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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, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 0-23155
TRIMERIS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-1808663
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4727 UNIVERSITY DRIVE, SUITE 100
DURHAM, NORTH CAROLINA 27707
(Address of principal executive offices, including Zip Code)
(919) 419-6050
Registrant's telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.001 par value (Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of March 25, 1999 was approximately $152,692,000 (based on the
last sale price of such stock as reported by the NASDAQ National Market System):
The number of shares of the registrant's Common Stock outstanding as of March
25, 1999 was 10,683,355
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, 1998
Table of Contents
Item Number Page
PART I.
Item 1. Business 1
Item 2. Properties 21
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 21
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 22
Item 6. Selected Financial Data 24
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 29
Item 8. Financial Statements and Supplementary Data 29
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 29
PART III.
Item 10. Directors and Executive Officers of the Registrant 30
Item 11. Executive Compensation 30
Item 12. Security Ownership of Certain Beneficial Owners and Management 31
Item 13. Certain Relationships and Related Transactions 31
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 31
Signature Page II-1
Exhibit Index II-2
PART I.
Item 1. BUSINESS
STATEMENTS IN THIS 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
FORM 10-K. MANY OF THESE FACTORS ARE BEYOND OUR CONTROL AND ANY OF THESE AND
OTHER FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
FORWARD-LOOKING STATEMENTS MADE IN THIS 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 FACTOR" SECTION IN THIS 1998 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 FORM 10-K.
OVERVIEW
Trimeris, Inc. was incorporated under Delaware law as SL-1 Pharmaceuticals,
Inc. on January 7, 1993 and changed its name to Trimeris, Inc. on February 11,
1993. Trimeris is a biopharmaceutical company engaged in the discovery and
development of a new class of therapeutic agents, fusion inhibitors, that block
viral infection by inhibiting viral fusion with host cells. We are a development
stage company. We completed our initial public offering in October 1997, raising
approximately $34.5 million. Prior to that time, we financed operations
primarily through the private placement of equity securities, the issuance of
notes to stockholders and equipment lease financing. Since our inception,
substantially all of our resources have been dedicated to the development,
patenting, preclinical testing and clinical trials of T-20, the development of a
manufacturing process for T-20, production of drug material for future clinical
trials, and research and development and preclinical testing of other potential
product candidates and compounds. We have incurred losses since inception and,
as of December 31, 1998, had an accumulated deficit of approximately $48.4
million. We have received revenue solely from Small Business Innovation Research
("SBIR") grants and an investigative contract and have not generated any revenue
from product sales or royalties, and we may never be able to generate any
significant revenues, or be profitable.
OVERVIEW OF VIRAL FUSION
We have developed a proprietary technology platform in the field of fusion
inhibition, which is being applied to the discovery and development of novel
products for the treatment of a variety of viral diseases. Viral fusion is a
complex process by which viruses attach to and penetrate host cells. Our lead
product candidate, T-20, inhibits fusion of Human Immunodeficiency Virus-1
("HIV") with host cells. T-20 is currently in Phase II clinical trials in the
United States. The results of Phase II clinical trials completed to date
indicate that administration of T-20 via continuous subcutaneous infusion or
twice daily subcutaneous injection for up to twenty-eight days is safe and well
tolerated. Furthermore, a dose-related reduction of viral load was observed in
HIV infected subjects with extensive prior antiretroviral exposure and high
viral loads, reducing HIV in the blood by greater than 90% in the higher dose
groups without significant side effects. T-20 and our other product candidates
are designed to inhibit viral entry into the cell, unlike other currently
approved therapeutic agents that target replicating viruses inside already
infected cells.
1
TRIMERIS TECHNOLOGY
Our academic founders, Dr. Dani Bolognesi and Dr. Thomas Matthews, both of
the Duke University Center for AIDS Research, discovered a novel method to block
HIV infection by inhibiting viral fusion with host cells. This discovery was
licensed to Trimeris and led to the development of our proprietary technology
platform. We are using our proprietary technology platform to support our
discovery and development programs. Unlike therapeutic agents targeting viral
replication processes inside host cells, our product candidates prevent one of
the first steps in the infection process that occurs outside of the host cell.
Our goal is to use our expertise in the field of fusion inhibition to discover,
develop and market novel peptides or small molecules to inhibit viral fusion for
the treatment of a variety of diseases.
T-20, the lead product candidate, inhibits HIV infection. T-20 is a
patented 36 amino acid synthetic peptide that binds to a key peptide domain of
the HIV gp41 protein and blocks HIV viral fusion by interfering with the
interactions between peptide domains within viral proteins that are required for
HIV entry into a host cell.
Through our study of the HIV fusion process, we have developed a
proprietary technology platform which identifies target sequences within certain
viral proteins that have the potential to interact during the fusion process.
Once identified, these target sequences form the basis for designing highly
selective and potent peptide inhibitors of viral fusion. We have identified, and
filed patent applications disclosing, numerous discrete peptide sequences which
include potential fusion targets in other viruses such as Respiratory Syncytial
Virus ("RSV"), Human Parainfluenza Virus ("HPIV"), hepatitis B and C, influenza
and herpes.
BUSINESS STRATEGY
Trimeris' goal is to become the leader in the development and
commercialization of a new class of drugs, fusion inhibitors. To achieve this
objective, the principal elements of our strategy are to:
VALIDATE FUSION INHIBITION THERAPY BY OBTAINING REGULATORY APPROVAL FOR T-20.
T-20 has been shown in Phase II clinical testing to be safe and well-tolerated
and to result in a dose-related reduction of viral load in HIV infected subjects
with extensive prior antiretroviral exposure and high viral loads over a
twenty-eight day treatment period. T-20 has received fast track designation from
the United States Food and Drug Administration ("FDA") for the treatment of HIV
infected individuals. Fast track designation is granted to products that may
provide a significant improvement in the safety or effectiveness of the
treatment for a serious or life-threatening disease, and this designation is
intended to expedite the review of these drugs. We believe that regulatory
approval of T-20, if obtained, will provide important evidence to support the
validity of viral fusion inhibition therapy.
LEVERAGE ANTI-FUSION EXPERTISE TO DEVELOP OTHER ANTIVIRAL THERAPIES. We believe
that our proprietary technology platform is applicable to many other viral
targets that may be susceptible to fusion inhibition. For example, we have
designed peptides for treatment of RSV infection, and second generation peptides
for treatment of HIV. We also have research and discovery programs to identify
compounds to inhibit fusion of other viruses, including HPIV, influenza,
hepatitis B and C, and Epstein-Barr Virus ("EBV").
TAILOR COMMERCIALIZATION CAPABILITIES TO SPECIFIC PRODUCT MARKETS. We intend to
evaluate the appropriate commercialization strategy for each of our product
candidates, depending on the size and nature of the market.
2
PROGRAMS AND PRODUCT CANDIDATES UNDER DEVELOPMENT
The following table describes the various stages of development of our
programs and product candidates:
INDICATION PRODUCT CANDIDATE DEVELOPMENT STATUS(1)
---------- ----------------- --------------------
HIV T-20 Phase II
HIV Second generation peptides Preclinical
RSV Peptides Research
RSV Small molecules Research
HPIV T-205 Research
HPIV Small molecules Research
HIV Small molecules Research
Influenza Virus Small molecules Discovery
Hepatitis B Virus Small molecules Discovery
Hepatitis C Virus Small molecules Discovery
Epstein-Barr Virus Small molecules Discovery
(1) "Phase II " indicates that the product candidate has been tested in a Phase
II clinical trial for safety and preliminary indications of biological activity
in a limited patient population. "Preclinical" indicates that we are testing a
product candidate in animal models. "Research" indicates we are pursuing the
discovery of prototype compounds and evaluating prototype compounds in IN VITRO
testing. "Discovery" indicates that we are developing assay systems to screen
chemical libraries of small molecules.
T-20 CLINICAL DEVELOPMENT PROGRAM
T-20 is a proprietary compound which has demonstrated significant
inhibition of HIV in clinical trials. T-20 is currently in Phase II clinical
trials. T-20 inhibits HIV viral fusion with host cells and thus operates by a
completely different mechanism of action than any other currently-approved HIV
antiviral drug. HIV targets primarily the human immune cells known as CD4+
T-cells and macrophages. HIV-infected cells ultimately lose their immune
function, leading to eventual degeneration of the immune system, which results
in opportunistic infections, neurological dysfunctions, neoplasms and death.
PHASE I/II - TRI-001
In August 1997, we concluded a Phase I/II clinical trial in which an
intravenous formulation of T-20 was administered to HIV-infected patients. The
clinical trial consisted of four groups of four patients, with each group
receiving a different dose of T-20. Patients received doses of T-20 at either 3
mg, 10 mg, 30 mg or 100 mg by bolus intravenous infusion every 12 hours for 14
consecutive days. No drug-related adverse events were recorded and no
dose-limiting toxicities were observed for any patient during the treatment
period. Furthermore, a dose-dependent decrease in HIV viral load and a
dose-dependent increase in CD4+ T-cell count were observed. All four patients
who received the 100 mg dose experienced a decrease in HIV viral load to below
detectable levels (less than 400 copies/mL) during the treatment period.
PHASE II - TRI-002
In July 1998, we began a single site Phase II trial. T-20 was given for
ten days as a monotherapy via continuous subcutaneous infusion at a dose of 50mg
per day, and then a triple combination regimen of nevirapine, nelfinavir and
saquinavir was added to T-20. One patient is currently enrolled in this trial
and has been in the trial for over six months. Prior to participation in this
trial, this patient had failed four antiretrovirals, had a baseline viral load
of approximately 481,000 copies/mL and a baseline CD4+ cell count of 260. After
five months on therapy, the patient has sustained a greater than 99% decrease in
viral load, and a 380 cell increase in CD4+ cells, with no evidence of systemic
toxicities associated with T-20 therapy. There has been no detectable increase
in anti-T-20 antibodies during the treatment period.
3
PHASE II - TRI-003
In January 1999, we concluded a Phase II clinical trial ("TRI-003") in
which T-20 was given for twenty-eight days to 78 HIV infected adults with
extensive prior antiretroviral exposure and high viral loads. Four distinct
doses were administered by continuous subcutaneous infusion and two doses were
administered via twice-daily subcutaneous injection. T-20 was either added to a
stable antiretroviral regimen or administered as monotherapy. The average number
of anti-HIV medications that the patients in this trial had previously failed
was nine, including an average of 3 protease inhibitors. The average baseline
viral load of the study population was approximately 100,000 copies/mL.
The average maximum reduction in HIV viral load ranged from 50% to 97.5%
across the treatment groups. Preliminary analysis indicates that patients with
baseline viral loads less than 100,000 copies/mL may have achieved more
substantial viral load reductions of longer durability than patients with viral
loads greater than 100,000 copies/mL.
Mild to moderate local skin irritation at the site of infusion or
injection was observed in most patients. However, only two patients discontinued
T-20 due to side effects during this trial. No treatment related serious Grade 3
or 4 systemic toxicities were observed.
Preliminary pharmacokinetic analyses indicate that both continuous
subcutaneous infusion and twice-daily subcutaneous injection resulted in
consistent plasma concentrations of T-20, with little peak-to-trough variation
throughout the dosing period. As a result, we expect T-20 to be administered in
future trials via twice-daily subcutaneous injection.
The previous results from our clinical trials may not support future
clinical trials or be predictive of results that will be obtained in pivotal
clinical trials.
FUTURE T-20 CLINICAL DEVELOPMENT
During 1999 we expect to initiate several additional Phase II trials.
Based on the results of TRI-003, T-20 is expected to be administered via
twice-daily subcutaneous injection in these trials. We have initiated a Phase II
trial to continue T-20 therapy for patients who participated in TRI-001 and
TRI-003. The primary purpose of this trial is to collect long-term safety data.
Patients in this trial will add T-20 to their individualized combination of
antiretrovirals.
Based on the results of TRI-003, a Phase II trial is planned for 1999 that
should more accurately define the long-term safety and durability of T-20 when
used in combination with other antiretroviral drugs. A pediatric clinical trial
is also planned for 1999 to assess the safety, pharmacokinetics and preliminary
antiviral activity in children.
Based on the results of these Phase II trials, we intend to begin a
pivotal trial in a larger population of HIV-infected patients who are either
resistant to, or intolerant of, currently approved antiviral therapies (reverse
transcriptase and protease inhibitors) in late 1999. Historically, pivotal
trials of this type involving HIV antivirals have included approximately 300-400
patients and have taken approximately 18-24 months to complete.
