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, 2001
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 24, 2001, 49,538,621 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 $448,633,364.
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 5, 2001 (the "2001 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 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 that targets the CD22 receptor of
B-cells and B-cell lymphomas. The Company had advanced the humanized form of
epratuzumab to Phase III clinical testing, evaluating the agent in certain
indolent non-Hodgkin's lymphoma patients. The Company also began 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 unlabeled CD22 antibody has been
licensed to Amgen, Inc., for further development and commercialization in North
America and Australia (see "In Vivo" Therapeutic Products). In addition to the
naked antibody, the Company is also evaluating epratuzumab labeled with
Yttrium-90 in Phase I/II clinical trials. (see "In Vivo" Therapeutic Products").
A Phase II clinical trial has been 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 clinical trial in colorectal
and breast cancer patients. The Yttrium-90 labeled labetuzumab is being studied
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 has five
product candidates in pre-clinical development: AFP-Cide, for liver cancer
therapy, ProstaCide, for prostate cancer therapy, MelanomaCide for malignant
melanoma therapy, MyelomaCide for multiple myeloma therapy and LeukoCide, a
therapeutic for myeloid leukemia.
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 more comprehensive
patient management. The Company is currently licensed to market and sell two
diagnostic products, CEA-Scan(R) and LeukoScan(R). CEA-Scan is designed for use
with other standard diagnostic modalities for the detection of recurrent and/or
metastatic colorectal cancer. The Company has received regulatory approval to
market and sell CEA-Scan from the respective regulatory agencies in the United
States, the 15 countries comprising the European Union and Canada. LeukoScan has
been approved in the European Union for the detection and diagnosis of
osteomyelitis (bone infection) in long bones and in diabetic foot ulcer
patients. 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, which has
completed 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"). Additionally, there are three product
candidates in pre-clinical development: ProstaScan, MelanomaScan and MyelomaScan
for imaging prostate, malignant melanoma and multiple myeloma, respectively.
1
The Company, through its 80% owned subsidiary, IMG Technology, LLC ("IMG"),
has formed a joint venture (IBC Pharmaceuticals, LLC ("IBC")) with Coulter
Corporation ("Beckman Coulter") for the purpose of developing targeted cancer
therapeutics. The joint venture is focused on investigating pre-targeting using
bi-specific antibodies. Bi-specific antibodies are able to bind both an antigen
as well as a carrier to which is attached to a chemotherapeutic agent or
radioisotope. Initially, the bi-specific antibody is injected and allowed to
bind to its specific antigen. After the bi-specific antibody has bound the
antigen, the carrier with its attached therapeutic agent is administered to the
patient. The carrier then binds to the antibody that has remained attached to
the antigen. This method has the advantage of allowing the unbound carrier with
its attached therapeutic agent to be rapidly cleared from the patient's blood
and tissue, resulting in the delivery of more of the therapeutic agent to cancer
cells than to normal cells. The promising results from animal studies have been
confirmed by initial clinical studies conducted by IBC in France, using
Iodine-131 as the therapeutic agent.
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 coordinating 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 possibly 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, epratuzumab, at the University of Nebraska.
Epratuzumab is 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. and Europe. The Company has also tested the unlabeled (cold) form of
epratuzumab in a Phase I/II trial of about 115 patients with both indolent and
aggressive forms of NHL, and has found the agent to show good safety,
tolerability, and evidence of antitumor 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 had been reached by the Company and the
Food and Drug Administration ("FDA"). On December 17, 2000, the Company entered
into a Development and License Agreement with Amgen, Inc. to license epratuzumab
to Amgen in North America and Australia. Under this agreement, Amgen has
undertaken the final development of epratuzumab in this territory, including the
Phase III trial, as well as other trials and research. In exchange for granting
this license, the Company received an upfront payment of $ 18 million from Amgen
on February 1, 2001. The agreement also provides that the Company may receive
additional milestone payments totaling $ 65 million depending on the progress of
the product's development. In addition, the Company could receive royalties on
net sales of the product by Amgen and one-time sales milestone payments ranging
from $ 50 million to $ 225 million if and when annual net sales reach $ 500
million to $ 1 billion. Additional compensation would be payable to the Company
under the agreement for each second-generation product developed by Amgen, if
any, using the licensed antibody.
2
The Company plans to continue the development of epratuzumab either alone
or with a partner in the geographic regions that are not covered by the
agreement with Amgen. The Company also plans to continue the clinical evaluation
of the Yttrium-90 radiolabeled form of this CD22 antibody in Phase I/II clinical
trials that are being conducted in the U.S. and Europe. The trials examine the
safety and efficacy of fractionated and single doses of Yttrium-90 labeled CD22
antibody in patients with indolent or aggressive forms of non-Hodgkin's lymphoma
who have a relapse of this disease following standard chemotherapy.
In February, 1999, the Company entered into a Cooperative Research and
Development Agreement ("CRADA") with the National Cancer Institute ("NCI")
covering the development and use of its humanized lymphoma antibody (as well as
certain other antibodies) conjugated to recombinant ribonucleases (RNase) as a
potential new anticancer agent. The Company contributed its humanized lymphoma
antibody and funding, and the NCI contributed the RNase and other technology.
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. Following the consummation of the licensing
agreement with Amgen, this CTA was terminated by the Company.
A Phase II clinical trial is being completed with the Company's colorectal
cancer therapeutic, CEA-Cide (labetuzumab) labeled with Iodine-131. This trial
is being conducted in Europe in patients with metastatic colorectal cancer who
failed chemotherapy. The Company continues 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 these products 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").
The Company has five product candidates in pre-clinical development:
AFP-Cide, for liver cancer therapy, ProstaCide, for prostate cancer therapy,
MelanomaCide for malignant melanoma therapy, MyelomaCide for multiple myeloma
therapy and LeukoCide, a potential therapeutic for myeloid leukemia.
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.
3
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 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, CEA-Scan also was approved by the European Commission 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 recurrent 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). Additionally, there are three product
candidates in pre-clinical development; ProstaScan, MelanomaScan and MyelomaScan
for imaging prostate, malignant melanoma and multiple myeloma, respectively.
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. 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 that 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 Biologics License
Application 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. There have been no subsequent
substantive regulatory actions taken by the Company with respect to this
product. 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).
4
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 have been
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 have been completed).
Research Programs
The Company incurred approximately $10,264,000, $8,670,000 and $10,100,000,
in total research and development expense during its fiscal years ended June 30,
2001, 2000 and 1999, respectively.
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 good uptake in the patients' tumors. The Company is now focusing
on the study of these humanized monoclonal antibodies, unlabeled and labeled
with Yttrium-90, in patients with the appropriate target tumors (discussed
below).
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 site and
in a manner that is known not to interfere with antigen binding. The Company
also is continuing to investigate "pre-targeting"on its own and through IBC,
using bi-specific antibodies. In the pre-targeting technique, an antibody is
administered first and then followed by a separate radionuclide or therapeutic
drug 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.
5
Peptides
During fiscal year 2001, 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 that can be radiolabeled with Indium-111 and Yttrium-90 which is
being applied to the bi-specific pre-targeting technology that the Company is
developing through IBC.
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. The
Company is conducting a Phase IV clinical trial evaluating CEA-Scan used in
conjunction with an intraoperative probe in patients undergoing surgery for
colorectal cancer. 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, potentially allowing for improved intraoperative,
intravascular and endoscopic detection.
Government Grants
The Company is continuing the second year of work on a Small Business
Innovation Research ("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 improved therapeutic
ratios (the amount of radiation deposited in a tumor versus the amount deposited
in normal tissues). The injected radioactivity either binds to 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 completing 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 may result in an advanced radioimmunotherapy agent
for the treatment of breast cancer.
Relationship with IBC
The Company, through its 80% owned subsidiary, IMG, formed IBC with Beckman
Coulter for the purpose of developing targeted cancer therapeutics. 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
6
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 that 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") that 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 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 that establishes their relative rights and obligations.
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 pre-clinical 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 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 2001, 2000 and 1999.
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 $155,000, $128,000 and $45,000 during the years ended
7
June 30, 2001, 2000 and 1999, 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 2001 and 1999, the Board of Directors of
the Company authorized grants to CMMI of $200,000 to support research and
pre-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 April, 1997, the Company launched LeukoScan in Europe. All marketing,
selling and distribution rights to the product have been retained by the
Company. Currently, Eli Lilly Deutschland GmbH ("Lilly") 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
pursuant to a Distribution Agreement with the Company. Lilly has notified the
Company that it intends to terminate this agreement as of the end of the current
calendar year. The Company expects to establish alternate distribution
arrangements by that time, although no assurance can be given in this regard.
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 AmeriSourceBergen Corporation (formerly
Bergen Brunswick). 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 its own team of
field specialists as well as the licensed radiopharmacists who manage its 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. This agreement was terminated by the
Company on April 19, 2001.
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 is planning to expand the manufacturing facility and
its capacity with additional bioreactors for antibody production. This
additional capacity is intended to support the production of new antibody-based
therapeutics as well as increase the production volumes of existing products.
The Company has entered into a manufacturing agreement with SP
Pharmaceuticals, LLC, 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.
8
The Company's Morris Plains headquarters also houses regulatory, medical,
research and development, finance, marketing and executive offices (see
"Properties"). The Company has scaled-up to commercial levels its down-stream
antibody purification and fragmentation manufacturing processes for its
diagnostic imaging products. 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.
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 70 issued
United States patents (3 of the Company's earliest patents have now expired) and
219 issued foreign patents, with 43 United States patent applications pending,
of which 1 has been allowed, and 126 foreign patent applications pending, of
which 22 have been allowed. Included in the foregoing are 4 United States
patents and foreign counterparts, 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.
During the 2001 fiscal year, 10 United States patents and 21 foreign
patents (4 in Australia, 4 in Canada, 1 from the European Patent Office which
was validated in Italy, France, Germany and Great Britain, 1 in Ireland, 1 in
Israel, 1 in Japan and 2 in Singapore) were issued to the Company.
The Company's patents contain claims directed to, among other things, its
current in vivo cancer imaging products and its methods of producing them, as
well as the compositions of many of its antibody-based therapeutic agents and
its method of treatment for various cancers. Since some of the Company's
patented technologies are platform technologies, the Company has also patented
applications outside of cancer, such as the treatment of autoimmune and
infectious diseases. In addition, the Company has patented technologies and
products comprising potential vaccines for cancer and infectious diseases.
In July, 2000, two United States patents issued, the first with claims to
RNase conjugates for disease therapy, the second with claims to stimulating an
immune response with antibodies labeled with the alpha-glactosyl epitope.
In August, 2000 a United States patent issued with claims to
intraoperative, intravascular and endoscopic tumor and lesion detection, biopsy
and therapy using radiolabeled antibody fragments.
In September, 2000, the Company received a United States patent claiming
DOTA-biotin derivatives.
In October, 2000, two United States patents issued, the first with claims
to radiometal-binding peptide analogues , the second claiming a multistage
cascade-boosting vaccine.
In February, 2001, the Company received two United States patents one for
humanized and chimerized forms of its CD22 antibody (epratuzumab) being
developed as a treatment for non-Hodgkin's lymphoma (NHL), and one covering any
CD22 antibody used alone or in a combination therapy for NHL. One of the
9
Australian patents awarded to the Company included similar claims. A third
United States patent issued in February covering methods for fluorinating
proteins and peptides for F-18 positron emission tomography.
Finally, in May, 2001, a United States patent issued with claims to boron
neutron capture therapy using pre-targeting methods.
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 Annual Net
Revenue (as defined) 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 Undeveloped Assets (as defined)), including Royalties (as
defined), 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 three 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 Prior Inventions (as defined) 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 three years)
of any Undeveloped Assets (as defined) 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").
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
10
material contribution to the invention or development of such products,
technologies or businesses prior to the time of acquisition. Except as affected
by a Change in Control (as defined) 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 three 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 June 30, 2006. 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 that 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. A trial on the German nullity action was held in
Munich on December 9, 1998, resulting in maintenance of the patent in amended
form that continues to protect the Company's products and which the Company
believes is still infringed by Roche's immunoassays. Roche did not appeal. The
appeals of the Dutch infringement and nullity actions were heard concurrently on
March 2, 2000. A decision, although originally set for September 7, 2000, was
rendered on February 15, 2001, and then only a partial decision. The validity of
the patent, with claims amended as they were in the German action, was upheld
and the jurisdiction of the Dutch Court to issue a cross-border injunction was
upheld. The Dutch Appeals Court did not reach a decision on infringement and has
now solicited additional submissions from each side, which have been provided,
and suggested that an expert be designated to advise the Court on the technical
11
issues. Moreover, Roche has appealed the remaining holdings of the Appeals Court
to the Dutch Supreme Court. Each side has submitted pleadings to the Supreme
Court in this appeal. The Company's patent counsel believes 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.
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 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. The suit was bifurcated and damages were separated.
Discovery was completed on the liability issues. 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.
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.
12
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.
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.
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 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
13
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 24, 2001, the Company employed 85 persons on a full-time
basis, 19 of whom are in research and development departments, 13 of whom are
engaged in clinical research and regulatory affairs, 27 of whom are engaged in
operations and manufacturing and quality control, and 26 of whom are engaged in
finance, administration, sales and marketing. Of these employees, 29 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
For a description of certain risks affecting the Company's business, see
Exhibit 99.1 annexed to this Annual Report on Form 10-K.
Item 2 -- Properties
The Company's headquarters is located at 300 American Road, Morris Plains,
New Jersey, where it leases approximately 74,000 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. In August
2001, the Company renewed for an additional term of twenty years expiring in May
2022 at a base annual rate of $545,000, which is fixed for the first five years
and increases thereafter every five years, which includes an additional 15,000
square feet. (See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources.") 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
14
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 2001.
