<ins>10Q DOC</ins> UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q
(Mark(Mark One)
[X]
Quarterly report pursuant to SectionQUARTERLY REPORT PURSUANT TO SECTION 13orOR 15(d)of the Securities Exchange Act ofOF THE SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended
September 30, 1999March 31, 2000OR
[ ]
Transition report pursuant to SectionTRANSITION REPORT PURSUANT TO SECTION 13orOR 15(d)ofOF THE SECURITIES EXCHANGE ACT OF 1934For the
Securities Exchange Act of 1934transition period from ________to _________Commission
File Number:file number 0-19756PROTEIN DESIGN LABS, INC. (Exact name of
registrantRegistrant as specified in itscharter) Delaware 94-3023969 (State or other jurisdiction of (I.R.S.Charter)
34801 Campus Drive
Fremont, Ca.California, 94555
(Address of principal executive offices)Principal Executive Offices including Zip Code)
(510) 574-1400
(Registrant's Telephone Number, (510) 574-1400Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d)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:
Yesdays. YES [X] No NO [ ]
As of September 30, 1999,March 31, 2000, there were 18,723,11419,573,677 shares of the Registrant's
Common Stock outstanding.
PROTEIN DESIGN LABS, INC.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations
Three months ended September 30, 1999 and 1998 and
Nine months ended September 30, 1999 and 1998
Condensed Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1999 and 1998
Notes to Unaudited Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION - RISK FACTORS
ITEM 6. EXHIBITS AND REPORTS
QUARTERLY REPORT ON FORM 8-K
Signatures
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS10-Q FOR THE PERIOD ENDED MARCH 31, 2000
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | Page No. |
| Item 1. Interim Consolidated Financial Statements (unaudited): | |
|
Consolidated Statements of Operations for the three months ended March 31, 2000 and 1999 | |
| Consolidated Balance Sheets at March 31, 2000 and December 31, 1999 | |
|
Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999 | |
| Notes to Unaudited Consolidated Financial Statements | |
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
| PART II. OTHER INFORMATION | |
| Item 5. Other Information | |
| Item 6. Exhibits and Reports on Form 8-K | |
| Signatures |
PROTEIN DESIGN LABS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except net income (loss) per share data)
(unaudited)
See accompanying notes
PROTEIN DESIGN LABS, INC.
See accompanying notes
PROTEIN DESIGN LABS, INC.
See accompanying notes
PROTEIN DESIGN LABS, INC.
Summary of Significant Accounting Policies Organization and Business Since Our commitment of resources to the development of In the absence of substantial revenues from new corporate collaborations or
patent licensing or humanization agreements, significant royalties on sales
of products licensed under Our revenues have varied in the In addition, our expenses may be unpredictable and Basis of Presentation and Responsibility for Quarterly Financial Statements The consolidated balance sheet as of Cash Equivalents, We consider all highly liquid investments Revenue Recognition Contract revenues from research and development arrangements are recorded as
earned based on the performance requirements of the contracts. Revenues
from achievement of milestone events are recognized when the funding party
agrees that the scientific or clinical results stipulated in the agreement
have been met. Deferred revenue arises principally due to timing of cash
payments received under research and development contracts.
Our collaborative, humanization and patent licensing agreements with third
parties provide for the payment of royalties to In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101). We are evaluating the effects, if any, that the adoption of SAB
101 in the second quarter of 2000 may have on the results of our operations
or our financial position. We have been advised that the Securities and
Exchange Commission intends to provide additional guidance during the second
quarter of 2000 with respect to the implementation of SAB 101. It is
currently unknown whether such guidance and implementation of SAB 101 will
require us to revise our revenue recognition practices or to restate
revenues for the first quarter of 2000.
Net Income (Loss) Per Share In accordance with Financial Accounting Standards Board Statement No. 128,
"Earnings Per Share" ("FAS 128"), basic and diluted net income (loss) per
share amounts have been computed using the weighted average number of shares
of common stock outstanding during the periods presented. Calculation of
diluted net income per share includes the dilutive effect of outstanding
stock The following is a reconciliation of the numerators and denominators of the
basic and diluted net income (loss) per share computations for the periods
presented below:
(In thousands, except basic and diluted net income (loss) per share)
Comprehensive Income (Loss) During the Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board issued Statement No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"). FAS 133 is not required to be adopted until 2001. However, the
Company has reviewed FAS 133 and because it does not use derivatives, the
adoption of FAS 133 is not expected to effect the results of operations or
the financial position of the Company.
Management Estimates The preparation of financial statements in conformity with accounting
principles generally accepted Convertible Notes In February 2000, we issued 5.50% Convertible Subordinated Notes due
February 15, 2007 with a principal amount of $150 million (the Convertible
Notes). The Convertible Notes are convertible into our common stock at ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report contains forward-looking statements which
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to
those discussed in "Risk Factors" as well as those discussed elsewhere in
this document and the Company's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission for the year ended December 31, OVERVIEW Since Our commitment of resources to the development of In the absence of substantial revenues from new corporate collaborations or
patent licensing or humanization agreements, significant royalties on sales
of products licensed under Our revenues have varied in the PDL has recognized revenue during the In addition, our expenses may be unpredictable and RESULTS OF OPERATIONS Three Months Ended The Company's total revenues for the three months ended Revenues under agreements with third parties of Total costs and expenses for the three months ended Research and development expenses for the three month period ended
General and administrative expenses for the three months ended Interest expense for the LIQUIDITY AND CAPITAL RESOURCES To date As set forth in the Consolidated Statements of Cash Flows, net cash
provided by operating activities was $2.5 million for the three months ended
March 31, 2000 compared to net cash used in operating activities As set forth in the Our future capital requirements will depend on numerous factors,
including, among others, royalties from sales of products of third party
licensees, including ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company maintains a non-trading investment portfolio of investment
grade, highly liquid, debt securities which limits the amount of credit
exposure to any one issue, issuer, or type of instrument. The Company does
not use derivative financial instruments for speculative or trading
purposes. The securities in the Company's investment portfolio are not
leveraged and are classified as available for sale and therefore are subject
to interest rate risk. The Company does not currently hedge interest rate
exposure. As of
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION - RISK FACTORS This Quarterly Report contains, in addition to historical information,
forward-looking statements which involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed
in forward-looking statements. Factors that may cause such a difference
include those discussed in the material set forth in this document and in
the discussion captioned "Risk Factors" in the Company's Annual Report on
Form 10-K for the year ending December 31, We have a history of operating losses and Our expenses have generally exceeded revenues. As of December 31, 1999, we
had an accumulated deficit of approximately $79.2 million. We believe that
our losses may increase because of the extensive resource commitments
required to achieve regulatory approval and commercial success for any
individual product. For example, over the next several years, we will incur
substantial additional expenses Our commitment of resources to the development of Zenapax and the humanized
anti-IL-4 antibody, two humanized antibodies with respect to which In the absence of substantial revenues from new corporate collaborations or
patent licensing or humanization agreements, significant royalties on sales
of products licensed under Our revenues, expenses and operating results will likely fluctuate in future
periods. Our revenues have varied in the Other revenue may also be unpredictable and may fluctuate due to the timing
of payments of non-recurring licensing and signing fees and payments for
manufacturing services and achievement of milestones under new and existing
collaborative, humanization, and patent licensing agreements. Revenue
historically recognized under our prior agreements may not be an indicator
of non-royalty revenue from any future collaborations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101). We are evaluating the effects, if any, that the adoption of SAB
101 in the second quarter of 2000 may have on the In addition, our expenses may be unpredictable and Our humanization patents are being opposed and PDL's two humanization patents issued by the European Patent Office (EPO)
apply in the United Kingdom, Germany, France, Italy and eight other European
countries. The EPO procedures provide for an opposition period in which
other parties may submit arguments as to Until our appeal regarding our first European patent is resolved, we may be
limited in our ability to collect royalties or to negotiate future licensing
or collaborative research and development arrangements based on this and our
other humanization patents. Moreover, if our appeal is unsuccessful, our
ability to collect royalties on European sales of antibodies humanized by
others would depend on the We intend to vigorously defend the If we are unable to protect our patents and Our success A number of The In addition to seeking the protection of patents and We may require additional patent Other companies, universities and research institutions Celltech In addition, if Lonza Biologics, Inc. has a patent issued in Europe to which We do If we cannot successfully complete our clinical trials, we will be unable to
To obtain regulatory approval for the commercial sale of any of Larger and Research, preclinical testing and clinical trials may take many years to
complete and the time required can vary depending on the indication being
addressed and the nature of For example, As a second example, the FDA recently placed a clinical hold on clinical
trials of our SMART Anti-CD3 Antibody for kidney transplant indications due
to We may be unable to We may have difficulty obtaining sufficient patient enrollment or clinician
support to conduct our clinical trials as planned, and we may We may be unable to obtain or maintain regulatory approval for our products. The In addition to the requirement for FDA approval of each pharmaceutical
product, each pharmaceutical product manufacturing facility must be
registered with, and approved by, the FDA. The manufacturing and quality
control procedures must conform to rigorous guidelines in order to receive
FDA approval. Pharmaceutical product manufacturing establishments are
subject to inspections by the FDA and local authorities as well as
inspections by authorities of other countries. To supply pharmaceutical
products for use in the U.S., foreign manufacturing establishments must
comply with these FDA approved guidelines. These foreign manufacturing
establishments are subject to periodic inspection by the FDA or by
corresponding regulatory agencies in these countries under reciprocal
agreements with the FDA. Moreover, pharmaceutical product manufacturing
facilities may also be regulated by state, local and other authorities.
For the marketing of pharmaceutical products outside the U.S., we and our
collaborative partners are subject to foreign regulatory requirements and,
if the particular product is manufactured in the U.S., FDA and other U.S.
export provisions. Requirements relating to the manufacturing, conduct of
clinical trials, product licensing, promotion, pricing and reimbursement
vary widely in different countries. Difficulties or unanticipated costs or
price controls may be encountered by us or our licensees or marketing
partners in our respective efforts to secure necessary governmental
approvals. This could delay or prevent us or our licensees or our marketing
partners from marketing potential pharmaceutical products.
Both before and after approval is obtained, a pharmaceutical product, its
manufacturer and the holder of the Biologics License Application (BLA) for
the pharmaceutical product are subject to comprehensive regulatory
oversight. The FDA may deny a BLA if applicable regulatory criteria are not
satisfied. Moreover, even if regulatory approval is granted, such approval
may be subject to limitations on the indicated uses for which the
pharmaceutical product may be marketed. Further, marketing approvals may be
withdrawn if compliance with regulatory standards is not maintained or if
problems with the pharmaceutical product occur following approval. In
addition, under a BLA, the manufacturer continues to be subject to facility
inspection and the applicant must assume responsibility for compliance with
applicable pharmaceutical product and establishment standards. Violations
of regulatory requirements at any stage may result in various adverse
consequences, which may include, among other adverse actions, withdrawal of
the previously approved pharmaceutical product or marketing approvals and/or
the imposition of criminal penalties against the manufacturer and/or BLA
holder.
Our revenues from licensed technologies depend on the efforts and successes
of our licensees. In those instances where we have licensed rights to our technologies, the
product development and marketing efforts and successes of our licensees
will determine the amount and timing of royalties we may receive, if any.
We have no assurance that any licensee will successfully complete the
product development, regulatory and marketing efforts required to sell
products. The success of products sold by licensees, such as Roche, will be
affected by competitive products, including potential competing therapies
that are marketed by the licensee or others.
If our collaborations are not successful, we may not be able to effectively
develop and market some of our products. We have collaborative agreements with several pharmaceutical Our collaborative Continued funding and participation by collaborative partners will depend on
the timely achievement of our research and development objectives, Our ability to enter into new collaborations and the willingness of Our lack of We intend to market and sell Manufacturing difficulties could delay commercialization of Of the products We do not have Manufacturing changes may result in delays in obtaining regulatory approval
or Manufacturing of antibodies for use as therapeutics in compliance with
regulatory requirements is complex, time-consuming and expensive. Our business We depend on outside vendors for the supply of raw materials used to produce
Our revenue may be We are aware that potential competitors have developed and are developing
human and humanized antibodies or other compounds for treating autoimmune
diseases, transplantation, inflammatory conditions and cancers. In
Any Other competitive factors If we do not attract and retain key employees, our business could To be successful, We may be subject to product liability claims, and We face an inherent business risk of exposure to product liability claims in
the event that the use of products during research and development efforts
or after commercialization results in adverse effects. This risk will exist
even with respect to any products that receive regulatory approval for
commercial sale. While we have obtained liability insurance for our
products, it may not be sufficient to satisfy any liability that may arise.
