 years
Software............................................... -- 530,164 3 years
---------- -----------
9,392,255 17,583,025
Less accumulated depreciation and
amortization........................................... 1,357,657 2,942,744
---------- -----------
$8,034,598 $14,640,281
========== ===========
Plant and equipment retired and removed from the accounts aggregated $310,807
and $51,000 for the years ended December 31, 1999 and 2000, respectively.
38
40
ANTIGENICS INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(7) INCOME TAXES
As of December 31, 2000, we have available net operating loss carryforwards of
approximately $112,065,000 and $48,556,000, for federal and state income tax
purposes, respectively, which are available to offset future federal and state
taxable income, if any, and expire between 2001 and 2020, and 2001 and 2006,
respectively. These net operating loss carryforwards include approximately
$93,465,000 and $29,956,000 for federal and state income tax purposes,
respectively, acquired in our merger with Aquila. Our ability to use such net
operating losses may be limited by change in control provisions under Internal
Revenue Code Section 382 or may expire unused.
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities as of December 31, 2000
are presented below:
Net operating loss carryforwards $42,023,842
Start-up expenses 1,734,412
Other temporary differences 166,137
-----------
Sub-total 43,924,391
Less: valuation allowance (43,924,391)
-----------
Net deferred tax asset 0
===========
We have assessed the evidence relating to recoverability of the deferred tax
asset and have determined that it is more likely than not that the deferred tax
asset will not be realized due to the uncertainty of future earnings.
Accordingly, a valuation allowance has been established for the full amount of
the deferred tax asset. Of the deferred tax asset related to the federal and
state net operating loss carryforwards, approximately $436,000 relates to a tax
deduction for non-qualified stock options and approximately $33,815,000 relates
to Aquila net operating loss carryforwards. When the benefits from non-qualified
stock options are realized for tax purposes, additional paid-in capital will be
increased. In addition, if adjustments are made to the net operating loss
carryforward assets acquired from Aquila, such adjustments will result in
changes to our acquired intangible assets.
(8) ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1999 and
2000:
1999 2000
---- ----
Clinical trials.................................................... $399,897 $ 360,224
Professional fees.................................................. 170,000 642,660
Vacation........................................................... 59,551 197,547
Sponsored research................................................. 81,000 659,187
Severance.......................................................... -- 988,966
Other.............................................................. 222,992 1,154,399
-------- ----------
$933,440 $4,002,983
======== ==========
(9) EQUITY
Prior to our conversion to a corporation, we had one class of members' equity.
All members voted their equity interests in proportion to their respective unit
interest in the Company. Our net profits and losses for each fiscal year were
allocated to the capital accounts of the members as described in the limited
liability company agreement, generally in proportion to their respective unit
ownership interests. No members were liable for any of our obligations or were
required to contribute any additional capital related to the deficits incurred.
During 1997, we commenced a private placement offering, which resulted in
approximately 1,797,000 common shares being sold for approximately $20,077,000
during 1998. This offering was completed during early 1999 and resulted in an
aggregate of approximately $27,572,000 being received by us over the three-year
period.
39
41
ANTIGENICS INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Subscription notes receivable of $2,102,000 at December 31, 1998, which
represented promissory notes from members in consideration of their equity
contributions, were satisfied in full during 1999.
In November 1999, we raised gross proceeds of approximately $39.2 million from
the sale of approximately 2,809,000 common shares, inclusive of warrants,
through a private equity placement. In connection with the private placement, we
netted approximately $293,000 of expenses against the gross proceeds. Each
stockholder participating in this private placement received a warrant to
purchase an additional 10% of the shares acquired in that offering, rounded to
the nearest whole number, at a price of approximately $13.96 per share. The
warrants expire on September 30, 2002. Each stockholder participating in this
private placement also received registration rights.
On February 9, 2000, we completed the initial public offering (IPO) of 4,025,000
shares of common stock at $18 per share. We received gross proceeds of
$72,450,000 before deduction of offering expenses of approximately $6,221,000
(approximately $559,000 deferred at December 31, 1999). Concurrent with the
completion of the IPO, we converted from a limited liability company to a
corporation. All members of the limited liability company exchanged their
respective member interests for shares of common stock in the corporation based
on an exchange ratio of 172.0336 shares of common stock for each members' equity
unit. The consolidated financial statements have been retroactively restated to
reflect the change from a limited liability company to a corporation and the
exchange of members' equity units for common stock. In conjunction with such
conversion, our authorized capital stock consists of 100,000,000 shares of
common stock, $0.01 par value per share, and 1,000,000 shares of preferred
stock, $0.01 par value per share. Our board of directors is authorized to issue
the preferred stock and to set the voting, conversion and other rights.
During 2000 we issued warrants to purchase approximately 31,000 shares of our
common stock at a weighted average exercise price per share of $13.96 to outside
advisors. Compensation expense recognized with respect to such warrants totaled
$355,000.
We also assumed a warrant to purchase shares of our common stock in the Aquila
merger that will continue to be governed by the same terms and conditions as
were applicable to the Aquila warrant. The assumed warrant is exercisable for
approximately 18,000 shares of our common stock with an exercise price per share
of $14.22.
(10) STOCK- BASED COMPENSATION PLANS
In March 1996, the board of directors approved an equity-based incentive
compensation plan (the 1996 Plan). Pursuant to the provisions of the Plan, the
board of directors may grant options to directors, employees and outside
advisors to purchase our common stock. At the date of grant, the board of
directors sets the terms of the options including the exercise price and vesting
period. The options granted through December 31, 2000 have vesting periods
ranging up to five years. Options generally have a contractual life of ten
years. Options outstanding under our 1996 plan were exchanged for stock options
under the 1999 equity plan at the closing of the IPO.
In connection with the IPO, the board of directors approved an employee equity
incentive plan (the 1999 equity plan). The plan was approved by our stockholders
in May 2000. Our 1999 equity plan authorizes the grant of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, and nonqualified stock options for the purchase of an aggregate of
4,800,000 shares (subject to adjustment for stock splits and similar capital
changes) of common stock to employees and, in the case of non-qualified stock
options, to consultants and directors as defined in the equity plan. The board
of directors has appointed the compensation committee to administer the 1999
equity plan.
