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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to _______
Commission File Number 0-23155
TRIMERIS, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-1808663
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4727 UNIVERSITY DRIVE, SUITE 100
DURHAM, NORTH CAROLINA 27707
(Address of principal executive offices, including zip code)
(919) 419-6050
Registrant's telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.001 par value (Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [x] Yes [ ] 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 Annual Report on Form 10-K or any
amendment to this Annual Report on Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of March 29, 2001 was approximately $375,216,000 (based on the
last sale price of such stock as reported by the Nasdaq National Market System
on March 29, 2001):
The number of shares of the registrant's Common Stock outstanding
as of March 23, 2001 was 15,951,356
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement to be filed by the
Company with the Securities and Exchange Commission within 120 days after the
end of the fiscal year are incorporated by reference in Part III of this Form
10-K.
TRIMERIS, INC.
FORM 10-K ANNUAL REPORT
For the Fiscal Year Ended December 31, 2000
Table of Contents
Item Number Page
- ----------- ----
PART I.
Item 1. Business 1
Item 2. Properties 28
Item 3. Legal Proceedings 28
Item 4. Submission of Matters to a Vote of Security Holders 28
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 28
Item 6. Selected Financial Data 30
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 32
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 37
Item 8. Financial Statements and Supplementary Data 38
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 38
PART III.
Item 10. Directors and Executive Officers of the Registrant 39
Item 11. Executive Compensation 39
Item 12. Security Ownership of Certain Beneficial Owners and Management 39
Item 13. Certain Relationships and Related Transactions 39
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 40
Signature Page II-1
Exhibit Index II-2
PART I.
Item 1. Business
Statements in this Annual Report on Form 10-K that are not historical fact
are forward-looking statements. These forward-looking statements include
statements regarding Trimeris, Inc.'s expectations, hopes, beliefs, intentions
or strategies regarding the future and are subject to a number of known and
unknown risks and uncertainties, many of which are beyond our control. While we
believe these statements are accurate, our business is dependent on many
factors, some of which are discussed in the "Risk Factors" and "Business"
sections of this Annual Report on Form 10-K. Many of these factors are beyond
our control and any of these and other factors could cause actual results to
differ materially from the forward-looking statements made in this Annual Report
on Form 10-K. The results of our previous clinical trials are not necessarily
indicative of the results of future clinical trials. Please read the "Risk
Factors" section in this Annual Report on Form 10-K for further information
regarding these factors. We undertake no obligation to release publicly the
results of any revisions to the statements contained in this report to reflect
events or circumstances that occur subsequent to the date of this Annual Report
on Form 10-K.
Overview
We are engaged in the discovery and development of a new class of
antiviral therapeutics called viral fusion inhibitors, or FIs. Viral fusion is a
complex process by which viruses attach to and penetrate host cells. If a virus
cannot enter a host cell, the virus cannot replicate. By inhibiting the fusion
process of particular types of viruses, our products under development offer a
novel mechanism of action to treat many serious viral diseases.
Our most advanced product candidates, T-20 and T-1249, are for the
treatment of human immunodeficiency virus - type I, or HIV. T-20 is a first
generation FI which prevents HIV from entering and infecting cells. T-1249 is a
rationally designed second generation FI in an earlier stage of development.
To date, we have tested T-20 in more than 200 patients, with the
longest duration of treatment exceeding approximately two years. These studies
suggest that T-20 is well-tolerated and has potent antiviral activity. The most
common adverse event reported has been mild to moderate local skin irritations
at the site of injection, or injection site reactions. We currently have four
ongoing Phase II or Phase I/II clinical trials with respect to T-20 and recently
initiated two Phase III clinical trials with respect to T-20. We plan to
commence additional trials throughout 2001. T-20 has received "fast track"
designation by the FDA for the treatment of HIV. Fast track designation is
granted to products that may provide a significant improvement in the safety or
effectiveness of the treatment for a serious or life-threatening disease, and
this designation is intended to expedite the drug development process.
In February 2001, we presented 16 week interim data from T20-206, an
open-label, 71 patient, dose comparison Phase II trial, and interim data from
T20-204, a 12 patient pediatric Phase I/II trial. Patients in T20-206 were
randomized into four treatment arms with the control arm receiving a potent
background regimen consisting of abacavir, amprenavir, efavirenz, and ritonavir.
The remaining three treatment arms are receiving various dosage levels of T-20
via twice daily subcutaneous injection along with the background regimen. At 16
weeks, the median reduction of HIV in the patient's blood, commonly referred to
as viral load, from the viral load at the beginning of the trial, commonly
referred to as baseline viral load, for all patients across the three T-20
treatment groups was 2.6 log10 or 99.7%, compared to a median reduction of 2.16
log10 or 99.3% for the control arm. A measurement of (number) log10 equals 10
raised to the power of (number). 12 pediatric patients in T20-204 were randomly
assigned to two treatment arms at different dosages. At eight weeks, this trial
showed that T-20 was well-tolerated by children and that children receiving the
higher dose experienced a ten-fold reduction in viral load from baseline viral
load.
1
In November 2000, we began enrolling patients in a multi-center Phase
III clinical trial, T20-301, in North America, Mexico and Brazil. T20-301 is a
48 week, controlled, open label study which will enroll up to 525 HIV-infected
patients with a planned interim analysis at 24 weeks. In this trial, patients
will be randomly assigned to receive T-20 plus an optimized background regimen
of anti-HIV drugs or an optimized regimen alone. The optimized regimen will be a
combination of other anti-HIV drugs individually determined for each patient
based on the genotypic and phenotypic analysis of the HIV virus in that
patient's blood. A genotypic resistance analysis involves examination of the
genetic sequence of the strains of virus present in the sample. A phenotypic
resistance analysis involves an assessment of the ability of a drug to block
infection caused by strains of a virus grown in culture. T-20 will be
administered via twice daily subcutaneous injections delivering 90 milligrams
each using the formulation tested in our Phase II trial T20-208. In T20-208,
analysis of the highest dose group indicated that a patient received a delivered
dose of 90mg per dose. In January 2001, we also began enrolling patients in
T20-302, a multi-center Phase III clinical trial with a protocol, or trial
design, similar to T20-301. This trial will enroll up to 525 HIV-infected
patients in Western Europe and Australia.
Our second generation fusion inhibitor for HIV is T-1249. T-1249 has
demonstrated potent HIV suppression in culture, commonly referred to as in
vitro, and is highly active against a wide range of HIV strains in vitro,
including strains resistant to T-20. Despite the fact that T-20 and T-1249 are
members of the same class of fusion inhibitors and have a similar mechanism of
action, T-1249 appears to have a different resistance profile than T-20. In
addition, T-1249 has enhanced drug levels in the blood, commonly known as
pharmacokinetic properties, which should allow once-daily administration. T-1249
has also received "fast track" designation by the FDA for the treatment of HIV.
In February 2001, we presented two week interim data from T1249-101, an
ongoing Phase I/II trial of T-1249 administered alone and not in combination
with any other anti-HIV drugs. This trial evaluates the safety and preliminary
antiviral activity of T-1249 in 72 HIV-infected adults, substantially all of
whom had previously received other anti-HIV drugs. Data from this trial suggest
that T-1249 was well-tolerated over the 14-day period and produced dose-related
decreases in HIV viral load. As a result of this data, we have amended the
protocol to continue this trial at increasing doses of T-1249.
We have entered into a worldwide agreement with F. Hoffmann-La Roche
Ltd, or Roche, to develop and market T-20 and T-1249. We will share expenses and
profits for T-20 and T-1249 in the United States and Canada equally with Roche.
Outside of these two countries, Roche will fund all development costs and pay us
royalties on net sales for a specified term. In addition, Roche has agreed to
pay us up to $68 million in upfront and milestone payments, of which $12 million
has been received to date.
We have transferred the manufacturing process for T-20 to four third
party contract manufacturers, including Roche, who have produced various
clinical quantities of T-20. We have selected Roche's manufacturing facility to
manufacture the commercial quantities of T-20.
We are also pursuing research programs to develop fusion inhibitors
that target various other viruses, including respiratory syncytial virus and
human parainfluenza virus.
Overview of Viruses
Viruses are parasites that take over the intracellular machinery of a
cell and use it to make components that are necessary for viral replication.
Viruses cause disease when their uncontrolled replication interferes with the
basic function of the invaded cells. Different types of viruses cause specific
diseases because each type of virus is attracted to a particular kind of cell.
For instance, HIV is a virus that invades and kills white blood cells and can
result in death when the affected immune system stops protecting against
infection. The attraction of a virus for the cell it infects is based upon a
specific interaction between the receptors on the surface of the target cell and
the virus.
Viral infection of cells occurs through a cyclical, multi-step process,
consisting of viral entry, intracellular replication, and release. For many
viruses, viral entry occurs in several sequential steps:
o the virus recognizes a receptor on the surface of a target cell and
attaches to it;
o viral proteins rearrange themselves to bring the virus and the target
cell into close proximity;
2
o the viral membrane fuses with the target cell membrane; and
o the virus injects its genetic material into the target cell.
Once the viral genetic material is inside the target cell, this
material then directs the target cell to produce viral proteins and enzymes that
are necessary to complete the replication cycle of the virus. When viral
replication is completed, newly formed viruses are released from the cell. These
newly formed viruses spread by infecting new cells. The cycle is repeated when
the replicated virus infects the new cells.
Antiviral therapy may target any stage of the viral life cycle.
Marketed antiviral therapies typically target specific enzymes that viruses use.
Other compounds, including ours, that are in clinical development focus on the
entry of the viruses into target cells.
Fusogenic Viruses
Fusogenic viruses, such as HIV, respiratory syncytial virus and human
parainfluenza virus, have an outer lipid envelope which fuses to the membranes
of target cells during entry. Fusogenic viruses have viral proteins on their
surface that undergo specific rearrangements upon contact with a target cell.
These structural rearrangements draw the virus to the cell and allow the viral
membrane to fuse with the target cell membrane. Non-fusogenic viruses, such as
papilloma and polio virus, do not have envelope membranes and enter cells
directly.
Overview of HIV
HIV is a fusogenic virus that currently affects approximately 920,000
people in North America and nearly 540,000 people in Western Europe. It is
estimated currently that an additional 41,000 people are newly infected with HIV
each year in the U.S. alone. HIV attacks a class of white blood cells known as
CD4+ T-cells and macrophages that are responsible for mounting a body's immune
response against infection. By infecting these cells, HIV progressively disables
the immune system, resulting in opportunistic infections, neurological
dysfunctions, malignancies, and death. The amount of HIV virus present in a
patient's bloodstream has been shown to be related directly to the patient's
prognosis: the higher the viral load, the more compromised the patient's immune
system becomes and the more likely he is to succumb to progressive diseases.
This progression into other diseases in its most advanced stage is known as
AIDS. In treating HIV infection, it is critical to reduce the patient's viral
load in order to prolong survival. While significant progress has been made in
combating HIV, noncompliance with, and resistance to, current therapies have
created a heightened demand for new HIV therapies that work by novel mechanisms
of action, have unique resistance profiles, and have fewer side effects.
The conventional approach to treating HIV has been to lower viral loads
by using drugs to inhibit two of the viral enzymes that are necessary for the
virus to replicate: reverse transcriptase, or RT, and protease. There are
currently three classes of drugs that inhibit these two enzymes: nucleoside
reverse transcriptase inhibitors, or NRTIs, non-nucleoside reverse transcriptase
inhibitors, or NNRTIs, and protease inhibitors, or PIs. We will refer to NRTIs
and NNRTIs collectively as RTIs. There are nine FDA-approved RTIs, and six
FDA-approved PIs. Therapies based on certain combinations of RTIs and PIs have
driven HIV viral loads in many patients for sustained periods to below amounts
that are detectable by current diagnostic methods, commonly known as detectable
levels. In 1999, deaths attributable to HIV infection were reduced to
approximately 15,000 from 36,000 in 1998 due to improvements in treatment
regimens. Because of the results achieved by the combined use of RTIs and PIs,
total worldwide sales of approved RTIs and PIs exceeded $4.6 billion in 1999.
3
Current Treatment Limitations
Despite the efficacy of these drugs, current HIV treatment continues to
have limitations. These include toxic side effects, viral resistance to the
drug, and complicated treatment regimens. Toxic side effects often occur when
RTIs and PIs interact with cellular, rather than viral, enzymes and result in
inhibition of normal cell functions even in uninfected cells. Because of these
shortcomings, many HIV patients refuse to initiate therapy or refuse to adhere
to the onerous therapeutic regimens. Current estimates suggest that only
approximately 33% of people thought to be infected with HIV in the U.S., or only
approximately 350,000 patients, are receiving anti-HIV drug therapy. In
addition, an increasing number of patients on combination therapy are beginning
to fail as the virus in their bloodstream acquires resistance to drugs included
in combination therapy. Studies have shown that combination therapy fails to
suppress viral load below detectable levels in a proportion of patients who
begin therapy.
Side Effects and Noncompliance. Data suggest that some HIV-infected
patients refuse to commence or continue taking RTIs and PIs, either alone or in
combination, because of side effects and difficult dosing regimens. Among those
patients who attempt to adhere to regimens of combination therapy, the harsh
side effects and difficult dosing regimens often cause some patients to miss
doses or stop treatment for extended periods. Severe side effects commonly
associated with currently-approved anti-HIV drugs include:
o neurological disorders, including nightmares,
o gastrointestinal disorders, such as diarrhea and nausea,
o diabetes-like symptoms, and
o abnormal redistribution of body fat and elevated cholesterol counts.
Dosing regimens that are common with many combination therapies of anti-HIV
drugs can be onerous and can include:
o up to 30 pills daily, including anti-HIV drugs and other medications, at
varying intervals throughout the day,
o specific dosing provisions such as taking pills with food or large volumes
of liquid,
o interrupting normal activities to take pills, and
o inability to take other drugs at the same time because of adverse drug
interactions.
Even brief instances of noncompliance with the strict drug dosing regimens
associated with these combination therapies may reduce the effectiveness of
therapy and can accelerate a virus' resistance to the drugs. Data shows that
currently, up to 40% of HIV patients do not fully comply with their therapeutic
regimen.
Resistance. HIV is prone to genetic mutations that produce strains of
HIV that are resistant to currently-approved RTIs and PIs. Resistance occurs
because viruses make trillions of copies of themselves and some copies will
contain mutations in their genetic material. Mutations that confer a selective
advantage, such as drug resistance, will enable mutant viruses to replicate even
in the presence of an active drug. As a result, these mutants, while initially
found in low frequency, can become the predominant strain in an infected patient
undergoing drug therapy and can be transmitted to other individuals.
Generally, an HIV virus that is resistant to one drug within a class is
likely to become resistant to the entire class, a phenomenon known as
cross-resistance. Attempts to reestablish suppression of HIV viral load by
substituting different RT and PI combinations often fail because of
cross-resistance. Studies suggest that currently, 10% to 20% of newly-infected
HIV patients are infected with a strain of HIV that is resistant to at least one
currently-approved anti-HIV drug.
4
HIV Fusion Inhibitors
We have pioneered the discovery and development of a new class of
anti-HIV compounds that works by a novel mechanism of action. This new class,
called fusion inhibitors, prevents one of the crucial steps in viral entry from
occurring by blocking the conformational rearrangement of HIV's fusogenic
protein, gp41. T-20 is a first generation FI which prevents HIV from entering
and infecting cells. T-1249 is a rationally designed second generation FI in an
earlier stage of development.
T-20
T-20 is a peptide that has been shown in clinical trials to cause a
dose-dependent decrease in HIV viral load. To date, we have tested T-20 in more
than 200 patients, with the longest duration of treatment exceeding
approximately two years. These studies suggest that T-20 is well-tolerated and
has potent antiviral activity. The most common adverse event reported has been
mild to moderate injection site reactions. We currently have four ongoing Phase
II or Phase I/II clinical trials with respect to T-20 and recently initiated two
Phase III clinical trials with respect to T-20. We plan to commence additional
clinical trials throughout 2001. T-20 has received "fast track" designation by
the FDA for the treatment of HIV.
Mechanism Of Action
T-20 is a 36 amino acid synthetic peptide that binds to a key region of
an HIV surface protein called gp41. T-20 blocks HIV viral fusion by interfering
with certain structural rearrangements within gp41 that are required for HIV to
fuse to and enter a host cell.
In the HIV infection process, the gp120 surface protein is stripped
away from the virus after gp120 binds to host cell receptors. Two specific
regions in the gp41 protein are thus freed and can bind to one another and cause
the viral membrane to fuse with the host cell membrane. If T-20 is present in
the bloodstream, it binds tightly to one of these regions within the gp41
protein and blocks the structural rearrangement necessary for the virus to fuse
with the host cell. Since the virus cannot fuse with the host cell, it cannot
penetrate and release its genetic material into the cell. HIV infection of the
host cell is inhibited, and HIV replication within that cell is prevented.
5
T-20 Clinical Development
The following table lists in summary form the clinical trials we have
undertaken to evaluate T-20:
Number of
Patients Enrollment
Trial Number Phase Trial Design Enrolled Criteria Status Purpose
- ------------- ----------- ---------------------- ----------- -------------- -------------- -----------------------
TRI-001 Phase I/II 3 mg, 10 mg, 30 mg 17 HIV-infected Completed Proof of concept;
or 100 mg BID via IV dose escalating
for 14 days monotherapy study
TRI-003 Phase II 12.5 mg, 25 mg, 50 78 Heavily Completed Route of
mg, 100 mg via pump pretreated administration, dose
or 50 mg, 100 mg BID comparison
for 28 days
T20-204 Phase I/II 30 mg/m2-60 mg/m2 BID 12 Ages 3-12, In progress Safety, tolerability
HIV-infected & pharmacokinetics
T20-205 Phase II 50 mg BID plus 70 Heavily In progress Rollover, chronic
background regimen pretreated administration
T20-206 Phase II 50 mg, 75 mg or 100 71 NNRTI Naive, In progress Randomized, dose
mg BID plus control PI comparison
regimen or control experienced
regimen only
T20-208 Phase II 50 mg carbonate and 60 No anti-HIV In progress Formulation comparison
75 mg, or 100 mg restrictions
carbonate, or 100 mg
Tris formulation BID
T20-301 Phase III 90 mg BID plus 525 Experienced In progress Safety, efficacy &
background regimen with PIs, pharmacokinetics
NNRTIs and
NRTIs
T20-302 Phase III 90 mg BID plus 525 Experienced In progress Safety, efficacy &
background regimen with PIs, pharmacokinetics
NNRTIs and
NRTIs
Interim Data from T20-206 (16 weeks), T-20-204 (12 weeks) and T20-205
(48 weeks)
T20-206. In June 1999, we initiated T20-206, a 48 week Phase II
clinical trial for T-20 to assess the antiviral activity and long-term safety of
T-20 when used in combination with other anti-HIV drugs. The trial consists of
four treatment groups:
o arm A who received only the background regimen of 300 mg of abacavir
twice daily, 1200 mg of amprenavir twice daily, 200 mg of ritonavir
twice daily, 600 mg of efavirenz once daily, and
o arms B, C and D who received 50mg, 75mg, and 100 mg, respectively, of
T-20 via twice daily subcutaneous injection in addition to the
background regimen.
