-----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, RcaoL6rH4RA/0ulSSC3PLLNO/kQQGBxD5P8adIj70ZqOFvdJiCx4AvpFQXqIRFkD WfLyopGr82Pvwn/G/Z0ojw== 0000950135-97-003226.txt : 19970806 0000950135-97-003226.hdr.sgml : 19970806 ACCESSION NUMBER: 0000950135-97-003226 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970805 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIRUS RESEARCH INSTITUTE INC CENTRAL INDEX KEY: 0000902010 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 223098869 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20711 FILM NUMBER: 97651271 BUSINESS ADDRESS: STREET 1: 61 MOULTON ST CITY: CAMBRIDGE STATE: MA ZIP: 02139 BUSINESS PHONE: 6178646232 MAIL ADDRESS: STREET 1: 61 MOULTON ST CITY: CAMBRIDGE STATE: MA ZIP: 02138 10-Q 1 VIRUS RESEARCH INSTITUTE FORM 10-Q (6/30/97) 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, 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 0-20711 - -------------------------------------------------------------------------------- VIRUS RESEARCH INSTITUTE, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 22-3098869 - -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 61 Moulton Street, Cambridge, MA 02138 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (617) 864-6232 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - -------------------------------------------------------------------------------- (Former name, address and fiscal year, if changed since last report) 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 As of July 22, 1997, there were 8,902,281 shares of Common Stock outstanding. 2 VIRUS RESEARCH INSTITUTE, INC. INDEX
PART I - FINANCIAL INFORMATION Page Item 1. Financial Statements: Balance Sheets as of June 30, 1997 and December 31, 1996..........................................................3 Statements of Operations for the Three Months Ended June 30, 1997 and 1996, for the Six Months Ended June 30, 1997 and 1996, and for the Period from Inception through June 30, 1997............................4 Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996, and for the period from Inception through June 30, 1997............................5 Notes to Financial Statements ...............................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................7 PART II - OTHER INFORMATION Item 1. Legal Proceedings...........................................................13 Item 2. Changes in Securities.......................................................13 Item 3. Defaults upon Senior Securities.............................................13 Item 4. Submission of Matters to a Vote of Security Holders.........................13 Item 5. Other Information...........................................................13 Item 6. Exhibits and Reports on Form 8-K............................................13 SIGNATURES ...................................................................................14
(2) 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VIRUS RESEARCH INSTITUTE, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS
JUNE 30, DECEMBER 31, 1997 1996 ------------ ------------ Current assets: Cash and cash equivalents $ 4,030,888 $ 15,209,180 Marketable securities 18,377,646 10,339,985 Interest receivable 239,988 218,285 Prepaid expenses 439,835 220,534 Other current assets 261,370 659 ------------ ------------ Total current assets 23,349,727 25,988,643 Noncurrent assets: Marketable securities 0 499,891 Leasehold improvements and equipment (net of accumulated depreciation and amortization of $2,244,230 at June 30, 1997 and $2,015,483 at December 31, 1996) 830,585 881,363 Other assets 52,413 67,634 ------------ ------------ Total noncurrent assets 882,998 1,448,888 ------------ ------------ Total assets $ 24,232,725 $ 27,437,531 ============ ============ Current liabilities: Accounts payable $ 142,145 $ 43,809 Accrued consulting and research fees 523,493 810,677 Other accrued expenses 583,303 412,759 Deferred revenue 150,000 0 Current portion of lease obligation payable 131,770 155,079 ------------ ------------ Total current liabilities 1,530,711 1,422,324 Lease obligation payable, less current portion 16,131 64,351 Stockholders' equity: Preferred stock -- $.001 par value; 5,000,000 shares authorized, none issued Common stock -- $.001 par value; 30,000,000 shares authorized; 8,902,131 shares issued at June 30, 1997 and 8,845,027 shares issued at December 31, 1996 8,902 8,845 Additional paid-in capital 51,927,725 51,907,179 Deficit accumulated during the development stage (29,250,744) (25,965,168) ------------ ------------ Total stockholders' equity 22,685,883 25,950,856 ------------ ------------ Total liabilities and stockholders' equity $ 24,232,725 $ 27,437,531 ============ ============