The following summarizes activity for options granted to directors and
employees, including those with an exercise price equal to the fair value of the
underlying shares of common stock at the date of grant ("at-the-money exercise
price"), those with an exercise price greater than the fair value of the
underlying share of common stock at the date of grant ("out-
40
42
ANTIGENICS INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
of-the-money exercise price"), and those with an exercise price less than the
fair value of the underlying share of common stock at the date of grant
("in-the-money exercise price"):
OPTIONS WEIGHTED WEIGHTED
EXERCISABLE AVERAGE AVERAGE
AT END OF GRANT-DATE EXERCISE
OPTIONS YEAR FAIR VALUE PRICE
------- ---- ---------- -----
Outstanding December 31, 1997................... 425,954 298,134
=======
Granted:
Out-of-the-money exercise price................. 26,493 $6.73 $11.17
In-the-money exercise price..................... 92,210 8.38 5.82
-------
Outstanding December 31, 1998................... 544,657 347,851
=======
Granted:
Out-of-the-money exercise price................. 254,609 6.25 12.07
In-the-money exercise price..................... 50,921 9.67 6.50
Expired......................................... (21,848) -- 7.10
--------
Outstanding December 31, 1999................... 828,339 500,101
=======
Granted:
In-the-money exercise price..................... 202,370 13.87 10.74
At-the-money exercise price..................... 561,322 8.91 12.91
Exercised....................................... (17,203) 0.70 1.45
Forfeited....................................... (113,066) -- 9.07
Aquila options.................................. 264,520 10.29 11.92
--------
Outstanding December 31, 2000................... 1,726,282 840,973
========= =======
During 1998, 1999 and 2000, 92,210, 50,921 and 202,370 options, respectively,
were granted to employees and directors at exercise prices, which were less than
the fair value of the shares of common stock on the grant date. Compensation
expense recognized with respect to such options totaled approximately $270,000,
$308,000, and $530,000 for the years ended December 31, 1998, 1999 and 2000,
respectively. Deferred compensation at December 31, 2000 of approximately
$1,277,000 will be recognized over the vesting period of the options.
The table above includes the options exchanged for Aquila options at the
consummation of the merger. Each exchanged option will continue to be governed
by the same terms and conditions of the applicable Aquila stock option plan that
were in effect immediately prior to the consummation of the merger, except that
each option will be exercisable for our common stock at an exchange ratio of
0.2898 and all outstanding options were immediately vested and exercisable.
41
43
ANTIGENICS INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following summarizes activity for options granted to outside advisors:
OPTIONS WEIGHTED WEIGHTED
EXERCISABLE AVERAGE AVERAGE
AT END OF GRANT-DATE EXERCISE
OPTIONS YEAR FAIR VALUE PRICE
------- ---- ---------- -----
Outstanding December 31, 1997................... 353,873 319,466
=======
Granted......................................... 191,817 $9.59 $3.19
Exercised....................................... (38,535) -- 1.45
-------
Outstanding December 31, 1998................... 507,155 306,735
=======
Granted......................................... 273,705 $9.38 $12.01
Exercised....................................... (1,720) -- 0.06
-------
Outstanding December 31, 1999................... 779,140 611,579
=======
Granted......................................... 115,925 $12.72 $13.44
Exercised....................................... (17,203) -- 1.45
-------
Outstanding December 31, 2000................... 877,862 820,194
======= =======
In December 1999, the board of directors accelerated the remaining vesting
requirements on 268,716 stock options granted to outside advisors. As a result,
the Company recognized a charge to operations in the fourth quarter of 1999 of
approximately $2,093,000.
The outstanding options as of December 31, 1997 exclude 88,941 options granted
to outside advisors with an exercise price which is determined based on the fair
value of the underlying shares of common stock beginning on the second
anniversary of the grant date as the options vest; 41,289 of these unvested
options were cancelled during the year ended December 31, 2000. Compensation
expense for these options is recognized when the exercise price becomes known
and performance has been completed. For the years ended December 31, 1998, and
1999 approximately $199,000, and $189,000 was charged to operations for 23,740,
and 23,912 of such options respectively, that vested with at an exercise price
of approximately $11.17 per share of common stock in each year.
The charge to operations related to options we granted to outside advisors,
including the amounts described in the two preceding paragraphs, totaled
approximately, $839,000, $4,719,000, and $1,936,000 for the years ended December
31, 1998, 1999, and 2000, respectively.
At December 31, 2000, unrecognized expense for options granted to outside
advisors for which performance (vesting) has not yet been completed but the
exercise price of the option is known is approximately $215,000; such amount is
subject to change each reporting period based upon changes in the fair value of
our common stock, estimated volatility and the risk free interest rate until the
outside advisor completes his or her performance under the option agreement.
42
44
ANTIGENICS INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A summary of the our options outstanding and exercisable, as of December 31,
2000, follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- ------------------------------
WEIGHTED AVE.
NUMBER REMAINING WEIGHTED AVE. NUMBER WEIGHTED AVE.
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
----------- ------------ -------------- ----------- --------------
$1.45 -$5.00 ............... 851,213 5.8 $1.77 830,569 $1.74
$5.01 - $10.00 ............. 352,089 6.9 7.37 208,509 7.92
$10.01 - $15.00 ............ 1,280,400 8.7 12.18 524,647 12.05
$15.01 - $20.00 ............ 159,111 7.3 16.51 136,111 16.22
$20.01 - $25.00 ............ 8,694 9.2 20.92 8,694 20.92
$25.01 - $30.01 ............ 289 3.1 25.47 289 25.47
--------- ---------
2,651,796 1,708,819
========= =========
Since the 1995 reorganization described in note 1, the Predecessor Company has
directly or indirectly owned a majority of our common stock. During 1996, the
Predecessor Company approved a stock option plan (the Predecessor Plan). In
accordance with generally accepted accounting principles, the Predecessor Plan
is accounted for as if it had been adopted by us and treated as a contribution
to stockholders' equity. Pursuant to the provisions of the Predecessor Plan, the
Predecessor Company may grant options to officers, directors, employees and
consultants to purchase common stock of the Predecessor Company. The terms of
the options, including exercise price and vesting period, are set at the date of
grant. The options have a contractual life of ten years and may not have an
exercise price less than the fair market value of a share of common stock of the
Predecessor Company at date of grant. A maximum of 300 options may be granted
under the Predecessor Plan.
During 1996, the Predecessor Company granted approximately 160 options to
directors and employees at a weighted average exercise price of $9,006 per share
of Predecessor Company common stock and a weighted average grant-date fair value
of approximately $4,301 per share. During 1997, the Predecessor company granted
approximately 14 options to a director at a weighted average grant-date fair
value of $16,407 per share. All the options are immediately vested and
exercisable. All of the options remain outstanding and none have been exercised.
No compensation expense was recognized by us during 1996 and 1997 as the
exercise price of the options is equal to the fair market value of the common
stock of the Predecessor Company at the date of the option grant.
During 1996, the Predecessor Company granted approximately 76 options to
consultants at a weighted average exercise price of $9,006 per share and a
weighted average grant-date fair value of approximately $5,535 per share. All of
the consultants' options are immediately vested and exercisable. All of the
consultants' options remain outstanding and none have been exercised. During
1996, we recognized a charge to operations related to options granted to
consultants by the Predecessor Company of approximately $421,000.
43
45
ANTIGENICS INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In connection with the IPO, the board of directors, and subsequently the
stockholders, approved an employee stock purchase plan. Under the plan,
employees may purchase shares of common stock at a discount from fair value.
There are 300,000 shares of common stock reserved for issuance under the
purchase plan. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code of
1986, as amended. Rights to purchase common stock under the purchase plan are
granted at the discretion of the compensation committee, which determines the
frequency and duration of individual offerings under the plan and the dates when
stock may be purchased. Eligible employees participate voluntarily and may
withdraw from any offering at any time before the stock is purchased.
