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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
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{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 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 September 30, 1999, 63,277,737 shares of Common Stock, par value $0.01 per
share, were outstanding.
MEDIMMUNE, INC.
Index to Form 10-Q
Part I Financial Information Page
Item 1. Financial Statements
Balance Sheets 1
Statements of Operations 3
Condensed Statements of Cash Flows 4
Notes to Financial Statements 5-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-13
Part II Other Information 14-15
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, RespiGam, and Synagis are registered trademarks of the Company.
ITEM 1. FINANCIAL STATEMENTS
MEDIMMUNE, INC.
BALANCE SHEETS
(in thousands, except share data)
September 30, December 31,
1999 1998
--------- ---------
ASSETS: (Unaudited)
Cash and cash equivalents $ 9,366 $ 37,959
Marketable securities 149,944 96,923
Trade receivables, net 21,421 31,682
Contract receivables, net 2,290 3,155
Inventory, net 22,446 19,760
Deferred tax assets 12,547 22,595
Other current assets 7,495 4,292
--------- ---------
Total Current Assets 225,509 216,366
Property and equipment, net 81,575 74,822
Inventory, noncurrent 6,227 4,949
Deferred tax assets 96,259 54,923
Other assets 6,838 2,060
--------- ---------
Total Assets $ 416,408 $ 353,120
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 4,189 $ 4,052
Accrued expenses 24,358 33,397
Product royalties payable 7,933 14,948
Accrued interest 419 2,580
Other current liabilities 2,627 2,993
--------- ---------
Total Current Liabilities 39,526 57,970
Long-term debt 17,489 83,195
Other liabilities 2,049 2,122
--------- ---------
Total Liabilities 59,064 143,287
--------- ---------
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
63,277,737 at September 30, 1999 and
54,654,842 at December 31, 1998 633 547
Paid-in capital 413,130 289,318
Accumulated deficit (56,419) (80,032)
--------- ---------
Total Shareholders' Equity 357,344 209,833
--------- ---------
Total Liabilities and Shareholders' Equity $ 416,408 $ 353,120
========= =========
The accompanying notes are an integral part of these financial statements.
MEDIMMUNE, INC
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands except per share data)
For the For the
three months ended nine months ended
September 30, September 30,
1999 1998 1999 1998
--------- --------- --------- ---------
Revenues:
Product sales $ 32,201 $ 22,181 $ 167,397 $ 73,224
Other 16,710 1,659 20,474 34,545
--------- --------- --------- ---------
Total revenues 48,911 23,840 187,871 107,769
--------- --------- --------- ---------
Costs and Expenses:
Cost of sales 10,828 6,903 46,649 43,661
Research and development 10,214 5,766 27,849 18,761
Selling, administrative and general 18,315 14,286 65,230 30,430
Other operating expenses 4,429 8,509 16,313 33,447
--------- --------- --------- ---------
Total expenses 43,786 35,464 156,041 126,299
--------- --------- --------- ---------
Operating income (loss) 5,125 (11,624) 31,830 (18,530)
Interest income 2,287 1,615 7,050 5,176
Interest expense (499) (1,043) (2,332) (3,061)
--------- --------- --------- ---------
Income (loss) before income taxes 6,913 (11,052) 36,548 (16,415)
Provision for income taxes 1,774 -- 12,935 --
--------- --------- --------- ---------
Net earnings (loss) $ 5,139 ($ 11,052) $ 23,613 ($ 16,415)
========= ========= ========= =========
Basic earnings per share (loss) $ 0.08 ($ 0.21) $ 0.41 ($ 0.31)
========= ========= ========= =========
Shares used in calculation of basic earnings (loss)
per share 62,890 53,310 58,041 52,754
========= ========= ========= =========
Diluted earnings (loss) per share $ 0.08 ($ 0.21) $ 0.37 ($ 0.31)
========= ========= ========= =========
Shares used in calculation of diluted
earnings (loss) per share 67,036 53,310 66,213 52,754
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
MEDIMMUNE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
For the
nine months ended
September 30,
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 23,613 ($16,415)
Noncash items:
Deferred taxes 12,536 --
Depreciation and amortization 2,896 2,131
Amortization of (premium) discount on marketable (284) 995
securities
Changes in inventory reserve (1,918) 10,803
Other 232 (1,876)
Other changes in assets and liabilities (12,160) (16,073)
-------- --------
Net cash provided by (used in) operating activities 24,915 (20,435)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in marketable securities (52,737) (58,581)
Capital expenditures (9,549) (3,703)
Investment in strategic alliance (6,350) --
-------- --------
