UNITED STATES
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, 2000
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 0-28494
MILLENNIUM PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3177038
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
75 SIDNEY STREET, CAMBRIDGE, MA 02139
(Address of principal executive offices, including zip code)
617-679-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Number of shares of Common Stock, $.001 par value per share, outstanding as of
April 27, 2000 was 91,489,480.
MILLENNIUM PHARMACEUTICALS, INC.
REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999 .............................. 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 2000 and 1999 ................ 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2000 and 1999 ................ 5
Notes to Condensed Consolidated Financial Statements ................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .................................. 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK ............ 13
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS .............................. 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .................... 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ....................................... 14
SIGNATURES ....................................................................... 16
EXHIBIT INDEX .................................................................... 17
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MILLENNIUM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31 DECEMBER 31
(in thousands, except per share amounts) 2000 1999
-------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ................................ $ 266,059 $ 56,775
Marketable securities .................................... 388,745 204,941
Due from strategic partners .............................. 9,325 11,579
Prepaid expenses and other current assets ................ 9,665 13,215
--------- ---------
Total current assets .................................... 673,794 286,510
Property and equipment, net ............................... 64,856 59,543
Restricted cash and other assets .......................... 12,470 12,965
Debt issuance costs ....................................... 11,461 --
Intangible assets, net .................................... 180,559 182,607
--------- ---------
Total assets ............................................ $ 943,140 $ 541,625
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................... $ 15,970 $ 22,953
Accrued expenses ......................................... 32,232 17,306
Deferred revenue ......................................... 4,275 7,936
Current portion of capital lease obligations ............. 11,429 10,968
--------- ---------
Total current liabilities ............................... 63,906 59,163
Capital lease obligations, net of current portion ......... 28,177 27,488
Long term debt ............................................ 400,000 --
Minority interest ......................................... 16,055 15,568
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.001 par value; 5,000 shares
authorized, non issued .................................. -- --
Common Stock, $0.001 par value; 100,000 shares
authorized, 91,429 shares in 2000 and 89,301 shares
in 1999 issued and outstanding .......................... 91 89
Additional paid-in capital ............................... 911,932 883,125
Deferred compensation .................................... (1,548) (1,055)
Notes receivable from officers ........................... (483) (1,026)
Accumulated other comprehensive loss ..................... (770) (739)
Accumulated deficit ...................................... (474,220) (440,988)
--------- ---------
Total stockholders' equity .............................. 435,002 439,406
--------- ---------
Total liabilities and stockholders' equity .............. $ 943,140 $ 541,625
========= =========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
MILLENNIUM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
March 31,
------------------------
(in thousands, except per share amounts) 2000 1999
---------- ----------
Revenue under strategic alliances .................... $ 46,773 $ 40,992
--------- ---------
Costs and expenses:
Research and development ............................ 60,100 35,433
General and administrative .......................... 10,823 7,126
Amortization of intangible assets ................... 11,970 676
--------- ---------
Total costs and expenses......................... 82,893 43,235
--------- ---------
Loss from operations ................................. (36,120) (2,243)
Interest income ...................................... 8,480 2,759
Interest expense ..................................... (5,451) (697)
Minority interest .................................... (141) 2,253
--------- ---------
Net income (loss) .................................... $ (33,232) $ 2,072
========= =========
Basic net income (loss) per share .................... $ (0.37) $ 0.03
========= =========
Shares used in computing basic net
income (loss) per share ............................ 90,445 70,630
========= =========
Diluted net incoome (loss) per share ................. $ (0.37) $ 0.03
========= =========
Shares used in computing diluted
