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, 2000
----------------2001
[ ] 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 of
incorporation or organization) (IRS Employer Identification No.)
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
--- ---
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
- ------------------------------------------- ---------------------------------8, 2001
Common Stock, par value $.001 31,263,29167,241,491 Shares
2
IMCLONE SYSTEMS INCORPORATED
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 20002001 (unaudited)
and December 31, 19992000 1
Unaudited Consolidated Statements of Operations - Three
months ended March 31, 20002001 and 19992000 2
Unaudited Consolidated Statements of Cash Flows - Three
months ended March 31, 20002001 and 19992000 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 1213
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 1214
Item 6. Exhibits and Reports on Form 8-K 1214
3
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
IMCLONE SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share and share data)
ASSETS MARCH 31, DECEMBER 31,
ASSETS2001 2000
1999
---------------------- ------------
(UNAUDITED)
Current assets:
Current assets:
Cash and cash equivalents ........................................equivalents...................................... $ 20,5121,986 $ 12,01660,325
Securities available for sale ..................................... 322,037 107,352sale.................................. 224,685 236,844
Prepaid expenses .................................................. 3,498 158expenses............................................... 3,463 2,628
Note receivable - officer...................................... 290 282
Other current assets .............................................. 10,458 7,599
--------- ---------assets........................................... 8,466 7,138
------------- ------------
Total current assets ....................... 356,505 127,125
--------- ---------assets.................... 238,890 307,217
------------- ------------
Property and equipment:
Land .............................................................. 1,087 1,087Land........................................................... 2,140 2,111
Building and building improvements ................................ 10,913 10,810improvements............................. 11,031 10,989
Leasehold improvements ............................................ 4,891 4,891improvements......................................... 7,922 7,863
Machinery and equipment ........................................... 9,177 9,049equipment........................................ 10,389 9,995
Furniture and fixtures ............................................ 1,003 898fixtures......................................... 1,417 1,311
Construction in progress .......................................... 9,912 5,209
--------- ---------progress....................................... 51,880 37,436
------------- ------------
Total cost ................................. 36,983 31,944cost.............................. 84,779 69,705
Less accumulated depreciation and amortization .................. (15,198) (14,729)
--------- ---------amortization............... (17,679) (17,105)
------------- ------------
Property and equipment, net ................ 21,785 17,215
--------- ---------net............. 67,100 52,600
------------- ------------
Patent costs, net ...................................................... 983 1,013.................................................. 1,204 1,168
Deferred financing costs, net .......................................... 8,008 37
Other assets ........................................................... 309 304
--------- ---------net....................................... 6,692 7,114
Investment in equity securities and other assets.................... 1,063 3,392
------------- ------------
$ 387,590314,949 $ 145,694
========= =========371,491
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................................payable................................................ $ 4,9216,695 $ 3,98712,729
Accrued expenses ................................................... 5,032 5,123............................................... 13,434 11,374
Interest payable ................................................... 1,225 45payable................................................ 1,206 4,444
Deferred revenue................................................ 6,337 2,434
Fees potentially refundable fromto corporate partner ................. 24,000 20,000partner................ -- 28,000
Current portion of long-term liabilities ........................... 880 906....................... 566 626
Preferred stock called for redemption and dividends payable .................................. 448 -
--------- ---------payable..... -- 25,764
------------- ------------
Total current liabilities .................. 36,506 30,061
--------- ---------liabilities............... 28,238 85,371
------------- ------------
Long-term debt .............................................................................................................. 242,200 2,200242,200
Other long-term liabilities, less current portion ...................... 918 1,135
--------- ---------.................. 345 488
------------- ------------
Total liabilities .......................... 279,624 33,396
--------- ---------liabilities....................... 270,783 328,059
------------- ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value; authorized 4,000,000
shares; issued and outstanding200,000 Series A Convertible: 300,000Convertible shares called for
redemption and classified as a current liability at March 31, 2000 and
December 31, 1999 (preference in
liquidation $30,448 and $30,000, respectively) ................ 300 3002000.......................................... -- --
Common stock, $.001 par value; authorized 60,000,000120,000,000 shares;
issued 31,230,18366,685,341 and 29,703,09065,818,362 at March 31, 20002001 and
December 31, 1999, respectively;2000, respectively, outstanding 31,179,366,66,496,091,
and 29,652,27365,767,545 at March 31, 20002001 and December 31, 1999,
respectively .................................................. 31 302000,
respectively............................................... 67 66
Additional paid-in capital ......................................... 292,968 286,038capital...................................... 286,848 283,268
Accumulated deficit ................................................ (185,514) (173,457)deficit............................................. (245,003) (243,808)
Treasury stock, at cost; 189,250 and 50,817 shares at
March 31, 20002001 and December 31, 1999 .........................................2000, respectively......... (4,100) (492) (492)
Note receivable - officer and stockholder .......................... - (142)
Accumulated other comprehensive income:
Unrealized gain on securities available for sale .............. 673 21
--------- ---------sale........... 6,354 4,398
------------- ------------
Total stockholders' equity ................. 107,966 112,298
--------- ---------equity.............. 44,166 43,432
------------- ------------
$ 387,590314,949 $ 145,694
========= =========371,491
============= ============
See accompanying notes to consolidated financial statements.statements
Page 1
4
IMCLONE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
THREE MONTHS ENDED
MARCH 31,
--------------------------------------------------
2001 2000 1999
-------- --------(1)
--------- ----------
Revenues:
Revenues:
License fees from third parties ........................and milestone revenues .............................. $ 4024,096 $ -81
Research and development funding from third
parties and other ...................................royalties.................... 648 166
629
-------- ----------------- ----------
Total revenues ........................... 206 629
-------- --------revenues...................................... 24,744 247
--------- ----------
Operating expenses:
Research and development ....................................................................... 21,845 11,101
6,354
GeneralMarketing, general and administrative ......................................................... 3,728 3,126
2,002
-------- ----------------- ----------
