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 quarterly period ended March 31, 2002
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
IMMUNOMEDICS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 61-1009366
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
300 American Road, Morris Plains, New Jersey 07950
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(Address of principal executive offices) (Zip Code)
(973) 605-8200
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 14, 2002, there were 49,738,543 shares of the registrant's common
stock outstanding.
Page 1 of 23
IMMUNOMEDICS, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets - 3
March 31, 2002 and June 30, 2001
Consolidated Statements of Operations
and Comprehensive Loss - 4
three and nine months ended March 31, 2002 and 2001
Condensed Consolidated Statements of Cash Flows - 5
nine months ended March 31, 2002 and 2001
Notes to Consolidated Financial Statements - 6
March 31, 2002
Item 2. Management's Discussion and Analysis of 12
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risks 20
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 21
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
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Page 2 of 23
Part I - Financial Information
Item 1. Consolidated Financial Statements (Unaudited):
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
March 31, June 30,
2002 2001
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 16,974,975 $ 8,607,901
Marketable securities 30,056,237 44,682,954
Accounts receivable, net of allowance for
doubtful accounts of $141,326 and $125,440 at
March 31, 2002 and June 30, 2001, respectively 805,626 792,598
Inventory 710,312 750,769
Other current assets 1,269,925 1,151,548
------------ ------------
Total current assets 49,817,075 55,985,770
Property and equipment, net of accumulated
depreciation of $9,425,372 and $8,711,412 at
March 31, 2002 and June 30, 2001, respectively 4,889,780 3,395,310
Other long-term assets 51,157 276,157
------------ ------------
$ 54,758,012 $ 59,657,237
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ - $ 70,412
Accounts payable 1,665,826 1,607,176
Deferred revenue 9,725,728 9,000,000
Other current liabilities 1,968,479 2,106,254
------------ ------------
Total current liabilities 13,360,033 12,783,842
------------ ------------
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 March 31, 2002 and June 30, 2001 - -
Common stock; $.01 par value, authorized 70,000,000 shares;
issued and outstanding 49,738,543 and 49,533,871 shares
at March 31, 2002 and June 30, 2001, respectively 497,385 495,339
Capital contributed in excess of par 155,944,004 155,116,973
Accumulated deficit (115,341,258) (114,281,279)
Accumulated other comprehensive income 115,848 110,362
------------ ------------
Total stockholders' equity 41,215,979 41,441,395
------------ ------------
$ 54,758,012 $ 59,657,237
============ ============
See accompanying notes to unaudited consolidated financial statements.
Page 3 of 23
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Revenues:
Product sales $ 964,891 $ 753,121 $ 2,838,027 $ 2,925,459
License fee revenues 2,252,888 1,503,160 6,930,491 1,506,807
Research and development 65,196 134,393 215,999 435,697
----------- ----------- ----------- -----------
Total revenues 3,282,975 2,390,674 9,984,517 4,867,963
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of goods sold 174,936 74,829 529,122 491,282
Research and development 3,901,937 2,536,522 9,788,399 7,342,244
Sales and marketing 299,189 580,302 1,622,072 1,857,679
General and administrative 793,053 822,171 1,922,139 2,265,315
----------- ----------- ----------- -----------
Total costs and expenses 5,169,115 4,013,824 13,861,732 11,956,520
----------- ----------- ----------- -----------
Operating loss (1,886,140) (1,623,150) (3,877,215) (7,088,557)
Interest and other income 384,701 783,709 1,611,706 2,072,658
----------- ----------- ----------- -----------
Net loss before income tax benefit (1,501,439) (839,441) (2,265,509) (5,015,899)
Income tax benefit 1,205,530 803,315 1,205,530 803,315
----------- ----------- ----------- -----------
Net loss $ (295,909) $ (36,126) $(1,059,979) $(4,212,584)
=========== =========== =========== ===========
Comprehensive Income (Loss):
Net loss $ (295,909) $ (36,126) $(1,059,979) $(4,212,584)
----------- ----------- ----------- -----------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (26,993) (39,612) 35,476 (25,925)
Unrealized gain (loss) on securities available for sale (153,537) 122,134 (29,990) 226,588
----------- ----------- ----------- -----------
Other comprehensive income (180,530) 82,522 5,486 200,663
----------- ----------- ----------- -----------
Comprehensive income (loss) $ (476,439) $ 46,396 $(1,054,493) $(4,011,921)
` =========== =========== =========== ===========
Per Share Data (Basic and Diluted):
Net loss $ (0.01) $ (0.00) $ (0.02) $ (0.09)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 49,706,146 49,521,082 49,602,377 49,488,699
=========== =========== =========== ===========
See accompanying notes to unaudited consolidated financial statements.
