UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended June 30, 2001
OR
For the transition period from _____ to _____
Commission file number 0-22613
AVI BioPharma, Inc.(Exact name of registrant as specified in its charter)
Check whether the issuer (1) 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 ý No o
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
AVI BioPharma, Inc.FORM 10-QINDEX
AVI BIOPHARMA, INC.(A Development Stage Company)BALANCE SHEETS
The accompanying notes are an integral part of these balance sheets.
AVI BIOPHARMA, INC.(A Development Stage Company)STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these statements.
AVI BIOPHARMA, INC.(A Development Stage Company)STATEMENTS OF CASH FLOWS
AVI BioPharma, Inc.NOTES TO FINANCIAL STATEMENTS(Unaudited)
Note 1. Basis of Presentation
The financial information included herein for the three and six-month periods ended June 30, 2001 and 2000 and the financial information as of June 30, 2001 is unaudited; however, such information reflects all adjustments consisting only of normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The financial information as of December 31, 2000 is derived from AVI BioPharma, Inc.'s (the Company's) Form 10-K. The interim financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.
Note 2. Earnings Per Share
Basic EPS is calculated using the weighted average number of common shares outstanding for the period and diluted EPS is computed using the weighted average number of common shares and dilutive common equivalent shares outstanding. Given that the Company is in a loss position, there is no difference between basic EPS and diluted EPS since the common stock equivalents would be antidilutive.
* The following common stock equivalents are excluded from earnings per share calculation as their effect would have been antidilutive:
Item 2. Management’s Discussion and Analysis
Forward-Looking Information
The Financial Statements and Notes thereto should be read in conjunction with the following discussion. The discussion in this Form 10-Q contains certain forward-looking statements that involve risks and uncertainties, including, but not limited to, the results of research and development efforts, the results of pre-clinical and clinical testing, the effect of regulation by FDA and other agencies, the impact of competitive products, product development, commercialization and technological difficulties, and other risks detailed in the Company’s Securities and Exchange Commission filings.
Overview
From its inception in July 1980, the Company has devoted its resources primarily to fund its research and development efforts. The Company has been unprofitable since inception and, other than limited interest, license fees and grants, has had no material revenues from the sale of products or other sources, and does not expect material revenues for at least the next 12 months. The Company expects to continue to incur losses for the foreseeable future as it expands its research and development efforts. As of June 30, 2001, the Company’s accumulated deficit was $67,018,558.
Results of Operations
Revenues, from license fees, grants and research contracts, increased to $87,264 in the second quarter of 2001 from $18,250 in the second quarter of 2000. Revenues, from license fees, grants and research contracts, decreased to $103,244 for the six months ended June 30, 2001 from $1,150,123 for the comparable period of 2000, primarily due to the receipt of a $1,000,000 fee for expansion of a license for diagnostic applications during the first quarter of 2000.
Operating expenses increased to $3,872,194 in the second quarter of 2001 from $2,974,127 in the second quarter of 2000 and to $7,428,940 for the six months ended June 30, 2001 from $5,346,663 for the comparable period of 2000 due to increases in research and development and regulatory affairs staffing and increased expenses associated with outside collaborations and pre-clinical and clinical testing of the Company’s technologies. Additionally, increased general and administrative costs were incurred to support the research expansion, and to continue to broaden the Company’s investor and public relations efforts. Net interest income increased to $238,915 in the second quarter of 2001 from $115,464 in the second quarter of 2000 and to $600,971 for the six months ended June 30, 2001 from $216,245 for the comparable period in 2000 due to earnings on increased cash balances, which were offset slightly by reductions in market interest rates.
Liquidity and Capital Resources
The Company’s cash and cash equivalents were $28,132,365 at June 30, 2001, compared with $25,898,513 at December 31, 2000. The increase of $2,233,852 was primarily due to net proceeds of $9,972,253 from the stock purchase agreement with Medtronic, Inc. and $272,325 from the exercise of options and warrants, offset by $6,252,403 used in operations and $1,758,323 used for investing activities which consist primarily of purchases of property and equipment and patent related costs. In addition the Company’s short-term securities increased by $382,891 to $6,596,477 at June 30, 2001 due to unrealized gains in the value of these securities.
The Company entered into a license and development agreement with Medtronic, Inc. relating to the Company’s antisense compounds which may have application in the treatment of vascular disease. The Company also entered into a separate stock purchase agreement with Medtronic for $10,000,000 in cash in exchange for 1,408,451 shares of AVI common stock and a warrant to purchase 3,000,000 shares of AVI common stock. Closing of the transaction occurred during the second quarter of 2001.
