1
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 March 31,September 30, 2000
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[ ] 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
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IMCLONE SYSTEMS INCORPORATED
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2834797
- ----------------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
180 VARICK STREET, NEW YORK, NY 10014
- ----------------------------------------- ------------------------------------
DELAWARE 04-2834797
- ------------------------------------------------------------- --------------------------------------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
180 VARICK STREET, NEW YORK, NY 10014
- ------------------------------------------------------------- ---------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 645-1405
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Registrant's telephone number, including area code
Not Applicable
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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
--- ---
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 May 11, 2000
- ------------------------------------------- ---------------------------------
Common Stock, par value $.001 31,263,291
Class Outstanding as of November 10, 2000
------------------------------------ ------------------------------------
Common Stock, par value $.001 65,229,634 Shares
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IMCLONE SYSTEMS INCORPORATED
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31,September 30, 2000
(unaudited) and December 31, 1999 1
Unaudited Consolidated Statements of Operations - Three and
nine months ended March 31,September 30, 2000 and 1999 2
Unaudited Consolidated Statements of Cash Flows - ThreeNine
months ended March 31,September 30, 2000 and 1999 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 78
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 1214
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 1215
Item 6. Exhibits and Reports on Form 8-K 1215
3
Part 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
IMCLONE SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share and share data)
MARCH 31,SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
--------- ------------
(UNAUDITED)----------------- -----------------
(unaudited)
Current assets:
Cash and cash equivalents ........................................equivalents....................................... $ 20,5124,541 $ 12,016
Securities available for sale ..................................... 322,037sale................................... 307,928 107,352
Prepaid expenses .................................................. 3,498expenses................................................ 3,471 158
Other current assets .............................................. 10,458assets............................................ 7,249 7,599
--------- -------------------------- -----------------
Total current assets ....................... 356,505assets..................... 323,189 127,125
--------- -------------------------- -----------------
Property and equipment:
Land .............................................................. 1,087Land............................................................ 2,111 1,087
Building and building improvements ................................ 10,913improvements.............................. 10,928 10,810
Leasehold improvements ............................................ 4,891improvements.......................................... 7,328 4,891
Machinery and equipment ........................................... 9,177equipment......................................... 9,592 9,049
Furniture and fixtures ............................................ 1,003fixtures.......................................... 1,327 898
Construction in progress .......................................... 9,912progress........................................ 23,241 5,209
--------- -------------------------- -----------------
Total cost ................................. 36,983cost............................... 54,527 31,944
Less accumulated depreciation and amortization .................. (15,198)amortization................ (16,504) (14,729)
--------- -------------------------- -----------------
Property and equipment, net ................ 21,785net.............. 38,023 17,215
--------- -------------------------- -----------------
Patent costs, net ...................................................... 983................................................... 1,011 1,013
Deferred financing costs, net .......................................... 8,008net........................................ 7,545 37
Other assets ........................................................... 309assets......................................................... 7,797 304
--------- -------------------------- -----------------
$ 387,590377,565 $ 145,694
========= ========================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................................payable................................................. $ 4,9215,894 $ 3,987
Accrued expenses ................................................... 5,032................................................ 5,922 5,123
Interest payable ................................................... 1,225payable................................................. 1,205 45
Fees potentially refundable fromto corporate partner ................. 24,000partner................. 26,000 20,000
Current portion of long-term liabilities ........................... 880........................ 716 906
Preferred stock dividends payable .................................. 448payable................................ 1,348 -
--------- -------------------------- -----------------
Total current liabilities .................. 36,506liabilities................ 41,085 30,061
--------- -------------------------- -----------------
Long-term debt ............................................................................................................... 242,200 2,200
Other long-term liabilities, less current portion ...................... 918................... 620 1,135
--------- -------------------------- -----------------
Total liabilities .......................... 279,624liabilities........................ 283,905 33,396
--------- -------------------------- -----------------
Commitments and contingencies
Stockholders' equity:equity :
Preferred stock, $1.00 par value; authorized 4,000,000 shares;
issued and outstanding Series A Convertible: 300,000
at March 31,September 30, 2000 and December 31, 1999 (preference in
liquidation $30,448$31,348 and $30,000, respectively) .............................. 300 300
Common stock, $.001 par value; authorized 60,000,000120,000,000 shares;
issued 31,230,18364,944,045 and 29,703,090 at March 31,September 30, 2000 and
December 31, 1999, respectively; outstanding 31,179,366,64,893,228, and
29,652,273 at March 31,September 30, 2000 and December 31, 1999,
respectively .................................................. 31(See Note 1)................................... 65 30
Additional paid-in capital ......................................... 292,968capital....................................... 303,960 286,038
Accumulated deficit ................................................ (185,514)deficit.............................................. (212,307) (173,457)
Treasury stock, at cost; 50,817 shares at March 31,September 30, 2000
and December 31, 1999 .........................................1999....................................... (492) (492)
Note receivable - officer and stockholder ..........................stockholder........................ - (142)
Accumulated other comprehensive income:
Unrealized gain on securities available for sale .............. 673sale............ 2,134 21
--------- -------------------------- -----------------
Total stockholders' equity ................. 107,966equity............... 93,660 112,298
--------- -------------------------- -----------------
$ 387,590377,565 $ 145,694
========= ========================== =================
See accompanying notes to consolidated financial statements.
