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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, 2001
[ ] 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.)
3518 WESTGATE DRIVE
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 22, 2002 was approximately $825,278,000 (based on the
last sale price of such stock as reported by the Nasdaq National Market System
on March 22, 2002):
The number of shares of the registrant's Common Stock outstanding
as of March 25, 2002 was 18,698,792
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, 2001
Table of Contents
Item Number Page
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PART I.
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Item 1. Business 1
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Item 2. Properties 32
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Item 3. Legal Proceedings 32
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Item 4. Submission of Matters to a Vote of Security Holders 32
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PART II.
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 33
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Item 6. Selected Financial Data 34
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Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations 36
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk 45
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Item 8. Financial Statements and Supplementary Data 45
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Item 9. Changes in and Disagreements With Accountants on Accounting
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and Financial Disclosure 45
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PART III.
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Item 10. Directors and Executive Officers of the Registrant 46
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Item 11. Executive Compensation 46
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Item 12. Security Ownership of Certain Beneficial Owners and Management 46
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Item 13. Certain Relationships and Related Transactions 46
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PART IV.
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Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 47
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Signature Page II-1
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Exhibit Index II-2
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PART I.
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Item 1. BUSINESS
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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 clinical and
financial 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.
TRIMERIS OVERVIEW
We are engaged in the discovery and development of a new class of
antiviral drug treatments called fusion inhibitors. Fusion inhibitors impair
viral fusion, 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 drug
candidates under development offer a novel mechanism of action with the
potential to treat a variety of medically important viral diseases.
We are a development stage company that has sustained operating losses
since our inception, and we expect these losses to continue. As of December 31,
2001, our accumulated deficit since beginning our operations in January 1993,
was approximately $188.9 million. We have invested a significant portion of our
time and financial resources in the development of T-20, our lead drug
candidate. If we are unable to commercialize T-20, our business will be
significantly harmed. In addition, we are engaged in segments of the
biopharmaceutical industry that are intensely competitive and change rapidly.
OUR DRUG CANDIDATES
Our most advanced drug candidates, T-20 and T-1249, are for the
treatment of human immunodeficiency virus--type I, or HIV. T-20 is our first
generation fusion inhibitor which prevents HIV from entering and infecting
cells. T-1249 is our second generation fusion inhibitor for the HIV virus.
T-1249 is in an earlier stage of development than T-20 but is part of the same
class of drug treatments, fusion inhibitors. The history of HIV treatment has
demonstrated that the existence of multiple drugs within a drug treatment class
allows for a variety of drug combinations and may help improve patient
treatment. We believe that multiple types of anti-HIV fusion inhibitors may
enhance HIV therapy by providing an even broader range of treatment options than
a single fusion inhibitor would allow.
Human pharmaceutical products, including our drug candidates, are
subject to lengthy and rigorous preclinical testing and clinical trials and
other extensive, costly and time-consuming procedures mandated by the United
States Food and Drug Administration, or FDA, and foreign regulatory authorities.
Clinical trials involve testing investigational drugs on healthy volunteers or
on infected 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 involve giving an 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. This includes
testing for dose tolerance and analyzing how the drug behaves in the
body, including analyzing absorption, metabolism, excretion, clinical
pharmacokinetics, or the amount of drug present in a patient's
bloodstream, and biodistribution, or how a drug is distributed in
tissues and organs.
. 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 development, manufacturing analysis,
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.
T-20. To date, we have tested or are testing T-20 in more than 1,000
patients, with the longest duration of treatment exceeding approximately three
years. These studies suggest that T-20 is well-tolerated and has potent
antiviral activity, as demonstrated in the TRI-003 trial by a maximum reduction
of approximately 40-fold in the number of copies of the HIV virus present in the
patient's bloodstream after 14 days of dosing with T-20. A 40-fold reduction
means that the number of copies of the HIV virus circulating in the patient's
bloodstream was reduced by 97.5%, or to 2.5% of the original number. The most
common adverse event reported in our clinical trials of T-20 has been mild to
moderate local skin irritations at the site of injection, or injection site
reactions.
We currently have two ongoing Phase III clinical trials, T20-301 and
T20-302, evaluating T-20, for which we have not yet collected clinically
relevant data. We have reported data from two Phase I/II clinical trials and
four Phase II trials for T-20. We also have two Phase II trials and two Phase
III trials ongoing for which we do not currently plan to present clinical data,
and one Phase I/II trial ongoing that we currently have no specific plans to
present clinical data. We plan to commence additional Phase II and/or Phase
IIIb/IV trials for T-20 throughout 2002. 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, a 71
patient, dose comparison Phase II trial for T-20. Patients in T20-206 were
randomly separated into four treatment groups, with the control group receiving
a potent, or very strong, background regimen consisting of four different,
currently-approved anti-HIV drugs--abacavir, amprenavir, efavirenz and
ritonavir. The conventional approach to treating HIV, as represented by these
four drugs, has been to lower viral loads, or the amount of HIV virus present in
the bloodstream, by using drugs that inhibit the viral enzymes necessary for HIV
to replicate. We designed T20-206 so that patients may receive these other
currently approved drugs, in what is commonly referred to as a background
regimen, in addition to T-20. The remaining three treatment groups are receiving
various dosage levels of T-20 BID, or twice daily, by injection under the skin,
or subcutaneous injections, along with the background regimen. The two highest
T-20 dose groups received two injections twice daily, while the lowest T-20 dose
group received one injection twice daily. At 16 weeks, the median reduction of
viral load in the patient's blood 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 99.9%, compared to a median reduction of 99.3%
for the control group.
2
In February 2002, we presented 48-week data from T20-206. At 48 weeks,
the median reduction of viral load from baseline viral load for the combined
T-20 treatment groups was 99.4%. compared to a median reduction of 98.7% for the
control group. At 48 weeks 55% of patients (28 of 51) in the combined T-20
treatment groups achieved viral load levels of less than 400 copies/milliliter
compared to 37% of patients (7 of 19) in the control group. 47% of patients (24
of 51) in the combined T-20 treatment groups achieved viral load levels of less
than 50 copies/milliliter compared to 37% of patients (7 of 19) in the control
group. Average CD4+ T-cell count increased by 132 cells/microliter in the
combined T-20 treatment groups compared to an increase of 90 cells/microliter in
the control group. CD4+ T-cells are responsible for mounting a body's immune
response against infection. An increase in CD4+ T-cells generally indicates an
improvement in the body's immune system.
In February 2002 we presented 48-week data from T20-208, a 46 patient
formulation comparison study of T-20. Patients in T20-208 received T-20 given as
twice daily subcutaneous injections in combination with oral anti-HIV drugs
selected for each patient on an individualized basis. At 48 weeks, 50% of
patients (23 of 46) achieved viral load levels of less than 400
copies/milliliter. In addition, 93 % of patients (43 of 46) completed 48 weeks
of treatment with the simpler dosing regimen of one injection twice daily that
is currently being used in our Phase III clinical trials, T20-301, T20-302, and
T20-305.
In December 2001, we presented 24-week data from T20-204, a 12 patient
pediatric Phase I/II trial for T-20. In T20-204, 12 pediatric patients were
randomly assigned to two treatment groups to receive T-20 at different dosage
levels in combination with a background regimen of other anti-HIV drugs. At 24
weeks, this trial showed that T-20 was well-tolerated by children and that
children receiving the highest dose experienced a ten-fold reduction in viral
load from baseline viral load. A ten-fold reduction in viral load from baseline
viral load means that the number of copies of the HIV virus circulating in the
patient's bloodstream was reduced by 90%, to one-tenth of the original number.
In June 2001, we completed enrolling patients in a multi-center Phase
III clinical trial, T20-301, in North America, Mexico and Brazil. T20-301 is a
48 week study which enrolled approximately 500 HIV-infected patients with a
planned interim analysis at 24 weeks. In this trial, patients are randomly
assigned to receive either T-20 plus an optimized background regimen of anti-HIV
drugs, or an optimized regimen of anti-HIV drugs without T-20. For each patient,
the optimized regimen is a combination of other anti-HIV drugs individually
determined for that 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
is being administered by twice daily injections under the skin, delivering 90
milligrams of T-20 each, using the formulation tested in our ongoing Phase II
trial, T20-208. In T20-208, analysis of the highest dose group indicated that a
patient received a delivered dose of 90 milligrams of T-20 per dose.
In August 2001, we completed enrolling patients in T20-302, a
multi-center Phase III clinical trial with a protocol, or trial design, similar
to T20-301. This trial enrolled approximately 500 HIV-infected patients in
Western Europe and Australia. Data from the 24-week interim analysis of these
trials is currently expected to be available during the first half of 2002.
Subject to analysis of data from the 24-week interim analysis of these trials,
we currently expect to file an NDA for T-20 with the FDA during the second half
of 2002.
In November 2001, we announced with Roche the beginning of site
selection and patient enrollment in the United States for T20-305, a safety
study of T-20 in combination with oral anti-HIV drugs. We expect to conduct the
study at various sites in North America, Europe, Brazil and Australia. This
study is expected to enroll a total of 450 adults with high viral loads, defined
as greater than 10,000 copies/milliliter, and low CD4+ T-cell counts, defined as
less than 50 cells/microliter, around the world. This trial is currently
underway and patient enrollment is in progress.
We also have three rollover clinical trials, T20-210, T20-211, and
T20-304, that allow participants in previous clinical trials to continue to
receive T-20, and a Phase I/II clinical trial in pediatric patients, T20-310,
ongiong. We currently do not have specific plans to present clinical data for
these trials.
3
T-1249. Our second generation fusion inhibitor for HIV is T-1249.
T-1249 has demonstrated potent, or strong, HIV suppression in cell 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. HIV is prone to
genetic mutations that produce strains of HIV that are resistant to
currently-approved anti-HIV therapies. 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 drug treatment class is likely to
become resistant to the entire drug treatment class, a phenomenon known as
cross-resistance. Attempts to reestablish suppression of HIV viral load by
substituting different anti-HIV combinations from the same drug treatment class
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.
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, meaning that types of viruses that
have demonstrated the ability to become resistant to T-20 have not demonstrated
the ability to become resistant to T-1249 in laboratory experiments. In
addition, T-1249 has enhanced pharmacokinetic properties compared to T-20, which
means T-1249 is expected to remain at higher levels in the bloodstream over time
compared to T-20. We believe that this should permit T-1249 to be administered
only once daily. T-1249 has also received "fast track" designation by the FDA
for the treatment of HIV.
In February 2001, we presented 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 trial
design to continue this trial at increasing doses of T-1249.
Analysis of this data also suggests that a daily dose of T-1249, and
not prior anti-HIV treatment experience, was the only variable that was
associated with the viral load reduction among treatment-experienced patients.
The most common adverse event reported in T1249-101 has been mild to moderate
local skin irritations at the site of injection, or injection site reactions. In
addition, two serious adverse events were reported in this clinical trial. One
patient experienced a hypersensitivity reaction and another patient exhibited a
low white blood cell count, or neutropenia. We are unable to determine whether
T-1249 caused some of these side effects because there were no patients in our
trial for comparison who did not receive T-1249.
ROCHE AGREEMENT
We have entered into an agreement with F. Hoffmann-La Roche Ltd, or
Roche, to develop and market T-20 and T-1249 worldwide. Our agreement with Roche
grants them an exclusive, worldwide license for T-20 and T-1249 and certain
other compounds. Roche may terminate its license as a whole or for a particular
country or countries in its sole discretion with advance notice. 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 us royalties on net sales of T-20 and T-1249 for a
specified term. In addition, Roche has agreed to pay us up to $68 million in
upfront and milestone payments, of which we have received $12 million as of
December 31, 2001.
We have also entered into a research agreement with Roche to discover,
develop and commercialize anti-HIV fusion inhibitor peptides. We will share
equally the worldwide research, development and commercialization expenses and
profits from the worldwide sales of anti-HIV fusion inhibitor peptides
discovered after July 1, 1999. Our agreement with Roche grants them an
exclusive, worldwide license for these peptides. Either party may terminate the
agreement as a whole or for a particular drug, country or countries in its sole
discretion with advance notice. The agreement expires in January 2003 and is
renewable thereafter on an annual basis.
4
We have transferred the manufacturing process for the amounts of T-20
required in our clinical trials to four third party contract manufacturers,
including Roche. We have selected Roche's manufacturing facility in Boulder,
Colorado to manufacture the quantities of bulk drug substance of T-20 we will
need if we are successful in commercializing T-20, and we have selected Roche
and another third party to produce the finished drug product from such bulk drug
substance. We currently expect the validation batches, which are batches
produced in the commercial scale manufacturing equipment that will be submitted
to the FDA, of T-20 drug substance to be completed in mid-2002.
RESEARCH
We are also currently using our platform technology to pursue research
programs to develop fusion inhibitors that target respiratory syncytial virus,
commonly known as RSV. In August 2001, we entered into a nonexclusive agreement
with Array BioPharma, Inc. to collaborate to discover small molecule fusion
inhibitors of HIV and RSV.
Our principal executive office is located at 3518 Westgate Drive,
Durham, North Carolina 27707, and our telephone number is (919) 419-6050. As
used herein, "we," "us," "our," the "Company" and "Trimeris" refer to Trimeris,
Inc.
BUSINESS AND MARKET
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:
. the virus recognizes a receptor on the surface of a target cell and
attaches to it;
. viral proteins rearrange themselves to bring the virus and the target
cell into close proximity;
. the viral membrane fuses with the target cell membrane; and
. 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.
5
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 940,000
people in North America and nearly 540,000 people in Western Europe. It is
estimated currently that an additional 45,000 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 thirteen FDA-approved RTIs, and seven
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 sales of approved RTIs and PIs exceeded $3.1 billion in 2001 in the United
States.
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 in infected and 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 one-third 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.
6
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:
. neurological disorders, including nightmares,
. gastrointestinal disorders, such as diarrhea and nausea,
. diabetes-like symptoms, and
. 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:
. up to 30 pills daily, including anti-HIV drugs and other medications,
at varying intervals throughout the day,
. specific dosing provisions such as taking pills with food or large volumes
of liquid,
. interrupting normal activities to take pills, and
. 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.
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, or FIs, 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.
7
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 or are
testing T-20 in more than 1,000 patients, with the longest duration of treatment
exceeding approximately three 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
two ongoing Phase III clinical trials, T20-301 and T20-302, evaluating T-20, for
which we have not yet collected clinically relevant data. We have reported data
from two Phase I/II clinical trial and four Phase II trials for T-20. We also
have two Phase II trials and two Phase III trials ongoing for which we do not
currently plan to present clinical data, and one Phase I/II trial ongoing that
we currently have no specific plans to present clinical data. We plan to
commence additional clinical trials with respect to T-20 throughout 2002. 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.