Executive Officers of the Registrant
The Executive Officers of the Company and their positions with the Company
are as follows:
Name Age Position with the Company
David M. Goldenberg 63 Chairman of the Board
Cynthia L. Sullivan 45 President & Chief Executive Officer
Gerard G. Gorman 50 Vice President of Finance & Chief Financial Officer
Hans J. Hansen 68 Vice President, Research & 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 from July, 1999 through March, 2001. 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 1200 journal articles, book chapters and abstracts on
cancer research, detection and treatment, and has researched and written
extensively in the area of radioimmunodetection and radioimmunotherapy 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 held the positions of
Adjunct Professor of Medicine and Surgery at the New Jersey Medical School of
the University of Medicine and Dentistry of New Jersey, in Newark, and 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
15
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,
has served as Executive Vice President and Chief Operating Officer since June,
1999 and was promoted to President and Chief Executive Officer in March 2001.
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 & 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, 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.
Gerard G. Gorman joined the Company on September 10, 2001 and will assume
the role of principal financial officer of the Company on October 1, 2001. Prior
to joining the Company in September 2001, Mr. Gorman was employed by the Animal
Health Division of Pfizer Inc. (a pharmaceutical company), where he was Vice
President, Finance and Information Technology and Chief Financial Officer from
September 1996 until he joined the Company. He directed strategic and long-range
financial planning as well as negotiations related to acquisitions, divestitures
and outsourcing of support operations. Mr. Gorman held a variety of other
positions at Pfizer, including: Senior Director, Corporate Treasury Operations;
Director, Administration - International Pharmaceuticals Group; Director,
Finance/Assistant Treasurer International; and Manager, Benefit Financing/Senior
Financial Analyst. Mr. Gorman began his career in finance at the National Bank
of North America, NY from June 1973 to January 1978. Mr. Gorman completed a B.A.
in economics from Fairfield University and also received his M.B.A. from Adelphi
University.
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, 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.
16
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 24, 2001, there were approximately 686 holders of
record of the Company's Common Stock.
Fiscal Quarter Ended High Low
--------------------- -------- --------
September 30, 1999....................... $ 1.875 $ 1.000
December 31, 1999........................ 13.813 1.063
March 31, 2000........................... 41.125 8.125
June 30, 2000............................ 25.938 8.563
-------- --------
September 30, 2000....................... $ 26.500 $15.313
December 31, 2000........................ 26.375 16.000
March 31, 2001........................... 21.813 7.438
June 30, 2001............................ 22.000 7.344
-------- --------
Item 6 -- Selected Financial Data (fiscal year ended June 30)
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
(In thousands, except per share amounts)
Revenues, interest and other income......$ 11,229 $ 5,973 $ 7,559 $ 7,595 $ 3,841
Cost and expenses........................ 16,783 15,609 18,838 19,406 17,775
Net loss before income tax benefit....... (5,554) (9,636) (11,279) (11,811) (13,934)
Income tax benefit....................... 803 -- -- -- --
Net loss................................. (4,751) (9,636) (11,279) (11,811) (13,934)
Preferred stock dividends................ -- 496 409 -- 13
Net loss allocable to common shareholders (4,751) (10,132) (11,688) (11,811) (13,947)
Net loss per common share................$ (0.10) $ (0.23) $ (0.31) $ (0.32) $ (0.39)
Weighted average shares outstanding...... 49,498 43,977 37,782 36,643 35,445
Cash, cash equivalents and marketable
securities.............................$ 53,291 $40,866 $ 9,422 $ 7,583 $15,024
Total assets............................. 59,657 48,026 16,959 14,942 22,635
Long-term debt........................... -- 70 228 -- --
Stockholders' equity(1).................. 41,441 44,096 12,455 10,526 17,446
(1) The Company has not paid cash dividends on its Common Stock since its inception.
17
Item 7 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Statements made in this Annual Report on Form 10-K, other than those
concerning historical information, should be considered forward-looking and
subject to various risks and uncertainties. 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
Annual Report on Form 10-K or elsewhere that are not historical facts. When used
in this Annual Report on Form 10-K or elsewhere, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks" and "estimates" and
similar expressions are generally intended to identify forward-looking
statements. 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. In evaluating such forward-looking statements,
stockholders and potential investors should specifically consider, in
conjunction with the Company's financial statements, the various factors
described in Exhibit 99.1 annexed hereto and risk factors described elsewhere in
this Annual Report on Form 10-K. These factors may cause the Company's actual
results to differ materially from the results indicated by these forward-looking
statements.
The Company is committed to developing, manufacturing and marketing
monoclonal antibody-based products for the detection and treatment of cancers
and other diseases. The Company's major focus is therapeutic antibodies that are
designed to carry radioisotopes, chemotherapeutic agents, toxins, dyes or other
substances to a specific target, such as a disease site or organ system, and
bind to the target. The Company has several such antibodies in clinical
development, including epratuzumab, which is in Phase III trials for the
treatment of patients with non-Hodgkin's lymphoma. This antibody has been
licensed to Amgen, Inc., for further development and commercialization in North
America and Australia. The Company has two commercial diagnostic imaging agents
which utilize the Company's monoclonal antibodies, CEA-Scan and LeukoScan, that
are being sold for the detection of colorectal cancers and bone infections,
respectively. These are the only products that the Company is currently licensed
to market and sell and to date, the Company has received only limited revenues
from the sale of these products. The Company is also developing new cancer
therapeutic antibody technology involving the selective delivery of therapeutic
agents through pre-targeting, in collaboration with IBC.
From inception in 1982 until June 30, 2001, the Company had an accumulated
deficit of approximately $114,000,000 and has never earned a profit. The Company
obtains limited revenues from the sales of its approved products, CEA-Scan and
LeukoScan. These revenues may not increase and the Company may be unable to
commercialize additional products. In the absence of increased revenue from the
sale of current or future products (the amount, timing, nature, or source of
which cannot be predicted), the Company's losses will continue as it conducts
its research and development activities. These activities may expand over time
and require further resources, and the Company's operating losses are likely to
be substantial over the next several years.
Results of Operations
Fiscal Year 2001 compared to Fiscal Year 2000
Revenues for the fiscal year ended June 30, 2001, were $11,229,000 as
compared to $5,973,000 in the fiscal year ended June 30, 2000, representing an
increase of $5,256,000 or 88%. Product sales for fiscal year 2001 were
$4,032,000, as compared to $4,124,000 in fiscal year 2000, representing a
18
decrease of $92,000, principally reflecting the Company's transition in focus
from development of in vivo imaging products to the development of therapeutic
compounds. Royalties and license fee revenue for fiscal year 2001 increased by
$3,744,000 from $14,000 to $3,758,000 as compared to fiscal 2000, primarily due
to recognition of $3,750,000 of the $18,000,000 up-front payment received in
conjunction with the execution of the Company's development and license
agreement with Amgen. The up-front payment is being recognized as revenue at a
rate of $750,000 per month over an estimated period of 24 months, beginning
February 2001. Revenue from grants for research and development for fiscal year
2001 decreased by $29,000 from $639,000 to $610,000 as compared to fiscal 2000,
primarily due to a lower rate of funding for grants. Interest and other income
for fiscal year 2001 increased by $1,633,000 primarily due to increased levels
of cash available for investment as a result of the sale of unregistered shares
of common stock during fiscal 2000 and the receipt of the $18,000,000 payment
from Amgen in February 2001.
Total operating expenses for fiscal year 2001 were $16,783,000 as compared
to $15,609,000 in fiscal year 2000, representing an increase of $1,174,000 or
8%. Research and development expenses increased by $1,594,000, from $8,670,000
to $10,264,000 as compared to fiscal year 2000, primarily due to increased
research and development efforts and manufacturing expenses, including lab
supplies associated with producing therapeutic compounds to be used in clinical
trials. Cost of goods sold for fiscal year 2001 increased by $462,000, from
$429,000 to $891,000 as compared to fiscal year 2000. Cost of goods in fiscal
year 2000 reflects the benefit of product sales from inventory that was
previously expensed by the Company prior to receiving product approval. Also,
the cost of goods sold in fiscal years 2001 and 2000 includes a charge of
approximately $105,000 and $155,000, respectively, relating to the expiration of
vials of CEA-Scan previously manufactured and capitalized. Sales and marketing
expenses for fiscal year 2001 were $2,502,000 as compared to $2,896,000 for
fiscal year 2000, representing a decrease of $394,000, or 14%, primarily due to
the Company-wide reorganization/restructuring as the Company refocused efforts
on the development of therapeutic compounds. General and administrative costs
for fiscal year 2001 decreased by $488,000 from $3,614,000 to $3,126,000 as
compared to fiscal year 2000. The Company recognized an expense of $509,000 in
fiscal 2001, as compared to $925,000 in fiscal 2000, associated with warrants
issued to a financial advisor (see Note 7 to Consolidated Financial Statements).
Also, in fiscal 2001, bonuses awarded to executives were $266,000 as compared to
$880,000 in fiscal year 2000. In addition, the Company recognized a charge of
$360,000 during fiscal year 2001 as a fee associated with the Company's entering
into the Licensing and Development Agreement with Amgen (see Note 10 to
Consolidated Financial Statements).
During fiscal 2001, the Company sold approximately $10,106,000 of New
Jersey state net operating losses, pursuant to a program offered by the State of
New Jersey. The Company recorded an income tax benefit of $803,000 resulting
from that transaction.
Net loss allocable to common shareholders for fiscal year 2001 was
$4,751,000, or $0.10 per common share, as compared to $10,132,000, or $0.23 per
common share, in fiscal year 2000. The lower net loss allocable to common
shareholders of $5,381,000 in 2001 as compared to fiscal year 2000 was primarily
due to the Company's increased revenues principally related to the recognized
portion of the Amgen up-front payment and interest earned on investments, the
income tax benefit of $803,315 related to the sale of New Jersey state net
operating losses during fiscal year 2001, and the fact that no dividends were
owed on preferred stock during the fiscal year 2001. This was partially offset
by higher operating expenses primarily in the area of research and development.
In addition, the net loss allocable to common shareholders per share for fiscal
2001 was positively impacted by the higher weighted average number of shares
outstanding during such period as compared to fiscal 2000. The increase in the
weighted average number of shares outstanding from 43,976,658 to 49,498,002 was
primarily due to the conversion in late calendar year 1999 of the Company's
19
Series F Preferred Stock into 5,772,031 shares of common stock and the issuance
of 4,825,000 shares of common stock pursuant to the Company's equity financings
during fiscal year 2000, as these shares were outstanding for the entire fiscal
year 2001 (see Note 7 to Consolidated Financial Statements).
Fiscal Year 2000 compared to Fiscal Year 1999
Revenues for the fiscal year ended June 30, 2000 were $5,973,000 as
compared to $7,559,000 in the fiscal year ended June 30, 1999, representing a
decrease of $1,586,000 or 21%. Product sales for the fiscal year 2000 were
$4,124,000 as compared to $6,097,000 in fiscal year 1999, representing a
decrease of $1,973,000. This was primarily due to the reorganization of the U.S.
and European sales forces, which occurred in April 1999. Revenue from grants for
research and development for fiscal year 2000 decreased by $48,000 from $687,000
to $639,000 as compared to fiscal 1999, primarily due to a lower rate of funding
for grants. Interest and other income for fiscal year 2000 increased by $438,000
from $758,000 to $1,196,000 as compared with fiscal 1999. Interest income
increased by $767,000 due to increased levels of cash available for investment
as a result of the sale of unregistered shares of common stock 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, or
17%. Research and development costs decreased by $1,430,000 from $10,100,000 to
$8,670,000 as compared to fiscal year 1999, primarily due to the Company's
restructuring efforts in fiscal 1999 and lower costs associated with reduced
patient enrollment for clinical trials. Cost of goods sold for fiscal year 2000
increased by $49,000 from $379,000 to $428,000 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 years
2000 and 1999 were favorably impacted because they did not include production
costs of certain products sold because such costs were previously expensed prior
to receiving the required regulatory approvals. Sales and marketing expenses for
fiscal year 2000 were $2,896,000 as compared to $6,422,000 in fiscal year 1999,
representing a decrease of $3,526,000 or 55% 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 (see Note 7 to Consolidated Financial Statements).
Net loss allocable to common shareholders for fiscal year 2000 was
$10,132,000, or $0.23 per common share, as compared to $11,688,000, or $0.31 per
common share, in fiscal year 1999. The lower net loss allocable to the common
shareholders of $1,556,000 in 2000 as compared to fiscal year 1999 was primarily
due to lower operating expenses, partially offset by lower revenues, as
discussed above. 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. The
increase in the weighted average number of shares outstanding from 37,782,376 to
43,976,658 was primarily due to the conversion of the Company's Series F
Preferred Stock into 302,003 shares of common stock and the issuance of
4,825,000 shares of common stock pursuant to the Company's equity financings
during fiscal year 2000. (see Note 7 to Consolidated Financial Statements).
20
Liquidity and Capital Resources
Since inception, in 1982, the Company has financed its operations primarily
through private placements of its equity securities, revenue earned under
licensing agreements, revenue from sales of CEA-Scan and LeukoScan, grants from
various sources, and investment income.
At June 30, 2001, the Company had working capital of $43,202,000,
representing an increase of $3,049,000 from $40,153,000 in June 30, 2000. At
June 30, 2001, the Company had no long-term debt or capital lease obligations
(see Notes 11 and 12 of Notes to Consolidated Financial Statements). The net
increase in working capital resulted principally from the up-front payment of
$18,000,000 received from the Amgen agreement partially offset by the net loss
allocable to common shareholders during fiscal year 2001 of $4,751,000, capital
expenditures and the recording of a portion of the up-front payment as deferred
revenue as of June 30, 2001.
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 purchase options for equipment
previously leased through a master lease agreement. At June 30, 2001, $70,000
was outstanding which is payable in monthly installments over the next five
months. 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 cash, cash equivalents and marketable securities amounted to
$53,291,000 at June 30, 2001, representing an increase of $12,425,000 from
$40,866,000 at June 30, 2000. This increase was primarily attributable to the
up-front payment of $18,000,000 received from the Amgen agreement, 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 2002 as a result of planned operating expenses and capital
expenditures, offset in part by projected revenues from sales of the Company's
imaging products in the U. S. and Europe. However, there can be no assurance as
to the amount of revenues, if any, these imaging products will provide.
