UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JuneSeptember 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 0-19612
IMCLONE SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 04-2834797
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
180 VARICK STREET, NEW YORK, NY 10014
(Address of principal executive offices) (Zip Code)
(212) 645-1405
Registrant's telephone number, including area code
Not Applicable
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes__X__ No_____Yes [X] No [ ]
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding as of AugustNovember 12, 1997
----- ---------------------------------- ----------------------------- -----------------------------------
Common Stock, par value $.001 24,105,05524,201,830 Shares
IMCLONE SYSTEMS INCORPORATED
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - JuneSeptember 30, 1997 (unaudited)
and December 31, 1996 1
Unaudited Statements of Operations - Three and
sixnine months ended JuneSeptember 30, 1997 and 1996 2
Unaudited Statements of Cash Flows - SixNine
months ended JuneSeptember 30, 1997 and 1996 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 1211
Part 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
IMCLONE SYSTEMS INCORPORATED
Balance Sheets
(in thousands, except share data)
JuneSeptember 30, December 31,
Assets 1997 1996
---------- ------------ -----------
(unaudited)
Current assets:
Cash and cash equivalents ........................ $ 2,5591,775 $ 2,734
Securities available for sale .................... 28,53224,506 10,780
Prepaid expenses ................................. 450337 122
Other current assets ............................. 1,2941,799 479
--------- ---------
Total current assets ...................... 32,835............... 28,417 14,115
--------- ---------
Property and equipment:
Land ......................................................................................... 340 340
Building and building improvements ............................. 8,969 8,969
Leasehold improvements ..................................................... 4,832 4,832
Machinery and equipment ......................... 5,576.......................... 5,960 5,159
Furniture and fixtures ..................................................... 536 536
Construction in progress ........................ 627......................... 1,117 320
--------- ---------
Total cost ................................ 20,880......................... 21,754 20,156
Less accumulated depreciation and amortization . (10,418)... (10,812) (9,606)
--------- ---------
Property and equipment, net ............... 10,462........ 10,942 10,550
--------- ---------
Patent costs, net .................................. 1,0481,084 977
Deferred financing costs, net ...................... 6058 65
Amount due from officer and stockholder ............ 9082 101
Other assets ....................................... 85 77
--------- ---------
$ 44,58040,668 $ 25,885
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ................................. $ 1,3841,253 $ 1,059
Accrued expenses and other ....................... 731617 1,366
Interest payable ................................. 191277 238
Deferred revenue ................................. 208 --
Current portion of long-term liabilities ......... 3,3802,967 3,858
--------- ---------
Total current liabilities ................. 5,894......... 5,114 6,521
--------- ---------
Long-term debt ..................................... 2,200 2,200
Other long-term liabilities, less current portion .. 435412 575
--------- ---------
Total liabilities ......................... 8,529................. 7,726 9,296
--------- ---------
Commitments and contingencies
Stockholders' equity:equity :
Preferred stock, $1.00 par value;
authorized 4,000,000 shares;
none issued and outstanding .................... -- --
Common stock, $.001 par value;
authorized 45,000,000 shares;
issued 24,138,87224,236,772 and 20,248,122 at
JuneSeptember 30, 1997 and December 31, 1996,
respectively; outstanding 24,088,05524,185,955 and
20,233,699 at JuneSeptember 30, 1997 and
December 31, 1996, respectively ................ 24 20
Additional paid-in capital ......................... 145,912146,118 118,760
Accumulated deficit ................................ (109,364)(112,698) (101,973)
Treasury stock, at cost; 50,817 and 14,423
shares at JuneSeptember 30, 1997
and December 31, 1996, respectively ............................................... (492) (169)
Unrealized loss on securities
available for sale ... (29)............................. (10) (49)
--------- ------------------- ----------
Total stockholders' equity ................ 36,051......... 32,942 16,589
--------- ------------------- ----------
$ 44,58040,668 $ 25,885
========= =================== ==========
See accompanying notes to financial statements.
