-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WyfeATmm5WyK4GScioXMBWIuLPMoN8rD8ru3yrUF97i9v2B+7vD28YjI4ic2lAGr DpDTquja96bKPiis1ZVD5A== 0000936392-96-000625.txt : 19960816 0000936392-96-000625.hdr.sgml : 19960816 ACCESSION NUMBER: 0000936392-96-000625 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMMUNE RESPONSE CORP CENTRAL INDEX KEY: 0000817785 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 330255679 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18006 FILM NUMBER: 96611567 BUSINESS ADDRESS: STREET 1: 5935 DARWIN COURT CITY: CARLSBAD STATE: CA ZIP: 92008 BUSINESS PHONE: 6194317080 MAIL ADDRESS: STREET 1: 5935 DARWIN COURT CITY: CARLSBAD STATE: CA ZIP: 92008 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) / X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ---- EXCHANGE ACT OF 1934. For the quarterly period ended JUNE 30, 1996 OR / / 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 0-18006 THE IMMUNE RESPONSE CORPORATION (Exact Name of Registrant as Specified in its Charter) DELAWARE 33-0255679 (State or Other Jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 5935 DARWIN COURT, CARLSBAD, CA 92008 (Address of Principal Executive Offices) (Zip Code) TELEPHONE (619) 431-7080 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the Issuer's classes of common stock, as of the latest practicable date. As of August 6, 1996, 17,353,000 shares of common stock were outstanding. 2 THE IMMUNE RESPONSE CORPORATION FORM 10-Q QUARTERLY REPORT TABLE OF CONTENTS PART I. FINANCIAL INFORMATION
PAGE Item 1. Financial Statements Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 9 Item 5. Other Information 10 Item 6. Exhibits and Reports on Form 8-K 11 Signature 12
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE IMMUNE RESPONSE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS
June 30, 1996 December 31, (unaudited) 1995 ----------- ---- Current assets: Cash and cash equivalents $ 4,295,163 $ 1,462,676 Short-term investments 33,020,842 43,147,633 Other current assets 617,732 963,762 ------------- ------------- Total current assets 37,933,737 45,574,071 Property and equipment, net 4,915,420 4,806,075 Deposits 49,016 49,016 ------------- ------------- $ 42,898,173 $ 50,429,162 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,828,134 $ 1,158,194 Other accrued expenses 517,480 386,311 Deferred rent obligation 428,877 443,853 ------------- ------------- Total current liabilities 2,774,491 1,988,358 Stockholders' equity: Common stock, $.0025 par value, 40,000,000 shares authorized, 17,301,891 and 16,788,704 shares issued and outstanding at June 30, 1996 and December 31, 1995, respectively (Note 3) 43,255 41,972 Additional paid-in capital 152,279,854 146,770,428 Unrealized gain (loss) on available-for-sale securities (50,573) 544,830 Accumulated deficit (112,148,854) (98,916,426) ------------- ------------- Total stockholders' equity 40,123,682 48,440,804 ------------- ------------- $ 42,898,173 $ 50,429,162 ============= =============
See accompanying notes. 3 4 THE IMMUNE RESPONSE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three months ended June 30, Six months ended June 30, --------------------------- ------------------------- 1996 1995 1996 1995 ----------- ----------- ----------- ----------- Contract research revenue $ -- $ 166,100 $ -- $ 1,477,414 Expenses: Research and development 7,292,218 4,333,827 12,769,285 8,527,038 General and administrative 1,018,313 994,981 1,786,542 1,986,182 ------------ ------------ ------------ ------------ 8,310,531 5,328,808 14,555,827 10,513,220 Other revenue and expense: Investment income 579,067 811,052 1,323,399 1,466,870 Equity in operations of joint venture -- -- -- (1,284,020) ------------ ------------ ------------ ------------ 579,067 811,052 1,323,399 182,850 ------------ ------------ ------------ ------------ Net loss $ (7,731,464) $ (4,351,656) $(13,232,428) $ (8,852,956) ============ ============ ============ ============ Net loss per share (Note 2) $ (0.45) $ (0.26) $ (0.78) $ (0.53) ============ ============ ============ ============ Weighted average number of shares outstanding (Note 2) 17,125,990 16,744,916 16,963,239 16,742,616 ============ ============ ============ ============
