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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------- --------
Commission file number 0-19612
IMCLONE SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 04-2834797
(State or other jurisdiction of
incorporation or organization) (IRS Employer Identification No.)
180 VARICK STREET, NEW YORK, NY 10014
(Address of principal executive offices) (Zip Code)
(212) 645-1405
Registrant's telephone number, including area code
Not Applicable
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF AUGUST 12, 2001
Common Stock, par value $.001 72,149,154 Shares
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IMCLONE SYSTEMS INCORPORATED
INDEX
PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2001 (unaudited)
and December 31, 2000 2
Unaudited Consolidated Statements of Operations - Three
and six months ended June 30, 2001 and 2000 3
Unaudited Consolidated Statements of Cash Flows - Six
months ended June 30, 2001 and 2000 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
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PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
IMCLONE SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share and share data)
ASSETS JUNE 30, DECEMBER 31,
2001 2000
--------- ----------
(UNAUDITED)
Current assets:
Cash and cash equivalents $ 9,515 $ 60,325
Securities available for sale 181,499 236,844
Prepaid expenses 3,811 2,628
Note receivable - officer 297 282
Other current assets 5,039 7,138
--------- ---------
Total current assets 200,161 307,217
--------- ---------
Property and equipment:
Land 2,723 2,111
Building and building improvements 11,202 10,989
Leasehold improvements 8,059 7,863
Machinery and equipment 13,444 9,995
Furniture and fixtures 1,490 1,311
Construction in progress 60,983 37,436
--------- ---------
Total cost 97,901 69,705
Less accumulated depreciation and amortization (18,597) (17,105)
--------- ---------
Property and equipment, net 79,304 52,600
--------- ---------
Patent costs, net 1,533 1,168
Deferred financing costs, net 6,266 7,114
Investment in equity securities and other assets 375 3,392
--------- ---------
$ 287,639 $ 371,491
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,918 $ 12,729
Accrued expenses 9,348 11,374
Interest payable 4,445 4,444
Deferred revenue 6,241 2,434
Fees potentially refundable to corporate partner -- 28,000
Current portion of long-term liabilities 531 626
Preferred stock called for redemption and dividends payable -- 25,764
--------- ---------
Total current liabilities 28,483 85,371
--------- ---------
Long-term debt 242,200 242,200
Other long-term liabilities, less current portion 226 488
--------- ---------
Total liabilities 270,909 328,059
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value; authorized 4,000,000 shares;
200,000 Series A Convertible shares called for redemption and
classified as a current liability at
December 31, 2000 -- --
Common stock, $.001 par value; authorized 120,000,000 shares;
issued 67,549,508 and 65,818,362 at June 30, 2001 and December
31, 2000, respectively, outstanding 67,360,258 and 65,767,545
at June 30, 2001 and December 31, 2000,
respectively 68 66
Additional paid-in capital 289,823 283,268
Accumulated deficit (274,506) (243,808)
Treasury stock, at cost; 189,250 and 50,817 shares at
June 30, 2001 and December 31, 2000, respectively (4,100) (492)
Accumulated other comprehensive income:
Unrealized gain on securities available for sale 5,445 4,398
--------- ---------
Total stockholders' equity 16,730 43,432
--------- ---------
$ 287,639 $ 371,491
========= =========
See accompanying notes to consolidated financial statements
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IMCLONE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
2001 2000 (1) 2001 2000 (1)
---- -------- ---- --------
Revenues:
License fees and milestone revenues $ 3,136 $ 41 $ 27,232 $ 122
Research and development funding and royalties 115 160 763 326
-------- -------- -------- --------
Total revenues 3,251 201 27,995 448
-------- -------- -------- --------
Operating expenses:
Research and development 23,746 12,743 45,591 23,844
Marketing, general and administrative 6,223 3,782 9,951 6,908
-------- -------- -------- --------
Total operating expenses 29,969 16,525 55,542 30,752
-------- -------- -------- --------
Operating loss (26,718) (16,324) (27,547) (30,304)
-------- -------- -------- --------
Other:
Interest income (3,262) (6,165) (7,827) (9,352)
Interest expense 3,197 3,667 6,510 4,888
Loss (gain) on securities and investments 2,850 (18) 4,468 (16)
-------- -------- -------- --------
Net interest and other (income) expense 2,785 (2,516) 3,151 (4,480)
-------- -------- -------- --------
Loss before cumulative effect of change in accounting
policy (29,503) (13,808) (30,698) (25,824)
Cumulative effect of change in accounting policy for the
recognition of up-front non-refundable fees -- -- -- (2,596)
-------- -------- -------- --------
Net loss (29,503) (13,808) (30,698) (28,420)
-------- -------- -------- --------
Preferred dividends (including assumed incremental yield
attributable to beneficial conversion feature of $256
for the three months ended June 30, 2000 and $510 for
the six months ended June 30, 2000) -- 703 -- 1,405
-------- -------- -------- --------
Net loss to common stockholders $(29,503) $(14,511) $(30,698) $(29,825)
======== ======== ======== ========
Net loss per common share:
Basic and diluted:
Loss before cumulative effect of change in accounting
policy $ (0.44) $ (0.23) $ (0.46) $ (0.44)
Cumulative effect of change in accounting policy -- -- --
-------- -------- -------- --------
(0.05)
Basic and diluted net loss per common share $ (0.44) $ (0.23) $ (0.46) $ (0.49)
======== ======== ======== ========
Weighted average shares outstanding 67,051 62,604 66,657 61,270
======== ======== ======== ========
(1) Restated - See note 12
See accompanying notes to consolidated financial statements
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IMCLONE SYSTEMS INCORPORATED
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
SIX MONTHS ENDED
JUNE 30,
--------------------------
2001 2000(1)
--------- ---------
Cash flows from operating activities:
Net loss $ (30,698) $ (28,420)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,558 1,330
Amortization of deferred financing costs 848 560
Expense associated with issuance of options and warrants 687 2,565
Gain on securities available for sale (908) (16)
Write-down of investment in Valigen N.V 4,375 --
Write-off of convertible promissory note receivable from A.C.T. Group, Inc. 1,000 --
Changes in:
Prepaid expenses (1,183) (3,438)
Note receivable - officer (15) --
Other current assets 2,816 337
Other assets (75) 8
Interest payable 1 4,398
Accounts payable (4,811) (453)
Accrued expenses (2,026) 340
Deferred revenue 3,807 2,514
Fees potentially refundable to corporate partner (28,000) 6,000
--------- ---------
Net cash used in operating activities (52,624) (14,275)
--------- ---------
Cash flows from investing activities:
Acquisitions of property and equipment (28,196) (11,194)
Purchases of securities available for sale (30,346) (320,282)
Sales and maturities of securities available for sale 87,646 110,859
Investment in Valigen N.V (2,000) (7,500)
Loan to A.C.T. Group, Inc. (1,000) --
Additions to patents (431) (22)
--------- ---------
Net cash provided by (used in) investing activities 25,673 (228,139)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 3,744 9,462
Proceeds from issuance of common stock under the employee stock purchase plan 348 164
Proceeds from issuance of 5 1/2% convertible subordinated notes -- 240,000
Deferred financing costs -- (8,449)
Proceeds from repayment of note receivable by officer - stockholder, including interest -- 145
Purchase of treasury stock (1,830) --
Payment of preferred stock dividends (5,764) --
Redemption of series A preferred stock (20,000) --
Payments of other liabilities (357) (482)
--------- ---------
Net cash (used in) provided by financing activities (23,859) 240,840
--------- ---------
Net decrease in cash and cash equivalents (50,810) (1,574)
Cash and cash equivalents at beginning of period 60,325 12,016
--------- ---------
Cash and cash equivalents at end of period $ 9,515 $ 10,442
========= =========
(1) Restated - See note 12
See accompanying notes to consolidated financial statements
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IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) BASIS OF PRESENTATION
The consolidated financial statements of ImClone Systems Incorporated ("ImClone
Systems" or the "Company") as of June 30, 2001 and for the three and six months
ended June 30, 2001 and 2000 are unaudited. In the opinion of management, these
unaudited financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation. These financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2000, as filed with the Securities and Exchange
Commission ("SEC").
