- --------------------------------------------------------------------------------------------------------------------------------------- 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, 2001 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, 2001, 214,044,267 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 5 Notes to Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition 9-15 and Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk 15 Part II Other Information 16 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, 2001 2000 ------------ ------------ ASSETS: (Unaudited) Cash and cash equivalents $ 26,339 $ 84,974 Marketable securities 256,876 406,455 Trade receivables, net 31,315 115,635 Inventory, net 52,924 46,633 Deferred tax assets 14,198 22,319 Other current assets 8,052 11,796 ------------- ------------- Total Current Assets 389,704 687,812 Property and equipment, net 89,572 86,383 Deferred tax assets, net 198,117 194,761 Marketable securities 372,036 34,825 Other assets 4,087 2,794 ------------- ------------- Total Assets $1,053,516 $1,006,575 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY: Accounts payable, trade $ 2,840 $ 3,090 Accrued expenses 68,927 72,159 Product royalties payable 8,418 40,553 Deferred revenue 21,126 33,966 Other current liabilities 2,774 1,697 ------------- ------------- Total Current Liabilities 104,085 151,465 Long-term debt 8,997 9,595 Other liabilities 1,812 1,933 ------------- ------------- Total Liabilities 114,894 162,993 ------------- ------------- 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 214,044,267 at September 30, 2001 and 211,347,825 at December 31, 2000 2,140 2,113 Paid-in capital 882,310 842,815 Accumulated earnings (deficit) 43,369 (7,085) Accumulated other comprehensive income 10,803 5,739 ------------- ------------- Total Shareholders' Equity 938,622 843,582 ------------- ------------- Total Liabilities and Shareholders' Equity $1,053,516 $ 1,006,575 ============= ============= 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, 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Product sales $39,991 $47,246 $303,508 $268,409 Other revenue 7,419 14,296 22,468 33,914 --------- --------- ---------- ---------- Total revenues 47,410 61,542 325,976 302,323 --------- --------- ---------- ---------- Costs and Expenses: Cost of sales 16,340 15,774 76,270 72,816 Research and development 21,224 14,841 61,616 48,705 Selling, general and administrative 44,228 24,063 128,170 98,074 Other operating expenses 2,074 2,804 7,669 5,788 --------- --------- ---------- ---------- Total expenses 83,866 57,482 273,725 225,383 --------- --------- ---------- ---------- Operating (loss) income (36,456) 4,060 52,251 76,940 Interest income 9,186 7,765 28,418 20,882 Interest expense (148) (133) (447) (376) --------- --------- ---------- ---------- (Loss) earnings before income taxes and cumulative effect of a change in accounting principle (27,418) 11,692 80,222 97,446 (Benefit) provision for income taxes (8,444) 3,252 29,768 31,911 --------- --------- ---------- ---------- (Loss) earnings before cumulative effect of a change in accounting principle (18,974) 8,440 50,454 65,535 Cumulative effect of a change in accounting principle, net of tax benefit of $21,262 -- -- -- (33,821) --------- --------- ---------- --------- Net (loss) earnings ($18,974) $8,440 $50,454 $31,714 ========= ========= ========== ========= Basic (loss) earnings per share: (Loss) earnings before cumulative effect of a change in accounting principle ($0.09) $0.04 $0.24 $0.31 Cumulative effect of a change in accounting principle, net of tax -- -- -- ($0.16) --------- --------- --------- --------- Net (loss) earnings ($0.09) $0.04 $0.24 $0.15 ========= ========= ========= ========= Shares used in calculation of basic (loss) earnings per share 213,876 210,212 213,075 208,434 ========= ========= ========= ========= Diluted earnings per share: (Loss) earnings before cumulative effect of a change in accounting principle ($0.09) $0.04 $0.23 $0.30 Cumulative effect of a change in accounting principle, net of tax -- -- -- ($0.16) --------- --------- --------- --------- Net (loss) earnings ($0.09) $0.04 $0.23 $0.14 ========= ========= ========= ========= Shares used in calculation of diluted earnings per share 213,876 221,801 219,864 220,260 ========= ========= ========= ========= 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, 2001 2000 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $50,454 $31,714 Noncash items: Cumulative effect of a change in accounting principle -- 33,821 Deferred taxes 25,494 31,851 Deferred revenue (14,361) (17,119) Depreciation and amortization 6,838 5,424 Amortization of discount on marketable securities (2,789) (1,009) Change in allowance for accounts receivable (10,263) (9,225) Other 31 (84) Other changes in assets and liabilities 58,855 7,812 --------- --------- Net cash provided by operating activities 114,259 83,185 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in marketable securities (179,555) (112,107) Capital expenditures (9,947) (7,086) Investment in strategic alliance (1,500) -- --------- --------- Net cash used in investing activities (191,002) (119,193) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock and exercise of stock options 18,730 69,635 Decrease in long-term debt (576) (1,238) --------- --------- Net cash provided by financing activities 18,154 68,397 --------- --------- Effect of exchange rates on cash (46) (315) --------- --------- Net (decrease) increase in cash and cash equivalents (58,635) 32,074 Cash and cash equivalents at beginning of period 84,974 36,570 --------- --------- Cash and cash equivalents at end of period $26,339 $68,644 ========= ========= 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, 2001, and for the periods ended September 30, 2001 and 2000, 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, 2000. Derivative Instruments and Hedging Activities The Company adopted Financial Accounting Standard No. 133 (FAS 133), "Accounting for Derivative Instruments and Hedging Activities", on January 1, 2001. In accordance with the transition provisions of FAS 133, the Company recorded a net-of-tax cumulative-effect-type adjustment of $0.3 million in accumulated other comprehensive income to recognize at fair value all derivatives that are designated as foreign currency cash-flow hedging instruments. Net gains or losses on derivatives that had been previously deferred were immaterial. The Company purchases inventory from a foreign vendor and pays the vendor in a foreign currency. This exposes the Company to foreign currency exchange rate risk, which is monitored by the Company as part of its overall risk-management program. There are no other significant sources of foreign currency exchange risk. The Company maintains a foreign currency risk-management strategy that uses derivative instruments to protect its interests from unanticipated fluctuations in earnings and cash flows caused by volatility in currency exchange rates. The Company uses foreign currency forward-exchange contracts to hedge these risks. The Company accounts for its derivatives as foreign-currency cash-flow hedges. The Company is required to recognize any ineffectiveness on hedging transactions as interest income or expense in the statement of operations. For the nine months ended September 30, 2001, gains or losses for ineffective hedges were insignificant. In addition, if the Company had entered into hedges relating to certain forecasted transactions that subsequently become probable of not occurring, it would be required to reclassify gains or losses relating to those hedges from other comprehensive income to interest income in the statement of operations. For the three and nine month periods ended September 30, 2001, the Company did not reclassify any material gains or losses to interest income in the statement of operations relating to forecasted transactions that are now probable of not occurring. As of September 30, 2001, $0.1 million, net of tax, of deferred losses on derivative instruments included in accumulated other comprehensive income are expected to be reclassified to earnings in the next twelve months in conjunction with the sale of the related inventory. The maximum term over which the Company hedges exposures to the variability of cash flows is twelve months. Inventory Inventory, net of reserves, is comprised of the following (in thousands): September 30, December 31, 2001 2000 ---------- ---------- Raw Materials $14,987 $ 14,715 Work in Process 32,869 21,091 Finished Goods 7,158 13,159 --------- --------- 55,014 48,965 Less noncurrent (2,090) (2,332) --------- --------- $52,924 $ 46,633 ========= ========= In December 2000, the Company received approval from the FDA to perform a portion of the CytoGam production process at the Company's Frederick manufacturing facility (the "FMC"). As a result, all work- in-process inventory of CytoGam is classified as a current asset as of September 30, 2001 and December 31, 2000. Noncurrent inventory is comprised of some of the Company's raw plasma, net of a reserve of $1.7 million at September 30, 2001, and certain lots of CytoGam not anticipated to be sold in the coming year. Inventory balances are net of reserves for RespiGam. As RespiGam has been largely replaced in the market place by Synagis, future RespiGam product sales are expected to be minimal. RespiGam reserve balances at September 30, 2001 and December 31, 2000 were $4.5 million and $4.7 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 denominator of the diluted EPS computation for the three and nine-month periods ended September 30, 2001 and 2000 (in thousands). There are no reconciling items to the numerator for the EPS computation for the periods reported. Three months ended Nine months ended September 30, September 30, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Denominator: Weighted average shares outstanding 213,876 210,212 213,075 208,434 Effect of dilutive securities: Stock options -- 11,589 6,789 11,826 -------- -------- -------- -------- Denominator for diluted EPS 213,876 221,801 219,864 220,260 ======== ======== ======== ======== 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. Nine months ended Nine months ended September 30, 2001 September 30, 2000 ---------------------------- ---------------------------- Price range of stock options: $39.87 to $83.25 6,673,693 $63.97 to $83.25 504,025 Income Tax Provision Income tax expense as a percentage of pre-tax earnings for the nine months ended September 30, 2001 was 37.1% as compared to 32.7% for the same period in 2000. The variation in income tax expense from the statutory rate is principally due to credits for research and development expenditures and credits earned for orphan drug status of certain research and development activities. During the third quarter of 2001, the State of Maryland passed tax legislation which lowered our combined state and federal