See accompanying notes. 4 5 THE IMMUNE RESPONSE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six months ended June 30, -------------------------------- 1996 1995 ------------- ------------ Operating activities: Net loss $(13,232,428) $(8,852,956) Adjustments to reconcile net loss to net cash provided from (used by) operating activities: Depreciation and amortization 407,727 550,059 Equity in operations of joint venture -- 1,284,020 Deferred rent expense (14,976) (543) Changes in operating assets and liabilities: Research contract receivable and investment in joint venture -- (1,199,390) Other current assets 346,030 566,107 Accounts payable 669,940 522,873 Other accrued expenses 131,169 58,997 ------------ ----------- Net cash used by operating activities (11,692,538) (7,070,833) Investing activities: Liquidation of short-term investments, net 9,531,388 6,151,857 Purchase of property and equipment (517,072) (158,879) Net proceeds from sale of equipment -- 1,948,305 Deposits and other assets -- 4,200 ------------ ----------- Net cash provided from investing activities 9,014,316 7,945,483 Financing activities: Proceeds from sale of common stock (Note 3) 5,000,000 -- Net proceeds from exercise of stock options 510,709 4,345 Payments on debt and capital lease obligations -- (75,880) ------------ ----------- Net cash provided from (used by) financing activities 5,510,709 (71,535) ------------ ----------- Net increase in cash and cash equivalents 2,832,487 803,115 Cash and cash equivalents at beginning of period 1,462,676 1,792,082 ------------ ----------- Cash and cash equivalents at end of period $ 4,295,163 $ 2,595,197 ============ =========== Supplemental disclosure of noncash investing and financing activities: Distribution of equipment from liquidation of joint venture $ -- $ 2,008,562 ============ ===========
See accompanying notes. 5 6 THE IMMUNE RESPONSE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 1. BASIS OF PRESENTATION The condensed consolidated financial statements of The Immune Response Corporation (the "Company") for the three and six month periods ended June 30, 1996 and 1995 are unaudited. These financial statements reflect all adjustments, consisting of only normal recurring adjustments which, in the opinion of management, are necessary to fairly present the consolidated financial position as of June 30, 1996, and the consolidated results of operations for the three and six month periods ended June 30, 1996 and 1995. The results of operations for the six months ended June 30, 1996 are not necessarily indicative of the results to be expected for the year ended December 31, 1996. For more complete financial information, these financial statements, and the notes thereto, should be read in conjunction with the consolidated audited financial statements for the year ended December 31, 1995 included in the Company's Form 10-K filed with the Securities and Exchange Commission. 2. NET LOSS PER SHARE Net loss per share for the three and six month periods ended June 30, 1996 and 1995 is computed using the weighted average number of common shares outstanding during the period. 3. STOCK TRANSACTION In April 1996, the Company received $5 million from Trinity Medical Group Co., Ltd. ("Trinity") of Bangkok, Thailand for the purchase of the Company's Common Stock at $15 per share. Trinity has also agreed to make additional equity investments of up to $10 million based on the achievement of certain regulatory and commercial milestones and governmental approvals. 4. SUBSEQUENT EVENT In July 1996, Immune Response entered into an agreement with Bayer Corporation ("Bayer"), the United States affiliate of Bayer AG of Leverkusen, Germany, to develop gene therapy products for the treatment of hemophilia A, a hereditary blood clotting disorder. Bayer is a market leader in the treatment of this disorder. Bayer made an initial license payment of $6 million upon signing this agreement. Bayer has also indicated that it may purchase $4 million of Immune Response Common Stock in the Company's next public offering. In addition, during the term of the agreement, the Company will also receive research funding from Bayer for Immune Response's hemophilia A program and may receive milestone payments and royalties on future sales, if a product is developed and commercialized. Under the agreement, Bayer is responsible for all medical and regulatory activities associated with developing any potential hemophilia A products, and will also be responsible for commercial-scale manufacturing and commercialization of any such product developed. The agreement provides Bayer with a worldwide license to the Company's GeneDrug(TM) technology for the delivery of the Factor VIII gene and the option to enter into negotiations with the Company to use this technology to treat other blood coagulation disorders. 