Results for the interim periods are not necessarily indicative of results for
the full years.
(2) SEGMENT INFORMATION
The Company is a biopharmaceutical company advancing oncology care by developing
a portfolio of targeted biologic treatments, which address the unmet medical
needs of patients with a variety of cancers. The Company's three programs
include growth factor blockers, cancer vaccines and anti-angiogenesis
therapeutics. A substantial portion of the Company's efforts and resources are
devoted to research and development conducted on its own behalf and through
collaborations with corporate partners and academic research and clinical
institutions. The Company has not derived any commercial revenue from product
sales. The Company is operated as one business and is comprehensively managed by
a single management team that reports to the Chief Operating Officer. The
Company does not operate separate lines of business or separate business
entities with respect to any of its product candidates. Except for contract
services (see Note 4) and clinical trials conducted by independent investigators
on its behalf, the Company does not conduct any of its operations outside of the
United States. Accordingly, the Company does not prepare discrete financial
information with respect to separate product areas or by geographic area and
does not have separately reportable segments.
(3) FOREIGN CURRENCY TRANSACTIONS
Gains and losses from foreign currency transactions, such as those resulting
from the translation and settlement of receivables and payables denominated in
foreign currencies, are included in the consolidated statement of operations.
The Company does not currently use derivative financial instruments to manage
the risks associated with foreign currency fluctuations. The Company recorded
losses on foreign currency transactions of approximately $1,000 for the three
months ended June 30, 2001 and gains of approximately $4,000 for the three
months ended June 30, 2000. The Company recorded losses on foreign currency
transactions of approximately $3,000 for the six months ended June 30, 2001 and
gains of approximately $4,000 for the six months ended June 30, 2000. Gains and
losses from foreign currency transactions are included as a component of
operating expenses.
(4) CONTRACT SERVICES
In December 1999, the Company entered into a development and manufacturing
services agreement with Lonza Biologics PLC ("Lonza"). Under the agreement,
Lonza is responsible for process development and scale-up to manufacture the
Company's lead interventional therapeutic product candidate for cancer,
IMC-C225. These steps were taken to assure that its manufacturing process would
produce bulk material that conforms with the Company's reference material. The
Company did not incur any costs associated with this agreement during the three
months ended June 30, 2001. Approximately $3,600,000 was incurred in the six
months ended June 30, 2001 and $5,277,000 from inception through June 30, 2001
for services provided under the development and manufacturing services
agreement. In September 2000, the Company entered into a three-year commercial
manufacturing services agreement with Lonza relating to IMC-C225. The Company
has incurred approximately $3,075,000 in the three months ended June 30, 2001,
$4,875,000 in the six months ended June 30, 2001 and $10,275,000 from inception
through June 30, 2001 for services provided under the commercial manufacturing
services agreement. Under these two agreements, Lonza will manufacture IMC-C225
at the 5,000 liter scale under current Good Manufacturing Practices ("cGMP")
conditions and deliver it to the Company over a term ending no later than
December 2003. The costs associated with both of these agreements are included
in research and development expenses when incurred and will continue to be so
classified until such time as IMC-C225 may be approved for sale. In the event of
such approval, subsequent costs associated with manufacturing IMC-C225 for
commercial sale will be included in inventory and expensed when sold. In the
event the commercial manufacturing services agreement is terminated by the
Company, the Company will be required to pay 85% of the stated costs for each of
the first ten batches
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cancelled, 65% of the stated costs for each of the next ten batches cancelled
and 40% of the stated costs for any remaining batches cancelled. These amounts
are subject to mitigation should Lonza use its manufacturing capacity caused by
such termination for another customer.
The Company has built a new product launch manufacturing facility adjacent to
its pilot manufacturing facility in New Jersey. This new facility contains three
10,000 liter fermentors and will be dedicated to the commercial production of
IMC-C225. The cost of this 80,000 square foot facility is approximately $53
million, excluding capitalized interest, and has been built on land purchased in
December 1999. The Company has incurred approximately $50,324,000 in
engineering, pre-construction and construction costs associated with the new
product launch manufacturing facility and has capitalized interest totaling
approximately $1,966,000. The costs incurred to date associated with the
construction of the facility have been paid from the Company's cash reserves,
which were primarily obtained through the issuance of debt and equity
securities. The necessary commissioning and validation of the new product launch
manufacturing facility is expected to be completed by the end of 2001.
(5) TRANSACTION WITH A.C.T GROUP, INC.
During the second quarter of 2001, the Company made a $1,000,000 loan to A.C.T.
Group, Inc. ("A.C.T. Group") and received its convertible promissory note and
five-year warrant to purchase its common stock as consideration. A.C.T. Group is
engaged in the research and development of technologies enabling the genetic
manipulation of cells to produce transgenic animals for pharmaceutical protein
production. A.C.T. Group also is developing transgenic cloned cells and tissues
for application in cell and organ transplant therapy. The promissory note is due
November 30, 2001, does not bear interest, and is payable as follows: (i) if,
prior to November 30, 2001, A.C.T. Group sells a stated minimum amount of its
series B convertible preferred stock ("A.C.T. Group series B stock"), A.C.T.
Group will issue to ImClone Systems shares of A.C.T. Group series B stock at a
20% discount to the price at which they are sold; (ii) if, prior to November 30,
2001, A.C.T. Group has not sold the series B stock but enters into a binding
agreement with respect to a merger or other transaction in which its
stockholders receive securities of another entity with a stated minimum amount
of cash, A.C.T. Group will issue to ImClone Systems shares of its common stock
valued at $1.60 per share; and (iii) if neither of the events described in (i)
or (ii) occurs, the note will be payable on November 30, 2001 in cash, or at the
option of A.C.T. Group, common stock valued at $1.60 per share. If common stock
is used to repay the promissory note, ImClone Systems will have the right at
that time to purchase up to an additional $1,000,000 worth of A.C.T. Group
common stock at $1.60 per share.