Page 1
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IMCLONE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
THREE MONTHS ENDED MARCH 31,
------------------------NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
2000 1999 -------- --------2000 1999
------------ ----------- ------------ -------------
Revenues:
License fees from third parties ........................and milestone revenues ..................... $ 40250 $ - $ 290 $ -
Research and development funding from third
parties and other ................................... 166 629
-------- --------royalties........... 523 138 849 1,021
------------ ----------- ------------ -------------
Total revenues ........................... 206 629
-------- --------revenues............................. 773 138 1,139 1,021
------------ ----------- ------------ -------------
Operating expenses:
Research and development ............................... 11,101 6,354
General12,557 8,626 36,401 22,131
Marketing, general and administrative ............................. 3,126 2,002
-------- --------................... 3,487 2,107 10,395 5,784
------------ ----------- ------------ -------------
Total operating expenses .................. 14,227 8,356
-------- --------................... 16,044 10,733 46,796 27,915
------------ ----------- ------------ -------------
Operating loss .............................................. (14,021) (7,727)
-------- --------............................................... (15,271) (10,595) (45,657) (26,894)
------------ ----------- ------------ -------------
Other:
Interest income ........................................ (3,187) (604)income.......................................... (6,002) (589) (15,354) (1,757)
Interest expense ....................................... 1,221 123expense......................................... 3,729 129 8,617 375
Loss (gain) on securities available for sale .................. 2 832
-------- --------sale............. (54) 21 (70) 853
------------ ----------- ------------ -------------
Net interest and other income .............. (1,964) 351
-------- --------income................ (2,327) (439) (6,807) (529)
------------ ----------- ------------ -------------
Net loss .................................................... (12,057) (8,078)loss...................................................... (12,944) (10,156) (38,850) (26,365)
Preferred dividends (including assumed incremental yield
attributible to beneficial conversion feature of $254$259
and $336$333 for the three months ended March 31,September 30, 2000
and 1999, respectively and $769 and $1,005 for the nine
months ended September 30, 2000 and 1999, respectively) ................................ 702 928
-------- --------.. 712 938 2,117 2,800
------------ ----------- ------------ -------------
Net loss to common stockholders ............................. $(12,759)stockholders............................... $ (9,006)
======== ========(13,656) $ (11,094) $ (40,967) $ (29,165)
============ =========== ============ =============
Basic and diluted net loss per common share .................share................... $ (0.43)(0.21) $ (0.37)
======== ========(0.22) $ (0.66) $ (0.58)
============ =========== ============ =============
Weighted average common shares outstanding .................. 29,968 24,447
======== ========outstanding........................... 64,331 50,797 62,298 49,894
============ =========== ============ =============
See accompanying notes to consolidated financial statements.statements
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IMCLONE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
March 31,
--------------------------NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
2000 1999
--------- --------------------- ------------
Cash flows from operating activities:
Net loss .......................................................................... $ (12,057)(38,850) $ (8,078)(26,365)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization .................................................. 499 4621,865 1,367
Amortization of deferred financing costs ....................................... 140 2costs........................................ 1,004 7
Expense associated with issuance
of options and warrants .................................................... 1,114 417warrants..................................................... 3,593 1,979
Loss (gain) on securities available for sale .......................................... 2 832................................... (70) 853
Changes in:
Prepaid expenses ............................................................ (3,340) 11(3,314) 231
Other current assets ........................................................ (2,859) (204)350 (332)
Other assets ................................................................ (5) (119)8 (130)
Interest payable ............................................................ 1,180 631,160 61
Accounts payable ............................................................ 934 2571,907 839
Accrued expenses ............................................................ (91) (2,377)799 (2,152)
Deferred revenue ............................................................revenue............................................................. - (75)
Fees potentially refundable fromto corporate partner .......................... 4,000 -
--------- ---------partner............................. 6,000 10,000
------------ ------------
Net cash used in operating activities ........................ (10,483) (8,809)
--------- ---------(25,548) (13,717)
------------ ------------
Cash flows from investing activities:
Acquisitions of property and equipment ......................................... (5,039) (910)(22,583) (4,096)
Purchases of securities available for sale ..................................... (291,740) (7,199)sale...................................... (340,755) (19,378)
Sales and maturities of securities available for sale .......................... 77,705 13,814142,362 29,117
Investment in Valigen N.V....................................................... (7,500) -
Additions to patents ........................................................... - (67)
--------- ---------(88) (118)
------------ ------------
Net cash (used in) provided by investing activities .......... (219,074) 5,638
--------- ---------(228,564) 5,525
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants ........................... 6,194 31115,434 5,936
Proceeds from issuance of common stock under the employee stock purchase plan .. 68 13plan... 275 114
Proceeds from issuance of 5 1/2% convertible subordinated notes ................notes................. 240,000 -
Deferred financing costs ....................................................... (8,111)costs........................................................ (8,512) -
Proceeds from equipment and building improvement financings..................... - 94
Proceeds from repayment of note receivable by- officer -and stockholder,
including interest ........................................................interest......................................................... 145 -11
Payments of other liabilities .................................................. (243) (199)
--------- ---------(705) (640)
------------ ------------
Net cash provided by financing activities .................... 238,053 125
--------- ---------246,637 5,515
------------ ------------
Net increase (decrease)decrease in cash and cash equivalents ................................. 8,496 (3,046)............................................ (7,475) (2,677)
Cash and cash equivalents at beginning of period ..................................... 12,016 3,888
--------- ------------------- ----------
Cash and cash equivalents at end of period ........................................... $ 20,5124,541 $ 842
--------- ---------
Supplemental cash flow information:
Cash paid for interest, including amounts capitalized................................. $ 47,000 $ 51,0001,211
============ ============
See accompanying notes to consolidated financial statements.statements
Page 3
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IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) BASIS OF PRESENTATION
The consolidated financial statements of ImClone Systems Incorporated
("ImClone" or the "Company") as of March 31,September 30, 2000 and for the three and
nine months ended March 31,September 30, 2000 and 1999 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 audited financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999, as filed with
the Securities and Exchange Commission.
On October 16, 2000, the Company effected a 2-for-1 stock split in the form of
a stock dividend. Accordingly, shareholders of record as of September 29, 2000
of the Company's approximately 32.4 million shares of common stock outstanding
each received one additional share of common stock for each share of common
stock they owned on the record date. Common stock issued and common stock
outstanding as of September 30, 2000 in the consolidated balance sheet
reflect the distribution of the approximately 32.4 million shares issued in
connection with the stock split. Common stock issued and common stock
outstanding as of December 31, 1999 have not been restated to reflect the stock
split. The stock split was recorded as of September 30, 2000 in the
consolidated balance sheet as a transfer of $32,000 from additional paid-in
capital to common stock. All references to number of shares, per share amounts,
weighted average shares, option and warrant shares and related exercise prices
for all periods presented in the accompanying consolidated statements of
operations and notes to the consolidated financial statements have been
retroactively adjusted to give effect to the stock split.
Results for the interim periods are not necessarily indicative of results for
the full years.
(2) SEGMENT INFORMATION
The Company is a biopharmaceutical company engaged in the research and
development of novel cancer treatments. The Company is currently pursuing
three research and development programs that it believes show potential for
treating cancer:certain cancers: growth factor inhibitors, cancer vaccines and
angiogenesis inhibitors. A substantial portion of the Company's efforts and
resources are devoted to research and development conducted on its own behalf
and through collaborations with corporate partners and academic research and
clinical institutions. The Company has not derived any commercial revenue from
product sales. The Company is managed and operated as one business. The entire
business is comprehensively managed by a single management team that reports
to the Chief Operating Officer. The Company does not operate separate lines of
business or separate business entities with respect to any of its product
candidates. Except for contract services (see Note 4) and clinical trials
conducted by independent investigators on behalf of the Company, the Company
does not conduct any of its operations outside of the United States.
Accordingly, the Company does not prepare discrete financial information with
respect to separate product areas or by locationgeographic area and does not have
separately reportable segments as defined by SFAS No. 131.
(3) FOREIGN CURRENCY TRANSACTIONS
Gains and losses from foreign currency transactions, such as those resulting
from the translation and settlement of receivables and payables denominated in
foreign currencies, are included in the consolidated statement of operations.
The Company does not currently use derivative financial instruments to manage
the risks associated with foreign currency fluctuations. The Company recorded
no
gains or losses on foreign currency transactions for the three months ended
March 31, 2000 and recorded losses on foreign currency transactions of approximately $21,000 for the nine
months ended September 30, 2000 and losses on foreign currency transactions of
approximately $1,000 for the nine months ended September 30, 1999. The Company
recorded gains on foreign currency transactions of approximately $17,000 for
the three months ended March 31,September 30, 2000 and losses on foreign currency
transactions of approximately $6,000 for the three months ended September 30,
1999.
