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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-12104
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IMMUNOMEDICS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 61-1009366
(State of incorporation) (I.R.S. Employer Identification No.)
300 American Road, Morris Plains, New Jersey 07950
(Address of principal executive offices) (Zip Code)
The Company's telephone number, including area code: (973) 605-8200
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Preferred Share Purchase Rights
(Title of class)
Common Stock, $.01 par value (Title of class) 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 requirement for the past 90
days. Yes _X_ No____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of September 22, 2000, 49,479,871 shares of the Company's common stock
were outstanding, and the aggregate market value of voting and non-voting common
equity held by non-affiliates of the registrant, computed by reference to the
last reported sale price for the Company's common equity on the Nasdaq National
Market at that date, was $969,007,968.
Documents Incorporated by Reference:
Portions of the Company's definitive Proxy Statement to be mailed to
stockholders in connection with the Annual Meeting of Stockholders of the
registrant to be held on December 6, 2000 (the "2000 Definitive Proxy
Statement"), which will be filed with the Commission not later than 120 days
after the end of the fiscal year to which this report relates, are incorporated
by reference in Part III hereof.
PART I
Item 1 - Business
Introduction
Immunomedics, Inc. (the "Company") is a biopharmaceutical company applying
innovative proprietary technology in antibody selection, modification and
chemistry to the development of products for the detection and treatment of
cancers and other diseases. Integral to these products are highly specific
monoclonal antibodies designed to deliver radioisotopes, chemotherapeutic
agents, toxins, dyes or other substances to a specific disease site or organ
system.
The Company is applying its expertise in antibody selection, modification
and chemistry to develop therapeutic products for cancer using humanized
monoclonal antibodies unlabeled, or conjugated with isotopes or drugs. The
Company conducted a Phase I/II clinical trial with LymphoCide'TM' (epratuzumab),
a non-radioactive non-Hodgkin's lymphoma (NHL)therapeutic. This trial was
designed to obtain knowledge about targeting and dosing with the unlabeled
humanized form of the monoclonal antibody which targets the CD22 receptor of
B-cells and B-cell lymphomas. The Company has now advanced the humanized form of
epratuzumab to Phase III clinical testing, evaluating the agent in certain
indolent non-Hodgkin's lymphoma patients. The Company is preparing a second
Phase III clinical trial to evaluate epratuzumab in patients with a specific
type of aggressive lymphoma. The Company also is conducting a Phase II clinical
trial to determine the safety and efficacy of epratuzumab in combination with
Rituxan'r' (rituxamab, IDEC Pharmaceuticals and Genentech), in both indolent and
aggressive forms of NHL. The Company also is evaluating the humanized antibody
as a yttrium-90 labeled therapeutic product, and has discontinued all clinical
trials with the murine form (see "In Vivo Therapeutic Products"). A Phase II
clinical trial is being conducted in Germany with CEA-Cide'r' (labetuzumab),
labeled with iodine-131, for treatment of patients with small volume,
inoperable, metastatic colorectal cancer. The Company also is evaluating
labetuzumab as an unlabeled antibody in a Phase I/II clinical trial in
colorectal and breast cancer patients, and as a labeled antibody with
yttrium-90, in a Phase I/II clinical trial, in patients with colorectal and
pancreatic cancers. Labetuzumab targets receptor sites on CEA-expressing solid
tumors of the breast, lung, digestive and other organ systems.
The Company also is developing a line of in vivo imaging products for the
detection of various cancers and other diseases. These agents are being
developed by the Company as companion diagnostic products, that may be used in
conjunction with the therapeutic agents, thereby providing total patient
management. On June 28, 1996, the FDA licensed CEA-Scan for use with other
standard diagnostic modalities for the detection of recurrent and/or metastatic
colorectal cancer. On October 4, 1996, the Company was granted marketing
authorization by the European Commission for use of CEA-Scan in the 15 countries
comprising the European Union for the same indication as approved in the United
States. On September 16, 1997, the Company received a notice of compliance from
the Health Protection Branch permitting it to market CEA-Scan in Canada for
recurrent and metastatic colorectal cancer.
On February 14, 1997, the Company was granted regulatory approval by the
European Commission to market LeukoScan'r', an in vivo infectious disease
diagnostic imaging product, in all 15 countries which are members of the
European Union, for the detection and diagnosis of osteomyelitis (bone
infection) in long bones and in diabetic foot ulcer patients. On December 19,
1996, the Company filed a Biologics License Application ("BLA") for LeukoScan
with the FDA for
1
the same indication approved in Europe, plus an additional indication for the
diagnosis of acute, atypical appendicitis. A New Drug Submission for LeukoScan
for the same indications as in the U.S. was filed with the HPB in Canada on
March 24, 1998. The Company also has decided not to continue pursuing the
broadening of its approval for LeukoScan in Europe to include the acute,
atypical appendicitis indication, but has instead published its Phase III
efficacy data.
The Company has developed and filed an Investigational New Drug application
("IND") for two other in vivo cancer imaging products: AFP-Scan'r' for the
detection and diagnosis of liver and germ cell cancers, currently in Phase II
clinical trials, and LymphoScan'TM' for diagnosis and staging of non-Hodgkin's
lymphomas, currently in Phase III clinical trials (see "Products and Projects in
Development").
The Company has been directly responsible for sales and marketing of
CEA-Scan worldwide and has employed its own sales and marketing organizations in
the U.S. and Europe and negotiated local distribution agreements in certain
markets outside the U.S. On February 29, 2000, the Company signed a Letter
Agreement with KOL Bio-Medical Instruments, Inc. (KOL), granting KOL exclusive
rights to market and sell CEA-Scan in the northeastern U.S. (see "Marketing,
Sales and Distribution" for the current status of these agreements). On
September 9, 1998, the Company announced that Syncor International agreed to
make CEA-Scan available to its hospital and clinic accounts across the U.S.
supported by Immunomedics' technical support specialists. The Company has
entered into an agreement with the ICS Division of Bergen Brunswig Specialty
Corporation to provide product support services in the U.S., including
distribution, order management and customer service for CEA-Scan and other
products from time to time.
The Company has entered into a Distribution Agreement with Eli Lilly
Deutschland GmbH ("Lilly") pursuant to which Lilly packages and distributes
CEA-Scan and LeukoScan within the countries comprising the European Union and
certain other countries subject to receipt of certain regulatory approvals.
The Company, through its 80% owned subsidiary, IMG Technology, LLC ("IMG"),
has formed a joint venture with Coulter Corporation ("Beckman Coulter") for the
purpose of developing targeted cancer therapeutics. The joint venture, known as
IBC Pharmaceuticals, LLC ("IBC"), was organized as a Delaware limited liability
company. On March 5, 1999 the Company contributed to IBC, on behalf of IMG,
certain rights to its proprietary humanized antibodies against the cancer marker
carcinoembryonic antigen (which had a financial reporting carrying value of
zero), which is used in its CEA-Cide therapeutic, and Beckman Coulter
contributed to IBC certain rights to its bispecific targeting technology called
the "Affinity Enhancement System" or AES. The Company assigned its rights
pursuant to the terms of a license agreement with IBC dated March 5, 1999 in
exchange for the grant to IMG of its interest in IBC ("Immunomedics License
Agreement"). Beckman Coulter received its interest in IBC in exchange for its
contribution. The license granted to IBC is a worldwide, royalty free, exclusive
license which is limited to the "IBC Field" with respect to the "Immunomedics
Patent Property" and the "Immunomedics Biotechnology Assets," as those terms are
defined in the Immunomedics License Agreement. Additionally on March 5, 1999,
several investors contributed $3,000,000 to IBC in exchange for a 7% interest in
the venture. IMG's and Beckman Coulter's interests in IBC are 49.55% and 43.45%
respectively. Subsequent capital contributions by individual investors in
December 1999 and June 2000 total $328,000, but have a negligible effect on
ownership interest. Beckman Coulter, IMG and the investors entered into an
operating agreement (the "IBC Operating Agreement") which establishes the rights
and obligations of the respective members. Under the
2
terms of the IBC Operating Agreement, neither IMG nor Beckman Coulter may sell
any portion of its interest in IBC without first providing the other with a
right of first refusal with respect to such sale, provided that after a public
offering of IBC securities, IMG and Beckman Coulter will be permitted to sell up
to 20% of their respective interests in IBC free of such right of first refusal.
IMG is a Delaware limited liability company owned 80% by the Company and 20% by
Dr. David Goldenberg. Dr. Goldenberg received his interest pursuant to the terms
of his employment agreement with the Company. IMG is intended to be a single
purpose entity, its sole asset being its interest in IBC. Dr. Goldenberg and IMG
have entered into an operating agreement which establishes their relative rights
and obligations.
The Company was incorporated in Delaware in 1982. The Company's principal
offices are located at 300 American Road, Morris Plains, New Jersey 07950. The
Company's telephone number is (973) 605-8200. The Company also has a subsidiary,
Immunomedics B.V., with offices located in Hillegom, The Netherlands, to assist
the Company in managing sales and marketing efforts and coordinate clinical
trials in Europe.
Products and Projects in Development
In Vivo Therapeutic Products
The Company is applying its expertise in antibody selection, modification
and chemistry to cancer therapeutics, using monoclonal antibodies labeled with
therapeutic radioisotopes or conjugated with drugs. The Company is engaged in
developing anti-cancer products, principally with a technique called
radioimmunotherapy. This technique may deliver radiolabeled therapeutic agents
to tumor sites more selectively than current radiation therapy technologies,
while minimizing debilitating side effects. The Company completed a Phase I
clinical trial with the murine form of its non-Hodgkin's B-cell lymphoma
proposed therapeutic product, LymphoCide (epratuzumab)at the University of
Nebraska. This product consisted of a monoclonal antibody, highly specific in
targeting B-cell lymphomas, labeled with the radioisotope iodine-131. In this
Phase I clinical trial of epratzumab, several patients, all of whom were
late-stage and were unresponsive to other therapies, experienced varying degrees
of tumor regression. Reversible bone marrow toxicity also was observed. By
conducting this trial, the Company increased its knowledge of antibody targeting
and dosage. The Company is completing the evaluation of epratuzumab in its
humanized form and radiolabeled with yttrium-90 in Phase I/II studies at several
sites in the U.S. The Company has also tested the unlabeled (cold) form of
epratuzumab in a Phase I/II trial of about 100 patients with both indolent and
aggressive forms of NHL, and has found the agent to show good safety,
tolerability, and evidence of activity. Importantly, epratuzumab may be infused
in as little as fifteen minutes without compromising safety or efficacy. An
agreement to enter into Phase III clinical trials in certain indolent
non-Hodgkin's lymphoma patients has been reached by the Company and FDA. The
Phase III clinical trial will be conducted in approximately thirty sites in the
U.S. and Europe. The Company is preparing for a second Phase III clinical trial
to evaluate epratuzumab in patients with a specific type of aggressive
non-Hodgkin's lymphoma. The Company has begun a Phase II clinical trial to
evaluate the safety and efficacy of epratuzumab, in combination with Rituxan
(rituxamab), in both indolent and aggressive NHL patients. The product is being
evaluated as an unlabeled antibody. The initial studies of the unlabeled and
labeled forms of epratuzumab have indicated that both forms of the product show
clinical responses (partial or complete remissions), even when patients failed
chemotherapy or prior antibody therapy.
3
In February 1999, the Company entered into a Cooperative Research and
Development Agreement ("CRADA") with the National Cancer Institute ("NCI")
covering the development anduse of its humanized lymphoma antibody conjugated to
recombinant ribonucleases (RNase) as a potential new anticancer agent. The
Company contributed its humanized lymphoma antibody and the NCI contributed the
RNase. The antibody delivers the RNase to the cancer cell where it destroys the
cell's ribonucleic acid (RNA), which is essential for cell division. In May
1999, the Company entered into a Clinical Trials Agreement (CTA) with the Cancer
Therapy Evaluation Program (CTEP) of the Division of Cancer Treatment and
Diagnosis (DCTD) at the NCI. The agreement serves as the basis for the
co-development of epratuzumab by the Company and DCTD. The Company provides
epratuzumab to DCTD for evaluation under mutually agreed upon clinical
protocol(s).
A Phase II clinical trial has been completed with the Company's colorectal
cancer therapeutic, CEA-Cide(labetuzumab). This trial was conducted in Europe in
patients with metastatic colorectal cancer who failed chemotherapy. The Company
has begun to enter patients into a Phase I/II clinical trial with its humanized
CEA antibody, unlabeled and labeled with yttrium-90. These trials will evaluate
the safety of the product in patients with colorectal, pancreatic and breast
cancer. The Company is currently conducting, in collaboration with several
academic or research centers, research on humanized forms of targeting
antibodies, alternative radioisotopes and new conjugation methods (see "Research
Programs").
In Vivo Imaging Products
The Company's in vivo imaging products utilize radioimmunodetection, which
involves injecting a patient with a radioisotope linked to an antibody. An
antibody is a protein that can recognize and selectively attach itself to a
specific substance called an antigen. Such antigens are present on tumor cells,
white blood cells that accumulate at the sites of infections, and other disease
entities. By attaching a radioisotope to a disease-targeting antibody, the
radioisotope may be delivered to a disease site for imaging. A gamma camera
(standard nuclear medicine equipment used for imaging) is then used to detect
and display radioisotope concentrations, revealing the presence, location and
approximate size of the site of disease.
The Company's in vivo imaging products utilize only one of the upper arms
of the antibody, the Fab' fragment. The Company uses its proprietary chemistry
to produce the Fab' fragment of a mouse-derived antibody capable of direct and
virtually instant attachment or "labeling" with technetium-99m. Technetium-99m
is the radioisotope most frequently used in nuclear medicine because of its high
quality imaging capabilities, short half-life, widespread availability and low
cost. The use of a fragment of the antibody, rather than the whole, minimizes
the human body's immune response to the injection of mouse-derived antibodies.
This benefit is enhanced by the low Fab' dosage used in the Company's imaging
products. An additional advantage of using technetium-99m and an antibody
fragment is that imaging is enhanced in the liver, the first site of distant
metastasis for many cancers. Intact antibodies and certain other imaging
radioisotopes accumulate in the liver, potentially interfering with adequate
imaging of tumors in this organ. Finally, technetium-99m labeled antibody
fragments not taken up by tumors are quickly excreted via the kidneys, enhancing
tumor-to-background ratios in other regions.
The Company's in vivo imaging products, contained in single vials, can be
easily prepared by nuclear medicine technicians without assistance from a
radiochemist or nuclear pharmacist. Once the
4
technetium-99m is added to the vial in a saline solution, the product is ready
for injection in approximately five minutes.
On June 28, 1996, the FDA licensed CEA-Scan (arcitumomab) for use in
conjunction with other standard diagnostic modalities for the detection of the
presence, location and extent of recurrent and/or metastatic colorectal cancer.
On October 4, 1996, this product also was approved by the European Commission
for the same indication. On September 16, 1997, the Company received a notice of
compliance from the HPB permitting it to market CEA-Scan in Canada forrecurrent
and metastatic colorectal cancer. In addition, the Company has six other in vivo
imaging products or indications in various stages of clinical testing and
regulatory review by the FDA -- five for cancer imaging (CEA-Scan for lung and
breast cancer, AFP-Scan for liver and germ cell cancer and LymphoScan for
non-Hodgkin's lymphoma) and one for imaging infectious diseases (LeukoScan).
The antibody in CEA-Scan is directed at carcinoembryonic antigen ("CEA"),
which is abundant at the site of virtually all cancers of the colon or rectum
(both primary tumors and metastases). CEA is also associated with many other
cancers, and the Company estimates that three quarters of all human cancer
patients have elevated CEA levels in their tumors. As part of receiving FDA
approval for CEA-Scan, the Company has agreed to conduct Phase IV clinical
studies to evaluate the product following re-administration. The Company also is
performing Phase III clinical trials, using CEA-Scan, for imaging lung cancer.
In addition, Phase II clinical trials for breast cancer imaging have been
completed, results of which have been published in the July 2000 issue of
Cancer.
LeukoScan (sulesomab) is a monoclonal antibody fragment, which seeks out
and binds to granulocytes (white blood cells) associated with a potentially wide
range of infectious and inflammatory diseases. On February 14, 1997, the Company
received European regulatory approval to market the product for detecting and
diagnosing osteomyelitis (bone infection) in long bones and in diabetic foot
ulcer patients. On December 19, 1996, the Company filed a BLA with the FDA,
seeking approval to market LeukoScan in the U.S. for the same indication
approved in Europe, plus an additional indication for diagnosis of acute,
atypical appendicitis. A New Drug Submission for the same indications as in the
U.S. is under review with the HPB in Canada, (filed on March 24, 1998), and in
Switzerland, (filed in September, 1998).
Two other imaging products are being studied pursuant to IND's submitted to
the FDA. The Company also has ongoing clinical trials for these agents:
-- LymphoScan, employing an antibody capable of targeting an antigen on non-
Hodgkin's B-cell lymphomas (Phase III clinical trials are underway).
-- AFP-Scan, employing an antibody capable of targeting alpha-fetoprotein, a
marker on liver cancer and germ-cell tumors of the ovaries and testes
(Phase II clinical trials are underway).
Research Programs
The Company incurred approximately $8,670,000, $10,100,000 and $11,738,000,
in total research and development expense during its fiscal years ended June 30,
2000, 1999 and 1998, respectively.
