SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Commission File No. 0-19131
MEDIMMUNE, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1555759
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
35 West Watkins Mill Road, Gaithersburg, MD 20878
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301)417-0770
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 [ ]
As of March 31, 1999, 55,622,518 shares of Common Stock, par value $0.01 per
share, were outstanding.
MEDIMMUNE, INC.
Index to Form 10-Q
Part I Financial Page
Item 1. Financial Statements
Balance Sheets 1
Statements of Operations 2
Condensed Statements of Cash Flows 3
Notes to Financial Statements 4-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8-11
Part II Other Information 11-12
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
CytoGam and RespiGam are registered trademarks of the Company and Synagis
is a trademark of the Company.
ITEM 1. FINANCIAL STATEMENTS
MEDIMMUNE, INC.
BALANCE SHEETS
(in thousands, except share data)
March 31, December 31,
1999 1998
---------- ----------
ASSETS: (Unaudited)
Cash and cash equivalents $ 30,090 $ 37,959
Marketable securities 163,964 96,923
Trade receivables, net 39,586 31,682
Contract receivables, net 2,743 3,155
Inventory, net 17,163 19,760
Deferred tax assets 21,568 22,595
Other current assets 929 4,292
---------- ----------
Total Current Assets 276,043 216,366
Property and equipment, net 76,249 74,822
Inventory-noncurrent 4,312 4,949
Deferred tax assets, net 51,917 54,923
Other assets 8,320 2,060
---------- ----------
Total Assets $416,841 $353,120
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable, trade $ 2,045 $ 4,052
Accrued expenses 48,877 33,397
Product royalties payable 17,544 14,948
Accrued interest 1,515 2,580
Other current liabilities 2,904 2,993
--------- ----------
Total Current Liabilities 72,885 57,970
Long-term debt 80,926 83,195
Other liabilities 2,130 2,122
---------- ----------
Total Liabilities 155,941 143,287
---------- ----------
Commitments and Contingencies
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized
5,524,525 shares; none issued or outstanding -- --
Common stock, $.01 par value; authorized
120,000,000 shares; issued and outstanding
55,622,518 at March 31, 1999 and
54,654,842 at December 31, 1998 556 547
Paid-in capital 311,541 289,318
Accumulated deficit (51,197) (80,032)
--------- ---------
Total Shareholders' Equity 260,900 209,833
--------- ---------
Total Liabilities and Shareholders' Equity $416,841 $353,120
========= =========
The accompanying notes are an integral part of these financial statements.
1
MEDIMMUNE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands except per share data)
For the
Three months ended
March 31,
-----------------
1999 1998
------- -------
Revenues:
Product sales $126,996 $42,893
Other 1,725 16,445
-------- --------
Total revenues 128,721 59,338
Costs and Expenses:
Cost of sales 31,267 22,275
Research and development 8,783 5,668
Selling, administrative and general 37,049 12,926
Other operating expenses 5,868 5,802
-------- --------
Total expenses 82,967 46,671
-------- --------
Operating Income 45,754 12,667
Interest income 2,187 1,700
Interest expense (928) (1,162)
-------- --------
Income before income taxes 47,013 13,205
Provision for income taxes 18,178 -
-------- --------
Net earnings $28,835 $13,205
======== ========
Basic earnings per share $0.52 $0.25
======== ========
Shares used in calculation
of basic earnings per share 55,162 51,888
======== ========
Diluted earnings per share $0.45 $0.22
======== ========
Shares used in calculation of
diluted earnings per share 65,468 63,155
======== ========
The accompanying notes are an integral part of these financial statements.
2
MEDIMMUNE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands) For the
three months ended
March 31,
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $28,835 $13,205
Noncash items:
Deferred taxes 18,103 -
Depreciation and amortization 848 632
Amortization of discount on marketable
securities (343) (413)
Other (663) (445)
Other changes in assets and liabilities 14,179 (2,181)
-------- --------
Net cash provided by operating
activites 60,959 10,798
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in marketable securities (66,698) (68,177)
Capital expenditures (1,583) (1,114)
Other (6,350) -
-------- --------
Net cash provided by investing
activities (74,631) (69,291)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common
stock and exercise of stock options 8,160 73,776
Decrease in long-term debt (2,357) (516)
-------- --------
Net cash provided by financing
activities 5,803 73,260
-------- --------
Net (decrease) increase in cash and cash
equivalents (7,869) 14,767
Cash and cash equivalents at beginning
of period 37,959 29,984
-------- --------
Cash and cash equivalents at end of period $30,090 $44,751
======== ========
The accompanying notes are an integral part of these financial statements.