T-20 has received fast track designation from the FDA for the treatment of
HIV infected individuals. Fast track designation is granted to products that may
provide a significant improvement in the safety or effectiveness of the
treatment for a serious or life-threatening disease, and this designation is
intended to expedite the review of these drugs. Throughout the T-20 clinical
trial process, we intend to work with the FDA to design and implement a clinical
trial strategy involving the administration of T-20 to HIV-infected patients in
combination with approved HIV antiviral agents. However, T-20 may never be
approved by the FDA for marketing on an accelerated basis, or at all. The
anticipated timing of our T-20 clinical trials may be delayed or cancelled for a
number of reasons, including the receipt of unanticipated T-20 clinical trial
results, additional non-clinical studies required by the FDA, changes in the
focus of Trimeris or its
4
collaborators, financial requirements and resources, manufacturing issues,
technological developments and competitive factors. Therefore, T-20 clinical
trials may not commence on their target dates, or at all. Delays in these
clinical trials could have a material adverse effect on our business, financial
condition and results of operations.
HIV MARKET AND EXISTING THERAPIES
HIV infection causes Acquired Immunodeficiency Syndrome ("AIDS"). The
World Health Organization estimates that, as of the end of 1998, approximately
890,000 people were infected with HIV in the North America, and approximately
500,000 people were infected in Western Europe. Globally, the World Health
Organization estimates that the AIDS epidemic has infected over 33 million
people worldwide. There are currently 13 approved antitretrovirals for treating
HIV infection that target reverse transcriptase and protease, two enzymes
required for HIV to replicate in cells. Worldwide sales from these HIV
antiretrovirals were approximately $3 billion in 1997.
T-20 COMMERCIALIZATION STRATEGY
We do not currently have sales, marketing or distribution capabilities. We
are evaluating strategies for the sale, marketing and distribution of T-20,
including developing internal capabilities and/or entering into collaborative
arrangements. We believe that it may be possible to develop internal sales,
marketing and distribution capability for T-20, since the market for HIV
therapeutics is comprised of a concentrated group of physicians in medical
practices that treat HIV patients. We will continue to explore alternative
opportunities to market T-20, either internally or in conjunction with
appropriate marketing partners.
MANUFACTURING
The manufacture of peptides requires significant expertise and capital
investment. As a result, we have elected to work with third-party contract
manufacturers to supply quantities of T-20 to be used in currently planned
clinical trials. We expect to rely on third-party manufacturers throughout the
clinical and initial commercialization phases of T-20 development. Our
dependence on third parties for the manufacture of products and product
candidates could adversely affect our profit margins and our ability to
commercialize T-20. We have developed a novel manufacturing process for T-20
which could be more cost-effective than previously available methods of
production. However, the process may be more costly than previously available
processes, or the process may not be capable of producing commercial quantities
of T-20. Currently available peptide manufacturing processes are expensive which
could limit our ability to commercialize T-20. If we are unable to develop a
more cost-effective and scalable process, we may not be able to commercialize
T-20 on a profitable basis, if at all.
PRECLINICAL DEVELOPMENT PROGRAMS
We are using our proprietary technology platform to discover and develop
fusion inhibitors for other viral diseases where there are substantial unmet
medical needs.
SECOND-GENERATION HIV FUSION INHIBITORS
We have designed proprietary second-generation peptide HIV fusion
inhibitors which bind to regions of the HIV fusion protein target that are
different from the region bound by T-20. In preclinical testing, these
second-generation compounds have been shown to be highly effective against a
wide range of HIV strains IN VITRO, including strains resistant to T-20. We
believe that these second-generation compounds could provide a range of future
options for the continuing treatment of HIV infection.
5
RSV
We have identified lead peptides that treat RSV infection, which is a
significant cause of pediatric bronchiolitis and pneumonia. These peptides show
potent, specific and selective inhibition of RSV infection IN VITRO. RSV affects
the elderly and immune compromised individuals and is also thought to be a
co-factor in otitis media. Each year in the United States, 11 out of 100
children younger than one year of age are infected with RSV, more than 90,000
infants are hospitalized with RSV infections, and over 4,500 deaths are
attributed to RSV.
ANTI-RSV SMALL MOLECULES
We have identified small-molecule inhibitors of RSV infection which are
also active against RSV in preclinical animal model testing. We have developed
proprietary molecular screens which will enable us to search for additional
small molecule fusion inhibitors that are active against RSV.
RESEARCH AND DISCOVERY PROGRAMS
We are using our proprietary technology platform and expertise in viral
fusion to discover and develop lead compounds and product candidates to treat a
variety of diseases caused by other viruses.
ANTI-HPIV COMPOUNDS
We have developed a series of proprietary peptides which inhibit HPIV IN
VITRO. T-205, our lead anti-HPIV peptide, was derived from a coiled-coil domain
of the HPIV fusion protein. T-205 shows specific, selective and potent
inhibition of HPIV infection IN VITRO. HPIV is a cause of respiratory disease in
young infants. There are no drugs currently approved for the treatment of HPIV.
We are conducting a research program to evaluate T-205 and other peptide
candidates for possible advancement to preclinical development.
ANTI-HIV SMALL MOLECULES
We have developed advanced solution based screens to search for small
molecule inhibitors of HIV. These screens will be used to search for small
molecule fusion inhibitors that are active against HIV.
INFLUENZA VIRUS
We have initiated an early-stage discovery program to create a
high-throughput screening assay to identify potential small-molecule inhibitors
of influenza viral fusion. We have established a collaboration with Dr. Judith
White at the University of Virginia to assist in the discovery and development
of fusion inhibitors for influenza virus.
HEPATITIS B AND C VIRUS
We have early-stage discovery programs to create high-throughput screening
assays that can identify potential small-molecule inhibitors of the hepatitis B
and C viruses. Additionally, in collaboration with Dr. Timothy Block of the
Thomas Jefferson Medical School, we plan to synthesize and test peptides derived
from identified regions of the hepatitis B virus. We have been awarded a Phase I
SBIR grant from the Department of Health and Human Services to fund this
program.
6
EPSTEIN-BARR VIRUS
We initiated an early-stage discovery program in EBV through a
collaboration with Dr. Joseph Pagano of the University of North Carolina at
Chapel Hill. EBV causes infectious mononucleosis and has been linked to a
variety of cancers. Dr. Pagano is working with us to develop a strategy for
inhibiting a key protein required for EBV replication. We have identified
interactive peptide domains within this molecular target and have synthesized
peptide inhibitors that are active IN VITRO.
MANUFACTURING
The manufacture of peptides requires significant expertise and capital
investment. We have no experience in manufacturing pharmaceuticals, no
commercial manufacturing capacity and limited experience in manufacturing
process development. As a result, we have elected to work with third-party
contract manufacturers to supply quantities of T-20 to be used in currently
planned clinical trials. We expect to rely on third-party manufacturers
throughout the clinical and initial commercialization phases of T-20
development. Our dependence on third parties for the manufacture of products and
product candidates could adversely affect our profit margins and our ability to
commercialize T-20.
We, along with our third-party manufacturers, have manufactured sufficient
quantities of T-20 using solid-phase sequential peptide synthesis and fragment
peptide synthesis to complete preclinical testing and the Phase II clinical
trial. We have developed a novel manufacturing process for T-20 which could be
more cost-effective than previously available methods of production. T-20 was
manufactured using this process during 1998. However, this process may be more
costly than previously available methods, or the process may not be capable of
producing commercial quantities of T-20 under the FDA's current good
manufacturing practices requirements ("GMP"). Currently available peptide
manufacturing processes are expensive, which could limit our ability to
commercialize T-20. If we are unable to develop a more cost-effective and
scalable process, we may not be able to commercialize T-20 on a profitable
basis, if at all.
Commercial production of T-20 will require raw materials in amounts
substantially greater than those being used in the current manufacturing
campaigns. We may not be able to obtain these materials in sufficient quantities
or on a cost-effective basis to support the commercial manufacture of T-20.
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 and third parties. The purpose of these arrangements would
be to seek regulatory approval of and to develop, manufacture and commercialize
certain of our existing and potential product candidates and compounds. These
collaborations could provide us with funding, research and development
resources, access to libraries of diverse compounds and clinical development,
manufacturing, sales, marketing and distribution capabilities. Our success could
depend, in part, upon the subsequent success of such third parties in performing
preclinical testing and clinical trials, obtaining the requisite regulatory
approvals, scaling up manufacturing, successfully commercializing the licensed
product candidates or compounds and otherwise performing their obligations. We
may not be able to maintain our existing arrangements or enter into acceptable
collaborative and license arrangements in the future on acceptable terms, if at
all. Such arrangements may not be successful, potential collaborators may not
perform their obligations under the arrangements, or they may compete with us by
seeking alternative means of developing therapeutics for the diseases targeted
by our products. Our current and future arrangements may never lead to the
development of product candidates or compounds with commercial potential, we may
not be able to obtain proprietary rights or licenses for proprietary rights with
respect to any technology developed in connection with these arrangements, and
we may not be able to ensure the confidentiality of any proprietary rights and
information developed in such arrangements or prevent the public disclosure. We
currently have a license for existing and some future technologies in the field
of antiviral therapeutics developed by several researchers at Duke University
(the "Duke License"), and in the future may require additional licenses from
Duke or other parties, to effectively develop potential product candidates and
compounds.
7
In April 1997, we entered into an agreement with MiniMed,Inc. (the
"MiniMed Agreement"), under which we will collaborate with MiniMed in the
development and delivery of therapies for the treatment of certain diseases by
using the continuous infusion delivery pump developed by MiniMed with our
antiviral product candidates and compounds. The first collaborative project was
the continuous delivery of T-20 in TRI-003. While MiniMed's continuous infusion
pump has been approved for the continuous, subcutaneous infusion of other
therapies, it may not be approved for the delivery of T-20. Under the MiniMed
Agreement, a joint management committee will determine an implementation
strategy for each collaborative project. The MiniMed Agreement contains certain
exclusivity and noncompetition provisions, subject to our right, under certain
circumstances, to terminate such obligations with respect to T-20 in exchange
for making certain royalty payments to MiniMed.
We have obtained from Duke University, under the Duke License, an
exclusive, worldwide, royalty-free license to all discoveries and inventions in
the field of antiviral therapeutics emanating from the laboratories of Drs. Dani
Bolognesi, Thomas J. Matthews, Michael Greenberg and Kent Weinhold of the Duke
University Center for AIDS Research for the period from February 3, 1993 until
February 2, 2000. Our rights to each of these discoveries and inventions expire
upon the expiration of the life of the particular patent. We have received
multiple discoveries and inventions under the Duke License, some of which have
been patented. None of the technologies licensed us from Duke University is the
subject of a separate license agreement. Our rights to these technologies are
licensed under the Duke License. We believe we will be able to successfully
negotiate an extension or renewal of the Duke License, but we may not be able
to. If the Duke License were to terminate early, or we are unable to renew the
Duke License on acceptable terms, it could have a material adverse effect on our
business, financial condition and results of operations.
In September 1997, we obtained from The New York Blood Center ("NYBC") an
exclusive, worldwide, royalty-bearing license under certain United States and
foreign patents and patent applications relating to HIV peptides.
SALES, MARKETING AND DISTRIBUTION
We have no experience in sales, marketing or distribution of
pharmaceuticals and currently have no personnel employed in any such capacities.
We may develop such capability in certain areas. In other areas, however, we may
rely on marketing partners or other arrangements with third parties which have
established distribution systems and direct sales forces for the sales,
marketing and distribution of such products and compounds. In the event that we
are unable to reach agreement with one or more marketing partners to market
these other products and compounds, we may be required to develop internal
sales, marketing and distribution capabilities for such products and compounds.
We may not be able to establish cost-effective sales, marketing or distribution
capabilities or make arrangements with third parties to perform such activities
on acceptable terms, if at all. If we are unable to do this, it would have a
material adverse effect on our business, financial condition and results of
operations.
If we establish sales, marketing or distribution arrangements with other
parties, they may have significant control over important aspects of the
commercialization of our products and compounds including market identification,
marketing methods, pricing, composition of sales force and promotional
activities. We may not be able to control the amount and timing of resources
that any other third party may devote to our products or compounds or prevent
any third party from pursuing alternative technologies or products that could
result in the development of products that compete with our products and
compounds.
PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS
Our success will depend, in part, on our ability, and the ability of our
collaborators 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.
8
As of December 31, 1998, we owned or had licensed from Duke under the Duke
license four issued United States patents, twenty-seven pending United States
patent applications, and certain corresponding foreign patents and patent
applications. In September 1997, we obtained from the New York Blood Center an
exclusive, worldwide, royalty-bearing license under certain United States and
foreign patents and patent applications relating to HIV peptides.
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. Employees
of the Company, consultants, advisors, or others, could disclose such trade
secrets or proprietary information to competitors, which would be detrimental to
Trimeris.
COMPETITION
We are engaged in segments of the biopharmaceutical industry, including
the treatment of HIV, that are intensely competitive and rapidly changing. If
successfully developed and approved, our products will compete with numerous
existing therapies. For example, at least 13 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, and some companies, including several
multinational 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.
