- ------------------------------------------------------------------------------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 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 September 30, 2000 Commission File No. 0-19131 MedImmune, Inc. (Exact name of registrant as specified in its charter) Delaware 52-1555759 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 35 West Watkins Mill Road, Gaithersburg, MD 20878 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (301) 417-0770 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 [ ] As of September 30, 2000, 210,686,933 shares of Common Stock, par value $0.01 per share, were outstanding.MEDIMMUNE, INC. Index to Form 10-Q Part I Financial Information Page ---- Item 1. Financial Statements Consolidated Balance Sheets 1 Consolidated Statements of Operations 3 Condensed Consolidated Statements of Cash Flows 4 Notes to Consolidated Financial Statements 5-8 Item 2. Management's Discussion and Analysis of Financial Condition 9-14 and Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk 15 Part II Other Information 15 Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Synagis, CytoGam, Ethyol, RespiGam, NeuTrexin, and Hexalen are registered trademarks of the Company. ITEM 1. FINANCIAL STATEMENTS MEDIMMUNE, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data) September 30, December 31, 2000 1999 ------------ ------------ ASSETS: (Unaudited) Cash and cash equivalents $ 68,644 $ 36,570 Marketable securities 352,766 214,750 Trade receivables, net 34,647 86,894 Inventory, net 35,131 31,777 Deferred tax assets 20,110 23,132 Other current assets 15,113 8,715 --------- --------- Total Current Assets 526,411 401,838 Property and equipment, net 88,767 87,452 Deferred tax assets 199,046 128,990 Marketable securities 32,253 19,074 Other assets 13,213 11,070 --------- --------- Total Assets $ 859,690 $ 648,424 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY: Accounts payable, trade $ 2,838 $ 2,995 Accrued expenses 45,713 65,300 Product royalties payable 8,752 28,527 Other current liabilities 5,118 2,130 --------- --------- Total Current Liabilities 62,421 98,952 Long-term debt 9,799 10,366 Other liabilities 1,958 2,027 --------- --------- Total Liabilities 74,178 111,345 --------- --------- Commitments and Contingencies SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value; authorized 5,524,525 shares; none issued or outstanding -- -- Common stock, $.01 par value; authorized 320,000,000 shares; issued and outstanding 210,686,933 at September 30, 2000 and 203,840,344 at December 31, 1999 2,107 679 Paid-in capital 816,729 656,244 Accumulated deficit (63,217) (118,241) Accumulated other comprehensive income (loss) 29,893 (1,603) --------- --------- Total Shareholders' Equity 785,512 537,079 --------- --------- Total Liabilities and Shareholders' Equity $ 859,690 $ 648,424 ========= ========= The accompanying notes are an integral part of these financial statements. MEDIMMUNE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands except per share data) For the For the three months ended nine months ended September 30, September 30, 2000 1999 2000 1999 --------- --------- --------- --------- Revenues: Product sales $ 47,246 $ 38,631 $ 268,409 $ 185,356 Other revenue 10,114 17,028 16,795 24,325 --------- --------- --------- --------- Total revenues 57,360 55,659 285,204 209,681 --------- --------- --------- --------- Costs and Expenses: Cost of sales 15,774 12,747 72,816 51,243 Research and development 14,841 15,213 48,705 43,320 Selling, administrative and general 24,063 22,495 98,074 77,595 Other operating expenses 2,804 4,429 5,788 16,313 --------- --------- --------- --------- Total expenses 57,482 54,884 225,383 188,471 --------- --------- --------- --------- Operating income (loss) (122) 775 59,821 21,210 Interest income 7,765 3,023 20,882 9,169 Interest expense (133) (521) (376) (2,408) --------- --------- --------- --------- Income before income taxes 7,510 3,277 80,327 27,971 Provision (benefit) for income taxes 1,638 489 25,303 (31,249) --------- --------- --------- --------- Net income $ 5,872 $ 2,788 $ 55,024 $ 59,220 ========= ========= ========= ========= Basic earnings per share $ 0.03 $ 0.01 $ 0.26 $ 0.32 ========= ========= ========= ========= Shares used in calculation of basic earnings per share 210,212 201,010 208,434 186,242 ========= ========= ========= ========= Diluted earnings per share $ 0.03 $ 0.01 $ 0.25 $ 0.28 ========= ========= ========= ========= Shares used in calculation of diluted earnings per share 221,801 213,986 220,260 211,009 ========= ========= ========= ========= The accompanying notes are an integral part of these financial