net income (loss) per share ........................ 90,445 76,387
========= =========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
MILLENNIUM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31,
----------------------------
(in thousands) 2000 1999
---------- ----------
OPERATING ACTIVITIES
Net income (loss) .................................... $(33,232) $ 2,072
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Depreciation and amortization ........................ 17,785 4,546
Minority interest .................................... 141 (2,253)
Stock compensation ................................... 1,633 224
Changes in operating assets and liabilities:
Prepaid expenses and other current assets .......... 6,549 (2,015)
Due from strategic partners ........................ 2,254 3,337
Restricted cash and other assets ................... 339 184
Accounts payable and accrued expenses .............. 5,020 3,127
Deferred revenue ................................... (3,661) 3,815
--------- ---------
Net cash provided by (used in) operating activities .. (3,172) 13,037
--------- ---------
INVESTING ACTIVITIES
Purchase of property and equipment ................... (7,143) (3,778)
Sales of marketable securities ....................... 61,222 15,500
Purchase of marketable securities .................... (245,056) (101,034)
--------- ---------
Net cash used in investing activities ................ (190,977) (89,312)
--------- ---------
FINANCING ACTIVITIES
Issuance of convertible subordinated notes,
net of issuance costs .............................. 388,695 --
Net proceeds from employee stock purchases ........... 17,572 9,817
Proceeds from sale of subsidiary stock ............... -- 15,000
Repurchase of common stock ........................... -- (1)
Payments of capital lease obligations ................ (2,834) (1,902)
---------- ---------
Net cash provided by financing activities ............ 403,433 22,914
---------- ---------
Increase (decrease) in cash and cash equivalents ..... 209,284 (53,361)
Cash and cash equivalents at beginning of period ..... 56,775 138,284
---------- ---------
Cash and cash equivalents at end of period ........... $266,059 $ 84,923
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest ............................... $ 746 $ 682
NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital leases .............. $ 3,984 $ 2,615
Issuance of common stock to Abgenix, Inc. ............ 10,000 --
Deferred compensation relating to issuance
of stock options ................................... 345 --
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
MILLENNIUM PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(unaudited)
1- BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Interim results for the three month period ended March 31, 2000
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1999 which was filed with the
Securities and Exchange Commission on February 25, 2000.
2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The effective date of this
statement was deferred to fiscal years beginning after June 15, 2000 by SFAS No.
137 "Accounting for Derivative Instruments and Hedging Activities -- Deferral of
the Effective Date of SFAS No. 133." The Company believes the adoption of this
new accounting standard will not have a significant effect on its financial
statements as the Company's investment policies prohibit the use of derivatives.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101 ("SAB 101"), "Revenue Recognition in Financial
Statements" which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. The effective date of this
bulletin was deferred to no later than the second fiscal quarter beginning after
December 15, 1999. SAB 101 requires companies to report any changes in revenue
recognition as a cumulative change in accounting principle at the time of
implementation in accordance with Accounting Principles Board Opinion No. 20,
"Accounting Changes." The Company is currently in the process of evaluating the
impact SAB 101 will have on its financial position or results of operations.
(b) NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is based on the weighted
average number of common shares outstanding. For the three month period ended
March 31, 2000, diluted net loss per common share is the same as basic net loss
per common share as the inclusion of weighted average shares of common stock
issuable upon exercise of stock options and warrants would be antidilutive. For
the three month period ended March 31, 1999, the difference between basic and
diluted shares
6
used in the computation of income per share is the 5,756,920
weighted-average common equivalent shares resulting from outstanding
common stock options and warrants.
(c) CASH EQUIVALENTS AND MARKETABLE SECURITIES
Cash equivalents consist principally of money market funds and
corporate bonds with original maturities of three months or less at the date of
purchase. Marketable securities consist of high-grade corporate bonds, which are
carried at fair value, with the unrealized gains and losses reported in a
separate component of stockholders' equity. Marketable securities at March 31,
2000 and December 31, 1999 are classified as "available-for-sale." There have
been no realized gains or losses on sales of any securities in 2000 or 1999.