Page 4 of 23
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
March 31,
2002 2001
------------ ------------
Cash flows from operating activities:
Net loss $ (1,059,979) $(4,212,584)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 713,960 710,970
Provision for allowance for doubtful accounts 15,886 40,660
Amortization of bond premium 185,204 74,065
Non-cash expense relating to issuance of warrants - 508,991
Compensation expense on stock options 79,830 88,700
Deferred revenue (4,524,272) 16,500,000
Changes in operating assets and liabilities (185,959) 46,713
Other 35,476 (25,925)
------------ ------------
Net cash provided by (used in) operating activities (4,739,854) 13,731,590
------------ ------------
Cash flows from investing activities:
Purchases of marketable securities (6,382,100) (45,133,471)
Proceeds from maturities of marketable securities 21,018,623 34,006,867
Additions to property and equipment (2,208,430) (268,458)
------------ ------------
Net cash provided by (used in) investing activities 12,428,093 (11,395,062)
------------ ------------
Cash flows from financing activities:
Exercise of warrants 376,875 -
Exercise of stock options 372,372 1,224,927
Payments of debt (70,412) (117,127)
------------ ------------
Net cash provided by financing activities 678,835 1,107,800
------------ ------------
Increase in cash and cash equivalents 8,367,074 3,444,328
Cash and cash equivalents at beginning of period 8,607,901 11,114,079
------------ ------------
Cash and cash equivalents at end of period $ 16,974,975 $ 14,558,407
============ ============
See accompanying notes to unaudited consolidated financial statements.
Page 5 of 23
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Reference is made to the registrant's Annual Report on Form 10-K for the year
ended June 30, 2001, which contains, at pages 23 through 42, the registrant's
audited consolidated financial statements and the notes thereto.
(1) Business Overview and Basis of Presentation
The accompanying unaudited consolidated financial statements of Immunomedics,
Inc., a Delaware corporation (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. With respect to the financial information for the interim periods
included in this report, which is unaudited, the management of the Company
believes that all adjustments necessary for a fair presentation of the results
for such interim periods 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 nine-month period ended March 31, 2002 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 never achieved profitable operations on a quarterly or annual
basis and there is no assurance that profitable operations, even if achieved,
could be sustained on a continuing basis. Further, the Company's ability to
achieve profitability will depend on numerous factors, including, without
limitation, the following:
o the Company's ability to identify compounds with diagnostic and/or
therapeutic value, and then conduct and complete clinical trials for such
product candidates on a timely basis;
o the Company ability to comply with all applicable federal, state and
foreign legal requirements, including, without limitation, those
promulgated by the U.S. Food and Drug Administration;
o the Company's ability to obtain additional financial resources on
commercially acceptable terms; and
o many other factors associated with the commercial development of
therapeutic and diagnostic products outside of the Company's control.
Since its inception in 1982, the Company has relied primarily upon the private
and public sale of equity securities to fund its operations. The Company has
also received limited revenues from research and development alliances, and more
recently from commercial sales of two diagnostic imaging products. While the
Company believes that its existing resources should be sufficient to meet its
capital and liquidity requirements for at least thenext 18 months, these
resources could be expended more rapidly for many reasons, including unexpected
changes in the Company's research and development activities, as well as other
factors affecting its operating expenses and capital expenditures. There can be
no assurance that the Company will be able to obtain additional capital when
needed on acceptable terms, if at all.
Page 6 of 23
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(2) Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments with original
maturities of three months or less, at the time of purchase, to be cash
equivalents. Included in other current assets at March 31, 2002 and June
30, 2001 is accrued interest earned on cash equivalents and marketable
securities of approximately $401,000 and $652,000, respectively.
(3) Income Taxes
The Company has never generated net income; therefore, no income taxes have
been reflected for the nine-month period ended March 31, 2002 or any prior
period. During the three-month periods ended March 31, 2002 and 2001, the
Company recorded a tax benefit of $1,206,000 and $803,000, as a result of
its sale of approximately $15,269,000 and $10,106,000 of New Jersey state
net operating losses, respectively.
(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 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 be
anti-dilutive due to the net loss recorded for the three and nine-month
periods ended March 31, 2002 and 2001. The Company had certain equity
securities issued and outstanding at March 31, 2002 and 2001 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 2,766,750
and 2,327,250 at March 31, 2002 and 2001, respectively.
(5) Comprehensive Income (Loss)
Comprehensive income (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 income (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 March 31, 2002, the inventory balance consisted
of no raw materials and $710,000 of finished goods, as compared to June 30,
2001 when the inventory balance consisted of $140,000 of raw materials and
$611,000 of finished goods.
Page 7 of 23
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) .