T-20 CLINICAL DEVELOPMENT
The following table lists in summary form the clinical trials we have
undertaken to evaluate T-20:
Number
of
Trial Patients Enrollment Data Date
Number Phase Trial Design Enrolled Criteria Reported Reported Purpose
- ------------- ----------- -------------------- ----------- -------------- ------------ ------------- -------------------------
TRI-001 Phase I/II 3 mg, 10 mg, 30 mg 17 HIV-infected 14-day 1997 Proof of concept;
or 100 mg BID via dose escalating
IV monotherapy study
TRI-003 Phase II 12.5 mg, 25 mg, 50 78 Heavily 28-day 1/1999 Route of
mg, 100 mg via pretreated administration, dose
pump or 50 mg, 100 comparison
mg BID
T20-204 Phase I/II 30 mg/m2-60 mg/m2 12 Ages 3-12, 12-week 1/2001 Safety, tolerability &
BID HIV-infected 24-week 12/2001 pharmacokinetics
T20-205 Phase II 50 mg BID plus 70 Heavily 16-week 9/1999 Rollover, chronic
background regimen pretreated 32-week 1/2000 administration
48-week 7/2000
T20-206 Phase II 50 mg, 75 mg or 71 NNRTI 16-week 2/2001 Randomized, dose
100 mg BID plus Naive, PI 48-week 2/2002 comparison
control regimen or experienced
control regimen
only
T20-208 Phase II 50 mg carbonate 46 No anti-HIV 48-week 2/2002 Formulation
and 75 mg, or 100 restrictions comparison
mg carbonate, or
100 mg Tris
formulation BID
8
T20-210 Phase II 90 mg BID plus In Rollover for Not -- Safety
background regimen Process patients in currently
T1249-101 planned
T20-211 Phase II 90 mg BID plus In Rollover for Not -- Safety
background Process patients in currently
regimen previous planned
T-20 trials
T20-301 Phase III 90 mg BID plus Approx. Experienced 24-week Expected Safety, efficacy &
background 500 with PIs, 1st Half pharmacokinetics
regimen, or NNRTIs and 2002
background regimen NRTIs
T20-302 Phase III 90 mg BID plus Approx. Experienced 24-week Expected Safety, efficacy &
background 500 with PIs, 1st Half pharmacokinetics
regimen, or NNRTIs and 2002
background regimen NRTIs
T20-304 Phase III 90 mg BID plus In Rollover for Not -- Safety
background regimen Process various currently
pharmacological planned
studies
T20-305 Phase III 90 mg BID plus In High viral Not -- Safety
background regimen Process load and low currently
CD4+ T-cell planned
count
T20-310 Phase III BID dose determined In Ages 3-16, high No -- Safety, efficacy &
by body weight, plus Process viral load, specific pharmacokinetics
background regimen treatment plans
experienced
Various Phase II Various (drug-drug In Various Various Various Safety &
* interaction, Process pharmacokinetics
pharmacology,
etc.)
- ------------- ----------- -------------------- ----------- -------------- ------------ ------------- -------------------------
* Includes various small clinical trials managed by Trimeris, Roche and
others to evaluate various drug-drug interactions and pharmacokinetic issues.
Interim Data from T20-206 (16 weeks and 48 weeks), T20-204 (12 weeks
and 24 weeks), T20-205 (48 weeks), and T20-208 (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:
. 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
. 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, with arm B receiving one injection twice daily
and arms C and D receiving two injections twice daily.
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.
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/milliliter 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.
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In February 2002, we presented 48-week data from T20-206. At 48 weeks
55% of patients (28 of 51) in the combined T-20 treatment groups achieved
viral load levels of less than 400 copies/milliliter compared to 37% of patients
(7 of 19) for the control group. 47% of patients (24 of 51) in the combined T-20
treatment groups achieved viral load levels of less than 50 copies/milliliter
compared to 37% (7 of 19) in the control group. Average CD4+ T-cell count
increased by 132 cells/microliter in the combined T-20 treatment groups compared
to an increase of 90 cells/microliter in the control group.
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.
In December 2001, we presented 24-week data from T20-204. At 24 weeks,
this trial showed that T-20 was well-tolerated by children and that children
receiving the highest dose of T-20 experienced a ten-fold reduction in viral
load from baseline viral load.
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 decrease
of 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/milliliter, and 16 of 41 patients or 39 % had
an HIV viral load below 400 copies/milliliter.
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.
T20-208. In March 2000, we initiated T20-208, a Phase II clinical trial
for T-20 that evaluates alternative formulations of T-20. The trial enrolled 46
patients, and evaluates 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 are 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 milligrams per
dose. We designed our Phase III protocols to reflect this information from
T20-208.
10
In February 2002 we presented 48-week data from T20-208. At 48 weeks,
50% of patients (23 of 46) achieved viral load levels of less than 400
copies/milliliter. In addition, 93% of patients (43 of 46) completed a full year
of treatment with the simpler one injection twice daily dosing regimen that is
currently being used in our Phase III clinical trials, T20-301, T20-302, and
T20-305.
OTHER ONGOING TRIALS OF T-20
T20-301. In June 2001, we completed enrolling patients in a
multi-center Phase III clinical trial, T20-301, in North America, Mexico and
Brazil. T20-301 is a 48 week study which enrolled approximately 500 HIV-infected
patients with a planned interim analysis at 24 weeks. In this trial, patients
are randomly assigned to receive either T-20 plus an optimized background
regimen of anti-HIV drugs, or an optimized regimen of anti-HIV drugs without
T-20. For each patient, the optimized regimen is a combination of other anti-HIV
drugs individually determined for that patient based on the genotypic and
phenotypic analysis of the HIV virus in that patient's blood. T-20 is being
administered by twice daily injections under the skin, delivering 90 milligrams
of T-20 each, using the formulation tested in our ongoing Phase II trial,
T20-208. Data from the 24-week interim analysis of T20-301 is currently expected
to be available during the first half of 2002.
T20-302. In August 2001, we completed enrolling patients in T20-302, a
multi-center Phase III clinical trial with a protocol, or trial design, similar
to T20-301. This trial enrolled approximately 500 HIV-infected patients in
Western Europe and Australia. Data from the 24-week interim analysis of T20-302
is currently expected to be available during the first half of 2002. Subject to
analysis of data from the 24-week interim analysis of T20-301 and T20-302, we
currently expect to file an NDA for T-20 with the FDA during the second half of
2002.
T20-305. In November 2001, we announced with Roche the beginning of
site selection and patient enrollment in the United States for T20-305, a
safety study of T-20 in combination with oral anti-HIV drugs. We expect to
conduct the study at various sites in North America, Europe, Brazil and
Australia. This study is expected to enroll a total of approximately 450 adults
with high viral loads, defined as greater than 10,000 copies/milliliter, and low
CD4+ T-cell counts, defined as less than 50 cells/microliter, around the world.
This trial is currently underway and patient enrollment is in progress.
T20-310. T20-310 is a Phase I/II trial designed to evaluate long-term
usage of T-20 in pediatric patients between the ages of 3 and 16. The trial is
currently enrolling patients. We currently have no specific plans to present
clinical data from this trial.
Rollover Trials. We have several ongoing clinical trials that allow
patients in previously completed clinical trials to continue receiving T-20 as
long as they continue to receive clinical benefit. These trials are T20-210,
T20-211, and T20-304. We currently have no plans to present clinical trial data
on these trials.
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 examining T-20 resistance trough analysis of blood
samples taken from patients throughout several ongoing clinical trials, and
augmenting these analyses with additional laboratory studies. Early genotypic
and phenotypic analysis from 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.
Extension of these studies to samples from the T20-205 study, where T-20 was
given in combination with other anti-HIV drugs that are believed to be active,
has demonstrated that the resistance profile of T-20 does not overlap with the
resistance profiles of currently-approved anti-HIV drugs targeting the viral
enzymes reverse transcriptase and protease. Studies with HIV viruses recovered
from patients in the T20-205 study have demonstrated that T-20 is active against
HIV viruses with genetic resistance to all three classes of currently approved
anti-HIV drugs. In addition, T-20 has demonstrated additive or synergistic
antiviral activity in laboratory studies when combined with representative
members of the currently approved classes of anti-HIV drugs.
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FUTURE T-20 CLINICAL TRIALS
Throughout the remainder of 2002, 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, although overlaps 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, including those with genetic
resistance to all three classes of currently approved anti-HIV drugs, and
strains with decreased sensitivity to T-20, indicates that T-1249 may possess a
resistance profile distinct from RTIs and PIs as well as T-20.
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
milligrams per day to 50 milligrams 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. Analysis of this data also suggests that a daily dose of T-1249, and
not prior anti-HIV treatment experience, was the only variable that was
associated with the viral load reduction among treatment-experienced patients.
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
12
and dosing period in the ongoing and future trials.
RESEARCH PROGRAMS
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.
. 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
ROCHE RESEARCH AGREEMENT
We have entered into a research agreement with Roche to discover,
develop and commercialize anti-HIV fusion inhibitor peptides. We hope to
discover longer acting and more potent anti-HIV fusion inhibitor peptides. We
will share equally the worldwide research, development and commercialization
expenses and profits from the worldwide sales of anti-HIV fusion inhibitor
peptides discovered after July 1, 1999. Our agreement with Roche grants them an
exclusive, worldwide license for these peptides. Either party may terminate the
agreement as a whole or for a particular drug, country or countries in its sole
discretion with advance notice. The agreement expires in January 2003 and is
renewable thereafter on an annual basis.
ARRAY BIOPHARMA AGREEMENT
In August 2001, we entered into a non-exclusive agreement with Array
BioPharma, Inc. or Array, to discover small molecule fusion inhibitors of HIV
and RSV. We will initially screen a library of small molecule compounds provided
by Array against HIV and RSV fusion protein targets. Array will use its drug
discovery platform to select the optimal lead compounds. We will collaborate
with Array to identify preclinical candidates and we will be responsible for
further development of those candidates. Array will provide the initial library
of compounds on a non-exclusive basis and will work exclusively with us on the
HIV and RSV fusion protein targets during the term of the collaboration. We will
work with Array on a non-exclusive basis on these targets. Array will be
entitled to receive payments and royalties based on achievement of certain
developmental and commercial milestones.
13
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 high compared to therapeutic 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, for the amounts of T-20 required in our clinical
trials. These third-party manufacturers have used 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 in Boulder, Colorado to
manufacture the quantities of bulk drug substance of T-20 we will need if we are
successful in commercializing T-20. We have selected one of Roche's
manufacturing facilities and another third party to produce the finished drug
product from such bulk drug substance. We currently expect the validation
batches of T-20 drug substance to be completed in mid-2002. 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 - If sufficient amounts of
our drug candidates cannot be manufactured on a cost-effective basis or we
cannot obtain the quantities of raw materials required to manufacture our drug
candidates, our financial condition and results of operations will be materially
and adversely affected, and "--If we cannot maintain commercial manufacturing
arrangements with third parties on acceptable terms, or if these third parties
do not perform as agreed, the commercial development of our drug candidates
could be delayed or otherwise materially and adversely affected."
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:
. funding,
. research and development resources,
. additional drug product candidates,
. access to libraries of diverse compounds, and
. clinical development, manufacturing, sales, marketing and distribution
capabilities.
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. As discussed above, we have selected
Roche's facility in Boulder, Colorado to manufacture commercial quantities of
T-20 bulk drug substance, and we have selected one of Roche's manufacturing
facilities and another third party to produce the finished drug product from
such bulk drug substance.
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
14
business, financial condition, and results of operations. For further
information see - "Risk Factors - If Roche does not meet its contractral
obligations to us, our research and development efforts and the regulatory
approval and commercialization of our drug candidates could be delayed or
otherwise materially and adversely affected."
We have also entered into a research agreement with Roche to discover,
develop and commercialize anti-HIV fusion inhibitor peptides, as discussed in
more detail above.
In August 2001, we signed an agreement with Array BioPharma, Inc. to
discover small molecule fusion inhibitors of HIV and RSV, as discussed in more
detail above.
In December 2001, we signed an agreement with ConjuChem, which for a
certain period, provides us with the exclusive right to negotiate terms and
conditions of a worldwide right and license to ConjuChem's Drug Affinity Complex
(DAC/TM/) technology to create long lasting DAC/TM/ compounds targeted for the
treatment of HIV infection. Development of such compounds could lead to anti-HIV
drugs with more convenient dosing.
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. To the extent we successfully commercialize T-20 and/or T-1249,
we currently plan to rely on Roche for the sales, marketing and distribution of
these drug candidates, in accordance with the marketing terms contained in our
development and license agreement with Roche. Roche may terminate this agreement
at any time with advance notice. If Roche failed to market our drug candidates
adequately and we were unable to reach agreement with one or more other
marketing partners, we would 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 on a timely basis, 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.
Any sales, marketing or distribution arrangements we establish with
other parties, including our agreement with Roche, may give those parties
significant control over important aspects of the commercialization of our
drugs, including:
. market identification;
. marketing methods;
. pricing;
. drug positioning;
15
. composition of sales force; and
. promotional activities.
We may not be able to control the amount or timing of resources that
Roche or any third party may devote to our drugs.
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. Most of our issued United States
patents issued to date are set to 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.
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 twenty 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.
16
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:
. the safety and effectiveness of the products,
. the timing and scope of regulatory approvals,
. availability of manufacturing, sales, marketing and distribution
capabilities,
. reimbursement coverage,
. price, and
. 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.
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:
. the establishment of the safety and effectiveness of each product candidate,
and
. 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:
. preclinical studies,
. the submission to the FDA of a request for authorization to conduct clinical
trials on an IND,
. adequate and well-controlled clinical trials to establish the safety
and efficacy of the drug for its intended use,
. adequate control of a reliable manufacturing process,
. submission to the FDA of an New Drug Application, or NDA, and
. review and approval of the NDA by the FDA before the drug may be shipped or
sold commercially.
17
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.
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 existing or potential future collaborative partners
are also subject to various federal, state and local laws and regulations
relating to:
. 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.
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.
18
THIRD-PARTY REIMBURSEMENT AND HEALTH CARE REFORM MEASURES
In the United States and elsewhere, sales of prescription drugs depend,
in part, on the consumer's ability to obtain reimbursement for the cost of the
drugs from third-party payors, such as private and government insurance
programs. 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. Because of the high cost of the
treatment of HIV, many state legislatures are also reassessing reimbursement
policies for this therapy. If third-party payor reimbursements for any drugs we
commercialize are not available or are not available at a level that will allow
us or our potential collaborative partners to sell these drugs on a competitive
basis, our results of operations will be materially and adversely affected. In
addition, an increasing emphasis in the United States on the reduction of the
overall costs of health care through managed care has increased and will
continue to increase the pressure to reduce the prices of pharmaceutical
products. The announcement and/or adoption of these types of proposals or
efforts could also materially and adversely affect our business, since the
amount of revenues that we may potentially be able to generate in the future for
any products we may commercialize could affect an investor's decision to invest
in us, the amount of funds we decide to spend now on our development and
clinical trial efforts, and/or our decision to seek regulatory approval for
certain product candidates.
Recently, several major pharmaceutical companies have offered to sell their
anti-HIV drugs at or below cost to certain countries in Africa, which could
adversely affect the reimbursement climate, and the prices that may be charged,
for HIV medications in the United States and the rest of the world. Third-party
payors could exert pressure for price reductions in the United States and the
rest of the world based on these offers to Africa. This price pressure could
limit the amount that we would be able to charge for our drugs.
HUMAN RESOURCES
As of February 28, 2002, we had 109 full-time employees, including a
technical scientific staff of 76. 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 Advisor 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
19
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.
20
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. If any of the following risks occur, our business,
financial condition and results of operations could be materially and adversely
affected. As a result, the market price of our common stock could decline, and
you may lose all or part of your investment.
We are a development stage company that has sustained operating losses since
our inception, and we expect these losses to continue. We may never develop any
drugs that achieve commercial viability.
As of December 31, 2001, our accumulated deficit since beginning our
operations in January 1993 was approximately $188.9 million. We had net losses
of approximately $22.2 million in 1999, approximately $50.9 million in 2000 and
approximately $66.7 million in 2001. Since inception, we have spent our funds
on our drug development efforts, relating primarily to the development of our
two lead product candidates, T-20 and T-1249. We expect that we will incur
substantial losses for the foreseeable future and that these losses will
increase significantly as we expand our research and development, preclinical
testing, clinical trial and regulatory approval efforts and begin anticipated
commercialization efforts related to T-20. We have not yet generated any
revenues from product sales or royalties. We may not ever be able to generate
any product revenues or royalties or become profitable if we do generate any
revenues or royalties.
