UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
incorporation or organization) Identification No.)
75 SIDNEY STREET 02139
CAMBRIDGE, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 679-7000
----------------------------
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
-----
The number of shares outstanding of each of the registrant's classes of
common stock as of:
DATE CLASS OUTSTANDING SHARES
---------------- ----------------------------- ------------------
November 7, 2000 Common stock, $.001 par value 212,532,732
- -------------------------------------------------------------------------------
1
MILLENNIUM PHARMACEUTICALS, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations for the
three and nine months ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 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 Disclosures about Market Risk 14
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index
2
PART I FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MILLENNIUM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(unaudited)
(in thousands, except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents $ 168,102 $ 56,775
Marketable securities 511,185 204,941
Due from strategic partners 10,900 11,579
Prepaid expenses and other current assets 12,988 13,215
---------- ---------
Total current assets 703,175 286,510
Property and equipment, net 82,907 59,543
Restricted cash and other assets 20,748 12,965
Intangible assets, net 209,686 182,607
---------- ---------
Total assets $1,016,516 $ 541,625
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,826 $ 22,953
Accrued expenses 27,310 17,306
Deferred revenue 15,945 7,936
Current portion of capital lease obligations 14,009 10,968
---------- ---------
Total current liabilities 74,090 59,163
Capital lease obligations, less current portion 28,585 27,488
Long term debt 124,907 -
Minority interest - 15,568
Commitments and contingencies
Stockholders' equity:
Preferred stock $.001 par value
Authorized-5,000 shares
Issued and outstanding-no shares - -
Common stock, $.001 par value
Authorized-500,000 shares
Issued and outstanding-198,731 shares at September 30, 2000
and 178,602 shares at December 31, 1999 199 179
Additional paid-in capital 1,387,922 883,035
Deferred compensation (1,504) (1,055)
Notes receivable from officers (445) (1,026)
Accumulated other comprehensive income (loss) 2,278 (739)
Accumulated deficit (599,516) (440,988)
---------- ---------
Total stockholders' equity 788,934 439,406
---------- ---------
Total liabilities and stockholders' equity $1,016,516 $ 541,625
========== =========
See notes to condensed consolidated financial statements.
3
MILLENNIUM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
(in thousands, except per share amounts)
REVENUES:
Revenue under strategic alliances $ 49,847 $ 40,316 $ 143,493 $ 128,581
--------- --------- --------- ---------
COSTS AND EXPENSES:
Research and development 68,783 38,359 190,894 113,276
General and administrative 12,439 8,279 34,319 23,907
Amortization of intangibles 14,480 676 38,611 2,027
--------- --------- --------- ---------
Total costs and expenses 95,702 47,314 263,824 139,210
--------- --------- --------- ---------
LOSS FROM OPERATIONS (45,855) (6,998) (120,331) (10,629)
OTHER INCOME (EXPENSE):
Equity in operations of joint venture (2,099) - (3,499) -
Interest income 12,132 3,317 31,393 9,209
Interest expense (4,561) (705) (16,696) (2,177)
Debt conversion expense (49,332) - (49,332) -
Minority interest - (83) (63) 2,204
--------- --------- --------- ---------
NET LOSS (89,715) (4,469) (158,528) (1,393)
Deemed preferred stock dividend - - (45,668) -
--------- --------- --------- ---------
Net loss attributable to
common stockholders $ (89,715) $ (4,469) $(204,196) $ (1,393)
========= ========= ========= =========
Basic and diluted net loss per share $ (0.46) $ (0.03) $ (1.10) $ (0.01)
========= ========= ========= =========
Shares used in computing basic and
diluted net loss per share 193,570 145,480 186,434 143,268
========= ========== ========= =========
See notes to condensed consolidated financial statements.
