UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the period ended March 31, 2001 OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the transition period from
to
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Commission File Number: 0-12104
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IMMUNOMEDICS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 61-1009366
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
300 American Road, Morris Plains, New Jersey 07950
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(Address of principal executive offices) (Zip code)
(973) 605-8200
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of May 14, 2001, there were 49,525,371 shares of the registrant's common
stock outstanding.
Page 1 of 17
IMMUNOMEDICS, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets - 3
March 31, 2001 and June 30, 2000
Consolidated Statements of Operations 4
and Comprehensive Income (Loss)-
three and nine months ended March 31, 2001 and 2000
Condensed Consolidated Statements of Cash Flows - 5
nine months ended March 31, 2001 and 2000
Notes to Consolidated Financial Statements - 6
March 31, 2001
Item 2. Management's Discussion and Analysis of 11
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risks 15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
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Page 2 of 17
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
March 31, June 30,
2001 2000
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents .............................................. $ 14,558,407 $ 11,114,079
Marketable securities .................................................. 41,031,114 29,751,987
Accounts receivable, net of allowance for
doubtful accounts of $67,898 and $63,398 at
March 31, 2001 and June 30, 2000, respectively ...................... 622,168 603,398
Inventory .............................................................. 1,303,106 1,036,900
Other current assets ................................................... 1,109,730 1,324,093
------------- -------------
Total current assets .............................................. 58,624,525 43,830,457
Property and equipment, net of accumulated
depreciation of $8,471,608 and $7,760,638 at
March 31, 2001 and June 30, 2000, respectively ...................... 3,528,168 3,970,680
Other long-term assets ...................................................... 276,157 225,000
------------- -------------
$ 62,428,850 $ 48,026,137
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt ...................................... $ 111,343 $ 158,058
Accounts payable ....................................................... 1,900,350 1,836,283
Deferred revenue ....................................................... 9,000,000 --
Other current liabilities .............................................. 1,828,342 1,683,266
------------- -------------
Total current liabilities ......................................... 12,840,035 3,677,607
------------- -------------
Long-term debt .............................................................. -- 70,412
Deferred revenue ............................................................ 7,500,000 --
Minority interest ........................................................... 182,000 182,000
Commitments and Contingencies
Stockholders' Equity:
Preferred stock; $.01 par value, authorized 10,000,000 shares; ......... -- --
Common stock; $.01 par value, authorized 70,000,000 shares;
issued and outstanding 49,525,371 and 49,329,121 shares
at March 31, 2001 and June 30, 2000, respectively ................ 495,254 493,291
Capital contributed in excess of par ................................... 155,062,655 153,242,000
Accumulated deficit .................................................... (113,743,073) (109,530,489)
Accumulated other comprehensive income (loss) .......................... 91,979 (108,684)
------------- -------------
Total stockholders' equity ........................................ 41,906,815 44,096,118
------------- -------------
$ 62,428,850 $ 48,026,137
============= =============
See accompanying notes to consolidated financial statements
Page 3 of 17
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
---------------- ---------------- ---------------- -----------------
Revenues:
Product sales $ 753,121 $ 1,225,557 $ 2,925,459 $ 3,284,779
Royalties and license fee 1,503,160 5,523 1,506,807 11,094
Research and development 134,393 181,853 435,697 506,335
Interest and other 783,709 346,180 2,072,658 555,661
---------------- ---------------- ---------------- -----------------
3,174,383 1,759,113 6,940,621 4,357,869
---------------- ---------------- ---------------- -----------------
Costs and Expenses:
Cost of goods sold 56,603 57,332 419,413 195,216
Research and development 2,536,522 2,670,957 7,342,244 6,762,815
Sales and marketing 598,528 753,911 1,929,548 2,343,215
General and administrative 822,171 1,032,553 2,265,315 1,984,555
---------------- ---------------- ---------------- -----------------
4,013,824 4,514,753 11,956,520 11,285,801
---------------- ---------------- ---------------- -----------------
Net loss before income tax benefit (839,441) (2,755,640) (5,015,899) (6,927,932)
Income tax benefit 803,315 - 803,315 -
---------------- ---------------- ---------------- -----------------
Net loss (36,126) (2,755,640) (4,212,584) (6,927,932)
Preferred stock dividends - - - 496,684
---------------- ---------------- ---------------- -----------------
Net loss allocable to common shareholders (36,126) (2,755,640) (4,212,584) (7,424,616)
================ ================ ================ =================
Comprehensive Income (Loss):
Net loss (36,126) (2,755,640) (4,212,584) (6,927,932)
---------------- ---------------- ---------------- -----------------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (39,612) (133,074) (25,925) (98,424)
Unrealized gain (loss) on securities
available for sale 122,134 (25,438) 226,588 (25,438)
---------------- ---------------- ---------------- -----------------
Other comprehensive income (loss) 82,522 (158,512) 200,663 (123,862)
---------------- ---------------- ---------------- -----------------
Comprehensive income (loss) $ 46,396 $ (2,914,152) $ (4,011,921) $ (7,051,794)
================ ================ ================ =================
Per Share Data (Basic and Diluted):
Net loss allocable to common shareholders $ (0.00) $ (0.06) $ (0.09) $ (0.18)
================ ================ ================ =================
Weighted average number of common
shares outstanding 49,521,082 47,811,205 49,488,699 42,219,357
================ ================ ================ =================
See accompanying notes to consolidated financial statements.
