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, 1999
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-22769
----------------------------
LEUKOSITE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3173859
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
215 FIRST STREET 02142
CAMBRIDGE, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 621-9350
----------------------------
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
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The number of shares outstanding of each of the registrant's classes of
common stock as of:
DATE CLASS OUTSTANDING SHARES
October 20, 1999 Common Stock, $.01 par value 14,673,439
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1
LEUKOSITE, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
December 31, 1998 and September 30, 1999 3
Condensed Consolidated Statements of Operations
for the three and nine months ended September 30, 1998 and
1999 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1999 5
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
2
PART I FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LEUKOSITE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 SEPTEMBER 30, 1999
--------------------- ---------------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 5,361,339 $ 8,021,059
Marketable securities 15,802,376 14,359,833
Receivable from UCB -- 6,000,000
Other current assets 544,779 899,833
--------------------- ---------------------
Total current assets 21,708,494 29,280,725
--------------------- ---------------------
Property and equipment, net 3,393,873 4,541,370
Marketable securities 2,168,324 4,754,040
Goodwill - 208,050
Other assets 231,930 537,019
--------------------- ---------------------
Total assets $ 27,502,621 $ 39,321,204
--------------------- ---------------------
--------------------- ---------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 4,387,429 $ 4,856,305
Obligation to fund L&I Joint Venture 203,445 826,702
Deferred revenue 2,172,058 2,539,560
Deferred rent 222,907 40,528
Current portion of capital lease obligations 733,848 958,922
--------------------- ---------------------
Total current liabilities 7,719,687 9,222,017
--------------------- ---------------------
Capital lease obligations, less current portion 1,315,813 975,297
--------------------- ---------------------
Stockholders' equity:
Preferred stock $.01 par value-
Authorized-5,000,000 shares
Issued and outstanding-no shares -- --
Common stock, $.01 par value-
Authorized-25,000,000 shares
Issued and outstanding-11,916,339 shares at
December 31, 1998 and 14,670,121 shares at
September 30, 1999 119,164 146,693
Additional paid-in capital 65,280,443 97,594,072
Accumulated deficit (46,932,486) (68,616,875)
--------------------- ---------------------
Total stockholders' equity 18,467,121 29,123,890
--------------------- ---------------------
Total liabilities and stockholders' equity $ 27,502,621 $ 39,321,204
--------------------- ---------------------
--------------------- ---------------------
3
LEUKOSITE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------- ------------------------------
1998 1999 1998 1999
---- ---- ---- ----
REVENUES:
Corporate collaborations $ 1,826,629 $ 2,672,799 $ 5,659,083 $ 7,599,320
Joint venture 375,291 1,379,565 820,503 2,661,606
Government grants 175,233 179,833 590,577 668,144
--------------- ---------------- --------------- --------------
Total revenue 2,377,153 4,232,197 7,070,163 10,929,070
--------------- ---------------- --------------- ---------------
OPERATING EXPENSES:
Research and development 6,057,468 9,853,194 14,997,469 22,806,874
General and administrative 555,454 1,003,339 1,872,147 2,567,407
Acquired in-process research and
development -- 2,660,545 -- 4,249,157
--------------- ---------------- --------------- ---------------
Total operating expenses 6,612,922 13,517,078 16,869,616 29,623,438
--------------- ---------------- --------------- ---------------
LOSS FROM OPERATIONS (4,235,769) (9,284,881) (9,799,453) (18,694,368)
OTHER INCOME (EXPENSE):
Equity in operations of
joint venture (937,351) (2,143,848) (2,922,256) (3,899,863)
Interest income 392,941 357,887 1,039,935 1,040,391
Interest expense ( 34,241) ( 45,084) ( 113,749) ( 130,549)
--------------- ---------------- --------------- ---------------
NET LOSS $ (4,814,420) $ (11,115,926) $ (11,795,523) $ (21,684,389)
--------------- ---------------- --------------- ---------------
--------------- ---------------- --------------- ---------------
NET LOSS PER COMMON SHARE
Basic and diluted $(.41) $(.78) $(1.12) $(1.69)
--------------- ---------------- --------------- ---------------
--------------- ---------------- --------------- ---------------
SHARES USED IN COMPUTING NET LOSS PER
COMMON SHARE