T20-206 enrolled 71 HIV-infected individuals at several sites in the United
States. At entry in the trial, all enrolled patients had prior exposure to NRTIs
and PIs, but no prior exposure to NNRTIs.
6
In February 2001, we announced 16 week interim data from T20-206. At
week 16, the median maximum reduction in HIV viral load from the viral load at
the beginning of the trial for all patients ranged from 2.16 log10 or 99.3% to
2.84 log10 or 99.9% across the T-20 treatment groups. The median maximum
reduction in HIV viral load for patients with HIV viral loads greater than
20,000 copies/microliter at the beginning of the trial, was 2.64 log10 or 99.8%
across the T-20 treatment groups versus 1.55 log10 or 97.2% for the control arm
only. Data from 16 weeks suggest that T-20 is safe and active in combination
with other anti-HIV therapy.
T20-206 is ongoing and the next analysis of data is scheduled to occur
based on 48-week data.
T20-204. In November 1999, in collaboration with the Division of AIDS
of the National Institute for Allergy and Infectious Diseases, or NIAID, we
initiated a Phase I/II trial to evaluate the safety, tolerability and
pharmacokinetics of T-20 in children living with HIV infection. The trial is
managed by the Pediatric AIDS Clinical Trial Group, or PACTG, and has been
designated as a fast-track study within the PACTG system.
The trial is being conducted in two parts and has enrolled 12 pediatric
patients ages three to 12. The first part, week one, examined safety parameters
to establish a well-tolerated pediatric dose that provides target concentrations
of T-20 in the blood. The second part, conducted over a twenty-four week period,
evaluates the safety and tolerability of T-20 via twice daily subcutaneous
injections in combination with a background of other anti-HIV drugs selected for
each particular patient based on the patient's prior treatment history. Within
seven days of dosing with T-20 as an addition to an inactive anti-HIV therapy,
patients in the highest dose group had an average reduction in HIV viral load of
approximately 10 fold from baseline at the beginning of the trial. At eight
weeks, three of four patients in the lowest dose group and six of seven patients
in the highest dose group continued to maintain a similar reduction in HIV viral
load from baseline at the beginning of the trial. Data at the 12 week interim
analysis suggest that short-term subcutaneous dosing of T-20 is well tolerated
in pediatric patients.
Of the 12 patients enrolled in the trial, one patient withdrew due to
an aversion to the method of administration of T-20 via subcutaneous injection.
T20-204 is ongoing and the next analysis of data is scheduled to occur
based on 24-week data.
T20-205. T20-205 is an ongoing Phase II trial that has been extended
beyond its initial 48-week protocol. This trial involves 71 patients from
earlier T-20 Phase I/II studies. In T20-205, 50 mg of T-20 is administered via
subcutaneous injection in combination with oral anti-HIV drugs. Combinations of
the oral anti-HIV drugs were optimized based on genotypic and phenotypic
analysis of each patient's virus.
At 48 weeks, 41 of the 71 patients were evaluated. No patients
discontinued this trial due to T-20 related toxicity, but 14 patients
discontinued this trial due to a virologic failure, or HIV viral load less than
- -0.5 log10 from baseline at the beginning of the trial. At 48 weeks, 23 of 41
patients or 56 % exhibited a decrease in HIV viral load of more than 1.0 log10
or less than 400 copies/ml, and 16 of 41 patients or 39 % had an HIV viral load
below 400 copies/ml.
At 48 weeks, the patients continued to tolerate T-20. Data suggest that
T-20 in combination with other anti-HIV drugs may contribute to a lasting and
clinically relevant suppression of HIV in the blood in patients with extensive
prior anti-HIV treatment.
Other Ongoing Trials of T-20
T20-208. In March 2000, we initiated T20-208, a Phase II clinical trial
for T-20 that will evaluate alternative formulations of T-20, which could lead
to a simpler dosing regimen. The trial is designed to enroll up to 60 patients,
and will evaluate two new formulations of T-20 compared to the formulation
presently used in other ongoing clinical trials initiated prior to T20-208. All
three formulations will be given as twice daily subcutaneous injections in
combination with oral anti-HIV drugs selected for each patient on an
individualized basis. From this trial, an interim analysis of the highest dose
group indicated that a patient received a delivered dose of 90 mg per dose. We
designed our Phase III protocols to reflect this information from T20-208.
T20-208 is ongoing and we expect data from this trial to be available in 2001.
7
T20-301. In November 2000, we began enrollment of T20-301, a 48-week
Phase III clinical trial in North America, Mexico, and Brazil, that will
evaluate the safety and pharmacokinetics of T-20 in up to 525 HIV-infected
patients who had previously used all three classes of currently-approved
anti-HIV drugs. In this trial, patients will be randomly assigned to receive an
optimized background regimen of other anti-HIV drugs alone or in combination
with twice daily subcutaneous injection delivering 90 mg of T-20 each. The
background regimen will be optimized based on the genotype and phenotype of the
patient's virus. T20-301 is ongoing and we expect data from this trial to be
available in the future.
T20-302. In January 2001, we began enrollment of T20-302, a 48-week
Phase III clinical trial in Western Europe and Australia. The protocol for
T20-302 is substantially similar to T20-301 and will also involve up to 525
HIV-infected patients.
Side Effects. In all T-20 clinical studies to date, the most common
adverse event was an injection site reaction that ranged from mild to moderate
in severity and was characterized by redness of the skin, a bumpy thickening of
the skin, and itching. Other adverse events included headache, nausea, fever,
increased energy levels, weakness, diarrhea, and dizziness. We are unable to
determine whether T-20 caused some of these results because the incidence of
these adverse events was similar between those who received combinations that
included T-20 and those who received combinations that did not include T-20.
Antibodies. We have examined patient samples taken throughout the
trials to assess potential antibody responses to T-20. Data at 48 weeks in the
T20-205 trial show that T-20 does not appear to produce an immune response in
the body that could compromise T-20's efficacy.
Resistance. We are currently conducting T-20 resistance analysis of
patients' blood samples taken throughout several ongoing clinical trials. Early
genotypic and phenotypic analysis from the patient samples from the TRI-003
study where T-20 was given as monotherapy or in addition to an ineffective drug
regimen in HIV infected patients revealed that emergence of resistance to T-20
is possible. We are conducting additional analysis to evaluate the emergence of
T-20 resistance, when T-20 is given in combination with other anti-HIV drugs
that are believed to be active. We expect however, that any resistance profile
of T-20 will not overlap with the resistance profiles of currently-approved
anti-HIV drugs because of T-20's novel mechanism of action.
Future T-20 Clinical Trials
Throughout the remainder of 2001, we expect to initiate additional
clinical trials in the U.S. and internationally.
T-1249
T-1249 is our second generation fusion inhibitor for HIV virus. The
history of HIV treatment has demonstrated that the existence of multiple drugs
within the RT and PI classes have allowed for a variety of drug combinations and
improved patient treatment. We believe that multiple HIV fusion inhibitors may
enhance HIV therapy by providing an even broader range of treatment options. We
intend to be a leader in HIV fusion inhibitors and to develop multiple drug
candidates within this class.
T-1249 binds to a region of the HIV gp41 surface protein that differs
from the region bound to by T-20. Based on our knowledge of the structure of the
gp41 protein, we designed T-1249, a 39 amino acid peptide, to bind more tightly
to the gp41 protein, and included an amino acid sequence that we believe
enhances the pharmacokinetic properties of the peptide. The pharmacokinetic
properties of a drug relate to the level of a drug in the bloodstream. T-1249
has demonstrated favorable pharmacokinetics and potent HIV suppression in
preclinical testing and is highly active against a wide range of HIV strains in
vitro. Increased potency of T-1249 compared to T-20 may allow for lower drug
quantities and less frequent dosing. The broad range of activity against many
different strains of HIV in vitro suggests that T-1249 may possess a resistance
profile distinct from RT and PIs as well as T-20.
8
T-1249 Clinical Development
T1249-101. In July 1999, we initiated T1249-101, a Phase I/II clinical
trial designed to assess the safety and pharmacokinetics of T-1249. T1249-101
enrolled 72 HIV-infected individuals at several sites in the United States, with
61 patients completing the study. Three different daily doses of T-1249 were
administered alone and not in combination with any other anti-HIV drugs for 14
days to HIV-infected adults by once or twice daily subcutaneous injection. Of
the 72 patients randomized for the trial, nine withdrew before receiving T-1249
therapy, and two withdrew during the course of the therapy. For at least two
weeks prior to entering the study, these patients had not received any other
anti-HIV drugs. This trial protocol has been amended in order to evaluate
further different daily doses of T-1249 by once daily subcutaneous injection and
is ongoing.
In February 2001, we announced interim data from T1249-101. Patients
received T-1249 via once or twice daily subcutaneous injections alone and not in
combination with any other anti-HIV drugs for 14 days at doses ranging from 6.25
mg per day to 50 mg per day. At entry into the trial, 98%, or 62 of 63, patients
had a clinical history of exposure to a mean number of ten anti-HIV drugs. At 14
days, the median maximum reduction in viral load reduction from baseline at the
beginning of the trial ranged from 0.1 log10 or 20.5% to 1.5 log10 or 96.8%
across the treatment groups. Data suggest that T-1249 was well-tolerated over a
14-day period and there were dose-related decreases in HIV viral load.
Side Effects. In T1249-101 the most common adverse event was injection
site reaction that ranged from mild to moderate in severity and was
characterized by redness of the skin, a bumpy thickening of the skin, and
itching. Other adverse events included headache, pyrexia, diarrhea, and
dizziness. Two serious adverse events were reported by two patients in the
clinical study that we believe were treatment related. One patient reported a
hypersensitivity reaction which included a bumpy rash, fever and oral ulcers and
one patient reported neutropenia, a low white blood cell count. We are unable to
determine whether T-1249 caused some of these results because there were no
patients in our trials for comparison who received combinations that did not
include T-1249.
Pharmacokinetic Analyses. Analyses of drug levels in the blood,
indicate that once-daily subcutaneous injection resulted in consistent blood
levels of T-1249, with little variation throughout the dosing period. Therefore,
we believe that once-daily subcutaneous injection will be the method of delivery
and dosing period in the ongoing and future trials.
Collaboration with Roche
We have entered into a worldwide agreement with Roche to develop and
market T-20 and T-1249. We will share expenses and profits for T-20 and T-1249
in the United States and Canada equally with Roche. Outside of these two
countries, Roche will fund all development costs and pay us royalties on net
sales for a specified term. In addition, Roche has agreed to pay us up to $68
million in upfront and milestone payments, of which $12 million has been
received to date. We have selected Roche's facility to manufacture commercial
quantities of T-20. For further information see - "Risk Factors - Our success in
commercializing T-20 and T-1249 is dependent on our relationship with Roche."
9
Other Viral Fusion Inhibitor Programs
Through our study and knowledge of the HIV fusion process, we have
developed a proprietary technology platform aimed at discovering compounds that
identify potential fusion targets in certain viruses that rely on fusion to
penetrate host cells. Using our proprietary viral fusion platform technology, we
have identified and filed patent applications disclosing numerous discrete
peptide sequences that appear to inhibit fusion for several viruses. Our
research programs for certain fusion viruses are set forth below.
o Respiratory Syncytial Virus. RSV causes pediatric bronchiolitis and
pneumonia. In addition, RSV affects the elderly and immune-compromised
individuals and is also thought to be a co-factor in increasing the
frequency of inner ear infections in children. We have identified a series
of peptide RSV fusion inhibitors and small molecules that may be effective
in preventing or treating RSV infection. The anti-RSV peptides have shown
potent, specific and selective inhibition of RSV infection in preclinical
animal model testing. The anti-RSV small molecules have exhibited potent
activity against RSV in laboratory tests. In addition, we have developed
proprietary molecular screens, which will enable us to search for
additional small molecule fusion inhibitors that are active against RSV.
o Human Parainfluenza Virus. Human parainfluenza virus, or HPIV, causes
respiratory disease in young infants. No currently-approved drugs
effectively treat HPIV infection. We have developed a series of peptides
that inhibit HPIV in laboratory tests. In addition, we have developed
proprietary molecular screens, which will enable us to search for
additional small molecule fusion inhibitors that are active against HPIV.
Manufacturing
The synthetic manufacture of peptides historically has been complex and
expensive. This constraint does not limit the commercialization of most peptide
therapeutics, which are administered in relatively small doses. We anticipate
dosing levels of T-20 to be relatively higher than peptides prescribed in other
indications. We have developed a novel peptide manufacturing process, which we
believe will allow us to produce T-20 and T-1249 on a large scale and
cost-efficient basis. We have an issued patent on this process. We have
transferred the manufacturing process to four third-party contract
manufacturers, including Roche, who have produced various quantities of T-20.
Three third-party manufacturers are currently using this process to produce
multi-kilogram quantities of T-20. We plan to increase the scale of this process
to support the market demand that we anticipate for T-20, if it is approved by
the FDA. We have selected Roche's manufacturing facility to supply commercial
quantities of T-20. We are applying our novel process technology to the
manufacture of T-1249 as well. Because of the complexity of manufacturing
peptides, we cannot assure you that we will be able to manufacture commercial
quantities of T-20 or T-1249 on a cost-efficient basis. For further information
see - "Risk Factors - We face risks associated with manufacturing T-20 and
T-1249."
Licensing And Collaborative Agreements
We have an ongoing program of business development which may lead to
the establishment of collaborative and licensing arrangements with collaborative
partners, licensees, licensors or other third parties. The purpose of these
arrangements would be to seek regulatory approval of and to develop, manufacture
and commercialize selected product candidates. These collaborations could
provide us with:
o funding,
o research and development resources,
o additional drug product candidates,
o access to libraries of diverse compounds, and
o clinical development, manufacturing, sales, marketing and distribution
capabilities.
10
In July 1999, we announced an agreement with Roche, to develop and
market T-20 and T-1249 worldwide. We will share development expenses and profits
for T-20 and T-1249 in the United States and Canada equally with Roche. Outside
of these two countries, Roche will fund all development costs and pay royalties
to us on net sales of T-20 and T-1249 for a specified term. Roche paid us $10
million up front and will provide us up to an additional $58 million in cash
upon achievement of certain developmental, regulatory and commercial milestones.
In December 2000, we received a $2 million milestone payment for commencement of
a Phase III clinical trial, T20-301.
Our agreement with Roche grants them an exclusive, world-wide license
for T-20 and T-1249, and certain other compounds. Under the Roche agreement, a
joint management committee consisting of members from Trimeris and Roche
oversees the strategy for the collaboration. Roche may terminate its license for
a particular country in its sole discretion with advance notice. If Roche
decides to terminate the license for T-20 or T-1249 in a particular country,
this could have a material and adverse effect on our business, financial
condition, and results of operations. For further information see - "Risk
Factors - Our success in commercializing T-20 and T-1249 is dependent on our
relationship with Roche."
Our success could depend, in part, on the subsequent success of third
parties in performing their obligations under collaborative and licensing
arrangements. We expect to rely on Roche for many of these capabilities under
our collaboration agreement with them. We cannot assure that the Roche
collaboration or any other arrangements will be successful or will produce their
intended results. We may not be able to maintain our existing arrangements or
enter into new collaborative and license arrangements on acceptable terms.
Sales, Marketing And Distribution
We have no experience in sales, marketing, or distribution of
pharmaceuticals. We expect to rely on Roche for many of these functions for T-20
and T-1249. We may develop capabilities in some of these areas. In other areas,
however, we may rely on Roche or other marketing partners or other arrangements
with third parties. In the event that Roche does not market our product
candidates, or we are unable to reach agreement with one or more marketing
partners to market these products, we may be required to develop internal sales,
marketing and distribution capabilities. We may not be able to make arrangements
with third parties on acceptable terms, if at all, or to establish
cost-effective sales, marketing, or distribution capabilities of our own.
If we establish sales, marketing, or distribution arrangements with
other parties, they may have significant control over important aspects of the
commercialization of our products. We may not be able to control the amount and
timing of resources that any other third party may devote to our products or
prevent any third party from pursuing alternative technologies or products that
could result in the development of products that compete with our products.
Patents, Proprietary Technology And Trade Secrets
Our success will depend, in part, on our ability, and the ability of
our collaborator or licensors, to obtain protection for our products and
technologies under United States and foreign patent laws, to preserve our trade
secrets and to operate without infringing the proprietary rights of third
parties.
We own or have exclusive licenses to several issued United States
patents, pending United States patent applications, and certain corresponding
foreign patents and patent applications. Our issued United States patents expire
between 2013 and 2018.
We also rely on trade secrets, know-how, and other proprietary
information, which we seek to protect, in part, through the use of
confidentiality agreements with employees, consultants, advisors and others.
These agreements may not provide adequate protection for our trade secrets,
know-how, or other proprietary information in the event of any unauthorized
disclosure. Our employees, consultants, or advisors could disclose our trade
secrets or proprietary information to competitors, which would be detrimental to
us.
11
Competition
We are engaged in segments of the biopharmaceutical industry, including
the treatment of HIV, that are intensely competitive and change rapidly. If
successfully developed and approved, our products will compete with numerous
existing therapies. For example, at least 15 drugs are currently approved in the
United States for the treatment of HIV. In addition, a number of companies are
pursuing the development of novel pharmaceutical products that target the same
diseases that we are targeting. Some companies, including several multi-national
pharmaceutical companies, are simultaneously marketing several different drugs
and may therefore be able to market their own combination drug therapies. We
believe that a significant number of drugs are currently under development and
will become available in the future for the treatment of HIV.
The need for drugs that have a novel mechanism of action has stimulated
interest in the inhibition of HIV entry into the cell. We believe that several
companies are developing or attempting to develop HIV drug candidates that
inhibit entry of the virus into the cell via mechanisms other than fusion.
We believe that there is a significant future market for therapeutics
that treat HIV and other viral diseases. However, we anticipate that we will
face intense and increasing competition in the future as new products enter the
market and advanced technologies become available. Existing products or new
products for the treatment of HIV developed by our competitors may be more
effective, less expensive, or more effectively marketed than any products
eventually commercialized by us.
Many of our competitors have significantly greater financial, technical
and human resources than we have and may be better able to develop, manufacture,
sell, market, and distribute products. Many of these competitors have products
that have been approved or are in late-stage development. These competitors also
operate large, well-funded research and development programs. In addition,
smaller companies may prove to be significant competitors, particularly through
collaborative arrangements with large pharmaceutical and biotechnology
companies. Furthermore, academic institutions, governmental agencies and other
public and private research organizations are becoming increasingly aware of the
commercial value of their inventions and are more actively seeking to
commercialize the technology they have developed.
New developments in our areas of research and development are expected
to continue at a rapid pace in both industry and academia. If our product
candidates are successfully developed and approved, we will face competition
based on:
o the safety and effectiveness of the products,
o the timing and scope of regulatory approvals,
o availability of manufacturing, sales, marketing and distribution
capabilities,
o reimbursement coverage,
o price, and
o patent position.