(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 March 31, 2002 and June 30, 2001 were as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
- -------------------------------------------------------------------------------------------
March 31, 2002
--------------
U.S Government Securities $ 3,991,000 $ 0 $ (20,000) $ 3,971,000
Corporate Debt Securities 25,776,000 312,000 (3,000) 26,085,000
------------ ---------- ----------- ------------
$29,767,000 $ 312,000 $ (23,000) $ 30,056,000
============ ========== =========== ===========
June 30, 2001
-------------
Corporate Debt Securities $ 44,364,000 $ 351,000 $ (32,000) $ 44,683,000
============ ========== =========== ===========
(8) Geographic Segment
The Company manages its operations as one line of business focused on the
use of monoclonal antibodies to treat cancer and other serious diseases,
and it currently reports as a single industry segment. The Company
currently markets and sells one diagnostic imaging product in the United
States and two diagnostic imaging products 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
nine-month periods ended March 31, 2002 and 2001:
Three Months Ended
------------------
March 31, 2002
--------------
United States Europe Total
------------- ------ -----
Revenues $ 2,564,169 $ 718,806 $ 3,282,975
Net income (loss) (856,011) 560,102 (295,909)
March 31, 2001
--------------
United States Europe Total
------------- ------ -----
Revenues $ 1,828,600 $ 562,074 $ 2,390,674
Net income (loss) (283,876) 247,750 (36,126)
Page 8 of 23
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited) .
Nine Months Ended
-----------------
March 31, 2002
--------------
United States Europe Total
------------- ------ -----
Revenues $ 7,972,879 $ 2,011,638 $ 9,984,517
Net income (loss) (1,963,100) 903,121 (1,059,979)
March 31, 2001
--------------
United States Europe Total
------------- ------ -----
Revenues $ 2,982,628 $ 1,885,335 $ 4,867,963
Net income (loss) (4,953,115) 740,531 (4,212,584)
(9) Research and Development Arrangements
On December 17, 2000, the Company entered into a Development and License
Agreement (the "Amgen Agreement") with Amgen Inc. The Amgen Agreement
grants Amgen exclusive rights to continue the clinical development and
commercialization in North America and Australia of the Company's unlabeled
or "naked" CD22 antibody compound, epratuzumab, for the treatment of
patients with non-Hodgkin's lymphoma.
Pursuant to the Amgen Agreement, the Company received an up-front payment
of $18,000,000 from Amgen on February 1, 2001, and is entitled to receive a
supply fee (as discussed below), as well as additional clinical milestones
and royalty payments upon the occurrence of certain future events. No such
event has occurred to date.
The up-front payment of $18,000,000 is being recognized, beginning February
2001, as revenue of $750,000 per month over a period of 24 months, which is
the Company's best estimate of the period of time required for the parties
to fulfill their obligations under the agreement. Accordingly, the Company
recognized $2,250,000 and $6,750,000 as "License fee revenues" for the
three and nine-month periods ended March 31, 2002, respectively. The
remaining balance of $7,500,000 is recorded as "Deferred revenue" in the
accompanying unaudited consolidated balance sheets at March 31, 2002.
Amgen is also obligated to pay a supply fee to the Company for materials
shipped by the Company to Amgen pursuant to the Amgen Agreement. The fee
was originally payable at the point in time when Amgen is capable of
manufacturing epratuzumab in quantities sufficient to satisfy its
requirements for use in the conduct of all clinical trials deemed necessary
by the U.S. Food and Drug Administration for approval of its United States
biologics license application. If the Company fails to comply with its
supply obligations, then Amgen does not owe the supply fee. As of March 31,
2002, Amgen was not yet capable of producing such quantities of
epratuzumab. However, Amgen and the Company have previously agreed that the
Company shall be paid by Amgen for the materials shipped since inception of
the Amgen Agreement. Accordingly, the Company invoiced Amgen in December
2001 approximately $2.2 million in payment of all shipments of materials
made through December 31, 2001. Payment was received in January 2002 and
has been recorded in the accompanying consolidated financial statements as
deferred revenue to be recognized at such time as the Company fulfills its
supply obligations as set forth in the Amgen Agreement. During the
Company's fiscal quarter ended March 31, 2002, the Company shipped an
additional $972,000 worth of materials to Amgen which were not yet billed
as of such date.
Page 9 of 23
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
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 will be reimbursed by Amgen in the
future in the event that the Company fails to fully perform its
obligations. The reimbursement amount for materials supplied to Amgen
represents the approximate personnel and materials costs associated with
the manufacturing of such materials. During the three and nine-month
periods ended March 31, 2002, the Company incurred $972,000 and $2,023,000,
respectively, of costs associated with supplying materials to Amgen as
described above and $449,000 during both the three- and nine-month periods
ended March 31, 2001.
The Company, through its 80% owned subsidiary, IMG Technology, LLC ("IMG"),
is a party to a joint venture with Beckman Coulter, Inc. ("Beckman
Coulter"), which was formed 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. The Company accounts
for IMG's investment in IBC using the equity method of accounting for
investments. IMG's interest is a result of the Company's contribution, on
behalf of IMG, of certain rights to the Company's proprietary humanized
antibodies against the cancer marker carcinoembryonic antigen. This
technology had a financial reporting carrying value of zero and, therefore,
IMG's investment in IBC has also been valued at zero. IBC has incurred
losses since its inception in 1998 and neither IMG nor the Company has any
obligation to fund such losses and to date neither has done so. In
accordance with APB Opinion No. 18, the Company has not recorded its
portion of IBC's losses, as this would bring the investment carrying value
to below zero. As of March 31, 2002, IMG's investment in IBC continues to
be carried at zero.
