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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO _____
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COMMISSION FILE NUMBER 000-25132
MYMETICS CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 25-1741849
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
European Executive Office
14, rue de la Colombiere
CH-1260 Nyon (Switzerland)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 011 41 22 363 13 10
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the voting common stock held by non-affiliates of
the Registrant (assuming officers and directors are affiliates) was
approximately U.S. $2,371,982.80 as of December 31, 2003, computed on the basis
of the average of the bid and ask prices on such date. The Registrant has no
non-voting common stock.
As of March 18, 2004, there were 59,394,454 shares of the Registrant's
Common Stock outstanding.
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USE OF EUROS
The financial information contained in this Form 10-K is provided in
Euros (E) (except in "Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters" which is provided in United States Dollars, and except as
expressly indicated otherwise herein). See Note 1 to the Consolidated Financial
Statements contained in this Form 10-K for further explanation. As of March 18,
2004, 1 Euro was convertible into 1.22354 United States Dollars.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements, which are identified by the words
"believe," "expect," "anticipate," "intend," "plan" and similar expressions. The
statements contained herein which are not based on historical facts are
forward-looking statements that involve known and unknown risks and
uncertainties that could significantly affect our actual results, performance or
achievements in the future and, accordingly, such actual results, performance or
achievements may materially differ from those expressed or implied in any
forward-looking statements made by or on our behalf. These risks and
uncertainties include, but are not limited to, risks associated with our ability
to successfully develop and protect our intellectual property, our ability to
raise additional capital to fund future operations and compliance with
applicable laws and changes in such laws and the administration of such laws.
These risks are described below and in "Item 1. Business," "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Item 7A. Quantitative and Qualitative Disclosures About Market Risk" included
in this Form 10-K. Readers are cautioned not to place undue reliance on these
forward-looking statements which speak only as of the date the statements were
made.
RISK FACTORS
You should carefully consider the risks described below together with
all of the other information included in this report on Form 10-K. An investment
in our common stock is very risky. If any of the following risks materialize,
our business, financial condition or results of operations could be adversely
affected. In such an event, the trading price of our common stock could decline,
and you may lose part or all of your investment.
We are a company engaged exclusively in research and development
activities, focusing primarily on human and veterinary biology and medicine.
When used in these risk factors, the terms "we" or "our" refer to Mymetics
Corporation and its subsidiaries.
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WE HAVE A NOTE PAYABLE AMOUNTING TO E3,127 WHICH IS DUE JUNE 30, 2004, WHERE
THERE IS NO ASSURANCE THAT THE NOTE MAY BE PAID, EXTENDED, RESTRUCTURED OR
REFINANCED. THESE CONDITIONS RAISE SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO
CONTINUE AS A GOING CONCERN.
As more fully disclosed under Item 13 of this Form 10-K, we have no
reasonable hope to be able to reimburse the credit facility due to MFC Bank on
or before its present due date of June 30, 2004, and despite our efforts and
recent achievements, we have no assurance that MFC Bank will accept to
renegotiate it on terms acceptable to us.
WE NEED TO RAISE ADDITIONAL CAPITAL OR OBTAIN SIGNIFICANT GRANTS TO FUND OUR
RESEARCH EFFORTS AND TO FULLY DEVELOP COMMERCIALLY VIABLE PRODUCTS. WE CANNOT
ASSURE YOU THAT WE WILL BE ABLE TO OBTAIN ADDITIONAL CAPITAL OR OBTAIN
SIGNIFICANT GRANTS WHEN NEEDED OR THAT SUCH CAPITAL OR GRANTS WILL BE AVAILABLE
ON FAVORABLE TERMS, IF AT ALL. OUR BUSINESS WILL BE ADVERSELY AFFECTED IF WE
CANNOT RAISE ADDITIONAL CAPITAL OR OBTAIN SIGNIFICANT GRANTS WHEN NEEDED.
The costs for us to continue our research and to develop our
intellectual property will be substantial. We expect that our existing capital
resources will satisfy our capital requirements through approximately June 2004.
However, given the fact that we do not have any current sources of revenue,
substantial additional capital or grants will likely be needed to continue the
development and commercialization of our intellectual property. Currently there
are no firm commitments for any additional financing. Any additional equity
financing may be dilutive to stockholders, and debt financing, if available, may
include restrictive covenants and there can be no assurance that additional
financing will be available. While the amount of capital required cannot be
estimated with precision, we estimate it will require approximately 2 million
Euros just to move our business forward into a position of being prepared to
initiate clinical trials.
The availability of and the need for future capital will depend on many
factors, including:
- continued scientific progress in our research and development
program;
- results of pre-clinical tests;
- results of any clinical trials;
- the time and cost involved in obtaining regulatory approvals;
- future collaborative relationships; and
- the cost of manufacturing.
If adequate funds are not available, we may be required to curtail or
cease operations.
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WE HAVE A HISTORY OF OPERATING LOSSES AND WE EXPECT TO GENERATE OPERATING LOSSES
FOR THE FORESEEABLE FUTURE.
We currently are engaged in research and development activities, and do
not have any commercially marketed products. The product research and
development process requires significant capital expenditures, and we do not
have any other sources of revenue to off-set such expenditures. Accordingly, we
expect to generate additional operating losses at least until such time as we
are able to generate significant revenues.
IF WE ARE UNABLE TO SUCCESSFULLY DEVELOP AND COMMERCIALIZE OUR RESEARCH AND
INTELLECTUAL PROPERTY, WE MAY NEVER GENERATE SIGNIFICANT REVENUES OR ACHIEVE
PROFITABILITY.
Our current objective is to develop vaccine and therapeutic compounds
and specific therapies for certain retroviral diseases or diseases with a viral
autoimmune content. All of our potential products and production technologies
are in the research or pre-development stages and no revenues have been
generated from product sales. The first products and applications target human
immunodeficiency virus, or HIV, and feline immunodeficiency virus, or FIV, the
precursors to human and feline acquired immunodeficiency syndrome, or AIDS. We
will not become profitable, if ever, unless we develop our intellectual property
to a point where it can be licensed to third parties on financially favorable
terms or applied in the creation and development of one or more products that
can generate revenues.
Although our due diligence has indicated that our research and
discovery regarding "mimicry" may lead to important discoveries in the
scientific community regarding the HIV infection process, other discoveries may
be necessary to develop an effective vaccine, and we may never be able to
develop our research and intellectual property into a commercially profitable
product.
Our success will depend on our ability to:
- effectively commercialize the research through collaborative
relationships with third parties;
- prepare acceptable protocols necessary to obtain regulatory
approvals;
- effectively conclude clinical trials;
- effectively establish commercial viability; and
- effectively establish marketing and manufacturing
relationships.
If we are unable to commercialize the current research, we do not have
other products from which to derive revenue.
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WE MUST OVERCOME SIGNIFICANT OBSTACLES TO SUCCESSFULLY DEVELOP OR MARKET
PRODUCT CANDIDATES.
The development of product candidates is subject to significant risks
of failure, which are inherent in the development of new medical products and
products based on new technologies. These risks include:
- delays in pre-clinical testing, product development, clinical
testing or manufacturing;
- unplanned expenditures for product development, clinical
testing or manufacturing;
- failure of the technologies and products being developed to
have the desired effect or an acceptable safety profile;
- failure to receive regulatory approvals;
- emergence of equivalent or superior products;
- inability to manufacture (directly or through third parties)
product candidates on a commercial scale;
- inability to market products due to third party proprietary
rights;
- inability to find collaborative partners to pursue product
development; and
- failure by future collaborative partners to successfully
develop products.
If these risks materialize, our research and development efforts may
not result in any commercially viable products.
COMMERCIALIZATION OF OUR INTELLECTUAL PROPERTY AND CREATION OF VIABLE PRODUCTS
DEPEND ON COLLABORATIONS WITH OTHERS. IF WE ARE UNABLE TO FIND COLLABORATORS IN
THE FUTURE, WE MAY NOT BE ABLE TO DEVELOP PROFITABLE PRODUCTS.
Our strategy for the research, development and commercialization of
products requires us to enter into contractual arrangements with corporate
collaborators, licensors, licensees and others. We do not have the funds to
develop products on our own, and intend to depend on collaborators to develop
products on our behalf. If collaborative relationships cannot be found, we may
not be able to continue our development programs.
Moreover, we could become involved in disputes with collaborative
partners, which could lead to delays or termination of development programs and
time-consuming, expensive and distracting litigation or arbitration. Even if we
fulfill our obligations under a collaborative agreement, a partner may terminate
the agreement. If any collaborative partner terminates or breaches an agreement
with us, or otherwise fails to complete its obligations in a timely manner, our
ability to successfully commercialize our intellectual property will be
adversely affected.
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IF WE ARE NOT ABLE TO DEMONSTRATE THE RESULTS OF OUR RESEARCH IN CLINICAL
TRIALS, OR IF CLINICAL TRIALS ARE DELAYED, WE MAY NOT BE ABLE TO OBTAIN
REGULATORY CLEARANCE TO MARKET OUR PRODUCTS IN THE UNITED STATES OR IN FOREIGN
COUNTRIES ON A TIMELY BASIS, OR AT ALL.
Assuming we are able to successfully develop our research into
potential products, such products will require regulatory approval. Before
obtaining regulatory approvals for the commercial sale of any of the products
under development, pre-clinical studies and clinical trials must demonstrate
that the product is safe and effective for use in each target indication. If any
of the products fail in clinical trials, the approval of the United States Food
and Drug Administration (the "FDA") and similar agencies operating in foreign
countries will not be obtained for such products, and we will not be able to
generate revenues from such products.
Clinical testing is a long, expensive and uncertain process. One cannot
be certain that the data collected from the clinical trials will be sufficient
to support approval by the FDA or any foreign regulatory authorities, that the
clinical trials will be completed on schedule or, even if the clinical trials
are successfully completed and on schedule, that the FDA or any foreign
regulatory authorities will ultimately approve the product for commercial use.
Clinical trials could be delayed for a variety of reasons, including:
- delays in enrolling volunteers;
- lower than anticipated retention rate of volunteers in the
trials; and
- serious adverse events related to the products being
developed.
Our research is presently focused on developing vaccines and
therapeutics to prevent and treat HIV. Trials will be conducted on animals prior
to humans. Results of animal trials, even if successful, may not be relevant for
determining the preventive or therapeutic effect of any potential product
designed to prevent or treat HIV infection in humans. In addition, results from
early clinical trials are not necessarily indicative of future results. A number
of companies in the biotechnology and pharmaceutical industries have suffered
significant setbacks in late stage clinical trials even after promising results
in early stage development. Furthermore, pre-clinical and clinical data can be
interpreted in different ways, which could delay, limit or prevent regulatory
approvals. Negative or inconclusive results or interpretations could cause the
trials to be unacceptable for submission to regulatory authorities.
IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS, WE WILL BE
UNABLE TO DEVELOP AND COMMERCIALIZE PRODUCTS.
We are dependent on the principal members of our management and
scientific staff. In order to successfully complete our research and development
activities and our commercialization plans, we will need to hire personnel with
experience in clinical testing, drug discovery, government regulation,
manufacturing, marketing and finance. We may not be able to attract and retain
personnel on acceptable terms given the intense competition for such personnel
among high technology enterprises, including biotechnology, pharmaceutical and
healthcare companies, universities and non-profit research institutions.
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IF WE FAIL TO ENTER INTO SUCCESSFUL MARKETING ARRANGEMENTS WITH THIRD PARTIES,
WE WILL NOT BE ABLE TO COMMERCIALIZE PRODUCTS.
We do not currently have any sales or marketing infrastructure, and we
do not have significant experience in marketing, sales and distribution. Future
profitability will depend in part on plans to enter into successful marketing
arrangements with third parties. To the extent that we enter into marketing and
sales arrangements with other companies, revenues will depend on the efforts of
others. These efforts may not be successful. If we are unable to enter into
successful third-party arrangements, we may not be able to commercialize our
products.
IF WE DO NOT SUCCESSFULLY COMPETE IN THE DEVELOPMENT AND COMMERCIALIZATION OF
PRODUCTS AND KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE, WE WILL BE UNABLE TO
CAPTURE AND SUSTAIN A MEANINGFUL MARKET POSITION.
The biotechnology and pharmaceutical industries are highly competitive
and subject to significant and rapid technological change. We are aware of
several companies that are actively engaged in research and development in areas
related to our research focus. Many of these companies are addressing the same
diseases and disease indications that we are addressing. As a result of this
intense competition, any products that we develop may become obsolete before we
are able to recover the expenses incurred in their development. Moreover, many
of these companies, either alone or together with their collaborative partners,
have substantially greater financial resources and larger research and
development staffs. These competitors, either alone or together with their
collaborative partners, also have significantly greater experience in:
- developing products;
- undertaking pre-clinical testing and human clinical trials;
- obtaining FDA and other regulatory approvals of products; and
- manufacturing and marketing products.
IF OUR INTELLECTUAL PROPERTY DOES NOT ADEQUATELY PROTECT PRODUCT CANDIDATES, WE
COULD ENCOUNTER MORE DIRECT COMPETITION, WHICH COULD ADVERSELY IMPACT REVENUES.
Our success depends, in part, on our ability to:
- obtain and maintain patents or rights to patents;
- protect trade secrets;
- operate without infringing upon the proprietary rights of
others; and
- prevent others from infringing on our proprietary rights.
We will be able to protect proprietary rights from unauthorized use by
third parties only to the extent that our proprietary rights are covered by
valid and enforceable patents or are effectively maintained as trade secrets.
The patent position of biotechnology companies involves complex legal and
factual questions and, therefore, enforceability cannot be predicted with
certainty. Patents, if issued, may be challenged, invalidated or circumvented.
Thus, any patents that are owned or licensed from third parties may not provide
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adequate protection against competitors. Pending patent applications, those
applications that we may file in the future, or those applications that may be
licensed from third parties, may not result in patents being issued. Also,
patent rights may not provide adequate proprietary protection or competitive
advantages against competitors with similar technologies. The laws of certain
foreign countries do not protect intellectual property rights to the same extent
as do the laws of the United States.
In addition to patents, we rely on trade secrets and proprietary
know-how. Protection of trade secrets and know-how is sought, in part, through
confidentiality and proprietary information agreements and customary principles
of "work-for-hire." These agreements may not provide meaningful protection or
adequate remedies in the event of unauthorized use or disclosure of confidential
and proprietary information. Failure to protect proprietary rights could
seriously impair our competitive position.
IF THIRD PARTIES CLAIM WE ARE INFRINGING THEIR INTELLECTUAL PROPERTY RIGHTS, WE
COULD BECOME SUBJECT TO SIGNIFICANT LITIGATION OR LICENSING EXPENSES OR BE
PREVENTED FROM MARKETING OUR PRODUCTS.
The areas in which we have focused our research and development have a
number of competitors. This has resulted in a number of issued patents and
still-pending patent applications. Patent applications in the United States are,
in most cases, maintained in secrecy until the patents issue. The publication of
discoveries in the scientific or patent literature frequently occurs
substantially later than the date on which the underlying discoveries were made.
Commercial success depends significantly on our ability to operate without
infringing the patents and other proprietary rights of third parties. In the
event of such infringement, we may be prevented from pursuing certain product
development or commercialization and may be required to obtain a license for the
use of the proprietary rights or patents. We may also be required to pay damages
for past infringement.
The biotechnology and pharmaceutical industries have been characterized
by extensive litigation regarding patents and other intellectual property
rights. The defense and prosecution of intellectual property lawsuits, U.S.
Patent and Trademark Office interference proceedings and related legal and
administrative proceedings in the United States and in foreign countries involve
complex legal and factual questions. As a result, such proceedings are costly
and time consuming to pursue and their outcome is uncertain.
Litigation may be necessary in the future to:
- enforce patents that we own or license;
- protect trade secrets or know-how that we own or license; or
- determine the enforceability, scope and validity of the
proprietary rights of others.
We believe that our technology has been independently developed and
does not infringe upon the proprietary or intellectual property rights of
others. We cannot, however, guarantee that our technology does not, and will not
in the future, infringe upon the rights of third parties. We may be a party to
legal proceedings and claims relating to the proprietary information of others
from time to time in the ordinary course of our business. If we become involved
in any litigation, interference or other administrative proceedings, we will
8
incur substantial expense and the efforts of technical and management personnel
will be significantly diverted. An adverse determination may subject us to loss
of proprietary position or to significant liabilities, or require licenses that
may not be available from third parties. We may be restricted or prevented from
manufacturing and selling products, if any, in the event of an adverse
determination in a judicial or administrative proceeding or if we fail to obtain
necessary licenses. Costs associated with these arrangements may be substantial
and may include ongoing royalties. Furthermore, the necessary licenses may not
be available on satisfactory terms, if at all.
WE CAN NOT BE SURE THAT ANY FUTURE OR CURRENTLY PENDING PATENT APPLICATIONS
RELATING TO OUR PRODUCTS WILL ISSUE ON A TIMELY BASIS, IF EVER.
Since patent applications in the United States are maintained in
secrecy until 18 months from the priority date, and since publication of
discoveries in the scientific or patent literature often lag behind actual
discoveries, we cannot be certain that we were the first to develop the
inventions covered by each of our pending patent applications or that we were
the first to file patent applications for such inventions. Even if patents are
issued, the degree of protection afforded by such patents will depend upon the:
- scope of the patent claims;
- validity and enforceability of the claims obtained in such
patents; and
- our willingness and financial ability to enforce and/or defend
them.
EVEN IF WE OBTAIN REGULATORY APPROVAL TO MARKET AND SELL OUR PRODUCTS, WE WILL
BE SUBJECT TO ONGOING REGULATORY REVIEW, WHICH WILL BE EXPENSIVE AND MAY AFFECT
OUR ABILITY TO SUCCESSFULLY COMMERCIALIZE OUR PRODUCTS.
Even if regulatory approval for a product is secured, such approval may
be subject to limitations on the indicated uses for which the product may be
marketed. Such limitations may restrict the size of the available market for the
product or contain requirements for costly post-marketing surveillance studies.
Manufacturers of medical products are subject to continued review and periodic
inspections by the FDA and other regulatory authorities. The subsequent
discovery of previously unknown problems with the product, clinical trial
subjects, or with the manufacturer or its manufacturing facility may result in
the imposition of restrictions on the product or manufacturer, including
withdrawal of the product from the market. If we or any of our collaborative
partners fail to comply with applicable regulatory requirements, we may be
subject to fines, suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions and criminal prosecution.
9
IF OUR PRODUCTS ARE NOT ACCEPTED BY THE MARKET, WE ARE NOT LIKELY TO GENERATE
SIGNIFICANT REVENUES OR BECOME PROFITABLE.
Even if we are able to successfully develop a viable product and obtain
regulatory approval of such product, such product may not gain market acceptance
among physicians, patients, healthcare payors and the medical community. The
degree of market acceptance of any medical product depends on a number of
factors, including:
- demonstration of clinical efficacy and safety;
- cost-effectiveness;
- potential advantages over alternative therapies;
- reimbursement policies of government and third party payors;
- effectiveness of marketing and distribution capabilities; and
- the success of physician education programs.
Physicians will not recommend therapies using products until clinical
data or other factors demonstrate their safety and efficacy as compared to other
drugs or treatments. Even if the clinical safety and efficacy of therapies using
the products is established, physicians may elect not to recommend the therapies
for other reasons, including whether the mode of administration of products is
effective for certain indications.
WE ARE A PARTY TO LITIGATION WHICH HAS BEEN DETERMINED ADVERSELY TO US AND WE
ARE UNABLE TO PAY THE PLAINTIFF WITH THE FUNDS NOW AVAILABLE TO US.
We and our French subsidiary were party to several lawsuits seeking
damages from our company and our subsidiary, as described under "Item 3. Legal
Proceedings.". All except one case were immaterial and have been settled, either
in court or out of court, with all amounts previously accounted for in our
financial statements. One material case was lost and although the full amount
had been provided for in our financial statements, we do not have sufficient
funds to meet our obligations should the plaintiff demand immediate payment of
the amount we now owe him, unless we are able to raise a sufficient amount of
additional capital. Our inability to meet such obligations would have a material
adverse effect on our liquidity and could threaten our business.
OUR STOCK PRICE MAY EXPERIENCE SIGNIFICANT VOLATILITY, WHICH COULD ADVERSELY
AFFECT THE VALUE OF YOUR INVESTMENT.
The market price of our common stock, like that of the common stock of
many other development stage biotechnology companies, may be highly volatile. In
addition, the stock market has experienced extreme price and volume
fluctuations. This volatility has significantly affected the market prices of
securities of many biotechnology and pharmaceutical companies for reasons
frequently unrelated to, or disproportionate to, the operating performance of
the specific companies. These broad market fluctuations may adversely affect the
market price of our common stock.
10
THE MARKET FOR OUR COMMON STOCK IS VERY LIMITED
Our common stock is currently traded only on the OTC Bulletin Board.
Accordingly, we cannot provide assurances as to the future liquidity of our
common stock or the price at which you would be able to sell your shares in any
available market.
THE ISSUANCE OF ADDITIONAL EQUITY SECURITIES MAY DILUTE YOUR INVESTMENT.