Also, adequate insurance coverage may not be available in the future at
acceptable cost, if at all.
We may require additional funds that may be difficult to obtain in order to
continue our business activities as planned. Our operations to date have consumed substantial amounts of cash. We will
be required to spend substantial funds in conducting clinical trials, to
expand our marketing capabilities and efforts, to expand existing research
and development programs, to develop and expand our development and
manufacturing capabilities and to defend or prosecute our patents and patent
applications.
In order to develop and commercialize our products, we may need to raise
substantial additional funds through equity or debt financings,
collaborative arrangements, the use of sponsored research efforts or other
means. Additional financing may not be available on acceptable terms, if at
all, and may only be available on terms dilutive to existing stockholders or
that would increase the amount of our indebtedness. Our inability to secure
adequate funds on a timely basis could We may incur significant costs in order to comply with environmental
regulations or to defend claims arising from accidents involving the use of
hazardous materials. We are subject to federal, state and local laws and regulations governing
the use, discharge, handling and disposal of materials and wastes used in
our operations. As a Changes in the The Our common stock price is volatile and an investment in Market prices for securities of biotechnology companies (including If any of these factors causes us to fail to meet the expectations of
securities analysts or ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (b) The Company filed Preliminary financial results for the quarter and year ended The Company's intention to make a private offering of $100 million of
Convertible Subordinated Notes, due 2007, with an option to issue an
additional $25 million of notes.
The Company was delaying the pricing of its private offering of
Convertible Subordinated Notes in order to provide time to complete
quality control testing of a new lot of an antibody product.
The Company had been advised that an independent regulatory consultant
had approved the report of additional quality tests for the lot of
antibody product.
The private placement of $125 million principal amount of 5.5%
Convertible Subordinated Notes due 2007, and the granting to the
initial purchasers an option to purchase up to an additional $25
million in principal amount of notes.
The Company filed a Current Report on Form 8-K on March 1, 2000
(SEC File No. 000-19756) announcing the completion of the offering of
Convertible Subordinated Notes on February 15, 2000.
PROTEIN DESIGN LABS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its be half by
the undersigned thereunto duly authorized.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value per share)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $541 $877
Accrued compensation 1,137 1,090
Accrued clinical trials 883 712
Other accrued liabilities 2,251 2,762
Deferred revenue 2,792 2,275
Current portion of long-term debt 377 368
Accured interest 1,007 --
------------ -----------
Total current liabilities 8,988 8,084
Convertible notes 150,000 --
Long-term debt 9,624 9,724
------------ -----------
Total liabilities 168,612 17,808
Stockholders' equity:
Preferred stock, par value $0.01 per
share, 10,000 shares authorized;
no shares issued and outstanding -- --
Common stock, par value $0.01 per share,
40,000 shares authorized; 19,574
and 19,281 issued and outstanding at
March 31, 2000 and December 31, 1999,
respectively 196 193
Additional paid-in capital 253,454 245,812
Accumulated deficit (78,447) (79,217)
Accumulated other comprehensive income (loss) (2,568) (2,045)
------------ -----------
Total stockholders' equity 172,635 164,743
------------ -----------
$341,247 $182,551
============ ===========
September 30, December 31,
1999 1998
------------ -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $14,341 $27,907
Short-term investments 6,538 59,233
Other current assets 3,000 4,608
------------ -----------
Total current assets 23,879 91,748
Property and equipment, net 37,727 23,016
Long-term investments 113,789 56,299
Other assets 550 787
------------ -----------
$175,945 $171,850
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $822 $1,310
Accrued compensation 1,156 925
Accrued clinical trials 203 1,293
Other accrued liabilities 1,700 3,591
Deferred revenue 3,169 2,235
Current portion of long-term debt 343 --
------------ -----------
Total current liabilities 7,393 9,354
Long-term debt 9,807 --
------------ -----------
Total liabilities 17,200 9,354
Stockholders' equity:
Preferred stock, par value $0.01 per
share, 10,000 shares authorized;
no shares issued and outstanding -- --
Common stock, par value $0.01 per share,
40,000 shares authorized; 18,723
and 18,595 issued and outstanding at
September 30, 1999 and December 31, 1998,
respectively 187 186
Additional paid-in capital 233,405 231,035
Accumulated deficit (73,269) (68,884)
Accumulated other comprehensive income (loss) (1,578) 159
------------ -----------
Total stockholders' equity 158,745 162,496
------------ -----------
$175,945 $171,850
March 31, December 31,
2000 1999
------------ -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $177,188 $17,138
Marketable securities 114,438 120,098
Other current assets 6,290 6,719
------------ -----------
Total current assets 297,916 143,955
Property and equipment, net 37,998 38,047
Other assets 5,333 549
------------ -----------
$341,247 $182,551
============ ===========
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(unaudited)
(In thousands)
Nine Months Ended
September 30,
----------------------
1999 1998
---------- ----------
Cash flows from operating activities:
Net loss ($4,384) ($4,251)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 2,667 2,595
Other (175) 735
Changes in assets and liabilities:
Other current assets 1,608 (9,028)
Accounts payable (488) 700
Accrued liabilities (2,751) 2,508
Deferred revenue 934 1,125
---------- ----------
Total adjustments 1,795 (1,365)
---------- ----------
Net cash used in operating activities (2,589) (5,616)
Cash flows from investing activities:
Purchases of short- and long-term investments (81,336) (92,320)
Maturities of short- and long-term investments 74,900 145,000
Capital expenditures (17,624) (14,810)
Proceeds from sale of equipment 325 -
(Increase) decrease in other assets 237 (114)
---------- ----------
Net cash provided by (used in) investing activities (23,498) 37,756
Cash flows from financing activities:
Proceeds from issuance of capital stock 2,371 3,334
Proceeds from long-term debt 10,150 -
---------- ----------
Net cash provided by financing activities 12,521 3,334
---------- ----------
Net increase (decrease) in cash and cash equivalents (13,566) 35,474
Cash and cash equivalents at beginning of period 27,907 9,266
---------- ----------
Cash and cash equivalents at end of period $14,341 $44,740
Three Months Ended
March 31,
----------------------
2000 1999
---------- ----------
Cash flows from operating activities:
Net income (loss) $770 ($1,890)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 761 857
Amortization of convertible debt offering costs 90 --
Other 301 185
Changes in assets and liabilities:
Other current assets (291) (827)
Accounts payable (337) 164
Accrued liabilities 714 (2,131)
Deferred revenue 517 1,791
---------- ----------
Total adjustments 1,755 39
---------- ----------
Net cash provided by (used in) operating activities 2,525 (1,851)
Cash flows from investing activities:
Purchases of marketable securities -- (59,500)
Maturities of marketable securities 5,000 61,400
Property, plant and equipment (876) (770)
Proceeds from sale of equipment -- --
Increase in other assets (4,154) (296)
---------- ----------
Net cash provided by (used in)
investing activities (30) 834
Cash flows from financing activities:
Proceeds from convertible debt 150,000 --
Proceeds from issuance of capital stock 7,645 462
Payments on long-term debt (90) --
---------- ----------
Net cash provided by financing activities 157,555 462
---------- ----------
Net increase (decrease) in cash and cash equivalents 160,050 (555)
Cash and cash equivalents at beginning of period 17,138 27,907
---------- ----------
Cash and cash equivalents at end of period $177,188 $27,352
========== ==========
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
March 31, 2000
(unaudited)
the Company'sour founding in 1986, a primary focus of itsour operations has been
research and development. Achievement of successful research and development
and commercialization of products derived from suchour efforts is subject to
high levels of risk and significant resource commitments. The
Company has a historyOur expenses have
generally exceeded revenues. As of operatingMarch 31, 2000, we had an accumulated
deficit of approximately $78.4 million. We believe that our losses may
increase because of the extensive resource commitments required to achieve
regulatory approval and expects tocommercial success for any individual product. For
example, over the next several years, we will incur substantial additional
expenses over at least the next few years as it continueswe continue to develop its proprietaryand manufacture our potential products,
devote significant resources to
preclinical studies, clinical trials,invest in new research areas and improve and expand our manufacturing
and to defend its
patents and other proprietary rights. The Company's revenues to date have
consisted principally of research and development funding, licensing and
signing fees, milestone payments and royalties from pharmaceutical and
biotechnology companies undercapabilities. Since we or our collaborative research and development,
humanization, patent licensing and clinical supply agreements. These
revenues may vary considerably from quarter to quarter and from year to
year, and revenues in any periodpartners or licensees may not be
predictiveable to successfully develop additional products, obtain required regulatory
approvals, manufacture products at an acceptable cost and with appropriate
quality, or successfully market such products with desired margins, we may
never achieve profitable operations. The amount of revenues in any
subsequent period, and variations may be significant depending on the terms
of the particular agreements.
The Company receives royalties on sales of Synagisr, Herceptinr and
Zenapaxr. Royalty revenues from third party sales of these licensed
humanized antibodies are subject to the specific terms of each agreement
and, under the Company's policy, are recognized by the Company during the
quarter such royalties are reported to PDL. This method of revenue
recognition may increase fluctuations reported in any particular quarter
since the agreements generally provide for royalty reports to the Company
following completion of each calendar quarter or semi-annual period.
Further, royalty revenues are unpredictable as they are dependent upon
numerous factors including the seasonality of sales of licensed products,
the existence of competing products, the marketing efforts of the Company's
licenseesnet losses and the rights certain licensees havetime
required to partially offset certain
previously paid milestones and third party royalties against royalties
payablereach sustained profitability are highly uncertain. We cannot
assure you that we will be able to the Company. In addition, expenses may fluctuate from quarter to
quarter due to the timing of certain expenses, including milestone payments
that may be payable by the Company under certain licensing arrangements.
Although the Company anticipates entering into new collaborations from time
to time, the Company presently does not know whetherachieve or not it will realize
non-royalty revenue from its new and proposed collaborations at levels
commensurate with the revenue historically recognized under its older
collaborations. Moreover, the Company anticipates that it will incur
significant operating expenses as the Company significantly increases its
research and development, manufacturing, preclinical, clinical, marketing
and administrative and patent activities. In particular, thesustain profitability.
ZenapaxZenapax[R] and the humanized
anti-IL-4 antibody, two humanized antibodies with respect to which PDLwe
recently obtained development rights, taken together with the continued
development of the Company'sour existing products, will require significant additional
funds for development. Accordingly,These operating expenses may also increase as some of
our earlier stage potential products move into later stage clinical
development, as additional potential products are selected as clinical
candidates for further development, as we invest in additional manufacturing
capacity, as we defend or prosecute our patents and patent applications, and
as we invest in research or acquire additional technologies, product
candidates or businesses.
the Company'sour intellectual property rights, product sales
or other uncertain sources the Company expects toof revenue, we will incur substantial operating
losseslosses.
foreseeable future aspast and will likely continue to fluctuate
considerably from quarter to quarter and from year to year. As a result, our
revenues in any period may not be predictive of revenues in any subsequent
period. Our royalty revenues may be unpredictable and may fluctuate since
they depend upon the Company
undertakes developmentseasonality of Zenapaxsales of licensed products, the
existence of competing products, the marketing efforts of our licensees,
potential reductions in autoimmune indicationsroyalties payable to us due to credits for prior
payments to us, the timing of royalty reports, some of which are required
quarterly and others semi-annually, our method of accounting for royalty
revenues from our licensees and our ability to successfully defend and
enforce our patents. Other revenue may also be unpredictable and may
fluctuate due to the humanized anti-IL-4 antibody, as certaintiming of its earlier stage potential
products move into later stage clinical development, as additional potential
products are selected as clinical candidatespayments of non-recurring licensing and
signing fees and payments for further development, as the
Company invests in additional manufacturing capacity, as the Company defends
or prosecutes its patentsservices and achievement of
milestones under new and existing collaborative, humanization, and patent
applicationslicensing agreements. Revenue historically recognized under our prior
agreements may not be an indicator of revenue from any future
collaborations.
asmay fluctuate from
quarter to quarter due to the Company investstiming of expenses, which may include payments
owed by us under licensing arrangements and due to our policy of recording
expenses under certain collaborative agreements during the quarter in research or acquires additional technologies, product candidates or
businesses.
which
such expenses are reported to us.