Page 4 of 17
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
March 31,
2001 2000
------------------ ----------------
Cash flows from operating activities:
Net loss $ (4,212,584) $(6,927,932)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation 710,970 734,379
Provision for allowance for doubtful accounts 4,500 18,000
Amortization of bond premium 74,065 -
Non-cash expense relating to issuance of warrants 508,991 517,374
Compensation expense on stock options 88,700 -
Deferred revenue 16,500,000 -
Changes in operating assets and liabilities 82,873 (174,360)
Other (25,925) (131,990)
------------------ ----------------
Net cash provided by (used in) operating activities 13,731,590 (5,964,529)
------------------ ----------------
Cash flows from investing activities:
Purchases of marketable securities (45,133,471) (32,269,131)
Proceeds from maturities of marketable securities 34,006,867 12,856,504
Additions to property and equipment (268,458) (91,456)
------------------ ----------------
Net cash used in investing activities (11,395,062) (19,504,083)
------------------ ----------------
Cash flows from financing activities:
Issuance of common stock, net - 42,659,739
Purchase of preferred stock, net - (5,950,000)
Preferred stock dividends paid - (535,500)
Exercise of stock options 1,224,927 3,421,020
Payments of debt (117,127) (106,529)
------------------ ----------------
Net cash provided by financing activities 1,107,800 39,488,730
------------------ ----------------
Increase in cash and cash equivalents 3,444,328 14,020,118
Cash and cash equivalents at beginning of period 11,114,079 3,469,261
------------------ ----------------
Cash and cash equivalents at end of period $ 14,558,407 $ 17,489,379
================== ================
See accompanying notes to consolidated financial statements.
Page 5 of 17
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) Business Overview and Basis of Presentation
The accompanying unaudited consolidated financial statements of
Immunomedics, Inc. (the "Company"), which incorporate the Company's
majority owned subsidiaries, have been prepared in accordance with
generally accepted accounting principles for interim financial information
and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, the statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
annual financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The balance sheet at June 30, 2000 has
been derived from the audited financial statements at that date. Operating
results for the nine-month period ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the fiscal year ending
June 30, 2001 or any other period.
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, product sales and a
license and development agreement. The Company believes that its existing
working capital should be sufficient to meet its capital and liquidity
requirements for the foreseeable future.
For further information, refer to the annual financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 2000.
(2) 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. Included in other current assets at March 31, 2001 and June
30, 2000 is accrued interest earned on cash equivalents and marketable
securities of $542,900 and $423,300, respectively.
(3) Income Taxes
The Company has never made payments of Federal or State income taxes and to
date has not generated book income; therefore, no income taxes have been
reflected for the nine-month period ended March 31, 2001. During the third
quarter 2001, the Company recorded a tax benefit of $803,315 as a result of
its sale of approximately $10,106,000 of New Jersey state net operating
losses.
Page 6 of 17
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(4) Net Loss Per Share
Basic and diluted net loss allocable to common shareholders is based on the
net loss for the relevant period, adjusted in the fiscal year ended June
30, 2000 for Preferred Stock dividends, divided by the weighted average
number of shares issued and outstanding during the period. Preferred Stock
dividends for the three and nine-month periods ended March 31, 2000 is $0
and $496,684, respectively. For the nine-month period ended March 31, 2000,
Preferred Stock dividends consisted of $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 Series F Preferred Stock. No
Preferred Stock dividends have been incurred since the redemption of the
Series F Preferred Stock in December 1999. For purposes of the diluted net
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 periods ended March 31,
2001 and 2000. The Company has certain securities outstanding at March 31,
2001 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.
(5) Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and net
unrealized gains (losses) on securities available for sale and certain
foreign exchange changes and is presented in the unaudited consolidated
statements of operations and comprehensive income (loss).
(6) Recently Issued Accounting Standards
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities was issued and, as amended, is effective for all fiscal
years beginning after June 15, 2000. SFAS No. 133 standardizes the
accounting for derivative instruments including certain derivative
instruments embedded in other contracts and requires derivative instruments
to be recognized as assets and liabilities and to be recorded at fair
value. The Company is currently not a party to any derivative instruments.
Any future transactions involving derivative instruments will be evaluated
based on SFAS No. 133.
(7) 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. At March 31, 2001, the inventory balance consisted
of $217,528 of raw materials and $1,085,578 of finished goods. At June 30,
2000, the inventory balance consisted of $373,234 of raw materials and
$663,666 of finished goods.
Page 7 of 17
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(8) Stockholders' Equity
At the Company's Annual Meeting of Stockholders on December 6, 2000, the
stockholders of the Company approved an amendment to the 1992 Stock Option
Plan to authorize an additional five million shares of Common 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 to induce a
financial advisor to enter into a financial advisory agreement with the
Company. The Company recognized a final proportionate share of the general
and administrative expense associated with these warrants of approximately
$509,000 for the nine-month period ended March 31, 2001, based on the
estimated value of the warrants as of the vesting date of December 16,
2000.
(9) 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 March 31, 2001, the Company's indebtedness
under this agreement was $111,343 due in equal installments over the next 8
months. The Company paid $3,286 and $6,903 for the three-month periods and
$12,646 and $23,245 for the nine-month periods ended March 31, 2001 and
2000, respectively, in interest under this agreement.