statements. MEDIMMUNE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) For the nine months ended September 30, 2000 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 55,024 $ 59,220 Noncash items: Deferred taxes 25,243 (31,451) Depreciation and amortization 5,424 3,651 Amortization of discount on marketable securities (1,009) (269) Change in allowance for accounts receivable (9,225) (12,706) Other 535 (1,686) Other changes in assets and liabilities 7,193 (2,473) --------- --------- Net cash provided by operating activities 83,185 14,286 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in marketable securities (112,107) (60,610) Capital expenditures (7,086) (10,446) Investment in strategic alliance -- (6,350) --------- --------- Net cash used in investing activities (119,193) (77,406) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock and exercise of stock options 69,635 43,538 Decrease in long-term debt (1,238) (6,753) --------- --------- Net cash provided by financing activities 68,397 36,785 --------- --------- Effect of exchange rates on cash (315) (182) Net increase (decrease) in cash and cash equivalents 32,074 (26,517) Cash and cash equivalents at beginning of period 36,570 44,730 --------- --------- Cash and cash equivalents at end of period $ 68,644 $ 18,213 ========= ========= The accompanying notes are an integral part of these financial statements. MEDIMMUNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) General The financial information presented as of September 30, 2000, and for the periods ended September 30, 2000 and 1999, is unaudited. In the opinion of the Company's management, the financial information contains all adjustments (which consist only of normal recurring adjustments) necessary for a fair presentation of results for the interim periods presented. Interim results are not necessarily indicative of results for an entire year or for any subsequent interim period. These consolidated financial statements should be read in conjunction with the Company's annual report on Form 10-K for the year ended December 31, 1999. Inventory Inventory, net of reserves, is comprised of the following (in thousands): September 30, December 31, 2000 1999 ---------- ---------- Raw Materials $ 13,345 $ 11,502 Work in Process 23,114 15,129 Finished Goods 11,433 9,365 -------- -------- 47,892 35,996 Less noncurrent (12,761) (4,219) -------- -------- $ 35,131 $ 31,777 ======== ======== The Company has purchased plasma and other raw materials for use in production of CytoGam in the Company's Frederick manufacturing facility ("FMC"), which is subject to U.S. Food and Drug Administration ("FDA") licensure and approval. The Company filed an application in March 2000 for FDA approval relating to a portion of production of CytoGam at the FMC. Due to the uncertainty surrounding the likelihood and timing of FDA approval, this inventory has been classified as noncurrent in the accompanying balance sheet. Finished goods at September 30, 2000 and December 31, 1999 include approximately $1.9 million and $1.8 million, respectively, of by-products that result from the production of the Company's principal products and are held for resale. As of September 30, 2000, minimal sales of these by-products have occurred. The September 30, 2000 and December 31, 1999 finished goods balances are net of reserves of $1.5 million and $1.7 million, respectively. Earnings per Share The Company computes earnings per share in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Basic earnings per share is computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed based on the weighted average shares outstanding and the dilutive impact of common stock equivalents outstanding during the period. The dilutive effect of stock options is measured using the treasury stock method. Common stock equivalents are not included in periods where there is a loss as they are anti-dilutive. The following is a reconciliation of the numerator and denominator of the diluted EPS computation for the period ended September 30, 2000 and 1999. Three months ended Nine months ended September 30, September 30, 2000 1999 2000 1999 ------------ ------------ ------------ ---------- Numerator: Net income $ 5,872 $ 2,788 $ 55,024 $ 59,220 Interest on 7% convertible notes, net of amounts capitalized and related taxes -- -- -- 482 -------- -------- -------- -------- Numerator for diluted EPS $ 5,872 $ 2,788 $ 55,024 $ 59,702 ======== ======== ======== ======== Denominator: Weighted average shares outstanding 210,212 201,010 208,434 186,242 Effect of dilutive securities: Stock options 11,589 12,514 11,826 12,505 7% convertible notes -- 411 -- 12,262 Warrants -- 51 -- -- -------- -------- -------- -------- Denominator