We currently have 59,394,454 shares of common stock outstanding, 1
share of Special Voting Preferred Stock, options to purchase an aggregate of
606,250 shares of common stock and warrants to purchase an aggregate of
6,080,166 shares of common stock. We are authorized to issue up to 80 million
shares of common stock and 5 million shares of preferred stock without
additional stockholder approval. The issuance of additional common stock or
preferred stock will dilute our stockholders' percentage ownership, and,
depending on the offering price of such stock, may also serve to dilute the
value of such ownership interest.
WE CURRENTLY DO NOT INTEND TO PAY CASH DIVIDENDS ON OUR SHARES.
We have never declared or paid any cash dividends on our common stock,
nor do we intend on doing so in the foreseeable future. The payment of
dividends, if any, in the future is within the discretion of our board of
directors and will depend upon our earnings, capital requirements and financial
condition as well as other relevant factors. We currently intend to retain all
earnings, if any, to finance our continued growth and the development of our
business. Furthermore, our ability to declare or pay dividends may be limited in
the future by the terms of any then-existing credit facilities, which may
contain covenants that restrict the payment of cash dividends.
POLITICAL OR SOCIAL FACTORS MAY ADVERSELY IMPACT REVENUES BY DELAYING OR
IMPAIRING THE CORPORATION'S ABILITY TO MARKET ITS PRODUCTS.
We are focused on developing vaccines and products for the treatment
and prevention of HIV. Products developed to address the HIV/AIDS epidemic have
been, and may continue to be, subject to competing and changing political and
social pressures. The political and social response to the HIV/AIDS epidemic has
been emotionally charged and unpredictable. Such political and social forces may
serve to delay or prevent introduction of our products into the marketplace or
to place restrictions upon the pricing, availability and marketing of such
products.
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TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS............................................. 13
ITEM 2. PROPERTIES .......................................... 26
ITEM 3. LEGAL PROCEEDINGS ................................... 26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.. 27
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.................................. 28
ITEM 6. SELECTED FINANCIAL DATA ............................. 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................. 31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.......................................... 33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ......... 34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.................. 34
ITEM 9A. CONTROLS AND PROCEDURES.............................. 34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .. 35
ITEM 11. EXECUTIVE COMPENSATION .............................. 38
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS....... 42
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...... 43
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES............... 49
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.......................................... 51
SIGNATURES............................................................. 71
12
PART I
ITEM 1. BUSINESS
THE CORPORATION
We are a holding company conducting business through our subsidiaries
6543 Luxembourg S.A., a joint stock company organized in 2001 under the laws of
Luxembourg ("LuxCo"), and Mymetics S.A. (formerly Hippocampe S.A.), a company
organized in 1990 under the laws of France ("Mymetics S.A."). We were
incorporated in July 1994 pursuant to the laws of the Commonwealth of
Pennsylvania under the name "PDG Remediation, Inc." In November 1996, we
reincorporated under the laws of the State of Delaware and changed our name to
"ICHOR Corporation." In July 2001, we changed our name to "Mymetics
Corporation." We own all of the outstanding voting stock of LuxCo and Mymetics
S.A. is a wholly-owned subsidiary of LuxCo. In this document, unless the context
otherwise requires, "Mymetics" and the "Corporation" refer to Mymetics
Corporation and its subsidiaries.
We currently do not make, market or sell any products or services, and
thus, we have no revenues. We believe that our research and development
activities, and the resulting intellectual property, will lead to the creation
of commercially viable products, which can generate revenues for us in the
future. If financially favorable terms are available, we may license or sell our
intellectual property to third parties. If we fail to develop our intellectual
property, we are unlikely to generate significant revenues.
DEVELOPMENT OF THE CORPORATION
From our inception in 1994 to December 1997, we operated in the
environmental services industry, focusing on thermal treatment (in Florida),
remediation services (in Florida and Pennsylvania) and waste oil recycling (in
Illinois). In February 1995, we completed an initial public offering. In 1998
and 1999, after disposing of our thermal treatment, remediation services and
waste oil recycling businesses, we provided consulting services to an industrial
customer in Europe. In June 1999, we acquired a majority interest in Nazca
Holdings Ltd., whose business involved the exploration for and development of
groundwater resources in Chile. Following the disposal of our interest in Nazca
in July 2000, we did not have an operating business.
In March 2001, we acquired 99.9% of the outstanding shares of Mymetics
S.A. in consideration for shares of our common stock and shares of Class B
Exchangeable Preferential Non-Voting Stock of LuxCo, or Preferential Shares,
which are convertible into shares of our common stock. In 2002, we acquired the
remaining 0.1% of the outstanding common stock of Mymetics S.A. pursuant to
share exchanges with the remaining stockholders of Mymetics S.A. The terms of
these recent share exchanges were substantially similar to the terms of the
share exchange that occurred in March 2001. Mymetics S.A. was, and continues to
be, a biotechnology research and development company.
On June 30, 2001, we closed on a private offering of 1,333,333 shares
of our common stock, at E1.77 (U.S. $1.50) per share, for an aggregate price of
E2,355,600 (U.S. $2,000,000). This private placement was exempt from
registration pursuant to Regulation S of the Securities Act of 1933, and the
shares were sold to foreign investors meeting the requirements of Regulation S.
13
In August, 2002 the Company formed Mymetics Deutschland GmbH for the
purpose of applying for German government support of research activities to be
conducted in Germany. This company never became active and was finally sold to
MFC Securities (Deutschland) GmbH, an affiliate of our lender, MFC Merchant Bank
S.A.
MYMETICS CORPORATION
Prior to 2002, our activities were primarily conducted in Europe.
During the second quarter of 2002, through our operations in the United States,
we launched programs in the United States in an attempt to reinforce our
intellectual property portfolio and to accelerate the commercialization of our
technology. This was done, in part, by attempting to target products and
business development in the United States. Again, prior to this time, activities
such as design of the prototype molecules, synthesis, and in vitro testing had
been conducted exclusively in Europe. We believed that expanding our operating
activities in the United States offered numerous advantages, including greater
access to expertise, grants, subsidies, intellectual property and public and
private research teams. Due to financial constraints, we were forced to limit
these activities in January 2003.
MYMETICS S.A.
Our subsidiary, Mymetics S.A., is a biotechnology research and
development company devoted to fundamental and applied research in the area of
human and veterinary biology and medicine. Mymetics S.A.'s primary objective is
to develop therapies to treat certain retroviruses, including the human
immunodeficiency virus, or HIV, the virus that leads to acquired
immunodeficiency syndrome, or AIDS. Additional applications of Mymetics S.A.'s
research include potential treatments and/or vaccines for animal AIDS, human and
animal oncoviral leukemias, multiple sclerosis and organ transplantation. To
date, Mymetics S.A. has conducted its fundamental research in Europe.
Mymetics S.A.'s research strategy is to structure and manage a network
of public and private best-in-class research teams, each with a clearly
delineated focus. Mymetics S.A. has segmented its primary research into modules,
which are then out-sourced, under its direct supervision, to high-level,
specialized and complementary public and private research teams. Mymetics S.A.
retains all intellectual property rights in the combined research and applies
for domestic and international patents whenever justified. As agreed and
coordinated by Mymetics S.A., the research teams are authorized to co-publish
their results.
MYMETICS GMBH
Mymetics Deutschland GmbH was formed in 2002 for the purpose of
applying for German government support of research activities to be conducted in
Germany. The German government offers subsidy programs as a means of attracting
business investment into parts of eastern Germany. In particular, Mymetics
Deutschland GmbH was organized to take advantage of (i) an investment matching
program offered by the German government, whereby the German government matches
the amount of certain investments made by companies in eastern Germany and (ii)
a broader program, whereby the German government offers significant amounts of
grant money to companies in eastern Germany that satisfy certain conditions.
Mymetics Deutschland GmbH solicited interest from existing research teams in
eastern Germany, formulated four distinct research programs and applied for
German government grants. In December 2002, Mymetics Deutschland GmbH was
14
informed that two of its programs would be eligible for matching grants.
However, the broader program described above, which may have served as a source
of substantial working capital, was suspended by the German government for
biotechnology companies. Consequently, the former Board of Directors elected to
suspend its planned expansion of research activities into Germany and sold the
German company to MFC Securities (Deutschland) GmbH, an affiliate of our lender,
MFC Merchant Bank S.A., in July 2003.
RECENT INDUSTRY DEVELOPMENTS
During the first quarter of 2003, one of our major competitors received
approval from the United States Food and Drug Administration of its fusion
inhibitor candidate drug. This development, combined with advances in our
research activities, served to validate our basic technology in the area of
fusion inhibitors and, in particular, the efficacy of gp41-derived peptide
product. Given this validation, as well as (i) advances in the our research and
development efforts, (ii) poor worldwide capital market conditions and (iii)
lack of sufficient long term working capital, we have decided to re-direct our
business development strategy: rather than independently funding the completion
of research and development programs prior to the sale or licensing of our
technology to a major international pharmaceutical or biotechnology firm, we
have opted to accelerate the exploration of potential partnerships with major
international pharmaceutical and biotechnology firms. We have also accelerated
the development of our patent portfolio.
SCIENCE OVERVIEW
Virus. A virus is a non-cellular organism consisting of
deoxyribonucleic acid ("DNA") or ribonucleic acid ("RNA") and a protein coat.
During the free and infectious stage of their life cycle, viruses do not perform
the usual functions of living cells, such as respiration and growth. Rather,
when viruses enter a living plant, animal or bacterial cell, they utilize the
host cell's chemical energy and synthesizing ability to replicate. After the
replication of the viral components by the infected host cell, virus particles
are released and the host cell is often destroyed. The approximately 2,450 viral
species identified to date are divided into about 75 groups. HIV belongs to the
group of retroviruses, so called because they contain the reverse transcriptase
enzyme that copies viral RNA back into DNA (the reverse of what usually occurs:
DNA is copied into RNA). Retroviruses include three main groups: spumaviruses,
oncoviruses that are often associated with cancers and lentiviruses that cause
slow evolving pathologies, e.g. AIDS-associated lentiviruses.
HIV. The human immunodeficiency virus (HIV) is a lentivirus that
belongs to Retroviridae family that has RNA as genetic material. Once inside the
target cells (mostly T cells, monocytes/macrophages and dendritic cells), HIV
uses it's own reverse transcriptase enzyme in combination with the cell's
machinery to copy it's RNA into DNA. Afterward, the HIV DNA can be integrated
into the host chromosomes. If integration happened, it means that after each
cell division, the HIV genome is transmitted to the daughter cell with the host
chromosomes. In other words, HIV can be spread to the next cell generation
forever. HIV infection is characterized by the inability of the host immune
system to mount an efficient immune response capable of neutralizing the HIV.