SEE NOTES TO FINANCIAL STATEMENTS (3) 4 VIRUS RESEARCH INSTITUTE, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED CUMULATIVE JUNE 30, JUNE 30, SINCE INCEPTION 1997 1996 1997 1996 (1991) - ------------------------------------------------------------------------------------------------------------------------ REVENUE: Licensing and option revenue $ 250,000 $2,500,000 $ 250,000 $2,520,000 $ 6,240,000 Research and development revenue 387,491 312,500 774,982 837,500 3,340,180 Interest income 339,816 99,465 672,596 111,892 1,897,128 ------------------------------------------------------------------------------ TOTAL REVENUE 977,307 2,911,965 1,697,578 3,469,392 11,477,308 EXPENSES: Research and development 1,672,085 1,286,648 3,372,561 2,633,634 27,382,041 General and administrative 634,833 567,668 1,346,851 916,476 10,311,210 Depreciation 98,140 175,077 228,747 343,662 2,346,578 Interest expense 17,010 63,161 34,995 123,118 688,223 ------------------------------------------------------------------------------ TOTAL EXPENSES 2,422,068 2,092,554 4,983,154 4,016,890 40,728,052 ------------------------------------------------------------------------------ NET INCOME (LOSS) $(1,444,761) $ 819,411 $(3,285,576) $ (547,498) $(29,250,744) ============================================================================== Net income (loss) per share ($0.16) $0.12 ($0.37) ($0.08) ========================================================== Weighted average common shares outstanding 8,892,995 6,864,975 8,877,493 6,451,487
SEE NOTES TO FINANCIAL STATEMENTS (4) 5 VIRUS RESEARCH INSTITUTE, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED CUMULATIVE JUNE 30, SINCE INCEPTION 1997 1996 (1991) ------------------------------------------------- Cash flows from operating activities: Net Loss $ (3,285,576) $ (547,498) $(29,250,744) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 232,743 366,412 2,393,108 Conversion of accrued interest to preferred stock 0 46,026 58,373 Changes in operating assets and liabilities: Increase in prepaid expenses and other assets (486,493) (107,176) (870,478) Increase (decrease) in accounts payable and accrued expenses (18,305) (8,132) 1,248,939 Increase in deferred revenue 150,000 137,500 150,000 ----------------------------------------------- Net cash used in operating activities (3,407,631) (112,868) (26,270,802) Cash flows from investing activities: Purchases of marketable securities, net (7,537,770) 0 (18,377,646) Capital expenditures (177,968) (321,206) (3,092,260) Other 0 0 (46,182) ----------------------------------------------- Net cash used in investing activities (7,715,738) (321,206) (21,516,088) Cash flows from financing activities: Proceeds from notes payable 0 0 7,973,668 Sale and leaseback related to capital acquisitions 0 0 751,311 Principal payments on lease obligations (75,525) (90,745) (759,720) Sale of common stock 20,602 27,607,712 27,710,461 Sale of preferred stock 0 1,500,140 19,258,613 Offering costs 0 (2,701,243) (3,112,941) Founders' shares reacquired 0 0 (846) Purchase of treasury stock 0 0 (2,768) ----------------------------------------------- Net cash provided by (used in) financing activities (54,923) 26,315,864 51,817,778 Net increase (decrease) in cash and cash equivalents (11,178,292) 25,881,790 4,030,888 Cash and cash equivalents, beginning of period 15,209,180 1,180,176 0 =============================================== Cash and cash equivalents, end of period $ 4,030,888 $27,061,966 $ 4,030,888 =============================================== Supplemental disclosure of cash flow information: Interest paid during the period $ 15,775 $ 34,492 $ 246,438
SEE NOTES TO FINANCIAL STATEMENTS (5) 6 VIRUS RESEARCH INSTITUTE, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 (1) FINANCIAL STATEMENT PRESENTATION The unaudited financial statements of Virus Research Institute, Inc. (the "Company") herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary to present fairly the results of operations for the interim periods presented. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principals have been condensed or omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading. These financial statements and the notes thereto should be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. The results for the interim period presented are not necessarily indicative of the results for the full fiscal year. (2) NET INCOME (LOSS) PER COMMON SHARE The net income (loss) per common share and shares used in computing net income (loss) per common share for the three and six months ended June 30, 1996 are presented on a pro forma basis and are based on the weighted average number of common shares outstanding during the period presented and reflect the automatic conversion of all preferred stock then outstanding into common stock. (6) 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of the Company for the three and six months ended June 30, 1997 and 1996 should be read in conjunction with the accompanying unaudited financial statements and the related notes thereto. This report may