IBC reimburses the Company for all research activities conducted on its
behalf by the Company. The Company recorded reimbursements of $180,000 and
$491,000 for the three and nine-month periods ended March 31, 2002,
respectively, and $104,000 and $281,000 for the three- and nine-month
periods ended March 31, 2001, respectively. Such amounts are netted against
the costs incurred during the same period within the line item for the
Company's research and development expenses on the accompanying unaudited
consolidated statements of operations. The amounts of reimbursement
primarily represent the proportionate share of salaries and benefits of the
Company's personnel spent on research activities on IBC's behalf and other
direct expenses incurred on IBC's behalf, as well as the allocation of
certain expenses such as rent and utilities for Immunomedics space utilized
by IBC.
Page 10 of 23
IMMUNOMEDICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(10) Stockholders' Equity
At the Company's Annual Meeting of Stockholders held 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.
In February 2002, the Company's Board of Directors made the decision to
concurrently redeem all outstanding stockholder rights under its 1998
Stockholder Rights Plan, and declare a dividend of one new Right pursuant
to the Company's 2002 Stockholder Rights Plan adopted by the Board of
Directors. The Rights Plan involves the distribution of one "Right" as a
dividend on each outstanding share of the Company's common stock to each
holder of record on March 15, 2002. Each Right entitles the registered
holder to purchase from the Company one one-thousandth of a share of Series
G Junior Participating Preferred Stock, par value $0.01 per share (the
"Preferred Shares"), of the Company, at a price of $150.00 per one
one-thousandth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The 2002 Rights Plan provides that if a third party acquires
more than 15% of the Company's common stock without prior approval of the
Board of Directors, all stockholders of the Company (other than the
acquiring party) will be entitled to buy either shares of a special series
of the Company's Preferred Shares, or shares of the Company's common stock
with a market value equal to double the Exercise Price for each 2002 Right
they hold. Under these circumstances, the Board of Directors may instead
allow each such Right (other than those held by the acquiring party) to be
exchanged for one share of the Company's common stock. The exercise or
exchange of these 2002 Rights would have a substantial dilutive effect on
the acquiring party. The Company's Board of Directors retains the right at
all times to discontinue the Rights plan through redemption of all rights
or amend the Rights Plan in any respect. The Rights will expire on March 1,
2012 (the "Final Expiration Date"), unless the Final Expiration Date is
extended or unless the Rights are earlier redeemed by the Company, in each
case, as described in the Rights Plan.
On December 23, 1997, the Company entered into a Structured Equity Line
Flexible Financing Agreement (the "Equity Line") with an investor (the
"Investor") which the Company terminated 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 March 31, 2002.
On December 16, 1999, the Company issued a warrant covering 75,000 shares
of its common stock at an exercise price of $6.50 per share to induce a
financial advisor to enter into a financial advisory agreement with the
Company. The Company recognized a final proportionate share of the general
and administrative expense associated with these warrants of approximately
$509,000 for the nine-month period ended March 31, 2001, based on the
estimated 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 11 of 23
Part I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Immunomedics is applying its innovative, proprietary technologies in
antibody selection, modification and chemistry to the development of
compounds for the detection and treatment of cancer and other serious
diseases. Using these technologies, Immunomedics has developed two
diagnostic imaging agents, CEA-Scan and LeukoScan, which are currently
being sold in certain markets for the detection of colorectal cancers and
bone infections, respectively. These are the only products, for which
Immunomedics has received regulatory approval to market and sell, and
together they only generated approximately $894,000 and $2.6 million in
revenues for the three and nine-month periods ended March 31, 2002,
respectively. Immunomedics has several therapeutic and diagnostic compounds
in various stages of pre-clinical and clinical development as further
described below under " - Research and Development." None of these product
candidates are expected to generate any material revenues from commercial
sales for at least the next two years.
Since its inception in 1982, Immunomedics has incurred significant
operating losses and has never earned a profit on a quarterly or annual
basis. This has primarily been the result of the significant amount of
capital that Immunomedics has invested in its research and development
efforts. As of March 31, 2002, Immunomedics had an accumulated deficit of
approximately $115,341,000, and expects to continue to experience
significant operating losses until such time, if ever, that it is able to
generate sufficient revenues from product sales.
The development and commercialization of successful diagnostic and
therapeutic products is subject to numerous risks and uncertainties
including, without limitation, the following:
o the type of therapeutic or diagnostic compound under investigation and
nature of the disease in connection with which the compound is being
studied;
o the ability of Immunomedics to conduct and complete clinical trials on
a timely basis;
o the time required for Immunomedics to comply with all applicable
federal, state and foreign legal requirements, including, without
limitation, the receipt by Immunomedics of the necessary approvals of
the U.S. Food and Drug Administration;
o the financial resources available to Immunomedics during any
particular period; and
o many other factors associated with the commercial development of
therapeutic and diagnostic products outside of the control of
Immunomedics.