Page 1
IMCLONE SYSTEMS INCORPORATED
Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
-------------------- --------------------------------------------- -------------------------
1997 1996 1997 1996
-------- -------- -------- --------
Revenues:
Product development milestone revenues ................................... $ 2,500-- $ -- $ 2,500 $ --
Research and development funding from third
parties and other ............................ 696....................................... 742 75 771 1501,513 225
-------- -------- -------- --------
Total revenues ...................... 3,196.................................. 742 75 3,271 1504,013 225
-------- -------- -------- --------
Operating expenses:
Research and development .......................... 3,257 2,593 8,652 4,918.................................. 3,320 2,683 11,972 7,601
General and administrative ........................ 1,272 845 2,355 1,587................................ 1,039 1,031 3,394 2,618
-------- -------- -------- --------
Total operating expenses ............. 4,529 3,438 11,007 6,505........................ 4,359 3,714 15,366 10,219
-------- -------- -------- --------
Operating loss ....................................... (1,333) (3,363) (7,736) (6,355)................................................. (3,617) (3,639) (11,353) (9,994)
-------- -------- -------- --------
Other (income) expense:
Interest and other income ......................... (440) (261) (685) (454)................................. (414) (241) (1,099) (695)
Interest and other expense ........................ 145 200 340 547................................ 131 144 471 691
-------- -------- -------- --------
Net interest and other (income) expense (295) (61) (345) 93income .................. (283) (97) (628) (4)
-------- -------- -------- --------
Net loss before extraordinary item ................... (1,038) (3,302) (7,391) (6,448)............................. (3,334) (3,542) (10,725) (9,990)
Extraordinary loss on extinguishment of debt ............................ -- 1,267-- -- 1,267
-------- -------- -------- --------
Net loss .................................................................................................... $ (1,038)(3,334) $ (4,569) $ (7,391) $ (7,715)(3,542) $(10,725) $(11,257)
======== ======== ======== ========
Net loss per common share:
Loss before extraordinary loss on
extinguishment of debt .............................................................. $ (0.04)(0.14) $ (0.17)(0.18) $ (0.33)(0.46) $ (0.34)(0.52)
Extraordinary loss on extinguishment of debt ..................... -- (0.06) -- (0.07)-- 0.07
-------- -------- -------- --------
Net loss per common share ................................... $ (0.04)(0.14) $ (0.23)(0.18) $ (0.33)(0.46) $ (0.41)(0.59)
======== ======== ======== ========
Weighted average shares outstanding .................. 24,033 19,595 22,702 18,730............................ 24,123 19,925 23,193 19,131
======== ======== ======== ========
See accompanying notes to financial statements.
Page 2
IMCLONE SYSTEMS INCORPORATED
Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended
June 30,
--------------------
1997 1996
-------- --------
Cash flows from operating activities:
Net loss .................................................................. $ (7,391) $ (7,715)
Adjustments to reconcile net loss to net cash used in operating activities:
Extraordinary loss on extinguishment of debt ............................ -- 1,267
Depreciation and amortization ........................................... 866 910
Discounted interest amortization ........................................ -- 156
Expense associated with issuance
of options and warrants ............................................. 2,634 --
Loss on sale of investments ............................................. 3 --
Changes in:
Prepaid expenses ..................................................... (328) (145)
Other current assets ................................................. (815) (285)
Due from officer ..................................................... 11 13
Other assets ......................................................... (8) --
Interest payable ..................................................... (47) (111)
Accounts payable ..................................................... 325 (75)
Accrued expenses and other ........................................... (635) (251)
Deferred revenue ..................................................... 208 --
-------- --------
Net cash used in operating activities ......................... (5,177) (6,236)
-------- --------
Cash flows from investing activities:
Acquisitions of property and equipment .................................. (436) (294)
Purchases of securities available for sale .............................. (54,777) (25,635)
Sales of securities available for sale .................................. 37,042 7,047
Additions to patents .................................................... (120) (44)
-------- --------
Net cash used in investing activities ......................... (18,291) (18,926)Nine Months Ended
September 30,
---------------------
1997 1996
--------- ---------
Cash flows from operating activities:
Net loss .............................................. $(10,725) $(11,257)
Adjustments to reconcile net loss to net
cash used in operating activities:
Extraordinary loss on extinguishment of debt ......... -- 1,267
Depreciation and amortization ........................ 1,286 1,348
Discounted interest amortization ..................... -- 156
Expense associated with issuance
of options and warrants ............................ 2,681 --
Loss on sale of investments .......................... 2 --
Changes in:
Prepaid expenses ................................... (215) (54)
Other current assets ............................... (1,320) (273)
Due from officer ................................... 19 17
Other assets ....................................... (8) --
Interest payable ................................... 39 17
Accounts payable ................................... 194 (595)
Accrued expenses and other ......................... (749) (161)
-------- --------
Net cash used in operating activities .......... (8,796) (9,535)
-------- --------
Cash flows from investing activities:
Acquisitions of property and equipment ............. (1,570) (450)
Proceeds from sale of equipment .................... 280 --
Purchases of securities available for sale ......... (61,318) (27,628)
Sales of securities available for sale ............. 47,629 13,987
Additions to patents ............................... (180) (104)
-------- --------
Net cash used in investing activities .......... (15,159) (14,195)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock ......... 23,154 13,560
Proceeds from exercise of stock options and warrants 1,526 1,991
Purchase of treasury stock ......................... (323) (19)
Payments of other liabilities ...................... (1,361) (209)
-------- --------
Net cash provided by financing activities ...... 22,996 15,323
-------- --------
Net decrease in cash and cash equivalents ............... (959) (8,407)
Cash and cash equivalents at beginning of period ........ 2,734 10,207
======== ========
Cash and cash equivalents at end of period .............. $ 1,775 $ 1,800
======== ========
Cash flows from financing activities:
Net proceeds from issuance of common stock .............................. 23,162 13,560
Proceeds from exercise of stock options and warrants .................... 1,360 1,831
Purchase of treasury stock .............................................. (323) (19)
Payments of other liabilities ........................................... (906) (29)
-------- --------
Net cash provided by financing activities ..................... 23,293 15,343
-------- --------
Net decrease in cash and cash equivalents .................................. (175) (9,819)
Cash and cash equivalents at beginning of period ........................... 2,734 10,207
-------- --------
Cash and cash equivalents at end of period ................................. $ 2,559 $ 388
======== ========
See accompanying notes to financial statements.
