UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the period ended December 31, 2001
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the transition period from ____________ to_____________
Commission File Number: 0-12104
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IMMUNOMEDICS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 61-1009366
- --------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
300 American Road, Morris Plains, New Jersey 07950
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(Address of principal executive offices) (Zip code)
(973) 605-8200
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of February 13, 2001, there were 49,691,293 shares of the registrant's common
stock outstanding.
Page 1 of 19
IMMUNOMEDICS, INC. AND SUBSIDIARIES
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
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Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets - 3
December 31, 2001 and June 30, 2001
Consolidated Statements of Operations
and Comprehensive Loss - 4
three and six months ended December 31, 2001 and 2000
Condensed Consolidated Statements of Cash Flows - 5
six months ended December 31, 2001 and 2000
Notes to Consolidated Financial Statements - 6
December 31, 2001
Item 2. Management's Discussion and Analysis of 11
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risks 16
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
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Page 2 of 19
Part I - Financial Information
Item 1. Consolidated Financial Statements (Unaudited):
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
December 31, June 30,
2001 2001
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 19,735,753 $ 8,607,901
Marketable securities 27,771,043 44,682,954
Accounts receivable, net of allowance for
doubtful accounts of $140,439 and $125,440 at
December 31, 2001 and June 30, 2001, respectively 766,315 792,598
Inventory 973,513 750,769
Other current assets 3,619,638 1,151,548
------------ ------------
Total current assets 52,866,262 55,985,770
Property and equipment, net of accumulated
depreciation of $9,217,079 and $8,711,412 at
December 31, 2001 and June 30, 2001, respectively 4,364,598 3,395,310
Other long-term assets 51,157 276,157
------------ ------------
$ 57,282,017 $ 59,657,237
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ - $ 70,412
Accounts payable 2,026,416 1,607,176
Deferred revenue 9,000,000 9,000,000
Other current liabilities 1,649,928 2,106,254
------------ ------------
Total current liabilities 12,676,344 12,783,842
------------ ------------
Deferred revenue 2,975,728 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 December 31, 2001 and June 30, 2001 - -
Common stock; $.01 par value, authorized 70,000,000 shares;
issued and outstanding 49,681,293 and 49,533,871 shares
at December 31, 2001 and June 30, 2001, respectively 496,813 495,339
Capital contributed in excess of par 155,700,103 155,116,973
Accumulated deficit (115,045,349) (114,281,279)
Accumulated other comprehensive income 296,378 110,362
------------ ------------
Total stockholders' equity 41,447,945 41,441,395
------------ ------------
$ 57,282,017 $ 59,657,237
============ ============
See accompanying notes to unaudited consolidated financial statements.
Page 3 of 19
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues:
Product sales $ 892,464 $ 934,194 $ 1,873,136 $ 2,172,338
Royalties and license fee 2,402,138 1,931 4,677,603 3,647
Research and development 65,196 161,131 150,803 301,304
Interest and other 553,764 632,531 1,227,005 1,288,949
----------- ----------- ----------- -----------
3,913,562 1,729,787 7,928,547 3,766,238
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of goods sold 186,734 334,890 354,186 416,453
Research and development 2,962,897 2,591,659 5,886,462 4,805,722
Sales and marketing 690,766 717,898 1,322,883 1,277,377
General and administrative 655,095 780,708 1,129,086 1,443,144
----------- ----------- ----------- -----------
4,495,492 4,425,155 8,692,617 7,942,696
----------- ----------- ----------- -----------
Net loss $ (581,930) $(2,695,368) $ (764,070) $(4,176,458)
=========== =========== =========== ===========
Comprehensive Loss:
Net loss $ (581,930) $(2,695,368) $ (764,070) $(4,176,458)
----------- ----------- ----------- -----------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (54,148) 54,291 62,469 13,687
Unrealized gain (loss) on securities available for sale (126,262) 126,092 123,547 104,454
----------- ----------- ----------- -----------
Other comprehensive income (loss) (180,410) 180,383 186,016 118,141
----------- ----------- ----------- -----------
Comprehensive loss $ (762,340) $(2,514,985) $ (578,054) $(4,058,317)
=========== =========== =========== ===========
Per Share Data (Basic and Diluted):
Net loss $ (0.01) $ (0.05) $ (0.02) $ (0.08)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 49,565,125 49,501,654 49,551,620 49,472,859
=========== =========== =========== ===========
See accompanying notes to unaudited consolidated financial statements.
Page 4 of 19
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
December 31,
2001 2000
------------ ------------
Cash flows from operating activities:
Net loss $ (764,070) $ (4,176,458)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 505,667 475,543
Provision for allowance for doubtful accounts 14,999 27,107
Amortization of bond premium 54,114 33,257
Non-cash expense relating to issuance of warrants - 508,991
Compensation expense on stock options 53,220 66,000
Deferred revenue (2,274,272) -
Changes in operating assets and liabilities (2,716,637) 97,160
Other 62,469 13,687
------------ ------------
Net cash used in operating activities (5,064,510) (2,954,713)
------------ ------------
Cash flows from investing activities:
Purchases of marketable securities - (32,993,924)
Proceeds from maturities of marketable securities 17,206,344 27,885,721
Additions to property and equipment (1,474,955) (203,367)
------------ ------------
Net cash provided by (used in) investing activities 15,731,389 (5,311,570)
------------ ------------
Cash flows from financing activities:
Exercise of warrants 376,875 -
Exercise of stock options 154,510 1,159,275
Payments of debt (70,412) (77,155)
------------ ------------
Net cash provided by financing activities 460,973 1,082,120
------------ ------------
Increase (decrease) in cash and cash equivalents 11,127,852 (7,184,163)
Cash and cash equivalents at beginning of period 8,607,901 11,114,079
------------ ------------
Cash and cash equivalents at end of period $ 19,735,753 $ 3,929,916
============ ============
See accompanying notes to unaudited consolidated financial statements.
Page 5 of 19
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) Business Overview and Basis of Presentation
The accompanying unaudited consolidated financial statements of
Immunomedics, Inc. (the "Company"), which incorporate the Company's
majority owned subsidiaries, have been prepared in accordance with
generally accepted accounting principles for interim financial information
and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, the statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
annual financial statements. In the opinion of the Company's management,
all adjustments (consisting only of normal recurring accruals) necessary
for a fair presentation have been included. The balance sheet at June 30,
2001 has been derived from the Company's audited 2001 consolidated
financial statements. Operating results for the six-month period ended
December 31, 2001 are not necessarily indicative of the results that may be
expected for the full fiscal year ending June 30, 2002, or any other
period. Certain adjustments and reclassifications were made to conform to
the current year presentation.
The Company has not 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 success will be even
dependent on, among other things, the success of the Company's
commercialization efforts and market acceptance of the Company's current
and future products.
Since its inception in 1982, the Company's principal source of funds has
been private and public sales of equity securities, and, to a lesser
extent, revenues from research and development alliances, and product
sales. The Company believes that its existing working capital should be
sufficient to meet its capital and liquidity requirements for the
foreseeable future.