3- STRATEGIC ALLIANCES
On January 6, 2000, the Company announced that it had signed an
agreement regarding the licensing of LDP-977, for the treatment of chronic
asthma, to Taisho Pharmaceutical Co., Ltd. ("Taisho"). Under the agreement,
Taisho will hold an exclusive license to LDP-977 in Japan, Asia and Europe while
the Company will retain rights for the rest of the world, including North
America. In exchange, Taisho will fund all of the research and development
expenses of the compound in Japan and Asia, and two-thirds of the expenses in
the United States and Europe. Taisho will also have right of first negotiation
for commercialization in the U.S. should the Company seek to sub-license in that
territory. Quarterly research and development payments began in the first
quarter of 2000. In addition to funding research and development expenses,
Taisho paid a licensing fee to the Company in the first quarter of 2000 which
was recognized as revenue and, in addition, will pay milestone payments for
research and development progress in each of Taisho's licensed territories. The
Company will also receive a supply fee based on net sales of the product in each
of Taisho's licensed territories in exchange for the Company's manufacture and
supply of the product to Taisho.
The Company and AstraZeneca AB ("AstraZeneca") mutually decided to end
the research phase of their inflammatory respiratory collaboration in order to
pursue independent research efforts. In January 2000, the Company received a
concluding payment and will be entitled to receive milestone and royalty
payments on sales of therapeutic products resulting from certain targets
discovered during the collaboration and on which AstraZeneca will continue to
conduct research and development efforts.
On March 6, 2000, the Company entered into a collaboration with
Abgenix, Inc. ("Abgenix") which provides the Company with access to Abgenix's
XenoMouse(TM) technology for the creation of fully human antibodies. In exchange
for this technology, the Company made a $10 million upfront payment consisting
of shares of the Company's common stock and potential future payments may be
made by the Company upon the achievement of agreed-upon milestones . The Company
will also pay to Abgenix royalties on future product sales.
4- CONVERTIBLE DEBT
In January 2000, the Company completed a sale, pursuant to Rule 144A of
the Securities Act of 1933, of $400.0 million of 5.5% convertible subordinated
notes due January 15, 2007. The notes are convertible into Millennium common
stock at any time prior to maturity at a price equal to
7
$84.14 per share, subject to adjustment, unless previously repurchased
or redeemed by the Company under certain circumstances. Under the terms
of the notes, the Company is required to make semi-annual interest
payments on the outstanding principal balance of the notes on January 15
and July 15 of each year.
5- MILLENNIUM PREDICTIVE MEDICINE
On March 2, 2000, the Company announced that it will acquire the
outstanding preferred and common shares of its Millennium Predictive Medicine,
Inc. ("MPMx") subsidiary that it does not already own, making it a wholly-owned
subsidiary of the Company. The transaction will be a stock-for-stock exchange.
Under the terms of the agreement, MPMx shareholders, including Becton Dickinson
and Company ("Becton Dickinson"), will receive 0.4 shares of Millennium common
stock in exchange for each MPMx share. The total value of Millennium common
stock to be received by MPMx's stockholders in the merger based upon the fair
value of Millennium common stock at the date of the announcement of the merger,
March 2, 2000, is approximately $143.6 million. Minority interest will no longer
be recorded upon the close of the merger which is anticipated in the second
quarter of 2000.
6- SUBSEQUENT EVENT
On April 12, 2000, the Company filed a Certificate of Amendment of
Certificate of Incorporation increasing the authorized common stock, $0.001
par value per share, of the Company, from 100,000,000 shares to 500,000,000
shares. On February 28, 2000, the Board of Directors of the Company delcared
a two-for-one stock split of the common stock, to be effected in the form of
a 100% stock dividend payable on April 18, 2000 to stockholders of record as
of March 28, 2000. Stockholders' equity has been restated to give retroactive
application to the April 18, 2000 stock split in prior periods by
reclassifying from additional paid-in capital to common stock the par value
of the additional shares arising from the stock split. In addition, all
references in the condensed consolidated financial statements to the number
of shares and per share amount have been restated.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THIS REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS. FOR THIS
PURPOSE, ANY STATEMENTS CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL
FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE
FOREGOING, THE WORDS "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS," "INTENDS,"
AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
THERE ARE A NUMBER OF IMPORTANT FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING
STATEMENTS. THESE FACTORS ARE SET FORTH UNDER THE CAPTION "RISK FACTORS THAT MAY
AFFECT RESULTS" IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1999, WHICH "RISK FACTORS THAT MAY AFFECT RESULTS" DISCUSSION IS
EXPRESSLY INCORPORATED BY REFERENCE HEREIN.