statutory tax rate to 37.0% from our previous statutory tax rate of 38.6%. Income tax expense for the three and nine month periods ended September 30, 2001 also includes a charge to tax expense for the impact of reducing our deferred tax assets to the lower statutory rate in accordance with the rate change. This charge was recorded in the third quarter of 2001. We expect that our full-year effective tax rate in 2001 and in future periods will approximate our statutory tax rate. Comprehensive Income Comprehensive income is comprised of net income (loss) 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 (loss) for the three months ended September 30, 2001 and 2000 was ($10.1) million and $38.7 million, respectively. Comprehensive income for the nine months ended September 30, 2001 and 2000 was $55.5 million and $63.2 million, respectively. A significant portion of other comprehensive income (loss) for the three months and nine months ended September 30, 2001 relates to unrealized holding gains and losses on available-for-sale marketable securities. The Company maintains an investment in a company with which it previously formed a strategic alliance. Due to market volatility associated with this investment, the value of the Company's investment fluctuated significantly during the quarter and may continue to do so in the future. ITEM 2. MEDIMMUNE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 --------------------------------------------------------- Product Sales (In Millions) 2001 2000 ---- ---- Synagis $30.0 $31.6 CytoGam 8.7 9.0 Ethyol (0.4) 5.0 Other Products 1.7 1.6 ----- ----- TOTAL $40.0 $47.2 ===== ===== Product sales were $40.0 million in third quarter 2001, versus $47.2 million in third quarter 2000, and were impacted by our accelerated reacquisition of Ethyol domestic marketing rights from ALZA Corporation (ALZA), as discussed below. Domestic sales of Synagis were consistent with the prior year quarter and totaled $21.7 million for the third quarter of 2001 versus $22.0 million in the third quarter of 2000. Domestic sales during the third quarter generally reflected wholesaler stocking of Synagis inventory in advance of the respiratory synctial virus ("RSV") season. Third quarter 2001 domestic sales of Synagis reflected a 3.6% price increase, which took effect in the second quarter of 2001. International sales of Synagis decreased to $8.3 million for the third quarter of 2001 from $9.6 million in the third quarter of 2000, as the number of units shipped to Abbott International ("Abbott") for the 2001 quarter were 50% below those of the 2000 quarter. We believe the decrease in unit sales was primarily reflective of reductions in inventory stocking levels of Abbott, our exclusive distributor of Synagis outside of the United States, and is not necessarily reflective of product demand by end-users. The decrease in unit sales was offset by an increase in the per unit sales price recognized upon delivery of product to Abbott under the terms of the distribution agreement. The terms of the distribution agreement mandated an increase in the transfer price which effectively requires the entire purchase price to be payable upon delivery of product to Abbott. Previously, the Company invoiced Abbott and recognized revenue on sales to Abbott when Synagis was delivered based on a transfer price, which approximated 60 percent of the ultimate revenue value to the Company. Following the end of each quarter, Abbott remitted to the Company a report detailing end-user sales for the quarter along with an additional amount due in excess of the transfer price. The Company recognized revenue for the additional amount due in excess of the transfer price at that time. Our sales of CytoGam were flat for the third quarter of 2001 as compared to the third quarter of 2000. The 2001 quarter reflected primarily decreases in domestic and international unit sales of 8% and 59%, respectively, partially offset by an 8% domestic price increase which took effect in the second quarter of 2001 and a decrease in Medicaid rebates. International sales of CytoGam have typically accounted for less than 15 percent of all CytoGam sales. We believe that a portion of the CytoGam sales that occurred in the prior year quarter were the result of product substitution occurring because of the worldwide shortage of standard IVIG products. In late 2000, the supply of standard IVIG products increased, and certain Medicaid agencies began to limit or discontinue reimbursement of CytoGam as a substitute for IVIG. Thus, CytoGam sales for the three-month period ended September 30, 2001 relating to product substitution have decreased significantly. We expect that the future use of CytoGam as a substitute for standard IVIG products will be limited. We incurred net returns of Ethyol of $0.4 million in the third quarter of 2001 due to our early assumption of Ethyol domestic marketing rights from ALZA. Those marketing rights were originally scheduled to revert to us in April 2002. However, in September 2001, we reached an agreement with ALZA to accelerate to October 1, 2001 the transfer to us of Ethyol marketing rights. In anticipation of that transfer, we ceased sales of Ethyol to ALZA during the quarter, and purchased ALZA's remaining Ethyol inventory as of September 30, 2001 at its original purchase price, which was recorded as a reduction of product sales in the amount of $2.3 million. Third quarter 2000 product sales of Ethyol to ALZA were $3.1 million. Beginning October 