Celldex Therapeutics, Inc. - Quarter Report: 2004 March (Form 10-Q)

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-Q

 

 

AVANT IMMUNOTHERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

119 Fourth Avenue, Needham, Massachusetts 02494-2725

(Address of principal executive offices) (Zip Code)

 

(781) 433-0771

(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 ý          No o.

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12 b-2 of the Exchange Act.)          Yes ý          No o.

 

As of April 23, 2004, 74,291,400 shares of common stock, $.001 par value per share, were outstanding.

 

 

AVANT IMMUNOTHERAPEUTICS, INC.

FORM 10-Q

Quarter Ended March 31, 2004

Table of Contents

 

Part I — Financial Information
Consolidated Balance Sheet at March 31, 2004 and December 31, 2003
Consolidated Statement of Operations for the Three Months Ended March 31, 2004 and 2003
Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2004 and 2003
Notes to Consolidated Financial Statements
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
Part II — Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
Signatures
Certifications

 

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PART I — FINANCIAL INFORMATION

 

Item 1.   Financial Statements

 

AVANT IMMUNOTHERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEET

March 31, 2004 and December 31, 2003

(Unaudited)

 

		March 31, 2004			December 31, 2003
ASSETS
Current Assets:
Cash and Cash Equivalents		$	41,161,500		$	20,251,000
Accounts Receivable		1,652,600			1,472,800
Prepaid Expenses and Other Current Assets		629,700			585,200
Total Current Assets		43,443,800			22,309,000
Property and Equipment, Net		1,053,100			912,700
Intangible and Other Assets		6,798,200			7,047,100
Goodwill		1,036,300			1,036,300
Total Assets		$	52,331,400		$	31,305,100
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable		$	427,300		$	475,800
Accrued Expenses		2,132,100			1,453,400
Current Portion Deferred Revenue		381,800			1,456,200
Total Current Liabilities		2,941,200			3,385,400
Stockholders’ Equity:
Convertible Preferred Stock, 4,513,102 Shares Authorized; None Issued and Outstanding at March 31, 2004 and December 31, 2003		—			—
Common Stock, $.001 Par Value; 100,000,000 Shares Authorized; 74,291,400 Issued and 74,071,100 Outstanding at March 31, 2004 and 64,928,400 Issued and 64,708,100 Outstanding at December 31, 2003		74,300			64,900
Additional Paid-In Capital		256,945,000			233,643,500
Deferred Compensation		(920,000		)	(989,000		)
Less: 220,300 Common Treasury Shares at Cost at March 31, 2004 and December 31, 2003		(227,600		)	(227,600		)
Accumulated Deficit		(206,481,500		)	(204,572,100		)
Total Stockholders’ Equity		49,390,200			27,919,700
Total Liabilities and Stockholders’ Equity		$	52,331,400		$	31,305,100

 

See accompanying notes to unaudited consolidated financial statements

 

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AVANT IMMUNOTHERAPEUTICS, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

For the Three Months Ended March 31, 2004 and 2003

(Unaudited)

 

		March 31, 2004			March 31, 2003
REVENUE:
Product Development and Licensing Agreements		$	2,124,400		$	169,400
Government Contracts		879,900			477,000
Product Royalties		26,400			35,300
Total Revenue		3,030,700			681,700
OPERATING EXPENSE:
Research and Development		3,453,200			2,692,500
General and Administrative		1,292,100			1,224,700
Amortization of Intangible Assets		248,800			248,800
Total Operating Expense		4,994,100			4,166,000
Operating Loss		(1,963,400		)	(3,484,300		)
Investment Income, Net		54,000			122,100
Net Loss		$	(1,909,400	)	$	(3,362,200	)
Basic and Diluted Net Loss Per Common Share		$	(0.03	)	$	(0.06	)
Weighted Average Common Shares Outstanding		69,169,600			60,468,600

 

See accompanying notes to unaudited consolidated financial statements

 

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AVANT IMMUNOTHERAPEUTICS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Three Months Ended March 31, 2004 and 2003

(Unaudited)

 

		March 31, 2004			March 31, 2003
Cash Flows from Operating Activities:
Net Loss		$	(1,909,400	)	$	(3,362,200	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Depreciation and Amortization		352,700			435,100
Amortization of Deferred Compensation		69,000			¾
Changes in Assets and Liabilities:
Accounts Receivable		(179,800		)	(403,600		)
Prepaid and Other Current Assets		(44,500		)	21,900
Accounts Payable and Accrued Expenses		630,300			(681,800		)
Deferred Revenue		(1,074,400		)	913,100
Net Cash Used in Operating Activities		(2,156,100		)	(3,077,500		)
Cash Flows from Investing Activities:
Acquisition of Property and Equipment		(244,300		)	(100,400		)
Increase in Patents		¾			(59,900		)
Cash Paid for Acquisition of Universal Preservation Technologies, Inc. Assets		¾			(2,000,000		)
Net Cash Used in Investing Activities		(244,300		)	(2,160,300		)
Cash Flows from Financing Activities:
Proceeds from Stock Issuance		23,090,700			¾
Proceeds from Exercise of Stock Options and Warrants		220,200			3,400
Purchases of Treasury Stock		¾			(85,900		)
Net Cash (Used In) Provided by Financing Activities		23,310,900			(82,500		)
Decrease in Cash and Cash Equivalents		20,910,500			(5,320,300		)
Cash and Cash Equivalents at Beginning of Period		20,251,000			25,070,700
Cash and Cash Equivalents at End of Period		$	41,161,500		$	19,750,400

 

See accompanying notes to unaudited consolidated financial statements

 

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AVANT IMMUNOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

March 31, 2004

 

(1)           Nature of Business

 

AVANT Immunotherapeutics, Inc. is engaged in the discovery, development and commercialization of products that harness the human immune system to prevent and treat disease.  The Company is developing a broad portfolio of vaccines and therapeutics against cardiovascular, viral and bacterial diseases, including single-dose oral vaccines aimed at protecting travelers and people in endemic regions from cholera, typhoid fever and other illnesses.  In addition, the Company is conducting clinical studies of a treatment to reduce complement-mediated tissue damage associated with cardiac by-pass surgery, and a proprietary vaccine candidate for cholesterol management.  AVANT further leverages the value of its technology portfolio through corporate partnerships.  Current collaborations encompass the development of an oral human rotavirus vaccine, vaccines to combat threats of biological warfare, and vaccines addressed to human food safety and animal health.

 

The unaudited consolidated financial statements include the accounts of AVANT Immunotherapeutics, Inc. and its wholly owned subsidiary, Megan Health, Inc.  All intercompany transactions have been eliminated.