contain certain forward looking statements which involve risks and uncertainties. Such statements are subject to certain factors which may cause the Company's plans and results to differ significantly from the plans and results discussed in forward looking statements. Factors that may cause such differences include, but are not limited to, the progress of the Company's research and development programs, the Company's ability to compete successfully with larger companies, risks of failure inherent in product development based on new technologies and novel delivery systems, the Company's ability to attract and retain qualified personnel, the Company's ability to enter into and maintain collaborations with third parties, the Company's ability to enter into and progress in clinical trials, the time and costs involved in obtaining regulatory approvals, the costs involved in obtaining and enforcing patents, proprietary rights and any necessary licenses, the ability of the Company to establish development and commercialization capacities or relationships, the costs of manufacturing, and the Company's ability to obtain additional funds. OVERVIEW Virus Research Institute, Inc. (the "Company") is engaged in the discovery and development of vaccine delivery systems and improved and novel vaccines for adults and children. The Company is developing a portfolio of proprietary vaccine delivery systems designed to improve the efficacy, lower the cost of administration and improve patient compliance for a variety of vaccine products. The Company and its collaborators currently are applying the Company's vaccine delivery systems to develop vaccines for the prevention of influenza, Lyme disease, and H. pylori infections. The Company has entered into long-term collaboration agreements with Pasteur Merieux Connaught (PMC), Pasteur Merieux-OraVax (PM-O) and CSL, Ltd. pursuant to which they may utilize the Company's vaccine delivery systems in developing a number of vaccines. The Company is also developing its own proprietary vaccines utilizing antigens licensed exclusively by the Company. These vaccines include an oral vaccine for rotavirus infection, which is a gastrointestinal disease of infants, and a vaccine for the virus causing genital herpes, HSV2. (7) 8 The Company is in the development stage and has devoted substantially all of its resources to the research and development of its vaccine delivery systems and vaccine candidates and general and administrative expenses. Through June 30, 1997 the Company has not generated any revenue from product sales, but has received an aggregate of $11,477,000 in revenues from licensing and option agreements, research and development agreements and grants, and interest income. There can be no assurance that the Company will receive such revenue in the future. The Company has realized losses in every year since inception, principally as a result of expenditures incurred in its research and development programs. The Company expects to continue to incur significant operating losses over the next several years due primarily to expanded research and development efforts, preclinical and clinical testing of its product candidates, investment in new technologies, investment in production capabilities for certain product candidates and expenditures for commercialization activities. The Company's results of operations may vary significantly from quarter to quarter due to the timing of license and milestone payments, development expenditures and other factors. NEW DEVELOPMENTS Preliminary results from the Company's Phase I/II clinical trial of its rotavirus vaccine candidate became available during the first quarter of 1997. The clinical trial was a double-blinded, placebo controlled study designed to define the optimal vaccine dose and optimal age for immunization. The results demonstrated that the vaccine was generally well tolerated in younger infants and elicited broad immune responses in all infants. Based on these findings and the results of an earlier Phase I study, the Company initiated a Phase II efficacy study during the second quarter of 1997. This trial is designed to examine the vaccine's ability to prevent rotavirus infection and to further study the safety of the vaccine. Approximately 240 infants will be enrolled in the trial which is being conducted at four U.S. medical centers. Results from the study are expected to be available during 1998. (8) 9 In April 1997, VRI and the Company's collaborator, PMC, announced the successful completion of a Phase I clinical trial of an Adjumer(TM)-formulated influenza vaccine. The study, which was conducted in France by PMC, was designed to evaluate the safety and level of immune response of an influenza vaccine formulated with Adjumer(TM). The results showed that the vaccine was well tolerated and elicited improved immune responses in the vaccinated volunteers. Based on these findings, PMC plans to initiate a Phase II study of the Adjumer(TM)-formulated vaccine later this year. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 Total revenue declined by $1,935,000 to $977,000 for the three months ended June 30, 1997 from $2,912,000 for the same period in 1996. Licensing and option revenue in 1996 consisted of $2,500,000 for the achievement of milestones pursuant to an agreement with PMC. During the three months ended June 30, 1997, the Company earned a $250,000 milestone payment pursuant to an agreement with PM-O. Research and development revenue increased $75,000 to $387,000 for the quarter ended June 30, 1997 from $312,000 for the same period in 1996. The increase is attributable to the receipt in 1997 of $75,000 in research support funding from Chiron. Interest income increased by $240,000 to $340,000 for the three months ended June 30, 1997 from $100,000 for the 1996 quarter due to an increase in cash, cash equivalents and marketable securities resulting from the Company's 1996 initial public offering. Total expenses increased $329,000 to $2,422,000 for the three months ended June 30, 1997 from $2,093,000 for the same period in 1996. The increase is primarily the result of a $385,000 increase in research and development expenditures from $1,287,000 for the three months ended June 30, 1996 to $1,672,000 for the 1997 period principally due to an increase in outside manufacturing costs associated with the polyphosphazene manufacturing process and higher compensation costs. General and administrative costs increased by $67,000 from $568,000 (9) 10 in 1996 to $635,000 in 1997 primarily due to higher legal patent expenditures and corporate investor relations costs. These increases were offset by a reduction in foreign withholding taxes associated with milestone payments from PMC. Depreciation expense declined $77,000 to $98,000 for the second quarter of 1997 from $175,000 in 1996 due to the full depreciation of various leasehold improvements. Interest expense declined $46,000 to $17,000 for the three months ended June 30, 1997 from $63,000 in the prior year period due to reduced interest costs associated with certain short term loans entered into in 1995 and 1996. These short term loans were converted into common stock upon the completion of the Company's initial public offering. SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996 The Company's total revenue decreased $1,771,000 from $3,469,000 for the six months ended June 30, 1996 to $1,698,000 for the 1997 year to date period. Licensing and option revenue declined by $2,270,000 from $2,520,000 in 1996 to $250,000 in 1997. The decline is the result of a reduction in milestone payments as discussed in the preceding section. Research and development revenue declined by $62,000, from $837,000 for the six months ended June 30, 1996 to $775,000 for the 1997 period. Interest income increased by $561,000 to $673,000 for the six months ended June 30, 1997 from $112,000 for the 1996 six month period due to the interest earned from the proceeds of the Company's initial public offering. Total expenses for the six months ended June 30, 1997 increased by $967,000 to $4,983,000 in 1997 from $4,016,000 in 1996. Research and development expenses increased $739,000 to $3,372,000 for the six months ended June 30, 1997 from $2,633,000 in the prior year due primarily to an increase in costs associated with the polyphosphazene manufacturing process and the rotavirus clinical studies. General and administrative expenses increased by $431,000 to $1,347,000 for the 1997 period from $916,000 in 1996. The increase is principally attributable to higher legal and patent expenditures, as well as corporate investor relations costs. Depreciation expense declined $115,000 to $229,000 for the six months ended June 30, 1997 from $344,000 for the prior year period due principally to the full depreciation of certain leasehold improvements. Interest expense declined by $88,000 to $35,000 in 1997 from $123,000 in 1996 due to reduced interest costs associated with the short term loans discussed in the preceding section. (10) 11 LIQUIDITY AND CAPITAL RESOURCES From inception (February 11, 1991) through June 30, 1997, the Company's cash expenditures have exceeded revenues. The Company's operations have been funded principally through the sale of equity, loans from stockholders, equipment lease financing and payments under licensing, option and research and development agreements. Net cash used by the Company's operations since inception through June 30, 1997 was $26,271,000, primarily to fund research and development efforts and general and administrative expenses. Since inception the Company has incurred $3,092,000 in capital expenditures, primarily for leasehold improvements and equipment for the Company's laboratories. During the six months ended June 30, 1997 the Company incurred $178,000 in capital expenditures principally for