Our competitors may develop more effective or more affordable
technology or products, or achieve earlier patent protection, product
development, or product commercialization than we can. Our competitors may
succeed in commercializing products more rapidly or effectively than we can,
which could have a material adverse effect on our business, financial condition,
results of operations and market price of our stock.
12
Government Regulation
Human pharmaceutical products are subject to lengthy and rigorous
preclinical testing and clinical trials and other extensive, costly and
time-consuming procedures mandated by the FDA and foreign regulatory
authorities. The regulatory approval process includes:
o the establishment of the safety and effectiveness of each product
candidate, and
o confirmation by the FDA that good laboratory, clinical and manufacturing
practices were maintained during testing and manufacturing.
This process typically takes a number of years, depending upon the
type, complexity, and novelty of the pharmaceutical product. This process is
expensive and gives larger companies with greater financial resources a
competitive advantage over us. We have never submitted a product candidate for
approval by the FDA or any other regulatory authority for commercialization, and
our product candidates may never be approved for commercialization or obtain the
desired labeling claims.
The steps required by the FDA before new drugs may be marketed in the
United States include:
o preclinical studies,
o the submission to the FDA of a request for authorization to conduct
clinical trials on an IND,
o adequate and well-controlled clinical trials to establish the safety and
efficacy of the drug for its intended use,
o submission to the FDA of an New Drug Application, or NDA, and
o review and approval of the NDA by the FDA before the drug may be shipped or
sold commercially.
In the United States, preclinical testing includes both culture and
animal laboratory evaluation and characterization of the safety and efficacy of
a drug and its formulation. Laboratories involved in preclinical testing must
comply with FDA regulations regarding good laboratory practices. Preclinical
testing results are submitted to the FDA as part of the IND and, unless there is
objection by the FDA, the IND will become effective 30 days following its
receipt by the FDA. Submission of an IND may never result in the commencement of
human clinical trials.
Clinical trials involve the administration of the investigational drug
to healthy volunteers or to patients under the supervision of a qualified
principal investigator. These trials typically are conducted in three sequential
phases, although the phases may overlap with one another.
Phase I clinical trials represent the initial administration of the
investigational drug to a small group of healthy human subjects or, more rarely,
to a group of selected patients with a targeted disease or disorder. The goal of
Phase I clinical trials is typically to test for safety, dose tolerance,
absorption, bio-distribution, metabolism, excretion and clinical
pharmacokinetics.
Phase II clinical trials involve a small sample of the actual intended
patient population and seek to assess the effectiveness of the drug for the
specific targeted indications, to determine dose tolerance and the optimal dose
range and to gather additional information relating to safety and potential
adverse effects.
Phase III clinical trials are initiated to establish further clinical
safety and effectiveness of the investigational drug in a broader sample of the
general patient population at geographically dispersed study sites in order to
determine the overall risk-benefit ratio of the drug and to provide an adequate
basis for all labeling for promotion and use. The results of the research and
product development, manufacturing, preclinical testing, clinical trials and
related information are submitted to the FDA in the form of an NDA for approval
of the marketing and shipment of the drug.
13
Our product candidates under development may never receive
commercialization approval in any country on a timely basis, or at all, even
after substantial time and expenditures. If we are unable to demonstrate the
safety and effectiveness of our product candidates to the satisfaction of the
FDA or foreign regulatory authorities, we will be unable to commercialize our
product candidates. This would have a material adverse effect on our business,
financial condition, results of operations and market price of our stock. Even
if regulatory approval of a product candidate is obtained, the approval may
limit the indicated uses for which the product candidate may be marketed.
We, Roche and any potential future collaborative partners are also
subject to various federal, state and local laws and regulations relating to:
o safe working conditions,
o laboratory and manufacturing practices,
o the experimental use of animals, and
o the use and disposal of hazardous or potentially hazardous substances,
including radioactive compounds and infectious disease agents.
Compliance with these laws, regulations and requirements may be costly
and time-consuming and the failure to maintain such compliance by us or our
existing and potential future collaborative partners could have a material
adverse effect on our business, financial condition and results of operations.
The FDA gave fast track designation for the treatment of HIV-infected
individuals to T-20 in January 1999 and to T-1249 in May 1999. Fast track
designation does not guarantee that T-20 or T-1249 will receive regulatory
approval.
Third-Party Reimbursement And Health Care Reform Measures
In the United States and elsewhere, sales of prescription
pharmaceuticals are dependent, in part, on the consumer's ability to be
reimbursed for the cost of the drugs by third-party payors, such as government
agencies and private insurance plans. Third-party payors are increasingly
challenging the prices charged for medical products and services in an effort to
promote cost containment measures and alternative health care delivery systems.
A majority of HIV-infected patients taking anti-HIV drugs, however, are
reimbursed by third-party payors for the cost of their therapies. If we succeed
in bringing one or more products to the market, these products may not be
considered cost-effective and reimbursement to the consumer may not be
sufficient to allow us to sell our products on a competitive basis. Economic,
political and regulatory influences, including the efforts of governments and
third-party payors to contain or reduce the cost of health care through various
means, will continue to affect the business and financial condition of
pharmaceutical companies. A number of legislative and regulatory proposals aimed
at changing health care systems have been proposed, both domestically and
abroad, in recent years. Because of the high cost of the treatment of HIV, many
state legislatures are reassessing reimbursement policies for this therapy. In
addition, the emphasis in the United States on reducing the overall costs of
health care through managed care has increased, and will continue to increase,
the pressure on pharmaceutical pricing. Recently, several major pharmaceutical
companies have offered to sell their HIV drugs at or below cost to certain
third-world nations in Africa. The effect of these offers on the reimbursement
climate, and prices that may be charged for, HIV medications in the United
States and the rest of the developed world is difficult to predict. There is a
risk that third-party payors could exert pressure for price reductions in the
United States and the rest of the developed world based on these offers to
Africa. This price pressure could limit the amount that we would be able to
charge for our products. We cannot predict whether legislative or regulatory
proposals will be adopted or the effect such proposals or managed care efforts
may have on our business. However, the announcement and/or adoption of these
proposals or efforts could have a material adverse effect on our business,
financial condition, results of operations and the market price of our stock.
14
Human Resources
As of January 31, 2001, we had 85 full-time employees, including a
technical scientific staff of 64. None of our employees are covered by
collective bargaining arrangements, and management considers relations with our
employees to be good.
Scientific Advisory Board
We have assembled a Scientific Advisory Board, or SAB, comprised of
individuals we call Scientific Advisors. The Scientific Advisors are leaders in
the fields of viral disease research and treatment.
Members of our SAB review our research, development and operating
activities and are available for consultation with management and staff relating
to their respective areas of expertise. Our SAB holds regular meetings. Several
of our individual Scientific Advisors have separate consulting relationships
with us and meet more frequently, on an individual basis, with management and
staff to discuss our ongoing research and development projects. Certain of our
Scientific Advisors own our common stock and/or hold options to purchase our
common stock. Our Scientific Advisors are expected to devote only a small
portion of their time to our business.
Our Scientific Advisors are all employed by other entities. Each
Scientific Advisors has entered into a letter agreement with us that contains
confidentiality and non-disclosure provisions that prohibit the disclosure of
confidential information to anyone else. Such letter agreements also provide
that all inventions, discoveries or other intellectual property that come to the
attention of or are discovered by our Scientific Advisors while performing
services under this letter agreement will be assigned to us. The current members
of our SAB are as follows:
Robert C. Gallo, M.D. Professor and Director, Institute of Human Virology --
University of Maryland Biotechnology Institute.
Martin Hirsch, M. D., Professor of Medicine, Director of AIDS Clinical Trials
Unit/Retrovirus Laboratory - Harvard Medical School
Eric Hunter, Ph.D. Professor of Microbiology, Director, Center for AIDS Research
- -- The University of Alabama at Birmingham.
Joseph S. Pagano, M.D. Professor of Medicine and Microbiology and Immunology,
Director of The Lineberger Comprehensive Cancer Center -- The University of
North Carolina at Chapel Hill.
Jerome J. Schentag, Pharm.D. Professor of Pharmacy and Pharmaceutics, Director,
The Clinical Pharmacokinetics Laboratory, Millard Fillmore Hospital, Director,
Center for Clinical Pharmacy Research -- The State University of New York at
Buffalo School of Pharmacy.
Judith M. White, Ph.D. Professor of Cell Biology and Microbiology -- University
of Virginia.
Richard J. Whitley, M.D. Loeb Eminent Scholar Chair in Pediatrics, Professor of
Pediatrics, Microbiology and Medicine -- The University of Alabama at
Birmingham.
15
Risk Factors
This Annual Report on Form 10-K contains forward-looking statements
that involve risks and uncertainties. Our actual results could differ materially
from those anticipated in the forward-looking statements as a result of certain
factors, including the risks described below and elsewhere in this Annual Report
on Form 10-K.
We are an early stage company with an uncertain future.
We formed our company and began operations in January 1993.
Accordingly, we have only a limited operating history for you to evaluate our
business. There are many business risks associated with a biopharmaceutical
company in the early stage of development, such as ours. For example, we may not
be able to obtain sufficient financial, personnel and other resources to
continue to develop our product candidates. We also may not be successful in
discovering or developing any product candidates that ultimately achieve
regulatory approval or have commercial viability.
We have not yet generated any revenues from product sales or royalties.
We have never submitted a product candidate for approval by the FDA or any other
regulatory authority for commercialization. We will have to invest significant
additional time and funds in research and development and extensive clinical
trials before we can submit our product candidates for regulatory approval. Our
product candidates may never obtain regulatory approval, and therefore, may
never be commercially available.
We have never made money and expect our losses to continue.
We have incurred losses since we began operating. As of December 31,
2000, our accumulated deficit was approximately $122 million. Since inception,
we have spent our funds on our product development efforts, relating primarily
to the development of T-20 and T-1249. We expect that we will incur substantial
losses for the foreseeable future. We also expect our losses to significantly
increase as we expand our research and development, preclinical testing and
clinical trial efforts. We have not yet generated any revenues from product
sales or royalties. We cannot assure you that we will ever be able to generate
any such revenues or royalties or, if we generate any revenues or royalties,
that we will ever be profitable.
We will need to raise additional funds in the near future.
Based on our current plan, we anticipate that our existing capital
resources will be adequate to fund our capital requirements through 2001. We
believe that substantial additional funds will be required after 2001. In the
event this financing is not obtained, we will be required to delay, scale-back
or eliminate certain preclinical testing, clinical trials and research and
development programs.
We may have difficulty raising funds by selling equity. Since our
initial public offering in 1997, we have obtained the majority of our funding
through public or private offerings of our common stock. The public capital
markets in which shares of our common stock are traded have declined during the
first quarter of 2001, and the general ability of companies to obtain additional
financing has become more difficult than in 2000. The market price of our common
stock has decreased approximately 40% from December 31, 2000 to the date of this
Annual Report on Form 10-K to a level below the price at which we sold shares of
our common stock in a private placement in 2000. As a result, even if we elect
and are able to obtain additional funding through an equity financing, the terms
of this financing could be highly dilutive to current shareholders.
We may also attempt to obtain additional funding through debt financings
and/or arrangements with new or existing collaborative partners. Any debt
financings may contain restrictive terms that limit our operating flexibility.
Arrangements with partners may require us to relinquish rights to our
technologies or product candidates or to reduce our share of potential profits.
As a result, any future financings could have a material adverse effect on our
business, financial condition, results of operations or the market price of our
stock.
16
Our quarterly operating results are subject to fluctuations and you should not
rely on them as an indication of our future results.
Our operating results are likely to fluctuate over time, due to a
number of factors, many of which are outside of our control. Some of these
factors include:
o the status and progress of our collaborative agreement with Roche,
o the status of our research and development activities,
o the progress of our product candidates through preclinical testing and
clinical trials,
o the timing of regulatory actions,
o our ability to establish manufacturing, sales, marketing and distribution
capabilities, either internally or through relationships with third
parties,
o technological and other changes in the competitive landscape,
o changes in our existing or future research and development relationships
and strategic alliances, and
o the commercial viability of our product candidates.
As a result, we believe that comparing financial results for one period
against another period is not necessarily meaningful, and you should not rely on
our results of operations in prior periods as an indication of our future
performance. Also, if our results of operations for a period deviate from the
levels expected by securities analysts and investors, it could have a material
adverse effect on the market price of our common stock.
We are heavily dependent on our lead product candidate, T-20.
T-20 is our lead product candidate. Our success will depend, to a great
degree, on the success of T-20. In particular, we must be able to:
o establish the safety and efficacy of T-20 in humans,
o obtain regulatory approvals so that we can commercialize T-20,
o establish relationships for the commercial-scale production of T-20 at an
acceptable cost and with the appropriate quality, and
o successfully market T-20 and achieve acceptance of T-20 by the medical
community, including patients, physicians, health care providers and
third-party payors.
We may rely on our collaborative partner, Roche, in connection with
many of these matters. We may not be able to control the amount or timing of
resources that Roche may devote to these matters. If we or Roche fail to
successfully develop and commercialize T-20, our business, financial condition,
results of operations and the market price of our stock will be materially and
adversely affected.
The success of T-20 depends on the results of our Phase III clinical trials
currently in progress.
We initiated two Phase III clinical trials for T-20 during 2000. Phase III
clinical trials are initiated to establish further clinical safety and
effectiveness of an investigational drug in a broader sample of the general
patient population at geographically dispersed study sites in order to determine
the overall risk-benefit ratio of the drug and to provide an adequate basis for
all labeling for promotion and use. The results
17
of these trials along with the research and product development, manufacturing,
preclinical testing, clinical trials and related information are submitted to
the FDA in the form of a New Drug Application, or NDA, for approval of the
marketing and shipment of the drug.
If the results of these Phase III trials do not demonstrate the safety and
effectiveness of T-20 to the satisfaction of the FDA or foreign regulatory
authorities, we will be unable to commercialize T-20. Even if regulatory
approval for T-20 is obtained, the results of the Phase III trials may indicate
that T-20 is less safe or effective than expected. This could result in approval
that limits the indicated use for which T-20 may be marketed. Any of these
outcomes would have a material adverse effect on our business, financial
condition, results of operations and the market price of our stock.
Our success in commercializing T-20 and T-1249 depends on our relationship with
Roche.
In July 1999, we announced an agreement with Roche to develop and market
T-20 and T-1249 worldwide. We will share development expenses and profits for
T-20 and T-1249 in the United States and Canada equally with Roche. Outside of
these two countries, Roche will fund all development costs and pay royalties to
us on net sales of T-20 and T-1249 for a specified term. Roche paid us $10
million up front and a $2 million milestone payment for commencement of our
Phase III clinical trial in December 2000. Roche will provide us up to an
additional $56 million in cash upon achievement of certain developmental,
regulatory and commercial milestones. In August 2000, we announced the selection
of Roche's manufacturing facility to manufacture commercial supplies of T-20.
Our reliance on Roche poses a number of risks, including:
o Roche may not devote sufficient resources to the development or marketing
of our products;
o Roche may not devote sufficient resources to manufacture T-20 in commercial
quantities on a cost-effective basis and with the appropriate quality;
o disagreements with Roche could lead to delays in or termination of the
development or commercialization of our products, or result in litigation
or arbitration;
o Roche has considerable discretion in electing whether to pursue the
development of any products and may pursue alternative technologies or
products either on its own or in collaboration with our competitors;
o Roche may choose to devote fewer resources to the development and marketing
of our products than it does to products of its own development; and
o disputes may arise in the future with respect to the ownership of rights to
technology developed with Roche.
Given these risks, there is a great deal of uncertainty regarding the
success of our collaboration with Roche. If these efforts fail, our product
development or commercialization of T-20 or T-1249 could be delayed and
materially and adversely affected. Any delay could have a material adverse
affect on our business, financial condition, results of operations and the
market price of our stock. Our agreement with Roche grants them an exclusive,
world-wide license for T-20 and T-1249, and certain other compounds. Under the
Roche agreement, a joint management committee consisting of members from
Trimeris and Roche oversees the strategy for the collaboration. Roche may
terminate its license for a particular country in its sole discretion with
advance notice. If Roche decides to terminate the license for T-20 or T-1249 in
a particular country, this could have a material and adverse effect on our
business, financial condition, results of operations and the market price of our
stock.
We face many uncertainties relating to our human clinical trial results and
clinical trial strategy.
In order to obtain the regulatory approvals that we need to sell
commercially any of our product candidates, we must demonstrate that each
product candidate is safe and effective for use in humans for each target
indication. We attempt to demonstrate this through preclinical testing and
clinical trials for each
18
product candidate. This is a very complex and lengthy process. To date, we have
completed initial preclinical testing of some of our product candidates and a
Phase I/II clinical trial of T-20 that enrolled 17 patients, and are conducting
several Phase II or Phase I/II clinical trials of T-20. Collectively, these
trials have involved over 200 patients. We have begun enrollment in Phase III
clinical trials for T-20, in the U.S. and internationally, which will enroll up
to approximately 1,000 patients worldwide. We have also an ongoing Phase I/II
clinical trial of T-1249 which enrolled 72 patients.
Because these clinical trials have been limited to a relatively small
number of patients, we cannot assure you that the results of these early
clinical trials will support further clinical trials of T-20 or T-1249. We may
not be able to demonstrate that potential product candidates that appeared
promising in preclinical testing and early clinical trials will be safe or
effective in advanced clinical trials that involve larger numbers of patients.
We also cannot assure you that the results of the clinical trials we have
conducted and still intend to conduct will support our applications for
regulatory approval. As a result, our product development programs may be
curtailed, redirected or eliminated at any time by us or by regulatory
authorities.
We may redesign, delay or cancel our preclinical testing and clinical
trials, for some or all of the following reasons:
o unanticipated, adverse or ambiguous results from our preclinical testing or
clinical trials,
o change in the focus of our collaborative partner, Roche,
o undesirable side effects which delay or extend the trials,
o our inability to locate, recruit and qualify a sufficient number of
patients for our trials,
o difficulties in manufacturing sufficient quantities of the particular
product candidate or any other components needed for our preclinical
testing or clinical trials,
o regulatory delays or other regulatory actions,
o change in the focus of our development efforts, and
o reevaluation of our clinical development strategy.
Accordingly, our clinical trials may not commence or proceed as
anticipated. This would have a material adverse effect on our business,
financial condition, results of operations and market price of our stock. Also,
if the results of our clinical trials or our clinical trial strategy deviates
from the expectations of securities analysts and investors, the market price of
our common stock could be adversely affected. In addition, due to uncertainties
that are part of the clinical development process, we may underestimate the
costs associated with clinical development of T-20 or T-1249. Delays or
unanticipated increases in costs of clinical development or failure to obtain
regulatory approval or market acceptance for our products could adversely affect
our business, financial condition, results of operations and the market price of
our stock.
We have no experience manufacturing pharmaceutical products.