To date, the Company has not generated positive cash flow from operations,
excluding the effects of the up-front payment received from Amgen in fiscal year
2001. The Company believes that its existing working capital should be
sufficient to meet its capital and liquidity requirements for the next twelve
months. 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 99.1 annexed hereto. The Company's working capital and working
capital requirements are affected by numerous factors and such factors may have
a negative impact on the Company's liquidity. Principal among these are the
success of product commercialization and marketing 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, clinical trials of its potential products and
regulatory filings for new indications of existing products. Additional
financing may not be available to the Company at all or on terms it finds
acceptable or the terms of such financing may cause substantial dilution to
existing stockholders.
The Company intends to supplement its financial resources from time to time
as market conditions permit through additional debt or equity financings and
through collaborative marketing and distribution agreements. The Company
21
continues to evaluate various programs to raise additional capital and to seek
additional revenues from the licensing of its proprietary technologies. 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.
Recently Issued Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS 141 requires that all
business combinations be accounted for under a single method -- the purchase
method. Use of the pooling-of-interests method no longer is permitted. SFAS 141
requires that the purchase method be used for business combinations initiated
after June 30, 2001. SFAS 142 requires that goodwill no longer be amortized to
earnings, but instead be reviewed for impairment. SFAS No. 142 has no impact on
the historical financial statements of the Company as the Company does not have
any goodwill or intangible assets which resulted from business combinations.
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 under the Private
Securities Litigation Reform Act of 1995. 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 highly liquid debt instruments with fixed interest
rates.
The table below presents the principal amounts and related weighted average
interest rates by fiscal year of maturity for our investment portfolio as of
June 30, 2001:
Fair
2002 2003 2004 2005 2006 Total Value
-------- --------- -------- --------- --------- -------- --------
(in Thousands $).......
Fixed rate............. $ 25,300 $ 9,275 $ 8,493 $ -- $ 999 $44,067 $ 44,683
Average interest rate.. 6.04% 5.84% 4.70% -- 7.28% 5.77% --
22
Item 8 -- Financial Statements and Supplementary Data
IMMUNOMEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, June 30,
2001 2000
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents........................................... $ 8,607,901 $ 11,114,079
Marketable securities............................................... 44,682,954 29,751,987
Accounts receivable, net of allowance for
doubtful accounts of $125,440 and $152,154 at
June 30, 2001 and June 30, 2000, respectively.................... 792,598 603,398
Inventory........................................................... 750,769 1,036,900
Other current assets................................................ 1,151,548 1,324,093
------------- -------------
Total current assets........................................... 55,985,770 43,830,457
Property and equipment, net of accumulated
depreciation of $8,711,412 and $7,760,638 at
June 30, 2001 and June 30, 2000, respectively.................... 3,395,310 3,970,680
Other long-term assets................................................... 276,157 225,000
------------- -------------
$ 59,657,237 $ 48,026,137
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt................................... $ 70,412 $ 158,058
Accounts payable.................................................... 1,607,176 1,836,283
Deferred revenue.................................................... 9,000,000 -
Other current liabilities........................................... 2,106,254 1,683,266
------------- -------------
Total current liabilities...................................... 12,783,842 3,677,607
------------- -------------
Long-term debt........................................................... - 70,412
Deferred revenue......................................................... 5,250,000 -
Minority interest........................................................ 182,000 182,000
Commitments and Contingencies
Stockholders' Equity:
Preferred stock; $.01 par value, authorized 10,000,000 shares;
issued and outstanding 0 shares
at June 30, 2001 and 2000...................................... - -
Common stock; $.01 par value, authorized 70,000,000 shares;
issued and outstanding 49,533,871 and 49,329,121 shares
at June 30, 2001 and 2000, respectively........................ 495,339 493,291
Capital contributed in excess of par................................ 155,116,973 153,242,000
Accumulated deficit................................................. (114,281,279) (109,530,489)
Accumulated other comprehensive income (loss)....................... 110,362 (108,684)
------------- -------------
Total stockholders' equity..................................... 41,441,395 44,096,118
------------- -------------
$ 59,657,237 $ 48,026,137
============= =============
See accompanying notes to consolidated financial statements.
23
IMMUNOMEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Years ended June 30,
------------------------------------------------
2001 2000 1999
------------ ------------ ------------
Revenues:
Product sales.................................................. $ 4,032,020 $ 4,123,997 $ 6,096,628
Royalties and license fee...................................... 3,758,196 14,598 18,454
Research and development....................................... 609,577 638,599 686,537
Interest and other............................................. 2,829,515 1,196,261 757,813
------------ ------------ ------------
11,229,308 5,973,455 7,559,432
------------ ------------ ------------
Costs and expenses:
Cost of goods sold............................................. 890,813 428,445 379,496
Research and development....................................... 10,264,042 8,669,599 10,099,893
Sales and marketing............................................ 2,502,101 2,896,132 6,422,273
General and administrative..................................... 3,126,457 3,614,806 1,936,125
------------ ------------ ------------
16,783,413 15,608,982 18,837,787
------------ ------------ ------------
Net loss before income tax benefit.................................. (5,554,105) (9,635,527) (11,278,355)
Income tax benefit.................................................. 803,315 - -
------------ ------------ ------------
Net loss............................................................ (4,750,790) (9,635,527) (11,278,355)
------------ ------------ ------------
Preferred stock dividends........................................... - 496,684 409,444
------------ ------------ ------------
Net loss allocable to common shareholders $ (4,750,790) $ (10,132,211) $ (11,687,799)
============ ============ ============
Comprehensive Loss:
Net loss....................................................... (4,750,790) (9,635,527) (11,278,355)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments................. (130,009) (86,494) 8,128
Unrealized gain (loss) on securities available for sale.. 349,055 (30,318) 15
------------ ------------ ------------
Other comprehensive income (loss)............................... 219,046 (116,812) 8,143
------------ ------------ ------------
Comprehensive loss ................................................. $ (4,531,744) $ (9,752,339) $ (11,270,212)
============ ============ ============
Net loss per basic and diluted common share......................... $ (0.10) $ (0.23) $ (0.31)
============ ============ ============
Weighted average number of
shares outstanding............................................... 49,498,002 43,976,658 37,782,376
============ ============ ============
See accompanying notes to consolidated financial statements.
24
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, 1998.................... - $ - 37,586,087 $375,861 $ 97,987,728 $ (87,837,979) $ (15) $ 10,525,595
Issuance of common stock
pursuant to Equity Line, net............. - - 302,003 3,020 846,980 - - 850,000
Issuance of convertible
preferred stock (Series F), net..........1,250 13 - - 12,349,787 - - 12,349,800
Accretion of preferred stock dividends..... - - - - 281,944 (281,944) - -
Other comprehensive income ................ - - - - - - 8,143 8,143
Net loss................................... - - - - - (11,278,355) - (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......................... - - 4,825,000 48,250 42,611,489 - - 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) - - -
Redemption of convertible
preferred stock (Series F), net.......... (595) (6) - - (6,187,994) (297,500) - (6,485,500)
Exercise of options to
purchase common stock.................... - - 844,000 8,440 3,628,135 - 3,636,575
Accretion of preferred stock dividends..... - - - - 199,184 (199,184) - -
Capital contribution pursuant to
Section 16(b) of Securities
Exchange Act of 1934.................... - - - - 657,722 - - 657,722
Issuance of warrants to financial advisor.. - - - - 924,738 - - 924,738
Other comprehensive loss................... - - - - - - (116,812) (116,812)
Net loss................................... - - - - - (9,635,527) - (9,635,527)
---------------------------------------------------------------------------------------
Balance, at June 30, 2000.................... - - 49,329,121 493,291 153,242,000 (109,530,489) (108,684) 44,096,118
Exercise of options to
purchase common stock.................... - - 204,750 2,048 1,250,672 - - 1,252,720
Issuance of warrants to financial advisor.. - - - - 508,991 - - 508,991
Compensation expense associated with
issuance of stock options to employees... - - - - 115,310 - - 115,310
Other comprehensive income ................ - - - - - - 219,046 219,046
Net loss................................... - - - - - (4,750,790) - (4,750,790)
---------------------------------------------------------------------------------------
Balance, at June 30, 2001.................... - $ - 49,533,871 $495,339 $155,116,973 $(114,281,279) $110,362 $ 41,441,395
=======================================================================================
See accompanying notes to consolidated financial statements.
25
IMMUNOMEDICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30,
--------------------------------------------
2001 2000 1999
------------ ------------ ------------
Cash flows used in operating activities:
Net loss......................................................$ (4,750,790) $ (9,635,527) $(11,278,355)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................................... 950,774 971,481 978,975
Provision for allowance for doubtful accounts.................. 54,214 116,019 18,000
Amortization of bond premium................................... 123,479 2,108 -
Compensation expense for granting of minority interest......... - - 182,000
Non-cash expense relating to issuance of warrants.............. 508,991 924,738 -
Compensation expense associated with
issuance of stock options to employees...................... 115,310 - -
Other.......................................................... (130,009) (86,494) 8,128
Changes in operating assets and liabilities:
Accounts receivable....................................... (243,414) 382,403 (80,343)
Inventories............................................... 286,131 (218,017) 95,044
Other current assets...................................... 172,545 (750,673) (227,929)
Accounts payable.......................................... (229,107) (242,279) 247,104
Deferred revenue.......................................... 14,250,000 - -
Other current liabilities................................. 422,988 (187,683) (713,820)
------------ ------------ ------------
Net cash provided by (used in) operating activities........ 11,531,112 (8,723,924) (10,771,196)
------------ ------------ ------------
Cash flows used in investing activities:
Purchase of marketable securities...............................(53,295,258) (46,534,240) (15,816,875)
Proceeds from maturities of marketable securities............... 38,589,867 22,702,225 9,879,337
Additions to property and equipment............................. (375,404) (124,022) (737,179)
------------ ------------ ------------
Net cash used in investing activities......................(15,080,795) (23,956,037) (6,674,717)
------------ ------------ ------------
Cash flows provided by financing activities:
Issuance of convertible preferred stock, net.................... - - 12,349,800
Issuance of common stock, net................................... - 42,659,739 850,000
Redemption of preferred stock, net.............................. - (5,950,000) -
Preferred stock dividends paid upon redemption.................. - (535,500) -
Capital contribution pursuant to Section16(b) of
Securities Exchange Act of 1934............................ - 657,722 -
Deposits - cash collateral...................................... (51,157) - (225,000)
Proceeds from debt.............................................. - - 450,000
Payments of debt................................................ (158,058) (143,757) (77,773)
Exercise of stock options....................................... 1,252,720 3,636,575 -
------------ ------------ ------------
Net cash provided by financing activities.................. 1,043,505 40,324,779 13,347,027
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents..................... (2,506,178) 7,644,818 (4,098,886)
Cash and cash equivalents at beginning of period..................... 11,114,079 3,469,261 7,568,147
------------ ------------ ------------
Cash and cash equivalents at end of period..........................$ 8,607,901 $ 11,114,079 $ 3,469,261
============ ============ ============
See accompanying notes to consolidated financial statements.
26
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 biopharmaceutical enterprise, including: (1) 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 substantial 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 and Presentation
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). Certain amounts have
been reclassified to conform to the current year presentation.
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. The portfolio at June 30, 2001
primarily consists of corporate debt securities.
Concentration of Credit Risk
Cash, cash equivalents, and marketable securities are financial instruments
that potentially subject the Company to 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. The Company has historically
held the investments to maturity. However, the
27
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Company has the ability to sell these investments before maturity and has
therefore classified the investments as available for sale. The Company has not
experienced any significant losses on its investments.
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.
Upfront nonrefundable fees associated with license and development agreements
where the Company has continuing involvement in the agreement, are recorded as
deferred revenue and recognized over the estimated service period. If the
estimated service period is subsequently modified, the period over which the
upfront fee is recognized is modified accordingly on a prospective basis.
Revenues from the achievement of research and development milestones are
recognized when the milestones are achieved.
Revenue from the sale of diagnostic products is recognized at the time of
shipment.
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. During fiscal 2001, the Company
28
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
recognized a tax benefit as a result of the sale of New Jersey net operating
loss carryforwards (see Note 8).
Net Loss Per Share
Net loss per basic and diluted common share is based on the net loss for
the relevant period, adjusted for Preferred Stock dividends, divided by the
weighted average number of common 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. No such Preferred Stock dividends were recorded in fiscal year 2001 as
the related Preferred Stock was fully redeemed in December 1999. For the
purposes of the diluted net loss per common 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, 2001, 2000 and 1999. The common stock equivalents excluded from the
diluted per share calculation are 2,456,750, 1,936,000 and 2,611,500 for the
fiscal years ended June 30, 2001, 2000 and 1999, respectively.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 available for sale and certain foreign exchange changes and is
presented in the consolidated statements of operations and comprehensive loss.
Employee Stock Options
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations, in accounting for its
fixed plan stock options. As such, compensation expense would be recorded on the
date of grant only if the then current market price of the underlying stock
exceeded the exercise price. SFAS No. 123, Accounting for Stock-Based
Compensation, established accounting and disclosure requirements using a fair
value-based method of accounting for stock-based employee compensation plans. As
allowed by SFAS No. 123, the Company has elected to continue to apply the
intrinsic value-based method of accounting described above, and has adopted the
disclosure requirements of SFAS No. 123.
When the exercise price of employee or director stock options is less than
the fair value of
29
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
the underlying stock on the grant date, the Company records compensation expense
for the difference over the vesting period of the options. Options or stock
awards issued to non-employees and consultants are recorded at their fair value
as determined in accordance with SFAS No. 123 and EITF No. 96-18, Accounting for
Equity Instruments That Are Issued to Other Than Employee for Acquiring, or in
Conjunction with Selling, Goods or Services and recognized over the related
vesting period.
Financial Instruments
The carrying amounts of cash and cash equivalents, other current assets and
current liabilities approximate fair value due to the short-term maturity of
these instruments. The fair value, which equals carrying value, of marketable
securities available for sale is based on quoted market prices. Long-term debt
rates are consistent with market rates; thus carrying value approximates fair
value.