Participation terminates automatically upon termination of employment. The
purchase price per share of common stock in an offering will not be less than
85% of the lesser of its fair value at the beginning of the offering period or
on the applicable exercise date and may be paid through payroll deductions,
periodic lump sum payments or a combination of both. The plan terminates on
November 15, 2009. As of December 31, 2000, 10,782 shares of common stock have
been issued under the plan.
We account for options granted to employees and directors and stock purchased in
our employee stock purchase plan under APB Opinion No. 25. Had compensation cost
for options granted to employees and directors by Antigenics and the Predecessor
Company and stock purchased by employees through our employee stock purchase
plan been determined consistent with the fair value method of SFAS No. 123, our
pro forma net loss and pro forma net loss per common share would have been as
follows:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 2000
---- ---- ----
Net loss:
As reported.......................................... $(8,904,032) $(18,124,277) $(46,729,174)
Pro forma............................................ (8,978,654) (19,097,345) (48,554,719)
============ ============ ============
Net loss per common share:
As reported.......................................... $(0.54) $(1.00) $(1.90)
Pro forma............................................ (0.55) (1.05) (1.97)
=========== =========== ===========
The effects of applying SFAS No. 123, for either recognizing or disclosing
compensation cost under such pronouncement, may not be representative of the
effects on reported net income or loss for future years. The fair value of each
option granted is estimated on the date of grant using an option-pricing model
with the following weighted average assumptions:
1998 1999 2000
---- ---- ----
Estimated volatility...................................................... 61% 54% 74%
Expected life in years -- employee and director options................... 6 6 6
Risk-free interest rate................................................... 5.4% 5.0% 5.3%
Dividend yield............................................................ 0% 0% 0%
Prior to our IPO, we estimated volatility for purposes of computing compensation
expense on outside advisor options and for disclosure purposes using the
volatility of public companies that we considered comparable. The expected life
used to estimate the fair value of outside advisor options is equal to the
contractual life of the option granted.
Pro forma compensation cost included in the table above for the fair value of
the employees' purchase rights was estimated using an option pricing model with
a 0% dividend yield, an expected life of 1 year, expected volatility of 74% and
a risk free interest rate of 5.3%.
(11) COMMITMENTS
In November 1994, the Predecessor Company entered into a Patent License
Agreement (Mount Sinai Agreement) with the Mount Sinai School of Medicine (Mount
Sinai). Through the Mount Sinai Agreement, we obtained the exclusive licenses to
the patent rights that resulted from the research and development performed by
Dr. Pramod Srivastava, one of our directors. Under the Mount Sinai Agreement, we
agreed to pay Mount Sinai a nominal royalty on related product
44
46
ANTIGENICS INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
sales (as defined in the Mount Sinai Agreement) through the last expiration date
of the patents under the Mount Sinai Agreement (2015). In addition to these
royalty payments, Mount Sinai was issued a nominal equity interest.
During 1995, Dr. Srivastava moved his research to Fordham University (Fordham).
The Predecessor Company entered into a Patent License Agreement (Fordham
Agreement) with Fordham, agreeing to reimburse Fordham for all approved costs
incurred in the performance of research. The Predecessor Company has also agreed
to pay Fordham a nominal royalty on related product sales, as defined, through
the last expiration date on the patents under the Fordham Agreement. This
agreement ended in mid-1997.
In February 1998, we entered into a research agreement with the University of
Connecticut Health Center (UConn) and Dr. Srivastava. The agreement has a term
of approximately five years and calls for payments to UConn totaling a minimum
of $5,000,000, payable quarterly at the rate of $250,000 (contingent on the
continuing employment of Dr. Srivastava by UConn). Research and development
expense in the accompanying 1998, 1999 and 2000 consolidated statements of
operations includes approximately $1,000,000 in each of the respective years of
costs incurred under the UConn agreement. Royalties at varying rates are due to
UConn upon commercialization of a product utilizing technology discovered during
the research agreement.
In 1996, we entered into an agreement with Sloan-Kettering Institute for Cancer
Research (Sloan Kettering) to conduct clinical studies. We are required to pay
Sloan Kettering $10,000 for administration and start up costs and $4,000 per
patient in the study.
On December 2, 1997, we entered into two agreements with The University of Texas
M.D. Anderson Cancer Center (M.D. Anderson) to conduct clinical studies. We are
required to pay M.D. Anderson a total of approximately $538,000 for expenses for
the clinical study of approximately 90 patients and other related costs payable
in four installments. In addition, on March 20, 1998 we entered into another
clinical study with M.D. Anderson. Under such 1998 agreement, we are required to
pay M.D. Anderson a total of approximately $118,000 for the study of 30 patients
and other related costs payable in four installments.
In 1998, we entered into an agreement with the Johannes Gutenberg Universitat
Mainz Klinikum (Universitat) to conduct additional clinical studies. We are
required to pay the Universitat approximately $279,000 for expenses for the
clinical study of approximately 30 patients. The first installment was paid upon
signing the agreement.
In 1998, we entered into an agreement, as amended, with Sigma-Tau Industrie
Farmaceutiche Riunite S.P.A (Sigma-Tau), a minority interest-holder of the
Company's common stock, to conduct clinical studies in Italy, Spain, Portugal
and Switzerland. Under the agreement, Sigma-Tau is required to pay us for
services provided by us in relation to these clinical studies. In return, we
have granted Sigma-Tau the exclusive right to negotiate a marketing and
development agreement (the Development Agreement) for the exclusive use of our
patent rights and their product, and the right of first offer to negotiate
licenses for other medical uses of their product, in Italy, Spain, Portugal and
Switzerland. The Development Agreement has not been finalized. During 1999, we
provided approximately $581,000 of services associated with this agreement and
included that amount in accounts receivable in the accompanying consolidated
balance sheet at December 31, 1999. This receivable amount was collected during
the year ended December 31, 2000. Amounts received under this agreement are
non-refundable even if the research effort is unsuccessful. In addition, we do
not incur any future performance commitments in relation to amounts recorded for
Sigma-Tau.
On June 21, 1999, we entered into another agreement with M.D. Anderson to
conduct clinical studies. We are required to pay M.D. Anderson a total of
approximately $277,000 for the clinical study of approximately 40 patients and
other related costs payable in installments over two years.
On February 11, and May 16, 2000 we entered into two additional research
agreements with M.D. Anderson to conduct clinical studies. We are required to
pay M.D. Anderson a total of approximately $358,000 for the clinical study of
45
47
ANTIGENICS INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
approximately 35 patients and a fee of $274,000 over the next year in three
installments. The first installments were paid upon signing the agreement.
For the years ended December 31, 1998, 1999 and 2000, approximately, $255,000,
$975,000 and $409,000, respectively, have been expensed in the accompanying
consolidated statements of operations related to the above-mentioned clinical
studies.