4
MILLENNIUM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------
2000 1999
---- ----
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (158,528) $ (1,393)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 56,643 14,666
Minority interest 63 (1,939)
Stock compensation expense 2,195 646
Equity in operations of joint venture 3,499 -
Change in operating assets and liabilities:
Prepaid expenses and other current assets 3,299 (1,655)
Due from strategic partners 1,279 (2,887)
Restricted cash and other assets (510) (1,148)
Accounts payable, accrued expenses and other (7,274) 8,812
Deferred revenue 5,911 4,870
---------- ----------
Net cash provided by (used in) operating activities (93,423) 19,972
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in marketable securities (505,859) (17,783)
Proceeds from sales and maturities of marketable securities 202,591 74,000
Purchases of property and equipment and other long term assets (24,653) (165,108)
Investment in joint venture (1,533) -
Net cash used in Cambridge Discovery Chemistry Ltd. acquisition (54,447) -
---------- ----------
Net cash used in investing activities (383,901) (108,891)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of convertible subordinated notes, net of issuance costs 388,695 -
Proceeds from sales of common stock and exercises of warrants 152,925 -
Proceeds from sale of subsidiary stock - 15,000
Net proceeds from employee stock purchases 55,303 24,097
Repayment of notes receivable from officers 633 -
Principal payments on capital leases (8,949) (6,502)
---------- ----------
Net cash provided by financing activities 588,607 32,595
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 111,283 (56,324)
Equity adjustment from foreign currency translation 44 -
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 56,775 138,284
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 168,102 $ 81,960
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $ 11,617 $ 2,142
========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Equipment acquired under capital lease $ 10,782 $ 7,838
Deferred compensation relating to issuance of stock options 1,160 1,059
Write off of capital assets 1,453 -
Issuance of common stock to Abgenix, Inc. 10,000 -
MPI buyout of Becton Dickinson interest in MPMx 61,160 -
MPI buyout of common stock interest in MPMx 82,400 -
Conversion of subordinated debt to common stock 275,093 -
Additional goodwill related to the LeukoSite acquisition 3,908 -
Reclassification of debt issuance costs to additional paid-in capital 6,744 -
See notes to condensed consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 of the accompanying condensed consolidated
financial statements have been included. Interim results for the three and
nine month periods ended September 30, 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) 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 September 30, 2000 and December 31, 1999 are classified as
"available-for-sale".
(b) NET LOSS PER COMMON SHARE
Basic net loss per common share is based on the weighted average number of
common shares outstanding. For the three and nine months ended September 30,
2000 and September 30, 1999, 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 nine months ended September 30, 2000, net loss
attributable to common stockholders is calculated by including the deduction
of a deemed preferred stock dividend relating to the excess of the fair value
of the Company's common stock consideration over the carrying value of the
Millennium Predictive Medicine, Inc. ("MPMx") preferred stock acquired from
Becton, Dickinson and Company ("Becton Dickinson"). See Note 5.
(c) COMPREHENSIVE LOSS
Comprehensive loss was $86.3 million and $4.3 million for the quarters
ended September 30, 2000 and September 30, 1999, respectively, and $155.5
million and $2.0 million for the nine months ended September 30, 2000 and
September 30, 1999, respectively. Comprehensive loss is comprised of net
loss, unrealized gains and losses on marketable securities and cumulative
translation adjustments.
(d) RECENT 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 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.
6
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. SAB 101A was released on
March 24, 2000 and deferred the effective date of SAB 101 to no later than
the second fiscal quarter beginning after December 15, 1999. In June 2000,
the SEC issued SAB 101B which delays the implementation date of SAB 101 until
no later than the fourth fiscal quarter of fiscal years 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 and results
of operations.
3. STRATEGIC ALLIANCES
On January 6, 2000, the Company signed an agreement regarding the
licensing of LDP-977, for the treatment of chronic asthma, with Taisho
Pharmaceutical Co., Ltd. ("Taisho"). Under the agreement, Taisho was granted
an exclusive license to LDP-977 in Japan, Asia and Europe while the Company
retained rights for the rest of the world, including North America. In
exchange, Taisho agreed to 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. Quarterly research and development funding payments
began in the first quarter of 2000. Taisho paid a licensing fee to the
Company in the first quarter of 2000, which was recognized as revenue. Taisho
has also agreed to pay milestone payments for research and development
progress in each of Taisho's licensed territories. The Company is also
entitled to 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 is entitled to receive milestone and royalty
payments on sales of therapeutic products resulting from certain targets
discovered during the collaboration and on which AstraZeneca continues 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. The Company is required
to make future payments to Abgenix upon the achievement of agreed-upon
milestones. The Company is also required to pay to Abgenix royalties on
future product sales.