for diluted EPS 221,801 213,986 220,260 211,009 ======== ======== ======== ======== The following table shows the number of shares and related price ranges of those shares that were excluded from the EPS computation from above. These options to purchase shares of common stock were outstanding in the periods reported, but were not included in the computation of diluted earnings per share as the exercise prices of the options were in excess of the average stock price during the periods reported, and thus would be anti-dilutive. Three months ended Nine months ended Nine months ended September 30, 2000 September 30, 2000 September 30, 1999 ---------------------------- ---------------------------- ---------------------------- Price range of stock options: $73.50 to $83.25 68,400 $63.97 to $83.25 504,025 $23.58 to $67.11 3,218,190 On February 17, 2000 the Company's Board of Directors declared a three-for-one stock split to be effected in the form of a 200% stock dividend. The stock dividend was paid on June 2, 2000 to shareholders of record at the close of business on May 18, 2000. All references to number of shares and per share amounts for the periods presented in the financial statements have been restated to give effect to the stock split. Income Tax Provision Income tax as a percentage of pre-tax income for the nine months ended September 30, 2000 was 31.5%. During the quarter ended September 30, 2000, the Company recognized increased credits for research and development expenditures and credits earned for Orphan Drug status of certain research and development expenses. The Company realized a tax benefit of $31.2 million for the nine months ended September 30, 1999, which included $41.0 million related to the reversal of valuation allowances of deferred tax assets for MedImmune Oncology, Inc. (formerly named U.S. Bioscience, Inc.) Comprehensive Income Comprehensive income is comprised of net income and other comprehensive income. Other comprehensive income includes certain changes in equity that are excluded from net income, such as translation adjustments and unrealized holding gains and losses on available-for-sale marketable securities. Comprehensive income for the three months ended September 30, 2000 and 1999 was $36.1 million and $2.9 million, respectively. Comprehensive income for the nine months ended September 30, 2000 and 1999 was $86.5 million and $58.8 million, respectively. A significant portion of other comprehensive income for the three months and nine months ended September 30, 2000 relates to an unrealized holding gain on available-for-sale marketable securities. In September 2000, the Company recorded an unrealized holding gain of $20.6 million, net of income taxes, on an investment in a company with which it previously formed a strategic alliance. Due to market volatility associated with this investment, its value could fluctuate significantly in the future. Legal Proceedings In 1998, MediGene AG initiated a legal action against Loyola University of Chicago and the Company in the U.S. District Court for the Northern District of Illinois alleging, among other things, breach of contract and tortious interference by the Company with an alleged prospective business relationship between MediGene and Loyola. The claims relate to human papillomavirus vaccine technology allegedly covered by contracts between MediGene and the Company and by a license agreement from Loyola to the Company, under which the Company granted a sublicense to SmithKline Beecham. MediGene claims monetary damages from the Company and ownership of the patents in question, as well as rescission of the Company's license agreement from Loyola or rights as a third-party beneficiary thereof. Trial of this matter is scheduled to begin in January 2001. In October 2000, Celltech Chiroscience Limited ("Celltech") commenced a legal proceeding against the Company in the U.K. High Court of Justice, Chancery Division, Patents Court. Celltech alleges that the Company failed to pay royalties with respect to its sales of Synagis as required by a license agreement dated January 19, 1998. Under the agreement, the Company obtained from Celltech a worldwide license to make, use and/or sell product under a patent (and related applications) pertaining to humanized antibodies. In the proceeding, Celltech seeks payment of royalties, with interest, and certain costs, including attorney's expenses. New Accounting Pronouncements In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. SFAS No. 133 requires companies to recognize all derivatives as either assets or liabilities, with the instruments measured at fair value. The accounting for changes in fair value, gains or losses, depends on the intended use of the derivative and its resulting designation. The Company will adopt SFAS No. 133 by January 1, 2001. Because of the Company's limited use of derivatives, management does not anticipate that the adoption of SFAS No. 133 will have a material effect on the earnings or financial position of the Company. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101. SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to certain revenue transactions in financial statements. The SAB addresses the revenue recognition for nonrefundable fees received upon entering into contractual arrangements and milestone fees received upon the occurrence of certain events. In June 2000 the SEC delayed the required implementation date of the SAB to the fourth calendar quarter of 2000. The Company is still evaluating the impact of the SAB on its financial statements, and expects that the accounting for certain of its agreements will be impacted by the SAB. Restatements In November 1999, the Company completed a merger with U.S. Bioscience, Inc. (since renamed MedImmune Oncology, Inc.), which was accounted for as a pooling-of-interests. Accordingly, the financial statements and related notes presented herein have been restated for all periods to include the accounts and operations of U.S. Bioscience, Inc. In addition, all share and per share amounts have been restated to give effect to the three-for-one stock split on June 2, 2000. ITEM 2. MEDIMMUNE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW MedImmune, Inc. (together with its subsidiaries, "the Company"), is a biotechnology company headquartered in Gaithersburg, Maryland with six products currently on the market and a diverse product development portfolio. The Company is focused on using advances in immunology and other biological sciences to develop important new products that address significant medical needs in areas such as infectious diseases, immune regulation and oncology. The Company derives its revenues through sales of its products currently on the market, licensing of its products and corporate funding agreements to create and develop new products. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 Product sales (in millions) 2000 1999 ---- ---- Synagis $31.6 $24.4 CytoGam 9.0 7.1 Ethyol 5.0 5.0 Other products 1.6 2.1 ------ ------ Total $47.2 $38.6 ====== ====== Third quarter 2000 product sales grew 22% over the prior year quarter, reflecting increased sales of Synagis and CytoGam. Synagis sales increased 30% from $24.4 million in the quarter ended September 30, 1999 to $31.6 million in the quarter ended September 30, 2000. Domestic Synagis sales in dollars and units were unchanged from the prior year quarter; both quarters reflect wholesaler stocking in advance of the respiratory synctial virus ("RSV") season. International Synagis sales achieved growth of 310% over the 1999 quarter, reflecting stocking by Abbott International prior to the European Launch of the product for the coming RSV season. The Company obtained marketing authorization for Synagis from The Centralized European Agency for the Evaluation of Medicine Products ("EMEA") in August 1999. International sales to Abbott Laboratories, the Company's exclusive distributor of Synagis outside of the United States, were $9.6 million in the 2000 quarter versus $2.3 million in the 1999 quarter. The terms of the Company's agreement with Abbott provide for the Company to receive 40 to 50 percent of end-user sales. The Company initially recognizes sales to Abbott when Synagis is shipped to Abbott based on a contractual, guaranteed transfer price; this amount approximates 60 to 75 percent of the total sales revenue expected for each vial. Following the end of each quarter, Abbott remits to the Company a report detailing end-user sales for the quarter and the Company recognizes revenue for the additional amount due in excess of the transfer price and up to 40 to 50 percent of the end-user selling price. Third quarter CytoGam sales grew 27% to $9.0 million from $7.1 million in the third quarter of 1999. The increase was driven by a 108% increase in international units sold, a 7% domestic price increase in April 2000 and lower Medicaid rebates. This increase was partially offset by a decrease in domestic units sold of 24%. International units are sold at a lower price than domestic units. The Company believes that a portion of the CytoGam sales that occurred in both periods were as a result of product substitution occurring because of the worldwide shortage of standard IVIG products. Recently, the supply of standard IVIG products has increased, and certain Medicaid agencies have begun to limit or discontinue