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 recorded at fair value. The Company currently is not party
to any derivative instruments. The Company's adoption of SFAS No. 133 had no
impact on the Company's consolidated financial statements. Any future
transactions involving derivative instruments will be evaluated based on SFAS
No. 133.
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,
2001 and 2000 consist of the following:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
-------------------------------------------------------------------------------------------
June 30, 2001
Corporate Debt Securities $ 44,364,000 $ 351,000 $ (32,000) $ 44,683,000
============ ========== =========== ============
June 30, 2000
U.S. Government Securities $ 1,501,000 $ - $ (4,000) $ 1,497,000
Corporate Debt Securities 28,281,000 7,000 (33,000) 28,255,000
------------ ------------ ----------- ------------
$ 29,782,000 $ 7,000 $ (37,000) $ 29,752,000
============ ============ =========== ============
30
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Maturities of debt securities classified as available for sale were as
follows at June 30, 2001:
Estimated
Amortized Fair
Cost Value
------------------------------------------------------------------------
Due within one year $ 25,419,000 $ 25,603,000
Due after one year through five years 18,945,000 19,080,000
------------ ------------
$ 44,364,000 $ 44,683,000
============ ============
4. Inventory
Inventory consists of the following at June 30:
2001 2000
---------- ----------
Finished goods $ 611,000 $ 664,000
Raw materials 140,000 373,000
---------- ----------
$ 751,000 $1,037,000
========== ==========
5. Property and Equipment
Property and equipment consists of the following at June 30:
2001 2000
------------ ------------
Machinery and equipment $ 3,506,000 $ 3,219,000
Leasehold improvements 6,952,000 6,925,000
Furniture and fixtures 682,000 674,000
Computer equipment 967,000 913,000
------------ ------------
12,107,000 11,731,000
Accumulated depreciation
and amortization (8,712,000) (7,760,000)
------------- ------------
$ 3,395,000 $ 3,971,000
============ ============
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 $617,000 and $536,000 at June 30, 2001 and 2000, respectively.
Also included are amounts payable to various legal counsel of approximately
$436,000 and $494,000, accrued health insurance liabilities of approximately
$239,000 and $239,000, accrued bonuses of $266,000 and $0 and for the monies
owed for Small Business Innovation Research ("SBIR") grant subcontracted to
Garden State Cancer Center ("GSCC") in the amount of $107,000 and $0 at June 30,
2001 and 2000, respectively.
31
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
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 the closing sales price of the Company's 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 year 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). These warrants are
outstanding as of June 30, 2001.
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 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 then 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 warrants 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 was 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 was
reached (December 31, 2000 in this transaction). As a result, the Company
recognized a proportionate share of the general and administrative expense of
approximately $509,000 and $925,000 during the fiscal years ended June 30, 2001
and 2000, respectively, which represented the estimated value of the warrants as
of that date. These warrants are outstanding as of June 30, 2001.
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.
32
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
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.
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. Such investors in the aggregate currently continue to beneficially
own more than 5% 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" and, together
with the 1983 Plan, the "Plans") 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. At the Company's annual meeting of stockholders,
which was held on December 6, 2000, the stockholders approved an amendment to
the 1992 Stock Option Plan to authorize an additional 5,000,000 shares of common
stock for possible future issuance. At June 30, 2001, 4,630,875 shares of common
stock were still available for future grant and 6,908,625 shares of common stock
were reserved for possible future issuance upon exercise of stock options
outstanding and future stock option grants.
33
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Pursuant to the terms of the 1992 Plan, each outside Director of the
Company who had been a Director prior to July 1st of each year 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 on the grant date, the amount of
which is determined at the discretion of the Company's Board of Directors. For
July 1, 2001, stock options covering 60,000 shares of common stock options were
granted to these Directors.
In April 2000, David M. Goldenberg, the Company's Chairman and his wife,
Cynthia L. Sullivan, the Company's President and Chief Executive 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 consolidated balance sheet as it is
related to a transaction with the Company's equity.
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, except for compensation cost associated with 325,000 stock
options issued at an exercise price lower than the stock price on the date of
grant as described further below. 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:
2001 2000 1999
--------- ---------- ----------
Net loss allocable to common
shareholders- as reported........... $4,750,790 $10,132,211 $11,687,799
Net loss allocable to common
shareholders- pro forma............. 8,808,155 11,567,788 11,962,194
Net loss allocable to common
shareholders per share as reported.. .10 .23 .31
Net loss allocable to common
shareholders per share - pro forma.. .18 .26 .32
The fair value of each option granted during the three years ended June 30,
2001 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, 2001, 2000, and 1999, (III) expected
volatility of 129% at June 30, 2001, 126% at June 30, 2000 and 80% at June 30,
1999, and (IV) a risk-free interest rate of 5.01%, 5.90% and 5.06% for the years
ended June 30, 2001, 2000, and 1999, respectively. The weighted average fair
value at the date of grant for options granted during the years ended June 30,
2001, 2000 and 1999 was $16.94, $11.89 and $1.26 per share, respectively.
34
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Information concerning options for the years ended June 30, 2001, 2000 and
1999 is summarized as follows:
Fiscal 2001
-----------
Shares Option Price Range
--------- ------------------
Outstanding, July 1, 2000 1,757,000 $1.22 - 20.94
Granted 820,500 8.32 - 24.56
Exercised (204,750) 1.44 - 12.88
Terminated (95,000) 1.22 - 24.56
---------
Outstanding, June 30, 2001 2,277,750 1.22 - 24.56
---------
Exercisable, June 30, 2001 1,103,250 1.78 - 12.88
---------
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
---------
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 2,507,500 1.78 - 12.88
---------
The following table summarizes information concerning options outstanding
under the Plans at June 30, 2001:
Weighted Weighted Weighted
Number average average Number average
Range of outstanding exercise remaining exercisable exercise
exercise price at 6/30/01 price term (yrs.) at 6/30/01 price
-------------- ----------- -------- ----------- ----------- ---------
1.22- 3.00 303,500 $ 1.76 7.6 140,500 $ 1.80
3.01- 5.00 798,000 3.80 4.3 655,750 3.82
5.01- 8.00 159,750 7.18 4.0 158,500 7.20
8.01-12.00 105,500 8.37 9.8 - -
12.01-18.00 667,000 17.37 9.1 145,500 17.02
18.01-24.56 244,000 20.88 9.3 3,000 19.63
----------- -------- ----------- ----------- ---------
2,277,750 $ 9.78 7.3 1,103,250 $ 5.83
=========== ======== =========== =========== =========
35
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
On May 18, 2000 the Board of Directors approved granting an aggregate of
325,000 stock options to Dr. David M. Goldenberg and Cynthia L. Sullivan which
were subject to shareholder approval. Such approval was obtained from the
shareholders during December 2000. The stock options were granted with an
exercise price of $17.75 representing the stock price on the day of the Board of
Directors' approval. The difference in the stock price on that date as compared
to the stock price of $19.06 on the date the shareholders approval was obtained
resulted in compensation cost of $425,750 which is being expensed by the Company
over the vesting period of 4 years. During fiscal year 2001, the Company
recorded $115,310 as a general and administrative expense.
8. Income Taxes
The Company utilizes SFAS No. 109, Accounting for Income Taxes to account
for income taxes. During fiscal 2001, the Company recognized a tax benefit of
$803,315 from the sale of $10,106,000 of New Jersey net operating loss
carryforwards. Pursuant to the accounting standard, the tax effects of temporary
differences that give rise to significant portions of the Company's deferred tax
assets as of June 30, 2001, 2000, and 1999 are presented below:
2001 2000 1999
------------ ------------ ------------
Deferred tax assets:
Net operating loss carry forwards $ 48,036,000 $ 46,455,000 $ 37,722,000
Research and development credits 4,718,000 4,500,000 4,364,000
Property and equipment 1,248,000 1,058,000 838,000
Other 1,429,000 746,000 383,000
------------ ------------ ------------
Total 55,431,000 52,759,000 43,307,000
Valuation allowance (55,431,000) (52,759,000) (43,307,000)
------------ ------------ ------------
Net deferred taxes $ -- $ -- $ --
============ ============ ============
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The valuation
allowances for fiscal years 2001, 2000 and 1999 have been applied to offset the
deferred tax assets in recognition of the uncertainty that such tax benefits
will be realized as the Company continues to incur losses. 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. The differences between book income and tax income primarily relates
to exercise of employee stock options and depreciation.
At June 30, 2001, the Company has available net operating loss
carryforwards for federal income tax reporting purposes of approximately
$128,000,000 and for state income tax reporting purposes of approximately
$106,000,000, which expire at various dates between fiscal 2002 and 2022.
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
36
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
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 $18,200,000
relates to a tax deduction for non-qualified stock options. The Company will
increase capital contributed in excess of par when these benefits are deemed to
be more likely than not to be realized for tax purposes. The net operating loss
carryforwards for federal income tax reporting purposes referred to above
excludes certain losses from the Company's operations in The Netherlands, which
may also be limited. The Company made no payments of federal or state income
taxes during the years ended June 30, 2001, 2000 and 1999.
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 and a 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 2001 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.
CMMI is currently conducting basic research and pre-clinical 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 2001, 2000
and 1999.
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 $155,000, $128,000 and $45,000 during the years ended
June 30, 2001, 2000 and 1999, respectively. The Company also provides CMMI with
laboratory materials and supplies.
During each of the fiscal years 2001 and 1999, the Board of Directors of
the Company authorized grants to CMMI of $200,000 to support research and
pre-clinical work being performed at CMMI, such grants to be expended in a
manner deemed appropriate by the Board of Trustees of CMMI.
37
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
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.
Lilly has notified the Company that it intends to terminate its Distribution
Agreement with the Company as of the end of the current calendar year. The
Company expects to establish alternate distribution arrangements by that time.
Effective as of April 6, 1998, the Company appointed a subsidiary of
AmeriSourceBergen Corporation (formerly Bergen Brunswick) 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.
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.
38
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Goldenberg and IMG have entered into an operating agreement (the "IMG Operating
Agreement") that 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. There has been no
changes to the minority interest since initially recorded. 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. This agreement was terminated by the
Company on April 19, 2001 and all obligations pursuant to the Letter Agreement
were satisfied upon termination.
On December 17, 2000, the Company signed a Development and License
Agreement with Amgen Inc. ("Amgen"). 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 Amgen Development and License Agreement, the Company
received an up-front payment of $18,000,000 from Amgen on the closing date of
February 1, 2001 and could potentially receive clinical milestones and future
royalties. The up-front payment of $18,000,000 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 $3,750,000
as royalties and license fee revenue during fiscal year 2001. The remaining
$14,250,000 is recorded as "Deferred revenue", of which $9,000,000 and
$5,250,000 is classified as current and non-current, respectively, in the
accompanying consolidated balance sheet at June 30, 2001.
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 as provided in the Agreement. This
Agreement was amended on July 1, 2001, pursuant to which Dr. Goldenberg will
receive an annual minimum base salary of $275,000, an annual bonus to be
determined by the Board of Directors but in no event less than 20% of the base
salary, annual stock options grants covering at least 150,000 shares of common
stock, other benefits and certain change of control protections. Under the
Agreement as amended, the Company has agreed to extend Dr. Goldenberg's
employment agreement for a five-year period which expires on June 30, 2006.
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,
39
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
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, 2001,
2000 and 1999, 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 three 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).
On March 20, 2001, the Company and Cynthia L. Sullivan entered into a
five-year employment agreement (the "Agreement") pursuant to which Ms. Sullivan
has the option to terminate if the Agreement is not renewed by the Company by
March 8, 2004. Pursuant to this agreement, Ms. Sullivan will receive an annual
minimum base salary of $275,000, an annual bonus in an amount to be determined
by the Board of Directors but in no event less than 20% of the base salary, an
annual grant of stock options covering not less than 150,000 shares of common
stock per year and certain other benefits and change of control protections.
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. In August 2001, the
Company renewed for an additional term of twenty years expiring in May 2022 at a
base annual rate of $545,000, which is fixed for the first five years and
increases thereafter every five years, which includes an additional 15,000
square feet. Rental expense related to this lease was approximately $441,000,
$441,000 and $425,000 in fiscal years 2001, 2000, and 1999, respectively.
Including the extension of the facility lease as described above, the minimum
lease commitments for facilities are as follows for fiscal years:
40
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
2002 .............................. $ 441,000
2003 .............................. $ 545,000
2004............................... $ 545,000
2005............................... $ 545,000
2006............................... $ 545,000
Thereafter......................... $11,073,000
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
consolidated 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, 2001, the Company's indebtedness under this agreement was $70,412 due
in equal monthly installments over the next 5 months. In the fiscal years ended
June 30, 2001, 2000 and 1999, the Company paid $14,974, $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 years 2001,
2000 and 1999, no product sales from a single customer exceeded 10% of
consolidated product sales.
The following table presents financial information based on the geographic
location of the facilities of Immunomedics, Inc. as of and for the years ended:
June 30, 2001
-------------
United States Europe Total
------------- ----------- ------------
Total assets $ 57,249,298 $ 2,407,939 $ 59,657,237
Long-lived assets 3,387,350 7,960 3,395,310
Revenues 8,648,132 2,581,176 11,229,308
41
Immunomedics, Inc. and subsidiaries
Notes to Consolidated Financial Statements - (Continued)
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
14. Quarterly Results of Operations (Unaudited)
Three Months Ended
June 30 March 31 Dec. 31 Sept. 30 June 30 March 31 Dec. 31 Sept. 30
2001 2001 2000 2000 2000 2000 2000 1999
-------- -------- -------- -------- -------- -------- -------- --------
(In thousands, except for per share amounts)
Consolidated Statements
of Operations Data:
Revenues, interest
and other income $ 4,289 $ 3,174 $ 1,730 $ 2,036 $ 1,616 $ 1,759 $ 1,212 $ 1,387
Gross profit (1) 636 696 628 1,181 607 1,168 829 1,092
Income tax benefit - 803 - - - - - -
Net loss (538) (36) (2,696) (1,481) (2,708) (2,756) (2,056) (2,116)
Net loss per common
share $ (0.01) $ (0.00) $ (0.05) $ (0.03) $ (0.05) $ (0.06) $ (0.06) $ (0.06)
Weighted average number
of common shares out-
standing 49,526 49,521 49,502 49,444 49,287 47,811 41,121 37,888
(1) Gross profit is calculated as product sales less cost of goods sold
42
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Immunomedics, Inc.:
We have audited the accompanying consolidated balance sheets of Immunomedics,
Inc. and subsidiaries as of June 30, 2001 and 2000, 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, 2001. 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, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 2001, in conformity with accounting principles generally accepted
in the United States of America.