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, including those
in the following list, may be more effective or more effectively marketed than
any products eventually marketed by us.
Glaxo Wellcome plc, Merck & Co.
E. I. Du Pont De Nemours & Co. Agouron Pharmaceuticals, Inc.
Abbott Laboratories, Inc.
Competitive products or the development by others of a cure or new
treatment methods may make our technologies and products and compounds obsolete,
noncompetitive or uneconomical prior to the recovery of development or
commercialization expenses. Many of our competitors have significantly greater
financial, technical and human resources than us and may be better equipped to
develop, manufacture, sell, market and distribute products. In addition, many of
these companies have extensive experience in preclinical testing and clinical
trials, obtaining FDA and other regulatory approvals and manufacturing and
marketing pharmaceutical products. Many of these competitors also have products
that have been approved or are in late-stage development and operate large,
well-funded research and development programs. Smaller companies may also prove
to be significant competitors, particularly through collaborative arrangements
with large pharmaceutical and biotechnology companies. Furthermore, academic
institutions, governmental agencies and other public and private research
organizations are becoming increasingly aware of the commercial value of their
inventions and are more actively seeking to commercialize the technology they
have developed.
9
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 and compounds are successfully developed and approved, we will face
competition based on the safety and effectiveness of the products and compounds,
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 do,
which could have a material adverse effect on our business, financial condition
and results of operations.
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, which includes the establishment
of the safety and effectiveness of each product candidate and compound for each
target indication and confirmation by the FDA that good laboratory, clinical and
manufacturing practices were maintained during testing and manufacturing,
typically takes a number of years, varying based 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 or compound for approval by the
FDA or any other regulatory authority for commercialization, and our product
candidates or compounds 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: (i) preclinical studies; (ii) the submission to the FDA
of a request for authorization to conduct clinical trials on an investigational
drug (an "IND"); (iii) adequate and well-controlled clinical trials to establish
the safety and efficacy of the drug for its intended use; (iv) submission to the
FDA of an New Drug Application (an "NDA"); and (v) review and approval of the
NDA by the FDA before the drug may be shipped or sold commercially.
In the United States, preclinical testing includes both IN VITRO and IN
VIVO 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, which involve the administration of the investigational
drug to healthy volunteers or to patients under the supervision of a qualified
principal investigator, are typically 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 (adverse effects), 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 physician labeling. 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.
10
Our product candidates or compounds 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 and compounds to the
satisfaction of the FDA or foreign regulatory authorities, we will be unable to
commercialize our product candidates and compounds; and our business, financial
condition and results of operations would be materially and adversely affected.
Even if regulatory approval of a product candidate or compound is obtained, the
approval may limit the indicated uses for which the product candidate or
compound may be marketed.
Both we and our existing and 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, used in connection with our product development programs. Compliance
with such laws, regulations and requirements may be costly and time-consuming
and the failure to maintain such compliance by us or our existing and future
collaborative partners could have a material adverse effect on our business,
financial condition and results of operations.
THIRD PARTY REIMBURSEMENT AND HEALTH CARE REFORM MEASURES
In the United States and elsewhere, sales of prescription pharmaceuticals
are dependent, in part, on the availability of reimbursement to the consumer
from third-party payors, such as government agencies and private insurance
plans. Third-party payors are increasingly challenging the prices charged for
medical products and services in an effort to promote cost containment measures
and alternative health care delivery systems and they may mandate predetermined
discounts from list prices. If we succeed in bringing one or more products or
compounds to the market, these products or compounds may not be considered
cost-effective and reimbursement to the consumer may not be sufficient to allow
us to sell its products or compounds on a competitive basis. Because of the high
cost of the treatment of AIDS or HIV using combination therapy, many state
legislatures are reassessing reimbursement policies for such therapy. In
addition, an increasing emphasis on managed care in the United States to reduce
the overall costs of health care has increased, and will continue to increase
the pressure on pharmaceutical pricing. We cannot predict whether legislative or
regulatory proposals will be adopted or the effect such proposals or managed
care efforts may have on our business, but the announcement and/or adoption of
such proposals or efforts could have a material adverse effect on our business,
financial condition and results of operations.
HUMAN RESOURCES
As of December 31, 1998, we had 56 full-time employees, including a
technical scientific staff of 41. None of our employees are covered by
collective bargaining arrangements, and management considers relations with its
employees to be good.
SCIENTIFIC ADVISORY BOARD
We have assembled a Scientific Advisory Board (the "SAB") comprised of
individuals (the "Scientific Advisors") who are leaders in the fields of viral
disease research and treatment.
Members of the SAB review our research, development and operating
activities and are available for consultation with management and staff relating
to their respective areas of expertise. The SAB holds regular meetings. Several
of the 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 the
Scientific Advisors own our common stock and/or hold options to purchase our
common stock. The Scientific Advisors are expected to devote only a small
portion of their time to our business.
11
The 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 the Scientific Advisor while performing
services under this letter agreement will be assigned to us. The current members
of the SAB are as follows:
ROBERT C. GALLO, M.D. Professor and Director, Institute of Human Virology --
University of Maryland Biotechnology Institute.
ERIC HUNTER, PH.D. Professor of Microbiology, Director, Center for AIDS Research
- -- The University of Alabama at Birmingham.
THOMAS J. MATTHEWS, PH.D. Associate Professor of Experimental Surgery -- Duke
University.
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.
RISK FACTORS
This Form 10-K contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in the forward-looking statements as a result of certain factors, including the
risks described below and elsewhere in this Form 10-K.
WE ARE A EARLY STAGE COMPANY WITH A HISTORY OF LOSSES AND AN UNCERTAIN
FUTURE.
We formed our company and began operations in January 1993. There are many
business risks associated with a biopharmaceutical company such as ours in the
early stage of development. For example, we may not be able to obtain sufficient
financial, personnel and other resources to continue to develop our product
candidates. We also may not be successful in discovering or developing any
product candidates or compounds that ultimately achieve regulatory approval or
have commercial viability.
None of our product candidates have been approved by any regulatory
authorities, and we will have to invest significant additional time and funds in
research and development and extensive clinical trials before we can submit our
product candidates for regulatory approval. We do not expect any of our product
candidates to be available commercially before 2001 at the earliest. We cannot
assure you that any of our product candidates or compounds will ever be
commercially available.
We have incurred losses since our beginning. As of December 31, 1998, our
accumulated deficit was approximately $48.4 million. Since inception we have
spent our funds on our product development efforts, primarily the development of
T-20.
We expect that we will incur substantial losses for the foreseeable
future. We also expect our losses to increase as we expand our research and
development, preclinical testing and clinical trial efforts.
12
Our operating expenses are likely to fluctuate over time, due to a
number of factors, many of which are outside of our control. Some of these
factors include:
o the status of our research and development activities,
o the progress of our product candidates through preclinical testing
and clinical trials,
o the timing of regulatory actions,
o our ability to establish manufacturing, sales, marketing and
distribution capabilities, either internally or through
relationships with third parties,
o technological and other changes in the competitive landscape,
o changes in our existing or future research and development
relationships and strategic alliances, and
o the commercial viability of our product candidates.
As a result, we believe that comparing financial results for one period
against another period are not necessarily meaningful, and you should not rely
on our results of operations in prior periods as a predictor of our future
performance. Also, if our results of operations for a period deviate from the
levels expected by securities analysts and investors, this could have a material
adverse effect on the market price of our stock.
We have not yet generated any revenues from product sales or royalties.
We cannot assure you that we will ever be able to generate any such revenues or
royalties or that we will ever be profitable.
THE SUCCESS OF OUR BUSINESS DEPENDS ON THE SUCCESS OF T-20.
T-20 is our lead product candidate and our only candidate that has been
tested in humans. Our success will depend, to a great degree, on the success of
T-20. In particular, we must be able to:
o establish the safety and effectiveness of T-20 in humans,
o obtain regulatory approvals so that we can commercialize T-20,
o establish relationships for the commercial-scale production of T-20
at an acceptable cost and with the appropriate quality, and
o successfully market T-20 and achieve market acceptance of T-20 by
the medical community, including health care providers and
third-party payors.
If we or our collaborative partners fail to successfully develop and
commercialize T-20, this failure will have a material adverse effect on our
business, financial condition and results of operations.
WE WILL NEED TO RAISE FUNDS IN THE NEAR FUTURE.
Based on our current plan, we anticipate that our existing capital
resources, together with the interest earned thereon, will not be adequate to
fund our capital requirements through 1999, and we will need additional
financing. In the event this financing is not obtained, we will be required to
delay, scale-back or eliminate certain preclinical testing, clinical trials and
research and development programs, in order to provide sufficient liquidity
through the first quarter of 2000.
We may raise these additional funds through equity or debt financings. If
we raise funds by selling equity, our stockholders may be diluted. Any debt
financings may contain terms that restrict our ability to pursue certain courses
of action. Additionally or alternatively, we may have to attempt to obtain funds
through arrangements with collaborative partners. These partners may require us
to relinquish rights to certain of our technologies or product candidates or
compounds. If this occurs, it could have a material adverse effect on our
business, financial condition and results of operations.
We cannot assure you that we will be able to obtain adequate funds in the
future or that we will be able to obtain the funds on acceptable terms. If
adequate funds are not available, we will be required to delay, scale-back or
eliminate certain aspects of our preclinical testing, clinical trials and
research and development programs.
13
HUMAN CLINICAL TRIAL RESULTS AND CLINICAL TRIAL STRATEGY ARE UNCERTAIN AND
WE ARE DEPENDENT ON THIRD PARTIES FOR PERFORMANCE OF OUR CLINICAL TRIALS.
In order to obtain the regulatory approvals that we need to sell
commercially any of our product candidates or compounds, we must demonstrate
that each product candidate or compound is safe and effective for use in humans
for each target indication. We attempt to demonstrate this through preclinical
testing and clinical trials for each product candidate or compound. This is a
very complex and lengthy process. To date, we have conducted initial preclinical
testing of certain of our product candidates and a Phase I/II clinical trial of
T-20 that enrolled 16 patients. We have recently completed TRI-003, a T-20 Phase
II clinical trial involving 78 patients for which we just announced preliminary
results. We expect that the complete data from TRI-003 plus data from additional
Phase II trials will form the basis for a pivotal clinical trial of T-20 to
begin in late 1999.
Because we have enrolled 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. We may not be able to demonstrate that potential
product candidates or compounds that appeared promising in preclinical testing
and early clinical trials are 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. Regulatory authorities may
require us to conduct additional clinical trials either before or after we
obtain the approval.
We may redesign or delay our preclinical testing and clinical trials, for
some or all of the following reasons:
o We may receive unanticipated, adverse or ambiguous results from our
preclinical testing or clinical trials.
o We may discover undesirable side effects which delay or extend the
trials.
o We may be unable to locate, recruit and qualify a sufficient number
of patients for our trials.
o We may not be able to manufacture sufficient quantities of the
particular product candidate or any other components needed for our
preclinical testing or clinical trials.
o We may encounter regulatory delays or other regulatory actions.
o We or our collaborators may change the focus of our development
efforts.
o Our competitors may disclose clinical trial results that force us to
reevaluate our own clinical trials.
We have engaged, and intend to continue to engage, third-party contract
research organizations to perform certain functions for us related to the
development of our product candidates and compounds. We intend to design our
clinical trials but to have these contract research organizations actually
conduct the clinical trials. We will therefore be relying on these contract
research organizations to perform many important aspects of our clinical trials.
The failure by the contract research organizations to perform our clinical
trials satisfactorily or their breach of their obligations to us could delay or
prevent the commercialization of any of our product candidates or compounds. If
this occurred, it would have a material adverse effect on our business,
financial condition and results of operations.
Accordingly, we cannot assure you that our preclinical testing or clinical
trials will begin or be completed on the dates we estimate for them. Any delays
in our testing and trials could delay regulatory approval for or
commercialization of our product candidates. These delays could increase our
operating expenses, cause us to need additional capital, divert management's
time and attention, or create adverse market perception about us and our product
candidates. If any of these things happened, it could have a material adverse
effect on our business, financial condition and results of operations.
14
OUR BUSINESS IS BASED ON NOVEL TECHNOLOGY.
Our product development programs are based on novel technology. Our
technology platform is designed to discover product candidates and compounds
which treat viral infection by inhibiting viral fusion, or attacking the virus
before it enters the cell. We are not aware of any other approved antiviral
pharmaceutical products which target the inhibition of viral fusion.
Accordingly, developing products that use this novel mechanism of action is
highly risky and uncertain, and we could encounter unanticipated developments,
clinical or regulatory delays, unexpected adverse side effects or inadequate
therapeutic effectiveness, any of which could slow or suspend our product
development efforts. If any of these unanticipated results occurred, it could
have a material adverse effect on our business, financial condition and results
of operations.
