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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 March 31, 2000
Commission File No. 0-19131
MEDIMMUNE, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1555759
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
35 West Watkins Mill Road, Gaithersburg, MD 20878
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 417-0770
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of March 31, 2000, 69,554,994 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. Consolidated Financial Statements
Consolidated Balance Sheets 1-2
Consolidated Statements of Operations 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-10
Part II Other Information 11
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
Synagis, CytoGam, Ethyol, RespiGam, NeuTrexin, and Hexalen are
registered trademarks of the Company.
ii
ITEM 1. FINANCIAL STATEMENTS
MEDIMMUNE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31, December 31,
2000 1999
------------ ------------
ASSETS: (Unaudited)
Cash and cash equivalents $104,294 $ 36,570
Marketable securities 319,454 214,750
Trade receivables, net 70,763 86,894
Inventory, net 25,282 31,777
Deferred tax assets 25,111 23,132
Other current assets 9,705 8,715
-------- --------
Total Current Assets 554,609 401,838
Property and equipment, net 87,620 87,452
Deferred tax assets 162,490 128,990
Marketable securities 28,625 19,074
Other assets 12,881 11,070
-------- --------
Total Assets $846,225 $648,424
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable $ 1,880 $ 2,995
Accrued expenses 89,557 65,300
Product royalties payable 25,432 28,527
Other current liabilities 2,121 2,130
-------- --------
Total Current Liabilities 118,990 98,952
Long-term debt 10,194 10,366
Other liabilities 2,009 2,027
-------- --------
Total Liabilities 131,193 111,345
-------- --------
Commitments and Contingencies
1
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
69,554,994 at March 31, 2000 and
67,946,778 at December 31, 1999 696 679
Paid-in capital 774,422 656,244
Accumulated deficit (60,254) (118,241)
Accumulated other comprehensive income (loss) 168 (1,603)
-------- --------
Total Shareholders' Equity 715,032 537,079
-------- --------
Total Liabilities and Shareholders' Equity $846,225 $648,424
======== ========
The accompanying notes are an integral part of these financial statements.
2
MEDIMMUNE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands except per share data)
For the
three months ended
March 31,
2000 1999
--------- ---------
Revenues:
Product sales $195,776 $133,414
Other revenue 2,565 2,039
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Total revenues 198,341 135,453
-------- --------
Costs and Expenses:
Cost of sales 45,028 32,882
Research and development 15,493 13,766
Selling, administrative and general 50,673 40,925
Other operating expenses 2,292 5,868
-------- --------
Total expenses 113,486 93,441
-------- --------
Operating income 84,855 42,012
Interest income 5,182 2,837
Interest expense (123) (958)
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Income before income taxes 89,914 43,891
Provision for income taxes 31,927 18,178
-------- --------
Net earnings $ 57,987 $ 25,713
======== ========
Basic earnings per share $ 0.84 $ 0.44
======== ========
Shares used in calculation of basic earnings per
share 68,636 59,080
======== ========
Diluted earnings per share $ 0.80 $ 0.38
======== ========
Shares used in calculation of diluted earnings
per share 72,907 69,455
======== ========
The accompanying notes are an integral part of these financial
statements.
3
MEDIMMUNE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
For the
Three Months Ended
March 31,
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 57,987 $ 25,713
Noncash items:
Deferred taxes 31,927 18,103
Depreciation and amortization 1,691 1,087
Amortization of premium on marketable securities (312) (348)
Change in allowances for trade accounts receivable 1,143 (6,722)
Other (187) (657)
Other changes in assets and liabilities 39,126 19,279
-------- --------
Net cash provided by operating activities 131,375 56,455
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CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in marketable securities (112,171) (69,866)
Capital expenditures (2,109) (1,719)
Investment in strategic alliance -- (6,350)
-------- --------
Net cash used in investing activities (114,280) (77,935)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock
and exercise of stock options 50,787 28,513
Decrease in long-term debt (143) (2,543)
-------- --------
Net cash provided by financing activities 50,644 25,970
-------- --------
Effect of exchange rate changes on cash (15) (115)
Net increase in cash and cash equivalents 67,724 4,375
Cash and cash equivalents at beginning of period 36,570 44,730
-------- --------
Cash and cash equivalents at end of period $104,294 $ 49,105
======== ========
The accompanying notes are an integral part of these financial statements.
4
MEDIMMUNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
GENERAL
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments, consisting only of adjustments of
a normal recurring nature, necessary to present fairly the financial position,
results of operations and cash flows of MedImmune, Inc. and its subsidiaries
("the Company"). The financial results of the first quarter may not be
indicative of the financial results reported for the full year.