Short Hills, New Jersey KPMG LLP
August 8, 2001
43
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 2001 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 2001 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 2001 Definitive Proxy Statement.
Item 13 -- Certain Relationships and Related Transactions
The information required for this item is incorporated herein by reference
to the 2001 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, 2001 and 2000
Consolidated Statements of Operations and Comprehensive Loss for
the years ended June 30, 2001, 2000 and 1999 Consolidated
Statements of Changes in Stockholders' Equity for the years
ended June 30, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the years
ended June 30, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
Independent Auditors' Report - KPMG LLP
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.
44
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)
45
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, Beckman 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)
10.23 -- Employment Agreement, dated March 10, 2001, between the Company
and Cynthia L.Sullivan
10.24 -- Development and License Agreement, dated December 17, 2001,
between the Company and Amgen, Inc.(Confidentiality treatment
has been requested for certain portions of the Agreement)(x)
46
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.
21.1 -- Subsidiaries of the Company
23. -- Consent of Experts and Counsel
23.1 -- Consent of Independent Accountants -- KPMG LLP
99.1 -- Risk Factors
------------------------------------------
(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.
48
(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.
(w) -- Incorporated by reference from the Exhibits to the Company's
Current Report on Form 8-K, dated March 23, 1999.
(x) -- Incorporated by reference from the Exhibits to the Company's
Quarterly Report on Form 10-Q (as amended) for the fiscal
quarter ended March 31, 2001.
(b) Reports on Form 8-K:
No reports were filed by the Company during the quarter ended
June 30, 2001.
49
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, 2001 By /s/ CYNTHIA L. SULLIVAN
-----------------------
Cynthia L. Sullivan
President, Chief Executive
Officer and Director
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 September 28, 2001
..........................
David M. Goldenberg
/s/ CYNTHIA L. SULLIVAN President, Chief September 28, 2001
.......................... Executive Officer
Cynthia L. Sullivan and Director
(Principal Executive Officer)
/s/ MARVIN E. JAFFE Director September 28, 2001
.........................
Marvin E. Jaffe
/s/ RICHARD R. PIVIROTTO Director September 28, 2001
.........................
Richard R. Pivirotto
/s/ MORTON COLEMAN Director September 28, 2001
.........................
Morton Coleman
/s/ MARY PAETZOLD Director September 28, 2001
.........................
Mary Paetzold
/s/ SHAILESH R. ASHER Controller and Acting September 28, 2001
Chief Financial Officer
.......................... (Principal Financial
Shailesh R. Asher and Accounting Officer)
50
EXHIBIT LIST
(excludes incorporated documents)
10.23 -- Employment Agreement, dated March 10, 2001, between
the Company and Cynthia L. Sullivan
22.1 -- Subsidiaries of the Company
23.1 -- Consent of Independent Accountants -- KPMG LLP
99.1 -- Risk Factors
51
EXHIBIT 10.23
-------------
EMPLOYMENT AGREEMENT, DATED MARCH 10, 2001
BETWEEN THE COMPANY AND CYNTHIA L. SULLIVAN
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT (the "Agreement"), made in Morris Plains, New Jersey
effective the 10th day of March, 2001, between Immunomedics, Inc., a Delaware
corporation having its executive offices and principal place of business at 300
American Road, Morris Plains, New Jersey (the "Company"), and Cynthia L.
Sullivan, ("Executive"), an individual currently residing at 330 Pleasant Valley
Road, Mendham, New Jersey 07945.
WHEREAS, the Company desires to employ Executive, and Executive desires to
accept such employment on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and agreements
hereinafter set forth, the Company and the Executive agree as follows:
1. Term. The term of this Agreement shall be the five-year period
commencing on March 10, 2001 and ending on March 9, 2006 (the "Term") unless
terminated sooner in accordance with paragraph 4 ("Termination of Employment").
In the event that the contract is not renewed by the Company by March 8, 2004,
then the Executive has the option to terminate this contract with full severance
benefits under paragraph 4(d).
2. Employment.
(a) Employment by the Company. Executive agrees to be employed by the
Company during the Term upon the terms and subject to the conditions set
forth in this Agreement. Executive shall serve as an executive of the
Company and shall have such duties as may be prescribed by the Company and
shall serve in such other and/or additional position(s) as the Company may
determine from time to time.
(b) Performance of Duties. Throughout the Term, Executive shall
faithfully and diligently perform Executive's duties in conformity with the
directions of the Company and serve the Company to the best of Executive's
ability. Executive shall devote Executive's entire working time to the
business and affairs of the Company, subject to vacations and sick leave in
accordance with Company policy and as otherwise permitted herein. Until
otherwise determined by the Company, Executive shall have the title of
President and Chief Executive Officer of the Company, and in such capacity
shall be principally responsible for the management of the Company and
shall report to the Board of Directors of the Company. The Executive shall
also serve as a member of the Board of Directors, without compensation.
(c) Place of Performance. Executive shall be based primarily at The
Company's offices in Morris Plains, New Jersey or such other location(s) in
the greater New Jersey area as the Company may determine. Executive shall
also be required as part of Executive's duty to travel from time to time in
furtherance of the Company's business and interests.
52
3. Compensation and Benefits.
(a) Base Salary. The Company agrees to pay to Executive a base salary
("Base Salary") at the annual rate of $275,000, payable in equal
installments consistent with the Company's payroll practices.
(b) Bonus. The Company shall pay to Executive an annual bonus (the
"Bonus") in an amount to be determined by Compensation Committee of the
Board of Directors in its discretion but in no event less than 20% of the
base salary. In addition, Executive shall be entitled to participate in any
bonus or other incentive programs as may be established by the Company.
(c) Grants of Options and Terms Thereof. In order to induce Executive
to enter into this Agreement and to become employed by the Company pursuant
to the terms hereof, the Board of Directors has approved, and the Company
has granted to Executive, an option to purchase one hundred thousand
(100,000) shares of the Company's common stock in accordance with the
Company's 1992 Stock Option Plan. The Executive shall also be awarded a
minimum of 150,000 stock options annually on the Anniversary of the
effective date of this Agreement.
(d) Benefits and Perquisites. Executive shall be entitled to
participate in, to the extent Executive is otherwise eligible under the
terms thereof, the benefit plans and programs, and receive the benefits and
perquisites, generally provided to executives of the same level and
responsibility as Executive, including without limitation family medical
insurance and life insurance (subject to applicable employee
contributions). Executive shall be entitled to five weeks of vacation per
year.
(e) Travel and Business Expenses. Executive shall receive from the
Company an automobile allowance of $600.00 per month for the first year of
the Agreement. On the first anniversary of the contract, the allowance will
increase by 10% and such increased amount will be paid each month for the
remainder of the year beginning on the anniversary date. An additional 10%
increase will occur on each subsequent anniversary date and shall be
similarly paid during the ensuing year. Additionally, upon submission of
itemized expense statements in the manner specified by the Company,
Executive shall be entitled to reimbursement for reasonable travel and
other reasonable business expenses duly incurred by Executive in the
performance of Executive's duties under this Agreement in accordance with
the policies and procedures established by the Company from time to time
for executives of the same level and responsibility as Executive.
(f) Waiver of Compensation for Board Service. Executive waives any
right to receive additional compensation in respect of service as a
director of the Company or a member of any committees of the Board of
Directors, and agrees that the consideration set forth in this Agreement
shall constitute compensation for such services as may be requested of
Executive by the Company.
(g) Waiver of Compensation From Other Sources. Executive acknowledges
and agrees that any compensation, property, or other emoluments to be
received by her, directly or indirectly, in connection with any transaction
involving the Company or any business of the Company (other than
Executive's exercise of Company stock options or purchase or sale of
Company stock), shall be considered property of the Company and upon
receipt, Executive shall deliver such compensation, property, or emoluments
to the Company for its sole benefit. Executive hereby assigns to the
Company any existing right to receive any such compensation, property, or
emoluments, unless waived by the Company.
53
(h) No Other Compensation or Benefits; Payment. The compensation and
benefits specified in this Section 3 and Section 4 of this Agreement shall
be in lieu of any and all other compensation and benefits. Payment of all
compensation and benefits to Executive hereunder shall be made in
accordance with the relevant Company policies in effect from time to time
to the extent the same are consistently applied, including normal payroll
practices, and shall be subject to all applicable employment and
withholding taxes and other withholdings.
(i) Cessation of Employment. In the event Executive shall cease to be
employed by the Company for any reason, then Executive's compensation and
benefits shall cease on the date of such event, except as otherwise
provided herein or in any applicable employee benefit plan or program.
4. Termination of Employment.
(a) Termination. The Company may terminate Executive's employment for
Cause (as defined below) or for any breach of this Agreement, in which case
the provisions of Section 4(b) of this Agreement shall apply. The Company
may also terminate Executive's employment in the event of executive's
Disability (as defined below), in which case the provisions of Section 4(c)
of this Agreement shall apply. The Company may also terminate the
Executive's employment for any other reason by written notice to Executive,
in which case the provisions of Section 4(d) of this Agreement shall apply.
If Executive's employment is terminated by reason of Executive's death,
retirement or voluntary resignation, the provisions of Section 4(b) of this
Agreement shall apply.
(b) Termination for Cause; Termination by Reason of Death or
Retirement or Voluntary Resignation. In the event that Executive's
employment hereunder is terminated during the Term(s) by the Company for
Cause (as defined below), by reason of Executive's death or retirement or
by reason of Executive's voluntary resignation, then the Company shall pay
to Executive the Base Salary through such date of termination. For purposes
of this Agreement, "Cause" shall mean (i) conviction of any crime (whether
or not involving the Company) constituting a felony in the jurisdiction
involved; (ii) engaging in any substantiated act involving moral turpitude;
(iii) engaging in any act which, in each case, subjects, or if generally
known, would subject the Company to public ridicule or embarrassment; (iv)
gross neglect or misconduct in the performance of Executive's duties
hereunder; (v) willful failure or refusal to perform such duties as may
reasonably be delegated to Executive; or (vi) material breach of any
provision of this Agreement by Executive; provided, however, that with
respect to clauses (iv), (v) or (vi), Executive shall have received written
notice from the Company setting forth the alleged act or failure to act
constituting "Cause" hereunder, and Executive shall not have cured such act
or refusal to act within 10 business days of her actual receipt of notice.
(c) Unavailability. If, as a result of Executive's incapacity due to a
serious health (physical or mental) condition or as a result of Executive's
unavailability for work for reason other than unexcused absence, Executive
shall have been absent from Executive's duties hereunder on a full time
basis for either (i) one hundred twenty (120) days within any three hundred
54
sixty-five (365) day period, or (ii) ninety (90) consecutive days, the
Company may terminate Executive's employment hereunder for
"Unavailability." In that event, the Company shall pay to Executive only
the Base Salary through such date of termination. During any period that
Executive fails to perform Executive's duties hereunder as a result of
incapacity due to a serious health (physical or mental) condition, (a
"Disability Period"), Executive shall continue to receive the compensation
and benefits provided by Section 3 of this Agreement until Executive's
employment hereunder is terminated; provided, however, that the amount of
compensation and benefits received by Executive during the Disability
Period shall be reduced by the aggregate amounts, if any, payable to
Executive under disability benefit plans and programs of the Company or
under the Social Security disability insurance program and provided that
any time that Executive fails to perform Executive's duties hereunder as a
result of incapacity due to a serious health (physical or mental) condition
shall be deemed and designated to be leave under the federal Family and
Medical Leave Act and the New Jersey Family Leave Act, which leave shall
run concurrently with any compensated leave provided under this contract,
other insurance plans, or under applicable state and federal disability
programs. Executive further acknowledges and agrees that she is a "key"
employee as defined under 29 C.F.R. ss.825.217(c) and that her rights, if
any, to reinstatement to her position are thereby limited.
(d) Termination For Any Other Reason. In the event that Executive's
employment hereunder is terminated during the Term for any reason other
than as provided in Section 4(b) or 4(c) of this Agreement, then the
Company shall continue for a period of four (4) years the Executive's
health and life insurance under Section 3(d) and shall pay to Executive in
lieu of any further compensation and benefits under this Agreement
"Severance Pay," as defined below. , "Severance Pay" shall equal to the
highest Base Salary paid to the Executive during any of the three prior
years, the highest Bonus paid to the Executive during any of the three
prior years, and the stock options that Executive would have otherwise
received during the period beginning on such date of termination and ending
on the later of twenty-four (24) months from the effective date of such
termination and the last day of the Term. Such Severance Pay shall be paid,
at the Executive's option (i) commencing with such date of termination at
the times and in the amounts such Base Salary, Bonus and stock options
would have been paid or (ii) in a lump sum present value at the time of
termination. Notwithstanding anything to the contrary contained herein, in
the event that Executive shall elect to be paid Severance Pay over time and
yet breach Section 5 or 6 of this Agreement, in addition to any other
remedies the Company may have in the event Executive breaches this
Agreement, the Company's obligation pursuant to this Section 4(d) to
continue such salary shall cease and Executive's rights thereto shall
terminate and shall be forfeited. Similarly, notwithstanding anything to
the contrary contained herein, in the event that Executive shall elect to
be paid Severance Pay in a lump sum yet thereafter breach Section 5 or 6 of
this Agreement, the Company shall be entitled to pro-rata disgorgement of
the lump sum severance payments already made, calculated to provide
disgorgement of all amounts corresponding to the period following the
Executive's initial breach of Section 5 or 6
(e) Change of Control. A change of control of the Company is defined
(i) an involuntary change in the composition, as of the effective date of
this Agreement, of more than thirty-three percent (33%) of the Board of
Directors of the Company or (ii) any person, entity or combination thereof
(other than the members of the Goldenberg family) controlling, individually
or collectively through ownership, assignment, voting proxy or the like,
25% or more percent of the outstanding voting shares ordinarily having the
right to vote for the election of the directors of the Company or the
combined voting power thereof or (iii) there is a liquidation or
dissolution of the Company approved by the shareholders or (iv) there is a
55
sale of all or substantially all of the assets of the Company. A change of
control immediately vests all previously stock options awarded the
Executive. Additionally, in the event that a Change of Control occurs, the
Executive, if the Company and the Executive agree, may remain in this
capacity for up to one year before either a new contract is consummated or
the Executive elects to receive severance as provided in Section 4(d). If
the Company and the Executive do not agree to the Executive remaining in
this capacity for the one-year period beginning with the change of control,
then the Executive's employment shall terminate and the Executive shall be
entitled to severance under Section 4(d).