(4) CONTRACT SERVICES
The Company signed a definitive agreement in April 1999 with Boehringer
Ingelheim Pharma KG ("BI Pharma") for the further development, production
scale-up and manufacture of the Company's lead therapeutic product candidate,
IMC-C225, for use in human clinical trials. The total cost under the agreement
was DM11,440,000 or $6,283,000 based on the foreign currency rate on the date
of payment. All of the material manufactured under this agreement has been
provided to Merck KGaA for use in clinical trials in Europe and Merck KGaA has
reimbursed the Company an aggregate amount of $4,442,000 during March and April
2000. This reimbursable amount has been accounted for as a reduction of
research and development expense in the fourth quarter of 1999.Page 4
7
In December 1999, the Company entered into a development and manufacturing
services agreement with Lonza Biologics PLC ("Lonza"). Under the agreement,
Lonza is engaging in process development and scale-up for the manufacture of
IMC-C225.IMC-C225, the Company's lead interventional therapeutic product for the
treatment of cancer. These steps are being taken to assure that its process
will produce bulk material that conforms with the Company's reference
material. Under our
arrangements with Lonza, Lonza will manufacture six 5,000 liter production runs
under cGMP conditions of material that may be used for clinical and/or
commercial supply. The Company also has agreed in principle with Lonza to the
material terms of a three-year commercial supply agreement for which the
definitive agreement is being completed. As of March 31,September 30, 2000, the Company has incurred approximately
$159,000$448,000 for services provided under this Page 4
7
agreement. In September 2000, the
Company entered into a three year commercial manufacturing services agreement
with Lonza relating to IMC-C225. Under the agreements with Lonza, Lonza will
manufacture IMC-C225 at the 5,000 liter scale under cGMP conditions and
deliver it to the Company over the next three year period. In September 2000,
the Company accrued an up-front fee of $1,800,000 to initiate this agreement
and has included this amount as research and development expense in the three
and nine months ended September 30, 2000.
The Company is building a new manufacturing facility adjacent to its current
manufacturing facility in New Jersey. This new facility will contain three
10,000 liter fermentors and will be dedicated to the commercial production of
IMC-C225. The 80,000 square foot fully equipped facility will cost approximately $45$48 million
and will beis being built on land purchased in December 1999 for $700,000.1999. The Company has
incurred approximately $7,607,000$23,151,000 in engineering, capitalized interest,
pre-construction and construction costs associated with the new manufacturing
facility through March 31,September 30, 2000. The costs incurred to date associated
with the construction of the facility have been paid from the Company's cash
reserves.
(5) RELATED PARTY TRANSACTIONSINVESTMENT IN VALIGEN N.V.
In January 1998,May 2000, the Company acceptedmade an equity investment in Valigen N.V.
("Valigen"), a promissory note totaling approximately
$131,000 from its Presidentprivate biotechnology company specializing in therapeutic
target identification and CEO in connection withvalidation using the exercisetools of genomics and gene
expression analysis. The Company purchased 705,882 shares of Valigen's series
A preferred stock and received a five-year warrant to purchase 87,305388,235 shares
of Valigen's common stock at a per share purchase price of $12.50 for an
aggregate purchase price of $7,500,000 which represents ownership in Valigen
of approximately 6%. The Company has assigned a value of $594,000 to the
Company'swarrant based on the Black-Scholes Price Model. The Valigen preferred stock
contains voting rights identical to holders of Valigen's common stock. Each
share of Valigen preferred stock is convertible into one share of Valigen
common stock. The note was due no
laterCompany may elect to convert the Valigen preferred stock at
any time; provided, that the Valigen preferred stock will automatically
convert into Valigen common stock upon the closing of an initial public
offering of Valigen's common stock with gross proceeds not less than
two years from issuance and was full recourse. Interest was payable
on$20,000,000. The Company recorded its investment in Valigen using the first anniversary datecost
method of accounting. The investment is classified as a long-term asset
included in Other Assets in the promissory note and on the stated maturity
or any accelerated maturity at the annual rate of 8 1/2%. In March 2000, the
note, including all interest, was paid in full.consolidated balance sheet.
(6) LONG-TERM DEBT
Long termLong-term debt consists of the following:
MARCH 31,SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ---------------------------------- ---------------------
5 1/2% Convertible Subordinated Notes due March 1, 2005 .. $240,000,0002005...... $ 240,000,000 $ -
11 1/4% Industrial Development Revenue Bond with an annual interest
rate of 11 1/4%, due May 1, 2004 .......................2004. 2,200,000 2,200,000
------------ ------------
$242,200,000---------------------- ---------------------
$ 242,200,000 $ 2,200,000
============ ================================== =====================
In February 2000, the Company completed a private placement of $240,000,000 in
convertible subordinated notes due March 1, 2005. The Company received net
proceeds from this offering of approximately $231,900,000,$231,500,000, after deducting
costs associated with the offering. The notes bear interest at an annual rate
of 5 1/2% payable semi-annually on September 1 and March 1 of each year,
beginning September 1, 2000. Accrued interest on the notes was approximately
$1,100,000 at September 30, 2000. The holders may convert all or a portion of
the notes into common stock at any time on or before March 1, 2005 at a
conversion price of $110.18$55.09 per share (adjusted for the 2-for-1 stock split -
see Note 1), subject to adjustment if
Page 5
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certain events affecting the common stock of the Company occur. The notes are
subordinated to all existing and future senior indebtedness. The Company may
redeem someany or all of the notes at any time prior to March 6, 2003, at a
redemption price ofequal to 100% of the principal amount of notes plus accrued
and unpaid interest to the redemption date if (1) the closing price of the
common stock has exceeded 150% of the conversion price for at least 20 trading
days in any consecutive 30-trading day period and (2) if the redemption occurswould
occur before March 1, 2002, the shelf registration statement covering resales
of the notes and the common stock is effective and expected to remain
effective and available for use for the 30 days following the redemption date.
If the notes are redeemed under these circumstances, the Company will make an
additional payment of $152.54 per $1,000 aggregate principal amount of notes,
minus the amount of allany interest actually paid on such principal amount since
February 29, 2000the note prior to the date
the redemption notice iswas mailed. On or after March 6, 2003, the Company may
redeem someany or all of the notes at specified redemption prices, plus accrued
and unpaid interest to the day preceding the redemption date. Noteholders may require the Company to redeem all notes at
100% of the principal amount plus accrued interest in the event of a
"fundamental change" as defined in the note indenture. The Company is
required to file withand obtain the Securities and Exchange Commissioneffectiveness of a shelf registration
statement covering resales of the notes and the common stock. Such
registration statement was declared effective in July 2000.
In January and February 2000, the Company entered into financingcapital lease
arrangements, subject to final document negotiation, with Finova Technology
Finance, Inc. ("Finova") and Transamerica Business Credit Corporation
("Transamerica") under which it may obtain at its option up to an aggregate of
$25,000,000 for its utilization primarily in connectionfinancing. Under the arrangements, funds may be obtained from
time to time to finance equipment and certain pre-construction costs
associated with the build-out of its new commercial manufacturing facility. The funds may be
obtained through multiple leases of equipment and building improvements for not
less than specified minimum amounts. Each lease contains a balloon purchase
option at the end of a 48-month term.
During the first quarter of 2000 the Company paid $100,000 in application fees
associated with these agreements, which may be applied against future
principal and interest payments. Page 5
8As of September 30, 2000, the Company has not
drawn any funds under these arrangements.
(7) COMMON STOCK
On May 31, 2000, the date of the annual meeting of shareholders, the
shareholders approved the amendment of the Company's certificate of
incorporation to increase the total number of shares of common stock the
Company is authorized to issue from 60,000,000 shares to 120,000,000 shares.
(8) STOCK OPTIONS
On May 31, 2000, the date of the annual meeting of shareholders, the
shareholders approved an amendment to the Company's 1996 Incentive Stock
Option Plan and 1996 Non-Qualified Stock Option Plan (the "Plans") to increase
the total number of shares of Common Stock which may be issued in the
aggregate pursuant to options that may be granted under the Plans from
8,000,000 to 11,000,000. (See Note 1).
At this meeting, the shareholders also approved the amendments to a total of
3,300,000 options held by the Company's President and Chief Executive Officer
and Executive Vice President and Chief Operating Officer. The options were
amended to provide that each tranche vests immediately upon achievement of the
relevent stock target price associated with such tranche without regard to the
passage of time, which was a requirement in the original options. The options
became fully vested and exercisable upon the approval of the amendments. (See
Note 1).