1, 2001, the Company will record all revenues from domestic sales of Ethyol and, beginning April 1, 2002, will pay ALZA a declining royalty for nine years thereafter based on sales of Ethyol in the United States. International sales of Ethyol for the 2001 third quarter were $1.9 million and remained consistent with third quarter 2000 sales levels. Other product sales in the third quarter of 2001 were comparable to the third quarter of 2000. Sales of other products include primarily sales of NeuTrexin, RespiGam, and by-products that result from the CytoGam manufacturing process. Also included in 2000 other product sales were sales of Hexalen. In November 2000, we sold our Hexalen business to MGI Pharma. Other revenues for third quarter 2001 were $7.4 million compared to $14.3 million for third quarter 2000, a decrease of $6.9 million. Third quarter 2000 other revenues included $7.5 million related to the license agreement signed with GlaxoSmithKline (GSK) for the Company's Streptococcus pneumoniae vaccine technology. Included in other revenues in both periods were revenues recognized in accordance with the adoption of Securities and Exchange Commission Staff Accounting Bulletin No. 101 (SAB 101) effective January 1, 2000. The SAB requires that revenue received in conjunction with up-front or milestone payments be recognized over the remaining performance period under the contract as those contractual obligations are fulfilled. Accordingly, other revenues in both the 2001 and 2000 periods included revenues related to up-front fees and milestone payments received prior to 2000. We recognized revenue of $5.6 million for the third quarter of 2001 versus $4.2 million for the third quarter of 2000 under the requirements of SAB 101. Other revenue for the 2001 quarter also included amounts relating to the sale of our Hexalen business, and funding earned under a collaborative agreement with GSK for HPV vaccine development. Other revenue in the 2000 quarter also included funding earned under the collaborative HPV agreement with GSK and royalty income due from ALZA in accordance with the terms of the Ethyol distribution agreement. Cost of sales increased 4% for the third quarter of 2001 to $16.3 million versus $15.8 million in 2000. Gross margins were 59% in third quarter 2001, as compared to 67% for the third quarter of 2000. Gross margins in the 2001 quarter were affected by a change in the product mix as well as an increase in overhead costs absorbed into CytoGam inventory, since the plasma portion of our manufacturing facility was approved for use by the FDA in December 2000. Prior to the FDA approval, these overhead costs were recorded as other operating expenses. In addition, in the 2001 quarter we recorded a charge for certain inventories produced at our manufacturing facility in Nijmegen, the Netherlands. The impact of these events on quarterly margins were magnified because third quarter sales are not significant due to the seasonal nature of Synagis sales. Gross margins on a year-to-date basis are consistent with our expectations. We believe gross margins will continue to vary from quarter to quarter based on variations in our product mix. In addition, we expect that on an annual basis for 2001, gross margins will modestly improve from 2000 levels. Research, development and clinical spending for the third quarter increased 43% over the prior year comparable quarter from $14.8 million in 2000 to $21.2 million in 2001, primarily due to higher expenditures on clinical trials. We are currently progressing with multiple trials for our products, including a post-marketing trial of Synagis in infants with congenital heart disease, a Phase I trial with adults using a liquid formulation of Synagis, three Phase II and one Phase I human papillomavirus vaccine trials, one Phase I trial and three Phase II trials for use of MEDI-507 in psoriasis patients, two Phase II trials for our urinary tract infection (UTI) vaccine, and one Phase II and two Phase I Vitaxin trials. We expect clinical spending levels to continue to increase in the coming quarters as we continue to move our product candidates into the clinic and expand the number of trials for certain products already in the clinic. Selling, general and administrative (SG&A) expense was $44.2 million in 2001 versus $24.1 million in 2000, an increase of 84%. The increase in SG&A expense in the 2001 third quarter was primarily attributable to expenses relating to the early assumption of Ethyol domestic marketing rights from ALZA. We recorded $13.4 million in termination fees relating to our agreement with ALZA. In addition, we incurred approximately $2.0 million in increased salary and related expenses during the quarter relating to the expansion of the Ethyol sales force and increased marketing expenses to relaunch Ethyol. Also contributing to the increase for the quarter were salary and related costs for the Synagis pediatric sales force, which we began to build in the third quarter of 2000, and costs for expansion of Synagis marketing programs. These increases were mitigated by a reduction in our legal expenses during the 2001 quarter, as several legal matters outstanding in the third quarter of 2000 were resolved by 2001. Other operating expenses, which include manufacturing start-up and other manufacturing related costs, decreased in third quarter 2001 to $2.1 million from $2.8 million in third quarter 2000. The decrease occurred primarily because more CytoGam manufacturing overhead