6 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS OVERVIEW The Immune Response Corporation (the "Company") is a biopharmaceutical company engaged in the development of proprietary products in the areas of HIV infection, autoimmune disease, gene therapy and cancer. This discussion contains forward-looking statements concerning the Company's operating results and timing of anticipated expenditures. Such statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected. For a further description of potential risks and uncertainties involved related to the Company, this document should be read in conjunction with the Company's Form 10-K filed with the Securities and Exchange Commission. These forward-looking statements speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The Company has not been profitable since inception and had an accumulated deficit of $112 million as of June 30, 1996. To date, the Company has not recorded any revenues from the sale of products. Revenues recorded through June 30, 1996 were earned in connection with contract research, a licensing agreement and investment income. The Company expects its operating losses to continue to increase during the second half of 1996 and beyond, as well as to have quarter-to-quarter fluctuations, some of which could be significant, due to expanded research, development and clinical trial activities. RESULTS OF OPERATIONS Contract research revenue for the three and six months ended June 30, 1995, was $166,000 and $1.5 million respectively. The Company had no contract research revenue during the first six months of 1996. The contract research revenue in 1995 primarily included reimbursement for research and development and certain administrative expenses from the former joint venture with Rhone-Poulenc Rorer Inc. ("Joint Venture"). In March 1995, the Company acquired Rhone-Poulenc Rorer's rights in the Joint Venture. From March 1995 through June 30, 1996, the Company had no agreements that resulted in significant contract revenue. The Company has not received any revenue from the commercial sale of products and does not expect to derive revenue from the sale of products for the for the next several years, if at all. Investment income decreased to $579,000 for the quarter ended June 30, 1996, from $811,000 during the same period in 1995. During the six months ended June 30, 1996, investment income decreased to $1.3 million from $1.5 million for the same period during 1995. The decrease in investment income in 1996 compared to 1995, was the result of the decrease in cash available for investment during the first half of 1996 compared to the first half of 1995. Research and development expenditures of $7.3 million during the second quarter of 1996 exceeded such expenditures during the same period in 1995 of $4.3 million. Research and development expenditures for the six months ended June 30, 1996 were $12.8 million compared to $8.5 million for the same period in 1995. These additional expenditures in the second quarter of 1996, and during the six months ended June 30, 1996, over the amounts expended during the same period in 1995, were due primarily to the expansion of clinical testing and regulatory management of REMUNE, expansion of the Company's autoimmune disease research programs, including Phase II clinical trials for a rheumatoid arthritis and a psoriasis treatment, as well as increased staffing levels and purchases of laboratory materials and supplies related to the assumption of the manufacturing of REMUNE from the Joint Venture. In addition, research and development expenditures increased related to research using gene therapy and cancer treatments. Research and development expenses are expected to continue to rise in the foreseeable future due to expanding preclinical and clinical testing of the proposed autoimmune disease, gene therapy and cancer treatments. Research and development expenses are also expected to increase due to the Company beginning a large scale Phase III clinical trial with REMUNE in March 1996. 