(9) NET LOSS PER COMMON SHARE
Basic and diluted net loss per common share isare computed based on the net loss
for the relevant period, adjusted for cumulative Seriesseries A Convertible Preferred
Stockconvertible
preferred stock dividends and the assumed incremental yield attributable to
the beneficial conversion feature in the preferred stock, divided by the
weighted average number of common shares outstanding during the period.
Potentially dilutive securities, including convertible preferred stock,
convertible debt, options and warrants, have not been included in the diluted
loss per common share computation because they are anti-dilutive.
(8)Page 6
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(10) COMPREHENSIVE INCOME (LOSS)
The following table reconciles net loss to comprehensive loss:
THREE MONTHS ENDED MARCH 31,
--------------------------------NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ------------------------------------------
2000 1999 ------------ ------------2000 1999
-------------- -------------- ------------------ -------------------
Net loss ................................................. $(12,057,000) $ (8,078,000)loss.............................. $(12,944,000) $(10,156,000) $(38,850,000) $(26,365,000)
Other comprehensive income (loss):income:
Unrealized holding gain
arising during the period .... 650,000 13,000period..... 1,622,000 86,000 2,183,000 155,000
Less: Reclassification adjustment
for net realized lossgain (loss)
included in net loss ........................... (2,000) (832,000)
------------ ------------loss.......... 54,000 (21,000) 70,000 (853,000)
-------------- -------------- ------------------ -------------------
Total other comprehensive
income ................ 652,000 845,000
------------ ------------income........................ 1,568,000 107,000 2,113,000 1,008,000
-------------- -------------- ------------------ -------------------
Total comprehensive loss ................................. $(11,405,000) $ (7,233,000)
============ ============loss.............. $(11,376,000) $(10,049,000) $(36,737,000) $(25,357,000)
============== ============== ================== ===================
(9)(11) COLLABORATIVE AGREEMENTS
The Company has a development and license agreement with Merck KGaA with
respect to IMC-C225, its lead interventional therapeutic product for the
treatment of cancer. In exchange for certain marketing and development rights,
the Company can receive up to $60,000,000 in milestone payments ($30,000,000
of which is
equity based)are equity-based) assuming the achievement of certain milestones and
a $30,000,000 secured line of credit or guaranty forrelating to the build-out of
a manufacturing facility for the commercial production of IMC-C225. This
agreement may be terminated by Merck KGaA in various instances, including (i)
at its discretion on any date on which a milestone is achieved (in which case
no milestone payment will be made), (ii) for a one-year period after first
commercial sale of IMC-C225 in Merck KGaA's territory, upon Merck KGaA's
reasonable determination that the product is economically unfeasible (in which
case Merck KGaA is entitled to receive back 50% of the cash-based milestone
payments then paid to date, but only out of revenues received, if any, based
upon a royalty rate applied to the gross profit from IMC-C225 sales or
IMC-C225 license fees in the United States and Canada), or (iii) in the event
the Company does not obtain certain collateral license agreements in which
case Merck KGaA also is entitled to a return of all cash amounts with respect
to milestone payments to date, plus liquidated damages of $500,000. In April
1999, the parties agreed on the production concept for the manufacturing
facility and are currently working towardnegotiating securing Merck KGaA's guaranty of the Company's
obligations under a proposed $30,000,000 credit facility relating to the
construction of the manufacturing facility. In the event of termination of the
agreement, the Company will be required to use its best reasonable efforts to
cause the release of Merck KGaA as guarantor. As of March
31,September 30, 2000, the
Company has received $24,000,000$26,000,000 in milestone payments. These payments have
been recorded as fees potentially refundable fromto corporate partner and revenue
recognition of such amounts will commence upon the Company obtaining the
defined collateral license agreements.
Page 6
9
(10)(12) REVENUE RECOGNITION
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB 101"). SAB 101 summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements, including the recognition of non-refundable fees received upon
entering into arrangements. The Company is in the process of evaluating this
SAB and the effect it maywill have on its financial statements and current
revenue recognition policies. The Company must adopt SAB 101, as amended, in
the secondfourth quarter of 2000
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10
with an effective date of January 1, 2000 and the recognition of thea cumulative
effect adjustment, if any, calculated as of January 1, 2000.
(13) SUBSEQUENT EVENTS
On November 8, 2000, the Company filed a Form S-3 shelf registration statement
with the Securities and Exchange Commission for the sale of up to 6,000,000
shares of common stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis by our management is provided to
identify certain significant factors whichthat affected our financial position and
operating results during the periods included in the accompanying financial
statements.
RESULTS OF OPERATIONS
ThreeNine Months Ended March 31,September 30, 2000 and 1999
REVENUES.
Revenues for the threenine months ended March 31,September 30, 2000 and 1999 were $206,000$1,139,000
and $629,000,$1,021,000, respectively, a decreasean increase of $423,000,$118,000, or 67%12%. Revenues for
the threenine months ended March 31,September 30, 2000 included $166,000primarily consisted of $250,000 in
milestone revenue and $849,000 in royalty revenue from our strategic corporate
alliance with Abbott Laboratories ("Abbott") in diagnostics. Revenues for the
threenine months ended March 31,September 30, 1999 primarily consisted of (i) $75,000$225,000 in
research support from our partnershipstrategic corporate alliance with American Home
Products Corporation ("American Home") in infectious disease vaccines, (ii)
$425,000$533,000 in research and support payments from our research and license agreementstrategic corporate
alliance with Merck KGaA for our principal cancer vaccine product candidate,
BEC2, and (iii) $124,000$258,000 in royalty revenue from our strategic corporate
alliance with Abbott in diagnostics. The decreaseincrease in revenues for the threenine
months ended March 31,September 30, 2000 was primarily attributable to the increase in
milestone revenue and royalty revenue from our strategic corporate alliance
with Abbott in diagnostics. The increase was partially offset by the decrease
in research and support revenue as a result of the completion of all research
and support payments due from our researchstrategic corporate alliance with American
Home in infectious disease vaccines and license agreementour strategic corporate alliance with
Merck KGaA for BEC2.
OPERATING EXPENSES;EXPENSES: RESEARCH AND DEVELOPMENT.
Total operating expenses for the threenine months ended March 31,September 30, 2000 and 1999
were $14,227,000$46,796,000 and $8,356,000,$27,915,000, respectively, an increase of $5,871,000,$18,881,000, or
70%68%. Research and development expenses for the threenine months ended March 31,September 30,
2000 and 1999 were $11,101,000$36,401,000 and $6,354,000,$22,131,000, respectively, an increase of
$4,747,000$14,270,000 or 75%64%. Such amounts for the threenine months ended March 31,September 30, 2000
and 1999 represented 78% and 76%79%, respectively, of total operating expenses.
Research and development expenses for the threenine months ended March 31,September 30, 2000
and 1999 have been offsetreduced by $824,000$4,164,000 and $516,000,$852,000, respectively, for
clinical trial and contract manufacturing costs that are reimbursable by Merck
KGaA. The increase in research and development expenses for the threenine months
ended March 31,September 30, 2000 was primarily attributable to (i) the costs
associated with two pivotal Phase IIIongoing clinical trials of IMC-C225, in
treating head and neck cancer, one in combination(ii) an up-front fee of
$1,800,000 to initiate the commercial manufacturing services agreement with
radiation and one in
combination with cisplatin, (ii) the costs associated with two additional Phase
II clinical trials of IMC-C225, one in refractory head and neck cancer in
combination with cisplatin and one in refractory colorectal cancer in
combination with irinotecan,Lonza, (iii) expenditures in the functional areas of product development,
manufacturing, clinical and regulatory affairs associated with IMC-C225, (iv)
non-cash expenses recognized in connection with the issuance of options
granted to scientific consultants and collaborators and (v) increased expenditures associated
with additional staffing in the area of discovery research. We expect research and development costs to increase
in future periods as we continue to expand our efforts in product development
and clinical trials.