equipment necessary for the scale up of polyphosphazene manufacturing. The Company currently anticipates incurring approximately $400,000 in capital expenditures during 1997, primarily on additional polyphosphazene manufacturing equipment. From inception through June 30, 1997, the Company raised net proceeds of approximately $51,826,000 through the sale of equity securities. Included in this amount are net proceeds of $24,743,000 from the Company's initial public offering in 1996 and the conversion to common stock of an aggregate of $7,974,000 in notes payable to certain stockholders. The Company expects to incur substantial additional costs, including those related to research and development activities, preclinical studies, clinical trials, obtaining regulatory approvals, process scale up and manufacture, and investment in its facilities. The Company anticipates that its existing funds, which include the proceeds from its initial public offering and interest earned thereon, should be sufficient to fund its operating and capital requirements as currently planned through the end of 1998. However, the Company's cash requirements may vary materially from those now planned, due to many factors, including, but not limited to, the progress of the Company's research and development programs, the scope and results of preclinical and clinical testing, changes in existing and potential relationships with corporate collaborators, the time and cost in obtaining regulatory approvals, the costs involved in obtaining and enforcing patents, proprietary rights and any necessary licenses, the ability of the Company to establish development and (11) 12 commercialization capacities or relationships, the costs of manufacturing and other factors. In the future, the Company may need to raise substantial additional funds through additional financing, including public or private equity offerings and collaborations with corporate partners. There can be no assurance that funds will be available on terms acceptable to the Company, if at all. If adequate funds are not available, the Company may be required to delay, scale back, or eliminate certain of its product development programs or to license to others the right to commercialize products or technologies the Company would otherwise seek to develop and commercialize itself, any of which could have a material adverse effect on the Company. (12) 13 PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities Not applicable Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 11.1 Statement regarding computation of earnings per share 27.1 Financial Data Schedule (b) No reports on Form 8-K were filed by the Company during the quarter ended June 30, 1997. (13) 14 SIGNATURES 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. Dated: August 5, 1997 VIRUS RESEARCH INSTITUTE, INC. a Delaware Corporation (Registrant) By: /S/ J. Barrie Ward -------------------------------------- J. Barrie Ward Chief Executive Officer By: /S/ William A. Packer -------------------------------------- William A. Packer President, Chief Financial Officer (14) EX-11.1 2 COMPUTATION OF EARNINGS PER SHARE 1 ITEM 6 EXHIBIT 11.1 STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE VIRUS RESEARCH INSTITUTE, INC. (A DEVELOPMENT STAGE COMPANY) COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1997 1996 1997 1996 --------------------------------------------------------------------- Net income (loss) $(1,444,761) $ 819,411 $(3,285,576) $ (547,498) Shares used in computing net loss per common share: Weighted average common stock outstanding during the period 8,892,995 1,187,553 8,877,493 938,800 Conversion of redeemable convertible preferred stock (1) 0 5,576,644 0 5,512,687 Common stock equivalents (2) N/A 100,778 N/A N/A --------------------------------------------------------------------- Weighted average common shares outstanding 8,892,995 6,864,975 8,877,493 6,451,487 Net income (loss) per common share ($0.16) $0.12 ($0.37) ($0.08) =====================================================================
(1) Effective with the closing of the Company's initial public offering of common stock, redeemable convertible preferred stock converted into shares of common stock. Accordingly, the equivalent number of weighted average common shares that would have been outstanding during the three and six months ended June 30, 1996 have been included as outstanding. (2) No common stock equivalents have been included in the three and six months ended June 30, 1997 and the six months ended June 30, 1996 as their effect would be antidilutive. EX-27 3 FINANCIAL DATA SCHEDULE
5 U.S.DOLLARS 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 1 4,030,888 18,377,646 0 0 0 23,349,727 3,074,815 (2,244,230) 24,232,725 1,530,711 0 0 0 8,902 22,676,981 24,232,725 0 1,697,578 0 0 4,983,154 0 0 (3,285,576) 0 (3,285,576) 0 0 0 (3,285,576) (0.37) (0.37)
-----END PRIVACY-ENHANCED MESSAGE-----