Page 3
IMCLONE SYSTEMS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) Basis of Presentation
The financial statements of ImClone Systems Incorporated (the("ImClone" or
the "Company") as of JuneSeptember 30, 1997 and for the three and sixnine months ended
JuneSeptember 30, 1997 and 1996 are unaudited. In the opinion of management, these
unaudited financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, as filed with the Securities and Exchange Commission (the
"Commission").
Results for the interim periods are not necessarily indicative of
results for the full years.
(2) Related Party Transactions
As of JuneSeptember 30, 1997, a promissory note (the "new promissory note")
in the original principal amount of $110,000 given to the Company by its
President and CEO totaled $90,000.$82,000. The new promissory note replaces an original
promissory note (the "original promissory note") which was due upon the earlier
of on demand by the Company or April 30, 1997, bore interest at the rate of 8%
compounded quarterly and covered miscellaneous cash advances made to the
President and CEO through the date of its issuance in March 1995. The new
promissory note was payable as to $15,000 no later than May 15, 1997 and as to
the remainder upon the earlier of on demand by the Company or December 31, 1997
and bears interest at the rate of 5% compounded quarterly. The new promissory
note covers the remaining balance of the original promissory note, interest
thereon and additional miscellaneous cash advances made since the date of the
original promissory note totaling $15,000. As of AugustNovember 12, 1997 the aggregate
amount of the new promissory note, including interest totaled approximately
$88,000.$79,000.
(3) Net Loss Per Share
Net loss per share is computed based on the weighted average number of
shares outstanding. Common stock equivalents are not included in the computation
of average shares outstanding because they are anti-dilutive.
(4) Reclassification
Certain amounts previously reported have been reclassified to conform
to current year presentation.
(5) Subsequent Event
In October 1997, the Company entered into a Collaborative Research and
License Agreement with CombiChem, Inc. ("CombiChem"), a private company, to
discover and develop novel small molecules against selected targets for the
treatment of cancer. The companies will utilize CombiChem's Discovery Engine(TM)
and Universal Informer Library(TM) to generate small molecules for screening in
ImClone's assays for identification of lead candidates. ImClone will provide
CombiChem with research funding for two years, milestone payments and royalties
on marketed products, if any. ImClone will have exclusive worldwide rights to
develop and market products resulting from the collaboration, if any.
Concurrently with the execution of the Collaborative Research and License
Agreement, the Company entered into a Stock Purchase Agreement pursuant to which
the Company purchased 1,000,000 shares of the common stock of CombiChem for
aggregate consideration of $2,000,000. This purchase will be recorded by the
Company at the lower of cost or net realizable value. Subsequent to the purchase
of these shares of common stock, CombiChem effected a 4 for 1 reverse split of
its common stock.
Page 4
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis by management is provided to
identify certain significant factors which affected the Company's financial
position and operating results during the period included in the accompanying
financial statements.
Results of Operations
SixNine Months Ended JuneSeptember 30, 1997 and 1996
Revenues
Revenues for the six-monthnine-month periods ended JuneSeptember 30, 1997 and
JuneSeptember 30, 1996 were $3,271,000$4,013,000 and $150,000,$225,000, respectively. Revenues in both
periods included research and development support fees of $150,000$225,000 from the
Company's corporate partnership with the Wyeth/Lederle Vaccine division of
American Home Products Corporation ("American Home") in infectious disease
vaccines. Revenues for the six-monthnine-month period ended JuneSeptember 30, 1997 also
included milestone revenue of $1,500,000 and contract research support of
$417,000$1,042,000 from the Company's research and license agreement with Merck KGaA
("Merck") in cancer vaccines. Additionally, the six-monthnine-month period ended
JuneSeptember 30, 1997 included milestone revenue of $1,000,000 and royalty fees of
$204,000$246,000 from the Company's strategic alliance with Abbott Laboratories
("Abbott") in diagnostics.
Operating: Research and Development
Total operating expenses for the six-monthnine-month periods ended JuneSeptember 30,
1997 and JuneSeptember 30, 1996 were $11,007,000$15,366,000 and $6,505,000,$10,219,000, respectively.