Basic and diluted 11,862,108 14,273,629 10,554,312 12,859,521
--------------- ---------------- --------------- ---------------
--------------- ---------------- --------------- ---------------
4
LEUKOSITE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
1998 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(11,795,523) $(21,684,389)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 863,304 1,177,605
Stock compensation expense - 152,488
Equity in operations of joint venture 2,922,256 3,899,863
Acquired in-process research and
development - 4,249,157
Change in operating assets and liabilities:
Other current assets (465,912) 199,413
Accounts payable and accrued expenses 1,591,296 (1,549,743)
Deferred revenue 1,439,981 (338,143)
Deferred rent (182,378) (182,379)
------------- -------------
Net cash used in operating activities (5,626,976) (14,076,128)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in marketable securities (17,234,631) (10,247,199)
Proceeds from maturities of marketable securities 12,504,902 16,478,862
Investment in joint venture (3,172,068) (3,276,606)
Purchases of property and equipment (1,109,437) (1,241,782)
Cash acquired in CytoMed acquisition - 564,875
Cash acquired in ProScript acquisition - 104,194
Decrease (increase) in other assets 1,217 244,584
------------- -------------
Net cash provided by (used in) investing activities (9,010,017) 2,626,928
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital leases (752,280) (632,447)
Issuance of common stock 11,731,366 14,382,873
Exercise of stock options 234,283 358,494
------------- -------------
Net cash used in financing activities 11,213,369 14,108,920
------------- -------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (3,423,624) 2,659,720
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 10,587,873 5,361,339
------------- -------------
CASH AND EQUIVALENTS, END OF PERIOD $ 7,164,249 $ 8,021,059
------------- -------------
------------- -------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $ 113,749 $ 130,549
------------- -------------
------------- -------------
Property and equipment purchased under capital lease
Obligations $ 346,771 $ 320,433
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of CytoMed:
Marketable securities $ - $ 7,374,386
Accounts receivable - 6,355,681
Prepaid expenses - 181,441
Property and equipment - 104,452
Other assets - 5,000
Acquired in-process research and development - 1,588,612
Accounts payable and accrued expenses - (547,178)
Stock issued - (15,627,269)
------------- -------------
$ - $ (564,875)
------------- -------------
5
Acquisition of ProScript:
Prepaid expenses $ - $ 62,516
Property and equipment - 650,752
Goodwill - 219,000
Other assets - 499,502
Acquired in-process research and development - 2,660,545
Accounts payable and accrued expenses - (959,722)
Deferred revenue - (705,645)
Capital lease obligations - (196,114)
Stock issued - (2,335,028)
------------- -------------
$ - $ (104,194)
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6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Operations and Basis of Presentation
LeukoSite, Inc. (the "Company") was incorporated on May 1, 1992. The Company
is a biotechnology company developing proprietary monoclonal antibody and
small molecule drugs to treat patients with cancer and inflammatory,
autoimmune and viral diseases.
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission and include, in the opinion of
management, all adjustments, consisting of normal, recurring adjustments,
necessary for a fair presentation of interim period results. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes, however, that its disclosures are
adequate to make the information presented not misleading. The results for
the interim periods presented are not necessarily indicative of results to
be expected for the full fiscal year. These condensed consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and notes related thereto included in
the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 filed with the Securities and Exchange Commission.
2. Summary of Significant Accounting Policies
(a) Cash Equivalents and Marketable Securities
Cash equivalents are highly liquid investments with original maturities of
less than three months. Marketable securities consist of securities with
original maturities of greater than three months. The Company accounts for
cash equivalents and marketable securities in accordance with SFAS No. 115
"Accounting for Certain Investments in Debt and Equity Securities." In
accordance with SFAS No. 115, the Company has classified its investments as
held-to-maturity. The investments that the Company has the positive intent
and ability to hold to maturity are reported at amortized cost, which
approximates fair market value.