Page 7
10OPERATING EXPENSES: MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES.
GeneralADMINISTRATIVE.
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11
Marketing, general and administrative expenses include administrative
personnel costs, costs to develop internal marketing and sales capabilities,
costs to pursue arrangements with strategic corporate partners and technology
licensors, and expenses associated with applying for patent protection for our
technology and products. Such expenses for the nine months ended September 30,
2000 and 1999 were $10,395,000 and $5,784,000, respectively, an increase of
$4,611,000, or 80%. The increase in marketing, general and administrative
expenses primarily reflected (i) costs associated with our marketing efforts,
(ii) additional administrative staffing required to support our expanding
research, development, clinical, marketing and manufacturing efforts,
particularly with respect to IMC-C225 and (iii) expenses associated with the
pursuit of strategic corporate alliances and other corporate development
efforts. We expect marketing, general and administrative expenses to increase
in future periods to support our planned increases in research, development,
clinical, marketing and manufacturing efforts.
INTEREST AND OTHER INCOME AND INTEREST EXPENSE.
Interest income was $15,354,000 for the nine months ended September 30, 2000
compared with $1,757,000 for the nine months ended September 30, 1999, an
increase of $13,597,000 or 774%. The increase was primarily attributable to
the increase in our investment portfolio as a result of the November 1999
public common stock offering and the February 2000 private placement of 5 1/2%
convertible subordinated notes. Interest expense was $8,617,000 and $375,000
for the nine months ended September 30, 2000 and 1999, respectively, an
increase of $8,242,000 which was primarily attributable to the convertible
subordinated notes. Interest expense for both periods primarily included (i)
interest on an outstanding Industrial Development Revenue Bond issued in 1990
("the 1990 IDA Bond") with a principal amount of $2,200,000 and (ii) interest
recorded on various capital lease obligations under our 1996 financing
agreement and 1998 financing agreement with Finova Technology Finance, Inc.
("Finova"). Interest expense for the nine months ended September 30, 2000 was
offset by capitalizing interest costs during the construction period of the
Company's new manufacturing facility in the amount of $491,000. Gains on
securities available for sale for the nine months ended September 30, 2000
were $70,000 and losses on securities available for sale for the nine months
ended September 30, 1999 were $853,000. The loss for the nine months ended
September 30, 1999 was primarily attributable to the $828,000 write-down of
our investment in CombiChem Inc. ("CombiChem") as a result of an other than
temporary impairment. In November 1999, CombiChem was acquired by E.I. du
Pont de Nemours and Company for cash consideration of $6.75 per share, which
represented a financial reporting gain to us of approximately $937,000 in the
fourth quarter of 1999, after considering the aforementioned write-down. The
resulting net gain on the investment in CombiChem was $109,000 for the year
ended December 31, 1999.
NET LOSSES.
We had a net loss to common stockholders of $40,967,000 or $0.66 per share for
the nine months ended September 30, 2000 compared with $29,165,000 or $0.58
per share for the nine months ended September 30, 1999. The increase in the
net losses and per share net loss to common stockholders was due primarily to
the factors noted above.
Three Months Ended September 30, 2000 and 1999
REVENUES.
Revenues for the three months ended September 30, 2000 and 1999 were $773,000
and $138,000, respectively, an increase of $635,000, or 460%. Revenues for the
three months ended September 30, 2000 consisted of $250,000 in milestone
revenue and $523,000 in royalty revenue from our strategic corporate alliance
with Abbott in diagnostics. Revenues for the three months ended September 30,
1999 consisted of (i) $75,000 in research support from our partnership with
American Home in infectious disease vaccines, and (ii) $63,000 in royalty
revenue from our strategic alliance with Abbott in diagnostics. The increase
in revenues for the three months ended September 30, 2000 was primarily
attributable to the increase in milestone revenue and royalty revenue from our
strategic corporate alliance with Abbott in
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diagnostics. The increase was partially offset by the decrease in research and
support revenue as a result of the completion of all research and support
payments due from our strategic corporate alliance with American Home in
infectious disease vaccines.
OPERATING EXPENSES: RESEARCH AND DEVELOPMENT.
Total operating expenses for the three months ended September 30, 2000 and
1999 were $16,044,000 and $10,733,000, respectively, an increase of
$5,311,000, or 49%. Research and development expenses for the three months
ended September 30, 2000 and 1999 were $12,557,000 and $8,626,000,
respectively, an increase of $3,931,000 or 46%. Such amounts for the three
months ended September 30, 2000 and 1999 represented 78% and 80%,
respectively, of total operating expenses. Research and development expenses
for the three months ended September 30, 2000 and 1999 have been reduced by
$2,650,000 and $71,000, respectively, for clinical trial and contract
manufacturing costs that are reimbursable by Merck KGaA. The increase in
research and development expenses for the three months ended September 30, 2000
was primarily attributable to (i) the costs associated with ongoing clinical
trials of IMC-C225, (ii) an up-front fee of $1,800,000 to initiate the
commercial manufacturing services agreement with Lonza, (iii) expenditures in
the functional areas of product development, manufacturing, clinical and
regulatory affairs associated with IMC-C225, and (iv) increased expenditures
associated with discovery research. We expect research and development costs to
increase in future periods as we continue to expand our efforts in product
development and clinical trials.
OPERATING EXPENSES: MARKETING, GENERAL AND ADMINISTRATIVE.
Marketing, general and administrative expenses include administrative
personnel costs, costs to develop internal marketing and sales capabilities,
costs incurred in connection with pursuing arrangements with corporate
partners and technology licensors, and expenses associated with applying for
patent protection for our technology and products. Such expenses for the three
months ended March 31,September 30, 2000 and 1999 were $3,126,000$3,487,000 and $2,002,000,$2,107,000,
respectively, an increase of 1,124,000,1,380,000, or 56%65%. The increase in marketing,
general and administrative expenses primarily reflected (i) costs associated
with theour marketing efforts, of the Company and (ii) additional administrative staffing required
to support staffing for theour expanding research, development, clinical and manufacturing
efforts, of the Company, particularly with respect to IMC-C225.IMC-C225 and (iii) expenses associated
with the pursuit of strategic corporate alliances and other corporate
development efforts. We expect marketing, general and administrative expenses
to increase in future periods to support our planned increases in research,
development, clinical, marketing and manufacturing efforts.
INTEREST AND OTHER INCOME AND INTEREST EXPENSE.