These risks and uncertainties are described in greater detail in the
Immunomedics Annual Report on Form 10-K for the year ended June 30, 2001
previously filed by Immunomedics with the U.S. Securities and Exchange
Commission and available at the Commission's Web Site located at
http://www.sec.gov.
Research and Development
As of March 31, 2002, Immunomedics employed 48 professionals in its
research and development departments. In addition to salaries and benefits,
the other costs associated with research and development include the costs
associated with producing biopharmaceutical compounds, laboratory equipment
and supplies, the costs of conducting clinical trials, legal fees and
expenses associated with pursuing patent protection, as well as facilities
costs. Immunomedics expects to spend between $13.5 and $15.5 million in the
aggregate for the fiscal year ended June 30, 2002 on research and
development operating expenses.
Page 12 of 23
In order to further support its research and development efforts, as well
as prepare for future commercialization of its product candidates,
Immunomedics has contracted to expand its facilities at a total cost of
approximately $6.3 million. See "Liquidity and Capital Resources" below.
Once this project is completed, Immunomedics believes that its facilities,
as expanded, will be adequate to support its research and development
activities for at least the next two years without the need for any
material capital expenditures.
Therapeutics
Substantially all of Immunomedics' research and development efforts involve
the use of monoclonal antibodies to treat cancer and other serious diseases
in one of two ways. In the first, the antibodies are unlabeled, or "naked,"
and used to treat the disease directly. In the second, the antibodies are
labeled, or conjugated, with radioisotopes, chemotherapeutic agents, toxins
or other substances. In each case the antibodies first seek out, and then
bind to a particular target such as a disease site or organ system.
Epratuzumab
The most advanced of the Immunomedics therapeutic compounds under
development, epratuzumab, is a non-radioactive antibody that targets the
CD22 receptor of B-cells and B-cell lymphomas. In 2000, Amgen purchased a
license to epratuzumab covering the compound's further development and
commercialization in North America and Australia. The license, for which
Amgen paid Immunomedics $18.0 million in cash and agreed to make additional
milestone and royalty payments upon the achievement of certain future
events, resulted in the transfer of responsibility to Amgen for the Phase
II and Phase III clinical trials then being administered and paid for by
Immunomedics. Amgen is also responsible for any additional trials that may
be necessary to obtain regulatory approvals from the U.S. Food and Drug
Administration and other authorities within Amgen's licensed territory.
Accordingly, apart from the obligation to manufacture epratuzumab for Amgen
until such time as Amgen is able to manufacture its own inventories of the
compound, Immunomedics has no financial obligations with respect to the
commercialization of epratuzumab in North America and Australia.
While the clinical results to date have been encouraging, Immunomedics is
not able to determine when, if ever, epratuzumab will be approved for sale
in the United States or anywhere else. Even if it is approved, there can be
no assurance that it will be commercially successful or that Immunomedics
will ever receive any future milestone or royalty payments.
Other Therapeutic Product Candidates
At the time the Amgen license was granted, Immunomedics retained all other
rights to the compound, including the development rights to the unlabeled
version of the compound outside of Amgen's licensed territory, as well as
the rights to the different labeled versions of the compound in the United
States and everywhere else. Both the labeled and unlabeled versions of the
compound are being evaluated by Immunomedics in clinical trials at the
present time. Clinical trials are also being conducted with another
humanized antibody to carcinoembryonic antigen (CEA) in patients with
colorectal, pancreatic or breast cancers. In addition, Immunomedics has
five other therapeutic product candidates in pre-clinical development. All
of these product candidates remain at a very early stage of development and
Immunomedics does not anticipate seeking regulatory approval with respect
to any particular candidate for at least the next two years.
Page 13 of 23
IBC Pharmaceuticals
Since 1999, Immunomedics has conducted research involving the selective
delivery of therapeutic agents to fight cancer as part of a collaboration
with Beckman Coulter. The joint venture, IBC Pharmaceuticals, LLC, was
capitalized upon its formation and reimburses Immunomedics for all of the
research activities conducted on its behalf by Immunomedics. For the three
and nine month periods ended March 31, 2002, Immunomedics received
reimbursements of $180,000 and $491,000, respectively, from IBC with
respect to these research activities.
Apart from its initial capital contribution in 1999, which consisted
primarily of certain proprietary intellectual property rights, Immunomedics
has no obligation to provide any further funding to IBC. The efforts of IBC
remain at a very early stage and it is too early to determine when, if
ever, any commercially viable product candidates will result from this
joint venture.
Diagnostic
In 1998, Immunomedics began to transition its focus away from the
development of diagnostic imaging products in order to accelerate the
development of its therapeutic product candidates. As a result, as of March
31, 2002 research and development into diagnostic product candidates was no
longer a material portion of its business. Immunomedics is evaluating
several in vivo diagnostic imaging product candidates for the detection of
various cancers and other diseases, although none of these is expected to
be available for commercial sale for at least the next two years. These
agents are being developed primarily to serve as companion products that
may be used in conjunction with the therapeutic product candidates under
development by Immunomedics.