Therefore, HIV is still replicating and spreading in the infected host,
affecting and killing numerous cells of the immune system, leading to the
life-threatening late stage of the disease called AIDS (Acquired Immuno
Deficiency Syndrome).
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The global HIV epidemic is composed of multiple subtypes (clades)and
inter-subtypes recombinant forms, each with a distinct geographic distribution.
Two strains of HIV capable of causing AIDS have been identified, HIV-1 and
HIV-2. The genetic material of these two strains is approximately 60% identical.
HIV-1 is world-wide spread (pandemic), while HIV-2 seems to be more limited to
certain areas of Africa (epidemic). Each strain contains a number of subtypes,
which are slight genetic variations of the virus. These variations result from
the high mutation rate of HIV's genetic material. HIV uses these mutations as a
mechanism to evade the immune system. Indeed, mutations in HIV genome may
decrease or abolish the recognition of viral proteins by the host antibodies or
cellular immune response toward HIV. Most variations occur in the gene encoding
the GP120 protein, and these mutations can alter the protein's structure and
consequently, the recognition by the host immune system.
AIDS. AIDS is a fatal epidemic disease caused by an infection by HIV
(HIV-1 or HIV-2). In most cases, HIV invades the host and slowly attacks and
destroys the immune system, the body's defense against disease, leaving the
infected individual vulnerable to malignancies and infections that eventually
cause death. The immune system's response (antibodies and cellular immune
response) is usually sufficient to temporarily arrest progress of the infection
and reduce levels of the virus in the blood. Virus replication continues,
however, and gradually destroys the immune system by infecting and destroying
critical white blood cells known as CD4 cells. The main cellular target of HIV
is a special subtype of white blood cells critical to the immune system, known
as helper T lymphocytes, or T4 helper cells. These cells play a central role in
the orchestration of the immune responses by stimulating or activating virtually
all of the other cells involved in immune protection. These cells include B
lymphocytes that produce antibodies needed to fight infection; cytotoxic T
lymphocytes, which destroy cells infected with virus; and macrophages and other
effector cells, which attack invading pathogens. Furthermore, helper T cells are
the main producer of a small molecule named IL-2 cytokine. This IL-2 acts as a
key messenger between helper T cells and other effector cells of the immune
system. Once HIV has entered into the helper T cell, it can impair the
functioning of or destroy the cell. Therefore, it will contribute to lower this
IL-2 messenger concentration present in the HIV-infected host and consequently,
leading to a major defect in cell communication.
A hallmark of the onset of AIDS is a drastic reduction in the number of helper T
cells in the body of HIV-infected subjects. HIV can also infect other cells,
including certain monocytes and macrophages, dendritic cells as well as brain
cells. All these cells express a common protein at their cell surface called
CD4. This CD4 protein serves usually as primary receptor for the HIV surface
envelope glycoprotein called gp160, which explain why HIV preferred target cells
expressing the CD4 molecule. Destruction of CD4+ lymphocytes is the major cause
of the immunodeficiency observed in AIDS, and decreasing CD4+ lymphocyte levels
appear to be the best indicator of morbidity in these patients. As the infection
progresses, the immune system's control of HIV levels weakens, the number of
viruses in the blood rises and the level of critical T cells declines to a
fraction of their normal level.
Viral Envelope of HIV. The viral envelope of HIV is covered with
mushroom-shaped spikes called gp160 that enable the virus to attach itself to
the target cell. The cap of each "mushroom" is comprised of gp120 molecules and
its stem is comprised of gp41 molecules that is anchored into the viral
envelope(gp120+gp41=gp160). Gp120 is a glycoprotein that protrudes from the
surface of HIV and binds to the CD4 receptor of the CD4+ T-cells. In a two-step
process that allows HIV to breach the membrane of T-cells, the gp120-CD4 complex
16
refolds to reveal a second structure that binds to CCR5 or CXCR4, one of several
chemokine co-receptors used by the virus to gain entry into T cells. Gp41 is a
glycoprotein embedded in the outer envelope of HIV and plays a key role in HIV's
infection of cells by carrying out the fusion of the viral and cell membranes.
Immune System. The immune system functions to protect the body against infection
and foreign substances, including viruses and bacteria. This defensive function
is performed by certain body's white blood cells (T cells that belong to
leukocytes) capable of recognizing foreign substances presented by a number of
accessory cells like dentritic cells. When an immunocompetent T cell recognizes
foreign material or a biological invader presented by dendritic cells or
macrophages, it normally induces an immune response. For example, B lymphocytes
may be stimulated to produce and secrete antibodies capable of binding and
neutralizing the pathogene, while cytotoxic T lymphocytes might be activated to
destroy cells infected with viruses. This recognition function relies on the
immune system's ability to recognize specific foreign molecular configurations,
generically referred to as antigens. After specific recognition by T4 helper T
cells, the most central cell of the immune system, interleukine-2 ("IL-2") is
produced by these same T4 helper T cells. IL-2 is a central interleukine that
can activate most of the cells of the immune system, including B cells, NK
cells, CD4+ helper and cytotoxic T lymphocytes.
BUSINESS STRATEGY
Our current objective is to develop a platform of both therapeutic
compounds and vaccines. We have made a series of discoveries about how the
body's immune system responds to retroviruses, specifically HIV. The foundation
of our platform technology and product pipeline is our discovery of a subtle
mimicry between the virus and the host cells. By understanding the precise
dynamics of the virus's GP41 and the host-cell's IL-2, we strongly believe we
have the potential to design and develop specific therapeutic molecules and
antibodies to disrupt or even prevent the disease. In addition to targeting HIV
and AIDS, we plan to apply these findings to the potential treatment or even
prevention of a range of additional diseases, including certain echoviruses
causing leukemia.
Some biotechnology companies are focusing on slowing or impeding the
progress of the virus once it has infected the body's host cells. Other
biotechnology firms are attempting to develop therapies that prevent the virus
from fusing with host cells. If the virus cannot fuse, it cannot reproduce, and
the body's immune system then succeeds in arresting the invasion. Our approach
is also based on the concept of preventing viral fusion. Our scientific strategy
is unique in that its design is based on a series of discoveries involving
mimicry, more specifically between the HIV envelope glycoprotein GP41 and the
host's IL-2, one of the most central cytokine of the immune system. By
exploiting this mimicry, HIV has found a new mechanism to evade the immune
response. Indeed, the body's immune system responds to HIV invasion, but fails
to differentiate properly between the viral GP41 and the host's IL-2 cytokine.
As a result, we believe that the immune system attacks both of them with equal
vigor. The unfortunate consequence is that the body, in turning on itself,
undercuts its own defenses overtime. By better understanding these precise
dynamics, we believe we will be able to design vaccines and to develop specific
therapeutic molecules to prevent HIV from entering the host cells and the body's
immune system to recognize HIV. Our current scientific strategy is based on the
gp41-IL-2 mimicry to create therapeutic peptides to prevent HIV fusion and
vaccines capable of inducing neutralizing antibodies that recognize strictly the
GP41 as a separate and distinct entity from IL-2. If this can be accomplished,
17
the body's immune system should be able to identify and attack the virus instead
of inducing an autoimmune disease directed toward the IL-2 and affecting the
quality of the immune system.
The Discovered Molecular Mimicry Between Trimeric GP41 AND IL-2. We
have discovered a molecular mimicry between the trimeric ectodomain of the
transmembrane protein of immunosuppressive lentiviruses (HIV-SIV-FIV) and the
IL-2 of the infected host species. Our initial results were published with the
French Academy of Sciences in November 2000.
Autoimmune Consequences for HIV Infected Subjects. We have found some
of the expected autoimmune consequences of the described virus-host molecular
mimicry in HIV infected subjects. As expected, HIV positive sera recognize human
IL-2. The tests included 2,352 HIV+ and HIV-sera, and the results demonstrated
that 100% of HIV+ patients (stages II, III and IV) were positive for the
presence of anti IL-2 antibodies. Later, antibody cross-reactivities were found
between the structurally and physically antigenic analogous sites of GP41
(HIV-1) and human IL-2. The first results were presented in the Journal of
Autoimmunity in 2001 and were also presented in a poster session at the Cold
Springs Harbor, New York meeting on infectious disease in December 2001.
VACCINAL USE OF THE MIMICRY DISCOVERY
Our current research modules focus on the following three fields:
- FUNDAMENTAL RESEARCH. We believe that our insight
into the GP41/IL-2 mimicry can help to explain, in
large part, the main AIDS-associated disorders: drop
of peripheral IL-2, decrease of non-infected T helper
lymphocytes, apoptosis of non-infected cells,
lymphoproliferation disorders and (alpha)2
microglobulin increase and hypergammaglobulinemia.
Some of the possible effects of the tridimensional
GP41 (HIV-1)/human IL-2 molecular mimicry on the
AIDS-associated disorders are being evaluated by our
research teams. These teams are also studying
molecular mimicry in FIV, between the viral envelope
protein gp36 and feline IL-2.
- THERAPEUTIC MOLECULES. Based on insights into
mimicry, we have developed a series of synthetic
peptides that might inhibit the fusion between HIV or
FIV and its target cell in an infected host. For the
in vitro work, these synthetic peptides have been
effective for blocking both HIV and FIV infections,
while in vivo experiments with FIV peptides is under
investigation to validate our HIV model. These
therapeutic molecules would prevent the virus entry
into the target cell, inhibiting its attempts to
reproduce. Having demonstrated that the transmission
of HIV depends on the viral load, and that no
transmission has been observed below 1500 viral
copies/ml., treatment with therapeutic agents may
provide a strategy to control AIDS epidemicity. This
application would complement available antiretroviral
drugs, or may even provide a substitute for the
available antiretroviral drugs. In a series of
independent in vitro experiments, our rationally
designed peptide compounds were proven to effectively
block viral fusion. These compounds also showed a
potency that is equivalent to the gp41 compound
recently approved by the United States Food and Drug
18
Administration (FDA). The relative potency of our
compounds were presented in a poster presentation
given at Interscience Conference on Antimicrobal
Agents and Chemotherapy in San Diego CA in September
2002. An additional poster presentation at the
International Feline Retrovirus Research Symposium
conference in December 2002 showed the potency of a
series of our FIV gp36-derived peptides, and in
particular highlighted the surprising potency of a
short compound (consisting of 8 amino acids only).
