UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 June 30, 1998
[X] 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 0-19612
IMCLONE SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 04-2834797
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
180 VARICK STREET, NEW YORK, NY 10014
(Address of principal executive offices) (Zip Code)
(212) 645-1405
Registrant's telephone number, including area code
Not Applicable
Former name, former address and former fiscal year,
if changed since last report
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 ___
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding as of August 12, 1998
Common Stock, par value $.001 24,420,025 Shares
IMCLONE SYSTEMS INCORPORATED
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 1998 (unaudited)
and December 31, 1997 1
Unaudited Statements of Operations and
Comprehensive Loss - Three and Six
months ended June 30, 1998 and 1997 2
Unaudited Statements of Cash Flows - Six
months ended June 30, 1998 and 1997 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 10
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Part 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
IMCLONE SYSTEMS INCORPORATED
Balance Sheets
(in thousands, except share data)
June 30, December 31,
Assets 1998 1997
--------- ---------
(unaudited)
Current assets:
Cash and cash equivalents $ 3,874 $ 2,558
Securities available for sale 47,852 57,052
Prepaid expenses 576 596
Other current assets 638 589
--------- ---------
Total current assets 52,940 60,795
--------- ---------
Property and equipment:
Land 340 340
Building and building improvements 10,471 8,969
Leasehold improvements 4,832 4,832
Machinery and equipment 7,608 6,315
Furniture and fixtures 623 550
Construction in progress -- 2,159
--------- ---------
Total cost 23,874 23,165
Less accumulated depreciation and amortization (12,120) (11,294)
--------- ---------
Property and equipment, net 11,754 11,871
--------- ---------
Patent costs, net 972 944
Deferred financing costs, net 51 55
Other assets 2,318 2,115
--------- ---------
$ 68,035 $ 75,780
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,580 $ 1,731
Accrued expenses and other 696 1,440
Interest payable 43 68
Deferred revenue 283 208
Current portion of long-term liabilities 583 677
--------- ---------
Total current liabilities 3,185 4,124
--------- ---------
Long-term debt 2,200 2,200
Other long-term liabilities, less current portion 1,429 1,118
Preferred stock dividends payable 1,302 112
--------- ---------
Total liabilities 8,116 7,554
--------- ---------
Commitments and contingencies
Stockholders' equity :
Preferred stock, $1.00 par value; authorized
4,000,000 shares; issued and outstanding
Series A Convertible: 400,000 at June 30,
1998 and December 31, 1997 (preference in
liquidation $41,302 and $40,112, respectively) 400 400
Common stock, $.001 par value; authorized
45,000,000 shares; issued 24,439,142 and
24,265,072 at June 30, 1998 and December 31,
1997, respectively; outstanding 24,388,325, and
24,214,255 at June 30, 1998 and December 31,
1997, respectively 24 24
Additional paid-in capital 185,112 185,706
Accumulated deficit (125,245) (117,464)
Treasury stock, at cost; 50,817 shares at
June 30, 1998 and December 31, 1997 (492) (492)
Note receivable from officer and stockholder (136) --
Accumulated other comprehensive income:
Unrealized gain on securities available for sale 256 52
--------- ---------
Total stockholders' equity 59,919 68,226
--------- ---------
$ 68,035 $ 75,780
========= =========
See accompanying notes to financial statements.