3
MEDIMMUNE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
General
The financial information presented as of March 31, 1999, and for the three
months ended March 31, 1999 and 1998, is unaudited. In the opinion of the
Company's management, the financial information contains all adjustments (which
consist only of normal recurring adjustments) necessary for a fair presentation
of such financial information.
Inventory
Inventory net of reserves, consists of the following (in thousands):
March 31, December 31,
1999 1998
------------- -------------
Raw Materials $8,802 $9,794
Work in Process 7,957 9,188
Finished Goods 4,716 5,727
------- --------
21,475 24,709
Less noncurrent inventory (4,312) (4,949)
------- --------
$17,163 $19,760
======== ========
The Company has purchased plasma and other raw materials for use in production
in the Company's Frederick manufacturing facility, which is subject to U.S. Food
and Drug Administration ("FDA") licensure and approval. Due to the uncertainty
surrounding the likelihood and timing of FDA approval, all inventory for
this facility has been classified as noncurrent in the accompanying balance
sheet.
As a result of the June 1998 FDA approval of the Company's second generation RSV
product, Synagis, and the market acceptance of Synagis, the Company reserved
approximately $9.2 million against its RespiGam inventory in the second quarter
of 1998, as no further significant product sales are expected to result from
this inventory in the foreseeable future. As of March 31, 1999, approximately
$8.0 million of the reserve remains. The remaining RespiGam plasma inventory of
$2.7 million has been written down to the value the Company expects to recover
upon sale to third parties. Should the Company be unable to sell the plasma at
its net book value, a further adjustment in a subsequent quarter may be
necessary.
Finished goods at March 31, 1999 and December 31, 1998 include approximately
$1.6 million of by-products that result from the production of the Company's
principal products at one of its contract manufacturers and are held for resale.
The March 31, 1999 and December 31, 1998 balances are net of a reserve of
$1.6 million.
4
Property and Equipment
Property and equipment, stated at cost, consists of the following (in
thousands):
March 31, December 31,
1999 1998
------------ ------------
Land $ 2,147 $ 2,147
Buildings & building improvements 7,489 7,085
Leasehold improvements 13,235 12,736
Laboratory, manufacturing and
facilities equipment 11,318 10,841
Office furniture, computers, and
equipment 5,953 5,739
Construction in progress 48,748 48,067
--------- --------
88,890 86,615
Less accumulated depreciation and
amortization (12,641) (11,793)
--------- ---------
$76,249 $74,822
========= =========
Construction in progress includes costs incurred in connection with the design
and construction of the Company's manufacturing facility and includes
capitalized interest costs of $6.0 million and $5.3 million at March 31, 1999
and December 31, 1998, respectively.
Buildings includes the purchase in December 1998 of a new facility in Frederick,
Maryland. This facility is expected to provide additional warehouse and
administrative space. Buildings also includes costs associated with the portions
of the Company's manufacturing facility placed in service during 1998.
Construction of the manufacturing facility is complete and validation and
start-up activities are ongoing. The Company will continue to capitalize costs,
primarily capitalized interest, related to the facility until placed in service.
The portions of the facility that are subject to inspection and approval by the
FDA will be placed in service and depreciation will commence upon receipt of
such approval.
Income Tax Provision
The income tax provision in the current quarter has been computed using an
effective combined federal and state tax rate of 38.6%. The cash obligation of
such provision has been offset by the utilization of deductions generated by the
exercise of stock options and the utilization of deferred taxes, comprised
mostly of net operating loss carryforwards. As required, the tax benefit of
stock option exercise deductions has been recorded directly to stockholders'
equity.