Results were also recently published in the Journal
of Virology (March 2003) in an article entitled
"Antiviral Activity and Conformational Features of an
Octapeptide Derived from the membrane-Proximal
Ectodomain of the Feline Immunodeficiency Virus
Transmembrane Glycoprotein." An additional poster
presentation at the annual International Conference
on Retroviruses and Opportunistic Infection in Boston
in February 2003 communicated the results of a series
of benchmarking in vitro assays, highlighting the
potency of our HIV gp41 "IL-2 like"-derived peptide
compounds across a wide array of clades or strains of
the virus. These data appear to validate our strategy
of creating compounds from well-conserved,
IL-2-homologous regions, for the greatest possible
application for patients worldwide. Based on the
success of in vitro compounds, we launched our first
in vivo tests in the feline model, collaborating with
well-known research partners at the Retroviral Center
at the University of Pisa, Italy. These tests are
expected to provide valuable insight into the actual
efficacy of the potential peptides, in particular the
shorter peptides, which would offer a number of
practical advantages in terms of commercialization,
including less complexity, lower cost to manufacture,
less immunogenicity, and potential greater
bio-availability.
- PREVENTIVE VACCINES. We believe that our discovery of
the host-virus IL-2 mimicry opens the door to novel
therapeutic and preventive vaccine strategies for
both humans and animals. We believe that properly
mutated trimeric gp41 and gp36 represent excellent
candidate vaccines because they are devoid of the
"IL-2" like structure and its harmful associated side
effects. Furthermore, these engineered gp41 and gp36
have conserved their antigenic properties and
correspond to the most conserved region of the viral
envelope glycoprotein, which otherwise exhibits
considerable genetic diversity. Our specific
preventive vaccine would be "universal" in that it
would train the body's immune system to recognize and
defeat a broad array of HIV strains, while preventing
the induction of the autoimmune reaction toward IL-2.
Our recent advances in protein engineering and
production allowed us to obtain very good soluble and
stable trimeric gp41 and gp36, which has accelerated
the preliminary vaccine program. A first round of
rabbit immunizations with various protocols testing
different adjuvants, protein doses and route of
administration is already under investigation. A
second round of immunizations is planned for June
2004. Results are expected in November 2004.
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We currently have compound prototypes potentially capable of
commercialization, including:
- Therapeutic molecules (pharmacological agents) - administered
to infected subjects to prevent cell infection by HIV and FIV.
- Preventive vaccines - administered to healthy subjects to
prevent infection by HIV or FIV.
The Company is exploring both HIV and FIV in parallel, and gaining insight into
product design through the synergies between these two programs.
KEY STAFF
Our Board of Directors and management team have changed over the past
few months. As disclosed in our form 10-Q for the quarter ended September 30,
2003, Michael K. Allio, John M. Musacchio and Rober Demers have been replaced as
Directors by Christian J.-F. Rochet, Ernst Luebke and Robert Zimmer. As regards
officers, Michael K. Allio has been replaced as Interim Chief Executive Officer
by Christian J.-F. Rochet, President and Chief Executive Officer, while John M.
Musacchio has been replaced as Chief Financial Officer and Treasurer by Ernst
Luebke.
Research and Development activities have been spearheaded since
November 3, 2003 by our new Chief Scientific Officer, Dr. Sylvain Fleury, Ph.D.,
in replacement of Dr. Pierre-Francois Serres, who was appointed on that same day
Head of Exploratory Research. Dr. Fleury is an experienced research and
development scientist in the fields of biology, virology, immunology and AIDS.
RESEARCH AND DEVELOPMENT EXPENSES
For the year ended December 31, 2003, we focused on research and
development and, as a result, did not generate any revenues or engage in any
marketing activities. For the years ended December 31, 2003, December 31, 2002
and December 31, 2001, we spent E 1,263,000, E 1,878,000 and E 482,000
respectively, on research and development activities.
INTELLECTUAL PROPERTY
We are the exclusive owner of intellectual property relating to our
core business which is focused on the development of novel HIV and FIV
therapeutics and vaccines. Particularly, we own two issued French patents FR99
06528 and FR01 15424 and one US issued patent US 6,455,265 and its corresponding
national filings and divisional filings in various countries including US,
Japan, Canada, EP and Israel. We also filed two Patent Cooperation Treaty, or
PCT, applications, WO 03/048187 and WO 03/104262, with national phases in US and
EP. We have additionally filed four United States provisional applications
related to the field.
We rely primarily on a combination of patent, copyright, trademark and
trade secret laws, as well as contractual restrictions, to protect our
intellectual property. These legal protections afford limited protection. We
generally require employees, strategic research partners and consultants with
access to our intellectual property to execute confidentiality agreements.
Despite our efforts to protect our intellectual property, unauthorized parties
20
may attempt to copy the research and research methods that form the basis of our
intellectual property. The laws of many countries do not afford the same level
of protection as those provided by United States intellectual property laws.
Litigation may be necessary to protect and enforce our rights in our
intellectual property.
COMPETITION
We have not yet developed an actual product or generated any revenues.
Our future competitive position depends on our ability to successfully develop
our intellectual property, and to either use such intellectual property to
produce one or more products capable of generating significant revenues or to
license or sell such intellectual property to third parties on financially
favorable terms. Although we believe that the results of our research and
development activities have been favorable, there are numerous entities and
individuals conducting research and development activities in the area of human
and veterinary biology and medicine all of which could be considered
competitors. While many of these individuals and entities have greater
financial, manufacturing, technical, human resource, marketing and distribution
capabilities, and greater experience in conducting pre-clinical and clinical
trials and in obtaining regulatory and FDA approvals, we believe that our
technologies nonetheless provide us with a competitive advantage.
Further, we may face significant competition in the design and
development of some of our therapeutic compounds and preventive vaccines.
Therapeutic Molecules (pharmacological agents). The biopharmaceutical industry
is intensely competitive, especially in the field of HIV. If we are successful
in developing and proving our therapeutic agents, we will compete with existing
developed and approved therapies. The FDA has approved 16 antiviral drugs to
treat HIV and AIDS, which fall into two categories depending on whether they
target one or two viral enzymes: either HIV protease or reverse transcriptase
("RT"). RT drugs aim to block reverse transcriptases and prevent transcription
of the virus' generic material from RNA to DNA. There are two classes of RT
drugs: nucleoside analogues inhibitors and non-nucleoside inhibitors. The
approved nucleoside analogues inhibitors include drugs such as Retrovir
(ziduvodine; AZT), Videx (didanosine; ddl), Hivid (zalcitabine; ddc), Zerit
(stavudine; d4T), Epivir (larnivudine; 3TC), Combivir (ziduvodine + lamivudine),
Ziagen (abacavir; ABC). These drugs are manufactured by companies such as
GlaxoSmithKline Plc, Bristol-Myers Squibb Company, Roche Holding AG and BioChem
Pharma Inc. The approved non-nucleoside inhibitors include drugs such as
Viramuno (nevlrapine), Rescriptor (delavirdine), Sustiva (efavirenz; EFV) which
are produced by Boehringer Ingelhelm Gmbh, Pharmacia & Upjohn Inc. and E. I. Du
Pont de Nemours and Company. The objective of approved protease inhibitor drugs
is to prevent the assembly of new virus particles. The approved protease
inhibitors include drugs such as Invirase (saquinavir), Fortovase (saquinavir),
Norvir (ritonavir), Crixivan (indinavir), Viracept (nellinavir) and Agenerase
(amprenavir), which are manufactured by companies including Roche Holding AG,
Abbot Laboratories, Merck & Co. Inc., Agouron Pharmaceuticals Inc., Vertex
Pharmaceuticals Incorporated and Glaxo Wellcome Plc.
Both HIV protease and RT drugs have demonstrated their efficacy in
terms of HIV blood concentration and HIV-positive period and are used to slow
the progression of the disease. Furthermore, efficacy has been higher with drug
combinations. None of these drugs are, however, a cure, and mutations of HIV's
envelope produce viral strains resistant to both classes of drugs. These drugs
also produce toxic side effects on the peripheral nervous system and
gastrointestinal tract. Non-compliance on combination therapies and
21
interruptions in dosing could have an effect on, and trigger, accelerated viral
replication.
If successful in developing and validating our therapeutic molecules,
we believe that there are significant existing and future markets for the
treatment of HIV and AIDS. There can be no assurance that currently approved
drugs or products developed in the future for the treatment of HIV/AIDS by our
competitors (which may include Roche Holding AG, Abbot Laboratories, Merck & Co.
Inc., Agouron Pharmaceuticals Inc., Vertex Pharmaceuticals Incorporated, Glaxo
Wellcome Plc, Bristol-Myers Squibb Company, Trimeris, Inc., Progenics, Inc., and
BioChem Pharma Inc.) will not be effectively marketed and sold. We believe,
however, that our unique approach and fundamental understanding of molecular
mimicry will provide an advantage over existing and future competitors.
The progress of Trimeris Inc. in securing FDA approval for its fusion
inhibitor product, "Fuzeon", a gp41-derived peptide comprised of 36 amino acids,
represents excellent proof-of-concept for us by demonstrating, through human
trials, that such a compound is safe and effective in lowering viral load.
Industry experts estimate that the annual revenue generated from this drug may
reach U.S. $500,000,000 - U.S. $750,000,000, which confirms the significant
demand for fusion inhibitor drugs. The media has also, however, published that
Trimeris and its partner Roche face significant challenges and limitations,
including prohibitive cost of goods, a complex manufacturing process involving
106 separate steps in chemical synthesis, an elevated retail price (recent
estimates exceed $20,000 per patient per annum, more than double the cost of
current therapies), significant supply shortages and difficult delivery of the
drug (requiring subcutaneous injection twice/day of 90 mg. of the drug). These
challenges suggest that a drug that can be made less expensively, and delivered
more easily, will have significant competitive advantages.
Preventive Vaccines. We are conducting research aimed at developing a
preventive vaccine for the HIV-1 virus, which vaccine will provide protection
against a broad array of viral strains.
In the field of HIV vaccines, the recent failure of the VAXGEN product
in Phase III clinical trials underscores the need for an effective solution to
the global challenge posed by HIV. As this particular candidate was based on
technology unrelated to our technology, we do not feel that the cessation of
clinical trials with respect to VAXGEN negatively impacts our prospects for
developing a viable preventive vaccine.
In the field of FIV vaccines, Ft. Dodge, a division of Wyeth
Pharmaceuticals, launched the industry's first FIV preventive vaccine in late
2002. We consider this development as further validation of the demand and
viability of this product category. Press releases issued by Ft. Dodge cite a
significant potential market for this drug. Like the Trimeris product, the Ft.
Dodge feline vaccine appears to suffer from a range of drawbacks, so we consider
the competitive threat of Ft. Dodge's FIV preventive vaccine to be moderate.
The worldwide vaccine market is dominated by four large multinational
companies: Merck & Co., SmithKline Beecham Plc, Wyeth Lederle Vaccines &
Pediatrics (a division of American Home Products Corporation), and Aventis
Pasteur S.A. Companies such as The Immune Response Corporation, VaxGen Inc.,
Trimeris, Inc., and Progenics Pharmaceuticals, Inc. are also developing
preventive vaccines.