Total operating expenses .............................................. 25,573 14,227
8,356
-------- ----------------- ----------
Operating loss .............................................. (14,021) (7,727)
-------- --------........................................................ (829) (13,980)
--------- ----------
Other:
Interest income ........................................income................................................... (4,565) (3,187)
(604)
Interest expense .......................................expense.................................................. 3,313 1,221 123
Loss on securities available for sale ..................and investment................................. 1,618 2
832
-------- ----------------- ----------
Net interest and other income ..............(income) expense............... 366 (1,964)
351
-------- ----------------- ----------
Loss before cumulative effect of change in
accounting policy........................... (1,195) (12,016)
Cumulative effect of change in accounting policy for the
recognition of upfront non-refundable fees........................ -- (2,596)
--------- ----------
Net loss .................................................... (12,057) (8,078)loss......................................... (1,195) (14,612)
Preferred dividends (including assumed incremental yield
attributible to beneficial conversion feature of $254 and $336 for
the three months ended March 31, 2000
and 1999, respectively) ................................2000............................. -- 702
928
-------- ----------------- ----------
Net loss to common stockholders ............................. $(12,759)stockholders.................. $ (9,006)
======== ========
Basic and diluted net(1,195) $ (15,314)
========= ==========
Net loss per common share .................share:
Basic and diluted:
Loss before cumulative effect of change in accounting policy.. $ (0.43)(0.02) $ (0.37)
======== ========(0.21)
Cumulative effect of change in accounting policy.............. -- (0.05)
--------- ----------
Net loss......................................... $ (0.02) $ (0.26)
========= ==========
Weighted average common shares outstanding .................. 29,968 24,447
======== ========outstanding.................................... 66,258 59,936
========= ==========
(1) Restated - See note 11
See accompanying notes to consolidated financial statements.statements
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IMCLONE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWSConsolidated Statements of Cash Flows
(in thousands)
(unaudited)
Three Months Ended
March 31,
--------------------------
2000 1999-----------------------
2001 2000(1)
---------- --------- ---------
Cash flows from operating activities:
Net loss ....................................................................................................................................................... $ (12,057)(1,195) $ (8,078)(14,612)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ....................................................................................................... 606 499 462
Amortization of deferred financing costs .......................................costs........................................... 422 140 2
Expense associated with issuance of options and warrants ....................................................warrants........................... 421 1,114 417
Loss on securities available for sale ..........................................and investments.... ............................................ 18 2
832Write-down of investment in Valigen N.V............................................ 1,600 --
Changes in:
Prepaid expenses ........................................................................................................................... (835) (3,340)
11Note receivable - officer....................................................... (8) --
Other current assets ................................................................................................................... (611) (2,859) (204)
Other assets ................................................................................................................................... 12 (5) (119)
Interest payable ........................................................................................................................... (3,238) 1,180 63
Accounts payable ........................................................................................................................... (6,034) 934 257
Accrued expenses ........................................................................................................................... 2,060 (91)
(2,377)
Deferred revenue ............................................................ - (75)revenue................................................................ (97) 2,555
Fees potentially refundable fromto corporate partner ..........................partner................................ (24,000) 4,000
-
------------------- ---------
Net cash used in operating activities ................................................... (30,879) (10,483)
(8,809)
------------------- ---------
Cash flows from investing activities:
Acquisitions of property and equipment ..................................................................................... (15,074) (5,039) (910)
Purchases of securities available for sale .....................................sale......................................... (11,456) (291,740) (7,199)
Sales and maturities of securities available for sale ....................................................... 25,554 77,705 13,814
Additions to patents ........................................................... - (67)
---------.............................................................. (69) --
---------- ---------
Net cash (used in) provided byused in investing activities ..................................... (1,045) (219,074)
5,638
------------------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants ......................................................... 1,204 6,194 311
Proceeds from issuance of common stock under the employee stock purchase plan ....... 178 68 13
Proceeds from issuance of 5 1/2% convertible subordinated notes ................notes.................... -- 240,000 -
Deferred financing costs .......................................................costs........................................................... -- (8,111) -
Proceeds from repayment of note receivable by officer - stockholder,
including interest ........................................................interest............................................................... -- 145
-Purchase of treasury stock......................................................... (1,830) --
Payment of preferred stock dividends............................................... (5,764) --
Redemption of series A preferred stock............................................. (20,000) --
Payments of other liabilities ....................................................................................................... (203) (243)
(199)
------------------- ---------
Net cash (used in) provided by financing activities ................................. (26,415) 238,053
125
------------------- ---------
Net (decrease) increase (decrease) in cash and cash equivalents ............................................. (58,339) 8,496 (3,046)
Cash and cash equivalents at beginning of period ............................................................................. 60,325 12,016
3,888
------------------- ---------
Cash and cash equivalents at end of period ......................................................................................... $ 1,986 $ 20,512
$ 842
--------- ---------
Supplemental cash flow information:
Cash paid for interest, including amounts capitalized................................. $ 47,000 $ 51,000========== =========
(1) Restated - See note 11
See accompanying notes to consolidated financial statements.statements
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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, 20002001 and for the three months ended March 31,
20002001 and 19992000 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, 1999,2000, as filed with the Securities and Exchange
Commission.Commission ("SEC").