(10) Geographic Segment
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.
The following tables present financial information based on the geographic
location of the facilities of Immunomedics, Inc. as of and for the three
and nine-month periods ended March 31, 2001 and 2000:
Page 8 of 17
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Three Months Ended
March 31, 2001
United States Europe Total
------------- ------ ----------
Revenues $2,612,309 $562,074 $3,174,383
Net income (loss) (283,876) 247,750 (36,126)
March 31, 2000
United States Europe Total
------------- ------ ----------
Revenues $1,086,138 $672,975 $1,759,113
Net income (loss) (2,936,717) 181,077 (2,755,640)
Nine Months Ended
March 31, 2001
United States Europe Total
------------- ------ ----------
Revenues $5,055,286 $1,885,335 $6,940,621
Net income (loss) (4,953,115) 740,531 (4,212,584)
March 31, 2000
United States Europe Total
------------- ------ ----------
Revenues $2,485,513 $1,872,356 $4,357,869
Net income (loss) (7,350,999) 423,067 (6,927,932)
(11) Development and License Agreement with Amgen
On December 17, 2000, the Company signed a Development and License
Agreement with Amgen Inc. The Agreement provides Amgen with the exclusive
rights to clinical development and commercialization of the Company's naked
CD22 antibody product, epratuzumab, for the treatment of non-Hodgkin's
lymphoma in the territories of North America and Australia. Pursuant to the
Agreement, the Company received an up-front payment of $18 million from
Amgen on the closing date of February 1, 2001 and could potentially receive
clinical milestones and future royalties. The up-front payment of $18
million is being recognized as revenue of $750,000 per month over a period
of 24 months, beginning February 2001, which is management's best estimate
of the period of time required for the parties to fulfill their obligations
under the Development and License Agreement related to the manufacture of
epratuzumab. Accordingly, the Company recognized $1,500,000 as royalties
and license fee revenue for the current quarter. The remaining balance of
$16,500,000 is recorded as "Deferred revenue", of which $9,000,000
Page 9 of 17
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
is part of current liabilities and $7,500,000 is in the long-term liability
section of the accompanying consolidated balance sheet at March 31, 2001.
Page 10 of 17
PART I - Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
Statements made in this Form 10-Q, 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. Such forward-looking statements are made pursuant to
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. The Company's actual results could differ materially from the results
anticipated in these forward-looking statements as a result of a variety of
factors, including (i) the risks described in Exhibit 99 to this Form 10-Q, (ii)
the risks described under the caption "Business-Business Risks" in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2000 (the "2000
10-K"), (iii) the risks described elsewhere under the caption "Business" in the
2000 10-K and (iv) the risks described elsewhere in the 2000 10-K. The Company
assumes no obligation to update its forward-looking statements.
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 through the quarter ended March 31, 2001, had 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
spent on research and development. As of March 31, 2001, the Company had an
accumulated deficit of approximately $113,743,000. The Company expects to
continue to experience operating losses, exclusive of any license fees, 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 this 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 ("HPB") 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 Company'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
Page 11 of 17
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.
On December 17, 2000, the Company signed a Development and License Agreement
with Amgen Inc. The Agreement provides Amgen with the exclusive rights to
clinical development and commercialization of the Company's naked CD22 antibody
product, epratuzumab, for the treatment of non-Hodgkin's lymphoma in the
territories of North America and Australia. Pursuant to the Agreement, the
Company received an up-front payment of $18 million from Amgen on February 1,
2001. Also, pursuant to the Agreement, the Company could potentially receive
clinical milestone payments totaling $65 million. In addition, the Agreement
provides for royalties on net sales and for one-time sales milestone payments
ranging from $50 to $225 million if and when annual net sales reach $500 million
to $1 billion. Additional compensation would be payable to the Company for each
second generation product developed by Amgen. No assurances can be given as to
whether any applicable milestones will be met or with respect to the aggregate
amount that will be paid to the Company under this Agreement.
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 (such as the Amgen development
and license agreement) or from government grants. However, there can be no
assurance that the Company will receive such payments (beyond the payment made
to date under the Amgen agreement) 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.
Results of Operations
Revenues for the nine-month period ended March 31, 2001 were $6,941,000 as
compared to $4,358,000 for the same period in 2000, representing an increase of
$2,583,000. Product sales for the nine-month period ended March 31, 2001
decreased by $360,000 as compared to the same period of 2000, principally
reflecting the Company's focus towards the development of therapeutic products.
Royalties and license fee revenue for the nine-month period ended March 31, 2001
increased by $1,496,000 as compared to the same period of 2000, primarily due to
recognition of a portion of the up-front payment received in conjunction with
the development and license agreement with Amgen in the amount of $1.5 million.
Research and development revenue for the nine-month period ended March 31, 2001
decreased by $71,000 as compared to same period of 2000, primarily due to lower
grant revenue. Interest and other income for the nine-month period ended March
31, 2001 increased by $1,517,000, as compared to the same period of 2000,
Page 12 of 17
primarily due to more cash available for investments as a result of infusions of
private equity capital during fiscal 2000 and the up-front payment of $18
million from Amgen in February 2001.
Revenues for the three-month period ended March 31, 2001 were $3,174,000 as
compared to $1,759,000 for the same period in 2000, representing an increase of
$1,415,000. Product sales for the three-month period ended March 31, 2001
decreased by $472,000 as compared to the same period of 2000, principally
reflecting the Company's focus towards the development of therapeutic products.