September 30, 1999,March 31, 2000, and the consolidated
statements of operations for the three and nine month periods
and cash flows for the ninethree month periods ended
September 30,March 31, 2000 and 1999 and 1998 are unaudited, but include all adjustments
(consisting only of normal recurring adjustments) which the Company considerswe consider
necessary for a fair presentation of theour financial position at such dates
and the operating results and cash flows for those periods. During the third quarter of 1999,
the Company formed two wholly owned subsidiaries to facilitate the purchase
of the Company's Fremont, California facilities. Financial statements are
presented on a consolidated basis to include these subsidiaries. Although the Company believeswe
believe that the disclosures in theseour financial statements are adequate to
make the information presented not misleading, certain information and
footnote information normally included in financial statements prepared in
accordance with accounting principles generally accepted accounting
principlesin the U.S. have
been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. The accompanying financial statements
should be read in conjunction with the Company'sour Annual Report on Form 10-K, filed
with the Securities and Exchange Commission, for the year ended December 31,
1998.1999. The balance sheet as of December 31, 19981999 is derived from audited
financial statements. Results for any quarterly period are not necessarily
indicative of results for any other quarterly period or for the entire year.
InvestmentsMarketable Securities and Concentration of Credit Risk
The Company considers purchased with a maturity of three months or
less at the date of acquisitionpurchase to be cash equivalents. Included in theThe "Other" adjustments
line item in the Statements of Cash Flows isrepresents the accretion of the
book value of certain debt securities. The Company places itsWe place our cash, and short-term and long-term investmentsmarketable
securities with high-credit-quality financial institutions and in securities
of the U.S. government and U.S. government agencies and, by policy, limitslimit
the amount of credit exposure in any one financial instrument. To date, the Company haswe
have not experienced credit losses on investments in these instruments.
Cash and cash equivalents for the period ended September 30, 1999 decreased
primarily as a result of the purchases of short-term investments and long-
term investments. Long-term investments increased during the period as a
result of the Company purchasing investments with maturities longer than
twelve months.
The Company'sthe Companyus based on net sales of the
licensed product under the agreement. The agreements generally provide for
royalty payments to the Companyus following completion of each calendar quarter or
semi-annual period and royalty revenue is recognized when royalty reports
are received from the third party. Non-
refundableNon-refundable signing and licensing fees
under these arrangementscollaborative and humanization agreements are recognized over the
period in which performance obligations are achieved. Non-refundable signing
and licensing fees under patent licensing agreements are recognized as
revenue when there are no future performance obligations remaining with
respect to such fees.
options.
If the Company hadoptions, but does not include outstanding convertible debt as its
effect is anti-dilutive. We incurred a net loss position for the applicablethree month period
as is the
case for the nine month periods ended September 30,March 31, 1999, and 1998, FAS 128
specifies that the Company shallas such, we did not include the effect of
outstanding stock options outstanding forin the applicable perioddiluted net loss per share calculation as
thetheir effect would be antidilutive.
is anti-dilutive.
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Numerator:
Net income (loss) $181 $689 $(4,384) $(4,251)
========== ========== ========== ==========
Denominator:
Basic net income (loss) per share -
weighted-average shares 18,668 18,545 18,637 18,506
Dilutive potential common shares:
Stock Options 687 300 -- --
---------- ---------- ---------- ----------
Denominator for diluted net
loss per share 19,355 18,845 18,667 18,506
========== ========== ========== ==========
Basic net income (loss) per share $0.01 $0.04 $(0.24) $(0.23)
========== ========== ========== ==========
Diluted net income (loss) per share $0.01 $0.04 $(0.24) $(0.23)
========== ========== ========== ==========
Three Months Ended
March 31,
-------------------
2000 1999
--------- ---------
Numerator:
Net income (loss) $770 ($1,890)
========= =========
Denominator:
Basic net income (loss) per share -
weighted-average shares 19,460 18,618
Dilutive potential common shares:
Stock Options 2,066 --
--------- ---------
Denominator for diluted net income
(loss) per share 21,526 18,618
========= =========
Basic net income (loss) per share $0.04 ($0.10)
========= =========
Diluted net income (loss) per share $0.04 ($0.10)
========= =========
In accordance with Financial Accounting Standards Statement No. 130,
"Reporting Comprehensive Income," ("FAS 130"),Company is required to
displaythree months ended March 31, 2000 and 1999, total comprehensive
income (loss) was $0.2 million and its components as part of the$(2.4) million, respectively. The
Company's complete set of financial statements. The measurement and
presentation of net loss did not change. Comprehensiveother comprehensive income (loss) is comprised of net loss and other comprehensive income (loss). Other
comprehensive income (loss) includes certain changes in equity of the
Company that are excluded from net loss. Specifically, FAS 130 requires unrealized gains
and losses on the Company's holdings of available-for-sale securities, which were reported separately in stockholders' equity, to be
included in accumulated other comprehensive income (loss). FAS 130 permits
the disclosure of this information in notes to interim financial statements
and the Company has elected this approach. For the three month periods ended
September 30, 1999 and 1998, total comprehensive income (loss) amounted to
($0.1) million and $0.9 million respectively. For the nine month periods
ended September 30, 1999 and 1998, total comprehensive income (loss)
amounted to ($6.1) million and ($4.2) million, respectively.
securities.
accounting principlesin the United States requires the use of
management's estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. For example, the Company haswe have a
policy of recording expenses for clinical trials based upon pro rating
estimated total costs of a clinical trial over the estimated length of the
clinical trial and the number of patients anticipated to be enrolled in the
trial. Expenses related to each patient are recognized ratably beginning
upon entry into the trial and over the course of the trial. In the event of
early termination of a clinical trial, management accrues an amount based on
its estimate of the remaining non-cancellable obligations associated with
the winding down of the clinical trial. TheseOur estimates and assumptions could
differ significantly from the amounts which may actually be realized.
Property, Plant and Equipment
Property, plant and equipment increasedSeptember 30, 1999 compareda
conversion price of $151.00 per share, subject to December 31, 1998 primarilyadjustment as a result of
certain events and at the purchaseholders' option. Interest on the Convertible Notes
is payable semiannually in arrears on February 15 and August 15 of each
year. The Convertible Notes are unsecured and are subordinated to all our
existing and future Senior Indebtedness (as defined in the indenture
relating to the Convertible Notes). The Convertible Notes may be redeemed at
our option, in whole or in part, beginning on February 15, 2003 at the
redemption prices set forth in the Convertible Notes indenture. In May 2000,
we filed a shelf registration statement covering resales of the Company's
Fremont, California facilities which has an estimated useful lifeConvertible
Notes and the common stock issuable upon conversion of thirty
years.
Accrued Clinical Trials
Accrued clinical trials reflected a $1.1 million reductionthe Convertible
Notes. Issuance costs associated with the favorable resolution of a contract-related dispute with Boehringer
Mannheim GmbH (which was acquired by affiliates of F. Hoffmann-La Roche
Ltd).
Long-Term Debt
In September 1999, Fremont Holding L.L.C. (a wholly owned subsidiary of
Protein Design Labs, Inc.) obtained a $10.2 millionConvertible Notes are included in
other assets and are amortized to interest expense over the term loan to purchase
its Fremont, California facilities. The loan bears interest at the rate of
7.64% per year amortized over 15 years with principal and interest payable
monthly beginning in October 1999. The loan is secured by the Company's
Fremont, California facilities and is subject to the terms and covenants of the
loan agreement.
debt.
1998.
1999.the Company'sour founding in 1986, a primary focus of itsour operations has been
research and development. Achievement of successful research and development
and commercialization of products derived from suchour efforts is subject to
high levels of risk and significant resource commitments. The Company has a historyOur expenses have
generally exceeded revenues. As of operatingMarch 31, 2000, we had an accumulated
deficit of approximately $78.4 million. We believe that our losses may
increase because of the extensive resource commitments required to achieve
regulatory approval and expects tocommercial success for any individual product. For
example, over the next several years, we will incur substantial additional
expenses over at least the next few years as it
continueswe continue to develop its proprietaryand manufacture our potential products,
devote significant resources
to preclinical studies, clinical trials,invest in new research areas and improve and expand our manufacturing
and to defend its
patents and other proprietary rights. The Company's revenues to date have
consisted principally of research and development funding, licensing and
signing fees, milestone payments and royalties from pharmaceutical and
biotechnology companies undercapabilities. Since we or our collaborative research and development,
humanization, patent licensing and clinical supply agreements. These
revenues may vary considerably from quarter to quarter and from year to
year, and revenues in any periodpartners or licensees may not be
predictiveable to successfully develop additional products, obtain required regulatory
approvals, manufacture products at an acceptable cost and with appropriate
quality, or successfully market such products with desired margins, we may
never achieve profitable operations. The amount of revenues in any
subsequent period, and variations may be significant depending on the terms
of the particular agreements.
The Company receives royalties on sales of Synagis[R], Herceptin[R] and
Zenapax[R]. Royalty revenues from third party sales of these licensed
humanized antibodies are subject to the specific terms of each agreement
and, under the Company's policy, are recognized by the Company during the
quarter such royalties are reported to PDL. This method of revenue
recognition may increase fluctuations reported in any particular quarter
since the agreements generally provide for royalty reports to the Company
following completion of each calendar quarter or semi-annual period.
Further, royalty revenues are unpredictable as they are dependent upon
numerous factors including the seasonality of sales of licensed products,
the existence of competing products, the marketing efforts of the Company's
licenseesnet losses and the rights certain licensees havetime
required to partially offset certain
previously paid milestones and third party royalties against royalties
payablereach sustained profitability are highly uncertain. We cannot
assure you that we will be able to the Company. In addition, expenses may fluctuate from quarter to
quarter due to the timing of certain expenses, including milestone payments
that may be payable by the Company under certain licensing arrangements.
Although the Company anticipates entering into new collaborations from
time to time, the Company presently does not know whetherachieve or not it will
realize non-royalty revenue from its new and proposed collaborations at
levels commensurate with the revenue historically recognized under its older
collaborations. Moreover, the Company anticipates that it will incur
significant operating expenses as the Company significantly increases its
research and development, manufacturing, preclinical, clinical, marketing
and administrative and patent activities. In particular, thesustain profitability.
ZenapaxZenapax[R] and the humanized
anti-IL-4 antibody, two humanized antibodies with respect to which PDLwe
recently obtained development rights, taken together with the continued
development of the Company'sour existing products, will require significant additional
funds for development. Accordingly,These operating expenses may also increase as some of
our earlier stage potential products move into later stage clinical
development, as additional potential products are selected as clinical
candidates for further development, as we invest in additional manufacturing
capacity, as we defend or prosecute our patents and patent applications, and
as we invest in research or acquire additional technologies, product
candidates or businesses.
the Company'sour intellectual property rights, product sales
or other uncertain sources the Company expects toof revenue, we will incur substantial operating
losseslosses.
foreseeablepast and will likely continue to fluctuate
considerably from quarter to quarter and from year to year. As a result, our
revenues in any period may not be predictive of revenues in any subsequent
period. Our royalty revenues may be unpredictable and may fluctuate since
they depend upon the seasonality of sales of licensed products, the
existence of competing products, the marketing efforts of our licensees,
potential reductions in royalties payable to us due to credits for prior
payments to us, the timing of royalty reports, some of which are required
quarterly and others semi-annually, our method of accounting for royalty
revenues from our licensees and our ability to successfully defend and
enforce our patents. Other revenue may also be unpredictable and may
fluctuate due to the timing of payments of non-recurring licensing and
signing fees and payments for manufacturing services and achievement of
milestones under new and existing collaborative, humanization, and patent
licensing agreements. Revenue historically recognized under our prior
agreements may not be an indicator of revenue from any future
ascollaborations.
Company
undertakes developmentquarter ended March 31, 2000, in
accordance with its historical practice. In December 1999, the Securities
and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB 101). We are evaluating the
effects, if any, that the adoption of ZenapaxSAB 101 in autoimmune indicationsthe second quarter of 2000
may have on the results of our operations or our financial position. We have
been advised that the Securities and Exchange Commission intends to provide
additional guidance during the second quarter of 2000 with respect to the
implementation of SAB 101. It is currently unknown whether such guidance
and the humanized anti-IL-4 antibody, as certainimplementation of its earlier stage potential
products move into later stage clinical development, as additional potential
products are selected as clinical candidatesSAB 101 will require us to revise our revenue
recognition practices or to restate revenues for further development, as the Company invests in additional manufacturing capacity, as the Company defends
or prosecutes its patentsfirst quarter of 2000.
patent applications and as the Company invests
in research or acquires additional technologies, product candidates or
businesses.