The Company’s future expenditures and capital requirements will depend on numerous factors, including without limitation, the progress of its research and development programs, the progress of its pre-clinical and clinical trials, 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, the ability of the Company to establish collaborative arrangements and the terms of any such arrangements, and the costs associated with commercialization of its products. The Company’s cash requirements are expected to continue to increase significantly each year as it expands its activities and operations. There can be no assurance, however, that the Company will ever be able to generate product revenues or achieve or sustain profitability.
The Company expects that its cash requirements over the next twenty-four months will be satisfied by existing cash resources.
PART II – OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On June 22, 2001, the Company issued to Medtronic Asset Management, Inc. (“MAMI”), a wholly-owned subsidiary of Medtronic, Inc., 1,408,451 shares of its Common Stock, par value $0.0001 (“Common Stock”), constituting approximately 6.53% of the Company’s then outstanding Common Stock, for $7.10 per share (aggregate purchase price: approximately $10 million) and a warrant to acquire 3,000,000 shares of Common Stock at an exercise price of $10.00 per share. The shares were issued pursuant to exemptions from the registration requirements of the Securities Act of 1933 pursuant to Section 4(2) and Regulation D. The net proceeds from the offering have been added to working capital and will be used to fund the Company’s ongoing operations.
Item 4. Submission of Matters to a Vote of Security Holders
On May 17, 2001, at the Annual Meeting of the Company's Shareholders, the shareholders approved each of the proposals set forth in the Company's Proxy Statement dated April 16, 2001, briefly described below:
(i) The shareholders were requested to elect the following individuals to the Board of Directors:
The foregoing directors were approved.
(ii) The shareholders were asked to approve the selection of Arthur Andersen LLP as the Company's independent auditors. The proposal was approved by the shareholders, as 15,162,727 votes were cast for the proposal, 14,295 votes were against, and 29,392 votes abstained.
Item 5. Other Information
EXELIXIS AGREEMENT
In April 2000, the Company entered into an alliance with Exelixis Inc. for functional genomics and antisense drug development. Under the terms of the agreement, Exelixis will apply its expertise in genetic model systems to discover, validate and screen novel targets suitable for inhibition by antisense therapeutics. We will design and synthesize NeuGene morpholinos for use as drugs and conduct preclinical and clinical studies on antisense drug candidates arising from the collaboration. The two companies will jointly own, and Exelixis has an option to co-develop with us, certain antisense products that arise from the alliance.
MEDTRONIC AGREEMENTS
In June 2001, we entered into a License and Development Agreement ("License Agreement") with Medtronic, Inc. ("Medtronic") wherein Medtronic received exclusive rights for certain antisense compounds, for use in conjunction with medical devices, to combat vascular disease. The Medtronic relationship was initially reported in a Form 8-K filed with the SEC on June 6, 2001 (reporting date of May 22, 2001) with additional information reported in a Form 8-K filed on July 2, 2001. Under the agreement, the Company received a $10 million equity investment from Medtronic, and could receive other milestone payments, option elections, and warrant exercises. The proposed commercial applications and sale of the technology by Medtronic are subject to further product development, certain clinical testing and trials, governmental approvals (including Federal Drug Administration approval for United States sales) and other action which could take several years. Upon the occurence of certain events specified in the License and Development Agreement, the Company is entitled to certain fixed payments; and, upon commercial exploitation of the licensed technology, the Company is entitled to certain percentage royalty payments. There is no assurance the milestones will be met or that the licensed technology will be commercially exploited and royalties received.
As previously reported, the Company issued to Medtronic Asset Management, Inc. (“MAMI”), a wholly-owned subsidiary of Medtronic, 1,408,451 shares of its Common Stock, par value $0.0001 (“Common Stock”), constituting approximately 6.53% of the Company’s then outstanding Common Stock, for $7.10 per share (aggregate purchase price: approximately $10 million) and a warrant to acquire 3,000,000 shares of Common Stock at an exercise price of $10.00 per share ("Medtronic Warrant"). The Investment Agreement between the Company and MAMI provides for additional purchases by MAMI of up to $10,000,000 of AVI Common Stock subject to the achievement of certain milestones and the receipt of certain governmental and regulatory approvals. 352,113 shares of Common Stock will be issued at a price of $7.10 per share (aggregate purchase price: approximately $2.5 million) upon the first milestone being met or waived and any required governmental or shareholder approvals, if any.
OFFICE LEASE
On May 8, 2001, the Company entered a new office lease for its approximate 2,543 square foot executive office space at One SW Columbia, Suite 1105, Portland, OR 97258. The prior lease expired July 31, 2001 and the new lease covers the period August 1, 2001 through July 31, 2004. The space is believed to be adequate for the Company’s needs for executive office space for the foreseeable future.
Item 6. Exhibits and Reports on Form 8–K
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.