 

(2)           Interim Financial Statements

 

The accompanying unaudited consolidated financial statements for the three months ended March 31, 2004 and 2003 include the consolidated accounts of AVANT, and have been prepared in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X.  In the opinion of management, the information contained herein reflects all adjustments, consisting solely of normal recurring adjustments, that are necessary to present fairly the financial position at March 31, 2004, the results of operations for the three-month periods ended March 31, 2004 and 2003, and the cash flows for the three-month periods ended March 31, 2004 and 2003.  The results of operations for the three-month period ended March 31, 2004 is not necessarily indicative of results for any future interim period or for the full year.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted, although we believe that the disclosures included, when read in conjunction with AVANT’s Annual Report on Form 10-K for the year ended December 31, 2003, are adequate to make the information presented not misleading.

 

(3)           Property and Equipment

 

Property and equipment includes the following:

 

		March 31, 2004			December 31, 2003
Laboratory Equipment		$	2,447,300		$	2,422,100
Manufacturing Equipment		165,300			¾
Office Furniture and Equipment		1,655,700			1,633,500
Leasehold Improvements		1,700,000			1,668,400
Property and Equipment, Total		5,968,300			5,724,000
Less Accumulated Depreciation and Amortization		(4,915,200		)	(4,811,300		)
		$	1,053,100		$	912,700

 

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(4)           Intangible and Other Assets

 

Intangible and other assets include the following:

 

		Estimated Lives			March 31, 2004			December 31, 2003
Intangible Assets:
Collaborative Relationships		5 years			1,090,000			1,090,000
Core Technology		10 years			3,786,900			3,786,900
Developed Technology		7 years			3,263,100			3,263,100
Strategic Partner Agreement		17 years			2,563,900			2,563,900
Accumulated Amortization					(3,990,400		)	(3,741,600		)
Intangible Assets, Net					6,713,500			6,962,300
Other Non Current Assets					84,800			84,800
					$	6,798,300		$	7,047,100

 

All of our intangible assets are amortized over their useful lives.  Total amortization expense for intangible assets was $248,800 for the three-month periods ended March 31, 2004 and 2003.

 

The estimated future amortization expense of intangible assets as March 31, 2004 for the remainder of fiscal year 2004 and the five succeeding years is as follows:

 

Year ending December 31,		Estimated Amortization Expense
2004 (remaining nine months)		$	746,300
2005		995,100
2006		995,100
2007		956,300
2008		529,500
2009		529,500

 

(5)           Net Income (Loss) Per Share

 

Consistent with SFAS 128, basic earnings (loss) per share amounts are based on the weighted average number of shares of common stock outstanding during the period.  Diluted earnings (loss) per share amounts are based on the weighted average number of shares of common stock and the potential common stock outstanding during the period.  We have excluded all of the potential common stock shares from the calculation of diluted weighted average share amounts for the three-month periods ended March 31, 2004 and 2003 as its inclusion would have been anti-dilutive.  A total of 3,517,700 and 5,201,900 stock options and warrants were excluded from the computation of weighted average common shares as of March 31, 2004 and 2003, respectively, as they were anti-dilutive.

 

(6)           Stock Options

 

We periodically grant stock options for a fixed number of shares to employees and directors with an exercise price equal to the fair market value of the shares at the date of grant.  We account for such stock option grants using the intrinsic value method and intend to continue to do so.

 

The following are pro forma net loss and loss per share, as if compensation expense for the option plans had been determined based on the fair value at the date of grant:

 

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		Three months ended March 31,
		2004			2003
Net Loss:
As reported		$	1,909,400		$	3,362,200
Add: Stock-based employee compensation expense as reported		69,000			—
Less: Total stock-based employee compensation expense determined under fair value based method for all awards		(171,300		)	(226,100		)
Pro forma		1,807,100			3,588,300
Basic and Diluted Net Loss Per Share:
As reported		$	0.03		$	0.06
Pro forma		0.03			0.06

 

The fair value of the option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

 

		Three months ended March 31,
		2004		2003
Expected stock price volatility		109	%	109	%
Expected option term		5 Years		2.5 Years
Risk-free interest rate		2.7 – 3.5	%	1.2 – 1.6	%
Expected dividend yield		None		None

 

Because additional option grants are expected to be made each year, the above pro forma disclosures are not representative of pro forma effects of reported net income for future years.

 

(7)           Product Development and Licensing Agreements

 

Our revenue from product development and licensing agreements was received pursuant to contracts with different organizations.  Total revenue recognized by us in connection with these contracts for the years ended December 31, 2003, 2002 and 2001 were approximately $1,803,900, $6,412,400 and $2,999,800, respectively.  A summary of these contracts follows:

 

(A)          GlaxoSmithKline plc

 

During 1997, AVANT entered into an agreement with GlaxoSmithKline plc (“Glaxo”) to collaborate on the development and commercialization of our oral rotavirus vaccine.  Under the terms of the agreement, Glaxo received an exclusive worldwide license to commercialize AVANT’s rotavirus vaccine.  We were responsible for continuing the Phase II clinical efficacy study of the rotavirus vaccine, which was completed in August 1998.  Glaxo made an initial license payment of $250,000 in 1997 upon execution of the agreement.  In June 1999, we received a milestone payment of $500,000 from Glaxo for the successful completion of the Phase II clinical efficacy study and the establishment of a commercially viable process for manufacture of the vaccine.  Glaxo has assumed responsibility for all subsequent clinical trials and all other development activities.  Glaxo initiated global Phase III clinical trials of Rotarix® in the third quarter of 2003, and AVANT recognized a $1.0 million milestone.  AVANT has no obligation to incur any research and development costs in connection with this agreement.  AVANT is obligated to maintain a license with an academic institution with respect to this agreement and incurred licensing fees of $200,000, $400,000 and $300,000 in 2003, 2002 and 2001, respectively.  The term of this agreement is through the expiration of the last of the patents covered by the agreement, although Glaxo may terminate the agreement upon 90 days prior written notice.  Glaxo has agreed to make further payments, which could total up to $7.5 million, upon

 

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the achievement of specified milestones.  In addition, we will be entitled to royalties based on net sales of Rotarix®.

 

(B)          Pfizer Inc

 

In connection with our acquisition of Megan, we entered into a licensing agreement with Pfizer Inc, Animal Health Division (“Pfizer”), whereby Pfizer has licensed Megan’s technology for the development of animal health and food safety vaccines.  Upon execution of the agreement, Pfizer made an initial license payment of $2.5 million together with a $3 million equity investment.  In December 2002, we received a milestone payment of $500,000 from Pfizer as a result of the submission of an application with the USDA for licensure of a food safety vaccine.  Under the agreement, we may receive additional milestone payments of up to $3 million based upon attainment of specified milestones.  We have received research and development funding totaling $1 million from Pfizer through November 2002 while incurring $1,057,000 in associated research and development costs.  AVANT may receive royalty payments on eventual product sales.  The term of this agreement is through the expiration of the last of the patents covered by the agreement.  AVANT has no obligation to incur any research and development costs in connection with this agreement.