Contract revenuesmay fluctuate from
research and development are recorded as earned
based on the performance requirements of the contracts. Revenues from
achievement of milestone events are recognized when the funding party agrees
that the scientific or clinical results stipulated in the agreement have
been met. Deferred revenue arises principallyquarter to quarter due to the timing of cashexpenses, which may include payments
receivedowed by us under researchlicensing arrangements and development contracts.
due to our policy of recording
expenses under collaborative agreements during the quarter in which such
expenses are reported to us.
September 30,March 31, 2000 and 1999 and 1998
September 30,
1999March 31, 2000
were $10.6$15.5 million compared to $11.9$8.8 million in the thirdfirst quarter of 1998.1999.
Total revenues recognized under agreements with third parties were $8.4$12.5
million in the thirdfirst quarter of 19992000 compared to $9.6$6.5 million in the
comparable period in 1998.1999. Interest and other income was $2.2$3.0 million in the
thirdfirst quarter of 19992000 compared to $2.3$2.4 million in the comparable period in
1998.
1999, reflecting the increased interest earned on our cash, cash equivalents
and marketable securities balances as a result of our private placement of
$150 million in convertible subordinated notes in February 2000.
$8.4$12.5 million for the
three months ended September 30, 1999March 31, 2000 consisted principally of royalties,
signing and licensing fees, research and development reimbursement funding,
milestone payments earned under licensing agreements royalties, signing and licensing
fees and research and development reimbursement funding.a license
maintenance fee. In the thirdfirst quarter of 1998,1999, revenues of $9.6$6.5 million
under agreements with third parties consisted principally of a $6.0$3.0 million
licensingnon-refundable, non-creditable signing and signinglicensing fee from Genentech, Inc. ("Genentech"), milestone payments earned under
licensing agreements, manufacturing services revenues under clinical supply
agreements,Scil
Biomedicals GmbH (Scil) for rights to develop and market our SMART[TM]
(humanized) Anti-L-Selectin Antibody in Europe, royalties and research and
development reimbursement funding and royalties.
funding.
September 30, 1999March 31, 2000
were $10.4$14.7 million compared with $11.2$10.7 million in the comparable period in
1998. Total cost and expenses in the 1999 third quarter reflected a $1.1
million reduction associated with the favorable resolution of a contract
dispute with a third party. In 1998, total cost and expenses in the third
quarter included a $1.0 million licensing and signing fee paid to Genentech.
Excluding these non-recurring items in the third quarters of 1999 and
1998, total costs and expenses increased by $1.3 million, primarily due to
the addition of staff in the Company's pharmaceutical research and
development programs, administrative functions and associated expenses to
manage and support the Company's expanding operations.
1999.
September 30, 1999March 31, 2000 were $7.9$11.1 million compared with $8.9$8.3 million in the year-
earlier quarter. Excluding the two non-recurring items discussed above,
researchResearch and development costs increased by $1.1 million, primarily due to
the addition of staff, the continuationexpansion of clinical trials and expansion ofdevelopment programs,
research and pharmaceutical development capabilities, including support for
both clinical development and manufacturing process development.
development and payments
related to manufacturing of humanized anti-IL-4.
September 30, 1999March
31, 2000 increased to $2.4$2.5 million from $2.2$2.4 million in the comparable
period in 1998. These increases were primarily the result of
increased staffing and associated expenses to manage and support the
Company's expanding operations.
Nine Months Ended September 30, 1999 and 1998
The Company's total revenues1999.
nine months ended September 30,
1999 were $27.7 million compared with $24.5 million for the nine months
ended September 30, 1998. Total revenues recognized under agreements with
third parties were $20.9 million in the ninethree month period of 1999 compared
with $17.3 million in the comparable period in 1998. Interest and other
income was $6.8 million in the nine month period of 1999 compared with $7.2
million in the comparable period in 1998.
Revenues under agreements with third parties of $20.9 million for the
nine months ended September 30, 1999 consisted principally of royalties,
signing and licensing fees, maintenance fees and research and development
reimbursement funding. In the comparable period of 1998, revenues of $17.3
million under agreements with third parties consisted principally of signing
and licensing fees, milestone payments earned under licensing agreements,
manufacturing services revenues under clinical supply agreements, research
and development reimbursement funding and royalties.
Total costs and expenses for the nine months ended September 30, 1999March 31, 2000
increased to $32.1$1.2 million from $28.7 million in the comparable period in
1998. Excluding non-recurring expense adjustments due to one-time events,
the increase in costs and expenses was primarily due to the addition of
staff in the Company's pharmaceutical research and development programs,
administrative functions andinterest expense associated
expenses to manage and support the
Company's expanding operations.
Research and development expenses for the nine month period ended
September 30, 1999 increased to $24.7 million from $22.7 million in the
comparable period in 1998. Excluding the two non-recurring items discussed
above, the increase in costs was primarily due to the addition of staff, the
continuation of clinical trials and expansion of research and pharmaceutical
development capabilities, including support for both clinical development
and manufacturing process development.
General and administrative expenses for the nine months ended
September 30, 1999 increased to $7.3 million from $6.0 million in the
comparable period in 1998. These increases were primarily the result of
increased staffing and associated expenses to manage and support the
Company's expanding operations.
with our convertible subordinated notes issued on February 15, 2000.
the Company haswe have financed itsour operations primarily through public and
private placements of equity securities, research and development revenues,
and interest income on invested capital.capital and a private placement of $150 million
in convertible subordinated notes in February 2000. At September 30, 1999, the
CompanyMarch 31, 2000, we
had cash, cash equivalents and investmentsmarketable securities in the aggregate of
$134.7$291.6 million, compared to $143.4$137.2 million at December 31, 1998.
1999.
was $2.6 million for the nine months ended September
30, 1999 compared to $5.6of $1.9
million in the same period in 1998.1999. This change was primarily the result of
changesour net income for the first quarter of 2000 as compared to a net loss in
other current assets and accrued
liabilities.
the comparable period of 1999.
Statements of Cash Flows, net cash used in
investing activities for the nine months ended September 30, 1999 was $23.5
million resulting primarily from the reinvestment of maturing investments
and the purchase of the Company's Fremont, California facilities. Net cash
provided by investing activities for the comparable period in 1998 was $37.8
million resulting primarily from the maturities of short- and long-term
investments.
As set forth in theConsolidated Statements of Cash Flows, net cash
provided by financing activities for the ninethree months ended September 30, 1999March 31, 2000
was $12.5$157.6 million, resulting primarily from the proceeds associated with the long-term
financing of the Company's purchasea private
placement of its Fremont, California facilities.
Net cash provided by financing activities$150 million in the comparable periodconvertible subordinated notes in 1998
was $3.3 million resulting primarily fromFebruary 2000
and the exercise of outstanding stock options.
The Company'sSynagis, HerceptinSynagis[R], Herceptin[R] and Zenapax; theour ability of
the Company to enter
into additional collaborative, humanization and patent licensing
arrangements; the progress of the Company's product candidates in clinical trials; the ability
of the Company'sour licensees to obtain regulatory approval and successfully manufacture
and market products licensed under the
Company'sour patents; the continued or additional
support by our collaborative partners or other third parties of research and
development efforts and clinical trials; enhancement of existing and
investment in new research and development programs; the time required to gain
regulatory approvals; the
resources the Company devoteswe devote to self-funded products,
manufacturing facilities and methods and advanced technologies; theour ability of the Company
to obtain and retain funding from third parties under collaborative
arrangements; theour continued development of internal marketing and sales
capabilities; the demand for the Company'sour potential products, if and when approved;
potential acquisitions of technology, product candidates or businesses by
the Company;us; and the costs of defending or prosecuting any patent opposition or
litigation necessary to protect the Company'sour proprietary technology. In order to
develop and commercialize itsour potential products the Companywe may need to raise
substantial additional funds through equity or debt financings,
collaborative arrangements, the use of sponsored research efforts or other
means. No assurance can be given that such additional financing will be
available on acceptable terms, if at all, and such financing may only be
available on terms dilutive to existing stockholders. The Company believesWe believe that
existing capital resources including the proceeds of the issue and sale in
February 2000 of $150 million of our 5.50% Convertible Subordinated Notes
due February 15, 2007, will be adequate to satisfy itsour capital needs through
at least 2001.
YEAR 2000 COMPLIANCE
As is true for most companies, the ability of the Company's systems
and equipment as well as those of its key suppliers to address the Year 2000
("Y2K") issue presents a potential risk for the Company. If systems software
and/or equipment containing embedded software or controllers do not
correctly recognize date information when the year changes to 2000, there
could be an adverse impact on the Company's operations. The risk for the
Company exists in two areas: systems used by the Company to run its
business and systems used by the Company's suppliers. The Company is
currently evaluating its exposure in these two areas and has completed a
review of at least 90% of potentially affected systems. The Company has also
reviewed, but views as a much less significant risk, claims related to
potential warranty or other claims from its collaborative research
customers.
Based on a comprehensive assessment recently completed by an outside
consultant retained by the Company, the Company believes that its most
important information systems, equipment and facilities are Y2K-compliant.
To date, the Company has either received software or system upgrades or
assurances that Y2K-compliant software will be made available in a manner
designed for the Company to timely address the Y2K issue with respect to its
key systems.
The outside consultant retained by the Company performed a
comprehensive inventory and review of all significant systems and equipment
of the Company and is in the process of preparing a contingency plan for any
mission critical systems that may present potential Y2K problems.
The Company has established a Y2K committee with responsibility for
coordinating awareness and identifying potential Y2K risk areas within the
Company. As part of its comprehensive review of potentially affected
systems, equipment and facilities, the Company is also reviewing controllers
used to perform key functions in its manufacturing facility in Plymouth,
Minnesota. At this time, the Company has been advised that the need for
remediation or replacement plans for systems and equipment is minimal. For
Y2K non-compliance issues identified to date, the cost of upgrade or
remediation has not been and is not expected to be material to the Company's
operating results. The Company has completed a work and project plan for
Company awareness and a detailed assessment and inventory review process
corresponding to the five-step General Accounting Office recommended process
guidelines. For Y2K compliance, the total out-of-pocket costs expended to
date and currently planned budget expenditures are expected to be less than
the originally estimated $100,000 amount budgeted. However, if
implementation of scheduled replacement systems is significantly delayed, or
if any significant new non-compliance issues are identified, the Company's
results of operations or financial condition could be materially adversely
affected.
The Company has identified and inquired of most of its critical
suppliers and has ongoing inquiries of other suppliers in order to determine
whether the operations and the products or services provided by these
identified vendors are Y2K-compliant. Where practicable, the Company will
attempt to mitigate its risks with respect to the failure of vendors to be
Y2K-compliant. In the event that vendors are not compliant, the Company may
adjust its purchasing decisions or seek alternative sources of supplies or
services. However, many of the Company's vendors have been qualified for
regulatory purposes such that qualifying new vendors could involve
significant time and resource commitments by the Company. Failure of vendors
to be Y2K-compliant remains a possibility and could limit the ability of the
Company to manufacture material for clinical studies or timely conduct
regulatory compliance programs that would result in a delay in the
initiation or continuation of certain planned clinical studies. Significant
delays or expenditures due to vendors' failures to become Y2K-compliant
could have an adverse impact on the Company's results of operations or
financial condition.
With respect to research conducted by the Company in support of its
collaborative research customers, many of the systems and software used to
support such efforts are new. Where appropriate, the Company has, as a
condition to accepting such systems and software, required that the systems
be Y2K-compliant.
2002.
September 30, 1999,March 31, 2000, there has been no material change in the
Company's interest rate exposure from that described in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.1999.
1998.
History Of Losses; Future Profitability Uncertain. The Company has1999.expectsmay not achieve profitability.over at least the next several years as it continueswe continue to develop itsand manufacture
our potential products, to invest in new research areas and to devote
significant resources to preclinical studies, clinical trialsimprove and manufacturing. As of September 30, 1999, the Company had an accumulated
deficit of approximately $73.3 million. The time and resource commitment
required to achieve market success for any individual product is extensive
and uncertain. No assurance can be given that the Company, itsexpand
our manufacturing capabilities. Since we or our collaborative partners or
licensees willmay not be able to successfully develop additional products,
obtain required regulatory approvals, manufacture products at an acceptable
cost and with appropriate quality, or successfully market such products.products with
desired margins, we may never achieve profitable operations. The Company's revenuesamount of
net losses and the time required to date have consisted principally of research
and development funding, licensing and signing fees, milestone payments and
royalties from pharmaceutical and biotechnology companies under
collaborative research and development, humanization, patent licensing and
clinical supply agreements. These revenues may vary considerably from
quarterreach sustained profitability are highly
uncertain. We cannot assure you that we will be able to quarter and from year to year, and revenues in any period may not
be predictive of revenues in any subsequent period, and variations may be
significant depending on the terms of the particular agreements. Further,
royalty revenues are unpredictable as they are dependent upon numerous
factors, including the seasonality of sales of licensed products, the
existence of competing products, the marketing efforts of the Company's
licensees and rights certain licensees may have to partially offset certain
previously paid milestones and third party royalties against royalties
payable to the Company. In addition, expenses may fluctuate from quarter to
quarter due to the timing of certain expenses, including milestone payments
that may be payable by the Company under licensing arrangements.