Research and development expenses for the six-monthnine-month periods ended JuneSeptember 30,
1997 and JuneSeptember 30, 1996 were $8,652,000$11,972,000 and $4,918,000,$7,601,000, respectively. Such
amounts for the six-monthnine-month periods ended JuneSeptember 30, 1997 and JuneSeptember 30,
1996 represented 79%78% and 76%74%, respectively, of total operating expenses. The
$3,734,000$4,371,000 or 58% increase in research and development expenses for the
six-monthnine-month period ended JuneSeptember 30, 1997 was primarily attributable to a
one-time $2,233,000 non-cash compensation expense recorded in connection with
the extension of the term of an officer's warrant to purchase 397,000 shares of
the Company's common stock, $.001 par value (the "Common Stock"). The increase
is also attributable to costs associated with additional staffing, contract
manufacturing and testing, and expenditures in the functional areas of product
development, manufacturing and clinical and regulatory affairs to support the manufacture ofits
lead therapeutic product candidate, C225 for human clinical trials as well as
travel-related expenses to pursue strategic partnerships for C225 (and other
product candidates). The remaining increase reflects growth in the area of
discovery research for future product candidates.
General and Administrative
General and administrative expenses include administrative personnel
costs, costs incurred in connection with pursuing arrangements with corporate
partners and technology licensors, and expenses associated with applying for
patent protection for the Company's technology and products. Such expenses for
the six-monthnine-month periods ended JuneSeptember 30, 1997 and JuneSeptember 30, 1996 were
$2,355,000$3,394,000 and $1,587,000,$2,618,000, respectively, an increase of $768,000$776,000 or 48%30%. The
increase in general and administrative expenses primarily reflects (i) $279,000
in non-cash compensation expense recorded in connection with an option grant to
an officer of the Company and (ii) additional support staffing to supportfor the expanding
research, clinical, development and manufacturing efforts of the Company,
particularly with its lead
therapeutic product candidate, C225. The Company expects general and administrative expenses
to increase in future periods to support planned increases in research and
development.
Page 5
Interest and Other Income/Expense
Interest and other income was $685,000$1,099,000 for the six-monthnine-month period
ended JuneSeptember 30, 1997 compared to $454,000$695,000 for the six-monthnine-month period ended
JuneSeptember 30, 1996, an increase of $231,000$404,000 or 51%58%. The increase was primarily
attributable to the increased interest income earned from higher cash balances
in the Company's investment portfolio resulting from the proceeds received from
a public stock offering completed in March 1997. Interest and other expense was
$340,000$471,000 and $547,000$691,000 for the six-monthnine-month periods ended JuneSeptember 30, 1997 and
JuneSeptember 30, 1996, respectively, a decrease of $207,000$220,000 or 38%32%. Interest and
other expense for both periods primarily included interest on two outstanding
Industrial Development Revenue Bonds with an aggregate principal amount of
$4,313,000 and interest recorded on the liability to Pharmacia and UpJohn Inc.
("Pharmacia"), for the reacquisition of the worldwide rights to Interleukin - 6Interleukin-6
mutein ("IL-6m") as well as clinical material manufactured and supplied by
Pharmacia to the Company. The decrease was primarily attributable to the May
1996 exchange of debt for Company Common Stock with the Oracle Group and a
Company Director.
Net Losses
The Company had net losses of $7,391,000$10,725,000 or $0.33$0.46 per share for the
six-monthnine-month period ended JuneSeptember 30, 1997, compared with $7,715,000$11,257,000 or $0.41$0.59
per share for the six-monthnine-month period ended JuneSeptember 30, 1996. The decrease in
the net loss for the six-monthnine-month period ended JuneSeptember 30, 1997 wasis due primarily due
to the fact that the net loss for the six-monthnine-month period ended JuneSeptember 30, 1996
included a $1,267,000 or $0.07 per share extraordinary loss on early
extinguishment of debt. This extraordinary loss resulted from the issuance of Company
Common Stock in lieu of cash repayment of a $2,500,000 loan due the Oracle Group
and a $180,000 long-term note owed to a Company Director. The decrease in net
loss per share is due primarily to the increased number of shares of Common
Stock outstanding as a result of the March 1997 public offering.
Three Months Ended JuneSeptember 30, 1997 and 1996
Revenues
Revenues for the three-month periods ended JuneSeptember 30, 1997 and
JuneSeptember 30, 1996 were $3,196,000$742,000 and $75,000, respectively. Revenues in both
periods included research and development support fees of $75,000 from the
Company's corporate partnership with American Home in infectious disease
vaccines. Revenues for the three-month period ended JuneSeptember 30, 1997 also
included milestone revenue of
$1,500,000 and contract research support of $417,000$625,000 from the Company's research and
license agreement with Merck in cancer vaccines. Additionally, the three-month
period ended JuneSeptember 30, 1997 included milestone revenue of $1,000,000
and royalty fees of $204,000$42,000 from the
Company's strategic alliance with Abbott in diagnostics.
Operating: Research and Development
Total operating expenses for the three-month periods ended JuneSeptember
30, 1997 and JuneSeptember 30, 1996 were $4,529,000$4,359,000 and $3,438,000,$3,714,000, respectively.
Research and development expenses for the three-month periods ended JuneSeptember
30, 1997 and JuneSeptember 30, 1996 were $3,257,000$3,320,000 and $2,593,000,$2,683,000, respectively.