On June 23, 2000, the Company entered into an alliance with Aventis
Pharmaceuticals Inc. ("Aventis"), the pharmaceutical company of Aventis S.A.,
covering the joint development and commercialization of drugs for the
treatment of inflammatory diseases; joint development of new drug discovery
technologies; transfer of key elements of the Company's technology platform
to Aventis to enhance its existing capabilities; and purchase of an equity
interest in the Company by Aventis. The companies have agreed to share the
responsibility for and cost of developing, marketing and manufacturing
products arising from the alliance, as well as profits in North America.
Outside of North America, Aventis is responsible for developing and marketing
products arising from the alliance, with a royalty obligation to the Company.
Under a Technology Transfer Agreement, the Company agreed to provide Aventis
with rights to its drug discovery technologies in exchange for payments of up
to $200 million over a five-year period. Under an Equity Investment
Agreement, Aventis agreed to invest $250 million in the Company's common
stock. As part of this $250 million investment, a $150 million stock purchase
was made in the third quarter of 2000 and two $50 million stock purchases are
required to be made in 2001.
On June 30, 2000, the Company, through its wholly-owned subsidiary MPMx,
entered into an agreement with Becton Dickinson pursuant to which MPMx has
licensed to Becton Dickinson intellectual property of MPMx for diagnostic use
in the area of human colon cancer. Under the terms of the agreement, Becton
Dickinson paid a one-time license fee in the second quarter of 2000, which
was recognized as revenue, in exchange for certain research and development
rights to select diagnostic markers and related intellectual
7
property developed by MPMx in this disease area. Becton Dickinson also has an
option to obtain a commercial license in the future to commercialize products
resulting from these diagnostic markers.
4. MILLENNIUM & ILEX PARTNERS, L.P.
Through the Company's 1999 acquisition of LeukoSite, Inc.
("LeukoSite"), the Company gained a joint venture partnership with ILEX
Products, Inc. ("ILEX") for product development of CAMPATH-Registered
Trademark-, a monoclonal antibody being investigated for use in the treatment
of chronic lymphocytic leukemia. Under terms of the partnership, the Company
is required to fund 50% of the partnership's working capital requirements.
The Company accounts for its investment in the joint venture under the
equity method of accounting and records its share of the income or loss in
other income (expense). The Company is reimbursed by the joint venture for
certain costs incurred on behalf of the joint venture. The joint venture has
sublicensed the rights to CAMPATH-Registered Trademark- from the Company.
5. MILLENNIUM PREDICTIVE MEDICINE
On June 2, 2000, the Company acquired the outstanding preferred and
common stock of its MPMx subsidiary that it did not already own, making MPMx
a wholly-owned subsidiary of the Company. The transaction was a
stock-for-stock merger. Under the terms of the agreement, MPMx shareholders,
including Becton Dickinson, received 0.8 shares of Millennium common stock in
exchange for each MPMx share. The total value of Millennium common stock
received by MPMx's stockholders in the merger, based upon the fair value of
Millennium common stock on the date of the announcement of the merger, March
2, 2000, was approximately $143.6 million.
6. 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
$42.07 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.
During the third quarter of 2000, we paid an aggregate of $49.3 million
in cash to certain holders of Millennium's convertible notes in order to
induce the conversion of their notes into Millennium common stock. These cash
payments were expensed during the third quarter of 2000. These conversions
resulted in the retirement of $275.1 million of outstanding principal of
Millennium convertible notes, the issuance of approximately 6.5 million
shares of Millennium common stock, and the reclassification of deferred debt
issuance costs of $6.9 million to additional paid-in capital.