Although the Company anticipates entering into new collaborations from
time to time, the Company presently does not know whetherachieve or not it will
realize non-royalty revenue from its new and proposed collaborations at
levels commensurate with the revenue historically recognized under its older
collaborations. Moreover, the Company anticipates that it will incur
significant operating expenses as the Company significantly increases its
research and development, manufacturing, preclinical, clinical, marketing
and administrative and patent activities. In particular, thesustain
profitability.
PDLwe
recently obtained development rights, taken together with the continued
development of the Company'sour existing products, will require significant additional
funds for development. Accordingly,Our operating expenses may also increase as:
the
Company'sour intellectual property rights, product sales
or other uncertain sources which may or may
not occur, the Company expects toof revenue, we will incur substantial operating
losseslosses.
foreseeable future as the Company undertakes development of Zenapax in
autoimmune indicationspast and the humanized anti-IL-4 antibody, as certain of
its earlier stage potential products move into later stage clinical
development, as additional potential products are selected as clinical
candidates for further development, as the Company invests in additional
manufacturing capacity, as the Company defends or prosecutes its patentswill likely continue to fluctuate
considerably from quarter to quarter and patent applications and as the Company invests in research or acquires
additional technologies, product candidates or businesses. For example,
revenues in the third quarter of 1999 included significant amounts from certain milestones and non-refundable, non-creditable licensing and signing
fees. Moreover, expenses in the third quarter were also reduced by $1.1
million dueyear to year. As a favorable resolution of a contract dispute with a third
party. Revenues in the fourth quarter of 1999 are not expected to include
arrangements involving payments to the Company of a similar magnitude and
certain of the milestone payments in the third quarter which are
expected to be credited against royalties which otherwise would be due
to the Company in the fourth quarter of 1999. In the absence of substantial
non-recurring revenues or significant royalty revenues in any future period,
there can be no assurance that the Company's level of revenue in
any particular reporting period will be similar to or higher than that
reported for the prior corresponding period.
Hoffmann-La Roche Inc. and its affiliates ("Roche") have received
regulatory approval to distribute Zenapax in the U.S. and certain other
countries. Zenapax, a product created by the Company, is licensed
exclusively to Roche. The Company has also entered into nonexclusive patent
license agreements covering Synagis[R], a product developed by MedImmune,
Inc., and Herceptin[R], a product developed by Genentech, Inc. The Company
recognizes royalty revenues when royalty reports are received from its
collaborative partners, including Roche. With respect to royalties based on
revenue from sales of Zenapax by Roche, royalties based on U.S. sales are
reported to the Company on a quarterly basis and royalties based on sales
outside of the U.S. are currently reported on a semi-annual basis. With
respect to royalties on sales of Synagis and Herceptin, royalty reports are
due in the quarter following the quarter in which sales occur or are
reported by sublicensees, as the case may be. Each of these licensees has
certain rights to partially offset certain payments previously made to the
Company or paid to third parties. For example, Roche has a right to
partially offset certain third party royalties, patent reimbursement
expenses and previously paid milestones against royalties payable to the
Company with respect to Zenapax. The Company records revenue when reports
are received from its licensees. This method of accounting for royalty
revenues from the Company's licensees, taken together with the unpredictable
timing of payments of non-recurring licensing and signing fees, payments for
manufacturing services and milestones under new and existing collaborative,
humanization, patent licensing and clinical supply agreements, is likely to
result,
in significant quarterly fluctuations in revenues in quarterly and
annual periods. Thus,our revenues in any period may not be predictive of revenues in any
subsequent period, and variationsperiod. Our royalty revenues may be significant
dependingunpredictable and may
fluctuate since they depend upon:
termsresults of our operations
or our financial position. We have been advised that the particular agreements.
The amountSecurities and
Exchange Commission intends to provide additional guidance during the second
quarter of net losses2000 with respect to the implementation of SAB 101. It is
currently unknown whether such guidance and the time requiredimplementation of SAB 101
will require us to reach sustained
profitability are highly uncertain. To achieve sustained profitable
operations,revise our revenue recognition practices or to restate
revenues for the Company, alone or with its collaborative partners, must
successfully discover, develop, manufacture, obtain regulatory approvals forfirst quarter of 2000.
market potential products. No assurances can be given that the Company
will be able to achieve or sustain profitability, and results are expected
tomay fluctuate from
quarter to quarter due to the timing of expenses, which may include payments
owed by us under licensing arrangements.
yeara successful challenge could
limit our future revenues.year.
Dependence On Licensees With Respectwhy a patent was incorrectly
granted and should be withdrawn or limited. Eighteen notices of opposition
to Royalties.our first European patent were filed during the opposition period for the
patent, including oppositions by major pharmaceutical and biotechnology
companies. At an oral hearing in March 2000, the Opposition Division (OD)
of the EPO decided to revoke the broad claims in our first European patent
based on formal matters of European patent law, specifically that there had
been an impermissible addition of subject matter after the filing of the
original European patent application, but did not provide the rationale
behind its decision. The Companydecision upheld claims that protect Zenapax. The
OD did not otherwise announce a decision on the issue of whether the claims
in our patent are inventive in light of the prior art or other issues of
patentability. We plan to appeal the OD's decision to the Technical Board
of Appeals at the EPO. The Technical Board of Appeals will consider all
issues anew. The appeal suspends the decision of the OD during the appeals
process, which is dependent uponlikely to take several years.
developmentscope and marketing effortsvalidity of its licenseesour second European patent,
whether the antibodies are manufactured in a country outside of Europe where
they are covered by one of our patents, and in that case the terms of our
license agreements with respect to products forthat situation. Also, the OD's decision
could encourage challenges of our related patents in other jurisdictions,
including the U.S. The OD's decision may lead some of our licensees to stop
making royalty payments or lead potential licensees not to take a license,
which might result in us initiating formal legal actions to enforce our
rights under our various humanization patents. In such a situation, a
likely defensive strategy to our action would be to challenge our patents in
that jurisdiction. During the Company may receive royalties. For
example, in 1998,appeals process with respect to our first
European patent, if we were to commence an infringement action to enforce
that patent, such an action would likely be stayed until the Company began receiving royalties from sales of
Zenapax, a product exclusively licensed to Roche. The Company's royalties on
Zenapax sales in transplantation depend uponappeal is
decided by the efforts of Roche and there
can beEPO. We have no assurance that Roche's development, regulatorywe will successfully enforce
our rights under our European or related U.S. and marketing
effortsJapanese patents. The
nine month opposition period for our second European antibody humanization
patent ends in May 2000, and we expect that a significant number of notices
of opposition will be successful, including without limitation, whether or how
quickly Zenapax might receive regulatory approvalsfiled with respect to this patent. We have also been
advised that three opposition statements have been filed with the Japanese
Patent Office with respect to our humanization patent issued in various countries
throughoutJapan in
late 1998.
worldEuropean patents and how rapidly it might be adopted by the medical
community. Moreover, Simulect[R], a product competitive with Zenapax, is
marketedJapanese patent
in these proceedings; however, we may not prevail in the U.S.opposition
proceedings or any litigation contesting the validity of these patents. If
our appeal with respect to our first European patent is unsuccessful or if
the outcome of the other European or Japanese opposition proceedings or any
litigation involving our antibody humanization patents were to be
unfavorable, our ability to collect royalties on existing licensed products
and other countries and there canto license our patents relating to humanized antibodies may be
no assurance that
Roche will successfully market and sell Zenapax against this and other
available competitive products.materially harmed. In addition, there can be no assurance thatthese proceedings or any other independently developed products of Roche, including CellCept[R],litigation
to protect our intellectual property rights or defend against infringement
claims by others, will not compete with or prevent Zenapax from achieving meaningful
sales. Roche's development and marketing efforts for CellCept maycould result in delays or a relatively smaller resource commitment to marketingsubstantial costs and sales
support efforts than might otherwise be obtained for Zenapax if this
potentially competitive product were not under development or being
marketed. In addition, the Company recently obtained exclusive rights to
develop Zenapax in autoimmune indications. There can be no assurance that
the Company's development efforts in autoimmune indications will show that
Zenapax is safediversion of
management's time and efficacious in this setting, or that the clinical trials
will result in approval to market Zenapax in these indications. Any adverse
event or announcement related to Zenapax would have a material adverse
effect on theattention, which could materially harm our business
and financial condition of the Company.
The Company has also entered into non-exclusive patent licensing
arrangements for Synagiscondition.
Herceptin. The Company is dependent upon the
further development, regulatory and marketing efforts of its licensees with
respectproprietary technology, we may
not be able to these products and there can be no assurance that the
development, regulatory and marketing efforts of these licensees will be
successful, including, without limitation, if and when regulatory approvals
in various countries may be obtained and whether or how quickly these
products might be adopted by the medical community.
Uncertainty Of Patents And Proprietary Technology; Opposition
Proceedings. The Company'scompete successfully.isdepends significantly dependent on itsour ability to obtain and maintain
patent protection for itsour products and technologies, and to preserve itsour trade
secrets and to operate without infringing on the proprietary rights of third
parties. The Company filesWhile we file and prosecutesprosecute patent applications to protect its inventions. No assurance can be given that the
Company'sour
inventions, our pending patent applications willmay not result in the issuance
of valid patents or that anyour issued patents willmay not provide competitive
advantages or will not be
invalidated or circumvented by its competitors. Moreover, no assurance can
be given that patents are not issued to, oradvantages. Also, our patent applications have not
been filed by, other companies which would have an adverse effect on the
Company's ability to use, import, manufacture, market or sell its products
or maintain its competitive position with respect to its products. Other
companies obtaining patents claiming products or processes useful to the
Company may bring infringement actions against the Company. As a result, the
Company may be required to obtain licenses from others or not be able to
use, import, manufacture, market or sell its products. Such licensesprotection may not be available on commercially reasonable terms, if at all.
Patents in the U.S. are issued to the party that is first to invent
the claimed invention. Since patent applications in the U.S. are maintained
in secrecy until patents issue, the Company cannot be certain that it was
the first inventorprevent others from
developing competitive products using related or other technology.
the inventions covered by its pendingcompanies, universities and research institutions have filed
patent applications or received patents in the areas of antibodies and other
fields relating to our programs. Some of these applications or patents may
be competitive with our applications or contain material that it wascould prevent
the firstissuance of patents to file patent applications
for such inventions. us or result in a significant reduction in the
scope of our issued patents.
patent positionsscope, enforceability and effective term of biotechnology firms generally
arepatents issued to companies,
universities and research institutions can be highly uncertain and often
involve complex legal and factual questions. No consistent policy has
emerged regarding the breadth of claims in biotechnology patents, and patents of biotechnology products are uncertain,
so that
even issued patents may later be modified or revoked by the U.S.
Patent and Trademark Office ("PTO")relevant patent
authorities or the courts. Moreover, the issuance of a patent in one country
does not assure the issuance of a patent with similar claims in another
country, and claim interpretation and infringement laws vary among
countries, so we are unable to predict the extent of any patent protection
may vary
in different countries.
The Company has a numberhas exclusively licensed
certain patents from third parties. In June 1996, the Company was issued a
U.S.licenses, we also rely
upon trade secrets, know-how and continuing technological innovation which
we seek to protect, in part, by confidentiality agreements with employees,
consultants, suppliers and licensees. If these agreements are not honored,
we might not have adequate remedies for any breach. Additionally, our trade
secrets might otherwise become known or patented by our competitors.
covering Zenapax and certain related antibodies against the IL-2
receptor. The Company has been issued patents by the PTO, the Japanese
Patent Office ("JPO"), European Patent Office ("EPO") and other patent
offices around the world that relate to humanized antibodies and the methods
of making those antibodies. With respect to its issued antibody humanization
patents, the Company believes the patent claims cover Zenapax, Herceptin and
Synagis and, based on its review of the scientific literature, most other
humanized antibodies. In addition, the Company is currently prosecuting
other patent applications with the PTO and in other countries, including
members of the European Patent Convention, Canada, Japan and Australia. The
patent applications are directed to various aspects of the Company's SMART
and human antibodies, antibody technology and other programs, and include
claims relating to compositions of matter, methods of preparation and use of
a number of the Company's compounds. However, the Company does not know
whether any pending applications will result in the issuance of patents or
whether such patents will provide protection of commercial significance.