As of September 30, 1999 there were no material unrealized gains or losses
on any investments. Cash and cash equivalents and marketable securities
consisted of the following:
December 31, 1998 September 30, 1999
Cash and cash equivalents:
Cash $ 3,219,315 $ 598,441
Money market funds 1,341,651 5,960,270
Commercial Paper - 1,462,348
Taxable auction securities 800,373 -
----------- -----------
$ 5,361,339 $ 8,021,059
----------- -----------
----------- -----------
Marketable securities, short term:
Corporate bonds and notes (average
maturity of 6 and 5 months $ 15,802,376 $ 14,359,833
respectively)
----------- -----------
----------- -----------
Marketable securities, long term:
Corporate bonds and notes (average
maturity of 16 and 16 months
respectively) $ 2,168,324 $4,754,040
----------- -----------
----------- -----------
7
(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 six month periods ended
September 30, 1998 and 1999 diluted net loss per common share is the same as
basic net loss per common share as the inclusion of 340,699, 1,010,483,
386,943, and 715,197 weighted average shares of common stock issuable upon
exercise of stock options and warrants would be antidilutive for the three
months ended September 30, 1998 and 1999 and nine months ended September
30, 1998 and 1999 respectively.
3. ILEX Joint Venture
In May 1997 the Company and ILEX Oncology, Inc. (ILEX) entered into a joint
venture agreement that established L&I Partners, LP ("L&I") for the purpose
of developing CAMPATH(R). Under the terms of the partnership, the Company is
required to fund 50% of the partnership's working capital requirements. The
joint venture expires in 2017. Should either party fail to fulfill its
funding obligations, control of the joint venture may change.
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 and has included such
reimbursements in revenues. The joint venture has sublicensed the rights to
CAMPATH(R) from the Company. For the nine months ended September 30, 1999
the joint venture's recorded loss was $7,799,726. For the nine months ended
September 30, 1999 the Company's share of the joint venture's recorded loss
was $3,899,863 and the Company's obligation to fund the joint venture as of
September 30, 1999 was $826,702. The Company charged the joint venture
$2,661,606 for costs incurred on its behalf for the nine months ended
September 30, 1999.
4. Acquisitions
(a) CytoMed, Inc.
In February 11, 1999 the Company acquired all of the issued and outstanding
capital stock of CytoMed, Inc. ("CytoMed") through the issuance of 935,625
shares of the Company's Series A Convertible Preferred Stock, par value
$.01 per share, to CytoMed shareholders. The Series A Convertible Preferred
Stock automatically converted into common stock on a one-for-one basis upon
the required approval by the Company's shareholders at the annual meeting
held May 25, 1999. The Company may issue another 631,313 common shares to
CytoMed shareholders upon receipt of a $6,000,000 payment to CytoMed from
UCB Pharma. In addition, CytoMed shareholders may receive up to
$23,000,000 in cash and up to an additional 84,000 shares of the Company's
common shares upon the achievement of milestones related to certain
CytoMed product candidates.
The merger was accounted for as a purchase in accordance with the
requirements of Accounting Principles Board (APB) Opinion No.16, Business
Combinations, and accordingly CytoMed's results of operations are included
in those of the Company beginning on the date of the acquisition. The total
purchase price, including transaction costs, was approximately $16,100,000.
The total purchase price was allocated to the fair value of the assets
acquired and liabilities assumed including an allocation to in-process
research and development of $1,588,612. The nature of the efforts to
develop the purchased in-process technologies into commercially viable
products principally relate to the completion of all development, testing,
and high-volume
8
manufacturing activities that are necessary to establish that the
products can be produced to meet its design specifications and are
proven to be safe and effective for their respective indications. As of
the acquisition date, technological feasibility of the compounds in
development had not been established and the technologies have no
alternative future uses. If these projects are not successfully
developed, the Company will not realize the value assigned to the
in-process research and development, therefore the value of the
in-process research and development was charged to operations in the
current period.