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 inadvancing oncology care by developing
a portfolio of targeted biologic treatments, which address the research and
developmentunmet medical
needs of novel cancer treatments.patients with a variety of cancers. The Company is currently pursuingCompany's three research and development programs
that it believes show potential for treating
cancer:include growth factor inhibitors,blockers, cancer vaccines and angiogenesis inhibitors.anti-angiogenesis
therapeutics. 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 and 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 its 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.segments.
(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
losses on foreign currency transactions of approximately $2,000 for the three
months ended March 31, 2001. The Company recorded no gains or losses on foreign
currency transactions for the three months ended March 31, 20002000. Gains and
recorded losses onfrom foreign currency transactions are included as a component of
approximately $21,000 for the three months ended March 31, 1999.operating expenses.
(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.
In December 1999, the Company entered into a development and manufacturing
services agreement with Lonza Biologics PLC ("Lonza"). Under the agreement,
Lonza is engaging inresponsible for process development and scale-up to manufacture the
Company's lead interventional therapeutic product candidate for the manufacture ofcancer,
IMC-C225. These steps are being taken to assure that its manufacturing 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, 2000, the Company has incurred approximately $159,000$3,600,000 in the three months ended
March 31, 2001 and $5,277,000 from inception through March 31, 2001 for services
provided under thisthe development and manufacturing services agreement. In
September 2000, the Company entered into a three-year commercial manufacturing
services agreement with Lonza relating to IMC-C225. The Company has incurred
approximately $1,800,000 in the three months ended March 31, 2001 and $7,200,000
from inception through March 31, 2001 for services provided under the commercial
manufacturing services agreement. Under these two agreements, Lonza will
manufacture IMC-C225 at the 5,000 liter scale under cGMP conditions and deliver
it to the Company over a term ending no later than December 2003. The costs
associated with both of these agreements are included in research and
development expenses when incurred and will continue to be so classified until
such time as IMC-C225 may be approved for sale. In the event of such approval,
the costs associated with manufacturing IMC-C225 for commercial sale will be
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agreement.included in inventory and expensed when sold. In the event the commercial
manufacturing services agreement is terminated by the Company, the Company will
be required to pay 85% of the stated costs for each of the first ten batches
cancelled, 65% of the stated costs for each of the next ten batches cancelled
and 40% of the stated costs for any remaining batches cancelled. These amounts
are subject to mitigation should Lonza use its manufacturing capacity caused by
such termination for another customer.
The Company is building a new product launch manufacturing facility adjacent to
its currentpilot 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. TheThis 80,000 square foot fully equipped facility will cost approximately $45$51
million and will beis being built on land purchased in December 1999 for $700,000.1999. The Company has
incurred approximately $7,607,000$46,977,000 in engineering, capitalized interest,
pre-construction and construction costs associated with the new manufacturing
facility through March 31, 2000.2001. The costs incurred to date associated with the
construction of the facility have been paid from the Company's cash reserves.reserves,
which were primarily obtained through the issuance of debt and equity
securities.
(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 an exercise price of $12.50 per share. The aggregate purchase
price was $7,500,000. The Company's investment represents approximately 6% of
ValiGen's outstanding equity. The Company has assigned a value of $594,000 to
the Company'swarrant based on the Black-Scholes Pricing 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$20,000,000. The
Company recorded its original investment in ValiGen using the cost method of
accounting. The Company recognized write-downs of its investment in ValiGen of
approximately $5,125,000 in December 2000 and was full recourse. Interest was payable$1,600,000 in March 2001
determined based on the first anniversary datemodified equity method of accounting. The March 2001
write-down is included in loss on securities and investment in the promissory noteaccompanying
consolidated statement of operations. The investment is classified as a
long-term asset included in Investment in equity securities and onother assets in
the stated maturity
or any accelerated maturity at the annual rateconsolidated balance sheet. The Company's Chief Executive Officer is a
member of 8 1/2%. In March 2000, the
note, including all interest, was paid in full.ValiGen's Board of Directors.
(6) LONG-TERM DEBT
Long termLong-term debt consists of the following:
MARCH 31, DECEMBER 31,
2001 2000
1999
------------ ------------------------- --------------
5 1/5-1/2% Convertible Subordinated Notes due March 1, 2005 .. $240,000,0002005...... $ -240,000,000 $ 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------------- --------------
$ 2,200,000
============ ============242,200,000 $ 242,200,000
============= ==============
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 withoffering costs. Accrued interest on the offering. The notes bear interestwas approximately $1,100,000 at
an annual rate of 5
1/2% payable semi-annually on September 1March 31, 2001 and March 1 of each year, beginning
September 1,$4,400,000 at December 31, 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, subject to adjustment ifunder
certain events affecting the common
stock of the Company occur.circumstances. 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 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
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,provided the Company
will
makemakes an additional
Page 5
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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, 2000thereon prior to the date the redemption notice
is mailed.date. 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 iswas required to file with the SecuritiesSEC and
Exchange Commissionobtain the effectiveness of a shelf registration statement covering resales of
the notes and the underlying common stock. In January and February 2000,Such registration statement was
declared effective in July 2000. Upon the occurrence of a "fundamental change"
as defined in the agreement, holders of the notes may require the Company entered into financing arrangementsto
redeem the notes at a price equal to 100% of the principal amount to be
redeemed.