(f) No Further Liability; Release. Payment made and performance by the
Company in accordance with this Section 4 shall operate to fully discharge
and release the Company and its directors, officers, employees,
subsidiaries, affiliates, stockholders, successors, assigns, agents and
representatives from any further obligation or liability with respect to
Executive's employment and termination of employment. Other than paying
Executive's Base Salary and any bonuses through the date of termination of
Executive's employment and making any severance payment pursuant to and in
accordance with this Section 4 (as applicable), the Company and its
directors, officers, employees, subsidiaries, affiliates, stockholders,
successors, assigns, agents and representatives shall have no further
obligation or liability to Executive or any other person under this
Agreement. The Company shall have the right to condition the payment of any
severance pursuant to this Section 4 upon the delivery by Executive to the
Company of a release in form and substance satisfactory to the Company of
any and all claims Executive may have against the Company and its
directors, officers, employees, subsidiaries, affiliates, stockholders,
employment by the Company and the termination of such employment.
5. Exclusive Employment; Noncompetition.
(a) No Conflict; No Other Employment. During the period of Executive's
employment with the Company, Executive shall not: (i) engage in any
activity which conflicts or interferes with or derogates from the
performance of Executive's duties hereunder nor shall Executive engage in
any other business activity, whether or not such business activity is
pursued for gain or profit, except as approved in advance in writing from
the Board of Directors of the Company, provided, however, that Executive
shall be entitled to manage her personal investments and otherwise attend
to personal affairs, including charitable activities, in a manner that does
not unreasonably interfere with her responsibilities hereunder, or (ii)
accept any other employment, whether as an executive or consultant or in
any other capacity, and whether or not compensated therefore, unless
Executive receives the prior approval of the Board of Directors.
(b) No Competition. Executive recognizes the highly Competitive nature
of the Company's business and that Executive's position with the Company
and access to and use of the Company's confidential records and proprietary
information renders Executive special and unique. Without limiting the
generality of the provisions of Section 2(b) or 5(a) of this Agreement,
during the Term and for a period of two years after the termination of
Executive's employment with the Company for any reason, Executive shall
not, directly or indirectly, own, manage, operate, join, control,
participate in, invest in or otherwise be connected or associated with, in
any manner, including as an officer, director, employee, independent
contractor, member, partner, consultant, advisor, agent, proprietor,
trustee or investor, any Competing Business located in the United States;
provided, however, that ownership of 20% or less of the stock or other
securities of a corporation, the stock of which is listed on a national
securities exchange or is quoted on The Nasdaq Stock Market, shall not
constitute a breach of this Section 4, so long as Executive does not in
fact have the power to control, or direct the management of, or is not
otherwise associated with, such corporation.
56
For purposes hereof, the term "Competing Business" shall mean any
business or venture which engages in a business that competes with the
business of any Related Entity. The term Related Entity shall include all
operating subsidiaries of the Company and all other business entities in
which the Company, alone or in conjunction with any of its operating
subsidiaries, has an ownership interest of greater than thirty-three (33%).
The "Competing Business" is restricted to the field of therapeutic
antibodies for cancer.
(c) No Solicitation of Employment. During the Term and for a period of
two years thereafter, Executive shall not solicit or encourage any employee
of the Company or any Related Entity to leave the Company or such Related
Entity for any reason, nor assist any business in doing so, nor employ such
an employee in a Competing Business or any other business.
(d) Company Customers. Executive shall not, during the Term and for a
period of one year thereafter, except as required by the Company in the
performance by Executive of her duties under this Agreement, directly or
indirectly, on behalf of a Competing Business, contact, solicit or do
business with any "customers" (as defined below) of the Company or any
Related Entity for the purpose of selling or licensing any product,
service, or technology then sold or licensed by the Company or any Related
Entity proposed to be sold or licensed by the Company or any Related
Entity. For the purposes of the provisions of this Section 5(d), "customer"
shall include any entity that, within two years prior to the termination of
Executive's employment hereunder, purchased or licensed any product,
service, or technology from the Company or any Related Entity. The term
"customer" also includes any former customer or potential customer of the
Company or any Related Entity which the Company or any Related Entity has
solicited within two years prior to the termination of Executive's
employment hereunder for the purpose of selling or licensing any product,
service, or technology then sold or licensed by the Company or proposed to
be sold or licensed.
(e) Executive Acknowledgment. Executive understands that the
provisions of this Section 5 may limit her ability to earn a livelihood in
a business that competes with the business of the Company or its Related
Entities but nevertheless agrees and hereby acknowledges that the
consideration provided under this Agreement is sufficient to justify the
restrictions contained in such provisions. In consideration thereof and in
light of Executive's education, skills and abilities, Executive agrees that
she will not assert in any forum that such provisions prevent her from
earning a living or otherwise are void or unenforceable or should be held
void or unenforceable.
6. Confidential Information.
(a) Existence of Confidential Information. The Company and each
Related Entity owns and has developed and compiled, and will develop and
compile, certain proprietary techniques and confidential information which
have great value to its business (referred to in this Agreement,
collectively, as "Confidential Information"). Confidential Information
includes not only information disclosed by the Company or any Related
Entity to Executive, but also information developed or learned by Executive
during the course or as a result of employment with the Company, which
information shall be the property of the Company or the applicable Related
Entity. Confidential Information includes all information that has or could
have commercial value or other utility in the businesses in which the
Company or any Related Entity is engaged or contemplates engaging, and all
information of which the unauthorized disclosure could be detrimental to
the interests of the Company or any Related Entity, whether or not such
57
information is specifically labeled as Confidential Information by such
entity. By way of example and without limitation, Confidential Information
includes any and all information developed, obtained, licensed by or to or
owned by the Company or any Related Entity concerning trade secrets,
techniques, know-how (including designs, plans, procedures, merchandising,
marketing, distribution and warehousing know how, processes, and research
records), software, computer programs and designs, development tools, all
proprietary property, and any other intellectual property created, used or
sold (through a license or otherwise) by the Company or a Related Entity,
electronic data information know-how and processes, innovations,
discoveries, improvements, research, development, test results, reports,
specifications, data, formats, marketing data and plans, business plans,
strategies, forecasts, unpublished financial information, orders,
agreements and other forms of documents, price and cost information,
merchandising opportunities, expansion plans, budgets, projections,
customer, supplier, licensee, licensor and subcontractor identities,
characteristics, agreements and operating procedures, and salary, staffing
and employment information.
(b) Protection of Confidential Information. Executive acknowledges and
agrees that in the performance of Executive's duties hereunder the Company
and the Related Entities may disclose to and entrust Executive with
Confidential Information which is the exclusive property of such entities
and which Executive may possess or use only in the performance of
Executive's duties to the Company. Executive also acknowledges that
Executive is aware that the unauthorized disclosure of Confidential
Information, among other things, may be prejudicial to the Company's
interests or those of a Related Entity, an invasion of privacy and an
improper disclosure of trade secrets. Executive shall not, directly or
indirectly, use, make available, sell, disclose or otherwise communicate to
any corporation, partnership or other entity, individual or other third
party, other than in the course of Executive's assigned duties and for the
benefit of the Company, any Confidential Information, either during the
Term or thereafter. In the event Executive desires to publish the results
of Executive's work for or experiences with the Company or any Related
Entity through literature, interviews or speeches, Executive will submit
requests for such interviews or such literature or speeches to the Chairman
of the Board of Directors at least fourteen (14) days before any
anticipated dissemination of such information for a determination of
whether such disclosure is in the best interests of the Company, including
whether such disclosure may impair trade secret status or constitute an
invasion of privacy. Executive agrees not to publish, disclose or otherwise
disseminate such information without the prior written approval of the
Chairman of the Board the Company.
(c) Delivery of Records, Etc. In the event Executive's employment with
the Company ceases for any reason, Executive will not remove from the
Company's premises without its prior written consent any records (written
or electronic), files, drawings, documents, equipment, materials and
writings received from, created for or belonging to the Company or any
Related Entity, including those which relate to or contain Confidential
Information, or any copies thereof Upon request or when employment with the
Company terminates, Executive will immediately deliver the same to the
Company.
7. Assignment and Transfer.
(a) Company. This Agreement shall inure to the benefit of and be
enforceable by, and may be assigned by the Company to, any purchaser of all
or substantially all of the Company's business or assets, any successor to
the Company or any assignee thereof (whether direct or indirect, by
purchase, merger, consolidation or otherwise).
58
(b) Executive. Executive's rights and obligations under this Agreement
shall not be transferable by Executive by assignment or otherwise, and any
purported assignment, transfer or delegation thereof shall be void;
provided, however, that if Executive shall die, all amounts then payable to
Executive hereunder shall be paid in accordance with the terms of this
Agreement to Executive's devisee, legatee or other designee or, if there be
no such designee, to Executive's estate.
8. Miscellaneous.
(a) Other Obligations. Executive represents and warrants that neither
Executive's employment with the Company nor Executive's performance of
Executive's obligations hereunder will conflict with or violate or
otherwise are inconsistent with any other obligations, legal or otherwise,
which Executive may have. Executive covenants that she shall perform her
duties hereunder in a professional manner and not in conflict or violation,
otherwise inconsistent with other obligations legal or otherwise, which
Executive may have.
(b) Nondisclosure; Other Employers. Executive will not disclose to the
Company, or use, or induce the Company to use, any proprietary information,
trade secrets or confidential business information of others. Executive
represents and warrants that Executive does not possess any property,
proprietary information, trade secrets and confidential business
information belonging to all prior employers.
(c) Cooperation. Following termination of employment with the Company
for any reason, Executive shall cooperate with the Company, as requested by
the Company, to affect a transition of Executive's responsibilities and to
ensure that the Company is aware of all matters being handled by Executive.
(d) No Duty to Mitigate. Executive shall be under no duty to mitigate
any losses or damage to the Company with respect to any severance or other
amounts payable pursuant to Section 4 of this Agreement.
(e) Protection of Reputation. During the Term and thereafter,
Executive agrees that she will take no action which is intended, or would
reasonably be expected, to harm the Company or its reputation or which
would reasonably be expected to lead to unwanted or unfavorable publicity
to the Company.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New Jersey without
regard to principles of the conflict of laws thereof.
(g) Jurisdiction; Forum. Each party hereto consents and submits to the
exclusive jurisdiction of any state or federal court sitting in the State
of New Jersey in connection with any dispute arising out of or relating to
this Agreement, except where governed by paragraph 8(p). Each party hereto
waives any objection to the laying of venue in such courts and any claim
that any such action has been brought in an inconvenient forum. To the
extent permitted by law, any judgment in respect of a dispute arising out
of or relating to this Agreement may be enforced in any other jurisdiction
within or outside the United States by suit on the judgment, a certified
copy of such judgment being conclusive evidence of the fact and amount of
such judgment.
59
(h) Waiver of Jury Trial. Each of the parties hereto irrevocably
waives any and all right to trial by jury with respect to any action, claim
or other proceeding arising out of or relating to this Agreement.
(i) Entire Agreement. This Agreement (including all exhibits and
schedules hereto) contains the entire agreement and understanding between
the parties hereto in respect of Executive's employment and supersedes,
cancels and annuls any prior or contemporaneous written or oral agreements,
understandings, commitments and practices between them respecting
Executive's employment, including all prior employment agreements, if any,
between the Company and Executive, which agreement(s) hereby are terminated
and shall be of no further force or effect. Exempt from this are any prior
stock options awarded to Executive.
(j) Amendment. This Agreement may be amended only by a writing which
makes express reference to this Agreement as the subject of such amendment
and which is signed by Executive and, on behalf of the Company, by its duly
authorized officer.
(k) Severability. If any term, provision, covenant or condition of
this Agreement or part thereof, or the application thereof to any person,
place or circumstance, shall be held to be invalid, unenforceable or void
by a court of competent jurisdiction, the remainder of this Agreement and
such term, provision, covenant or condition shall remain in full force and
effect, and any such invalid, unenforceable or void term, provision,
covenant or condition shall be deemed, without further action on the part
of the parties hereto, modified, amended and limited, and the court shall
have the power to modify, to the extent necessary to render the same and
the remainder of this Agreement valid, enforceable and lawful. In this
regard, Executive acknowledges that the provisions of Sections 5 and 6 of
this Agreement are reasonable and necessary for the protection of the
Company.
(l) Construction. The headings and captions of this Agreement are
provided for convenience only and are intended to have no effect in
construing or interpreting this Agreement. The language in all parts of
this Agreement shall be in all cases construed according to its fair
meaning and not strictly for or against the Company or Executive. The use
herein of the word "including," when following any general provision,
sentence, clause, statement, term or matter, shall be deemed to mean
"including, without limitation." As used herein, "Company" shall mean the
Company and its subsidiaries and any purchaser of, successor to or assignee
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) of all or substantially all of the Company's business or assets
which is obligated to perform this Agreement by operation of law, agreement
pursuant to Section 7 of this Agreement or otherwise. As used herein, the
words "day" or "days" shall mean a business day or days.