For further information, refer to the annual consolidated financial
statements and footnotes thereto included in the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 2001.
(2) Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments with original
maturities of three months or less, at the time of purchase, to be cash
equivalents. Included in other current assets at December 31, 2001 and June
30, 2001 is accrued interest earned on cash equivalents and marketable
securities of approximately $430,000 and $652,000, respectively.
(3) Income Taxes
The Company has never made payments of Federal or state income taxes and to
date has not generated net income; therefore, no income taxes have been
reflected for the six-month period ended December 31, 2001 or any prior
period.
Page 6 of 19
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(4) Net Loss Per Share
Basic and diluted net loss per share is based on the net loss for the
relevant period divided by the weighted average number of shares of common
stock issued and outstanding during the period. For the purposes of the
diluted net loss per share calculations, the exercise or conversion of all
potential shares of common stock is not included because their effect would
have been anti-dilutive, due to the net loss recorded for the three and
six-month periods ended December 31, 2001 and 2000. The Company had certain
securities outstanding at December 31, 2001 and 2000 that were not included
in the computation of diluted earnings per share because to do so would
have been anti-dilutive for the periods presented. The common stock
equivalents excluded from the diluted per share calculation were 2,606,750
and 2,239,500 at December 31, 2001 and 2000, respectively.
(5) Comprehensive Loss
Comprehensive loss consists of net loss, net unrealized gains (losses) on
securities available for sale and certain foreign currency translation
adjustments and is presented in the unaudited consolidated statements of
operations and comprehensive loss.
(6) Inventory
Inventory is stated at the lower of average cost (which approximates
first-in, first-out) or market, and includes materials, labor and
manufacturing overhead. At December 31, 2001, the inventory balance
consisted of $140,000 of raw materials and $834,000 of finished goods. At
June 30, 2001, the inventory balance consisted of $140,000 of raw materials
and $611,000 of finished goods.
(7) Marketable Securities
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and fair value of available-for-sale securities by major
security type at December 31, 2001 and June 30, 2001 were as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
- -------------------------------------------------------------------------------------------
December 31, 2001
Corporate Debt Securities $ 27,328,000 $ 443,000 $ 0 $ 27,771,000
============ ========== =========== ===========
June 30, 2001
Corporate Debt Securities $ 44,364,000 $ 351,000 $ (32,000) $ 44,683,000
============ ========== =========== ===========
Page 7 of 19
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(8) Geographic Segment
The Company manages its operations as one line of business of researching,
developing, manufacturing and marketing biopharmaceutical products,
particularly antibody-based diagnostics and therapeutics for cancer and
infectious diseases, and it currently reports as a single industry segment.
The Company markets and sells its products in the United States and
throughout Europe.
The following tables present financial information based on the geographic
location of the facilities of the Company as of and for the three and
six-month periods ended December 31, 2001 and 2000:
Three Months Ended
------------------
December 31, 2001
-----------------
United States Europe Total
------------- ------ -----
Revenues $ 3,281,384 $ 632,178 $ 3,913,562
Net income (loss) (697,475) 115,545 (581,930)
December 31, 2000
-----------------
United States Europe Total
------------- ------ -----
Revenues $ 1,191,355 $ 538,432 $ 1,729,787
Net income (loss) (2,751,219) 55,851 (2,695,368)
Six Months Ended
----------------
December 31, 2001
-----------------
United States Europe Total
------------- ------ -----
Revenues $ 6,635,715 $ 1,292,832 $ 7,928,547
Net income (loss) (1,107,089) 343,019 (764,070)
December 31, 2000
-----------------
United States Europe Total
------------- ------ -----
Revenues $ 2,442,977 $ 1,323,261 $ 3,766,238
Net income (loss) (4,669,239) 492,781 (4,176,458)
Page 8 of 19
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(9) Development and License Agreement with Amgen
On December 17, 2000, the Company signed a Development and License
Agreement (the "Amgen Agreement") with Amgen Inc. ("Amgen"). The Amgen
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 $4,500,000 and $2,250,000 as royalties
and license fee revenue for the six and three-month periods ended December
31, 2001, respectively. The remaining balance of $9,750,000 and
$14,250,000, is recorded as "Deferred revenue", in the accompanying
unaudited consolidated balance sheets at December 31, 2001 and June 30,
2001, respectively.
Also pursuant to the Amgen Agreement, Amgen is obligated to pay a supply
fee to the Company for materials shipped. The fee was originally payable at
the point in time when Amgen has released a sufficient quantity of
epratuzumab to satisfy its requirements of epratuzumab for use in the
conduct of all Pivotal Trials deemed necessary by the FDA for approval of
its United States BLA. If the Company fails to comply with its supply
obligations under the agreement, then Amgen does not owe the Company any
fee. As of December 31, 2001, Amgen has not yet released such quantity of
epratuzumab, however, Amgen and the Company have mutually agreed to arrange
for funds to be paid to the Company for the materials shipped since
inception of the Amgen Agreement. In accordance with this mutual agreement,
the Company invoiced Amgen in December 2001 for an amount of approximately
$2.2 million covering all shipments of materials made through December 31,
2001. Such amount is recorded in the accompanying consolidated financial
statements as a receivable due from Amgen classified as other current
assets (the money was received in January 2002) and as deferred revenue
which will be recognized upon the Company fulfilling its supply obligations
set forth in the Amgen Agreement. Costs incurred relating to the
manufacture of the materials supplied to Amgen are recorded as research and
development expense as incurred as there is no assurance that such amounts
as incurred will be reimbursed by Amgen in the future.
Page 9 of 19
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(10) Stockholders' Equity
At the Company's Annual Meeting of Stockholders on December 5, 2001, the
stockholders of the Company approved an amendment, restatement and
continuation of the Company's 1992 Stock Option Plan as the 2002 Stock
Option Plan.
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 two four-year warrants to purchase an aggregate of
50,000 and 54,000 shares of common stock at an exercise price of $7.5375
per share and $7.087 per share, respectively. The 50,000 warrants with an
exercise price of $7.5375 per share were exercised in December 2001. The
warrant for 54,000 shares of common stock continues to be outstanding as of
December 31, 2001.
On December 16, 1999, the Company issued a warrant covering 75,000 shares
of its common stock at an exercise price of $6.50 per share to induce a
financial advisor to enter into a financial advisory agreement with the
Company. The Company recognized a final proportionate share of the general
and administrative expense associated with these warrants of approximately
$277,000 and $509,000 for the three and six-month periods ended December
31, 2000, respectively, based on the estimated fair value of the warrants
as of the vesting date of December 16, 2000. These warrants were exercised
in accordance with their original terms in December 2001 via a fair value
cashless transaction, whereby the Company issued 54,422 shares of common
stock.
Page 10 of 19
Part I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company is focused on developing, manufacturing and marketing monoclonal
antibody-based products for the detection and treatment of cancer and other
serious diseases. The Company's principal focus is therapeutic antibodies that
can be 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 II and 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 CEA-Scan and LeukoScan, which utilize the Company's monoclonal antibodies
and 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 Pharmaceuticals, LLC.
