United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-16614
NEORX CORPORATION
(Exact name of Registrant as specified in its charter)
Washington 91-1261311
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
410 West Harrison Street, Seattle, Washington 98119-4007
(Address of principal executive offices)
Registrant's telephone number, including area code: (206) 281-7001
Securities registered pursuant to Section 12(b)of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.02 Par Value
9 3/4 % Convertible Subordinated Debentures, due 2014
$2.4375 Convertible Exchangeable Preferred Stock, Series 1
Series 2 Convertible Preferred Stock
Series 3 Convertible Preferred Stock
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.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
Registrant as of March 3, 1998 was approximately $105.0 million.
As of March 3, 1998, approximately 20.7 million shares of the Registrant's
Common Stock, $.02 par value per share, were outstanding.
Documents Incorporated by Reference
(1) Portions of the Registrant's 1998 Notice of Annual Meeting and Proxy
Statement for the Registrant's Annual Meeting of Shareholders to be held on May
13, 1998 are incorporated by reference in Part III of this Form 10-K.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion of results of operations, liquidity and capital
resources includes certain forward-looking statements. The words "believes",
"anticipates", "plans, "may", "hopes", "can", "will", "expects", "is designed
to", "with the intent", and other similar terms are intended to identify such
forward-looking statements. Such statements are based on current expectations
and are subject to certain risks and uncertainties that could cause actual
results to differ materially from those anticipated by the statements made by
the Company. Certain risk factors have been identified which could affect the
Company's actual results and are described in Item I above.
OVERVIEW
NeoRx develops biopharmaceutical products primarily for the treatment of
cancer and cardiovascular disease. The Company completed Phase I trials in 1997
for AVICIDIN(R), a cancer therapy product, and BIOSTENT(R), a product designed
to reduce restenosis. The Company's revenues have consisted principally of
license fees from Janssen, Schwarz Pharma, DuPont Merck, and from federal
government research contracts. In 1997 the Company entered into two new
licensing agreements with corporate partners (Janssen and Schwarz Pharma) and
plans to pursue additional agreements in the future. Expenses incurred have been
primarily for research and development activities and administration.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
The Company's revenues in 1997, 1996 and 1995 were $10.4 million, $4.8
million and $0.3 million, respectively, and consisted of license fees and
payments received under its licensing agreements. Revenues for 1997 increased
significantly over 1996, as the result of two new licensing agreements during
the year. In the third quarter of 1997, NeoRx entered into an agreement with
Janssen for the worldwide development, manufacture and distribution of NeoRx's
AVICIDIN(R) cancer therapy product. As a part of this agreement, NeoRx received
$5 million in revenue (license fees) and $5 million for the purchase of Series 4
Convertible Preferred Stock. In January 1998, NeoRx received a $7 million
milestone payment from Janssen, reflecting Janssen's decision to begin Phase II
trials of AVICIDIN(R).
During the second quarter of 1997, NeoRx entered into an agreement with
Schwarz Pharma to license the North American and European marketing rights to
NeoRx's BIOSTENT(R) product. The Company received $4.0 million in licensing fees
and $4.0 million for the purchase of NeoRx Common Stock. The excess amount paid
($1.3 million) over the fair market value of Common Stock was recorded as
revenue. Revenues in 1996 consisted primarily of license fees of $4.5 million
from DuPont Merck for exclusive North American rights to market NeoRx's
VERLUMA(R) lung cancer imaging products.
The Company's total operating expenses were $14.6 million, $14.8 million and
$13.3 million in 1997, 1996 and 1995, respectively. Of these amounts, research
and development expenditures were $11.0 million, $10.7 million and $9.3 million
in 1997, 1996 and 1995, respectively. Research and development expenses
increased 3% in 1997 and 14% in 1996. The increase in research and development
expenses in 1997 is attributed to expenditures relating to antibody
humanization, clinical trial activities and royalty costs. Research and
development expenses are shown net of reimbursements for payments made to third
parties received under collaborative agreements. During 1997 the Company
received $3.4 million from corporate partners and government research grants
under such collaborative agreements.
In 1996 the increase in research and development was primarily due to
activities relating to antibody humanization, increased clinical trial
activities, patent filing costs, and a one-time payment to sublicense
PRETARGET(TM) technology. In 1996 and 1995, amounts received from corporate
partners and government grants were insignificant.