5
Antibody Engineering
A major obstacle in the field of monoclonal antibody therapy has been the
patient's immune response to mouse-derived antibodies, making repeated use of
such products impracticable. The Company has made significant progress in
humanizing certain mouse antibodies (i.e., replacing certain components of a
mouse antibody with human antibody components), and with respect thereto the
Company has licensed certain technology from a third party. Moreover, using the
techniques of molecular biology, the Company's scientists have re-engineered the
humanized antibodies with improved characteristics, such as favorable
pharmacokinetic properties and increased radionuclide and drug loading
capacities.
During the past fiscal year, the Company, in collaboration with other
investigators, continued to demonstrate successful targeting in patients with
the Company's humanized monoclonal antibodies (hMN-14 and hLL2) against the CEA
cancer marker and non-Hodgkin's B-cell lymphoma, respectively, as compared to
the murine counterparts. The anticancer humanized antibodies are about 95% human
and have shown very good uptake in the patients' tumors. The Company is now
focusing on the study of these humanized monoclonal antibodies unlabeled
(non-isotopic) and labeled with a pure beta-emitting isotope, yttrium-90, in
patients with the appropriate target tumors (discussed below).
Alternative Radioisotopes
The Company has used iodine-131 to label its anti-lymphoma antibody (LL2),
which has been evaluated in a phase I clinical trial against non-Hodgkin's
lymphoma. This disease has previously been found to respond well to
radioimmunotherapy using iodine-131-labeled, murine-based anti-lymphoma
antibodies by investigators at several institutions. However, one potential
drawback of an iodine-131-labeled LL2 antibody is the finding that LL2, as a
rapidly internalizing antibody, is readily metabolized with the iodine-131-bound
metabolite and is quickly excreted from the target cell. This means that full
advantage is not taken of the eight-day half-life of the iodine-131
radionuclide, in this one particular disease. In contrast, yttrium-90 from
administered yttrium-90-labeled LL2 has been shown to be retained inside
lymphoma cells for long periods after antibody metabolism. For this reason, and
also for reasons of greater efficacy against larger tumors and the potential for
outpatient use due to lack of any associated gamma-ray emissions, the Company's
scientists have developed yttrium-90-LL2 as a second-generation product. The
Company has developed a proprietary technology using a compound called "DOTA" to
tightly bind yttrium-90 to antibodies, assuring that the isotope will stay
attached during circulation, and thus minimally impact the bone marrow and other
organ systems. The labeling procedure has been developed by the Company as a
15-minute, simple labeling method resulting in over 90% incorporation of the
yttrium onto the antibody. The Company has begun Phase I/II clinical trials with
yttrium-90-labeled humanized antibodies. The Company is not alone in
substituting yttrium-90 for iodine-131 as an antibody-delivered isotope
therapeutic. At least one other competitor is labeling an antibody with
yttrium-90 for similar indications.
Other Antibody-Directed Therapy Approaches
The Company is continuing work on selective coupling of therapeutic
site-specific agents onto engineered carbohydrate residues on antibody
fragments. The proprietary antibody constructs offer the advantage of loading
multiple therapeutic moieties onto antibody fragments at a particular
6
site and in a manner that is known not to interfere with antigen binding. The
Company also is continuing to investigate "pre-targeting", whereby an antibody
is administered first and then followed by a separate radionuclide
administration. Secondary recognition groups are attached, one to the targeting
antibody and the other to the radionuclide or therapeutic drug, such that the
radionuclide or drug is localized to the antibody pre-targeted to the tumor
site. Using such methods in preclinical animal tumor models, target-to-blood
uptake ratios of radionuclide have been improved by orders of magnitude compared
to the antibody radiolabeled in the conventional manner.
The advantage of markedly increased target-to-blood ratios is somewhat
offset by the greater complexity involved in multiple administration and timing
of reagents.
Peptides
During fiscal year 2000, the Company continued to improve its proprietary
methods for technetium-99m radiolabeling of peptides, which were developed in
fiscal year 1996, up to clinical-scale levels using single-vial kits. These
automated synthetic methods will be generally applicable to the preparation of
radioconjugates of other diverse chelate-peptides, and will enable rapid
evaluation of different peptide-receptor systems directly with peptide analogs
labeled with technetium-99m, the optimum imaging radionuclide. This technology
has been applied to the preparation of analogs of somatostatin and has
demonstrated reagent utility in pre-clinical in vivo models. In related work,
similar synthetic methods have also been used to prepare chelate-peptide
conjugates, which can be radiolabeled with indium-111 and yttrium-90.
Intraoperative Cancer Detection
The Company has been developing intraoperative cancer detection
applications with CEA-Scan, utilizing hand-held, radiation-detecting probes. The
Company has learned that surgeons have successfully used CEA-Scan in this way,
within 48 hours of its injection and external imaging. The Company has remained
in contact with these surgeons, one of whom reported to the Society of Surgical
Oncology on a prospective study of CEA-Scan imaging and probe-guided surgery in
twenty (20) patients. That study concluded that the probe and CEA-Scan provided
useful new information in 7 of 20 patients, encouraging more aggressive
operative intervention and postoperative care, including chemotherapy. A U.S.
patent was issued in 1990 to the Company for this and for laser and endoscopic
applications. In March 2000, the Company was awarded a U.S. patent covering the
use of very small portions of antibodies that bind to certain diseased tissues
allowing for improved intraoperative, intravascular and endoscopic detection.
The Company has discussed with the FDA the use of CEA-Scan with gamma probes,
and plans to conduct clinical trials along lines proposed by the FDA, with the
objectives of gaining regulatory approval for this new intraoperative use of
CEA-Scan.
Government Grants
The Company has begun work in September 2000 on a new SBIR Phase II grant
from the National Cancer Institute ("NCI"), with funding of $800,000 over two
years. The work performed under this grant will investigate the use of
bispecific antibodies for the enhanced delivery of radioimmunotherapy to colon
tumors. Preliminary results from the Phase I SBIR work suggest that the approach
may lead to drastically improved therapeutic ratios (the amount of radiation
deposited in a tumor versus the amount deposited in normal tissues). The
injected radioactivity either binds to
7
the pretargeted bispecific antibody at the tumor, or it is rapidly and
harmlessly excreted. The method under development by the Company is applicable
to any type of radioimmunotherapy.
The Company is also entering the second year of another SBIR Phase II grant
from NCI, originally awarded in September 1999, at a budget of $750,000 over two
years. This project will be completed during calendar year 2001, and may result
in an advanced radioimmunotherapy agent for the treatment of breast cancer.
Relationship with The Center for Molecular Medicine and Immunology
The Company's product development has involved, to varying degrees, CMMI, a
not-for-profit specialized cancer research center, for the performance of
certain basic research and patient evaluations, the results of which are made
available to the Company pursuant to a collaborative research and license
agreement. CMMI is funded primarily by grants from the NCI. CMMI is located in
Belleville, New Jersey. Dr. David M. Goldenberg, Chairman of the Board and Chief
Executive Officer of the Company, is the founder, current President and a member
of the Board of Trustees of CMMI. Dr. Goldenberg devotes more of his time
working for CMMI than for the Company. Certain consultants to the Company have
employment relationships with CMMI, and Dr. Hans Hansen, an officer of the
Company, is an adjunct member of CMMI. Despite these relationships, CMMI is
independent of the Company, and CMMI's management and fiscal operations are the
responsibility of CMMI's Board of Trustees (see "Certain Relationships and
Related Transactions").
Under the terms of its license agreement with CMMI, the Company has the
right of first negotiation to obtain exclusive, worldwide licenses from CMMI to
manufacture and market potential products and technology covered by the license
agreement under terms representing fair market price, to be negotiated in
good-faith at the time the license is obtained. To date, no products have been
licensed from CMMI. The Company retains licensing rights to inventions made
during the term of the agreement for a period of five years from the time of
disclosure. The license agreement terminates on January 21, 2002, with the
Company having the right to seek good-faith negotiation to extend the agreement
for an additional five-year period. Pursuant to a collaborative research and
license agreement, dated as of January 21, 1997, between the Company and CMMI,
the Company has paid CMMI an annual license fee of $200,000 in each of the
fiscal years 2000, 1999 and 1998.
The Company has reimbursed CMMI for expenses incurred on behalf of the
Company, including amounts incurred pursuant to research contracts, in the
amount of approximately $128,000, $45,000 and $98,000 during the years ended
June 30, 2000, 1999 and 1998, respectively. The Company also provides, at no
cost to CMMI, laboratory materials and supplies. However, any inventions made
independently of Immunomedics at CMMI are the property of CMMI.
During each of the fiscal years 1999 and 1998, the Board of Directors of
the Company authorized grants to CMMI of $200,000 to support research and
clinical work being performed at CMMI, such grants to be expended in a manner
deemed appropriate by the Board of Trustees of CMMI.
Marketing, Sales and Distribution
In Vivo Products
8
In April 1997, the Company launched LeukoScan in Europe. All marketing,
selling and distribution rights to the product have been retained by the Company
and the Company continues to build a sales and marketing organization to support
this effort. The Company has entered into a Distribution Agreement with Eli
Lilly Deutschland GmbH ("Lilly") pursuant to which Lilly currently packages and
distributes LeukoScan and CEA-Scan within the countries comprising the European
Union and certain other countries subject to the receipt of regulatory approval.
The Company has established sales representation and/or local distributors in
major markets. The Company's European operations are located in Hillegom, The
Netherlands.
The Company has entered into an agreement with Integrated Commercialization
Solutions, Inc. ("ICS"), a subsidiary of Bergen Brunswig Corporation. Under the
agreement, ICS serves as an agent of the Company providing product support
services for CEA-Scan in the United States including customer service, order
management, distribution, invoicing and collection.
On September 9, 1998, the Company entered into an agreement with Syncor
International, the world's leading provider of radiopharmacy services, under
which Syncor will make CEA-Scan available to its hospitals and clinic accounts
throughout the U.S., supported by the Company's sales and technical support
specialists. Syncor is supporting the Company's efforts with their own team of
field specialists as well as the licensed radiopharmacists who manage their 118
U.S. facilities.
On February 29, 2000, the Company signed a Letter Agreement with KOL
Bio-Medical Instruments, Inc.(KOL), granting KOL exclusive rights to market and
sell CEA-Scan in the northeastern U.S. The Company is considering the expansion
of this Letter Agreement to a Marketing and Sales Agreement, granting KOL, and
its agents, exclusive rights to market and sell CEA-Scan in the entire U.S.
Manufacturing
To date, the Company has manufactured all investigational agents used in
its clinical trial programs and currently manufactures CEA-Scan and LeukoScan
for commercial use. The Company performs antibody processing and purification of
its clinical products at its Morris Plains, New Jersey facility (see
"Properties").
The Company has entered into a manufacturing agreement with SP
Pharmaceuticals, formerly the Oncology Division of Pharmacia & Upjohn, pursuant
to which SP Pharmaceuticals performs certain end-stage portions of the
manufacturing process. Under the terms of such agreement, the Company pays
according to an established price structure for these services.
The Company's Morris Plains headquarters also houses regulatory, medical,
research and development, finance, marketing and executive offices (see
"Properties"). The Company has now scaled-up to commercial levels its antibody
purification and fragmentation manufacturing processes. The manufacturing
facility consists of four independent antibody-manufacturing suites, several
support areas, and a quality control ("QC") laboratory. Start-up validation and
inspection of the facility were completed in December 1998. The manufacturing
facility and product manufacturing processes were approved by the Committee on
Proprietary Medicinal Products (CPMP) of the European Commission in May, 1998.
The facility and processes were approved by the FDA for CEA-Scan in December,
1998.
9
Patents and Proprietary Rights
The Company actively pursues a policy of seeking patent protection, both in
the United States and abroad, for its proprietary technology. The Company has a
diverse patent portfolio for its products, currently consisting of 61 issued
United States patents (5 of the Company's earliest patents have now expired) and
200 issued foreign patents, with 51 United States patent applications pending,
of which 5 have been allowed, and 134 foreign patent applications pending, of
which 18 have been allowed. Included in the foregoing are 3 United States
patents and foreign counterparts of 6 United States patents, to which the
Company has rights pursuant to an exclusive license granted by Dr. Goldenberg.
The Company also has certain rights with respect to patents and patent
applications owned by CMMI, by virtue of a license agreement between the Company
and CMMI.
The Company's patents contain claims covering its current in vivo cancer
imaging products, as well as imaging and therapy products currently under
development.
In September 1999, the Company was issued a U.S. patent covering an
improvement in a pretargeting system that enhances the delivery of diagnostic or
therapeutic drugs to a target site, which could be a cancer or an infection, by
using a second step-clearing agent to remove the non-targeted agent from the
blood.
In January 2000, a U.S. patent was issued to the Company describing a
method of radiolabeling proteins by use of a new radiometal-binding compound
comprised of mercaptobutyryl glycinate ligands.
Also in January 2000, the Company was allowed a U.S. patent covering new
methods of treating cancers by a two-step process involving bispecific fusion
proteins. The fusion proteins are engineered molecules designed to have two
binding ends, one that binds to the cancer and the other to a second,
complementary agent.
In February 2000, the Company was awarded two U.S. patents for therapeutic
radiopharmaceuticals. The first describes new methods of linking phosphorus-32
and phosphorus-33 to diverse disease targeting proteins, such that they retain
the ability to bind to abnormal cells. The second patent describes a general
method of labeling proteins with a radioisotope, providing a one-vial kit, and
is especially useful for linking Cu-67, Hg-197, Pb-203, Ag-111 and Bi-212 to
antibodies, drugs, cytokines, enzymes, hormones and immune modulators.
Also in February 2000, the Company was allowed a U.S. patent covering
positron emission tomography (PET) with gallium-68 (Ga-68) chelates, using
bispecific fusion proteins as the delivery agent.
In March, 2000, the Company was awarded a U.S. patent covering the method
of using very small portions of antibodies that bind to diseased tissues for
better detection during surgical, endoscopic and laparoscopic procedures.
In April 2000, the Company was allowed a U.S. patent for a new therapeutic
method involving cell-specific cytokines, such as IL-15, to be bound with a
therapeutic isotope or RNase. The patent also covers the use of a bispecific
antibody that recognizes a cancer cell and also a region of IL-15, permitting
delivery of the IL-15 conjugated to RNase to the cancer cell.
10
Among the foreign patents issued to the Company during the last fiscal year
were two important Japanese patents, the first covering humanized antibodies and
immunoconjugates specific for B-cell lymphoma and leukemia cells which are
important for the Company's lymphoma diagnostic and therapeutic products, the
second covering the highly specific anti-CEA antibodies used in the Company's
colorectal cancer diagnostic and therapeutic products and having potential use
for other types of cancer.
Pursuant to a License Agreement between the Company and Dr. Goldenberg,
certain patent applications owned by Dr. Goldenberg were licensed to the Company
at the time of the Company's formation in exchange for a royalty in the amount
of 0.5% of the first $20,000,000 of annual net sales of all products covered by
any of such patents and 0.25% of annual net sales of such products in excess of
$20,000,000. Five of the licensed United States patents have now expired.
Dr.Goldenberg's Amended and Restated Employment Agreement with the Company dated
November 1, 1993 (the "Employment Agreement") extends the ownership rights of
the Company, with an obligation to diligently pursue all ideas, discoveries,
developments and products, into the entire medical field, which, at any time
during his past or continuing employment by the Company (but not when performing
services for CMMI), Dr. Goldenberg has made or conceived or hereafter makes or
conceives, or the making or conception of which he has materially contributed to
or hereafter contributes to, all as defined in the Employment Agreement
(collectively "Goldenberg Discoveries").
Further, pursuant to the Employment Agreement, Dr. Goldenberg will receive
incentive compensation of 0.5% on the first $75,000,000 of all defined Annual
Net Revenue of the Company and 0.25% on all such Annual Net Revenue in excess
thereof (collectively "Revenue Incentive Compensation"). Annual Net Revenue
includes the proceeds of certain dispositions of assets or interests therein
(other than defined Undeveloped Assets), including defined Royalties, certain
equivalents thereof and, to the extent approved by the Board, non-royalty
license fees. Revenue Incentive Compensation will be paid with respect to the
period of Dr. Goldenberg's employment, and two years thereafter, unless he
unilaterally terminates his employment without cause or he is terminated by the
Company for cause. With respect to the period that Dr. Goldenberg is entitled to
receive Revenue Incentive Compensation on any given products, it will be in lieu
of any other percentage compensation based on sales or revenue due him with
respect to such products under this Agreement or the existing License Agreement
between the Company and Dr. Goldenberg. With respect to any periods that Dr.
Goldenberg is not receiving such Revenue Incentive Compensation for any products
covered by patented Goldenberg Discoveries or by certain defined Prior
Inventions of Dr. Goldenberg, he will receive 0.5% on cumulative annual net
sales of, royalties on, certain equivalents thereof, and, to the extent approved
by the Board, other consideration received by the Company for such products, up
to a cumulative annual aggregate of $75,000,000 and 0.25% on any cumulative
Annual Net Revenue in excess of $75,000,000 (collectively "Incentive Payments").
A $100,000 annual minimum payment will be paid in the aggregate against all
Revenue Incentive Compensation and Royalty Payments ("Annual Minimum Payment")
and the License Agreement (discussed above).