reimbursement of CytoGam as a substitute for IVIG. Thus, CytoGam sales for the three month period ended September 30, 2000 relating to product substitution have decreased significantly. The Company expects that the future use of CytoGam as a substitute for standard IVIG products will be limited. Sales of Ethyol to the Company's domestic and international distribution partners were flat in the 1999 and 2000 third quarters at $5.0 million. A 9% decrease in vials sold was offset by a 7% price increase. Despite the price increase, the Company realized a lower net average per vial price, primarily as a result of higher sales allowances. Other product sales for the 2000 quarter were $1.6 million versus $2.1 million for the 1999 quarter. Other revenue in the 2000 third quarter of $10.1 million consists of $7.5 million related to the license agreement signed with SmithKline Beecham ("SKB") for the Company's Streptococcus pneumoniae vaccine technology, research funding from SKB for development of a human papillomavirus ("HPV") vaccine and royalty income due from Alza Corporation ("Alza") in accordance with the terms of the Ethyol distribution agreement. Other revenues in the 1999 third quarter of $17.0 million included primarily a $15 million milestone payment from Abbott following European regulatory approval of Synagis and research funding from SKB. Cost of sales in the third quarter of 2000 increased 24% to $15.8 million from $12.7 million in the third quarter of 1999. Gross margins in the 1999 and 2000 quarters were 67%. Research, development and clinical spending decreased modestly to $14.8 million in the third quarter of 2000 from $15.2 in the third quarter of 1999. In the third quarter of 2000, the Company incurred increased infrastructure costs needed to support the growing number of ongoing clinical trials. Third quarter 1999 charges included a milestone paid by the Company upon European approval of Synagis. The Company is currently administering multiple trials for its products, primarily including: Synagis in infants with congenital heart disease, human papillomavirus vaccine trials, and several trials using MEDI-507. The Company expects clinical spending to increase in the coming quarters as the Company moves more of its product candidates into the clinic and expands the number of trials for certain products already in the clinic. Selling, administrative and general ("SG&A") expenses grew to $24.1 million in this year's quarter from $22.5 million in the 1999 quarter, an increase of 7%. Expenses in the third quarter of 2000 include increased wage and related expenses due to an expansion of the sales force in an effort to increase product sales. Also contributing to the increase in SG&A expenses were legal costs relating to outstanding legal matters, including the MediGene AG and Celltech matters discussed in the notes to the consolidated financial statements. SG&A expenses in the third quarter of 1999 included $1.8 million of costs associated with the merger with U.S. Bioscience. Other operating expenses of $2.8 million in the 2000 period decreased 37% from $4.4 million in the 1999 period. Charges in both periods include start-up costs for the FMC. Charges in the 2000 period reflect manufacturing start-up costs for the portion of the FMC relating to the production of CytoGam, while the 1999 period reflects start-up costs at the FMC for Synagis and CytoGam. The Company received FDA approval in December 1999 for the production of Synagis at the FMC and in March 2000, the Company filed an application for FDA approval relating to a portion of production of CytoGam at the FMC. There can be no assurances that the necessary approval will be obtained in a timely fashion or at all. Other operating expenses are expected to continue for the foreseeable future, until the FMC is being fully utilized for its intended purpose. Interest income of $7.8 million was earned in the 2000 third quarter, compared to $3.0 million in the 1999 third quarter, reflecting higher cash balances available for investment, and an increase in interest rates which improved the overall portfolio yield. Interest expense of $0.1 million in the third quarter of 2000 decreased from $0.5 million in the comparable 1999 quarter primarily due to debt paydowns. The Company recorded income tax expense of $1.6 million for the third quarter of 2000, resulting in an effective rate of 31.5% for the nine month period. The 2000 quarter includes the tax benefit of increased credits for research and development expenditures and credits earned for Orphan Drug status of certain research and development activities. Income tax expense of $0.5 million was recorded for the third quarter of 1999, bringing the