The warrant to purchase common stock entitles ImClone Systems to buy $1,000,000
worth of A.C.T. Group common stock beginning with the earlier of November 30,
2001 or the closing of the sale, if any, of the A.C.T. Group series B stock. The
exercise prices are the same as the convertible promissory note repayment
provisions. Due to the uncertainty regarding the ultimate collection of the note
and the absence of a readily determinable market value for A.C.T. Group's common
and preferred stock, ImClone Systems recorded a $1,000,000 write-down of the
note during the quarter ended June 30, 2001. The write-down is included in loss
on securities and investments in the accompanying consolidated statement of
operations for the three and six months ended June 30, 2001. The Company's Chief
Executive Officer is a member of A.C.T.Group's Board of Directors.
(6) INVESTMENT IN VALIGEN N.V.
In May 2000, the Company made an equity investment in ValiGen N.V. ("ValiGen"),
a private biotechnology company specializing in therapeutic target
identification and validation using the tools of genomics and gene expression
analysis. The Company purchased 705,882 shares of ValiGen's series A preferred
stock and received a five-year warrant to purchase 388,235 shares of ValiGen's
common stock at an exercise price of $12.50 per share. The aggregate purchase
price was $7,500,000. The Company assigned a value of $594,000 to the warrant
based on the Black-Scholes Pricing Model. The ValiGen series A preferred stock
contains voting rights identical to holders of ValiGen's common stock. Each
share of ValiGen series A preferred stock is convertible into one share of
ValiGen common stock. The Company may elect to convert the ValiGen series A
preferred stock at any time; provided, that the ValiGen preferred stock will
automatically convert into ValiGen common stock upon the closing of an initial
public offering of ValiGen's common stock with gross proceeds not less than
$20,000,000. The Company also received certain protective rights and customary
registration rights under this arrangement. The Company recorded this original
investment in ValiGen using the cost method of accounting. During the second
quarter of 2001, the Company purchased 160,000 shares of ValiGen's series B
preferred stock for $2,000,000. The terms of the series B preferred stock are
substantially the same as the series A preferred stock. The investment in
ValiGen represents approximately 7% of ValiGen's outstanding equity. As of June
30, 2001, the Company has completely written-off its investment in ValiGen. The
Company recorded write-downs of approximately $5,125,000 in December 2000,
$1,600,000 in March 2001 and $2,775,000 in June 2001 determined based on the
modified equity method of accounting. The March 2001 and June 2001 write-downs
are included in loss on securities and investment in the accompanying
consolidated statements of operations. The investment is classified as a
long-term asset included in Investment in equity securities and other assets in
the December 31, 2000 consolidated balance sheet. The Company's Chief Executive
Officer is a member of ValiGen's Board of Directors.
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(7) LONG-TERM DEBT
Long-term debt consists of the following:
JUNE 30, DECEMBER 31,
2001 2000
--------------- --------------
5-1/2% Convertible Subordinated Notes due March 1, 2005................ $ 240,000,000 $ 240,000,000
11-1/4% Industrial Development Revenue Bond due May 1, 2004............ 2,200,000 2,200,000
--------------- --------------
$ 242,200,000 $ 242,200,000
=============== ==============
In February 2000, the Company completed a private placement of $240,000,000 in
convertible subordinated notes due March 1, 2005. The Company received net
proceeds from this offering of approximately $231,500,000, after deducting
offering costs. Accrued interest on the notes was approximately $4,400,000 at
June 30, 2001 and December 31, 2000. The holders may convert all or a portion of
the notes into common stock at any time on or before March 1, 2005 at a
conversion price of $55.09 per share, subject to adjustment under certain
circumstances. The notes are subordinated to all existing and future senior
indebtedness. The Company may redeem any or all of the notes at any time prior
to March 6, 2003, at a redemption price equal to 100% of the principal amount
plus accrued and unpaid interest to the redemption date if the closing price of
the common stock has exceeded 150% of the conversion price for at least 20
trading days in any consecutive 30-trading day period, provided the Company
makes an additional payment of $152.54 per $1,000 aggregate principal amount of
notes, minus the amount of any interest actually paid thereon prior to the
redemption notice date. On or after March 6, 2003, the Company may redeem any or
all of the notes at specified redemption prices, plus accrued and unpaid
interest to the day preceding the redemption date. The Company was required to
file with the SEC and obtain the effectiveness of a shelf registration statement
covering resales of the notes and the underlying common stock. Such registration
statement was declared effective in July 2000. Upon the occurrence of a
"fundamental change" as defined in the agreement, holders of the notes may
require the Company to redeem the notes at a price equal to 100% of the
principal amount to be redeemed.
(8) TREASURY STOCK
The Company's employee stock option plans generally permit option holders to pay
for the exercise price of stock options and any related income tax withholding
with shares of the Company's common stock that have been owned by the option
holders for at least six months. During the six months ended June 30, 2001,
138,433 shares of common stock were delivered to the Company in payment of the
aggregate exercise price and related income tax withholding associated with the
exercise of stock options to purchase an aggregate of 240,000 shares of common
stock. The 138,433 shares delivered to the Company had a value of approximately
$3,608,000 determined by multiplying the closing price of the common stock on
the date of delivery by the number of shares presented for payment. These shares
have been included as treasury stock in the consolidated balance sheet at June
30, 2001.
(9) NET LOSS PER COMMON SHARE
Basic and diluted net loss per common share are computed based on the net loss
for the relevant period, adjusted in 2000 for cumulative series A convertible
preferred stock dividends and the assumed incremental yield attributable to the
beneficial conversion feature in the preferred stock, divided by the weighted
average number of common shares outstanding during the period. Potentially
dilutive securities, including convertible preferred stock, convertible debt,
options and warrants, have not been included in the diluted loss per common
share computation because they are anti-dilutive.
(10) COMPREHENSIVE INCOME (LOSS)
The following table reconciles net loss to comprehensive income (loss):
THREE MONTHS ENDED SIX MONTHS ENDED
2001 2000 2001 2000
---- ---- ---- ----
Net loss $(29,503,000) $(13,808,000) $(30,698,000) $(28,420,000)
Other comprehensive income (loss):
Unrealized holding gain (loss) arising
during the period 17,000 (89,000) 1,955,000 561,000
Less: Reclassification adjustment for
realized gain included in net loss 926,000 18,000 908,000 16,000
------------ ------------ ------------ ------------
Total other comprehensive income (loss) (909,000) (107,000) 1,047,000 545,000
------------ ------------ ------------ ------------
Total comprehensive loss $(28,594,000) $(13,915,000) $(29,651,000) $(27,875,000)
============ ============ ============ ============
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(11) COLLABORATIVE AGREEMENTS
In December 1998, the Company entered into a development and license agreement
with Merck KGaA with respect to its lead interventional therapeutic product
candidate for cancer, IMC-C225. In exchange for exclusive rights to market
IMC-C225 outside of North America (exclusive of Japan) and co-development rights
in Japan, the Company has received $30,000,000 in up-front fees and cash-based
milestone payments as of June 30, 2001. An additional $30,000,000 can be
received assuming the achievement of further milestones for which Merck KGaA
will receive equity in the Company. The equity underlying these milestone
payments will be priced at varying premiums to the then market price of the
common stock depending upon the timing of the achievement of the respective
milestones. Merck KGaA will pay the Company a royalty on future sales of
IMC-C225 outside of North America, if any. Merck KGaA has also agreed not to own
greater than 19.9% of the Company's voting securities through December 3, 2002.