Total consideration allocated to the fair market value of assets acquired
and liabilities assumed on the purchase date is as follows:
Cash and cash equivalents $ 1,044,875
Marketable securities 7,374,386
Accounts receivable 6,355,681
Prepaid expenses 181,441
Property and equipment 104,452
Other assets 5,000
Acquired in-process research and development 1,588,612
Accounts payable and accrued expenses (547,178)
---------------
$ 16,107,269
---------------
---------------
The following unaudited pro forma condensed consolidated statement of
operations information has been prepared to give effect to the merger as
if such transaction had occurred at the beginning of the periods
presented. In October 1998 CytoMed sold to UCB Pharma assets relating to
certain research programs. CytoMed's historical results of operations
included in the following pro forma information have been adjusted to
reflect the revenues and expenses related to the remaining research
programs acquired by the Company. The historical results of operations
have been adjusted to reflect (i) elimination of the one-time charge to
operations for the purchase of acquired in-process research and
development and (ii) reduction of interest income resulting from use of
$480,000 for transaction costs at an annual interest rate of 5.47%.
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- -------------------
REVENUES $ 13,584,460 $ 10,929,070
NET LOSS $(17,334,735) $ (20,859,815)
NET LOSS PER COMMON SHARE
Basic and diluted $(1.39) $(1.49)
------------- --------------
------------- --------------
SHARES USED IN COMPUTING NET LOSS PER
COMMON SHARE
Basic and diluted 12,462,349 13,987,778
------------- --------------
------------- --------------
(b) ProScript, Inc.
On July 19, 1999 the Company acquired all of the issued and outstanding
capital stock of ProScript, Inc. ("ProScript") by payment of $411,719 in
cash to ProScript shareholders and through the issuance of 187,970
shares of the Company's common stock, par value $0.01 per share, to
certain ProScript shareholders. In addition, ProScript shareholders are
entitled to
9
additional cash payments upon the achievement of certain milestones and
royalties related to certain ProScript compounds and related to a
ProScript research collaboration with Hoechst Marion Roussel, Inc.
The merger was accounted for as a purchase in accordance with the
requirements of APB Opinion No. 16, Business Combinations, and
accordingly ProScript's results of operations have been included in
those of the Company beginning on the date of the acquisition. The total
purchase price was approximately $2,800,000. The total purchase price
was allocated to the fair value of assets acquired and liabilities
assumed including an allocation to in-process research and development
of $2,660,545. The nature of the efforts to develop the purchased
in-process technologies into commercially viable products principally
relate to the completion of all development, testing, and high-volume
manufacturing activities that are necessary to establish that the
products can be produced to meet its design specifications and are
proven to be safe and effective for their respective indications. As of
the acquisition date, technological feasibility of the compounds in
development had not been established and the technologies have no
alternative future uses. If these projects are not successfully
developed, the Company will not realize the value assigned to the
in-process research and development, therefore the value of the
in-process research and development was charged to operations in the
current period. In addition, the Company has recorded $219,000 of
goodwill which will be amortized over five years.
Acquisition of ProScript:
Cash and cash equivalents $ 615,914
Prepaid expenses 62,516
Property and equipment 650,752
Goodwill 219,000
Other assets 499,502
Acquired in-process research and development 2,660,545
Accounts payable and accrued expenses (959,722)
Deferred revenue (705,645)
Capital lease obligations (196,114)
-----------
$2,846,748
-----------
-----------
5. Private Placement
On July 20, 1999 the Company completed a private placement of 1,487,548
shares of its common stock for total net proceeds of $14.2 million after
expenses of the offering. LeukoSite will register these shares and use its
best efforts to keep the registration statement effective for two years, or
until all shares are sold under the registration statement, whichever
comes first.
6. Schering AG Agreement
In August 1999 the Company and ILEX, through L&I, and Schering AG entered
into a distribution and development agreement which grants Schering AG
exclusive marketing and distribution rights to CAMPATH(R) in the U.S.,
Europe and rest of the world except Japan and East Asia, where the Company
and ILEX have retained rights.