We cannot assure you that we will be able to use our novel technology
platform to discover and successfully develop any commercially viable products.
We also cannot assure you that we will be able to complete our research or
product development efforts for any particular product candidate or compound, or
that any of the product candidates or compounds we develop will prove to be safe
and effective. We may not be able to obtain the required regulatory approvals
for those products. Our development programs are subject to the risks inherent
in the development of new products using new technologies and approaches. We may
encounter unforeseen problems with these technologies or applications and
technological challenges in our research and development programs that we are
not able to resolve.
WE HAVE NO EXPERIENCE MANUFACTURING PHARMACEUTICAL PRODUCTS.
The manufacture of peptides requires significant expertise and capital
investment. We have no experience in manufacturing pharmaceuticals, no
commercial manufacturing capacity and limited experience in manufacturing
process development. As a result, we have elected to work with third-party
contract manufacturers to supply quantities of T-20 to be used in currently
planned clinical trials. We expect to rely on third-party manufacturers
throughout the clinical and initial commercialization phases of T-20
development. Our dependence on third parties for the manufacture of products and
product candidates could adversely affect our profit margins and our ability to
commercialize T-20.
Trimeris and its third-party manufacturers have manufactured sufficient
quantities of T-20 using solid-phase sequential peptide synthesis and fragment
peptide synthesis to complete preclinical testing and the Phase II clinical
trial. We are currently attempting to develop a novel manufacturing process for
T-20 which could be more cost-effective than currently available methods of
production. T-20 was manufactured using this process during 1998. This process
may be more costly than current methods or the process may not be capable of
producing commercial quantities of T-20 under the FDA's current good
manufacturing practices requirements ("GMP"). Currently available peptide
manufacturing processes are expensive, which could limit our ability to
commercialize T-20 on a profitable basis, if at all.
Commercial production of T-20 will require raw materials in amounts
substantially greater than those being used in the current manufacturing
campaigns. We may not be able to obtain these materials in sufficient quantities
or on a cost-effective basis to support the commercial manufacture of T-20.
WE HAVE NO SALES, MARKETING OR DISTRIBUTION CAPABILITIES.
We have no experience in sales, marketing or distribution of
pharmaceuticals and currently have no personnel employed in any such capacities.
We may develop such capability in certain areas. We may rely on marketing
partners or other arrangements with third parties which have established
distribution systems and direct sales forces for the sales, marketing, and
distribution of products and compounds. In the event that we are unable to reach
agreement with one or more marketing partners we may be required to develop
internal sales, marketing and distribution capabilities. We may not be able to
establish cost-effective sales, marketing or distribution capabilities or make
arrangements with third parties to perform such activities on acceptable terms,
if at all. If we are unable to do this, it would have a material adverse effect
on our business, financial condition and results of operations.
15
If we establish sales, marketing or distribution arrangements with other
parties, they may have significant control over important aspects of the
commercialization of our products and compounds including market identification,
marketing methods, pricing, composition of sales force and promotional
activities. We may not be able to control the amount or timing of resources that
any other third party may devote to our products or compounds.
OUR STOCK PRICE IS VOLATILE.
Our stock price has fluctuated substantially since our initial public
offering was completed in October 1997. The market price of our common stock,
like that of the securities of many other biotechnology and pharmaceutical
companies, is likely to be highly volatile.
In addition, the stock market has from time to time experienced extreme
price and volume fluctuations that may be unrelated to the operating performance
of particular companies. In addition, in the past, class action lawsuits have
often been instituted against biotechnology and pharmaceutical companies
following periods of volatility in the market price of such companies' stock. If
litigation were instituted against us on this basis, it could result in
substantial costs and would divert management's attention and resources. This
would have a material adverse effect on our business, financial condition and
results of operations.
In addition, if any of the risks described elsewhere in these "Risk
Factors" becomes a reality, it could have a dramatic and adverse impact on the
market price of our common stock.
WE MAY DEPEND ON COLLABORATIONS AND LICENSES WITH OTHERS.
We have entered into license and other agreements and may enter into
additional agreements with partners or collaborators to assist us in:
o seeking regulatory approval for our product candidates and
compounds, and
o developing, manufacturing and commercializing some of our product
candidates and compounds.
Accordingly, our success will depend, in part, upon our partners' success
in performing preclinical testing and clinical trials, obtaining the requisite
regulatory approvals, scaling up manufacturing, successfully commercializing the
product candidates or compounds we license to them and otherwise performing
their obligations.
Our reliance on partners and collaborators exposes us to a number of
risks, including the following:
o We may not be able to maintain our existing arrangements or enter
into arrangements in the future on terms that are acceptable to us.
o These collaborative arrangements may not be successful.
o Our partners may not perform their obligations under our agreements
with them.
o Our potential collaborators may compete with us by seeking
alternative means of developing therapeutics for the diseases we
have targeted.
o Our collaborative arrangements may not lead to the development of
product candidates or compounds that have any commercial potential.
o We may not be able to obtain proprietary rights, or licenses for the
proprietary rights, for any technology or product candidates or
compounds developed through these arrangements.
o We may not be able to protect the confidentiality or prevent the
disclosure of any proprietary rights and information developed in
our collaborative arrangements.
16
We currently have an exclusive, worldwide license from Duke University
which gives us rights to existing and some future technologies in the field of
antiviral therapeutics developed by several researchers at Duke University. The
license is for the life of each patent filed in connection with these
technologies. Unless the Duke License is renewed, we will not be entitled to any
additional technologies developed after 2000 or after any earlier termination of
the license agreement. If we fail to develop the technologies licensed to us,
the agreement may be terminated early. If the agreement is terminated early or
if we are unable to renew the agreement on terms that are acceptable to us, our
business, financial condition and results of operations could be adversely
affected.
In the future we may find that we need additional licenses from these or
other parties to effectively develop potential product candidates and compounds.
We cannot assure you that we will be able to maintain our existing license
agreements or that we can obtain additional licenses on acceptable terms. We
also cannot assure you that the patents underlying such licenses, if any, will
be valid and enforceable, or that the proprietary nature of the patented
technology underlying these licenses will remain proprietary.
THERE IS UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT AND HEALTH CARE
REFORM MEASURES WHICH COULD LIMIT THE AMOUNT WE CHARGE FOR OUR PRODUCTS.
In the United States and elsewhere, sales of prescription drugs are
dependent, in part, on the consumer's ability to be reimbursed for the cost of
the drugs by third-party payors, such as government agencies and private
insurance plans. Third-party payors are increasingly challenging the prices
charged for medical products and services in an effort to promote cost
containment measures and alternative health care delivery systems. We cannot
assure you that will be reimbursed any products we may commercialize at a level
that will allow us or our potential collaborative partners to sell our products
or compounds on a competitive basis.
Economic, political and regulatory influences, including the efforts of
governments and third-party payors to contain or reduce the cost of health care
through various means, will continue to affect the business and financial
condition of pharmaceutical companies. A number of legislative and regulatory
proposals aimed at changing the health care system have been proposed in recent
years. Because of the high cost of the treatment of AIDS or HIV using
combination therapy, many state legislatures are reassessing reimbursement
policies for such therapy. In addition, an increasing emphasis on managed care
in the United States to reduce the overall costs of health care has and will
continue to increase the pressure on pharmaceutical pricing. We cannot predict
whether legislative or regulatory proposals will be adopted or the effect that
those proposals or managed care efforts may have, but there is a risk that the
announcement and/or adoption of these types of proposals or efforts could have a
material adverse effect on our business, financial condition and results of
operations.
THERE IS UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS.
Our success will depend, in part, on our or our collaborators' ability to
obtain protection for our products and technologies under United States and
foreign patent laws. Our success will also depend on our ability to preserve our
trade secrets and to operate without infringing the proprietary rights of any
third parties.
Because it takes so long and costs so much to develop new products and
bring them to the marketplace, the pharmaceutical and biotechnology industries
place considerable importance on obtaining and maintaining patent and trade
secret protection for new technologies, products and processes. We have obtained
rights to certain patents and patent applications and may, in the future, seek
rights from third parties to additional patents and patent applications. Legal
standards relating to the scope of claims and the validity of patents in the
biopharmaceutical industry are uncertain and still evolving. Consequently, we
cannot assure you whether or how much protection will be afforded to any of our
patents or patents that we license. There is also the risk that third parties
may successfully challenge our patents in court. Furthermore, it is possible
that our activities may be found to infringe patents owned by others.
17
Defending and prosecuting patent matters can be expensive and
time-consuming and, regardless of whether we are successful in these matters, a
substantial amount of our financial, management and other resources will be
required. If we are not successful, we could incur significant liability to
third parties. We may also have to attempt to acquire licenses from third
parties or we may be required to cease any related research and development
activities and product sales. We cannot assure you that in that case we would be
able to obtain the licenses we need or that we could negotiate the licenses on
terms acceptable to us.
Another risk we face in this area is that the laws of certain countries
may not protect our proprietary rights to the same extent as United States law.
We also rely in our business on trade secrets, know-how and other
proprietary information. We seek to protect this information, in part, through
the use of confidentiality agreements with employees, consultants, advisors and
others. Nonetheless, we cannot assure you that those agreements will provide
adequate protection for our trade secrets, know-how or other proprietary
information and prevent their unauthorized use or disclosure. There is also the
risk that our employees, consultants, advisors or others will not maintain the
confidentiality of such trade secrets or proprietary information, or that this
information may become known in some other way or be independently developed by
our competitors.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION; OUR PRODUCTS MAY NOT
RECEIVE REGULATORY APPROVAL.
Human pharmaceutical products must undergo lengthy and rigorous
preclinical testing and clinical trials and other extensive, costly and
time-consuming procedures mandated by the FDA and foreign regulatory
authorities. To have a product candidate approved, we must establish that the
product candidate is safe and effective for each target indication. The FDA must
confirm that we and our clinical testing and manufacturing partners maintained
good laboratory, clinical and manufacturing practices. The regulatory approval
process typically takes a number of years, varying based upon the type,
complexity and novelty of the pharmaceutical product. Because of the
considerable time and expense required, this process gives larger companies with
greater financial resources a competitive advantage over us.
To date, none of our product candidates or compounds has been submitted
for approval by the FDA or any other regulatory authority for commercialization
and we cannot assure you that any of our products will ever by approved. T-20
has received fast track designation from the FDA for the treatment of HIV
infected individuals. Fast track designation is granted to products that may
provide a significant improvement in the safety or effectiveness of the
treatment for a serious or life-threatening disease, and this designation is
intended to expedite the review of these drugs. However, this fast track
designation does not mean that T-20 will be approved for commercialization by
the FDA in the future.
Our estimates of future regulatory submission dates may also prove to be
inaccurate. Our regulatory submissions can be delayed or we may cancel plans to
submit proposed products for a number of reasons, including:
o unanticipated preclinical testing or clinical trial reports,
o changes in regulations, or the adoption of new regulations,
o unanticipated enforcement of existing regulations,
o unexpected technological developments, and
o developments by our competitors.
Consequently, we cannot assure you that our anticipated submissions will
be made on their target dates, or at all. If there are substantial delays in
these submissions, it could have a material adverse effect on our business,
financial condition and results of operations.
18
A number of federal, state and local laws regulate safe working
conditions, laboratory and manufacturing practices, the experimental use of
animals and the use and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious disease agents. We
must comply with these laws. We use some of these hazardous substances in our
product development programs. It is expensive and time-consuming to comply with
these laws. If we fail to comply, it could have a material adverse effect on our
business, financial condition and results of operations.
WE FACE INTENSE COMPETITION.
We are engaged in segments of the biopharmaceutical industry, including
the treatment of HIV, that are intensely competitive and rapidly changing. We
expect that new developments in the areas in which we are conducting our
research and development will continue at a rapid pace in both industry and
academia.
If we successfully develop our product candidates and gain approval for
those products, they will compete with numerous existing therapies. For example,
at least 13 drugs are currently approved for the treatment of HIV. In addition,
a number of companies are developing novel drugs that target the same diseases
that we are targeting. Some companies, including several multinational
pharmaceutical companies, are simultaneously marketing several different drugs
and may therefore be able to market their own combination drug therapies.
We also believe that a significant number of drugs are currently under
development and will become available in the future for the treatment of HIV. We
expect to face intense and increasing competition in the future as these new
products enter the market and advanced technologies become available. Even if we
are able to successfully develop T-20 and it receives regulatory approval, we
cannot assure you that existing or new products for the treatment of HIV
developed by our competitors who have substantially more resources than us,
including Glaxo Wellcome plc, Merck & Co., Inc., Agouron Pharmaceuticals Inc.,
E.I. Dupont De Nemours & Co. and Abbott Laboratories, Inc., will not be more
effective, or more effectively marketed and sold, than T-20 or any other
therapeutic for HIV that we may develop.