 

(C)          DynPort Vaccine Company LLC

 

In October 2001, we granted DynPort Vaccine Company LLC (DVC) a license for exclusive rights to use certain components of AVANT’s anthrax vaccine technology.  In October 2001, in connection with the execution of the agreement, AVANT received a $200,000 materials transfer fee.  Also in October 2002, DVC announced the initiation of a Phase I clinical trial of a new injectable recombinant anthrax vaccine in approximately 70 volunteers.  The vaccine candidate consists of a highly purified protein—Protective Antigen—derived from the anthrax bacterium using recombinant technology and production processes licensed from AVANT.  Under the agreement, AVANT is also entitled to annual $50,000 license maintenance payments, with respect to which AVANT has received $100,000, and milestone payments of up to $700,000 in the aggregate, $100,000 of which AVANT received upon initiation of the Phase I clinical trial.  AVANT is also entitled to specified royalties on eventual product sales.  The term of this agreement is through the expiration of the last of the patents covered by the agreement, although DVC may terminate the agreement upon 90 days prior written notice.  DVC, a privately-held company, is chartered with providing an integrated approach for the advanced development of specific vaccines and other products to protect against the threat of biological warfare agents.  DVC has a 10-year contract with the U.S. Department of Defense for the development of vaccines against certain acute infectious and contagious diseases, initiated under the 1997 Joint Vaccine Acquisition Program.  AVANT has no obligation to incur any research and development costs in connection with this agreement.

 

(8)           DVC Payment

 

During 2003, AVANT entered into an agreement with DVC for funding production of the replacement of AVANT’s recombinant Protective Antigen (“rPA”) clinical materials used by DVC in the Phase I clinical trial mentioned in Note 7 above.  Under a separate agreement with the Walter Reed Army Institute of Research (WRAIR), AVANT was obligated to provide rPA for a clinical trial.  AVANT recorded the $1 million received from DVC as deferred revenue in 2003.  In 2004, the agreement with WRAIR was amended and AVANT was no longer obligated to provide rPA.  Accordingly, AVANT recognized the previously deferred $1 million as revenue in the first quarter of 2004.

 

(9)           Direct Equity Placement

 

In February 2004, we completed a direct equity placement of 8,965,000 shares of common stock to institutional investors at a price of $2.75 per share which generated gross proceeds totaling approximately $24.7 million.  Expenses associated with the transaction totaled approximately $1,600,300.

 

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(10)         License Agreement with Adprotech

 

In March 2004, we granted a license to AdProTech, Ltd for non-exclusive rights to use certain components of AVANT’s intellectual property surrounding complement inhibition.  In April 2004, AVANT received an initial license payment of $1 million from AdProTech.  As we have no continuing involvement or obligation under this license agreement, we recognized the $1 million as revenue during the quarter.  Under the agreement, AVANT is entitled to annual license fees, milestone payments of up to $13.5 million in the aggregate and royalties on eventual product sales.

 

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Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:  This quarterly report on Form 10-Q includes forward-looking statements that are subject to a variety of risks and uncertainties and reflect AVANT’s current views with respect to future events and financial performance.  There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statements made by AVANT.  These factors include, but are not limited to:  (1) the integration of multiple technologies and programs;(2) the ability to adapt AVANT’s vectoring systems to develop new, safe and effective orally administered vaccines against anthrax and plague or any other microbes used as bioweapons and other disease causing agents; (3) the ability to successfully complete development and commercialization of TP10, CholeraGardeÔ (Peru-15), Ty800, CETi-1 and of other products; (4) the cost, timing, scope and results of ongoing safety and efficacy trials of TP10, CholeraGardeÔ (Peru-15), Ty800, CETi-1 and other preclinical and clinical testing; (5) the ability to successfully complete product research and further development, including animal, pre-clinical and clinical studies of TP10, CholeraGardeÔ (Peru-15), Ty800, CETi-1 and other products; (6) the ability of the Company to manage multiple late stage clinical trials for a variety of product candidates; (7) the volume and profitability of product sales of Megan®Vac 1, Megan®Egg and other future products; (8) changes in existing and potential relationships with corporate collaborators; (9) the cost, delivery and quality of clinical and commercial grade materials supplied by contract manufacturers; (10) the timing, cost and uncertainty of obtaining regulatory approvals to use TP10, for among other purposes, for adults undergoing cardiac surgery, to use CholeraGardeÔ (Peru-15) and Ty800, among other purposes, to protect travelers and people in endemic regions from diarrhea causing diseases, to use CETi-1, among other purposes, to raise serum HDL cholesterol levels and for other products; (11) the ability to obtain substantial additional funding; (12) the ability to develop and commercialize products before competitors; (13) the ability to retain certain members of management; and (14) other factors detailed from time to time in filings with the Securities and Exchange Commission.  You should carefully review all of these factors, and you should be aware that there may be other factors that could cause these differences.  These forward-looking statements were based on information, plans and estimates at the date of this report, and we do not promise to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

 

Item 2.   Management’s Discussion and Analysis of Financial Condition And Results of Operations

 

AVANT’s principle activity since our inception has been research and product development conducted on our own behalf, as well as through joint development programs with several pharmaceutical companies and other collaborators.  We were incorporated in the State of Delaware in December 1983.

 

CRITICAL ACCOUNTING POLICIES

 

Our critical accounting policies are set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 to our 2003 Form 10-K.  There have been no changes to these policies since December 31, 2003.  Readers are encouraged to review these critical accounting policies in conjunction with the review of this Form 10-Q.

 

OVERVIEW

 

AVANT’s focus is unlocking the power of the immune system to prevent and treat disease.  We have assembled a broad portfolio of technologies and intellectual property that give us a strong competitive position in vaccines and immunotherapeutics.  Six of our products are in clinical development.  The development of immunotherapeutic vaccines like CETi-1 and the marriage of innovative vector delivery technologies with the unique VitriLife® manufacturing process represent the potential for a new generation of vaccines.  Our goal is to become a leading developer of such innovative vaccines that address health care needs on a global basis.

 

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We have actively developed and acquired innovative technologies – especially novel approaches to vaccine creation.  Today our broad intellectual property position allows us to respond quickly and leverage our expertise into many different areas as opportunities and needs arise.  For example, our vaccine technology for providing rapid protection against bacterial illnesses may prove useful for improving and expanding America’s vaccine arsenal against microbial agents used in war or terrorist attacks.