7. STOCKHOLDERS' EQUITY
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 each of February 28, 2000 and September 7, 2000, the Board of
Directors of the Company declared a two-for-one stock split of the common
stock, which was effected in the form of a 100% stock dividend paid on April
18, 2000 and October 4, 2000, respectively, to stockholders of record as of
March 28, 2000 and September 27, 2000, respectively. Stockholders' equity has
been restated to give retroactive application to each 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 amounts have been restated.
8
8. ACQUISITION OF CAMBRIDGE DISCOVERY CHEMISTRY LIMITED
On July 27, 2000, the Company acquired Cambridge Discovery Chemistry
Limited ("CDC"), a subsidiary of Oxford Molecular Group for an aggregate
purchase price of $53.5 million. 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 intangible assets resulting in $6.6
million of specific intangible assets and $47.2 million of goodwill. The
acquisition did not result in an in-process research and development charge.
Intangible assets and goodwill are being amortized on a straight-line basis
over four years.
9. ACCUMULATED AMORTIZATION
Accumulated amortization related to intangible assets and goodwill was
$47.5 million and $8.9 million as of September 30, 2000 and December 31,
1999, respectively.
10. COMMITMENTS
On August 4, 2000 the Company entered into operating lease agreements,
relating to two buildings to be constructed for laboratory and office space.
The leases commence on the earlier of September 1, 2002 or the date on which
the Company commences occupancy. Both leases are for a term of seventeen
years. The Company is responsible for a portion of the construction costs,
which are currently being estimated, for both buildings. Rent is calculated
on an escalating scale ranging from approximately $7.8 million, per building
per year, to approximately $8.8 million, per building per year.
11. SUBSEQUENT EVENTS
On October 11, 2000, Millennium completed a public offering of 11
million shares of its common stock resulting in net proceeds to the Company
of $677 million. On October 17, 2000 the underwriters exercised their
over-allotment option with respect to an additional 1,465,500 shares of
common stock, resulting in net proceeds to the Company of an additional $90.3
million. The net proceeds of this offering will be used for working capital
and other corporate purposes including financing the Company's growth,
accelerating the expansion of its technology platform, developing products,
including conducting preclinical testing and clinical trials, and
acquisitions of businesses, products and technologies that complement or
expand the Company's business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This quarterly report on Form 10-Q contains forward-looking statements,
including our expectations of future industry conditions, strategic plans and
forecasts of operational results. Various risks may cause our actual results
to differ materially. A list and description of some of the risks and
uncertainties is contained below and in Exhibit 99.1 to this quarterly
report, which 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 our revenue primarily from payments from strategic
alliances with major pharmaceutical companies. We have not received any
revenue from the sale of products. Significant 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, respectively; an agreement with Bayer AG in cardiovascular disease,
and certain areas of oncology, osteoporosis, pain, liver fibrosis, hematology
and viral infections; a research alliance and technology transfer agreement
with Monsanto Company in plant agriculture; a technology transfer agreement and
9
joint development and commercialization agreement with Aventis
Pharmaceuticals Inc. ("Aventis") in inflammatory disease; an agreement with
Taisho Pharmaceutical Co., Ltd. in chronic asthma; a partnership with ILEX
Products, Inc. ("ILEX") for product development of CAMPATH-Registered
Trademark- (alemtuzumab), a monoclonal antibody for use in the treatment of
chronic lymphocytic leukemia, for which the partnership is currently seeking
FDA approval; and an agreement, through our joint venture partnership with
ILEX, with Schering AG 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 and royalty and/or profit sharing payments
based on sales of any products resulting from the collaborations.
Millennium & ILEX Partners, L.P. ("M & I") submitted a Biologics
License Application ("BLA") for CAMPATH-Registered Trademark- in December
1999. The FDA accepted the application for filing in February 2000.
CAMPATH-Registered Trademark- received "fast track" designation from the FDA.
The FDA also granted CAMPATH-Registered Trademark- orphan drug designation.