costs are now allocated to product manufactured at FMC. In December 2000, the FDA granted approval for an amendment to the Biologic License Application for CytoGam to allow for a portion of the production of CytoGam at the Company's Frederick facility. Currently, the plasma production section of the Frederick facility has excess capacity, which results in charges to other operating expense. These charges are expected to continue for the foreseeable future until the plasma production section of the facility is fully utilized for its intended purpose. Interest income increased 18% to $9.2 million for third quarter 2001 from $7.8 million in the 2000 quarter as a result of higher cash balances available for investment, partially offset by a decrease in interest rates, which lowered the yield on our 2001 investment portfolio. We recorded an income tax benefit of $8.4 million in third quarter 2001, resulting in an effective tax rate of 37.1% for the nine months ended September 30, 2001. This compares to tax expense of $3.3 million recorded for the third quarter of 2000, resulting in an effective tax rate of 32.7% for the nine months ended September 30, 2000. The variation in the effective tax rate for the 2001 quarter versus the 2000 quarter resulted from differences in the amount of credits taken for research and development expenditures and credits earned for orphan drug status of certain research and development activities. These credits will vary from year to year depending on the activities of the Company. In addition, our statutory tax rate for the State of Maryland changed as a result of new tax legislation which became effective in the third quarter of 2001. The change in legislation will ultimately lower our statutory tax rates. However, in accordance with the rate change, we were required to reduce our deferred tax assets to value them at the new rate, which resulted in a charge to tax expense in the quarter. We expect that our new statutory tax rate for future periods will be 37.0% as compared to our prior statutory tax rate of 38.6%. We also expect that our full-year effective tax rate in 2001 and in future periods will approximate our statutory rate. We incurred a net loss for the third quarter of 2001 of $19.0 million, or $0.09 per share, versus net earnings for the third quarter of 2000 of $8.4 million, or $0.04 basic and diluted earnings per share. Shares used in computing net loss per share for the quarter ended September 30, 2001 were 213.9 and shares used for computing basic and diluted earnings per share for the quarter ended September 30, 2000 were 210.2 million and 221.8 million shares, respectively. Our quarterly financial results may vary significantly due to seasonality of Synagis product sales, fluctuations in sales of other products, milestone payments, research funding and expenditures for research, development, clinical 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, 2001 AND 2000 ------------------------------------------------------------- Product sales (in millions) 2001 2000 ---- ---- Synagis $266.5 $215.2 CytoGam 24.2 28.6 Ethyol 6.0 16.4 Other Products 6.8 8.2 ------ ------ TOTAL $303.5 $268.4 ====== ====== Product sales grew 13% to $303.5 million in the nine months ended September 30, 2001 from $268.4 million in the comparable 2000 period, primarily driven by higher sales of Synagis, and were impacted by our accelerated reacquisition of Ethyol domestic marketing rights from ALZA. Synagis sales increased 24% from $215.2 million in the nine months ended September 30, 2000 to $266.5 million in the nine months ended September 30, 2001, which reflected growth in domestic unit sales and a 3.6% domestic price increase which was effective in June 2001. Domestic unit sales increased 19% for the nine months ended September 30, 2001 over the 2000 period due to increased demand for the product. Our international sales of Synagis increased to $25.1 million in 2001 from $16.7 million in 2000 primarily due to an increase in the per unit sales price recognized as revenue upon delivery of product to Abbott as stipulated in our distribution agreement. Units shipped to Abbott for the nine months of 2001 were comparable to units shipped for the nine months of 2000. CytoGam sales for the nine months ended September 30, 2001 declined 15% from the comparable 2000 period, principally due to flat international sales and a decrease in domestic unit sales of 28%. The decrease in domestic unit sales was partially offset by an 8% domestic price increase which took effect in the second quarter of 2001 and a decrease in Medicaid rebates. We believe that a portion of the CytoGam sales that occurred in the prior year were the result of product substitution occurring because of the worldwide shortage of standard IVIG products. During 2000, the supply of standard IVIG products increased, and certain Medicaid agencies began to limit or discontinue reimbursement of CytoGam as a substitute for IVIG. Thus, CytoGam sales for the nine month period ended September 30, 2001 relating to product substitution decreased significantly. We expect that the future use of CytoGam as a substitute for standard IVIG products will be limited. Sales of Ethyol in the nine months ended September 30, 2001 were impacted by our early assumption of domestic marketing responsibility for Ethyol from ALZA. Additionally, we believe the domestic marketing focus on Ethyol throughout 2001 was impacted by the recent acquisition of ALZA by Johnson & Johnson. The