Such amounts for the three-month periods ended JuneSeptember 30, 1997 and JuneSeptember
30, 1996 represented 72%76% and 75%72%, respectively, of total operating expenses. The
$664,000$637,000 or 24% increase in research and development expenses for the
six-monththree-month period ended JuneSeptember 30, 1997 was primarily attributable to costs
associated with additional staffing, contract manufacturing and testing, and
expenditures in the functional areas of product development, manufacturing and
clinical and regulatory affairs to support the manufacture of C225 for human clinical trials as
well as travel-related expenses to pursue strategic partnerships for C225 (and
other product candidates). The remaining increase reflects growth in the area of
discovery research for future product candidates.
Page 6
General and Administrative
General and administrative expenses include administrative personnel
costs, costs incurred in connection with pursuing arrangements with corporate
partners and technology licensors, and expenses associated with applying for
patent protection for the Company's technology and products. Such expenses for
the three-month periods ended JuneSeptember 30, 1997 and JuneSeptember 30, 1996 were
$1,272,000$1,039,000 and $845,000, respectively, an increase of $427,000 or 51%. The increase in general
and administrative expenses primarily reflects (i) $150,000 in non-cash
compensation expense recorded in connection with an option grant to an officer
and (ii) additional staffing to support the expanding research, clinical,
development and manufacturing efforts of the Company, particularly with its lead
therapeutic product candidate, C225.$1,031,000, respectively. The Company expects general and
administrative expenses to increase in future periods to support planned
increases in research and development.
Interest and Other Income/Expense
Interest and other income was $440,000$414,000 for the three-month period ended
JuneSeptember 30, 1997 compared to $261,000$241,000 for the three-month period ended
JuneSeptember 30, 1996, an increase of $179,000$173,000 or 69%72%. The increase was primarily
attributable to the increased interest income earned from higher cash balances
in the Company's investment portfolio resulting from the proceeds received from
a public stock offering completed in March 1997. Interest and other expense was $145,000 and
$200,000 for
the three-month periodsperiod ended JuneSeptember 30, 1997 and Juneremained relatively constant at
$131,000 compared to $144,000 for the three-month period ended September 30,
1996,
respectively, a decrease of $55,000 or 28%.1996. Interest and other expense for both periods primarily included interest on
two outstanding Industrial Development Revenue Bonds with an aggregate principal
amount of $4,313,000 and interest recorded on the liability to Pharmacia, for
the reacquisition of the worldwide rights to IL-6m as well as clinical material
manufactured and supplied by Pharmacia to the Company.
The decrease was primarily attributable to the May
1996 exchange of debt for Company Common Stock with the Oracle Group and a
Company Director.
Net Losses
The Company had net losses of $1,038,000$3,334,000 or $0.04$0.14 per share for the
three-month period ended JuneSeptember 30, 1997, compared with $4,569,000$3,542,000 or $0.23$0.18
per share for the three-month period ended JuneSeptember 30, 1996. The decrease in
the net loss for the three-month period ended JuneSeptember 30, 1997 wasis due
primarily due to the fact thatincrease in contract research support revenue received by the
Company, offset in part by the increase in research and development expenses.
The decrease in the net loss for the three-month period ended June 30, 1996 included a
$1,267,000 or $0.06 per share extraordinary loss on early extinguishmentis due primarily to the increased number
of debt. This extraordinary loss resulted from the issuanceshares of Company Common Stock in lieuoutstanding as a result of cash repayment of a $2,500,000 loan due the Oracle Group and a
$180,000 long-term note owed to a Company Director.
Page 7
March 1997 public stock
offering.
Liquidity and Capital Resources
The Company's cash and cash equivalents and securities available for
sale totaled $28,950,000$22,731,000 at AugustNovember 12, 1997; on JuneSeptember 30, 1997 such
balances totaled $31,091,000. The current balances in the Company's cash and cash equivalents and
securities available for sale primarily reflects the proceeds received from the
March 1997 public offering of 3,000,000 shares of Common Stock .$26,281,000.
In May 1996, the Company extended its collaboration with Merck for the
development of a therapeutic cancer vaccine, BEC-2,BEC2, for use in small-cell
carcinoma and in malignant melanoma. The collaboration continues a research and
license agreement between the two companies signed in December 1990. Under the
terms of the modified agreement, the Company could receive up to $11,700,000 in
license fees, research and development support and milestone payments in
addition to moneys previously received under the original agreement. Of such
$11,700,000, as of JuneSeptember 30, 1997, the Company had earned $1,500,000 in
milestone payments, and research and support payments of $417,000$1,042,000 which
isrepresents the first two of eight quarterly research and support payments
totallingtotaling $4,700,000. In return, Merck will receive marketing rights to BEC-2BEC2 for
all therapeutic indications outside North America. Formerly the rights of Merck
were confined to Europe, Australia and New Zealand. Merck will also share in the
development costs for the United States and Europe and will pay all development
costs in other territories. The Company will be entitled to royalties based upon
product sales outside of North America, if any.