This agreement may be terminated by Merck KGaA in various instances, including
(1) at its discretion on any date on which a milestone is achieved (in which
case no milestone payment will be made), or (2) during a one-year period after
first commercial sale of IMC-C225 in Merck KGaA's territory, upon Merck KGaA's
reasonable determination that the product is economically unfeasible (in which
case Merck KGaA is entitled to receive back 50% of the up-front and cash-based
milestone payments then paid to date, but only out of revenues received, if any,
based upon a royalty rate applied to the gross profit from IMC-C225 sales or
IMC-C225 license fees in the United States and Canada). Under the agreement, the
Company is entitled to Merck KGaA's guaranty of the Company's obligations under
a $30 million credit facility relating to the construction of the product launch
manufacturing facility for the commercial production of IMC-C225. To date, the
Company has not utilized this guaranty. In the event of termination of the
agreement, and in the event the guaranty is utilized, the Company will be
required to use its best reasonable efforts to cause the release of Merck KGaA
as guarantor. Of the cash based milestone payments received through June 30,
2001, $2,000,000 was received and recognized as revenue in the quarter ended
June 30, 2001. A total of $28,000,000 was received prior to March 31, 2001 and
originally recorded as fees potentially refundable to corporate partner and not
as revenue due to the fact that they were refundable to Merck KGaA in the event
a condition relating to obtaining certain collateral license agreements was not
satisfied. In March 2001, this condition was satisfied and $24,000,000 in
milestone payments was recognized as revenue by the Company during the three
months ended March 31, 2001. The remaining $4,000,000 represents the up-front
payment associated with the agreement and has been recorded as deferred revenue.
This amount is being recognized as revenue over an 18-year period, which
represents the patent lives of IMC-C225. The Company recognized approximately
$55,000 of the up-front payment as revenue during the three months ended June
30, 2001 and $111,000 of the up-front payment as revenue during the six months
ended June 30, 2001.
(12) REVENUE RECOGNITION
In December 1999, the staff of the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes
certain of the staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company adopted
SAB 101 in the fourth quarter of its fiscal year ended December 31, 2000,
implementing a change in accounting policy effective January 1, 2000 with
respect to revenue recognition associated with non-refundable fees received upon
entering into research and licensing arrangements. Beginning January 1, 2000,
non-refundable fees received upon entering into license and other collaborative
agreements where the Company has continuing involvement are recorded as deferred
revenue and recognized ratably over the estimated service period. In previous
years, prior to SAB 101, non-refundable upfront fees from licensing and other
collaborative agreements were recognized as revenue when received, provided all
contractual obligations of the Company relating to such fees had been fulfilled.
Amounts originally reported for the second quarter and first half of 2000 have
been restated herein to reflect the adoption of SAB 101.
The adoption of SAB 101 resulted in a non-cash cumulative effect of a change in
accounting policy related to nonrefundable upfront licensing fees received in
connection with the development and commercialization agreement with Merck KGaA
with respect to its principal cancer vaccine product candidate BEC2. The
cumulative effect represents revenues originally recorded upon receipt of such
payments that now are recorded as deferred revenue and will be recognized over
the life of the related patent(s). The Company recognized revenue of $41,000
associated with this change in accounting policy in the three months ended June
30, 2001 and $82,000 in the six months ended June 30, 2001. During the three
months ended June 30, 2000, the impact of the change in accounting policy
decreased net loss by $41,000. This amount represented a portion of deferred
revenue that was recognized during the period as a result of the change in
accounting policy. During the six months ended June 30, 2000, the impact of the
change in accounting policy increased net loss by $2,514,000, or $0.04 per
share, comprising the $2,596,000 cumulative effect of the change described
above, net of $82,000 of related deferred revenue that was recognized during the
period.
In March 2001, the Company satisfied a condition relating to obtaining certain
collateral license agreements associated with the IMC-
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C225 development and license agreement with Merck KGaA. The satisfaction of this
condition allowed for the recognition of $24,000,000 in previously received
milestone payments and initiated revenue recognition, as prescribed under SAB
101, of the $4,000,000 up-front payment received in connection with this
agreement over the patent lives of IMC-C225. The Company recognized
approximately $55,000 of revenue associated with the up-front payment during the
three months ended June 30, 2001 and approximately $111,000 of revenue during
the six months ended June 30, 2001.
As of June 30, 2001, the Company had approximately $6,241,000 in deferred
revenue recorded on the consolidated balance sheet. This included $2,352,000
associated with the BEC2 development and commercialization agreement and
$3,889,000 related to the IMC-C225 development and license agreement with Merck
KGaA.
(13) RELATED PARTY TRANSACTIONS
The Company accepted from its President and Chief Executive Officer, a full
recourse, unsecured promissory note dated as of December 21, 2000 in the
principal amount of $282,200. The note was payable upon the earlier of June 21,
2001 or demand by the Company and bore interest at 10.5% (the prime lending rate
plus 1% on the date of the note) for the period that the loan is outstanding.
The Company extended the term of the note to December 21, 2001. The total amount
due the Company, including interest, was approximately $297,000 at June 30,
2001.
(14) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective January 1, 2001, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"), which establishes new accounting and
reporting guidelines for derivative instruments, including certain derivative
instruments embedded in other contracts, and hedging activities. SFAS No. 133
was subsequently amended by SFAS Nos. 137 and 138. SFAS No. 133 requires the
recognition of all derivative financial instruments as either assets or
liabilities in the consolidated balance sheet and measurement of those
derivatives at fair value. The Company has reviewed SFAS No. 133 as amended and
its operations relative thereto and concluded that it does not have or use
derivative instruments. Accordingly, the adoption of SFAS No. 133 did not have
an effect on the results of operations or the financial position of the Company.
(15) SUBSEQUENT EVENTS
In July 2001, the Company accepted a promissory note from each of its President
and Chief Executive Officer, Executive Vice President and Chief Operating
Officer and Chairman of the Board, and in August 2001 the Company accepted a
promissory note from a member of its Board of Directors, in payment of the
aggregate exercise price associated with the exercise of stock options and
warrants they held to purchase a total of approximately 4,473,000 shares of the
Company's common stock. The President and Chief Executive Officer's promissory
note was in the amount of $18,178,750; the Executive Vice President and Chief
Operating Officer's promissory note was in the amount of $15,747,550; the
Chairman of the Board's promissory note was in the amount of $1,228,065; and the
Board member's promissory note was in the amount of $87,000. The unsecured
promissory notes are full-recourse and are payable on the earlier of one year
from the date of the notes or on demand by the Company and bear interest at the
prime lending rate plus 1% (7.75% on the date of the note). Interest is payable
quarterly and the interest rate adjusts quarterly during the term of each note
to the then current prime lending rate plus 1%.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis by our management is provided to identify
certain significant factors that affected our financial position and operating
results during the periods included in the accompanying financial statements.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
REVENUES.