Royalties and license fee revenue for the three-month period ended March 31,
2001 increased by $1,498,000 as compared to the same period of 2000, primarily
due to recognition of a portion of the up-front payment received in conjunction
with the development and license agreement with Amgen in the amount of $1.5
million. Research and development revenue for the three-month period ended March
31, 2001 decreased by $47,000 as compared to same period of 2000, primarily due
to lower grant revenue. Interest and other income for the three-month period
ended March 31, 2001 increased by $438,000, as compared to the same period of
2000, primarily due to more cash available for investments as a result of
infusions of private equity capital during fiscal 2000 and the up-front payment
of $18 million from Amgen in February 2001.
Total operating expenses for the nine-month period ended March 31, 2001 were
$11,957,000 as compared to $11,286,000 for the same period in 2000, representing
an increase of $671,000. Research and development costs for the nine-month
period ended March 31, 2001 increased by $579,000 as compared to the same period
in 2000, primarily due to increased research and development and manufacturing
expenses, including lab supplies, associated with producing therapeutic products
to be used in clinical trials. Sales and marketing expenses for the nine-month
period ended March 31, 2001, decreased by $414,000 primarily due to the
Company-wide reorganization/restructuring. Cost of goods sold for the nine-month
period ended March 31, 2001 increased by $224,000 as compared to the same period
in 2000, primarily due to reserves recorded for previously capitalized inventory
due to approaching expiration dates. General and administrative costs for the
nine-month period ended March 31, 2001 increased by $281,000 as compared to the
same period of 2000, primarily due to the recognition of an expense of $360,000
as a fee, for a financial advisor, associated with the Company's entering into
the Licensing and Development Agreement with Amgen (see Note 11 to Unaudited
Consolidated Financial Statements), partially offset by a decrease of other
administrative expenses.
Total operating expenses for the three-month period ended March 31, 2001 were
$4,014,000 as compared to $4,515,000 for the same period in 2000, representing
an increase of $501,000. Research and development costs for the three-month
period ended March 31, 2001 decreased by $134,000 as compared to the same period
in 2000, primarily due to the capitalization of finished goods inventory
partially offset by increased manufacturing expenses, including supplies,
associated with producing such products. Cost of goods sold for the three-month
period ended March 31, 2001 were essentially unchanged as compared to the same
period in 2000. Sales and marketing expenses for the three-month period ended
March 31, 2001 decreased by $155,000 as compared to the same period in 2000,
primarily due to reduced expenses in Europe. General and administrative costs
for the three-month period ended March 31, 2001 decreased by $210,000 as
compared to the same period of 2000, primarily due to the recognition of an
expense of $517,000 for the three-month period ended March 31, 2000, associated
with warrants issued to a financial advisor in December 1999 (see Note 8 to
Unaudited Consolidated Financial Statements) as compared to an expense of
$360,000 for the three-month period ended March 31, 2001, as a fee for a
Page 13 of 17
financial advisor, associated with the Company's entering into the Licensing and
Development Agreement with Amgen (see Note 11 to Unaudited Consolidated
Financial Statements).
Net loss allocable to common shareholders for the nine-month period ended March
31, 2001 was $4,213,000, or $0.09 per share, as compared to $7,425,000, or $0.18
per share, for the same period in 2000. The $3,212,000 decrease in the net loss
allocable to common shareholders in 2001 as compared to 2000 was primarily due
to the Company's increased revenues principally from interest on investments and
the recognized portion of the Amgen fee, the income tax benefit of $803,315
related to the sale of approximately $10,106,000 of New Jersey state net
operating losses and the Company's not incurring any preferred stock dividends
during the nine-month period ended March 31, 2001, partially offset by higher
operating expenses. In addition, the net loss per share allocable to common
shareholders for the nine-month period ended March 31, 2001 was positively
impacted by the higher weighted average number of common shares outstanding for
this period, as compared to the same period in 2000. The increase in the
weighted average number of shares outstanding was primarily due to the
conversion in late calendar year 2000 of the Company's Series F Preferred Stock
and the issuance of Common Stock pursuant to the Company's equity financings
during fiscal year 2000.
Net loss allocable to common shareholders for the three-month period ended March
31, 2001 was $36,000, or $0.00 per share, as compared to $2,756,000, or $0.06
per share, for the same period in 2000. The 2,720,000 decrease in the net loss
allocable to common shareholders in 2001 as compared to 2000 was primarily due
to the Company's increased revenues, decreased expenses and the income tax
benefit of $803,315 related to the sale of approximately $10,106,000 of New
Jersey state net operating losses. The net loss per share allocable to common
shareholders for the three-month period ended March 31, 2001 was positively
impacted by the higher weighted average number of shares outstanding for this
period, as compared to the same period in 2000. The increase in the weighted
average number of shares outstanding was primarily due to the issuance of Common
Stock pursuant to the Company's equity financings during fiscal year 2000.
Liquidity and Capital Resources
At March 31, 2001, the Company had working capital of $45,784,000, which
represents an increase of $5,632,000 from June 30, 2000. The increase in working
capital resulted primarily from the up-front payment of $18 million received
from the Amgen development and license agreement (see Note 11 to Unaudited
Consolidated Financial Statements), partially offset by funding of operating
expenses as discussed above.