In Europe, M & I submitted a Marketing Authorization Application in March
2000, which is being reviewed under the European Agency for the Evaluation of
Medicinal Products' centralized procedures required for biotechnology
products. In June 2000, M & I received a complete response letter from the
FDA related to the partnership's BLA. The complete review of the application
satisfied the FDA's performance goal for priority review under the
Prescription Drug User Fee Act (PDUFA). In August 2000, M & I responded to
the FDA's complete response letter. We expect that the BLA for
CAMPATH-Registered Trademark- will be reviewed by the Food and Drug
Administration's Oncologic Drugs Advisory Committee (ODAC) at the panel's
December 13-14, 2000 meeting.
We are in the process of building an integrated biopharmaceutical
company and as a result 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 results of operations for any period may
not be indicative of future results as 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.
RESULTS OF OPERATIONS
QUARTERS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
For the three months ended September 30, 2000 (the "2000 Quarterly
Period"), we reported a net loss of $89.7 million or $0.46 per basic and
diluted share as compared to a net loss of $4.5 million or $0.03 per basic
and diluted share for the quarter ended September 30, 1999 ("the 1999
Quarterly Period"). Operating results for the 2000 Quarterly Period represent
the third reported quarter of fully combined revenues and expenses related to
the December 1999 acquisition of LeukoSite, Inc. ("LeukoSite").
Revenue under strategic alliances increased to $49.8 million for the
2000 Quarterly Period from $40.3 million for the 1999 Quarterly Period. The
increase in revenue was primarily due to a license fee payment made by
Aventis and performance payments for achievement of research objectives made
by Bayer AG in the 2000 Quarterly Period. We expect revenue under existing
and 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 full initial terms or beyond.
Research and development expenses increased to $68.8 million for the
2000 Quarterly Period from $38.4 million for the 1999 Quarterly Period. The
increase was primarily attributable to increased personnel and facilities
expenses, our continued investment in clinical trials and preclinical product
candidates, increased purchases of laboratory supplies, and increased
technology license payments. We expect research and development expenses to
continue to increase as personnel are added and research and development
activities
10
are expanded to accommodate our existing and additional strategic alliances
as well as our investment in development efforts to move our product
candidates to commercialization.
General and administrative expenses increased to $12.4 million for the
2000 Quarterly Period from $8.3 million for the 1999 Quarterly Period. The
increase was primarily attributable to increased expenses for additional
management and administrative personnel, as well as an increase in facilities
expenses and other professional fees associated with the expansion and
increased complexity of our operations and increased business development
activity. We expect 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 26,707,732 shares of common
stock and 3,536,348 shares of common stock issuable upon the exercise of
assumed 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 our acquisition of LeukoSite are
expected to continue in line with the estimates set forth in our 1999 Annual
Report on Form 10-K. Intangible assets and goodwill are being amortized on a
straight-line basis over four years. Amortization expense for the 2000
Quarterly Period of $14.5 million is primarily related to the LeukoSite
acquisition.
On July 27, 2000, the company acquired Cambridge Discovery Chemistry
Limited ("CDC"), a subsidiary of Oxford Molecular Group for an aggregate
purchase price of $53.5 million. 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 intangible assets resulting in $6.6
million of specific intangible assets and $47.2 million of goodwill. The
acquisition did not result in an in-process research and development charge.
Intangible assets and goodwill are being amortized on a straight-line basis
over four years. We expect the acquisition to provide us with the critical
mass in medicinal and computational chemistry necessary to expand our drug
discovery capabilities and to accelerate our downstream drug discovery
efforts.
Through our 1999 acquisition of LeukoSite we became a party to a joint
venture partnership with ILEX, M & I, for product development of
CAMPATH-Registered Trademark-. Under terms of the partnership, we are
required to fund 50% of M & I's working capital requirements. We account for
our investment in the joint venture under the equity method of accounting and
record our share of the income or loss in other income (expense). Equity in
operations of joint venture was a loss of $2.1 million for the 2000 Quarterly
Period. The loss is primarily attributable to pre-product launch marketing
and sales activities.
Interest income increased to $12.1 million for the 2000 Quarterly
Period from $3.3 million for the 1999 Quarterly Period. The increase resulted
primarily from a higher level of invested funds due to proceeds from the
$400.0 million convertible debt offering which closed in January 2000.