Page 1
IMCLONE SYSTEMS INCORPORATED
Statements of Operations and Comprehensive Loss
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
Revenues:
Product development milestone revenues $ -- $ 2,500 $ 1,000 $ 2,500
Research and development funding from third
parties and other 765 696 1,615 771
-------- -------- -------- --------
Total revenues 765 3,196 2,615 3,271
-------- -------- -------- --------
Operating expenses:
Research and development 4,675 3,257 8,846 8,652
General and administrative 1,546 1,272 2,959 2,355
-------- -------- -------- --------
Total operating expenses 6,221 4,529 11,805 11,007
-------- -------- -------- --------
Operating loss (5,456) (1,333) (9,190) (7,736)
-------- -------- -------- --------
Other:
Interest and other income (778) (440) (1,609) (685)
Interest expense 110 145 200 340
-------- -------- -------- --------
Net interest and other income (668) (295) (1,409) (345)
-------- -------- -------- --------
Net loss (4,788) (1,038) (7,781) (7,391)
Preferred dividends (including assumed incremental yield
of $317 for the three-months ended June 30, 1998 and
$635 the six-months ended June 30, 1998) 967 -- 1,825 --
-------- -------- -------- --------
Net loss to common stockholders $ (5,755) $ (1,038) $ (9,606) $ (7,391)
======== ======== ======== ========
Net loss $ (4,788) $ (1,038) $ (7,781) $ (7,391)
Other comprehensive income:
Unrealized gain on securities available for sale:
Unrealized holding gain arising during the period 135 43 204 20
Less: Reclassification adjustment for realized gain
(loss) included in net income -- -- 2 (3)
-------- -------- -------- --------
Total other comprehensive income 135 43 202 23
-------- -------- -------- --------
Comprehensive loss $ (4,653) $ (995) $ (7,579) $ (7,368)
======== ======== ======== ========
Basic and diluted net loss per common share $ (0.24) $ (0.04) $ (0.40) $ (0.33)
======== ======== ======== ========
Weighted average shares outstanding 24,273 24,033 24,251 22,702
======== ======== ======== ========
See accompanying notes to financial statements.
Page 2
IMCLONE SYSTEMS INCORPORATED
Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended
June 30,
--------------------
1998 1997
-------- --------
Cash flows from operating activities:
Net loss $ (7,781) $ (7,391)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 883 866
Expense associated with issuance
of options and warrants 310 2,634
(Gain) loss on sale of investments (2) 3
Changes in:
Prepaid expenses 20 (328)
Other current assets (49) (815)
Due from officer -- 11
Other assets (35) (8)
Interest payable (25) (47)
Accounts payable (151) 325
Accrued expenses and other (744) (635)
Deferred revenue 75 208
-------- --------
Net cash used in operating activities (7,499) (5,177)
-------- --------
Cash flows from investing activities:
Acquisitions of property and equipment (570) (436)
Purchases of securities available for sale (28,760) (54,777)
Sales of securities available for sale 37,997 37,042
Additions to patents (81) (120)
-------- --------
Net cash provided by (used in) investing
activities 8,586 (18,291)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock -- 23,162
Proceeds from exercise of stock options and warrants 150 1,360
Purchase of treasury stock -- (323)
Proceeds from equipment and building improvement
financings 593 --
Payments of other liabilities (514) (906)
-------- --------
Net cash provided by financing activities 229 23,293
-------- --------
Net increase (decrease) in cash and cash equivalents 1,316 (175)
Cash and cash equivalents at beginning of period 2,558 2,734
-------- --------
Cash and cash equivalents at end of period $ 3,874 $ 2,559
======== ========
See accompanying notes to financial statements.
Page 3
IMCLONE SYSTEMS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) Basis of Presentation
The financial statements of ImClone Systems Incorporated ("ImClone" or the
"Company") as of June 30, 1998 and for the three and six months ended June 30,
1998 and 1997 are unaudited. In the opinion of management, these unaudited
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation. These financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, as filed with the Securities and Exchange
Commission.
Results for the interim periods are not necessarily indicative of results
for the full years.
(2) Related Party Transactions
In January 1998, the Company accepted a promissory note totaling
approximately $131,000 from its President and CEO in connection with the
exercise of a warrant to purchase 87,305 shares of the Company's common stock,
$.001 par value (the "Common Stock"). The note is due no later than two years
from issuance and is full recourse. Interest is payable on the first anniversary
date of the promissory note and on the stated maturity or any accelerated
maturity at the annual rate of 8.5%. At June 30, 1998, the total amount due the
Company, including interest, is approximately $136,000 and is classified in the
stockholders' equity section of the balance sheet as a note receivable from
officer and stockholder.
(3) Earnings Per Share
Basic and diluted Earnings Per Share ("EPS") are computed based on the
weighted average number of shares outstanding. Potentially dilutive securities,
including convertible preferred stock, options and warrants, have not been
included in the diluted EPS computation because they are anti-dilutive.