(m) Nonwaiver. Neither any course of dealing nor any failure or
neglect of either party hereto in any instance to exercise any right, power
or privilege hereunder or under law shall constitute a waiver of any other
right, power or privilege or of the same right, power or privilege in any
other instance. All waivers by either party hereto must be contained in a
written instrument signed by the party to be charged and, in the case of
the Company, by its duly authorized officer.
(n) Remedies for Breach. The parties hereto agree that Executive is
obligated under this Agreement to render personal services during the Term
of a special, unique, unusual, extraordinary and intellectual character,
thereby giving this Agreement special value, and, in the event of a breach
or threatened breach of any covenant of Executive herein, the injury or
60
imminent injury to the value and the goodwill of the Company's business
could not be reasonably or adequately compensated in damages in an action
at law. Accordingly, Executive expressly acknowledges that the Company
shall be entitled to specific performance, injunctive relief or any other
equitable remedy against Executive, without the posting of a bond, in the
event of any breach or threatened breach of any provision of this Agreement
by Executive (including, without limitation, Sections 5 and 6). Without
limiting the generality of the foregoing, if Executive breaches or
threatens to breach Section 5 or 6 of this Agreement, such breach or
threatened breach will entitle the Company, without posting of bond, to an
injunction prohibiting (i) Executive from disclosing any Confidential
Information to any Competing Business; (ii) such Competing Business from
receiving from Executive or using any such Confidential Information; and
(iii) Executive from, indirectly or directly, owning, managing, operating,
joining, controlling, participating in, investing in or otherwise being
connected or associated with, in any manner, any such Competing Business.
The rights and remedies of the parties hereto are cumulative and shall not
be exclusive, and each such party shall be entitled to pursue all legal and
equitable rights and remedies and to secure performance of the obligations
and duties of the other under this Agreement, and the enforcement of one or
more of such rights and remedies by a party shall in no way preclude such
party from pursuing, at the same time or subsequently, any and all other
rights and remedies available to it.
(o) Notices. Any notice, request, consent or approval required or
permitted to be given under this Agreement or pursuant to law shall be
sufficient if in writing, and if and when sent by certified or registered
mail, return receipt requested, with postage prepaid, to Executive's
residence (as reflected in the Company's records or as otherwise designated
by Executive on twenty (20) days' prior written notice to the Company) or
to the Company's principal executive office, attention: Chairman, as the
case may be. All such notices, requests, consents and approvals shall be
effective upon being deposited in the United States mail. However, the time
period in which a response thereto must be given shall commence to run from
the date of receipt on the return receipt of the notice, request, consent
or approval by the addressee thereof Rejection or other refusal to accept,
or the inability to deliver because of changed address of which no notice
was given as provided herein, shall be deemed to be receipt of the notice,
request, consent or approval sent.
(p) Dispute Resolution - Arbitration Policy. The Executive shall sign
the Company's Arbitration Agreement, which shall become Exhibit I to the
Employment Agreement. Arbitration will provide a method to resolve all
disputes between the parties other than those expressly exempted from
arbitration pursuant to the terms of Exhibit I and the Executive shall give
up her rights to go to Court or an administrative agency to resolve any
said disputes. Nothing in this paragraph 8(p) or in Exhibit I shall
preclude either party's right to seek injunctive relief to preserve the
status quo or prevent irreparable injury during the pending of the
arbitration.
(q) Assistance in Proceedings, Etc. Executive shall, without
additional compensation, during and after expiration of the Term, upon
reasonable notice, furnish such information and proper assistance to the
Company as may reasonably be required by the Company in connection with any
legal or quasi-legal proceeding, including any external or internal
investigation, involving the Company or any of its affiliates or in which
any of them is, or may become, a party.
(r) Survival. Cessation or termination of Executive's employment with
the Company shall not result in termination of this Agreement. The
respective obligations of Executive and rights and benefits afforded to the
Company as provided in this Agreement shall survive cessation or
termination of Executive's employment hereunder.
61
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed on its behalf by an officer thereunto duly authorized and Executive has
duly executed this Agreement, all as of the date and year first written above.
IMMUNOMEDICS, INC. EXECUTIVE
/s/ RICHARD R. PIVIROTTO /s/ CYNTHIA L. SULLIVAN
By: ______________________________ By:______________________________
Richard R. Pivirotto Cynthia L. Sullivan
(aka Cynthia L. Goldenberg)
Title: ______________________________ Title:_____________________________
Chairman, Compensation Committee President & Chief
Operating Officer
Date: ______________________________ Date:_____________________________
62
EXHIBIT 22.1
SUBSIDIARIES OF THE COMPANY
---------------------------
o Immunomedics, B.V. (Netherlands) 100% owned subsidiary of
Immunomedics, Inc.
o IMG Technology, LLC 80% owned subsidiary of
Immunomedics, Inc.
20% owned by Dr. David M.
Goldenberg
63
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Immunomedics, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
333-44501, 333-69975, 333-90665, 333-94415 and 333-31178) on Form S-3 and (Nos.
333-53224, 33-56844 and 33-16260) on Form S-8 of Immunomedics, Inc. of our
report dated August 8, 2001, relating to the consolidated balance sheets of
Immunomedics, Inc. and subsidiaries as of June 30, 2001 and 2000, 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, 2001, which report appears in the June 30, 2001 annual
report on Form 10-K of Immunomedics, Inc.
KPMG LLP
Short Hills, New Jersey
September 28, 2001
64
EXHIBIT 99.1
------------
RISK FACTORS
------------
Certain statements in this Annual Report on Form 10-K and certain
statements made by the Company in other published documents (including, without
limitation, press releases) are forward-looking. These statements involve known
and unknown risks, uncertainties and other factors, including those discussed in
this Exhibit 99.1 which may cause our actual results, performance or
achievements to be materially different from any future results, performances or
achievements expressed or implied by the forward-looking statements.
Forward-looking statements include, but are not limited to, statements about:
regulatory approval of our product candidates, market size for our products,
timing of regulatory approvals and commercial introduction of our products and
potential results of clinical trials. In some cases, you can identify
forward-looking statements by terms such as "may," "will," "should," "could,"
`would," "expects," "plans," "anticipates," "believes," "estimates," "projects,"
"predicts," "potential" and similar expressions intended to identify
forward--looking statements. The Company cautions stockholders and potential
investors that the following important factors, among others, in some cases have
affected, and in the future could affect, the Company's actual operating results
and could cause the actual results to differ materially from those expressed in
any forward-looking statements made by, or on behalf of, the Company. The
statements under this caption are intended to serve as cautionary statements
within the meaning of the Private Securities Litigation Reform Act of 1995. The
Company undertake no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise,
except as required by law. Forward looking statements include, but are not
limited to, statements about:
o the development new therapeutic compounds;
o the selection and licensing of therapeutic compounds;
o the ability to conduct clinical trials and obtain regulatory approval;
o anticipated business strategies;
o relationships with collaborators and licensees and the benefits to be
derived from those relationships;
o the impact of competitive products and pricing;
o competition and technological change;
o existing and future regulations affecting our business;
o anticipated trends in our businesses; and
o sources of revenue, anticipated revenue and future capital
expenditures.
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Risks Relating to Our Business, Industry and Strategy
We have a history of operating losses and may never become profitable.
We have received only limited revenue from our imaging products CEA-Scan
and LeukoScan and have never received revenue from the commercialization of any
of our therapeutic product candidates. We have incurred significant operating
losses since our formation in 1982 and have not earned a profit since our
inception. These operating losses and our failure to be profitable have been due
mainly to the significant amount of money that we spend on research and
development. As of June 30, 2001, we had an accumulated deficit of approximately
$114.3 million. We expect to continue to experience operating losses as we
attempt to develop and commercialize therapeutic product candidates. We may
never have an approved or commercially successful therapeutic product candidate
or any additional imaging products. If we fail in our attempts to develop our
product candidates we may never achieve significant revenues or profitable
operations and may not be able to earn sufficient revenues to continue as a
going concern.
Most of our therapeutic product candidates are at an early stage of development
and we may not be able to successfully develop and commercialize them.
Most of our therapeutic product candidates are still at the research stage
or early stages of pre-clinical and clinical development. Significant further
research and development, financial resources and personnel will be required to
develop commercially viable therapeutic products and obtain regulatory approval.
We may not be able to successfully develop and commercialize our products
candidates, only our diagnostic imaging products, CEA-Scan and LeukoScan, have
been sold commercially; we have never successfully commercialized a therapeutic
product candidate. Much of our efforts and expenditures over the next few years
will be devoted to the development of our therapeutic product candidates. If we
fail to gain approval from the FDA to commercialize our product candidates we
may never generate significant revenues from product sales.
Our ability to market our products and product candidates depends upon obtaining
and maintaining regulatory approval which is subject to a number of
uncertainties.
In order to obtain regulatory approval for the commercialization of each of
our product candidates, we will be required to complete extensive clinical
trials in humans to demonstrate the safety and efficacy of the product
candidates to the satisfaction of the United States Food and Drug Administration
(FDA) and applicable foreign regulatory authorities. This process is very time
consuming; 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. The clinical trials required for approval are a multi-step process as
the product candidate is tested in larger populations and a product candidate
could fail at any step. 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. In addition,
each stage of clinical development is more costly than the prior stage and we
may expend substantial resources on a product candidate before we determine that
it cannot be successfully commercialized.
A clinical trial may be suspended or terminated by us or the FDA, or
otherwise fail, for a number of reasons, including:
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o the product candidate may cause unforeseen adverse side effects or
have other characteristics that make it impossible or impracticable
for us to continue development or which may limit its commercial use;
o the results from preclinical studies and clinical trials may not be
predictive of results that will be obtained in later-stage testing;
o we may be unable to timely recruit a sufficient number of patients for
our clinical trials and delays in planned patient enrollment may
result in increased costs and delays;
o we may not be able to supply sufficient quantities of the product
candidate to complete the trial;
o the product candidate may not appear to be more effective than current
available therapies; or
o the clinical investigators, trial monitors, or trial subjects may fail
to comply with the trial plan or protocol.
Any failure or substantial delay in successfully completing clinical trials
and obtaining regulatory approval for our product candidates, especially a
pivotal Phase III trial such as the trial for Epratuzumab, could severely harm
our business. 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 which would have a
materially adverse effect on us.
If we are unsuccessful in shifting our focus from our diagnostic imaging
products to our antibody-based therapeutic product candidates our business will
be materially and adversely affected.
As we shift our focus from diagnostic imaging to our therapeutic product
candidates and as our scientific efforts lead us in new directions into
conditions and diseases outside of our area of expertise, we will have to
develop internal expertise or form collaborations in those areas. If we proceed
independently we will require additional resources that may be difficult to
obtain. As a result, we may have to enter into collaboration arrangements with
others that may require us to relinquish rights to some of our technologies,
products or product candidates that we would otherwise pursue independently. We
may be unable to acquire the necessary expertise or enter into collaborations on
acceptable terms which would hinder us in our development of additional
therapeutic product candidates.
We may not be able to successfully develop a market for our products or product
candidates.
We have never developed and commercialized a therapeutic product candidate.
Our diagnostic imaging products, CEA-Scan and LeukoScan, are the only products
which we are licensed to market and sell. To date, we have a limited market for
these products and have received only limited revenues from the sale of these
products. We are still developing a market for these products and have not yet
begun to develop a market for our therapeutic product candidates. We may not be
able to achieve market acceptance of our current products or any of our product
candidates which would have a significant impact on our revenues.
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Our relationship with Amgen may not be successful.
We have licensed Epratuzumab to Amgen in North America and Australia. Under
our licensing agreement, Amgen has undertaken the final clinical development,
commercialization and manufacture of Epratuzumab for these markets. We are
dependent on Amgen for the successful commercialization of Epratuzumab in these
markets. If Amgen does not fully perform its responsibilities under our
agreement, or if the ongoing Phase III trial is not successful, the development
of this product candidate could be substantially delayed in these major markets.
In addition, the agreement provides for certain milestone payments to be made to
us upon Amgen's achievement of various clinical and net sales targets. If Amgen
does not diligently pursue development of Epratuzumab, or if the ongoing Phase
III trial is not successful, we may never receive any milestone payments under
this agreement which would seriously reduce our financial resources and
adversely affect our ability to fund the development and testing of our product
candidates.
We currently receive revenues from a limited number of sources; if we do not
receive these revenues we may need to find alternative sources of funding.
To date, we have received revenues from (i) the sale of our equity
securities, (ii) payments from Amgen under our Development and Licensing
Agreement, (iii) product sales of CEA-Scan and LeukoScan, (iv) one-time signing
fees or grants from corporate partners or government grants under agreements
that support the development of our product candidates, and (v) investment
income. We may not continue to receive these revenues or the amount of these
revenues may be dramatically reduced. In the absence of these revenues, we will
have to obtain other sources of funding to continue to conduct our research and
development activities.
We may be unable to obtain the additional capital needed to operate and grow our
business.
We are expending resources on our research and development efforts. We will
need addition capital in order to commercialize any therapeutic product
candidates that we identify. When our needs for cash deplete our existing
capital position, we will be required to significantly reduce our operating
expenses, which could have a significant and adverse effect on us.
Our capital requirements depend on numerous factors, including:
o the progress of our research and development programs;
o the progress of pre-clinical and clinical testing;
o the time and costs involved in obtaining regulatory approvals;
o the cost of filing, prosecuting, defending and enforcing any patent
claims and other intellectual property rights;
o competing technological and market developments;
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o our ability to establish collaborative arrangements with large
pharmaceutical companies and others; and
o the requirements and timing of entering into technology licensing
agreements and other similar arrangements.
We may use our existing resources before we may otherwise expect because of
changes in our research and development and commercialization plans or because
of other factors affecting our operating expenses or capital expenditures,
including potential acquisitions of other businesses, assets or technologies.
Our ability to raise future capital on acceptable terms depends on
conditions in the public and private equity markets and our performance, as well
as the overall performance of other companies in the biopharmaceutical and
biotechnology sectors. Additional financing may not be available to us at all or
on terms we find acceptable. Furthermore, any financing that we do obtain may
cause substantial dilution to our existing stockholders.