During August and December 2000, we entered into four research agreements with
educational institutions expiring between February 2001 and August 2002. These
agreements require initial payments totaling approximately $509,000 (of which
$388,000 was paid during the year ended December 31, 2000) and payments during
2001 of $391,000. At December 31, 2000, $222,000 is included in prepaid
expenses in the accompanying consolidated balance sheet related to these
agreements.
We have a comprehensive agreement with a corporate partner that allows the
partner to use our proprietary Stimulon adjuvant ("QS-21") in numerous vaccines
including hepatitis, lyme disease, human immunodeficiency virus (HIV), influenza
and malaria. The agreement grants exclusive worldwide rights in some fields of
use, and co-exclusive or non-exclusive rights in others. The agreement calls for
royalties to be paid by the partner on its future sales of licensed vaccines
that include our adjuvant and for us to manufacture QS-21 for the partner.
We have product development agreements and supply agreements with Virbac S.A.
and a supply agreement with the Virbac S.A.'s U.S. subsidiary that cover
collaboration on the development of products for feline immune deficiency virus
("FIV") and bovine mastitis and the supply of vaccine and adjuvant for feline
leukemia ("FeLV"). Sales related to shipment of this product were approximately
$352,000 for the year ended December 31, 2000.
In 1999 Aquila was awarded a grant from the National Institutes of Health (NIH)
to support the development of novel vaccines for tuberculosis based on the CD1
immune enhancement technology. During 2000, Aquila was awarded two additional
grants from the NIH for the development of novel vaccines for chlamydia and
staphaureus also based on the CD1 technology. All three grants expire at various
times during 2001. As of the date of the merger, $502,000 of funding was still
available under those grants. We did not recognize revenue for these grants for
the period from the date of the merger to December 31, 2000.
We entered into a license agreement with Neuralab Limited, a wholly owned
subsidiary of Elan Corporation, p.l.c., that grants exclusive, worldwide rights
to use its lead Stimulon adjuvant ("QS-21") with an undisclosed antigen in the
field of Alzheimer's Disease. We also signed a supply agreement for the
adjuvant.
In February 1999, Aquila received a letter from its predecessor, Cambridge
Biotechnology Corporation (CBC), alleging that we must indemnify CBC under a
Master Acquisition Agreement among Aquila, CBC and bioMarieux, Inc. for
potential losses from the termination of CBC's rights under a license
agreement. We have evaluated this claim and in the opinion of management, any
potential liability will not have a material adverse effect on our financial
position, liquidity, or results of operations.
(12) RELATED PARTY TRANSACTIONS
On August 24, 2000, we assumed the seven-year lease for our New York City
headquarters (see note 13) from an entity wholly owned by our chief executive
officer. The lease for the New York City headquarters was signed in November
1999; prior to such time, we rented the headquarter space on a month-to-month
basis from the same affiliate. Prior to 1999, we also utilized certain office
services of this same entity. No consideration was paid or received as a result
of our assumption of the lease. Rent and office services, which are recorded at
the affiliate's cost, were allocated to us based on square footage and clerical
staff usage, respectively, which management believes is reasonable. Such
transactions amounted to approximately $211,000, $281,000, and $268,000 for the
years ended December 31, 1998, 1999 and 2000, respectively. As of December 31,
1999 and 2000, the affiliated entity was indebted to us for $240 and $376,
respectively, for costs paid on the affiliated entity's behalf.
During 1997 and renewed each year thereafter, we obtained standby letters of
credit for the benefit of the related party in the amount of approximately
$297,000 and $78,000 in connection with the related party's lease of the New
York City office space expiring in January 2000 and 2001, respectively.
(13) LEASES
We lease administrative, laboratory and office facilities under various
long-term lease arrangements. Rent expense, exclusive of the amounts paid to the
affiliate (see note 12), was approximately $685,000, $560,000 and $979,000 for
the years ended December 31, 1998, 1999 and 2000, respectively.
46
48
ANTIGENICS INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The future minimum rental payments under our leases of our Woburn and
Framingham, Massachusetts manufacturing and laboratory facilities, which expire
in 2003 and 2010, respectively, and our New York City headquarters, which
expires in 2006, are as follows:
Year ending December 31:
2001...................................................... $ 1,705,088
2002...................................................... 1,648,750
2003...................................................... 1,507,180
2004...................................................... 1,227,484
2005...................................................... 1,227,484
Thereafter................................................ 4,240,284
-----------
$11,556,270
===========
In connection with the Framingham facility we maintain a fully collateralized
letter of credit of $756,000. No amounts have been drawn on the letter of credit
as of December 31, 2000.
(14) DEBT
We had a $5 million credit facility from a financial institution pursuant to
which the Company drew down amounts to make or refinance certain capital
expenditures. As we utilized the credit facility, separate term notes were
executed. Each term loan has a term of forty-two months and the interest rate is
fixed at the closing of each term loan (13.95% to 15.08%). Each loan is
collateralized by the equipment, fixtures, and improvements acquired with the
proceeds of the loan.
In connection with the merger of Aquila we assumed the liabilities of that
company, including debentures of approximately $204,000 with an interest rate of
7%. These debentures are callable and accordingly classified as part of our
short-term debt. We also assumed a term loan agreement with an outstanding
balance of $2,711,780 at the date of the merger. This loan calls for interest at
13 % with monthly repayments and a 10% balloon payment of $1,427,429 due at the
end of the loan term (2002). Collateral for the loan consists of equipment and
leasehold improvements.
The aggregate maturities of the term loans for each of the three years
subsequent to December 31, 2000 are as follows: 2001 -- $2,130,972; 2002 --
$2,448,801; 2003 -- $194,068.
(15) 401(K) PLAN
We sponsor a defined contribution 401(k) savings plan for all eligible
employees, as defined. Participants may contribute up to 15% of their
compensation, as defined, with a maximum of $10,500 in 2000. Each participant is
fully vested in his or her contributions and related earnings and losses. We
matched 100% of the participant's contribution and such matching contribution
vests over four years. For the years ended December 31, 1998, 1999, and 2000, we
charged approximately $55,000, $145,000 and $204,000 to operations for the
401(k) plan. Effective January 2001, we changed our matching contribution to 75%
of the participant's contribution.
47
49
ANTIGENICS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(16) QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
--------------------------------------------------------------
1999 MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
---------- --------- ------------- ------------
Net sales ................... $ -- $ -- $ -- $ --
Gross profit ................ -- -- -- --
Net loss .................... (3,630) (3,587) (4,267) (6,640)
Net loss per share, basic and
diluted ................... $ (0.20) $ (0.20) $ (0.24) $ (0.36)
THREE MONTHS ENDED
---------------------------------------------------------------
2000 MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
---------- ---------- ------------- ------------
Net sales ................... $ -- $ -- $ -- $ 443
Gross profit ................ -- -- -- 79
Net loss .................... (4,363) (4,846) (4,751) (32,769)
Net loss per share, basic and
diluted ................... $ (0.19) $ (0.20) $ (0.19) $ (1.32)
48
50
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A portion of the response to this item is contained under the caption "Directors
and Executive Officers of the Registrant" in Part I, Item 1A of this Annual
Report on Form 10-K.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Our executive officers and directors are required under Section 16(a) of the
Securities Exchange Act of 1934, as amended, to file reports of ownership and
changes in ownership of our securities with the Securities and Exchange
Commission. Copies of those reports must also be furnished to us.