General and administrative expenses were $3.7 million, $4.1 million and $4.0
million in 1997, 1996 and 1995, respectively. General and administrative
expenses decreased 10% in 1997 and increased 2% in 1996. The decrease in general
and administrative expenses in 1997 was primarily due to reduced costs for
compensation, as well as reduced costs for legal and professional services. In
1996 the increase in general and administrative expenses was primarily due to
legal costs associated with collaborative agreements.
Investment and interest income was $1.9 million, $1.1 million and $1.0
million in 1997, 1996 and 1995, respectively. The increase in 1997 and 1996 was
primarily due to higher average cash balances resulting from sales of Common and
Preferred Stock. Interest expense was $0.1 million in 1997, 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments totaled $33.7 million and
$18.3 million at December 31, 1997 and 1996 respectively. During 1997 the
Company increased cash, cash equivalents and short-term investments by $15.4
million.
Cash used in operating activities for 1997 totaled $2.9 million. 1997 Revenue
derived mainly from the two new licensing agreements (Janssen and Schwarz
Pharma) and investment and interest income of $1.9 million were used to fund
total operating expenses of $14.6 million.
Cash provided by financing activities for 1997 totaled $18.7 million. The
majority of the funds were raised from three stock transactions: the JJDC Stock
Purchase agreement ($5.0 million), the Schwarz Pharma agreement ($2.6 million),
and the private placement transactions $(11.4 million).
Cash used in investing activities for 1997 totaled $16.8 million. During 1997
the Company invested excess cash in short-term investments that will be used to
fund future operating costs. During 1997 the Company also invested $0.3 million
in equipment, furniture and leasehold improvements, primarily to support its
research and manufacturing activities. As of December 31, 1997, the Company was
committed to spending approximately $1.8 million pursuant to operating and
capital lease obligations.
In August 1997, the Company received $5.0 million from the sale of Series 4
Convertible Preferred Stock to JJDC. In March and April of 1997 the Company
received $11.4 million from the sale to private investors of 120,000 shares of
Series 3 Preferred Stock convertible at a discount. In accordance with an SEC
accounting interpretation, the associated discount of $2.1 million was recorded
as a one time non-cash dividend. In May 1997, the Company received $4 million
from Schwarz Pharma for 699,000 shares of unregistered stock, representing a 50%
premium over the fair value of the stock. The associated premium of $1.3 million
was recorded as revenue.
In January 1996, the Company sold 370,000 shares of Common Stock and 47,000
shares of Series 2 Convertible Preferred Stock in private transactions and
received $6.6 million. During 1996, the Company sold 464,000 common stock and
preferred stock and received $3.8 million, and during 1995, the Company sold
186,000 shares of common stock and received $1.2 million. Also during 1995,
NeoRx received $8.3 million from the sale of 1.4 million units consisting of
Common Stock and three-year warrants.
The Company's cash investment policy is to earn a market rate of interest on
its marketable securities while assuming minimal risk of principal. The
investment portfolio must meet the following objectives: preservation of
principal, fulfillment of liquidity needs, reasonable yield and avoidance of
inappropriate concentrations. All investments must carry an investment grade
rating and no single non-Federal government issue may represent more than 10% of
portfolio assets.
The Company expects that its capital resources and interest income will be
sufficient to finance its currently anticipated working capital and capital
requirements through 1999. The Company's working capital and capital
requirements will depend upon numerous factors, including results of research
and development activities, clinical trials, the levels of resources that the
Company devotes to establishing and expanding marketing and manufacturing
capabilities, competitive and technological developments and the timing and cost
of relationships with parties to collaborative agreements. The Company will need
to raise substantial additional funds to conduct research and development
activities, preclinical studies and clinical trials necessary to bring its
products to market, and to establish marketing and limited manufacturing
capabilities. The Company intends to seek additional funding through public or
private equity financings, arrangements with corporate collaborators or other
sources. Adequate funds may not be available when needed or on terms acceptable
to the Company.
IMPACT OF THE YEAR 2000
In 1997 the Company initiated the installation of a new accounting system
that is compliant with the year 2000 requirements and is currently evaluating
other systems for Year 2000 concerns. The Company has not initiated formal
communications with its significant suppliers to determine the extent to which
the Company is vulnerable to those third parties' failure to remediate their own
Year 2000 Issue. There can be no guarantee that the systems of other companies
on which the Company relies will be timely converted, or that a failure to
convert by another company would not have a material adverse effect on the
Company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements -- See Index to Financial Statements.