22
We believe that while these companies have greater financial,
manufacturing, technical, human resource, marketing and distribution
capabilities, and greater experience in conducting pre-clinical and clinical
trials and in obtaining regulatory and FDA approvals, our technologies,
nonetheless, provide us with a competitive advantage. Our innovative approach to
vaccine development is based on the observed immunological cross-reactivity (or
mimicry) between the well preserved, antigenic and immunodominant domain of GP41
and IL-2, and relies on the observation of expected autoimmune consequences in
HIV infected subjects.
We believe that our approach is most promising in comparison with the
approaches that have been pursued so far, including:
- Sub-unit vaccine: a technology addressing a piece of the outer
surface of HIV, such as GP160 or GP120, produced by genetic
engineering.
- Live vector vaccine: a live bacterium or virus such as
vaccinia (used in the smallpox vaccine) modified so it cannot
cause disease, but can transport into the body one or more
genes that makes one or more HIV proteins.
- Vaccine combination: an example includes a "prime-boost
strategy", use of a recombinant vector vaccine to induce
cellular immune responses followed by booster shots of a
sub-unit vaccine to stimulate antibody production.
- Peptide vaccine: chemically synthesized pieces of HIV proteins
(peptides) known to stimulate HIV-specific immunity.
- Virus-like particle vaccine (pseudovirion vaccine): a
non-infectious HIV look-alike that has one or more, but not
all, HIV proteins.
- DNA vaccine: direct injection of genes coding for HIV
proteins.
- Whole-killed virus vaccine: HIV that has been inactivated by
chemicals, irradiation or other means rendering it
non-infectious.
- Live-attenuated virus vaccine: live HIV from which one or more
apparent disease-promoting genes of the virus have been
deleted.
GOVERNMENTAL REGULATION
We contract with third parties to perform research projects related to
our business. These third parties are located in various countries and are
subject to the applicable laws and regulations of their respective countries.
Accordingly, regulation by government authorities in the United States and
foreign countries is a significant factor in the development, manufacture and
marketing of our proposed products and in our ongoing research and product
development activities. Any products that we develop will require regulatory
approval by government agencies prior to commercialization. In particular, human
therapeutic products are subject to rigorous pre-clinical studies and clinical
23
trials and other approval procedures of the FDA and similar regulatory
authorities in foreign countries. In addition, various federal and state
statutes and regulations will also govern or influence testing, manufacturing,
safety, labeling, storage and record keeping related to such products and their
marketing. The process of obtaining these approvals and the subsequent
substantial compliance with appropriate federal and state statutes and
regulations require the expenditure of substantial time and financial resources.
The success of our business will depend on our ability to obtain and maintain
the necessary regulatory approvals.
Pre-clinical studies generally are conducted on laboratory animals to
evaluate the potential safety and the efficacy of a product. In the United
States, we must submit the results of pre-clinical studies to the FDA as a part
of an investigational new drug application, or IND, which application must
become effective before we can begin clinical trials in the United States. An
IND becomes effective 30 days after receipt by the FDA unless the FDA objects to
it. Typically, clinical evaluation involves a time-consuming and costly
three-phase process.
Phase I. Refers typically to closely monitored clinical trials and
includes the initial introduction of an investigational new drug into human
patients or normal volunteer subjects. Phase I clinical trials are designed to
determine the metabolism and pharmacologic actions of a drug in humans, the side
effects associated with increasing drug doses and, if possible, to gain early
evidence on effectiveness. Phase I trials also include the study of
structure-activity relationships and mechanism of action in humans, as well as
studies in which investigational drugs are used as research tools to explore
biological phenomena or disease processes. During Phase I clinical trials,
sufficient information about a drug's pharmacokinetics and pharmacological
effects should be obtained to permit the design of well-controlled,
scientifically valid, Phase II studies. The total number of subjects and
patients included in Phase I clinical trials varies, but is generally in the
range of 20 to 80 people.
Phase II. Refers to controlled clinical trials conducted to evaluate
the effectiveness of a drug for a particular indication or indications in
patients with a disease or condition under study and to determine the common
short-term side effects and risks associated with the drug. These clinical
trials are typically well-controlled, closely monitored and conducted in a
relatively small number of patients, usually involving no more than several
hundred subjects.
Phase III. Refers to expanded controlled clinical trials, which many
times are designated as "pivotal trials" designed to reach end points that the
FDA has agreed in advance, if met, would allow approval for marketing. These
clinical trials are performed after preliminary evidence suggesting
effectiveness of a drug has been obtained. They are intended to gather
additional information about the effectiveness and safety that is needed to
evaluate the overall benefit-risk relationship of the drug and to provide an
adequate basis for physician labeling. Phase III trials can include from several
hundred to several thousand subjects depending on the specific indication being
treated.
The FDA closely monitors the progress of each of the three phases of
clinical trials that are conducted in the United States and may, at its
discretion, reevaluate, alter, suspend or terminate the testing based upon the
data accumulated to that point and the FDA's assessment of the risk/benefit
ratio to the patient. We have not yet conducted any clinical trials and are
currently focused on research.
24
Once Phase III trials are completed, drug developers submit the results
of pre-clinical studies and clinical trials to the FDA, in the form of an new
drug application, or NDA, for approval to commence commercial sales. In
response, the FDA may grant marketing approval, request additional information
or deny the application if the FDA determines that the application does not meet
the predetermined study end points and other regulatory approval criteria.
Furthermore, the FDA may prevent a drug developer from marketing a product under
a label for its desired indications, which may impair commercialization of the
product.
If the FDA approves the new drug application, the drug becomes
available for physicians to prescribe in the United States. After approval, the
drug developer must submit periodic reports to the FDA, including descriptions
of any adverse reactions reported. The FDA may request additional studies, known
as Phase IV trials, to evaluate long-term effects. We will be required to comply
with similar regulatory procedures in countries other than the United States.
In addition to studies requested by the FDA after approval, a drug
developer may conduct other trials and studies to explore use of the approved
compound for treatment of new indications. The purpose of these trials and
studies and related publications is to broaden the application and use of the
drug and its acceptance in the medical community.
We will have to complete an approval process, similar to the one
required in the United States, in virtually every foreign target market in order
to commercialize our product candidates in those countries. The approval
procedure and the time required for approval vary from country to country and
may involve additional testing. Approvals (both foreign and in the United
States) may not be granted on a timely basis, or at all. In addition, regulatory
approval of prices is required in most countries other than the United States.
We face the risk that the resulting prices would be insufficient to generate an
acceptable return to us or our collaborators. A failure to obtain or maintain
the necessary regulatory approvals will have an materially adverse effect on our
business.
EMPLOYEES
As of December 31, 2003, neither Mymetics S.A. nor Mymetics Corporation
had any full-time employees. Indeed, all formerly reported employment agreements
were either i) of a predetermined duration and not renewed, ii) resigned by
their respective holders or iii) terminated by the former management, as
disclosed in our form 10-Q for the quarter ended September 30, 2003.
WWW.MYMETICS.COM
News and information about Mymetics Corporation and its subsidiaries
were available on our web site, www.mymetics.com, until August 2003, after which
the site was temporarily shut off, as some of its contents had to be
substantially updated. We intend to provide again, free of charge and as soon as
practically feasible, news and other information about the Corporation,
including access to our annual reports on Form 10-K, our quarterly reports on
Form 10-Q, our current reports on Form 8-K and all amendments to those reports
as soon as reasonably practicable after we file or furnish them electronically
with the United States Securities and Exchange Commission.
25
ITEM 2. PROPERTIES
Until February 2004, Mymetics S.A. leased approximately 170 square
meters of office space in Saint-Genis Laval (Near Lyon, France), in which the
Corporation's European administrative activities had been conducted until July
31, 2003. The all inclusive rent for such facilities was approximately E 1,641
per month, with a lease expiring on January 31, 2006. From March 2004, this
space has been reduced to approximately 45 square meters at an approximate all
inclusive rent of E 500 per month. This office space is now used exclusively by
Dr. P.-F. Serres, our Head of Exploratory Research. This amended lease still
expires on January 31, 2006. Up until January 31, 2003, we leased approximately
250 square feet of space in Annapolis, Maryland. The rent under our Annapolis
lease was $1,000 per month prior to its termination. From February 2003 until
July 2003, the former management of the Company used a small amount of space at
the office of our former Chairman, Michael K. Allio, as its principal executive
office. This space was being provided by Mr. Allio at no charge, keeping however
in mind that between January 1, 2003 and July 31, 2003, charged Mymetics USD
217,750 for services rendered, USD 8,500 as director's fee and USD 32,528.69 for
travel and other expenses, i.e. a total of USD 250,278.69 or USD 35,754.10 per
month. Following the July 31, 2003 changes in the Company's management, our
executive office was transferred to Nyon (Near Geneva, Switzerland), initially
at our CEO and CFO's respective offices. On February 1, 2004, our European
Executive Office was moved to a new leased office of approximately 60 square
meter in Nyon, at an approximate all inclusive cost of E 1,000 per month. All of
the furniture and office equipment being provided free of charge by our CEO and
CFO. As regards our research activities. these are conducted at the properties
of third parties with whom the Corporation contracts to perform research
projects.
ITEM 3. LEGAL PROCEEDINGS
On December 19, 2000, the Swiss Law firm which had been retained by the
Directors of our French subsidiary Mymetics S.A. (formerly Hippocampe S.A.) to
advise them during their loan and reverse merger negotiations with MFC Merchant
Bank S.A. filed a claim in the Court of Geneva (Switzerland) against Mymetics
S.A. following the latter's decision to refuse to pay more than 13.3% of the
firm's invoice for legal services. Following initial hearings, the Court ordered
an amount of CHF 89,188, accruing interest at 5% p.a., to be put in receivership
by MFC Merchant Bank S.A. on that day. The sum claimed in principal, interests
and expenses amounts to approx. CHF 120'000 (E80,000). On December 18, 2003, our
French subsidiary Mymetics S.A. was formally notified of the December 2nd, 2003
judgement rendered by the court of Geneva (Switzerland) in this matter, by which
Mymetics S.A. was condemned to pay the full amount claimed by the plaintiff (CHF
89,188), plus interest at 5% p.a. from November 24, 2000 and CHF 10,000 as a
participation to the plaintiff's legal costs.
Although the full amount had been provided for in our financial
statements, we do not have sufficient funds to meet our obligations should the
plaintiff demand immediate payment of the amount we now owe him, unless we are
able to raise a sufficient amount of additional capital. Our inability to meet
such obligations would have a material adverse effect on our liquidity and could
threaten our business.
On April 21, 2003 our former Vice President of Development, Joseph D.