Based solely on a review of the copies of reports furnished to us and written
representations that no other reports were required, we believe that during our
2000 fiscal year, our directors, executive officers and 10% beneficial owners
complied with all application Section 16(a) filing requirements except that (1)
a February 4, 2000 purchase of 1,000 shares of our common stock by Dr. Hawkins
was reported on a Statement of Changes in Beneficial Ownership on Form 4 after
the date on which the filing was required for the purchase and (2) a February 4,
2000 purchase of 1,000 shares of our common stock by Dr. Gordon's wife was
reported on a Statement of Changes in Beneficial Ownership on Form 4 after the
date on which the filing was required for the purchase.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF OUR EXECUTIVE OFFICERS
The following table summarizes the compensation paid to or earned during the
fiscal years ended December 31, 1998, 1999 and 2000 by our chief executive
officer and all of our other executive officers whose salary and bonus exceeded
$100,000. We refer to these persons as named executive officers.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SHARES
OTHER UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION
- --------------------------- ---- --------- -------- ---------- ------------
Garo H. Armen, Ph.D., Chief Executive Officer... 2000 $ 150,000 -- -- $ 350,000(1)
1999 $ 150,000 -- 254,682 $ 50,000(1)
1998 $ -- -- -- --
Elma Hawkins, Ph.D., Vice Chairman.............. 2000 $ 211,797 $40,000 63,374 --
1999 $ 200,000 $25,000 -- --
1998 $ 200,000 $20,000 -- --
Neal Gordon, Ph.D., Senior Vice President....... 2000 $ 156,011 $20,000 35,633 --
1999 $ 136,282 $20,000 9,634 --
1998 $ 52,272(2) $28,750 18,924 --
(1) Represents the premium we paid for an executive split-dollar life insurance
policy. Under this policy, under some circumstances, we would be entitled to
a refund of the premiums paid.
(2) Dr. Gordon commenced employment with us in July 1998.
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51
2000 OPTION GRANTS
The following table contains certain information regarding stock option grants
during the twelve months ended December 31, 2000 by us to the named executive
officers:
OPTION GRANTS IN LAST FISCAL YEAR
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS EXERCISE POTENTIAL REALIZABLE VALUE AT ASSUMED
UNDERLYING GRANTED TO OR BASE ANNUAL RATES OF STOCK PRICE
OPTIONS EMPLOYEES IN PRICE EXPIRATION APPRECIATION FOR OPTION TERM(1)
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 0%($) 5%($) 10%($)
- ----------------------------- ----------- ------------- --------- ---------- -------------------------------------
Garo H. Armen, Ph.D.,
Chief Executive Officer..... -- -- -- -- -- $ -- $ --
Elma Hawkins, Ph.D., Vice
Chairman.................... 1,000(2) 0.14% $ 13.50 2/10 $ 4,500 $ 15,821 $ 33,180
62,374(3) 8.55% $ 11.00 4/10 $ -- $431,494 $1,093,490
Neal Gordon, Ph.D.,
Senior Vice President....... 9,633(4) 1.32% $ 13.96 1/10 $ 38,918 $147,964 $ 315,263
1,000(5) 0.14% $ 13.50 2/10 $ 4,500 $ 15,821 $ 33,180
25,000(6) 3.43% $ 11.00 4/10 $ -- $172,947 $ 438,280
(1) The dollar amounts under these columns are the result of calculations at
rates set by the SEC and, therefore, are not intended to forecast possible
future appreciation, if any, in the price of the underlying common stock.
For options granted on or prior to February 4, 2000 (the first trading day
of our common stock) the potential realizable values are calculated on the
basis of our initial public offering price of $18.00. For options granted
on or after February 4, 2000, the potential realizable values are
calculated on the basis of the closing price of the stock on the trading
date immediately preceding the date on which the options are granted. For
purposes of calculating potential realizable values, we assume that the
market price appreciates from this price at the indicated rate for the
entire term of each option and that each option is exercised and sold on
the last day of its term at the appreciated price.
(2) This option became exercisable as to 100% of the underlying shares on
February 4, 2001.
(3) This option became exercisable as to 1.67% of the underlying shares on each
monthly anniversary of April 18, 2000 until March 28, 2001 and thereafter
becomes exercisable as to 1.67% of the underlying shares on April 28, 2001
and as to 20% of the underlying shares on each of April 18, 2002, 2003,
2004 and 2005.
(4) This option became exercisable as to 20% of the underlying shares on
January 31, 2001 and becomes exercisable as to 20% of the underlying shares
on each of January 3, 2002, 2003, 2004 and 2005.
(5) This option became exercisable as to 50% of the underlying shares on
February 4, 2001 and becomes exercisable as to 50% of the underlying
shares on February 4, 2002.
(6) This option becomes exercisable as to 20% of the underlying shares on each
of April 18, 2001, 2002, 2004 and 2005.
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52
OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table provides information about the number of shares issued upon
option exercises by the named executive officers during the year ended December
31, 2000, and the value realized by the named executive officers. The table also
provides information about the number and value of options held by the named
executive officers at December 31, 2000.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL FISCAL
SHARES YEAR-END(#) YEAR END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
Garo H. Armen, Ph.D., --
Chief Executive Officer..... -- 191,717 114,574 $ 496,101 $ --
Elma Hawkins, Ph.D., Vice --
Chairman.................... -- 145,942 55,058 $1,323,450 $ 3,379
Neal Gordon, Ph.D., Vice --
President of Operations..... -- 9,495 54,694 $ 43,231 $ 88,528
(1) Based on the difference between the option exercise price and the closing
price of the underlying shares of common stock on the last trading day of
the year 2000 as reported on the Nasdaq National Market ($11.0625).
EMPLOYMENT AND CONSULTING AGREEMENTS
Under an employment agreement dated June 1, 1998, we agreed to employ Elma
Hawkins, Ph.D. for one year at an annual base salary of $200,000, which is
subject to performance and merit based increases. The agreement is automatically
renewed for successive one-year periods unless either party terminates the
agreement. If we terminate Dr. Hawkins without cause, as that term is defined in
the agreement, she is entitled to her base salary through the end of the
one-year term during which the termination occurs. If we terminate Dr. Hawkins
either because we eliminate her position or because there is a change in control
of Antigenics, we are obligated to pay her cash or stock equal to one year's
base salary.