In the United States, Berlex Laboratories, Inc., Schering's U.S. affiliate,
the Company and ILEX will share in the profits from the sale of CAMPATH(R).
On sales made in the rest of the territory, Schering AG will pay royalties
equivalent to the rate of profit sharing expected in the U.S. Under
10
the terms of the agreement, Schering will make payments of up to $30 million
for rights to CAMPATH(R) upon the achievement of certain regulatory
milestones. The Company and ILEX currently intend to use these funds to pay
for ongoing development activity.
As of September 30, 1999 L&I has received $5 million in funding and this
amount is included in the joint venture's total liabilities.
7. Subsequent Events
On October 14, 1999 Millennium Pharmaceuticals, Inc. ("Millennium") and
the Company announced the signing of a merger agreement pursuant to
which Millennium would acquire the Company in a stock for stock
exchange. If this transaction closes, the Company expects that
Millennium will issue approximately 6,577,110 shares of common
stock to the Company's stockholders, and options, rights and warrants to
purchase approximately 1,023,068 shares of Millennium common
stock to the holders of the Company's options, rights and warrants.
The transaction is subject to, among other things, the approval of the
Company's stockholders as well as antitrust clearance under the
Hart-Scott-Rodino Antitrust Improvements Act.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations and this Quarterly Report on Form 10-Q contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities and Exchange Act of 1934,
including but not limited, (i) statements about the adequacy of the Company's
capital resources, interest income and revenues from its collaboration
agreements to fund its operating expenses and capital requirements into early
2001, (ii) statements about the amount of capital expenditures that the Company
expects to incur in 1999 and (iii) certain statements identified or qualified by
words such as "anticipate," "plan," "believe," "estimate," "expect" and similar
expressions. Investors are cautioned that forward-looking statements are
inherently uncertain and that the Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed under the caption "Risk Factors" in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
OVERVIEW
LeukoSite, Inc. is a biotechnology company developing proprietary monoclonal
antibody and small molecule drugs to treat patients with cancer and
inflammatory, autoimmune and viral diseases. The Company has been funded to date
primarily through proceeds from the sale of equity securities and funding from
collaboration agreements. To date, the Company has not received any revenue from
the sale of products. The Company has experienced operating losses since its
inception and expects that the activities required to develop and commercialize
its products will result in further operating losses for the next several years.
As of September 30, 1999, the Company had an accumulated deficit of
approximately $68.6 million.
In October 1999 the Company and Millennium Pharmaceuticals, Inc. signed a
definitive merger agreement for Millennium to acquire the Company in a
stock-for-stock exchange. If this transaction closes, the Company's
shareholders will receive 0.4296 shares of newly issued Millennium common
stock in exchange for each share of Company common stock.
In 1994, 1995 and 1996, the Company signed agreements with Warner-Lambert for
the discovery and development of drugs that are intended to antagonize the
MCP-1, IL-8 and CCR5 and CXCR4 receptors found on certain classes of leukocytes.
In December 1998 the Company and Warner-Lambert signed an agreement related to
the (ALPHA)4(BETA)7 and (ALPHA)E(BETA)7 integrin targets implicated in asthma
and inflammatory bowel disease. In July 1996 the Company signed an agreement
with Roche Bioscience for the discovery and development of monoclonal antibodies
and small molecule antagonists to the CCR3 receptor found on a certain class of
leukocytes. In April 1997 the Company signed an agreement with Kyowa for the
discovery and development of small molecule antagonists to the CXCR3 and CCR1
receptors found on certain classes of leukocytes. In May 1997 the Company
entered into a joint venture with ILEX for the development of CAMPATH(R) for the
treatment of chronic lymphocyctic leukemia. In August 1999 L&I entered into a
distribution and development agreement which grants Schering AG exclusive
marketing and distribution rights to CAMPATH(R) in the U.S., Europe and rest of
the world except Japan and East Asia, where the Company and ILEX have retained
rights. In October 1997 the Company, Warner-Lambert and Kyowa agreed to jointly
pursue research and development of antagonists that target MCP-1, IL-8, CCR1 and
CXCR3. In December 1997 the Company entered into a collaboration agreement with
Genentech for the development of a monoclonal antibody intended as therapy for
inflammatory bowel disease. In August 1998 the Company entered into a
collaboration agreement with MorphoSys AG for the discovery of therapeutic
monoclonal antibodies for inflammatory and autoimmune disorders.