If we cannot raise additional funds in the future, our ability to develop our
drug candidates will suffer.
The private placement of common stock that we completed in January
2002, raised net proceeds of approximately $41 million. Barring unforeseen
developments, we anticipate that our existing capital resources will fund our
capital requirements at least through the end of 2002. Because we do not expect
to have an approved and marketable drug generating revenues at that time, we
will require substantial additional funds after that time. If we do not obtain
such financing, we will be required to delay, scale back or eliminate some of
our planned preclinical testing, clinical trials, research and development
programs and pre-marketing activities. We anticipate that our expenditures will
increase as a result of the ongoing costs of our Phase III clinical trials,
which are generally larger and more expensive than the Phase I and Phase II
clinical trials we have conducted to date, the anticipated preparation and
submission of an NDA to the FDA following receipt of data from our Phase III
clinical trials, and the costs of pre-marketing activities that will need to be
undertaken in anticipation of the commercialization of T-20. During the year
ended December 31, 2001, we used net cash of approximately $60.6 million for
operations, including research and development.
We have financed our activities primarily through public offerings and
private placements of our common stock and we expect to continue to rely
primarily on sales of our equity securities to finance our activities for the
foreseeable future. We may have difficulty raising funds by selling equity in
the future. Our access to capital could be limited if we do not achieve
continued progress in our research and development programs and our preclinical
testing and clinical trials, and could be limited by overall market conditions.
The public capital markets in which our common stock trades have been highly
volatile and the general ability of companies to obtain additional equity
financing, which was significantly more difficult in 2001 compared to 2000, is
expected to remain difficult in 2002.
Terrorists attacks such as the attacks that occurred in New York and
Washington, D.C. on September 11, 2001 and other attacks or acts of war may
adversely affect the markets on which our common stock trades, our drug
candidates, our financial condition and our results of operations.
On September 11, 2001, the United States was the target of terrorist
attacks of unprecedented scope. These attacks have caused major instability in
the U.S. and other financial markets. There could be further acts of terrorism
in the United States or elsewhere that could have a similar impact on financial
markets. Leaders of the U.S. government have announced their intention to
actively pursue and take military and other action against those believed to be
behind the September 11, 2001 attacks and to initiate broader action against
global terrorism. Armed hostilities or further acts of terrorism would cause
further instability in financial markets and could directly impact our drug
candidates, our financial condition and our results of operations.
21
Any additional financing we obtain may result in dilution to our stockholders,
restrictions on our operating flexibility, or the transfer of particular rights
to technologies or drug candidates.
Although we have no specific plans to raise additional funds at the
current time, we may raise additional funds in the future through equity or
debt financings. If we raise funds by selling equity, we may dilute our
stockholders' interest in us. Any debt financings may contain restrictive terms
that would limit our operating flexibility. Additionally or alternatively, we
may have to obtain funds through arrangements with collaborative partners.
These partners may require us to relinquish rights to our technologies or drug
candidates. Any of these forms of financing could materially and adversely
affect our business, financial condition and results of operations.
If we are unable to commercialize T-20, our lead drug candidate, our business
will be materially harmed.
We have invested a significant portion of our time and financial
resources since our inception in the development of T-20. T-20 is our lead drug
candidate and is our only drug candidate for which we have completed Phase II
clinical trials and initiated Phase III clinical trials as of the date of this
annual report. Our other drug candidate in clinical trials, T-1249, is at an
earlier stage of clinical trial development. We anticipate that for the
foreseeable future, our ability to generate revenues and profits, if any, will
depend solely on the successful commercialization of T-20. Commercialization of
T-20 will require success in our clinical trials, regulatory approval and the
ability to have sufficient commercial quantities of T-20 manufactured on a
cost-effective basis with the requisite quality. We cannot assure you that we
will be able to commercialize T-20 or any other drug candidate.
If our clinical trials are delayed or achieve unfavorable results, we may never
obtain regulatory approval for our drugs or generate any revenues.
In order to obtain the regulatory approvals necessary to sell a drug
candidate commercially, we must demonstrate to the FDA and other applicable
United States and foreign regulatory authorities that the drug candidate is
safe and effective for use in humans for each target indication. We attempt to
demonstrate this through a lengthy and complex process of preclinical testing
and clinical trials, which typically takes a number of years. Delays or
unanticipated increases in costs of clinical development, or failure to obtain
regulatory approval or market acceptance for any of our drug candidates, could
materially and adversely affect our financial condition and operating results.
We have not yet submitted any of our drug candidates to the FDA or any
other regulatory authority for approval of commercialization. To date:
. we have completed initial preclinical testing of T-20 and T-1249;
. we have completed collecting clinically relevant data with respect to
two Phase I/II clinical trials of T-20 and four Phase II clinical
trials of T-20;
. we have four ongoing clinical trials of T-20, for which we do not
currently plan to present data;
. we have one ongoing clinical trial of T-20, for which we do not have a
specific plan to present data;
. we are continuing a Phase I/II clinical trial of T-1249, from which we
have collected interim clinically relevant data and anticipate the
collection of additional clinically relevant data in 2002; and
. we have completed enrollment in two Phase III clinical trials for T-20,
one in the United States, Mexico and Brazil, and one internationally,
and we currently anticipate collecting clinically relevant data from
these clinical trials in the first half of 2002 sufficient to support
submission of an NDA for T-20 to the FDA in the second half of 2002.
22
Because these clinical trials to date 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 drug 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. In particular, if the results of the Phase III trials we
are currently conducting for T-20 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 we obtain
regulatory approval for T-20, the results of these Phase III trials may
indicate that T-20 is less safe or effective than expected, and any such
approval may limit the indicated uses for which T-20 may be marketed.
We may be required to redesign, delay or cancel our preclinical testing
and clinical trials for some or all of the following reasons, any of which may
adversely affect our results of operations:
. unanticipated, adverse or ambiguous results from our preclinical
testing or clinical trials;
. change in the focus of our collaborative partner, Roche;
. undesirable side effects that delay or extend the trials;
. our inability to locate, recruit and qualify a sufficient number of
patients for our trials;
. difficulties in manufacturing sufficient quantities at the requisite
quality of the particular drug candidate or any other components
needed for our preclinical testing or clinical trials;
. regulatory delays or other regulatory actions;
. change in the focus of our development efforts; and
. reevaluation of our clinical development strategy.
In addition, due to uncertainties inherent in the clinical development
process, we may underestimate the costs and/or length of time associated with
clinical development of T-20 or T-1249.
If sufficient amounts of our drug candidates cannot be manufactured on a
cost-effective basis or we cannot obtain the quantities of raw materials
required to manufacture our drug candidates, our financial condition and
results of operations will be materially and adversely affected.
T-20 and T-1249 are peptide-based therapeutics, which are drug
treatments made from long chains of proteins called peptides, which in turn are
composed of molecular building blocks called amino acids. T-20 is a large
peptide composed of a precise 36 amino acid sequence. Large peptides are
difficult and expensive to manufacture because the process of creating
commercial quantities of a large peptide is lengthy and complicated. For
example, we believe that, using traditional peptide synthesis methods, the
process of creating a commercial quantity of T-20 could take more than a year,
although to our knowledge no one has attempted to create such a quantity of
peptides using traditional peptide synthesis methods. The novel process we and
our third-party manufacturers are currently using to manufacture T-20 and
intend to use to manufacture T-1249 requires approximately five months to
complete and is extremely complicated, requiring over 100 separate, precisely
controlled chemical reactions. As a result of this novel and complex
manufacturing process, we may encounter unexpected difficulties or expense in
manufacturing T-20 and T-1249. We may not be able to manufacture T-20 or T-1249
on a large-scale or cost-effective basis, or develop an alternate, more
efficient manufacturing method for T-20, T-1249 or any future peptide drug
candidates. Commercial production of T-20 and T-1249 will also require raw
materials, including highly specialized amino acids, in amounts substantially
greater than those required at our current stage of development. We may not be
able to obtain these materials in sufficient quantities, quality or on a
cost-effective basis to support the commercial manufacture of T-20 or T-1249.
23
In addition, the FDA must approve the facilities that will be used to
manufacture commercial quantities of T-20 and T-1249 before commencement of
commercial sales. Moreover, although we are in the process of developing
alternate manufacturing plans in the event our intended manufacturing plan
generates insufficient supplies of T-20 and T-1249, we do not have an alternate
manufacturing plan in place at this time and it would take a significant amount
of time to arrange for alternative sources of supply. We do not have insurance
to cover any shortages or other problems in the manufacturing of our drug
candidates. If we are unable to manufacture sufficient amounts of T-20 or
T-1249 on a cost-effective basis, obtain the necessary quantities of raw
materials or obtain the required FDA approvals, our financial condition and
results of operations will be materially and adversely affected.
If Roche does not meet its contractual obligations to us, our research and
development efforts and the regulatory approval and commercialization of our
drug candidates could be delayed or otherwise materially and adversely affected.
As described in more detail in the section of this 10-K titled
"Business - Roche Collaboration" we have entered into an agreement with Roche
to develop and market T-20 and T-1249 worldwide, manufacture clinical and
commercial quantities of T-20 and help conduct our clinical trials of T-20 and
T-1249. In addition to sharing with us the development expenses and profits for
T-20 and T-1249 in the United States and Canada and paying us royalties on net
sales of T-20 and T-1249 outside of those countries, Roche has agreed to pay us
up to $68 million in upfront and milestone payments, of which we have received
$12 million as of December 31, 2001. In addition, we have entered into a
research agreement with Roche to discover, develop and commercialize anti-HIV
fusion inhibitor peptides. Our reliance on Roche in connection with these
activities poses a number of risks, including the following:
. Roche has the right to terminate our development and license agreement,
including its marketing provisions, or the research agreement, in each
case as a whole or with respect to any particular country or countries,
at any time and from time to time in its sole discretion, even though
we have a joint management committee consisting of members of Roche and
Trimeris that oversees the strategy for our collaboration and research;
. Roche may not devote sufficient resources to the research, development
or marketing of our drugs;
. Roche may not devote sufficient resources to manufacture T-20 in
commercial quantities on a cost-effective basis and with the requisite
quality;
. disagreements with Roche could lead to delays in or termination of the
research, development or commercialization of our drugs, or result in
litigation or arbitration;
. Roche may choose to devote fewer resources to the research, development
and marketing of our drugs than it does to drugs of its own
development, or may choose to compete with us by seeking, on its own or
in collaboration with our competitors, alternate means of developing
drug therapies for the diseases we have targeted; and
. disputes may arise in the future with respect to the ownership of
rights to technology developed with Roche.
If any of the foregoing occurs or if Roche otherwise fails to fulfill
any of its obligations to us in accordance with our agreements, our research
and development efforts and clinical trials, and the regulatory approval and
commercialization of our drug candidates, could be delayed or otherwise
materially and adversely affected.
We also may rely from time to time on the services of other third
parties in connection with our research and development and clinical trial
activities, including contract research organizations, manufacturers who
produce clinical amounts of our drug candidates, licensors, collaborators and
others. The failure of any of these persons to perform their obligations as
agreed may also delay and otherwise adversely affect our research and
development, clinical trial activities and regulatory approval of our drug
candidates.
24
If we cannot maintain commercial manufacturing arrangements with third parties
on acceptable terms, or if these third parties do not perform as agreed, the
commercial development of our drug candidates could be delayed or otherwise
materially and adversely affected.
We have selected Roche's facility in Boulder, Colorado to manufacture
commercial quantities of the bulk drug substance of T-20 in the event that we
successfully commercialize T-20. We have selected one of Roche's manufacturing
facilities and another third party to produce the finished drug product from
such bulk drug substance. The manufacture of pharmaceutical products requires
significant expertise and capital investment. Third-party manufacturers of
pharmaceutical products often encounter difficulties in scaling up production,
including problems involving production yields, quality control and assurance,
shortage of qualified personnel, compliance with FDA regulations, production
costs, and development of advanced manufacturing techniques and process
controls. Our third-party manufacturers, including Roche, may not perform as
agreed or may not remain in the contract manufacturing business for the time
required to successfully produce and market our drug candidates. The number of
third-party manufacturers with the expertise and facilities to manufacture bulk
drug substance of T-20 on a commercial scale, using the manufacturing method
described above, is extremely limited. We also intend to have additional
third-party manufacturers produce the finished drug product from the bulk drug
substance of T-20, by employing a process involving lyophilization, or
freeze-drying. A limited number of third-party manufacturers have the capability
to produce a finished drug product on a commercial scale through a process
involving lyophilization. If our third-party manufacturers, including Roche,
fail to deliver the required commercial quantities of bulk drug substance or
finished drug product on a timely basis and at commercially reasonable prices,
and we fail to promptly find one or more replacement manufacturers or develop
our own manufacturing capabilities at a substantially equivalent cost and on a
timely basis, the commercial development of our drug candidates could be delayed
or otherwise materially and adversely affected.
Our business is based on a novel technology called fusion inhibition, and
unexpected side effects or other characteristics of this technology may delay
or otherwise adversely affect the development, regulatory approval and/or
commercialization of our drug candidates.
The technology platform underlying our drug development program is
novel because it is designed to discover drug candidates that treat viral
infection by preventing the virus from fusing to and entering host cells that
viruses use to reproduce themselves. The conventional approach to treating HIV,
as represented by all currently-marketed anti-HIV drugs, is to inhibit specific
viral enzymes that are necessary for HIV to replicate. We are not aware of any
other approved anti-HIV pharmaceutical products that target the inhibition of
viral fusion. As a result, existing preclinical and clinical data on the safety
and efficacy of this technology are very limited. Although the most common
adverse side effect reported with respect to T-20 to date has been mild to
moderate local skin irritations at the site of injection, or injection site
reactions, we may discover other unacceptable side effects during or after
preclinical and clinical testing of our drug candidates, including side effects
that may only become apparent after long-term exposure. We may also encounter
technological challenges relating to these technologies and applications in our
research and development programs that we may not be able to resolve. Any such
unexpected side effects or technological challenges may delay or otherwise
adversely affect the development, regulatory approval and/or commercialization
of our drug candidates.
Even if we are successful in developing a commercially viable drug, in order to
become profitable we will need to maintain arrangements with third parties for
the sale, marketing and distribution of our drug candidates or expend
significant resources to develop these capabilities.
We have no experience in sales, marketing or distribution of
pharmaceuticals. To the extent we successfully commercialize T-20 and/or
T-1249, we currently plan to rely on Roche for the sales, marketing and
distribution of these drug candidates, in accordance with the marketing terms
contained in our development and license agreement with Roche. Roche may
terminate this agreement at any time with advance notice. If Roche failed to
market our drug candidates adequately and we were unable to reach agreement
with one or more other marketing partners, we would 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
25
terms on a timely basis, 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.
Any sales, marketing or distribution arrangements we establish with
other parties, including our agreement with Roche, may give those parties
significant control over important aspects of the commercialization of our
drugs, including:
. market identification;
. marketing methods;
. pricing;
. drug positioning;
. composition of sales force; and
. promotional activities.
We may not be able to control the amount or timing of resources that
Roche or any third party may devote to our drugs.
The HIV virus is likely to develop resistance to some of our drug candidates,
which could adversely affect demand for those drug candidates and harm our
competitive position.
As discussed in the section of this 10-K titled "Business - Overview of
HIV," HIV is prone to genetic mutations that can produce strains of HIV
resistant to particular drug treatments. HIV has developed resistance, in
varying degrees, to each of the currently approved anti-HIV drug treatments. As
a result, combination therapy, or the prescribed use of three or more anti-HIV
drugs, has become the preferred method of treatment for HIV-infected patients,
because in combination these drugs may prove effective against strains of the
HIV virus that have become resistant to one or more drugs in the combination.