In December 1996, the Company signed an agreement with Finova
Technology Finance, Inc. to finance the lease of laboratory and computer-related
equipment and make certain building and leasehold improvements to facilities
involving payments aggregating approximately $2,500,000. At JulyOctober 31, 1997,
the Company had $1,799,000$1,258,000 available under this agreement.
Page 7
In December 1996, the Company and Abbott modified their 1992 diagnostic
strategic alliance to provide for an exclusive sublicensing agreement with
Chiron Diagnostics ("Chiron") for the Company's patented DNA signal
amplification technology, AMPLIPROBE. Under the terms of the agreement, all
sales of Chiron branched DNA diagnostic probe technology in countries covered by
Company patents will be subject to a royalty to Abbott to be passed through to
the Company. Royalties on all Chiron sales of AMPLIPROBE are paid on a quarterly
basis by Abbott and recognized upon receipt by the Company.
In May 1997, a European patent was issued for the Company's proprietary
Repair Chain Reaction ("RCR") DNA probe technology which was licensed to Abbott
under the 1992 strategic alliance discussed in the preceding paragraph. The
issuance of the patent entitled the Company to receive two milestone payments
totaling $1,000,000 and royalty payments on sales in covered European countries
for products using the Company's RCR technology. Abbott will be entitled to
deduct from royalties otherwise due, 25% of such royalties due for a two-year
period and 50% thereafter until a total of $500,000 has been deducted. TheIn June
1997 the Company received $1,000,000 in milestone payments and $75,000as of September
30, 1997 had received a total of $117,000 in royalty payments covering 1995
and 1996 were received in June 1997.fees.
The Company has expended and will continue to expend in the future
substantial funds to continue the research and development of its products,
conduct pre-clinical and clinical trials, establish clinical-scale and
commercial-scale manufacturing in its own facilities or in the facilities of
others, and market its products.
In addition, $2,113,000October 1997, the Company entered into a Collaborative Research and
$2,200,000,
respectively,License Agreement with CombiChem, a private company, to discover and develop
novel small molecules against selected targets for the treatment of cancer. The
companies will utilize CombiChem's Discovery Engine and Universal Informer
Library to generate small molecules for screening in Industrial Development Revenue Bonds issuedImClone's assays for
identification of lead candidates. ImClone will provide CombiChem with research
funding for two years, milestone payments and royalties on marketed products, if
any. ImClone will have exclusive worldwide rights to develop and market products
resulting from the collaboration, if any. Concurrently with the execution of the
Collaborative Research and License Agreement, the Company entered into a Stock
Purchase Agreement pursuant to which the Company purchased 1,000,000 shares of
the common stock of CombiChem for aggregate consideration of $2,000,000. This
purchase will be recorded by the New York
Industrial Development Agency ("NYIDA") on behalfCompany at the lower of the Company in 1986 and
1990 become due in December 1997 and May 2004, respectively. The Company has
granted a security interest in substantially all facility equipment located in
its New York City facility to secure the obligations of the Companycost or net realizable
value. Subsequent to the NYIDA
relating to the 1986 and 1990 Industrial Development Revenue Bonds.
Page 8
purchase of these shares of common stock, CombiChem
effected a 4 for 1 reverse split of its common stock.
In July 1993, the Company entered into a termination agreement with
Erbamont, Inc., now a subsidiary of Pharmacia, to acquire the worldwide rights
to IL-6m, a blood cell growth factor, which had been licensed to Pharmacia
pursuant to a development and licensing agreement. In consideration ofAt March 31, 1996, the
Company's remaining obligations in connection with the return of such rights and
the transfer of certain material and information, the
Company has paid $1,928,000 and has further obligations to Pharmacia. Such
obligations, including those to pay for IL-6m material manufactured and supplied by
Pharmacia, totaled $2,400,000 at March 31, 1996.$2,400,000. In addition, the Company is required to pay
Pharmacia $2,700,000 in royalties on eventual sales of IL-6m, if any. In March
1996, the Company entered into a Repayment Agreement with Pharmacia (the
"Repayment Agreement") pursuant to which it agreed to pay the $2,400,000 over 24
months commencing in March 1996, with only interest only payable during the first six
months. At August 1,November 4, 1997 the remaining obligation to Pharmacia totaled
$835,000.$428,000, including interest. In connection with the Repayment Agreement, the
Company signed a Confession of Judgment, which can be filed by Pharmacia with an
appropriate court in the case of default by the Company. Pursuant to a Security
Agreement entered into with Pharmacia, the Company pledged its interests in
patents related to IL-6m and to heparanase to secure its obligations under the
Repayment Agreement.
The Company's future working capital and capital requirements will
depend upon numerous factors, including, but not limited to, the progress of the
Company's research and development programs, pre-clinical testing and clinical
trials, the Company's corporate partners fulfilling their obligations to the
Company, the timing and cost of seeking regulatory approvals, the level of
resources that the Company devotes to the development of manufacturing,
marketing and sales capabilities, technological advances, the status of
competitors and the ability of the Company to maintain existing and establish
new collaborative arrangements with other companies to provide funding to the
Company to support these activities.