In March 1995, in exchange for Dr. Pramod Srivastava's consulting services, we
agreed to pay him $1,500 per day for up to three days per month. This obligation
expires in March 2005 but will be automatically extended for additional one-year
periods unless either we or Dr. Srivastava decides not to extend the agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to our conversion from a limited liability company in February 2000, a
compensation committee consisting of Messrs. Afeyan and Edward Brodsky, a former
director, reviewed salaries and incentive compensation for our employees and
consultants. The compensation committee of the board of directors currently
consists of Messrs. Taylor, Panoz and Litvack. Although none of the compensation
committee members are officers or employees of Antigenics, each of Garo Armen,
the company's chairman and chief executive officer, and Gamil de Chadarevian,
the company's vice chairman and executive vice president international, have
previously participated in compensation discussions with the committee.
Mr. Afeyan was a member of Antigenic's compensation committee until September
2000. Dr. Armen is a member of the board of directors of NewcoGen Group Inc. of
which Mr. Afeyan is chairman and chief executive officer.
DIRECTOR COMPENSATION
We reimburse directors for out-of-pocket and travel expenses incurred while
attending board of director and committee meetings. We have generally granted to
each non-employee director options to purchase 17,203 shares when that director
has joined our board.
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53
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of our stock as of March 15, 2001:
- each person, or group of affiliated persons, who is known by
Antigenics to beneficially own more than 5% of the common stock;
- each of its directors;
- each of its named executive officers; and
- all of its directors and current executive officers as a group.
Except as otherwise noted, the persons or entities in this table have sole
voting and investing power with respect to all the shares of common stock
beneficially owned by them, subject to community property laws, where
applicable.
The "Number of Shares Beneficially Owned" column below is based on an assumed
27,448,353 shares of Antigenics stock outstanding as of March 19, 2001. For
purposes of the table below, Antigenics deems shares of Antigenics stock subject
to options that are currently exercisable or exercisable within 60 days of March
19, 2001, to be outstanding and to be beneficially owned by the person holding
the options for the purpose of computing the percentage ownership of the person,
but does not treat them as outstanding for the purpose of computing the
percentage ownership of any other person.
NUMBER OF SHARES PERCENTAGE
BENEFICIAL OWNER(1) BENEFICIALLY OWNED OF TOTAL
- -------------------- ------------------ ----------
Antigenics Holdings L.L.C............................................. 11,154,274 (2) 40.1%
Garo H. Armen, Ph.D................................................... 345,272(3) 1.2%
Pramod K. Srivastava, Ph.D............................................ 182,477(4) *
Gamil G. de Chadarevian............................................... 1,649,290(5) 6.0%
Elma Hawkins, Ph.D.................................................... 154,808(6) *
Russell H. Herndon, Ph.D.............................................. -- --
Neal Gordon, Ph.D..................................................... 19,848(7) *
Donald Panoz.......................................................... 270,612(8) 1.0%
Noubar Afeyan, Ph.D................................................... 169,291(9) *
Tom Dechaene.......................................................... 5,734(4) *
Martin Taylor......................................................... 60,370(10) *
Sanford Litvack....................................................... 3,000 *
All current executive officers and directors as a group (11
persons).............................................................. 2,860,702(11) 10.4%
* Indicates less than 1%
(1) The address of each stockholder is Antigenics Inc., 630 Fifth Avenue, New
York, New York 10111.
(2) Founder Holdings Inc. owns approximately 79% of the outstanding members
equity of Antigenics Holdings. Antigenics Holdings owns 40% of our stock.
Drs. Armen and Srivastava are managers of Antigenics Holdings. Dr. Armen
is a director of Founder Holdings. The following individuals beneficially
own the indicated percentages of Founder Holdings outstanding common
stock:
INDIVIDUAL PERCENTAGE
---------- ----------
Garo Armen, Ph.D............................................ 43.1%.
Pramod Srivastava, Ph.D..................................... 24.2%.
Noubar Afeyan, Ph.D......................................... 1.1%.
Lawrence Feinberg........................................... 22.1%.
The following individuals own the indicated percentage interests in
Antigenics Holdings:
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54
INDIVIDUAL PERCENTAGE
---------- ----------
Garo Armen, Ph.D............................................. 13.6%.
Pramod Srivastava, Ph.D...................................... 6.2%.
(3) Includes (a) 91,268 shares of our stock held by Armen Partners L.P., of
which Dr. Armen is general partner, and (b) 249,004 shares of our stock
issuable upon exercise of options currently exercisable or exercisable
within 60 days of March 19, 2001. Dr. Armen disclaims beneficial ownership
of the shares held by Armen Partners L.P. except to the extent of his
pecuniary interest therein.
(4) Consists solely of shares of our stock issuable upon exercise of options
currently exercisable or exercisable within 60 days of March 19, 2001.
(5) Includes (a) 1,479,488 shares of our stock held by Biovision, Inc., a
corporation of which Mr. de Chadarevian is the sole stockholder and (b)
144,802 shares of our stock issuable upon exercise of options currently
exercisable or exercisable within 60 days of March 19, 2001.
(6) Includes 153,808 shares of our stock issuable upon exercise of options
currently exercisable or exercisable within 60 days of March 19, 2001.
(7) Includes 18,848 shares of our stock issuable upon exercise of options
currently exercisable or exercisable within 60 days of March 19, 2001 and
1,000 shares of our stock owned by Mr. Gordon's wife.
(8) Consists of (a) 17,203 shares of our stock issuable upon exercise of
options currently exercisable or exercisable within 60 days of March 19,
2001 and (b) 253,409 shares of our stock held by Fountainhead Holdings
Ltd., all of the capital stock of which is held by trusts, the
beneficiaries of which are the children and grandchildren of Mr. Panoz.
(9) Includes 164,291 shares of our stock issuable upon exercise of options
currently exercisable or exercisable within 60 days of March 19, 2001.
(10) Includes 23,212 shares of our stock issuable upon exercise of options and
a warrant currently exercisable or exercisable within 60 days of March 19,
2001.
(11) Includes 953,645 shares of our stock issuable upon exercise of options and
a warrant currently exercisable or exercisable within 60 days of March 19,
2001 and excludes the shares held by Antigenics Holdings as described in
footnote (2). See footnotes (3), (4), (5), (6), (7), (8), (9) and (10).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From our inception until August 2000, we subleased office space at cost from GHA
Management Corporation which is wholly owned by Dr. Armen. Dr. Armen is our
chairman and chief executive officer, and we used the office space for our
corporate headquarters. We incurred an expense of approximately $211,000,
$281,000 and $268,000 for the years ended December 31, 1998, 1999 and 2000,
respectively. We believe that the terms of the sublease were at least as
favorable as terms we could have obtained in an arm's length transaction with an
independent third party. GHA Management assigned its lease with the RCPI Trust
to us in August 2000 and we will continue to use the office space for our
corporate headquarters. As of December 31, 2000, we had outstanding a letter of
credit for the benefit of GHA Management Corporation in connection with this
lease in the amount of approximately $78,000. The letter of credit expires in
January 2001.