Since its inception in 1982, the Company has been engaged primarily in the
research and development and, more recently, the commercialization of
proprietary products relating to the detection, diagnosis and treatment of
cancer and other serious diseases. The Company has incurred significant
operating losses and has never earned a profit. These operating losses and
failure to be profitable have been due mainly to the significant amount of money
that the Company has spent on research and development. As of December 31, 2001,
the Company had an accumulated deficit of approximately $115,045,000. The
Company expects to continue to experience operating losses until such time, if
ever, that it is able to generate sufficient revenues from sales of CEA-Scan,
LeukoScan and its other product candidates.
Certain Transactions with Related Parties
Certain of the Company's affiliates, including members of its senior management
and Board of Directors and their respective affiliates, have relationships and
agreements among themselves as well as with the Company that create the
potential for both real, as well as perceived, conflicts of interest. These
include Dr. David M. Goldenberg, our Chairman and Chief Scientific Officer, Ms.
Cynthia L. Sullivan, our Chief Executive Officer, and certain companies with
which we do business, including the Center for Molecular Medicine and
Immunology, IMG Technology, LLC, and IBC Pharmaceuticals, LLC.
For example, Dr. Goldenberg is the founder, President and a member of the Board
of Trustees of the Center for Molecular Medicine and Immunology, a
not-for-profit corporation also known as the Garden State Cancer Center or CMMI,
that we contract with to conduct certain research activities. Dr. Goldenberg's
employment agreement with us permits him to devote more of his time working for
CMMI than for us, and other key personnel of our company also have
responsibilities to both CMMI and us.
In addition, the Company, through its 80% owned subsidiary IMG Technology, is
involved in a joint venture with Beckman Coulter, Inc. known as IBC
Pharmaceuticals. Dr. Goldenberg was granted a 20% equity interest in IMG
Technology in accordance with the terms of his employment agreement, and also
serves as Chairman of the Board of Directors of IBC.
Page 11 of 19
As a result of these and other relationships, the potential for both real and
perceived conflicts of interest exists, and disputes could arise over the
allocation of research projects and ownership of intellectual property rights.
In addition, in the event that the Company becomes involved in stockholder
litigation regarding these potential conflicts, the Company might be required to
devote significant resources and management time defending the Company from
these claims, which could adversely affect its results of operations.
All of the Company's relationships with related parties are more fully described
in the Company's Annual Report on Form 10-K for the year ended June 30, 2001,
and the Company's Definitive Proxy Statement for the 2001 Annual Meeting, both
of which documents are on file with the Securities and Exchange Commission and
available via the Commission's EDGAR website.
Results of Operations
Six Month Periods Ended December 31, 2001 Compared to 2000
Revenues for the six-month period ended December 31, 2001 were $7,929,000, as
compared to $3,766,000 for the same period in 2000, representing an increase of
$4,163,000, or 111%. Product sales for the six-month period ended December 31,
2001 were $1,873,000, as compared to $2,172,000 for the same period in 2000,
representing a decrease of $299,000, principally reflecting the Company's
continued transition in focus from development of diagnostic imaging products to
the development of therapeutic compounds. Royalties and license fee revenues for
the six-month period ended December 31, 2001 increased from $4,000 to $4,678,000
for the same period in 2000, primarily due to the recognition of $4,500,000 of
the up-front payment received in February 2001 from Amgen. Research and
development revenues for the six-month period ended December 31, 2001 decreased
by $150,000 from $301,000 to $151,000 for the same period of 2000, primarily due
to a lower rate of funding for grants. Interest and other income for the
six-month period ended December 31, 2001 decreased by $62,000 from $1,289,000 to
$1,227,000 for the same period in 2000, primarily due to lower rate of return on
cash available for investments.
Total operating expenses for the six-month period ended December 31, 2001 were
$8,693,000, as compared to $7,943,000 for the same period in 2000, representing
an increase of $750,000 or 9%. Research and development expenses for the
six-month period ended December 31, 2001 increased by $1,080,000 from $4,806,000
to $5,886,000 for the same period in 2000, primarily due to increased research
and development efforts and manufacturing expenses, including lab supplies
associated with producing compounds to be used in clinical trials. Cost of goods
sold for the six-month period ended December 31, 2001 decreased by $62,000 from
$416,000 to $354,000 for the same period in 2000. Cost of goods sold for the
six-month period ended December 31, 2000 included cost for expired inventory and
higher sales volume. Sales and marketing expenses for the six-month period ended
December 31, 2001 increased by $46,000, primarily due to the expenses associated
with the relocation of the Company's European sales office from The Netherlands
to Germany and other marketing related expenses. General and administrative
costs for the six-month period ended December 31, 2001 decreased by $314,000 as
compared to the same period of 2000, primarily due to the recognition of an
expense for the six-month period ended December 31, 2000 of $509,000 associated
with warrants issued to a financial advisor in December 1999, partially offset
by an increase of other administrative expenses.
Page 12 of 19
Net loss for the six-month period ended December 31, 2001 was $764,000, or $0.02
per share, as compared to $4,176,000, or $0.08 per share, for the same period in
2000. The lower net loss in 2001 as compared to 2000 resulted primarily from
greater royalties and license revenues partially offset by increased costs and
expenses primarily attributed to increased research and development efforts as
discussed above.
Three Month Periods Ended December 31, 2001 Compared to 2000
Revenues for the three-month period ended December 31, 2001 were $3,914,000 as
compared to $1,730,000 for the same period in 2000, representing an increase of
$2,184,000, or 126%. Product sales for the three-month period ended December 31,
2001, were $892,000 as compared to $934,000 for the same period in 2000,
representing a decrease of $42,000, principally reflecting the Company's
continued transition in focus from development of diagnostic imaging products to
the development of therapeutic compounds. Royalties and license fee revenues for
the three-month period ended December 31, 2001 increased by $2,400,000 from
$2,000 to $2,402,000 for the same period in 2000, primarily due to the
recognition of $2,250,000 of the up-front payment received in February 2001 from
Amgen. Research and development revenues for the three-month period ended
December 31, 2001 decreased from $161,000 to $65,000 for the same period in
2000, primarily due to a lower rate of funding for grants. Interest and other
income for the three-month period ended December 31, 2001 decreased by $79,000
from $633,000 to $554,000 for the same period in 2000, primarily due to lower
rate of return on cash available for investments.
Total operating expenses for the three-month period ended December 31, 2001 were
$4,495,000 as compared to $4,425,000 for the same period in 2000, representing
an increase of $70,000. Research and development expenses for the three-month
period ended December 31, 2001 increased by $371,000 from $2,592,000 to
$2,963,000 for the same period in 2000, primarily due to increased research and
development efforts and manufacturing expenses, including lab supplies
associated with producing compounds to be used in clinical trials. Cost of goods
sold for the three-month period ended December 31, 2001 decreased by $148,000
from $335,000 to $187,000 in the same period in 2000. Cost of goods sold for the
three-month period ended December 31, 2000 included cost for expired inventory.