Page 8
The Company expects to incur substantial funding requirements for the
expansion of operations, including (i) the expansion of the clinical trials of
C225 and the related manufacturing program to support these trials and (ii) in
an effort to develop new product candidates, the expansion of research and
development activities including among other things, increased staffing, the
acquisition of equipment, and the consummation of new outside research
agreements. In addition, the entire $835,000$428,000 of outstanding debt to Pharmacia is
payable ratably throughout the period ending February 1998, and $2,113,000 of
the Industrial Development Revenue Bonds (the "1986 Bonds") issued by the NYIDANew
York Industrial Development Agency ("NYIDA") becomes due in December 1997. The
Company is currently negotiating the possible extension of the due date for the
1986 Bonds for an additional one year period. Additionally, $2,200,000 of the
Industrial Development Bonds issued by NYIDA in 1990 scheduled to become due in
2004 shall become due upon the termination of the lease (the "Lease") for the
Company's New York facility. The Lease is scheduled to expire in March 1999 and
the Company is currently in discussions regarding its extension and considering
other alternatives. Assuming the extension of the Lease, the Company expects
that its capital resources, including the ongoing research support of its
corporate partners will be sufficient to fund its operations for approximately
the next two years.eighteen months. However, the receipt of certain of such ongoing
research support is subject to attaining research and development milestones,
certain of which have not yet been achieved. These
milestones include, but are not limited to, receiving regulatory permission for
the filing of an Investigational New Drug ("IND") application for the initiation
of a small cell lung carcinoma clinical trial and reaching certain enrollment
levels for such trial relating to the BEC-2 cancer vaccine. No assurance can be given that
there will be no change in projected research support (including research and
development milestones) or expenses that would lead to the Company's capital
being consumed at a faster rate than currently expected. In
order to fundexpected, or that the 1986 Bonds
or the Lease will be extended. Upon exhaustion of its capital needs beyond approximately the next two years,resources, the
Company will require significant levels of additional capital and intends to
raise the necessary capital through additional arrangements with corporate
partners, equity or debt financings or from other sources. There is no assurance
that the Company will be successful in consummating any such arrangements with
corporate partners, financings or securing other sources.arrangements.
The Company has entered into preliminary discussions with several major
pharmaceutical companies concerning the funding of research and development for
certain of its products in research. No assurance can be given that the Company
will be successful in pursuing any such alternatives. In addition, the Company
may seek to enter into a significant strategic partnership with a pharmaceutical
company for the development of its lead product candidate, C225. Such a
strategic alliance could include an up-front equity investment and technology
access fees plus milestone fees and revenue sharing. There can be no assurance
that the Company will be successful in achieving such an alliance, nor can the
Company predict the amount of funds which might be available to it if it entered
into such an alliance or the time at which such funds would be made available.
Page 9
The Company has outfitted and purchased equipment for a certain propertyits Somerville,
New Jersey facility to create a clinical-scale production facility that complies
with current Good Manufacturing Practices regulations. To be successful, the
Company's products must be manufactured in commercial quantities in compliance
with regulatory requirements and at acceptable costs. Although the Company has
developed products in the laboratory and in some cases has produced sufficient
quantities of materials for pre-clinical animal trials and early stage clinical
trials, production in late stage clinical or commercial quantities may create
technical challenges for the Company. If it commercializes its products, the
Company may adapt this facility for use as its commercial-scale manufacturing
facility. However, the Company has limited experience in clinical-scale
manufacturing and no experience in commercial-scale manufacturing, and no
assurance can be given that the Company will be able to make the transition to
late stage clinical or commercial production. The timing and any additional
costs of adapting the facility for commercial manufacturing will depend on
several factors, including the progress of products through clinical trials, and
are not yet determinable.
Total capital expenditures made during the sixnine months ended JuneSeptember
30, 1997 were $724,000$1,598,000, of which $567,000$1,182,000 related to the refurbishmentexpansion of the
production capacity and equippingpilot plant capability of the Company's manufacturing
facility in New Jersey and $157,000$416,000 reflected equipment and computer-related
purchases for the corporate office and research laboratories in New York.
Page 9
Certain Factors Affecting Forward-Looking Statements--Safe Harbor Statement
Except for the historical information contained herein, this
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other portions of this report contain forward-looking statements
that involve certain risks and uncertainties. The Company's actual operations,
performance and results could differ materially from those reflected in, or
anticipated by, these forward-looking statements. In evaluating the Company and
its operations, performance and results, investors should consider, among other
things, the scientific and business risks and uncertainties of new product
development in the biotechnology field, the risk of rapid and significant
technological change, the risk of development by one or more competitors of
products which compete with the Company's proposed products and the risks and
uncertainties discussed in the Company's public filings with the Commission,
including the Company's most recent Annual Report on Form 10-K under the
captions "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Standards No. 128 (SFAS 128), "Earnings Per Share". SFAS
128 establishes standards for computing and presenting earnings per share. In
accordance with the effective date of SFAS 128, the Company will adopt SFAS 128
as of December 31, 1997. This statement is not expected to have a material
impact on the Company's financial statements.