Dr. Goldenberg also will receive a percent, not less than 20%, to be
determined by the Board, of net consideration (including license fees) which the
Company receives for any disposition, by sale, license or otherwise (discussions
directed to which commence during the term of his employment plus two years) of
any defined Undeveloped Assets of the Company which are not budgeted as part of
the Company's strategic plan. Pursuant thereto, Dr. Goldenberg received a 20%
interest in IBC Pharmaceuticals, LLC (see "Introduction").
11
Dr. Goldenberg will not be entitled to any incentive compensation with
respect to any products, technologies or businesses acquired from third parties
for a total consideration in excess of $5,000,000, unless the Company had made a
material contribution to the invention or development of such products,
technologies or businesses prior to the time of acquisition. Except as affected
by a defined Change in Control or otherwise approved by the Board, Dr.
Goldenberg will also not be entitled to any Revenue Incentive Compensation or
Incentive Payments other than the Annual Minimum Payment with respect to any
time during the period of his employment (plus two years, unless employment is
terminated by mutual agreement or by Dr. Goldenberg's death or permanent
disability) that he is not the direct or beneficial owner of shares of the
Company's voting stock with an aggregate market value of at least twenty times
his defined annual cash compensation.
The Company has extended Dr. Goldenberg's employment agreement for a
five-year period, expiring on October 31, 2003. Further, the Company
acknowledged and approved Dr. Goldenberg's continuing involvement with CMMI and
IBC Pharmaceuticals, LLC.
Pursuant to a License Agreement dated July 7, 1983, the Company paid a
royalty to Dr. F. James Primus, a co-inventor with Dr. Goldenberg of certain
monoclonal antibodies and immunoassays which are the subject matter of a U.S.
patent and foreign counterparts thereof that are owned jointly by Drs. Primus
and Goldenberg. Under the agreement, a final payment was made to Dr. Primus in
June 2000.
The Company has entered into patent license agreements with non-affiliated
companies, pursuant to which the Company granted to the licensee, for an initial
non-refundable fee plus royalties, a non-exclusive license under the Company's
patents to manufacture and sell certain cancer imaging products. To date, no
royalties have been received under these licenses. In addition, the Company has
sought to enter into patent license agreements with companies that may be
developing or marketing products that could infringe on one or more of the
patents which the Company owns or has licensed. In certain situations, such
companies have declined to enter into license agreements with the Company and
have raised questions as to the scope and validity of certain of the Company's
patents. Discussions are continuing with these companies and the Company intends
to vigorously protect and enforce its patent rights. Although there can be no
assurances as to the outcome of any patent disputes, the Company believes that
its patents are valid and will be upheld if challenged.
In November 1996, the Company brought suit in The Netherlands against F.
Hoffmann-LaRoche and its Roche Diagnostics subsidiary and European affiliates
for infringement of the Company's European patent covering specific anti-CEA
antibodies, which Roche is using in its CEA immunoassay. The suit sought an
injunction against the sale of CEA immunoassays by Roche that infringe the
Company's European patents, as well as damages for past infringement. Roche
denied infringement and countered with nullity actions in The Netherlands and
Germany, seeking to invalidate the Company's Dutch and German patents. A trial
was held before the Patent Court in The Hague on August 8, 1997, resulting in
dismissal of the action. The Company has appealed. A trial on the Dutch nullity
action was held before the Patent Court in The Hague on June 5, 1998, resulting
in dismissal of that action and maintenance of all claims of the Company's
patent. Roche has appealed. The appeals of the Dutch infringement and nullity
actions were heard concurrently on March 2, 2000, and a decision is expected in
November 2000. A trial on the German nullity action was held in Munich on
December 9, 1998, resulting in maintenance of the patent in amended form, which
continues to protect the Company's products, and which the Company believes is
still infringed by Roche's immunoassays. Roche did not appeal. The Company's
patent counsel believes
12
that the patents are valid and infringed, and that an unfavorable outcome is
unlikely, although no assurances can be given in this regard. To the extent that
Roche contests or challenges the Company's patents, or files appeals or further
nullity actions, there can be no assurance that significant costs for defending
such patents may not be incurred.
The Company has also sued Cytogen, Inc. and C.R. Bard, Inc. for
infringement of the Company's licensed patent by Cytogen's sale of its
"Prostascint" prostate cancer-imaging product. The complaint was filed in New
Jersey on February 23, 2000 and served on March 20, 2000 after two unsuccessful
attempts at settlement. Although the Company believes that its patent is valid
and infringed, there can be no assurance that a judge will interpret the claims
properly or that a jury will find infringement or that the Company will not
incur significant costs in pursuing the suit despite a negotiated fee
arrangement with its patent counsel.
In July 1998, a license agreement was signed between the Company and Dako
A/B under the Company's worldwide patents for specific anti-CEA monoclonal
antibodies, which Dako markets for in vitro use. The Company is engaged in
active discussions with other companies that may be using its patented
technology without the Company's approval in current products or products now in
development or clinical testing.
The mark "IMMUNOMEDICS" is registered in the United States and 19 foreign
countries and a European Community Trademark has been granted. The Company's
logo also is registered in the United States and in 2 foreign countries. The
mark "IMMUSTRIP" is registered in the United States and Canada. The mark
"CEA-SCAN" is registered in the United States and 7 foreign countries, and a
European Community Trademark has been granted. The mark "LEUKOSCAN" is
registered in the United States and 10 foreign countries, and a European
Community Trademark has been granted. The mark "LYMPHOSCAN" is registered in the
United States and 8 foreign countries, and a European Community Trademark has
been granted. The mark "CEA-CIDE" is registered in the United States, and a
European Community Trademark has been granted. The mark "LYMPHOCIDE" is
registered in the United States, and a European Community Trademark has been
granted. In addition, the Company has applied for registration in the United
States for several other trademarks for use on products now in development or
testing, and for corresponding foreign and/or European Community Trademarks for
certain of those marks.
Government Regulation
The manufacture and marketing of pharmaceutical or biological products
requires approval of the FDA and comparable agencies in foreign countries and,
to a lesser extent, state regulatory authorities. In the United States, the
regulatory approval process for antibody-based products, which are considered
"biologics" under FDA regulations, is similar to that for any new drug for human
use. The FDA has established mandatory procedures and safety standards that
apply to the clinical testing, manufacturing and marketing of pharmaceutical
products. Noncompliance with applicable requirements can result in fines,
recalls or seizure of products, total or partial suspension of production,
refusal of the FDA to approve product license applications or to allow the
Company to enter into supply contracts, and criminal prosecution. The FDA also
has the authority to revoke previously granted product licenses and
establishment licenses.
Generally, there is a substantial period of time between technological
conception of a proposed product and its availability for commercial sale. The
period between technological conception and filing of a Biologics License
Application with the FDA is usually five to ten years
13
for in vivo products and a minimum of two to three years for in vitro diagnostic
products. The period between the date of submission to the FDA and the date of
approval has averaged two to four years for in vivo products, although the
approval process may take longer.
The amount of time taken for this approval process is a function of a
number of variables, including the quality of the submission and studies
presented, the potential contribution that the compound will make in improving
the diagnosis and/or treatment of the disease in question and the workload at
the FDA. There can be no assurance that any new product will successfully
proceed through this approval process or that it will be approved in any
specific period of time. Depending upon marketing and distribution plans and
arrangements for a particular product, the Company may require additional time
before a proposed in vivo product is available for commercial sale.
The steps required before biological products can be produced and marketed
usually include preclinical non-human studies, the filing of an IND application,
human clinical trials and the filing and approval of a BLA. In addition to
obtaining FDA approval for each product, the FDA must also approve any
production facilities for the product.
Pre-clinical studies are conducted in the laboratory and in animal model
systems to gain preliminary information on the drug's effectiveness and to
identify major safety problems. The results of these studies are submitted to
the FDA as part of the IND application before approval can be obtained for the
commencement of testing in humans. The human clinical testing program required
for a new biologic or pharmaceutical product involves several phases. The
initial clinical evaluation, Phase I, consists of administering the product and
testing for safe and tolerable dosages while noting the effectiveness of the
product at the various dose levels. Typically, for cancer agents, testing is
done with a small group of patients with widespread cancers that have been
unresponsive to other forms of therapy. Phase II involves a study to evaluate
the effectiveness of the product for a particular indication and to refine
optimal dosage and schedule of administration and identify possible side effects
and risks in a larger patient group. When a product is determined to be
effective in Phase II trials, it is then evaluated in Phase III clinical trials.
Phase III trials consist of additional testing for effectiveness and safety with
a further expanded patient group, usually at multiple test sites. A therapeutic
cancer product must be compared to standard treatments, if such treatments
exist, to determine its relative effectiveness in randomized trials.
Human clinical trials of in vivo monoclonal antibody products may combine
Phase I and Phase II trials. In selected cases, a more traditional Phase II
study may be performed to examine the effectiveness of a single product in one
or a limited number of configurations or dose schedules in a single tumor type.
When Phase III studies are complete, the results of the pre-clinical and
clinical studies, along with manufacturing information, are submitted to the FDA
in the form of a BLA. The BLA involves considerable data collection,
verification and analysis, as well as the preparation of summaries of the
production and testing processes, pre-clinical studies and clinical trials. The
BLA is submitted to the FDA for product marketing approval. The FDA must approve
the BLA and manufacturing facilities before the product may be marketed. The FDA
may also require post-marketing testing, including extensive Phase IV studies,
and surveillance to monitor the effects of the product in general use. Product
approvals may be withdrawn if compliance with regulatory standards is not
maintained or if problems occur following initial marketing. In addition, the
FDA may in some circumstances impose restrictions on the use of the drug that
may limit its market potential, and also make it difficult and expensive to
administer.
14
The Company seeks to have its proposed products, when applicable,
designated as "Orphan Drugs" under the Orphan Drug Act of 1983. The Orphan Drug
Act generally provides incentives to manufacturers to develop and market
products to treat relatively rare diseases, i.e., diseases affecting fewer than
200,000 persons in the United States. The Company has received Orphan Drug
designation for, among others, AFP-Scan, LymphoScan and LymphoCide, the
Company's liver and germ-cell imaging, lymphoma imaging and lymphoma therapeutic
products, respectively, CEA-Scan for the diagnosis of medullary thyroid cancer
and CEA-Cide for therapy of pancreatic, ovarian and lung cancers. A drug that
receives Orphan Drug designation and is the first product to receive FDA
marketing approval for its product claim is entitled to a seven-year exclusive
marketing period in the United States for that claim for the product. However, a
drug that is considered by the FDA to be different from a particular Orphan Drug
is not barred from sale in the United States during this seven-year exclusive
marketing period.
Manufacture of a biological product must be in a facility approved by the
FDA for such product. The manufacture, storage and distribution of both
biological and nonbiological drugs must be in compliance with current Good
Manufacturing Practices ("cGMP"). Manufacturers must continue to expend time,
money and effort in the area of production and quality control to ensure full
technical compliance with those requirements. The labeling, advertising and
promotion of drug or biological products must be in compliance with FDA
regulatory requirements. Failure to comply with applicable requirements relating
to manufacture, distribution or promotion can lead to FDA demands that
production and shipment cease, and, in some cases, that products be recalled, or
to enforcement actions that can include seizures, injunctions and criminal
prosecution. Such failures, or new information reflecting on the safety and
effectiveness of the drug that comes to light after approval, can also lead to
FDA withdrawal of approval to market the product.
The drug approval process is similar in other countries and is also
regulated by specific agencies in each geographic area. Approval by the FDA does
not ensure approval in other countries. Generally, however, products that are
approved by the FDA in the U.S. will ultimately gain marketing approval in other
countries, but may require considerable additional time to do so.
The Company's ability to commercialize its products successfully may also
depend in part on the extent to which reimbursement for the cost of such
products and related treatment will be available from government health
administration authorities, private health insurers and other organizations.
The Company's present and future business is also subject to regulation
under state and Federal law regarding work place safety, laboratory practices,
the use and handling of radioisotopes, environmental protection and hazardous
substance control and to other present and possible future local, federal and
foreign regulations. The Company believes its operations comply, in all material
respects, with applicable environmental laws and regulations, and the Company is
continuing its efforts to ensure its full compliance with such laws and
regulations.
Competition
The biotechnology industry is highly competitive, particularly in the area
of cancer diagnostic, imaging and therapeutic products. The Company is likely to
encounter significant competition with respect to its proposed products
currently under development. A number of companies which are engaged in the
biotechnology field, and in particular the development of cancer
15
diagnostic and therapeutic products, have financial, technical and marketing
resources significantly greater than those of the Company. Some companies with
established positions in the pharmaceutical industry may be better equipped than
the Company to develop, refine and market products based on technologies applied
to the diagnosis and treatment of cancers and infectious diseases. The Company
expects to face increasing competition from universities and other non-profit
research institutions. These institutions carry out a significant amount of
research and antibody-based technology, are becoming increasingly aware of the
commercial value of their findings and are becoming more active in seeking
patent and other proprietary rights, as well as licensing revenues.
The Company's ability to compete in the future will depend, in part, on its
ability to foster an environment in which multi-disciplinary teams work together
to develop low-cost, well-defined processes and bring cost-beneficial products
successfully through clinical testing and regulatory approval.
The Company is pursuing an area of product development in which there is
the potential for extensive technological innovation in relatively short periods
of time. The Company's competitors may succeed in developing products that are
safer or more effective than those of the Company's potential products. Rapid
technological change or developments by others may result in the Company's
present products and potential products becoming obsolete or non-competitive.
The Company believes that the technological attributes of its proposed
diagnostic imaging products, including the ease of use (e.g., single vial, rapid
imaging), employment of technetium-99m (the most widely available radioisotope)
and its use of an antibody fragment (better liver imaging, decreased HAMA
response) will enable the Company to compete effectively in the marketplace.
Employees
As of September 22, 2000, the Company employed 65 persons on a full-time
basis, 14 of whom are in research and development departments, 12 of whom are
engaged in clinical research and regulatory affairs, 24 of whom are engaged in
operations and manufacturing and quality control, and 15 of whom are engaged in
finance, administration, sales and marketing. Of these employees, 18 hold M.D.,
Ph.D. or other advanced degrees. The Company believes that it has been
successful in attracting skilled and experienced scientific personnel; however,
competition for such personnel continues to be intense. The Company's employees
are not covered by a collective bargaining agreement, and the Company believes
that its relationship with its employees is excellent.
Business Risks
The Company's products are in various stages of development and face a high
degree of technological, regulatory and competitive risk. In addition, the
Company's products must be approved for marketing by regulatory agencies such as
the FDA (with the exception of CEA-Scan and LeukoScan, which have been licensed
as discussed above), and no assurance can be given as to if or when such
approvals could be forthcoming. Product discovery and development activities
require substantial cash outlays. At least until CEA-Scan and/or LeukoScan are
successfully commercialized, future revenues will be dependent in large part
upon the Company entering into new arrangements with collaborative partners and
upon public and private financings. No assurance can be given that such
arrangements and/or financings will be available to the Company on acceptable
terms or at all. In addition, the Company is relying upon its own internal sales
and marketing organization (see "Marketing, Sales and Distribution"). No
assurance can be given that
16
the Company's manufacturing costs will be economically viable, or that the
Company can develop an effective sales and marketing strategy to effectively
promote any marketed product.
The risks discussed herein reflect the Company's immediate stage of
development. Inherent in this stage is a range of additional risks, including
the Company's history of losses and the need for, and uncertainty of, obtaining
future financing. The Company also faces numerous risks stemming from the nature
of the biopharmaceutical industry, including the risk of competition and
competing patents, the risk of regulatory change, including potential changes in
health care coverage, and uncertainties associated with obtaining and enforcing
patents and proprietary technology, among others.
All products in development face a high degree of uncertainty, including
the following: (i) the Company may not receive regulatory approval to perform
human clinical trials for the products the Company currently has planned or it
may be unable to successfully complete ongoing clinical trials; (ii) the results
from preclinical studies and clinical trials may not be indicative of results
that will be obtained in later-stage testing; (iii) the Company may be unable to
timely recruit a sufficient number of patients for its clinical trials, which
may result in increased costs and delays; (iv) the Company may be unable to
obtain approval from the FDA and comparable foreign authorities because it is
unable to demonstrate that the product is safe and effective for the intended
use, or obtaining regulatory approval may take significantly more time and cost
significantly more money than the Company currently anticipates; (v) the Company
may discover that the product has undesirable or unintended side effects or
other characteristics that make it impossible or impracticable for it to
continue development or which may limit the product's commercial use or may even
result in de-registration for use; (vi) the Company does not expect that any new
product which is currently in research and development will be commercially
available for at least several years; (vii) the Company may be unable to produce
the product in commercial quantities at reasonable cost; (viii) the Company may
be unable to successfully market the product or to find an appropriate corporate
partner, if necessary, to assist the Company in the marketing of the product;
(ix) the product may not gain satisfactory market acceptance; and (x) the
product may be superseded by another product commercialized for the same
indication or use. If the Company is unable to continue to develop products that
it can successfully market, its business, financial condition and results of
operations will be significantly and adversely affected.
There can be no assurance CMMI will be successful in its research
activities or that it will develop any potential products, which can be licensed
by the Company. On September 19, 2000, the FDA issued a warning letter to CMMI.