transfer of marketing responsibility from ALZA was originally to occur in April 2002. However, in September 2001, we reached an agreement with ALZA to accelerate to October 1, 2001 the transfer to us of Ethyol marketing rights. In anticipation of that transfer, we ceased sales of Ethyol to ALZA during the third quarter of 2001, and we purchased ALZA's remaining Ethyol inventory as of September 30, 2001, which was recorded as a reduction to product sales in the amount of $2.3 million. Beginning October 1, 2001, the Company will record all revenues from domestic sales of Ethyol and, beginning April 1, 2002, will pay ALZA a declining royalty for nine years thereafter based on sales of Ethyol in the U.S. Our international sales of Ethyol declined to $4.4 million during 2001 as compared to $5.0 million in 2000, as unit sales decreased 6%. We believe the decrease was primarily due to reductions in inventory stocking levels at our international distribution partners. Sales of other products, which included sales of NeuTrexin, RespiGam, and by-products that result from the CytoGam manufacturing process, decreased in the 2001 period by $1.4 million from the prior year period. Also included in 2000 other product sales are sales of Hexalen. We sold our Hexalen business to MGI Pharma in November 2000. Other revenues in the nine months ended September 30, 2001 of $22.5 million consisted primarily of revenues recognized in accordance with the adoption of SAB 101. We recognized revenue of $14.4 million in the 2001 nine months versus $17.1 million in the 2000 nine months, under the requirements of SAB 101. Other revenue for the 2001 nine months also included amounts for research funding from GSK for development of an HPV vaccine, amounts relating to the sale of Hexalen, 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, 2000 of $33.9 million also include $7.5 million related to the license agreement signed with GSK for the Company's Streptococcus pneumoniae vaccine technology, research funding from GSK for HPV, and royalty income due from ALZA in accordance with the terms of the Ethyol distribution agreement. Cost of sales for the 2001 nine months increased 5% to $76.3 million from $72.8 million in the 2000 nine months, due to increased sales volumes. Gross margins for the nine month period ended September 30, 2001 were 75% versus 73% for the nine month period ended September 30, 2000. Gross margins in 2001 were principally improved as a result of increased sales of Synagis, which has more favorable margins, as well as favorable manufacturing variances following implementation of an improved manufacturing process at the FMC which increased Synagis yields. Margins in the 2000 nine months were also adversely affected by the write-off of certain Synagis inventory, as a result of a contamination in the manufacturing process at the FMC. Research and development expenses of $61.6 million in the 2001 nine months increased 27% from $48.7 million in the 2000 nine months, primarily due to higher expenditures on the Company's clinical trials. We are currently progressing with multiple trials for our products, including a post-marketing trial of Synagis in infants with congenital heart disease, a Phase I trial with adults using a liquid formulation of Synagis, three Phase II and one Phase I human papillomavirus vaccine trials, one Phase I trial and three Phase II trials for use of MEDI-507 in psoriasis patients, two Phase II trials for our urinary tract infection (UTI) vaccine, and one Phase II and two Phase I Vitaxin trials. We expect clinical spending levels to continue to increase in the coming quarters as we continue to move our product candidates into the clinic and expand the number of trials for certain products already in the clinic. Selling, general and administrative expenses were $128.2 million and $98.1 million for the 2001 and 2000 periods, respectively, an increase of 31%. As a percentage of product sales, SG&A expense increased to 42% in the 2001 period from 37% in the 2000 period. The increase in SG&A expenses in the 2001 period versus the 2000 period is reflective of expenses related to our accelerated acquisition of Ethyol domestic marketing rights from ALZA. We recorded $13.4 million in termination fees relating to our agreement with ALZA. In addition, we incurred increased salary and related expenses for the expansion of the Ethyol sales force and increased marketing expenses for the relaunch of Ethyol during the third quarter of 2001. SG&A expense also increased for wage and related expenses to establish our pediatric sales force in mid-year 2000, as well as costs for expanded Synagis marketing programs and increased co-promotion expense to the Ross Products Division of Abbott Labs for the promotion of Synagis in the United States. Co-promotion expenses increase as net domestic Synagis sales increase. Partially offsetting this increase was a decrease in legal expenses from the 2000 period, as several legal matters outstanding in 2000 have since been resolved. Other operating expenses, which reflect manufacturing start-up costs and other manufacturing related costs, increased in the nine months ended September 30, 2001 to $7.7 million from $5.8 million in the nine months ended September 30, 2000. The increase is mainly attributable to charges in the 2001 period of $1.3 million to record certain plasma inventories at their net realizable value. This material was intended for the start-up operations of our manufacturing