Further, there can be no assurance that the Company's patents will prevent
others from developing competitive products using related technology.
The Company's two humanization patents issued by the EPO apply in the
United Kingdom, Germany, France, Italy and eight other European countries.
The EPO (but not PTO) procedures provide for an opposition period in which
other parties submit arguments as to why the patent was incorrectly granted
and should be withdrawn or limited. Eighteen notices of opposition to the
Company's first European patent were filed during the opposition period for
such patent, including oppositions by major pharmaceutical and biotechnology
companies, which cited references and made arguments not considered by the
EPO and PTO before grant of the respective patents. The Company submitted
its response to the briefs filed by these parties and a preliminary view
from the EPO was received in May 1999. The preliminary view represents the
initial non-binding statement from the EPO with respect to the issued
European patent and does not represent the final determination concerning
the patent. Complex preliminary views are common in EPO proceedings, and are
intended to set an agenda for discussion at the oral hearing. The final
determination from the EPO is expected to occur at an oral hearing currently
scheduled to take place in March 2000. At or following the oral hearing, the
Company expects that the European patent will either be maintained in full,
maintained in an amended version or revoked. Any of the parties to the
opposition may appeal a decision to a board of appeals within the EPO. Such
an appeal can take two or more years to be resolved.
The preliminary view from the EPO raises significant questions
regarding the validity of the first European patent, which, if not
satisfactorily responded to by the Company in the oral hearing, could result
in revocation of certain claims or the entire European patent. If the key
claims in the European patent are revoked following the oral hearing and the
Company's other humanization patents do not provide sufficient coverage of
certain products licensed under the Company's patents, then the Company's
ability to collect royalties on European sales of existing licensed products
and to license its patents relating to humanized antibodies may be
materially adversely affected, which would have a material adverse affect on
the business and financial condition of the Company. The Company is
currently reviewing the preliminary view with counsel in preparation for the
scheduled oral hearing. Although the entire opposition process, including
appeals, may take several years to complete, and although the European
patent remains issued and any revocation of the European patent is suspended
during the appeals process, the validity of the European patent will be at
issue, which may limit the Company's ability to collect royalties or to
negotiate future licensing or collaborative research and development
arrangements based on this patent. In addition, the Company may need to
initiate formal legal actions, if permissible,licenses in order to enforce its
rights under its various humanization patents, including the European
patent, and there can be no assurance that the Company will successfully
enforce its rights under the Europeanmanufacture or similar U.S. and Japanese patents
of the Company. The nine month opposition period for the Company's second
European antibody humanization patent has recently begun and the Company
expects that, depending upon the outcome of the opposition proceedings for
the first European patent, a significant number of notices of opposition may
be filed with respect to the second European patent.
A similar opposition period in Japan has recently expired with respect
to the Company's humanization patent issued in Japan in late 1998. Similar
to the process in Europe, third parties had the opportunity to file their
opposition to the issuance of the JPO patent. The Company has been advised
that three opposition statements have been filed. The Company intends to
vigorously defend the European patent and the Japanese patent and, if
necessary, the U.S. patents; however, there can be no assurance that the
Company will prevail in the opposition proceedings or any litigation
contesting the validity or scope of these patents. If the outcome of the
European or Japanese opposition proceeding or any litigation involving the
Company's antibody humanization patents were to be unfavorable, the
Company's ability to collect royalties on existing licensed products and to
license its patents relating to humanized antibodies may be materially
adversely affected, which could have a material adverse affect on the
business and financial condition of the Company. In addition, such
proceedings or litigation, or any other proceedings or litigation to protect
the Company's intellectual property rights or defend against infringement
claims by others, could result in substantial costs and diversion of
management's time and attention, which could have a material adverse effect
on the business and financial condition of the Company.
A number ofsell
our potential products.have
filed patent applicationsmay obtain patents
that could limit our ability to use, import, manufacture, market or received patents in the areas of antibodies and
other fields relating to the Company's programs. Some of these applications
or patents may be competitive with the Company's applications or contain
claims that conflict with those made under the Company's patent applications
or patents. Such conflicts could prevent issuance of patents to the Company,
provoke an interference with the Company's patents or result in a
significant reduction in the scope or invalidation of the Company's patents,
if issued. An interference is an administrative proceeding conducted by the
PTO to determine the priority of invention and may determine questions of
patentability. Moreover, if patents are held by or issued to other parties
that contain claims relating to the Company'ssell our
products or processes, and
such claims are ultimately determinedimpair our competitive position. As a result, we might be
required to be valid, no assurance can be given
that the Company wouldobtain licenses from others before we could continue using,
importing, manufacturing, marketing, or selling our products. We may not be
able to obtain required licenses on terms acceptable to these patents at a
reasonable cost,us, if at all,all. If
we do not obtain required licenses, we may encounter significant delays in
product development while we redesign potentially infringing products or
methods or may not be able to develop or obtain alternative technology.
The Company is aware that market our products at all.
Limited ("Celltech")Chiroscience plc has been granted a patent by the EPO covering
certain humanized antibodies ("European(European Adair Patent")Patent), which the Company has opposed, and thatwe have opposed.
Celltech has also been issued a corresponding U.S. patent (the "U.S.(U.S. Adair
Patent")Patent) that contains claims that may be considered broader in scope than
the European Adair Patent. If it were determined thatRecently, we entered into an agreement with
Celltech providing each company with the Company'sright to obtain nonexclusive
licenses for up to three antibody targets under the other company's
humanization patents. Nevertheless, if our SMART antibodies were covered by
the European or U.S. Adair Patents,Patent and if we were to need more than the Company mightthree
licenses under those patents currently available to us under the agreement,
we would be required to obtain a licensenegotiate additional licenses under suchthose patents or
to significantly alter itsour processes or products, if necessary to make, use or sell its products in
Europe and the U.S. There can be no assurance that the Company wouldproducts. We might not be able to
successfully alter itsour processes or products to avoid infringing suchconflict with these
patents or to obtain such a license from Celltechthe required additional licenses on commercially
reasonable terms, if at all, and the failure to do so could have a material adverse
effect on the business and financial condition of the Company.
all.
the claims of the U.S. Adair Patent or any related patent applications
conflict with claims in the Company'sour U.S. patents or patent applications, there canwe may become
involved in proceedings to determine which company was the first to invent
the products or processes contained in the conflicting patents. These
proceedings could be no assurance that an interference would
not be declared by the PTO, which could takeexpensive, last several years to resolve and could involve significant expense to the Company. Also, such conflict couldeither prevent
issuance of additional patents to the Companyus relating to humanization of antibodies
or result in a significant reduction in the scope or invalidation of the Company's patents, if issued. Moreover, uncertainty
as to the validity or scope of patents issued to the Company relating
generally to humanization of antibodies may limit the Company'sour
patents. Any limitation would reduce our ability to negotiate or collect
royalties or to negotiate future collaborative research and development
agreements based on these patents.
The Company is aware that the Company doeswe do not have
a license (although Roche haswe have been advised the Companyby Roche that it has a license
covering Zenapax), which that may cover a process the Company usesthat we use to produce itsour
potential products. If it were
determined that the Company'sour processes were covered by suchthis patent, the
Companywe might
be required to obtain a license under suchthis patent or to significantly alter
itsour processes or products if necessary to manufacture
or import its products in Europe. There can be no assurance that the Company
wouldWe might not be able to successfully
alter itsour processes or products to avoid infringing suchconflict with this patent or to
obtain such a license on commercially reasonable terms, if at all, and the failure toterms.
so couldnot have a material
adverse effect on the business and financial condition of the Company.
The Company is also aware oflicense to an issued U.S. patent assigned to Stanford
University and Columbia University, to which the Company does not
have a license, which may cover a process the Company useswe use to
produce itsour potential products. The Company hasWe have been advised that an exclusive
license has been previously granted to a third party under this patent. If
it were
determined that the Company'sour processes were covered by suchthis patent, the
Companywe might be required to obtain a
license under such patent or to significantly alter itsour processes or products, if necessary to manufacture
or import its products in the U.S. There can be no assurance that the
Company wouldWe
might not be able to successfully alter itsour processes or products to avoid
infringing suchconflict with this patent or to obtain such a license on commercially
reasonable terms,acceptable terms.
Moreover, if at all, andwe do not obtain the failure to do so could have a material
adverse effect on the business and financial condition of the Company.
Moreover,required licenses, any alteration of
processes or products to avoid infringing theconflict with a competitive patent could
result in a significant delay in our achieving regulatory approval with respect tofor the
products affected by suchthese alterations.
In additionseeking the protection of patents and licenses, the
Company also relies upon trade secrets, know-how and continuing
technological innovation which it seeksobtain regulatory approvals required to protect, in part, by
confidentiality agreements with employees, consultants, suppliers and
licensees. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach or
that the Company's trade secrets will not otherwise become known,
independently developed or patented by competitors.
Uncertainty Of Clinical Trial Results. Before obtainingmarket our products.itsour
potential products the
Companyor to promote these products for expanded indications, we
must demonstrate through preclinical studiestesting and clinical trials that theeach
product is safe and efficaciouseffective for use in the clinical indicationindications for which approval is
sought. There canrequested. We have conducted only a limited number of clinical trials to
date. We may not be no assurance that the Company
will be permittedable to undertakesuccessfully commence and complete all of our
planned clinical trials without significant additional resources and
expertise. Our potential inability to commence or continue clinical trials,
for any of its
potential products or, if permitted, that such products will be demonstrated
to be safe and efficacious. Moreover,complete the results from preclinical studies
and early-stage clinical trials may not be predictive of results that will
be obtained in late-stage clinical trials. Thus, there can be no assurance
that the Company's presenton a timely basis or future clinical trials willto demonstrate the
safety and efficacy of anyour potential products, or will result infurther adds to the
uncertainty of regulatory approval to
marketfor our potential products.
In advanced clinical development, numerous factors may be involved
that may lead to different results in larger, late-stage clinical trials
from those obtained in early-stage trials. For example, early-stage clinical
trials usually involve a small number of patients, often at a single center,thus may not accurately predict the actual results regarding safety and
efficacy that may be demonstrated with a large number of patients in a late-later stage multi-center clinical trial. Also, differences in the clinical trial
design between early-stage and late-stage clinical trials may cause
different results regarding the safety and efficacy of a product to be
obtained. In addition, many early-stage trials are unblinded and based on
qualitative evaluations by clinicians involved in the performance of the
trial, whereas late-stage trials are generally required to be blinded in
order to provide more objective data for assessing the safety and efficacy
of the product. Moreover, preliminary results from clinical trials may not be representativeproduce the same results as
early stage trials. Many companies in the pharmaceutical and biotechnology
industries, including PDL, have suffered significant setbacks in clinical
trials, including advanced clinical trials, even after promising results had
been obtained in earlier trials.
results that may be obtained as the trial proceeds to
completion.
The Companyproduct. We may at times elect to aggressively enteruse
aggressive clinical strategies in order to advance potential products
into Phase I/II trials to determine preliminary safety and efficacy
in specific indications. In addition, in certain cases the Company has
commencedthrough clinical development as rapidly as possible. For example, we may
commence clinical trials without conducting preclinical animal testing,
where an appropriate animal testing model does not exist. Similarly, the Companyexist, or its partners at times willwe may conduct
potentially pivotal Phase II/III or Phase
IIIlater stage trials based on limited Phase I or Phase I/IIearly stage data. As a result, of these
and other factors, the Company anticipateswe
anticipate that only some of itsour potential products willmay show safety and
efficacy in clinical trials and that the
number of products that fail to show safety and efficacysome may be significant.encounter difficulties or delays
during clinical development.
the Company haswe have entered the SMART M195 Antibody into a Phase III
clinical trial in acute myelogenous leukemia with a clinical regimen that
has not been tested previously with this antibody. Results from the
Company'sour prior
Phase II and Phase II/III studies showed only a limited number of complete
and partial remissions. In addition, thewe initiated a Phase III study was
initiated by the Company without
a meeting with the FDA or European regulatory authorities to discuss the
protocol and its adequacy to support registrationapproval of the SMART M195 Antibody.