OVERVIEW
Millennium Pharmaceuticals, Inc. was founded in 1993. We incorporate
large-scale genetics, genomics, high throughput screening, and informatics in an
integrated science and technology platform which we apply primarily in
discovering and developing proprietary therapeutic and diagnostic human
healthcare products and services. We currently derive substantially all of our
revenue from strategic alliances with major pharmaceutical and biotechnology
companies.
During 1999, we expanded our operations through internal growth,
additional strategic alliances and acquisitions. We also hired additional staff
in research and drug discovery, development, informatics, biotherapeutics and
diagnostics/prognostics, as well as in other support areas. In December 1999, we
acquired LeukoSite, Inc. ("LeukoSite") in a stock-for-stock acquisition
accounted for as a purchase. LeukoSite has been a leader in the discovery and
development of therapeutics based upon the biology of leukocytes. Therapeutics
acquired from LeukoSite may be used to treat cancer and inflammatory, autoimmune
and viral diseases. Through the LeukoSite acquisition, we extended our pipeline
of small molecule and biotherapeutic drug candidates, principally in the areas
of oncology and inflammation and added several preclinical product candidates
and five product candidates in clinical trials.
To date, all of our revenues have resulted from payments from
strategic partners and United States government research grants. We have not
received any revenue from the sale of products. Our current strategic
alliances include the following: two agreements with the Wyeth-Ayerst
Division of American Home Products in certain disorders of the central
nervous system and in bacterial diseases; an agreement with Bayer AG in
cardiovascular disease, and certain areas of oncology, osteoporosis, pain,
liver fibrosis, hematology and viral infections; and an agreement with
Monsanto Company in plant agriculture. In addition through our acquisition of
LeukoSite we gained the following strategic alliances: a partnership with
ILEX Oncology, Inc. ("ILEX") for product development of Campath-Registered
Trademark-, a monoclonal antibody being investigated for use in the treatment
of chronic lymphocytic leukemia, for which we are currently seeking FDA
approval; and an agreement, through our joint venture partnership with ILEX,
with Schering AG/Berlex Laboratories for distribution of the
CAMPATH-Registered Trademark- product candidate. In addition, we have a
number of other strategic alliances. Our strategic alliance agreements have
provided us with various combinations of equity investments, license fees and
research funding, and may provide certain additional payments contingent upon
the attainment of research and regulatory milestones
9
and royalty and/or profit sharing payments based on sales of any products
resulting from the collaborations.
During 2000, we expect to continue to pursue additional alliances and
to consider joint development, merger, or acquisition opportunities that may
provide us with access to products on the market or in later stages of
commercial development than those represented within our current programs. We
expect that we will incur increasing expenses and may incur increasing operating
losses for at least the next several years, primarily due to expansion of
facilities and research and development programs, and as a result of efforts to
advance acquired products or our own development programs to commercialization.
Our revenues under strategic alliance and licensing arrangements may fluctuate
from period to period or year to year; these fluctuations, as well as
fluctuations in spending, may result in periods of profitability and periods of
losses. Therefore, our results of operations for any period may not be
indicative of future results of operations.
RESULTS OF OPERATIONS
QUARTERS ENDED MARCH 31, 2000 AND MARCH 31, 1999
For the three months ended March 31, 2000 (the "2000 Quarterly
Period"), we reported a net loss of $33.2 million or ($0.37) per basic and
diluted share as compared to net income of $2.1 million or $0.03 per basic and
diluted share for the three months ended March 31, 1999 (the "1999 Quarterly
Period"). Operating results for the 2000 Quarterly Period represent the first
reported quarter of fully combined revenues and expenses related to the
acquisition of LeukoSite.