Net cash used in investing activities (68,636) (62,284)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock
and exercise of stock options 21,325 76,135
Decrease in long-term debt (6,197) (978)
-------- --------
Net cash provided by financing activities 15,128 75,157
-------- --------
Net decrease in cash and cash equivalents (28,593) (7,562)
Cash and cash equivalents at beginning of period 37,959 29,984
-------- --------
Cash and cash equivalents at end of period $ 9,366 $ 22,422
======== ========
The accompanying notes are an integral part of these financial statements
MEDIMMUNE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
General
The financial information presented as of September 30, 1999, and for the
periods ended September 30, 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, is comprised of the following (in thousands):
Sept. 30, Dec. 31,
1999 1998
-------- --------
Raw Materials $ 7,339 $ 9,794
Work in Process 10,268 9,188
Finished Goods 11,066 5,727
-------- --------
28,673 24,709
Less noncurrent (6,227) (4,949)
-------- --------
$ 22,446 $ 19,760
======== ========
As a result of the June 1998 FDA approval and the subsequent 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
were expected to result from this inventory. The reserve balances were $6.1
million and $8.1 million as of September 30, 1999 and December 31, 1998,
respectively.
The Company also continues to purchase plasma and other raw materials for use in
production in the Company's Frederick, Maryland manufacturing facility ("FMC"),
which is subject to FDA licensure and approval. During the second quarter, the
Company submitted to the FDA an amendment to its Biologic License Application
requesting authorization to begin marketing Synagis produced at the Frederick
facility. Due to the uncertainty surrounding the likelihood and timing of FDA
approval, all inventory for this facility has been classified as non-current in
the accompanying balance sheet.
Finished goods at September 30, 1999 and December 31, 1998 include approximately
$1.7 million and $1.6 million, respectively, 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. As of September 30, 1999, minimal sales
of these by-products have occurred. The September 30, 1999 and December 31, 1998
balances are net of a reserve of $1.7 million and $1.6 million, respectively.
Property and Equipment
Property and equipment, stated at cost, is comprised of the following (in
thousands):
September 30, December 31,
1999 1998
-------- --------
Land $ 2,147 $ 2,147
Buildings and building improvements 12,489 7,085
Leasehold improvements 13,738 12,736
Laboratory, manufacturing and facilities equipment 12,427 10,841
Office furniture, computers, and equipment 7,420 5,739
Construction in progress 48,042 48,067
-------- --------
96,263 86,615
Less accumulated depreciation and amortization (14,688) (11,793)
-------- --------
$ 81,575 $ 74,822
======== ========
Construction in progress at September 30, 1999 and December 31, 1998 includes
$6.9 million and $5.3 million, respectively, of capitalized interest related to
the design and construction of the Company's manufacturing facility in
Frederick, Maryland. Construction of the manufacturing facility is substantially
complete and validation activities are ongoing. The Company will continue to
capitalize costs 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 if and when such approval is
received.
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 impact of
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 numerator and
denominator of the diluted EPS computation for the period ended September 30,
1999.
Three Months Nine Months
Ended Sept. 30, 1999 Ended Sept. 30, 1999
-------------------- --------------------
Numerator:
Net earnings $ 5,139 $23,613
Interest on 7% convertible notes, net of
amounts capitalized and related taxes -- 720
------- -------
Numerator for diluted EPS $ 5,139 $24,333
======= =======
Denominator:
Weighted average shares outstanding 62,890 58,041
Effect of dilutive securities:
Stock options 4,009 4,083
7% convertible notes 137 4,089
------- -------
Denominator for diluted EPS 67,036 66,213
======= =======
No reconciliation of the numerator and denominator is necessary for the three
months or nine months ended September 30, 1998, as a loss was reported and
inclusion of potential common shares would be anti-dilutive.
The following table shows the number of shares and related price ranges of those
shares that were excluded from the EPS computation from above. These options to
purchase shares of common stock were outstanding in the periods reported, but
were not included in the computation of diluted earnings per share as the
exercise prices of the options were in excess of the average stock price during
the periods reported, and thus would be anti-dilutive.