12
On February 11, 1999 the Company acquired all of the issued and outstanding
capital stock of CytoMed for approximately $16.1 million in stock. On July 19,
1999 the Company acquired all of the issued and outstanding capital stock of
ProScript for approximately $2.8 million in cash and stock.
RESULTS OF OPERATIONS
REVENUES FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998.
For the three months ended September 30, 1999 revenues were $4,232,000
compared to $2,377,000 for the comparable period of 1998. The increase of
approximately $1,855,000 was primarily due to greater research funding from
Warner-Lambert and greater revenue for services provided to the joint venture.
For the nine months ended September 30, 1999 revenues were $10,929,000
compared to $7,070,000 for the comparable period of 1998. The increase of
approximately $3,859,000 was primarily due to greater research funding from
Warner-Lambert and greater revenue for services provided to the joint venture.
RESEARCH AND DEVELOPMENT EXPENSES FOR THE THREE AND NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 1998.
For the three months ended September 30, 1999 research and development
expenses were $9,853,000 compared to $6,057,000 for the comparable period of
1998. The increase of approximately $3,796,000 was primarily due to the expenses
associated with ongoing clinical trials and to a lesser extent increased
staffing and materials expenses associated with the Company's drug discovery
programs.
For the nine months ended September 30, 1999 research and development
expenses were $22,807,000 compared to $14,997,000 for the comparable period of
1998. The increase of approximately $7,810,000 was primarily due to the expenses
associated with ongoing clinical trials and to a lesser extent increased
staffing and materials expenses associated with the Company's drug discovery
programs.
GENERAL AND ADMINISTRATIVE EXPENSES FOR THE THREE AND NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 1998.
For the three months ended September 30, 1999 general and administrative
expenses were $1,003,000 compared to $555,000 for the comparable period of 1998.
The increase of approximately $448,000 was primarily due to an increase in
expenses associated with business development, patent prosecution and investor
relations.
For the nine months ended September 30, 1999 general and administrative
expenses were $2,567,000 compared to $1,872,000 for the comparable period of
1998. The increase of approximately $695,000 was primarily due to an increase in
expenses associated with business development, patent prosecution and investor
relations.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT EXPENSE FOR THE THREE AND NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998.
13
For the three months ended September 30, 1999, an expense was recorded
for acquired in-process research and development in the amount of $2,661,000
in connection with the ProScript acquisition in July 1999. This one-time
charge represents the appraised value of ProScript's purchase price allocated
to acquired in-process research and development. There were no prior
acquisitions in the comparable period of 1998.
For the nine months ended September 30, 1999, an expense was recorded for
acquired in-process research and development in the amount of $4,249,000 in
connection with the CytoMed and ProScript acquisitions. These charges represents
the appraised value of the purchase price allocated to acquired in-process
research and development. There were no prior acquisitions in the comparable
period of 1998.
EQUITY IN OPERATION OF JOINT VENTURE FOR THE THREE AND NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 1998.
For the three months ended September 30, 1999 equity in operations of joint
venture reflected a loss of $2,144,000 compared to $937,000 for the comparable
period of 1998. The increase of approximately $1,207,000 was primarily due to a
milestone payment to BTG International Ltd.
For the nine months ended September 30, 1999 equity in operations of joint
venture reflected a loss of $3,900,000 compared to $2,922,000 for the comparable
period of 1998. The increase of approximately $978,000 was primarily due to a
milestone payment to BTG International Ltd.
INTEREST INCOME (EXPENSE), NET FOR THE THREE AND NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 1998.
