TRMS Trimeris (MM)

Trimeris, Inc., (NASDAQ: TRMS) today reported first quarter 2011 financial results. Net loss for the quarter ended March 31, 2011 was $67,000 or $0.00 per share compared with net income of $988,000, or $0.04 per share for the quarter ended March 31, 2010. The Company reported adjusted net income for the quarter ended March 31, 2011 of $269,000 compared to adjusted net loss for the quarter ended March 31, 2010 of $68,000.

Comparisons of net income between the quarters ended March 31, 2011 and March 31, 2010 are affected by several items detailed in the section below entitled “Adjusted (Non-GAAP) Financial Information.”

Cash Position

As of March 31, 2011, cash, cash equivalents and investment securities totaled $47.3 million compared to $45.2 million as of December 31, 2010.

Collaboration Income

Collaboration income from our collaboration with F. Hoffman-LaRoche, Ltd. (“Roche”) for the quarter ended March 31, 2011 was $1.3 million compared with $1.2 million for the quarter ended March 31, 2010. Net sales of FUZEON in the U.S. and Canada for the first quarter of 2011 declined seven percent to $6.7 million, from $7.2 million for the same period in 2010. This net sales decline was completely offset by reduced selling and marketing expenses and cost of goods sold.

Royalty Revenue

Royalty revenue from Roche for the quarter ended March 31, 2011 was $262,000 compared with $1.9 million for the same period in 2010. This decrease was primarily driven by lower sales outside the U.S. and Canada (“ROW”) and the reduction of the royalty rate from 12% to 6% for ROW sales imposed by Roche and described in more detail below.

ROW net sales of FUZEON for the first quarter of 2011 were $5.2 million, down 70 percent from $17.2 million for the same period in 2010. A significant portion of this decline in net sales resulted from the variability in quarterly buying patterns of specific countries that either did not purchase during the quarter (Brazil) or purchased significantly reduced quantities (Mexico and Romania).

Disagreement with Roche over FUZEON Cost of Goods Sold and Royalty Rate

In October 2010, Roche informed the Company that, in reliance on a clause in the Development and License Agreement between the Company and Roche which permits Roche to reduce its ROW royalty payments to the Company if the cost of goods sold outside the U.S. and Canada exceeds a certain proportion of those net sales, Roche would reduce the royalty paid to the Company from 12%, the amount previously paid, to 6% with application retroactive to January 1, 2010. As previously disclosed, in April 2009, the Company notified Roche that it did not agree with the manner in which FUZEON cost of goods sold were being calculated by Roche and charged to the collaboration. Roche and the Company have been in discussions regarding this calculation since that time.

The Company has notified Roche of its objection to the timing and application of the royalty reduction clause, both under the terms of the contract and in light of the parties’ ongoing discussion related to the calculation of cost of goods sold. While the Company is considering all available options for resolution of this issue, the Company currently intends to continue working with Roche to reach agreement on the appropriate cost of goods sold for FUZEON.

The effect of Roche’s imposition of a reduced royalty rate resulted in a $1.8 million reduction in royalty revenue for the first six months of 2010, which was recognized in the third quarter of 2010, and continues to result in significant reductions in expected royalty revenues for so long as the reduced royalty rate is in effect.

Operating Expenses

Operating expenses for the quarter ended March 31, 2011 were $1.7 million compared with $1.4 million for the same period in 2010 reflecting a non-recurring increase in legal fees and patent write-offs.

Earnings Conference Call

The Company will not be conducting a conference call in connection with this earnings release.

About Trimeris

Trimeris, Inc. (NASDAQ: TRMS) pioneered the development of a class of antiviral drug treatments called fusion inhibitors. The Company's only marketed product is FUZEON, an anti-HIV fusion inhibitor which was developed by the Company in collaboration with Roche. Substantially all of Trimeris’ revenues are derived from the Company's collaboration with Roche relating to FUZEON. For more information about Trimeris, please visit the Company's website at http://www.trimeris.com.

Statement Regarding Adjusted (Non-GAAP) Financial Information

In addition to disclosing financial results calculated in accordance with Generally Accepted Accounting Principles (“GAAP”), the Company has reported adjusted net income and adjusted net income per share for the first quarter of 2011 to allow investors to make meaningful comparisons of the Company’s operating performance between periods. Adjusted net income and adjusted net income per share are not a substitute for or superior to net income calculated in accordance with GAAP.

Specifically, we adjusted our net income for the three months ended March 31, 2010 to include the effect of the Novartis royalty, the reduced ROW royalty rate from 12% to 6% included in royalty revenue, and to eliminate the effect of certain patent-related write-offs. See the table and accompanying footnotes below for a detailed reconciliation of GAAP and adjusted earnings.

 

Three Months Ended March 31,

(unaudited)

2011

   

2010

Net (loss) income (GAAP) ($67,182) $987,884 Novartis royalty, which decreased royalty revenue and collaboration income [1] 0 (140,212) Revised royalty rate, which decreased royalty revenue [2] 0 (952,328) Patent Related Write-offs [3] 336,668 37,078   Net income (loss) (Non-GAAP) $269,486 ($67,578) Diluted net (loss) income per share (GAAP) ($0.00) $0.04 Diluted net income (loss) per share (Non-GAAP) $0.01 ($0.00)

[1] On September 23, 2010, the Company and Roche signed a settlement agreement with Novartis resolving the then-pending litigation relating to FUZEON. The Company’s obligation to Novartis for its share of royalties for the three months ended March 31, 2010 would have been $140,212 ($86,261 related to royalty revenue and $53,951 million related to collaboration income).