(a) (2) Financial Statement Schedules -- Not applicable.
(a) (3) Exhibits -- See Exhibit Index filed herewith.
(b) Reports on Form 8-K -- Not applicable.
(c) Exhibits -- See Exhibit Index filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 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.
NEORX CORPORATION
(Registrant)
/s/ RICHARD L. ANDERSON
--------------------------------------------
Richard L. Anderson
Senior Vice President Finance and Operations,
Chief Financial Officer, Secretary
Date: March 31, 1998
EXHIBIT INDEX
INCORPORATION
EXHIBIT DESCRIPTION BY REFERENCE TO
------- ----------- ---------------
3.1(a) Restated Articles of Incorporation, dated April 29, 1996 *
3.1(b Articles of Amendment, dated March 31, 1997, to Restated Articles
of Incorporation **
3.1(c) Articles of Amendment, dated August 8, 1997, to Restated Articles
of Incorporation XXXXXX
3.2 Bylaws, as amended, of the registrant XXXXXX
4.1 Form of Indenture, dated as of June 1, 1989, between NeoRx
Corporation and First Interstate Bank of Washington, N.A., as
Trustee ***
4.2 Specimen Warrant Certificate +++
4.3 Form of Purchase Agreements dated as of April 18, 1995 between
NeoRx Corporation and the Purchasers +++
4.4 Form of Purchase Agreements dated as of January 30, 1996 between
NeoRx Corporation and the Purchasers ++++
4.5 Rights Agreement, dated April 10, 1996, between NeoRx Corporation
and First Interstate Bank of Washington, N.A. ++++++
10.1 Restated 1994 Stock Option Plan (^) &
10.2 Lease Agreement for 410 West Harrison facility, dated February 15,
1996, between NeoRx Corporation and Diamond Parking, Inc #
10.3 1991 Stock Option Plan for Non-Employee Directors, as amended (^) ++
10.4 1991 Restricted Stock Option Plan (^) ******
10.5 Stock and Warrant Purchase Agreement, dated as of September 11,
1992, between NeoRx Corporation and Boehringer Ingelheim
International GmbH ****
10.6 Amendment to Stock and Warrant Purchase Agreement, dated as of
September 17, 1992, between NeoRx Corporation and Boehringer
Ingelheim International GmbH +
10.7 Second Amendment to Stock and Warrant Purchase Agreement, dated
as of September 29, 1993, between NeoRx Corporation and Boehringer
Ingelheim International GmbH +
10.8 Development and License Agreement, dated as of September 11, 1992,
between NeoRx Corporation and Boehringer Ingelheim International
GmbH ****
10.9 First Amendment to Development and License Agreement, dated
September 22, 1994, between NeoRx Corporation and Boehringer
Ingelheim International GmbH ++
10.10 Second Amendment to Development and License Agreement,
dated October 31, 1994, between NeoRx Corporation and
Boehringer Ingelheim International GmbH ++
10.11 Technology License Agreement, dated as of September 11, 1992,
between NeoRx Corporation and Boehringer Ingelheim International
GmbH ****
10.12 License Agreement, dated as of September 18, 1992, between NeoRx
Corporation and Sterling Winthrop Inc ****
10.13 Agreement, dated as of December 15, 1995 +++++
10.14 License Option Agreement, dated June 1, 1991, between NeoRx
Corporation and the UAB Research Foundation +
10.15 Research Agreement (With Option to License), dated February 8,
1993, between NeoRx Corporation and Southern Research
Institute +
10.16 Consulting Agreement, effective March 15, 1993,
between NeoRx Corporation and Oxford Molecular Inc +
10.17 Agreement, dated as of August 1, 1993, between NeoRx Corporation
and Avalon Medical Partners +
10.18 Registration Rights Agreement, dated September 1993, between NeoRx
Corporation and Avalon Medical Partners +
10.19 Consulting Agreement, dated as of July 7, 1993, between NeoRx
Corporation and Dr. Fred Craves (^) +
Amendment to consulting agreement, dated May 9,1995 between NeoRx
10.20 Corporation and Dr. Fred Craves (^) +++++
10.21 Engagement letter, dated as of June 22, 1993, between NeoRx
Corporation and the Placement Agents *****
10.22 Purchase Agreements, dated May 19, 1993, between NeoRx Corporation
and the Purchasers or representatives thereof *****
10.23 Stock Purchase Agreement, dated as of October 5, 1994, between
NeoRx Corporation and The DuPont Merck Pharmaceutical
Company ++
10.24 License Agreement, dated as of October 5, 1994, between NeoRx