The manufacture of pharmaceutical products requires significant
expertise and capital investment. We have no experience in manufacturing
pharmaceuticals, no commercial manufacturing capacity and only have limited
experience in manufacturing process development. As a result, we have elected to
work with Roche and third-party contract manufacturers to supply quantities of
T-20 and T-1249 to be used in currently planned clinical trials. We expect to
rely on Roche and third-party manufacturers throughout the clinical and initial
commercialization phases of T-20 and T-1249 development, and we have selected
Roche's facility to manufacture commercial quantities of T-20. We may not be
able to maintain manufacturing relationships with Roche and/or any other
third-party manufacturers on acceptable terms or at all. Our dependence on Roche
and third parties for the manufacture of products and product candidates
19
could have a material adverse effect on our business, financial condition,
results of operations and the market price of our stock.
We face risks associated with manufacturing T-20 and T-1249.
Peptide-based therapeutics are difficult and expensive to manufacture.
If T-20 and T-1249 are successfully marketed, the amount of peptide required
could exceed the amount of peptide currently produced worldwide. We, Roche, and
our third-party manufacturers, are currently using a novel method to manufacture
T-20. This chemical methodology is inherently complex. We may not be able to
manufacture T-20 or T-1249 with the appropriate quality on a large-scale or on a
cost-effective basis or develop an alternative, more efficient manufacturing
method for T-20, T-1249 or any of our other peptide product candidates. In
addition, commercial production of T-20 will require raw materials in amounts
substantially greater than those being used in the current manufacturing
campaigns. We may not be able to obtain these materials in sufficient quantities
or on a cost-effective basis to support the commercial manufacture of T-20.
We have selected Roche to manufacture commercial quantities of T-20 drug
substance. We will be dependent on their ability to manufacture T-20 in
commercial quantities with the appropriate quality on a cost-effective basis.
Due to the significant amount of money required to build a manufacturing
facility capable of producing T-20 in commercial quantities, and the
efficiencies gained with increased volume, Roche plans to manufacture T-20 at a
single facility. Roche will be required to have this facility approved by the
FDA for manufacture of T-20 drug substance. If FDA approval of this facility is
delayed or not received, our business, financial condition, results of
operations and the market price of our stock will be materially and adversely
affected.
Once the T-20 drug substance is produced, we expect Roche and/or
third-party drug manufacturers to use the drug substance to manufacture the
finished drug product. If Roche or third parties are unable to manufacture
commercial quantities of T-20 drug product, with the appropriate quality on a
timely or cost-effective basis, our business, financial condition, results of
operations and market price of our stock will be materially and adversely
affected. These drug product manufacturing facilities utilized to produce a
finished drug product may also require FDA approval prior to commercial
manufacturing of T-20. If FDA approval is delayed or not received, our business,
financial condition, results of operations and the market price of our stock
will be materially and adversely affected.
If we are unable to manufacture T-20 or T-1249 on a timely or
cost-effective basis with the appropriate quality or are unable to obtain the
necessary quantities of raw materials, our business, financial condition,
results of operations and the market price of our stock will be materially and
adversely affected. In the event a natural disaster or other difficulty affects
the Roche manufacturing facility or one of the third parties' drug product
manufacturing facilities, we would be unable to replace this manufacturing
capacity on a timely basis, and our business, financial condition, results of
operations and the market price of our stock will be materially and adversely
affected.
HIV may develop resistance to our drug candidates.
HIV is prone to genetic mutations. These mutations have produced
strains of HIV that are resistant to currently-approved therapeutics. The HIV
virus may develop similar resistance to our viral fusion inhibitor therapeutics,
including T-20 and T-1249. This could have a material adverse effect on our
business, financial condition, results of operations and the market price of our
stock.
Our business is based on novel technology and is highly risky and uncertain.
Our product development programs are based on novel technology. Our
technology platform is designed to discover product candidates which treat viral
infection by inhibiting viral fusion, a process which prevents the virus from
fusing to the cell, thereby preventing the virus from entering the cell and
replicating. We are not aware of any other approved antiviral pharmaceutical
products that target the inhibition of viral fusion. Accordingly, developing
products that use this novel approach is highly risky and uncertain. Our
products could:
20
o experience unanticipated developments or clinical or regulatory delays,
o produce unexpected adverse side effects, or
o provide inadequate therapeutic effectiveness.
Any of these could slow or suspend our product development efforts. If
any of these unanticipated results occurs, it could have a material adverse
effect on our business, financial condition, results of operations and the
market price of our stock.
We may not be able to use our novel technology platform to discover and
successfully develop any commercially viable products. We may not be able to
complete our research or product development efforts for any particular product
candidate, or develop any product candidates that will prove to be safe and
effective. We may not be able to obtain the required regulatory approvals for
any products. Our development programs are subject to the risks inherent in the
development of new products using new technologies and approaches. We may
encounter unforeseen problems with these technologies or applications and
technological challenges in our research and development programs that we may
not be able to resolve.
We are dependent on third-party contract research organizations.
We have engaged, and intend to continue to engage, third-party contract
research organizations and/or Roche to perform some functions for us related to
the development of our product candidates. Together with Roche, we typically
design our clinical trials, but rely on these contract research organizations or
Roche to actually conduct the clinical trials. The failure by the contract
research organizations or Roche to perform our clinical trials satisfactorily or
their breach of their obligations to us could delay or prevent the
commercialization of our product candidates. This would have a material adverse
effect on our business, financial condition, results of operations and the
market price of our stock.
Because we rely on third-party contract research organizations and
Roche, our preclinical testing or clinical trials may not begin or be completed
on the dates we estimate for them. Any delays in our testing and trials could
delay regulatory approval for or commercialization of our product candidates.
These delays could:
o increase our operating expenses,
o cause us to need additional capital,
o divert management's time and attention, and
o create adverse market perception about us and our product candidates.
We have no sales, marketing or distribution capabilities.
We have no experience in sales, marketing or distribution of
pharmaceuticals. We may develop these capabilities in certain areas in the
future. We may rely on Roche or other arrangements with third parties which have
established distribution systems and direct sales forces for the sales,
marketing and distribution of products. In the event that Roche does not market
our product candidates or we are unable to reach agreement with one or more
marketing partners, we may be required to develop internal sales, marketing and
distribution capabilities. We may not be able to establish cost-effective sales,
marketing or distribution capabilities or make arrangements with third parties
to perform these activities on acceptable terms, if at all. This would have a
material adverse effect on our business, financial condition, results of
operations and the market price of our stock.
If we establish sales, marketing or distribution arrangements with
other parties, they may have significant control over important aspects of the
commercialization of our products including:
21
o market identification,
o marketing methods,
o pricing,
o product positioning,
o composition of sales force, and
o promotional activities.
We may not be able to control the amount or timing of resources that
any third party may devote to our products.
Our stock price is highly volatile.
Our stock price has fluctuated substantially since our initial public
offering, which was completed in October 1997. The market price of our common
stock, like that of the securities of many other biotechnology and
pharmaceutical companies, is likely to remain highly volatile, which could
affect our ability to raise additional funds through the sale of our common
stock. The market price of our common stock has decreased approximately 40% from
December 31, 2000 to the date of this Annual Report on Form 10-K to a level
below the price at which we sold shares of our common stock in a private
placement in 2000.
Furthermore, the stock market has from time to time experienced extreme
price and volume fluctuations that may be unrelated to the operating performance
of particular companies. In addition, in the past, class action lawsuits have
often been instituted against biotechnology and pharmaceutical companies
following periods of volatility in the market price of these companies' stock.
If litigation were instituted against us on this basis, it could result in
substantial costs and would divert management's attention and resources. This
would have a material adverse effect on our business, financial condition,
results of operations and the market price of our stock.
We depend on collaborations and licenses with others.
We may enter into license, development, or other agreements with Roche,
new partners or collaborators to assist us in:
o seeking regulatory approval for our product candidates, and
o developing, manufacturing and commercializing some of our product
candidates.
Accordingly, our success will depend, in part, on our partners' success
in:
o performing preclinical testing and clinical trials,
o obtaining the requisite regulatory approvals,
o scaling up manufacturing,
o successfully commercializing the product candidates we license to
them, and
o otherwise performing their obligations.
We may not be able to maintain our existing collaborative arrangement
with Roche or enter into arrangements in the future on terms that are acceptable
to us. Moreover, Roche may not perform its
22
obligations under our agreement with it and may choose to compete with us by
seeking alternative means of developing therapeutics for the diseases we have
targeted. In addition, we may not be able to:
o obtain proprietary rights, or licenses under the proprietary rights
which belong to others, for any technology or product candidates
developed through this arrangement, or
o protect the confidentiality or prevent the disclosure of any
proprietary rights and information developed in our collaborative
arrangement.
Our agreement with Roche grants them an exclusive, world-wide license for
T-20 and T-1249, and certain other compounds. Under the Roche agreement, a joint
management committee consisting of members from Trimeris and Roche oversees the
strategy for the collaboration. Roche may terminate its license for a particular
country in its sole discretion with advance notice. If Roche decides to
terminate the license for T-20 or T-1249 in a particular country, this could
have a material and adverse effect on our business, financial condition, results
of operations and the market price of our stock.
In the future, we may find that we need additional licenses from other
parties to effectively develop potential product candidates. We may not be able
to maintain our existing license agreements or obtain additional licenses on
acceptable terms or at all.
There is uncertainty relating to third-party reimbursement, health care reform
measures, and recent developments in Africa which could limit the amount we will
be able to charge for our products.
In the United States and elsewhere, sales of prescription drugs are
dependent, in part, on the consumer's ability to be reimbursed for the cost of
the drugs by third-party payors, such as government agencies and private
insurance plans. Third-party payors are increasingly challenging the prices
charged for medical products and services in an effort to promote cost
containment measures and alternative health care delivery systems. As a result,
third-party payor reimbursements may not be available or may not be available at
a level that will allow us, Roche, or our potential collaborative partners to
sell our products on a competitive basis.
Economic, political and regulatory influences, including the efforts of
governments and third-party payors to contain or reduce the cost of health care
through various means, will continue to affect the business and financial
condition of pharmaceutical companies. A number of legislative and regulatory
proposals aimed at changing health care systems have been proposed both
domestically and abroad in recent years. Because of the high cost of the
treatment of HIV, many state legislatures are reassessing reimbursement policies
for this therapy. In addition, an increasing emphasis in the United States to
reduce the overall costs of health care through managed care has and will
continue to increase the pressure on pharmaceutical pricing. We cannot predict
whether legislative or regulatory proposals will be adopted or the effect that
those proposals or managed care efforts may have. However, there is a risk that
the announcement and/or adoption of these types of proposals or efforts could
have a material adverse effect on our business, financial condition, results of
operations and the market price of our stock.
Recently several major pharmaceutical companies have offered to sell
their HIV drugs at or below cost to certain third-world nations in Africa. The
effect of these offers on the reimbursement climate, and the prices that may be
charged, for HIV medications in the United States and the rest of the developed
world is difficult to predict. There is a risk that third-party payors could
exert pressure for price reductions in the United States and the rest of the
developed world based on these offers to Africa. This price pressure could limit
the amount that we would be able to charge for our products and could have a
material adverse effect on our business, financial condition, results of
operations and the market price of our stock.
There is uncertainty regarding patents and proprietary rights.
Our success will depend, in part, on our ability and the ability of our
licensors to obtain and to keep protection for our products and technologies
under the patent laws of the United States and other countries, so that we can
prevent others from using our inventions. Our success also will depend on our
ability to
23
prevent others from using our trade secrets. In addition, we must operate in a
way that does not violate the patent, trade secret, or other intellectual
property rights of other parties.
The pharmaceutical and biotechnology industries place considerable
importance on obtaining and maintaining patent and trade secret protection for
new technologies, products and processes. We have obtained rights to certain
patents and patent applications and may, in the future, seek rights from third
parties to additional patents and patent applications.
The standards used by the U.S. Patent and Trademark Office and the
patent offices of other countries to grant patents may change. Consequently, we
cannot be certain as to the type and extent of patent claims that may be issued
to us in the future.
The standards which courts use to interpret patents may change,
particularly as new technologies develop. Consequently, we cannot be certain as
to how much protection, if any, will be given to patents owned or licensed by
us, if they are challenged in court. If we choose to go to court to stop someone
else from using the inventions claimed in these patents, that individual or
company has the right to ask the court to rule that the patents are invalid and
should not be enforced against them. Such lawsuits are expensive and will
consume time and other resources, even if we are successful in stopping the
violation of the patents. In addition, there is a risk that the court will
decide that some or all of the claims of these patents are not valid and that we
do not have the right to stop others from using the inventions. There is also a
risk that, even if the validity of the patents is upheld, the court will refuse
to stop the other party on the grounds that its activities are not covered by
the patent claims.
In addition, a third party may claim that we are using inventions
covered by their patents and may go to court to stop us from engaging in our
normal operations and activities, such as research and development and the
manufacture and sale of products. Such lawsuits are expensive and will consume
time and other resources. There is a risk that the court will decide that we are
violating the third party's patent and will order us to pay the other party
damages for having violated their patent. There is also a risk that the court
will order us to stop the activities covered by the patent. In this case, we may
attempt to obtain a license from the third party so that we may continue to use
the invention. However, we cannot assure you that if this occurs we would be
able to obtain the licenses we need or that we could negotiate the licenses on
terms acceptable to us, or at all.
Another risk we face in this area is that the laws of certain countries
may not protect our proprietary rights to the same extent as United States law.
Recently several generic drug-makers in countries such as India have offered to
sell HIV drugs currently protected under US patents to patients in Africa at
prices significantly below those offered by the drug's patent holder in other
countries. There is a risk that these drugs produced by the generic drug-makers
could be illegally imported into the United States and other developed nations
at prices below those charged by the drug's patent holders. If any of these
actions occur with respect to our products, this could limit the amount we could
charge for our products and could have an adverse effect on our business,
financial condition, results of operations and the market price of our stock.
We also rely in our business on trade secrets, know-how and other
proprietary information. We seek to protect this information, in part, through
the use of confidentiality agreements with employees, consultants, advisors and
others. Nonetheless, we cannot assure you that those agreements will provide
adequate protection for our trade secrets, know-how or other proprietary
information and prevent their unauthorized use or disclosure. There is also the
risk that our employees, consultants, advisors or others will not maintain the
confidentiality of such trade secrets or proprietary information, or that this
information may become known in some other way or be independently developed by
our competitors.
The occurrence of these risks could have a material adverse effect on
our business, financial condition, results of operations and the market price of
our stock.
We are subject to extensive government regulation; our products may not receive
regulatory approval.
24
Human pharmaceutical products must undergo lengthy and rigorous
preclinical testing and clinical trials and other extensive, costly and
time-consuming procedures mandated by the FDA and foreign regulatory
authorities. To have a product candidate approved, we must establish that the
product candidate is safe and effective for each target indication. The FDA must
confirm that we and our clinical testing and manufacturing partners maintain
good laboratory, clinical and manufacturing practices. The regulatory approval
process typically takes a number of years, depending on the type, complexity and
novelty of the pharmaceutical product. Because of the considerable time and
expense required, this process gives larger companies with greater financial
resources a competitive advantage over us.
To date, none of our product candidates has been submitted for approval
by the FDA or any other regulatory authority for commercialization. Our products
may never be approved by the FDA or any other regulatory authority. T-20 and
T-1249 have received fast track designation from the FDA for the treatment of
HIV-infected individuals. Fast track designation is granted to products that may
provide a significant improvement in the safety or effectiveness of the
treatment for a serious or life-threatening disease, and this designation is
intended to expedite the review of these drugs. However, fast track designation
does not, in any way, mean that T-20 or T-1249 will be approved for
commercialization by the FDA in the future.
Our estimates of future regulatory submission dates may prove to be
inaccurate. Our regulatory submissions can be delayed or we may cancel plans to
submit proposed products for a number of reasons, including:
o unanticipated preclinical testing or clinical trial reports,
o changes in regulations, or the adoption of new regulations,
o unanticipated enforcement of existing regulations,
o unexpected technological developments, and
o developments by our competitors.
Consequently, we cannot assure you that our anticipated submissions
will be made on their target dates, or at all. Delays in these submissions would
have a material adverse effect on our business, financial condition, results of
operations and the market price of our stock.
A number of federal, state and local laws regulate safe working
conditions, laboratory and manufacturing practices, the experimental use of
animals and the use and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious disease agents. We
must comply with these laws. We use some of these hazardous substances in our
product development programs. It is expensive and time-consuming to comply with
these laws. If we fail to comply with these laws, or if compliance is more
costly than anticipated, our business, financial condition, results of
operations and the market price of our stock could be materially and adversely
affected.
We face intense competition.
We are engaged in segments of the biopharmaceutical industry, including
the treatment of HIV, that are intensely competitive and change rapidly. We
expect that new developments in the areas in which we are conducting our
research and development will continue at a rapid pace in both industry and
academia.
If we successfully develop our product candidates and gain approval for
those products, they will compete with numerous existing therapies. For example,
at least 17 antiretroviral drugs are currently approved in the United States for
the treatment of HIV. We also believe that a significant number of drugs are
currently under development and will become available in the future for the
treatment of HIV. We expect to face intense and increasing competition in the
future as these new products enter the market and advanced technologies become
available. Even if we are able to successfully develop T-20 or T-1249 and either
product candidate receives regulatory approval, we cannot assure you that
existing or new products
25
for the treatment of HIV developed by our competitors will not be more
effective, less expensive or more effectively marketed and sold, than T-20,
T-1249 or any other therapeutic for HIV that we may develop.
Many of our competitors have significantly greater financial,
technical, human and other resources than we do. Smaller companies may also
prove to be significant competitors, particularly through collaborative
arrangements with large pharmaceutical and biotechnology companies. Furthermore,
academic institutions, governmental agencies and other public and private
research organizations are becoming increasingly aware of the value of their
inventions and are more actively seeking to commercialize the technology they
have developed.
Several factors will help determine whether we will be able to compete
successfully in our market, including the following:
o the safety and effectiveness of our products,
o the speed with which we can gain regulatory approval for our products
and the scope of those approvals,
o our ability to manufacture, sell, market and distribute our products,
or to find someone else to handle these functions for us in a timely
and cost-efficient manner,
o the availability of reimbursement coverage for our products,
o our ability to offer our products at a competitive price, and
o the strength of our patents and the speed with which we can obtain
patents on our products and technologies.
We may not be able to effectively compete with our competitors in some
or all of these areas. This could have a material adverse effect on our
business, financial condition, results of operations and the market price of our
stock.
Our products may not achieve market acceptance.
T-20 and T-1249 are peptides and are delivered via once or twice-daily
subcutaneous injection, which is injection of T-20 under the skin. All of the
currently approved therapeutics for HIV are delivered orally. Even if T-20 or
T-1249 receives regulatory approval, patients and physicians may not readily
accept daily injections of an HIV therapeutic, which would limit their
acceptance in the market.