For the three months ended September 30, 1999 interest income (expense), net
was $313,000 compared to $359,000 for the comparable period of 1998. The
decrease of $46,000 was primarily due to an increase in interest expense for
lease obligations entered into by the Company.
For the nine months ended September 30, 1999 interest income (expense), net
was $910,000 compared to $926,000 for the comparable period of 1998. The
decrease of $16,000 was primarily due to an increase in interest expense for
lease obligations entered into by the Company.
NET LOSS FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998.
For the three months ended September 30, 1999 net loss was $11,116,000
compared to $4,814,000 for the comparable period of 1998. The increase of
approximately $6,302,000 was primarily due to the write-off of acquired
in-process research and development associated with the Company's acquisition of
ProScript, greater expenses associated with ongoing clinical trials and to a
lesser extent increased staffing and materials expenses associated with the
Company's drug discovery programs. Higher overall expenses were offset in part
by increased research funding from Warner-Lambert and the Joint Venture.
For the nine months ended September 30, 1999 net loss was $21,684,000
compared to $11,796,000 for the comparable period of 1998. The increase of
approximately $9,888,000 was primarily due to the write-off of acquired
in-process research and development due to the Company's acquisitions of
CytoMed and ProScript, greater expenses associated with ongoing clinical
trials and to a lesser extent increased staffing and materials expenses
associated with the Company's drug discovery programs. Higher overall
expenses were offset in part by increased research funding from
Warner-Lambert and the Joint Venture.
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LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company's operations have been funded primarily through
proceeds from the sale of equity securities, which have raised approximately
$78.8 million, and to a lesser extent license fees and sponsored research, which
have generated approximately $27.6 million, and capital lease obligations, which
have generated approximately $5.4 million. The Company has used cash to fund
operating losses of approximately $68 million, the investment of approximately
$4.5 million in equipment and leasehold improvements and the repayment of
approximately $4.3 million of capital lease obligations. The Company had no
significant commitments as of September 30, 1999 for capital expenditures. At
September 30, 1999 the Company had on hand cash, cash equivalents and marketable
securities of approximately $27 million.
As of September 30, 1999 other current assets were approximately $6.9 million.
Included in other current assets is a current receivable of $6 million due to
CytoMed from UCB Pharma which is expected to be paid in November 1999.
The Company has entered into sponsored research and consulting agreements with
certain hospitals, academic institutions and consultants, requiring periodic
payments by the Company. Aggregate minimum funding obligations under these
agreements, which include certain cancellation provisions, total approximately
$1.5 million, of which approximately $1.1 million will be paid in 1999. The
Company also has a remaining total commitment to the Therapeutic Antibody Centre
at the University of Oxford in England to provide funding of $250,000 in
semi-annual installments through the year 1999.
In May 1997 the Company and ILEX entered into a joint venture whereby the
parties formed a limited partnership to develop CAMPATH(R) for the treatment
of chronic lymphocytic leukemia and other diseases. The Company and ILEX are
required to make contributions each time the joint venture requires working
capital. In August 1999 the Company and ILEX, through their joint venture L&I
Partners, LP, and Schering AG entered into a distribution and development
agreement which grants Schering AG exclusive marketing and distribution
rights to CAMPATH(R) in the U.S., Europe and the rest of the world except
Japan and East Asia, where the Company and ILEX have retained rights. In the
United States, the Company, Berlex, and ILEX will share equally in the
profits from the sales of CAMPATH(R). On sales made in the rest of the
territory, Schering AG will pay royalties expected to be equivalent to the
rate of profit sharing expected in the U.S. Schering will make payments of up
to $30 million for rights to CAMPATH(R) and for the achievement of certain
regulatory milestones in CLL.
On February 11, 1999 the Company acquired all of the issued and outstanding
capital stock of CytoMed. The total purchase price was approximately $16.1
million and the net assets acquired were approximately $14.5 million of which
approximately $8.5 million was cash and $6 million was a receivable from UCB
Pharma expected to be paid in November 1999.
On July 19, 1999 the Company acquired all of the issued and outstanding capital
stock of ProScript for approximately $2.8 million in cash and stock.