In the clinical trials we have conducted to date, the HIV virus has
demonstrated the ability to develop resistance to T-20, as it has with respect
to all other currently-marketed anti-HIV drugs. If the HIV virus in a short
time period develops resistance to any of our drug candidates when used in
combination therapy, it would adversely affect demand for those drug candidates
and harm our competitive position.
Our stock price is highly volatile, and you may not be able to sell our shares
at or above the price you pay to acquire our shares.
Our stock price has fluctuated substantially since our initial public
offering in October 1997. The equity securities of many companies, including
equity securities of many other biotechnology and pharmaceutical companies,
have experienced extreme fluctuations in trading price and volume in recent
months. Often, these fluctuations are unrelated to the companies' operating
performance. Our common stock may not trade at the same levels as other
biotechnology or pharmaceutical stocks, and biotechnology and pharmaceutical
stocks in general may not sustain their current market prices. Any or all of
the following could cause the market price of our common stock to fluctuate
significantly after this offering:
. changes in financial estimates or investment recommendations for us or
our industry by securities analysts;
. failure to meet clinical expectations of securities analysts or
investors;
. quarterly variations in our operating results, especially operating
results that fall short of analysts' or investors' expectations in any
given period;
. market conditions in the biotechnology or pharmaceutical market or in
the economy as a whole;
. announcements by us or our competitors of new products, services,
acquisitions, FDA actions, or strategic relationships;
. departures of key personnel;
. changes in business or regulatory conditions;
. the trading volume of our common stock; and
26
. terrorist attacks, other attacks or acts of war that affect the
markets on which our common stock trades, our drug candidates, our
financial condition and our results of operations.
We depend on patents and proprietary rights, which may offer only limited
protection against infringement. If we are unable to protect our patents and
proprietary rights, our assets and business could be materially harmed.
Our success depends in part on our ability and the ability of our
licensors to obtain, maintain and enforce patents and other proprietary rights
for our drugs and technologies. Patent law relating to the scope of claims in
the biotechnology field in which we operate is still evolving and surrounded by
a great deal of uncertainty. Accordingly, we cannot assure you that our pending
patent applications will result in issued patents. Because U.S. patent
applications may be maintained in secrecy until a patent issues or is otherwise
published, we cannot assure you that others have not filed patent applications
for technology covered by our pending applications or that we were the first to
invent the technology.
Other companies, universities and research institutions have or may
obtain patents and patent applications that could limit our ability to use,
manufacture, market or sell our drug candidates or impair our competitive
position. As a result, we may have to obtain licenses from other parties before
we could continue using, manufacturing, marketing or selling our potential
drugs. Those licenses may not be available on commercially acceptable terms, if
at all. If we do not obtain required licenses, we may not be able to market our
potential drugs at all or we may encounter significant delays in drug
development while we redesign potentially infringing drugs or methods.
In addition, although we own or exclusively license more than 20 issued
United States patents, numerous pending United States patent applications, and
corresponding foreign patents and patent applications, including issued patents
and patent applications relating to T-20 and T-1249, the issuance of a patent
is not conclusive as to its validity or enforceability, and third parties may
challenge the validity or enforceability of our patents. We cannot assure you
how much protection, if any, our patents will provide if we attempt to enforce
them and/or if the patents are challenged in court or in other proceedings. It
is possible that a competitor may successfully challenge our patents or that
challenges will result in limitations of their coverage. In addition, the cost
of litigation to uphold the validity of patents can be substantial. If we are
unsuccessful in such litigation, third parties may be able to use our patented
technologies without paying licensing fees or royalties to us.
Moreover, competitors may infringe our patents or successfully avoid
them through design innovation. To prevent infringement or unauthorized use, we
may need to file infringement claims, which are expensive and time-consuming.
In addition, in an infringement proceeding, a court may decide that a patent of
ours is not valid or enforceable or may refuse to stop the other party from
using the technology at issue on the grounds that its technology is not covered
by our patents. Policing unauthorized use of our intellectual property is
difficult, and we cannot assure you that we will be able to prevent
misappropriation of our proprietary rights, particularly in countries where the
laws may not protect such rights as fully as in the United States.
Recently, several generic drug-makers in countries such as India have
offered to sell HIV drugs currently protected under United States patents to
patients in Africa at prices significantly below those offered by the drugs'
patent holders 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 countries at prices below those charged by the drugs' patent holders. If
any of these actions occur with respect to our drugs, it could limit the amount
we could charge for our drugs.
In addition to our patented technology, we also rely on unpatented
technology, trade secrets and confidential information. We may not be able to
effectively protect our rights to this technology or information. Other parties
may independently develop substantially equivalent information and techniques
or otherwise gain access to or disclose our technology. We require each of our
employees, consultants and corporate partners to execute a confidentiality
agreement at the commencement of an employment, consulting or collaborative
relationship with us. However, these agreements may not provide effective
protection of our technology or information or, in the event of unauthorized
use or disclosure, they may not provide adequate remedies.
27
The occurrence of any of these risks could have a material adverse
effect on our business, financial condition, results of operations and market
price of our stock.
We are subject to extensive and complex government regulation, including
regulation by the FDA, which can entail significant costs and could delay,
limit or prevent commercialization of our drug candidates.
Our research and development activities, and the testing, development,
manufacturing and commercialization of our drug candidates are subject to
regulation by numerous governmental authorities in the United States and, to
the extent that we may be engaged in activities outside of the United States,
in other countries. In addition to proving to these authorities the safety and
efficacy of our drug candidates through the clinical trial process, we must
also prove that we and our clinical testing and manufacturing partners maintain
good laboratory, clinical and manufacturing practices. In addition, the Federal
Food, Drug and Cosmetic Act, the Public Health Service Act and other domestic
and foreign statutes and regulations govern or affect the testing, manufacture,
safety, labeling, storage, record keeping, approval, advertising and promotion
of substances such as our drug candidates, as well as safe working conditions
and the experimental use of animals. Noncompliance with applicable requirements
can result in criminal prosecution and fines, recall or seizure of drugs, total
or partial suspension of production, refusal of the government to approve
product license applications, prohibitions or limitations on the commercial
sale of drugs or refusal to allow us to enter into supply contracts. The FDA
also has the authority to revoke product licenses and establishment licenses
that it has previously granted. In addition, if compliance with these
regulations proves more costly than anticipated, our financial condition and
results of operations could be materially and adversely affected. We do not
separately track as an accounting item the amounts we spend to comply with
regulatory requirements, but the majority of our activities and expenditures to
date, including our preclinical and clinical trial activities and expenditures,
have been undertaken directly or indirectly in order to comply with applicable
governmental regulations. Although it is impossible to predict with any degree
of certainty the outcome of the regulatory approval process for our drugs, we
believe that we currently are in compliance with applicable statutes, rules and
regulations governing our research and development activities.
A number of reasons, including those set forth below, may delay our
regulatory submissions or cause us to cancel plans to submit proposed drug
candidates for approval:
. unanticipated preclinical testing or clinical trial reports;
. changes in regulations, or the adoption of new regulations;
. unanticipated enforcement of existing regulations;
. unexpected technological developments; and
. developments by our competitors.
We face intense competition in our efforts to develop commercially successful
drugs in the biopharmaceutical industry. If we are unable to compete
successfully, our business will suffer.
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.
28
If we successfully develop our drug candidates and gain regulatory
approval for those drugs, they will compete with numerous existing therapies,
as well as a significant number of drugs that are currently under development
and will become available in the future for the treatment of HIV. For example:
. At least 20 anti-HIV drugs are currently approved in the United States
for the treatment of HIV, including drugs produced by GlaxoSmithKline,
DuPont Pharmaceuticals, Merck, Roche and Abbott Laboratories. None of
these currently-approved drugs are viral fusion inhibitors.
. We believe that other companies may be currently engaged in research
efforts to develop viral fusion inhibitors. To our knowledge, none of
these potentially competing drug candidates have entered human clinical
trials.
. Several companies, including Progenics Pharmaceuticals, Pfizer and
Aronex Pharmaceuticals, are in early stage human clinical trials with
anti-HIV drug candidates that target viral processes different from
those targeted by currently approved anti-HIV drugs, and different from
the viral fusion process that our drug candidates target.
We expect to face intense and increasing competition in the future as
these new drugs enter the market and advanced technologies become available.
Even if we are able to successfully develop T-20 or T-1249 and either drug
candidate receives regulatory approval, we cannot assure you that existing or
new drugs 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 drug treatment 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. For
example, Progenics Pharmaceuticals has entered into a collaborative agreement
with Roche for the development of its anti-HIV technology platform.
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.
Our drugs may not achieve market acceptance.
T-20 and T-1249 are peptides and are delivered once or twice daily by
injection under the skin. All of the currently approved drug treatments 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 anti-HIV
drug treatment, 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 anti-HIV
drug treatments. 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 anti-HIV drug treatments. In addition,
higher prices could also limit our ability to receive reimbursement coverage
for our drugs from third-party payors, such as private or government insurance
programs.
29
Uncertainty relating to third-party reimbursement and health care reform
measures could limit the amount we will be able to charge for our drugs and
adversely affect our results of operations.
In the United States and elsewhere, sales of prescription drugs depend,
in part, on the consumer's ability to obtain reimbursement for the cost of the
drugs from third-party payors, such as private and government insurance
programs. 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. Because of the high cost
of the treatment of HIV, many state legislatures are also reassessing
reimbursement policies for this therapy. If third-party payor reimbursements
for any drugs we commercialize are not available or are not available at a
level that will allow us or our potential collaborative partners to sell these
drugs on a competitive basis, our results of operations will be materially and
adversely affected. In addition, an increasing emphasis in the United States on
the reduction of the overall costs of health care through managed care has
increased and will continue to increase the pressure to reduce the prices of
pharmaceutical products. The announcement and/or adoption of these types of
proposals or efforts could also materially and adversely affect our business,
since the amount of revenues that we may potentially be able to generate in the
future for any products we may commercialize could affect an investor's
decision to invest in us, the amount of funds we decide to spend now on our
development and clinical trial efforts, and/or our decision to seek regulatory
approval for certain product candidates.
Recently, several major pharmaceutical companies have offered to sell
their anti-HIV drugs at or below cost to certain countries in Africa, which
could adversely affect the reimbursement climate, and the prices that may be
charged, for HIV medications in the United States and the rest of the world.
Third-party payors could exert pressure for price reductions in the United
States and the rest of the world based on these offers to Africa. This price
pressure could limit the amount that we would be able to charge for our drugs.
If an accident or injury involving hazardous materials occurs, we could incur
fines or liability, which could materially and adversely affect our business
and our reputation.
In our drug development programs, we use hazardous materials, including
chemicals, radioactive compounds and infectious disease agents, such as viruses
and HIV-infected blood. 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. Although our general liability insurance coverage may cover some of
these liabilities, the amount of the liability and fines could exceed our
resources. We currently maintain general liability insurance coverage in the
amount of approximately $1 million per occurrence and $2 million in the
aggregate.
If the testing or use of our drug candidates harms people, we could face costly
and damaging product liability claims far in excess of our liability and
indemnification coverage.
Our business exposes us to potential product liability risks that are
inherent in the testing, manufacturing and marketing of pharmaceutical
products, such as undesirable side effects or injury during clinical trials. In
addition, the use in our clinical trials of drugs that we or our potential
collaborators may develop and the subsequent sale of these drugs by us or our
potential collaborators may cause us to bear a portion of product liability
risks relating to these drugs.
30
We have obtained an advanced medical technology policy which includes
limited product liability insurance coverage for our clinical trials in the
amount of $5 million per occurrence and $5 million in the aggregate. However,
insurance coverage is becoming increasingly expensive and we may not be able to
maintain insurance coverage at a reasonable cost or in sufficient amounts to
protect us against potential liabilities. We intend to expand our insurance
coverage to include the sale of commercial products if we obtain marketing
approval for drug candidates in development, but 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 financial condition.
Our quarterly operating results are subject to fluctuations. If our operating
results for a particular period deviate from the levels expected by securities
analysts and investors, it could adversely affect the market price of our
common stock.
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:
. the status and progress of our collaborative agreement with Roche;
. the status of our research and development activities;
. the progress of our drug candidates through preclinical testing and
clinical trials;
. the timing of regulatory actions;
. our ability to establish manufacturing, sales, marketing and
distribution capabilities, either internally or through relationships
with third parties;
. technological and other changes in the competitive landscape;
. changes in our existing or future research and development
relationships and strategic alliances; and
. the commercial viability of our drug 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. If our results of operations for a period deviate from the levels
expected by securities analysts and investors, it could adversely affect the
market price of our common stock.
If we lose any of our executive management or other key employees, we will have
difficulty replacing them. If we cannot attract and retain qualified personnel
on acceptable terms, the development of our drug candidates and our financial
position may suffer.
Because our business is very science-oriented and relies considerably
on individual skill and experience in the research, development and testing of
our drug candidates, we depend heavily on members of our senior management and
scientific staff, including Dani P. Bolognesi, Ph.D., our Chief Executive
Officer and Chief Scientific Officer. We have entered into employment
agreements with Dr. Bolognesi, M. Nixon Ellis, Ph.D., our Executive Vice
President and Chief Business Officer, and Robert R. Bonczek, our Chief
Financial Officer and General Counsel. Unless earlier terminated in accordance
with their terms, our employment agreements with each of Dr. Bolognesi, Dr.
Ellis and Mr. Bonczek, respectively, automatically renew for a one or two year
period at the end of the initial term of employment in each agreement. We have
also entered into employment agreements with a few of our other key employees,
but as a general matter we do not enter into employment agreements with our
officers or employees.
31
Future recruitment and retention of management personnel and qualified
scientific personnel is also critical to our success. We cannot assure you that
we will successfully attract and retain sufficient numbers of 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. If we cannot
attract and retain a sufficient number of qualified personnel or if a
significant number of our key employees depart, our drug development efforts
and the timing and success of our clinical trials may be materially and
adversely affected. Even if we do hire and retain a sufficient number of
qualified employees, the expense necessary to compensate them may adversely
affect our operating results. 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.
As of February 28, 2002, approximately 18,682,000 shares of our common
stock were outstanding. Approximately 18,459,000 of the currently outstanding
shares are freely transferable without restriction or further registration
under the Securities Act, except to the extent held by one of our affiliates.
The remainder of our outstanding shares are "restricted securities" which may
be sold subject to the applicable limitations of Rule 144. In addition, as of
February 28, 2002, options and warrants convertible or exercisable into
approximately 2,611,000 shares of common stock were outstanding and we had
reserved an additional 981,000 shares of common stock under our stock option
plans and employee stock purchase plan. 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. A reduction in the price of our common stock could
reduce the value of your investment in us and impair our ability to raise
capital through the sale of additional equity securities.
Item 2. Properties
----------
We lease approximately 15,000 square feet of office space at 3518
Westgate Drive, Durham, North Carolina. We lease this space under a sublease
agreement that expires on December 31, 2003. We also lease approximately 29,000
square feet of laboratory and office space in Durham under a lease agreement
that expires for part of the space on October 31, 2003 and for the remainder of
the space on September 30, 2005, respectively. We also sublease approximately
18,000 square feet of laboratory and office space in Durham under a sublease
agreement that expires on September 30, 2003. 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 2001.
32
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 22, 2002 we had
approximately 166 shareholders of record, and believe we had approximately 5,200
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.