Our competition will not only come from these larger companies, however.
Smaller companies may also prove to be significant competitors, particularly
through collaborative arrangements with large pharmaceutical and biotechnology
companies. Furthermore, academic institutions, governmental agencies and other
public and private research organizations are becoming increasingly aware of the
value of their inventions and are more actively seeking to commercialize the
technology they have developed.
Several factors will help determine whether we will be able to compete
successfully in our market, including the following:
o the safety and effectiveness of our products and compounds
o the speed with which we can gain regulatory approval for our
products and the scope of those approvals
o our ability to manufacture, sell, market and distribute our
products, or to find someone else to handle these functions for us
in a timely and cost efficient manner
o the availability of reimbursement coverage for our products
o whether we are able to offer our products at a competitive price
o the strength of our patents and the speed with which we can obtain
patents on our products and technologies
We cannot assure you that our competitors will not surpass us in some or
all of these areas. If this happens, it could have a material adverse effect on
our business, financial condition and results of operations.
19
WE USE HAZARDOUS MATERIALS.
We use hazardous materials, chemicals, viruses and various radioactive
compounds, including Class IV type hazardous materials, in our product
development programs. We believe that our handling and disposing of such
materials comply with the standards prescribed by state and federal regulations,
but we cannot completely eliminate the risk of accidental contamination or
injury from these materials. If there were such an accident or injury, we could
be held liable for any damages or penalized with fines. The amount of any such
liability and fines could exceed our resources. Additionally, if we develop
internal manufacturing capability, we may incur substantial additional costs to
comply with environmental regulations.
WE ARE EXPOSED TO PRODUCT LIABILITY RISKS.
Our business exposes us to potential product liability risks that are
inherent in the testing, manufacturing and marketing of pharmaceutical products.
We cannot assure you that product liability claims will not be asserted against
us. In addition, the use in our clinical trials of pharmaceutical products that
our potential collaborators may develop and the subsequent sale of such products
by us or our potential collaborators may cause us to bear a portion of product
liability risks. A successful product liability claim or series of claims
brought against us could have a material adverse effect on our business,
financial condition and results of operations.
We do not currently have any product liability insurance relating to
clinical trials or any products or compounds we may develop. We cannot assure
you that we will be able to obtain or maintain adequate product liability
insurance on acceptable terms, if at all, or that such insurance will provide
adequate coverage against our potential liabilities. Furthermore, our
collaborators or licensees may not be willing to indemnify us against these
types of liabilities and may not themselves be sufficiently insured or have a
net worth sufficient to satisfy any product liability claims. Claims or losses
in excess of any product liability insurance coverage that may be obtained by us
could have a material adverse effect on our business, financial condition and
results of operations.
WE CANNOT BE CERTAIN OF OUR ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL.
We depend on members of our management and scientific staffs for our
success. The future recruitment and retention of qualified scientific personnel
to perform research and development work is also critical to our success. We
cannot be certain that we will attract and retain qualified personnel on
acceptable terms given the competition among biotechnology, pharmaceutical and
health care companies, universities and non-profit research institutions for
experienced scientists. In addition, we rely on scientific advisors and other
consultants to assist us in formulating our research and development strategy.
These consultants are employed by other parties and may have commitments to, or
advisory or consulting agreements with, other entities, which may limit their
availability to us.
WE HAVE IMPLEMENTED CERTAIN ANTI-TAKEOVER PROVISIONS.
Certain provisions of our Certificate of Incorporation and Bylaws and
Delaware law could make it more difficult for a third party to acquire us, even
if the acquisition would be beneficial to our stockholders.
20
WE DO NOT PLAN TO PAY DIVIDENDS.
We have not paid cash dividends on our common stock since inception and do
not anticipate paying cash dividends in the foreseeable future.
WE MAY BE ADVERSELY AFFECTED BY YEAR 2000.
We recognize the importance of ensuring that our computer and business
systems will not be adversely affected by Year 2000 issues. The Year 2000
problem results from the fact that many computer programs use only two digits to
identify a year in the date field. We have adopted a Year 2000 compliance plan
and formed a team assigned to the task of identifying and resolving any Year
2000 issues that may affect our business. The plan includes identifying all
critical applications, including vendors and suppliers, assessing their
compliance with Year 2000 issues, and developing contingency plans for any
non-compliant critical applications.
We expect to have completed our review and assessment of all critical
systems and applications by mid-1999. To date, we have not identified any
critical applications or vendors that are Year 2000 non-compliant. Our most
significant Year 2000 risk is that the systems of other parties on which we
rely, specifically our key suppliers, will not be compliant on a timely basis.
We believe that, based on currently available information, the cost to convert
any non-compliant critical applications will not be material and will not have a
material adverse effect on our results of operations or financial condition.
However, we may encounter some unexpected costs or encounter delays during the
completion of our Year 2000 plan. Such costs or delays could have an adverse
effect on our future results of operations.
ITEM 2. PROPERTIES
We currently lease approximately 21,000 square feet of laboratory and
office space at 4727 University Drive, Suite 100, Durham, North Carolina. We
lease this space under a sublease agreement that expires on September 30, 1999.
We are currently negotiating the extension of this lease and a lease on
additional office space. 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 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 1998.
21
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 26, 1999 we believe we
had approximately 188 shareholders of record, and believe we had approximately
600 beneficial shareholders. The following table sets forth the high and low bid
prices for our Common Stock for 1997 and 1998. Such quotations reflect
inter-dealer prices without mark-up, mark-down or commissions and may not
necessarily represent actual transactions.
YEAR ENDED DECEMBER 31,
1997 1998
HIGH LOW HIGH LOW
------- -------- ------- ------
1st Quarter.................... * * $13.88 $7.00
2nd Quarter.................... * * $9.88 $5.38
3rd Quarter.................... * * $7.19 $3.88
4th Quarter.................... $16.88 $11.88 $11.25 $3.50
* Our Common Stock began trading on October 7, 1997.
For the 1st Quarter of 1999 through March 29, 1999, the high bid was
$27.69 and the low bid was $11.13.
USE OF PROCEEDS:
The effective date of our Registration Statement on Form S-1, registering
2,875,000 shares of Common Stock of the Company, was October 6, 1997. A
subsequent registration statement on Form S-1, SEC File No. 333-37319, filed
pursuant to Rule 462(b) promulgated under the Securities Act and registering
287,500 additional shares of Common Stock, was filed and became effective on
October 7, 1997.
The date of the commencement of the offering of such registered shares was
October 7, 1997, and the offering terminated on November 12, 1997, upon the
closing of the underwriters' exercise of their over-allotment option with
respect to 412,500 of the registered shares. The managing underwriters in the
offering were UBS Securities LLC and NationsBanc Montgomery Securities, Inc.
Information concerning the registered shares as of the date of this report
is set forth below:
TITLE OF SECURITY: COMMON STOCK
Amount Registered:......................................... 3,162,500
Aggregate Price of the Offering Amount Registered:........ $ 37,950,000
Amount Sold:............................................... 3,162,500
Aggregate Offering Price of Amount Sold:................... $ 37,950,000
22
Actual expenses incurred to date by the Company in connection with the issuance
and distribution of the registered shares are as follows:
Underwriting Discounts and Commissions:...................... $ 2,656,500
Finders' Fee:................................................ --
Expenses Paid To or For Underwriters:........................ --
Other Expenses:.............................................. 761,500
--------------
Total:....................................................... $ 3,418,000
==============
All of the expenses listed above were direct or indirect payments to others and
not payments to directors, officers, affiliates or 10% stockholders of the
Company. The amount of net offering proceeds to the Company after the total
expenses listed above is approximately $34,532,000.
A reasonable estimate of the amount of the net offering proceeds used by the
Company from the effective date of the Registration Statement on Form S-1 to the
date of this report for each of the purposes listed below is as follows:
Construction of Plant, Building and Facilities:................ $ -
Purchase and Installation of Machinery and Equipment......... $ -
Purchase of Real Estate:....................................... $ -
Acquisition of Other Businesses:.............................. $ -
Repayment of Indebtedness:..................................... $ -
Working Capital:............................................... $14,356,000
Temporary Investments:......................................... $ -
Short Term:.................................................... $20,176,000
Long Term:..................................................... $ -
Other (specify):............................................... $ -
Other Purposes for which at least 5% of the Total Proceeds
(or $100,000, whichever is less) Has Been Used.............. $ -
All of the above-referenced payments were direct or indirect payments to
others and not payments to directors, officers, affiliates or 10% stockholders
of the Company. The use of proceeds listed above does not represent a material
change in the use of proceeds described in the Company's Prospectus filed as a
part of the Registration Statement on Form S-1.
23
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL 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,
1994 1995 1996 1997 1998 1998
--------- -------- ------- ---------- --------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
C>
STATEMENTS OF OPERATIONS
DATA:
Revenue $ - $ 104 $ 55 $ 431 $ 363 $ 953
--------- -------- -------- --------- --------- ---------
Operating expense:
Research and development 2,747 4,012 5,146 9,734 16,421 38,751
expenses........
General and administrative 947 1,520 1,761 2,596 4,572 12,028
expenses........ --------- -------- -------- --------- --------- ---------
Total operating expenses.... 3,694 5,532 6,907 12,330 20,993 50,779
--------- -------- -------- --------- --------- ---------
Operating loss..... (3,694) (5,428) (6,852) (11,899) (20,630) (49,826)
--------- -------- -------- --------- --------- ---------
Interest income.... 8 49 47 584 1,755 2,461
Interest expense... (258) (360) (167) (113) (127) (1,030)
--------- -------- -------- --------- --------- ---------
Total other income expense) (250) (311) (120) 471 1,628 1,431
--------- -------- -------- --------- --------- ---------
Net loss........... $ (3,944) $ (5,739) $ (6,972) $(11,428) $(19,002) $(48,395)
========= ======== ======== ========= ========= =========
Basic net loss per share (1) $ (1.48) $ (1.55) $ (1.78)
======== ========= ========
Weighted average shares used
in computing basic net 4,705 7,395 10,647
loss per share (1). ========= ========= =========
(1)Computed on the basis described in Note 1 to Financial Statements.
24
AS OF DECEMBER 31,
----------------------------------------------------------
1994 1995 1996 1997 1998
------- --------- --------- --------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.. $ 277 $ 1,343 $ 132 $ 32,557 $ 16,920
Working capital (deficiency) (4,067) 322 (1,305) 34,733 16,562
Total assets............... 1,873 3,058 1,684 38,844 22,872
Long-term notes payable and
capital 751 703 575 240 853
lease obligations, less
current portion............
Accumulated deficit........ (5,254) (10,994) (17,965) (29,393) (48,395)
Total stockholders' equity (3,236) 1,324 (409) 35,810 18,016
(deficit)..................
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
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 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 FORM 10-K. MANY OF THESE FACTORS
ARE BEYOND OUR CONTROL AND ANY OF THESE AND OTHER FACTORS COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS MADE IN THIS
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 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
FORM 10-K.
OVERVIEW
Trimeris commenced operations in January 1993, has a limited operating
history and is a development stage company. Since our inception, substantially
all of our resources have been dedicated to the development, patenting,
preclinical testing and clinical trials of T-20, the development of a
manufacturing process for T-20, production of drug material for future clinical
trials, and research and development and preclinical testing of other potential
product candidates and compounds. We have lost money since inception and, as of
December 31, 1998, had an accumulated deficit of approximately $48.4 million. We
have only received revenue from SBIR grants and an investigative contract 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 and compound 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 establish,
internally or through relationships with third parties, manufacturing, sales,
marketing and distribution capabilities, 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 upon
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, upon our own or our collaborative
partners' ability to successfully develop and obtain regulatory approval for
T-20 and other product candidates and compounds, 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.
25
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
REVENUE. Total revenue was approximately $55,000, $431,000 and $363,000
for 1996, 1997 and 1998, respectively. Revenue for 1996 and 1998 resulted from
SBIR grants. During 1997, approximately $331,000 was received under SBIR grants,
and $100,000 was received under an investigative contract.
RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses
increased from approximately $5.1 million in 1996 to approximately $9.7 million
in 1997 and increased to approximately $16.4 million in 1998. The increases are
primarily due to initiation of clinical trials for T-20, and increased costs
related to additional personnel to support these trials. During 1996, we began a
Phase I/II clinical trial for T-20 and incurred costs associated with these
clinical trials which continued into 1997. To supply the clinical trials during
1997, we purchased drug material from third party manufacturers, and created an
in-house group dedicated to the development of an improved manufacturing
process. We began a Phase II clinical trial for T-20 during 1998, increased the
number of personnel in our clinical support group, and continued manufacturing
process development and purchase of drug material from third party manufacturers
to supply future clinical trials. Total research personnel were 25, 29 and 41 at
December 31, 1996, 1997 and 1998, respectively. We expect research and
development expenses to increase substantially in the future due to continued
preclinical research and testing of product candidates, expanded clinical trials
for T-20 and other product candidates, the manufacture of drug material for
these trials, and increased number of personnel to support these activities.