Peptides are also expensive to manufacture, which could result in prices
for T-20 and T-1249 that are above prices of currently approved HIV
therapeutics. Even if T-20 or T-1249 receives regulatory approval, physicians
may not readily prescribe T-20 or T-1249, due to cost-benefit considerations
when compared with other HIV therapeutics. Even if T-20 or T-1249 receives
regulatory approval, higher prices could also limit our ability to receive
reimbursement coverage for our products from third-party payors.
In the event T-20 and/or T-1249 receive regulatory approval and their
market acceptance is limited by any of the factors stated above or other
factors, our business, financial condition, results of operations and the market
price of our stock will be materially and adversely affected
We use hazardous materials.
We use hazardous materials, chemicals, viruses and various radioactive
compounds in our product development programs. We believe that our handling and
disposal of these materials comply with the standards prescribed by state and
federal regulations, but we cannot completely eliminate the risk of
contamination or injury from these materials. If there were such a
contamination, injury or other accident, we could be held liable for any damages
or penalized with fines. The amount of the liability and fines could
26
exceed our resources. Additionally, if we develop an internal manufacturing
capability, regardless of scale, we may incur substantial additional costs to
comply with environmental regulations.
We are exposed to product liability risks.
Our business exposes us to potential product liability risks that are
inherent in the testing, manufacturing and marketing of pharmaceutical products.
We cannot assure you that product liability claims will not be asserted against
us. In addition, the use in our clinical trials of pharmaceutical products that
our potential collaborators may develop and the subsequent sale of these
products by us or our potential collaborators may cause us to bear a portion of
product liability risks relating to these products. A successful product
liability claim or series of claims brought against us could have a material
adverse effect on our business, financial condition, results of operations and
the market price of our stock.
We do not currently have any product liability insurance relating to
clinical trials or any products or compounds we have or may develop. We cannot
assure you that we will be able to obtain or maintain adequate product liability
insurance on acceptable terms, if at all, or that such insurance will provide
adequate coverage against our potential liabilities. Furthermore, our
collaborators or licensees may not be willing to indemnify us against these
types of liabilities and may not themselves be sufficiently insured or have a
net worth sufficient to satisfy any product liability claims. Claims or losses
in excess of any product liability insurance coverage, or indemnification
payments, that may be obtained by us could have a material adverse effect on our
business, financial condition, results of operations and the market price of our
stock.
We depend upon certain key personnel and face risks relating to our ability to
attract and retain key personnel.
We depend on members of our senior management and scientific staff,
including Dr. Dani P. Bolognesi, our Chief Executive Officer and Chief
Scientific Officer. Dr. Bolognesi has limited experience acting as an executive
officer at a company such as ours, and has held this position at Trimeris since
March 1999.
The future recruitment and retention of management personnel and
qualified scientific personnel is also critical to our success. We cannot be
certain that we will attract and retain qualified personnel on acceptable terms
given the competition among biotechnology, pharmaceutical and health care
companies, universities and non-profit research institutions for experienced
management personnel and scientists. In addition, we rely on scientific advisors
and other consultants to assist us in formulating our research and development
strategy. These consultants are employed by other parties and may have
commitments to, or advisory or consulting agreements with, other entities, which
may limit their availability to us.
Future sales of common stock by our existing stockholders or key management
could adversely affect our stock price.
The market price of our common stock could decline as a result of sales
by our existing stockholders or key management of shares of common stock in the
market, or the perception that these sales could occur. These sales also might
make it more difficult for us to sell equity securities in the future at a time
and at a price that we deem appropriate.
We have implemented certain anti-takeover provisions.
Certain provisions of our Certificate of Incorporation and Bylaws and
Delaware law could make it more difficult for a third party to acquire us, even
if the acquisition would be beneficial to our stockholders.
Our actual results could differ materially from those anticipated in our
forward-looking statements.
This Annual Report on Form 10-K and our other filings with the
Securities and Exchange Commission contain forward-looking statements based on
our current expectations, assumptions, estimates and projections about our
business and industry. In addition, our senior management may make
forward-
27
looking statements orally to analysts, investors, the media and others.
Forward-looking statements may include one or more of the following:
o projections of revenues, expenditures, earnings per share, gross margins,
product costs, capital structure or other financial items,
o descriptions of plans or objectives for future operations, products or
business transactions,
o forecasts of future economic performance, and
o descriptions of assumptions underlying any of these items.
Forward-looking statements can be identified by the fact that they do no
relate strictly to historical or current facts. Forward-looking statements give
our expectations of future performance and are not guarantees of future
performance. By their nature, forward-looking statements are subject to risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including all the risks and uncertainties discussed above. Forward-looking
statements speak only as of the date they are made. We do not undertake to
update publicly any forward-looking statements for any reason, even if new
information becomes available or other events occur in the future.
Item 2. Properties
We currently lease approximately 29,000 square feet of laboratory and
office space at 4727 University Drive, Suite 100, Durham, North Carolina. We
lease this space under a lease agreement that expires for part of the space on
September 30, 2002 and for the remainder of the space on October 31, 2003,
respectively. We also lease approximately 15,000 square feet of office space in
Durham under a sublease agreement that expires on December 31, 2001. We believe
that there will be suitable facilities available should additional space be
needed.
Item 3. Legal Proceedings
We are not a party to any material legal proceedings as of the date of this
Annual Report on Form 10-K.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 2000.
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our Common Stock has traded on the Nasdaq National Market System under the
Nasdaq symbol "TRMS" since our initial public offering at $12.00 per share was
consummated on October 7, 1997. We have not paid cash dividends in the past and
none are expected to be paid in the future. As of March 23, 2001 we had
approximately 131 shareholders of record, and believe we had approximately 1,000
beneficial shareholders. The following table sets forth the high and low bid
prices for our common stock for the period indicated as reported on the Nasdaq
National Market System. Such quotations reflect inter-dealer prices without
mark-up, mark-down or commissions and may not necessarily represent actual
transactions.
28
Year ended December 31,
1999 2000
High Low High Low
--------- ---------- --------- --------
1st Quarter........................... $27.69 $11.13 $67.75 $24.00
2nd Quarter........................... $17.00 $10.56 $74.88 $25.00
3rd Quarter........................... $25.88 $14.25 $75.50 $51.25
4th Quarter........................... $25.19 $16.38 $79.81 $42.00
For the 1st quarter of 2001 through March 29, 2001, the high bid was $57.06 and
the low bid was $22.88.
29
Item 6. Selected Financial Data
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The selected financial data below is taken from the audited Financial
Statements of the Company which are included elsewhere in this Annual Report on
Form 10-K, or from audited Financial Statements not included in this Annual
Report on Form 10-K. Please read the Financial Statements and Notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" while reading this selected financial data.
Cumulative
from
Inception
(January 7,
For the Years Ended December 31, 1993) to
--------------------------------------------------------------------- December 31,
1996 1997 1998 1999 2000 2000
---------- ---------- ---------- ----------- ----------- ---------------
Statements of Operations
Data:
Revenue $ 55 $ 431 $ 363 $ 4,681 $ 956 $ 6,590
---------- ---------- ---------- ----------- ----------- -----------
Operating expense:
Research and development:
Non-cash compensation. -- 193 821 2,174 5,386 8,574
Other research and
development expense... 5,146 9,541 15,987 17,582 32,970 88,676
---------- ---------- ---------- ----------- ----------- -----------
Total research and
development
expense................... 5,146 9,734 16,808 19,756 38,356 97,250
General and administrative:
Non-cash compensation -- 193 602 2,524 7,018 10,337
Other general and
administrative expense. 1,761 2,403 4,299 6,156 8,115 25,833
---------- ---------- ---------- ----------- ----------- -----------
Total general and
administrative
expense................... 1,761 2,596 4,901 8,680 15,133 36,170
---------- ---------- ---------- ----------- ----------- -----------
Total operating expenses..... 6,907 12,330 21,709 28,436 53,489 133,420
---------- ---------- ---------- ----------- ----------- -----------
Operating loss............... (6,852) (11,899) (21,346) (23,755) (52,533) (126,830)
---------- ---------- ---------- ----------- ----------- -----------
Interest income.............. 47 584 1,755 1,729 6,114 10,304
Interest expense............. (167) (113) (127) (161) (257) (1,448)
---------- ---------- ---------- ----------- ----------- -----------
Total other income (expense). (120) 471 1,628 1,568 5,857 8,856
---------- ---------- ---------- ----------- ----------- -----------
Loss before cumulative
effect of change in
accounting principle....... (6,972) (11,428) (19,718) (22,187) (46,676) (117,974)
Cumulative effect of change
in accounting principle.... -- -- -- -- (4,180) (4,180)
---------- ---------- ---------- ----------- ----------- -----------
Net loss..................... $ (6,972) $(11,428) $ (19,718) $ (22,187) $ (50,856) $(122,154)
========== ========== ========== =========== =========== ===========
Basic and diluted net loss
per share (1):
Before cumulative effect of
accounting change.......... $ (1.87) $ (1.79) $ (3.00)
Accounting change............ -- -- (0.27)
---------- ----------- -----------
Basic and diluted net loss
per share.................. $ (1.87) $ (1.79) $ (3.27)
========== =========== ===========
Weighted average shares
used in computing basic net
loss per share (1)......... 10,547 12,411 15,548
========== =========== ===========
(1) Computed on the basis described in Note 1 to Financial Statements.
30
As of December 31,
----------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- --------- -------- --------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents ............... $ 132 $ 32,557 $ 16,920 $ 37,023 $ 31,349
Working capital (deficiency) ............ (1,305) 34,733 16,562 36,856 73,998
Total assets ............................ 1,684 38,844 22,872 51,650 98,933
Long-term notes payable and capital
lease obligations, less current portion 575 240 853 1,206 1,861
Accumulated deficit ..................... (17,965) (29,393) (49,111) (71,298) (122,154)
Total stockholders' equity (deficit) .... (409) 35,810 18,016 39,066 73,379
Selected Quarterly Financial Data
(in thousands, except per share data)
(unaudited)
Q1 1999 Q2 1999 Q3 1999 Q4 1999
-------------- --------------- -------------- ---------------
Statements of Operations Data:
Revenue $ 81 $ -- $ 4,600 $ --
-------------- --------------- -------------- ---------------
Operating expense:
Research and development
expenses............ 4,117 5,420 3,369 6,850
General and administrative
expenses............ 1,753 1,789 2,178 2,960
-------------- --------------- -------------- ---------------
Total operating expenses 5,870 7,209 5,547 9,810
-------------- --------------- -------------- ---------------
Operating loss......... (5,789) (7,209) (947) (9,810)
-------------- --------------- -------------- ---------------
Interest income........ 231 257 633 608
Interest expense....... (42) (43) (28) (48)
-------------- --------------- -------------- ---------------
Total other income, net... 189 214 605 560
-------------- --------------- -------------- ---------------
Net loss............... $ (5,600) $ (6,995) (342) $ (9,250)
============== =============== ============== ===============
Basic and diluted net loss per
share (1) $ (0.52) $ (0.61) $ (0.03) $ (0.67)
============== =============== ============== ===============
Weighted average shares used in
computing basic net loss per
share (1).............. 10,677 11,521 13,678 13,721
============== =============== ============== ===============
Q1 2000 Q2 2000 Q3 2000 Q4 2000
-------------- --------------- -------------- ---------------
Statements of Operations Data:
Revenue $ 210 $ 210 $ 210 $ 326
-------------- --------------- -------------- ---------------
Operating expense:
Research and development
expenses............ 8,546 11,262 7,300 11,248
General and administrative
expenses............ 5,243 5,232 3,087 1,571
-------------- --------------- -------------- ---------------
Total operating expenses 13,789 16,494 10,387 12,819
-------------- --------------- -------------- ---------------
Operating loss......... (13,579) (16,284) (10,177) (12,493)
-------------- --------------- -------------- ---------------
Interest income........ 1,266 1,611 1,702 1,535
Interest expense....... (54) (57) (54) (92)
-------------- --------------- -------------- ---------------
Total other income, net... 1,212 1,554 1,648 1,443
-------------- --------------- -------------- ---------------
Net loss before cumulative effect
of change in accounting principle (12,367) (14,730) (8,529) (11,050)
Cumulative effect of change in
accounting principle (4,180) -- -- --
-------------- --------------- -------------- ---------------
Net loss............... $ (16,547) $ (14,730) $ (8,529) $ (11,050)
============== =============== ============== ===============
Basic and diluted net loss per
share (1)
Before cumulative effect of
accounting change $ (0.83) $ (0.94) $ (0.54) $ (0.70)
Accounting change (0.28) -- -- --
-------------- --------------- -------------- ---------------
Basic and diluted net loss per share $ (1.11) $ (0.94) $ (0.54) $ (0.70)
============== =============== ============== ===============
Weighted average shares used in
computing basic net loss per share
(1) 14,942 15,652 15,653 15,821
============== =============== ============== ===============
31
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion of our financial condition and the results of operations
should be read together with the financial statements and notes contained
elsewhere in this Annual Report on Form 10-K. Certain statements in this section
and other sections are forward-looking. While we believe these statements are
accurate, our business is dependent on many factors, some of which are discussed
in the "Risk Factors" and "Business" sections of this Annual Report on Form
10-K. Many of these factors are beyond our control and any of these and other
factors could cause actual results to differ materially from the forward-looking
statements made in this Annual Report on Form 10-K. The results of our previous
clinical trials are not necessarily indicative of the results of future clinical
trials. Please read the "Risk Factors" section in this Annual Report on Form
10-K. We undertake no obligation to release publicly the results of any
revisions to the statements contained in this report to reflect events or
circumstances that occur subsequent to the date of this Annual Report on Form
10-K.
Overview
We began our operations in January 1993 and are a development stage
company. Accordingly, we have a limited operating history. Since our inception,
substantially all of our resources have been dedicated to:
o the development, patenting, preclinical testing and clinical trials of T-20
and T-1249,
o the development of a manufacturing process for T-20 and T-1249,
o production of drug material for future clinical trials, and
o research and development and preclinical testing of other potential product
candidates.
We have lost money since inception and, as of December 31, 2000, had an
accumulated deficit of approximately $122.2 million. We have earned revenue only
from federal small business innovative research grants, otherwise known as SBIR
grants, an investigative contract, and from the amortization of an initial
collaboration payment and a milestone payment from Roche, and have not generated
any revenue from product sales or royalties. We may never generate any revenue
from product sales or royalties.
Development of current and future drug candidates will require significant
additional, time-consuming and costly research and development, preclinical
testing and extensive clinical trials prior to submission of any regulatory
application for commercial use. We expect to incur substantial losses for the
foreseeable future and expect losses to increase as our research and
development, preclinical testing, drug production and clinical trial efforts
expand. The amount and timing of our operating expenses will depend on many
factors, including:
o the status of our research and development activities,
o product candidate discovery and development efforts, including preclinical
testing and clinical trials,
o the timing of regulatory actions,
o the costs involved in preparing, filing, prosecuting, maintaining,
protecting and enforcing patent claims and other proprietary rights,
o our ability to work with Roche to manufacture, develop, sell, market and
distribute T-20 and T-1249,
o technological and other changes in the competitive landscape,
o changes in our existing research and development relationships and
strategic alliances,
o evaluation of the commercial viability of potential product candidates, and
32
o other factors, many of which are outside of our control.
As a result, we believe that period-to-period comparisons of our financial
results in the future are not necessarily meaningful. The past results of
operations and results of previous clinical trials should not be relied on as an
indication of future performance. If we fail to meet the clinical and financial
expectations of securities analysts and investors, it could have a material
adverse effect on the market price of our common stock. Our ability to achieve
profitability will depend, in part, on our own or Roche's ability to
successfully develop and obtain regulatory approval for T-20 and other product
candidates, and our ability to develop the capacity, either internally or
through relationships with third parties, to manufacture, sell, market and
distribute approved products, if any. We may never generate significant revenues
or achieve profitable operations.
Results Of Operations
Comparison Of Years Ended December 31, 1998, 1999 and 2000
Revenue. Total revenue was $363,000, $4.7 million and $956,000 for 1998,
1999 and 2000, respectively. Total revenue for 1998 resulted from SBIR grants.
Total revenue for 1999 consisted of an up-front $10 million non-refundable
payment from Roche, net of $5.4 million assigned to the warrant granted to Roche
concurrent with the initiation of our collaboration, and $81,000 received under
SBIR grants. Total revenue for 2000 consists of the amortization of the $10.0
million non-refundable payment from Roche, net of the $5.4 million assigned to
the warrant granted to Roche, and a $2.0 million milestone payment received from
Roche in 2000, over the expected research and development period of our
collaboration with Roche in accordance with Staff Accounting Bulletin ("SAB")
101, "Revenue Recognition in Financial Statements." Under SAB 101, $4.2 million
was reported as the cumulative effect of a change in accounting principle at
January 1, 2000 to be amortized into revenue over future years.
Research And Development Expenses. Total research and development expenses
were $16.8 million, $19.8 million and $38.4 million for 1998, 1999 and 2000,
respectively. Gross research and development expenses excluding non-cash
compensation expense increased from $16.0 million in 1998 to $17.6 million in
1999 because during 1999 we:
o continued a Phase II clinical trial and initiated three additional Phase II
clinical trials for T-20,
o completed preclinical studies and initiated a Phase I clinical trial for
T-1249,
o continued manufacturing process development and purchase of drug material
from third party manufacturers to supply future clinical trials, and
o increased the number of personnel to support these activities.
Non-cash compensation expense increased from $821,000 in 1998 to $2.2 million in
1999 primarily due to the effect that increases in the market value of our stock
during 1999 had on the calculation of this expense under Emerging Issues Task
Force ("EITF") 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services" for stock options granted to non-employees. Total research and
development expenses for 1999 include gross research and development expenses
less Roche's share of development costs for T-20 and T-1249. Under our
collaboration agreement we and Roche shared the development costs incurred
during the period from July 1, 1999 until December 31, 1999 for T-20 and T-1249
equally.
33
Gross research and development expenses excluding non-cash compensation expense
increased from $17.6 million in 1999 to $33.0 million in 2000 because during
2000 we:
o continued three Phase II clinical trials and initiated one additional Phase
I/II clinical trials for T-20,
o initiated two Phase III clinical trials for T-20,
o continued a Phase I clinical trial for T-1249,
o continued manufacturing process development and purchase of drug material
from third party manufacturers to supply future clinical trials of T-20 and
T-1249,
o continued preclinical research and testing of potential product candidates,
o occupied additional lab space, and
o increased the number of personnel to support these activities.
Non-cash compensation expense increased from $2.2 million in 1999 to $5.4
million in 2000 primarily due to the effect that increases in the market value
of our stock during 2000 had on the calculation of this expense under EITF 96-18
for stock options granted to non-employees. Total research and development
expenses for 1999 and 2000 include gross research and development expenses less
Roche's share of development costs for T-20 and T-1249. Under our collaboration
agreement we and Roche shared the development costs incurred during the period
from July 1, 1999 until December 31, 2000 for T-20 and T-1249 equally.