The Company's liquid asset position, measured by its cash, cash equivalents and
marketable securities, was $55,590,000 at March 31, 2001, representing an
increase of $14,724,000 from June 30, 2000. This increase was primarily
attributable to the up-front payment of $18 million received from the Amgen
development and license agreement (see Note 11 to Unaudited Consolidated
Financial Statements), partially offset by funding of operating expenses as
discussed above. It is anticipated that working capital and cash, cash
equivalents and marketable securities will decrease during the remainder of
fiscal year 2001 as a result of planned operating expenses and capital
expenditures. There can be no assurance as to the amount of revenues, if any,
that product sales will provide during the remainder of the current fiscal year.
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
Page 14 of 17
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.
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 in Exhibit 99 annexed hereto. 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 may
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 be 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, the terms and timing of any definitive agreements.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
See Item 7A of the Company's Annual Report on Form 10-K for the year ended
June 30, 2000.
Page 15 of 17
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99 Risk Factors
Page 16 of 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IMMUNOMEDICS, INC.
------------------
(Registrant)
DATE: May 14, 2001 /s/ Cynthia L. Sullivan
-------------------------------
Cynthia L. Sullivan
President and
Chief Executive Officer
(Principal Executive Officer)
DATE: May 14, 2001 /s/ Shailesh R. Asher
--------------------------
Shailesh R. Asher
Controller and Acting Chief
Financial Officer
(Principal Financial and
Accounting Officer)
Page 17 of 17
Exhibit 99
RISK FACTORS
Certain statements in this Quarterly Report on Form 10-Q and certain statements
made by the Company in other published documents (including, without limitation,
press releases) are forward-looking in nature and, as such, constitute
"forward-looking statements" under the Private Securities Litigation Reform Act
of 1995. These forward-looking statements include, but are not limited to,
statements about the Company's plans, objectives, expectations and intentions
and other statements contained in this Quarterly Report on Form 10-Q or
elsewhere that are not historical facts. When used in this Quarterly Report on
Form 10-Q or elsewhere, the words "expects," "anticipates," "intends," "plans,"
"believes," "seeks" and "estimates" and similar expressions are generally
intended to identify forward-looking statements. Because these forward-looking
statements involve risks and uncertainties, there are important factors that
could cause actual results to differ materially from those expressed or implied
by these forward-looking statements. In other words, our performance might be
quite different from what the forward-looking statements imply. The following
factors, as well as those discussed below in this "Risk Factors" section, could
cause our performance to differ from the implied results:
* inherent uncertainties accompanying the marketing of CEA-Scan and
LeukoScan.
* inherent uncertainties involving new product development and
marketing.
* inability to obtain capital for continued product development
and commercialization.
* actions of regulatory authorities concerning product approval.
* actions of government and private organizations concerning
reimbursement of medical expenses.
* impact of competitive products and pricing.
* results of clinical trials.
* loss of key employees.
* changes in general economic and business conditions.
* changes in industry trends.
We have no obligation to release publicly the result of any revisions to any of
our "forward-looking statements" to reflect events or circumstances that occur
after the date of this Quarterly Report or to reflect the occurrence of other
unanticipated events.
Page 1 of 10
We Have a History of Operating Losses and May Never Become Profitable
We have had significant operating losses since our formation in 1982 and have
not earned a profit since our inception. These operating losses and failure to
be profitable have been due mainly to the significant amount of money that we
have had to spend on research and development. As of March 31, 2001, we had an
accumulated deficit of approximately $113.7 million. We expect to continue to
experience operating losses until such time, if at all, that we are able to
generate sufficient revenues from sales of CEA-Scan(R), LeukoScan(R) and/or our
other potential products.
We May Not Be Able to Successfully Develop a Market for Our Approved Products
CEA-Scan and LeukoScan are the only products which we are licensed to market and
sell. To date, we have received only limited revenues from the sale of these
products. We cannot assure investors that these products or any of our proposed
products will achieve market acceptance or generate significant sales.
We May Not Receive Approval to Sell LeukoScan in the United States in a Timely
Manner
We have not yet received approval from the FDA to market and sell LeukoScan in
the United States and cannot assure investors as to when, if ever, that we will
obtain approval. In addition, the FDA could impose conditions on its approval,
which could significantly affect the commercial viability of the product or
could require us to undertake significant additional studies or otherwise expend
additional significant funds. If we do not receive approval to market and sell
LeukoScan in the United States in the near future or if the FDA imposes
significant conditions or restrictions, our business and operations could be
significantly and adversely affected.
We May Not Be Able to Bring to Market the Products We Are Currently Developing
or Sustain their Sales After Approval
Before any of our products that we are currently developing can be marketed and
sold, we must undertake substantial research and development. All new products
face a high degree of uncertainty, including the following:
* We may not receive regulatory approval to perform human clinical trials for
the products we currently have planned or we may be unable to successfully
complete our ongoing clinical trials.
* The results from preclinical studies and clinical trials may not be
indicative of results that will be obtained in later-stage testing.
* We may be unable to timely recruit a sufficient number of patients for our
clinical trials. Delays in planned patient enrollment may result in
increased costs and delays.
* We may be unable to obtain approval from the FDA and comparable foreign
authorities because we are 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 we
currently anticipate.
Page 2 of 10
* We may discover that the product has undesirable or unintended side effects
or other characteristics that make it impossible or impracticable for us to
continue development or which may limit the product's commercial use.