 

AVANT is targeting its efforts where it can add the greatest value to the development of its products and technologies. Our goal is to demonstrate clinical proof-of-concept for each product, and then seek excellent partners to help see those products through to commercialization.  This approach allows us to maximize the overall value of our technology and product portfolios while best ensuring the expeditious development of each individual product.

 

ACQUISITIONS

 

Universal Preservation Technologies, Inc.:  In January 2003, AVANT completed the acquisition of certain technology and intellectual property of Universal Preservation Technologies, Inc. (UPT), a privately held company, and the licensure of certain patent rights from Elan Drug Delivery Limited (EDD), a subsidiary of Elan Corporation plc.  EDD’s license to AVANT gives AVANT exclusive rights in connection with those patents relating to orally administered vaccines, and non-exclusive rights in certain other fields.

 

Through this transaction, AVANT has gained exclusive rights to the VitriLifeÒ process for use in AVANT’s oral vaccines and certain other non-injectable applications.  VitriLife® is a patented drying method for the industrial-scale preservation of biological solutions and suspensions, such as proteins, enzymes, viruses, bacteria and other cells, which has the potential to cut production costs and improve product stability at room temperature or higher.  We have determined that this technology has alternative future uses and will be incorporated into a number of AVANT’s bacterial vaccine programs.  AVANT paid an aggregate of $2,000,000 in consideration in the transaction, recorded this value to acquired intangible assets, and is amortizing these assets over their estimated lives of ten years.

 

Megan Health, Inc.:  On December 1, 2000, AVANT acquired all of the outstanding capital stock of Megan Health, Inc. (“Megan”), a company engaged in the discovery and development of human and animal vaccines using patented gene modification technologies.  In connection with the acquisition, we recorded a charge of $9,012,300 for acquired in-process research and development (“IPR&D”), which represented purchased in-process technology which had not yet reached technological feasibility and had no alternative future use.  As of March 31, 2004, none of the acquired research and development projects had reached technical feasibility.

 

Virus Research Institute, Inc.:  On August 21, 1998, AVANT acquired Virus Research Institute, Inc. (“VRI”), a company engaged in the discovery and development of systems for the delivery of vaccines and immunotherapeutics, and novel vaccines for adults and children.  In connection with the acquisition, we recorded a charge of $44,630,000 for acquired IPR&D, which represented purchased in-process technology which had not yet reached technological feasibility and had no alternative future use.  As of March 31, 2004, none of the acquired research and development projects had reached technical feasibility.

 

RESEARCH AND DEVELOPMENT ACTIVTIES

 

AVANT is currently focused on the development of a number of vaccine product candidates which are in various stages of clinical trials. We expect that a large percentage of our research and development expenses will be incurred in support of our current and future clinical trial programs.

 

The expenditures that will be necessary to execute AVANT’s business plan are subject to numerous uncertainties. Completion of clinical trials may take several years or more, but the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product

 

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candidate. It is not unusual for the clinical development of these types of product candidates to each take five years or more, and for total development costs to exceed $100 million for each product candidate.

 

AVANT estimates that clinical trials of the type AVANT generally conducts are typically completed over the following timelines:

 

Clinical Phase		Estimated Completion Period
Phase I		1-2 Years
Phase II		1-5 Years
Phase III		1-5 Years

 

The duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trial protocol, including, among others, the following:

 

•              the number of patients that ultimately participate in the trial;

 

•              the duration of patient follow-up that seems appropriate in view of results;

 

•              the number of clinical sites included in the trials;

 

•              the length of time required to enroll suitable patient subjects; and

 

•              the efficacy and safety profile of the product candidate.

 

AVANT tests potential product candidates in numerous preclinical studies for safety, toxicology and immunogenicity. AVANT then may conduct multiple clinical trials for each product candidate. As we obtain results from trials, we may elect to discontinue or delay clinical trials for certain product candidates in order to focus our resources on more promising product candidates.

 

An element of AVANT’s business strategy is to pursue the research and development of a broad portfolio of product candidates. This is intended to allow AVANT to diversify the risks associated with its research and development expenditures. As a result, AVANT believes its future capital requirements and its future financial success are not substantially dependent on any one product candidate. To the extent AVANT is unable to maintain a broad range of product candidates, AVANT’s dependence on the success of one or a few product candidates increases.

 

AVANT’s product candidates also have not yet received FDA regulatory approval, which is required before AVANT can market them as therapeutic or vaccine products. In order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval, the FDA must conclude that AVANT’s clinical data establish safety and efficacy. Historically, the results from preclinical testing and early clinical trials (through Phase II) have often not been predictive of results obtained in later clinical trials. A number of new drugs, biologics and vaccines have shown promising results in early clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals.

 

Furthermore, AVANT’s business strategy includes the option of entering into collaborative arrangements with third parties to complete the development and commercialization of AVANT’s product candidates. In the event that third parties take over the clinical trial process for one of AVANT’s product candidates, the estimated completion date would largely be under control of that third party rather than AVANT. AVANT cannot forecast with any degree of certainty which proprietary products, if any, will be subject to future collaborative arrangements, in whole or in part, and how such arrangements would affect AVANT’s development plan or capital requirements. AVANT’s programs may also benefit from subsidies, grants, contracts or government or agency-sponsored studies that could reduce AVANT’s development costs.

 

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As a result of the uncertainties discussed above, among others, AVANT is unable to estimate the duration and completion costs of its research and development projects or when, if ever, and to what extent it will receive cash inflows from the commercialization and sale of a product. AVANT’s inability to complete its research and development projects in a timely manner or its failure to enter into collaborative agreements, when appropriate, could significantly increase its capital requirements and could adversely impact its liquidity. These uncertainties could force AVANT to seek additional, external sources of financing from time to time in order to continue with its business strategy. AVANT’s inability to raise additional capital, or to do so on terms reasonably acceptable to it, would jeopardize the future success of its business. The amount incurred for each material research program since the beginning of 2001, is set forth below under “Program Developments.” During the past five years through the end of 2003, AVANT incurred an aggregate of $65.0 million in research and development costs. During the three months ended March 31, 2004, AVANT incurred an aggregate of $3.5 million in research and development costs. The following table indicates the amount incurred for each of AVANT’s material research programs and for other identified research and development activities during the three years ended December 31, 2003, 2002, and 2001 and the three-month periods ended March 31, 2004 and 2003. The amounts disclosed in the following table and in “Program Developments” below reflect direct research and development costs, license fees associated with the underlying technology and an allocation of indirect research and development costs to each program. Prior to January 1, 2000, AVANT did not track research and development costs by program and, therefore we are unable to disclose spending by program prior to that date.