Sales and marketing expenses for the three-month period ended December 31, 2001
decreased by $27,000. General and administrative costs for the three-month
period ended December 31, 2001 decreased by $126,000 as compared to the same
period of 2000, primarily due to the recognition of an expense for the
three-month period ended December 31, 2000 of $277,000 associated with warrants
issued to a financial advisor in December 1999, partially offset by an increase
of other administrative expenses.
Net loss for the three-month period ended December 31, 2001 was $582,000, or
$0.01 per share, as compared to $2,695,000, or $0.05 per share, for the same
period in 2000. The lower net loss in 2001 as compared to 2000 primarily
resulted from greater royalties and license revenues partially offset by
increased costs and expenses as discussed above.
Liquidity and Capital Resources
At December 31, 2001 the Company had working capital of $40,190,000, which
represents a decrease of $3,012,000 from June 30, 2001. The decrease in working
capital resulted primarily from the funding of operating expenses and capital
expenditures.
Page 13 of 19
The Company's liquid asset position, measured by its cash, cash equivalents and
marketable securities, was $47,507,000 at December 31, 2001, representing a
decrease of $5,784,000 from June 30, 2001. This decrease was primarily
attributable to the funding of operating expenses and capital expenditures as
discussed above. It is anticipated that working capital and cash, cash
equivalents and marketable securities will decrease during the remainder of
fiscal year 2002 as a result of planned operating expenses and capital
expenditures, offset in part by projected revenues from product sales in the
United States and Europe. However, there can be no assurance, as to the amount
of revenues, if any, these products will provide.
In October 2001, the Company entered into a Distribution Agreement with Logosys
Logistik GmbH pursuant to which Logosys packages and distributes LeukoScan and
CEA-Scan within the countries comprising the European Union and certain other
countries.
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. On November 1, 2001, the
Company renewed for an additional term of twenty years expiring on October 31,
2021 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 area of
15,000 square feet.
In order to support the clinical trial and future commercial requirements, the
Company plans to expand its manufacturing facility and has entered into
construction agreements for a cost of approximately $6.3 million. The Company
plans to fund this project through its working capital or other financing
arrangements. The facility plan includes design of two distinct manufacturing
suites, containing six new bioreactors, which will allow flexibility in terms of
the amount of therapeutic antibodies that can be produced. The Company has begun
design/construction, and project that the facility will be completed in about
eight months.
To date, the Company has never generated positive cash flow from operations. The
Company believes that its existing working capital should be sufficient to meet
its capital and liquidity requirements for the foreseeable future. This
expectation represents a forward-looking statement under the Private Securities
Litigation Reform Act of 1995. Actual results could differ materially from the
Company's expectation as a result of a number of risks and uncertainties,
including the risks described in Exhibit 99 annexed hereto. The Company's
working capital and working capital requirements are affected by numerous
factors and there is no assurance that such factors will not have a negative
impact on the Company's liquidity. Principal among these are the success of its
product commercialization, 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. The Company is
engaged in continuous discussions with investment bankers regarding financing
opportunities. The Company will require additional financial resources after it
utilizes its current liquid assets in order for it to continue its projected
levels of research and development and clinical trials of its product candidates
and regulatory filings for new indications of existing products. There can no
assurance that any additional financing will be available to the Company at all
or on terms it finds acceptable or that the terms of such financing will not
cause substantial dilution to existing stockholders.
The Company intends to supplement its financial resources from time to time as
market conditions permit through additional financing and through collaborative
marketing and distribution agreements. The Company continues to evaluate various
programs to raise additional capital and to seek additional revenues from the
licensing of its proprietary technology. At the present time, the Company is
unable to determine whether any of these future activities will be successful
and, if so, the terms and timing of any definitive agreements.
Page 14 of 19
Critical Accounting Policies
In December 2001, the U.S. Securities and Exchange Commission issued a statement
concerning certain views of the Commission regarding the appropriate amount of
disclosure by publicly held companies with respect to their critical accounting
policies. In particular, the Commission expressed it's view that in order to
enhance investor understanding of financial statements, companies should explain
the effects of critical accounting policies as they are applied, the judgments
made in the application of these policies, and the likelihood of materially
different reported results if different assumptions or conditions were to
prevail. The Company has since carefully reviewed the disclosures included in
its filings with the Commission, including, without limitation, its Annual
Report on Form 10-K for the year ended June 30, 2001 and accompanying audited
consolidated financial statements and related notes thereto, as well as its
definitive proxy statement for the 2001 Annual Meeting. Based upon this review,
the Company continues to believe that its disclosures with respect to its
critical accounting policies provide investors with a full and fair discussion
of these policies, their application and effect. Nonetheless, the Company will
continue to review its critical accounting policies in the future to ensure that
full and complete disclosure is made. The Company's SEC filings can be obtained
without charge via the Commission's EDGAR website at www.sec.gov.
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 No. 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 No.
141 requires that the purchase method be used for business combinations
initiated after June 30, 2001. SFAS No. 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.
Private Securities Litigation Reform Act of 1995
Statements made in this Form 10-Q, other than those concerning historical
information, should be considered forward-looking and subject to various risks
and uncertainties. Such forward-looking statements are made based on
management's belief as well as assumptions made by, and information currently
available to, management. Such forward-looking statements are made pursuant to
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. The Company's actual results could differ materially from the results
anticipated in these forward-looking statements as a result of a variety of
factors, including (i) the risks described in Exhibit 99 to this Form 10-Q, (ii)
the risks described under the caption "Business Risks" in the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 2001 (the "2001 10-K"),
(iii) the risks described elsewhere under the caption "Business" in the 2001
10-K and (iv) the risks described elsewhere in the 2001 10-K. The Company
assumes no obligation to update its forward-looking statements.
Page 15 of 19
Item 3. Quantitative and Qualitative Disclosures About Market Risks
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
biotechnology 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 Company currently holds one security with a variable rate based on
three month Libor.
The table below presents the principal amounts and related weighted average
interest rates by its fiscal year of maturity for the Company's investment
portfolio as of December 31, 2001:
Fair
2002 2003 2004 2005 2006 Total Value
---- ---- ---- ---- ---- ----- -----
(in thousands)
Fixed rate $ 8,455 $ 9,275 $ 1,500 $ -- $ 999 $20,229 $ 20,769
Average interest rate 6.68% 5.84% 6.39% -- 7.28% 6.30% --
Variable rate $ -- $ -- $ 6,993 $ -- $ -- $ 6,993 $ 7,002
Average interest rate -- -- 2.34% -- -- 2.34% --
------- ------- ------- ------- ------- ------- --------
Total $ 8,455 $ 9,275 $ 8,493 $ -- $ 999 $27,222 $ 27,771
======= ======= ======= ======= ======= ======= ========
Page 16 of 19
Part II - Other Information
Item 1. Legal Proceedings
The Company is pursuing an infringement suit in the Netherlands against
Hoffmann-La Roche. The suit seeks an injunction against the sale by Roche of
certain immunoassays that the Company believes infringe it's European patents,
as well as monetary damages for past infringement. The Patent Court in The Hague
originally dismissed the action in August 1997, which the Company has since
appealed. Roche has since initiated nullity actions in the Netherlands and in
Germany, seeking to invalidate the Company's patents in those countries, and may
take other countermeasures. A trial on the Dutch nullity action was held in June
1998 resulting in dismissal of Roche's suit and maintenance of the Company's
patent claims. Roche has since appealed. A trial on the German nullity action
held in December 1998 preserved the Company's patent claims in amended form. The
Company believes these claims, as amended, continue to be infringed by Roche's
immunoassays. Roche has not appealed this ruling. The appeals of the Dutch
infringement and nullity actions were heard concurrently on March 2, 2000. In a
partial decision rendered in February 2001, the validity of the Company's patent
claims, as amended consistent with the German action, was upheld, as was the
jurisdiction of the Dutch Court to issue a cross-border injunction. The Dutch
Appeals Court was unable, however, to reach a decision on the infringement by
Roche and has since solicited additional submissions from each side. Moreover,
Roche has appealed the remaining holdings of the Appeals Court to the Dutch
Supreme Court. The Company and its patent counsel believe that the Company's
patent claims are valid and that an unfavorable outcome is unlikely. However, to
the extent that Roche contests or challenges the Company's patent claims, or
files further appeals or nullity actions, the Company may incur significant
costs for defending such patents, even if ultimately successful.