* We do not expect that any new product which is currently in research and
development will be commercially available for at least several years.
* We may be unable to produce the product in commercial quantities at
reasonable cost.
* We may be unable to successfully market the product or to find an
appropriate corporate partner, if necessary, to assist us in the marketing
of the product.
* The product may not gain satisfactory market acceptance.
* The product may be superseded by another product commercialized for the
same indication or may infringe patents issued to others, which would
prevent us from marketing and selling the product.
* After approval, the product may be recalled or withdrawn at any time as a
result of regulatory issues, including those concerning safety and
efficacy.
If we are unable to continue to develop products that we can successfully
market, our business, financial condition and results of operations will be
significantly and adversely affected.
If We Do Not Obtain Additional Capital When Needed, We May Be Required to
Curtail Our Operations
When our needs for cash deplete our existing capital position, we will be
required to significantly reduce our operating expenses, including the amount of
resources devoted to marketing and sales, product development and clinical
trials, which could have a significant and adverse effect on us. We cannot
assure investors that any additional financing will be available to us at all or
on terms we find acceptable or that the terms of any financing will not cause
substantial dilution to our existing stockholders.
Our Limited Marketing and Sales Experience and Capability Could Impact Our
Ability to Successfully Sell Our Current Products
We are relying, in substantial part, on our own limited sales and marketing
organization to market CEA-Scan and LeukoScan. We cannot assure investors that
we can successfully maintain and continue to build our sales force. If we are
unable to continue to build and maintain our sales force, our financial
condition and operating results may be significantly and adversely affected.
Page 3 of 10
We May Have to Rely on Partners to Help Us Market and Sell Our Products Under
Development
The marketing and sale of our proposed products may be dependent upon our
entering into arrangements with corporate partners, such as our agreement with
Amgen. We cannot assure investors that we will be successful in forming
relationships other than our relationship with Amgen or that these
relationships, even if formed, will be successful.
We Could Be Temporarily Unable to Sell Our Products If Our Agreements with Our
Distributors Were Terminated
We currently do 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 our products. As a result, we have
entered into arrangements with third parties to perform this function for the
foreseeable future. If these agreements are terminated, we will be required to
enter into arrangements with other government approved third parties in order to
be able to distribute our products. We will be unable to continue to distribute
our products until an acceptable alternative is identified. If we were even only
temporarily unable to distribute our products, our business could be
significantly and adversely effected.
We Could Be Temporarily Unable to Sell Our Products If Our Agreement with Our
End Stage Manufacturer Was Terminated
We rely on a single third party to perform certain end-stage portions of the
manufacturing process for CEA-Scan and LeukoScan which we are unable or do not
have the resources to perform. If this third party were to become unavailable,
we would be unable to complete the manufacturing process until we entered into
an agreement with another qualified entity. We cannot give assurances that we
will be able to negotiate an agreement with another entity on terms we consider
acceptable, if at all. Even if we were able to do so, any substantial delay in
our ability to manufacture our products could significantly and adversely affect
our operations.
Our Internal Manufacturing Capability May Limit What We Can Sell
If demand for our approved product increases significantly, we cannot assure
investors that we will continue to have the capacity to manufacture commercial
quantities successfully. In addition, if any of our other products are approved
for marketing and sale, we cannot assure investors that we will continue to have
the capacity and expertise to manufacture commercial quantities of multiple
products successfully or with acceptable profit margins. If we were even only
temporarily unable to manufacture sufficient quantities of our products to meet
demand, our business could be significantly and adversely effected.
We May Be Unable to Continue to Use Mouse Fluids for Future Products Which Could
Require Us to Make Expensive and Time Consuming Changes to Our Products in
Development
CEA-Scan and certain of our other imaging agents are derived from ascites fluid
produced in mice. Regulatory authorities, particularly in Europe, have expressed
concerns about the use of mice fluid for the production of monoclonal
antibodies. We cannot assure investors that regulatory authorities will agree
Page 4 of 10
that our quality control procedures will be adequate for future products. While
we are continuing our development efforts to produce certain of our monoclonal
antibodies using cell culture methods, this process constitutes a substantial
production change, which will require additional manufacturing equipment and new
regulatory approval. We cannot assure investors that we will have the resources
to acquire the additional manufacturing equipment and resources or that we will
receive the required regulatory approval on a timely basis, if at all. We also
have contracted with a third party for the development and production of certain
humanized antibodies, but we cannot assure that these efforts will be
successful.
Certain Potential Conflicts of Interest Exist with The Center for Molecular
Medicine and Immunology Which Could Affect Our Operations
Dr. David M. Goldenberg, our Chairman and Chief Executive Officer, is the
founder, President and a member of the Board of Trustees of the Center for
Molecular Medicine and Immunology ("CMMI"), a not-for-profit cancer research
center. Dr. Goldenberg devotes more of his time working for CMMI than for us. In
addition, other key personnel currently have responsibilities both to CMMI and
us. As a result, the potential for conflict of interest exists and disputes
could arise over the allocation of research projects and ownership of
intellectual property rights.