 

		Three Months Ended March 31,						Year Ended December 31,
		2004			2003			2003			2002			2001
Cholesterol Management Vaccine:
CETi-1		$	155,100		$	1,191,600		$	3,404,000		$	3,176,800		$	2,387,700
Bacterial Vaccines:
CholeraGardeÔ		26,500			318,400			695,800			5,959,100			2,369,200
Ty800		168,900			138,000			186,300			2,203,600			1,863,500
Other		30,900			106,000			137,500			204,400			—
BioDefense Vaccines:		1,066,400			638,800			3,524,500			239,900			—
Food Safety & Animal Health Vaccines:		6,900			21,800			49,400			450,600			984,900
Viral Vaccines:
Rotavirus vaccine		50,000			125,000			200,000			400,000			334,100
Other		54,300			10,400			72,400			346,800			264,600
Complement Inhibitors:
TP10/TP20		1,847,700			142,500			1,648,700			1,714,800			12,930,500
Other Programs:		46,500			—			102,700			—			—
Discontinued Programs:		—			—			—			12,500			446,000
Total R&D Expense		$	3,453,200		$	2,692,500		$	10,021,300		$	14,708,500		$	21,580,500

 

PROGRAM DEVELOPMENTS

 

Cholesterol Management Vaccine:  We are developing an immunotherapeutic vaccine against endogenous cholesteryl ester transfer protein (“CETP”), which may be useful in reducing risks associated with atherosclerosis. CETP is a key intermediary in the balance of HDL (high-density lipoprotein) and LDL (low-density lipoprotein). We are developing this vaccine, CETi-1, to stimulate an immune response against CETP, which we believe may improve the ratio of HDL to LDL cholesterol and reduce the progression of atherosclerosis. We have conducted preliminary studies of rabbits, which have demonstrated the ability of CETi-1 vaccine to elevate HDL and reduce the development of blood vessel lesions.

 

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CETi-1 is being developed for the management of patients with low levels of HDL cholesterol. In September 1999, we initiated a double-blind placebo controlled, Phase I clinical trial of our CETi-1 vaccine in adult volunteers. The object of the study was to demonstrate the safety of single administrations of the vaccine at four different dosage strengths and results were announced in January 2001. The vaccine was very well tolerated in the 48 adult volunteers who participated in the study. The only serious adverse reaction reported during the study (allergic reaction to shower gel) was not related to study medication. There were no differences in the safety profiles of placebo groups and active vaccine groups. In addition, there was limited evidence of an immune response in one subject treated with the highest dose. Subsequently, AVANT announced results from a double-blinded placebo controlled extension of the earlier completed CETi-1 Phase I trial in the same healthy adult volunteers receiving a second dose of the vaccine. Results from the extension study showed measurable antibody titers in all dose groups treated with study medication, suggesting a dose-response relationship.

 

These data were helpful in moving the program forward to a placebo controlled Phase II study, which was initiated in August 2001, in approximately 200 patients with low levels of HDL cholesterol.  The objectives of the study were to evaluate the safety, immunogenicity and dose-response relationship of the CETi-1 product in patients who receive an initial immunization followed by boosters.  The primary endpoint was the change in HDL cholesterol measured after the six-month booster.  In October 2003, AVANT completed the CETi-1 vaccine Phase II efficacy study.  The results of the study demonstrated proof-of-concept in humans confirming that blocking cholesterol transfer could raise HDL levels.  In addition, the CETi-1 vaccine worked as designed to elicit anti-CETP antibodies in a high percentage of patients treated, approximately 90%.  During the period January 1, 2000 through December 31, 2003, AVANT incurred approximately $10.9 million in research, development and clinical costs associated with the CETi-1 program. During the three months ended March 31, 2004, AVANT incurred approximately $155,100 in research, development and clinical costs associated with the CETi-1 program.  We plan to seek a corporate partner to complete development and to commercialize the CETi-1 vaccine.

 

Bacterial Vaccines:  Modern biotechnology offers great potential for bettering health conditions worldwide.  New vaccine technologies, in particular, can provide avenues to disease prevention and treatment with notable advantages over drugs in terms of patient compliance and cost.  They also offer strategies to solve global health problems, to protect both civilians and military from biowarfare threats, and to increase the safety of our food supply.  Our goal is to become a leading developer of innovative vaccines that address health care needs on a global basis.  In this regard, we have recently completed the acquisition of VitriLife®, a new technology with the potential to reduce manufacturing costs and improve product stability, eliminating the need for vaccine refrigeration.  With this technology and our Cholera- and Salmonella-vectored delivery technologies, named VibrioVec™ and SalmoVec™, we can now develop a new generation of vaccines that have an ideal product profile: safe, effective, oral, single-dose, rapidly protective and requiring no refrigeration.

 

Development of a safe, effective cholera vaccine is the first step in establishing AVANT’s single-dose, oral bacterial vaccine franchise.  During 2002, AVANT completed a Phase II dose-ranging study with CholeraGarde™ which confirmed the safety and activity of this vaccine and supported the start of Phase II trials in December 2002 with the International Vaccine Institute (IVI) in Bangladesh where cholera is endemic.  IVI is assessing the safety and immunogenicity of the vaccine in adults before moving into progressively younger pediatric populations, eventually studying the vaccine in infants as young as nine months.  To date, IVI has completed testing in adults and is now vaccinating toddlers, ages 2 to 5 years.  In January 2004, we announced positive preliminary results of the adult portion from the Phase II clinical trial of CholeraGarde™ in Bangladesh.  In 70 adult subjects, vaccination with the single-dose, oral cholera vaccine was well tolerated.  Moreover, over 70% of the vaccinated adults responded with a favorable immune response.  The study will complete in the second half of 2004.

 

In 2003, AVANT terminated its manufacturing contract with Bio Sidus, S.A., of Buenos Aires, Argentina, for the manufacture of its CholeraGarde™ vaccine.  The two companies resolved their contractual issues and settled all claims during the fourth quarter of 2003.  Clinical material for the IVI trials in Bangladesh previously has been manufactured by the Walter Reed Army Institute of Research

 

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(WRAIR), and AVANT and WRAIR have entered into a manufacturing agreement to supply CholeraGarde™.

 

During the period January 1, 2000 through December 31, 2003, AVANT incurred approximately $9.2 million in research, development and clinical costs on its CholeraGarde™ program. During the three months ended March 31, 2004, AVANT incurred approximately $26,500 in research, development and clinical costs on its CholeraGarde™ program.