Three Months Nine Months Ended
Ended Sept. 30, 1999 Ended Sept. 30, 1999
-------------------- --------------------
Price range of stock options:
$95.25 - $114.50 196,200
$70.75 - $114.50 705,800
Income Tax Provision
In the fourth quarter of 1998, the Company concluded that it is more likely than
not that it will realize a portion of the benefit of previously reserved
deferred tax assets. Accordingly, the Company reduced the valuation allowance
against the asset and recorded a tax benefit of $59.8 million in December 1998.
Due to the recognition of the Company's tax benefit in 1998, the Company's
effective tax rate for 1999 is expected to approximate the applicable federal
and state statutory rates. The recognition of these deferred tax assets under
SFAS No. 109 has no impact on the Company's cash flows for income taxes despite
the change in the Company's effective tax rate. A provision for income taxes of
$12.9 million was recorded for the nine months ended September 30, 1999 as
compared to no provision recorded for the nine months ended September 30, 1998.
The income tax provision for the nine-month period ending September 30, 1999 has
been computed using an effective combined federal and state tax rate of 35.4%
and includes a credit for the estimated tax benefit of the Orphan Drug credit
for qualified expenses for the MEDI-507 GVHD program. The tax benefit of stock
option exercise deductions has been recorded directly to shareholders' equity.
Proposed Merger
On September 22, 1999, the Company and U.S. Bioscience, Inc. announced a
definitive merger agreement providing for the acquisition by the Company of all
the outstanding common stock of U.S. Bioscience. The merger is structured as a
tax-free, stock-for-stock transaction. The Company intends to account for the
merger under the pooling-of-interests method. U.S. Bioscience, headquartered in
West Conshohocken, Pennsylvania, is a specialty pharmaceutical company that
develops and markets products for patients with cancer and AIDS. In addition to
its West Conshohocken headquarters, U.S. Bioscience has a manufacturing facility
in Nijmegen, The Netherlands, an analytical lab in Exton, Pennsylvania, and a
subsidiary near London to coordinate clinical trials in Europe. U.S. Bioscience
presently has three products on the market. Under the terms of the merger
agreement, U.S. Bioscience shareholders will receive between 0.1364 and 0.1705,
subject to certain adjustments, of a share of MedImmune common stock for each
share of U.S. Bioscience common stock owned. The exact exchange ratio will be
determined based on the trading range of MedImmune common stock over the 20-day
trading period ending three days prior to the U.S. Bioscience shareholder
meeting, set for November 23, 1999, to consider the merger. The merger is
subject to certain conditions.
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.
ITEM 2.
MEDIMMUNE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Product sales were $32.2 million in third quarter 1999 versus $22.2 million in
1998. Synagis sales increased 43% to $24.4 million for the third quarter of 1999
and included $2.3 million of international sales to Abbott Laboratories
("Abbott"), the Company's exclusive distributor of Synagis outside of the United
States. The Company recognizes international Synagis sales to Abbott when the
vials are shipped to Abbott based on a contractual transfer price. Upon sale by
Abbott to end users, following the end of each quarter, Abbott remits to the
Company a report detailing end user sales and the Company recognizes revenue for
the additional amount due in excess of the transfer price. The Company
anticipates that 60% to 75% of the total revenue expected to be recognized per
vial will be recorded upon shipment of the vial to Abbott. Synagis sales in
third quarter 1998 were $17.0 million, including $0.3 million to Abbott. Both
the 1999 and 1998 quarters principally reflect wholesaler stocking in
preparation for the RSV season. CytoGam sales increased 32% to $7.1 million in
the third quarter of 1999 from $5.4 million in the third quarter of 1998,
reflecting a 60% increase in total units sold, partially offset by an increase
in government rebate allowances. The increase in units sold reflects the
variability in sales that may occur from the use of CytoGam as a substitute for
standard intravenous immune globulin ("IVIG") products, for which there is
currently a worldwide shortage. RespiGam sales of $0.7 million in third quarter
1999 compared to no sales recorded in third quarter 1998. The Company believes
that a significant portion of the RespiGam sales that occurred were as a result
of product substitution occurring because of the worldwide shortage of standard
IVIG products. The duration of this shortage and continued impact, if any, on
product sales cannot be determined at this time. Future sales of RespiGam for
the RSV market are expected to be minimal. Other revenues in the 1999 third
quarter of $16.7 million included a $15 million milestone payment from Abbott
following European approval of Synagis in August, as well as funding from
SmithKline Beecham ("SKB") for development of a human papillomavirus vaccine.