Total research personnel were 41, 52 and 60 at December 31, 1998, 1999 and 2000,
respectively. We expect research and development expenses, net of the
reimbursements for T-20 and T-1249 development costs from Roche, to increase
substantially in the future due to:
o expansion of the two Phase III clinical trials for T-20,
o expanded clinical trials for T-20, T-1249 and other product candidates,
o the manufacture of drug material for these trials,
o increased preclinical research and testing of potential product candidates,
and
o increased number of personnel to support these activities.
General And Administrative Expenses. Total general and administrative
expenses were $4.9 million, $8.7 million and $15.1 million for 1998, 1999 and
2000, respectively. Expenses excluding non-cash compensation expense increased
from $4.3 million in 1998 to $6.2 million in 1999 because in 1999 we:
o accrued severance costs for our former Chief Executive Officer and our
former President and Chief Financial Officer,
o incurred professional fees in connection with our collaboration efforts,
o performed market research,
o added personnel to support our growth, and
o incurred professional fees related to our patent portfolio.
34
Non-cash compensation expense increased from $602,000 in 1998 to $2.5 million in
1999 due to the effect that increases in the market value of our stock during
1999 had on the calculation of this expense under EITF 96-18 for stock options
granted to non-employees, and also due to additional option grants to
non-employees.
Expenses excluding non-cash compensation expense increased from $ 6.2 million in
1999 to $8.1 million in 2000 because in 2000 we:
o performed market research and pre-marketing activities related to T-20 that
are shared with Roche,
o added personnel to support our growth, and
o incurred professional fees related to our patent portfolio.
Non-cash compensation expense increased from $2.5 million in 1999 to $7.0
million in 2000 primarily due to the effect that increases in the market value
of our stock during 2000 had on the calculation of this expense under EITF 96-18
for stock options granted to non-employees. We expect administrative expenses to
increase in the future to support the anticipated expansion of product
development activities.
Other Income (Expense). Other income (expense) consists of interest
income and expense. Total other income was $1.6 million, $1.6 million and $5.9
million for 1998, 1999 and 2000, respectively. The amount in 1999 was similar to
1998 due to our public offering of stock that closed in June 1999, net of the
use of cash during 1999. The increase in 2000 was due to increased interest
income because of higher cash and investment balances due to our private
placement of stock that closed in February 2000.
Liquidity And Capital Resources
Since inception, we have financed our operations primarily through the
private placement of equity securities, the issuance of notes to stockholders,
equipment lease financing, an initial public offering of common stock in October
1997, a public offering of common stock in June 1999 and a private placement of
common stock in February 2000. Net cash used by operating activities was $16.8
million, $9.3 million, and $24.8 million for 1998, 1999 and 2000, respectively.
The cash used by operating activities was used primarily to fund research and
development relating to T-20, T-1249, and other product candidates, and
decreased for 1999 because of the $10.0 million non-refundable payment from
Roche for the initiation of our collaboration for the development of T-20 and
T-1249. Cash provided by investing activities was $1.3 million for 1998. Cash
used by investing activities was $8.3 million for 1999 and $52.2 million for
2000. The increase in the amount used by investing activities in 1999 and 2000
was due to the purchase of short-term investments as a result of our offerings
of common stock in 1999 and 2000, respectively. Cash used by financing
activities for 1998 was $146,000. Cash provided by financing activities was
$37.8 million for 1999 and $71.4 million for 2000 as a result of our sale of
common stock during those years.
As of December 31, 2000, we had $93.4 million in cash and cash
equivalents and short-term-investments, compared to $47.8 million as of December
31, 1999. The increase is primarily a result of the closing of a private
placement of common stock in February 2000, which resulted in net proceeds of
approximately $66.6 million, less cash used by operating activities.
35
In July 2000, we entered into a derivative transaction with a financial
institution that may be settled by selling up to 300,000 shares of our stock to
the financial institution at prices significantly higher than the market price
per share of our stock at the inception of the transaction. We received $2.8
million in proceeds that were accounted for as an increase to additional paid-in
capital in accordance with generally accepted accounting principles at the time
of the transaction. Concurrently, we entered into a second derivative
transaction with the same financial institution on shares of our common stock at
no net premium to either party. Under this transaction, we may elect to settle
by issuing up to 125,000 shares of our common stock to the financial institution
at prescribed prices significantly higher than the market price of our stock at
the date of the transaction and receive a net cash payment from the financial
institution. Alternatively, we have the option to settle these contracts by
making a cash payment to the financial institution for the underlying value of
the derivative contracts to the financial institution on the settlement date. We
intend to settle the contracts by issuing shares. In December 2000 these
contracts were amended to allow settlement in unregistered shares of our common
stock. All of these derivative transactions expire or mature in July 2001. The
financial institution has advised us that it has engaged and may continue to
engage in transactions, including the buying and selling of shares of our common
stock, to offset its risks related to these transactions, which may or may not
affect the market price of our stock.
We have experienced negative cash flows from operations since our inception
and do not anticipate generating sufficient positive cash flows to fund our
operations in the foreseeable future. Although we expect to share the future
development costs for T-20 and T-1249 equally with Roche, we have expended, and
expect to continue to expend in the future, substantial funds to pursue our
product candidate and compound discovery and development efforts, including:
o expenditures for clinical trials of T-20, T-1249 and other product
candidates,
o research and development and preclinical testing of other product
candidates,
o manufacture of drug material, and
o the development of our proprietary technology platform.
As of December 31, 2000, we had commitments of approximately $15.0 million
to purchase product candidate materials and fund various clinical studies over
the next seventeen months contingent on delivery of the materials or performance
of the services. Substantially all of these expenditures will be shared equally
by Roche under our collaborative agreement. Under this collaborative agreement,
we are obligated to share equally the future development expenses for T-20 and
T-1249 for the United States and Canada. We also expect to have capital
expenditures of approximately $3.0 million during 2001. Our share of these
expenditures may be financed with capital or operating leases, debt or working
capital. We expect that our existing capital resources, together with the
interest earned thereon, will be adequate to fund our capital requirements
through 2001. We believe that substantial additional funds will be required
after 2001. If adequate funds are not available through debt or equity
financings, we will be required to delay, scale-back or eliminate certain
preclinical testing, clinical trials and research and development programs,
including our collaborative efforts with Roche.
We may have difficulty raising funds by selling equity. Since our initial
public offering in 1997, we have obtained the majority of our funding through
public or private offerings of our common stock. The public capital markets in
which shares of our common stock are traded have declined during the first
quarter of 2001, however, and the general ability of companies to obtain
additional financing has become more difficult than in 2000. The market price of
our common stock has decreased approximately 40% since December 31, 2000 to the
date of this Annual Report on Form 10-K, to a level below the price at which we
last sold shares of common stock in a private placement in 2000. As a result,
even if we are able to obtain additional funding through an equity financing,
the terms of this financing could be highly dilutive to current shareholders.
We may also attempt to obtain additional funding through debt financings
and/or arrangements with new or existing collaborative partners. Any debt
financings may contain restrictive terms that limit our operating flexibility.
Arrangements with partners may require us to relinquish rights to our
technologies or product candidates or to reduce our share of potential profits.
This could have a material adverse effect on
36
our business, financial condition or results of operations.
If adequate funds are not available through debt or equity financings, we
will be required to delay, scale-back or eliminate certain preclinical testing,
clinical trials and research and development programs, including our
collaborative efforts with Roche. Our future capital requirements and the
adequacy of available funds will depend on many factors, including the
availability of funds from Roche under our collaboration agreement, the
condition of public capital markets, the results of clinical trials relating to
T-20, the progress and scope of our product development programs, the magnitude
of these programs, the results of preclinical testing and clinical trials, the
need for additional facilities based on the results of these clinical trials and
other product development programs, changes in the focus and direction of our
product development programs, the costs involved in preparing, filing,
processing, maintaining, protecting and enforcing patent claims and other
intellectual property rights, competitive factors and technological advances,
the cost, timing and outcome of regulatory reviews, changes in the requirements
of the FDA, administrative and legal expenses, evaluation of the commercial
viability of potential product candidates and compounds, the establishment of
capacity, either internally or through relationships with third parties, for
manufacturing, sales, marketing and distribution functions, and other factors,
many of which are outside of our control.
Net Operating Loss Carryforwards
As of December 31, 2000, we had a net operating loss carryforward of
approximately $106.3 million. We have recognized a valuation allowance equal to
the deferred asset represented by this net operating loss carryforward and
therefore recognized no tax benefit. Our ability to utilize these net operating
loss carryforwards may be subject to an annual limitation in future periods
pursuant to the "change in ownership rules" under Section 382 of the Internal
Revenue Code of 1986, as amended. See Note 6 of Notes to Financial Statements.
Accounting and Other Matters
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement 133"). Statement 133 establishes
standards for valuation and disclosure of derivative financial instruments and
is effective for fiscal quarters of fiscal years beginning after June 15, 2000.
The Company does not believe that this pronouncement will have a material impact
on its financial position or results of operations.
The FASB also issues exposure drafts for proposed statements of financial
accounting standards. Such exposure drafts are subject to comment from the
public, to revisions by the FASB and to final issuance by the FASB as statements
of financial accounting standards. Management considers the effect of the
proposed statements on our financial statements and monitors the status of
changes to issued exposure drafts and to proposed effective dates.
Item 7A. Quantitative and Qualitative Disclosure of Market Risk
Our exposure to market risk is primarily in our investment portfolio. We do
not use derivative financial instruments for speculative or trading purposes. We
have an investment policy that sets minimum credit quality standards for our
investments. The policy also limits the amount of money we can invest in any one
issue, issuer or type of instrument. We have not experienced any material loss
in our investment portfolio.
In July 2000, we entered into a series of call transactions with respect to
our common stock. These transactions are described in detail under Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
The table below presents the carrying value, which is approximately equal
to fair market value, and related weighted-average interest rates for our
investment portfolio at December 31, 2000. Substantially all of our investments
mature in twelve months or less.
37
Carrying Average
Amount Interest
(thousands) Rate
----------- ----
Cash equivalents - fixed rate $ 30,775 6.74 %
Short-term investments - fixed rate 62,025 6.67 %
Overnight cash investments - fixed rate 574 5.99 %
----------- ----------
Total investment securities $ 93,374 6.69 %
======== ==========
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The information required by Item 8 is included in Item 14 of this Form
10-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
There have been no changes in or disagreements with the Company's
independent auditors, KPMG LLP.
38
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The information required by Item 10 as to directors and executive officers
is incorporated by reference from the Company's Proxy Statement to be filed by
the Company with the Securities and Exchange Commission within 120 days after
the end of the fiscal year.
Item 11. Executive Compensation
----------------------
The information required by Item 11 is incorporated by reference from the
Company's Proxy Statement to be filed by the Company with the Securities and
Exchange Commission within 120 days after the end of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The information required by Item 12 is incorporated by reference from the
Company's Proxy Statement to be filed by the Company with the Securities and
Exchange Commission within 120 days after the end of the fiscal year.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The information required by Item 13 is incorporated by reference from
the Company's Proxy Statement to be filed by the Company with the Securities and
Exchange Commission within 120 days after the end of the fiscal year.
39
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
The following documents are filed as part of this report:
Page Number
-----------
(a)1. Financial Statements
--------------------
Independent Auditors' Report........................................................F-1
Balance Sheets as of December 31, 1999 and 2000....................................F-2
Statements of Operations for the Years Ended December 31,
1998, 1999 and 2000 and for the period from Inception to December 31, 2000......F-3
Statements of Stockholders' Equity (Deficit) for the period from Inception to
December 31, 1997, and for the Years Ended December 31, 1998, 1999 and 2000.....F-4
Statements of Cash Flows for the Years Ended December 31,
1998, 1999 and 2000 and for the period from Inception to December 31, 2000......F-5
Notes to Financial Statements.......................................................F-6
(a)2. Financial Statement Schedules
-----------------------------
All financial statement schedules required under Regulation S-X are
omitted as the required information is not applicable.
(a)3. Exhibits
--------
The Exhibits filed as part of this Annual Report on Form 10-K are
listed on the Exhibit Index immediately preceding such Exhibits and are
incorporated by reference. The Company has identified in the Exhibit
Index each management contract and compensation plan filed as an
exhibit to this Annual Report on Form 10-K in response to Item 14(c) of
Form 10-K.
(b) Reports on Form 8-K
-------------------
None.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Trimeris, Inc.:
We have audited the accompanying balance sheets of Trimeris, Inc. (A Development
Stage Company) (the "Company") as of December 31, 1999 and 2000, and the related
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 2000 and for the cumulative
period from the date of inception (January 7, 1993) to December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of Trimeris, Inc. (A Development
Stage Company) as of December 31, 1999 and 2000, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 2000, and for the cumulative period from the date of
inception (January 7, 1993) to December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
March 23, 2001 KPMG LLP
Raleigh, North Carolina
F-1
TRIMERIS, INC.
(A Development Stage Company)
BALANCE SHEETS
(in thousands, except par value)
As of December 31,
-------------------------------------
1999 2000
--------------- -----------------
Assets
Current assets:
Cash and cash equivalents............................................ $ 37,023 $ 31,349
Short-term investments .............................................. 10,775 62,025
Accounts receivable - Roche.......................................... 144 --
Accounts receivable.................................................. 24 4
Prepaid expenses..................................................... 268 393
--------------- -----------------
Total current assets................................................. 48,234 93,771
--------------- -----------------
Property, furniture and equipment, net of accumulated depreciation and
amortization of $3,564 and $4,932 at December 31, 1999 and 2000
respectively.......................................................... 2,585 3,983
--------------- -----------------
Other assets:
Patent costs, net of accumulated amortization of $20 and $46
at December 31, 1999 and 2000, respectively......................... 643 924
Equipment deposits.................................................... 188 255
--------------- -----------------
Total other assets............................................. 831 1,179
--------------- -----------------
Total assets................................................... $ 51,650 $ 98,933
=============== =================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable..................................................... $ 6,159 $ 3,476
Accounts payable - Roche............................................. -- 9,556
Current installments of obligations under capital leases............. 717 1,174
Accrued compensation................................................. 1,028 1,359
Deferred revenue - Roche............................................. -- 1,304
Accrued expenses..................................................... 3,474 2,904
--------------- -----------------
Total current liabilities....................................... 11,378 19,773
Obligations under capital leases, excluding current installments......... 1,206 1,861
Deferred revenue - Roche................................................. -- 3,920
--------------- -----------------
Total liabilities............................................... 12,584 25,554
--------------- -----------------
Stockholders' equity:
Preferred Stock at $0.001 par value per share,
authorized 10,000 shares; issued and outstanding zero
shares at December 31, 1999 and 2000............................... -- --
Common Stock at $0.001 par value per share,
authorized 60,000 shares; issued and outstanding 13,765
and 15,863 shares at December 31, 1999 and 2000, respectively..... 14 16
Additional paid-in capital........................................... 112,908 196,844
Deficit accumulated during the development stage..................... (71,298) (122,154)
Deferred compensation................................................ (2,453) (1,394)
Accumulated other comprehensive income................................ -- 76
Notes receivable from stockholders................................... (105) (9)
--------------- -----------------
Total stockholders' equity .................................... 39,066 73,379
--------------- -----------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 51,650 98,933
=============== =================
See accompanying notes to financial statements.
41
TRIMERIS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Cumulative
from Inception
(January 7,
For the Years Ended December 31, 1993) to
----------------------------------------- December 31,
1998 1999 2000 2000
--------- --------- --------- ---------
Revenue ....................................................... $ 363 $ 4,681 $ 956 $ 6,590
--------- --------- --------- ---------
Operating expenses:
Research and development:
Non-cash compensation ..................................... 821 2,174 5,386 8,574
Other research and development expense ................... 15,987 17,582 32,970 88,676
--------- --------- --------- ---------
Total research and development expense ...................... 16,808 19,756 38,356 97,250
--------- --------- --------- ---------
General and administrative:
Non-cash compensation ..................................... 602 2,524 7,018 10,337
Other general and administrative expense .................. 4,299 6,156 8,115 25,833
--------- --------- --------- ---------
Total general and administrative Expense .................... 4,901 8,680 15,133 36,170
--------- --------- --------- ---------
Total operating expenses .................................. 21,709 28,436 53,489 133,420
--------- --------- --------- ---------
Operating loss .............................................. (21,346) (23,755) (52,533) (126,830)
--------- --------- --------- ---------
Other income (expense):
Interest income ........................................... 1,755 1,729 6,114 10,304
Interest expense .......................................... (127) (161) (257) (1,448)
--------- --------- --------- ---------
1,628 1,568 5,857 8,856
--------- --------- --------- ---------
Loss before cumulative effect of change in accounting principle (19,718) (22,187) (46,676) (117,974)
Cumulative effect of change in accounting principle ........... -- -- (4,180) (4,180)
--------- --------- --------- ---------
Net loss .................................................. $ (19,718) $ (22,187) $ (50,856) $(122,154)
========= ========= ========= =========
Basic and diluted net loss per share:
Before cumulative effect of accounting change .............. $ (1.87) $ (1.79) $ (3.00)
Accounting change ........................................... -- -- (0.27)
--------- --------- ---------
Basic and diluted net loss per Share ...................... $ (1.87) $ (1.79) $ (3.27)
========= ========= =========
Weighted average shares used
in per share computations ................................... 10,547 12,411 15,548
========= ========= =========
See accompanying notes to financial statements.
F-3
TRIMERIS, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
For the Period from Inception (January 7, 1993) to December 31, 1997
and the Years Ended December 31, 1998, 1999, and 2000
(in thousands)
Preferred Stock Common Stock
--------------------- -------------------- Additional
Number Par Number Par paid-in
of shares value of Shares value capital
--------- ----- --------- ----- -------
Balance at January 7, 1993 .................................. -- $ -- -- $ -- $ --
Issuances of Common Stock ................................... -- -- 986 2 298
Issuances of Series A Preferred Stock ....................... 3,000 3 -- -- 1,997
Issuances of Series B Preferred Stock ....................... 27,136 27 -- -- 13,541
Issuances of Series C Preferred Stock ....................... 13,317 13 -- -- 7,978
Issuances of Series D Preferred Stock ....................... 9,048 9 -- -- 6,777
Stock issuance costs ........................................ -- -- -- -- (196)
Common Stock issued in exchange for exclusive license ....... -- -- 96 -- 41
Common Stock issued in exchange for consulting services ..... -- -- 11 -- 4
Notes receivable from stockholders for the purchase of shares -- -- -- -- --
Conversion of Preferred Stock to Common Stock ............... (52,501) (52) 6,262 6 46
Issuance of shares in initial public offering, net .......... -- -- 3,163 3 34,529
Exercise of stock options ................................... -- -- 32 -- 9
Repayment of notes receivable from stockholders ............. -- -- -- -- --
Repurchase of Common Stock .................................. -- -- (1) -- --
Issuances of Common Stock and options at below market value . -- -- -- -- 2,336
Amortization of deferred compensation ....................... -- -- -- -- --
Loss for the period ......................................... -- -- -- -- --
-------- ------- ------- ------- --------
Balance as of December 31, 1997 ............................. -- -- 10,549 11 67,360
Reclassification of deferred compensation ................... -- -- -- -- (202)
-------- ------- ------- ------- --------
Balance as of December 31, 1997 ............................. -- -- 10,549 11 67,158
Exercise of stock options ................................... -- -- 28 -- 10
Issuance of stock for 401( K) match ......................... -- -- 20 -- 236
Issuance of stock under Employee Stock ......................