effective rate for the nine months of 1999 to 34.9%. The third quarter of 1999 includes credits for the year to date tax benefit for the Company's MEDI-507 GVHD program, for which the Company was given Orphan Drug status. Net earnings for the third quarter of 2000 were $5.9 million, or $0.03 basic and diluted earnings per share. Shares used in computing the 2000 third quarter basic and diluted earnings per share were 210.2 million and 221.8 million, respectively. Net earnings for the third quarter of 1999 were $2.8 million, or $0.01 basic and diluted net earnings per share. Shares used in computing the 1999 third quarter basic and diluted earnings per share were 201.0 million and 214.0 million, respectively. Quarterly financial results may vary significantly due to seasonality of Synagis product sales, fluctuation in sales of CytoGam, milestone payments, research funding and expenditures for research, development and marketing programs. Synagis sales are expected to occur primarily during, and in proximity to, the RSV season, which typically occurs between October and April in the United States. No assurances can be given that adequate product supply will be available to meet demand. NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 Product sales (in millions) 2000 1999 ---- ---- Synagis $215.2 $141.9 CytoGam 28.6 22.3 Ethyol 16.4 13.6 Other products 8.2 7.6 ------ ------ Total $268.4 $185.4 ====== ====== Product sales grew 45% to $268.4 million in the nine months ended September 30, 2000 from $185.4 million in the comparable 1999 period. The increase is mainly due to higher sales of Synagis. Additionally, CytoGam and Ethyol also achieved sales increases. Sales of Synagis increased 52% from $141.9 million in the nine months ended September 30, 1999 to $215.2 million in the nine months ended September 30, 2000, reflecting growth in both domestic and international unit sales of 38% and 262%, respectively, and a 3.1% domestic price increase. The Company obtained marketing authorization for Synagis from the EMEA in August 1999. Abbott International acts as the Company's exclusive distributor for Synagis sales outside of the United States. The terms of the Company's agreement with Abbott provide for the Company to receive 40 to 50 percent of end-user sales. The Company initially recognizes sales to Abbott when Synagis is shipped to Abbott based on a contractual, guaranteed transfer price; this amount approximates 60 to 75 percent of the total sales revenue expected for each vial. Following the end of each quarter, Abbott remits to the Company a report detailing end-user sales for the quarter and the Company recognizes revenue for the additional amount due in excess of the transfer price and up to 40 to 50 percent of the end-user selling price. CytoGam sales for the nine months ended September 30, 2000 grew 28% from the comparable 1999 period. Domestic unit sales increased 28% while international unit sales decreased 59% during the nine month period ended September 30, 2000 as compared to the period ended September 30, 1999. International units are sold at a lower selling price than domestic units. In addition, domestic unit prices were increased 7% in April 2000. The Company believes that a portion of the CytoGam sales that occurred in both periods were as a result of product substitution occurring because of the worldwide shortage of standard IVIG products. Recently, the supply of standard IVIG products has increased, and certain Medicaid agencies have begun to limit or discontinue reimbursement of CytoGam as a substitute for IVIG. Thus, CytoGam sales for the 2000 period relating to product substitution have decreased significantly. The Company expects that the future use of CytoGam as a substitute for standard IVIG products will be limited. Sales of Ethyol to the Company's domestic and international distribution partners grew 20% in the nine months ended September 30, 2000 to $16.4 million, as compared to $13.6 million in the nine months ended September 30, 1999. The increase results from a 23% and 11% increase in domestic and international vials sold, respectively. Unit prices were increased modestly during 2000, however, the Company ultimately realized lower domestic net per unit prices as a result of higher sales allowances. Other product sales increased from $7.6 million in the 1999 period to $8.2 million in the 2000 period. Other revenues in the nine months ended September 30, 2000 of $16.8 million consist of $7.5 million from SKB related to the Company's Streptococcus pneumoniae vaccine technology, research funding from SKB for development of a human papillomavirus vaccine and royalty income due from Alza in accordance with the terms