INVENTORY
Inventory, net of reserves, is comprised of the following (in thousands):
March 31, December 31,
2000 1999
---------- ------------
Raw Materials $ 12,009 $ 11,502
Work in Process 14,160 15,129
Finished Goods 5,164 9,365
-------- --------
31,333 35,996
Less noncurrent (6,051) (4,219)
-------- --------
$ 25,282 $ 31,777
======== ========
The Company has purchased plasma and other raw materials for use in production
of CytoGam in the Company's Frederick manufacturing facility, which is subject
to U.S. Food and Drug Administration ("FDA") licensure and approval. Due to the
uncertainty surrounding the likelihood and timing of FDA approval, this
inventory has been classified as noncurrent in the accompanying balance sheet.
As a result of the June 1998 FDA approval of Synagis and the market acceptance
of Synagis, the Company reserved approximately $9.2 million against its RespiGam
inventory as minimal product sales were expected to result from this inventory
in the foreseeable future. RespiGam reserve balances at March 31, 2000 and
December 31, 1999 were $4.4 million and $5.8 million, respectively.
Finished goods at March 31, 2000 and December 31, 1999 include approximately
$1.4 million and $1.7 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 March 31, 2000, minimal sales of
these by-products have occurred. The March 31, 2000 and December 31, 1999
balances are net of a reserve of $1.7 million and $1.7 million, respectively.
5
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 periods reported.
Three Months Three Months
Ended March 31, 2000 Ended March 31, 1999
-------------------- --------------------
Numerator:
Net earnings $ 57,987 $ 25,713
Interest on 7% convertible notes, net of
amounts capitalized and related taxes -- 358
-------- --------
Numerator for diluted EPS $ 57,987 $ 26,071
======== ========
Denominator:
Weighted average shares outstanding 68,636 59,080
Effect of dilutive securities:
Stock options 4,271 4,277
7% convertible notes -- 6,098
-------- --------
Denominator for diluted EPS 72,907 69,455
======== ========
Options to purchase 1,461,095 shares of common stock with prices from $169.00 to
$203.94 per share were outstanding in the first quarter of 2000 and options to
purchase 1,765,353 shares of common stock with prices from $53.33 to $201.33 per
share were outstanding in the first quarter of 1999; these shares were not
included in the computation of diluted earnings per share because they were
anti-dilutive.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. SFAS No. 133 requires
companies to recognize all derivatives as either assets or liabilities, with the
instruments measured at fair value. The accounting for changes in fair value,
gains or losses, depends on the intended use of the derivative and its resulting
designation. The Company will adopt SFAS No. 133 by January 1, 2001. Because of
the Company's minimal use of derivatives, management does not anticipate that
the adoption of SFAS No. 133 will have a material effect on the earnings or
financial position of the Company.
6
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101. SAB 101 summarizes certain of the SEC's
views in applying generally accepted accounting principles to certain revenue
transactions in financial statements. Implementation of the SAB is required in
the second quarter of 2000. The SAB addresses the revenue recognition for
nonrefundable fees received upon entering into contractual arrangements and
milestone fees received upon the occurrence of certain events. The Company is
still evaluating the impact of the SAB on its financial statements, and expects
that the accounting for certain of its agreements may be impacted by the SAB.
COMPREHENSIVE INCOME
Comprehensive income is comprised of net income and other comprehensive income.
Other comprehensive income includes certain changes in equity that are excluded
from net income, such as translation adjustments, and unrealized holding gains
and losses on available-for-sale marketable securities. Comprehensive income for
the three months ended March 31, 2000 was $59.8 million versus $25.4 million for
the comparable period in 1999.
RESTATEMENTS
In November 1999, the Company completed a merger with U.S. Bioscience, Inc.,
which was accounted for as a pooling-of-interests. Accordingly, the financial
statements and related notes presented herein have been restated for all periods
to include the accounts and operations of U.S. Bioscience, Inc. Prior year
amounts have been reclassified to conform with the current presentation.
LEGAL PROCEEDINGS
In 1998, MediGene AG initiated a legal action against Loyola University of
Chicago and the Company in the U.S. District Court for the Northern District of
Illinois alleging, among other things, breach of contract and tortious
interference by the Company with an alleged prospective business relationship
between MediGene and Loyola. The claims relate to human papillomavirus vaccine
technology covered by contracts between MediGene and the Company and by a
license agreement from Loyola to the Company, under which the Company granted a
sublicense to SmithKline Beecham. MediGene claims monetary damages from the
Company and ownership of the patents in question, as well as rescission of the
Company's license agreement from Loyola or rights as a third-party beneficiary
thereof.