The warning letter, relating to an inspection of CMMI that ended on May 25,
2000, cited several alleged deviations from applicable federal regulations.
Among other things, the warning letter alleged the failure to submit an
Investigational New Drug Application ("IND") with respect to certain
investigational products, the administration of investigational drugs without an
IND, the failure to assure proper monitoring of investigations, the failure to
assure that investigations are conducted in accordance with applicable
investigation plans and protocols and certain data difficulties. The Company
understands that CMMI is pursuing these matters directly with the FDA. The FDA
has substantial regulatory authority over both CMMI and the Company. Any
regulatory, judicial or other actions taken with respect to CMMI by the United
States government or others could materially adversely affect the Company, given
the relationship between the Company and CMMI.
17
The potential for conflicts of interest may exist in the relationship
between the Company and CMMI, although the provisions of the agreement between
the Company and CMMI have been designed to prevent such conflicts from
occurring. The Company and CMMI have agreed that neither will have any right,
title or interest in or to the research grants, contracts or other agreements
obtained by the other. The decision as to whether a potential product has
reached the stage of development such that it must be offered by CMMI to the
Company is made by the Board of Trustees of CMMI, and Dr. Goldenberg has agreed
not to participate in the determination of any such issue. Similarly, the
decision by the Company as to whether or not to exercise its right of first
negotiation or release of any potential product offered by CMMI is determined by
a majority vote of the Board of Directors (or a subcommittee thereof), and Dr.
Goldenberg has agreed not to participate in the determination of any such issue.
The Company currently does not have the resources to internally develop and
maintain the operating procedures required by the FDA and comparable foreign
regulatory authorities to oversee distribution of its products. As a result, it
has entered into arrangements with Lilly and ICS to perform such function for
the foreseeable future. If these agreements are terminated, the Company will be
required to enter into arrangements with other government approved third parties
in order to be able to distribute its products. The Company will be unable to
continue to distribute its products until an acceptable alternative is
identified. If the Company were even only temporarily unable to distribute its
products, its business could be significantly and adversely affected.
CEA-Scan and certain of the Company's other imaging agents are derived from
ascites fluid produced in mice, which are provided by a third-party supplier.
Regulatory authorities, particularly in Europe, have expressed concerns about
the use of mice fluid for the production of monoclonal antibodies. While the
Company believes that its current quality control procedures ensure the purity
of the fluid it uses, there can be no assurance that regulatory authorities will
agree that these procedures will be adequate for future products. While the
Company is continuing its development efforts to produce certain monoclonal
antibodies using cell culture methods, this process constitutes a substantial
production change, which will require additional manufacturing equipment and new
regulatory approval. There can be no assurance that the Company will have the
resources to acquire the additional manufacturing equipment and resources or
that it will receive the required regulatory approval on a timely basis, if at
all. The Company also has contracted with a third party for the development and
production of certain humanized antibodies; however, there can be no assurance
that such efforts will be successful.
The Company's commercial success is highly dependent upon its patents and
other proprietary rights that it owns or licenses. While it actively seeks
patent protection both in the United States and abroad for its proprietary
technology, there can be no assurance that its key patents will not be
invalidated or will provide the Company protection that has commercial
significance. Litigation may be necessary to protect its patent positions, which
could be costly and time consuming. If any of the key patents that the Company
owns or licenses are invalidated, its business may be significantly and
adversely affected. The Company also relies in part on trade secrets, unpatented
know-how and continuing technological advancements to maintain its competitive
position. It is the practice of the Company to enter into confidentiality
agreements with employees, consultants and corporate sponsors. There can be no
assurance, however, that these measures will prevent the unauthorized disclosure
or use of the Company's trade secrets and know-how. In addition, other companies
may independently develop similar trade secrets or know-how or obtain access to
the Company's trade secrets, know-how or proprietary technology, which could
18
significantly and adversely affect its business. Other companies may have filed
applications for or have been issued patents and obtained other proprietary
rights to technology, which may be potentially useful to the Company. If the
Company determines that the inventions covered by such patents are necessary or
useful for it, it may attempt to license such rights. There can be no assurance
that such rights will be available at all or upon terms the Company considers
acceptable. If the Company is unable to obtain such rights, its business could
be significantly and adversely affected.
Third-party payers are increasingly challenging the price of medical
products and services. Several proposals have been made that may lead to a
government-directed national health care system. Adoption of such a system could
further limit reimbursement for medical products, and there can be no assurance
that adequate third-party coverage will be available to enable the Company to
maintain price levels sufficient to realize an appropriate return on its
investment in product development. In addition, there can be no assurance that
the U.S. government will not implement a system of price controls. Any such
system might significantly and adversely affect the Company's ability to market
its products profitably. Similar risks are present in foreign markets.
Item 2 -- Properties
The Company's headquarters is located at 300 American Road, Morris Plains,
New Jersey, where it leases approximately 60,000 square feet. On May 29, 1998,
the Company exercised its right to renew the lease for an additional term of
three years expiring in May 2002 at a base annual rental of $441,000. (See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources.") The lease provides for a second
renewal period of five years expiring in May 2007. The lease also provides for
an option to purchase the facility, subject to certain terms and conditions as
specified in the lease. On May 19, 2000, the Company gave notice to its landlord
that it desired to exercise its right to purchase the facility, which is subject
to further negotiation. The Company's manufacturing, regulatory, medical,
research and development laboratories, finance, marketing and executive offices
are currently located in this facility. The Company has also completed the
construction and equipping of a 7,500 square-foot commercial-scale manufacturing
facility within the Morris Plains headquarters, which consists of four
independent antibody manufacturing suites, several support areas, and a QC
laboratory (see "Manufacturing"). In addition, the Company's European
Subsidiary, Immunomedics Europe, leases executive office space in Hillegom, The
Netherlands.
Item 3 -- Legal Proceedings
The Company is a party to various claims and litigation arising in the
normal course of business. Management believes that the outcome of such claims
and litigation will not have a material adverse effect on the Company's
financial position and results of operations.
Item 4 -- Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of securities holders during the fourth
quarter of fiscal year 2000.
Executive Officers of the Registrant
19
The Executive Officers of the Company and their positions with the Company
are as follows:
Name Age Position with the Company
David M. Goldenberg 62 Chairman & Chief Executive Officer
Cynthia L. Sullivan 44 Executive Vice President & Chief
Operating Officer
Hans J. Hansen 67 Vice President, Research and
Development
Each of the Executive Officers was elected as such by the Board of
Directors of the Company and holds his office at the discretion of the Board of
Directors or until his earlier death or resignation, except that Dr. Goldenberg
is employed pursuant to an employment agreement (See "Executive Compensation").
Dr. David M. Goldenberg founded the Company in July 1982, and since that
time, has been Chairman of the Board of the Company. Dr. Goldenberg served as
Chief Executive Officer from July 1982, through July 1992; from February 1994
through May 1998 and resumed his responsibilities as Chief Executive Officer
effective July 1999. Dr. Goldenberg was Professor of Pathology at the University
of Kentucky Medical Center from 1973 until 1983 and Director of such
University's Division of Experimental Pathology from 1976 until 1983. From 1975
to 1980 he also served as Executive Director of the Ephraim McDowell Community
Cancer Network, Inc., and from 1978 to 1980 he was President of the Ephraim
McDowell Cancer Research Foundation, Inc., both in Lexington, Kentucky. Dr.
Goldenberg is a graduate of the University of Chicago College and Division of
Biological Sciences (B.S.), the University of Erlangen-Nuremberg (Germany)
Faculty of Natural Sciences (Sc.D.), and the University of Heidelberg (Germany)
School of Medicine (M.D.). He has written or co-authored more than 950 journal
articles, book chapters and abstracts on cancer research, detection and
treatment, and has researched and written extensively in the area of
radioimmunodetection using radiolabeled antibodies. In addition to his position
with the Company, Dr. Goldenberg is President of CMMI, an independent non-profit
research center, and its clinical unit, the Garden State Cancer Center. He also
holds the position of Adjunct Professor of Microbiology and Immunology with the
New York Medical College in Valhalla, New York. In 1985 and again in 1992, Dr.
Goldenberg received an "Outstanding Investigator grant" award from the National
Cancer Institute ("NCI") for his work in radioimmunodetection, and in 1986 he
received the New Jersey Pride Award in Science and Technology. Dr. Goldenberg
was honored as the ninth Herz Lecturer of the Tel Aviv University Faculty of
Life Sciences. In addition, he received the 1991 Mayneord 3M Award and
Lectureship of the British Institute of Radiology for his contributions to the
development of radiolabeled monoclonal antibodies used in the imaging and
treatment of cancer. Dr. Goldenberg was also named the co-recipient of the 1994
Abbott Award by the International Society for Oncodevelopmental Biology and
Medicine. Dr. Goldenberg also serves as Chairman of the Board of IBC.
Cynthia L. Sullivan has been employed by the Company since October 1985,
and has served as Executive Vice President and Chief Operating Officer since
June 1999. Prior thereto, she held positions of increasing responsibilities in
the Company, including Executive Director, Operations from April 1994 to June
1999. Prior to joining the Company, Ms. Sullivan was employed by Ortho
Diagnostic Systems, Inc., a subsidiary of Johnson and Johnson. Ms. Sullivan's
educational background includes: a BS from Merrimack College, North Andover, MA,
followed by a year of clinical internship with the school of Medical Technology
at Muhlenberg Hospital, Plainfield, NJ,
20
resulting in a MT (ASCP) certification in 1979. Ms. Sullivan completed a M.S.
degree in 1986 from Fairleigh Dickinson University, where she also received her
M.B.A. in December 1991.
Dr. Hans J. Hansen has been Vice President, Research and Development, since
March 1987. Effective July 1999, Dr. Hansen reduced his employment with the
Company to a part-time basis. Prior to joining the Company in 1985 as Director
of Cell Biology, he was for three years the Director of Product Development at
Ortho Diagnostic Systems, Inc., a subsidiary of Johnson & Johnson Corporation,
where he developed monoclonal antibodies for the diagnosis of leukemia and other
cancers. From 1969 to 1982, Dr. Hansen was with Hoffmann-La Roche in a variety
of positions, becoming Director of the Department of Immunology in 1982. While
at Hoffmann-La Roche, he developed the first in vitro diagnostic CEA immunoassay
and had a major role in establishing its clinical importance in the diagnosis
and management of cancer. Dr. Hansen has spent 38 years conducting clinical and
basic research in the fields of cancer and autoimmune disease. His work has
resulted in the issuance of over 30 United States patents and over 90
publications relating to cancer and autoimmune diseases.
There are no family relationships between directors and executive officers
except that Dr. Goldenberg and Ms. Sullivan are husband and wife.
21
PART II
Item 5 -- Market For Registrant's Common Stock and Related Stockholder Matters
The Company's Common Stock is traded on The Nasdaq National Market under
the symbol 'IMMU'. The table below sets forth for the periods indicated the high
and low sales prices for the Company's Common Stock, as reported by The Nasdaq
Stock Market. As of September 22, 2000, there were approximately 749 holders of
record of the Company's Common Stock.
Fiscal Quarter Ended High Low
- - ------------------------ --------- --------
September 30, 1998.......................................................... $ 4 15/16 $ 2 5/8
December 31, 1998........................................................... 4 3/8 2 5/8
March 31, 1999.............................................................. 4 3/16 2 1/16
June 30, 1999............................................................... 2 7/8 1 1/8
--- ---
September 30, 1999.......................................................... $ 1 7/8 $ 1
December 31, 1999........................................................... 13 13/16 1 1/16
March 31, 2000.............................................................. 41 1/8 8 1/8
June 30, 2000............................................................... 25 15/16 8 9/16
--- ---
Item 6 -- Selected Financial Data (fiscal year ended June 30)
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(In thousands, except per share amounts)
Total revenues............................................................. $ 5,973 $ 7,559 $ 7,595 $ 3,841 $ 1,700
Total operating expenses................................................... 15,609 18,838 19,406 17,775 15,000
Net loss................................................................... (9,636) (11,279) (11,811) (13,934) (13,300)
Dividends on preferred stock............................................... 496 409 --- 13 ---
Net loss allocable to common shareholders.................................. (10,132) (11,688) (11,811) (13,947) (13,300)
Net loss per common share.................................................. $ (0.23) $ (0.31) $ (0.32) $ (0.39) $ (0.40)
Weighted average shares outstanding........................................ 43,977 37,782 36,643 35,445 32,904
Cash, cash equivalents and marketable securities........................... $ 40,866 $ 9,422 $ 7,583 $ 15,024 $ 28,691
Total assets............................................................... 48,026 16,959 14,942 22,635 35,720
Long-term debt............................................................. 70 228 --- --- ---
Stockholders' equity(1).................................................... 44,096 12,455 10,526 17,446 31,153
(1) The Company has not paid cash dividends on its Common Stock since its
inception.
22
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Statements made in this Form 10-K, other than those concerning historical
information, should be considered forward-looking and subject to various risks
and uncertainties. Such forward-looking statements are made based on
management's belief as well as assumptions made by, and information currently
available to, management pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. The Company's actual results may
differ materially from the results anticipated in these forward-looking
statements as a result of a variety of factors, including those identified in
"Business" and elsewhere in this Annual Report on Form 10-K for the fiscal year
ended June 30, 2000.
Since its inception, the Company has been engaged primarily in the research
and development and, more recently, the commercialization of proprietary
products relating to the detection, diagnosis and treatment of cancer and
infectious diseases. The Company has incurred significant operating losses since
its formation in 1982 and has not earned a profit since its inception. These
operating losses and failure to be profitable have been due mainly to the
significant amount of money that the Company has had to spend on research and
development. As of June 30, 2000, the Company had an accumulated deficit of
approximately $110,000,000. The Company expects to continue to experience
operating losses until such time, if at all, that it is able to generate
sufficient revenues from sales of CEA-Scan'r', LeukoScan'r' and its other
potential products.
On June 28, 1996, the U.S. Food and Drug Administration ("FDA") licensed
CEA-Scan for use with other standard diagnostic modalities for the detection of
recurrent and/or metastatic colorectal cancer. On October 4, 1996, the European
Commission granted marketing authorization for use of the product in the 15
countries comprising the European Union for the same indication. On September
16, 1997, the Company received a notice of compliance from the Health Protection
Branch permitting it to market CEA-Scan in Canada for colorectal cancer for
recurrent and metastatic colorectal cancer.
On February 14, 1997, the Company was granted regulatory approval by the
European Commission to market LeukoScan'r', an in vivo infectious disease
diagnostic imaging product, in all 15 countries which are members of the
European Union, for the detection and diagnosis of osteomyelitis (bone
infection) in long bones and in diabetic foot ulcer patients. On December 19,
1996, the Company filed a Biologics License Application, or BLA for LeukoScan
with the FDA for the same indication approved in Europe, plus an additional
indication for the diagnosis of acute, atypical appendicitis. As part of the
review process, the Company is in discussions with the FDA to address its
comments regarding the adequacy of the Company's data to support final approval
for these indications. Consistent with the Compan's decision to focus primarily
on cancer therapeutic products, on April 12, 2000, the Company withdrew the
CEA-Scan breast cancer imaging application submitted on January 26, 1999 to the
European Medicines Evaluation Agency (EMEA). A New Drug Submission for LeukoScan
for the same indications as in the U.S. was filed with the HPB in Canada on
March 24, 1998. The Company also has decided not to continue pursuing the
broadening of its approval for LeukoScan in Europe to include the acute,
atypical appendicitis indication, but has instead published its Phase III
efficacy data.
23
CEA-Scan and LeukoScan are the only products which the Company is currently
licensed to market and sell. To date, the Company has received only limited
revenues from the sale of these products. There can be no assurance that these
products will achieve market acceptance or generate significant sales. Unless
the Company receives substantial revenues from these products, future revenues
will be dependent in large part upon its receiving payments from corporate
partners under licensing and research agreements or from government grants.
However, there can be no assurance that the Company will receive such payments
in a timely manner, or at all.
The Company is also engaged in developing other biopharmaceutical products,
which are in various stages of development and clinical testing.
The Company has developed and filed an Investigational New Drug application
("IND") for two other in vivo cancer imaging products: AFP-Scan'r' for the
detection and diagnosis of liver and germ cell cancers, currently in Phase II
clinical trials, and LymphoScan'TM' for diagnosis and staging of non-Hodgkin's
lymphomas, currently in Phase III clinical trials (see "Products and Projects in
Development").
Results of Operations
Fiscal Year 2000 compared to Fiscal Year 1999
Revenues for fiscal year 2000 were $5,973,000 as compared to $7,559,000 in
fiscal year 1999, representing a decrease of $1,586,000. The product sales for
fiscal year 2000 were $4,124,000 as compared to $6,097,000 in fiscal year 1999,
representing a decrease of $1,973,000, mainly due to the reorganization of the
U.S. and European sales forces, which occurred in April 1999. Research and
development revenue for fiscal year 2000 decreased by $48,000 as compared to
fiscal 1999. Interest and other income for fiscal year 2000 increased by
$438,000. Interest income increased by $767,000 due to more cash available for
investments as a result of infusions of private equity capital during fiscal
2000. Other income decreased by $328,000 primarily due to the receipt of
$300,000 in December 1998, in final settlement of all claims between the Company
and Mallinckrodt, Inc. and its affiliate under certain prior distribution
agreements, which were terminated in April 1998.
