-----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, MM2oI5AgkSLXsWDH11xi3v9RxtvJnDFqr7XkJ6R99wAsiWTqJrN/cnTMtqhz5i7h ZMdTrWRPQxfvgFKqCXm5+Q== 0000950135-97-004413.txt : 19971114 0000950135-97-004413.hdr.sgml : 19971114 ACCESSION NUMBER: 0000950135-97-004413 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORAVAX INC /DE/ CENTRAL INDEX KEY: 0000900122 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 043085209 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26034 FILM NUMBER: 97712571 BUSINESS ADDRESS: STREET 1: 38 SIDNEY ST 4TH FLOOR CITY: CAMBRIDGE STATE: MA ZIP: 02139 BUSINESS PHONE: 6175266000 10-Q 1 ORAVAX, INC. 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 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 0-26034 ORAVAX, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 04-3085209 (State or other jurisdiction (I.R.S. Employer of incorporation of organization) Identification Number) 38 SIDNEY STREET, CAMBRIDGE, MASSACHUSETTS 02139 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 494-1339 FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT: NOT APPLICABLE 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 ----- ----- NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUERS CLASS OF COMMON STOCK, AS OF LATEST PRACTICABLE DATE. CLASS OUTSTANDING AS OF OCTOBER 31, 1997 ----- ---------------------------------- COMMON STOCK, $.001 PAR VALUE 10,080,820 2 ORAVAX, INC. FORM 10-Q FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 PAGE PART 1. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996................................................... 3 Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 1997 and 1996........................... 4 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1997 and 1996........................... 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............................................. 14 SIGNATURES.............................................................. 15 2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ORAVAX, INC. CONDENSED CONSOLIDATED BALANCE SHEETS IN THOUSANDS EXCEPT SHARE DATA ----------
SEPTEMBER 30, DECEMBER 31, 1997 1996 ---- ---- ASSETS Cash and cash equivalents $ 6,625 $ 14,916 Short-term investments 2,985 7,209 Prepaid and other current assets 140 230 -------- -------- Total current assets 9,750 22,355 Property and equipment, net 3,977 5,454 Investment in and advances to joint venture 322 619 Other assets 288 316 -------- -------- Total assets $ 14,337 $ 28,744 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses $ 4,022 $ 4,788 Deferred joint venture revenue 473 946 Obligation under capital leases 1,522 1,597 Obligation under installment debt - 330 -------- -------- Total current liabilities 6,017 7,661 Obligation under capital leases, excluding current portion 580 1,665 Installment debt, excluding current portion 1,109 994 -------- -------- Total liabilities 7,706 10,320 Stockholders' equity: Preferred stock, $.001 par value; 2,000,000 shares authorized; none issued or outstanding - - Common stock, $.001 par value; 25,000,000 shares authorized in 1997 and 1996; issued and outstanding 10,080,820 and 9,956,760 shares in 1997 and 1996 10 10 Additional paid-in capital 73,631 73,519 Deferred compensation (109) (223) Accumulated deficit (66,901) (54,882) -------- -------- Total stockholders' equity 6,631 18,424 -------- -------- Total liabilities and stockholders' equity $ 14,337 $ 28,744 ======== ========
The accompanying notes are an integral part of the condensed consolidated financial statements. 3 4 ORAVAX, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA -----------
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1997 1996 1997 1996 ---- ---- ---- ---- Revenue: Collaborative research and development - related party $ 1,869 $ 1,627 $ 5,581 $ 4,901 Grants and other revenue 141 378 343 746 Interest 140 396 574 960 ------- ------- -------- -------- 2,150 2,401 6,498 6,607 ------- ------- -------- -------- Expenses: Research and development 3,787 5,173 10,963 16,722 General and administrative 776 978 2,615 2,797 Interest 94 128 331 400 ------- ------- -------- -------- 4,657 6,279 13,909 19,919 ------- ------- -------- -------- Loss from operations (2,507) (3,878) (7,411) (13,312) Equity in operations of joint venture (1,437) (1,254) (4,608) (3,493) ------- ------- -------- -------- Net loss $(3,944) $(5,132) $(12,019) $(16,805) ======= ======= ======== ======== Net loss per common share and common equivalent $ (0.39) $ (0.52) $ (1.20) $ (2.00) Weighted average number of common and common equivalent shares outstanding 10,052,414 9,943,896 10,007,475 8,403,198
The accompanying notes are an integral part of the condensed consolidated financial statements. 4 5 ORAVAX, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS IN THOUSANDS ----------
Nine Months Ended September 30, 1997 1996 ---- ---- Cash flows from operating activities: Net loss from operations $(12,019) $(16,805) Adjustments to reconcile net loss from operations to net cash used in operating activities: Depreciation and amortization 1,671 1,534 Equity in operations of joint venture 4,608 3,493 Amortization of debt discount 115 - Non-cash compensation 91 54 Changes in operating assets and liabilities: Prepaid expenses and other current assets 90 14 Other assets 28 (259) Accounts payable and accrued expenses (766) 2,680 Deferred revenue - related party (473) (26) -------- -------- Net cash used in operating activities (6,655) (9,315) -------- -------- Cash flows from investing activities: Net (purchases) sales of short-term investments 4,224 7,413 Expenditures for property and equipment (194) (1,255) Proceeds from sale-leaseback of property and equipment - 408 Investment in and advances to joint venture (4,311) (3,377) -------- -------- Net cash provided by (used in) investing activities (281) 3,189 -------- -------- Cash flows from financing activities: Proceeds from stock issuances, net 135 15,362 Principal payments under capital lease obligations (1,160) (1,144) Principal payments of installment debt (330) (538) -------- -------- Net cash provided by (used in) financing activities (1,355) 13,680 -------- -------- Net increase (decrease) in cash and cash equivalents (8,291) 7,554 Cash and cash equivalents at beginning of period 14,916 11,882 -------- -------- Cash and cash equivalents at end of period $ 6,625 $ 19,436 ======== ========