The Company intends to continue to defend vigorously its position against these
claims. After consultation with its counsel, the Company believes that, while
the matter is not free from doubt, it has meritorious defenses. The Company also
believes that the outcome of this dispute is unlikely to have a material adverse
effect on its financial position.
7
ITEM 2.
MEDIMMUNE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
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PRODUCT SALES (IN MILLIONS) 2000 1999
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Synagis $176.2 $116.2
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CytoGam 10.0 9.7
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Ethyol 5.0 4.8
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Other Products 4.6 2.7
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TOTAL $195.8 $133.4
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Product sales increased 47% to $195.8 million in first quarter 2000 versus
$133.4 million in first quarter 1999, principally due to increased sales of
Synagis. Synagis sales increased 52% to $176.2 million for the first quarter of
2000, and included $4.5 million of international sales to Abbott Laboratories
("Abbott"), compared to first quarter 1999 sales of $116.2 million, including
$1.5 million of international sales to Abbott. Abbott is the Company's exclusive
distributor of Synagis outside of the United States. The terms of the Company's
agreement with Abbott provide for the Company to receive 40 to 50 percent of end
user sales. The Company initially recognizes sales to Abbott when Synagis is
shipped to Abbott based on a contractual, guaranteed transfer price; this amount
approximates 60 to 75 percent of the total sales revenue expected to be received
for each vial. Following the end of each quarter, Abbott remits to the Company a
report detailing end user sales by Abbott for the quarter and the Company
recognizes revenue for the additional amount due in excess of the transfer price
and up to 40 to 50 percent of the end user selling price. Total Synagis sales to
date for the 1999/2000 respiratory syncytial virus ("RSV") season are $351.7
million versus $226.0 million for the 1998/1999 RSV season. CytoGam sales
increased 3% to $10.0 million in the first quarter of 2000 from $9.7 million in
the first quarter of 1999, reflecting a 51% increase in domestic units sold and
a 5% price increase, offset by a 94% decrease in international units sold.
International units are sold at a lower price than domestic units. The Company
believes that a portion of the CytoGam sales that occurred in both periods 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. The Company is aware
that certain state Medicaid agencies have begun to limit reimbursement of
CytoGam as a substitute for IVIG products. Sales of Ethyol to the Company's
domestic and international distribution partners increased 3% in the first
quarter 2000 to $5.0 million, as compared to $4.8 million in the 1999 quarter.
The increase results from a 10% higher price per vial paid to the Company by its
partners for the Company's percentage of end user sales, offset by a 6% decrease
in units sold to the distributors. Other product sales of $4.6 million in the
2000 quarter compared to $2.7 million in the 1999 period. Other revenues in the
2000 first quarter of $2.6 million increased from $2.0 million in the 1999
quarter, and consists primarily of research funding from SmithKline Beecham
("SKB") for development of a human papillomavirus vaccine.
8
Cost of sales in first quarter 2000 increased 37% to $45.0 million from $32.9
million in first quarter 1999. Gross margin of 77% in the 2000 quarter compared
to 75% in the 1999 quarter, reflecting an increase in the product mix towards
Synagis, which comprised 90% of the Company's product sales in first quarter
2000, versus 87% in first quarter 1999. Synagis has a higher gross margin than
the Company's other products.
Research, development and clinical spending increased 13% to $15.5 million in
the first quarter of 2000 from $13.8 million in the first quarter of 1999. This
increase is a result of higher expenditures on the Company's clinical trials
with Synagis in infants with congenital heart disease and the Company's human
papillomavirus vaccine trials, as well as increased infrastructure costs needed
to support the number of ongoing clinical trials. 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 $50.7 million in this
year's quarter from $40.9 million in the 1999 quarter, an increase of 24%.
Expenses in first quarter 2000 include increased wage and related expenses as
well as increased co-promotion expense to the Ross Products Division of Abbott
Laboratories for the promotion of Synagis in the United States. Co-promotion
expense increases as net domestic Synagis sales increase. As a percentage of
product sales, SG&A expense decreased to 26% in the 2000 quarter from 31% in the
1999 quarter.
Other operating expenses of $2.3 million in the 2000 period decreased from $5.9
million in the 1999 period. Charges in both periods include start-up costs at
the Company's manufacturing facility in Frederick, Maryland. Charges in the 2000
period reflect manufacturing start-up costs for the portion of the Company's
Frederick Manufacturing Center ("FMC") relating to the production of CytoGam,
while the 1999 period reflects start-up costs at the FMC for Synagis and
CytoGam. The Company received FDA approval in December 1999 for the production
of Synagis at the FMC. In March of 2000, the Company filed an application for
FDA approval relating to a portion of the production of CytoGam at the FMC.
There can be no assurances that the necessary approval will be obtained in a
timely fashion or at all.