Year ended December 31,
-----------------------
2000 2001
High Low High Low
---------------------------------------
1st Quarter................... $67.75 $24.00 $57.06 $22.88
2nd Quarter................... $74.88 $25.00 $50.00 $26.10
3rd Quarter................... $75.50 $51.25 $51.79 $29.63
4th Quarter................... $79.81 $42.00 $44.97 $32.00
33
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 Form 10-K, or
from audited Financial Statements not included in this 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,
1997 1998 1999 2000 2001 2001
----------- ----------- ----------- ------------ ------------ ----------------
Statements of Operations
Data:
Revenue $ 431 $ 363 $ 4,681 $ 956 $ 1,304 $ 7,894
----------- ----------- ----------- ------------ ------------ ------------
Operating expense:
Research and development:
Non-cash compensation.... 193 821 2,174 5,386 (969) 7,605
Other research and
development expense.... 9,541 15,987 17,582 32,970 59,409 148,085
----------- ----------- ----------- ------------ ------------ ------------
Total research and development
expense.................... 9,734 16,808 19,756 38,356 58,440 155,690
----------- ----------- ----------- ------------ ------------ ------------
General and administrative:
Non-cash compensation...... 193 602 2,524 7,018 1,905 12,242
Other general and
administrative expense... 2,403 4,299 6,156 8,115 11,873 37,706
----------- ----------- ----------- ------------ ------------ ------------
Total general and administrative
expense.................. 2,596 4,901 8,680 15,133 13,778 49,948
----------- ----------- ----------- ------------ ------------ ------------
Total operating expenses.... 12,330 21,709 28,436 53,489 72,218 205,638
----------- ----------- ----------- ------------ ------------ ------------
Operating loss.............. (11,899) (21,346) (23,755) (52,533) (70,914) (197,744)
----------- ----------- ----------- ------------ ------------ ------------
Interest income............. 584 1,755 1,729 6,114 4,362 14,666
Interest expense............ (113) (127) (161) (257) (189) (1,637)
----------- ----------- ----------- ------------ ------------ ------------
Total other income (expense) 471 1,628 1,568 5,857 4,173 13,029
----------- ----------- ----------- ------------ ------------ ------------
Loss before cumulative effect of
change in accounting principle (11,428) (19,718) (22,187) (46,676) (66,741) (184,715)
Cumulative effect of change in
accounting principle...... -- -- -- (4,180) -- (4,180)
----------- ----------- ----------- ------------ ------------ ------------
Net loss.................... $(11,428) $(19,718) $(22,187) $ (50,856) $ (66,741) $(188,895)
=========== =========== =========== ============ ============ ============
Basic and diluted net loss per
share (1):
Before cumulative effect of
accounting change......... $ (1.57) $ (1.87) $ (1.79) $ (3.00) $ (3.96)
Accounting change........... -- -- -- (0.27) --
----------- ----------- ----------- ------------ ------------
Basic and diluted net loss per
share..................... $ (1.57) $ (1.87) $ (1.79) $ (3.27) $ (3.96)
=========== =========== =========== ============ ============
Weighted average shares used
in computing basic net loss per
share (1)................. 7,295 10,547 12,411 15,548 16,870
=========== =========== =========== ============ ============
(1) Computed on the basis described in Note 1 to Financial Statements.
34
As of December 31,
----------------------------------------------------------------------
1997 1998 1999 2000 2001
----------- ----------- ------------ ------------ ------------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents.................. $ 32,557 $ 16,920 $ 37,023 $ 31,349 $ 22,288
Working capital............................ 34,733 16,562 36,856 73,998 51,636
Total assets............................... 38,844 22,872 51,650 98,933 80,644
Long-term notes payable and capital
lease obligations, less current portion.. 240 853 1,206 1,861 1,014
Deficit accumulated during the
development stage.......................... (29,393) (49,111) (71,298) (122,154) (188,895)
Total stockholders' equity................. 35,810 18,016 39,066 73,379 53,494
Selected Quarterly Financial Data
(in thousands, except per share data)
(unaudited)
Q1 2000 Q2 2000 Q3 2000 Q4 2000
-------------- --------------- -------------- ---------------
Statements of Operations Data:
Revenue $ 210 $ 210 $ 210 $ 326
-------------- --------------- -------------- ---------------
Operating expense:
Research and development:
Non-cash compensation.... 3,504 3,063 475 (1,656)
Other research and
development expense.... 5,042 8,199 6,825 12,904
-------------- --------------- -------------- ---------------
Total research and development
expense.................. 8,546 11,262 7,300 11,248
-------------- --------------- -------------- ---------------
General and administrative:
Non-cash compensation...... 3,606 3,438 1,158 (1,184)
Other general and
administrative expense... 1,637 1,794 1,929 2,755
-------------- --------------- -------------- ---------------
Total general and administrative
expense................. 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
============== =============== ============== ===============
35
Q1 2001 Q2 2001 Q3 2001 Q4 2001
-------------- --------------- -------------- ---------------
Statements of Operations Data:
Revenue $ 326 $ 326 $ 326 $ 326
-------------- --------------- -------------- ---------------
Operating expense:
Research and development:
Non-cash compensation..... (3,276) 2,824 (1,690) 1,173
Other research and
development expense..... 13,836 14,045 14,772 16,756
-------------- --------------- -------------- ---------------
Total research and development
expenses.................. 10,560 16,869 13,082 17,929
-------------- --------------- -------------- ---------------
General and administrative:
Non-cash compensation...... 490 557 421 437
Other general and
administrative expense... 2,306 2,606 2,790 4,171
-------------- --------------- -------------- ---------------
Total general and administrative
expenses.................. 2,796 3,163 3,211 4,608
-------------- --------------- -------------- ---------------
Total operating expenses..... 13,356 20,032 16,293 22,537
-------------- --------------- -------------- ---------------
Operating loss............... (13,030) (19,706) (15,967) (22,211)
-------------- --------------- -------------- ---------------
Interest income.............. 1,403 1,196 1,044 719
Interest expense............. (45) (56) (48) (40)
-------------- --------------- -------------- ---------------
Total other income, net.......... 1,358 1,140 996 679
-------------- --------------- -------------- ---------------
Net loss.................... $ (11,672) $ (18,566) $ (14,971) $ (21,532)
============== =============== ============== ===============
Basic and diluted net loss per share (1) $ (0.73) $ (1.11) $ (0.86) $ (1.24)
============== =============== ============== ===============
Weighted average shares used in
computing basic net loss per
share (1).............. 15,914 16,757 17,386 17,398
============== =============== ============== ===============
(1) Computed on the basis described Note 1 to Financial Statements. The sum of
quarterly net loss per share amounts does not equal the net loss per share for
the year due to the effects of rounding.
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 clinical and financial 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.
CRITICAL ACCOUNTING POLICIES
We believe the following accounting policies are the most critical to
our financial statements. We believe they are important to the presentation of
our financial condition, and require the highest degree of management judgment
to make the estimates necessary to ensure their fair presentation.
Revenue Recognition Under Staff Accounting Bulletin No. 101
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements" 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 primary estimate we make in connection with the application of
this policy is the length of the period of the research and development under
our collaboration agreement with Roche. In the event our judgment of the length
of this research and development term changes, the milestone revenue to be
recognized under our
36
collaboration with Roche would change prospectively in accordance with
Accounting Principles Board Opinion ("APB") No. 20, "Accounting Changes." If
the term is expected to be longer, the amount of revenue recognized would be
less per quarter than currently being recognized. If the term is expected to be
shorter, the amount of revenue recognized would be more per quarter than
currently being recognized.
Calculation of Compensation Costs for Stock Options Granted to Non-Employees
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 such compensation costs be measured at the end of
each reporting period to account for changes in the fair value of the Company's
common stock until the options are vested. These costs are non-cash charges
resulting from stock option grants to non-employees. The primary estimate we
make in connection with the calculation of this expense is the future
volatility of our stock price used to calculate the value of the stock options
in the Black-Scholes option-pricing model. At December 31, 2001 we estimated
the future volatility at 50% based on the implied future volatility for call
options in Trimeris stock quoted on the Chicago Board Options Exchange in
January 2002. A higher volatility would result in greater compensation costs,
and a lower volatility would result in lower compensation costs for these stock
options.
Capitalization of Patent Costs
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. These costs are primarily legal
fees and filing fees related to the prosecution of patent filings. We perform a
continuous evaluation of the carrying value and remaining amortization periods
of these costs. In the event future expected cash flows derived from any patents
are less than their carrying value, the related costs would be expensed at that
time.
Call Transaction Accounting
In July 2000 and September 2001, we entered into derivative
transactions with a financial institution that may be settled by selling 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 proceeds from the sale of these call options that were accounted for as
an increase to additional paid-in capital in accordance with Emerging Issues
Task Force ("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." An extensive list of
requirements including the ability to settle the transaction by issuing stock
are required by this EITF in order to allow accounting for proceeds received as
an increase to additional paid-in capital. The contracts for our derivative
transactions met the detailed requirements in this EITF.
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:
. the development, patenting, preclinical testing and clinical trials of T-20
and T-1249,
. the development of a manufacturing process for T-20 and T-1249,
. production of drug material for future clinical trials, and
. research and development and preclinical testing of other potential product
candidates.
37
We have lost money since inception and, as of December 31, 2001, had an
accumulated deficit of approximately $188.9 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:
. the status of our research and development activities,
. product candidate discovery and development efforts, including preclinical
testing and clinical trials,
. the timing of regulatory actions,
. the costs involved in preparing, filing, prosecuting, maintaining,
protecting and enforcing patent claims and other proprietary rights,
. our ability to work with Roche to manufacture, develop, sell, market and
distribute T-20 and T-1249,
. technological and other changes in the competitive landscape,
. changes in our existing research and development relationships and strategic
alliances,
. evaluation of the commercial viability of potential product candidates, and
. 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, 1999, 2000 and 2001
Revenue. Total revenue was $4.7 million, $956,000 and $1.3 million for
1999, 2000 and 2001, respectively. 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
and 2001 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.
38
Research And Development Expenses. Total research and development
expenses were $19.8 million, $38.4 million and $58.4 million for 1999, 2000 and
2001, respectively. Total research and development expenses include gross
research and development expenses less Roche's share of such costs for T-20 and
T-1249. Under our collaboration agreement, Roche and we shared equally the
development costs incurred during the period from July 1, 1999 until December
30, 2001 for T-20 and T-1249.
Total 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:
. continued three Phase II clinical trials and initiated one additional
Phase I/II clinical trials for T-20,
. initiated two Phase III clinical trials for T-20,
. continued a Phase I clinical trial for T-1249,
. continued manufacturing process development and purchase of drug material
from third party manufacturers to supply future clinical trials of T-20 and
T-1249,
. continued preclinical research and testing of potential product candidates,
. entered into lease agreements for additional laboratory space, and
. 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 the higher market value of our
stock at December 31, 2000 compared to the market value of our stock at December
31, 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 excluding non-cash compensation expense
increased from $33.0 million in 2000 to $59.4 million in 2001 because during
2001 we:
. completed enrollment in mid-2001 of two large Phase III clinical trials for
T-20 that were initiated in late 2000, increasing the number of patients
involved in T-20 clinical trials from approximately 200 during 2000 to over
1,200 during 2001,
. continued four Phase II clinical trials for T-20,
. continued a Phase I clinical trial for T-1249,
. continued manufacturing process development and purchase of drug material
from third party manufacturers to supply future clinical trials of T-20 and
T-1249,
. continued preclinical research and testing of potential product candidates,
and
. increased the number of personnel to support these activities.
Non-cash compensation expense decreased from $5.4 million in 2000 to $969,000 in
expense reversal in 2001 primarily due to the effect that the higher market
value of our stock at December 31, 2000 compared to the market value of our
stock at December 31, 2001, had on the calculation of this expense under EITF
96-18 for stock options granted to non-employees. The expense reversal resulted
because the cumulative expense under EITF 96-18 for stock options previously
granted to non-employees was greater at December 31, 2000 than at December 31,
2001 because of the reduction in the market value of our stock during 2001.
39
Total research personnel were 52, 60 and 70 at December 31, 1999, 2000 and 2001,
respectively. We expect research and development expenses, net of the
reimbursements for T-20 and T-1249 development costs from Roche, to increase in
the future due to:
. continuation of the two Phase III clinical trials for T-20,
. preparation of materials for an anticipated submission of a New Drug
Application for T-20 to the United States Food and Drug Administration
following receipt of data from our Phase III clinical trials,
. expanded clinical trials for T-20, T-1249 and other product candidates,
. the manufacture of drug material for these trials,
. increased preclinical research and testing of potential product candidates,
and
. increased number of personnel to support these activities.
General And Administrative Expenses. Total general and administrative
expenses were $8.7 million, $15.1 million and $13.8 million for 1999, 2000 and
2001, respectively. Total general and administrative expenses include gross
general and administration expenses less Roche's share of pre-marketing expenses
for T-20. Total general and administrative expenses excluding non-cash
compensation expense increased from $6.2 million in 1999 to $8.1 million in 2000
because in 2000 we:
. performed market research and pre-marketing activities related to T-20 that
are shared with Roche,
. added personnel to support our growth, and
. 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 the higher market value of our
stock at December 31, 2000 compared to the market value of our stock at December
31, 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.
Total general and administrative expenses excluding non-cash compensation
expense increased from $8.1 million in 2000 to $11.9 million in 2001 because in
2001 we:
. performed additional market research and pre-marketing activities
related to T-20 that are shared with Roche,
. increased general and administrative personnel from 25 in 2000 to 30 in 2001
to support our growth, and
. incurred professional fees related to our patent portfolio.
Non-cash compensation expense decreased from $7.0 million in 2000 to $1.9
million in 2001 primarily due to the effect that the higher market value of our
stock at December 31, 2000 compared to the market value of our stock at December
31, 2001, had on the calculation of this expense under EITF 96-18 for stock
options granted to non-employees, and the fact that a former consultant became
an employee during 2001.
Total general and administrative employees were 19, 25 and 30 at December 31,
1999, 2000 and 2001, respectively. We expect administrative expenses to increase
substantially in the future to support the anticipated expansion of product
development activities, including pre-marketing activities undertaken in
anticipation of the commercialization of T-20 that will be shared equally with
Roche.
40
Other Income (Expense). Other income (expense) consists of interest
income and expense. Total other income was $1.6 million, $5.9 million and $4.2
million for 1999, 2000 and 2001, respectively. 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. The decrease in
2001 was primarily due to lower interest income because of lower interest rates
on our investment portfolio during 2001 compared to 2000 and also due to lower
average investment balances in 2001 compared to 2000. We expect yields on our
investment portfolio to continue to decrease in the future based on the current
short-term interest rate environment.
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, a private placement of
common stock in February 2000, a private placement of common stock in May 2001,
a private placement of common stock in January 2002, and the sale of call
options on our stock. Net cash used by operating activities was $9.3 million,
$24.8 million, and $60.6 million for 1999, 2000 and 2001, 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 was lower 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
used by investing activities was $8.3 million for 1999 and $52.2 million for
2000. Cash provided by investing activities was $7.3 million for 2001. 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. The cash provided by investing activities
during 2001 was primarily a result of the sale of short-term investments to fund
our operations. Cash provided by financing activities was $37.7 million for
1999, $71.4 million for 2000, and $44.2 million for 2001 primarily as a result
of our sale of common stock during those years.
As of December 31, 2001, we had $74.8 million in cash and cash
equivalents and short-term-investments, compared to $93.4 million as of December
31, 2000. The decrease is primarily a result of funds used for operating
activities, less proceeds of $43.4 million from the closing of a private
placement of common stock in May 2001.
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 immediate 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:
. expenditures for clinical trials of T-20, T-1249 and other product
candidates,
. preparation of materials for an anticipated submission of a New Drug
Application for T-20 to the United States Food and Drug Administration
following receipt of data from our Phase III clinical trials,
. pre-marketing and marketing activities undertaken in anticipation of the
commercialization of T-20,
. research and development and preclinical testing of other product
candidates,
. manufacture of drug material, and
. the development of our proprietary technology platform.