Mosca,filed a claim against us in the Circuit Court of Maryland for Howard
County. Mr. Mosca claims that we breached the employment agreement between him
and us and that we violated the Maryland wage payment and collection law by not
paying him all the amounts he is owed. He was demanding $375,000 in damages as a
result of such claims. On May 22, 2003, this case was moved to the U.S. District
Court in Maryland. Following settlement discussions, we reached an agreement
with Mr. Mosca in October 2003 whereby Mymetics will pay Mr. Joseph D. Mosca, no
later than November 1, 2004, a final settlement of $10,000, in exchange of which
Mr. Mosca is waiving all further charges and claims against the Company.
This amount had previously been provided for in our financial
statements.
26
In late June 2003, Dr. Pierre-Francois Serres, our former chief
scientific officer and a current member of our board, filed a claim against our
French subsidiary, Mymetics S.A., claiming he is entitled to benefits arising
out of his termination from employment. In a judgment passed on October 14,
2003, the court ruled in favor of Dr. Pierre-Francois Serres and consequently,
allowed him a total compensatory amount of E46,735. In a further agreement with
the current Board of Directors, Dr. Serres pledged not to claim payment of this
amount following the Board's decision to reinstate him as Chief Scientific
Officer of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
27
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information. The Corporation's common stock is quoted on the
OTC Bulletin Board under the trading symbol "MYMX". The Corporation's trading
symbol changed from ICHR to MYMX in July 2001, pursuant to a corporate name
change from ICHOR Corporation to Mymetics Corporation. The following table sets
forth the quarterly high and low sale price per share of the Corporation's
common stock for the periods indicated. The prices represent inter-dealer
quotations, which do not include retail mark-up, mark-down or commission and may
not necessarily represent actual transactions.
FISCAL QUARTER ENDED HIGH LOW
2002
March 31......................................... $ 3.85 $ 2.15
June 30.......................................... 3.70 2.70
September 30..................................... 3.45 0.06
December 31...................................... 0.36 0.09
2003
March 31......................................... $ 0.22 $ 0.09
June 30.......................................... 0.14 0.09
September 30..................................... 0.12 0.07
December 31...................................... 0.14 0.04
(b) Stockholders. At March 18, 2004, the Corporation had approximately
640 holders of record of its common stock, some of which are securities clearing
agencies and intermediaries.
(c) Dividends. The Corporation has not paid any dividends on its common
stock and does not anticipate that it will pay any dividends in the foreseeable
future.
(d) Securities Authorized for Issuance Under Equity Compensation Plans.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information about the common stock that
may be issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of December 31, 2003.
- ----------------------------------------------------------------------------------------------------------------------
Number of Securities
remaining available for
Number of Securities to be Weighted Average Exercise issuance under equity
issued upon exercise of Price of Outstanding compensation plans
Outstanding Options, Options, Warrants and (excluding securities
Warrants and Rights Rights reflected in column (a))
Plan Category (a) (b) (c)
- ----------------------------------------------------------------------------------------------------------------------
Equity Compensation Plans
Approved by Security
Holders (1) 606,250 (2) U.S. $0.92 4,557,500
- ----------------------------------------------------------------------------------------------------------------------
Equity Compensation Plans not 1,500,000 (4) U.S. $0.10
Approved by Security Holders 80,166 (3) U.S. $1.725 N/A
- ----------------------------------------------------------------------------------------------------------------------
Total 2,186,416 U.S. $0.39 4,557,500
- ----------------------------------------------------------------------------------------------------------------------
28
(1) Equity compensation plans approved by our security holders include (i) our
1994 Amended and Restated Stock Option Plan, (ii) our 1995 Qualified Incentive
Stock Option Plan and (iii) our 2001 Stock Option Plan. Our 1994 Amended and
Restated Stock Option Plan and our 1995 Qualified Incentive Stock Option Plan
were both terminated in March 2001, but some options granted under these plans
prior to such termination remain outstanding and are included in this table.
(2) Includes (i) 442,500 shares of common stock underlying options granted under
our 2001 Stock Option Plan, (ii) 100,000 shares of common stock underlying
options granted under our 1995 Qualified Incentive Stock Option Plan and (iii)
63,750 shares of common stock underlying options granted under our 1994 Amended
and Restated Stock Option Plan.
(3) From time to time we have granted our lender, MFC Merchant Bank S.A.,
warrants to purchase shares of our common stock. These warrants are granted in
connection with certain credit facilities provided to us by MFC Merchant Bank
S.A., and placement services provided by MFC Merchant Bank S.A. in connection
with a private placement of our securities in June 2001. These warrants were not
granted pursuant to any formal equity compensation plan approved by our board of
directors, but rather, each grant was an individual equity compensation
arrangement, authorized by our board of directors and granted as compensation
for services provided. All of the outstanding warrants were granted pursuant to
similar forms of warrants, and each has an exercise price of U.S. $1.725.
(4) We do not have any formal equity compensation plan that has not been
authorized by our stockholders. These grants are made on an individual basis and
are approved by our board of directors. Accordingly, there are no shares of
common stock reserved for issuance under these arrangements.
ISSUANCES OF UNREGISTERED SECURITIES
Set forth below is information regarding our sales of unregistered
securities during the period commencing on January 1, 2003 and ending on January
31, 2004. These issuances were made in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as
transactions by an issuer not involving any public offering.
The present Board of directors believes that until such time as the
Company has fully recovered from its present difficult situation, it should be
managed exclusively by major shareholders to ensure that stakeholders' long term
interests would prevail over short term mercenary considerations.
The present Board of directors further believes that the Company needs
to have rapid access to the inner circle of world opinion leaders in matters of
HIV-AIDS if it wants to have its ideas, work and results peer recognized and
accepted to qualify for grants and other donations. With this in mind, we have
been able to attract world class personalities such as Mr. Jacques-Francois
Martin, former CEO of Laboratoires Merieux, member of the Board of the IAVI and
CEO of the vaccine Fund chaired by Mr. Nelson Mandela, and Professor Marc
Girard, DVM, D. Sc., former Head of the Laboratory of Molecular Virology at the
Pasteur Institute in Paris (France), former Director, European Research Center
29
for Virology and Immunology (CERVI) in Lyon (France), former Head of the HIV
Task Force at the French National Agency for AIDS Research (ANRS), Paris, former
Director General of the Merieux Foundation in Lyon (France), former Chairman of
the European Consortium for an HIV Vaccine (EuroVac), Brussels. But one doesn't
attract bees with vinegar, thus:
- - In September 2003, we issued Dr. Robert Zimmer, our only director which
was not also a major shareholder of the Company, 400,000 common shares
as a one-off remuneration as outside director and in recognition of the
fact that he had accepted to serve the Company despite the absence of
D&O insurance coverage.
- - In November 2003, we issued Dr. Sylvain Fleury, Ph. D., 500,000 common
shares of Mymetics Corporation in recognition of his support of the
Company since 1997 (he was instrumental in having Aralis Participations
S.A., still a major shareholder of Mymetics Corporation, support
Hippocampe S.A. - now Mymetics S.A. - between 1997 and 2000) and in
compensation for his modest remuneration as CSO of Mymetics.
- - In November 2003, we issued Mr. Jacques-Francois Martin 1,000,000
common shares of Mymetics Corporation in recognition of his support of
the Company and more specifically, for his early introduction to the
inner circle of world class experts and opinion makers in matter of
HIV-AIDS.
- - In November 2003, we agreed to issue Mr. Jacques-Francois Martin an
additional 2,000,000 common shares of Mymetics Corporation, contingent
upon his accepting to be elected Chairman of Mymetics Corporation.
- - In December 2003, we issued two investors 1,500,000 common shares of
Mymetics Corporation for E124,800, or approximately $.10 per share.
- - In December 2003, we issued the same two investors warrants to acquire,
before July 31, 2004, an additional 1,500,000 common shares of Mymetics
Corporation at $.10 per share.
- - In January 2004, we issued two investors 2,000,000 common shares of
Mymetics Corporation for E166,400, or approximately $.10 per share.
- - In January 2004, we issued the same two investors warrants to acquire,
before July 31, 2004, an additional 2,000,000 common shares of Mymetics
Corporation at $.10 per share.
- - In January 2004, we issued Professor Marc Girard, DVM, D. Sc., 500,000
common shares of Mymetics Corporation in recognition of his support of
the Company and in compensation for his modest remuneration as Head of
our Vaccines Development.
- - In February 2004, we issued one investors 2,500,000 common shares of
Mymetics Corporation for $250,000, or $.10 per share.
- - In February 2004, we issued the same investor a warrant to acquire,
before July 31, 2004, an additional 2,500,000 common shares of Mymetics
Corporation at $.10 per share.
All such issues of shares and warrants were made under an informal Equity
Compensation Plan not approved by Security holders. These grants were made on an
individual basis and were approved by our Board of directors.
In addition, the Board has offered 2,000,000 common shares to Mr. J.-F. Martin
upon acceptance of an offer as board chairman. The fair value of these shares
was approximately E33 at December 31, 2003. These shares have not been
considered issued for purposes of these financial statements.
30
ITEM 6. SELECTED FINANCIAL DATA
The following table reflects selected consolidated financial data for
the Corporation for the fiscal years ended December 31, 2003, 2002, 2001, 2000,
and 1999, respectively.
For THE FOR THE FOR THE FOR THE FOR THE
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31 DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(EUROS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING DATA
Operating revenues ..................... 0 8 26 13 47
Research & Development Expenses ........ 1,263 1,878 482 101 94
General & Administrative Expenses ...... 1,090 1,293 1,034 351 37
Loss from continuing operations ........ 2,786 (3,622) (15,701) (1,314) (99)
COMMON SHARE DATA(1)
Loss from continuing operations per
common share ........................ (0.05) (0.07) (0.37) (0.04) (0.00)
Weighted average common shares
outstanding (in thousands) .......... 51,285 50,046 42,460 33,311 33,311
BALANCE SHEET DATA
Working capital ........................ (4,294) (2,306) 565 (652) (24)
Total assets ........................... 367 477 1,692 625 146
Long-term obligations .................. 242 242 242 242 242
Total stockholders' equity ............. (4,400) (2,349) 693 (765) (257)
- ----------------
(1) Basic and diluted common share data is the same.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations and
financial condition of Mymetics Corporation for the years ended December 31,
2002, 2001 and 2000 should be read in conjunction with the Corporation's audited
consolidated financial statements and related notes included elsewhere herein.
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEARS ENDED
DECEMBER 31, 2002 AND DECEMBER 31, 2001
Revenues of the year ended December 31, 2003 were nil compared to E8,000 for the
year ended December 31, 2002 and E26,000 for the year ended December 31, 2001.