Revenue under strategic alliances increased to $46.8 million for the
2000 Quarterly Period from $41.0 million for the 1999 Quarterly Period. The
increase in revenue is primarily due to our receipt of a lump sum payment upon
conclusion of our collaboration agreement with AstraZeneca, the signing of a new
strategic alliance agreement with Taisho, and a milestone payment from our
strategic alliance with Monsanto Company. This increase is offset in part by a
scheduled decrease in funding from our alliance with Bayer AG. We expect revenue
under our existing and from new strategic alliances to continue, however,
revenues may fluctuate from period to period and there can be no assurance that
strategic alliance agreements will continue for their initial term or beyond.
Research and development expenses increased to $60.1 million for the
2000 Quarterly Period from $35.4 million for the 1999 Quarterly Period. The
increase was primarily attributable to our investment in six product candidates
in clinical trials and several preclinical products, increases in personnel
expenses, purchases of laboratory supplies and technology license payments for
access to gene database information. We expect research and development expenses
to continue to increase above the 2000 Quarterly Period rate of spending, as
personnel are added and as research and development activities are expanded to
accommodate our existing strategic alliances and development efforts.
General and administrative expenses increased to $10.8 million for the
2000 Quarterly Period from $7.1 million for the 1999 Quarterly Period. The
increase was primarily attributable to increased expenses for additional
management and administrative personnel, as well as to increases in facilities
expenses, consulting, and other professional fees associated with the expansion
and increased complexity of our operations and increased business development
activity. We expect
10
that general and administrative expenses will continue to increase as we add
capabilities to support the further advancement of our development efforts.
On December 22, 1999, we acquired LeukoSite for an aggregate purchase
price of $550.4 million primarily consisting of 13,353,866 shares of common
stock and 1,768,174 shares of common stock issuable upon the exercise of
LeukoSite options and warrants. The transaction was recorded as a purchase for
accounting purposes and accordingly, the purchase price was allocated to the
assets purchased and liabilities assumed based upon their respective fair
values. The excess of the purchase price over the estimated fair market value of
net tangible assets was allocated to specific intangible assets and goodwill. We
also incurred a nonrecurring charge to operations for acquired in-process
research and development. Our research and development projects acquired in
connection with LeukoSite are expected to continue in line with the estimates
set forth in our 1999 Annual Report on Form 10-K. Goodwill is being amortized on
a straight-line basis over four years. Amortization expense related to the
LeukoSite acquisition for the 2000 Quarterly Period was approximately $11.3
million.
Interest income increased to $8.5 million for the 2000 Quarterly Period
from $2.8 million for the 1999 Quarterly Period. The increase resulted from a
higher level of invested funds due to proceeds from the convertible debt
offering in January 2000. Interest expense increased to $5.5 million for the
2000 Quarterly Period from $.7 million for the 1999 Quarterly Period due to
interest obligations arising from the convertible debt offering, which closed in
January 2000.
Minority interest represents the minority shareholder interest of
Becton Dickinson in the net income for the 2000 Quarterly Period of our
majority-owned subsidiary MPMx. Minority interest for the 1999 Quarterly period
represents the minority shareholder interest of Eli Lilly and Company in the net
loss of our majority-owned subsidiary, Millennium BioTherapeutics, Inc. ("MBio")
as well as the minority shareholder interest of Becton Dickinson in the net
income of MPMx. As of October 14, 1999, Lilly no longer owned a minority
interest in MBio. On December 21,1999 we merged MBio into us. As we have
announced we will acquire all the outstanding shares of MPMx, including those
owned by Becton Dickinson, minority interest will no longer be recorded upon the
close of the merger which is anticipated in the second quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, we had approximately $654.8 million in cash, cash
equivalents and marketable securities, an increase of $393.1 million from
December 31, 1999. This excludes $11.2 million of interest-bearing marketable
securities classified as restricted cash and other assets on our balance sheet
which serve as security deposits for certain of our facilities leases.