As of December 31, 2001, we had commitments of approximately $13.5
million to purchase product candidate materials and fund various clinical
studies over the next twelve 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
41
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 2002 that will not be shared with Roche.
Our share of these expenditures may be financed with capital or operating
leases, debt or working capital. We expect that our existing capital resources,
along with the $41 million received in a private placement of our common stock
completed in January 2002, together with the interest earned thereon, will be
adequate to fund our capital requirements at least through the end of 2002. We
believe that substantial additional funds will be required after 2002. If
adequate funds are not available through debt or equity financings, or
collaborative arrangements, 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. In the
event Roche becomes unable or unwilling to share future development expenses for
T-20 and T-1249, our capital requirements would increase substantially beyond
our current expectations.
Since our initial public offering in 1997, we have obtained the
majority of our funding through public or private offerings of our common stock.
We expect to continue to obtain our funding through public or private offerings
of our common stock until such time, if ever, we are able to generate
significant funds from operations.
We may have difficulty raising additional funds by selling equity. 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 and restrict or eliminate our ability to raise additional funds
by selling equity. The public capital markets in which shares of our common
stock are traded were extremely volatile during 2001, and the general ability of
companies to obtain additional financing was more difficult in 2001 than in 2000
and is expected to remain difficult during 2002. The public equity markets for
biotechnology companies have been extremely volatile in the first quarter of
2002. Drug candidates for several publicly-held biotechnology companies,
including Cubist Pharmaceuticals, Inc., Dendreon Corp., Inspire Pharmaceuticals,
Inc., Miravant Medical Technologies, Pharmacia Corp., and Pharmacyclics, Inc.
failed to meet primary clinical endpoints in Phase III clinical trials,
resulting in significant reduction in the market price of their common stock.
The FDA's decision not to accept Imclone Systems, Inc's Biologics License
Application (BLA) for ERBITUX(TM) also has contributed to the volatility of
public equity markets for biotechnology companies. Therefore even if we do
achieve positive clinical or financial results that meet or exceed the
expectations of securities analysts and investors, the state of the public
equity markets in general and particularly the public equity market for
biotechnology companies may prohibit us from raising funds in the equity markets
on acceptable terms or at all. 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 our business, financial
condition or results of operations.
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.
42
The following table summarizes our material contractual commitments at
December 31, 2001 (in thousands):
Contractual Obligation 2002 2003 2004 2005 Total
--------------------------------------------------------------------------------------------------
Capital Leases $ 1,035 $ 782 $ 279 $ -- $ 2,096
Operating Leases 1,312 1,221 498 382 3,413
Other contractual obligations* 13,464 -- -- -- 13,464
-------------------------------------------------------------
Total $ 15,811 $ 2,003 $ 777 $ 382 $ 18,973
=============================================================
* Includes contracts to purchase product candidate materials and fund various
clinical studies contingent on delivery of the materials or performance of
the services. Substantially all of these costs will be shared equally with
Roche.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements other than operating
leases for our properties and the derivative transactions described below. These
transactions represent call options sold on our stock to a third party financial
institution and were entered into in order to generate cash from the option
premiums and provide us with the opportunity to raise capital at prices
significantly in excess of the market price at the time of the transaction.
These contracts are expected to be settled by issuing shares of our stock in the
event the options are exercised. We have no subsidiaries or other unconsolidated
limited purpose entities, and we have not guaranteed or otherwise supported the
obligations of any other entity.
In September 2001, the Company entered into derivative transactions
with a financial institution that we may settle by selling up to 107,000 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.
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. These contracts
are expected to be settled by issuing shares of our stock in the event the
options are exercised. All of these derivative transactions expire or mature in
September 2002. We received $344,000 in proceeds for the sale of these call
options that were accounted for as an increase to additional paid-in capital in
accordance with accounting principles generally accepted in the United States of
America at the time of the transaction.
In July 2000, we entered into similar derivative transactions with a
financial institution with respect to up to 300,000 shares of our stock. We
received $2.8 million in proceeds for the sale of these call options that were
accounted for as an increase to additional paid-in capital in accordance with
accounting principles generally accepted in the United States of America at the
time of the transaction. Concurrently, we entered into a second derivative
transaction with the same financial institution on shares of its common stock at
no net premium to either party. These contracts expired unexercised during July
2001.
TRANSACTIONS WITH RELATED AND CERTAIN OTHER PARTIES
We have no transactions with any current or former directors or senior
management or entities that they control, other than those occurring in the
normal course of these individuals performing their duties for Trimeris. For
employees this includes salary, bonus, stock option grants, employee benefits,
and expense reimbursement. For directors this includes stock option grants and
expense reimbursement.
TRIMERIS 401(K) PLAN
We have a 401(k) Profit Sharing Plan (the "Plan") covering all
qualified employees. Employees may elect a salary reduction from 1% to 12% as a
contribution to the Plan. Employee contributions may not be invested in Trimeris
stock. The Plan permits us to match employees' contributions. Beginning in 1998,
we matched 100% of an employee's annual contributions with Trimeris stock,
provided the employee was employed on the last day of the year. The number of
shares issued is based on the employee's contributions to be matched divided by
the closing price of Trimeris stock on the last trading day of the year. At
43
December 31, 2001 there were 42,000 shares of our stock held by the Plan. These
shares vest ratably based on a participant's years of service and are fully
vested after four years of service. Currently these shares are only tradable
upon an employee's termination. During 2002, we expect to modify the plan to
allow employees to sell vested shares on a regular basis.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 2001, we had a net operating loss carryforward of
approximately $173.3 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 7 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 adopted this statement on January 1, 2001, and it had no effect on
the Company's financial statements.
In July 2001, the FASB issued Statement No. 141, "Business
Combinations", and Statement No. 142, "Goodwill and Other Intangible Assets."
Statement 141 requires that all business combinations be accounted for under the
purchase method and prohibits use of the pooling-of-interests method. Statement
141 requires that the purchase method be used for business combinations
initiated after June 30, 2001. Statement 142 requires that goodwill (and
intangible assets with indefinite useful lives) no longer be amortized to
earnings, but instead be reviewed for impairment. The amortization of goodwill
ceases upon adoption of the Statement, which will be January 1, 2002. We do not
expect the adoption of Statement No. 141 or Statement No. 142 to have a material
impact on our financial statements.
SFAS No. 143, "Accounting for Asset Retirement Obligations", addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
cost. This standard requires us to record the fair value of an asset retirement
obligation as a liability in the period in which we incur a legal obligation
associated with the retirement of tangible long-lived assets that results from
the acquisition, construction, development and/or normal use of the assets. We
also are required to record a corresponding increase to the carrying amount of
the related long-lived asset and to depreciate that cost over the life of the
asset. The liability is changed at the end of each period to reflect the passage
of time and changes in the estimated future cash flows underlying the initial
fair value measurement. This statement is effective for the fiscal years
beginning after June 15, 2002. At this time we believe that this standard will
have no impact on our financial statements.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets", addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This standard provides guidance on
differentiating between long-lived assets to be held and used, long-lived assets
to be disposed of other than by sale and long-lived assets to be disposed of by
sale. SFAS No. 144 supersedes FASB Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be disposed of". SFAS No. 144 also supersedes Accounting Principles
Board Opinion No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occuring Events and Transactions". We believe that this standard
will have no impact on our financial statements.
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.
44
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.
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, 2001. Fair market value is based on
actively quoted market prices. Substantially all of our investments mature in
twelve months or less, and have been given a rating of A1 or higher by a
nationally recognized statistical rating organization or are the debt
obligations of a federal agency.
Carrying Average
Amount Interest
(thousands) Rate
----------- ----
Cash equivalents - fixed rate $ 21,704 2.21 %
Short-term investments - fixed rate 52,512 3.67 %
Overnight cash investments - fixed rate 584 0.45 %
-------- ---------
Total investment securities $ 74,800 3.24 %
======== =========
In September 2001, the Company entered into derivative transactions
with a financial institution that we may settle by selling up to 107,000 shares
of our 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 $344,000 in proceeds that were accounted for
as an increase to additional paid-in capital in accordance with accounting
principles generally accepted in the United States of America at the time of the
transaction. 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. All of these
derivative transactions expire or mature in September 2002.
In July 2000, the Company entered into a derivative transaction with a
financial institution with respect to up to 300,000 shares of our stock. The
Company received $2.8 million in proceeds that were accounted for as an increase
to additional paid-in capital in accordance with accounting principles generally
accepted in the United States of America at the time of the transaction.
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. These contracts expired unexercised during July 2001.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The information required by Item 8 is included in Item 14 of this
Annual Report on 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.
45
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.
46
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, 2000 and 2001....................................F-2
Statements of Operations for the Years Ended December 31, ..........................
1999, 2000 and 2001 and for the period from Inception to December
31, 2001........................................................................F-3
Statements of Stockholders' Equity for the period from Inception to
December 31, 1998, and for the Years Ended December 31, 1999, 2000 and
2001............................................................................F-4
Statements of Cash Flows for the Years Ended December 31,
1999, 2000 and 2001 and for the period from Inception to December 31, 2001......F-5
Notes to Financial Statements.......................................................F-7
(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 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.
.
47
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, 2000 and 2001, and the related
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 2001 and for the cumulative
period from the date of inception (January 7, 1993) to December 31, 2001. 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, 2000 and 2001, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 2001, and for the cumulative period from the date of
inception (January 7, 1993) to December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
Raleigh, North Carolina
February 15, 2002
TRIMERIS, INC.
(A Development Stage Company)
BALANCE SHEETS
(in thousands, except par value)
As of December 31,
-------------------------------------
2000 2001
--------------- -----------------
Assets
Current assets:
Cash and cash equivalents............................................. $ 31,349 $ 22,288
Short-term investments................................................ 62,025 52,512
Accounts receivable................................................... 4 2
Prepaid expenses...................................................... 393 354
--------------- -----------------
Total current assets............................................... 93,771 75,156
--------------- -----------------
Property, furniture and equipment, net of accumulated depreciation
and amortization of $4,932 and $6,796 at December 31, 2000
and 2001, respectively............................................. 3,983 3,779
--------------- -----------------
Other assets:
Patent costs, net of accumulated amortization of $46 and $89 at
December 31, 2000 and 2001, respectively........................... 924 1,514
Equipment deposits.................................................... 255 195
--------------- -----------------
Total other assets............................................ 1,179 1,709
--------------- -----------------
Total assets.................................................. $ 98,933 $ 80,644
=============== =================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable...................................................... $ 3,476 $ 2,694
Accounts payable - Roche.............................................. 9,556 12,869
Current installments of obligations under capital leases.............. 1,174 928
Accrued compensation.................................................. 1,359 2,048
Deferred revenue - Roche.............................................. 1,304 1,304
Accrued expenses...................................................... 2,904 3,677
--------------- -----------------
Total current liabilities..................................... 19,773 23,520
Obligations under capital leases, excluding current installments........ 1,861 1,014
Deferred revenue - Roche................................................ 3,920 2,616
--------------- -----------------
Total liabilities............................................. 25,554 27,150
--------------- -----------------
Stockholders' equity:
Preferred Stock at $0.001 par value per share, authorized 10,000
shares; issued and outstanding zero shares at December 31, 2000
and 2001.......................................................... -- --
Common Stock at $0.001 par value per share, authorized 60,000
shares; issued and outstanding 15,863 and 17,414 shares at December
31, 2000 and 2001, respectively................................... 16 17
Additional paid-in capital............................................ 196,844 244,725
Deficit accumulated during the development stage...................... (122,154) (188,895)
Deferred compensation................................................. (1,394) (2,533)
Accumulated other comprehensive income................................ 76 189
Notes receivable from stockholders.................................... (9) (9)
--------------- -----------------
Total stockholders' equity.................................... 73,379 53,494
--------------- -----------------
Commitments and contingencies
Total liabilities and stockholders' equity
$ 98,933 $ 80,644
=============== =================
See accompanying notes to financial statements.
F-2
TRIMERIS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Years Ended December 31,
--------------------------------------------------- Cumulative from
Inception
(January 7, 1993)
to December 31,
1999 2000 2001 2001
------------ -------------- -------------- ----------------
Revenue.......................... $ 4,681 $ 956 $ 1,304 $ 7,894
------------ -------------- -------------- ----------------
Operating expenses:
Research and development:
Non-cash compensation.... 2,174 5,386 (969) 7,605
Other research and
development expense... 17,582 32,970 59,409 148,085
------------ -------------- -------------- ----------------
Total research and
development expense...... 19,756 38,356 58,440 155,690
------------ -------------- -------------- ----------------
General and administrative:
Non-cash compensation.... 2,524 7,018 1,905 12,242
Other general and
administrative expense 6,156 8,115 11,873 37,706
------------ -------------- -------------- ----------------
Total general and
administrative expense... 8,680 15,133 13,778 49,948
------------ -------------- -------------- ----------------
Total operating expenses. 28,436 53,489 72,218 205,638
------------ -------------- -------------- ----------------
Operating loss............... (23,755) (52,533) (70,914) (197,744)
------------ -------------- -------------- ----------------
Other income (expense):
Interest income ......... 1,729 6,114 4,362 14,666
Interest expense ........ (161) (257) (189) (1,637)
------------ -------------- -------------- ----------------
1,568 5,857 4,173 13,029
------------ -------------- -------------- ----------------
Loss before cumulative effect of
change in accounting principle (22,187) (46,676) (66,741) (184,715)
Cumulative effect of change in
accounting principle -- (4,180) -- (4,180)
------------ -------------- -------------- ----------------
Net loss.................... $ (22,187) $ (50,856) $ (66,741) $ (188,895)
============ ============== ============== ================
Basic and diluted net loss per
share:
Before cumulative effect of
accounting change............ $ (1.79) $ (3.00) $ (3.96)
Accounting change............ -- (0.27) --
------------ -------------- --------------
Basic and diluted net loss
per share............... $ (1.79) $ (3.27) $ (3.96)
============ ============== ==============
Weighted average shares used
in per share computations.... 12,411 15,548 16,870
============ ============== ==============
Pro forma amounts assuming the
accounting change is applied
retroactively:
Net loss..................... $ (26,286)
============
Basic and diluted net loss pers
share........................ $ (2.12)
============
See accompanying notes to financialstatements.