GENERAL AND ADMINISTRATIVE EXPENSES. Total general and administrative
expenses increased from approximately $1.8 million in 1996 to approximately $2.6
million in 1997, and increased to approximately $4.6 million in 1998. These
increases are primarily due to increased costs related to additional personnel
to support our product development activities, professional fees incurred in the
patent application process and costs to support our obligations as a publicly
traded company. We expect administrative expenses to increase in the future to
support the expansion of product development activities.
OTHER INCOME (EXPENSE). Other income (expense) consists of interest income
and expense. Total other expense was approximately $120,000 in 1996, primarily
consisting of interest expense on capital leases. Total other income was
approximately $471,000 in 1997 and approximately $1.6 million in 1998. This
resulted from a significant increase in interest income due to investment of
proceeds received in our initial public offering completed in October 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed operations primarily through the private
placement of equity securities, the issuance of notes to stockholders, equipment
lease financing, and an initial public offering in October 1997. Net cash used
by operating activities was approximately $5.8 million, approximately $9.0
million and approximately $16.8 million in 1996, 1997 and 1998, respectively.
The cash used by operating activities was used primarily to fund research and
development of T-20 and other product candidates. Cash provided by financing
activities was approximately $4.8 million and $46.5 million in 1996 and 1997,
respectively. The cash provided by financing activities was primarily from the
sale of equity securities and notes to stockholders.
As of December 31, 1998, we had approximately $20.2 million in cash and
cash equivalents and short-term investments, compared to approximately $37.4
million as of December 31, 1997. The decrease was a result of the use of
approximately $16.8 million by operations.
26
We have experienced negative cash flows from operations since our
inception and do not anticipate generating sufficient positive cash flows to
fund our operations in the foreseeable future. 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 continued clinical trials of T-20, research and development and preclinical
testing of other product candidates and compounds, manufacture of drug material,
and the development of our proprietary technology platform. As of December 31,
1998, we had commitments of approximately $4 million to purchase product
candidate materials and fund various clinical studies, and expect to expend
approximately $1 million in capital expenditures during 1999. These expenditures
may be financed with capital or operating leases, debt or working capital.
Based on our current plan, we expect that existing capital resources,
together with the interest earned thereon, will not be adequate to fund our
capital requirements through 1999. We believe that substantial additional funds
will be required to continue to fund operations and that we will be required to
obtain additional funds through equity or debt financing and/or licenses,
agreements or other arrangements with collaborative partners and others, and/or
from other sources during 1999. The terms of any such equity financings may be
dilutive to stockholders and the terms of any debt financings may contain
restrictive covenants which limit our ability to pursue certain courses of
action. There can be no assurance that such funds will be available to us on
acceptable terms, if at all, or that such financings will be adequate to meet
our future capital requirements. If adequate funds are not available, we will be
required to delay, scale-back or eliminate certain aspects of our preclinical
testing, clinical trials and research and development programs in order to
provide sufficient liquidity through the first quarter of 2000, or attempt to
obtain funds through arrangements with collaborative partners or others that may
require us to relinquish rights to certain of our technologies or product
candidates or compounds, which could have a material adverse effect on our
business, financial condition and results of operations, and the price of our
common stock.
Our future capital requirements and the adequacy of available funds will
depend on many factors, including the results of clinical trials relating to
T-20, the progress and scope of our product development programs, the magnitude
of these programs, the results of preclinical testing and clinical trials, the
need for additional facilities based on the results of these clinical trials and
other product development programs, changes in the focus and direction of our
product development programs, the costs involved in preparing, filing,
processing, maintaining, protecting and enforcing patent claims and other
intellectual property rights, competitive factors and technological advances,
the cost, timing and outcome of regulatory reviews, changes in the requirements
of the FDA, administrative and legal expenses, evaluation of the commercial
viability of potential product candidates and compounds, the establishment of
capacity, either internally or through relationships with third parties, for
manufacturing, sales, marketing and distribution functions and other factors,
many of which are outside of our control.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1998, we had a net operating loss carryforward of
approximately $45.6 million. We have recognized a valuation allowance equal to
the deferred asset represented by this net operating loss carryforward and
therefore recognized no tax benefit. Our ability to utilize these net operating
loss carryforwards may be subject to an annual limitation in future periods
pursuant to the "change in ownership rules" under Section 382 of the Internal
Revenue Code of 1986, as amended. See Note 6 of Notes to Financial Statements.
ACCOUNTING AND OTHER MATTERS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("Statement 130"). Statement 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. The Statement of Operations included in
the financial statements includes all elements of comprehensive income.
27
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("Statement 131"). Statement 131 requires
that public business enterprises report certain information about operating
segments in complete sets of financial statements issued to shareholders. It
also requires that public business enterprises report certain information about
their products and services, the geographic areas in which they operate and
their major customers. We currently operate in one segment in one geographic
area, and have no customers.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits". We currently have no pension
plan or postretirement benefits, therefore this statement has no effect 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 the financial statements of Trimeris and monitors the
status of changes to issued exposure drafts and to proposed effective dates.
YEAR 2000 COMPLIANCE
STATE OF READINESS
We have adopted a Year 2000 compliance plan and formed a team assigned to
the task of identifying and resolving any Year 2000 issues that may affect our
business. Our compliance plan has four phases: inventory, assessment,
remediation and testing. We have completed an inventory of all of our computer
systems, computer related equipment and equipment with embedded processors. We
are currently in the process of assessing those systems. We have completed this
assessment with respect to approximately 80% of our systems and expect to
complete our assessment of the remaining systems by April 1999. Although we
cannot control whether and how third parties will address the Year 2000 issue,
we also are in the process of contacting critical vendors and suppliers to
assess their ability to ensure smooth delivery of products without disruptions
caused by Year 2000 problems. In the course of our assessment, we have not yet
identified any Year 2000 issues that would affect our ability to do business;
however, our assessment is not complete, and there can be no assurance that
there are no Year 2000 issues that may affect us. Once we complete the
assessment phase, we will prioritize and implement necessary repairs or
replacements to equipment and software to achieve Year 2000 compliance. We
expect to complete this phase by mid-1999. The final phase will consist of a
testing program for all repairs. We anticipate that all testing will be
completed by October 1999.
COSTS
We have not prepared estimates of costs to remediate Year 2000 problems;
however, based on currently available information, including the results of our
assessment to date and our replacement schedule for equipment, we do not believe
that the costs associated with Year 2000 compliance will have a material adverse
effect on our business, results of operations or financial condition.
YEAR 2000 RISKS
Although we believe that our Year 2000 compliance plan is adequate to
address Year 2000 concerns, we may experience negative consequences as a result
of undetected defects or the non-compliance of third parties with whom we
interact. Furthermore, there may be a delay in, or increased costs associated
with, the implementation of corrections as the Year 2000 compliance plan is
performed, such as unexpected costs of correcting equipment that has not yet
been fully evaluated. If realized, these risks could result in an adverse effect
on our business, results of operations and financial condition.
28
We believe that our greatest risk stems from the potential non-compliance
of our suppliers. We depend on a limited number of suppliers for certain
materials, components, services, including electrical service, and equipment
necessary to operate our research effort and our clinical trials. Accordingly,
if those suppliers are unable to process or fill our orders, provide us with
services, or otherwise interact with us because of Year 2000 problems, we could
experience material adverse effects to our business. We are in the process of
assessing the Year 2000 status of our suppliers and are investigating
alternative sources of supply.
CONTINGENCIES
We have not yet developed a contingency plan to address what would happen
in the event we are unable to address the Year 2000 issue. The contingency plan
is expected to be completed after the inquiry of vendors and customers is
completed.
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, 1998. All of our investments mature in
eighteen months or less.
Carrying Average
Amount Interest
(thousands) Rate
Cash equivalents - fixed rate $ 16,661 5.60 %
Short-term investments - fixed rate 3,256 6.45 %
Overnight cash investments - fixed rate 427 4.43 %
----------- ----------
Total investment securities $ 20,344 5.71 %
======== ==========
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is included in Item 14 of this Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with the Company's
independent auditors, KPMG LLP.
29
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.
30
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 to be filed by the Company with the Securities and Exchange
Commission within 120 days after the end of the fiscal year.
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, 1997 and 1998....................F-2
Statements of Operations for the Years Ended December 31,
1996, 1997 and 1998 and for the period from Inception
to December 31, 1998............................................. F-3
Statements of Stockholders' Equity (Deficit) for the period
from Inception to December 31, 1995, and for the Years Ended
December 31,1996, 1997 and 1998...................................F-4
Statements of Cash Flows for the Years Ended December 31,
1996, 1997 and 1998 and for the period from Inception
to December 31, 1998..............................................F-5
Notes to Financial Statements.......................................F-6
(a)2. Financial Statement Schedules
All financial statement schedules required under Regulation S-X are
omitted as the required information is not applicable.
(a)3. Exhibits
The Exhibits filed as part of this Form 10-K are listed on the Exhibit
Index immediately preceding such Exhibits and are incorporated by
reference.
(b) Reports on Form 8-K
None.
31
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, 1997 and 1998, and the related
statements of operations, stockholders' equity (deficit), and cash flows for
each of the years in the three-year period ended December 31, 1998 and for the
cumulative period from the date of inception to December 31, 1998. 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 generally accepted auditing
standards. 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 the Company as of December 31,
1997 and 1998, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1998, and for the
cumulative period from the date of inception to December 31, 1998, in conformity
with generally accepted accounting principles.
February 4, 1999 KPMG LLP
Raleigh, North Carolina
F-1
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)
AS OF DECEMBER 31,
--------------------------------
1997 1998
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents........................... $ 32,557 $ 16,920
Short-term investments ............................. 4,863 3,256
Accounts receivable................................. 101 68
Prepaid expenses.................................... 6 321
-------------- --------------
Total current assets................................ 37,527 20,565
-------------- --------------
Property, furniture and equipment, net of accumulated
depreciation of $2,169 and $2,775 at December 31, 1997 756 1,598
and 1998, respectively............................. -------------- --------------
Other assets:
Exclusive license agreement, net of accumulated
amortization of $11 and $14 at December 31, 1997
and 1998, respectively.......................... 30 27
Patent costs, net of accumulated amortization of
$6 and $13 at December 31, 1997 and 1998, respectively 442 534
Equipment deposits............................. 86 147
Other assets, net of accumulated amortization of
$18 and $20 at December 31, 1997 and 1998,
respectively....................................... 3 1
-------------- --------------
Total other assets............................ 561 709
-------------- --------------
Total assets.................................. $ 38,844 $ 22,872
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................... $ 722 $ 1,176
Current installments of obligations under capital leases 259 471
Accrued compensation................................ 608 829
Accrued expenses.................................... 1,205 1,527
-------------- --------------
Total current liabilities...................... 2,794 4,003
Obligations under capital leases, excluding current
installments........................................ 240 853
-------------- --------------
Total liabilities....................................... 3,034 4,856
-------------- --------------
Stockholders' equity (deficit):
Preferred Stock at $0.001 par value per share 10,000
shares authorized; issued and outstanding zero shares
at December 31, 1997 and 1998................... -- --
Common Stock at $0.001 par value per share.
Authorized 30,000 shares; issued and outstanding
10,549 and 10,637 shares at December 31, 1997
and 1998, respectively........................ 11 11
Additional paid-in capital.......................... 67,360 68,406
Deficit accumulated during the development stage.... (29,393) (48,395)
Deferred compensation............................... (1,950) (1,788)
Notes receivable from stockholders.................. (218) (218)
-------------- --------------
Total stockholders' equity................... 35,810 18,016
Commitments and contingencies (notes 2, and 9) -------------- --------------
Total liabilities and stockholders' equity ... $ 38,844 $ 22,872
============== ==============
See accompanying notes to financial statements.
F-2
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CUMULATIVE
FROM
INCEPTION
(JANUARY 7,
FOR THE YEARS ENDED DECEMBER 31, 1993) TO
---------------------------------- DECEMBER 31,
1996 1997 1998 1998
---------- ----------- ----------- --------------
Revenue...................... $ 55 $ 431 $ 363 $ 953
---------- ----------- ----------- --------------
Operating expenses:
Research and development... 5,146 9,734 16,421 38,751
General and administrative. 1,761 2,596 4,572 12,028
---------- ----------- ----------- --------------
Total operating expenses. 6,907 12,330 20,993 50,779
---------- ----------- ----------- --------------
Operating loss............. (6,852) (11,899) (20,630) (49,826)
---------- ----------- ----------- --------------
Other income (expense):
Interest income............ 47 584 1,755 2,461
Interest expense........... (167) (113) (127) (1,030)
---------- ----------- ----------- --------------
(120) 471 1,628 1,431
---------- ----------- ----------- --------------
Net loss................... $ (6,972) $ (11,428) $ (19,002) $(48,395)
========== =========== =========== ==============
Basic net loss per share..... $ (1.48) $ (1.55) $(1.78)
========== =========== ===========
Weighted average shares used
in per share computations.. 4,705 7,395 10,647
========== =========== ===========
See accompanying notes to financial statements.