Interest expense increased to $4.6 million for the 2000 Quarterly Period from
$0.7 million for the 1999 Quarterly Period due to increased obligations
arising primarily from the same convertible debt offering.
Minority interest in the 1999 Quarterly Period represents the minority
shareholder interest of Eli Lilly and Company in the net loss of our then
majority-owned subsidiary, Millennium BioTherapeutics, Inc. ("MBio") as well
as the minority shareholder interest of Becton, Dickinson and Company
("Becton Dickinson") in the net loss of Millennium Predictive Medicine, Inc.
("MPMx"). As of October 14, 1999, Lilly no longer owned a minority interest
in MBio. On December 21, 1999 we merged MBio into the Company. On June 2,
2000, we acquired the outstanding preferred and common shares of our MPMx
subsidiary that we did not already own, making it a wholly-owned subsidiary.
Because we acquired all of the outstanding shares of MPMx during the second
quarter of 2000, including those owned by Becton Dickinson, minority interest
was not recorded in the 2000 Quarterly Period.
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NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
For the nine months ended September 30, 2000 (the "2000 Nine Month
Period"), we reported a net loss of $204.2 million or $1.10 per basic and
diluted share as compared to net loss of $1.4 million or $0.01 per basic and
diluted share for the nine months ended September 30, 1999 ("the 1999 Nine
Month Period").
Revenue under strategic alliances increased to $143.5 million for the
2000 Nine Month Period from $128.6 million for the 1999 Nine Month Period.
The increase in revenue was primarily due to one-time license fee payments,
performance payments for achievement of research objectives made by several
alliance partners and new alliances and programs. We expect revenue under our
existing and 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 full initial term or beyond.
Research and development expenses increased to $190.9 million for the
2000 Nine Month Period from $113.3 million for the 1999 Nine Month Period.
The increase was primarily attributable to increased personnel expenses, our
investment in clinical trials and preclinical product candidates, increased
purchases of laboratory supplies, technology license payments, and increased
equipment depreciation and facilities expenses in connection with the
expansion of our research efforts. We expect research and development
expenses to continue to increase as personnel are added and research and
development activities are expanded to accommodate our existing and
additional strategic alliances as well as our investment in development
efforts to move our product candidates to commercialization.
General and administrative expenses increased to $34.3 million for the
2000 Nine Month Period from $23.9 million for the 1999 Nine Month Period. The
increase was primarily attributable to increased expenses for additional
management and administrative personnel, as well to increased facilities
expenses and professional fees associated with the expansion and increased
complexity of our operations and increased business development activity. We
expect that general and administrative expenses will continue to increase as
we add capabilities to support the further advancement of our development
efforts.
Amortization expense of $38.6 million for the 2000 Nine Month Period is
primarily related to the LeukoSite acquisition.
Equity in operations of M & I was a loss of $3.5 million for the 2000
Nine Month Period. The loss is primarily attributable to pre-product launch
marketing and sales activities and a license payment made by M & I in the
2000 Nine Month Period to maintain the rights to the CAMPATH-Registered
Trademark- product candidate.
Interest income increased to $31.4 million for the 2000 Nine Month
Period from $9.2 million for the 1999 Nine Month Period. The increase
resulted primarily from a higher level of invested funds due to proceeds from
the $400 million convertible debt offering which closed in January 2000.
Interest expense increased to $16.7 million for the 2000 Nine Month Period
from $2.2 million for the 1999 Nine Month Period due to increased obligations
arising primarily from the same convertible debt offering.
Minority interest for the 2000 Nine Month Period represents the
minority shareholder interest of Becton Dickinson in the net income of MPMx.
Minority interest in the 1999 Nine Month Period represents the minority
shareholder interest of Eli Lilly and Company in the net loss of MBio as well
as the minority shareholder interest of Becton Dickinson in the net income of
MPMx.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, we had $679.3 million in cash, cash
equivalents and marketable securities, an increase of $417.6 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, $152.9 million of proceeds from sales of common stock and exercises
of warrants and $55.3 million of proceeds from employee stock purchases,
offset by cash outflows of $93.4 million for operating activities,
12
$54.4 million relating to the acquisition of CDC, purchases of $24.7 million
of property and equipment and other long term assets, and $9.0 million to pay
capital lease obligations.