(7) TREASURY STOCK
The Company's employee stock option plans permit option holders to pay for the
exercise price of stock options and any related income tax withholding with
Finova Technology Finance, Inc. ("Finova")shares of the Company's common stock that have been owned by the option holders
for at least six months. During the three months ended March 31, 2001, 138,433
shares of common stock were delivered to the Company in payment of the
aggregate exercise price and Transamerica Business Credit
Corporation ("Transamerica") under which it may obtain at its option uprelated income tax withholding associated with the
exercise of stock options to purchase an aggregate of $25,000,000 for its utilization primarily in connection with the
build-out240,000 shares of its new commercial manufacturing facility.common
stock. 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 2000138,433 shares delivered to the Company paid $100,000had a value of approximately
$3,608,000 determined by multiplying the closing price of the common stock on
the date of delivery by the number of shares presented for payment. These have
been included as treasury stock in application fees associated with these agreements,
which may be applied against future principal and interest payments.
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(7)the consolidated balance sheet at March 31,
2001.
(8) 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 in 2000 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)(9) COMPREHENSIVE INCOME (LOSS)
The following table reconciles net loss to comprehensive loss:income (loss):
THREE MONTHS ENDED
MARCH 31,
------------------------------------------------------------------
2001 2000
1999
------------ ------------------------- --------------
Net loss ................................................. $(12,057,000)loss....................................................... $ (8,078,000)(1,195,000) $ (14,612,000)
Other comprehensive income (loss):income:
Unrealized holding gain arising during the period ....period......... 1,938,000 650,000 13,000
Less: Reclassification adjustment for realized loss
included in net loss ...........................loss.............................
(18,000) (2,000)
(832,000)
------------ ------------------------- --------------
Total other comprehensive income ................income..................... 1,956,000 652,000
845,000
------------ ------------------------- --------------
Total comprehensive loss ................................. $(11,405,000)income (loss)............................. $ (7,233,000)
============ ============761,000 $ (13,960,000)
============= ===============
(9)Page 6
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(10) COLLABORATIVE AGREEMENTS
TheIn December 1998, the Company hasentered into a development and license agreement
with Merck KGaA with respect to IMC-C225, its lead interventional therapeutic product
candidate for the treatment of
cancer.cancer, IMC-C225. In exchange for certain marketingexclusive rights to market
IMC-C225 outside of North America (exclusive of Japan) and developmentco-development
rights in Japan, the Company can receive up to $60,000,000$30,000,000, of which $28,000,000 has
been received as of March 31, 2001, in up-front fees and cash-based milestone
payments ($30,000,000assuming achievement of which is
equity based)defined milestones. An additional $30,000,000
can be received assuming the achievement of certainfurther milestones andfor which Merck
KGaA will receive equity in the Company. The equity underlying these milestone
payments will be priced at varying premiums to the then market price of the
common stock depending upon the timing of the achievement of the respective
milestones. Merck KGaA will pay the Company a $30,000,000
secured lineroyalty on future sales of
credit or guaranty forIMC-C225 outside of North America, if any. Merck KGaA has also agreed not to
own greater than 19.9% of the build-out of a manufacturing facility
for the commercial production of IMC-C225.Company's voting securities through December 3,
2002. This agreement may be terminated by Merck KGaA in various instances,
including (i)(1) at its discretion on any date on which a milestone is achieved
(in which case no milestone payment will be made), (ii) foror (2) during 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
up-front and 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. Under the eventagreement, 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 toward securing Merck KGaA's guaranty
of the Company's obligations under a $30,000,000$30 million credit facility relating to
the construction of the product launch manufacturing facility.facility for the
commercial production of IMC-C225. To date, the Company has not utilized this
guaranty. In the event of termination of the agreement, and in the event the
guaranty is utilized, the Company will be required to use its best reasonable
efforts to cause the release of Merck KGaA as guarantor. As of March
31, 2000, the Company hasThe $28,000,000 in
payments received $24,000,000 in milestone payments. These
payments have beenwere originally recorded as fees potentially refundable fromto
corporate partner and not as revenue recognition of such amounts will commence upondue to the fact that they were refundable
to Merck KGaA in the event a condition relating to obtaining certain collateral
license agreements was not satisfied. In March 2001, this condition was
satisfied and $24,000,000 in milestone payments has been recognized as revenue
by the Company obtainingduring the defined collateral license agreements.
Page 6
9
(10)three months ended March 31, 2001. The remaining
$4,000,000 represents the up-front payment associated with the agreement and
has been recorded as deferred revenue. This amount is being recognized as
revenue over an 18-year period which represents the patent lives of IMC-C225.
The Company recognized approximately $55,000 of the up-front payment as revenue
during the three months ended March 31, 2001.
(11) REVENUE RECOGNITION
In December 1999, the staff of the Securities and Exchange CommissionSEC issued Staff Accounting Bulletin No.