F-3
TRIMERIS, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
For the Period from Inception (January 7, 1993) to December 31,
1998 and the Years Ended December 31, 1999, 2000, and 2001
(in thousands)
Preferred Stock Common Stock Deficit
-------------------------------- accumulated Accumulated
Additional during the Other
Number Par Number Par paid-in development Deferred Comprehensive
of shares value of Shares value capital stage compensation Income
--------- ------------------- -----------------------------------------------------------------
Balance at January 7, 1993 -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuances of Common Stock. -- -- 218 -- 2 -- -- --
Issuances of Series A
Preferred Stock.......... 3,000 3 -- -- 1,997 -- -- --
Stock issuance costs........ -- -- -- -- (34) -- -- --
Common Stock issued in
exchange for exclusive
license.................. -- -- 96 -- 41 -- -- --
Common Stock issued in
exchange for consulting
services................. -- -- 6 -- 2 -- -- --
Loss for the period......... -- -- -- -- -- (1,311) -- --
--------- ------------------- -----------------------------------------------------------------
Balance as of December 31,
1993.................... 3,000 3 320 -- 2,008 (1,311) -- --
Issuances of Common Stock. -- -- 12 -- 5 -- -- --
Common Stock issued in
exchange for consulting
services............... -- -- 5 -- 2 -- -- --
Loss for the period....... -- -- -- -- -- (3,943) -- --
--------- ------------------- -----------------------------------------------------------------
Balance as of December 31,
1994................... 3,000 3 337 -- 2,015 (5,254) -- --
Issuances of Common Stock. -- -- 16 -- 8 -- -- --
Issuances of Series B
Preferred Stock........ 20,636 21 -- -- 10,297 -- -- --
Stock issuance costs...... -- -- -- -- (27) -- -- --
Loss for the period....... -- -- -- -- -- (5,739) -- --
--------- ------------------- -----------------------------------------------------------------
Balance as of December 31,
1995................... 23,636 24 353 -- 12,293 (10,993) -- --
Issuances of Common Stock. -- -- 84 1 28 -- -- --
Issuances of Series B
Preferred Stock.... 6,500 6 -- -- 3,244 -- -- --
Issuances of Series C
Preferred Stock........ 3,333 3 -- -- 1,997 -- -- --
Stock issuance costs...... -- -- -- -- (26) -- -- --
Notes receivable from
stockholders for the
purchase of shares..... -- -- -- -- -- -- -- --
Loss for the period....... -- -- -- -- -- (6,972) -- --
--------- ------------------- -----------------------------------------------------------------
Balance as of December 31,
1996................... 33,469 33 437 1 17,536 (17,965) -- --
Issuances of Series C
Preferred Stock........ 9,984 10 -- -- 5,981 -- -- --
Issuances of Series D
Preferred Stock........ 9,048 9 -- -- 6,777 -- -- --
Issuances of Common Stock. -- -- 656 1 255 -- -- --
Conversion of Preferred
Stock to Common Stock.. (52,501) (52) 6,262 6 46 -- -- --
Issuance of shares in
initial public offering, -- -- 3,163 3 34,529 -- -- --
net
Exercise of stock options. -- -- 32 -- 9 -- -- --
Repayment of notes receivable
from stockholders..... -- -- -- -- -- -- -- --
Repurchase of Common Stock -- -- (1) -- -- -- -- --
Stock issuance costs...... -- -- -- -- (109) -- -- --
Issuances of Common Stock and
options at below market
value.................. -- -- -- -- 2,336 -- (2,336) --
Amortization of deferred --
compensation........... -- -- -- -- -- -- 386
Loss for the period....... -- -- -- -- -- (11,428) -- --
--------- ------------------- -----------------------------------------------------------------
Balance as of December 31,
1997................... -- -- 10,549 11 67,360 (29,393) (1,950) --
Reclassification of deferred
compensation........... -- -- -- -- (202) -- 202 --
--------- ------------------- -----------------------------------------------------------------
Balance as of December 31,
1997................... -- -- 10,549 11 67,158 (29,393) (1,748) --
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 -- 553 --
Loss for the period....... -- -- -- -- -- (19,718) -- --
--------- ------------------- -----------------------------------------------------------------
Balance as of December 31,
1998.................. -- -- 10,637 11 68,529 (49,111) (1,195) --
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 -- (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 -- 894 --
Notes
receivable Net
from Stockholders'
stockholders Equity
------------ -------------
Balance at January 7, 1993 $ -- $ --
Issuances of Common Stock. 2
Issuances of Series A
Preferred Stock........ -- 2,000
Stock issuance costs...... -- (34)
Common Stock issued in
exchange for
exclusive license...... -- 41
Common Stock issued in
exchange for consulting
services............... -- 2
Loss for the period....... -- (1,311)
------------- -------------
Balance as of December 31,
1993................... -- 700
Issuances of Common Stock. -- 5
Common Stock issued in
exchange for consulting
services............... -- 2
Loss for the period....... -- (3,943)
--------------- --------------
Balance as of December 31,
1994................... (3,236)
Issuances of Common Stock. 8
Issuances of Series B
Preferred Stock -- 10,318
Stock issuance costs...... -- (27)
Loss for the period....... -- (5,739)
--------------- --------------
Balance as of December 31,
1995.................. 1,324
Issuances of Common Stock. -- 29
Issuances of Series B
Preferred Stock -- 3,250
Issuances of Series C
Preferred Stock........ -- 2,000
Stock issuance costs...... -- (26)
Notes receivable from
stockholders for the
purchase of shares..... (14) (14)
Loss for the period....... -- (6,972)
--------------- --------------
Balance as of December 31,
1996................... (14) (409)
Issuances of Series C
Preferred Stock....... -- 5,991
Issuances of Series D
Preferred Stock........ -- 6,786
Issuances of Common Stock. (254) 2
Conversion of Preferred
Stock to Common Stock.. -- --
Issuance of shares in
initial public offering, -- 34,532
net
Exercise of stock options. -- 9
Repayment of notes
receivable from
stockholders........... 50 50
Repurchase of Common Stock -- --
Stock issuance costs...... -- (109)
Issuances of Common Stock and
options at below market
value................. -- --
Amortization of deferred
compensation.......... -- 386
Loss for the period...... -- (11,428)
--------------- --------------
Balance as of December 31,
1997.................. (218) 35,810
Reclassification of deferred
compensation.......... -- --
--------------- --------------
Balance as of December 31,
1997.................. (218) 35,810
Exercise of stock options. -- 10
Issuance of stock for 401(
K) match.............. -- 236
Issuance of stock under
Employee Stock -- 255
Purchase Plan......... --
Amortization of deferred
compensation.......... -- 1,423
Loss for the period...... -- (19,718)
--------------- --------------
Balance as of December 31,
1998.................. (218) 18,016
Issuance of shares in public
offering, net......... -- 31,357
Exercise of stock options. -- 1,157
Issuance of stock options to
employees............. -- --
Issuance of stock for 401(
K) match.............. -- 292
Issuance of stock under
Employee Stock -- 220
Purchase Plan........ --
Repayment of notes
receivable from
stockholders.......... 113 113
Exercise of warrant, net.. -- --
Amortization of deferred
compensation.......... -- 4,698
F-4
Issuance of warrant....... -- -- -- -- 5,400 -- -- --
Loss for the period....... -- -- -- -- -- (22,187) -- --
--------- ------------------- -----------------------------------------------------------------
Balance as of December 31,
1999.................. -- $ -- 13,765 $ 14 $ 112,908 $ (71,298) $ (2,453) --
Loss for the period...... -- -- -- -- -- (50,856) -- --
Unrealized gain on available
for sale securities... -- -- -- -- -- -- -- 76
Comprehensive income (loss)
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 call
options -- -- -- -- 2,796 -- -- --
Exercise of warrant, net. -- -- 11 -- -- -- -- --
Amortization of deferred
compensation.......... -- -- -- -- 11,345 -- 1,059
--------- ------------------- -----------------------------------------------------------------
Balance as of December 31,
2000.................. -- $ -- 15,863 $ 16 $ 196,844 $(122,154) $ (1,394) $ 76
Loss for the period...... -- -- -- -- -- (66,741) -- --
Unrealized gain on available
for sale securities.. -- -- -- -- -- -- -- 113
Comprehensive (loss) income
for period............
Issuance of shares in
private placement, net -- -- 1,396 1 43,384 -- -- --
Exercise of stock options. -- -- 127 -- 1,249 -- -- --
Issuance of stock for 401
(K) match............. -- -- 10 -- 481 -- -- --
Issuance of stock under
Employee Stock
Purchase Plan... -- -- 18 -- 348 -- -- --
Proceeds from sale of call
options............... -- -- -- -- 344 -- -- --
Amortization of deferred
compensation (reversal of
compensation expense). -- -- -- -- (1,254) -- 2,190 --
Deferred compensation
recorded for consultant that
became an employee.... -- -- -- -- 3,329 -- (3,329) --
--------- ------------------- -----------------------------------------------------------------
Balance as of December 31,
2001.................. -- $ -- 17,414 $ 17 $ 244,725 $(188,895) $ (2,533) $ 189
========= =================== =================================================================
Issuance of warrant....... -- 5,400
Loss for the period....... -- (22,187)
--------------- --------------
Balance as of December 31,
1999.................. $ (105) $ 39,066
Loss for the period....... -- (50,856)
Unrealized gain on available
for sale securities... -- 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 -- 334
Purchase Plan........
Repayment of notes
receivable from
stockholders......... 96 96
Proceeds from sale of call
options -- 2,796
Exercise of warrant, net. -- --
Amortization of deferred
compensation.......... -- 12,404
--------------- --------------
Balance as of December 31,
2000.................. $ (9) $ 73,379
Loss for the period...... -- (66,741)
Unrealized gain on available
for sale securities.. -- 113
--------------
Comprehensive (loss) income
for period............ (66,628)
Issuance of shares in
private placement, net -- 43,385
Exercise of stock options. -- 1,249
Issuance of stock for 401
(K) match............. -- 481
Issuance of stock under
Employee Stock
Purchase Plan... -- 348
Proceeds from sale of call
options............... -- 344
Amortization of deferred
compensation (reversal of
compensation expense). -- 936
Deferred compensation
recorded for consultant that
became an employee.... -- --
--------------- --------------
Balance as of December 31,
2001.................. $ (9) $ 53,494
=============== ==============
See accompanying notes to financial statements.
F-5
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
1999 2000 2001 December 31, 2001
--------- ------------ ------------- ------------------
Cash flows from operating activities:
Net loss....................................... $ (22,187) $ (50,856) $ (66,741) $ (188,895)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization of
property, furniture and equipment......... 789 1,368 1,870 6,822
Non-cash compensation expense................ 4,698 12,404 936 19,847
Amortization of deferred revenue - Roche -- (956) (1,304) (2,260)
Other amortization........................... 34 26 43 152
401 (K) plan stock match..................... 292 386 481 1,395
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 .. 44 20 2 (2)
Accounts receivable Roche.................... (144) 144 -- --
Prepaid expenses............................. 53 (125) 39 (354)
Other assets................................. (40) (67) 60 (195)
Increase (decrease) in liabilities:
Accounts payable............................. 4,983 (2,683) (782) 2,694
Accounts payable - Roche .................... -- 9,556 3,313 12,869
Accrued compensation......................... 199 331 689 2,048
Accrued expenses............................. 1,947 (570) 773 3,587
Deferred revenue - Roche..................... -- 2,000 -- 2,000
----------- ------------ ------------ ----------------
Net cash used by operating activities ....... (9,332) (24,842) (60,621) (135,641)
----------- ------------ ------------ ----------------
Cash flows from investing activities:
Purchase of property, furniture and equipment .. (657) (716) (1,666) (3,886)
Net sale (purchase) of short-term investments (7,519) (51,174) 9,626 (52,323)
Equipment held for resale ...................... -- -- -- (61)
Organizational costs........................... -- -- -- (8)
Patent costs................................. (116) (307) (633) (1,604)
----------- ------------ ------------ ----------------
Net cash provided (used) by investing
activities................................. (8,292) (52,197) 7,327 (57,882)
----------- ------------ ------------ ----------------
Cash flows from financing activities:
Proceeds (payments) from notes payable ......... -- -- -- 6,150
Lease costs..................................... -- -- -- (13)
Principal payments under capital lease
obligations ................................. (520) (938) (1,093) (4,789)
Proceeds from issuance of Common Stock, net..... 31,357 66,570 43,385 175,679
Proceeds from issuance of Preferred Stock....... -- -- -- 23,896
Proceeds from sale of call options.............. -- 2,796 344 3,140
Proceeds from exercise of stock options......... 1,157 2,507 1,249 4,932
Employee stock purchase plan stock issuance .... 220 334 348 1,157
Warrant issuance ............................... 5,400 -- -- 5,400
Repayment of notes receivable from stockholders 113 96 -- 259
----------- ------------ ------------ ----------------
Net cash provided by financing activities....... 37,727 71,365 44,233 215,811
----------- ------------ ------------ ----------------
Net increase (decrease) in cash and cash
equivalents ................................. 20,103 (5,674) (9,061) 22,288
Cash and cash equivalents at beginning of period 16,920 37,023 31,349 --
----------- ------------ ------------ ----------------
Cash and cash equivalents at end of period .... $ 37,023 $ 31,349 $ 22,288 $ 22,288
=========== ============ ============ ================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest........... $ 161 $ 257 $ 189 $ 1,551
=========== ============ ============ ================
Supplemental disclosures of noncash investing and financing activities are
described in Note 10.
See accompanying notes to financial statements.
F-6
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 $31.3 million and $22.3 million at December 31, 2000 and 2001,
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 debt securities,
commercial paper and federal agency 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.
Financial Instruments
Statement of Financial Accounting Standards ("SFAS") No. 107,
"Disclosures about Fair Value of Financial Instruments," as amended, 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.
F-7
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 1999, 2000 or 2001.
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-8
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -CONTINUED
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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,
1999, 2000 and 2001, there were 1,712,000, 1,817,000 and 2,161,000 options to
purchase common stock outstanding, respectively. At December 31, 1999, 2000 and
2001 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.
F-9
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -CONTINUED
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.
Adoption of SAB No. 101
Prior to the quarter ended December 31, 2000, the Company 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 $4.6
million previously recognized as revenue in connection with the initiation of
our collaboration with Roche in 1999. In each of 2000 and 2001, $840,000 of the
$4.2 million was recognized as revenue.
2. SHORT-TERM INVESTMENTS
The following is a summary of available-for-sale securities. Estimated
fair values of available-for-sale securities are based generally on quoted
market prices.
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- ------------- ------------- -----------
December 31, 2000
Corporate debt securities, maturing in
less than 1 year $ 53,937 $ 80 $ 7 $54,010
Corporate debt securities, maturing in
1 to 5 years 574 2 -- 576
Commercial paper, maturing in less
in less than 1 year 7,438 1 -- 7,439
-------------- ------------- ------------- -----------
$ 61,949 $ 83 $ 7 $62,025
============== ============= ============= ===========
December 31, 2001
Corporate debt securities, maturing in
less than 1 year $ 28,805 $ 192 $ -- $28,997
Corporate debt securities, maturing in
1 to 5 years 1,057 1 -- 1,058
Other debt securities, maturing in less
than 1 year 12,159 -- -- 12,159
Federal agency securities, maturing
In less than 1 year 9,265 19 38 9,246
Federal agency securities, maturing
in 1 to 5 years 1,037 15 -- 1,052
-------------- ------------- ------------- -----------
$ 52,323 $ 227 $ 38 $52,512
============== ============= ============= ===========
F-10
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
The Company has classified all of its short-term investments as current
assets because management expects these investments to be used during 2002 for
current operations. There were no sales of these investments or realized gains
or losses during 1999, 2000 or 2001.
3. LEASES
The Company is obligated under various capital leases for furniture and
equipment that expire at various dates during the next three 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, 2000 and 2001 (in thousands):
2000 2001
---------------- ---------------
Furniture and equipment................... $ 4,026 $ 3,475
Less accumulated amortization............. (1,591) (2,175)
---------------- ---------------
$ 2,435 $ 1,300
================ ===============
The Company also has several non-cancelable operating leases, primarily
for office space and office equipment, that extend through September 2005.
Rental expense, including maintenance charges, for operating leases during 1999,
2000 and 2001 was $782,000, $929,000, and $1.0 million 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, 2001 (in thousands) are:
CAPITAL OPERATING
LEASES LEASES
--------------- -------------------
Year ending December 31:
2002.............................................. $ 1,035 $ 1,312
2003.............................................. 782 1,221
2004.............................................. 279 498
2005.............................................. -- 382
--------------- -------------------
Total minimum lease payments......................... 2,096 $ 3,413
===================
Less amount representing interest.................... 154
---------------
Present value of net minimum capital lease payments.. 1,942
Less current installments of obligations under capital
leases.......................................... 928
---------------
Obligations under capital leases, excluding current
Installments..................................... $ 1,014
===============
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.