Revenues for the six months ended June 30, 2001 and 2000 were $27,995,000 and
$448,000, respectively, an increase of $27,547,000. Revenues for the six months
ended June 30, 2001 primarily included $26,000,000 in milestone revenue from our
development and
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license agreement with Merck KGaA for IMC-C225. We received a $2,000,000 cash
milestone payment in June 2001. The remaining $24,000,000 of these milestone
payments were received in prior periods and originally recorded as fees
potentially refundable to corporate partner because they were refundable in the
event a condition relating to obtaining certain collateral license agreements
was not satisfied. This condition was satisfied in March 2001. In addition, we
recognized $111,000 of the $4,000,000 up-front payment received upon entering
into this agreement. This revenue is being recognized ratably over the patent
lives of IMC-C225. Under this agreement, an additional $30,000,000 in
equity-based milestones may be received upon the achievement of additional
milestones, $5,000,000 of which both parties agreed have recently been attained.
As of August 13, 2001, we have not received the $5,000,000 milestone payment or
issued the common stock associated with the milestone. Revenues for the six
months ended June 30, 2001 also included $763,000 in royalty revenue from our
strategic corporate alliance with Abbott Laboratories ("Abbott") in diagnostics
and $1,000,000 in milestone revenues and $81,000 in license fee revenue from our
strategic corporate alliance with Merck KGaA for our principal cancer vaccine
product candidate, BEC2. Revenues for the six months ended June 30, 2000
primarily included (1) $326,000 in royalty revenue from our strategic alliance
with Abbott in diagnostics and (2) $81,000 in license fee revenue from our
strategic corporate alliance with Merck KGaA for BEC2. The license fee revenue
related to the BEC2 agreement has been recognized in both periods as a direct
result of a change in accounting policy with respect to revenue recognition.
OPERATING EXPENSES
Total operating expenses for the six months ended June 30, 2001 and 2000 were
$55,542,000 and $30,752,000, respectively, an increase of $24,790,000, or 81%.
OPERATING EXPENSES: RESEARCH AND DEVELOPMENT.
Research and development expenses for the six months ended June 30, 2001 and
2000 were $45,591,000 and $23,844,000, respectively, an increase of $21,747,000
or 91%. Such amounts for the six months ended June 30, 2001 and 2000 represented
82% and 78%, respectively, of total operating expenses. Research and development
expenses include costs associated with our in-house and collaborative research
programs, product and process development expenses, costs to manufacture our
product candidates, particularly IMC-C225, prior to any approval that we may
obtain of a product candidate for commercial sale, quality assurance and quality
control costs, costs to conduct our clinical trials and associated regulatory
activities. Research and development expenses for the six months ended June 30,
2001 and 2000 have been reduced by $3,712,000 and $1,514,000, respectively, for
clinical trial and contract manufacturing costs that are reimbursable by Merck
KGaA. The increase in research and development expenses for the six months ended
June 30, 2001 was primarily attributable to (1) the costs associated with newly
initiated and ongoing clinical trials of IMC-C225, (2) costs related to the
manufacturing services agreements with Lonza, (3) expenditures in the functional
areas of product development, manufacturing, clinical and regulatory affairs
associated with IMC-C225 and (4) increased expenditures associated with
discovery research. We expect research and development costs to increase in
future periods as we continue to manufacture IMC-C225 prior to any approval of
the product that we may obtain for commercial sale. Should such approval be
obtained, the subsequent costs associated with manufacturing IMC-C225 for
commercial sale will be included in inventory and expensed when sold. We expect
research and development costs associated with discovery research, product
development and clinical trials also to continue to increase in future periods.
OPERATING EXPENSES: MARKETING, GENERAL AND ADMINISTRATIVE.
Marketing, general and administrative expenses include marketing and
administrative personnel costs, including related occupancy costs, additional
costs to develop internal marketing and sales capabilities, costs to pursue
arrangements with strategic corporate partners and technology licensors, and
expenses associated with applying for patent protection for our technology and
products. Such expenses for the six months ended June 30, 2001 and 2000 were
$9,951,000 and $6,908,000, respectively, an increase of $3,043,000, or 44%. The
increase in marketing, general and administrative expenses primarily reflected
(1) costs associated with our marketing efforts (2) additional administrative
staffing required to support our commercialization efforts of IMC-C225 and (3)
expenses associated with general corporate activities. We expect marketing,
general and administrative expenses to increase in future periods to support our
continued commercialization efforts of IMC-C225.
INTEREST INCOME, INTEREST EXPENSE AND OTHER (INCOME) EXPENSE.
Interest income was $7,827,000 for the six months ended June 30, 2001 compared
with $9,352,000 for the six months ended June 30, 2000, a decrease of
$1,525,000, or 16%. The decrease was primarily attributable to (1) a decrease in
interest rates associated with our portfolio of debt securities as well as (2) a
lower average portfolio balance during the six months ended June 30, 2001 when
compared with the six months ended June 30, 2000. Interest expense was
$6,510,000 and $4,888,000 for the six months ended June 30, 2001 and
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2000, respectively, an increase of $1,622,000 or 33%. The increase was primarily
attributable to the convertible subordinated notes issued in February 2001.
Interest expense for the six months ended June 30, 2001 and 2000 were offset by
capitalizing interest costs of $1,120,000 and $307,000, respectively, during the
construction period of the Company's new product launch manufacturing facility.
Interest expense for both periods included (1) interest on the convertible
subordinated notes, (2) interest on an outstanding Industrial Development
Revenue Bond issued in 1990 (the "1990 IDA Bond") with a principal amount of
$2,200,000 and (3) interest recorded on various capital lease obligations under
a 1996 financing agreement and a 1998 financing agreement with Finova Technology
Finance, Inc. ("Finova"). We recorded losses on securities and investment for
the six months ended June 30, 2001 in the amount of $4,468,000 as compared with
gains of $16,000 for the six months ended June 30, 2000. The net losses on
securities and investments for the six months ended June 30, 2001 included
$4,375,000 in write-downs of our investment in ValiGen N.V. and a $1,000,000
write-off of our convertible promissory note from A.C.T. Group, Inc..
NET LOSSES.
We had a net loss to common stockholders of $30,698,000 or $0.46 per share for
the six months ended June 30, 2001 compared with $29,825,000 or $0.49 per share
for the six months ended June 30, 2000. Included in the loss for the six months
ended June 30, 2000 was a non-cash charge of $2,596,000 related to the
cumulative effect of a change in accounting policy (see note 12 to the
accompanying consolidated financial statements). Excluding the effect of this
change in accounting policy, the net loss to common stockholders for the six
months ended June 30, 2000 would have been $27,229,000 or $0.44 per share. The
increase in the net loss to common stockholders was due to the factors noted
above.