(4) Comprehensive Income
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which
establishes standards for reporting and display of comprehensive income and its
components. In accordance with SFAS 130, the Company has displayed the
components of "Other comprehensive income" and "Comprehensive loss" in the
accompanying Financial Statements. All prior-period data has been reclassified
to conform with the provisions of SFAS 130.
(5) Reclassification
Certain amounts previously reported have been reclassified to conform to
current year presentation.
Page 4
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis by management is provided to
identify certain significant factors which affected the Company's financial
position and operating results during the periods included in the accompanying
financial statements.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1998 and 1997
Revenues
Revenues for the six-months ended June 30, 1998 and 1997 were $2,615,000
and $3,271,000 respectively, a decrease of $656,000, or 20%. The decrease in
revenues for the six-months ended June 30, 1998 was primarily attributable to a
decrease in milestone revenue which can vary widely from period to period
depending upon the timing of the achievement of various research and development
milestones for products under development. Revenues for the six-months ended
June 30, 1998 consisted of (i) $150,000 in research support from the Company's
partnership with the Wyeth/Lederle Vaccine and Pediatrics Division of American
Home Products Corporation ("American Home") in infectious diseases, (ii)
$1,000,000 in milestone revenue and $1,250,000 in research and support payments
from the Company's research and license agreement with Merck KGaA ("Merck") with
respect to the Company's BEC2 product candidate, (iii) $117,000 in royalty
revenue from the Company's strategic alliance with Abbott Laboratories
("Abbott") in diagnostics and (iv) $98,000 from a Phase I Small Business
Innovation Research grant from the National Cancer Institute for a program in
cancer-related angiogenesis. Revenues for the six-months ended June 30, 1997
consisted of (i) $150,000 in research support from the Company's partnership
with American Home, (ii) $1,500,000 in milestone revenue and $417,000 in
research and support payments from the Company's research and license agreement
with Merck and (iii) $1,000,000 in milestone revenue and $204,000 in royalty
revenue from the Company's strategic alliance with Abbott.
Operating: Research and Development Expenses
Total operating expenses for the six-months ended June 30, 1998 and 1997
were $11,805,000 and $11,007,000, respectively, an increase of $798,000, or 7%.
Research and development expenses for the six-months ended June 30, 1998 and
1997 were $8,846,000 and $8,652,000, respectively, an increase of $194,000 or
2%. Such amounts for the six-months ended June 30, 1998 and 1997 represented 75%
and 79%, respectively, of total operating expenses. The increase in research and
development expenses for the six-months ended June 30, 1998 was attributable to
increased expenditures associated with additional staffing in the area of
discovery research, the initiation of new supported research programs with
academic institutions, the establishment of corporate in-licensing arrangements,
and expenditures in the functional areas of product development, manufacturing
and clinical and regulatory affairs to support the Company's lead therapeutic
product candidate, C225, for human clinical trials. This increase was partially
offset by the one-time $2,233,000 non-cash compensation expense recorded for the
six-months ended June 30, 1997 in connection with the extension of the term of
an officer's warrant to purchase 397,000 shares of Common Stock.
General and Administrative Expenses
General and administrative expenses include administrative personnel
costs, costs incurred in connection with pursuing arrangements with corporate
partners and technology licensors, and expenses associated with applying for
patent protection for the Company's technology and products. Such expenses for
the six-months ended June 30, 1998 and 1997 were $2,959,000 and $2,355,000,
respectively, an increase of $604,000, or 26%. The increase in general and
administrative expenses primarily reflected (i) additional support staffing for
the expanding research, clinical, development and manufacturing efforts of the
Company, particularly with respect to C225 and (ii) expenses associated with the
pursuit of strategic corporate alliances and other corporate development
expenses. The Company expects general and administrative expenses to increase in
future periods to support planned increases in research, clinical, development
and manufacturing efforts of the Company.
Page 5
Interest and Other Income and Interest Expense
Interest and other income was $1,609,000 for the six-months ended June 30,
1998 compared to $685,000 for the six-months ended June 30, 1997, an increase of
$924,000, or 135%. The increase was primarily attributable to the increased
interest income earned from higher cash balances in the Company's investment
portfolio resulting from a private placement of Series A Convertible Preferred
Stock (the "Series A Preferred Shares" or "Series A Preferred Stock") completed
in December 1997. Interest expense was $200,000 and $340,000 for the six-months
ended June 30, 1998 and 1997, respectively, a decrease of $140,000 or 41%.