101, Revenue"Revenue Recognition in Financial StatementsStatements" ("SAB 101"). SAB 101
summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements, includingstatements. The
Company adopted SAB 101 in the fourth quarter of its fiscal year ended December
31, 2000, implementing a change in accounting policy effective January 1, 2000
with respect to revenue recognition ofassociated with non-refundable fees
received upon entering into research and licensing arrangements. TheBeginning
January 1, 2000, non-refundable fees received upon entering into license and
other collaborative agreements where the Company is inhas continuing involvement are
recorded as deferred revenue and recognized ratably over the process of evaluating this
SAB and the effect it may have on its financial statements and current revenue
recognition policies. The Company must adoptestimated service
period. In previous years, prior to SAB 101, non-refundable upfront fees from
licensing and other collaborative agreements were recognized as amended, inrevenue when
received, provided all contractual obligations of the secondCompany relating to such
fees had been fulfilled. Amounts originally reported for the first quarter of
2000 have been restated herein to reflect the adoption of SAB 101.
The adoption of SAB 101 resulted in a non-cash cumulative effect of a change in
accounting policy related to nonrefundable upfront licensing fees received in
connection with an effective datethe development and commercialization agreement with Merck KGaA
with respect to its principal cancer vaccine product candidate BEC2. The
cumulative effect represents revenues originally recorded upon receipt of January 1,such
payments that now are recorded as deferred revenue and will be recognized over
the life of the related patent(s). The Company recognized revenue of $41,000
associated with this change in accounting policy in the three months ended March
31, 2001. During the three months ended March 31, 2000, the impact of the change
in accounting policy increased net loss by $2,555,000, or $0.04 per share,
comprising the $2,596,000 cumulative effect of
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10
the change described above, net of $41,000 of related deferred revenue that was
recognized during the period.
In March 2001, the Company satisfied a condition relating to obtaining certain
collateral license agreements associated with the IMC-C225 development and
license agreement with Merck KGaA. The satisfaction of this condition allowed
for the recognition of $24,000,000 in previously received milestone payments and
initiated revenue recognition, as prescribed under SAB 101, of the cumulative effect adjustment, if any, calculated$4,000,000
up-front payment received in connection with this agreement over the patent
lives of IMC-C225. The Company recognized approximately $55,000 of revenue
associated with the up-front payment during the three months ended March 31,
2001.
As of March 31, 2001, the Company had approximately $6,337,000 in deferred
revenue recorded on the consolidated balance sheet. This included $2,392,000
associated with the BEC2 development and commercialization agreement and
$3,945,000 related to the IMC-C225 development and license agreement with Merck
KGaA.
(12) RELATED PARTY TRANSACTIONS
The Company has accepted from its President and Chief Executive Officer, a full
recourse, unsecured promissory note dated as of December 21, 2000 in the
principal amount of $282,200. The note is payable upon the earlier of June 21,
2001 or demand by the Company and bears interest at an annual rate of 10 1/2%
for the period that the loan is outstanding. The total amount due the Company,
including interest, was approximately $290,000 at March 31, 2001.
(13) ACCOUNTING FOR DERIVATIVE AND HEDGING ACTIVITIES
Effective January 1, 2000.2001, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"), which establishes new accounting and
reporting guidelines for derivative instruments, including certain derivative
instruments embedded in other contracts, and hedging activities. SFAS No. 133
was subsequently amended by SFAS Nos. 137 and 138. SFAS No. 133 requires the
recognition of all derivative financial instruments as either assets or
liabilities in the consolidated balance sheet and measurement of those
derivatives at fair value. The Company has reviewed SFAS No. 133 and its
operations relative to SFAS No. 133 and concluded that it does not have or use
derivative instruments. Accordingly, the adoption of SFAS No. 133 did not have
an effect on the results of operations or the financial position of the Company.
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
Three Months Ended March 31, 20002001 and 19992000
REVENUES.
Revenues for the three months ended March 31, 2001 and 2000 were $24,744,000 and
1999$247,000, respectively, an increase of $24,497,000. Revenues for the three
months ended March 31, 2001 primarily included $24,000,000 in milestone revenue
from our development and license agreement with Merck KGaA for IMC-C225. These
milestone payments were $206,000received in prior periods and $629,000, respectively,originally recorded as
fees potentially refundable to corporate partner because they were refundable in
the event a decreasecondition relating to obtaining certain collateral license
agreements was not satisfied. This condition was satisfied in March 2001. In
addition, the Company recognized $55,000 of $423,000, or 67%.the $4,000,000 up-front payment
received upon entering into this agreement. This revenue is being recognized
ratably over the patent lives of IMC-C225. Under this agreement, an additional
$2,000,000 in cash-based milestone payments and $30,000,000 in equity-based
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11
milestones may be received upon the achievement of additional milestones.
Finally, revenues for the three months ended March 31, 2001 included $648,000 in
royalty revenue from our strategic corporate alliance with Abbott Laboratories
("Abbott") in diagnostics and $41,000 in license fee revenue from our strategic
corporate alliance with Merck KGaA for our principal cancer vaccine product
candidate, BEC2. Revenues for the three months ended March 31, 2000 primarily
included (1) $166,000 in royalty revenue from our strategic alliance with Abbott
Laboratories ("Abbott") in diagnostics. Revenues
for the three months ended March 31, 1999 primarily consisted of (i) $75,000diagnostics and (2) $41,000 in research support from our partnership with American Home Products Corporation
("American Home") in infectious disease vaccines, (ii) $425,000 in research and
support payments from our research and license agreement with Merck KGaA for our
principal cancer vaccine product candidate, BEC2, and (iii) $124,000 in royaltyfee revenue from our strategic
corporate alliance with Abbott in diagnostics. The decrease in
revenues for the three months ended March 31, 2000 was primarily attributable to
the decrease in research and support revenue as a result of the completion of
all research and support payments due from our research and license agreement with Merck KGaA for BEC2. The license fee revenue related to
the BEC2 agreement has been recognized in both periods as a direct result of a
change in accounting policy with respect to revenue recognition.