of the Ethyol distribution agreement. Other revenues in the nine month period ended September 30, 1999 of $24.3 million included primarily a $15.0 million milestone payment from Abbott following European approval of Synagis, a $3.0 million milestone payment from Schering-Plough Corporation relating to achievement of a European milestone for Ethyol, and research funding from SKB. Cost of sales for the 2000 nine months increased 42% to $72.8 million from $51.2 million in the 1999 nine months. Gross margins for the nine month period ended September 30, 2000 improved slightly to 73% from 72% for the 1999 period. Research and development expenses of $48.7 million in the 2000 nine months increased 12% from $43.3 million in the 1999 nine months, primarily due to higher expenditures on the Company's clinical trials. The Company is currently administering multiple trials for its products, primarily including Synagis in infants with congenital heart disease, human papillomavirus vaccine trials and several trials using MEDI-507. In addition, the Company has experienced increased infrastructure costs to support the growing number of ongoing clinical trials. Clinical spending is expected to increase in the coming quarters as the Company moves more of its product candidates into the clinic and expands the number of trials for certain products already in the clinic. Selling, general and administrative expenses were $98.1 million and $77.6 million for the 2000 and 1999 periods, respectively, an increase of 26%. As a percentage of product sales, SG&A expense decreased to 37% in the 2000 period from 42% in the 1999 period. Expenses in the 2000 period include increased wage and related expenses due to an expansion of the sales force in an effort to increase product sales, and also include increased co-promotion expenses to the Ross Products Division of Abbott Laboratories for promotion of Synagis. Co-promotion expense increases as net domestic Synagis sales increase. Various Synagis marketing programs were also expanded in the 2000 nine months. Also contributing to the increase in SG&A expenses were legal costs relating to several outstanding legal matters, including those related to the MediGene AG and Celltech matters discussed in the notes to the consolidated financial statements. SG&A expenses in 1999 included $1.8 million of costs associated with the merger with U.S. Bioscience. Other operating expenses, which reflect manufacturing start-up costs, decreased in the nine months ended September 30, 2000 to $5.8 million from $16.3 million in the nine months ended September 30, 1999. Charges in the 2000 period include start-up costs at the FMC relating to the production of CytoGam, while the 1999 period reflects charges at the FMC relating to the manufacture of both Synagis and CytoGam. The 1999 expense also included a charge of $1.4 million to reserve for certain equipment purchased for use in the FMC, as it was determined that the equipment ultimately would not be used in that facility. The Company received FDA approval in December 1999 for the production of Synagis at the FMC, and in March 2000, the Company filed an application for FDA approval relating to a portion of production of CytoGam at the FMC. There can be no assurances that the necessary approval will be obtained in a timely fashion or at all. Other operating expenses are expected to continue for the foreseeable future, until the FMC is being fully utilized for its intended purpose. Interest income of $20.9 million was earned to date in the 2000 period, versus $9.2 million in the comparable 1999 period, reflecting higher cash balances available for investment, and an increase in interest rates which improved the overall portfolio yield. Interest expense of $2.4 million in the 1999 period primarily reflected interest due on the Company's convertible debt, net of capitalized interest. The debt was converted to common stock during 1999. The Company recorded income tax expense of $25.3 million for the nine months ended September 30, 2000, resulting in an effective tax rate of 31.5%. The variation from the statutory rate is principally due to increased credits for research and development expenditures and credits earned for Orphan Drug status of certain research and development activities. The Company's tax expense for the nine months ended September 30, 2000 compares to a tax benefit of $31.2 million for the nine months ended September 30, 1999. The tax benefit for 1999 included a $41.0 million reversal of valuation allowances of deferred tax assets for MedImmune Oncology. Excluding the reversal of the valuation allowance, the Company's effective tax rate for the 1999 period was 34.9%. Net earnings for