The Company believesWe believe that itsour Phase III program is reasonable in view of the nature
and severity of the disease. However, there can be no assuranceWe cannot assure you that the study will be
successful or that the FDA or European regulatory authorities will agree
that the study will be adequate to obtain regulatory approval, even if the
study is successful. Limited Experience With Clinical Trials; Risk Of Delay. The Company
has conducted onlyIn addition, the protocol for our Phase III trial
includes an interim review by an independent data safety monitoring board.
It is possible that the trial could be terminated upon such a limited numberreview if the
interim data do not show a sufficient probability of the trial being
successful or if specified safety criteria are not met.
date. There can be
no assurancetheir belief that we have not supplied adequate data from our prior
trials to support our proposed dosage modifications to the CompanyPhase II study
for prevention of kidney transplant rejection. Although our clinical trials
of this antibody in other indications, such as psoriasis, are not affected
by this hold, our clinical studies of this potential product for prevention
or treatment of kidney transplant rejection will be abledelayed in the U.S.
until we supply sufficient data to successfully commencethe FDA to justify our desired clinical
study designs. Also, we may be required to further modify our clinical
study designs to comply with FDA requirements and complete all of its planned clinicalpossibly to conduct
additional Phase I trials without significant additional
resources and expertise. In addition,before proceeding with Phase II trials.
Accordingly, there can be no assurance that the
Companywe will meet its contemplatedbe able, or will choose,
to proceed with development scheduleof this antibody for any of its
potential products. The inabilityeither or both of the
Company or its collaborative
partnerstransplant indications.
commence or continue clinical trials as currently planned,enroll sufficient patients to complete theour clinical
trials on a timely basis or to demonstrate the safety
and efficacy of its potential products, would have a material adverse effect
on the business and financial condition of the Company.trials.the Company's or its collaborators'our clinical trials, and those of our
collaborators, is significantly dependent upon among other factors, the rate of patient
enrollment. Patient enrollment is a function of many factors, including, among others, including:
access to reimbursement from insurance companies or government sources,
enrollment in the trial. Delays in the planned
rate ofenrollment.
result in increased costs and expenses in
completion of the trial or may require the Companyhave to undertakeexpend
substantial additional studies in orderfunds to obtain regulatory approval if the applicable standard of
care changes in the therapeutic indication under study.access to resources or delay or
modify our plans significantly. These considerations may lead the Companyus to
consider the termination of ongoing clinical trials or halting further development of a
product for a particular indication.
Dependence On Collaborative Partners.Company hasmanufacturing, testing and marketing of our products are subject to
regulation by numerous governmental authorities in the U.S. and other
countries. In the U.S., pharmaceutical products are subject to rigorous FDA
regulation. Additionally, other federal, state and local regulations govern
the manufacture, testing, clinical and nonclinical studies to assess safety
and efficacy, approval, advertising and promotion of pharmaceutical
products. The process of obtaining approval for a new pharmaceutical
product or for additional therapeutic indications within this regulatory
framework requires a number of years and the expenditure of substantial
resources. Companies in the pharmaceutical and biotechnology industries,
including us, have suffered significant setbacks in various stages of
clinical trials, even in advanced clinical trials after promising results
had been obtained in earlier trials.
orand other
companies to develop, manufacture and market certainZenapax and some of our
potential products. The Company granted its
collaborative partners certain exclusive rights to commercialize the
products covered by these collaborative agreements. In some cases, the
Company iswe are relying on itsour collaborative
partners to manufacture such products, to conduct clinical trials, to
compile and analyze the data received from suchthese trials, to obtain
regulatory approvals and, if approved, to manufacture and market these licensed products.
As a result, the Company often haswe may have little or no control over the manufacturing,
development and marketing of these potential products and little or no
opportunity to review clinical data prior to or following public
announcement.
The Company'sresearch agreements arecan generally terminablebe terminated by itsour partners on
short notice. SuspensionA collaborator may terminate its agreement with us or
terminationseparately pursue alternative products, therapeutic approaches or
technologies as a means of certain ofdeveloping treatments for the Company's currentdiseases targeted
by us or our collaborative research agreements could
haveeffort. Even if a material adverse effect oncollaborator continues its
contributions to the Company's operations and could
significantly delayarrangement, it may nevertheless determine not to
actively pursue the development or commercialization of the affectedany resulting
products. In these circumstances, our ability to pursue potential products
could be severely limited.
by
the Company, the
retention of key personnel performing work under those agreements and the successful achievement of research or clinical trial
goals, none of which can be assured, as well as on
each collaborative partner's own financial, competitive, marketing and
strategic considerations. Such considerations include, among other things,include:
the commitment of management of the collaborative partners to
the continued development of the licensed products or technology
the relationships among the individuals responsible for the
implementation and maintenance of the collaborative efforts, and
the relative advantages of alternative products or technology
being marketed or developed by the collaborators or by others,
including their relative patent and proprietary technology
positions, and their ability to manufacture potential products
successfully.
The Company'sthe Company'sour
existing collaborators to continue development of the Company'sour potential products
depends upon, among other things, the
Company'sour patent position with respect to such
products. In this regard, the
Company has been issuedIf we are unable to successfully maintain our patents by PTO, EPO and JPO with claims that the
Company believes, based on its survey of the scientific literature, cover
most humanized antibodies. The Company has also been allowed patents with
similar claims in other countries and has applied for similar patents in
certain other countries. See "Risk Factors -- Uncertainty of Patents and
Proprietary Technology; Opposition Proceedings." The EPO and JPO patents are
currently in the opposition proceeding stages in those patent offices. In
addition, all of the Company's antibody humanization patentswe may be
further
challenged through administrative or judicial proceedings. The Company has
entered into several collaborations related to both the humanization and
patent licensing of certain antibodies whereby it granted licenses to its
patent rights relating to such antibodies, and the Company anticipates
entering into additional collaborations and patent licensing agreements
partially as a result of the Company's patent and patent applications with
respect to humanized antibodies. As a result, the inability of the Company
to successfully defend the opposition proceedings before the EPO or JPO or,
if necessary, to defend patents granted by the PTO, EPO or JPO or to
successfully prosecute the corresponding patent applications in other
countries could adversely affect the ability of the Companyunable to collect royalties on existing licensed products andor enter into
additional collaborations humanization or patent licensing agreements and could
therefore have a material adverse effect on the Company's business or
financial condition.
No Sales And Marketing Experience; Further Developmentagreements.
Zenapax. The
Company intendsexperience in sales, marketing and distribution may hamper
market introduction and acceptance of our products.certaina number of itsour products if successfully
developed and approved, either directly or
through sales and marketing partnership arrangements with collaborative
partners. Although the Company
does not expect to establish a direct sales capability at this time, the
Company has no history or experience in sales, marketing or distribution. To market products directly, the Companywe must either establish a more extensive marketing
group and direct sales force or obtain the assistance of another company.
There can be no assurance that the Company willWe may not be able to establish marketing, sales and distribution
capabilities or succeed in gaining market acceptance for itsour products. If
the Company enterswe were to enter into co-
promotionco-promotion or other marketing or patent licensing arrangements with
pharmaceutical or biotechnology companies, the Company'sour revenues willwould be subject to
the payment provisions of suchthese arrangements and dependent on the efforts of
third parties.
The Company has recently obtained rights from Roche to conduct
development activities for Zenapax in autoimmune indications. The Company
has no experience in conducting development activities for products that are
currently approved and marketed for use in other indications such as
Zenapax. U.S. Food and Drug Administration ("FDA") regulations prohibit
promotionthe use of Zenapax for unapproved indications until appropriate
clinical studies are conducted and the data from those studies is presented
for the FDA to review and approve. There can be no assurance that the
Company will be able to successfully develop Zenapax in autoimmune
indications and substantial investment by the Company in such development
may be required with no assurance that such efforts will be successful. Even
if such development efforts succeed, there can be no assurance that the
Company, by itself or with a collaborative partner, will successfully
market, promote and detail Zenapax in those countries where PDL has or
obtains such rights. The inability of the Company, Roche or its other
collaborators to develop, market and sell Zenapax could have a material
adverse effect on the business and financial condition of the Company.
Absence Of Manufacturing Experience.our products.which arethat we currently have in clinical development, by the Company, Roche is
responsible for manufacturing Zenapax, SmithklineSmithKline Beecham is responsible for
manufacturing the humanized anti-IL-4 antibody and BioNetScil is responsible for
manufacturing the SMART Anti-L-Selectin Antibody. The Company isWe are responsible for
manufacturing the Company'sour other products for itsour own development. The
Company currently leases approximately 47,000 square feet housing its
manufacturing facilities in Plymouth, Minnesota. The Company intendsWe intend to
continue to manufacture potential products for use in preclinical and
clinical trials using thisour manufacturing facility in accordance with standard
procedures that comply with current Good Manufacturing Practices
("cGMP") and appropriate regulatory standards. The
manufacture of sufficient quantities of antibody products in accordancethat comply with
suchthese standards is an expensive, time-consuming and complex process and is
subject to a number of risks that could result in delays. For example, the Company haswe
and our collaborative partners have experienced some difficulties in the past in manufacturing
certain potential products on
a consistent basis. Productiondifficulties. Product supply interruptions if they occur, could significantly delay
clinical development of our potential products, reduce third party or
clinical researcher interest and support of proposed clinical trials, and
possibly delay commercialization and sales of suchthese products. Manufacturing
difficulties can even interrupt the supply of marketed products, thereby
reducing revenues and risking loss of market share. For example, Roche has
received a warning letter from the FDA regarding deficiencies in the
manufacture of various products. Although the letter primarily related to
products other than Zenapax, at least two deviations in the manufacture of
Zenapax were noted. If Roche were not able to correct these and any other
deficiencies in the manufacture of Zenapax in a timely manner, Zenapax
supplies could be interrupted, which could cause a delay or termination of
our clinical trials of Zenapax in autoimmune disease and could force Roche
to withdraw Zenapax from the market temporarily or permanently, resulting in
loss of revenue to us. These occurrences could materially impair theirour
competitive position, which wouldposition.
a material adverse effect on
the business and financial condition of the Company.
The Company has no experience in manufacturing commercial quantities of itsour
potential products, andnor do we currently does not have sufficient capacity to
manufacture all of itsour potential products on a commercial scale. In order
to obtain regulatory approvals and to create capacity to produce itsour
products for commercial sale at an acceptable cost, the Companywe will need to improve
and expand itsour existing manufacturing capabilities, including demonstration
to the FDA and corresponding foreign authorities of its ability to
manufacture its products using controlled, reproducible processes. The
Company has approvedcapabilities. We are reviewing plans
to improveexpand our manufacturing capacity, including possible acquisition and
expand the capacityconversion of its currentan existing building into a manufacturing facility. Suchplant. If we
implement these plans if fully implemented,we will result inincur substantial costs to the Company. There can be no assurance thatcosts. Any construction delays will not occur, and any such
delays could impair the
Company'sour ability to produce adequate supplies of itsour
potential products for clinical use or commercial sale on a timely basis.
Further, there canwe may be no
assurance that the Company will successfullyunable to improve and expand itsour manufacturing capability
sufficiently to obtain necessary regulatory approvals and to produce
adequate commercial supplies of itsour potential products on a timely basis.
Failure to do so could delay commercialization of suchthese products and could
impair theirour competitive position, which could have a
material adverse effect on the businessposition.
financial condition of the
Company.
Uncertainties Resulting From Manufacturing Changes.marketing for our products.When certainIf we
make changes
are made in the manufacturing process, it is necessarywe may be required to demonstrate
to the FDA and corresponding foreign authorities that the changes have not
caused the resulting drug material to differ significantly from the drug
material previously produced,produced. This is particularly important if we want to
rely on results of prior preclinical studies and clinical trials performed
using the previously produced drug material are to be
relied upon in regulatory filings. Such changes could include, for example,
changing the cell line used to produce the antibody, changing the
fermentation or purification process or moving the production process to a
new manufacturing plant.material. Depending upon the type and
degree of differences between the newer and older drug material, variouswe may be
required to conduct additional animal studies could be requiredor human clinical trials to
demonstrate that the newly produced drug material is sufficiently similar to
the previously produced drug material, possibly requiring additional
animal studies or human clinical trials. Manufacturingmaterial. We have made manufacturing changes
have been
made orand are likely to be mademake additional manufacturing changes for the production
of the Company'sour products currently in clinical development, in particularsuch as the SMART M195
and SMART Anti-CD3 Antibodies. There can be no assurance that suchThese manufacturing changes will notcould result in
delays in development or regulatory approvals or if occurring
after regulatory approval, in reduction or
interruption of commercial sales.