If we cannot successfully manufacture our products and product candidates in an
efficient manner, our ability to sell our products and to conduct clinical
trials and commercialize our product candidates would be impaired.
Our ability to supply the demand for our products and to conduct timely
preclinical and clinical research and development programs and commercialize our
product candidates depends, in part, upon our ability to manufacture our
products and product candidates, either directly or through third parties, in
accordance with FDA and other regulatory requirements. We may not be able to
manufacture our products or product candidates in a reproducible or
cost-effective manner at our facilities in the quantities and with the quality
that we require. We may also have difficulties obtaining the raw materials and
supplies necessary to the manufacturing process. In addition, if several of our
product candidates are approved for marketing and sale, we may not be able to
manufacture commercial quantities of multiple products successfully or with
acceptable profit margins.
We have begun to scale up our manufacturing facilities for our product
candidates to supply clinical trials and possible commercial demand. If we are
unable to use our own manufacturing facilities or to contract with a third-party
to manufacture our products candidates on acceptable terms, we may not be able
to conduct preclinical and clinical testing or to supply commercial quantities
of our product candidates.
In addition, if our manufacturing facilities fail to comply with FDA and
other regulatory requirements, we will be required to suspend manufacturing.
This will have a material adverse effect on our financial condition, results of
operations, and cash flow.
Our collaboration efforts and agreements may fail or be terminated, resulting in
significant delays and substantial increases in the cost of the research,
development and commercialization of some of our product candidates.
We are party to various arrangements with academic and corporate partners
and others. The successful development and manufacture of the product candidates
covered by these arrangements depends upon outside parties' fully performing
their contractual responsibilities. If any of the other parties breaches or
terminates its agreement with us or otherwise fails to conduct its activities in
a timely manner, the development or commercialization of that product candidate
or research program may be delayed.
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For example, the Center for Molecular Medicine and Immunology or "CMMI", a
not-for-profit cancer research center, of which Dr. David M. Goldenberg, our
Chairman and Chief Scientific Officer is the founder, President and a member of
the Board of Trustees, performs contracted pre-clinical evaluations in product
areas of importance to us. CMMI also conducts basic research in a number of
areas of potential interest to us. If CMMI were no longer to provide these
services, we would have to make alternative arrangements with third parties,
which could significantly delay and increase expenses associated with
development and commercialization of our product candidates.
Dependence upon third parties for the manufacture of some of our products
candidates may adversely affect our profit margins and our ability to develop
and deliver products on a timely and competitive basis. For example, if we
contract with a third party for the development and production of certain
humanized antibodies and this party does not perform according to our
expectations, our ability to develop and commercialize those product candidates
will be adversely affected. In addition, we rely on a single third party, SP
Pharmaceuticals, to perform certain end-stage portions of the manufacturing
process for CEA-Scan and LeukoScan, which we do not have the resources to
perform. If SP Pharmaceuticals were to become unavailable, we would be unable to
complete the manufacturing process until we entered into an agreement with
another qualified entity, which could cause substantial delays and materially
adversely affect our operations.
We also are considering additional collaboration and other agreements for
various product candidates. We may not be able to negotiate these arrangements
on favorable terms or at all and these relationships may not be successful.
We may not be able to obtain and adequately protect our intellectual property
rights or avoid infringing the rights of others.
Our commercial success is highly dependent upon our own and our
collaborators' ability to obtain and defend patent rights and other intellectual
property rights that are important to the commercialization of our product
candidates. We or our collaborators have filed patent applications on products
and processes relating to our diagnostic imaging products and our antibody-based
therapeutic product candidates, as well as other technologies and inventions in
the United States and in certain foreign countries. Although we have obtained a
number of U.S. patents, patent applications owned or licensed by us may not
result in patents being issued. Moreover, these patents may not afford us
protection against competitors with similar technology or products.
Although we are not aware of any such conflict, parts of our technology,
techniques, and product candidates may conflict with patents owned by or granted
to others. Any patent holders could sue us for damages and seek to prevent us
from selling or developing our products or product candidates. 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 and product candidates, it is possible that a third
party could successfully claim that our products infringe on their intellectual
property rights.
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Uncertainties resulting from the litigation and continuation of patent
litigation or other proceedings could have a material adverse effect on our
ability to compete in the marketplace. Any patent litigation or other proceeding
even if resolved in our favor, absorbs significant financial resources and
management time. Some of our competitors may be able to sustain these costs more
effectively than we can because of their substantially greater financial and
managerial resources. If a patent litigation or other intellectual property
proceeding is resolved unfavorably to us, we may be enjoined from manufacturing
or selling our products and services without a license from the other party and
be held liable for significant damages. We may not be able to obtain any
required license on commercially acceptable terms, if at all.
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 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.
If we are not able to keep our trade secrets confidential, our technology and
information may be used by others to compete against us.
In addition to our reliance on patents, we attempt to protect our
proprietary products and processes by relying on trade secret laws,
nondisclosure and confidentiality agreements, and exclusive licensing
arrangements with our employees and certain other persons who have access to our
proprietary products or processes or have licensing or research arrangements
exclusive to us. These agreements or arrangements may not provide meaningful
protection for our proprietary products and processes in the event of
unauthorized use or disclosure of such information. Others may independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to our trade secrets or technology which will materially
and adversely affect our competitive position.
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. There is the potential for
extensive technological innovations in relatively short periods of time and
rapid technological change or developments by others may result in our current
products as well as those in development becoming noncompetitive or obsolete. 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, Glaxo SmithKline, Ligand
Pharmaceuticals, Millennium Pharmaceuticals, Nycomed Amersham, Protein Design
Laboratories, Schering AG, and Corixa Pharmaceuticals, 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 we do. 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. Our smaller competitors may also obtain a significant competitive
advantage if they acquire or discover patentable inventions, form collaborative
arrangements or merge with large pharmaceutical companies.
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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 aware of the commercial value of
their findings and more active in seeking patent and other proprietary rights,
as well as licensing revenues.
If a competitor announces a successful clinical study or an approval by a
regulatory agency to market a product that is comparable to one of our product
candidates, such announcement may have a material adverse effect on our
operations, future prospects and the price of our common stock.
Our limited marketing and sales experience and capability could impact our
ability to successfully sell our current products and our product candidates.
We are relying, in substantial part, on our own limited sales and marketing
organization to market our current imaging products CEA-Scan and LeukoScan. We
have no internal marketing or distribution experience for our antibody-based
therapeutic product candidates. Any sales effort we undertake may be costly and
may not be successful. If we are unable to maintain and continue to build our
current sales force or develop a marketing group for our product candidates, our
financial condition and operating results may be significantly and adversely
affected.
Our limited manufacturing experience and capacity, which is restricted to a
single site and facility, could impact our ability to make our products for
clinical testing and commercialization.
We rely on our current manufacturing facilities in our headquarters, and
the staff working there, for all product supplies needed for research and for
future commercial supplies. Any interruption in work at this site, whether by
natural acts or other causes, would significantly and adversely affect our
operations, and product-development and research programs. The same facility
houses all of our other departments, including clinical, regulatory and
financial records. Although we attempt to protect records and proprietary
reagents, any interruption in operations at our headquarters would have a very
adverse impact on us and our programs and plans. Further, since we have never
manufactured a commercial therapeutic product, we are at risk of possibly not
having as much experience as others in the industry may have for this task.
However, we believe that our experience and success in achieving economical,
large-scale production of our antibody-based imaging products is pertinent to
this effort.
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 and 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.
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Currently, Eli Lilly Deutschland GmbH ("Lilly") 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 pursuant
to a Distribution Agreement with us. Lilly has notified us that it intends to
terminate this agreement as of the end of the current calendar year. We expect
to establish alternate distribution arrangements by that time, although we
cannot provide you with assurance that we will be successful.
We may not receive approval to sell LeukoScan in the United States.
We have not yet received approval from the FDA to market and sell LeukoScan
in the United States and cannot predict when we will obtain approval, if ever.
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 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 mouse fluids for the production of
monoclonal antibodies. The regulatory authorities may not agree that our quality
control procedures for future products are adequate. 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
may not have the resources to acquire the additional manufacturing equipment and
expertise and we cannot be sure that we will receive the required regulatory
approval on a timely basis, if at all.
We may be liable for contamination or other harm caused by hazardous materials
that we use.
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 could be exposed to significant liability claims and our insurance coverage
may not be adequate to cover these claims.
The testing, marketing and manufacturing of our product candidates
necessarily involve the risk of product liability. Their use in clinical trials
and their sale may expose us to substantial liability claims. These claims might
be made directly by patients, consumers, pharmaceutical companies, or others
selling the products. While we currently have product liability insurance that
we consider adequate for our business, we may not 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 clinically test 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 could significantly and adversely affect our financial condition and
operating results.
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Certain potential conflicts of interest exist which could affect our operations.
Members of our management and Board of Directors have relationships and
agreements with related parties that create conflicts of interest that could
adversely affect our business.
For example, Dr. David M. Goldenberg, our Chairman and Chief Scientific
Officer, is the founder, President and a member of the Board of Trustees of
CMMI, a not-for-profit cancer research center. Dr. Goldenberg devotes more of
his time to working for CMMI than for us and 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.
The loss of key employees could adversely affect our operations.
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 may not 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 have agreed to certain covenants in our 1999 financing which place
restrictions on the operation of our business.
In connection with our December 1999 financing, we 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, we agreed that without the prior consent of
the investors, we may not sell our business to anyone that is an affiliate of
ours, 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 our board
of directors) or (b) the then current market price in the event of a sale of
stock. As of June 30, 2001, such investors in the aggregate beneficially owned
5.7% of the Company's outstanding common stock.
Revenues from our products depend in part on reimbursement from health care
payors, which is uncertain.
The continuing efforts of government and insurance companies, health
maintenance organizations and other payors of health care costs to contain or
reduce costs of health care may affect our future revenues and profitability.
Our ability to commercialize our products successfully will depend in part on
the extent to which private health insurers, organizations such as HMOs and
governmental authorities can obtain appropriate reimbursement levels for the
cost of our products and related treatment. Third-party payors are increasingly
challenging the prices charged for medical products and services. Also, the
trend toward managed health care in the United States and the concurrent growth
of organizations such as HMOs, which could control or significantly influence
the purchase of health care services and products, as well as legislative
proposals to reform health care or reduce government insurance programs, may all
result in lower prices for or rejection of our products. The cost containment
measures that health care payors and providers are instituting and the effect of
any health care reform could materially and adversely affect our ability to
operate profitably. Furthermore, even if reimbursement is available, we cannot
be sure that it will be available at price levels sufficient to realize an
appropriate return on our investment in product candidates.
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Disruption in New York City and the U.S. commercial activities generally
following the September 2001 terrorist attacks in the U.S. may adversely impact
our results of operations, our ability to raise capital or our future growth.
The operations of our facilities have been and may continue to be harmed by
the recent terrorist attacks on the U.S. For example, we may experience a rise
in operating costs, such as costs for transportation, courier services,
insurance and security. We also may experience delays in receiving payments from
payors that have been affected by the attacks, which, in turn, would harm our
cash flow. The U.S. economy in general may be adversely affected by the
terrorist attacks or by any related outbreak of hostilities. Any such economic
downturn could adversely impact our results of operations, impair our ability to
raise capital or impede our ability to continue growing our business.
Risks Related to Our Common Stock
The market price of our stock may fluctuate based on factors beyond our control.
The market price of our stock has been and is likely to continue to be
highly volatile. Furthermore, the stock market generally and the market for
stocks of companies with lower market capitalizations and small
biopharmaceutical companies, like us, have from time to time experienced and
likely will again experience significant price and volume fluctuations that are
unrelated to the operating performance of a particular company.
From time to time, stock market professionals publish research reports
covering our business and our future prospects. As a result of a number of
factors, we may be unable to meet the expectations of securities analysts or
investors and our stock price may decline. These factors include:
o announcements by us or our competitors of clinical results,
technological innovations, product sales, new products or product
candidates;
o the formation or termination of our corporate alliances and
distribution arrangements;
o developments or disputes concerning patent or proprietary rights;
o government regulatory action;
o period-to-period fluctuations in the results of our operations; and
o developments and market conditions for emerging growth companies and
biopharmaceutical companies, in general.
In the past, following periods of volatility in the market prices of
the securities of companies in our industry, securities class action litigation
has often been instituted against those companies. If we face such litigation in
the future, it would result in substantial costs and a diversion of management's
attention and resources, which would negatively impact our business.
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Our principal stockholder can influence most matters requiring approval by our
stockholders.
As of June 30, 2001, Dr. Goldenberg, our Chairman and Chief Scientific
Officer, controlled the right to vote over approximately 17.6% 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.
Resales of shares held by our directors and executive officers may lower the
market price of our common stock and impair our ability to raise new funds.
As of June 30, 2001, we had a total of 49,533,871 shares of common stock
outstanding, 8,088,269 of which were held by our directors and executive
officers. These shares may be resold within the limitations imposed by Rule 144
under the Securities Act. Sales of substantial amounts of shares or the mere
prospect that those sales will occur could cause the market price of our common
stock to decline. Those sales might make it more difficult for us to sell equity
and equity-related securities in the future at a time and price that we consider
appropriate.
We have adopted anti-takeover provisions that may frustrate any attempt to
acquire our company or to remove or replace our management.
Provisions of our certificate of incorporation, our by-laws and Delaware
law could make it more difficult for a third party to acquire control of our
company in a transaction not approved by our board of directors.
Our Board of Directors may issue up to 10 million shares of our preferred
stock and may determine the price, rights, preferences, privileges and
restrictions, including voting and conversion rights, of these shares of
preferred stock. These determinations may be made without any further vote or
action by our stockholders. The 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 replacement of incumbent directors and the completion of
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. We have no present plans to issue any shares of preferred stock. In
addition, we have adopted a stockholder rights plan which makes it more
difficult for a third party to acquire control of our company without the
support of our board of directors.
We are also subject to Section 203 of the Delaware General Corporation Law,
which prohibits us from engaging in a business combination with any interested
stockholder for a period of three years from the date the person became an
interested stockholder, unless certain conditions are met.
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