The accompanying notes are an integral part of the condensed consolidated financial statements. 5 6 ORAVAX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INFORMATION WITH RESPECT TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED. 1. NATURE OF BUSINESS OraVax, Inc. (the "Company"), based in Cambridge, Massachusetts, is a biopharmaceutical company engaged in the discovery and development of innovative vaccines and antibody products to prevent or treat diseases which infect the human body at its mucosal linings. The Company has programs focused on Helicobacter pylori ( H. pylori), the cause of peptic ulcers and stomach cancer; respiratory syncytial virus (RSV), which causes viral pneumonia in infants; Clostridium difficile (C. difficile), which causes antibiotic-associated diarrhea and colitis in hospitalized and nursing home elderly; and Japanese Encephalitis (JE), a potentially fatal neurotropic viral infection. The ultimate success of the Company is dependent upon its ability to raise capital through equity placement, receipt of contract revenue, sale of product and interest income on invested capital. The Company's capital requirements may change depending upon numerous factors, including progress of the Company's research and development programs, time required to obtain regulatory approvals, resources the Company devotes to self-funded projects, proprietary manufacturing methods and advanced technologies and demand for the Company's products, if and when approved. While management believes that additional capital will be available to fund operations, there can be no assurance that additional funds will be available when required, on terms acceptable to the Company. The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, competition, dependence on key personnel, protection of proprietary technology and compliance with government regulations. 2. BASIS OF PRESENTATION The condensed consolidated balance sheet as of September 30, 1997, and the condensed consolidated statements of operations and cash flows for the three and nine months ended September 30, 1997 and 1996 are unaudited, have been prepared on a basis substantially consistent with the audited financial statements, and, in the opinion of management, include all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation of results for these interim periods. The preparation of interim financial statements in conformity with generally accepted accounting principles requires the use of management's estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim financial statements and the reported amounts of revenues and expenses during the reporting period. The results for the nine months ended September 30, 1997 are not necessarily indicative of results for the entire year, although the Company expects to incur a significant loss for the year ending December 31, 1997. These interim financial statements should be read in conjunction with the annual consolidated financial statements included in the Company's annual report filed on Form 10-K for the year ended December 31, 1996. 6 7 3. ARILVAX(TM) MARKETING AND DISTRIBUTION AGREEMENT In September, 1997 the Company was selected by Evans Medical Limited (Evans), a Medeva PLC group company, as the exclusive marketer and distributor of Evans' live-attenuated yellow fever vaccine, Arilvax(R), in the United States. The Company also agreed to work with Evans to introduce the vaccine into other international markets. Yellow fever is an acute mosquito-borne infection causing hemorrhage, liver and kidney failure resulting in death in 20 to 50 percent of those affected. Under the terms of the agreement, the Company will conduct clinical studies necessary for U.S. registration of the vaccine and will market and distribute the product to both civilian and military groups in the U.S. Arilvax(R) is currently marketed by Evans in Europe and selected Asian markets. Evans will fund all costs associated with the agreed-upon clinical trials and with securing regulatory approval in the U.S. Based on the established performance of Arilvax(R) in other markets and discussions with the FDA, Evans anticipates submitting a U.S. product license application(PLA) in 1998. The Company does not anticipate incurring any material net expenditures under this agreement until 1999 at which time, assuming a U.S. PLA is filed, it would expect to incur premarketing and predistribution costs. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Since its inception in 1990, the Company has been engaged in the discovery and development of innovative vaccines and antibody products to prevent or treat diseases which infect the human body at its mucosal linings. To date, the Company has not received any revenues from the sale of products and does not expect to receive any such revenues for at least several years. The Company's losses incurred since inception resulted principally from expenditures under its research and development programs and the Company expects to incur significant operating losses over the next several years due primarily to expanded research and development efforts, preclinical testing and clinical trials of its product candidates, the acquisition of additional technologies, the establishment of manufacturing capability and the performance of commercialization activities. Results of operations may vary significantly from quarter to quarter depending on, among other factors, the progress of the Company's research and development efforts, the receipt, if any, of milestone payments, the timing of certain expenses and the establishment of collaborative research agreements. 