Purchase Plan ............................................... -- -- 40 -- 255
Amortization of deferred compensation ....................... -- -- -- -- 870
Loss for the period ......................................... -- -- -- -- --
-------- ------- ------- ------- --------
Balance as of December 31, 1998 ............................. -- $ -- 10,637 $ 11 $ 68,529
Issuance of shares in public offering, net .................. -- -- 2,875 3 31,354
Exercise of stock options ................................... -- -- 189 -- 1,157
Issuance of stock options to employees ...................... -- -- -- -- 2,152
Issuance of stock for 401( K) match ......................... -- -- 12 -- 292
Issuance of stock under Employee Stock ......................
Purchase Plan ............................................... -- -- 22 -- 220
Repayment of notes receivable from stockholders ............. -- -- -- -- --
Exercise of warrant, net .................................... -- -- 30 -- --
Amortization of deferred compensation ....................... -- -- -- -- 3,804
Issuance of warrant ......................................... -- -- -- -- 5,400
Loss for the period ......................................... -- -- -- -- --
-------- ------- ------- ------- --------
Balance as of December 31, 1999 ............................. -- $ -- 13,765 $ 14 $ 112,908
Loss for the period ......................................... -- -- -- -- --
Unrealized gain on available for sale securities ............ -- -- -- -- --
Comprehensive income for period .............................
Issuance of shares in private placement, net ................ -- -- 1,750 2 66,568
Exercise of stock options ................................... -- -- 302 -- 2,507
Issuance of stock for 401( K) match ......................... -- -- 7 -- 386
Issuance of stock under Employee Stock ......................
Purchase Plan ............................................... -- -- 28 -- 334
Repayment of notes receivable from stockholders ............. -- -- -- -- --
Proceeds from sale of options ............................... -- -- -- -- 2,796
Exercise of warrant, net .................................... -- -- 11 -- --
Amortization of deferred compensation ....................... -- -- -- -- 11,345
-------- ------- ------- ------- --------
Balance as of December 31, 2000 ............................. -- $ -- 15,863 $ 16 $ 196,844
======== ======= ======= ======= ========
Deficit
accumulated Accumulated Notes
during the Other receivable Net
development Deferred Compensation from Stockholders'
stage compensation Income stockholders Equity
-------- ------- ------- ------- --------
Balance at January 7, 1993 .................................. $ -- $ -- $ -- $ -- $ --
Issuances of Common Stock ................................... -- -- -- (254) 46
Issuances of Series A Preferred Stock ....................... -- -- -- -- 2,000
Issuances of Series B Preferred Stock ....................... -- -- -- -- 13,568
Issuances of Series C Preferred Stock ....................... -- -- -- -- 7,991
Issuances of Series D Preferred Stock ....................... -- -- -- -- 6,786
Stock issuance costs ........................................ -- -- -- -- (196)
Common Stock issued in exchange for exclusive license ....... -- -- -- -- 41
Common Stock issued in exchange for consulting services ..... -- -- -- -- 4
Notes receivable from stockholders for the purchase of shares -- -- -- (14) (14)
Conversion of Preferred Stock to Common Stock ............... -- -- -- -- --
Issuance of shares in initial public offering, net .......... -- -- -- -- 34,532
Exercise of stock options ................................... -- -- -- -- 9
Repayment of notes receivable from stockholders ............. -- -- -- 50 50
Repurchase of Common Stock .................................. -- -- -- -- --
Issuances of Common Stock and options at below market value . -- (2,336) -- -- --
Amortization of deferred compensation ....................... -- 386 -- -- 386
Loss for the period ......................................... (29,393) -- -- -- (29,393)
-------- ------- ------- ------- --------
Balance as of December 31, 1997 ............................. (29,393) (1,950) -- (218) 35,810
Reclassification of deferred compensation ................... -- 202 -- -- --
-------- ------- ------- ------- --------
Balance as of December 31, 1997 ............................. (29,393) (1,748) -- (218) 35,810
Exercise of stock options ................................... -- -- -- -- 10
Issuance of stock for 401( K) match ......................... -- -- -- -- 236
Issuance of stock under Employee Stock ......................
Purchase Plan ............................................... -- -- 255
Amortization of deferred compensation ....................... -- 553 -- -- 1,423
Loss for the period ......................................... (19,718) -- -- -- (19,718)
-------- ------- ------- ------- --------
Balance as of December 31, 1998 ............................. $ (49,111) $ (1,195) -- $ (218) $ 18,016
Issuance of shares in public offering, net .................. -- -- -- -- 31,357
Exercise of stock options ................................... -- -- -- -- 1,157
Issuance of stock options to employees ...................... -- (2,152) -- -- --
Issuance of stock for 401( K) match ......................... -- -- -- -- 292
Issuance of stock under Employee Stock ......................
Purchase Plan ............................................... -- -- -- -- 220
Repayment of notes receivable from stockholders ............. -- -- -- 113 113
Exercise of warrant, net .................................... -- -- -- -- --
Amortization of deferred compensation ....................... -- 894 -- -- 4,698
Issuance of warrant ......................................... -- -- -- -- 5,400
Loss for the period ......................................... (22,187) -- -- -- (22,187)
-------- ------- ------- ------- --------
Balance as of December 31, 1999 ............................. $ (71,298) $ (2,453) -- $ (105) $ 39,066
Loss for the period ......................................... (50,856) -- -- -- (50,856)
Unrealized gain on available for sale securities ............ -- -- 76 -- 76
----
Comprehensive income (loss) for period ...................... (50,780)
Issuance of shares in private placement, net ................ -- -- -- -- 66,570
Exercise of stock options ................................... -- -- -- -- 2,507
Issuance of stock for 401( K) match ......................... -- -- -- -- 386
Issuance of stock under Employee Stock ......................
Purchase Plan ............................................... -- -- -- -- 334
Repayment of notes receivable from stockholders ............. -- -- -- 96 96
Proceeds from sale of options ............................... -- -- -- -- 2,796
Exercise of warrant, net .................................... -- -- -- -- --
Amortization of deferred compensation ....................... -- 1,059 -- -- 12,404
-------- ------- ------- ------- --------
Balance as of December 31, 2000 ............................. $(122,154) $ (1,394) $ 76 $ (9) $ 73,379
======== ======= ======= ======= ========
See accompanying notes to financial statements.
F-4
TRIMERIS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(in thousands)
Cumulative from
For the years ended December 31, Inception
------------------------------------- (January 7, 1993) to
1998 1999 2000 December 31, 2000
---- ---- ---- -----------------
Cash flows from operating activities:
Net loss ............................................................. $ (19,718) $ (22,187) $ (50,856) $(122,154)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization of property,
furniture and equipment .......................................... 606 789 1,368 4,952
Non-cash compensation expense ...................................... 1,423 4,698 12,404 18,911
Amortization of deferred revenue - Roche ........................... -- -- (956) (956)
Other amortization ................................................. 12 34 26 109
401 (K) plan stock match ........................................... 236 292 386 914
Provision for equipment held for resale ............................ -- -- -- 61
Stock issued for consulting services ............................... -- -- -- 5
Stock issued to repay interest on notes to stockholders ............ -- -- -- 195
Debt issued for research and development ........................... -- -- -- 194
Cumulative effect of change in accounting principle ............... -- -- 4,180 4,180
Loss on disposal of property and equipment ......................... -- -- -- 16
Decrease (increase) in assets:
Accounts receivable and loans to employees ......................... 33 44 20 (4)
Accounts receivable Roche .......................................... -- (144) 144 --
Prepaid expenses ................................................... (315) 53 (125) (393)
Other assets ....................................................... (61) (40) (67) (255)
Increase (decrease) in liabilities:
Accounts payable ................................................... 454 4,983 (2,683) 3,476
Accounts payable Roche ............................................ -- -- 9,556 9,556
Accrued compensation ............................................... 221 199 331 1,359
Accrued expenses ................................................... 322 1,947 (570) 2,814
Deferred revenue - Roche ........................................... -- -- 2,000 2,000
------- ------ ------- -------
Net cash used by operating activities .............................. (16,787) (9,332) (24,842) (75,020)
------- ------ ------- -------
Cash flows from investing activities:
Purchase of property, furniture and equipment ........................ (212) (657) (716) (2,220)
Net sale (purchase) of short-term investments ........................ 1,607 (7,519) (51,174) (61,949)
Equipment held for resale ............................................ -- -- -- (61)
Organizational costs ................................................. -- -- -- (8)
Patent costs ......................................................... (99) (116) (307) (971)
------- ------ ------- -------
Net cash provided (used) by investing activities ................... 1,296 (8,292) (52,197) (65,209)
------- ------ ------- -------
Cash flows from financing activities:
Proceeds (payments) from notes payable .............................. -- -- -- 6,150
Lease costs .......................................................... -- -- -- (13)
Principal payments under capital lease obligations ................... (411) (520) (938) (3,696)
Proceeds from issuance of Common Stock, net .......................... -- 31,357 66,570 132,294
Proceeds from issuance of Preferred Stock ............................ -- -- -- 23,896
Proceeds from sale of options ........................................ -- -- 2,796 2,796
Proceeds from exercise of stock options .............................. 10 1,157 2,507 3,683
Employee stock purchase plan stock issuance .......................... 255 220 334 809
Warrant issuance ..................................................... -- 5,400 -- 5,400
Repayment of notes receivable from stockholders ...................... -- 113 96 259
------- ------ ------- -------
Net cash provided (used) by financing activities ..................... (146) 37,727 71,365 171,578
------- ------ ------- -------
Net increase (decrease) in cash and cash equivalents ................. (15,637) 20,103 (5,674) 31,349
Cash and cash equivalents at beginning of period ...................... 32,557 16,920 37,023 --
------- ------ ------- -------
Cash and cash equivalents at end of period ............................. $ 16,920 $ 37,023 $ 31,349 $ 31,349
======= ====== ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ............................... $ 127 $ 161 $ 257 $ 1,362
======= ====== ======= =======
Supplemental disclosures of noncash investing and financing activities are
described in Note 9. See accompanying notes to financial statements.
F-5
TRIMERIS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization
Trimeris, Inc. (the "Company") was incorporated on January 7, 1993 to
discover and develop novel therapeutic agents that block viral infection by
inhibiting viral fusion with host cells. The financial statements have been
prepared in accordance with Statement of Financial Accounting Standards No. 7,
"Accounting and Reporting by Development Stage Enterprises," to recognize the
fact that the Company is devoting substantially all of its efforts to
establishing a new business and planned principal operations have not commenced.
Management expects to raise additional capital to adequately fund its
research and development and administrative expenses. The ability of the Company
to raise these funds is dependent on a number of factors including current and
potential investors and corporate partners.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an
original maturity of three months or less to be cash equivalents. Cash
equivalents of $36.5 million and $31.1 million at December 31, 1999 and 2000,
respectively, are stated at cost and consist primarily of overnight commercial
paper, variable rate demand notes, commercial paper, and short-term debt
securities. The carrying amount of cash and cash equivalents approximates fair
value.
Short-Term Investments
Short-term investments, which consist of short-term corporate debt
securities, are classified as available-for-sale securities, and are reported at
fair value based generally on quoted market prices. The cost of securities sold
is determined using the specific identification method when computing realized
gains and losses. Unrealized gains and losses are included as a component of
stockholders' equity until realized.
In accordance with its investment policy, the Company limits the amount
of credit exposure with any one issuer. These investments are generally not
collateralized and typically mature within one year. At December 31, 2000 gross
unrealized gains were $83,000 and gross unrealized losses were $7,000. There
were no realized gains or losses on these investments during 1998, 1999 or 2000.
Financial Instruments
Statement of Financial Accounting Standards ("SFAS") No. 107,
"Disclosures about Fair Value of Financial Instruments," as amended by SFAS No.
119, "Disclosures about Derivative Financial Instruments and Fair Value of
Financial Instruments," requires disclosure of fair value information about
financial instruments, whether or not recognized in the balance sheet, for which
it is practicable to estimate fair value. Fair value is defined in the SFAS as
the amount at which the instruments could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale. Fair value
is determined using available market information.
Financial instruments other than short-term investments held by the
Company include accounts receivable, notes receivable, accounts payable and
obligations under capital leases. The Company believes that the carrying amount
of these financial instruments approximates their fair value due to the
short-term maturity of these instruments.
F-6
TRIMERIS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS -Continued
Property, Furniture and Equipment
Property, furniture and equipment are recorded at cost. Property,
furniture and equipment under capital leases are initially recorded at the
present value of minimum lease payments at the inception of the lease.
Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets. Property, furniture and equipment held
under capital leases and leasehold improvements are amortized using the straight
line method over the lesser of the lease term or estimated useful life of the
asset, generally three years.
Intangible Assets
Management performs a continuing evaluation of the carrying value and
remaining amortization periods of unamortized amounts of intangible assets. Any
impairments would be recognized when the expected future operating cash flows
derived from such intangible assets are less than their carrying value. There
were no impairments identified during 1998, 1999 or 2000.
The costs of patents are capitalized and are amortized using the
straight-line method over the estimated remaining lives of the patents of 17-20
years from the date the patents are granted. Financing costs were incurred as
part of the Company's capital lease agreements and are amortized straight-line
over the lease term.
Deferred Revenue - Roche
The license fee and milestone payments received under our Roche
collaboration are recorded as deferred revenue when received and recognized as
revenue ratably over the remainder of the research and development period.
Deferred revenue - Roche represents license and milestone payments received to
be recognized as revenue in future periods.
Research and Development
Research and development costs, including the cost of producing drug
material for clinical trials, are charged to operations as incurred.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities, and their respective tax bases and
operating loss and tax credit carryforwards. 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 recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
F-7
TRIMERIS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS-Continued
Use of Estimates
The preparation of 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
disclosure 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.
Net Loss Per Share
In accordance with SFAS No. 128, "Earnings Per Share" ("SFAS No. 128"),
basic loss per common share is calculated by dividing net loss by the
weighted-average number of common shares outstanding for the period after
certain adjustments described below. Diluted net income per common share
reflects the maximum dilutive effect of common stock issuable upon exercise of
stock options, stock warrants, and conversion of preferred stock. Diluted net
loss per common share is not shown, as common equivalent shares from stock
options, and stock warrants, would have an antidilutive effect. At December 31,
1998, 1999 and 2000, there were 1,035,000, 1,712,000 and 1,817,000 options to
purchase common stock outstanding, respectively. At December 31, 1999 and 2000
there was a warrant outstanding to purchase 362,000 shares of common stock.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), encourages, but does not require
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for employee
stock-based compensation using the method prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock.
Compensation costs for stock options granted to non-employees are
accounted for in accordance with SFAS No. 123 and Emerging Issues Task Force
("EITF") 96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services,"
which require that compensation be measured at the end of each reporting period
for changes in the fair value of the Company's common stock until the options
are vested.
Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"),
established standards for the reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements.
Comprehensive income includes all non-owner changes in equity during a period
and is divided into two broad classifications: net income and other
comprehensive income ("OCI"). OCI includes revenue, expenses, gains, and losses
that are excluded from earnings under generally accepted accounting principles.
For the Company, OCI consists of unrealized gains or losses on securities
available for sale.
Segment Reporting
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," establishes standards for reporting information about the
Company's operating segments. The Company operates in one business segment, the
business of discovery, development and commercialization of novel
pharmaceuticals.
F-8
TRIMERIS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS -Continued
Adoption of SAB No. 101
The Company previously recognized license fee and milestone revenue
upon receipt of payment and completion of the related milestone. During the
quarter ended December 31, 2000, the Company adopted Staff Accounting Bulletin
("SAB") No. 101, "Revenue Recognition in Financial Statements" issued by the
Securities and Exchange Commission ("SEC") which summarizes the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. SAB 101 provides guidance that it is appropriate to
recognize revenue related to license and milestone payments over the research
and development term of a collaboration agreement. The cumulative effect of this
change in accounting principle, $4.2 million or $(0.27) per share, was reported
as a cumulative effect of a change in accounting principle retroactive to
January 1, 2000 and relates to the $10 million up-front payment received from
Roche previously recognized as revenue in 1999, net of the $5.4 million fair
value of the warrant to purchase common stock issued to Roche. In 2000, $840,000
of the $4.2 million was recognized as revenue.
2. Leases
The Company is obligated under various capital leases for furniture and
equipment that expire at various dates during the next four years. The gross
amount of furniture and equipment and related accumulated amortization recorded
under capital leases and included in property, furniture and equipment were as
follows at December 31, 1999 and 2000 (in thousands):
1999 2000
---------- ---------
Furniture and equipment ........... $ 2,556 $ 4,026
Less accumulated amortization ..... (1,053) (1,591)
------- -------
$ 1,503 $ 2,435
======= =======
The Company also has several non-cancelable operating leases, primarily
for office space and office equipment, that extend through September 2002.
Rental expense, including maintenance charges, for operating leases during 1998,
1999 and 2000 was $638,000, $782,000, and $929,000 respectively.
Future minimum lease payments under non-cancelable operating leases
(with initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of December 31, 2000 (in thousands) are:
CAPITAL OPERATING
LEASES LEASES
---------- ---------
Year ending December 31:
2001.............................................. $ 1,374 $ 856
2002.............................................. 1,021 448
2003.............................................. 782 92
2004.............................................. 252 --
-------- ---------
Total minimum lease payments......................... 3,429 $ 1,396
=========
Less amount representing interest.................... 394
--------
Present value of net minimum capital lease payments.. 3,035
Less current installments of obligations under capital
leases............................................... 1,174
--------
Obligations under capital leases, excluding current
Installments..................................... $ 1,861
========
F-9
TRIMERIS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS -Continued
Under a warrant agreement dated August 24, 1993 with a lessor, the
Company issued a warrant to acquire Series B Preferred Stock at the initial
Series B Preferred Stock per share offering price, such that the aggregate
purchase price for the shares equals $119,000. During the year ended December
31, 1995, the lease was amended to increase the credit limit and a warrant to
purchase shares valued at an additional $71,000 was granted to the lessor. These
warrants converted to warrants to purchase common stock at the time of the
Company's initial public offering. The shares were issued during 1999.
3. Property, Furniture and Equipment
Property, furniture and equipment consists of the following at December
31, 1999 and 2000 (in thousands):
1999 2000
-------- -------
Furniture and equipment ............................... $ 3,290 $ 4,208
Leasehold improvements ................................ 303 681
Furniture and equipment under capital lease ........... 2,556 4,026
------- -------
6,149 8,915
Less accumulated depreciation and amortization ........ (3,564) (4,932)
------- -------
$ 2,585 $ 3,983
======= =======
4. Stockholders' Equity
In June 2000, the Company's Certificate of Incorporation was amended to
grant the Company the authority to issue 70,000,000 shares of stock consisting
of 60,000,000 shares of Common Stock, par value $0.001 per share, and 10,000,000
shares of Preferred Stock, par value $0.001 per share.