Interest expense for both periods primarily included interest on an outstanding
Industrial Development Revenue Bond issued in 1990 (the "1990 IDA Bond") with a
principal amount of $2,200,000, interest recorded on capital lease obligations,
and interest recorded on a liability to Pharmacia and UpJohn Inc. ("Pharmacia"),
for the reacquisition of the worldwide rights to a recombinant mutein form of
Interleukin-6 as well as clinical material manufactured and supplied by
Pharmacia to the Company. The decrease was primarily attributable to the
December 1997 repayment of an IDA Bond issued in 1986 (the "1986 IDA Bond") with
a principal amount of $2,113,000 and the February 1998 repayment of the
remaining liability to Pharmacia.
Net Losses
The Company had net losses to common stockholders of $9,606,000 or $0.40
per share for the six-months ended June 30, 1998 compared with $7,391,000 or
$0.33 per share for the six-months ended June 30, 1997. The increase in the net
losses and per share net loss to common stockholders was due primarily to the
accrued dividends to preferred stockholders and to the factors mentioned in the
preceding paragraphs.
Three Months Ended June 30, 1998 and 1997
Revenues
Revenues for the three-months ended June 30, 1998 and June 30, 1997 were
$765,000 and $3,196,000, respectively, a decrease of $2,431,000, or 76%. The
decrease in revenues for the three-months ended June 30, 1998 was primarily
attributable to a decrease in milestone revenue which can vary widely from
period to period depending upon the timing of the achievement of various
research and development milestones for products under development. Revenues for
the three-months ended June 30, 1998 consisted of (i) $75,000 in research
support from the Company's partnership with American Home, (ii) $625,000 in
research and support payments from the Company's research and license agreement
with Merck, and (iii) $65,000 in royalty revenue from the Company's strategic
alliance with Abbott. Revenues for the three-months ended June 30, 1997
consisted of (i) $75,000 in research support from the Company's partnership with
American Home, (ii) $1,500,000 in milestone revenue and $417,000 in research and
support payments from the Company's research and license agreement with Merck,
and (iii) $1,000,000 in milestone revenue and $204,000 in royalty revenue from
the Company's strategic alliance with Abbott.
Operating: Research and Development
Total operating expenses for the three-months ended June 30, 1998 and 1997
were $6,221,000 and $4,529,000, respectively, an increase of $1,692,000 or 37%.
Research and development expenses for the three-months ended June 30, 1998 and
1997 were $4,675,000 and $3,257,000, respectively, an increase of $1,418,000 or
44%. Such amounts for the three-months ended June 30, 1998 and 1997 represented
75% and 72%, respectively, of total operating expenses. The increase in research
and development expenses for the six-months ended June 30, 1998 was attributable
to increased expenditures associated with additional staffing in the area of
discovery research, the initiation of new supported research programs with
academic institutions, the establishment of corporate in-licensing arrangements,
and expenditures in the functional areas of product development, manufacturing
and clinical and regulatory affairs to support the Company's lead therapeutic
product candidate, C225, for human clinical trials.
Page 6
General and Administrative
General and administrative expenses include administrative personnel
costs, costs incurred in connection with pursuing arrangements with corporate
partners and technology licensors, and expenses associated with applying for
patent protection for the Company's technology and products. Such expenses for
the three-months ended June 30, 1998 and 1997 were $1,546,000 and $1,272,000,
respectively, an increase of $274,000 or 22%. The increase in general and
administrative expenses primarily reflected (i) additional support staffing for
the expanding research, clinical, development and manufacturing efforts of the
Company, particularly with respect to C225 and (ii) expenses associated with the
pursuit of strategic corporate alliances and other corporate development
expenses. The Company expects general and administrative expenses to increase in
future periods to support planned increases in research, clinical, development
and manufacturing efforts of the Company.