The 1998 quarter included research funding from SKB.
Cost of sales in third quarter 1999 increased to $10.8 million from $6.9 million
in third quarter 1998, an increase of 57%. Cost of sales in the 1999 period
reflects a 70% increase in unit sales over the 1998 period and a change in the
product mix towards Synagis which has a lower per unit cost than CytoGam and
RespiGam. Gross margin of 69% in the 1998 quarter compared to 66% in the 1999
quarter, which was negatively impacted by the increase in CytoGam government
rebate allowances.
Research, development and clinical spending increased 77% to $10.2 million in
the third quarter of 1999 from $5.8 million in the third quarter of 1998,
primarily due to additional Synagis trials in infants with congenital heart
disease, increased research funding, increased development contracts and a
milestone payment to a third party due upon European approval of Synagis.
Clinical spending is expected to increase in the coming quarters as the Company
moves more of its product candidates into the clinic and expands trials on
products already in the clinic.
Selling, administrative and general expenses increased to $18.3 million in this
year's quarter from $14.3 million in the 1998 quarter, an increase of 28%.
Expenses in third quarter 1999 include $1.8 million of costs, primarily
professional fees, associated with the proposed merger with U.S. Bioscience,
increased wage and related expenses as well as increased co-promotion expense to
the Ross Products Division of Abbott Laboratories for the continued promotion of
Synagis in the United States. Additional significant merger related expenses are
expected in the fourth quarter of 1999 following the completion of the merger.
Other operating expenses of $4.4 million in the 1999 period decreased from $8.5
million in the 1998 period. Charges in both periods include start-up costs at
the Company's manufacturing facility in Frederick, Maryland. Other operating
expenses in the 1998 period also include costs related to scale-up of Synagis
production at a third-party manufacturer and at the Company's Gaithersburg
Manufacturing and Development Facility ("GMDF"). Expenses in the 1998 period
also included a $1.5 million milestone payment to a third-party contract
manufacturer.
Interest income of $2.3 million was earned in the 1999 third quarter, compared
to $1.6 million in the third 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 $0.5 million and $1.0
million was incurred in the 1999 and 1998 quarters, respectively. Interest
expense in the 1998 quarter reflects primarily interest due on the Company's
convertible debt, net of capitalized interest. Interest expense in the 1999
quarter includes fees associated with the early termination of some of the
Company's equipment financing.
The Company recorded a provision for income taxes of $1.8 million in the 1999
quarter to bring the year to date tax provision to an effective rate of 35.4%.
The tax provision for the 1999 quarter includes a credit for the year to date
tax benefit for the Company's MEDI-507 GVHD program, for which the Company has
been given Orphan Drug status. Orphan Drug status allows a company a direct tax
reduction of 50% for qualified expenses. No income tax benefit was recorded in
the 1998 period as the Company incurred a loss and still had a full valuation
allowance against its deferred taxes. In December 1998, the Company concluded
that it was more likely than not it will realize a portion of the benefit of
previously deferred tax assets. Accordingly, the Company reduced the valuation
allowance against the asset and recorded a tax benefit of $59.8 million. Due to
the recognition of the Company's tax benefit in 1998, the Company estimates that
its effective tax rate will approximate the applicable federal and state
statutory rate for 1999 and the near term thereafter.
Net income in the 1999 third quarter was $5.1 million, or $0.08 basic and
diluted net earnings per share. Shares used in computing basic and diluted net
earnings per share were 62.9 million and 67.0 million, respectively. The net
loss for the third quarter of 1998 was $11.1 million, or $0.21 basic and diluted
net loss per share. Shares used in computing the third quarter 1998 net loss per
share were 53.3 million.
Quarterly financial results may vary significantly due to seasonality of Synagis
product sales, fluctuation in sales of CytoGam, milestone payments, research
funding and expenditures for research, development and marketing programs.