Interest income was $3,187,000$6,002,000 for the three months ended March 31,September 30, 2000
compared with $604,000$589,000 for the three months ended March 31,September 30, 1999, an
increase of $2,583,000.$5,413,000 or 919%. The increase was primarily attributable to the
increase in our investment portfolio as a result of ourthe November 1999 public
common stock offering and ourthe February 2000 private placement of 5 1/2%
convertible subordinated notes. Interest expense was $1,221,000$3,729,000 and $123,000$129,000
for the three months ended March
31,September 30, 2000 and 1999, respectively, an
increase of $1,098,000.$3,600,000 which was primarily attributable to the convertible
subordinated notes. Interest expense for both periods primarily included (i)
interest on the outstanding 1990 IDA Bond with a principal amount of
$2,200,000 and (ii) interest recorded on various capital lease obligations
under a December 1996 Financing Agreement (the "1996
Financing Agreement") and an April 1998 Financing Agreement (the "1998 Financing
Agreement")our financing agreements with Finova. Interest expense for the three
months ended March 31,September 30, 2000 was offset by capitalizing interest costs
during the construction period of the Company's new manufacturing facility in
the amount of $154,000. The
increase in interest expense is attributable to interest on the outstanding
convertible subordinated notes. Losses on securities available for sale for the
three months ended March 31, 2000 and 1999 were $2,000 and $832,000,
respectively. The loss for the three months ended March 31, 1999 is primarily
attributable to the $828,000 write-down of our investment in CombiChem Inc. as
a result of an other than temporary impairment.$184,000.
NET LOSSES.
We had a net lossesloss to common stockholders of $12,759,000$13,656,000 or $0.43$0.21 per share for
the three months ended March 31,September 30, 2000 compared with $9,006,000$11,094,000 or $0.37$0.22
per share for the three months ended March 31,September 30, 1999. The increase in the
net losses
and per share net loss to common stockholders was due primarily to the factors noted
above. The decrease in the net loss per share to common stockholders is
attributable to the increased number of shares of common stock outstanding.
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13
LIQUIDITY AND CAPITAL RESOURCES
At March 31,September 30, 2000, our principal sources of liquidity consisted of
cash and cash equivalents and short-term securities available for sale of
approximately $342.5$312.5 million. From inception through March 31,September 30, 2000 we
have financed our operations through the following means:
- Public and private sales of equity securities and convertible
notes in financing transactions have raised approximately $489.8$489.4
million in net proceeds
- We have earned approximately $35.2$36.1 million from license fees,
contract research and development fees and royalties from
collaborative partners. Additionally, we have received $24.0$26.0
million in potentially refundable fees from our IMC-C225
development and license agreement with Merck KGaA. And, as of
March 31, 2000, Merck KGaA has confirmed that we have achieved
milestones, with respect to which we are entitled to receive
an additional $2.0 million in payments. The amounts
from Merck KGaA with respect to IMC-C225 have yet to be
recognized as revenue because they are refundable under certain
circumstances
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11
- We have earned approximately $14.5$26.7 million in interest income
- The sale of the IDA Bonds in each of 1985, 1986 and 1990 raised
an aggregate of $6.3 million, the proceeds of which have been
used for the acquisition, construction and installation of our
research and development facility in New York City, and of which
$2.2 million is outstanding
We may from time to time consider a number of strategic alternatives
designed to increase shareholder value, including joint ventures, acquisitions
and other forms of alliances as well as the sale of all or part of the
company.Company.
The 1990 IDA Bond in the outstanding principal amount of $2,200,000
becomes due in 2004. We will incur annual interest on the 1990 IDA Bond
aggregating approximately $250,000. In order to secure our obligations to the
NYIDANew York Industrial Development Agency ("NYIDA") under the 1990 IDA Bond, we
have granted the NYIDA a security interest in facility equipment purchased
with the bond proceeds.
In February 2000, we completed a private placement of $240,000,000 in 5
1/2% convertible subordinated notes due March 1, 2005. We received net
proceeds from
this offering of approximately $231,900,000,$231,500,000, after deducting expenses associated
with the offering. TheInterest on the notes bear interest at 5.5%is payable semi-annually on September
1 and March 1 of each year, beginning September 1, 2000. Accrued interest on
the notes was approximately $1,100,000 at September 30, 2000. A holder may
convert all or a portion of a note into common stock at any time on or before
March 1, 2005 at a conversion price of $110.18$55.09 per share, subject to adjustment
if certain events affecting our common stock occur. We may redeem some or all
of the notes prior to March 6, 2003 if specified common stock price thresholds
are met. On or after March 6, 2003, we may redeem some or all of the notes at
specified redemption prices.
In December 1999, we entered into a development and manufacturing
services agreement with Lonza. Under the agreement, Lonza is engaging in
process development and scale-up for the manufacture of IMC-C225. These steps
are being taken to assure that its process will produce bulk material that
conforms with the Company'sour reference material. As of September 30, 2000, we have
incurred approximately $448,000 for services provided under this agreement. In
September 2000, we entered into a three year commercial manufacturing services
agreement with Lonza relating to IMC-C225. Under our arrangementsthe agreements with Lonza,
Lonza will manufacture sixIMC-C225 at the 5,000 liter production runsscale under cGMP conditions
and deliver it to us over the next three year period. In September 2000, we
accrued an up-front fee of material$1,800,000 to initiate this agreement and have
included this amount as research and development expense in the nine months
ended September 30, 2000.
We cannot be certain that maywe will be usedable to enter into agreements for clinical and/or commercial supply. The Company also has
agreed in principle with Lonza to the material terms of a three-year
commercial supply agreementwith third party manufacturers on terms acceptable to us.
Even if we are able to enter into such agreements, we cannot
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14
be certain that we will be able to produce or obtain sufficient quantities for
which the definitive agreement is being completed. Ascommercial sale of March 31, 2000, the Company has incurred approximately $159,000 for services
provided under this agreement.our products. Any delays in producing or obtaining
commercial quantities of our products could have a material effect on our
business, financial condition and results of operations.
We have obligations under various capital leases for certain laboratory,
office and computer equipment and also certain building improvements primarily
under thefinancing agreements with Finova entered into in 1996 Financing Agreement and the 1998 Financing Agreement
with Finova.1998. The
1996 Financing Agreementfinancing agreements allowed us to finance the lease of equipment and make
certain building and leasehold improvements to existing facilities involving amounts totaling approximately $2,500,000.facilities. Each lease
has a fair market value purchase option at the expiration of a 42-monthits 42 or 48 month
term. Pursuant to the financing agreement entered into in 1996, Financing Agreement, we issued to
Finova a warrant expiring December
31, 1999 to purchase 23,22046,440 shares of our common stock at an exercise
price of $9.69$4.85 per share.share which was exercised in November 1999. We recorded a
non-cash debt discount of approximately $125,000 in connection with this
financing, whichfinancing. This discount is beinghas been amortized over the 42-month term of the first
lease. The 1996 Financing Agreement with Finova
expired in December 1997. We utilized only $1,745,000 of the full $2,500,000
under the agreement. In April 1998, we entered into the 1998 Financing Agreement
with Finova totaling approximately $2,000,000. The terms of the 1998 Financing
Agreement are substantially similar to the expired 1996 Financing Agreement
except that each lease has a 48-month term. We have entered into twelve individual leases under both the 1996 Financing Agreement and the 1998 Financing
Agreementfinancing
agreements aggregating a total cost of $3,695,000. The 1998 Financing Agreement
expired in May 1999.These financing arrangements
are now expired. In January and February 2000, we entered into financingcapital lease
arrangements, subject to final document negotiation, with Finova and
Transamerica Business Credit Corporation under which we may obtain at our
option up to an aggregate of $25,000,000 for our utilization primarily in connectionfinancing. Under the arrangements,
funds may be obtained from time to time to finance equipment and certain
pre-construction costs associated with the build-out of our new commercial
manufacturing facility. The
funds may be obtained through multiple leases of equipment and building
improvements for not less than specified minimum amounts. Each lease contains a
balloon purchase option at the end of a 48-month term. The Company hasWe paid $100,000 in application fees associated with
these agreements which may be applied against future principal and interest
payments. As of September 30, 2000, we have not drawn any funds under these
arrangements.