7 8 General and administrative expenses for the second quarter of 1996 and 1995 were $1.0 million. General and administrative expenses for the six months ended June 30, 1996 were $1.8 million as compared to $2.0 million for the same period in 1995. The decrease in these expenses during the six months ended June 30, 1996 compared to the expenses incurred during the same period of 1995, was due primarily to the additional costs incurred in 1995 related to the Company's acquisition of Rhone-Poulenc Rorer's interest in the Joint Venture. General and administrative expenses for the remainder of 1996 necessary to support the Company's expanded research and development activities are expected to remain consistent with the first and second quarters of 1996. For the quarter ended June 30, 1996, the Company's net loss was $7.7 million, or $.45 per share, as compared to a net loss of $4.4 million, or $.26 per share, for the same period in 1995. For the six months ended June 30, 1996, the Company's net loss was $13.2 million, or $.78 per share, as compared to net loss of $8.9 million, or $.53 per share for the same period in 1995. The major factors causing the net loss to increase during the first six months of 1996 was the increase in the Company's clinical trial activities, in particular the large-scale Phase III clinical trial for HIV infection using REMUNE, the Phase II clinical trials for a rheumatoid arthritis and a psoriasis treatment, and the assumption of the manufacturing responsibilities of REMUNE. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1996, the Company had working capital of $35.2 million, including $37.3 million of cash, cash equivalents and short-term investments. This compares with working capital as of December 31, 1995 of $43.6 million, including $44.6 million of cash, cash equivalents and short-term investments. The decrease in working capital was due to the costs of operating the business. In April 1996, the Company received $5 million from Trinity Medical Group Co., Ltd. ("Trinity") of Bangkok, Thailand, for the purchase of the Company's Common Stock at $15 per share. Trinity has also agreed to make additional equity investments of up to $10 million based on the achievement of certain regulatory and commercial milestones and governmental approvals related to the development of REMUNE in Thailand. There can be no assurance than any such milestones or approvals will be achieved or obtained. In addition, during July 1996, the Company received a $6 million license fee and a $1 million research payment from Bayer Corporation ("Bayer"), the United States affiliate of Bayer AG of Leverkusen, Germany, to develop gene therapy products for the treatment of hemophilia A, a hereditary blood clotting disorder. The Company will also receive additional funding from Bayer for the Company's hemophilia A research program during the term of the agreement. Regardless of whether such additional funds are received from Trinity, and despite the funding to be received from Bayer, the Company may need to raise additional funds for expanding research and development activities in gene therapy and cancer, conducting the Phase III clinical trial for REMUNE initiated in March 1996, and enhancing the manufacturing facility to enable production of commercial quantities of the Company's products. In particular, the Company anticipates that the Phase III REMUNE clinical trial costs will be approximately $10 million per year, with an additional $10 million cost per year for manufacturing, research and all other costs associated with the product for up to three years. The anticipated costs with respect to REMUNE will depend on many factors, including the successful enrollment of the Phase III clinical trial, the availability of third party reimbursement based on gaining "treatment" investigational new drug status for expanded access protocols for REMUNE, the potential for accelerated approval and certain other factors which will influence the Company's determination of the appropriate continued investment of the Company's financial resources in this program. To obtain such funding, the Company may consider collaborative arrangements and public or private financings. There can be no assurance that such arrangements or funds will be available. The Company believes that its current capital resources will meet its anticipated requirements through 1997. The Company has filed a Registration Statement on Form S-3 with the Securities and Exchange Commission for a proposed public offering of 2.9 million shares of its Common Stock. Bayer has indicated that it may purchase $4 million of the Company's Common Stock in this offering. There can be no assurance that such public offering will be completed or that Bayer will purchase shares in such offering. 8 9 PART II. OTHER INFORMATION ITEM 4. -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 30, 1996 the Company held its Annual Meeting of Stockholders. The following actions were taken at the annual meeting. 1. The following Class I Directors were elected: a. James B. Glavin. 