Earnings per Share
The Company computes earnings per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Basic
earnings per share is computed based on the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed
based on the weighted average shares outstanding and the dilutive common stock
equivalents outstanding during the period. The dilutive effect of convertible
debt is measured using the "if converted" method. The dilutive effect of stock
options is measured using the treasury stock method. Common stock equivalents
are not included in periods where there is a loss as they are anti-dilutive. The
following is a reconciliation of the numerators and denominators of the diluted
EPS computation for the periods reported.
5
March 31, March 31,
1999 1998
---------- ----------
Numerator:
Net earnings $ 28,835 $13,205
Interest on 7% convertible notes, net of
amounts capitalized and for 1999, net of
related taxes 358 578
--------- ---------
Numerator for diluted EPS $ 29,193 $13,783
========= =========
Denominator:
Weighted average shares outstanding 55,162 51,888
Effect of dilutive securities:
Stock options 4,208 5,169
7% convertible notes 6,098 6,098
--------- --------
Denominator for diluted EPS 65,468 63,155
========= ========
Options to purchase 1,315,100 shares of common stock with prices ranging from
$55.00 to $59.50 per share were outstanding in the first quarter of 1999 and
options to purchase 386,800 shares of common stock with prices ranging from
$24.75 to $28.13 per share were outstanding in the first quarter of 1998, but
were not included in the computation of diluted earnings per share because they
were anti-dilutive.
6
Restatements
Prior year share and per share amounts have been restated to give effect to the
two-for-one stock split on December 31, 1998.
New Accounting Pronouncement
Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
requires companies to recognize all derivatives as either assets or liabilities,
with the instruments measured at fair value. The accounting for changes in fair
value, gains or losses, depends on the intended use of the derivative and its
resulting designation. The statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The Company will adopt SFAS No. 133
by January 1, 2000. Because of the Company's minimal use of derivatives,
management does not anticipate that the adoption of SFAS No. 133 will have a
material effect on the earnings or financial position of the Company.
7
ITEM 2.
MEDIMMUNE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Product sales increased 196% to $127.0 million in first quarter 1999 from $42.9
million in first quarter 1998, principally due to sales of Synagis. Sales of
Synagis for the 1999 quarter were $116.2 million and during the 1998/1999
respiratory syncytial virus ("RSV") season totaled $226.0 million. Synagis
sales in the first quarter of 1999 included $1.5 million of international sales
to the Company's exclusive international distributor of Synagis, Abbott
Laboratories. RespiGam sales of $0.3 million were recorded in first quarter 1999
versus $32.1 million in first quarter 1998, reflecting the shift in customer
demand from RespiGam to Synagis for prevention of RSV disease and adequate
levels of inventories of RespiGgam at wholesalers and hospitals. CytoGam
sales decreased 10% to $9.7 million in the 1999 quarter from $10.8 million in
first quarter 1998 reflecting a change in the sales mix of domestic versus
international units, (international units have a lower selling price) and an
increase in government rebate allowances, offset by a 9% increase in total units
sold. Product sales in the 1999 quarter also include $0.8 million of by-product
sales. Other revenues in the 1999 first quarter of $1.7 million primarily
reflect payments from SmithKline Beecham ("SKB") for development of a human
papillomavirus vaccine while the 1998 quarter included a $15.0 million
payments from SKB upon signing of the collaborative alliance.
Gross margins improved to 75% in the first quarter of 1999 versus 48% in the
first quarter of 1998. Gross margins in 1999 were favorably impacted by Synagis
sales, which carry a significantly lower per-unit cost than the Company's
plasma-derived products.
Research, development and clinical spending increased 55% to $8.8 million in the
first quarter of 1999 from $5.7 million in the first quarter of 1998. Expenses
in 1999 include costs of the Company's congenital heart disease clinical trial
using Synagis and various clinical studies relating to MEDI-507, the Company's
anti-CD2 monoclonal antibody.
Selling, administrative and general expenses increased to $37.0 million in this
year's quarter from $12.9 million in the 1998 quarter, an increase of 187%.
Expenses in 1999 include increased marketing and selling expenses as well as
commission charges and co-promotion expenses to the Ross Products Division of
Abbott Laboratories, all in connection with the launch and continued promotion
of Synagis. Marketing, selling and co-promotion expenses for Synagis are
expected to continue to be higher than those for RespiGam or CytoGam.