On July 20, 1999 the Company complete a private placement of 1,487,548 shares of
its common stock for total net proceeds of approximately $14.2 million after
expenses of the offering.
The Company believes that its existing capital resources, interest income and
revenue from the collaboration agreements will be sufficient to fund its planned
operating expenses and capital requirements into 2001. However, there can be no
assurance that such funds will be sufficient to meet the Company's operating
expenses and capital requirements during such period. The Company's actual cash
requirements may vary materially from those now planned and will depend upon
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numerous factors, including the results of the Company's research and
development and collaboration programs, the timing and results of preclinical
and clinical trials, the timing and costs of obtaining regulatory approvals, the
progress of the milestone and royalty producing activities of the Company's
collaborative partners, the level of resources that the Company commits to the
development of manufacturing, marketing, and sales capabilities, the cost of
filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights, the ability of the Company to maintain existing
and establish new collaboration agreements with other companies, the
technological advances and activities of competitors and other factors.
The Company expects to incur substantial additional expenses, including expenses
related to ongoing research and development activities, expenditures for
preclinical and clinical trials, commercialization of CAMPATH(R), and the
expansion of its laboratory and administrative activities. Therefore, the
Company will need to raise substantial additional capital. The Company intends
to seek such additional funding through public or private financing or
collaboration or other arrangements with collaborative partners. There can be no
assurance, however, that additional financing will be available from any sources
or, if available, will be available on acceptable terms.
In October 1999 the Company and Millennium Pharmaceuticals, Inc. signed a
definitive merger agreement for Millennium to acquire the Company in a
stock-for-stock exchange. If this transaction closes, the Company's
shareholders will receive 0.4296 shares of newly issued Millennium common
stock in exchange for each share of Company common stock.
YEAR 2000 ISSUES
The Company is reviewing its information systems to assess what steps are
required to achieve full Year 2000 compliance. The Company relies upon
microprocessor-based personal computers and commercially available applications
software. The Company is currently discussing Year 2000 readiness with its
supply and service vendors. The Company intends to continue to assess its
exposure to Year 2000 noncompliance on the part of any of its vendors and there
can be no assurance that their systems will be Year 2000 compliant. The Company
does not anticipate that it will incur material expenses to make its internal
computer software and operating systems Year 2000 compliant. The Company
believes that the Year 2000 issue will not pose significant problems for the
Company's systems. The Company currently does not have any contingency plan in
the event Year 2000 compliance cannot be achieved in a timely manner.
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ITEM 3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company owns financial instruments that are sensitive to market risks as
part of its investment portfolio. The investment portfolio is used to preserve
the Company's capital until it is required to fund operations, including the
Company's research and development activities. All of these market-risk
sensitive instruments are classified as held-to-maturity and are not held for
trading purposes. The Company does not own derivative financial instruments in
its investment portfolio. The investment portfolio contains instruments that are
subject to the risk of a decline in interest rates.
Interest Rate Risk-The Company's investment portfolio includes investment grade
debt instruments. These bonds are subject to interest rate risk, and could
decline in value if interest rates fluctuate. Due to the short duration and
conservative nature of these instruments, the Company does not believe that it
has a material exposure to interest rate risk.
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PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) On July 20, 1999 the Company completed a private placement
raising an aggregate of $14,429,214 by issuing 1,487,548 shares
of Common Stock at a purchase price of $9.70 per share. The
issuance and sale of the shares of Common Stock was made in
reliance upon Rule 506 of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act") and
upon Section 4(2) of the Securities Act.
(d) Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Forms 8-K.
The Company filed a Report on Form 8-K on August 3, 1999
relating to the ProScript acquisition.
The Company filed a Report on Form 8-K on September 3, 1999
relating to the Schering AG agreement.
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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.
LeukoSite, Inc.
(Registrant)
Dated: November 5, 1999
/s/ Augustine Lawlor
--------------------
Augustine Lawlor
Chief Operating and Financial Officer
and Senior Vice President
(principal finance and accounting officer)
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