Certain Transactions with Related Parties
Certain of the Company's affiliates, including members of its senior
management and Board of Directors, as well as their respective family
members and other affiliates, have relationships and agreements among
themselves as well as with the Company and its affiliates, 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 President and 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 14 of 23
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.
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
The Company's results for any interim period, such as those described in
the following analysis, are not necessarily indicative of the results for
the entire fiscal year or any other future period.
Nine Month Periods Ended March 31, 2002 Compared to 2001
Revenues for the nine-month period ended March 31, 2002 were $9,985,000, as
compared to $4,868,000 for the same period in 2001, representing an
increase of $5,117,000, or 105%. Product sales for the nine-month period
ended March 31, 2002 were $2,838,000, as compared to $2,925,000 for the
same period in 2001, representing a decrease of $87,000. This was
principally a result of the Company's continued transition in focus from
the development of diagnostic imaging products to the development of
therapeutic compounds. License fee revenues for the nine-month period ended
March 31, 2002 increased to $6,930,000 from $1,507,000 for the same period
in 2001, primarily due to the recognition of $6,750,000 of the total
$18,000,000 up-front license payment received from Amgen in February 2001.
Research and development revenues for the nine-month period ended March 31,
2002 decreased from $436,000 to $216,000 for the same period of 2001,
primarily due to a lower rate of funding for grants.
Total operating expenses for the nine-month period ended March 31, 2002
were $13,862,000, as compared to $11,957,000 for the same period in 2001,
representing an increase of $1,905,000, or 16%. Research and development
expenses for the nine-month period ended March 31, 2002 increased by
$2,446,000 from $7,342,000 to $9,788,000 for the same period in 2001. This
was primarily due to an increased number of employees, as well as increased
research and development efforts and associated manufacturing expenses,
including lab supplies associated with producing compounds to be used in
clinical trials. Cost of goods sold for the nine-month period ended March
31, 2002 increased slightly from $491,000 to $529,000 for the same period
in 2001, primarily due to increased sales of in-vitro diagnostic kits,
which have a higher cost per unit in comparison to the Company's other
imaging products. Sales and marketing expenses for the nine-month period
ended March 31, 2002 decreased by $236,000 to $1,622,000 from $1,858,000
for the same period of 2001, primarily due to lower staffing levels in the
Company's European sales office and other marketing related expenses.
General and administrative costs for the nine-month period ended March 31,
2002 decreased by $343,000 to $1,922,000 from $2,265,000 for the same
period of 2001. This was primarily due to the recognition of an expense for
the nine-month period ended March 31, 2001 of $509,000 associated with
warrants issued in December 1999 with a one year vesting period, partially
offset by an increase of other administrative expenses.
Page 15 of 23
Interest and other income for the nine-month period ended March 31, 2002
decreased by $461,000 from $2,073,000 to $1,612,000 for the same period in
2001, primarily due to lower rate of return on cash available for
investments.
Net loss for the nine-month period ended March 31, 2002 was $1,060,000, or
$0.02 per share, as compared to $4,213,000, or $0.09 per share, for the
same period in 2001. The lower net loss in 2002 as compared to 2001
resulted primarily from greater license fee revenues, which were partially
offset by increased costs and expenses resulting from increased research
and development efforts as discussed above. During the nine-month periods
ended March 31, 2002 and 2001, the Company recorded a tax benefit of
$1,206,000 and $803,000, as a result of its sale of approximately
$15,269,000 and $10,106,000 of New Jersey state net operating losses,
respectively. The higher tax benefit for the nine-month period ended March
31, 2002 affected the net loss positively by the amount of $403,000, or
$0.01 per share.
Three Month Periods Ended March 31, 2002 Compared to 2001
Revenues for the three-month period ended March 31, 2002 were $3,283,000 as
compared to $2,391,000 for the same period in 2001, representing an
increase of $892,000, or 37%. Product sales for the three-month period
ended March 31, 2002, were $965,000 as compared to $753,000 for the same
period in 2001, representing a increase of $212,000, principally from the
increased sales in Europe and HAMA kits in the United States. License fee
revenues for the three-month period ended March 31, 2002 increased by
$750,000 from $1,503,000 to $2,253,000 for the same period in 2001,
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 March 31, 2002 decreased from $134,000 to
$65,000 for the same period in 2001, primarily due to a lower rate of
funding for grants.
Total operating expenses for the three-month period ended March 31, 2002
were $5,169,000 as compared to $4,014,000 for the same period in 2001,
representing an increase of $1,155,000, or 29%. Research and development
expenses for the three-month period ended March 31, 2002 increased by
$1,365,000 from $2,537,000 to $3,902,000 for the same period in 2001,
primarily due to an increased number of employees, as well as increased
research and development efforts and associated manufacturing expenses,
including compounds to be used in clinical trials. Cost of goods sold for
the three-month period ended March 31, 2002 increased by $100,000 from
$75,000 to $175,000 for the same period in 2001, primarily due to increased
sales of in-vitro diagnostic kits. Sales and marketing expenses for the
three-month period ended March 31, 2002 decreased by $281,000 to $299,000
from $580,000, primarily due to lower staffing levels in the Company's
European sales office and other marketing related expenses. General and
administrative costs for the three-month period ended March 31, 2002
decreased by $29,000 to $793,000 from $822,000 for the same period of 2001.