We rent our New York facility under an operating lease that expires in
December 2004. We are in the processhave substantially completed renovations of renovating the facility to
better suit our needs. The renovation is expected toneeds at a cost of approximately $2,000,000 and is
substantially complete.
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12$2,500,000.
Under our agreement with Merck KGaA for IMC-C225, we developed, in
consultation with Merck KGaA, a production concept for a new manufacturing
facility for the commercial production of IMC-C225. Merck KGaA is to provide
us, if we so choose, subject to certain conditions, with a guaranty under a $30
million credit facility for the build-out of this facility. We have determined
to erectare currently
erecting this facility adjacent to our current manufacturing facility in New
Jersey, which supplies IMC-C225 to support our clinical trials. We broke
ground on the facility in January 2000 and estimate that the total cost will
be approximately $45$48 million. We are currently in the process of negotiating the terms of the loan
agreement and guaranty. We expect to fund the remaining cost of this facility
through a combination of cash on hand, proceeds from our February 2000 private
placement of convertible notes and, if advisable, equipment financing
transactions.
Total capital expenditures made during the threenine months ended March 31,September
30, 2000 were $5,039,000. Of the total capital expenditures made during the three
months ended March 31, 2000, $591,000$22,583,000 of which (i) $1,349,000 related to the purchase of
equipment for and costs associated with the retrofit of our corporate office
and research laboratories in New York and other capital expenditures relating
to the New York facility. We incurred $4,290,000facility; (ii) $20,863,000 related to engineering,
pre-construction and construction costs associated with the build-out of the commercial manufacturing
facility to bebeing erected adjacent to our current manufacturing facility in New
Jersey. TheJersey and (iii) the remaining $158,000 is$371,000 related to improving and equipping our
existing manufacturing facility.
In 1998,To prepare for the marketing and sale of IMC-C225 in the U.S. and Canada
we hired a Vice President of Marketing and Sales in 1998 and have
recently hired
directors of marketing, field sales and sales operations, each with experience
in the commercial launch of a monoclonal antibody cancer therapeutic, to develop our internal marketing and sales capabilities.therapeutic. We
are
preparing for the marketing and sale of IMC-C225 in the U.S. and Canada, and in
that regard, we planexpect to hire regional sales managers and approximately 40
sales peoplerepresentatives prior to the
commencement of IMC-C225 sales.
The holders of the Series A Convertible Preferred Stock (the "seriesseries A preferred stock")stock are entitled to receive
cumulative dividends at an annual rate of $6.00 per share. Dividends accrue
as offrom the issuance date of the series A preferred stock and are payable on the
outstanding series A preferred stock in cash on December 31 of each year
beginning December 31, 1999 or at the time of conversion or redemption of the
series A preferred stock on which the dividend is to be paid, whichever is
sooner. Accrued dividends were approximately $448,000$1,348,000 at March 31,September 30, 2000.
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15
We believe that our existing cash and cash equivalents and securities
available for sale and amounts expected to be available under our credit
facilities should enable us to maintain our current and planned operations
through at least 2002. We are also entitled to reimbursement for certain
research and development expenditures and to certain milestone payments,
including $6$4 million in cash-based milestone payments and $30 million in
equity-based milestone payments from our IMC-C225 development and license
agreement with Merck KGaA, which are to be paid subject to our attaining
research and development milestones certain of which have recently been
attained, and certain other conditions. There can be
no assurance that we will achieve the unachieved milestones. Additionally, the
termination of the agreement due to our failure to obtain the necessary
collateral license agreements would require us to return all milestone
payments made to date, plus $500,000 in liquidated damages. Our future working
capital and capital requirements will depend upon numerous factors, including,
but not limited to:
- progress and results of our research and development programs,
pre-clinical testing and clinical trials
- our corporate partners' fulfilling their obligations to us
- timing and cost of seeking and obtaining regulatory approvals
- timing and cost of manufacturing scale-up and effective
commercialization activities and arrangements, including costs of
establishing manufacturing capacity in our facility and those of
others
- level of resources that we devote to the development of marketing
and sales capabilities
- costs involved in filing, prosecuting and enforcing patent claims
- technological advances
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- status of competitorscompetitive products and candidates
- our ability to maintain existing and establish new collaborative
arrangements with other companies to provide funding to support
these activities
- costs of establishing both clinical scale and commercial scale
manufacturing capacity in our facility and those of others
In order to fund our capital needs after 2002, we will require
significant levels of additional capital andwhich we intend to raise the capital through
additional arrangements with corporate partners, equity or debt financings, or
from other sources including the proceeds of product sales, if any. There is
no assurance that we will be successful in consummating any such arrangements.
If adequate funds are not available, we may be required to significantly
curtail our planned operations.
At December 31, 1999, we had net operating loss carryforwards for United
States federal income tax purposes of approximately $151$147 million, which expire
at various dates from 2000 through 2019. At December 31, 1999 we had research
credit carryforwards of approximately $7.7$8.5 million, which expire at various
dates from 2009 through 2019. Under Section 382 of the Internal Revenue Code
of 1986, as amended, a corporation's ability to use net operating loss and
research credit carryforwards may be limited if the corporation experiences a
change in ownership of more than 50 percentage points within a three-year
period. Since 1986, we have experienced at least two such ownership changes.
As a result, we are only permitted to use in any one year approximately $5.2
million of our available net operating loss carryforwards that relate to
periods before these ownership changes. Similarly, we are limited in using our
research credit carryforwards. It has not been determinedWe are in the process of determining whether
the November 1999 public stock offering and the February 2000 private
placement of convertible subordinated notes will result inbe viewed as additional
ownership changes that would further limit the use of our net operating losses
and research credit carryforwards.
RECENTLY ISSUED ACCOUNTING STANDARDS
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16
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
Financial Statements ("SAB 101"). SAB 101 summarizes certain of the staff's
views in applying generally accepted accounting principles to revenue
recognition in financial statements, including the recognition of
non-refundable fees received upon entering into arrangements. We are in the
process of evaluating this SAB and the effect it maywill have on our financial
statements and current revenue recognition policies. We must adopt SAB 101, as
amended, in the secondfourth quarter of 2000 with an effective date of January 1,
2000 and the recognition of thea cumulative effect adjustment, if any, calculated
as of January 1, 2000.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Financial Instruments and Hedging Activities,
which was subsequently amended by SFAS Nos. 137 and 138. This Statement
standardizes the accounting for derivative instruments including certain
derivative instruments embedded in other contracts. The effective date of SFAS
No. 133 was delayed to fiscal year 2001 by the issuance of SFAS No. 137. We
will adopt this statement as of January 1, 2001. We do not expect this
statement to have a material effect on our financial statements.
CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS--SAFE HARBOR STATEMENT
Those statements contained herein that do not relate to historical
information are forward-looking statements. There can be no assurance that the
future results covered by such forward-looking statements will be achieved.