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 convertible into shares of our
common stock at any time prior to maturity at a price equal to $42.07 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
have agreed to make future payments upon the achievement of agreed-upon
milestones. We have also agreed to pay Abgenix royalties on future product
sales.
On June 23, 2000, we entered into an alliance with Aventis covering the
joint development and commercialization of drugs for the treatment of
inflammatory diseases; joint development of new drug discovery technologies;
transfer of key elements of our technology platform to Aventis to enhance
their existing capabilities; and purchase of an equity interest in us by
Aventis. We have agreed to share the responsibility for and cost of
developing, marketing and manufacturing products arising from the alliance as
well as profits in North America. Outside of North America, Aventis is
responsible for developing and marketing products arising from the alliance,
with a royalty obligation to us. Under a Technology Transfer Agreement, we
agreed to provide Aventis with rights to our drug discovery technologies in
exchange for payments of up to $200 million over a five-year period. Under an
Equity Investment Agreement, Aventis agreed to invest $250 million in our
common stock. As part of this $250 million equity investment, a $150 million
stock purchase was made in the third quarter of 2000 and two $50 million
stock purchases are required to be made in 2001.
During the third quarter of 2000, we paid an aggregate of $49.3 million
in cash to certain holders of our convertible notes in order to induce the
conversion of their notes into our common stock. These cash payments were
expensed during the third quarter of 2000. These conversions resulted in the
retirement of $275.1 million of outstanding principal of our convertible
notes, the issuance of approximately 6.5 million shares of our common stock,
and the reclassification of deferred debt issuance costs of $6.9 million to
additional paid-in capital.
On August 4, 2000 we entered into operating lease agreements, relating
to two buildings to be constructed for laboratory and office space. The
leases commence on the earlier of September 1, 2002 or the date on which we
commence occupancy. Both leases are for a term of seventeen years. We are
responsible for a portion of the construction costs, which are currently
being estimated, for both buildings. Rent is calculated on an escalating
scale ranging from approximately $7.8 million, per building per year, to
approximately $8.8 million, per building per year.
We believe that existing cash, including the proceeds from our January
2000 convertible debt offering and October 2000 common stock 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 may require additional financing in the future, which we may seek to
raise through public or private security 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 estimate 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.
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SUBSEQUENT EVENTS
On October 11, 2000, we completed a public offering of 11 million
shares of our common stock resulting in net proceeds to us of $677 million.
On October 17, 2000 the underwriters exercised their over-allotment option
with respect to an additional 1,465,500 shares of common stock, resulting in
net proceeds to us of an additional $90.3 million. The net proceeds of this
offering will be used for working capital and other corporate purposes
including financing our growth, accelerating the expansion of our technology
platform, developing products, including conducting preclinical testing and
clinical trials, and acquisitions of businesses, products and technologies
that complement or expand our business.
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.
14
PART II OTHER INFORMATION
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 Forms 8-K.
The Company filed a Current Report on Form 8-K on
October 2, 2000
The Company filed a Current Report on Form 8-K on
October 6, 2000
15
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)
Dated: November 8, 2000
/s/ Kevin P. Starr
--------------------
Kevin P. Starr
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
16
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
September 28, 2000.
+ 10.1 Amendment dated September 18, 2000 to the Agreement dated
September 22, 1998 by and between the Company and Bayer
AG.
+ 10.2 Amendment No. 2 dated as of December 1, 1999 to the Agreement
dated September 22, 1998 by and between the Company
and Bayer AG.
10.3 Lease Agreement dated August 4, 2000 by and between the
Company and Forest City Enterprises, Inc.
10.4 Lease Agreement dated August 4, 2000 by and between the
Company and Forest City Enterprises, Inc.
27.1 Financial Data Schedule for the period ended September 30,
2000.
99.1 Risk Factors.
+ Confidential treatment requested as to certain portions.
17