Interest and other income for the three-month period ended March 31, 2002
decreased by $399,000 from $784,000 to $385,000 for the same period in
2001, primarily due to lower rate of return on cash available for
investments.
Net loss for the three-month period ended March 31, 2002 was $296,000, or
$0.01 per share, as compared to $36,000 for the same period in 2001. The
higher net loss in 2002 as compared to 2001 primarily resulted from
increased cost and expenses and lower interest income, partially offset by
an increase in license fee revenues as discussed above. During the
three-month periods ended March 31, 2002 and 2001, the Company recorded a
tax benefit of $1,206,000 and $803,000, as a result of its sale of
approximately $15,269,000 and $10,106,000 of New Jersey state net operating
losses, respectively. The higher tax benefit for the three-month period
ended March 31, 2002 affected the net loss positively by the amount of
$403,000, or $0.01 per share.
Page 16 of 23
Liquidity and Capital Resources
At March 31, 2002 the Company had working capital of $36,457,000, which
represents a decrease of $6,745,000 from June 30, 2001. The Company's
liquid asset position, measured by its cash, cash equivalents and
marketable securities, was $47,031,000 at March 31, 2002, representing a
decrease of $6,260,000 from June 30, 2001. The decrease in each case
resulted primarily from the funding of operating expenses and capital
expenditures.
The Company anticipates 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 sales of diagnostic imaging
products in the United States and Europe. However, there can be no
assurance as to the amount of revenues, if any, these products will
continue to provide.
In October 2001, the Company entered into a Distribution Agreement with
Logosys Logistik GmbH pursuant to which Logosys packages and distributes
the Company's diagnostic imaging products, 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 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. At the time
of renewal the Company leased an additional area of 15,000 square feet.
In order to support its clinical trial and anticipated future commercial
requirements, the Company has entered into construction agreements to
expand its manufacturing facility at a cost of approximately $6.3 million.
The Company plans to fund this project either through its existing working
capital or other financing arrangements. The facility plan includes two
distinct manufacturing suites, containing six new bioreactors, which are
intended to allow flexibility in terms of the amount of therapeutic
compounds that can be produced. The Company anticipates that the facility
will be completed sometime during the first quarter of calendar year 2003.
The Company believes that its existing working capital should be sufficient
to meet its capital and liquidity requirements for at least the next
eighteen months. However, the Company has never generated positive cash
flow from operations and 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
operating expenses and 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.
The Company anticipates that it will require a substantial amount of
additional capital after it utilizes its current cash resources in order to
fund: (i) its research and development programs; (ii) clinical trials of
its product candidates; (iii) regulatory filings for its product
candidates; and (iv) obtaining patent protection for its inventions.
Accordingly, the Company regularly engages in discussions with commercial
banks and other financial institutions regarding financing opportunities.
There can be no assurance that any additional financing will be available
to the Company on terms it finds acceptable, if at all. Even if the Company
is able to obtain additional financing when it is needed, there can be no
assurance that the terms of such financing will not cause substantial
dilution to existing stockholders.
Page 17 of 23
The Company intends to supplement its financial resources from time to time
as market conditions permit through the public or private sale of debt
and/or equity securities, as well as through collaborative marketing and
distribution agreements. 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.
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
significant 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 significant accounting policies in
the future to ensure that full and complete disclosure is made. Revenue
recognition is the one accounting policy the Company considers to be
critical. 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. 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
the purchase method be used for all business combinations initiated after
June 30, 2001. Although the Company considers from time to time
acquisitions of other businesses, technologies and other assets that it
believes may complement its existing business, it does not currently
anticipate making any material acquisitions and cannot assess what affect,
if any, SFAS 141 could have in the event it does consummate such an
acquisition. SFAS No. 142 requires that goodwill no longer be amortized to
earnings, but instead be reviewed for impairment. SFAS No. 142 had 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.
Page 18 of 23
Private Securities Litigation Reform Act of 1995
Certain statements that the Company may make from time to time, including,
without limitation, statements contained in this quarterly report on Form
10-Q, constitute "forward-looking statements" under the federal securities
laws. Forward-looking statements may be identified by words such as
"plans," "expects," "believes" "anticipates," "estimates," "projects,"
"will" and other words of similar meaning used in conjunction with, among
other things, discussions of future operations, financial performance, the
Company's strategy for growth, clinical trials, product development and new
product candidates, market opportunities and expenditures. Forward-looking
statements are based on current expectations of future events, but actual
results could vary materially from the Company's expectations and
projections. Investors are cautioned not to place undue reliance on any
forward-looking statements. The Company assumes no obligation to update any
forward-looking statements. The Company cautions that historical results
should not be relied upon as indications of future performance. Factors
that could cause actual results to differ materially from those expressed
in any forward-looking statement made by, or on behalf of, the Company
include the following: (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; and (iii) the risks described under the caption "Business" and
elsewhere in the Company's 2001 Annual Report on Form 10-K.