Total operating expenses for fiscal year 2000 were $15,609,000 as compared
to $18,838,000 in fiscal year 1999, representing a decrease of $3,229,000.
Research and development costs decreased by $1,430,000 as compared to fiscal
year 1999, primarily due to the Company's restructuring efforts in fiscal 1999
and lower cost associated with reduced patient enrollment for clinical trials.
Cost of goods sold for fiscal year 2000 increased by $97,000 as compared to
fiscal year 1999. Included in the cost of goods sold for fiscal year 2000 is a
charge of approximately $155,000 due to expiration of vials of CEA-Scan
previously manufactured and capitalized which was partially offset by the effect
of decreased product revenues. In addition, cost of goods sold for fiscal year
2000 and 1999 does not include production costs of certain products sold since
such costs were previously expensed prior to receiving product approval. Sales
and marketing expenses for fiscal year 2000 were $2,950,000 as compared to
$6,524,000 in fiscal year 1999, representing a decrease of $3,574,000, primarily
due to the Company-wide reorganization/restructuring. General and administrative
costs for fiscal year 2000 increased by $1,679,000 as compared to fiscal year
1999, primarily due to the recognition of an expense of $925,000 associated with
warrants issued to a financial advisor in December 1999 and $880,000 awarded to
executives as a bonus in fiscal year 2000 in recognition for their efforts with
the Company's equity financings (see Note 7 to Consolidated Financial
Statements).
24
Net loss allocable to common shareholders for fiscal year 2000 was
$10,132,000, or $0.23 per share, as compared to $11,688,000, or $0.31 per share,
in fiscal year 1999. The lower net loss of $1,556,000 in 2000 as compared to
1999 primarily resulted from lower operating expenses, partially offset by lower
revenues, as discussed above, and the accretion of preferred stock dividends on
the Series F Preferred Stock issued in December 1999 (see "Liquidity and Capital
Resources"). In addition, the net loss allocable to common shareholders per
share for fiscal 2000 was positively impacted by the higher weighted average
number of shares outstanding during such period as compared to fiscal 1999,
which increase was principally due to the conversion of the Company's Series F
Preferred Stock and the issuance of common stock pursuant to the Company's
equity financings (see Note 7 to Consolidated Financial Statements).
Fiscal Year 1999 compared to Fiscal Year 1998
Revenues for fiscal year 1999 were $7,559,000 as compared to $7,595,000 in
fiscal year 1998, representing a decrease of $36,000. The product sales for
fiscal year 1999 were $6,097,000 as compared to $4,049,000 in fiscal year 1998,
representing an increase of $2,048,000. The increase in product sales is mainly
due to increased market acceptance of CEA-Scan and LeukoScan. Research and
development revenue for fiscal year 1999 decreased by $484,000 as compared to
fiscal 1998, primarily due to the recognition in fiscal year 1998, of previously
deferred revenue received from Pharmacia Inc.("Pharmacia") in fiscal year 1997
and a decrease in grant revenue of $176,000. Interest and other income for
fiscal year 1999 decreased by $1,585,000. Interest income decreased by $86,000
due to less cash available for investments. Other income decreased by $1,499,000
primarily due to the receipt, in November 1997, of an arbitration award of
$1,800,000 including interest from its dispute with Pharmacia. The decrease in
other income was offset in part by the receipt and recognition in fiscal year
1999 of $300,000 in final settlement of all claims between the Company and
Mallinckrodt, Inc. and its affiliate under the prior distribution agreements,
which were terminated in April 1998. (see "Liquidity and Capital Resources").
Total operating expenses for fiscal year 1999 were $18,838,000 as compared
to $19,406,000 in fiscal year 1998, representing a decrease of $568,000.
Research and development costs decreased by $1,638,000 as compared to fiscal
year 1998, primarily due to a decrease in the level of expenditures required to
obtain validation of the Company's manufacturing facility and lower cost
associated with reduced patient enrollment for clinical trials. Cost of goods
sold for fiscal year 1999 increased by $87,000 as compared to fiscal year 1998,
mainly due to increased product sales. However, the decrease in cost of goods
sold as a percentage of product sales reflects the benefit of product sales from
inventory which was previously expensed by the Company prior to receiving
product approval. Sales and marketing expenses for fiscal year 1999 were
$6,524,000 as compared to $5,380,000 in fiscal year 1998, representing an
increase of $1,144,000, primarily due to an increase in personnel associated
with the Company's full-time oncology sales force in U.S. and increased
operating expenses for Immunomedics Europe, which increased, by $288,000 as
compared to fiscal year 1998. General and administrative costs for fiscal year
1999 decreased by $161,000 as compared to fiscal year 1998, primarily due to
reduced legal costs as a result of the conclusion of the Pharmacia arbitration,
which was settled in November 1997.
Net loss allocable to common shareholders for fiscal year 1999 was
$11,688,000, or $0.31 per share, as compared to a net loss of $11,811,000, or
$0.32 per share, in fiscal year 1998. The lower net loss of $123,000 in 1999 as
compared to 1998 primarily resulted from lower operating expenses, partially
offset by slightly lower revenues, as discussed above and the accretion of
preferred stock dividends on the Series F Preferred Stock issued in December
1998 (see "Liquidity
25
and Capital Resources"). In addition, the net loss per share for fiscal 1999 was
positively impacted by the higher weighted average number of shares outstanding
during such period as compared to fiscal 1998, which increase was principally
due to the conversion of the Company's Series D Preferred Stock (which was fully
converted as of June 30, 1998) and the issuance of common stock pursuant to the
Company's Structured Equity Line Flexible Financing Agreement (see Note 7 to
Consolidated Financial Statements).
Liquidity and Capital Resources
At June 30, 2000, the Company had working capital of $40,153,000,
representing an increase of $32,330,000 from June 30, 1999. The Company has
long-term obligations of $70,000 and certain other lease obligations (see Note
11 of Notes to Consolidated Financial Statements). The net increase in working
capital resulted principally from the Company's December 1999 and February 2000
private placements of equity securities partially offset by the net loss
allocable to common shareholders during fiscal year 2000 of $10,132,000,
redemption of preferred stock and capital expenditures.
On December 9, 1998, the Company completed a private placement of 1,250
shares of Series F Convertible Preferred Stock (the "Series F Stock") to several
investors and received net proceeds of $12,349,800. Each share of Series F Stock
had an initial stated value of $10,000, which increased at the rate of 4% per
annum. As of December 16, 1999, 655 shares of the Series F Stock had been
converted into 5,772,031 shares of common stock. The remaining 595 shares of
Series F Stock were repurchased, in accordance with the terms of the Series F
Stock, by the Company on that date from the holders at a price equal to 109% of
initial the stated value of $10,000 per share of Series F Stock.
On December 16, 1999, the Company issued a warrant covering 75,000 shares
of its Common Stock at an exercise price of $6.50 per share. The warrants were
issued to induce a financial advisor to enter into a financial advisory
agreement with the Company. In accordance with EITF Issue No 96-18, Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services and other relative accounting
literature, the Company is required to measure the expense associated with the
warrants at each reporting date and recognize the appropriate portion of the
expense at the end of each reporting period until the measurement date is
reached (December 31, 2000 in this transaction). As a result, the Company
recognized a proportionate share of the general and administrative expense of
approximately $925,000 for the fiscal year ended June 30, 2000 based on the
estimated value of the warrants as of that date.
On December 14, 1999, the Company completed a private placement of
2,500,000 shares of its common stock at $3.00 per share to several investors and
received net proceeds of $7,220,000. Substantially all of the net proceeds were
used to redeem the Series F Stock as described above.
On February 16, 2000, the Company completed another private placement of
2,350,000 shares of its common stock at $16.00 per share to several investors
and received net proceeds of $35,443,000. Net proceeds from this placement will
be used as required to fund the continued operations of the Company.
On October 28, 1998, the Company entered into an Equipment Financing
Agreement with the New England Capital Corporation, pursuant to which the
Company has received $450,000, to be repaid over a 36-month period. The proceeds
of such financing were used to exercise the early
26
purchase options for equipment previously leased through a master lease
agreement. The financing is secured by various used equipment and an irrevocable
letter of credit in the amount of $225,000. The letter of credit is
collateralized by a cash deposit of an equivalent amount.
The Company's liquid asset position, as measured by its cash, cash
equivalents and marketable securities, was $40,866,000 at June 30, 2000,
representing an increase of $31,444,000 from June 30, 1999. This increase was
primarily attributable to the private placements that occurred in December 1999
and February 2000 partially offset by the funding of operating expenses. It is
anticipated that working capital and cash, cash equivalents, and marketable
securities will decrease during fiscal year 2001 as a result of planned
operating expenses and capital expenditures, offset in part by projected
revenues from product sales in the U. S. and Europe. However, there can be no
assurance, as to the amount of revenues, if any, these products will provide. In
April 1999, the Company implemented a cost reduction program, which the Company
anticipated saving approximately $3.5 million during the 12 months ending March
31, 2000. Primarily due to the restructuring, the Company has realized savings
of approximately $3.8 million.
On May 19, 2000, the Company gave notice to its landlord that it desired to
exercise its right to purchase the facilities, which the Company presently
leases at 300 American Road, Morris Plains, New Jersey (see "Properties"). The
purchase price under the lease is approximately $6.5 million. The Company plans
to seek mortgage financing with respect to this purchase. If such financing is
not available to the Company on acceptable terms prior to the closing, the
Company would expect to fund the purchase price on an interim basis from its own
capital resources and would then likely seek to mortgage the acquired premises.
No assurances can be given that the Company will be able to secure favorable
financing either before or after the purchase of these facilities.
To date, the Company has not generated positive cash flow from operations.
The Company believes that its existing working capital should be sufficient to
meet its capital and liquidity requirements for the foreseeable future. This
expectation represents a forward-looking statement under the Private Securities
Litigation Reform Act of 1995. Actual results could differ materially from the
Company's expectation as a result of a number of risks and uncertainties,
including the risks described under "Business" presented elsewhere herein. The
Company's working capital and working capital requirements are affected by
numerous factors and there is no assurance that such factors will not have a
negative impact on the Company's liquidity. Principal among these are the
success of its product commercialization and selling products, the technological
advantages and pricing of the Company's products, the impact of the regulatory
requirements applicable to the Company and access to capital markets that can
provide the Company with the resources when necessary to fund its strategic
priorities. Unless there is a significant increase in product revenues, the
Company will require additional financial resources after it utilizes its
current liquid assets in order for it to continue its projected levels of
research and development and clinical trials of its proposed products and
regulatory filings for new indications of existing products. There can no
assurance that any additional financing will be available to the Company at all
or on terms it finds acceptable or that the terms of such financing will not
cause substantial dilution to existing stockholders.
The Company intends to supplement its financial resources from time to time
as market conditions permit through additional financing and through
collaborative marketing and distribution agreements. The Company continues to
evaluate various programs to raise additional capital and to seek additional
revenues from the licensing of its proprietary technology. At the present time,
the Company is unable to determine whether any of these future activities will
be successful and, if so,
27
the terms and timing of any definitive agreements.
Recently Issued Accounting Standards
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin or SAB No. 101, Revenue Recognition in
Financial Statements. SAB No.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. This SAB, as amended, must be adopted no later
than the fourth quarter of fiscal years beginning after December 15, 1999. The
Company is in the process of evaluating this SAB and the effect it will have on
its consolidated financial statements and current revenue recognition policy.
In June 1998, Statement of Financial Accounting Standard ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities, was issued and is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. SFAS No. 133, as amended by SFAS No. 137, requires derivative instruments
to be recognized as Assets and Liabilities in the Company's balance sheet and be
recorded at Fair Value. The Company is currently not party to any Derivative
Instruments. Any future transactions involving Derivative Instruments will be
evaluated based on SFAS No.133. The Company does not expect the adoption of SFAS
No. 133 to have a material impact on its financial position, results of
operations or cash flows.
Item 7A -- Quantitative and Qualitative Disclosures About Market Risk
The following discussion about the Company's exposure to market risk of
financial instruments contains forward-looking statements. Actual results may
differ materially from those described due to a number of factors, including
uncertainties associated with general economic conditions and conditions
impacting the Company's industry.
The Company's holdings of financial instruments are comprised primarily of
corporate debt. All such instruments are classified as securities available for
sale. The Company does not invest in portfolio equity securities or commodities
or use financial derivatives for trading purposes. The Company's debt security
portfolio represents funds held temporarily pending use in its business and
operations. The Company manages these funds accordingly. The Company seeks
reasonable assuredness of the safety of principal and market liquidity by
investing in rated fixed income securities while at the same time seeking to
achieve a favorable rate or return. The Company's market risk exposure consists
principally of exposure to changes in interest rates. The Company's holdings
also are exposed to the risks of changes in the credit quality of issuers. The
Company typically invests in the shorter-end of the maturity spectrum, and at
June 30, 2000 most of the Company's holdings were in instruments maturing in
less than 18 months.
28
Item 8 -- Financial Statements and Supplementary Data
IMMUNOMEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, June 30,
2000 1999
--------------- ---------------
ASSETS
Current Assets:
Cash and cash equivalents................................................... $ 11,114,079 $ 3,469,261
Marketable securities....................................................... 29,751,987 5,952,398
Accounts receivable, net of allowance for doubtful accounts of $63,398 and
$39,398 at June 30, 2000 and 1999, respectively........................... 603,398 1,101,820
Inventory................................................................... 1,036,900 818,883
Other current assets........................................................ 1,324,093 573,420
--------------- ---------------
Total Current Assets...................................................... 43,830,457 11,915,782
Property and equipment, net of accumulated depreciation of $7,760,638 and
$6,789,157 at June 30, 2000 and 1999, respectively.......................... 3,970,680 4,818,139
Other long-term assets........................................................ 225,000 225,000
=============== ===============
$ 48,026,137 $ 16,958,921
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt........................................... $ 158.058 $ 143,757
Accounts Payable............................................................ 1,836,283 2,078,562
Other current liabilities................................................... 1,683,266 1,870,949
--------------- ---------------
Total Current Liabilities................................................. 3,677,607 4,093,268
Long-term debt................................................................ 70,412 228,470
Minority interest............................................................. 182,000 182,000
Commitments and Contingencies
Stockholders' Equity:
Preferred stock; $.01 par value, authorized 10,000,000 shares; Series F
convertible, authorized 2,000 shares; issued and outstanding 0 and 1,250
shares at June 30, 2000 and 1999, respectively (Liquidation preference
aggregating $0 and $12,781,944 at June 30, 2000 and 1999, respectively).... 0 13
Common stock; $.01 par value, authorized 70,000,000 shares; issued and
outstanding 49,329,121 and 37,888,090 shares at June 30, 2000 and 1999,
respectively............................................................... 493,291 378,881
Capital contributed in excessof par......................................... 153,242,000 111,466,439
Accumulated deficit......................................................... (109,530,489) (99,398,278)
Accumulated other comprehensive income / (loss)............................. (108,684) 8,128
--------------- ---------------
Total stockholders' equity.................................................... 44,096,118 12,455,183
=============== ===============
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................................... $ 48,026,137 $ 16,958,921
=============== ===============
See accompanying notes to consolidated financial statements.
29
IMMUNOMEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Years ended June 30,
--------------------------------------------------
2000 1999 1998
------------ ------------ ------------
REVENUES:
Product sales............................................................... $ 4,123,997 $ 6,096,628 $ 4,049,031
Royalties and license fees.................................................. 14,598 18,454 33,751
Research and development.................................................... 638,599 686,537 1,170,252
Interest and other.......................................................... 1,196,261 757,813 2,342,505
------------ ------------ ------------
5,973,455 7,559,432 7,595,539
------------ ------------ ------------
COST AND EXPENSES:
Cost of goods sold.......................................................... 375,076 278,135 191,343
Research and development.................................................... 8,669,599 10,099,893 11,738,155
Sales and marketing......................................................... 2,949,501 6,523,634 5,379,728
General and administrative.................................................. 3,614,806 1,936,125 2,096,900
------------ ------------ ------------
15,608,982 18,837,787 19,406,126
------------ ------------ ------------
Net loss...................................................................... (9,635,527) (11,278,355) (11,810,587)
------------ ------------ ------------
Preferred Stock Dividends..................................................... 496,684 409,444 0
------------ ------------ ------------
Net loss allocable to common shareholders..................................... $(10,132,211) $(11,687,799) $(11,810,587)
============ ============ ============
COMPREHENSIVE LOSS:
Net loss.................................................................... (9,635,527) (11,278,355) (11,810,587)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments.................................. (86,494) 8,128 0
Unrealized gain (loss) on securities available for sale................... (30,318) 15 1,177
------------ ------------ ------------
Other comprehensive income (loss)........................................... (116,812) 8,143 1,177
------------ ------------ ------------
Comprehensive loss............................................................ $ (9,752,339) $(11,270,212) $(11,809,410)
============ ============ ============
Net loss per basic and diluted common share................................... $ (0.23) $ (0.31) $ (0.32)
============ ============ ============
Weighted average number of common shares outstanding.......................... 43,976,658 37,782,376 36,643,319
============ ============ ============
See accompanying notes to consolidated financial statements.