The Company is also involved in an action against Cytogen, Inc. and C.R. Bard,
Inc. for alleged infringement of certain of the Company's patent rights.
Discovery was completed on the liability issues and a Markman hearing on claim
interpretation was held in September 2001. The result was generally favorable,
although one issue was not completely resolved. Both sides have since filed
summary judgment motions and these are expected to be heard in the next few
months. Although the Company believes that its patent claims are valid and
infringed, there can be no assurance that the court will agree or that a jury
will find actual infringement. It is possible that the Company will incur
significant costs in pursuing the suit without a reward of monetary damages.
On December 18, 2001, a patent was issued to Genentech following a prolonged
interference proceeding. The Company and its patent counsel are studying the
patent and its prosecution history to determine whether this patent poses a
material risk of infringement to the Company, as well as whether the patent is
unenforceable on other grounds. It is too early to determine what, if any,
action will be necessary on the part of the Company. In the event that the
Company needs to acquire a license there can be no assurance that it would be
available on commercially reasonable terms, if at all.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's annual meeting of stockholders was held on December 5, 2000. At
that meeting, David M. Goldenberg, Cynthia L. Sullivan, Morton Coleman, Marvin
E. Jaffe, Mary E. Paetzold and Richard R. Pivirotto were re-elected as
directors. The stockholders also ratified the Company's selection of KPMG LLP as
the Company's independent auditors for the fiscal year ending June 30, 2002 and
approved the adoption of the Company's 2002 Stock Option Plan.
Page 17 of 19
The following number of shares were voted with respect to the matters considered
at the annual meeting:
BROKER
FOR AGAINST ABSTENTION NON-VOTE
--- ------- ---------- --------
Election of
directors:
David M.
Goldenberg 38,287,381 3,034,421 0 0
Cynthia L.
Sullivan 38,288,431 3,033,371 0 0
Morton Coleman 40,828,365 493,437 0 0
Marvin E. Jaffe 40,823,090 498,712 0 0
Mary E. Paetzold 40,818,015 503,787 0 0
Richard R.
Pivirotto 40,811,340 510,462 0 0
Selection of
auditors - KPMG 41,123,494 163,100 35,208 0
2002 Stock
Option Plan
adoption 21,665,697 2,473,861 71,812 17,110,432
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
99.1 Risk Factors
(b) Reports on Form 8-K.
During the quarter for which this Report on Form 10Q is
filed, the registrant filed no reports on Form 8-K.
Page 18 of 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IMMUNOMEDICS, INC.
------------------
(Registrant)
DATE: February 13, 2002 /s/ Cynthia L. Sullivan
----------------------------------
Cynthia L. Sullivan
President, Chief Executive Officer
and Director
(Principal Executive Officer)
DATE: February 13, 2002 /s/ Gerard G. Gorman
--------------------------
Gerard G. Gorman
Vice President Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 19 of 19
EXHIBIT 99.1
RISK FACTORS
Factors That May Affect The Future Results of Immunomedics, Inc.
The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or that are
currently deemed immaterial may also impair our business, financial condition
and results of operations. If any of these risks actually occur, our business,
financial condition and results of operations could be materially adversely
affected. An investment in our stock is very speculative and involves a high
degree of risk.
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 the sale of our diagnostic imaging
products, and have never received revenue from the commercialization of any
therapeutic product. We have incurred significant operating losses since our
formation in 1982 and have not earned a profit since that time. These operating
losses and our failure to be profitable have been due mainly to the significant
amount of money that we have spent on our research and development programs. As
of December 31, 2001, we had an accumulated deficit of approximately $115
million. We expect to continue to experience significant operating losses as we
attempt to develop and commercialize our product candidates. If we fail in our
attempts to develop successful therapeutic products, it is likely that we would
never achieve significant revenues or become profitable, either of which would
seriously jeopardize our ability 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 early stages of
preclinical and clinical development. Significant further research and
development, financial resources and management time will be required to develop
commercially viable therapeutic products and obtain the necessary regulatory
approvals. We may never be able to successfully develop and commercialize any
therapeutic product candidates. If we fail to gain timely approval from the U.S.
Food and Drug Administration, or FDA, and other foreign regulatory authorities
to commercialize our product candidates, we will be unable to generate the
revenues we will need to execute our business plan.
Our ability to market future products will depend upon our first obtaining and
then maintaining regulatory approvals, both of which are subject to a number of
risks and uncertainties.
In order to obtain the regulatory approvals necessary for the successful
commercialization of our product candidates, we will be required to complete
extensive clinical trials in humans to demonstrate the safety and efficacy of
each product candidate to the satisfaction of the FDA and applicable foreign
regulatory authorities. Even once we begin clinical trials for a new diagnostic
Page 1 of 12
or therapeutic product, it may take up to ten years or more to receive the
required regulatory approval to commercialize that product and begin to market
it to the public. In addition, each stage of clinical development is generally
more costly than the prior stage, and we may need to expend substantial
resources on a product candidate only to determine that it cannot be
successfully commercialized. 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 expensive and
lengthy process of obtaining these approvals, and the maintenance of compliance
with applicable statutes and regulations, will require us to expend substantial
financial resources and management time.
A clinical trial may be suspended or terminated by us or the FDA, or otherwise
fail, for a number of reasons, including:
o the product candidate may cause unforeseen adverse side effects or
demonstrate other characteristics that make it impossible or impracticable
for us to continue its development;
o any positive results from preclinical studies and initial 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 which may result in increased costs and delays;
o we may not be able to manufacture sufficient quantities of the compound
necessary to complete the clinical trial, or for later commercialization;
o trial results may indicate that the product candidate is not as safe or
effective as other available therapies; and
o the clinical investigators, trial monitors or trial subjects may fail to
comply with the trial plan or protocol, resulting in delays and additional
expense.