Actual results may differ materially due to the risks and uncertainties
inherent in the Company's business, including without limitation, the risks
and uncertainties associated with completing pre-clinical and clinical trials
of the Company's compounds that demonstrate such compounds' safety and
effectiveness; obtaining additional financing to support the Company's
operations; obtaining and maintaining regulatory approval for such compounds
and complying with other governmental regulations applicable to the Company's
business; obtaining the raw materials necessary in the development of such
compounds; consummating collaborative arrangements with corporate partners for
product development; achieving milestones under collaborative arrangements
with corporate partners; developing the capacity and ability to manufacture,
as well as market and sell the Company's products, either directly or with
collaborative partners; developing market demand for and acceptance of such
products; competing effectively with other pharmaceutical and biotechnological
products; obtaining adequate reimbursement from third party payors; attracting
and retaining key personnel; obtaining and protecting proprietary rights; and
those other factors set forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview and Risk Factors,""Risk Factors" in the Company's most recent
Registration Statement on Form 10-K.
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14Statement.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our holdings of financial instruments comprise a mix of securities whichthat
may include U.S. corporate debt, foreign corporate debt, U.S. government debt,
foreign government/agency guaranteed debt and commercial paper. All such
instruments are classified as securities available for sale. Generally, we do
not invest in portfolio equity securities or commodities or use financial
derivatives for trading purposes. Our debt security portfolio represents funds
held temporarily pending use in our business and operations. We manage these
funds accordingly. We seek reasonable assuredness of the safety of principal
and market liquidity by investing in investment grade fixed income securities
while at the same time seeking to achieve a favorable rate of return. Our
market risk exposure consists principally of exposure to changes in interest
rates. Our holdings are also exposed to the risks of changes in the credit
quality of issuers. We invest in securities whichthat have a range of maturity
dates. Typically, those with a short-term maturity are fixed-rate, highly
liquid, debt instruments and those with longer-term maturities are highly
liquid debt instruments fixed interest rates or with periodic interest rate
adjustments. We also have certain foreign exchange currency risk. See footnote
3 of the financial statements. The table below presents the principal amounts
and related weighted average interest rates by year of maturity for our
investment portfolio as of March 31,September 30, 2000:
2005 AND
2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE
------------ ------------ ---------- ---------- ------------ ------------ ----------------------- ----------- --------- -------------- --------------- ------------- -------------
Fixed Rate $ 15,913,000 $ 6,889,000 $1,448,000 - $ 40,022,000 $131,583,000 $195,855,000$5,999,000 $11,895,000 $1,541,000 242,000 $40,300,000 $126,436,000 $186,413,000 $188,367,000
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17
Average
Interest Rate 5.05% 6.41% 8.00%5.10% 6.55% 7.83% 6.00% 6.60% 6.65% 6.59% - 6.60% 6.64% 6.50%
Variable Rate - - - - $ 15,315,000(1) $110,194,000(1) $125,509,000$14,473,000(1) $104,908,000(1) $119,381,000 $119,561,000
Average
Interest Rate - - - - 6.27% 6.35% 6.34%
------------ ------------6.65% 6.92% 6.89% -
---------- ---------- ------------ ------------ ------------
$ 15,913,000 $ 6,889,000 $1,448,000 - $ 55,337,000 $241,777,000 $321,364,000
============ ============------------- ----------- --------- -------------- --------------- ------------- -------------
$5,999,000 $11,895,000 $1,541,000 242,000 $54,773,000 $231,344,000 $305,794,000 $307,928,000
========== ========== ============ ============ ============
FAIR VALUE
------------
Fixed Rate $190,418,000
Average
Interest Rate -
Variable Rate $131,619,000
Average
Interest Rate -
------------
$322,037,000
========================= =========== ========= ============== =============== ============= =============
(1) These holdings consist of U.S. corporate and foreign corporate floating
rate notes. Interest on the securities areis adjusted at fixed dates using
prevailing interest rates. These holdings are highly liquid. Weliquid and we
consider the potential for loss of principal to be minimal.
Our 5 1/2% convertible subordinated notes in the principal amount
of $240,000,000 due March 1, 2005 and other long-term debt have fixed interest
rates and the fair value of these instruments is affected by changes in market
interest rates. The subordinatesubordinated notes are convertible into the Company's common stock
at a conversion price of $110.18$55.09 per share. The fair value of this
instrument is subject tofixed interest
rate instruments are affected by changes in interest rates and in the case of
the convertible notes by changes in the price of the Company's common stock.
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended March 31,September 30, 2000, we issued an
aggregate of 600,85067,000 shares of unregistered common stock to holders of warrants
upon exercise of such warrants for a total purchase price of $1,389,219,$50,250 which
were consummated as private sales under Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act").
On February 29, 2000, we completed a private placement of $240,000,000
aggregate principal amount of 5 1/2% convertible subordinated notes due March 1,
2005. We received net proceeds from this offering of approximately $231,900,000,
after deducting costs associated with the offering. The notes bear interest at
an annual rate of 5 1/2% payable semi-annually on September 1 and March 1 of
each year, beginning September 1, 2000. The holders may convert all or any
portion of a note, in multiples of $1,000, into common stock at any time on or
before March 1, 2005 at a conversion price of $110.18 per share, subject to
adjustment if certain events affecting the common stock occur. In lieu of
fractional shares, we will pay a cash adjustment based on the closing price of
the common stock on the last business day prior to the conversion. The notes
are subordinated to all existing and future senior indebtedness. We may redeem
some or all of the notes at any time prior to March 6, 2003, at a redemption
price of 100% of the principal amount plus accrued and unpaid interest to the
redemption date if (1) the closing price of the common stock has exceeded 150%
of the conversion price for at least 20 trading days in any consecutive
30-trading day period and (2) if the redemption occurs before March 1, 2002,
the shelf registration statement, to be filed, covering resales of the notes
and the common stock is effective and expected to remain effective and
available for use for the 30 days following the redemption date. We shall mail
the notice for redemption within five trading days of the consecutive 30-trading
day period. If the notes are redeemed under these circumstances, we will make an
additional payment of $152.54 per $1,000 aggregate principal amount of notes,
minus the amount of all interest paid on such principal amount since February
29, 2000 to the date the notice was mailed. On or after March 6, 2003, we may
redeem some or all of the notes at specified redemption prices, plus accrued
and unpaid interest to the day preceding the redemption date. The holders have
the right, upon the occurrence of certain specified events constituting a
fundamental change, to require us to redeem all or any part of such holder's
notes at a price equal to 100% of the principal amount of the notes being
redeemed, together with accrued interest to, but excluding, the date of
redemption. We are required to file with the Securities and Exchange Commission
a shelf registration statement covering resales of the notes and the common
stock.
Morgan Stanley & Co. Incorporated and Merrill Lynch & Co., who acted as
the initial purchasers for the convertible notes, received an aggregate fee of
$7,800,000. The notes were issued pursuant to safe-harbor exemptions
from the registration requirements of the Securities Act, solely to qualified
institutional buyers and to a limited number of institutional "accredited
investors" pursuant to Rule 144A and Regulation D of the Securities Act.amended.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
Exhibit No. Description
----------- -----------
10.76 Stock Purchase
Agreement between the
Company and Valigen
N.V. dated May 31, 2000
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
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1518
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: May 12, 2000 By /s/ Samuel D. Waksal
-------------------------------------
Samuel D. Waksal
President and Chief Executive Officer
Date: May 12, 2000 By /s/ Carl S. Goldfischer
-------------------------------------
Carl S. Goldfischer
IMCLONE SYSTEMS INCORPORATED
(Registrant)
Date: November 14, 2000 By /s/ SAMUEL D. WAKSAL
---------------------------------------------
Samuel D. Waksal
President and Chief Executive Officer
Date: November 14, 2000 By /s/ PAUL A. GOLDSTEIN
---------------------------------------------
Paul A. Goldstein
Assistant Vice President, Finance
and Chief
Financial Officer
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