THREE MONTHS ENDED JUNE 30, 2001 AND 2000
REVENUES.
Revenues for the three months ended June 30, 2001 and 2000 were $3,251,000 and
$201,000, respectively, an increase of $3,050,000. Revenues for the three months
ended June 30, 2001 primarily included a $2,000,000 cash milestone payment from
our development and license agreement with Merck KGaA for IMC-C225. In addition,
we recognized $55,000 of the $4,000,000 up-front payment received upon entering
into this agreement. This revenue is being recognized ratably over the patent
lives of IMC-C225. Under this agreement, an additional $30,000,000 in
equity-based milestones may be received upon the achievement of additional
milestones, $5,000,000 of which both parties agreed have recently been attained.
As of August 13, 2001, we have not received the $5,000,000 milestone payment or
issued the common stock associated with the milestone. Revenues for the three
months ended June 30, 2001 also included $115,000 in royalty revenue from our
strategic corporate alliance with Abbott in diagnostics and $1,000,000 in
milestone revenues and $41,000 in license fee revenue from our strategic
corporate alliance with Merck KGaA for BEC2. Revenues for the three months ended
June 30, 2000 included (1) $160,000 in royalty revenue from our strategic
alliance with Abbott in diagnostics and (2) $41,000 in license fee revenue from
our strategic corporate alliance with Merck KGaA for BEC2. The license fee
revenue related to the BEC2 agreement has been recognized in both periods as a
direct result of a change in accounting policy with respect to revenue
recognition.
OPERATING EXPENSES
Total operating expenses for the three months ended June 30, 2001 and 2000 were
$29,969,000 and $16,525,000, respectively, an increase of $13,444,000, or 81%.
OPERATING EXPENSES: RESEARCH AND DEVELOPMENT.
Research and development expenses for the three months ended June 30, 2001 and
2000 were $23,746,000 and $12,743,000, respectively, an increase of $11,003,000
or 86%. Such amounts for the three months ended June 30, 2001 and 2000
represented 79% and 77%, respectively, of total operating expenses. Research and
development expenses include costs associated with our in-house and
collaborative research programs, product and process development expenses, costs
to manufacture our product candidates, particularly IMC-C225, prior to any
approval that we may obtain of a product candidate for commercial sale, quality
assurance and quality control costs, costs to conduct our clinical trials and
associated regulatory activities. Research and development expenses for the
three months ended June 30, 2001 and 2000 have been reduced by $460,000 and
$689,000, respectively, for clinical trial and contract manufacturing costs that
are reimbursable by Merck KGaA. The increase in research and development
expenses for the three months ended June 30, 2001 was primarily attributable to
(1) the costs associated with newly initiated and ongoing clinical trials of
IMC-C225, (2) costs related to the manufacturing services agreements with Lonza,
(3) expenditures in the functional areas of product development, manufacturing,
clinical and regulatory affairs associated with IMC-C225 and (4) increased
expenditures associated with
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discovery research. We expect research and development costs to increase in
future periods as we continue to manufacture IMC-C225 prior to any approval of
the product that we may obtain for commercial sale. Should such approval be
obtained, the subsequent costs associated with manufacturing IMC-C225 for
commercial sale will be included in inventory and expensed when sold. We expect
research and development costs associated with discovery research, product
development and clinical trials also to continue to increase in future periods.
OPERATING EXPENSES: MARKETING, GENERAL AND ADMINISTRATIVE.
Marketing, general and administrative expenses include marketing and
administrative personnel costs, including related occupancy costs, additional
costs to develop internal marketing and sales capabilities, costs to pursue
arrangements with strategic corporate partners and technology licensors, and
expenses associated with applying for patent protection for our technology and
products. Such expenses for the three months ended June 30, 2001 and 2000 were
$6,223,000 and $3,782,000, respectively, an increase of $2,441,000, or 65%. The
increase in marketing, general and administrative expenses primarily reflected
(1) costs associated with our marketing efforts (2) additional administrative
staffing required to support our commercialization efforts of IMC-C225 and (3)
expenses associated with general corporate activities. We expect marketing,
general and administrative expenses to increase in future periods to support our
continued commercialization efforts of IMC-C225.
INTEREST INCOME, INTEREST EXPENSE AND OTHER (INCOME) EXPENSE.
Interest income was $3,262,000 for the three months ended June 30, 2001 compared
with $6,165,000 for the three months ended June 31, 2000, a decrease of
$2,903,000, or 47%. The decrease was primarily attributable to (1) a decrease in
interest rates on our portfolio of debt securities as well as (2) a lower
average portfolio balance during the three months ended June 30, 2001 when
compared with the three months ended June 30, 2000. Interest expense was
$3,197,000 and $3,667,000 for the three months ended June 30, 2001 and 2000,
respectively, a decrease of $470,000 or 13%. The decrease in interest expense
was attributable to a greater amount of capitalized interest in the three months
ended June 30 2001 as compared with the three months ended June 30, 2000.
Interest expense for the three months ended June 31, 2001 and 2000 were offset
by capitalizing interest costs of $626,000 and $153,000, respectively, during
the construction period of the Company's new product launch manufacturing
facility. Interest expense for both periods included (1) interest on the
convertible subordinated notes, (2) interest on the outstanding 1990 IDA Bond
with a principal amount of $2,200,000 and (3) interest recorded on various
capital lease obligations under a 1996 financing agreement and a 1998 financing
agreement with Finova. We recorded losses on securities and investment for the
three months ended June 30, 2001 in the amount of $2,850,000 as compared with
gains of $18,000 for the three months ended June 30, 2000. The net losses on
securities and investments for the three months ended June 30, 2001 included a
$2,775,000 write-down of our investment in ValiGen N.V. and a $1,000,000
write-off of our convertible promissory note from A.C.T. Group, Inc..
NET LOSSES.
We had a net loss to common stockholders of $29,503,000 or $0.44 per share for
the three months ended June 30, 2001 compared with $14,511,000 or $0.23 per
share for the three months ended June 30, 2000. The increase in the net loss and
per share net loss to common stockholders was due to the factors noted above.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, our principal sources of liquidity consisted of cash and cash
equivalents and securities available for sale of approximately $191,014,000.
From inception through June 30, 2001 we have financed our operations through the
following means:
- Public and private sales of equity securities and convertible
notes in financing transactions have raised approximately
$489,400,000 in net proceeds
- We have earned approximately $61,800,000 from license fees,
contract research and development fees and royalties from
collaborative partners. Additionally, we have approximately
$6,241,000 in deferred revenue related to up-front payments
received from our BEC2 development and commercialization
agreement and our IMC-C225 development and license agreement
with Merck KGaA. These amounts are being recognized as revenue
over the respective patent lives of the product candidates
(see note 12 of the consolidated financial statements)
- We have earned approximately $39,951,000 in interest income
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- The sale of the IDA Bonds in each of 1985, 1986 and 1990
raised an aggregate of $6,300,000, the proceeds of which have
been used for the acquisition, construction and installation
of our research and development facility in New York City, and
of which $2,200,000 is outstanding
We may from time to time consider a number of strategic alternatives designed to
increase shareholder value, which could include joint ventures, acquisitions and
other forms of alliances as well as the sale of all or part of the Company.