Any failure or substantial delay in successfully completing clinical trials and
obtaining regulatory approvals for our product candidates, particularly the
ongoing Phase II, Phase III and future trials for epratuzumab, could severely
harm our business and results of operation. These approvals may not be granted
on a timely basis, if at all, and even if granted may not cover all the clinical
indications for which we are seeking approval. The approvals may also contain
significant limitations in the form of warnings, precautions or
contraindications with respect to conditions of use. Even after approval can be
obtained, we may be required to recall or withdraw a product as a result of
newly discovered safety or efficacy concerns, either of which would have a
materially adverse effect on our business and results of operations.
If we are unsuccessful in completing our shift in focus from our diagnostic
imaging products to our pipeline of therapeutic product candidates, our business
will be materially and adversely affected.
As we complete the shift in our focus from diagnostic imaging to our therapeutic
product candidates, and as our scientific efforts lead us into the study of
diseases outside of our area of principal expertise, we will have to either
develop the necessary expertise internally, or form strategic collaborations to
Page 2 of 12
obtain access to such expertise. If we proceed independently, we will require
additional technical resources and personnel that may be difficult to obtain. If
we decide to enter into collaboration arrangements, we may find it necessary to
relinquish rights to some of our technologies, products or product candidates
that we would otherwise choose to pursue independently. If we are unable to
acquire the necessary expertise or enter into collaborations on acceptable
terms, our ability to develop additional therapeutic product candidates would be
adversely affected.
If we are not able to successfully develop a market for our current and future
products, our ability to continue as a going concern would be severely
jeopardized despite any scientific accomplishments we may have achieved.
Our diagnostic imaging products are the only products which we are currently
permitted to market and sell and we do not yet have approval to sell LeukoScan
in the United States. To date, we have been able to develop only a limited
market for these products, and as a result have received only limited revenues
from the sale of these products. We have not yet even begun to develop a market
for our therapeutic product candidates. In the event we are unable to achieve
broad market acceptance of our current or future products, our business and
financial condition would be materially and adversely affected.
We are dependent upon Amgen for the final development and commercialization of
epratuzumab in North America and Australia, and they may not be successful.
We have licensed epratuzumab to Amgen in North America and Australia. As a
result, we are relying on Amgen for the final clinical development,
commercialization and manufacture of epratuzumab in these markets. If Amgen does
not fully perform its responsibilities under our agreement, or if the ongoing
clinical trials being conducted by Amgen are not successful for any reason, the
future commercialization of this product candidate would be severely
jeopardized. In such event, we might never receive any of the milestone payments
or royalties that we are eligible to receive under our agreement and our ability
to fund the development and testing of our other product candidates would be
adversely affected.
We currently receive funds from a limited number of sources, and we will need to
find additional sources of funding in order to be successful.
To date, we have funded our research and development programs using cash
obtained principally from:
o the sale of our equity securities;
o payments from Amgen under our licensing agreement;
o product sales of CEA-Scan and LeukoScan;
o fees and grants from corporate, academic and governmental partners; and
o interest income from our investments.
Page 3 of 12
We may not continue to receive funding from any of these sources, or the amount
of such funding may be dramatically reduced. Even if we do continue to receive
these funds, we will need to obtain other sources of funding to continue to
conduct our research and development programs and execute our business plan.
If we are unable to obtain the additional capital we need on a timely basis, our
ability to operate and grow our business will be adversely affected.
We intend to continue expending substantial financial resources on our research
and development programs, and we will need additional capital in order to obtain
regulatory approvals and commercialize our therapeutic product candidates. If
our needs for cash depletes our existing resources we will be required to either
obtain additional capital quickly, or else significantly reduce our operating
expenses and capital expenditures, either of which could have a material and
adverse effect on us.
Our future capital requirements will depend on numerous factors, including:
o the progress of our research and development programs;
o the progress of preclinical and clinical testing;
o our need for manufacturing sufficient quantities of our product candidates
for clinical testing and commercialization;
o the time and costs involved in obtaining regulatory approvals;
o the cost of filing, prosecuting, defending and enforcing our patent claims
and other intellectual property rights;
o competing technological and market developments;
o our ability to establish collaborative arrangements with large
pharmaceutical companies and other qualified strategic partners; and
o the requirements and timing of entering into technology licensing
agreements and other similar arrangements.
While we believe that our existing cash resources, will be sufficient to fund
our operations for at least the next 12 months, we may need additional cash
before then for many reasons, including changes in our research and development
plans, other factors affecting our operating expenses, the need for unexpected
capital expenditures, and costs associated with any acquisitions of other
businesses, assets or technologies that we may choose to undertake.
Our ability to raise future capital on acceptable terms will depend on
conditions in the public and private debt and equity markets, our operating
performance, as well as the overall performance of other companies in the
biopharmaceutical and biotechnology sectors. Additional financing may not be
available to us when we need it on terms we find acceptable, if at all.
Furthermore, the terms of any such debt or equity financing may include
covenants which limit our future ability to manage the business, contain
preferences, privileges and rights superior to those enjoyed by holders of our
common stock, and cause substantial dilution to our existing stockholders.
Page 4 of 12
Certain potential for conflicts of interest, both real and perceived, exist
which could result in expensive and time-consuming litigation.
Certain of our affiliates, including members of our senior management and Board
of Directors and their respective affiliates, have relationships and agreements
among themselves that create the potential for both real, as well as perceived,
conflicts of interest. These include Dr. David M. Goldenberg, our Chairman and
Chief Scientific Officer, Ms. Cynthia L. Sullivan, our Chief Executive Officer,
and certain companies with which we do business, including the Center for
Molecular Medicine and Immunology, or CMMI, IMG Technology, LLC, and IBC
Pharmaceuticals, LLC. For example, Dr. Goldenberg is the founder, President and
a member of the Board of Trustees of CMMI, a not-for-profit cancer research
center that we use to conduct certain research activities. Dr. Goldenberg's
employment agreement with us permits him to devote more of his time working for
CMMI than for us, and other key personnel of our company also have
responsibilities to both CMMI and us. As a result, the potential for both real
and perceived conflicts of interest exists, and disputes could arise over the
allocation of research projects and ownership of intellectual property rights.
In addition, in the event that we become involved in stockholder litigation
regarding these potential conflicts, we might be required to devote significant
resources and management time defending the company from these claims, which
could adversely affect our results of operations.
If we cannot successfully and efficiently manufacture the compounds which make
up our products and product candidates, our ability to sell products and conduct
clinical trials will be impaired.
Our ability to supply the demand for our existing diagnostic products, as well
as conduct preclinical and clinical research and development programs, depends,
in part, on our ability, or that of our partners, to manufacture our proprietary
compounds in accordance with FDA and other regulatory requirements. We have no
experience in manufacturing these compounds in significant quantities, and we
may not be able to do so in the quantities and with the degree of purity that we
require. We currently rely on our manufacturing facilities in New Jersey, and
the technical staff working there, for substantially all of our manufacturing
needs. Any interruption in manufacturing at this site, whether by natural acts
or otherwise, would significantly and adversely affect our operations, and delay
our research and development programs. We have encountered manufacturing
difficulties in the past, and it is likely that we will encounter similar
difficulties in the future. In addition, we may also have difficulties from time
to time obtaining the raw materials necessary in the manufacturing process.