30
IMMUNOMEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Convertible Common Capital Accumulated
Preferred Stock Stock Contributed Other
-------------------------------------------- in Excess Accumulated Comprehensive
Shares Amount Shares Amount of Par Deficit Income/(Loss) Total
-----------------------------------------------------------------------------------------------
Balance, at June 30, 1997........... 4,999 $ 50 36,297,170 $ 362,971 $ 93,111,855 $ (76,027,392)$ (1,192) $ 17,446,292
Issuance of common stock
in exchange for convertible
preferred stock (Series D), net. (4,999) (50) 62,332 623 (573) 0 0 0
Issuance of common stock
pursuant to Equity Line, net... 0 0 1,056,835 10,569 4,446,931 0 0 4,457,500
Exercise of options to
purchase common stock........... 0 0 169,750 1,698 429,515 0 0 431,213
Other comprehensive income........ 0 0 0 0 0 0 1,177 1,177
Net loss.......................... 0 0 0 0 0 (11,810,587) 0 (11,810,587)
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance, at June 30, 1998........... 0 0 37,586,087 375,861 97,987,728 (87,837,979) (15) 10,525,595
Issuance of common stock
pursuant to Equity Line, net.... 0 0 302,003 3,020 846,980 0 0 850,000
Issuance of convertible preferred
stock (Series F), net........... 1,250 13 0 0 12,349,787 0 0 12,349,800
Accretion of preferred stock
dividends....................... 0 0 0 0 281,944 (281,944) 0 0
Other comprehensive income........ 0 0 0 0 0 0 8,143 8,143
Net loss.......................... 0 0 0 0 0 (11,278,355) 0 (11,278,355)
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance, at June 30, 1999........... 1,250 13 37,888,090 378,881 111,466,439 (99,398,278) 8,128 12,455,183
Issuance of common stock
pursuant to private placements,
net............................. 0 0 4,825,000 48,250 42,611,489 0 0 42,659,739
Issuance of common stock
in exchange for convertible
preferred stock (Series F), net. (655) (7) 5,772,031 57,720 (57,713) 0 0 0
Redemption of convertible
preferred stock (Series F), net. (595) (6) 0 0 (6,187,994) (297,500) 0 (6,485,500)
Exercise of options to purchase
common stock.................... 0 0 844,000 8,440 3,628,135 0 0 3,636,575
Accretion of preferred stock
dividends....................... 0 0 0 0 199,184 (199,184) 0 0
Capital contribution pursuant to
Section 16(b) of Securities
Exchange Act of 1934............ 0 0 0 0 657,722 0 0 657,722
Issuance of warrants to financial
advisor......................... 0 0 0 0 924,738 0 0 924,738
Other comprehensive loss.......... 0 0 0 0 0 0 (116,812) (116,812)
Net loss.......................... 0 0 0 0 0 (9,635,527) 0 (9,635,527)
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance, at June 30, 2000........... 0 $ 0 49,329,121 $ 493,291 $153,242,000 $(109,530,489)$(108,684) $ 44,096,118
===============================================================================================
See accompanying notes to consolidated financial statements.
31
IMMUNOMEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30,
2000 1999 1998
------------- ------------ ------------
Cash Flows From Operating Activities:
Net loss.................................................................... $ (9,635,527) $(11,278,355) $(11,810,587)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation................................................................ 971,481 978,975 962,943
Provision for allowance for doubtful accounts............................... 24,000 18,000 12,000
Amortization of bond premium................................................ 2,108 0 0
Compensation expense for granting of minority interest...................... 0 182,000 0
Non-cash expense relating to issuance of warrants........................... 924,738 0 0
Other....................................................................... (86,494) 8,128 0
Change in operating assets and liabilities:
Accounts receivable....................................................... 474,422 (80,343) (492,460)
Inventories............................................................... (218,017) 95,044 (223,232)
Other current assets...................................................... (750,673) (227,929) 322,492
Accounts payable.......................................................... (242,279) 247,104 (528,798)
Other current liabilities................................................. (187,683) (713,820) (243,201)
------------- ------------- -------------
Net Cash Used In Operating Activities......................................... $ (8,723,924) $(10,771,196) $(12,000,843)
------------- ------------- -------------
Cash Flows Provided by (Used in) Investing Activities:
Purchase of marketable securities........................................... (46,534,240) (15,816,875) (10,345,629)
Proceeds from maturities of marketable securities........................... 22,702,225 9,879,337 19,342,236
Additions to property and equipment......................................... (124,022) (737,179) (329,685)
------------- ------------- -------------
Net cash provided by (Used in) investing activities........................... $(23,956,037) $ (6,674,717) $ 8,666,922
------------- ------------- -------------
Cash Flows Provided by
Financing Activities:
Issuance of convertible preferred stock, net................................ 0 12,349,800 0
Issuance of common stock, net............................................... 42,659,739 850,000 4,457,500
Redemption of preferred stock, net.......................................... (5,950,000) 0 0
Preferred stock dividends paid upon redemption.............................. (535,500) 0 0
Capital contribution pursuant to Section 16(b) of
Securities Exchange Act of 1934........................................... 657,722 0 0
Deposits - cash collateral.................................................. 0 (225,000) 0
Proceeds from debt.......................................................... 0 450,000 0
Payments of debt............................................................ (143,757) (77,773) 0
Exercise of stock options................................................... 3,636,575 0 431,213
------------- ------------- -------------
Net cash provided by financing activities..................................... $ 40,324,779 $ 13,347,027 $ 4,888,713
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents.............................. 7,644,818 (4,098,886) 1,554,792
Cash and cash equivalents, at beginning of period............................. 3,469,261 7,568,147 6,013,355
------------- ------------- -------------
Cash and Cash Equivalents, at end of period................................... $ 11,114,079 $ 3,469,261 $ 7,568,147
============= ============= =============
See accompanying notes to consolidated financial statements.
32
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements
1. Business Overview
Immunomedics, Inc. (the "Company") is engaged in researching, developing,
manufacturing and marketing biopharmaceutical products, particularly
antibody-based diagnostics and therapeutics for cancer and infectious diseases.
The Company currently markets and sells CEA-Scan'r' in the U.S., and CEA-Scan
and LeukoScan'r' throughout Europe and in certain other markets outside the U.S.
The Company's operations encompass all the risks inherent in developing and
expanding a new business enterprise, including: (1) a limited operating history
and uncertainty regarding the timing and amount of future revenues to be derived
from the Company's technology; (2) obtaining future capital as needed; (3)
attracting and retaining key personnel; and (4) a business environment with
heightened competition, rapid technological change and strict government
regulation.
The Company has not yet achieved profitable operations and there is no
assurance that profitable operations, if achieved, could be sustained on a
continuing basis. Further, the Company's future operations are dependent on,
among other things, the success of the Company's commercialization efforts and
market acceptance of the Company's products. Since its inception in 1982, the
Company's source of funds has been primarily dependent on private and public
offerings of equity securities, revenues from research and development
alliances, and product sales.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Immunomedics,
Inc. and its majority-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation. Minority interest is
recorded for a majority-owned subsidiary (see Note 10).
Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments with original
maturities of three months or less, at the time of purchase, to be cash
equivalents.
The Company's investments in cash equivalents and marketable securities are
available for sale to fund growth in operations as the Company begins
commercialization of its products. The portfolio at June 30, 2000 primarily
consists of corporate bonds and U.S. government securities.
Concentration of Credit Risk
The Company invests its cash in debt instruments of financial institutions
and corporations with strong credit ratings. The Company has established
guidelines relative to diversification and maturities that are designed to help
ensure safety and liquidity. These guidelines are periodically reviewed to take
advantage of trends in yields and interest rates.
33
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Inventory
Inventory is stated at the lower of average cost (which approximates
first-in, first-out) or market, and includes materials, labor and manufacturing
overhead.
Property and Equipment
Property and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives (5-10 years) of the
respective assets. Leasehold improvements are capitalized and amortized over the
lesser of the life of the lease or the estimated useful life of the asset. The
Company reviews long-lived assets for impairment whenever events or changes in
business circumstances occur that indicate that the carrying amount of the
assets may not be recoverable. The Company assesses the recoverability of
long-lived assets held and to be used based on undiscounted cash flows, and
measures the impairment, if any, using discounted cash flows. Statement of
Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of has not had a
material impact on the Company's consolidated financial position, operating
results or cash flows.
Revenue Recognition
Payments received under contracts to fund certain research activities are
recognized as revenue in the period in which the research activities are
performed. Payments received in advance which are related to future performance
are deferred and recognized as revenue when the research projects are performed.
Non-refundable payments received under licensing arrangements are recognized as
revenue in the period in which they are received as no future performance is
required by the Company.
Revenue from the sale of diagnostic products is recognized at the time of
shipment.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin or SAB No. 101, Revenue Recognition in
Financial Statements. SAB No.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. This SAB, as amended, must be adopted no later
than the fourth quarter of fiscal years beginning after December 15, 1999. The
Company is in the process of evaluating this SAB and the effect it will have on
its consolidated financial statements and current revenue recognition policy.
Research and Development Costs
Research and development costs are expensed as incurred.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities relate to the expected future tax
consequences of events that have been recognized in the Company's consolidated
financial statements and tax returns. The Company has not recorded any tax
34
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
benefits associated with its net deferred tax assets.
Net Loss Per Share
Basic and diluted net loss allocable to common shareholders is based on the
net loss for the relevant period, adjusted for Preferred Stock dividends,
divided by the weighted average number of shares issued and outstanding during
the period. Preferred Stock dividends for the fiscal year 2000 included $199,184
related to a 4% per annum stated value increase in security and a $297,500
premium paid in December 1999 in connection with the redemption of the Series F
Preferred Stock. Preferred Stock dividends for fiscal year 1999 included
$281,944 related to a 4% per annum stated value increase in security and an
assumed incremental yield attributable to a beneficial conversion feature of
$127,500. For the purposes of the diluted loss per share calculations, the
exercise or conversion of all potential common shares is not included because
their effect would have been anti-dilutive, due to the net loss recorded for the
years ended June 30, 2000, 1999 and 1998. The Company has certain securities
outstanding at June 30, 2000 that could potentially dilute basic earnings per
share in the future that were not included in the computation of diluted
earnings per share because to do so would have been anti-dilutive for the
periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Comprehensive Loss
Comprehensive loss consists of net loss, net unrealized gains (losses) on
securities and certain foreign exchange changes and is presented in the
consolidated statements of operations and comprehensive loss.
Employee Stock Options
The Company applies Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretation in
accounting for stock options issued to employees. Employee stock options are
granted with an exercise price equal to the market price and, in accordance with
APB No. 25, compensation expense is not recognized. Effective July 1, 1996, the
Company adopted the disclosure provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. For the fair value of the employee stock options
issued see Note 7.
Financial Instruments
The carrying amounts of cash and cash equivalents, marketable securities
and other current assets and current liabilities approximate fair value due to
the short-term maturity of these
35
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
instruments. Long-term debt rates are consistent with market rates so carrying
value approximates fair value.
3. Marketable Securities
The Company utilizes SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities, to account for investments in marketable securities.
Under this accounting standard, securities for which there is not the positive
intent and ability to hold to maturity are classified as available-for-sale and
are carried at fair value. Unrealized holding gains and losses on securities
classified as available-for-sale are carried as a separate component of
accumulated other comprehensive income (loss). The Company considers all of its
current investments to be available-for-sale. Marketable securities at June 30,
2000 and 1999 consist of the following:
Fair Unrealized
Cost Market Holding
June 30, 2000 Basis Value Gain/(Loss)
- - -------------------------------------------- --------------- --------------- ---------------
Securities with contractual maturities from date of acquisition of one year or
less:
U.S. Government Securities.................................................. $ 1,501,000 $ 1,497,000 $ (4,000)
Corporate Debt Securities................................................... $ 25,279,000 $ 25,253,000 $ (26,000)
--------------- --------------- ---------------
$ 26,780,000 $ 26,750,000 $ (30,000)
=============== =============== ===============
Securities with contractual maturities from date of acquisition of greater than
one year:
Corporate Debt Securities................................................... $ 3,002,000 $ 3,002,000 $ ---
=============== =============== ===============
Total Marketable Securities............................................... $ 29,782,000 $ 29,752,000 $ (30,000)
=============== =============== ===============
Fair Unrealized
Cost Market Holding
June 30, 1999 Basis Value Gain/(Loss)
- - -------------------------------------------- --------------- --------------- ---------------
Securities with contractual maturities from date of acquisition of greater than
one year:
Corporate Debt Securities................................................... $ 5,952,000 $ 5,952,000 $ ---
=============== =============== ===============
Total Marketable Securities............................................... $ 5,952,000 $ 5,952,000 $ ---
=============== =============== ===============
4. Inventory
Inventory consists of the following at June 30: 2000 1999
--------------- ---------------
Finished goods.............................................................. $ 664,000 $ 446,000
Raw materials............................................................... 373,000 373,000
--------------- ---------------
$ 1,037,000 $ 819,000
=============== ===============
36
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
5. Property and Equipment
Property and equipment consists of the following at June 30: 2000 1999
--------------- ---------------
Machinery and equipment..................................................... $ 3,219,000 $ 3,112,000
Leasehold improvements...................................................... 6,925,000 6,925,000
Furniture and fixtures...................................................... 674,000 679,000
Computer equipment.......................................................... 913,000 891,000
--------------- --------------
11,731,000 11,607,000
Accumulated depreciation and amortization................................... (7,760,000) (6,789,000)
--------------- --------------
$ 3,971,000 $ 4,818,000
=============== ==============
6. Other Current Liabilities
Included in other current liabilities are amounts payable to medical
institutions participating in the Company's clinical trial programs of
approximately $536,000 and $640,000 at June 30, 2000 and 1999, respectively.
Also included are amounts payable to various legal counsel of approximately
$494,000 and $260,000, and accrued health insurance liabilities of approximately
$239,000 at June 30, 2000 and 1999.
7. Stockholders' Equity
The Certificate of Incorporation of the Company authorizes 10,000,000
shares of preferred stock at $.01 par value per share. The preferred stock may
be issued from time to time in one or more series, with such distinctive serial
designations, rights and preferences as shall be determined by the Board of
Directors.
On December 23, 1997, the Company entered into a Structured Equity Line
Flexible Financing Agreement (the "Equity Line") with an investor (the
"Investor"), pursuant to which, subject to the satisfaction of certain
conditions, the Company could have received up to an aggregate of $30,000,000
over a 36-month period. The Company terminated the Equity Line as of December 9,
1998. As of the termination date, the Company had received a total of $5,350,000
for which the Company issued 1,358,838 shares of common stock. In connection
with the Equity Line, the Company issued to the Investor a four-year warrant to
purchase 50,000 shares of common stock at an exercise price of $7.5375 per share
(180% of closing sales price of common stock at the time of issuance). In
addition, the Company issued to the Investor an additional four-year warrant to
purchase 54,000 shares of common stock (representing 5,000 shares for each
$500,000 of common stock purchased by the Investor under the Equity Line during
calendar 1998). The exercise price of such additional warrant is $7.087 per
share (180% of the weighted average purchase price of the common stock purchased
by the Investor during the year).
37
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
On December 9, 1998, the Company completed a private placement of 1,250
shares of Series F Convertible Preferred Stock (the "Series F Stock") to several
investors and received net proceeds of $12,349,800. Each share of Series F Stock
has an initial stated value of $10,000, which increased at the rate of 4% per
annum. As of December 16, 1999, 655 shares of the Series F Stock had been
converted into 5,772,031 shares of common stock in non-cash transactions. The
remaining 595 shares of Series F Stock were repurchased, in accordance with the
terms of the Series F Stock, by the Company on that date from the current
holders at a price equal to 109% of the initial stated value of $10,000 per
share of Series F Stock.
On December 16, 1999, the Company issued a warrant covering 75,000 shares
of its common stock at an exercise price of $6.50 per share. The warrants were
issued to induce a financial advisor to enter into a financial advisory
agreement with the Company. In accordance with EITF Issue No 96-18, Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services and other relative accounting
literature, the Company is required to measure the expense associated with the
warrants at each reporting date and recognize the appropriate portion of the
expense at the end of each reporting period until the measurement date is
reached (December 31, 2000 in this transaction). As a result, the Company
recognized a proportionate share of the general and administrative expense of
approximately $925,000 for the fiscal year ended June 30, 2000 based on the
estimated value of the warrants as of that date.
On December 14, 1999, the Company completed a private placement of
2,500,000 shares of its common stock at $3.00 per share to several investors and
received net proceeds of $7,220,000. Substantially all of the net proceeds were
used to redeem the Series F Stock as described above.
In conjunction with this private placement, the Company agreed to the
following covenants:
- - - The Company agreed to refrain from entering into certain transactions with
persons closely related to the Company, including its executive officers
and directors, without the prior approval of the investors in the private
placement. The investors in this financing agreed not to withhold their
approval unreasonably.
- - - The Company agreed that without the prior consent of such investors, it
would not sell its business to anyone that is an affiliate of the Company,
unless the sale is for consideration at least equal to (a) the fair market
value in the event of a sale of assets (as determined in good faith by the
Company's board of directors) or (b) the then current market price in the
event of a sale of stock.
- - - The Company agreed that it would not amend its certificate of incorporation
or by-laws in a manner that would adversely affect such investors, without
the prior approval of the investors. The investors in this financing agreed
not to withhold their approval unreasonably.