Synagis sales are expected to occur primarily during, and in proximity to, the
RSV season, which typically occurs between October and April in the United
States. No assurances can be given that adequate product supply will be
available to meet demand. In addition, no assurance can be given that the FDA
will approve the Company's supplement to its BLA for marketing of Synagis
produced at the FMC.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Product sales increased 129% to $167.4 million in the 1999 nine months from
$73.2 million in the 1998 nine months. Net sales of Synagis were $141.9 million
for the 1999 nine months, which included $4.5 million of international sales to
Abbott. Synagis sales in the 1998 nine months of $17.0 million, including $0.3
million of international sales to Abbott, occurred entirely in the third
quarter, following FDA approval in June 1998. CytoGam sales for the nine months
ended September 30, 1999 decreased 6% to $22.3 million from $23.8 million in the
nine months ended September 30, 1998. The decrease primarily reflects a change
in the sales mix to include a greater percentage of international units which
have a lower selling price, and an increase in government rebate allowances,
partially offset by an 11% increase in total units sold. The increase in units
sold reflects the variability in the sales that may occur as a result of the use
of CytoGam as an IVIG substitute. RespiGam sales decreased 93% from $32.3
million in the nine months of 1998 to $2.3 million in the nine months of 1999,
reflecting the shift in customer demand from RespiGam to Synagis for prevention
of RSV disease. Other revenues in both the 1999 and 1998 periods include funding
from SKB for development of a human papillomavirus vaccine. Other revenues in
1999 include a $15 million milestone payment from Abbott upon European approval
of Synagis. Other revenues in 1998 include a $15 million payment from SKB
following the signing of the agreement for development of a human papillomavirus
vaccine and a $15 million milestone payment from Abbott upon FDA approval of
Synagis.
Cost of sales for the 1999 nine months increased 7% to $46.6 million from $43.7
million in the 1998 nine months. Cost of sales in 1998 includes approximately
$9.4 million related to the writedown of RespiGam inventory and by-product
inventory and a credit for previously recorded royalties expected to be due to
Massachusetts Health Research Institute. Excluding the effects of these one time
adjustments, gross margins would have been 72% for the 1999 period versus 53%
for the 1998 period. This increase primarily reflects favorable margins on
Synagis, which was not sold in the first half of 1998 and has lower production
costs than CytoGam and RespiGam.
Research and development expenses of $27.8 million in the 1999 nine months
increased 48% from $18.8 million in the 1998 nine months, reflecting increases
in the infrastructure needed to support an increased quantity of clinical
projects as well as increased clinical trials spending, primarily for additional
Synagis trials. Selling, general and administrative expenses were $65.2 million
and $30.4 million for the 1999 and 1998 periods, respectively, an increase of
114%. Expenses in 1999 include increases in marketing and selling expenses,
sales force commissions, wage and related, and co-promotion expenses to the Ross
Products Division of Abbott Laboratories for promotion of Synagis. Expenses in
1999 also include $1.8 million of professional fees related to the proposed
merger with U.S. Bioscience. Significant additional merger related expenses are
expected in the fourth quarter of 1999 following the closing of the transaction.
Expenses in 1998 included $0.9 million due to AHP under the terms of the
RespiGam co-promotion agreement.
Other operating expenses, which reflects manufacturing start-up costs, decreased
in the 1999 period to $16.3 million from $33.4 million in the 1998 period.
Expenses in 1999 include a charge of $1.4 million to reserve for certain
equipment purchased for use in the FMC, as it was determined that the equipment
ultimately will not be used in that facility. Expenses in 1998 include a $10.3
million charge for the buy-down of certain Synagis royalty obligations prior to
FDA approval, as well as start-up costs for the Company's FMC and costs related
to scale-up of production of Synagis at a third-party manufacturer and at the
Company's GMDF.
Income tax expense of $12.9 million was recorded for the nine months ended
September 30, 1999, at an overall effective tax rate of 35.4%, which
approximates the statutory rate. An income tax benefit was not recorded in 1998
due to the uncertainty of utilization of deferred tax assets at that time.
Interest income of $7.0 million and $5.2 million was recorded in the 1999 and
1998 nine months, respectively. The increase reflects higher cash balances
available for investment, partially offset by lower interest rates, which
decreased the overall portfolio yield.
Interest expense of $2.3 million in the 1999 period versus $3.1 million in the
1998 period reflects primarily interest on the Company's convertible debt, net
of capitalized interest, as well as interest on equipment financing. Interest
expense in 1999 also includes fees associated with the early termination of some
of the Company's equipment financing.
Net income in the 1999 nine months was $23.6 million, or $0.41 basic and $0.37
diluted earnings per share, versus a net loss of $16.4 million, or $0.31 basic
and diluted net loss per share for the nine months ended September 30, 1998.