On May 18, 2000, we became a limited partner of the Applied Genomic Technology
Capital Fund, L.P., referred to as the Capital Fund, and committed to invest
$3,000,000 in the Capital Fund. As of December 31, 2000, we had invested
$300,000 in the Capital Fund and future contributions to the Capital Fund will
be made as authorized by the fund's general partner. During January 2001, we
contributed an additional $225,000 to the Capital Fund. The general partner of
the Capital Fund is AGTC Partners, L.P. and NewcoGen Group Inc. is the general
partner of AGTC Partners, L.P. Noubar Afeyan, Ph.D., who is one of our
directors, is the chairman and chief executive officer of NewcoGen Group Inc.
and is also a principal of the Capital Fund. In addition, Dr. Armen, our chief
executive officer and one of our directors, is a director of NewcoGen Group Inc.
We have entered into an agreement with Elan Pharmaceuticals, Inc. and one of
Elan's wholly owned subsidiaries, Neurolab Limited, pursuant to which we granted
to Neurolab a license to use QS-21 in the field of alzheimer's disease. We have
also entered into an agreement with these parties to supply Neurolab with all of
its required quantities of QS-21. Dr. Armen, our chief executive officer and one
of our directors, is a member of the board of Elan Corporation p.l.c., an
affiliate of Elan Pharmaceuticals, Inc.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements are listed under Item 8 of this
report.
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The financial statement schedules listed under Item 8 of this report
are omitted because they are not applicable or required information and are
shown in the financial statements of the footnotes thereto.
(b) REPORTS ON FORM 8-K
On November 30, 2000, we filed a current report on Form 8-K dated
November 16, 2000 to disclose the completion of our acquisition of Aquila
Biopharmaceuticals, Inc. We filed an amendment to this current report on Form
8-K on January 29, 2001.
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(c) EXHIBITS
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
2.1 Agreement and Plan of Merger dated as of August 18, 2000,
among Antigenics Inc., St. Marks Acquisition Corp. and
Aquila Biopharmaceuticals, Inc. Filed as Exhibit 99.1 to
our Report on Form 8-K dated August 18, 2000 (File No.
000-29089) and incorporated herein by reference.
3.1 Certificate of Incorporation of Antigenics Inc. Filed as
Exhibit 3.1 to our registration statement on Form S-1
(File No. 333-91747) and incorporated herein by reference.
3.2 By-laws of Antigenics Inc. Filed as Exhibit 3.2 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.
4.1 Form of Common Stock Certificate. Filed as Exhibit 4.1 to
our registration statement on Form S-1 (File No.
333-91747) and incorporated herein by reference.
4.2 Form of Warrant to purchase Common Stock, together with a
list of holders. Filed as Exhibit 4.2 to our registration
statement on Form S-1 (File No. 333-91747) and
incorporated herein by reference.
4.3 Form of Subscription Agreement, as amended, together with
a list of parties thereto. Filed as Exhibit 4.3 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.
10.1* 1999 Equity Incentive Plan. Filed as Exhibit 10.1 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.
10.2* 1999 Employee Stock Purchase Plan. Filed as Exhibit 10.2
to our registration statement on Form S-1 (File No.
333-91747) and incorporated herein by reference.
10.3 Founding Scientist's Agreement between Antigenics and
Pramod K. Srivastava, Ph.D. dated March 28, 1995. Filed as
Exhibit 10.3 to our registration statement on Form S-1
(File No. 333-91747) and incorporated herein by reference.
10.4 Form of Indemnification Agreement between Antigenics and
its directors and executive officers. These agreements are
materially different only as to the signatories and the
dates of execution. Filed as Exhibit 10.4 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.
10.5 Lease Agreement between Antigenics and Cummings Property
Management, Inc. dated May 28, 1998, as amended on
December 10, 1998. Filed as Exhibit 10.5 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.
10.6 License Agreement between GHA Management Corporation and
Antigenics dated November 12, 1999. Filed as Exhibit 10.6
to our registration statement on Form S-1 (File No.
333-91747) and incorporated herein by reference.
10.7 Master Loan and Security Agreement between Antigenics and
Finova Technology Finance, Inc. dated November 19, 1998.
Filed as Exhibit 10.7 to our registration statement on
Form S-1 (File No. 333-91747) and incorporated herein by
reference.
55
57
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
10.8 Patent License Agreement between Antigenics and Mount
Sinai School of Medicine dated November 1, 1994, as
amended on June 5, 1995. Filed as Exhibit 10.8 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.(1)
10.9 Sponsored Research and Technology License Agreement
between Antigenics and Fordham University dated March 28,
1995, as amended on March 22, 1996. Filed as Exhibit 10.9
to our registration statement on Form S-1 (File No.
333-91747) and incorporated herein by reference.(1)
10.10 Research Agreement between Antigenics and The University
of Connecticut Health Center dated February 18, 1998.
Filed as Exhibit 10.10 to our registration statement on
Form S-1 (File No. 333-91747) and incorporated herein by
reference.(1)
10.11 License Agreement between Antigenics and Duke University
dated March 4, 1999.(1) Filed as Exhibit 10.11 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.
10.12 License Agreement between Antigenics and University of
Miami dated April 12, 1999. Filed as Exhibit 10.12 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.(1)
10.13 Letter Agreement between Antigenics and Sigma-Tau
Industrie Farmaceutiche Riunite SpA dated June 3, 1998.
Filed as Exhibit 10.13 to our registration statement on
Form S-1 (File No. 333-91747) and incorporated herein by
reference.(1)
10.14 Letter Agreement between Antigenics and Medison Pharma
Ltd. dated November 15, 1999. Filed as Exhibit 10.14 to
our registration statement on Form S-1 (File No.
333-91747) and incorporated herein by reference.
10.15 Amendment to Letter Agreement between Antigenics and
Sigma-Tau Industrie Farmaceutiche Riunite SpA dated
October 20, 1999. Filed as Exhibit 10.15 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.
10.16* Employment Agreement between Antigenics and Elma Hawkins,
Ph.D. dated June 1, 1998. Filed as Exhibit 10.16 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.
10.17* Antigenics 401(k) Plan. Filed as Exhibit 10.17 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.
10.18* Antigenics L.L.C. Incentive Equity Plan. Filed as Exhibit
10.18 to our registration statement on Form S-1 (File No.
333-91747) and incorporated herein by reference.
10.19 Subscription Agreement dated May 18, 2000 between
Antigenics and Applied Genomic Technology Capital Fund
L.P. Filed as Exhibit 10.1 to our quarterly report on Form
10-Q for the quarter ended June 30, 2000 (File No.
000-29089) and incorporated herein by reference.
10.20 Assignment Agreement among RCPI Trust, GHA Management
Corporation and Antigenics Inc. dated August 24, 2000.
Filed herewith. Filed as Exhibit 10.20 to our Registration
Statement on Form S-4 (File No. 333-46168) and
incorporated herein by reference.
56
58
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
21.1 Subsidiaries of the Company. Filed herewith.
23.1 Consent of KPMG LLP, independent accountants to
Antigenics. Filed herewith.
24.1 Power of Attorney. Filed herewith.
99.1 Important Factors Regarding Forward-Looking Statements.
Filed herewith.
* Indicates a management contract or compensatory plan.