14,760,346 shares voted in favor of the nominee, 581,105 shares withheld their vote, and 1,468,142 shares were not voted; b. Philip M. Young. 14,760,471 shares voted in favor of the nominee, 580,980 shares withheld their vote, and 1,468,142 shares were not voted; c. The following directors continue in office for their existing terms: Dennis J. Carlo Kevin B. Kimberlin Gilbert S. Omenn Melvin Perelman John Simon William M. Sullivan 2. A proposal to amend and restate the 1989 Stock Plan of The Immune Response Corporation to, among other things, increase the aggregate number of shares of Common Stock authorized for issuance thereunder by 500,000 shares. 12,764,393 shares were voted in favor of the proposal, 1,808,898 shares were voted against the proposal, 255,874 shares abstained and 1,980,429 shares were not voted (includes broker non-votes); and 3. The selection of Ernst & Young LLP as the Company's independent auditors was ratified. 15,272,267 shares were voted in favor of the proposal, 29,049 shares were voted against the proposal, 40,135 shares abstained, and 1,468,142 shares were not voted. 9 10 ITEM 5. -- OTHER INFORMATION On July 9, 1996, the Company entered into a Collaboration Agreement (the "Agreement") with Bayer Corporation ("Bayer"), the United States affiliate of Bayer AG of Leverkusen, Germany, to develop gene therapy products for the treatment of hemophilia A, a hereditary blood clotting disorder. Bayer made an initial license payment to the Company of $6 million upon signing the Agreement. In addition, during the term of the research program, until three years from the date of entering into the Agreement and any extensions thereto (the "Research Term"), the Company will receive research funding from Bayer for the Company's hemophilia A program and may receive milestone payments and royalties on future sales, if a product is developed and commercialized. Under the Agreement, Bayer is responsible for all medical and regulatory activities associated with developing any potential hemophilia A products, and will also be responsible for commercial-scale manufacturing and commercialization of any such product developed. The Agreement provides Bayer with a worldwide exclusive license to the Company's GeneDrug(TM) technology for the delivery of the Factor VIII gene and the option to enter into negotiations with the Company to use this technology to treat other blood coagulation disorders. In connection with the Agreement, Bayer expressed an indication of interest in purchasing Common Stock of the Company if the Company makes an underwritten public offering of its Common Stock (the "Offering"). The Agreement provides that in the event that (i) the Offering is consummated within the Research Term, (ii) the Offering generates aggregate gross proceeds of at least $15 million, not including proceeds attributable to purchases made by Bayer, (iii) the Company is not in default under any material provision of the Agreement, (iv) Bayer is given an opportunity, in its sole discretion, to purchase $4 million of the Common Stock in the Offering, at a purchase price per share equal to the offering price in the Offering, and (v) elects not to make such purchase, then the Company shall have the right to terminate the Agreement and all licenses granted thereunder within 30 days of consummation of the Offering. The Company has filed a Registration Statement on Form S-3 with the Securities and Exchange Commission for an offering of its Common Stock, which if consummated may qualify as an Offering. There can be no assurance that the Company's proposed offering will be consummated during the Research Term, will be declared effective, that if consummated such Offering will generate aggregate gross proceeds of at least $15 million or that Bayer will purchase any Common Stock in such Offering. 10 11 ITEM 6. -- EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits 27 Financial Data Schedule 11 12 SIGNATURE Pursuant to the requirements 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. THE IMMUNE RESPONSE CORPORATION Date: August 13, 1996 /s/ CHARLES J. CASHION ---------------------------------- Charles J. Cashion Vice President, Finance Secretary and Treasurer 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ITEM 1 OF FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q. 1 6-MOS DEC-31-1996 APR-01-1996 JUN-30-1996 4,295,163 33,020,842 617,732 0 0 37,933,737 4,915,420 49,016 42,898,173 2,774,491 0 0 0 43,255 40,080,427 42,898,173 0 579,067 0 8,310,531 0 0 0 (7,731,464) 0 (7,731,464) 0 0 0 (7,731,464) (0.45) 0
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