OPERATING EXPENSES;EXPENSES: RESEARCH AND DEVELOPMENT.
Total operating expenses for the three months ended March 31, 2001 and 2000 were
$25,573,000 and 1999 were
$14,227,000, and $8,356,000, respectively, an increase of $5,871,000,$11,346,000, or 70%80%.
Research and development expenses for the three months ended March 31, 2001 and
2000 were $21,845,000 and 1999 were $11,101,000, and $6,354,000, respectively, an increase of $4,747,000$10,744,000
or 75%97%. Such amounts for the three months ended March 31, 2001 and 2000
represented 85% and 1999 represented
78% and 76%, respectively, of total operating expenses. Research and
development expenses include costs associated with our in-house and
collaborative research programs, product and process development expenses,
costs to manufacture our product candidates, particularly IMC-C225, prior to
any approval that we may obtain of a product candidate for commercial sale,
quality assurance and quality control costs, costs to conduct our clinical
trials and associated regulatory activities. Research and development expenses
for the three months ended March 31, 20002001 and 19992000 have been offsetreduced by
$824,000$3,251,000 and $516,000,$824,000, 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 March 31, 20002001 was
primarily attributable to (i)(1) the costs associated with two pivotal Phase IIInewly initiated and
ongoing clinical trials of IMC-C225, in
treating head and neck cancer, one in combination(2) costs related to the manufacturing
services agreements 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, (iii)Lonza, (3) 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)(4) 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 effortsmanufacture IMC-C225 prior to any approval of the
product that we may obtain for commercial sale. Should such approval be
obtained, the subsequent costs associated with manufacturing IMC-C225 for
commercial sale will be included in inventory and expensed when sold. We expect
research and development costs associated with discovery research, product
development and clinical trials.
Page 7
10trials also to continue to increase in future periods.
OPERATING EXPENSES: MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES.
GeneralADMINISTRATIVE.
Marketing, general and administrative expenses include marketing and
administrative personnel costs, including related occupancy costs, additional
costs to develop our internal marketing and sales capabilities, costs incurred
in connectionto pursue
arrangements with pursuing arrangements withstrategic 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, 2001 and 2000 were
$3,728,000 and 1999 were $3,126,000, and $2,002,000, respectively, an increase of 1,124,000,$602,000, or 56%19%. 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 the expanding research, development, clinical
and manufacturingour commercialization efforts of the Company, particularly with respect to IMC-C225. We
expect marketing, general and administrative expenses to increase in future
periods to support our planned increases in research, development, clinical and
manufacturing efforts.continued commercialization efforts of IMC-C225.
INTEREST INCOME, INTEREST EXPENSE AND OTHER INCOME AND INTEREST(INCOME) EXPENSE.
Interest income was $4,565,000 for the three months ended March 31, 2001
compared with $3,187,000 for the three months ended March 31, 2000, compared with $604,000an increase
of $1,378,000, or 43%. The increase was primarily attributable to a higher
average portfolio of securities available for sale during the three months ended
March 31, 1999, an increase of
$2,583,000. The increase was primarily attributable to the increase in our
investment portfolio2001 as a result of our November 1999 public stock offering and
ourthe February 2000 private placement of 5 1/2%
convertible subordinated notes. Interest expense was $1,221,000$3,313,000 and $123,000$1,221,000
for the three months ended March 31, 20002001 and 1999,2000, respectively, an increase of
$1,098,000.$2,092,000 or 171%. The increase was primarily attributable to the convertible
subordinated notes. Interest expense for both periods primarily included (i)(1) interest on
the convertible subordinated notes, (2) interest on an outstanding Industrial
Development Revenue Bond issued in 1990 (the "1990 IDA BondBond") with a principal
amount of $2,200,000 and (ii)(3) interest recorded on various capital lease
obligations under a December 1996 Financing Agreement (the "1996
Financing Agreement")financing agreement and an Aprila 1998 Financing Agreement (the "1998 Financing
Agreement")financing agreement with
Finova.Finova Technology Finance, Inc. ("Finova"). Interest expense for the three
months ended March 31, 2001 and 2000 waswere offset by capitalizing interest costs
of $494,000 and $154,000, respectively, during the construction period of the
Company's new
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12
product launch manufacturing facility in the amount of $154,000. The
increase in interest expense is attributable to interest on the outstanding
convertible subordinated notes. Lossesfacility. We recorded losses on securities available for saleand
investment for the three months ended March 31, 2000 and 1999 were2001 in the amount of $1,618,000
as compared with losses of $2,000 and $832,000,
respectively. The loss for the three months ended March 31, 1999 is primarily
attributable to2000. The
net losses on securities and investment for the $828,000three months ended March 31,
2001 included a $1,600,000 write-down of our investment in CombiChem Inc. as
a result of an other than temporary impairment.ValiGen N.V.
NET LOSSES.
We had a net lossesloss to common stockholders of $12,759,000$1,195,000 or $0.43$0.02 per share for
the three months ended March 31, 20002001 compared with $9,006,000$15,314,000 or $0.37$0.26 per
share for the three months ended March 31, 1999.2000. Included in the loss for the
three months ended March 31, 2000 was a non-cash charge of $2,596,000 related to
the cumulative effect of a change in accounting policy (see note 10 to the
accompanying consolidated financial statements). Excluding the effect of this
change in accounting policy, the net loss to common stockholders for the three
months ended March 31, 2000 would have been $12,718,000 or $0.21 per share. The
increasedecrease in the net losses and per share net loss to common stockholders was due
primarily to the increase in revenues and the other factors noted above.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000,2001, our principal sources of liquidity consisted of cash and cash
equivalents and short-term securities available for sale of approximately $342.5 million.$226,671,000.