8
Other operating expenses of $5.9 million in the 1999 period increased from $5.8
million in the 1998 period. Costs in 1998 include scale-up of production for
Synagis at a third-party manufacturer as well as start-up activities at the
Company's pilot plant and Frederick Manufacturing Center ("FMC"), while costs in
1999 include ongoing start-up and validation activities at the FMC.
Interest income of $2.2 million was earned in the 1999 first quarter, compared
to $1.7 million in the first quarter of 1998 reflecting higher cash balances
available for investment, partially offset by a decrease in interest rates which
lowered the overall portfolio yield. Interest expense of $1.0 million and $1.2
million was incurred in the 1999 and 1998 quarters, respectively, reflecting
primarily interest due on the Company's convertible debt, net of capitalized
interest.
An income tax provision of $18.2 million was recorded for the first quarter of
1999. No income tax provision was recorded in the first quarter of 1998, due to
the existence of net operating loss carryforwards as well as uncertainty
surrounding achievement of profitability for the entire year.
Net earnings in the 1999 first quarter were $28.8 million, or $0.52 basic and
$0.45 diluted earnings per share. Shares used in computing basic and diluted
earnings per share in 1999 were 55.2 million and 65.5 million, respectively. Net
earnings for the first quarter of 1998 were $0.25 basic and $0.22 diluted
earnings per share. Shares used in computing basic and diluted earnings per
share in 1998 were 51.9 million, and 63.2 million shares, respectively.
Quarterly financial results may vary significantly due to seasonality of Synagis
product sales as well as fluctuations in CytoGam sales, milestone payments,
research funding and expenditures for research, development and marketing.
Synagis sales are expected to occur primarily during, and in proximity to, the
RSV season, which typically occurs in the Northern Hemisphere between
October and April. The Company believes that most of the Synagis needed for the
1998/1999 RSV season in the U.S. was purchased prior to the end of the first
quarter 1999, and therefore, no further significant sales are expected for this
season.
LIQUIDITY AND CAPITAL RESOURCES
Cash and marketable securities at March 31, 1999 were $194.1 million compared to
$134.9 million at 1998 year end. Net cash provided by operating activities in
the three months ended March 31, 1999 was $61.0 million, reflecting
primarily the net earnings for the 1999 quarter and an increase in accrued
expenses and royalties payable. Capital expenditures of $1.6 million, net of
capitalized interest, for the quarter were primarily for lab equipment and
facilities expansion and improvements at the Company's Gaithersburg
manufacturing facility. The Company's existing funds at March 31, 1999, together
with funds expected to be generated from product sales and investment income,
are expected to provide sufficient liquidity to meet the anticipated needs of
the business for the foreseeable future, absent the occurrence of any unforeseen
events.
9
YEAR 2000 READINESS
The Company has established a Year 2000 Project Team comprised of
representatives from key functional areas to complete a review of its internal
and external systems for Year 2000 readiness. The Year 2000 issue is expected to
affect the systems of the Company and various entities with which the Company
interacts, including the Company's marketing partners, suppliers and various
vendors. The Year 2000 Project is designed to address three major areas: (1)
information technology systems, (2) hardware, equipment and instrumentation,
including embedded systems, and (3) third party relationships. The Company's
plan involves inventorying, assessing and prioritizing those items which have
Year 2000 implications; remediating (repairing, replacing or upgrading)
non-compliant items; testing items with major exposure to ensure compliance; and
developing contingency plans to minimize potential business interruption. The
inventory, assessment and prioritization phase of the project is substantially
complete.
With regard to the Company's information technology systems, hardware, equipment
and instrumentation, the Company has identified mission critical and
non-critical items and is in the process of updating and/or replacing items that
are non-compliant. The Company believes that it should be able to substantially
complete implementation of critical aspects of its Year 2000 plan prior to the
commencement of the year 2000. Because the Company has relied primarily on
off-the-shelf software for its information technology needs and because much of
the hardware, equipment and instrumentation is currently compliant, the Company
does not anticipate that the costs for internal remediation efforts will be
significant. The Company does not separately track the internal costs of its
Year 2000 compliance efforts and therefore these costs are unknown. As of March
31, 1999, the Company estimates that it has spent no more than $75,000
replacing, upgrading or repairing the systems and/or equipment that are
non-compliant and expects the cost to complete these efforts should not exceed
$300,000. The Company presently anticipates that its remediation efforts will be
substantially complete by June 1, 1999. Testing of certain business critical
items is expected to be completed by the third quarter 1999.