We May Not Be Able to Obtain Government Regulatory Approval in a Timely Manner
to Market and Sell Our Products
Regulation by governmental authorities in the United States and foreign
countries is a significant factor in the manufacture and marketing of our
presently marketed and proposed products as well as our research and development
activities. All of our proposed products will require regulatory approval by
governmental agencies prior to commercialization and our products must undergo
rigorous preclinical and clinical testing and other premarket approval
procedures by the FDA and comparable foreign authorities. In addition, since
certain of our potential products involve the application of new technologies,
regulatory approvals may take longer than for products produced using more
conventional methods. Once we begin clinical trials for a new diagnostic or
therapeutic product, it may take five to ten years or more to receive the
required regulatory approval to commercialize that product and begin to market
it to the public. Various federal and, in some cases, state statutes and
regulations also govern or influence the manufacturing, safety, labeling,
storage, record keeping and marketing of these products. The lengthy process of
seeking these approvals, and the subsequent compliance with applicable statutes
and regulations, will require us to expend substantial resources. If we fail to
obtain or are otherwise substantially delayed in obtaining, regulatory
approvals, our business and operations could be significantly and adversely
affected.
In responding to a new drug application, or a biologic license application,
government regulators may grant marketing approvals, request additional
information or further research, or deny the application if they determine that
the application does not satisfy its regulatory approval criteria. Approvals may
not be granted on a timely basis, if at all, or if granted may not cover all the
clinical indications for which we are seeking approval or may contain
significant limitations in the form of warnings, precautions or
contraindications with respect to conditions of use. Even after approval, we may
be required to recall or withdraw a product as a result of subsequently
discovered safety or efficacy concerns.
Page 5 of 10
Our Business Involves the Use of Hazardous Materials
In addition to laws and regulations enforced by the FDA, we are also subject to
regulation under various other foreign, federal, state or local laws and
regulations. Our research and development involve the controlled use of
hazardous materials, chemicals, viruses and various radioactive compounds. The
risk of accidental contamination or injury from these materials cannot be
completely eliminated. If an accident occurs, we could be held liable for any
damages that result and any liability could exceed our resources.
We Must Maintain Our Manufacturing Facilities in Accordance With Government
Regulatory Requirements
Our facilities are subject to inspection by the FDA and comparable foreign
authorities. A separate license is sometimes required for commercial manufacture
of any product. Failure to maintain these licenses or to meet the regulatory
inspection criteria would result in disruption to our manufacturing processes
and could have a significant and adverse effect on our business and operations.
We Have Agreed to Certain Covenants in our 1999 Financing Which Place
Restrictions on the Operation of our Business
In connection with the Company's December 1999 financing, the Company agreed to
certain covenants, including covenants that will apply until such time as the
investors in that offering and their affiliates beneficially own less than 5% of
our common stock. Among other things, the Company agreed that without the prior
consent of the investors, the Company may 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. As of May 10, 2001, such
investors in the aggregate beneficially owned 7.21% of the Company's outstanding
common stock.
Changes to Health Care Reimbursement Could Adversely Affect Our Operations
Our ability to successfully commercialize our products will depend in part on
the extent to which reimbursement for the cost of our products and related
treatment will be available from government health administration authorities,
private health insurers and other organizations. These 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 this type of system could further limit reimbursement
for medical products, and we cannot assure investors that adequate third-party
coverage will be available to enable us to maintain price levels sufficient to
realize an appropriate return on our investment in product development. In
addition, we also cannot assure investors that the U.S. government or foreign
governments will not implement a system of price controls. Any system might
significantly and adversely affect our ability to market our products
profitably.
Page 6 of 10
The Loss of Key Employees Could Adversely Affect our Operations
As a small biotechnology company, we are heavily dependent upon the talents of
Dr. Goldenberg and certain key scientific personnel. If Dr. Goldenberg or any of
our other key personnel leave our employ, our operations could be significantly
and adversely affected. In addition, from time to time we have a need to expand
our management and scientific personnel. Competition for qualified personnel in
the biotechnology and pharmaceutical industries is intense and we cannot assure
investors that we will be successful in our recruitment efforts. If we are
unable to retain or, when needed, attract additional qualified personnel, our
operations also could be significantly and adversely affected.
We Face Substantial Competition in the Biotechnology Field and May Not Be Able
to Successfully Compete
The biotechnology industry is highly competitive, particularly in the area of
cancer diagnostic and therapeutic products. We are likely to encounter
significant competition with respect to our existing products as well as our
products currently under development. A number of companies, including IDEC
Pharmaceuticals, Genentech, SmithKline Beecham, Nycomed Amersham, and Coulter
Pharmaceutical, are engaged in the biotechnology field, and in particular the
development of cancer diagnostic and therapeutic products. Many of these
companies have significantly greater financial, technical and marketing
resources than us. In addition, many of these companies may have more
established positions in the pharmaceutical industry and may be better equipped
than us to develop, refine and market their products.
We also expect to face increasing competition from universities and other
non-profit research organizations. These institutions carry out a significant
amount of research and development in the field of antibody-based technology.
These institutions are becoming increasingly more aware of the commercial value
of their findings and more active in seeking patent and other proprietary
rights, as well as licensing revenues.
Our Products May Be Rendered Obsolete By Rapid Technological Change
We are pursuing an area of product development in which there is the potential
for extensive technological innovations in relatively short periods of time. We
cannot assure investors that our competitors will not succeed in developing
products that are safer or more effective than our products. Rapid technological
change or developments by others may result in our current products as well as
those in development becoming noncompetitive or obsolete.