Interest income of $5.2 million was earned in the 2000 first quarter, compared
to $2.8 million in the first quarter of 1999, reflecting higher cash balances
available for investment, and an increase in interest rates which improved the
overall portfolio yield. Interest expense of $0.1 million and $1.0 million was
incurred in the 2000 and 1999 quarters, respectively. Interest expense in the
1999 quarter reflects primarily interest due on the Company's convertible debt,
net of capitalized interest. The debt was converted to common stock during 1999.
The Company recorded a provision for income taxes of $31.9 million in the 2000
quarter, resulting in an effective rate of 35.5%. The variation from the
statutory rate is principally due to tax credits for research and development
expenditures, credits earned for Orphan Drug status of certain research and
development expenses, and the impact of the Company's effective state tax rates.
The Company expects that its effective tax rate for the remainder of 2000 will
approximate the first quarter rate.
Net earnings in the first quarter of 2000 was $58.0 million, or $0.84 basic and
$0.80 diluted net earnings per share. Shares used in computing basic and diluted
net earnings per share were 68.6 million and 72.9 million, respectively. Net
earnings for the first quarter of 1999 was $25.7 million, or $0.44 basic and
$0.38 diluted net earnings per share. Shares used in computing the first quarter
1999 net earnings per
9
share were 59.1 million and 69.5 million, respectively.
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.
LIQUIDITY AND CAPITAL RESOURCES
Cash and marketable securities at March 31, 2000 were $452.4 million compared to
$270.4 million at December 31, 1999. Working capital increased to $435.6 million
at March 31, 2000 versus $302.9 million at December 31, 1999. Net cash provided
by operating activities in the three months ended March 31, 2000 was $131.4
million, reflecting net income for the period and decreases in accounts
receivable, partially offset by increases in accrued expenses, primarily as a
result of amounts due to Abbott for co-promotion of Synagis. Outflows for
investing activities included capital expenditures of $2.1 million, net of
capitalized interest, and increases in investments of $112.2 million for the
three months ended March 2000. During the three months ended March 31, 2000,
stock option exercises provided $50.8 million of cash, compared to $8.5 million
in the 1999 quarter. The 1999 quarter also included a private placement
transaction of 403,000 shares of common stock issued for net proceeds to the
Company of $20.0 million.
The Company's existing funds at March 31, 2000, 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.
--------------------
THIS QUARTERLY REPORT MAY CONTAIN, IN ADDITION TO HISTORICAL INFORMATION,
CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH
STATEMENTS REFLECT MANAGEMENT'S CURRENT VIEWS, AND ARE BASED ON CERTAIN
ASSUMPTIONS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE CURRENTLY
ANTICIPATED AS A RESULT OF A NUMBER OF FACTORS, INCLUDING RISK AND UNCERTAINTIES
DISCUSSED IN THE COMPANY'S OTHER FILINGS WITH THE U.S. SECURITIES AND EXCHANGE
COMMISSION. MEDIMMUNE CAUTIONS THAT RSV DISEASE OCCURS PRIMARILY DURING THE
WINTER MONTHS; THE COMPANY BELIEVES ITS OPERATING RESULTS WILL REFLECT THAT
SEASONALITY FOR THE FORSEEABLE FUTURE. THE COMPANY IS ALSO DEVELOPING SEVERAL
PRODUCTS FOR POTENTIAL FUTURE MARKETING. THERE CAN BE NO ASSURANCE THAT SUCH
DEVELOPMENT EFFORTS WILL SUCCEED, THAT SUCH PRODUCTS WILL RECEIVE REQUIRED
REGULATORY CLEARANCE OR THAT, EVEN IF SUCH REGULATORY CLEARANCE WERE RECEIVED,
SUCH PRODUCTS WOULD ULTIMATELY ACHIEVE COMMERICAL SUCCESS.
10
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: 3.3 By-Laws, as amended
(b) Reports on Form 8-K:
Report Date Event Reported
----------- --------------
1/14/00 Restated Condensed Combined Financial
Statements to Reflect the Merger with U.S. Bioscience,
Inc. as a pooling-of-interests
1/18/00 Restated Condensed Combined Financial
Statements to Reflect the Merger with U.S. Bioscience,
Inc. as a Pooling-of-Interests
1/26/00 MedImmune Sets New Revenue and Earnings Records
1/31/00 Restated Condensed Combined Financial
Statements to Reflect the Merger with U.S. Bioscience,
Inc. as a Pooling-of-Interests
2/17/00 MedImmune's Board of Directors Authorizes
Three-for-One Stock Split
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)
By: /s/ David M. Mott
----------------------------------
Date: May 15, 2000 David M. Mott
Vice Chairman and Chief Financial Officer
11