[2] In October 2010, Roche informed the Company that, in reliance on a clause in the Development and License Agreement between the Company and Roche that permits Roche to reduce its royalty payments to the Company if the cost of goods sold outside the U.S. and Canada exceeds a certain proportion of FUZEON net sales outside the U.S. and Canada, Roche would reduce the royalty paid to the Company on sales outside the U.S. and Canada from 12%, the amount previously paid, to 6% with application retroactive to January 1, 2010.

The adjustment for the three months ended March 31, 2010 was $952,328. This amount represents the effect of the reduced royalty rate for the first three months of 2010. There was no comparable adjustment for the three months ended March 31, 2011.

[3] During the first quarter of 2011, Company wrote off certain patent-related costs that were deemed to have no potential future value.

Trimeris Safe Harbor Statement

This document and any attachments may contain forward-looking information about the Company's financial results and business prospects that involve substantial risks and uncertainties. These statements can be identified by the fact that they use words such as "expect," "project," "intend," "plan," "believe" and other words and terms of similar meaning. Among the factors that could cause actual results to differ materially are the following: we are dependent on third parties for the manufacture, sale, marketing and distribution of FUZEON; the market for HIV therapeutics is very competitive with regular new product entries that could affect the sales of the Company’s products; we are in discussions with Roche regarding the calculation of costs of goods sold and the appropriate royalty rate for ROW sales and if we are unable to resolve these matters on favorable terms, our business and our important relationship with Roche may be adversely affected; and FUZEON is based upon a novel technology, is difficult and expensive to manufacture and may cause unexpected side effects.

For a detailed description of these factors, see Trimeris' Form 10-K filed with the Securities and Exchange Commission on March 14, 2011.

Trimeris, Inc.

Statements of Operations

[in thousands, except per share amounts]

  Three Months Ended March 31,

(unaudited)

2011   2010 Milestone revenue $66 $66 Royalty revenue 262 1,905 Collaboration income [1] 1,271 1,161 Total revenue and collaboration income 1,599 3,132   Operating expenses:   General and administrative expense 1,711 1,432 Total operating expenses 1,711 1,432   Operating (loss) income (112) 1,700   Other (expense) income Interest income 5 14 Gain on investments - - Interest/accretion expense - (65) Total other (expense) income 5 (51)   (Loss) income before income taxes (107) 1,649 Income tax (benefit) provision (40) 661   Net (loss) income $(67) $988

 

    Basic net (loss) income per share $(0.00) $0.04     Diluted net (loss) income per share $(0.00) $0.04   Weighted average

shares outstanding – basic

22,327

22,320

  Weighted average

shares outstanding – diluted

22,327

22,323

Notes:

[1] Collaboration income represents the Company’s share of the net operating results from the sale of FUZEON in the United States and Canada under the Company’s Development and License Agreement with F.Hoffmann-La Roche, Ltd. (“Roche”), the Company’s collaboration partner. These net operating results consist of net sales less cost of goods (gross margin), less selling and marketing expenses, other costs related to the sale of FUZEON and development expenses or post marketing commitments.

The Company entered into negotiations with Roche, in accordance with the Development and License Agreement, related to excess capacity charges and cost of goods sold variances for 2008 and overall cost of goods sold for 2009 and 2010. These negotiations are ongoing today. Accordingly, the Company cannot predict the outcome of negotiations with respect to cost of goods sold for 2008, 2009 and 2010, and as a result, accurately determine if cost of goods sold as a percentage of net sales will increase, decrease or remain the same in the future or be certain when a final resolution will be reached. Depending upon the resolution of the Company’s negotiations with Roche, cost of goods sold may increase or decrease for the periods in dispute or for future periods.

Trimeris, Inc.

Condensed Balance Sheets

[$ in thousands]

      March 31,

2011

December 31,

2010

Assets

 

Cash, cash equivalents and investment securities

$ 47,313 $ 45,164 Other current assets 2,362 3,956 Total current assets 49,675 49,120 Total other assets 7,648 8,159 Total assets $ 57,323 $ 57,279 Liabilities and Stockholders’ Equity Total current liabilities $905 $1,001 Long term portion of deferred revenue 707 774 Accrued compensation – long-term 94 128 Total liabilities 1,706 1,903   Total stockholders’ equity 55,617 55,376 Total liabilities and stockholders’ equity $ 57,323 $ 57,279    

FUZEON Net Sales

(Recognized by Roche, our collaborative partner)

[$ in millions]

 

 

  2011     Q1   Q2   Q3   Q4   Total North America Net Sales   $6.7               $6.7 ROW Net Sales   5.2               5.2 Global Net Sales   $11.9               $11.9 Brazil Purchase*   -               -       2010     Q1   Q2   Q3   Q4   Total North America Net Sales   $7.2   $8.0   $9.0   $7.8   $32.0 ROW Net Sales   17.2   14.7   9.3   15.2   56.4 Global Net Sales   $24.4   $22.7   $18.3   $23.0   $88.4 Brazil Purchase*   $7.8   $8.0   -   $7.4   $23.2