- - - The Company agreed that if, during the twelve months ending December 31,
2000, it desires to conduct a private placement of its securities through a
placement agent, broker-dealer or finder, it will give an entity associated
with the investors in this financing a right of first refusal to serve as
the placement agent in that transaction. This right was waived in
connection with the Company's February 2000 financing.
38
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
These covenants will cease to apply at such time as the investors in this
financing and their affiliates beneficially own less than 5% of the Company's
common stock. As of September 22, 2000, such investors in the aggregate
beneficially owned 8.75% of the Company's outstanding common stock. Prior to the
time, if ever, when the investors' equity interest falls below 5%, the investors
may waive any one or more of the covenants set forth in the Company's Common
Stock Purchase Agreement.
On February 16, 2000, the Company completed another private placement of
2,350,000 shares of common stock at $16.00 per share to several investors and
received net proceeds of $35,443,000.
Under the terms of the Company's 1983 Stock Option Plan, as amended (the
"1983 Plan"), stock options were granted to employees and members of the Board
of Directors, as determined by the Compensation Committee of the Board of
Directors, at fair market value, become exercisable at 25% per year on each of
the first through fourth anniversaries of the date of grant, and terminate if
not exercised within ten years. In June 1993, the 1983 Plan expired, although
options granted under the 1983 plan which have not terminated may continue to be
exercised. On November 5, 1992, at the Company's Annual Meeting of Stockholders,
adoption of the Company's 1992 Stock Option Plan (the "1992 Plan") was ratified.
The basic terms of the 1992 Plan are substantially similar to those under the
Company's 1983 Plan. Under the 1992 Plan, 3,000,000 shares were originally
reserved for possible future issuance upon exercise of stock options, of which
356,375 were still available at June 30, 2000 for future grant. At June 30,
2000, 2,113,375 shares of common stock were reserved for possible future
issuance upon exercise of stock options outstanding and future stock option
grants.
In April 2000, David M. Goldenberg, the Company's Chief Executive Officer
and his wife, Cynthia L. Sullivan, the Company's Chief Operating Officer, paid
to the Company the sum of $657,722 in accordance with the provisions of Section
16(b) of the Securities Exchange Act of 1934. Such amount represents the short
swing profit realized as a result of purchase and sale transactions which
occurred within a six month period. The Company recorded such amount as a
contribution of capital in its June 30, 2000 balance sheet as it is related to a
transaction with the Company's equity.
Pursuant to the terms of the 1992 Plan, each outside Director of the
Company who had been a Director prior to July 1 is granted, on the first
business day of July of each year, an option to purchase shares of the Company's
common stock at fair market value, the amount of which is determined at the
discretion of the Company's Board of Directors. For July 1, 2000, 90,000 stock
options were granted to these Directors.
The Company has adopted the disclosure-only provisions of SFAS No. 123, and
applies APB Opinion No. 25 in accounting for its plans and, accordingly, has not
recognized compensation cost for its stock option plan in its consolidated
financial statements. Had the Company determined compensation cost based on the
fair value at the grant date consistent with the provisions of SFAS No. 123, the
Company's net loss allocable to common shareholders and related per share
amounts would have been the pro forma amounts indicated below:
39
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
2000 1999 1998
--------------- --------------- ---------------
Net loss allocable to common shareholders - as reported....................... $ 10,132,211 $ 11,687,799 $ 11,810,587
Net loss allocable to common shareholders - pro forma......................... 11,567,788 11,962,194 11,957,299
Net loss allocable to common shareholders per share - as reported............. .23 .31 .32
Net loss allocable to common shareholders per share - pro forma............... .26 .32 .33
The fair value of each option granted during the three years ended June 30,
2000 is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions: (I) dividend yield of 0%,
(II) expected term of 8 years for June 30, 2000, 1999, and 1998, (III) expected
volatility of 126% at June 30, 2000, 80% at June 30, 1999 and 42% at June 30,
1998, and (IV) a risk-free interest rate of 5.90%, 5.06% and 5.57% for the years
ended June 30, 2000, 1999 and 1998, respectively. The weighted average fair
value at the date of grant for options granted during the years ended June 30,
2000, 1999 and 1998 was $11.89, $1.26 and $2.55 per share, respectively.
Information concerning options for the years ended June 30, 2000, 1999 and
1998 is summarized as follows:
Fiscal 2000
---------------
Shares Option Price Range
--------------- ------------------------
Outstanding, July 1, 1999..................................................... 2,507,000 $ 1.78 - 12.88
Granted....................................................................... 297,000 1.22 - 20.94
Exercised..................................................................... (844,000) 1.78 - 12.88
Terminated.................................................................... (203,000) 1.44 - 8.63
---------------
Outstanding, June 30, 2000.................................................... 1,757,000 1.22 - 20.94
---------------
Exercisable, June 30, 2000.................................................... 947,250 1.78 - 12.88
--------------- -------------------------
40
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Fiscal 1999
---------------
Shares Option Price Range
--------------- ------------------------
Outstanding, July 1, 1998..................................................... 1,987,500 $ 2.25 - 12.88
Granted....................................................................... 945,000 1.78 - 4.63
Terminated.................................................................... (425,000) 2.25 - 6.13
---------------
Outstanding, June 30, 1999.................................................... 2,507,000 1.78 - 12.88
--------------- -------------------------
Fiscal 1998
---------------
Shares Option Price Range
--------------- ------------------------
Outstanding, July 1, 1997..................................................... 2,220,250 $ 2.25 - 12.88
Granted....................................................................... 138,000 4.38 - 5.31
Exercised..................................................................... (169,750) 2.25 - 3.63
Terminated.................................................................... (201,000) 3.13 - 7.38
---------------
Outstanding, June 30, 1998.................................................... 1,987,500 2.25 - 12.88
--------------- -------------------------
The following table summarizes information concerning options outstanding
under the Plans at June 30, 2000:
Weighted Weighted Weighted
Number average average Number average
Range of outstanding exercise remaining exercisable exercise
exercise price at 6/30/00 price term (yrs.) at 6/30/00 price
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
1.22 - 3.00 363,000 $ 1.73 8.9 78,000 $ 1.85
3.01 - 5.00 917,000 3.83 6.4 610,250 3.77
5.01 - 8.00 179,500 7.19 5.7 176,500 7.22
8.01 - 12.00 60,000 8.57 1.9 60,000 8.57
12.01 - 18.00 225,500 16.89 9.3 22,500 12.88
18.01 + --- 12,000 19.63 10.0 --- --
---------------- ---------------- ---------------- ---------------- ----------------
1,757,000 $ 5.68 7.3 947,250 $ 4.78
================ ================ ================ ================ ================
The above table for fiscal 2000 excludes an aggregate of 325,000 stock
options, approved by the Board of Directors on May 18, 2000, granted at the fair
market value to Dr. David M. Goldenberg and Cynthia L. Sullivan which are
subject to shareholder approval.
8. Income Taxes
The Company utilizes SFAS No. 109, Accounting for Income Taxes to account
for income taxes. Pursuant to the accounting standard, the tax effects of
temporary differences that give rise to
41
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
significant portions of the Company's deferred tax assets as of June 30, 2000,
1999 and 1998 are presented below:
2000 1999 1998
Deferred tax assets: --------------- --------------- ---------------
Net operating loss carry forwards........................................... $ 46,455,000 $ 37,722,000 $ 33,040,000
Research and development credits............................................ 4,500,000 4,364,000 4,160,000
Property and equipment...................................................... 1,058,000 838,000 647,000
Other....................................................................... 746,000 383,000 574,000
--------------- --------------- ---------------
Total......................................................................... 52,759,000 43,307,000 38,421,000
Valuation allowance........................................................... (52,759,000) (43,307,000) (38,421,000)
--------------- --------------- ---------------
Net deferred taxes............................................................ $ --- $ --- $ ---
=============== =============== ===============
The valuation allowances for fiscal years 2000, 1999 and 1998 have been
applied to offset the deferred tax assets in recognition of the uncertainty that
such tax benefits will be realized. The valuation allowances as of June 30,
2000, 1999 and 1998 include $6,353,000, $4,886,000 and $4,316,000 relating to
fiscal years 2000, 1999 and 1998 operations, respectively. The tax benefit
assumed using the federal statutory tax rate of 34% has been reduced to an
actual benefit of zero due principally to the aforementioned valuation
allowance.
At June 30, 2000, the Company has available net operating loss
carryforwards for federal income tax reporting purposes of approximately
$119,000,000, which expire at various dates between 2001 and 2019. Pursuant to
Section 382 of the Internal Revenue Code of 1986, as amended, the annual
utilization of a company's net operating loss and research credit carryforwards
may be limited if the Company experiences a change in ownership of more than 50
percentage points within a three-year period. As a result of certain financing
arrangements, the Company may have experienced such ownership changes.
Accordingly, the Company's net operating loss carryforwards available to offset
future federal taxable income arising before such ownership changes may be
limited. Similarly, the Company may be restricted in using its research credit
carryforwards arising before such ownership changes to offset future federal
income tax expense. Of the deferred tax asset valuation allowance related to the
net operating loss carryforwards, approximately $14,700,000 relates to a tax
deduction for non-qualifed stock options. The Company will increase capital
contributed in excess of par when these benefits are realized for tax purposes.
The Company made no payments of federal or state income taxes during the years
ended June 30, 2000, 1999 and 1998.
9. Related-Party Transactions
The Center for Molecular Medicine and Immunology ("CMMI") (also known as
the Garden State Cancer Center) is a not-for-profit corporation, established in
1983 by Dr. David M. Goldenberg, Chairman of the Board, Chief Executive Officer
and the major shareholder of the Company. CMMI is devoted primarily to cancer
research.
Dr. Goldenberg currently serves as the President of CMMI pursuant to an
employment agreement and during fiscal 2000 devoted more of his working time to
CMMI than to the Company. Allocations between CMMI and the Company regarding
research projects are overseen by the Board of Trustees of CMMI and the Board of
Directors of the Company, excluding Dr. Goldenberg, to minimize potential
conflicts of interest. Dr. Hans Hansen, an officer of the Company, is an adjunct
member of CMMI. Certain employees of CMMI serve as consultants to the Company.
42
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
CMMI is currently conducting basic research and patient evaluations in a
number of areas of potential interest to the Company. Under its license
agreement with CMMI, the Company has the right of first negotiation to obtain
exclusive, worldwide licenses from CMMI to manufacture and market potential
products and technology covered by the license agreement under terms
representing fair market price, to be determined at the time the license is
obtained.
The license agreement terminates on January 21, 2002, with the Company
having the right to seek good-faith negotiation to extend the agreement for an
additional five-year period. The Company retains licensing rights to inventions
made during the term of the agreement for a period of five years from the time
of disclosure. Pursuant to a collaborative research and license agreement, dated
as of January 21, 1997, between the Company and CMMI, the Company has paid to
CMMI an annual license fee of $200,000 in each of the fiscal years 2000, 1999
and 1998.
The Company has reimbursed CMMI for expenses incurred on behalf of the
Company, including amounts incurred pursuant to research contracts, in the
amounts of approximately $128,000, $45,000 and $98,000 during the years ended
June 30, 2000, 1999 and 1998, respectively. The Company also provides CMMI with
laboratory materials and supplies.
During each of the fiscal years 1999 and 1998, the Board of Directors of
the Company authorized grants to CMMI of $200,000 to support research and
clinical work being performed at CMMI, such grants to be expended in a manner
deemed appropriate by the Board of Trustees of CMMI.
On September 19, 2000, the FDA issued a warning letter to CMMI. The warning
letter, relating to an inspection of CMMI that ended on May 25, 2000, cited
several alleged deviations from applicable federal regulations. Among other
things, the warning letter alleged the failure to submit an Investigational New
Drug Application ("IND") with respect to certain investigational products, the
administration of investigational drugs without an IND, the failure to assure
proper monitoring of investigations, the failure to assure that investigations
are conducted in accordance with applicable investigation plans and protocols
and certain data difficulties. The Company understands that CMMI is pursuing
these matters directly with the FDA. The FDA has substantial regulatory
authority over both CMMI and the Company. Any regulatory, judicial or other
actions taken with respect to CMMI by the United States government or others
could materially adversely affect the Company, given the relationship between
the Company and CMMI.
10. License and Distribution Agreements
On November 24, 1997, the Company entered into a Distribution Agreement
with Eli Lilly Deutschland GmbH ("Lilly") pursuant to which Lilly packages and
distributes LeukoScan within the countries comprising the European Union and
certain other countries subject to receipt of regulatory approvals. Also,
effective April 6, 1998, Lilly began packaging and distributing CEA-Scan within
the countries comprising the European Union. The Company pays Lilly a service
fee based primarily on the number of units of product packaged and shipped. The
parties contemplate that other Company products may be handled under this
arrangement when appropriate.
On November 28, 1997, the Company was awarded $1.8 million, including
interest, from its arbitration claim against Pharmacia for breach of contract
and fiduciary duty arising out of the license agreement with a predecessor of
Pharmacia that had been terminated in 1995. This amount was recognized as other
revenue in fiscal year 1998. Additionally, the Company recognized as revenue a
portion of funds previously received from Pharmacia pertaining to CEA-Scan
clinical trials for which the Company no longer has an obligation. Such amounts
had been recorded as deferred revenue.
Effective as of April 6, 1998, the Company appointed a subsidiary of Bergen
Brunswig Specialty Corporation as a non-exclusive distributor of CEA-Scan in the
U.S. Such subsidiary (currently Integrated Commercialization Solutions, Inc.
("ICS")) serves as an agent of the Company in providing product support
services, including customer service, order management, distribution, invoicing
and collections.
43
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
On December 21, 1998, the Company received $300,000 in final settlement of
all claims between the Company and Mallinckrodt, Inc. and its affiliate under
the prior distribution agreements, which were terminated in April 1998. This
amount was recognized as other revenue in fiscal year 1999.
The Company, through its 80% owned subsidiary, IMG Technology, LLC ("IMG"),
has formed a joint venture with Coulter Corporation ("Beckman Coulter") for the
purpose of developing targeted cancer therapeutics. The joint venture, known as
IBC Pharmaceuticals, LLC ("IBC") was organized as a Delaware limited liability
company. On March 5, 1999 the Company contributed to IBC, on behalf of IMG,
certain rights to its proprietary humanized antibodies against the cancer marker
carcinoembryonic antigen (which had a financial reporting carrying value of
zero), which is used in its CEA-Cide therapeutic, and Beckman Coulter
contributed to IBC certain rights to its bispecific targeting technology called
the "Affinity Enhancement System" or AES. The Company assigned its rights
pursuant to the terms of a license agreement with IBC dated March 5, 1999 in
exchange for the grant to IMG of its interest in IBC ("Immunomedics License
Agreement"). Beckman Coulter received its interest in IBC in exchange for its
contribution. The license granted to IBC is a worldwide, royalty free, exclusive
license which is limited to the "IBC Field" with respect to the "Immunomedics
Patent Property" and the "Immunomedics Biotechnology Assets," as those terms are
defined in the Immunomedics License Agreement. Additionally on March 5, 1999,
several investors contributed $3,000,000 to IBC in exchange for a 7% interest in
the venture. IMG's and Beckman Coulter's interests in IBC are 49.55% and 43.45%
respectively. Beckman Coulter, IMG and the investors entered into an operating
agreement (the "IBC Operating Agreement") which establishes the rights and
obligations of the respective members. Under the terms of the IBC Operating
Agreement, neither IMG nor Beckman Coulter may sell any portion of its interest
in IBC without first providing the other with a right of first refusal with
respect to such sale, provided that after a public offering of IBC securities,
IMG and Beckman Coulter will be permitted to sell up to 20% of their respective
interests in IBC free of such right of first refusal. IMG is a Delaware limited
liability company owned 80% by the Company and 20% by Dr. David M. Goldenberg.
Dr. Goldenberg received his interest pursuant to the terms of his employment
agreement with the Company. IMG is intended to be a single purpose entity, its
sole asset being its interest in IBC. Dr. Goldenberg and IMG have entered into
an operating agreement (the "IMG Operating Agreement") which establishes their
relative rights and obligations (see Note 11). In connection with Dr.
Goldenberg's receipt of an interest in IMG, the Company recognized $182,000 of
compensation expense in fiscal year 1999, based on the fair value of technology
transferred, and has reflected his interest as a minority interest in the
consolidated financial statements. Dr. Goldenberg also serves as Chairman of the
Board of IBC.
On February 29, 2000, the Company signed a Letter Agreement with KOL
Bio-Medical Instruments, Inc. (KOL), granting KOL exclusive rights to market and
sell CEA-Scan in the northeastern U.S. The Company is considering the expansion
of this Letter Agreement to a Marketing and Sales Agreement, granting KOL, and
its agents, exclusive rights to market and sell CEA-Scan in the entire U.S.
11. Commitments and Contingencies
On November 1, 1993, the Company and Dr. Goldenberg entered into a
five-year employment agreement (the "Agreement") with an additional one-year
assured renewal and thereafter automatically renewable for additional one-year
periods unless terminated by either party
44
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
as provided in the Agreement. Dr. Goldenberg will receive an annual base salary
of not less than $220,000, subject to increases as determined by the Board of
Directors. Effective July 1, 2000, the Board of Directors increased Dr.