F-11
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
4. PROPERTY, FURNITURE AND EQUIPMENT
Property, furniture and equipment consists of the following at December
31, 2000 and 2001 (in thousands):
2000 2001
----------------- ----------------
Furniture and equipment.............................. $ 4,208 $ 6,389
Leasehold improvements............................... 681 711
Furniture and equipment under capital lease.......... 4,026 3,475
----------------- ----------------
8,915 10,575
Less accumulated depreciation and amortization....... (4,932) (6,796)
----------------- ----------------
$ 3,983 $ 3,779
================= ================
5. 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, 2000 and 2001, loans with an interest rate of 8%
totaling $9,000, respectively, were outstanding to a former employee 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.
In May 2001, the Company closed a private placement of approximately
1.4 million shares of common stock at $33.00 per share. The net proceeds of the
offering were approximately $43.4 million after deducting applicable issuance
costs and expenses of approximately $2.7 million.
F-12
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
Derivative Transactions
In September 2001, the Company entered into derivative transactions
with a financial institution that may be settled by selling up to 107,000 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 $344,000 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." 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.
All of these derivative transactions expire or mature in September 2002.
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. 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. These contracts expired unexercised during 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.
6. 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 4,102,941 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, 2001,
there were approximately 938,000 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.
Stock option transactions for the years ended December 31, 1999, 2000 and 2001
are as follows:
Weighted Weighted Weighted
Average Average Average
1999 Exercise 2000 Exercise 2001 Exercise
Price Price Price
------------ ----------- ------------- ----------- ----------- ----------
Options outstanding
at January 1...... 1,035,000 $ 6.31 1,712,000 $ 9.93 1,817,000 $ 22.19
Granted............. 961,000 12.88 441,000 60.13 578,000 40.22
Exercised........... (189,000) 6.12 (302,000) 8.31 (127,000) 9.82
Cancelled........... (95,000) 7.84 (34,000) 20.62 (107,000) 34.73
------------ ----------- ------------- ----------- ----------- ----------
Options outstanding
at end of period... 1,712,000 $ 9.93 1,817,000 $ 22.19 2,161,000 $ 27.12
============ =========== ============= =========== =========== ==========
F-13
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
The following summarizes information about stock options outstanding as of
December 31, 2001:
Options Outstanding Options Exercisable
----------------------------------------------------- -------------------------------
Weighted
Average
Number Remaining Weighted Weighted
Range of Exercise Outstanding Contractual Average Exercise Number Average
Price as of 12/31/01 Life Price Exercisable Exercise Price
- --------------------- ---------------- ------------- ------------------ -------------- ----------------
$ 0.34-1.00 126,000 4.76 $ 0.47 126,000 $ 0.47
$ 5.88-8.00 324,000 6.31 $ 7.88 284,000 $ 7.90
$ 9.00-11.625 559,000 7.30 $ 11.60 360,000 $ 11.60
$ 11.626-29.00 298,000 8.19 $ 20.82 132,000 $ 18.10
$ 29.01-45.10 342,000 9.49 $ 40.87 16,000 $ 40.37
$ 45.11-61.875 392,000 8.56 $ 54.29 184,000 $ 56.88
$ 61.876-78.50 120,000 8.75 $ 66.96 22,000 $ 66.69
---------------- ------------- ------------------ -------------- ----------------
$ 0.34-78.50 2,161,000 7.78 $ 27.12 1,124,000 $ 19.10
================ ============= ================== ============== ================
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. In
2001, the Company recorded a deferred charge of $3,329,000 representing the
difference between the fair value of the Company's Common Stock on the date a
former consultant became an employee, and the exercise price of the Common Stock
Options held at that date.
Compensation expense for employee stock options was $894,000, $1.1
million and $2.2 million for 1999, 2000 and 2001, 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 or the date that options are fully
vested. 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 $3.8 million and
$11.3 million, for the years ended December 31, 1999 and 2000, respectively, was
recorded as an increase to additional paid-in capital. Compensation expense
reversal of $1.3 million for the year ended December 31, 2001, was recorded as a
decrease to additional paid-in capital.
F-14
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:
1999 2000 2001
------------------ ---------------- ----------------
Net loss:
As reported................. $ (22,187) $ (50,856) $ (66,741)
Compensation cost recorded
under APB 25............. 894 1,059 2,190
Compensation cost
resulting from common
stock options, restricted
stock and employee stock
purchase plan............ (2,553) (8,334) (12,174)
------------------ ---------------- ----------------
Pro forma .................. $ (23,846) $ (58,131) $ (76,725)
================== ================= =================
Basic and diluted loss per
share:
As reported.............. $ (1.79) $ (3.27) $ (3.96)
Pro forma................ $ (1.92) $ (3.74) $ (4.55)
The fair value of common stock options is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions used:
1999 2000 2001
---------------- ----------------- -----------------
Estimated dividend yield 0.00% 0.00% 0.00%
Expected stock price volatility 86.0% 91.4% 50.0%
Risk-free interest rate 5.20% 6.30% 4.00%
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 1995 and subsequent years and does not consider compensation cost for
stock options granted prior to January 1, 1995.
F-15
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
7. INCOME TAXES
At December 31, 2001, the Company has net operating loss carryforwards
(NOL's) for federal and state income tax purposes of approximately $173.3
million which expire in varying amounts between 2008 and 2021. The Company has
research and development credits of $4.4 million which expire in varying amounts
between 2008 and 2021.
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, 2000 and 2001 are as follows:
2000 2001
---------------- ------------------
(in thousands)
Deferred tax assets:
Tax loss carryforwards $ 40,967 $ 66,804
Tax credits 2,203 4,365
Reserves and accruals 6,031 5,603
---------------- ------------------
49,201 76,772
Valuation allowance (49,201) (76,772)
---------------- ------------------
Net deferred asset -- --
Deferred tax liabilities:
Deferred tax liability -- --
---------------- ------------------
Net deferred tax assets $ -- $ --
(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 $8.5 million, $21.0
million and $27.6 million for the years ended December 31, 1999, 2000 and 2001,
respectively.
F-16
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
The reasons for the difference between the actual income tax benefit
for the years ended December 31, 1999, 2000 and 2001 and the amount computed by
applying the statutory federal income tax rate to losses before income tax
benefit are as follows (in thousands):
% of Pre- % of Pre- % of Pre-
1999 tax Loss 2000 tax Loss 2001 tax Loss
---------- ----------- ---------- ---------- ----------- ----------
Income tax benefit at
statutory rate $(7,544) (34.00)% $(17,292) (34.00)% $(22,692) (34.00)%
State income taxes, net
of federal benefit -- -- -- -- -- --
Non-deductible meals and
entertainment expenses 26 0.12% 14 0.03% 13 0.02%
Non-deductible
compensation 304 1.37 % 361 0.70% 745 1.12%
Additional deductible
compensation -- -- (1,410) (2.77)% (501) (0.75)%
Generation of research
credit (839) (3.78)% (569) (1.12)% (2,162) (3.24)%
Change in federal portion
of valuation allowance 8,053 36.29% 18,896 37.16% 24,597 36.85%
---------- ---------- ---------- ---------- ---------- ----------
Income tax benefit $ -- -- $ -- -- $ -- --
========== ========== ========== ========== ========== ==========
8. 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 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. During 2001, 10,000 shares were issued, and
compensation expense of $481,000 was recognized. These shares vest ratably based
on a participant's years of service and are fully vested after four years of
service.
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 22,000, 28,000, and 18,000 shares were issued under this
plan in 1999, 2000, and 2001, respectively.
F-17
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
Post-Retirement Health Insurance Continuation Plan
In June 2001, the Company adopted a post-retirement health insurance
continuation plan ("the Plan"). Employees who have achieved the eligibility
requirements of 60 years of age and 10 years of service are eligible to
participate in the Plan. The Plan provides participants the opportunity to
continue participating in the Company's group health plan after their date of
retirement. Participants will pay the cost of health insurance premiums for this
coverage, less any contributions by the Company, currently capped at $300 per
month per participant.
The components of net periodic post-retirement benefits cost and the
significant assumptions of the Plan for 2001 consisted of the following:
2001
------------------------
(in thousands)
Service cost $ 7
Interest cost 1
Amortization of prior service costs 2
------------------------
Total $ 10
========================
The Plan's status as of December 31 was as follows:
2001
-------------------------
(in thousands)
Accumulated post-retirement benefit obligation $ (47)
Unrecognized prior service cost 35
Unrecognized net loss 2
-------------------------
Accrued post-retirement benefit cost $ (10)
=========================
The accumulated post-retirement benefit obligation was determined using
a discount rate of 7.25%. A one percent decrease in the discount rate would
increase the accumulated post-retirement benefit obligation at December 31, 2001
by approximately $11,000. The assumed medical care cost trend rate is 12% for
2002, declining ratably to 6% in 2008. A change in the assumed medical care cost
trend rate does not affect the accumulated post-retirement benefit obligation
since the benefit is a fixed contribution amount by the Company.
9. 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. This agreement with Roche
grants them an exclusive, world-wide license for T-20 and T-1249, and certain
other compounds. Under this agreement with Roche, 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.
F-18
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
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, 2001. The fair value of the warrant of $5.4 million
was credited to additional paid-in capital in 1999, and 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.
In June 2001, the Company announced a research agreement with Roche to
discover, develop and commercialize novel generations of HIV fusion inhibitor
peptides. Roche and Trimeris will equally fund worldwide research, development
and commercialization costs, as well as share equally in profits from worldwide
sales of new HIV fusion inhibitor peptides discovered after July 1, 1999.
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.
10. SUPPLEMENTARY CASH FLOW INFORMATION
Capital lease obligations of $1,119,000, $2,050,000 and $0 were incurred
in 1999, 2000 and 2001, respectively, for leases of new furniture and equipment.
11. 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 from operations.
As of December 31, 2001, the Company had commitments of approximately
$13.5 million to purchase product candidate materials and fund various clinical
studies over the next twelve 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, Trimeris and Roche are obligated to share equally the
future development expenses for T-20 and T-1249 for the United States and
Canada.
12. SUBSEQUENT EVENT
In January 2002, the Company closed a private placement of approximately
1.3 million shares of common stock at $34.00 per share. The net proceeds of the
offering were approximately $41.0 million after deducting applicable issuance
costs and expenses of approximately $1.8 million.
F-19
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 25, 2002 /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 25, 2002
- ------------------------------ executive officer), Chief --------------
Dani P. Bolognesi, Ph.D. Scientific Officer and Director
/s/ ROBERT R. BONCZEK Chief Financial Officer and March 25, 2002
- ------------------------------ General Counsel --------------
Robert R. Bonczek (principal financial officer)
/s/ M. NIXON ELLIS Chief Business Officer and March 25, 2002
- ------------------------------ Executive Vice President --------------
M. Nixon Ellis
/s/ TIMOTHY J. CREECH Director of Finance and March 25, 2002
- ------------------------------ Secretary (principal accounting officer) --------------
Timothy J. Creech
/s/ JEFFREY M. LIPTON Chairman of the Board of Directors March 25, 2002
- ------------------------------ --------------
Jeffrey M. Lipton
/s/ E. GARY COOK Director March 25, 2002
- ------------------------------ --------------
E. Gary Cook, Ph.D.
/s/ CHARLES A. SANDERS Director March 25, 2002
- ------------------------------ --------------
Charles A. Sanders, M.D.
/s/ J. RICHARD CROUT Director March 25, 2002
- ------------------------------ --------------
J. Richard Crout, M.D.
/s/ KEVIN TANG Director March 25, 2002
- ------------------------------ --------------
Kevin Tang
II-1
EXHIBIT INDEX
(a) Exhibits
3.1 * Amended and Restated Bylaws of the Registrant.
3.2 /f/ 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 /j/ Trimeris, Inc. Amended and Restated Stock Incentive Plan.
10.4 * Trimeris, Inc. Employee Stock Purchase Plan.
10.5 * Sixth Amended and Restated Registration Rights Agreement dated June 27, 1997, by
and among the Registrant and certain stockholders of the Registrant.
10.6 * Form of Indemnification Agreements.
10.7 * License Agreement dated September 9, 1997 between the Registrant and The New
York Blood Center.
10.8 /a/ Master Lease Agreement dated May 28, 1998 between the Company and Finova
Technology Finance, Inc.
10.9 /b/ Prototype Defined Contribution Plan and Trust for the Trimeris, Inc. Employee 401 (k)
Plan.
10.10 /a/ Adoption Agreement for the Trimeris, Inc. Employee 401 (k) Plan.
10.11 /b/ Chief Executive Employment Agreement between Trimeris and Dani P. Bolognesi
dated April 21, 1999.
10.12 /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.).
10.13 /c/ Financing Agreement between Trimeris, Inc. and Roche Finance Ltd. dated as of July
9, 1999.
10.14 /c/ Registration Rights Agreement between Trimeris, Inc. and Roche Finance Ltd. dated as
of July 9, 1999.
10.15 /c/ Lease between Trimeris, Inc. and University Place Associates dated April 14, 1999
10.16 /c/ Sublease Agreement between Trimeris, Inc. and Blue Cross and Blue Shield of North
Carolina dated May 15, 1999.
10.17 /c/ Lease Agreement between Hamad Jassim Althani and Blue Cross and Blue Shield of
North Carolina, relating to Sublease Agreement filed as Exhibit 10.21 hereto
10.18 /d/ Executive Agreement between Trimeris and Robert R. Bonczek dated January 7, 2000.
10.19 /e/ Employment Agreement between Trimeris, Inc. and M. Nixon Ellis dated March 31,
2000.
10.20/g/ Research Agreement between Trimeris, Inc., F. Hoffmann-La Roche Ltd, and
Hoffmann-La Roche, Inc. dated January 1, 2000 (portions of this exhibit have been
omitted pursuant to an order of the Commission granting confidential treatment).
10.21/h/ Form of Purchase Agreement dated as of May 7, 2001 by and between Trimeris, Inc.
and the purchasers set forth on the signature page thereto.
10.22 Lease Assignment and Modification Agreement dated as of September 27, 2001
between Trimeris, Inc., Blue Cross and Blue Shield of North Carolina, and Hamad
Jassim Althani.
10.23 Third Amendment to Lease dated as of November 30, 2001 between Hamad Jassim
Althani and Trimeris, Inc.
10.24 Sublease Agreement dated as of December 14, 2001 between Trimeris, Inc. and
Triangle Pharmaceuticals, Inc.
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10.25 Second Amendment dated as of January 21, 2002 between University Place Properties,
LLC and Trimeris, Inc.
10.26/i/ Form of Equity Option Confirmation for Call Transaction.
10.27/k/ Form of Purchase Agreement dated as of January 23, 2002 by and between Trimeris,
Inc. and the purchasers set forth on the signature page thereto.
23 Consent of KPMG LLP
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* 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' Annual Report on Form 10-K for the year ended
December 31, 1999 filed with the Commission on March 29, 2000.
(e) Incorporated by reference to Trimeris' Quarterly Report on Form 10-Q for the quarter ended
March 31, 2000.
(f) Incorporated by reference to Trimeris' 2000 Definitive 14A filed with the Commission on
May 16, 2000.
(g) Incorporated by reference to Trimeris' Quarterly Report on Form 10-Q for the quarter ended
June 30, 2001.
(h) Incorporated by reference to Trimeris' Current Report on Form 8-K filed on May 11, 2001.
(i) Incorporated by reference to Trimeris' Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001.
(j) Incorporated by reference to Trimeris' Registration Statement on Form S-8 filed with the
Commission on November 30, 2001.
(k) Incorporated by reference to Trimeris' Current Report on Form 8-K filed with the
Commission on January 30, 2002.
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.
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