(1) Certain confidential material contained in the document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to
Rule 406 of the Securities Act of 1933, as amended.
57
59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the Town of Woburn,
Commonwealth of Massachusetts, as of March 28, 2001.
ANTIGENICS INC.
By: /s/ Garo H. Armen
----------------------------------
Garo H. Armen
President, Chief Executive Officer
and Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons in the capacities and as of the
dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Garo H. Armen President, Chief Executive Officer and March 28, 2001
- ------------------------------------- Chairman of the Board of Directors
Garo H. Armen, Ph.D. (Principal Executive Officer and Principal
Financial and Accounting Officer)
* Director March 28, 2001
- -------------------------------------
Pramod Srivastava, Ph.D.
* Director March 28, 2001
- -------------------------------------
Noubar Afeyan, Ph.D.
* Vice Chairman of the Board of Directors, March 28, 2001
- ------------------------------------- Executive Vice President, International
Gamil de Chadarevian
* Director March 28, 2001
- -------------------------------------
Tom Dechaene
* Director March 28, 2001
- -------------------------------------
Donald Panoz
* Director March 28, 2001
- -------------------------------------
Martin Taylor
* Director March 28, 2001
- -------------------------------------
Sanford Litvack
* By: /s/ Garo H. Armen March 28, 2001
------------------------------
Garo H. Armen, Ph.D.
Attorney-in-Fact
58
60
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
2.1 Agreement and Plan of Merger dated as of August 18, 2000,
among Antigenics Inc., St. Marks Acquisition Corp. and
Aquila Biopharmaceuticals, Inc. Filed as Exhibit 99.1 to
our Report on Form 8-K dated August 18, 2000 (File No.
000-29089) and incorporated herein by reference.
3.1 Certificate of Incorporation of Antigenics Inc. Filed as
Exhibit 3.1 to our registration statement on Form S-1
(File No. 333-91747) and incorporated herein by reference.
3.2 By-laws of Antigenics Inc. Filed as Exhibit 3.2 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.
4.1 Form of Common Stock Certificate. Filed as Exhibit 4.1 to
our registration statement on Form S-1 (File No.
333-91747) and incorporated herein by reference.
4.2 Form of Warrant to purchase Common Stock, together with a
list of holders. Filed as Exhibit 4.2 to our registration
statement on Form S-1 (File No. 333-91747) and
incorporated herein by reference.
4.3 Form of Subscription Agreement, as amended, together with
a list of parties thereto. Filed as Exhibit 4.3 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.
10.1* 1999 Equity Incentive Plan. Filed as Exhibit 10.1 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.
10.2* 1999 Employee Stock Purchase Plan. Filed as Exhibit 10.2
to our registration statement on Form S-1 (File No.
333-91747) and incorporated herein by reference.
10.3 Founding Scientist's Agreement between Antigenics and
Pramod K. Srivastava, Ph.D. dated March 28, 1995. Filed as
Exhibit 10.3 to our registration statement on Form S-1
(File No. 333-91747) and incorporated herein by reference.
10.4 Form of Indemnification Agreement between Antigenics and
its directors and executive officers. These agreements are
materially different only as to the signatories and the
dates of execution. Filed as Exhibit 10.4 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.
10.5 Lease Agreement between Antigenics and Cummings Property
Management, Inc. dated May 28, 1998, as amended on
December 10, 1998. Filed as Exhibit 10.5 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.
10.6 License Agreement between GHA Management Corporation and
Antigenics dated November 12, 1999. Filed as Exhibit 10.6
to our registration statement on Form S-1 (File No.
333-91747) and incorporated herein by reference.
10.7 Master Loan and Security Agreement between Antigenics and
Finova Technology Finance, Inc. dated November 19, 1998.
Filed as Exhibit 10.7 to our registration statement on
Form S-1 (File No. 333-91747) and incorporated herein by
reference.
60
61
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
10.8 Patent License Agreement between Antigenics and Mount
Sinai School of Medicine dated November 1, 1994, as
amended on June 5, 1995. Filed as Exhibit 10.8 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.(1)
10.9 Sponsored Research and Technology License Agreement
between Antigenics and Fordham University dated March 28,
1995, as amended on March 22, 1996. Filed as Exhibit 10.9
to our registration statement on Form S-1 (File No.
333-91747) and incorporated herein by reference.(1)
10.10 Research Agreement between Antigenics and The University
of Connecticut Health Center dated February 18, 1998.
Filed as Exhibit 10.10 to our registration statement on
Form S-1 (File No. 333-91747) and incorporated herein by
reference.(1)
10.11 License Agreement between Antigenics and Duke University
dated March 4, 1999.(1) Filed as Exhibit 10.11 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.
10.12 License Agreement between Antigenics and University of
Miami dated April 12, 1999. Filed as Exhibit 10.12 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.(1)
10.13 Letter Agreement between Antigenics and Sigma-Tau
Industrie Farmaceutiche Riunite SpA dated June 3, 1998.
Filed as Exhibit 10.13 to our registration statement on
Form S-1 (File No. 333-91747) and incorporated herein by
reference.(1)
10.14 Letter Agreement between Antigenics and Medison Pharma
Ltd. dated November 15, 1999. Filed as Exhibit 10.14 to
our registration statement on Form S-1 (File No.
333-91747) and incorporated herein by reference.
10.15 Amendment to Letter Agreement between Antigenics and
Sigma-Tau Industrie Farmaceutiche Riunite SpA dated
October 20, 1999. Filed as Exhibit 10.15 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.
10.16* Employment Agreement between Antigenics and Elma Hawkins,
Ph.D. dated June 1, 1998. Filed as Exhibit 10.16 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.
10.17* Antigenics 401(k) Plan. Filed as Exhibit 10.17 to our
registration statement on Form S-1 (File No. 333-91747)
and incorporated herein by reference.
10.18* Antigenics L.L.C. Incentive Equity Plan. Filed as Exhibit
10.18 to our registration statement on Form S-1 (File No.
333-91747) and incorporated herein by reference.
10.19 Subscription Agreement dated May 18, 2000 between
Antigenics and Applied Genomic Technology Capital Fund
L.P. Filed as Exhibit 10.1 to our quarterly report on Form
10-Q for the quarter ended June 30, 2000 (File No.
000-29089) and incorporated herein by reference.
10.20 Assignment Agreement among RCPI Trust, GHA Management
Corporation and Antigenics Inc. dated August 24, 2000.
Filed herewith. Filed as Exhibit 10.20 to our Registration
Statement on Form S-4 (File No. 333-46168) and
incorporated herein by reference.
61
62
21.1 Subsidiaries of the Company. Filed herewith.
23.1 Consent of KPMG LLP, independent accountants to
Antigenics. Filed herewith.
24.1 Power of Attorney. Filed herewith.
99.1 Important Factors Regarding Forward-Looking Statements.
Filed herewith.
* Indicates a management contract or compensatory plan.
(1) Certain confidential material contained in the document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to
Rule 406 of the Securities Act of 1933, as amended.
62