Corporation and The DuPont Merck Pharmaceutical Company ++
10.25 Supply Agreement, dated November 10, 1994, between Cordis
Corporation and NeoRx Corporation ++
10.26 License Agreement, effective as of October 12, 1994, between
Indiana University Foundation and NeoRx Corporation, as amended ++
10.27 Agreement, dated as of June 1, 1987, between NeoRx Corporation
and the Board of Trustees of the Leland Stanford Junior
University, as amended ++
10.28 Amendment No.3, dated November 15, 1995, to Contract between
Corporation and the Board of Trustees of the Leland Stanford
Junior University +++++
10.29 Form of Registration Rights Agreement, dated January 30, 1996, by
and among NeoRx Corporation and Grace Brothers, Ltd., Genesee Fund,
Ltd. and SBSF Biotechnology Partners ++++
10.30 Indemnification Agreement (^) #
10.31 Change of Control Agreement (^) ##
10.32 Form of Key Executive Severance Agreement (^) ##
10.33 Development, Distribution and Supply Agreement between NeoRx
Corporation and Schwarz Pharma AG, dated March 31, 1997 X
10.34 Stock Purchase Agreement, dated May 24, 1997, between Schwarz
Pharma AG and NeoRx Corporation XXX
10.35 Preferred Stock Purchase Agreement, dated August 8, 1997, between
Johnson & Johnson DevelopmentCorporation and NeoRx Corporation XXXX
10.36 Agreement, entered into as of July 1, 1997,
between Janssen Pharmaceutica, N.V. and NoeRx Corporation XXXX
16.1 Letter Regarding Change in Certifying Accountants XX
23.1 Consent of KPMG Peat Marwick LLP Filed herewith
23.2 Consent of Arthur Andersen LLP Filed herewith
* Filed as an exhibit to the Company's Form 10-K for the fiscal year ended
** Filed as an exhibit to the Company's Registration Statement on Form S-3
(Registration No. 333-25161), filed April 14, 1997 and incorporated herein
by reference.
*** Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-28545)effective May 31, 1989 and incorporated herein
by reference.
**** Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992 and incorporated herein by reference.
***** Filed as an exhibit to the Company's Registration Statement on Form S-3
(Registration No. 33-64992) effective August 25, 1993 and incorporated herein
by reference.
****** Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1991 and incorporated herein by reference.
+ Filed as an exhibit to the Company's Registration Statement on Form S-2
(Registration No. 33-71164) effective December 13, 1993 and incorporated herein
by reference.
++ Filed as an exhibit to the Company's Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference.
+++ Filed as an exhibit to the Company's Registration Statement on Form S-3
(Registration No. 33-60029) effective August 8, 1995 and incorporated herein
by reference.
Filed as an exhibit to the Company's Registration Statement on Form S-3
++++ (Registration No. 333-00785) effective February 7, 1996 and incorporated herein
by reference.
+++++ Filed as an exhibit to the Company's Form 10-K for the fiscal year ended
December 31, 1995 and incorporated herein by reference.
++++++ Filed as an exhibit to the Company's Registration Statement on Form 8-A,
dated April 15, 1996 and incorporated herein by reference.
& Filed as an exhibit to the Company's Registration Statement on Form S-8,
filed July 31, 1997 and incorporated herein by reference.
# Filed as an exhibit to the Company's Form 10-Q for the quarterly period
ended March 31, 1996 and incorporated herein by reference.
## Filed as an exhibit to the Company's Form 10-Q for the quarterly period
ended June 30, 1996 and incorporated herein by reference.
X Filed as an exhibit to the Company's Form 10-Q for the quarterly period
ended March 31, 1997 and incorporated herein by reference.
XX Filed as an exhibit to the Company's Form 8-K dated April 11, 1997 and
incorporated herein by reference.
XXX Filed as an exhibit to the Company's Form 8-K dated June 11, 1997 and
incorporated herein by reference.
XXXX Filed as an exhibit to the Company's Form 8-K dated October 7, 1997 and
incorporated herein by reference.
XXXXXX Filed as an exhibit to the ocmpany's Form 10-K for the fiscal year ended
December 31, 1997 and incorporated herein by reference.
^ Management contract or compensatory plan.