7 8 RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 1996 The Company's total revenues decreased to $2,150,000 in the three months ended September 30, 1997 as from $2,401,000 in the three months ended September 30, 1996. In the three months ended September 30, 1997, the Company's revenues consisted of $1,869,000 of collaborative research revenues earned under the Company's collaboration (the "Joint Venture") with Pasteur Merieux Connaught ("PMC"), $141,000 from government grants and an annual license maintenance fee earned in connection with sublicensing its Cag A antigen for use in diagnostic tests, and $140,000 in interest earned on invested funds. In the three months ended September 30, 1996, the Company's revenues consisted of $1,627,000 of collaborative research revenues earned under the Joint Venture, $378,000 from government grants and an initial license fee earned in connection with sublicensing its Cag A antigen, and $396,000 in interest earned on invested funds. The Company's total costs and expenses decreased to $4,657,000 in the three months ended September 30, 1997 from $6,279,000 in the three months ended September 30, 1996. Research and development expenses decreased 27% to $3,787,000 in the three months ended September 30, 1997 from $5,173,000 in the three months ended September 30, 1996. Significant contributors to the Company's research and development expenses during the third quarter of 1996 included conducting a Phase II clinical trial under its H. pylori program and a Phase III clinical trial under its RSV program. Similar expenses were not incurred in the third quarter of 1997, but were offset in part by further limited clinical development of RSV. In addition, the Company reduced its workforce by approximately 25% in early April 1997. General and administrative expenses decreased 21% to $776,000 in the three months ended September 30, 1997 from $978,000 in the three months ended September 30, 1996. This decrease was attributable principally to reduced patent costs, together with decreases in marketing and other expenses in connection with the Company's reduction of its workforce by approximately 25% in early April 1997. Interest expense decreased to $94,000 in the three months ended September 30, 1997 from $128,000 in the three months ended September 30, 1996. The Company accounts for its investment in the Joint Venture under the equity method of accounting. Accordingly, the Company recorded its $1,437,000 and $1,254,000 share of the Joint Venture's losses in the third quarter of 1997 and 1996, respectively. The increased loss was principally attributable to increased budgeted activities, for research and development, of the Joint Venture in 1997 as compared with 1996. The Company incurred a net loss of $3,944,000 in the three months ended September 30, 1997 compared to a net loss of $5,132,000 in the three months ended September 30, 1996. NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1996 The Company's total revenues decreased to $6,498,000 in the nine months ended September 30, 1997 from $6,607,000 in the nine months ended September 30, 1996. In the nine months ended September 30, 1997, the Company's revenues consisted of $5,581,000 of collaborative research revenues earned under the Company's Joint Venture with PMC, $343,000 from government grants and an annual license maintenance fee earned in connection with sublicensing its Cag A antigen for use in diagnostic tests, and $574,000 in interest earned on invested funds. In the nine months ended September 30, 1996, the Company's revenues consisted of $4,901,000 of collaborative research revenues earned under the Joint Venture, $746,000 from government grants and an initial license fee earned in connection with sublicensing its Cag A antigen, and $960,000 in interest earned on invested funds. 8 9 The Company's total costs and expenses decreased to $13,909,000 in the nine months ended September 30, 1997 from $19,919,000 in the nine months ended September 30, 1996. Research and development expenses decreased 34% to $10,963,000 in the nine months ended September 30, 1997 from $16,722,000 in the nine months ended September 30, 1996. Significant contributors to the Company's research and development expenses during the first nine months of 1996 included conducting a Phase II clinical trial under its H. pylori program and a Phase III clinical trial under its RSV program, and production of necessary supplies of clinical materials for its Phase III clinical trial. Similar expenses were not incurred in the first nine months of 1997 other than the costs of statistical analysis of the results of the Phase III clinical trial during the first six months of the year offset by further limited clinical development of RSV in the three months ended September 30, 1997. In addition, the Company reduced its workforce by approximately 25% in early April 1997. General and administrative expenses decreased 7% to $2,615,000 in the nine months ended September 30, 1997 from $2,797,000 in the nine months ended September 30, 1996 as decreased expenses associated with the workforce reduction in the second quarter of 1997 offset increases which had occurred in the first quarter of 1997 as compared to the same period in 