Interest and Other Income/Expense
Interest and other income was $778,000 for the three-months ended June 30,
1998 compared to $440,000 for the three-months ended June 30, 1997, an increase
of $338,000, or 77%. The increase was primarily attributable to the increased
interest income earned from higher cash balances in the Company's investment
portfolio resulting from a private placement of Series A Preferred Stock
completed in December 1997. Interest expense was $110,000 and $145,000 for the
three-months ended June 30, 1998 and June 30, 1997, respectively, a decrease of
$35,000 or 24%. Interest and other expense for both periods primarily included
interest on the 1990 IDA Bond with an aggregate principal amount of $2,200,000
and interest recorded on capital lease obligations. The decrease was primarily
attributable to the December 1997 repayment of the 1986 IDA Bond with a
principal amount of $2,113,000.
Net Losses
The Company had net losses to common stockholders of $5,755,000 or $0.24
per share for the three-months ended June 30, 1998 compared with $1,038,000 or
$0.04 per share for the three-months ended June 30, 1997. The increase in the
net losses and per share net loss to common stockholders was due primarily to
the accrued dividends to preferred stockholders and to the factors mentioned in
the preceding paragraphs.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company's principal sources of liquidity consisted
of cash and cash equivalents and securities available for sale of approximately
$51,726,000. The Company has financed its operations since inception primarily
through the public and private sales of equity securities, the sale of three
issues of IDA bonds (collectively, the "IDA Bonds") through the New York City
Industrial Development Agency (the "NYIDA"), license fees and contract research
and development fees and royalties received under agreements with collaborative
partners and interest earned on these funds. Since inception, public and private
sales of equity securities in financing transactions have raised approximately
$163,799,000 in net proceeds. The sale of the IDA Bonds in each of 1985, 1986
and 1990 raised an aggregate of $6,313,000, the proceeds of which have been used
for the acquisition, construction and installation of the Company's research and
development facility in New York City, and of which $2,200,000 is currently
outstanding. Since inception, the Company has earned approximately $31,277,000
from license fees, contract research and development fees and royalties from
collaborative partners, including approximately $2,615,000 earned during the
six-months ended June 30, 1998. Since inception the Company has earned
approximately $7,054,000 in interest income, including approximately $1,607,000
earned during the six-months ended June 30, 1998.
Page 7
The Company has obligations under various capital leases for certain
laboratory, office and computer equipment and also certain building improvements
primarily under a December 1996 financing agreement (the "1996 Financing
Agreement") and an April 1998 financing agreement (the "1998 Financing
Agreement") with Finova Technology Finance, Inc. ("Finova"). The 1996 Financing
Agreement allowed the Company to finance the lease of equipment and make certain
building and leasehold improvements to existing facilities involving amounts
aggregating approximately $2,500,000. Each lease has a fair market value
purchase option at the expiration of a 42-month term. Pursuant to the 1996
Financing Agreement, the Company issued to Finova a warrant expiring December
31, 1999 to purchase 23,220 shares of Common Stock at an exercise price of $9.69
per share. The Company recorded a non-cash debt discount of approximately
$125,000 in connection with this financing, which discount is being amortized
over the 42-month term of the first lease. The 1996 Financing Agreement with
Finova expired in December 1997 and the Company did not utilize the full
$2,500,000 under the agreement. In April 1998, the Company entered into the 1998
Financing Agreement with Finova aggregating approximately $2,000,000. The terms
of the 1998 Financing Agreement are substantially similar to the now expired
1996 Financing Agreement except that each lease has a 48-month term. As of June
30, 1998, the Company had entered into eight individual leases under both the
1996 Financing Agreement and the 1998 Financing Agreement aggregating a total
cost of $2,478,000 and had $1,267,000 available under the 1998 Financing
Agreement.
The Company has expended and will continue to expend in the future
substantial funds to continue the research and development of its products,
conduct pre-clinical and clinical trials, establish clinical-scale and
commercial-scale manufacturing in its own facilities or in the facilities of
others, and market its products. The Company has entered into preliminary
discussions with several major pharmaceutical companies regarding various
alternatives concerning the funding of research and development for certain of
its products. No assurance can be given that the Company will be successful in
consummating any such alternatives. These discussions have included potential
significant strategic alliances for the development and commercialization of the
Company's lead product candidate, C225. Such strategic alliances could include
up-front license fees plus milestone fees and revenue sharing. There can be no
assurance that the Company will be successful in achieving such alliances, nor
can the Company predict the amount of funds which might be available to it if it
entered into such alliances or the time at which such funds would be made
available or the other terms of any such alliances.