plant and was never approved for use in the current production process. In December 2000, the FDA granted approval for an amendment to the Biologic License Application for CytoGam to allow for a portion of the production of CytoGam at our Frederick facility. Currently, the plasma production section of the Frederick facility has excess capacity, which results in charges to other operating expenses. These charges are expected to continue for the foreseeable future until the plasma production section of the facility is fully utilized for its intended purpose. We earned interest income of $28.4 million to date in the 2001 period, versus $20.9 million in the comparable 2000 period, reflecting higher cash balances available for investment, partially offset by a decrease in interest rates which lowered the overall portfolio yield. We recorded income tax expense of $29.8 million for the nine months ended September 30, 2001, resulting in an effective tax rate of 37.1%. This compares to tax expense of $31.9 million recorded for the nine months ended September 30, 2000, based on an effective tax rate of 32.7%. The variation in the effective tax rate for the 2001 period versus the 2000 period resulted from differences in the amount of credits taken for research and development activities and credits earned for orphan drug status of certain research and development activities. These credits will vary from year to year depending on the activities of the Company. In addition, our statutory tax rate for the State of Maryland changed as a result of new tax legislation which became effective in the third quarter of 2001. The change in legislation will ultimately lower our statutory tax rates. However, in accordance with the rate change, we were required to reduce our deferred tax assets to value them at the new rate, which resulted in a charge to tax expense in the third quarter of 2001. We expect that our new statutory tax rate for future periods will be 37.0% as compared to our prior statutory tax rate of 38.6%. We also expect that our full-year effective tax rate in 2001 and in future periods will approximate our statutory rate. We recorded a non-cash charge to 2000 earnings of $33.8 million, net of tax, or $0.16 on a diluted per share basis, as the cumulative effect of a change in accounting principle for the implementation of SAB 101. The adjustment was applied to the first quarter of 2000 as required by the SAB and included amounts recognized as revenue prior to 2000. These amounts related to up-front payments or milestone payments which we received in prior years under arrangements for which performance obligations related to the up-front or milestone payments had been met, but for which we were contractually obligated to perform additional research and development activities or other activities in future periods. Generally accepted accounting principles previously required us to record the revenue from the up-front and milestone payments as received, when the performance obligations associated with those payments had been fully met. However, following the adoption of the SAB, generally accepted accounting principles now require that we recognize the revenue received in conjunction with up-front or milestone payments over the remaining performance period under the contract as those obligations are fulfilled. Earnings for the first three quarters of 2001 were $50.5 million, compared to earnings for the first three quarters of 2000 (before the cumulative effect of a change in accounting principle of $33.8 million) of $65.5 million. Net earnings for the nine months ended September 30, 2001 were $50.5 million, or $0.24 basic and $0.23 diluted earnings per share. Shares used in computing basic and diluted earnings per share were 213.1 million and 219.9 million, respectively. Net earnings for the nine months ended September 30, 2000, which included the cumulative effect of a change in accounting principle, were $31.7 million, or $0.15 basic and $0.14 diluted earnings per share. Shares used in computing basic and diluted earnings per share were 208.4 million and 220.3 million, respectively. LIQUIDITY AND CAPITAL RESOURCES Our cash and marketable securities at September 30, 2001 amounted to $655.3 million compared to $526.3 million at December 31, 2000. Working capital was $285.6 million at September 30, 2001 versus $536.3 million at December 31, 2000. The decrease in our working capital reflected our decision during 2001 to invest a portion of our cash in longer term investments, which are not included in working capital. Net cash provided by operating activities for the nine months ended September 30, 2001 was $114.3 million, reflecting net income for the period and decreases in accounts receivable, offset by decreases in accrued expenses, primarily as a result of payment of amounts due to Abbott for co-promotion of Synagis, and decreases in royalties payable. Outflows for investing activities for the nine months ended September 30, 2001 included capital expenditures of $9.9 million, increases in investments of $179.6 million, and $1.5 million for an investment in a collaborative partner. During the nine months ended September 30, 2001, stock option exercises provided $18.7 million of cash, as compared to $69.6 million in the 2000 period. The Company believes that its existing funds at September 30, 2001, together with funds expected to be generated from product sales and investment income, will provide sufficient liquidity to meet the anticipated needs of our business for the foreseeable future, absent the occurrence of any unforeseen events. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For information regarding the Company's market risk exposure, please refer to Part II, Item 7A., "Quantitative and Qualitative Disclosures About Market Risk" of the Company's Annual Report on Form 10-K for the year ended December 31, 2000. As of September 30, 2001, these risks have not changed significantly. -------------------- The statements in this quarterly report that are not descriptions of historical facts may be forward-looking statements. Those statements involve substantial risks and uncertainties. You can identify those statements by the fact that they contain words such as "anticipate," "believe," "estimate," "expect," "intend," "project" or other terms of similar meaning. Those statements reflect management's current beliefs, but are based on numerous assumptions which MedImmune cannot control and which may not develop as MedImmune expects. Consequently, actual results may differ materially from those projected in the forward-looking statements. Among the factors that could cause actual results to differ materially are: Seasonal demand for and continued supply of our principal product; availability of competitive products in the market; availability of third-party reimbursement for the cost of our products; effectiveness and safety of our products; exposure to product liability, intellectual property or other types of litigation; foreign currency exchange rate fluctuations; changes in generally accepted accounting principles; growth in costs and expenses; the impact of acquisitions, divestitures and other unusual items; and the risks, uncertainties and other matters discussed elsewhere in this quarterly report and in our periodic reports filed with the U.S. Securities and Exchange Commission. MedImmune cautions that RSV disease occurs primarily during the winter months; MedImmune believes its operating results will reflect that seasonality for the foreseeable future. MedImmune 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. Unless otherwise indicated, the information in this quarterly report is as of September 30, 2001. This quarterly report will not be updated as a result of new information or future events. PART II OTHER INFORMATION Item 1. 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 related 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 GlaxoSmithKline. MediGene claimed 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. On March 15, 2001, the District Court granted summary judgment in favor of MedImmune on all remaining claims. MediGene has indicated an intention to appeal. 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. The Company has filed answering papers denying that any royalties are due on the basis that Celltech's patent does not cover Synagis and has sought dismissal of the case on the grounds that the legal doctrine of prosecution history estoppel prevents Celltech from claiming that its patent covers Synagis. On July 20, 2001, the High Court of Justice ordered a hearing, which is expected to take place in mid-to-late 2002, on whether it will dismiss Celltech's case on this basis. On February 28, 1996, Ichthyol Gesellschaft Cordes, Hermanni & Co. ("Ichthyol Gesellschaft") filed a complaint for refrain, information and damages with the Regional Court of Hamburg against U.S. Bioscience, Inc. (acquired in November 1999) on the grounds of trademark infringement in respect of the use of the trademark "Ethyol" in Germany. The suit was dismissed on January 29, 1997 by the Regional Court of Hamburg at which time Ichthyol Gesellschaft was given leave to appeal against the judgment rendered in favor of U. S. Bioscience. Ichthyol Gesellschaft filed an appeal, and a judgment was rendered in favor of U.S. Bioscience in the appellate proceedings. In January 1999, Ichthyol Gesellschaft filed an appeal on points of law with the Federal Court of Justice, and in June 1999, Ichthyol Gesellschaft filed the grounds for the appeal on points of law. In October 1999, the Federal Court of Justice accepted Ichthyol Gesellschaft's appeal and a hearing was conducted in May, 2001. As a result of the hearing, the case has been remitted to the appellate court for a hearing and decision on points of law. The hearing date has not yet been scheduled. After consultation with its counsel, the Company believes that it has meritorious defenses to the claims referred to above and it is determined to defend its position vigorously. While it is impossible to predict with certainty the eventual outcome of these proceedings, the Company believes they are unlikely to have a material adverse effect on its financial position but might have a material adverse effect on its results of operations for a particular period. 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: 10.129 Amendment No. 3 to Distribution and Marketing Collaboration Agreement between MedImmune Oncology, Inc. and ALZA Corporation. (b) Reports on Form 8-K: Report Date Event Reported ----------- -------------- 9/11/01 MedImmune Accelerates Reacquisition of U.S. Rights to Ethyol From ALZA 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) /s/: Gregory S. Patrick Date: November 14, 2001 Gregory S. Patrick Senior Vice President and Chief Financial Officer
- MEDI Dashboard
- Filings
- Patents
-
10-Q Filing
Medimmune (MEDI) Inactive 10-Q2001 Q3 Quarterly report
Filed: 14 Nov 01, 12:00am