At December 31, 1999 and 2000, loans with an interest rate of 8%
totaling $105,000 and $9,000, respectively, were outstanding to employees of the
Company for purchase of shares of the Company's Common Stock. This amount has
been presented as a reduction of stockholders' equity in the statement of
stockholders' equity.
Public Offerings of Stock
In October 1997, the Company closed its initial public offering of
common stock at $12 per share. The net proceeds of the offering, including the
proceeds received in connection with the exercise of the Underwriters'
over-allotment option which closed in November 1997, were approximately $34.5
million after deducting applicable issuance costs and expenses of approximately
$3.4 million. In connection with the public offering, all the outstanding
preferred stock was converted into 6,261,615 shares of the Company's common
stock.
In June 1999, the Company closed a public offering of common stock at
$11.75 per share. The net proceeds of the offering, including the proceeds
received in connection with the exercise of the Underwriters' over-allotment
option, were approximately $31.4 million after deducting applicable issuance
costs and expenses of approximately $2.4 million.
In February 2000, the Company closed a private placement of 1.75
million shares of common stock at $40.50 per share. The net proceeds of the
offering were approximately $66.6 million after deducting applicable issuance
costs and expenses of approximately $4.2 million.
F-10
TRIMERIS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS -Continued
Derivative Transactions
In July 2000, the Company entered into a derivative transaction with a
financial institution that may be settled by selling up to 300,000 shares of its
stock to the financial institution at prices significantly higher than the
market price per share of the Company's stock at the inception of the
transaction. The Company received $2.8 million in proceeds that were accounted
for as an increase to additional paid-in capital in accordance with EITF Issue
No. 00-19, "Determination of Whether Share Settlement Is within the Control of
the Company for Purposes of Applying EITF Issue No. 96-13, "Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock." Concurrently, the Company entered into a second derivative
transaction with the same financial institution on shares of its common stock at
no net premium to either party. Under this transaction, the Company may elect to
settle by issuing up to 125,000 shares of its common stock to the financial
institution at prescribed prices significantly higher than the market price of
the Company's stock at the date of the transaction and receive a net cash
payment from the financial institution. Alternatively, the Company has the
option to settle these contracts by making a cash payment to the financial
institution for the underlying value of the derivative contracts to the
financial institution on the settlement date. The Company intends to settle the
contracts by issuing shares. In December 2000 these contracts were amended to
allow settlement in unregistered shares of our common stock. All of these
derivative transactions expire or mature in July 2001.
Preferred Stock
The Board of Directors has the authority to issue shares of Preferred
Stock and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, and liquidation preferences, without any further vote or action by
the stockholders.
5. Stock Option Plan
In 1993, the Company adopted a stock option plan which allows for the
issuance of non-qualified and incentive stock options. During 1996, the
Trimeris, Inc. New Stock Option Plan (the "Stock Option Plan") was implemented
and replaced the 1993 plan. Under the Stock Option Plan, as amended, the Company
may grant non-qualified or incentive stock options for up to 3,352,941 shares of
Common Stock. The exercise price of each incentive stock option shall not be
less than the fair market value of the Company's Common Stock on the date of
grant and an option's maximum term is ten years. Outstanding incentive stock
options have been issued at prices ranging from $.34 to $78.50 per share. The
vesting period generally occurs ratably over four years. At December 31, 2000,
there were approximately 660,000 options remaining available for grant. All
incentive stock options which had been granted under the 1993 plan were
cancelled at inception of the Stock Option Plan while the non-qualified stock
options remain outstanding at an exercise price of $.43. No more grants will be
made under the 1993 plan.
F-11
TRIMERIS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS -Continued
Stock option transactions for the years ended December 31, 1998, 1999 and 2000
are as follows:
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
1998 Price 1999 Price 2000 Price
---------- ---------- ----------- ----------- --------- -----------
Options outstanding at January 1 ......... 267,000 $ 0.75 1,035,000 $ 6.31 1,712,000 $ 9.93
Granted ................................ 820,000 7.91 961,000 12.88 441,000 60.13
Exercised .............................. (28,000) 0.35 (189,000) 6.12 (302,000) 8.31
Cancelled .............................. (24,000) 6.16 (95,000) 7.84 (34,000) 20.62
---------- -------- ---------- --------- ---------- ---------
Options outstanding at end of period ..... 1,035,000 6.31 1,712,000 9.93 1,817,000 22.19
========== ======== ========== ========= ========== =========
The following summarizes information about stock options outstanding as of
December 31, 2000:
Options Outstanding Options Exercisable
-------------------------------------------- --------------------------------
Weighted
Average Weighted
Number Remaining Average Weighted
Range of Exercise Outstanding Contractual Exercise Number Average
Price as of 12/31/00 Life Price Exercisable Exercise Price
- ----- -------------- ---- ----- ----------- --------------
$ 0.34-1.00 132,000 5.79 $ 0.46 124,000 $ 0.45
$ 5.88-8.00 396,000 7.32 $ 7.86 237,000 $ 7.91
$ 8.01-11.625 637,000 8.30 $ 11.60 234,000 $ 11.60
$ 11.626-20.88 217,000 8.64 $ 16.73 69,000 $ 16.54
$ 20.89-61.875 299,000 9.37 $ 56.91 25,000 $ 51.08
$ 61.876-78.50 136,000 9.75 $ 67.00 1,000 $ 63.77
--------- ---- -------- ------- --------
$ 0.34-78.50 1,817,000 8.23 $ 22.19 690,000 $ 10.32
========= ==== ======== ======= ========
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. Accordingly, compensation cost related to stock
options issued to employees would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. For
the year ended December 31, 1997, the Company recorded a deferred charge of
$2,336,000, representing the difference between the exercise price and the
deemed fair value of the Company's Common Stock for 348,000 shares of Common
Stock and 132,000 shares subject to Common Stock Options granted in 1997. In
1999, the Company recorded a deferred charge of $2,152,000, representing the
difference between the fair value of the Company's Common Stock on the date of
grant and the fair value of the Company's Common Stock on the date of
shareholder approval for 654,000 shares subject to common stock options.
Compensation expense for employee stock options was $553,000, $894,000 and $1.1
million for 1998, 1999 and 2000, respectively.
Compensation costs for stock options granted to non-employees are
accounted for in accordance with SFAS No. 123 and EITF 96-18 over the service
period that generally coincides with vesting, generally four years. The
measurement date for the calculation of compensation expense is considered to be
the date when all services have been rendered. Compensation expense is
recognized during interim periods up to the measurement date based on changes in
the fair value of the Company's common stock. Compensation expense for
non-employee stock options of $870,000, $3.8 million and $11.3 million for the
years ended December 31, 1998, 1999 and 2000, respectively, was recorded as an
increase to additional paid-in capital.
F-12
TRIMERIS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS -Continued
SFAS 123 permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25. Had the
Company determined compensation expense based on the fair value at the grant
date for its stock-based plans under SFAS 123, the Company's net loss and basic
loss per share would have been increased to the pro forma amounts indicated
below for the years ended December 31:
1998 1999 2000
--------- --------- ----------
Net loss:
As reported ............................ $(19,718) $(22,187) $(50,856)
Compensation cost recorded
under APB 25 ........................ 553 894 1,059
Compensation cost
resulting from common
stock options, restricted
stock and employee stock
purchase plan ....................... (1,231) (2,553) (8,334)
-------- -------- --------
Pro forma .............................. $(20,396) $(23,846) $(58,131)
======== ======== ========
Basic and diluted loss per share:
As reported ......................... $ (1.87) $ (1.79) $ (3.27)
Pro forma ........................... $ (1.93) $ (1.92) $ (3.74)
The fair value of common stock options and restricted stock is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions used:
1998 1999 2000
----------- ----------- -----------
Estimated dividend yield 0.00% 0.00% 0.00%
Expected stock price volatility 72.0% 86.0% 91.4%
Risk-free interest rate 5.20% 5.20% 6.30%
Expected life of options 5 years 5 years 5 years
Expected life of employee stock
purchase plan options 2 years 2 years 2 years
The effects of applying SFAS 123 for disclosing compensation cost may
not be representative of the effects on reported net income for future years
because pro forma net loss reflects compensation costs only for stock options
granted in 1998, 1999 and 2000 and does not consider compensation cost for stock
options granted prior to January 1, 1995.
6. Income Taxes
At December 31, 2000, the Company has net operating loss carryforwards
(NOL's) for federal and state income tax purposes of approximately $106.3
million which expire in varying amounts between 2008 and 2020. The Company has
research and development credits of $2.2 million which expire in varying amounts
between 2008 and 2020. The reason for the difference between the Company's
expected tax benefit at its statutory rate of 34% and actual tax expense is
primarily related to differences in book and tax expense for stock option
compensation and increases in the valuation allowance of deferred tax assets.
F-13
TRIMERIS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS -Continued
The Tax Reform Act of 1986 contains provisions which limit the ability
to utilize net operating loss carryforwards in the case of certain events
including significant changes in ownership interests. If the Company's NOL's are
limited, and the Company has taxable income which exceeds the permissible yearly
NOL, the Company would incur a federal income tax liability even though NOL's
would be available in future years.
The components of deferred tax assets and deferred tax liabilities as
of December 31, 1999 and 2000 are as follows:
1999 2000
----------- -----------
(in thousands)
Deferred tax assets:
Tax loss carryforwards ............ $ 24,283 $ 40,967
Tax credits ....................... 1,927 2,203
Reserves and accruals ............. 2,033 5,038
-------- --------
28,243 48,208
Valuation allowance ............... (28,243) (48,208)
-------- --------
Net deferred asset ................ -- --
Deferred tax liabilities:
Deferred tax liability ............ -- --
-------- --------
Net deferred tax assets and
(liability) ....................... $ -- $ --
======== ========
The Company has established a valuation allowance against its deferred
tax assets due to the uncertainty surrounding the realization of such assets.
The increase in the valuation allowance was approximately $8.1 million, $8.5
million and $20.0 million for the years ended December 31, 1998, 1999 and 2000,
respectively.
7. Employee Benefit Plans
401 (K) Plan
The Company has a 401(k) Profit Sharing Plan (the "Plan") covering all
qualified employees. Participants may elect a salary reduction from 1% to 12% as
a contribution to the Plan. Modifications of the salary reductions may be made
quarterly. The Plan permits the Company to match participants' contributions.
Beginning in 1998, the Company matched 100% of a participant's contributions
with Company stock, provided the participant was employed on the last day of the
year. The number of shares issued is based on the contributions to be matched
divided by the closing price of the Company's stock on the last trading day of
the year. During 1998, 20,000 shares were issued, and compensation expense of
$236,000 was recognized. During 1999, 12,000 shares were issued and compensation
expense of $292,000 was recognized. During 2000, 7,000 shares were issued, and
compensation expense of $386,000 was recognized. These shares vest ratably based
on a participant's years of service and are fully vested after four years of
service.
F-14
TRIMERIS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS-Continued
The normal retirement age shall be the later of a participant's 65th
birthday or the fifth anniversary of the first day of the Plan year in which
participation commenced. The Plan does not have an early retirement provision.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan which permits eligible
employees to purchase newly issued common stock of the Company up to an
aggregate of 250,000 shares. Under this plan, employees may purchase from the
Company a designated number of shares through payroll deductions at a price per
share equal to 85% of the lesser of the fair market value of the Company's
common stock as of the date of the grant or the date the right to purchase is
exercised. A total of 40,000, 22,000, and 28,000 shares were issued under this
plan in 1998, 1999, and 2000, respectively.
8. Roche Collaboration
In July 1999, the Company announced an agreement with F. Hoffmann-La
Roche Ltd., or Roche, to develop and market T-20 and T-1249 worldwide. In the
United States and Canada, the Company and Roche will share equally development
expenses and profits for T-20 and T-1249. Outside of these two countries, Roche
will fund all development costs and pay the Company royalties on net sales of
these products. Roche made a nonrefundable initial cash payment to the Company
of $10 million during 1999, and a milestone payment of $2 million in 2000. Roche
will provide up to an additional $56 million in cash upon achievement of
developmental, regulatory and commercial milestones.
In July 1999, the Company granted Roche a warrant to purchase 362,000
shares of Common Stock at a purchase price of $20.72 per share. The warrant is
exercisable prior to the tenth annual anniversary of the grant date and was not
exercised at December 31, 2000. The fair value of the warrant of $5.4 million
was credited to additional paid-in capital in 1999, and recorded as a reduction
of the $10 million up-front payment received from Roche. The value was
calculated using the Black-Scholes option-pricing model using the following
assumptions: estimated dividend yield of 0%; expected stock price volatility of
86.00 %; risk-free interest rate of 5.20%; and expected option life of 10 years.
The Company had a $20 million financing agreement with Roche accessible
at the Company's option on a quarterly basis beginning in July 1999 and expiring
on December 31, 2000. No amounts were borrowed under this agreement.
9. Supplementary Cash Flow Information
Capital lease obligations of $1,236,000, $1,119,000 and $2,050,000 were
incurred in 1998, 1999 and 2000, respectively, for leases of new furniture and
equipment.
10. Commitments and Contingencies
The Company is involved in certain claims arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the financial position
or results of operations of the Company.
The Company is in dispute with a consultant regarding the amount of
payment of a fee for services rendered. The Company has recorded its estimate of
the amount due for the services provided, however the ultimate resolution of
this matter cannot presently be determined. In the event the Company is required
to pay the fee currently demanded by the consultant, it could have a material
effect on the Company's results of operations for that period.
F-15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Trimeris, Inc.
-------------------
(Registrant)
March 29, 2001 /s/ DANI P. BOLOGNESI
- --------------- ------------------------------
Dani P. Bolognesi, Ph.D.
Chief Executive Officer
and Chief Scientific Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ DANI P. BOLOGNESI Chief Executive Officer (principal March 29, 2001
- ----------------------------- executive officer), Chief
Dani P. Bolognesi, Ph.D. Scientific Officer and Director
/s/ ROBERT R. BONCZEK Chief Financial Officer and March 29, 2001
- ----------------------------- General Counsel
Robert R. Bonczek (principal financial officer)
/s/ M. NIXON ELLIS Chief Business Officer and March 29, 2001
- ----------------------------- Executive Vice President
M. Nixon Ellis
/s/ TIMOTHY J. CREECH Director of Finance and Administration March 29, 2001
- ----------------------------- and Secretary (principal accounting officer)
Timothy J. Creech
/s/ JEFFREY M. LIPTON Chairman of the Board of Directors March 29, 2001
- -----------------------------
Jeffrey M. Lipton
/s/ E. GARY COOK Director March 29, 2001
- -----------------------------
E. Gary Cook, Ph.D.
/s/ CHARLES A. SANDERS Director March 29, 2001
- -----------------------------
Charles A. Sanders, M.D.
/s/ J. RICHARD CROUT Director March 29, 2001
- -----------------------------
J. Richard Crout, M.D.
II-1
EXHIBIT INDEX
(a) Exhibits
3.1 * Amended and Restated Bylaws of the Registrant.
3.2 (g) Fourth Amended and Restated Certificate of Incorporation of the Registrant
4.1 * Specimen certificate for shares of Common Stock.
4.2 * Description of Capital Stock (contained in the Fourth Amended and Restated Certificate of
Incorporation of the Corporation of the Registrant, filed as Exhibit 3.2).
10.1 * License Agreement dated February 3, 1993, between the Registrant and Duke University.
10.2 * Cooperation and Strategic Alliance Agreement dated April 21, 1997, between the Registrant and
MiniMed Inc.
10.3 (g) Trimeris, Inc. Amended and Restated Stock Incentive Plan.
10.4 * Trimeris, Inc. Employee Stock Purchase Plan.
10.5 * Form of Promissory Notes executed by certain executive
officers in favor of the Registrant, and related collateral
documents.
10.6 * Form of Stock Restriction Agreements between the Registrant and certain executive officers.
10.7 * Form of Stock Pledge Agreement between the Registrant and certain executive officers.
10.8 * Sixth Amended and Restated Registration Rights Agreement dated June 27, 1997, by and among
the Registrant and certain stockholders of the Registrant.
10.9* Agreement with Max N. Wallace dated July 10, 1997.
10.10 * Form of Indemnification Agreements.
10.11 * License Agreement dated September 9, 1997 between the Registrant and The New York Blood
Center.
10.12 (a) Master Lease Agreement dated May 28, 1998 between the Company and Finova Technology Finance,
Inc.
10.13 (b) Prototype Defined Contribution Plan and Trust for the Trimeris, Inc. Employee 401 (k) Plan.
10.14 (a) Adoption Agreement for the Trimeris, Inc. Employee 401 (k) Plan.
10.15 (b) Employment Termination and General Release Agreement between Trimeris and M. Ross Johnson
dated April 13, 1999.
10.16 (b) Chief Executive Employment Agreement between Trimeris and Dani P. Bolognesi dated April 21,
1999.
10.17 (c) Development and License Agreement between Trimeris and
Hoffmann-La Roche dated July 1, 1999 (Portions of this
exhibit have been omitted pursuant to an order of the
Commission granting confidential treatment.).
10.18 (c) Financing Agreement between Trimeris, Inc. and Roche Finance Ltd. dated as of July 9, 1999.
10.19 (c) Registration Rights Agreement between Trimeris, Inc. and Roche Finance Ltd. dated as of July
9, 1999.
10.20 (c) Lease between Trimeris, Inc. and University Place Associates dated April 14, 1999
10.21 (c) Sublease Agreement between Trimeris, Inc. and Blue Cross and Blue Shield of North Carolina
dated May 15, 1999.
10.22 (c) Lease Agreement between Hamad Jassim Althani and Blue Cross and Blue Shield of North
Carolina, relating to Sublease Agreement filed as Exhibit 10.24 hereto
10.23 (d) Employment Termination and General Release Agreement between Trimeris and Matthew A. Megaro
dated September 3, 1999.
10.24 (e) Executive Agreement between Trimeris and Robert R. Bonczek dated January 7, 2000.
10.25 (f) Employment Agreement between Trimeris, Inc. and M. Nixon Ellis dated March 31, 2000.
23 Consent of KPMG LLP
II-2
- ----------------
* Incorporated by reference to Trimeris' Registration Statement on Form S-1,
as amended (File No. 333-31109) initially filed with the Commission on July
11, 1997.
(a) Incorporated by reference to Trimeris' Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998.
(b) Incorporated by reference to Trimeris' Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999.
(c) Incorporated by reference to Trimeris' Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999.
(d) Incorporated by reference to Trimeris' Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999.
(e) Incorporated by reference to Trimeris' Annual Report on Form 10-K for the
year ended December 31, 1999 filed with the Commission on March 29, 2000.
(f) Incorporated by reference to Trimeris' Quarterly Report on Form 10-Q for
the quarter ended March 31, 2000.
(g) Incorporated by reference to Trimeris' 2000 Definitive 14A filed with the
Commission on May 16, 2000.
All financial statement schedules have been omitted because either they are
not required, are not applicable, or the information is otherwise set forth
in the Financial Statements and Notes thereto.