We have recently begun to scale up our manufacturing facilities in anticipation
of future needs, but our completion of this build-out is subject to a number of
risks and uncertainties. If we are unsuccessful in expanding our own
manufacturing facilities, or are otherwise unable to contract with a qualified
third-party to manufacture these compounds on acceptable terms, our ability to
complete preclinical and clinical testing and to supply commercial quantities of
our products would be adversely affected. In addition, if our manufacturing
facilities fail to comply with FDA and other regulatory requirements, we may be
required to suspend manufacturing, perhaps for an extended period of time. This
could have a material adverse effect on our financial condition and cash flow.
Page 5 of 12
Our collaboration agreements may fail or be terminated unexpectedly, which could
result in significant delays and substantial increases in the cost of our
research, development and commercialization of our product candidates.
We are party to various arrangements with academic, governmental and corporate
partners. The successful development and commercialization of the product
candidates covered by these arrangements will depend upon the ability of these
third parties to fully perform their contractual responsibilities. If any of
these parties breaches or unexpectedly terminates their agreement with us, or
otherwise fails to conduct their activities in a timely manner, the development
or commercialization of our product candidates may be delayed. For example, the
Center for Molecular Medicine and Immunology, a not-for-profit cancer research
center of which Dr. David M. Goldenberg, our Chairman and Chief Scientific
Officer, is President and a Trustee, performs contracted pilot and preclinical
trials in areas of importance to us, as well as basic research and preclinical
evaluations in a number of areas of potential interest to us. If CMMI were to
become unwilling or unable to provide these services on comparable terms, we
would have to quickly make alternative arrangements with third parties, which
could significantly delay and increase the expenses associated with these
programs.
Our dependence upon third parties for the manufacture of proprietary compounds
may have the effect of increasing our costs while also limiting our ability to
develop and deliver these compounds on a timely 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 complete the development and commercialization of
these product candidates will be adversely affected. In addition, we currently
rely on a single third party, SP Pharmaceuticals, to perform certain end-stage
portions of the manufacturing process for CEA-Scan and LeukoScan. We do not
currently have the resources necessary to perform these processes, and if SP
Pharmaceuticals were to become unwilling or unable to do so for any reason, we
would be unable to deliver these products to customers until we entered into an
agreement with another qualified manufacturer. This could cause substantial
delays in customer deliveries and adversely affect our results of operations.
While we intend to continue to enter into additional collaborations and similar
agreements as opportunities arise, we may not be able to negotiate these
arrangements on favorable terms, if at all, and these relationships may not be
successful.
Our future success will depend upon our ability to first obtain and then
adequately protect our patent and other intellectual property rights, as well
avoiding the infringement of the rights of others.
Our future success will be highly dependent upon our ability to first obtain and
then defend the patent and other intellectual property rights necessary for the
commercialization of our product candidates. We have filed numerous patent
applications on the technologies and processes that we use in the United States
and certain foreign countries. Although we have obtained a number of issued U.S.
patents to date, the patent applications owned or licensed by us may not result
in additional patents being issued. Moreover, these patents may not afford us
the protection we need against competitors with similar technologies or
products.
Page 6 of 12
Although we believe it is likely we will need to license technologies and
processes from third parties in the ordinary course of our business, we are not
currently aware of any material conflict involving our technologies and
processes with any valid patents or other intellectual property rights owned or
licensed by others. In the event that a third party were to claim such a
conflict existed, they could sue us for damages as well as seek to prevent us
from commercializing our product candidates. It is possible that a third party
could successfully claim that our products infringe on their intellectual
property rights. 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, would require 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 proceeding
is resolved unfavorably to us, we may be enjoined from manufacturing or selling
our products without a license from the other party, in addition to being held
liable for significant damages. We may not be able to obtain any such license on
commercially acceptable terms, if at all.
Our ability to continue to sell one of our existing products and successfully
commercialize a number of our product candidates will suffer if we are
unsuccessful in defending our European patents involving CEA antibodies.
We are currently involved in patent litigation with F. Hoffmann-LaRoche
concerning the validity of our European patents covering the proprietary
antibody we use in CEA-Scan, our cancer imaging product, and labetuzumab, our
cancer therapy product candidate. These patents also cover the use of certain
highly specific anti-CEA antibodies which we believe have a number of other
therapeutic uses. We believe that Hoffman-LaRoche has infringed our patents, and
they have responded by seeking to nullify the patents in question. If we are
unsuccessful in these proceedings, our ability to execute our business plan
could be materially and adversely affected.
If we are unable to keep our trade secrets confidential, our technologies and
other proprietary information may be used by others to compete against us.
In addition to our reliance on patents, we attempt to protect our proprietary
technologies and processes by relying on trade secret laws, nondisclosure and
confidentiality agreements, and licensing arrangements with our employees and
other persons who have access to our proprietary information. These agreements
and arrangements may not provide meaningful protection for our proprietary
technologies and processes in the event of unauthorized use or disclosure of
such information. In addition, our competitors may independently develop
substantially equivalent technologies and processes or otherwise gain access to
our trade secrets or technology, either of which could materially and adversely
affect our competitive position.
We face substantial competition in the biotechnology industry and may not be
able to compete successfully against one or more of our competitors.
The biotechnology industry is highly competitive, particularly in the area of
diagnostic and therapeutic oncology products. In recent years there have been
extensive technological innovations achieved in short periods of time, and it is
possible that future technological changes and discoveries by others could
result in our products and product candidates quickly becoming uncompetitive or
obsolete. 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 development of diagnostic and therapeutic oncology products.
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Many of these companies have significantly greater financial, technical and
marketing resources than we do. In addition, many of these companies have more
established positions in the pharmaceutical industry and are therefore better
equipped to develop, commercialize and market oncology products. Even some
smaller competitors may obtain a significant competitive advantage over us if
they are able to discover or otherwise acquire patentable inventions, form
collaborative arrangements or merge with larger pharmaceutical companies.
We 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 technologies, and they
are increasingly aware of the commercial value of their findings. As a result,
they are demanding patent and other proprietary rights, as well as licensing and
future royalty revenues.
Our limited marketing and sales experience could impair our ability to
successfully sell products.
We are currently relying, in substantial part, on our own limited sales and
marketing staff to market our current diagnostic imaging products, CEA-Scan and
LeukoScan. We currently have no marketing or sales experience for our
therapeutic product candidates and will need to attract qualified sales and
marketing professionals or identify out-licensing opportunities in order to
commercialize any future therapeutic products. If we are unable to successfully
build our sales force, our ability to sell products, as well as our financial
condition and operating results, could be materially and adversely affected.
We could be temporarily unable to sell our diagnostic products if our agreements
with distributors are unexpectedly terminated.
We currently do not have the internal resources necessary to 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 unexpectedly terminated, we will
be required to quickly enter into comparable arrangements with other qualified
third parties, and we will be unable 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 materially and adversely
affected.
We may never receive approval to sell LeukoScan in the United States.