1996. Interest expense decreased to $331,000 in the nine months ended September 30, 1997 from $400,000 in the nine months ended September 30, 1996. The Company recorded its $4,608,000 and $3,493,000 share of the Joint Venture's losses during the nine months ended September 30, 1997 and 1996, respectively. The increased loss was principally attributable to increased budgeted activities, for research and development, of the Joint Venture in 1997 as compared with 1996. The Company incurred a net loss of $12,019,000 in the nine months ended September 30, 1997 compared to a net loss of $16,805,000 in the nine months ended September 30, 1996. NEW ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128) which is effective for fiscal years ending after December 15, 1997 including interim periods. Earlier application is not permitted. SFAS 128 specifies the computation, presentation, and disclosure requirements for earnings per share. The Company will adopt SFAS 128 in 1997 but has not yet determined the impact. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130) which is effective for fiscal years beginning after December 15, 1997. SFAS 130 requires that changes in comprehensive income be shown in a financial statement that is displayed with the same prominence as other financial statements. The Company will adopt the new standard beginning in the first quarter of the fiscal year ending December 31, 1998. In June 1997, The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131) which is effective for fiscal years beginning after December 15, 1997. SFAS 131 specifies new guidelines for determining a company's operating segments and related requirements for disclosure. The Company is in the process of evaluating the impact of the new standard on the presentation of the financial statements and the disclosure therein. The Company will adopt SFAS 131 for the fiscal year ending December 31, 1998. 9 10 LIQUIDITY AND CAPITAL RESOURCES The Company's aggregate cash and investments were $9,610,000 at September 30, 1997, a decrease of $12,515,000 since December 31, 1996. Net cash used by operations during the nine months ended September 30, 1997, principally to support research and development, was $6,655,000. The Company expended $194,000 for property and equipment, repaid $1,160,000 of its capital lease obligations, and repaid $330,000 of its installment debt, net of accrued interest, during the nine months ended September 30, 1997. In addition, the Company invested $4,311,000 in the Joint Venture. In September, 1997 the Company was selected by Evans Medical Limited (Evans), a Medeva PLC group company, as the exclusive marketer and distributor of Evans' live-attenuated yellow fever vaccine, Arilvax(R), in the United States. The Company also agreed to work with Evans to introduce the vaccine into other international markets. Under the terms of the agreement, the Company will conduct clinical studies necessary for U.S. registration of the vaccine and will market and distribute the product to both civilian and military groups in the U.S. Arilvax(R) is currently marketed by Evans in Europe and selected Asian markets. Evans will fund all costs associated with the agreed-upon clinical trials and with securing regulatory approval in the U.S. Based on the established performance of Arilvax(R) in other markets and discussions with the FDA, Evans anticipates submitting a U.S. product license application (PLA) in 1998. The Company does not anticipate incurring any material net expenditures under this agreement until 1999 at which time, assuming a U.S. PLA is filed, it would expect to incur premarketing and predistribution costs. Since inception, the Company's cash expenditures have exceeded its revenues. Operations have been funded principally through public and private placements of equity securities, equipment lease financing, revenues from the Company's Joint Venture with PMC, government grants and interest income. The Company's future capital requirements will depend on many factors, including, but not limited to, the progress of its research and development programs, the progress of preclinical and clinical testing, the time and costs involved in obtaining regulatory approvals, the funding of the Company's share of the expenses of the Joint Venture or similar arrangements, the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, competing technological and market developments, changes in the Company's existing research relationships, the ability of the Company to establish collaborative arrangements, the development of commercialization activities and arrangements, and the acquisition of additional facilities and capital equipment. 10 11 The Company plans to finance these cash needs in the near term principally through its existing cash reserves, together with interest earned thereon, revenues, payments and reimbursements under the Company's Joint Venture with PMC and facilities and equipment financing. Based upon current plans, which followed a reduction in the Company's workforce of approximately 25% in April 1997 and which exclude any expenditures for the manufacturing of clinical supplies for the conduct of additional clinical trials under its RSV program, the Company believes its capital resources, together with interest earned thereon, will be sufficient to meet the Company's operating expenses and capital requirements into the second quarter of 1998. The Company will require additional funds, preferably from a collaborative partner, to manufacture clinical supplies for the conduct of additional clinical trials under its RSV program. Moreover, changes in the Company's research and development plans or other events affecting the Company's operations may result in accelerated or unexpected