In addition, manufacturing changes to its manufacturing facility may require
the Company to shut down production for a period of time. There can be no
assurance that the Company will be able to reinitiate production in a timely
manner, if at all, following such shutdown. Delays as a result of
manufacturing changes or shutdown of the manufacturing facility could have
an adverse effect on the competitive position of those productssales and could have a material adverse effect on theimpair our competitive position.
and financial conditionmay be harmed if we cannot obtain sufficient quantities of the Company.
Dependence On Suppliers. The Company is dependentraw
materials.itsour product candidates. The
Company currently qualifies only one or a few vendors for its source of
certain raw materials. Therefore, onceOnce a supplier's materials have been selected for
use in the Company'sour manufacturing process, the supplier in effect becomes a sole or
limited source of suchthat raw material due to regulatory compliance procedures.
If the third party suppliers were to cease production or otherwise fail to
supply us with quality raw materials and we were unable to the Company
due to the extensive regulatory compliance procedures governing changes in
manufacturing processes. Although the Company believes it could qualifycontract on
acceptable terms for these services with alternative suppliers, there can be no assurance that the Company would not
experience a disruption in manufacturing if it experienced a disruption in
supply from any of these sources. Any significant interruption in the supply
of any of the raw materials currently obtained from such sources, or the
timeour ability
to produce our products and expense necessary to transition a replacement supplier's product
into the Company's manufacturing process, could disrupt the Company's
operationsconduct preclinical testing and have a material adverse effect on the business and financial
condition of the Company. A problem or suspected problem with the quality of
raw materials supplied could result in a suspension of clinical
trials notification of patients treated with products or product candidates produced using such materials, potential product liability claims, a recall
of products or product candidates produced using such materials, and an
interruption of supplies, any of whichwould be adversely affected. This could have a material adverse effect
on the business or financial condition of the Company.
Competition; Rapid Technological Change. The Company's potential
products are intended to address a wide variety of disease conditions,
including autoimmune diseases, inflammatory conditions and cancers.
Competition with respect to these disease conditions is intense and is
expected to increase. This competition involves, among other things,
successful research and development efforts, obtaining appropriate
regulatory approvals, establishing and defending intellectual property
rights, successful product manufacturing, marketing, distribution, market
and physician acceptance, patient compliance, price and potentially securing
eligibility for reimbursement or payment for the use of the Company's
products. The Company believes its most significant competitorsimpair
our competitive position.
fully
integrated pharmaceutical companies with substantial expertise in researchadversely affected by competition and development, manufacturing, testing, obtaining regulatory approvals,
marketing and securing eligibility for reimbursement or payment, and
substantially greater financial and other resources than the Company.
Smaller companies also may prove to be significant competitors, particularly
through collaborative arrangements with large pharmaceutical companies.
Furthermore, academic institutions, governmental agencies and other public
and private research organizations conduct research, seek patent protection,
and establish collaborative arrangements for product development, clinical
development and marketing. These companies and institutions also compete
with the Company in recruiting and retaining highly qualified personnel. The
biotechnology and pharmaceutical industries are subject to rapid and
substantial technological
change. The Company's competitors may develop and
introduce other technologies or approaches to accomplishing the intended
purposes of the Company's products which may render the Company's
technologies and products noncompetitive and obsolete.
In addition to currently marketed competitive drugs, the Company is
aware of potential products in research or development by its competitors
that address all of the diseases being targeted by the Company. These and
other products may compete directly with the potential products being
developed by the Company. In this regard, the Company isparticular, a number of other companies have developed and will continue to
develop human and humanized antibodies. In addition, protein design is being
actively pursued at a number of academic and commercial organizations are actively
pursuing similar technologies, and several companies have developed or may
develop technologies that canmay compete with the Company'sour SMART and human antibody technologies. In
particular, the Company believes that certain companies that use alternative
technologies to produce human-like antibodies have recently entered into
collaborative arrangements that are competitive with andtechnology.
Competitors may negatively
impact the Company's efforts to enter into humanization and development
arrangements for early stage antibody research and development. There can be
no assurance that competitors will not succeed in more rapidly developing and marketing
technologies and products that are more effective than theour products being developed by the Company or that
would render the Company'sour products or technology obsolete or noncompetitive. Further, there can be no
assurance that the Company'sOur
collaborative partners will notmay also independently develop products that are
competitive with thoseproducts that we have licensed to such partners by the
Company, thereby reducing the likelihood that the Company will receivethem. This could reduce
our revenues under itsour agreements with suchthese partners.
potential product that the Companywe or itsour collaborative partners succeed in developing and
for which regulatory approval is obtained must then compete for market
acceptance and market share. For certain of the
Company's potential products, an important factor will be the timing of
market introduction of competitive products. Accordingly, theThe relative speed with which the Companywe and itsour
collaborative partners can develop products, complete the clinical testing
and approval processes, and supply commercial quantities of the products to
the market compared to competitive companies is expected to be an important determinant ofwill affect market success.
For example, Novartis, has received approval to market Simulect, a product competitive
with Zenapax, in the U.S. and Europe. In addition to an earlier launch in
Europe, Novartiswhich has a significant marketing and sales force
directed to the transplantation market, has received approval to market
Simulect[R], a product competitive with Zenapax, in the U.S. and there can be no assurance thatEurope.
Since Novartis launched Simulect in the European Union earlier than Roche,
will
successfullyZenapax may have a smaller market and sell Zenapax against thisshare than Simulect and other available
products.
include include:
the Company'sour collaborative partners
the Company'sour products relative to their cost
patent
protection. There can be no assurance that the Company's competitors will
not develop more efficacious or more affordable products, or achieve earlier
product development completion, regulatory approval or
product commercialization than the Company. The occurrence of any of these
events by the Company's competitorsour products.
have a material adverse effect on
the business and financial condition of the Company.
Dependence on Key Personnel. The Company's success is dependent to a
significant degree on its key management personnel. be
impaired.the
Companywe will have to retain itsour qualified clinical,
manufacturing, scientific and management personnel. The Company facesBecause we are located
in a high technology area, we face competition for personnel from other
companies, academic institutions, government entities and other
organizations. There can be no assurance that the Company will be
successfulWe are currently conducting a search for a chief financial
officer and a vice president of marketing, as well as other senior
management personnel. If we are unsuccessful in hiringfilling these positions or
retaining qualified personnel, our business could be impaired.
its failureour insurance coverage
may not be adequate to do
socover these claims.haveresult in the delay or cancellation
of programs that we might otherwise pursue.
materialresult, we may be required to incur significant costs
to comply with these laws and regulations. We cannot eliminate the risk of
accidental contamination or injury from these materials. In the event of
such an accident, we could be held liable for any resulting damages and
incur liabilities which exceed our resources. In addition, we cannot
predict the extent of the adverse effect on our business or the businessfinancial
and financial
conditionother costs that might result from any new government requirements
arising out of future legislative, administrative or judicial actions.
Company.
Potential Volatility Of Stock Price. U.S. and international health care industry could adversely
affect our revenues.marketU.S. and international health care industry is subject to changing
political, economic and regulatory influences that may significantly affect
the purchasing practices and pricing of pharmaceuticals. Cost containment
measures, whether instituted by health care providers or imposed by
government health administration regulators or new regulations, could result
in greater selectivity in the purchase of drugs. As a result, third-party
payors may challenge the price and cost effectiveness of our products. In
addition, in many major markets outside the U.S., pricing approval is
required before sales can commence. As a result, significant uncertainty
exists as to the reimbursement status of approved health care products.
We may not be able to obtain or maintain our desired price for our products.
Our products may not be considered cost effective relative to alternative
therapies. As a result, adequate third-party reimbursement may not be
available to enable us to maintain prices sufficient to realize an
appropriate return on our investment in product development. Also, the
Company's
securitiestrend towards managed health care in the U.S. and the concurrent growth of
organizations such as health maintenance organizations, as well as
legislative proposals to reform health care or reduce government insurance
programs, may all result in lower prices, reduced reimbursement levels and
diminished markets for our products. These factors will also affect the
products that are marketed by our collaborative partners.
these securities involves
substantial risk. The marketour company could
decline in value.the Company)PDL) have
been highly volatile andso that investment in our securities involves
substantial risk. Additionally, the stock market from time to time has
experienced significant price and volume fluctuations that may be unrelated
to the operating performance of particular companies. Factors suchThe following are
some of the factors that may have a significant effect on the market price
of our common stock:
the Company'sour operating results
unfavorable news or information resulting in
the reduction in value of significant intellectual property assets, the Companyus or itsour competitors
failures or unexpected delays in manufacturing or in obtaining regulatory
approvals or FDA advisory panel recommendations, developments or disputes as
to patent or other proprietary rights, the Company,
regulatory developments in either the U.S. or foreign countries (such as
opinions, recommendations or statements by the FDA or FDA advisory panels,
health care reform measures or proposals), market acceptance of products
developed and marketed by the Company's collaborators, us
the
Company'sour common stock held by collaborative partners or
insiders
conditions could result in the Company's failureconditions.
investors. In such event,investors, or in the
event thatif adverse conditions prevail or are
perceived to prevail with respect to the Company'sour business, the price of the Company's common
stock would likely drop significantly. With respect to the possible sale of the
Company's common stock held by collaborative partners, Roche acquired
1,682,877 shares of the Company's common stock held by Corange Limited which
are no longer subject to the contractual limitations on disposition other
than certain restrictions on transfers ofA significant blocks of stock. In
the past, following significant dropsdrop in the price of a
company's common stock often leads to the filing of securities class action
litigation has often been instituted against such athe company. SuchThis type of litigation against the Companyus could
result in substantial costs and a diversion of management's attention and
resources,
which would have a material adverse effect on the Company's business and
financial condition.
resources.
Exhibit 10.46 Agreement of Purchase and Sale between Fremont Holding
L.L.C., a Delaware limited liability company, as assignee
effective September 13, 1999, and Ardenstone LLC, a Delaware
limited liability company, effective June 21, 1999.
Exhibit 10.47 Promissory Note between Fremont Holding L.L.C., a Delaware
limited liability company and Wells Fargo Bank, National
Association, dated September 9, 1999.
Exhibit 10.48 Deed of Trust and Absolute Assignment of Rents and
Security Agreement (Fixture Filings) between Fremont Holding
L.L.C., a Delaware limited liability company and Wells Fargo
Bank, National Association, dated September 9, 1999.
Exhibit 10.49 Patent Rights Agreement between the Company and Smithkline
Beecham Corporation, effective as of September 28, 1999 (with
certain confidential portions deleted and marked by notation
indicating such deletion).
Exhibit 10.50 IL-5 Patent License Agreement between the Company and
Smithkline Beecham Corporation, effective as of September 28,
1999 (with certain confidential portions deleted and marked by
notation indicating such deletion).
Exhibit 10.51 Development and License Agreement between the Company and
Smithkline Beecham Corporation, effective as of September 28,
1999 (with certain confidential portions deleted and marked by
notation indicating such deletion).
Exhibit 10.52 Amended and Restated Agreement between the Company and
Hoffmann-La Roche Inc. and F. Hoffmann-La Roche Ltd, dated as of
October 20, 1999 (with certain confidential portions deleted and
marked by notation indicating such deletion).
Exhibit 10.53 Amended and Restated Agreement between the Company and F.
Hoffmann-La Roche Ltd, dated as of October 20, 1999 (with
certain confidential portions deleted and marked by notation
indicating such deletion).
Exhibit 21.1 Fremont Holding L.L.C., a Delaware limited liability
company. Fremont Management, Inc., a Delaware corporation, doing business
in California as Delaware Fremont Management.
Exhibit Number Description
3.1
Amended and Restated Bylaws
27.1
Financial Data Schedule
No Reports on Form 8-K wereduringa Current Report on Form 8-K on February 14, 2000
(SEC File No. 000-19756) announcing:June 30,December
31, 1999.
SIGNATURE
PROTEIN DESIGN LABS, INC.
Dated: (Registrant) November 15, 1999
PROTEIN DESIGN LABS, INC.
(Registrant)
/s/Laurence Jay Korn
Chief Executive Officer,May 11, 2000
By:
/s/Laurence Jay Korn
Laurence Jay Korn
Chairperson of the
Board of Directors
(Principal Executive Officer) By:
/s/Robert Kirkman
Robert Kirkman
Vice President Corporate
Communications and Business
Development
(Principal Accounting Officer)