Costs and expenses decreased to E2,786,000 for the year ended December 31, 2003
from E3,630,000 for year ended December 31, 2002 (-23.3%) and E15,727,000 for
the year ended December 31, 2001, in this particular case as a result of a
decrease in bank fees to E63,000 for the year ended December 31, 2002 from
E14,063,000 in the comparative period in 2001 (-99.6%).
31
Research and development expenses decreased to E1,263,000 in the current year
from E1,878,000 in the comparative period of 2002 (-32.7%) as a result of our
current cash shortfall, this after having increased from E482,000 during the
year ended December 31, 2001 to E1,878,000 (+290%) during the year ended
December 31, 2002 as a result of our increase in research activities.
General and administrative expenses decreased to E1,090,000 in the year ended
December 31, 2003 from E1,293,000 in the comparative period of 2002 (-15.7%) as
a result of cuts initiated by the new management since July 31, 2003, mostly in
management salaries and/or fees and travel expenses. General and administrative
expenses had previously increased to E1, 293,000 in the year ended December 31,
2002 from E1,034,000 in the comparative period of 2001 (+25.0%), mostly due to
increases in said management salaries, fees and travel expenses.
The Corporation reported a net loss of 2,786,000 or E0.05 per share, for the
year ended December 31, 2003, compared to E3,622,000 or E0.07, for the year
ended December 31, 2002 and E15,701,000 for the year ended December 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation had cash E125,000 at December 31, 2003, compared to E183,000 at
December 31, 2002 and E888,000 at December 31, 2001.
Net cash used by operating activities was E1,773,000 for the year ended December
31, 2003, compared to E3,235,000 for the year ended December 31, 2002 and
E2,000,000 for the year ended December 31, 2001. The major factor was successive
increases in accounts payable, which provided cash of E780,000 and E16,000 for
the years ended December 31, 2003 and 2002 respectively, compared to a decrease
of accounts payable of E508,000 for the year ended December 31, 2001.
Investing activities provided no/immaterial cash for the year ended December 31,
2003 compared to E252,000 for the year ended December 31, 2002 and used cash of
E237,000 for 2001.
Financing activities provided cash of E1,263,000 for the year ended December 31,
2003 compared to E2,181,000 in the same period last year.
Proceeds from issuance of common stock provided cash of E125,000 for the year
ended December 31, 2003 compared to E8,000 in the same period in 2002 and
E2,724,000 during the year 2001.
Increases in borrowing pursuant to a non-revolving term facility and other short
term advances provided cash of E1,138,000 in current year, E2,173,000 in the
comparative period last year and E116,000 in 2001. The non-revolving term
facility is in the principal amount of up to E3.150 million and matures on June
30, 2004. At December 31, 2003, Mymetics had borrowed an aggregate of E3,127,000
pursuant to this non-revolving term facility.
The Corporation expects that it will require substantial additional capital to
continue its research and development, clinical studies and regulatory
activities necessary to bring its potential products to market and to establish
production, marketing and sales capabilities. The Corporation anticipates its
operations will require approximately E1.5 million in the year ending December
31, 2004. The Corporation will seek to raise the required capital from lenders,
equity or debt issuances, donors and/or potential partnerships with major
international pharmaceutical and biotechnology firms. However, there can be no
32
assurance that the Corporation will be able to raise additional capital on terms
satisfactory to the Corporation, or at all, to finance its operations. In the
event that the Corporation is not able to obtain such additional capital, it
would be required to further restrict or even halt its operations.
OFF-BALANCE SHEET ARRANGEMENTS
The Corporation does not have any off-balance sheet arrangements.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
- ------------------------------------------------------------------------------------------------------------------
Payment due by period
- ------------------------------------------------------------------------------------------------------------------
Less than 1 1-3 Years 3-5 Years More than 5
Contractual Obligations Total Year years
- ------------------------------------------------------------------------------------------------------------------
Long-term Debt Obligations - - - - -
- ------------------------------------------------------------------------------------------------------------------
Capital (Finance) Lease Obligations - - - - -
- ------------------------------------------------------------------------------------------------------------------
Operating Lease Obligations E12,500 E6,000 (2) E6,500 (2) - -
- ------------------------------------------------------------------------------------------------------------------
Purchase Obligations E162,000 E72,000 (1) E45,000 (3) E45,000(3) -
- ------------------------------------------------------------------------------------------------------------------
Other Long-term Liabilities Reflected on E242,000 - - E242,000(4) -
the Registrant's Balance Sheet under U.S.
GAAP
- ------------------------------------------------------------------------------------------------------------------
Total E416,500 E78,000 E51,500 E287,000 -
- ------------------------------------------------------------------------------------------------------------------
(1) Includes E62,000 with our supplier of gp41 proteins and E10,000 for
neutralizing antibodies tests currently under way.
(2) Office lease rent in France.
(3) French auditors ("Commissaire aux Comptes") are elected for 6 years and
cannot be terminated. Our French auditor has just been reelected. Based
on current cost estimates, we posted E15,000 per year from 2004 until
2009.
(4) Due to a shareholder, repayable only after our French subsidiary's
financial situation has been stable and its equity reconstituted. We
hope to achieve this condition within 3 years.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates which
could affect our financial condition and results of operations. We have not
entered into derivative contracts for our own account to hedge against such
risk.
33
INTEREST RATE RISK
Fluctuations in interest rates may affect the fair value of financial
instruments. An increase in market interest rates may increase interest payments
and a decrease in market interest rates may decrease interest payments of such
financial instruments. We have debt obligations which are sensitive to interest
rate fluctuations. The following tables provide information about our exposure
to interest rate fluctuations for the carrying amount of such debt obligations
as of December 31, 2003 and 2002 and expected cash flows from these debt
obligations.
EXPECTED FUTURE CASH FLOW
YEAR ENDING DECEMBER 31, 2003
(IN THOUSANDS)
--------------
CARRYING FAIR
VALUE VALUE 2004 2005 2006 2007 2008 THEREAFTER
----- ----- ---- ---- ---- ---- ---- ----------
Debt obligations...... E3,127 E3,127 E3,221 E-- E-- E-- E-- E--
YEAR ENDING DECEMBER 31, 2002
(IN THOUSANDS)
--------------
CARRYING FAIR
VALUE VALUE 2003 2004 2005 2006 2007 THEREAFTER
----- ----- ---- ---- ---- ---- ---- ----------
Debt obligations...... E1,989 E1,989 E2,082 E-- E-- E-- E-- E--
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data required
with respect to this Item 8, and as identified in Item 14 of this annual report,
are included in this annual report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures. As of the end of the
registrant's fiscal year ended December 31, 2003, an evaluation of the
effectiveness of the registrant's "disclosure controls and procedures" (as such
term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) was carried out by the registrant's
principal executive officer and principal financial officer. Based upon that
evaluation, the registrant's principal executive officer and principal financial
officer have concluded that as of the end of that fiscal year, the registrant's
disclosure controls and procedures are effective to ensure that information
required to be disclosed by the registrant in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms.
It should be noted that while the registrant's principal executive
officer and principal financial officer believe that the registrant's disclosure
controls and procedures provide a reasonable level of assurance that they are
effective, they do not expect that the registrant's disclosure controls and
procedures or internal control over financial reporting will prevent all errors
and fraud. A control system, no matter how well conceived or operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met.
(b) Changes in Internal Control Over Financial Reporting. During the
fiscal year ended December 31, 2003, there were no changes in the registrant's
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
34
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The number of directors of the Company is established at six.
Our six person board is divided into three classes, designated as Class I, Class
II and Class III. The term of the Class I directors will expire at our 2004
annual meeting of stockholders, the term of the Class II directors will expire
at our 2005 annual meeting of stockholders, and the term of the Class III
directors will expire at our 2003 annual meeting of stockholders. A plurality of
the votes of the shares of our common stock present in person or represented by
proxy at the annual meeting and entitled to vote on the election of directors
are required to elect the directors.
There currently are two vacancies on the Board caused by the resignation of
Peter P. McCann, Ph.D., who was a Class III director whose term would have
expired at our 2003 annual meeting of stockholders, and Patrice Pactol, who was
a Class II director, whose term would have expired at our 2005 annual meeting of
stockholders. We intend to have Dr. Sylvain Fleury, Ph. D., our current Chief
Scientific Officer, elected to fill the vacancy caused by the resignation of Mr.
Patrice Pactol. The position left vacant by the resignation of Dr. Peter McCann
will be reserved for a potential candidate related to the securing of a
strategic partner.
35
The following table sets forth information regarding each of our current
directors and executive officers.
EXPIRATION OF TERM
NAME CURRENT POSITION WITH THE COMPANY AGE AS A DIRECTOR
- ---- --------------------------------- --- ---------------
Pierre-Francois Serres Head of Exploratory Research, Founder 54 2003 (Class III)
and Director (appointed November 3, 2003)
Christian Rochet Chief Executive Officer, President 55 2005 (Class II)
And Director (appointed July 31, 2003)
Ernst Lubke Chief Financial Officer, Treasurer 58 2004 (Class I)
And Secretary (appointed July 31, 2003)
Robert Zimmer Director (appointed July 31, 2003) 57 2005 (Class II)
Sylvain Fleury, Ph. D. Chief Scientific Officer 41 n/a
(appointed November 3, 2003)
Dr. Pierre-Francois Serres first became our Chief Scientific Officer on February
7, 2002 and has been a Director since March 28, 2001. On May 2, 2003, Dr.
Serres' position as Chief Scientific Officer was terminated by the former Board
of Directors. As a result of the changes in the Company's Board of July 31,
2003, Dr. Serres was reinstated in his former office of Chief Scientific
Officer. He was then promoted as Head of our Exploratory Research efforts on
November 3, 2003, and replaced as Chief Scientific Officer by Dr. Sylvain
Fleury, Ph. D. Dr. Serres previously served as the Company's Chief Executive
Officer and President and was the founder, Chief Executive Officer and President
of our subsidiary, Mymetics S.A. (formerly, Hippocampe S.A.), a French human and
veterinary research and development company.
Christian Jean-Francois Rochet is an independent business consultant on
development and diversification strategies. He became a shareholder of
Hippocampe S.A. (now our subsidiary Mymetics S.A.) in 1997, on the scientific
advice of Dr. Sylvain Fleury, Ph. D., and was a director of that company between
1999 and 2001. Between March 2003 and July 31, 2003, Mr. Rochet, in his capacity
as Mymetics shareholder, initiated and spearheaded the efforts of a group of
nine dissatisfied shareholders representing a majority of shares, which led to
the resignation of the former Company directors and officers (with the exception
of Dr. Serres) on July 30, 2003. On July 31, 2003, Mr. Rochet was elected as
President and Director, and appointed as Chief Executive Officer of the Company.
Ernst Lubke is an independent international business consultant and the founder
of several companies active in th