We have not received approval from the FDA to sell our LeukoScan product in the
United States, and it remains unclear if we will ever obtain such approval. In
addition, the FDA could impose conditions on its approval which could
significantly affect the commercial viability of the product. The FDA could also
require us to undertake additional clinical studies or otherwise expend
additional funds before granting approval, and we could determine not to pursue
our application any further at that time. If we do not receive approval to
market and sell LeukoScan in the United States, our results of operations and
financial condition could be adversely affected.
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In the event we are unable to continue to use mouse fluids for certain of our
product candidates, we might need to make expensive and time consuming changes
in our development programs.
CEA-Scan and certain of our other imaging agents are derived from the fluids
produced in mice. Regulatory authorities, particularly in Europe, have expressed
concerns about the use of these fluids for the production of monoclonal
antibodies. These regulatory authorities may determine that our quality control
procedures for these products are inadequate. While we are continuing our
development efforts to produce certain of our monoclonal antibodies using
alternative methods, this process constitutes a substantial production change,
which in itself will require additional manufacturing equipment and new
regulatory approvals. In the event we have to discontinue the use of mouse
fluids, we may not have the resources at the time to acquire the necessary
manufacturing equipment and expertise that we will need to make the changes in
our development programs.
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 and local laws and
regulations. Our research and development programs involve the controlled use of
viruses, hazardous materials, chemicals and various radioactive compounds. The
risk of accidental contamination or injury from these materials can never be
completely eliminated, and if an accident occurs, we could be held liable for
any damages that result, which could exceed our available resources.
The nature of our business exposes us to significant liability claims, and our
insurance coverage may not be adequate to cover any future claims.
The use of our compounds in clinical trials and any future sale exposes us to
liability claims which could be substantial. These claims might be made directly
by healthcare providers, medical personnel, patients, consumers, pharmaceutical
companies and others selling or distributing our compounds. While we currently
have product liability insurance that we consider adequate for our current
business, we may not be able to continue to obtain comparable insurance in the
future at an acceptable cost, if at all. If for any reason we cannot maintain
our existing or comparable liability insurance, our ability to clinically test
and market our products could be significantly impaired. Moreover, the amount
and scope of our insurance coverage, as well as the indemnification arrangements
with third parties upon which we rely, may be inadequate to protect us in the
event of a successful product liability claim. Any successful claim in excess of
our insurance coverage could materially and adversely affect our financial
condition and operating results.
The loss of key employees could adversely affect our operations.
We are heavily dependent upon the talents of Dr. Goldenberg, our Chief
Scientific Officer, Ms. Sullivan, our Chief Executive Officer, and certain other
key personnel. If Dr. Goldenberg, Ms. Sullivan or any of our other key personnel
were to unexpectedly leave our company, our business and results of operations
could be materially and adversely affected. In addition, as our business grows
we will need to continue to attract additional 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 attract, motivate and retain qualified
professionals, our operations could be materially and adversely affected.
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We are subject to certain covenants which place restrictions on the operation of
our business.
We are subject to contractual covenants that provide that we may not enter into
certain transactions without the prior consent of certain holders of our common
stock. For example, we may not sell our business to an affiliate without such
approval unless the sale is for consideration at least equal to (a) the fair
market value of our company (as determined by our Board of Directors) in the
event of a sale of assets or (b) the then current market price of our common
stock in the event of a sale of stock. As a result of these covenants, we may be
unable to sell the company under circumstances which you and other stockholders
would otherwise approve.
Our ability to achieve significant revenues from the sale of our products will
depend, in part, on the ability of healthcare providers to obtain adequate
reimbursement from Medicare, Medicaid, private insurers and other health care
payers.
The continuing efforts of government and insurance companies, health maintenance
organizations and other payers of health care costs to contain or reduce costs
of health care may adversely affect our future revenues and ability to achieve
profitability. Our ability to successfully commercialize our future products
will depend, in significant part, on the extent to which health care providers
can obtain appropriate reimbursement levels for the cost of our products and
related treatment. Third-party payers are increasingly challenging the prices
charged for diagnostic and therapeutic products and related services. Also, the
trend towards managed health care in the United States and the concurrent growth
of organizations such as HMOs, could control or significantly influence the
purchase of health care services and products. In addition, legislative
proposals to reform health care or reduce government insurance programs may
result in lower prices or the actual inability of prospective customers to
purchase our products. The cost containment measures that health care payers 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, it may not be available at price levels
sufficient for us to realize a positive return on our investment.
The general business climate is uncertain and we do not know how this will
impact our business.
Over the past 18 months, there have been dramatic changes in economic conditions
and the general business climate has been negatively impacted. Indices of the
United States stock markets have fallen precipitously, and consumer confidence
has waned. Accordingly, many economists theorize that the United States is in a
recession. Compounding the general unease about the current business climate is
the still unknown economic and political impact of the September 11, 2001
terrorist attacks and hostilities in Afghanistan. We are unable to predict how
any of these factors may affect our business.
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Risks Related to Our Common Stock
The market price of our stock is likely to continue to fluctuate widely based on
a number of factors, many of which are beyond our control.
The market price of our common stock has been, and is likely to continue to be,
highly volatile. Furthermore, the stock market generally and the market for
stocks of relatively 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 actual operating performance.
From time to time, stock market professionals publish research reports covering
our business and future prospects. Due to a number of factors, we may fail to
meet the expectations of securities analysts or investors and our stock price
would likely decline as a result. These factors include:
o announcements by us, our partners 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 our patent or other proprietary rights,
and the issuance of patents in our field of business to others;
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.
Our principal stockholder can significantly influence all matters requiring the
approval by our stockholders.
As of December 31, 2001, Dr. Goldenberg, our Chairman and Chief Scientific
Officer, controlled the right to vote approximately 17.6% of our common stock.
As a result of this voting power, Dr. Goldenberg has the ability to
significantly influence the outcome of substantially all matters which may be
put to a vote of our stockholders, including the election of our directors.
A significant number of our shares are eligible for resale which may lower the
market price of our common stock and impair our ability to raise new funds.
As of December 31, 2001, we had approximately 49,681,293 shares of common stock
outstanding, 8,181,249 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. In addition, we have an aggregate of up to 5,772,031
shares available for resale under a shelf registration statement that was filed
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for holders of our securities on November 9, 1999. We also have, as of December
31, 2001, 2,552,750 shares issuable upon exercise of stock options of which
1,205,500 were exercisable and 54,000 shares issuable upon the exercise of
warrants. Sales of substantial amounts of shares of our common stock, 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 unsolicited
attempt to acquire our company or remove or replace our directors and executive
officers.
Provisions of our certificate of incorporation, our by-laws and Delaware
corporate 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. For
example, 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. In addition, our Board of Directors may issue up to ten
million shares of preferred stock and determine the price, rights, preferences
and privileges, including voting and conversion rights, of these shares without
any further vote or action by our stockholders. The issuance of preferred stock
could have the effect of delaying, deterring or preventing an unsolicited 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 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 (as defined in Section 203) for a period of three years from the
date the person became an interested stockholder, unless certain conditions are
met.
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