the nine months ended September 30, 2000 were $55.0 million, or $0.26 basic and $0.25 diluted net earnings per share. Shares used in computing basic and diluted earnings per share were 208.4 million and 220.3 million, respectively. Net earnings for the nine months ended September 30, 1999 were $59.2 million, or $0.32 basic and $0.28 diluted net earnings per share. Shares used in computing basic and diluted earnings per share were 186.2 million and 211.0 million, respectively. LIQUIDITY AND CAPITAL RESOURCES Cash and marketable securities at September 30, 2000 were $453.7 million compared to $270.4 million at December 31, 1999. Working capital increased to $464.0 million at September 30, 2000 versus $302.9 million at December 31, 1999. Cash inflows included $83.2 million in cash generated by operations, reflecting net income for the period and decreases in accounts receivable, partially offset by decreases in accrued expenses, primarily as a result of amounts paid to Abbott for co-promotion of Synagis and royalty payments. Cash outflows for investing activities included an increase of $112.1 million in marketable securities and $7.1 million in capital expenditures. Cash of $1.2 million was used to pay down debt. In the nine months ended September 30, 2000 the Company received $69.6 million for stock option exercises, versus $23.5 million received for stock option exercises for the comparable 1999 period. Also in 1999, the Company received net proceeds of $20.0 million from a private placement transaction of 1.2 million shares of common stock. The Company is obligated to provide research funding and pay various milestone payments to its collaborative partners relating to its research and development agreements. The Company's existing funds at September 30, 2000, together with funds expected to be generated from product sales and investment income, are expected to provide sufficient liquidity to meet the anticipated needs of the business for the foreseeable future, absent the occurrence of unforeseen events. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of September 30, 2000, the Company owns approximately 907,000 shares of stock in a company with which it previously formed a strategic alliance. The company's stock began trading on the NASDAQ market on July 27, 2000. On September 30, 2000, in accordance with FAS 115, "Accounting for Certain Investments in Debt and Equity Securities", the Company valued the stock at its market price on that date and recorded an unrealized gain of $20.6 million, net of income taxes, as a component of other comprehensive income. Since the initial public offering on July 27, the stock price of the shares has fluctuated significantly. We expect to experience continued volatility with this investment, and thus, the value assigned to this investment could change significantly from its value as of September 30, 2000. There have been no other significant changes in market risk as compared to the disclosures in Item 7A of the Company's Annual Report on Form 10-K for the year ended December 31,1999. -------------------- THIS QUARTERLY REPORT MAY CONTAIN, IN ADDITION TO HISTORICAL INFORMATION, CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH STATEMENTS REFLECT MANAGEMENT'S CURRENT VIEWS, AND ARE BASED ON CERTAIN ASSUMPTIONS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE CURRENTLY ANTICIPATED AS A RESULT OF A NUMBER OF FACTORS, INCLUDING RISK AND UNCERTAINTIES DISCUSSED IN THE COMPANY'S OTHER FILINGS WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION. MEDIMMUNE CAUTIONS THAT RSV DISEASE OCCURS PRIMARILY DURING THE WINTER MONTHS; THE COMPANY BELIEVES ITS OPERATING RESULTS WILL REFLECT THAT SEASONALITY FOR THE FORSEEABLE FUTURE. THE COMPANY IS ALSO DEVELOPING SEVERAL PRODUCTS FOR POTENTIAL FUTURE MARKETING. THERE CAN BE NO ASSURANCE THAT SUCH DEVELOPMENT EFFORTS WILL SUCCEED, THAT SUCH PRODUCTS WILL RECEIVE REQUIRED REGULATORY CLEARANCE OR THAT, EVEN IF SUCH REGULATORY CLEARANCE WERE RECEIVED, SUCH PRODUCTS WOULD ULTIMATELY ACHIEVE COMMERCIAL SUCCESS. PART II OTHER INFORMATION Item 1. Legal Proceedings - None Item 2. Changes in Securities - None Item 3. Defaults upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders - None Item 5. Other Information - None Item 6. Exhibits and reports on Form 8-K (a) Exhibits: None (b) Reports on Form 8-K: None 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. MEDIMMUNE, INC. (Registrant) ---------------------------------- Date: November 9, 2000 David M. Mott Chief Executive Officer and acting Chief Financial Officer
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10-Q Filing
Medimmune (MEDI) Inactive 10-Q2000 Q3 Quarterly report
Filed: 9 Nov 00, 12:00am