From inception through March 31, 20002001 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 million$489,400,000 in net
proceeds
- We have earned approximately $35.2 million$58,500,000 from license fees, contract
research and development fees and royalties from collaborative
partners. Additionally, we have approximately $6,337,000 in deferred
revenue related to up-front payments received $24.0
million in potentially refundable fees from our BEC2
development and commercialization agreement and 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 weThese amounts are
entitled to receive
an additional $2.0 million in payments. The amounts from Merck
KGaA with respect to IMC-C225 have yet to bebeing recognized as revenue because they are refundable under certain
circumstances
Page 8
over the respective patent lives of the
product candidates (See note 11 of the consolidated financial
statements)
- We have earned approximately $14.5 million$36,700,000 in interest income
- The sale of the IDA Bonds in each of 1985, 1986 and 1990 raised an
aggregate of $6.3 million,$6,300,000, 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$2,200,000 is
outstanding
We may from time to time consider a number of strategic alternatives designed to
increase shareholder value, includingwhich could include 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.$248,000. 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
withoffering expenses. Accrued interest
on the offering. The notes bear interestwas approximately $1,100,000 at 5.5% payable semi-annually on
September 1 and March 1 of each year, beginning September 1, 2000.31, 2001. 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
ifunder certain events affecting our common stock occur.circumstances. 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 inresponsible for process
development and scale-up for theto manufacture of IMC-C225. These steps are beingwere taken to
assure that its manufacturing process will produce bulk material that
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13
conforms with the Company'sour 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, 2000, the Company has2001, we had incurred
approximately $159,000$5,277,000 for services provided under thisthe development and
manufacturing services agreement. In September 2000, we entered into a
three-year commercial manufacturing services agreement with Lonza relating to
IMC-C225. As of March 31, 2001, we had incurred approximately $7,200,000 for
services provided under the commercial manufacturing services agreement. Under
these two agreements, Lonza is manufacturing IMC-C225 at the 5,000 liter
scale under cGMP conditions and is delivering it to us over a term ending no
later than December 2003. The costs associated with both of these agreements are
included in research and development expenses when incurred and will continue to
be so classified until such time as IMC-C225 may be approved for sale. In the
event of such approval, the subsequent costs associated with manufacturing
IMC-C225 for commercial sale will be included in inventory and expensed when
sold. In the event the commercial manufacturing services agreement is
terminated by us, we will be required to pay 85% of the stated costs for each
of the first ten batches cancelled, 65% of the stated costs for each of the
next ten batches cancelled and 40% of the stated costs for any remaining
batches cancelled. These amounts are subject to mitigation should Lonza use its
manufacturing capacity caused by such termination for another customer.
We cannot be certain that we will be able to enter into agreements for
commercial supply with other third-party manufacturers on terms acceptable to
us. Even if we are able to enter into such agreements, we cannot be certain that
we will be able to produce or obtain sufficient quantities for commercial sale
of 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
the 1996 Financing Agreement and the 1998 Financing Agreementfinancing agreements with Finova. The 1996 Financing AgreementThese 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-month term. Pursuant
to the 1996 Financing Agreement, we issued to Finova a warrant expiring December
31, 1999 to purchase 23,220 shares of our common stock at an exercise price of
$9.69 per share. We recorded a non-cash debt discount of approximately $125,000
in connection with this financing, which discount is being 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 aits 42- or 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. In January and February 2000, we entered intoThese financing arrangements with Finova and Transamerica under which we may obtain at our
option up to an aggregate of $25,000,000 for our utilization primarily in
connection 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 has paid
$100,000 in application fees associated with these agreements, which may be
applied against future principal and interest payments.are now expired.
We rent our New York facility under an operating lease that expires in December
2004. We are in the processhave 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.
Page 9
12$2,800,000.
Under our IMC-C225 agreement with Merck KGaA, for IMC-C225, we developed in consultation with
Merck KGaA, a production concept for aour new product launch manufacturing
facility for the commercial production of IMC-C225. The agreement provides that
Merck KGaA is to provide us, if we so choose, subject to certain conditions, with a guaranty underof a
$30
million$30,000,000 credit facility for the build-out of this facility. As of May 10,
2001, this guaranty has not been provided, and we are exploring ways in which
we might alter that portion of the agreement. We have determined
to erectare currently erecting this
facility adjacent to our currentpilot manufacturing facility in New Jersey, which
supplies IMC-C225 to support our clinical trials. We broke ground on the new
facility in January 2000 and estimate that the total cost will be approximately
$45 million.$51,000,000. We have incurred approximately $46,977,000 in engineering,
capitalized interest, pre-construction and construction costs associated with
the product launch manufacturing facility through March 31, 2001. We are
currently infunding 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 three months ended March 31, 20002001
were $5,039,000. Of the total capital expenditures made during the three
months ended March 31, 2000, $591,000$15,074,000 of which (1) $333,000 primarily related to the purchase of
equipment for and leasehold improvement costs associated with the retrofit of our corporate
office and research laboratories in our New York and other capital expenditures relating to the New York
facility. We incurred $4,290,000facility; (2) $10,951,000
related to engineering pre-construction and construction costs associated with the build-out of the commercialproduct launch
manufacturing facility to bebeing erected adjacent to our currentpilot manufacturing
facility in New Jersey. TheJersey; (3) $3,276,000 related to the conceptual design and
preliminary engineering plans for a second commercial manufacturing facility,
which we may build in the future on land purchased in 2000; and (4) the
remaining $158,000 is$514,000 related to improving and equipping our existingpilot manufacturing
facility.