 

In addition, the National Institute of Allergy and Infectious Disease (NIAID) of the National Institutes of Health (NIH) and AVANT have agreed for the NIAID to conduct a Phase I in-patient dose-ranging clinical trial aimed at demonstrating the safety and immunogenicity of the Ty800 typhoid fever vaccine. The trial is planned for a NIAID-funded clinical site using NIAID-funded clinical material. The NIAID trial seeks to confirm the safety and immunogenicity of the Ty800 oral vaccine observed in an earlier physician-sponsored Ty800 vaccine study.  During the period January 1, 2000 through December 31, 2003, AVANT incurred approximately $4.3 million in research, development and clinical costs on its Ty800 program. During the three months ended March 31, 2004, AVANT incurred approximately $168,900 in research, development and clinical costs on its Ty800 program.

 

Finally, we are developing three additional bacterial vaccines against enterotoxigenic E. coli, Shigella and Campylobacter—all important causes of serious diarrheal diseases worldwide. These three programs are in pre-clinical development.  In 2004, we expect to allocate resources to further the development of a two-vaccine combination product containing ETEC and Campylobacter addressed to the travelers’ market.

 

BioDefense Vaccines:  The attenuated live bacteria used to create AVANT’s single-dose oral vaccines can also serve as vectors for the development of vaccines against other bacterial and viral diseases. By engineering key disease antigens into the DNA of the vector organisms, AVANT expects to be able to extend the protective ability of its single-dose oral vaccines to a wide variety of illnesses. We believe our vector technologies may prove useful for improving and expanding America’s vaccine arsenal against microbial agents used in war or terrorist attacks.

 

In October 2001, AVANT granted DynPort Vaccine Company LLC (DVC) a license for exclusive rights to use certain components of AVANT’s anthrax vaccine technology. In October 2002, DVC announced the initiation of a Phase I clinical trial of a new injectable recombinant anthrax vaccine in approximately 70 volunteers. The vaccine candidate consists of a highly purified protein—Protective Antigen—derived from the anthrax bacterium using recombinant technology and production processes licensed from AVANT. DVC hopes this vaccine will offer a safe, effective product to support the country’s need for a new-generation anthrax vaccine. The Phase I trial is being conducted at WRAIR in conjunction with the Henry M. Jackson Foundation. The study will evaluate tolerability, safety and immunogenicity of DVC’s new vaccine being developed for the U.S. Department of Defense (DoD) through the Joint Vaccine Acquisition Program (JVAP). In June 2003, AVANT was awarded a subcontract by DVC, in the amount of $344,000, which covers stability testing of DVC’s injectable anthrax vaccine. Payments under the subcontract agreement are made on a time and materials basis and receipt of the full amount is conditioned upon the project being fully funded through completion and AVANT performing and continuing to demonstrate that it has the capability to perform the funded work.

 

In July 2002, AVANT was awarded a Phase I Small Business Innovation Research (SBIR) grant to support the development of the Company’s oral, single-dose bacterial vectors to immunize people against anthrax. Vaccine delivery using live, attenuated bacteria is particularly well suited for situations where ease of administration and rapid onset of immunity are required, such as for protection against biological warfare agents. The NIAID of the NIH awarded this Live Attenuated Vaccines Against Anthrax grant, which provides approximately $125,000 in funding to AVANT.

 

Further, in January 2003, AVANT was awarded a subcontract to develop for the U.S. Department of Defense an oral combination vaccine against anthrax and plague using AVANT’s proprietary vaccine

 

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technologies. AVANT executed this initial subcontract with DVC and will be reimbursed on a time and materials basis for vaccine development research work performed by AVANT in the amount of $2.5 million.  In June 2003, AVANT was awarded a second subcontract for approximately $1.3 million to support preclinical animal testing of vaccine constructs being developed by AVANT for the oral combination vaccine against anthrax and plague.  In April 2004, AVANT was awarded a third subcontract for approximately $3 million to support the human clinical testing of a plague vaccine candidate being developed by AVANT for use in the oral combination vaccine.  Payments under the subcontract agreement are made on a time and materials basis and receipt of the full amount is conditioned upon the project being fully funded through completion and AVANT performing and continuing to demonstrate that it has the capability to perform the funded work.

 

In August 2003, the Company announced that it had reached agreement with MassDevelopment, an economic development entity for the Commonwealth of Massachusetts, for AVANT to occupy and build-out a pilot-manufacturing facility in Fall River, Massachusetts.  AVANT is establishing this 11,800 square foot facility to support the clinical development of its portfolio of bacterial vaccines, including vaccines for biodefense, as well as the continued development and product application of VitriLife®.

 

During the period January 1, 2000 through December 31, 2003, AVANT incurred approximately $3.8 million in research and development costs on its biodefense vaccine program. During the three months ended March 31, 2004, AVANT incurred approximately $1.1 million in research and development costs on its biodefense vaccine program.

 

Food Safety and Animal Health Vaccines:  AVANT has also partnered with Pfizer, who will apply AVANT’s vaccine technologies to animal health and human food safety markets. The Pfizer research programs are making significant progress and in late 2002 we achieved an important milestone, which resulted in a payment of $500,000 to AVANT. During the period January 1, 2000 through December 31, 2003, AVANT incurred approximately $1.5 million in research and development costs on its food safety and animal health vaccines program. During the three months ended March 31, 2004, AVANT incurred approximately $6,900 in research and development costs on its food safety and animal health vaccines program.

 

Rotavirus Vaccine:  Rotavirus is a major cause of diarrhea and vomiting in infants and children. No vaccine against rotavirus is currently on the market. In 1997, we licensed our oral rotavirus vaccine to Glaxo. In 1999, after our Phase II study demonstrated 89% protection in a study involving 215 infants, Glaxo paid us an additional license fee and assumed full responsibility for funding and performing all remaining clinical development. Substantially all of the ongoing development is being conducted and funded by Glaxo. During the period January 1, 2000 through December 31, 2003, AVANT incurred approximately $1.1 million in licensing fees and $79,000 in research and development costs. During the three months ended March 31, 2004, AVANT incurred approximately $50,000 in licensing fees associated with the rotavirus program. Prior to January 1, 2000, AVANT did not track research and development costs by program and, therefore, we are unable to disclose spending by program prior to that date. Glaxo has completed Phase I/II bridging studies in over 6,000 infants in Europe, Latin America and Asia using its two-dose oral rotavirus vaccine, called Rotarix®. Glaxo initiated global Phase III clinical trials of Rotarix® in the third quarter of 2003, and AVANT recognized a $1.0 million milestone. Assuming product development and commercialization continues satisfactorily, we may receive additional milestone payments totaling $7.5 million upon the achievement of specified milestones. In addition, we will be entitled to royalties based on net sales of Rotarix®.