F-3
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION TO DECEMBER 31, 1995 AND THE YEARS
ENDED DECEMBER 31, 1996 1997
AND 1998
(IN THOUSANDS)
PREFERRED STOCK COMMON STOCK DEFICIT
------------------ ------------------ ACCUMULATED NOTES NET
ADDITIONAL DURING THE RECEIVABLE STOCKHOLDERS
NUMBER OF PAR NUMBER OF PAR PAID-IN DEVELOPMENT DEFERRED FROM EQUITY
SHARES VALUE SHARES VALUE CAPITAL STAGE COMPENSATION STOCKHOLDER (DEFICIT)
------- ------- ------- ------- ------- ------- ------- ------- --------
Balance at January
7, 1993........... -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ --
Issuances of Common -- -- 246 -- 15 -- -- -- 15
Stock.............
Issuances of Series
A Preferred Stock 3,000 3 -- -- 1,997 -- -- -- 2,000
Issuances of Series
B Preferred Stock 20,636 21 -- -- 10,297 -- -- -- 10,318
Stock issuance costs. -- -- -- -- (61) -- -- -- (61)
Common Stock issued
in exchange for
exclusive license. -- -- 96 -- 41 -- -- -- 41
Common Stock issued
in exchange
for consulting
services.......... -- -- 11 -- 4 -- -- -- 4
Loss for the period.. -- -- -- -- -- (10,993) -- -- (10,993)
------- ------- ------- ------- ------- ------- ------- ------- --------
Balance as of
December 31, 1995. 23,636 24 353 -- 12,293 (10,993) -- -- 1,324
Issuances of Common
Stock............. -- -- 84 1 28 -- -- -- 29
Issuances of Series
B Preferred Stock. 6,500 6 -- -- 3,244 -- -- -- 3,250
Issuances of Series
C Preferred Stock. 3,333 3 -- -- 1,997 -- -- -- 2,000
Stock issuance costs. -- -- -- -- (26) -- -- -- (26)
Loss for the period.. -- -- -- -- -- (6,972) -- -- (6,972)
Notes receivable
from stockholders
for the purchase
of shares......... -- -- -- -- -- -- -- (14) (14)
------- ------- ------- ------- ------- ------- ------- ------- --------
Balance as of
December 31, 1996. 33,469 33 437 1 17,536 (17,965) -- (14) (409)
Issuances of Series
C Preferred Stock. 9,984 10 -- -- 5,981 -- -- -- 5,991
Issuances of Series
D Preferred Stock. 9,048 9 -- -- 6,777 -- -- -- 6,786
Issuances of Common
Stock............. -- -- 656 1 255 -- -- (254) 2
Conversion of
Preferred Stock to
Common Stock..... (52,501) (52) 6,262 6 46 -- -- -- --
Issuance of shares
in initial public
offering, net.... -- -- 3,163 3 34,529 -- -- -- 34,532
Exercise of stock
options........... -- -- 32 -- 9 -- -- -- 9
Repayment of notes
receivable from
Stockholders..... -- -- -- -- -- -- -- 50 50
Repurchase of Common
Stock............. -- -- (1) -- -- -- -- -- --
Stock issuance costs. -- -- -- -- (109) -- -- -- (109)
Issuances of Common
Stock and
options at below
market value...... -- -- -- -- 2,336 -- (2,336) -- --
Amortization of
deferred
compensation..... -- -- -- -- -- -- 386 -- 386
Loss for the period.. -- -- -- -- -- (11,428) -- -- (11,428)
------- ------- ------- ------- ------- ------- ------- ------- --------
Balance as of
December 31, 1997. -- -- 10,549 11 67,360 (29,393) (1,950) (218) 35,810
Exercise of stock
options........... -- -- 28 -- 10 -- -- -- 10
Issuance of stock
options to
consultants -- -- -- -- 545 -- (545) -- --
Issuance of stock
for 401(K) match -- -- 20 -- 236 -- -- -- 236
Issuance of stock
under Employee
Stock Purchase
Plan -- -- 40 -- 255 -- -- -- 255
Amortization of
deferred compensation. -- -- -- -- -- -- 707 -- 707
Loss for the period.. -- -- -- -- -- (19,002) -- -- (19,002)
------- ------- ------- ------- ------- ------- ------- ------- --------
Balance as of
December 31, 1998. -- $ -- $ 10,637 $ 11 $ 68,406 $(48,395) $(1,788) $ (218) $ 18,016
======= ======= ======= ======= ======= ======= ======= ======= ========
See accompanying notes to financial statements.
F-4
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
CUMULATIVE FROM
FOR THE YEARS ENDED DECEMBER 31, INCEPTION
-------------------------------------------- (JANUARY 7, 1993) TO
1996 1997 1998 DECEMBER 31, 1998
------------- ---------- ------------- --------------------
Cash flows from operating activities:
Net loss.......................... $ (6,972) $ (11,428) $ (19,002) $ (48,395)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization
of property, furniture and
equipment..................... 690 558 606 2,795
Amortization of deferred
compensation.................. -- 386 707 1,093
Other amortization.............. 9 11 12 49
401 (K) plan stock match -- -- 236 236
Provision for equipment held
for resale.................... -- -- -- 61
Stock issued for consulting -- -- -- 5
services......................
Stock issued to repay interest
on notes to stockholders...... -- -- -- 195
Debt issued for research and
development................... 194 -- -- 194
Loss on disposal of property
and equipment........... -- -- -- 16
Decrease (increase) in assets:
Accounts receivable and loans
to employees.................. (35) (65) 33 (68)
Prepaid expenses................ (36) 39 (315) (321)
Other assets.................... -- (18) (61) (148)
Increase (decrease) in liabilities:
Accounts payable................ 137 467 454 1,176
Accrued compensation............ 329 279 221 829
Accrued expenses................ (145) 771 322 1,437
------------- ----------- ------------- ---------------
Net cash used by operating
activities.................... (5,829) (9,000) (16,787) (40,846)
------------ ---------- ------------- ---------------
Cash flows from investing activities:
Purchase of property, furniture
and equipment (27) (205) (212) (847)
Net sale (purchase) of short-term
investments................... -- (4,863) 1,607 (3,256)
Equipment held for resale....... 7 54 -- (61)
Organizational costs............ -- -- -- (8)
Patent coxts.................... (116) (34) (99) (548)
------------- ---------- ------------- ---------------
Net cash provided (used)
by investing activities..... (136) (5,048) 1,296 (4,720)
------------- ---------- ------------- ---------------
Cash flows from financing activities:
Proceeds (payments) from notes
payable..................... 92 (259) -- 6,150
Lease costs..................... -- -- -- (13)
Principal payments under capital
lease obligations .......... (577) (529) (411) (2,238)
Proceeds from issuance of Common
Stock ...................... 15 2 -- 31
Proceeds from issuance of
Preferred Stock............. 5,250 12,777 -- 23,896
Proceeds from initial public offering,
net. ....................... -- 34,532 -- 34,532
Proceeds from exercise of stock
options...................... -- 9 10 19
Employee stock purchase plan
stock issuance............... -- -- 255 255
Repayment of notes receivable from
stockholders................. -- 50 -- 50
Stock issuance costs............ (26) (109) -- (196)
------------- ---------- ------------- ---------------
Net cash provided (used) by financing
activities................... 4,754 46,473 (146) 62,486
------------- ---------- ------------- ---------------
Net increase (decrease) in cash and
cash equivalents.......... (1,211) 32,425 (15,637) 16,920
Cash and cash equivalents at
beginning of period.............. 1,343 132 32,557 --
------------- ---------- ------------- ---------------
Cash and cash equivalents at end
of period........................ $ 132 $ 32,557 $ 16,920 $ 16,920
============= ========== ============= ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for
interest.......................... $ 154 $ 126 $ 127 $ 944
============= ========== ============= ===============
Supplemental disclosures of noncash investing and financing activities
are described in Note 7.
See accompanying notes to financial statements.
F-5
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Trimeris, Inc. (the "Company") was incorporated on January 7, 1993 to
discover and develop novel therapeutic agents that block viral infection by
inhibiting viral fusion with host cells. The financial statements have been
prepared in accordance with Statement of Financial Accounting Standards No. 7,
"Accounting and Reporting by Development Stage Enterprises," to recognize the
fact that the Company is devoting substantially all of its efforts to
establishing a new business and planned principal operations have not commenced.
Management expects to raise adequate capital to fund its research and
development and administrative expenses. The ability of the Company to raise
these funds is dependent on current and potential investors and corporate
partners. These financial statements do not include any adjustments that might
be necessary if the Company is unable to raise these funds.
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 are
stated at cost and consist primarily of overnight commercial paper, variable
rate demand notes, commercial paper, and short-term debt securities. The
carrying amount of cash and cash equivalents approximates fair value.
SHORT-TERM INVESTMENTS
Short-term investments, which consist of short-term corporate debt
securities, are reported at fair value, and are classified as available-for-sale
securities. The cost of securities sold is determined using the specific
identification method when computing realized gains and losses. Fair value is
determined using available market information. At December 31, 1997 and 1998,
cost approximated the fair value of short-term investments. There were no
realized gains or losses on investments sold during 1996, 1997 or 1998.
CONCENTRATION OF CREDIT AND MARKET RISK AND OFF BALANCE SHEET RISK
The Company invests its excess cash primarily in short-term marketable
securities, and, in accordance with its investment policy, limits the amount of
credit exposure with any one issuer. These investments are generally not
collateralized and typically mature within one year. There were no realized
gains or losses on these investments during 1996, 1997 or 1998.
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.
INTANGIBLE ASSETS
The recoverability of the carrying values of intangible assets is
evaluated on an ongoing basis, primarily by comparing the estimated
profitability related to the asset compared to its carrying value. Provision
against the carrying value of the asset is recorded when impairment is
identified.
F-6
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -CONTINUED
The exclusive license is amortized using the straight-line method over
seventeen years. The costs of patents are capitalized and are amortized using
the straight-line method over the remaining lives of the patents 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.
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NET LOSS PER SHARE
In accordance with SFAS No. 128, "Earnings Per Share" ("SFAS No. 128"),
basic loss per common share is calculated by dividing net loss by the
weighted-average number of common shares outstanding for the period after
certain adjustments described below. Diluted net income per common share
reflects the maximum dilutive effect of common stock issuable upon exercise of
stock options, stock warrants, and conversion of preferred stock. Diluted net
loss per common share is not shown, as common equivalent shares from stock
options, and stock warrants, would have an antidilutive effect. In accordance
with Securities and Exchange Commission Staff Accounting Bulletin No. 83 ("SAB
83"), all common shares and common equivalent shares issued during the
twelve-month period prior to the initial filing of the registration statement
relating to the Company's initial public offering, even when anti-dilutive, have
been included in the calculation as if they were outstanding for all periods,
using the treasury stock method. The basic net loss per common share gives
retroactive effect to the conversion of all outstanding shares of Preferred
Stock into 6,261,615 shares of Common Stock upon the completion of the Company's
initial public offering.
F-7
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
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
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.
However, in accordance with SFAS No. 123, compensation costs for stock options
granted to certain non-employees is recorded at fair value.
STOCK SPLIT
Effective July 11, 1997, the Company declared a one for eight and
one-half reverse stock split for common stockholders. This stock split has been
retroactively applied and all periods presented have been restated. The
conversion prices for the Preferred Stock were adjusted for this reverse stock
split.
2. LEASES
The Company is obligated under various capital leases for furniture and
equipment that expire at various dates during the next four years. The gross
amount of furniture and equipment and related accumulated amortization recorded
under capital leases and included in property, furniture and equipment were as
follows at December 31, 1997 and 1998 (in thousands):
1997 1998
----------------- -----------------
Furniture and equipment..................... $ 2,326 $ 1,996
Less accumulated amortization............... (1,655) (630)
----------------- -----------------
$ 671 $ 1,366
================= =================
The Company also has several non-cancelable operating leases, primarily
for office space and office equipment, that extend through September 1999.
Rental expense, including maintenance charges, for operating leases during 1996,
1997 and 1998 was $552,000, $612,000, and $638,000 respectively.