In 1998,Page 11
14
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 40to arrange for the hiring or contracting of a sales
peopleforce prior to the commencement of IMC-C225 sales.
The holders of the Series A Convertible Preferred Stock (the "series A
preferred stock") are entitled to receive cumulative dividends at an annual rate
of $6.00 per share. Dividends accrue as of 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 at March 31, 2000.sales, if any.
We believe that our existing cash and cash equivalents and securities
available for saleon hand and amounts expected to be available under ourwhich we are entitled,
subject to the negotiation of a final credit facilitiesfacility, 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 million$2,000,000 in cash-based milestone
payments and $30 million$30,000,000 in equity-based milestone payments from our IMC-C225
development and license agreement with Merck KGaA, whichKGaA. These payments are to be paidmade
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 cost of our research and development programs,
pre-clinical testing and clinical trials
- our corporate partners'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
- 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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13
- status of competitors
- 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.arrangements or product
sales. If adequate funds are not available, we may be required to significantly
curtail our planned operations.
At December 31, 1999,2000, we had net operating loss carryforwards for United States
federal income tax purposes of approximately $151 million,$303,000,000, which expire at
various dates from 20002001 through 2019.2020. At December 31, 19992000 we had research
credit carryforwards of approximately $7.7 million,$8,000,000, which expire at various dates
from 2009 through 2019.2020. 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
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15
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$5,200,000 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
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. We are in the process of evaluating this SAB
and the effect it may have on our financial statements and current revenue
recognition policies. We must adopt SAB 101, as amended, in the second quarter
of 2000 with an effective date of January 1, 2000 and the recognition of the
cumulative effect adjustment, if any, calculated as of January 1, 2000.
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 partythird-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.
Page 11
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 debt or 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 with
fixed interest rates or with periodic interest rate adjustments. We also have
certain foreign exchange currency risk. See footnotenote 3 of the consolidated 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, 2000:2001:
20052006 AND
2000
2001 2002 2003 2004 2005 THEREAFTER TOTAL ------------ ------------FAIR VALUE
------ ----------- ---------- ---------- ------------ ------------ -------------------------- ------------- ---------------- -------------- -------------
Fixed Rate $ 15,913,000 $ 6,889,000 $1,448,000 - $ 40,022,000 $131,583,000 $195,855,000-- $1,533,000 $243,000 $10,246,000 -- $82,275,000 $94,297,000 $100,301,000
Average
Interest Rate 5.05% 6.41% 8.00% - 6.60% 6.64%-- 7.82% 6.00% 6.58% -- 6.47% 6.50% --
Variable Rate - - - - $ 15,315,000(1) $110,194,000(1) $125,509,000-- -- -- $15,830,000(1) $31,349,000(1) $76,855,000(1) $124,034,000 $124,384,000
Average
Interest Rate - - - - 6.27% 6.35% 6.34%
------------ -------------- -- -- 5.32% 5.61% 5.80% 5.69% --
------ ----------- ---------- ---------- ------------ ------------ ------------
$ 15,913,000 $ 6,889,000 $1,448,000 - $ 55,337,000 $241,777,000 $321,364,000
============ ============-------------- ------------- ---------------- -------------- -------------
-- $1,533,000 $243,000 $26,076,000 $31,349,000 $159,130,000 $218,331,000 $224,685,000
====== =========== ========== ========== ============ ============ ============
FAIR VALUE
------------
Fixed Rate $190,418,000
Average
Interest Rate -
Variable Rate $131,619,000
Average
Interest Rate -
------------
$322,037,000
========================== ============= ================ ============== =============
Page 13
16
(1) These holdings consist of U.S. corporate and foreign corporate floating
rate notes. Interest on the securities areis adjusted at fixed datesmonthly, quarterly or
semi-annually, depending on the instrument, 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 therates. The fair value of thesefixed interest rate instruments is affected by changes
in market
interest rates. The subordinate notes are convertible into the Company's
common stock at a conversion price of $110.18 per share. The fair value of this
instrument is subject to changes in interest rates and in the case of the convertible notes by changes in the
price of the Company's common stock. The fair value of the 5 1/2% convertible
subordinated notes (which have a carrying value of $240,000,000) was
approximately $206,100,000 at March 31, 2001.
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2000,2001, we issued an aggregate of 600,850508,000
shares of unregistered common stock to holders of warrants upon exercise of
such warrants for a total purchase price of $1,389,219,$392,830 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
----------- -----------
27.1 Financial Data ScheduleNone.
(b) Reports on Form 8-K
None.
Page 1214
1517
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, 200010, 2001 By /s/ Samuel D. Waksal
----------------------------------------------------------------------------
Samuel D. Waksal
President and Chief Executive Officer
Date: May 12, 200010, 2001 By /s/ Carl S. Goldfischer
-------------------------------------
Carl S. GoldfischerPaul A. Goldstein
---------------------------------------
Paul A. Goldstein
Vice President, Finance and Chief
Financial OfficerOperations
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