expenditures. In addition, the Company will need substantial additional capital to fund its operations for the manufacturing and marketing of its successful product candidates, if any. The Company intends to seek additional funding through public or private financing or collaborative or other arrangements with corporate partners. If additional funds are raised by issuing equity securities, further dilution to existing stockholders may result and future investors may be granted rights superior to those of existing stockholders. There can be no assurance, however, that additional financing will be available from any of these sources, or if available, will be available on terms satisfactory to the Company. The Company's inability to obtain needed funding on satisfactory terms would require the Company to delay, curtail or eliminate one or more of its planned product development programs, scale back its planned manufacturing operations or enter into collaborative arrangements that may require the Company to issue additional equity or relinquish rights to certain technologies or product candidates that the Company would not otherwise issue or relinquish. FACTORS THAT MAY AFFECT FUTURE RESULTS The Company's future operating results are difficult to predict and may be affected by a number of factors, including the following, that could cause actual results to differ materially from those indicated by the forward-looking statements made herein and presented elsewhere by management from time to time. EARLY STAGE OF PRODUCT DEVELOPMENT. The products under development by the Company will require significant additional research and development efforts, including extensive clinical testing and regulatory approval, prior to commercial use. The Company's potential products are subject to the risks of failure inherent in the development of pharmaceutical products based on new technologies. These risks include the possibilities that the Company's therapeutic approach will not be successful, that any or all of the Company's potential products will be found to be unsafe, ineffective, toxic or otherwise fail to meet applicable regulatory standards or receive necessary regulatory clearances, that the potential products, if safe and effective, will be difficult to develop into commercially viable products, to manufacture on a large scale or be uneconomical to market, that proprietary rights of competitors or other parties will preclude the Company from marketing such products; or that competitors or other parties will market superior or equivalent products. 11 12 FUTURE CAPITAL NEEDS. In addition, the Company will require substantial additional funds in order to continue its research and development programs, preclinical and clinical testing of its product candidates and to conduct full scale manufacturing and marketing of any pharmaceutical products that may be developed. The Company's capital requirements depend on numerous factors, including but not limited to the progress of its research and development programs, the progress of preclinical and clinical testing, the time and costs involved in obtaining regulatory approvals, the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, competing technological and market developments, changes in the Company's existing research relationships, the ability of the Company to establish collaborative arrangements, the development of commercialization activities and arrangements, and the purchase of additional facilities and capital equipment. Based upon its current plans, the Company believes that its capital resources, together with interest earned thereon, will be sufficient to meet the Company's operating expenses and meet its capital requirements into the second quarter of 1998. There can be no assurance, however, that changes in the Company's research and development plans, acquisitions or other events affecting the Company's operations will not result in accelerated or unexpected expenditures. Thereafter, the Company will need to raise substantial additional capital to fund its operations. There can be no assurance, however, that additional financing will be available, or if available, will be available on acceptable or affordable terms. MANUFACTURING LIMITATIONS. At present, the Company's ability to manufacture its products is limited to clinical trial quantities. The Company does not have the capability to manufacture commercial quantities of products. The Company's long-term strategy is to develop manufacturing facilities for producing both pilot-scale and commercial quantities of its products. To ensure compliance with current Good Manufacturing Practices ("cGMP") imposed by the FDA, OraVax will need to establish sufficient technical staff to oversee all product operations, including quality control, quality assurance, technical support and manufacturing management. The Company may enter into arrangements with contract manufacturing companies to expand its own production capacity in order to meet requirements for its product candidates. If the Company chooses to contract for manufacturing services and encounters delays or difficulties in establishing relationships with manufacturers to produce, package and distribute its finished pharmaceutical or other medical products (if any), clinical trials, market introduction and subsequent sales of such products would be adversely affected. Moreover, contract manufacturers must operate in compliance with cGMP. The Company's potential dependence upon third parties for the manufacture of its products may adversely affect the Company's profit margins and its ability to develop and deliver such products on a timely and competitive basis. RISKS ASSOCIATED WITH COLLABORATIVE ARRANGEMENTS. The Company's product development strategy may require the Company to enter into various additional arrangements with corporate, government and academic collaborators, licensors, licensees and others. Therefore, the Company may be dependent upon the subsequent success of these outside parties in performing their responsibilities. There can be no assurance that the Company will be able to establish additional collaborative arrangements or license agreements that the Company deems necessary or acceptable to develop and commercialize its potential pharmaceutical products or that such collaborative arrangements or license agreements will be successful. 