The 1990 IDA Bond in the outstanding principal amount of $2,200,000 becomes due
in 2004. We incur annual interest on the 1990 IDA Bond aggregating $248,000. In
order to secure our obligations to the New York Industrial Development Agency
("NYIDA") under the 1990 IDA Bond, we have granted the NYIDA a security interest
in facility equipment purchased with the bond proceeds.
In February 2000, we completed a private placement of $240,000,000 in 5 1/2%
convertible subordinated notes due March 1, 2005. We received net proceeds of
approximately $231,500,000, after deducting offering expenses. Accrued interest
on the notes was approximately $4,400,000 at June 30, 2001. A holder may convert
all or a portion of a note into common stock at any time on or before March 1,
2005 at a conversion price of $55.09 per share, subject to adjustment under
certain circumstances. We may redeem some or all of the notes prior to March 6,
2003 if specified common stock price thresholds are met. On or after March 6,
2003, we may redeem some or all of the notes at specified redemption prices.
In December 1999, we entered into a development and manufacturing services
agreement with Lonza. Under the agreement, Lonza is responsible for process
development and scale-up to manufacture IMC-C225. These steps were taken to
assure that its manufacturing process would produce bulk material that conforms
with our reference material. As of June 30, 2001, we had incurred approximately
$5,277,000 for services provided under the development and manufacturing
services agreement. In September 2000, we entered into a three-year commercial
manufacturing services agreement with Lonza relating to IMC-C225. As of June 30,
2001, we had incurred approximately $10,275,000 for services provided under the
commercial manufacturing services agreement. Under these two agreements, Lonza
is manufacturing IMC-C225 at the 5,000 liter scale under cGMP conditions and is
delivering it to us over a term ending no later than December 2003. The costs
associated with both of these agreements are included in research and
development expenses when incurred and will continue to be so classified until
such time as IMC-C225 may be approved for sale. In the event of such approval,
the subsequent costs associated with manufacturing IMC-C225 for commercial sale
will be included in inventory and expensed when sold. In the event the
commercial manufacturing services agreement is terminated by us, we will be
required to pay 85% of the stated costs for each of the first ten batches
cancelled, 65% of the stated costs for each of the next ten batches cancelled
and 40% of the stated costs for any remaining batches cancelled. These amounts
are subject to mitigation should Lonza use its manufacturing capacity caused by
such termination for another customer.
We cannot be certain that we will be able to enter into agreements for
commercial supply with other third-party manufacturers on terms acceptable to
us. Even if we are able to enter into such agreements, we cannot be certain that
we will be able to produce or obtain sufficient quantities for commercial sale
of our products. Any delays in producing or obtaining commercial quantities of
our products could have a material effect on our business, financial condition
and results of operations.
We have obligations under various capital leases for certain laboratory, office
and computer equipment and also certain building improvements, primarily under
1996 and 1998 financing agreements with Finova. These agreements allowed us to
finance the lease of equipment and make certain building and leasehold
improvements to existing facilities. Each lease has a fair market value purchase
option at the expiration of its 42- or 48-month term. We have entered into
twelve individual leases under the financing agreements aggregating a total cost
of $3,695,000. These financing arrangements are now expired.
We rent our New York facility under an operating lease that expires in December
2004. In 2001 we completed renovations of the facility to better suit our needs
at a cost of approximately $2,800,000.
Under our IMC-C225 agreement with Merck KGaA, we developed in consultation with
Merck KGaA, a production concept for our new product launch manufacturing
facility for the commercial production of IMC-C225. The agreement provides that
Merck KGaA is to provide us, subject to certain conditions, a guaranty of a
$30,000,000 credit facility for the build-out of this facility. As of August 10,
2001, this guaranty has not been provided, and we are exploring ways in which we
might alter that portion of the agreement. This facility has been erected
adjacent to our pilot manufacturing facility in New Jersey, which supplies
IMC-C225 to support our clinical trials. We broke ground on the new product
launch manufacturing facility in January 2000 and estimate that the total cost
will be approximately $53,000,000, excluding capitalized interest. We have
incurred approximately $50,324,000 in engineering, pre-construction and
construction costs associated with the product launch manufacturing facility
through June 30, 2001. We also capitalized interest totaling approximately
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$1,966,000 through June 30, 2001. We are funding the cost of this facility
through a combination of cash on hand and, if advisable, equipment financing
transactions.
Total capital expenditures made during the six months ended June 30, 2001 were
$28,196,000 of which (1) $1,081,000 primarily related to the purchase of
equipment for and leasehold improvement costs associated with our corporate
office and research laboratories in our New York facility; (2) $16,822,000
related to engineering, construction and capitalized interest costs of the
product launch manufacturing facility; (3) $6,612,000 related to the conceptual
design and preliminary engineering plans for a second commercial manufacturing
facility, which we may build in the future on land purchased in 2000; (4)
$3,069,000 related to improving and equipping our pilot manufacturing facility;
and (5) the remaining $612,000 related to the purchase of land adjacent to the
existing pilot manufacturing facility.
To prepare for the marketing and sale of IMC-C225 in the U.S. and Canada we
hired a Vice President of Marketing and Sales in 1998 and have hired directors
of marketing, field sales and sales operations, each with experience in the
commercial launch of a monoclonal antibody cancer therapeutic. We expect to hire
regional sales managers and to arrange for the hiring or contracting of a sales
force prior to the commencement of IMC-C225 sales, if any.
We believe that our existing cash on hand and amounts to which we are entitled,
subject to the negotiation of a final credit facility, should enable us to
maintain our current and planned operations through at least 2002. We are also
entitled to reimbursement for certain research and development expenditures and,
upon the achievement of research and development milestones, to certain
milestone payments. Such payments include $30,000,000 in equity-based milestone
payments under our IMC-C225 development and license agreement with Merck KGaA,
$5,000,000 of which both parties agreed have recently been attained. As of
August 13, 2001, we have not received the $5,000,000 milestone payment or issued
the common stock associated with the milestone. There can be no assurance that
we will achieve the unachieved milestones. Our future working capital and
capital requirements will depend upon numerous factors, including, but not
limited to:
- progress and cost of our research and development programs,
pre-clinical testing and clinical trials
- our corporate partners fulfilling their obligations to us
- timing and cost of seeking and obtaining regulatory approvals
- timing and cost of manufacturing scale-up and effective
commercialization activities and arrangements
- level of resources that we devote to the development of
marketing and sales capabilities
- costs involved in filing, prosecuting and enforcing patent
claims
- technological advances
- status of competitors
- our ability to maintain existing and establish new
collaborative arrangements with other companies to provide
funding to support these activities
In order to fund our capital needs after 2002, we will require significant
levels of additional capital which we intend to raise through additional
arrangements with corporate partners, equity or debt financings, or from other
sources including the proceeds of product sales, if any. There is no assurance
that we will be successful in consummating any such arrangements or product
sales. If adequate funds are not available, we may be required to significantly
curtail our planned operations.