The increase in cash, cash equivalents and marketable securities is
primarily due to $388.7 million of net proceeds from the convertible debt
offering and $17.6 million of proceeds from exercises of stock options, partly
offset by cash outflows for the purchase of $7.1 million of property and
equipment, $2.8 million to pay capital lease obligations and $3.2 million for
operating activities.
In January 2000, we completed a sale, pursuant to Rule 144A of the
Securities Act of 1933, of $400.0 million of 5.5% convertible subordinated notes
due January 15, 2007. The notes are
11
convertible into shares of our common stock at any time prior to maturity at a
price equal to $84.14 per share, subject to adjustment, unless previously
repurchased or redeemed by us under certain circumstances. Under the terms of
the notes, we are required to make semi-annual interest payments on the
outstanding principal balance of the notes on January 15 and July 15 of each
year.
On March 6, 2000, we entered into a collaboration with Abgenix, which
provides us with access to Abgenix's XenoMouse(TM) technology for the creation
of fully human antibodies. In exchange for this technology, we made a $10
million upfront payment consisting of shares of our common stock. We may make
potential future payments upon the achievement of agreed-upon milestones. We
will also pay to Abgenix royalties on future product sales.
We believe that existing cash, including the proceeds from our January
2000 convertible debt offering, our investment securities and the anticipated
cash payments from our current strategic alliances will be sufficient to support
our operations for the near term. Our actual future cash requirements, however,
will depend on many factors, including the progress of our disease research
programs, the number and breadth of these programs, achievement of milestones
under strategic alliance arrangements, acquisitions, our ability to establish
and maintain additional strategic alliance and licensing arrangements, and the
progress of our development efforts and the development efforts of our strategic
partners.
We expect that we will require significant additional financing in the
future, which we may seek to raise through public or private equity offerings,
debt financings, additional strategic alliances or other financing sources.
However, additional financing, strategic alliances or licensing arrangements may
not be available when needed or, if available, such financing may not be
obtained on terms favorable to us or our stockholders. Our forecast of the
period of time through which our financial resources will be adequate to support
our operations is forward-looking information, and, as such, actual results may
vary.
SUBSEQUENT EVENT
On March 2, 2000, we announced that we will acquire the outstanding
preferred and common shares of MPMx that we do not already own, making it a
wholly-owned subsidiary. The transaction will be a stock-for-stock exchange.
Under the terms of the agreement, MPMx shareholders, including Becton
Dickinson, will receive 0.4 shares of our common stock in exchange for each
MPMx share. The total value of our common stock to be received by MPMx's
stockholders in the merger based upon the fair value of our common stock at
the date of the announcement of the merger, March 2, 2000, is approximately
$143.6 million. Minority interest will no longer be recorded upon the close
of the merger which is anticipated in the second quarter of 2000.
On April 12, 2000, we filed a Certificate of Amendment of
Certificate of Incorportation increasing the authorized common stcok, $0.001
par value per share, of the Company, from 100,000,000 shares to 500,000,000
shares. On February 28, 2000, our Board of Directors declared a two-for-one
stock split of the common stock, to be effected in the form of a 100% stock
dividend payable on April 18, 2000 to stockholders of record as of March
28,2000. Stockholders' equity has
12
been restated to give retroactive application to the April 18, 2000 stock split
in prior periods by reclassifying from additional paid-in capital to common
stock the par value of the additional shares arising from the stock split. In
addition, all references in the condensed consolidated financial statements to
the number of shares and per share amount have been restated to reflect the
stock split.
IMPACT OF YEAR 2000
In prior years, we discussed the nature and progress of our plans to
prepare for any system or processing failures which could result from computer
programs recognizing the dates represented as "00" as the year 1900 rather than
the year 2000. In late 1999, we completed our remediation and testing of our
software and hardware systems. As a result of our planning and implementation
efforts, we experienced no significant disruptions in mission critical
information technology and non-information technology systems and we believe
those systems successfully responded to the Year 2000 date change. Our costs to
date concerning the Year 2000 problem have not been material. We are not aware
of any material problems resulting from Year 2000 issues, either with our
product candidates, our internal systems, or the products and services of third
parties. We will continue to monitor our mission critical computer applications
and those of our suppliers and vendors throughout the year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We maintain an investment portfolio in accordance with our Investment
Policy. The primary objectives of our Investment Policy are to preserve
principal, maintain proper liquidity to meet operating needs and maximize
yields. Although our investments are subject to credit risk, our Investment
Policy specifies credit quality standards for our investments and limits the
amount of credit exposure from any single issue, issuer or type of investment.