If We Are Unable to Protect Our Intellectual Property Rights, We Could Lose Our
Competitive Advantage
Our commercial success is highly dependent upon patents and other proprietary
rights that we own or license. We cannot assure investors that our key patents
will not be invalidated or will provide us protection that has commercial
significance. Litigation may be necessary to protect our patent positions, which
could be costly and time consuming. If any of our key patents that we own or
license are invalidated, our business may be significantly and adversely
affected. In addition, other companies may independently develop similar trade
secrets or know-how or obtain access to our trade secrets, know-how or
proprietary technology, which could significantly and adversely affect our
business.
Page 7 of 10
Our Products May Infringe Third Party Intellectual Property Rights
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 us. Since we do not have the resources to maintain a staff whose
primary function is to investigate the level of protection afforded to third
parties on devices and components which we use in our products, it is possible
that a third party could successfully claim that our products infringe on their
intellectual property rights. If this were to occur, we may be subject to
substantial damages, and we may not be able to obtain appropriate licenses at a
cost we could afford and we may not have the ability to timely redesign our
products. If we are required to pay damages or are unable to obtain these
rights, our business could be significantly and adversely affected. Even if we
are successful in defeating any alleged infringement claims, litigation could
result in a substantial diversion of managerial time and resources, which could
be better and more fruitfully utilized on other activities.
Our Operations Could Suffer If We Are Unsuccessful in Our Pending Infringement
Claims Concerning Our CEA Antibodies
We are involved in certain litigation with F. Hoffmann-LaRoche and its
affiliates concerning the validity of our European patents covering the antibody
we use in our CEA-Scan cancer imaging product and our CEA-Cide(TM) cancer
therapy product, as well as the use of highly specific anti-CEA antibodies for a
number of other uses. We have claimed that they have infringed our patent and
they have counterclaimed seeking to nullify the patents that were issued. If we
receive an unfavorable outcome in any of these matters, our business could be
significantly and adversely affected.
Product Liability Claims in Excess of the Amount of Our Insurance Would
Adversely Affect Our Financial Condition
The clinical testing, marketing and manufacturing of our products necessarily
involve the risk of product liability. While we currently have product liability
insurance, we cannot assure that we will be able to obtain insurance in the
future at an acceptable cost, if at all. If we cannot maintain our existing or
comparable liability insurance, our ability to test clinically and market our
products may be significantly impaired. Moreover, the amount and scope of our
insurance coverage or indemnification arrangements with any distributor or other
third party upon which we rely may be inadequate to protect us in the event of a
successful product liability claim. Any claim in excess of the amount of any
insurance we then had could significantly and adversely affect our financial
condition and operating results.
Our Principal Stockholder Can Influence Most Matters Requiring Approval By Our
Stockholders
As of May 10, 2001, Dr. Goldenberg, our Chairman and Chief Scientific Officer,
controlled the right to vote over approximately 22.8% of our common stock. As a
result of this voting power, Dr. Goldenberg may have the ability to determine
the election of all of our directors, direct our policies and control the
outcome of substantially all matters which may be put to a vote of our
stockholders.
Page 8 of 10
Resales of Shares Held By Our Directors and Executive Officers May Lower the
Market Price of Our Common Stock
As of May 10, 2001, we had a total of 49,525,371 shares of common stock
outstanding, 6,855,439 of which were held by our directors and executive
officers. These shares may only be resold in limited quantities and only within
the limitations imposed by Rule 144 under the Securities Act. The mere prospect
that these shares may be publicly resold could lower the market price for our
common stock.
Our Stock Price Has Been Volatile
We believe that a variety of factors have caused the market price of our common
stock to fluctuate substantially, and that it will continue to fluctuate in the
future. These factors include:
* actual or anticipated fluctuations in our operating results;
* the status of our products in development;
* new products or technical innovations by us or by our existing or potential
competitors;
* the formation or termination of our corporate alliances and distribution
arrangements;
* prolonged periods of regulatory review of new products or new uses for
existing products;
* determinations regarding our patent applications and those of others;
* trading strategies occurring in the market place with respect to our common
stock; and
* general market conditions and other factors unrelated to us or outside our
control.
Stockholders Could Be Adversely Affected By Our Anti-Takeover Provisions
Our board of directors has the authority, without any further vote by our
stockholders, to issue up to 10,000,000 shares of preferred stock in one or more
series and to determine the designations, powers, preferences and relative,
participating, optional or other rights thereof, including the dividend rate,
whether dividends are cumulative, conversion rights, voting rights, rights and
terms of redemption, redemption price and liquidation preference. Issuance of
preferred stock could have the effect of delaying, deterring or preventing a
change in control of our company, or could impose various procedural and other
requirements that could make it more difficult for holders of our common stock
to effect certain corporate actions, including the ability to replace incumbent
directors and to accomplish transactions opposed by the incumbent board of
directors. The rights of the holders of our common stock would be subject to,
and may be adversely affected by, the rights of the holders of any preferred
stock that may be issued in the future.
Page 9 of 10
Stockholders Should Not Expect That We Will Pay Dividends
We have never paid any dividends on our common stock. For the foreseeable
future, we expect to retain earnings, if any, to finance the expansion and
development of our business. Any future payment of dividends will be within the
discretion of our Board of Directors and will depend upon a variety of factors,
including our earnings, capital requirements, and operating and financial
condition.
Page 10 of 10