At December 31, 2000, we had net operating loss carryforwards for United States
federal income tax purposes of approximately $303,000,000, which expire at
various dates from 2001 through 2020. At December 31, 2000 we had research
credit carryforwards of approximately $8,000,000, which expire at various dates
from 2009 through 2020. Under Section 382 of the Internal Revenue Code of 1986,
as amended, a corporation's ability to use net operating loss and research
credit carryforwards may be limited if the corporation experiences a change in
ownership of more than 50 percentage points within a three-year period. Since
1986, we have experienced two such ownership changes. As a result, we are only
permitted to use in any one year approximately $5,200,000 of our available net
operating loss carryforwards that relate to periods before these ownership
changes. Similarly, we are limited in using our research
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credit carryforwards. We have determined that our November 1999 public stock
offering and February 2000 private placement of convertible subordinated notes
did not cause an additional ownership change that would further limit the use of
our net operating losses and research credit carryforwards.
CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS--SAFE HARBOR STATEMENT
Those statements contained herein that do not relate to historical information
are forward-looking statements. There can be no assurance that the future
results covered by such forward-looking statements will be achieved. Actual
results may differ materially due to the risks and uncertainties inherent in the
Company's business, including without limitation, the risks and uncertainties
associated with completing pre-clinical and clinical trials of the Company's
compounds that demonstrate such compounds' safety and effectiveness; obtaining
additional financing to support the Company's operations; obtaining and
maintaining regulatory approval for such compounds and complying with other
governmental regulations applicable to the Company's business; obtaining the raw
materials necessary in the development of such compounds; consummating
collaborative arrangements with corporate partners for product development;
achieving milestones under collaborative arrangements with corporate partners;
developing the capacity and ability to manufacture, as well as market and sell
the Company's products, either directly or with collaborative partners;
developing market demand for and acceptance of such products; competing
effectively with other pharmaceutical and biotechnological products; obtaining
adequate reimbursement from third-party payors; attracting and retaining key
personnel; obtaining and protecting proprietary rights; and those other factors
set forth in "Risk Factors" in the Company's most recent Registration Statement
and Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our holdings of financial instruments comprise a mix of securities that may
include U.S. corporate debt, foreign corporate debt, U.S. government debt,
foreign government/agency debt or guaranteed debt and commercial paper. All such
instruments are classified as securities available for sale. Generally, we do
not invest in portfolio equity securities or commodities or use financial
derivatives for trading purposes. Our debt security portfolio represents funds
held temporarily pending use in our business and operations. We manage these
funds accordingly. We seek reasonable assuredness of the safety of principal and
market liquidity by investing in investment grade fixed income securities while
at the same time seeking to achieve a favorable rate of return. Our market risk
exposure consists principally of exposure to changes in interest rates. Our
holdings are also exposed to the risks of changes in the credit quality of
issuers. We invest in securities that have a range of maturity dates. Typically,
those with a short-term maturity are fixed-rate, highly liquid, debt instruments
and those with longer-term maturities are highly liquid debt instruments with
fixed interest rates or with periodic interest rate adjustments. We also have
certain foreign exchange currency risk. See note 3 of the consolidated financial
statements. The table below presents the principal amounts and related weighted
average interest rates by year of maturity for our investment portfolio as of
June 30, 2001:
2006 AND
2001 2002 2003 2004 2005 THEREAFTER TOTAL FAIR VALUE
---- ----------- -------- ----------- ------------ ------------ ------------ ------------
Fixed Rate -- $ 104,000 $244,000 -- -- $ 76,407,000 $76,755,000 $ 81,374,000
Average
Interest Rate -- 5.38% 6.00% -- -- 6.36% 6.36% --
Variable Rate -- -- -- $11,875,000(1) $ 19,194,000(1) $ 68,230,000(1) $99,299,000 $100,125,000
Average
Interest Rate -- -- -- 5.28% 4.86% 4.90% 4.94% --
-- ----------- -------- ----------- ----------- ------------ ------------ ------------
-- $ 104,000 $244,000 $11,875,000 $19,194,000 $144,637,000 $176,054,000 $181,499,000
== =========== ======== =========== =========== ============ ============ ============
(1) These holdings consist of U.S. corporate and foreign corporate floating
rate notes. Interest on the securities is adjusted monthly, quarterly
or semi-annually, depending on the instrument, using prevailing
interest rates. These holdings are highly liquid and we consider the
potential for loss of principal to be minimal.
Our 5 1/2% convertible subordinated notes in the principal amount of
$240,000,000 due March 1, 2005 and other long-term debt have fixed interest
rates. The fair value of fixed interest rate instruments is affected by changes
in interest rates and in the case of the convertible notes by changes in the
price of the Company's common stock. The fair value of the 5 1/2% convertible
subordinated notes (which have a carrying value of $240,000,000) was
approximately $276,400,000 at June 29, 2001.
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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(a) An annual meeting of stockholders was held on May 24, 2001 (the
"Annual Meeting").
(b) The directors elected at the Annual Meeting were Richard Barth,
Vincent T. DeVita, Jr., Robert F. Goldhammer, David M. Kies, Paul B. Kopperl,
Arnold Levine, John Mendelsohn, William R. Miller, Harlan W. Waksal and Samuel
D. Waksal. Such persons are all of the directors of the Company whose term of
office as a director continued after the Annual Meeting.
(c) The matters voted upon at the Annual Meeting and the results of the
voting are set forth below. Broker non-votes were not applicable.
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(i) Election of directors
NAME IN FAVOR WITHHELD
- ---- -------- --------
Richard Barth 55,338,014 130,304
Arnold Levine 55,279,081 189,237
Vincent T. DeVita, Jr 55,340,858 127,460
Robert F. Goldhammer 55,347,138 121,180
David M. Kies 55,347,952 120,366
Paul B. Kopperl 55,348,292 120,026
John Mendelsohn 55,178,655 289,663
William R. Miller 55,343,703 124,615
Harlan W. Waksal 53,408,897 2,059,421
Samuel D. Waksal 55,341,966 126,352
(ii) The stockholders ratified the appointment by the Board of
Directors of KPMG LLP as the Company's independent certified
public accountants for the fiscal year ending December 31,
2001. The stockholders voted 55,240,599 shares in favor and
163,154 shares against. 64,565 shares abstained from voting.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
10.77 Stock Purchase Agreement between the Company and Valigen N. V.
dated May 31, 2001
(b) Reports on Form 8-K
None.
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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.
IMCLONE SYSTEMS INCORPORATED
(Registrant)
Date: August 13, 2001 By /s/ Samuel D. Waksal
-------------------------------------
Samuel D. Waksal
President and Chief Executive Officer
Date: August 13, 2001 By /s/ Daniel S. Lynch
-------------------------------------
Daniel S. Lynch
Vice President, Finance and Chief
Financial Officer
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