 

Complement Inhibitors:  In 1997, we entered into an agreement with Novartis relating to the development of our complement inhibitor, TP10, for use in xenotransplantation (animal organs into humans) and allotransplantation (human organs into humans). The decision to license TP10 resulted in a $6 million equity investment and license payment by Novartis which was received by AVANT in January 2000. As of September 6, 2002, Novartis and AVANT agreed to terminate the TP10 agreement pursuant to which Novartis paid a net termination fee of $1.9 million and returned to AVANT all pre-clinical and clinical TP10 material.

 

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In February 2002, AVANT announced that TP10 had not achieved a significant reduction in the primary endpoint of death, myocardial infarction, prolonged intubation or prolonged intra-aortic balloon pumping following preliminary analysis of a Phase II adult cardiac surgery trial conducted in 564 patients. However, further analysis of the study data demonstrated an important treatment benefit to male patients participating in the trial, with no significant treatment benefit to female patients. Adverse events reported following treatment with TP10 were generally similar to those seen in placebo treated patients and were said by investigators to be routinely observed following cardiopulmonary bypass.

 

The important treatment benefits seen in the male population were directly related to mortality and the benefit seen was impressive. This further analysis of the study data showed continued promise for this molecule and AVANT has announced its renewed commitment to its development. AVANT is conducting a Phase II double-blind, placebo-controlled trial of TP10 in approximately 300 women undergoing cardiopulmonary by-pass surgery. The trial will examine the effect of TP10 versus placebo, will conclude around year-end 2004, and will be conducted at approximately 25 sites throughout the United States. The goals of the trial are to clarify the effect that TP10 has for women undergoing cardiac surgery, as well as augment the safety data for that patient population to allow for the design of a subsequent registration-directed trial.

 

During the period January 1, 2000 through December 31, 2003, AVANT incurred approximately $22.8 million in research, development and clinical costs. During the three months ended March 31, 2004, AVANT incurred approximately $1.8 million in research, development and clinical costs associated with its complement programs. With the termination of the Novartis agreement, AVANT can now offer a worldwide license for all fields, and may seek partnering arrangements to capture the value inherent in this program and its strong intellectual property portfolio.

 

TECHNOLOGY LICENSING

 

AVANT has adopted a business strategy of out-licensing technology that does not match its development focus or where it lacks sufficient resources for the technology’s efficient development.  For example, when AVANT acquired Megan it also signed an agreement with Pfizer Inc to leverage the value of Megan’s oral vaccine technology in a significant market opportunity (animal health and human food safety) outside of AVANT’s own focus on human health care.

 

DynPort License:  In October 2001, AVANT granted a license to DynPort Vaccine Company LLC (DVC) for exclusive rights to use certain components of AVANT’s vaccine technology.  Financial terms of the agreement with DVC include license fees, milestone payments and royalties.  DVC, a private company, is chartered with providing an integrated approach for the advanced development of specific vaccines and other products to protect against the threat of biological warfare agents.  DVC has a 10-year contract with the U.S. Department of Defense for the development of vaccines against certain acute infectious diseases and contagious diseases, initiated under the 1997 Joint Vaccine Acquisition Program.  We see this licensing opportunity as a way to further leverage our vaccine technology.

 

RESULTS OF OPERATIONS

 

Three-Month Period Ended March 31, 2004 as Compared
With the Three-Month Period Ended March 31, 2003

 

AVANT reported consolidated net loss of $1,909,400, or $.03 per share, for the first quarter ended March 31, 2004, compared with a net loss of $3,362,200, or $.06 per share, for the first quarter ended March 31, 2003.  The weighted average common shares outstanding used to calculate net loss per common share was 69,169,600 in 2004 and 60,468,600 in 2003.

 

Revenue:  Total revenue increased $2,349,000, or 345%, to $3,030,700 for the first quarter of 2004 compared to $681,700 for the first quarter of 2003.

 

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Product development and licensing revenue increased $1,955,000 to $2,124,400 in 2004 from $169,400 in 2003.  The increase is primarily due to the one-time recognition of $1 million in revenue from DVC for rPA clinical materials and a license fee of $1 million from AdProTech, Ltd.

 

In January and June 2003, AVANT was awarded Department of Defense subcontracts from its partner, DVC, that supports the development of an oral, combination vaccine against both anthrax and plague using our vectored vaccine technology.  AVANT will be reimbursed by DVC on a time and materials basis for vaccine development research work performed by AVANT in the amount of $3.8 million.  Under the agreements, AVANT recognized $846,200 and $477,000 in government contract revenue during the first quarters of 2004 and 2003, respectively, for work performed.

 

In 2002, we transferred the marketing and distribution of the Megan poultry product line to our partner, Lohmann Animal Health International (LAHI), and AVANT receives a royalty percentage of all Megan®Vac 1 and Megan®Egg product sales.  Royalty payments received during the first quarter of 2004 and 2003 totaled $26,400 and $35,300, respectively.  Megan®Vac 1 and Megan®Egg are vaccines for use in chickens for protection against multiple strains of Salmonella bacteria, which we acquired in connection with our acquisition of Megan.

 

Operating Expense:  Total operating expense increased $828,100, or 19.9%, to $4,994,100 for the first quarter of 2004 compared to $4,166,000 for the first quarter of 2003.  The increase in total operating expense in 2004 primarily results from an increase in research and development expense in the first quarter of 2004 due to increased clinical trials costs and contract manufacturing costs.

 

Research and development expense increased $760,700, or 28.3%, to $3,453,200 in 2004 from $2,692,500 in 2003.  The increase in 2004 compared to 2003 is primarily due to an increase in clinical trials costs of $485,000 and contract manufacturing costs of $426,300, both incurred on the TP10 program.  The increase in research and development expense further resulted from increases in personnel and related expenses of $35,500, facility-related costs of $56,200 and laboratory supplies and services expenses of $70,600, offset in part by declines in consultancy costs of $44,600 and license fees of $271,500.

 

Selling, general and administrative expense increased $67,400, or 5.5%, to $1,292,100 in 2004 compared to $1,224,700 in 2003 and is primarily attributed to an increase in personnel and related costs.

 

Amortization expense of acquired intangible assets was $248,800 in 2004 and 2003.

 

Investment Income, Net:  Interest income decreased $68,100, or 55.8%, to $54,000 for the first quarter of 2004 compared to $122,100 for the first quarter of 2003.  The decrease is primarily due to lower interest rates during the first three months of 2004 compared to the first three months of 2003.  During the first three months of 2004 and 2003, the average month-end cash balances were $34,128,900 and $20,928,100, respectively.  The effective interest rates during the first three months of 2004 and 2003 were 0.96% and 1.28%, respectively.