Page 10
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
(a) An annual meeting of stockholders was held on June 3, 1997 (the "Annual
Meeting").
(b) The directors elected at the Annual Meeting were Richard Barth, Jean
Carvais, Vincent T. DeVita, Jr., Robert F. Goldhammer, David M. Kies, Paul B.
Kopperl, William R. Miller, Harlan W. Waksal and Samuel D. Waksal. Such persons
are all of the directors of the Company whose term of office as a director
continued after the Annual Meeting.
(c) The matters voted upon at the Annual Meeting and the results of the
voting, including broker non-votes where applicable, are set forth below.
(i) Election of directors
Name In Favor Withheld Broker Non-Votes
- ---- -------- -------- ----------------
Richard Barth 20,671,171 778,505 N/A
Jean Carvais 20,671,671 778,005 N/A
Vincent T. DeVita, Jr 20,671,671 778,005 N/A
Robert F. Goldhammer 20,671,671 778,005 N/A
David M. Kies 20,761,371 778,305 N/A
Paul B. Kopperl 20,671,571 778,105 N/A
William R. Miller 20,671,671 778,005 N/A
Harlan W. Waksal 20,671,571 778,105 N/A
Samuel D. Waksal 20,671,271 778,405 N/A
(ii) The stockholders approved a proposal to amend the Company's 1996
Incentive Stock Option Plan (the "1996 ISO Plan"), generally to (i) increase the
total number of shares of Common Stock which may be issued pursuant to options
which may be granted under the 1996 ISO Plan from 1,500,000 to 3,000,000, which
number shall be reduced by the number of shares of Common Stock which have been
or may be issued pursuant to options granted under the Company's 1996
Non-Qualified Stock Option Plan (the "1996 Non-Qualified Plan"); and (ii) change
certain administration provisions of the 1996 ISO Plan. The stockholders voted
8,737,903 shares in favor, 4,057,048 shares against, 45,245 shares abstained
from voting and there were 8,609,480 broker non-votes.
(iii) The stockholders approved a proposal to amend the Company's 1996
Non-Qualified Stock Option Plan, generally to (i) increase the total number of
shares of Common Stock which may be issued pursuant to options which may be
granted under the 1996 Non-Qualified Plan from 1,500,000 to 3,000,000, which
number shall be reduced by the number of shares of Common Stock which have been
or may be issued pursuant to options granted under the 1996 ISO Plan; (ii)
change certain administration provisions of the 1996 Non-Qualified Plan and
(iii) clarify those persons eligible to participate in the 1996 Non-Qualified
Plan. The stockholders voted 8,975,273 shares in favor, 3,819,798 shares
against, 45,125 shares abstained from voting and there were 8,609,480 broker
non-votes.
(iv) The stockholders approved a proposal to amend the Company's
Certificate of Incorporation to increase the total number of shares of Common
Stock the Company is authorized to issue from 30,000,000 shares to 45,000,000
shares. The stockholders voted 19,145,871 shares in favor, 915,585 shares
against, 33,875 shares abstained from voting and there were 1,354,345 broker
non-votes.
(v) The stockholders ratified the appointment by the Board of Directors of
KPMG Peat Marwick LLP as the Company's independent certified public accountants
for the fiscal year ending December 31, 1997. The stockholders voted 21,310,356
shares in favor, 112,160 shares against, and 27,160 shares abstained from
voting. Broker non-votes were not applicable.
Page 11
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
Exhibit No. Description
----------- -----------
3.1 Certificate of Incorporation10.76* Collaborative Research and all amendments theretoLicense
Agreement between the Company and
CombiChem, Inc. dated October 10 1997.
27.1 Financial Data Schedule
99.1 1996 Incentive Stock Option Plan, as amended
99.3 1996 Non-Qualified Stock Option Plan, as amended
(b) Reports on Form 8-K:
DateNone.
* This Exhibit is incorporated herein by reference to Exhibit 10.22 of Report Items Reported
-------------- --------------
April 14, 1997 Item 5
June 3, 1997 Item 5Amendment
No. 1 to the CombiChem, Inc. Registration Statement on Form S-1 (File No.
333-37981). Certain confidential portions of this Exhibit are omitted by
redacting a portion of the text (the "Mark"). It has been filed separately with
the Secretary of the Commission without the Mark pursuant to an Application
Requesting Confidential Treatment.
Page 1211
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMCLONE SYSTEMS INCORPORATED
(Registrant)
Date: AugustNovember 13, 1997 By /s/ Samuel D. Waksal
-----------------------------------------------------
Samuel D. Waksal
President and Chief Executive Officer
Date: AugustNovember 13, 1997 By /s/ Carl S. Goldfischer
-----------------------------------------------------
Carl S. Goldfischer
Vice President , Finance and
Chief Financial Officer
Page 1312