In addition to the risks associated with the Company's own computer systems and
equipment, the Company has relationships with, and is in varying degrees
dependent upon, a large number of third parties that provide information, goods
and services to the Company. These include, but are not limited to, third party
manufacturers, suppliers, customers, and distributors. The Company has
identified and visited the facilities of third parties with whom the Company has
material relationships to assess their Year 2000 readiness. Critical systems and
Year 2000 plans were reviewed. The Company may also be affected by the failure
of other third parties to be Year 2000 compliant even if they do not do business
directly with the Company. For example, the failure of state, federal and
private payers or reimbursers to be Year 2000 compliant and thus unable to make
timely, proper or complete payments to sellers and users of the Company's
products, could have a material adverse effect on the Company.
10
The Company does not currently have a Year 2000 contingency plan established.
The Company expects to have finalized a contingency plan which will address the
most likely worst case Year 2000 scenario by mid- 1999. The Company believes
that its most likely worst case scenario would be delays in product shipments
due to a complete or partial manufacturing shutdown. To mitigate this risk, the
Company plans, among other things, to stock extra inventory.
With regard to the Company's Year 2000 readiness plan, there can be no
assurances: 1) that the Company will be able to identify all aspects of its
business that are subject to Year 2000 problems, including issues of its
customers or suppliers, 2) that the Company's software vendors, third parties
and others will be correct in their assertions that they are Year 2000 ready, 3)
that the Company's estimate of the cost of Year 2000 readiness will prove
ultimately to be accurate, 4) that the Company will be able to successfully
address its Year 2000 issues and that this could result in interruptions in, or
failures of, certain normal business activities or operations that may have a
material adverse effect on the Company's business, results of operations and
financial condition.
--------------------
THE STATEMENTS IN THIS QUARTERLY REPORT THAT ARE NOT DESCRIPTIONS OF HISTORICAL
FACTS ARE FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT MANAGEMENT'S
CURRENT VIEWS, ARE BASED ON CERTAIN ASSUMPTIONS AND ARE SUBJECT TO RISKS AND
UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO, REGULATORY APPROVAL TIMING, PRODUCT
DEMAND AND MARKET ACCEPTANCE RISKS, PATENT AND INTELLECTUAL PROPERTY RISKS, YEAR
2000 RISKS, THE EARLY STAGE OF PRODUCT DEVELOPMENT AND RELIANCE ON THIRD-PARTY
MANUFACTURERS INCLUDING, BUT NOT LIMITED TO, CAPACITY AND SUPPLY CONSTRAINTS,
PRODUCTION YIELDS, REGULATORY APPROVAL TIMING AND FOREIGN EXCHANGE RISKS, AS
WELL AS OTHER RISKS DETAILED IN THE COMPANY'S FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE CURRENTLY
ANTICIPATED AS A RESULT OF THE FOREGOING OR OTHER FACTORS.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11
10.95 Research and Assignment and License Agreement, dated as
of February 24, 1999 by and between IXSYS, Inc. and
MedImmune, Inc.
10.96 License Agreement, dated as of February 24, 1999 by and
between IXSYS, Inc. and MedImmune, Inc.
10.97 Selection Agreement, dated as of February 24, 1999 by
and between IXSYS, Inc. and MedImmune, Inc.
10.98 Stock Purchase Agreement, dated as of February 24, 1999
by and between IXSYS, Inc. and MedImmune, Inc.
b) Reports on Form 8-K:
Report Date Event reported
2/1/99 MedImmune Reports Record Year
2/26/99 MedImmune and IXSYS Enter Four Product
Antibody Alliance
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.
MEDIMMUNE, INC.
(Registrant)
Date: May 14, 1999 /s/David M. Mott
Vice Chairman and Chief Financial Officer
12