 

LIQUIDITY AND CAPITAL RESOURCES

 

AVANT ended the first quarter of 2004 with cash and cash equivalents of $41,161,500 compared to cash and cash equivalents of $20,251,000 at December 31, 2003.

 

Net cash used in operating activities decreased to $2,156,100 for the first three months of 2004 compared to $3,077,500 for the first three months of 2003.  The decrease is primarily attributed to the decrease in net loss incurred in 2004 compared to 2003, a decrease in accounts receivable and an increase in accounts payable and accrued expenses, offset partly by a decrease in deferred revenue.

 

Net cash used in investing activities decreased to $244,300 for the first three months of 2004 compared to $2,160,300 for the first three months of 2003.  The decrease is primarily due to $2 million of

 

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cash paid in 2003 for certain assets of Universal Preservation Technologies, Inc., offset in part by increased investment in property and equipment in 2004 compared to 2003.

 

Net cash provided by financing activities was $23,310,900 for the first three months of 2003 compared to net cash used in financing activities of $82,500 for the first three months of 2003.  The increase is due primarily to the completion of a direct equity placement in 2004 and an increase in proceeds from the exercise of stock options and warrants.

 

AGGREGATE CONTRACTUAL OBLIGATIONS

 

As of March 31, 2004, AVANT had future payments required under contractual obligations and other commitments approximately as follows:

 

		Total			Less than One Year			1-3 Years			3-5 Years			4-5 Years
Operating lease obligations		$	8,719,200		$	2,264,100		$	5,823,100		$	421,400		$	210,600
Licensing obligations		920,000			310,000			355,000			170,000			85,000
Total future obligations		$	9,639,200		$	2,574,100		$	6,178,100		$	591,400		$	295,600

 

In February 2004, we completed a direct equity placement of 8,965,000 shares of common stock to institutional investors at a price of $2.75 per share which generated gross proceeds totaling approximately $24.7 million.  Expenses associated with the transaction totaled approximately $1,600,300.

 

AVANT believes that cash inflows from existing collaborations, interest income on invested funds and our current cash and cash equivalents will be sufficient to meet estimated working capital requirements and fund operations beyond December 31, 2005.  The working capital requirements of AVANT are dependent on several factors including, but not limited to, the costs associated with research and development programs, preclinical and clinical studies and the scope of collaborative arrangements.  During 2004, we expect to take steps to raise additional capital including, but not limited to, the licensing of technology programs with existing or new collaborative partners, possible business combinations, or the issuance of common stock via private placement and public offering.  There can be no assurance that such efforts will be successful.

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

 

We own financial instruments that are sensitive to market risk as part of our investment portfolio.  Our investment portfolio is used to preserve our capital until it is used to fund operations, including our research and development activities.  None of these market-risk sensitive instruments are held for trading purposes.  We invest our cash primarily in money market mutual funds and U.S. Government and other investment grade debt securities.  These investments are evaluated quarterly to determine the fair value of the portfolio.  Our investment portfolio includes only marketable securities with active secondary or resale markets to help insure liquidity.  We have implemented policies regarding the amount and credit ratings of investments.  Due to the conservative nature of these policies, we do not believe we have material exposure due to market risk.  The impact to our financial position and results of operations from likely changes in interest rates is not material.

 

We do not utilize derivative financial instruments.  The carrying amounts reflected in the consolidated balance sheet of cash and cash equivalents, accounts receivables and accounts payable approximates fair value at March 31, 2004 and December 31, 2003 due to the short-term maturities of these instruments.

 

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Item 4.  Controls and Procedures

 

Evaluation of disclosure controls and procedures.

 

As required by Rule 13a-15 under the Securities Exchange Act of 1934, within the 90 days prior to the date of this report, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  In designing and evaluating our disclosure controls and procedures, we and our management recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that they believe that, as of the date of completion of the evaluation, our disclosure controls and procedures were reasonably effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.  We will continue to review and document our disclosure controls and procedures on an ongoing basis, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

 

Changes in Internal Control Over Financial Reporting.

 

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II — OTHER INFORMATION

 

Item 6.    Exhibits and Reports on Form 8-K

 

(a)   Exhibits

 

10.1                           Lease Agreement, by and between the Company and the Massachusetts Development Finance Agency, dated as of December 22, 2003, portions of which are subject to a request for confidential treatment

 

10.2                           Security Agreement, by and between the Company and the Massachusetts Development Finance Agency, dated as of December 22, 2003, portions of which are subject to a request for confidential treatment

 

10.3                           Secured Promissory Note:  Equipment Loan, by and between the Company and the Massachusetts Development Finance Agency, dated as of December 22, 2003, portions of which are subject to a request for confidential treatment

 

10.4                           Non-Exclusive License Agreement, by and between the Company and AdProTech Ltd., dated as of March 10, 2004, portions of which are subject to a request for confidential treatment

 

31.1                           Certification of President and Chief Executive Officer

 

31.2                           Certification of Senior Vice President and Chief Financial Officer

 

32.1                           Section 1350 Certifications

 

(b)   Reports on Form 8-K

 

A Form 8-K was filed on February 23, 2004, regarding a press release announcing that AVANT had entered into a securities purchase agreement with institutional investors in a direct equity placement of registered securities of the Company.

 

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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.

 

 

	AVANT IMMUNOTHERAPEUTICS, INC.
		BY:
Dated: April 30, 2004				/s/ Una S. Ryan
				Una S. Ryan, Ph. D.
				President and Chief Executive Officer
				(Principal Executive Officer)
Dated: April 30, 2004				/s/ Avery W. Catlin
				Avery W. Catlin
				Senior Vice President, Treasurer
				and Chief Financial Officer
				(Principal Financial and
				Accounting Officer)

 

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EXHIBIT INDEX

 

Exhibit No.		Description
10.1		Lease Agreement, by and between the Company and the Massachusetts Development Finance Agency, dated as of December 22, 2203, portions of which are subject to a request for confidential treatment
10.2		Security Agreement, by and between the Company and the Massachusetts Development Finance Agency, dated as of December 22, 2003, portions of which are subject to a request for confidential treatment
10.3		Secured Promissory Note: Equipment Loan, by and between the Company and the Massachusetts Development Finance Agency, dated as of December 22, 2003, portions of which are subject to a request for confidential treatment
10.4		Non-Exclusive License Agreement, by and between the Company and AdProTech Ltd., dated as of March 10, 2004, portions of which are subject to a request for confidential treatment
31.1		Certification of President and Chief Executive Officer
31.2		Certification of Senior Vice President and Chief Financial Officer
32.1		Section 1350 Certifications

 

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