Our investments are also subject to interest rate risk. However, due to the
conservative nature of our investments and relatively short duration, we believe
interest rate risk is mitigated. We do not own derivative financial instruments
in our investment portfolio.
The interest rates on our convertible subordinated notes and capital
lease obligations are fixed and therefore not subject to interest rate risk.
Accordingly, we do not believe that there is any material market risk
exposure with respect to derivative or other financial instruments which would
require disclosure under this item.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 6, 2000, the Company issued and sold to Abgenix, Inc. 163,600
shares (subject to adjustment) of its Common Stock, $0.001 par value per share,
for aggregate proceeds of approximately $10.0 million. These shares were issued
in connection with a collaboration agreement between the parties and no person
served as an underwriter with respect to this
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transaction. The Company relied on Section 4(2) of the Securities Act of 1933,
as amended (the "Securities Act") for exemption from the registration
requirements of the Securities Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 2000 Annual Meeting of Stockholders was held on April 12,
2000 (the "Annual Meeting"). The following is a summary of each matter voted
upon at the Annual Meeting and the number of votes cast for, against or
withheld, and broker non-votes and abstentions, adjusted for the April 18, 2000
stock split as to each such matter:
1. Election of two Class I directors, each for a term of three years.
NUMBER OF SHARES
------------------------
For Withheld
Christopher K. Mirabelli, Ph.D. ................ 76,063,742 585,828
Steven C. Wheelwright, Ph.D. ................... 76,129,292 520,278
2. Approval of an amendment to the Company's Restated Certificate of
Incorporation increasing the number of shares of Common Stock authorized for
issuance from 100,000,000 to 500,000,000.
For ...................... 63,089,406
Against .................. 13,521,566
Abstain .................. 38,598
Non-votes ................ --
3. Approval of the Company's 2000 Stock Incentive Plan.
For ............................. 41,395,856
Against ......................... 21,881,050
Abstain ......................... 141,344
Non-votes ....................... 13,231,320
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits listed in the Exhibit Index are included in this
report.
(b) Reports on Form 8-K
The following current reports on Form 8-K were filed by the
Company during the last quarter:
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1. Current Report on Form 8-K filed with the Securities and Exchange Commission on January 6, 2000.
2. Current Report on Form 8-K/A filed with the Securities and Exchange Commission on January 6, 2000
3. Current Report on Form 8-K filed with the Securities and Exchange Commission on January 11, 2000
4. Current Report on Form 8-K filed with the Securities and Exchange Commission on January 19, 2000
5. Current Report on Form 8-K/A filed with the Securities and Exchange Commission on January 27, 2000
6. Current Report on Form 8-K filed with the Securities and Exchange Commission on February 9, 2000
7. Current Report on Form 8-K filed with the Securities and Exchange Commission on April 13, 2000
8. Current Report on Form 8-K filed with the Securities and Exchange Commission on April 25, 2000
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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.
MILLENNIUM PHARMACEUTICALS, INC.
(Registrant)
Date: May 2, 2000 By: /s/ Kevin P. Starr
-------------------------------------------
Kevin P. Starr
Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report on Form
10-Q:
EXHIBIT
NO. DESCRIPTION
3.1 Amendment to Amended and Restated By-Laws of the Company dated March 1, 2000.
27.1 Financial Data Schedule for the quarter ended March 31, 2000
99.1 Pages 22 through 34 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 as filed with the Securities and Exchange Commission which are deemed
to be filed except to the extent that any such portions are not expressly incorporated
herein by reference.
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