Page 19 of 23
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 and governmental securities. 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 March 31, 2002:
Fair
2002 2003 2004 2005 2006 Total Value
---- ---- ---- ---- ---- ----- -----
(in thousands)
Fixed rate $ 4,455 $10,262 $ 6,395 $ -- $ 1,499 $22,611 $ 23,054
Average interest rate 6.70% 5.89% 4.73% -- 6.96% 5.79% --
Variable rate $ -- $ -- $ 6,993 $ -- $ -- $ 6,993 $ 7,002
Average interest rate -- -- 2.15% -- -- 2.15% --
------- ------- ------- ------- ------- ------- --------
Total $ 4,455 $10,262 $13,388 $ -- $ 1,499 $29,604 $ 30,056
======= ======= ======= ======= ======= ======= ========
Page 20 of 23
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 its 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, after consulting with its
patent counsel, believes that there are no valid claims in the patent which
would be infringed by products currently under development by the Company.
However, this conclusion does not guarantee that Genentech will not choose
to initiate patent litigation in the future against the Company. Moreover,
in the event that the Company needs to acquire a license, there is no
assurance that a license could be obtained on commercially reasonable
terms, if at all.
Page 21 of 23
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
99.1 Factors That May Affect The Future Results of Immunomedics, Inc.
(b) Reports on Form 8-K.
During the quarter for which this Report on Form 10Q is filed, the
registrant filed two current reports on Form 8-K. The first, dated
March 1, 2002, referenced the decision by the Company's Chairman and
Chief Scientific Officer's to enter into a written stock selling plan
in accordance with SEC Rule 10b5-1. The second, dated March 4, 2002,
announced the decision of the Company's Board of Directors to
concurrently redeem all outstanding stockholder rights under its 1998
Stockholder Rights Plan, and declare a dividend of one new Right
pursuant to the Company's 2002 Stockholder Rights Plan adopted by the
Board of Directors.
Page 22 of 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IMMUNOMEDICS, INC.
(Registrant)
DATE: May 15, 2002 By: /s/ Cynthia L. Sullivan
-----------------------
Cynthia L. Sullivan
President, Chief Executive
Officer and Director
(Principal Executive Officer)
DATE: May 15, 2002 By: /s/ Gerard G. Gorman
--------------------
Gerard G. Gorman
Vice President Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 23 of 23
EXHIBIT 99.1
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 shares of our common 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 first two 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 March 31, 2002, 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
pre-clinical 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
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
Page 1 of 12
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 diagnostic and therapeutic 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 pre-clinical 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
obtain access to such expertise. If we proceed independently, we will require
additional technical resources and personnel that may be difficult and costly to
Page 2 of 12
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 either 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 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 our most advanced therapeutic compound, epratuzumab, to Amgen
in North America and Australia. As a result, Amgen is solely responsible, and we
are depending upon them, for completing the clinical development of epratuzumab,
obtaining all necessary regulatory approvals, and then commercializing and
manufacturing the compound for sale 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 or are terminated by Amgen
for any other reason, our ability to commercialize this product candidate in the
future, as well as other product candidates we have in development which are
closely related to epratuzumab, would be severely jeopardized. In such event, it
is likely we would never receive any of the milestone payments or royalties that
we are eligible to receive under our agreement with Amgen, 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 need for cash depletes our existing resources sooner than we otherwise
anticipate, 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 pre-clinical 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 18 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
both with us as well as 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 President and 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 pre-clinical 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 is
required. 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 pre-clinical 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 pre-clinical
trials in areas of importance to us, as well as basic research and pre-clinical
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 our diagnostic imaging products,
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
The successful development of diagnostic and therapeutic products frequently
requires the application of multiple technologies which may be subject to the
patent or other intellectual property rights of third parties. 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 have been involved in patent litigation with F. Hoffmann-LaRoche since 1996
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
Page 7 of 12
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.
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 greater 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 diagnostic
imaging 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.
Page 8 of 12
In the event we are unable to continue to use fluids produced in mice 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 the operations of our business.
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
needs, 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 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 President and 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.
Page 9 of 12
We are subject to certain covenants that 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 that 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 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.
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.
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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 analysts publish research reports or otherwise
comment upon 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 theissuance 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 March 31, 2002, Dr. Goldenberg, our Chairman and Chief Scientific Officer,
controlled the right to vote approximately 17.5% 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 that 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 that may lower the
market price of our common stock and impair our ability to raise new funds.
As of March 31, 2002, we had approximately 49,738,543 shares of common stock
outstanding, 9,092,672 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. As of March 31, 2002, there were an additional
2,766,750 shares issuable upon the exercise of stock options, of which 1,179,875
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.
Page 11 of 12
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 that 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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