Goldenberg's annual base salary to $300,000. The Company has agreed to extend
Dr. Goldenberg's employment agreement for a five-year period which expires on
October 31, 2003. Further, the Company acknowledged and approved Dr.
Goldenberg's continuing involvement with CMMI and IBC.
Pursuant to the Agreement, Dr. Goldenberg may engage in other business,
general investment and scientific activities, provided such activities do not
materially interfere with the performance of any of his obligations under the
Agreement, allowing for those activities he presently performs for CMMI (see
Note 9). The Agreement extends the ownership rights of the Company, with an
obligation to diligently pursue all ideas, discoveries, developments and
products, in the entire medical field, which, at any time during his past or
continuing employment by the Company (but not when performing services for
CMMI), Dr. Goldenberg has made or conceived or hereafter makes or conceives, or
the making or conception of which he has materially contributed to or hereafter
contributes to, all as defined in the Agreement (collectively "Goldenberg
Discoveries").
Further, pursuant to the Agreement, Dr. Goldenberg will receive, subject to
certain restrictions, incentive compensation of 0.5% on the first $75,000,000 of
all defined annual net revenue of the Company and 0.25% on all such annual net
revenue in excess thereof (collectively "Revenue Incentive Compensation"). With
respect to the period that Dr. Goldenberg is entitled to receive Revenue
Incentive Compensation on any given products, it will be in lieu of any other
percentage compensation based on sales or revenue due him with respect to such
products under this Agreement or the existing License Agreement between the
Company and Dr. Goldenberg. With respect to any periods that Dr. Goldenberg is
not receiving such Revenue Incentive Compensation for any products covered by
patented Goldenberg Discoveries or by certain defined prior inventions of Dr.
Goldenberg, he will receive 0.5% on cumulative annual net sales of, royalties,
certain equivalents thereof, and, to the extent approved by the Board, other
consideration received by the Company for such products, up to a cumulative
annual aggregate of $75,000,000 and 0.25% on any cumulative annual aggregate in
excess of $75,000,000 (collectively "Incentive Payments"). A $100,000 annual
minimum payment will be paid in the aggregate against all Revenue Incentive
Compensation and Royalty Payments. For each of the years ended June 30, 2000,
1999 and 1998, the Company paid Dr. Goldenberg the minimum required payment of
$100,000. Dr. Goldenberg will also receive a percent, not less than 20%, to be
determined by the Board, of net consideration (including license fees) which the
Company receives for any disposition, by sale, license or otherwise (discussions
directed to which commence during the term of his employment plus two years) of
any defined Undeveloped Assets of the Company which are not budgeted as part of
the Company's strategic plan. Pursuant thereto, Dr. Goldenberg received his
interest in IMG (See Note 10).
The Company is obligated under an operating lease for facilities used for
research and development, manufacturing and office space. On May 29, 1998, the
Company exercised its right to renew for an additional term of three years
expiring in May 2002 at a base annual rate of $441,000. The lease provides for a
second renewal period of five years expiring May 2007. The lease also provides
for an option to purchase the facility, subject to certain terms and conditions
as specified in the lease. On May 19, 2000, the Company gave notice to its
landlord that it desired to exercise its right to purchase the facility, which
is subject to further negotiations. The purchase price under the lease will be
based on fair market value of the facility which is estimated at $6.5 million.
Rental expense related to
45
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
this lease was approximately $441,000, $425,000 and $425,000 in fiscal years
2000, 1999 and 1998, respectively. Minimum lease commitments for facilities and
equipment are as follows for fiscal years ending:
2001 ............................. $441,000
2002 ............................. $441,000
2003 ............................. $446,000
2004 ............................. $449,000
2005 ............................. $452,000
The Company is a party to various claims and litigation arising in the
normal course of business. Management believes that the outcome of such claims
and litigation will not have a material adverse effect on the Company's
financial position and results of operations.
12. Debt
On October 28, 1998, the Company entered into an Equipment Financing
Agreement with the New England Capital Corporation, pursuant to which the
Company has received 450,000, at the interest rate of 9.52% per annum, to be
repaid over a 36-month period. The proceeds of such financing were used to
exercise the early purchase options for equipment previously leased through a
master lease agreement. The financing is secured by various equipment and an
irrevocable letter of credit in the amount of $225,000. The letter of credit is
collateralized by a cash deposit of an equivalent amount, which is included in
"Other long- term assets" on the accompanying consolidated balance sheet. At
June 30, 2000, the Company's indebtedness under this agreement was $228,470 due
in equal monthly installments over the next 16 months. In the fiscal year ended
June 30, 2000 and 1999, the Company paid $29,275 and $23,162, respectively, in
interest under this agreement.
13. Geographic Segments
The Company manages its operations as one line of business of researching,
developing, manufacturing and marketing biopharmaceutical products, particularly
antibody-based diagnostics and therapeutics for cancer and infectious diseases,
and it currently reports as a single industry segment. The Company markets and
sells its products in the U.S. and throughout Europe. During fiscal year 2000
and 1999, revenues from one major customer amounted to approximately 16% of each
years' total consolidated revenues.
The following table presents financial information based on the geographic
location of the facilities of Immunomedics, Inc. as of and for the years ending:
June 30, 2000
-----------------------
United States Europe Total
--------------- --------------- ---------------
Total assets.................................................................. $ 47,297,628 $ 728,509 $ 48,026,137
Long-lived assets............................................................. 3,943,786 26,894 3,970,680
Revenues...................................................................... 3,637,348 2,336,107 5,973,455
June 30, 1999
-----------------------
United States Europe Total
--------------- --------------- ---------------
Total assets.................................................................. $ 15,759,669 $ 1,199,252 $ 16,958,921
Long-lived assets............................................................. 4,764,546 53,593 4,818,139
Revenues...................................................................... 4,594,966 2,964,466 7,559,432
46
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Immunomedics, Inc.:
We have audited the accompanying consolidated balance sheets of Immunomedics,
Inc. and subsidiaries as of June 30, 2000 and 1999, and the related consolidated
statements of operations and comprehensive loss, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended June
30, 2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Immunomedics, Inc.
and subsidiaries as of June 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 2000, in conformity with accounting principles generally accepted
in the United States of America.
Short Hills, New Jersey KPMG LLP
August 15, 2000, except
as to the last paragraph of
Note 9, which is as of
September 19, 2000
47
PART III
Item 9 -- Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
Item 10 -- Directors and Executive Officers of the Registrant
The information required for this item is incorporated herein by reference
to the 2000 Definitive Proxy Statement. See also "Executive Officers of the
Registrant" in Part I, following Item 4.
Item 11 -- Executive Compensation
The information required for this item is incorporated herein by reference
to the 2000 Definitive Proxy Statement.
Item 12 -- Security Ownership of Certain Beneficial Owners and Management
The information required for this item is incorporated herein by reference
to the 2000 Definitive Proxy Statement.
Item 13 -- Certain Relationships and Related Transactions
The information required for this item is incorporated herein by reference
to the 2000 Definitive Proxy Statement.
PART IV
Item 14 -- Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this Report:
1. -- Consolidated Financial Statements:
Consolidated Balance sheets - June 30, 2000 and 1999
Consolidated Statements of Operations and Comprehensive Loss for the
years ended June 30, 2000, 1999 and 1998
Consolidated Statements of Changes in Stockholders' Equity for the
years ended June 30, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended June 30,
2000, 1999 and 1998
Notes to Consolidated Financial Statements
Independent Auditors' Report - KPMG LLP
48
2. -- Financial Statement Schedules:
All schedules have been omitted because of the absence of conditions
under which they would be required or because the required information
is included in the financial statements or the notes thereto.
3. -- Articles of incorporation and by-laws
3.1(a) -- Certificate of Incorporation of the Company, as filed with the
Secretary of State of the State of Delaware on July 6, 1982(e)
3.1(b) -- Certificate of Amendment of the Certificate of Incorporation of the
Company as filed with the Secretary of State of the State of
Delaware on April 4, 1983(e)
3.1(c) -- Certificate of Amendment of the Certificate of Incorporation of the
Company as filed with the Secretary of State of the State of
Delaware on December 14, 1984(e)
3.1(d) -- Certificate of Amendment of the Certificate of Incorporation of the
Company as filed with the Secretary of State of the State of
Delaware on March 19, 1986(e)
3.1(e) -- Certificate of Amendment of the Certificate of Incorporation of the
Company as filed with the Secretary of State of the State of
Delaware on November 17, 1986(e)
3.1(f) -- Certificate of Amendment of the Certificate of Incorporation of the
Company as filed with the Secretary of State of the State of
Delaware on November 21, 1990(f)
3.1(g) -- Certificate of Designation of Rights and Preferences, as filed with
the Secretary of State of the State of Delaware on March 1, 1991(g)
3.1(h) -- Certificate of Amendment of the Certificate of Incorporation of the
Company, as filed with the Secretary of State of the State of
Delaware on December 7, 1992(j)
3.1(i) -- Certificate of Designation of Rights and Preferences of the Company's
Series B Convertible Preferred Stock filed with the Secretary of State
of the State of Delaware on December 21, 1994(l)
3.1(j) -- Certificate of Designation of Rights and Preferences of the Company's
Series C Convertible Preferred Stock, as filed with the Secretary of
State of the State of Delaware on September 25, 1995(n)
3.1(k) -- Certificate of Designation of Rights and Preferences of the Company's
Series D Convertible Preferred Stock, as filed with the Secretary of
State of the State of Delaware on June 26, 1996(o)
3.1(l) -- Certification of Amendment of the Certificate of Incorporation of the
Company as filed with the Secretary of State of the State of Delaware
on November 7, 1996(p).
3.1(m) -- Certificate of Designation of Rights and Preferences of the Company's
Series E Junior Participating Preferred Stock, as filed with the
Secretary of State of the State of Delaware on January 23, 1998(r)
3.1(n) -- Amended Certificate of Designations, Preferences and Rights of Series
F Convertible Preferred Stock of Immunomedics, Inc.(v)
3.2 -- Amended and Restated By-Laws of the Company(j)
4. -- Instruments defining the rights of security holders, including
indentures.
4.1 -- Specimen Certificate for Common Stock(e)
4.2 -- Structured Equity Line Flexible Financing Agreement, dated as of
December 23, 1997, between Immunomedics, Inc. and Cripple Creek
Securities, LLC(s)
4.3 -- Registration Rights Agreement, dated as of December 23, 1997, between
Immunomedics, Inc. and Cripple Creek Securities, LLC(s)
4.4 -- Common Stock Purchase Warrant issued to Cripple Creek Securities,
LLC (s)
4.5 -- Form of additional Common Stock Purchase Warrant issuable to Cripple
Creek Securities, LLC(s)
4.6 -- Rights Agreement, dated as of January 23, 1998, between Immunomedics,
Inc. and American Stock Transfer and Trust Company, as rights agent,
and form of Rights Certificate(r)
49
10. -- Material contracts
10.1(a)-- 1983 Stock Option Plan, as amended(h)
10.1(b)-- Form of Stock Option Agreement(e)
10.2 -- Exclusive License Agreement with David M. Goldenberg, dated as of
July 14, 1982(a)
10.3 -- Agreement among the Company, David M. Goldenberg and the Center for
Molecular Medicine and Immunology, Inc. dated, May, 1983(a)
10.4 -- Memorandum of Understanding with David M. Goldenberg, dated September
10, 1984(b)
10.5 -- Immunomedics, Inc. 401(k) Retirement Plan(c)
10.6. -- Executive Supplemental Benefits Agreement with David M. Goldenberg,
dated as of July 18, 1986(c)
10.7. -- License Agreement between Hoffmann-La Roche, Inc. and David M.
Goldenberg, dated as of April 29, 1986(c)
10.8 -- License Agreement with F. James Primus dated July 7, 1983(d)
10.9 -- Amended and Restated License Agreement among the Company, CMMI and
David M. Goldenberg, dated December 11, 1990(h)
10.10 -- Lease Agreement with Baker Properties Limited partnership, dated
January 16, 1992(i)
10.11 -- Immunomedics, Inc. 1992 Stock Option Plan(p)
10.12. -- Amended and Restated Employment Agreement, dated November 1, 1993,
between the Company and Dr. David M. Goldenberg(k)
10.13. -- Amendment, dated March 11, 1995, to the Amended and Restated License
Agreement among the Company, CMMI, and David M. Goldenberg, dated
December 11, 1990(m)
10.14. -- Manufacturing Agreement, dated as of April 4, 1996, between the
Company and SP Pharmaceuticals, formerly the Oncology Division of
Pharmacia & Upjohn (Confidential treatment has been requested for
certain portions of the Agreement)(o)
10.15 -- License Agreement, dated as of January 21, 1997, between the Company
and Center for Molecular Medicine and Immunology, Inc.(q)
10.16 -- Distribution Agreement, dated as of November 24, 1997, between
Immunomedics, Inc. and Eli Lilly Deutschland GmbH (Confidential
treatment has been requested for certain portions of the Agreement)(t)
10.17 -- Distribution and Product Services Agreement, dated as of May 15, 1998,
between Immunomedics, Inc. and Integrated Commercialization Solutions,
Inc.(Confidentiality treatment has been requested for certain portions
of the Agreement)(u).
10.18 -- Securities Purchase Agreement, dated December 9, 1998, by and among
Immunomedics, Inc. and certain Investors.(v)
10.19 -- Registration Rights Agreement by and among dated December 9, 1998, by
and among Immunomedics, Inc. and certain Investors.(v)
10.20 -- Operating Agreement, dated March 5, 1999, by and among IMG Technology,
LLC, Coulter Corporation and the investors named therein.(w)
10.21 -- License Agreement, dated March 5, 1999, by and between Immunomedics,
Inc. and IBC Pharmaceuticals, LLC.(w)
10.22 -- Operating Agreement, dated March 5, 1999, by and between IMG
Technology, LLC and David M. Goldenberg.(w)
11. -- Statement re computation of per share earnings -- Not required since
such computation can be clearly determined from the material contained
in this Annual Report on Form 10-K.
50
12. -- Statements re computation of ratios -- Not applicable.
21. -- Subsidiaries of the Company
23. -- Consent of Experts and Counsel
23.1 -- Consent of Independent Accountants -- KPMG LLP
27. -- Financial Data Schedule
- - -----------------------------------
(a) -- Incorporated by reference from the Exhibits to the Company's
Registration Statement on Form S-1 effective October 6, 1983
(Commission File No. 2-84940).
(b) -- Incorporated by reference from the Exhibits to the Company's Annual
Report on Form 10-K for the year ended June 30, 1985.
(c) -- Incorporated by reference from the Exhibits to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1986.
(d) -- Incorporated by reference from the Exhibits to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1988.
(e) -- Incorporated by reference from the Exhibits to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1990.
(f) -- Incorporated by reference from the Exhibits to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended December31, 1990.
(g) -- Incorporated by reference from the Exhibits to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1991.
(h) -- Incorporated by reference from the Exhibits to the Company's
Registration Statement on Form S-2 effective July 24, 1991 (Commission
File No. 33-41053).
(i) -- Incorporated by reference from the Exhibits to the Company's
Registration Statement on Form S-2 effective January 30, 1992
(Commission File No. 33-44750).
(j) -- Incorporated by reference from the Exhibits to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1993.
(k) -- Incorporated by reference from the Exhibits to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1993.
(l) -- Incorporated by reference from the Exhibits to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended December 31, 1994.
(m) -- Incorporated by reference from the Exhibits to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995.
(n) -- Incorporated by reference from the Exhibits to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1995.
(o) -- Incorporated by reference from the Exhibits to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996.
(p) -- Incorporated by reference from the Exhibits to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1996.
(q) -- Incorporated by reference from the Exhibits to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended December 31, 1996.
(r) -- Incorporated by reference from the Exhibits to the Company's
Registration Statement on Form 8-A, as filed with the Commission on
January 29, 1998.
(s) -- Incorporated by reference from the exhibits to the Company's
Registration Statement on Form S-3, as filed with the Commission on
January 29, 1998.
(t) -- Incorporated by reference from the exhibits to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended December 31, 1997.
(u) -- Incorporated by reference from the Exhibits to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1998.
(v) -- Incorporated by reference from the Exhibits to the Company's Current
Report on Form 8-K, dated December 15, 1998.
51
(w) -- Incorporated by reference from the Exhibits to the Company's Current
Report on Form 8-K, dated March 23, 1999.
(b) Reports on Form 8-K:
No reports were filed by the Company during the quarter ended June 30,
2000.
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
IMMUNOMEDICS, INC.
Date: September 28, 2000
By /s/ DAVID M. GOLDENBERG
----------------------------
David M. Goldenberg
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ DAVID M. GOLDENBERG Chairman and Chief September 28, 2000
............................ Executive Officer
(Principal Executive Officer)
David M. Goldenberg
/s/ SHAILESH R. ASHER Controller and Acting September 28, 2000
Chief Financial Officer
............................ (Principal Financial
Shailesh R. Asher and Accounting Officer)
/s/ MARVIN E. JAFFE Director September 28, 2000
...........................
Marvin E. Jaffe
/s/ RICHARD R. PIVIROTTO Director September 28, 2000
...........................
Richard R. Pivirotto
/s/ RICHARD C. WILLIAMS Director September 28, 2000
...........................
Richard C. Williams
/s/ MORTON COLEMAN Director September 28, 2000
...........................
Morton Coleman
53