In January 1998, the Company completed the construction and commissioning
of a new 1,750 square foot process development center at its Somerville, New
Jersey facility at a cost of approximately $1,650,000. The Company has also
taken steps to complete a formal design concept for large scale manufacturing at
this facility. If the Company adapts this facility to large-scale manufacturing
or does so at another location, it will incur substantial additional costs. The
lease on the Company's New York City facility expires in March 1999. The Company
expects to extend the lease and retrofit the facility to fit its needs.
The 1990 IDA Bond in the outstanding principal amount of $2,200,000
becomes due in 2004. If the lease on the Company's New York City facility is
terminated, the 1990 IDA Bond provides that it will become due 60 days prior to
such termination. The Company will incur interest on the 1990 IDA Bond
aggregating approximately $250,000 during 1998. The Company has granted the
NYIDA a security interest in substantially all facility equipment located in the
New York facility to secure the obligations of the Company to the NYIDA under
the 1990 IDA Bond.
The holders of the Series A Preferred Shares are entitled to receive
cumulative dividends at an annual rate of $6.00 per share. Dividends accrue as
of the issuance date of the Series A Preferred Shares and are payable on the
outstanding Series A Preferred Shares in cash on December 31 of each year
beginning December 31, 1999 or at the time of conversion or redemption of the
Series A Preferred Shares on which the dividend is to be paid, whichever is
sooner. Accrued dividends were $1,302,000 at June 30, 1998.
Page 8
Total capital expenditures made during the six-months ended June 30, 1998
were $709,000. Of such expenditures, $139,000 have been reimbursed in accordance
with the terms of the 1998 Financing Agreement with Finova. Of the total capital
expenditures made during the six-months ended June 30, 1998, $537,000 related to
improving and equipping the Company's manufacturing facility in New Jersey. The
balance of capital additions was for equipment and computer-related purchases
for the corporate office and research laboratories in New York.
The Company anticipates that its existing capital resources, including the
on-going research support of its corporate partners, should enable it to
maintain its current and planned operations through the end of the year 2000.
However, the receipt of such ongoing research support is subject to attaining
research and development milestones, certain of which have not yet been
achieved. There can be no assurance that the Company will achieve these
milestones. The Company's future working capital and capital requirements will
depend upon numerous factors, including, but not limited to, the progress of the
Company's research and development programs, pre-clinical testing and clinical
trials, the Company's corporate partners fulfilling their obligations to the
Company, the timing and cost of seeking regulatory approvals, the cost of
manufacturing scale-up and effective commercialization activities and
arrangements, the level of resources that the Company devotes to the development
of marketing and sales capabilities, the costs involved in filing, prosecuting
and enforcing patent claims, technological advances, the status of competitors
and the ability of the Company to maintain existing and establish new
collaborative arrangements with other companies to provide funding to the
Company to support these activities. In order to fund its capital needs after
the end of the year 2000, the Company will require significant levels of
additional capital and intends to raise the capital through additional
arrangements with corporate partners, equity or debt financings or from other
sources. There is no assurance the Company will be successful in consummating
any such arrangements. If adequate funds are not available, the Company may be
required to significantly curtail its planned operations.
Uncertainties associated with the length and expense of pre-clinical and
clinical testing of any of the Company's product candidates could greatly
increase the cost of development of such products and affect the timing of any
anticipated revenues from product sales, and failure by the Company to obtain
regulatory approval for any product will preclude its commercialization. In
addition, the failure by the Company to obtain patent protection for its
products may make certain of its products commercially unattractive.
At December 31, 1997, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $115,000,000 which expire at
various dates from 2000 through 2012. At December 31, 1997 the Company had
research credit carryforwards of approximately $2,303,000 which expire at
various dates between years 2001 and 2012. Pursuant to Section 382 of the
Internal Revenue Code of 1986, as amended, the annual utilization of a company's
net operating loss and research credit carryforwards may be limited if the
company experiences a change in ownership of more than 50 percentage points
within a three-year period. Since 1986, the Company experienced two ownership
changes. Accordingly, the Company's net operating loss carryforwards available
to offset future federal taxable income arising before such ownership changes
are limited to $5,159,000 annually. Similarly, the Company is restricted in
using its research credit carryforwards arising before such ownership changes to
offset future federal income tax expense.