12 13 PATENT AND PROPRIETARY RIGHTS. The Company seeks to protect its trade secrets and proprietary know-how, in part, through confidentiality agreements with its employees, consultants, advisors and collaborators. There can be no assurance that these agreements will not be violated by the other parties, that OraVax will have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known or be independently developed by competitors. Certain of the technology that may be used in the products of OraVax is not covered by any patent or patent application. There can be no assurance that any pending patent applications relating to the Company's product candidates will result in patents being issued. Moreover, there can be no assurance that any such patents will afford protection against competitors with similar technology. There may be pending or issued third-party patents relating to the product candidates of OraVax. OraVax may need to acquire licenses to, or to contest validity of, any such third party patents. It is likely that significant funds would be required to defend any claim that OraVax infringes a third-party patent, and any such claim could adversely affect sales of the challenged product of OraVax until the claim is resolved. There can be no assurance that any license required under any such patent would be made available. GOVERNMENT REGULATION. The rigorous preclinical and clinical testing requirements and regulatory approval process of the FDA and of foreign regulatory authorities can take a number of years and require the expenditure of substantial resources. The Company has limited experience in conducting and managing preclinical and clinical testing necessary to obtain government approvals. There can be no assurance that the Company will be able to obtain the necessary approvals for clinical testing or for the manufacturing and marketing of any products that it develops. Additional government regulation may be established that could prevent or delay regulatory approval of the Company's product candidates. Delays in obtaining regulatory approvals would adversely affect the marketing of any products developed by the Company and the Company's ability to receive product revenues or royalties. If regulatory approval of a potential product is granted, such approval may include significant limitations on the indications for which such product may be marketed. Even if initial regulatory approvals for the Company's product candidates are obtained, the Company, its products and its manufacturing facilities are subject to continual review and periodic inspection. The regulatory standards for manufacturing are applied stringently by the FDA. Discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions on such product or manufacturer or facility, including warning letters, fines, suspensions of regulatory approvals, product recalls, operating restrictions, delays in obtaining new product approvals, withdrawal of the product from the market, and criminal prosecution. Other violations of FDA requirements can result in similar penalties. UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT. Government and other third-party payers are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for new products approved for marketing by the FDA and by refusing, in some cases, to provide any coverage for uses of approved products for disease indications for which the FDA has not granted marketing approval. If adequate coverage and reimbursement levels are not provided by government and third party payers for uses of the Company's products, the market acceptance of these products would be adversely affected. Because of these and other factors, past financial performance should not be an indicator of future performance. Investors should not use historical trends to anticipate future results and should be aware that the trading price of the Company's common stock may be subject to wide fluctuations in response to quarter-to-quarter variations in operating results, changes in the biotechnology and pharmaceutical industries and recommendations by analysts or other events. 13 14 PART II: OTHER INFORMATION ITEM 1. Legal Proceedings Not Applicable ITEM 2. Changes in Securities Not Applicable ITEM 3. Default Upon Senior Securities Not Applicable ITEM 4. Submission of Matters to a Vote of Securities Holders Not Applicable ITEM 5. Other Information Not Applicable ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended September 30, 1997. 14 15 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. OraVax, Inc. Date: November XX, 1997 -------------------- ------------------------------------- Lance K. Gordon President and Chief Executive Officer Date: November XX, 1997 -------------------- ------------------------------------- Keith S. Ehrlich Vice President, Finance and Administration and Chief Financial Officer (Principal Financial and Accounting Officer) 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1 6,625 2,985 0 0 0 9,750 7,999 4,022 14,337 6,017 0 0 0 10 6,631 14,337 0 2,150 0 4,563 1,437 0 94 (3,944) 0 (3,944) 0 0 0 (3,944) (.39) (.39)
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