F-8
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -CONTINUED
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, 1998 (in thousands) are:
CAPITAL OPERATING
LEASES LEASES
----------------- -----------------
Year ending December 31:
1999..................................... $ 608 $ 463
2000.....................................
512 --
2001.....................................
386 --
2002.....................................
44 --
----------------- -----------------
Total minimum lease payments................ 1,550 $ 463
=================
Less amount representing interest..........
226
-----------------
Present value of net minimum capital lease
payments............................... 1,324
Less current installments of obligations
under capital leases................... 471
-----------------
Obligations under capital leases, excluding
current installments.................... $ 853
=================
Additionally, under a warrant agreement dated August 24, 1993 with a
lessor, the Company issued warrants 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. The warrants shall be
exercisable prior to the earlier of the tenth annual anniversary date of the
grant date or fifth anniversary date of Trimeris' Initial Public Offering. The
shares have not been issued as of December 31, 1998.
During the year ended December 31, 1995, the lease with the
aforementioned lessor was amended to increase the credit limit by $750,000 to
$2.0 million. As part of this amendment, Trimeris granted the lessor additional
warrants to purchase shares valued at $71,000 of Series B Preferred Stock at the
initial per share offering price. These shares have not been issued at December
31, 1998.
F-9
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -CONTINUED
3. STOCKHOLDERS' EQUITY (DEFICIT)
In connection with the Company's initial public offering, the Company's
Certificate of Incorporation was restated to grant the Company the authority to
issue 40,000,000 shares of stock consisting of 30,000,000 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, 1997 and 1998, loans with an interest rate of 8%
totaling $218,000 were outstanding to employees of the Company for purchase of
shares of the Company's Common Stock. This amount has been presented as
contra-equity in the statement of stockholders' equity (deficit).
INITIAL PUBLIC OFFERING
In October 1997, the Company closed its initial public offering of
common stock at $12 per share. The net proceeds of the offering were $34,532,000
after deducting applicable costs and expenses. In connection with the public
offering, all outstanding shares of Preferred Stock were converted into
6,261,615 shares of Common Stock.
PREFERRED STOCK
Prior to the conversion of the Preferred Stock into Common Stock in
connection with the initial public offering, Preferred Stockholders had certain
rights regarding dividends, liquidation preferences, conversion rights, voting
rights, and restrictions on future debt or equity issuances. The Board of
Directors has the authority to issue future 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.
EQUITY FINANCING
An initial investment of $2 million was provided by Domain Partners II,
L.P. ("Domain") and Biotechnology Investments Limited ("BIL") to fund the
start-up phase of the Company.
During the year ended December 31, 1995, Domain, BIL and others invested
an additional $3.9 million to fund continued operations of the Company through
the purchase of shares of Series B Preferred Stock. In addition, the Company
exchanged notes payable, including accrued interest, of $6.4 million for shares
of Series B Preferred Stock. These notes were payable to Domain and BIL and were
entered into during the years ended December 31, 1994 and 1995. A total of
20,635,564 shares were issued for a total consideration of $10.3 million.
In March and October 1996 and April, 1997, Domain, BIL, and others
invested an additional $11.3 million to fund continued operations of the Company
through the purchase of Series B Preferred Stock and Series C Preferred Stock.
In June, 1997, various other investors invested $6.8 million through the
purchase of Series D Preferred Stock.
Common Stock was issued during 1994, 1995, and 1996 through the purchase
by Company personnel and through the exercise of stock options.
F-10
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -CONTINUED
4. 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
that replaced the 1993 plan. Under the Stock Option Plan, as amended, the
Company may grant non-qualified or incentive stock options for up to 1,602,941
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 $12.56 per share. The
vesting period occurs ratably over four years. At December 31, 1998 there were
approximately 181,000 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, 1996, 1997 and 1998
are as follows:
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
1996 EXERCISE 1997 EXERCISE 1998 EXERCISE
PRICE PRICE PRICE
-------- --------- --------- -------- -------- ---------
Options
outstanding
at January 1... 166,000 $ 0.34 483,000 $0.34 267,000 $ 0.75
Granted...... 572,000 0.34 144,000 1.56 820,000 7.91
Exercised.... (28,000) 0.34 (341,000) 0.34 (28,000) 0.35
Cancelled.... (227,000) 0.34 (19,000) 0.34 (24,000) 6.16
-------- --------- --------- -------- -------- ---------
Options
outstanding
at end of
period......... 483,000 $ 0.34 267,000 $ 0.75 1,035,000 $ 6.31
======== ========= ========= ======== ========= =========
The following summarizes information about stock options outstanding as of
December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED WEIGHTED
OUTSTANDING REMAINING AVERAGE AVERAGE
RANGE OF AS OF CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE 12/31/98 LIFE PRICE EXERCISABLE PRICE
- ------------------ ---------- ---------- ------------ --------- -----------
$ 0.34 195,000 7.72 $ 0.34 133,000 $ 0.34
$ 1.00 31,000 8.65 $ 1.00 11,000 $ 1.00
$ 5.88-9.75 802,000 9.33 $ 7.91 168,000 $ 7.94
$ 12.00-$12.56 7,000 8.93 $ 12.36 3,000 $ 12.23
---------- ---------- ------------ --------- -----------
$ 0.34-$12.56 1,035,000 9.00 $ 6.31 315,000 $ 4.54
========== ========== ============ ========= ===========
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 the second
and third quarters of 1997. The deferred compensation will be amortized to
expense over the period the shares and options vest, generally four years.
F-11
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -CONTINUED
SFAS 123, Accounting for Stock-Based Compensation, 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 options 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:
1996 1997 1998
----------- --------- ---------
Net loss:
As reported ................ $ (6,972) $(11,428) $(19,002)
Compensation cost recorded
under APB 25 and SFAS
123 ..................... -- 386 707
Additional compensation cost
resulting from:
Common Stock Options .. -- (100) (821)
Restricted Stock ...... -- (240) (415)
--------- -------- --------
Pro forma .................. $ (6,972) $(11,382) $(19,531)
========= ======== ========
Basic Loss Per Share:
As reported ............. $ (1.48) $ (1.55) $ (1.78)
Pro forma ............... $ (1.48) $ (1.54) $ (1.83)
The fair value of common stock options and restricted stock is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following assumptions used:
Estimated dividend yield 0.00%
Expected stock price volatility 29.00%-72.00%
Risk-free interest rate 5.07-6.00%
Expected life of options 5-7 years
The effects of applying SFAS 123 for disclosing compensation cost may
not be representative of the effects or reported net income for future years
because pro forma net loss reflects compensation costs only for stock options
granted in 1996, 1997 and 1998 and does not consider compensation cost for stock
options granted prior to January 1, 1995.
5. INCOME TAXES
At December 31, 1998, the Company has net operating loss carryforwards
(NOL's) for federal income tax purposes of approximately $45.6 million which
expire in varying amounts between 2010 and 2018. The Company has NOL's for state
tax purposes of approximately $45.6 million which expire in varying amounts
between 2000 and 2013. Additionally, the Company has research and development
credits of $1.1 million which expire in varying amounts between 2008 and 2013.
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
F-12
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -CONTINUED
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, 1997 and 1998 are as follows:
1997 1998
---------------- ---------------
(in thousands)
Deferred tax assets:
Tax loss carryforwards $ 11,094 $ 17,777
Tax credits 339 1,123
Reserves and accruals 257 1,028
Start-up costs 76 --
---------------- ---------------
11,766 19,928
Valuation allowance (11,766) (19,928)
---------------- ---------------
Net deferred asset -- --
Deferred tax liabilities:
Deferred tax liability -- --
---------------- ---------------
Net deferred tax assets
and (liability) $ -- $ --
================ ===============
The Company has established a valuation allowance against its deferred
tax assets due to the uncertainty surrounding the realization of such assets.
6. EMPLOYEE BENEFIT PLANS
401 (K) PLAN
The Company has adopted a 401(k) Profit Sharing Plan (the "Plan")
covering all qualified employees. The effective date of the Plan is January 1,
1994.
Participants may elect a salary reduction from 1% to 12% as a
contribution to the Plan. Modifications of the salary reductions may be made
quarterly. The Plan permits the Company to match participants' contributions.
Beginning in 1998, the Company matched 100% of a participant's contributions
with Company stock, provided the participant was employed on the last day of the
year. The number of shares issued is based on the contributions to be matched
divided by the closing price of the Company's stock on the last trading day of
the year. During 1998, 20,000 shares were issued, and compensation expense of
$236,000 was recognized. 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.
F-13
TRIMERIS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS-CONTINUED
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. No shares were issued under this plan during 1996 or 1997, and 40,000
shares were issued under this plan in 1998.
7. SUPPLEMENTARY CASH FLOW INFORMATION
Capital lease obligations of $330,000, $211,000 and $1,236,000 were
incurred in 1996, 1997 and 1998, respectively, for leases of new furniture and
equipment.
During 1995, the Company exchanged notes payable to stockholders,
including accrued interest of $6.4 million for Series B Preferred Stock.
Shares issued under the license and consulting agreements have been
valued by the Board of Directors taking into consideration the fair value of the
most recently issued preferred stock or the value of the services, whichever is
more readily determinable.
8. COMMITMENTS AND CONTINGENCIES
The Company is involved in certain claims and legal actions 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.
F-14
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 30, 1999 /s/ DANI P. BOLOGNESI
- --------------- --------------------------
Dani P. Bolognesi
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 30, 1999
- ------------------------- executive officer), Chief ---------------
Dani P. Bolognesi Scientific Officer and Director
/s/ MATTHEW A. MEGARO President, Chief Financial March 30, 1999
- ------------------------- Officer, and Secretary ---------------
Matthew A. Megaro (principal accounting officer and
principal financial officer)
/s/ JESSE I. TREU Chairman of the Board of Directors March 30, 1999
- ------------------------- ---------------
Jesse I. Treu, Ph.D.
s/ JEFFREY M. LIPTON Vice Chairman of the Board of Directors March 30, 1999
- ------------------------ --------------
Jeffrey M. Lipton.
/s/ BRIAN H. DOVEY Director March 30, 1999
- ----------------------- --------------
Brian H. Dovey
/s/ CHARLES A. SANDERS Director March 30, 1999
- ----------------------- --------------
Charles A. Sanders, M.D.
s/ J. RICHARD CROUT Director March 30, 1999
- ---------------------- --------------
J. Richard Crout, M.D.
II-1
EXHIBIT INDEX
(a) Exhibits
3.1 * Second Restated Certificate of Incorporation of the Registrant.
3.2 * Third Amended and Restated Certificate of Incorporation of the Registrant.
3.3 * Bylaws of the Registrant.
3.4 * Amended and Restated Bylaws of the Registrant.
4.1 * Specimen certificate for shares of Common Stock.
4.2 * Description of Capital Stock (contained in the Third 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 * Sublease Agreement dated November 19, 1993, by and among the Registrant, Sphinx
Pharmaceutical Corporation and University Place Associates and as amended by the
Lease Amendment dated August 15, 1994, and Second Agreement of Sublease dated
January 16, 1995.
10.3 * Cooperation and Strategic Alliance Agreement dated April 21, 1997, between the Registrant
and MiniMed Inc.
10.4 * Trimeris, Inc. Amended and Restated Stock Incentive Plan.
10.5 * Trimeris, Inc. Employee Stock Purchase Plan.
10.6 * Form of Promissory Notes executed by certain executive officers in favor of the Registrant,
and related collateral documents.
10.7 * Form of Stock Restriction Agreements between the Registrant and certain executive
officers.
10.8 * Form of Stock Pledge Agreement between the Registrant and certain executive officers.
10.9 * Employment Offer Letter with M. Ross Johnson dated December 15, 1994.
10.10 * Employment Offer Letter with Matthew A. Megaro dated February 23, 1995.
10.11 * Sixth Amended and Restated Registration Rights Agreement dated June 27, 1997, by and
among the Registrant and certain stockholders of the Registrant.
10.12 * Agreement with Max N. Wallace dated July 10, 1997.
10.13 * Form of Indemnification Agreements.
10.14 * License Agreement dated September 9, 1997 between the Registrant and The New
York Blood Center.
10.15 ** Master Lease Agreement dated May 28, 1998 between the Company and Finova
Technology Finance, Inc.
10.16 ** Prototype Defined Contribution Plan and Trust for the Trimeris, Inc. Employee
401 (k) Plan
10.17 ** Adoption Agreement for the Trimeris, Inc. Employee 401 (k) Plan
11.1 Computation of Basic Net Loss Per Share.
23 Consent of KPMG LLP
27 Financial Data Schedule
- ----------------
* Incorporated by reference to Trimeris' Registration Statement on Form S-1
(File No. 333-31109) initially filed with the Commission on July 11, 1997.
** Incorporated by reference to Trimeris' Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998.
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.
II-2