Other Items
The Company is evaluating the risks and costs associated with the year
2000 conversion. The Company is communicating with those organizations with
which it does business to ensure that year 2000 issues are being resolved in a
timely manner. If necessary, modifications and conversions by those with which
the Company does business are not completed timely, the year 2000 conversion
issue may have a material adverse effect on the Company's consolidated financial
position and results of operations. Based on the Company's ongoing evaluation,
management does not currently believe that the costs to achieve year 2000
compliance will be material to the Company's financial position or results of
operations.
Page 9
Certain Factors Affecting Forward-Looking Statements--Safe Harbor Statement
Those statements contained herein that do not relate to historical
information are forward-looking statements. There can be no assurance that the
future results covered by such forward-looking statements will be achieved.
Actual results may differ materially due to the risks and uncertainties inherent
in the Company's business, including without limitation, the risks and
uncertainties associated with completing pre-clinical and clinical trials of the
Company's compounds that demonstrate such compounds' safety and effectiveness;
obtaining additional financing to support the Company's operations; obtaining
and maintaining regulatory approval for such compounds and complying with other
governmental regulations applicable to the Company's business; obtaining the raw
materials necessary in the development of such compounds; consummating
collaborative arrangements with corporate partners for product development;
achieving milestones under collaborative arrangements with corporate partners;
developing the capacity to manufacture, market and sell the Company's products,
either directly or with collaborative partners; developing market demand for and
acceptance of such products; competing effectively with other pharmaceutical and
biotechnological products; obtaining adequate reimbursement from third party
payors; attracting and retaining key personnel; protecting proprietary rights;
and those other factors set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview and Risk Factors," in
the Company's most recent Annual Report on Form 10-K.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Page 10
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
(a) An annual meeting of stockholders was held on May 27, 1998 (the
"Annual Meeting").
(b) The directors elected at the Annual Meeting were Richard Barth, Jean
Carvais, Vincent T. DeVita, Jr., Robert F. Goldhammer, David M. Kies, Paul B.
Kopperl, John Mendelsohn, William R. Miller, Harlan W. Waksal and Samuel D.
Waksal. Such persons are all of the directors of the Company whose term of
office as a director continued after the Annual Meeting.
(c) The matters voted upon at the Annual Meeting and the results of the
voting, are set forth below. Broker non-votes were not applicable.
(I) Election of directors
Name In Favor Withheld
---- -------- --------
Richard Barth 20,225,747 159,159
Jean Carvais 20,225,947 158,959
Vincent T. DeVita, Jr. 20,228,708 156,198
Robert F. Goldhammer 20,105,567 279,339
David M. Kies 20,231,947 152,959
Paul B. Kopperl 20,231,947 152,959
John Mendelsohn 20,232,147 152,759
William R. Miller 20,226,147 158,759
Harlan W. Waksal 20,232,207 152,669
Samuel D. Waksal 20,108,767 276,139
(ii) The stockholders approved the Company's 1998 Employee Stock Purchase
Plan. The stockholders voted 19,790,050 shares in favor, 388,426 shares against
and 206,430 shares abstained from voting.
(iii) The stockholders ratified the appointment by the Board of Directors
of KPMG Peat Marwick LLP as the Company's independent certified public
accountants for the fiscal year ending December 31, 1997. The stockholders voted
20,161,112 shares in favor, 211,739 shares against and 57,055 shares abstained
from voting.
Page 11
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
Exhibit No. Description
----------- -----------
10.67 Equipment leasing commitment from
Finova Technology Finance, Inc.
10.68 1998 Employee Stock Purchase Plan
10.69 1998 Non-Qualified Stock Option Plan,
as amended
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
Page 12
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.
IMCLONE SYSTEMS INCORPORATED
(Registrant)
Date: August 13, 1998 By /s/ Samuel D. Waksal
-------------------------------------
Samuel D. Waksal
President and Chief Executive Officer
Date: August 13, 1998 By /s/ Carl S. Goldfischer
-------------------------------------
Carl S. Goldfischer
Vice President, Finance and Chief
Financial Officer
Page 13