Shares used in computing basic and diluted net earnings per share in 1999 were
58.0 million and 66.2 million, respectively. Shares used in computing basic and
diluted net loss per share in 1998 were 52.8 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash and marketable securities at September 30, 1999 were $159.3 million
compared to $134.9 million at December 31, 1998. Net cash provided by operating
activities in the nine months ended September 30, 1999 was $24.9 million,
reflecting net income for the period and a decrease in accounts receivable
(reflecting Synagis seasonality), offset by a decrease in accrued expenses,
primarily as a result of payments made to Abbott Laboratories in connection with
the Synagis co-promotion agreement. Capital expenditures of $9.5 million, net of
capitalized interest, for the 1999 nine months were primarily for equipment and
facilities improvements at the Company's FMC. The Company receives cash from the
exercise of employee stock options. During the nine months ended September 30,
1999, stock option exercises provided $21.3 million of cash. In July 1999, $60
million of the Company's 7% convertible subordinated notes were converted into
common stock. The transaction resulted in the issuance of 6,097,545 shares of
common stock and increased shareholders' equity by $58.7 million, the carrying
amount of the converted debt on the date of the conversion. During the 1999
third quarter, the Company retired $2.9 million of equipment financing.
The Company's existing funds at September 30, 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.
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. All
phases of the project are 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 has substantially completed implementation of
most of the critical aspects of its Year 2000 plan. Because the Company has
relied primarily on off-the-shelf software for its information technology needs
and because much of its hardware, equipment and instrumentation is currently
compliant, the Company has not incurred significant costs for internal
remediation efforts. The Company does not separately track the internal costs of
its Year 2000 compliance efforts and therefore these costs are unknown. As of
September 30, 1999, the Company estimates that it has spent no more than
$250,000 replacing, upgrading or repairing the systems and/or equipment that are
non-compliant and expects the remaining costs to complete these efforts,
including any contingency planning matters, should not exceed $300,000.
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 which 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.
The Company has recently prepared its Year 2000 contingency plan to address the
most likely worst case Year 2000 scenario. The Company believes that its most
likely worst case scenario would be a break in the cold chain of its finished
goods inventory due to a power failure or failed monitoring equipment. To
mitigate this risk, the Company plans, among other things, to ensure that third
party warehouses have appropriate contingency plans in place to react promptly
to maintain the cold chain (for example, by having generators on hand or trucks
on hand to move the inventory to another location).
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. THE FDA IS CURRENTLY REVIEWING A SUPPLEMENT TO THE
COMPANY'S BIOLOGIC LICENSE APPLICATION TO ALLOW PRODUCTION OF SYNAGIS AT THE
COMPANY'S FREDERICK MANUFACTURING CENTER. THERE CAN BE NO ASSURANCE THAT THE
COMPANY WILL RECEIVE THE REQUESTED APPROVAL THAT WOULD ALLOW IT TO MARKET
PRODUCTS MADE AT THE FREDERICK MANUFACTURING CENTER. IN ADDITION, THE FORWARD
LOOKING STATEMENTS INCLUDED IN THIS REPORT RELATE TO THE COMPANY AS A
STAND-ALONE BUSINESS, AND DO NOT CONSIDER THE POTENTIAL IMPACT OF THE PROPOSED
MERGER WITH U.S. BIOSCIENCE, OR ANY ASSOCIATED RISK FACTORS. 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:
10.99 Employment Agreement for Armando Anido
11.00 Amendment to Lease Agreement for MOR Bennington LLLP and
MedImmune, Inc.
(b) Reports on Form 8-K:
Report Date Event Reported
- ----------- --------------
7/6/99 MedImmune and Pasteur Merieux Connaught Report Presentation of New
Data on Lyme Disease Vaccine Candidate at International Lyme
Meeting
7/12/99 MedImmune and Biotransplant Announce Results of MEDI-507 Trial in
Severe Steroid-Resistant Graft-Versus-Host Disease Patients
7/21/99 MedImmune Report 1999 First Half Result
8/13/99 MedImmune Announces Novel Structure of Urinary Tract Infection
Vaccine Target-X-ray Structure of FimC-FimH Complex Published in
Science
9/2/99 Abbott Announces Approval of Breakthrough Prevention for RSV in
Europe (Synagis Now Available in Europe)
9/15/99 MedImmune Licenses Catalytic Antibody to Treat Cocaine Overdose
and Addition
9/22/99 MedImmune, Inc. to Acquire U.S. Biocience, Inc.
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)
/s/David M. Mott
----------------
Date: November 15, 1999 David M. Mott
Vice Chairman and Chief Financial Officer