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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 0-28494
MILLENNIUM PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3177038
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
238 MAIN STREET, CAMBRIDGE, MA 02142
(Address of principal executive offices, including zip code)
617-679-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Number of shares of Common Stock, $.001 par value per share, outstanding as of
August 6, 1998 was 29,547,516.
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MILLENNIUM PHARMACEUTICALS, INC.
REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
TABLE OF CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (unaudited)
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Operations
and Comprehensive Loss for the three and six
months ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II - OTHER INFORMATION 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
EXHIBIT INDEX 13
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Millennium Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
JUNE 30, DECEMBER 31,
(in thousands, except par value and shares) 1998 1997
------- -----------
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 34,078 $ 69,236
Marketable securities 40,472 27,321
Due from strategic partners 10,226 778
Prepaid expenses and other current assets 3,139 4,595
--------- ---------
Total current assets 87,915 101,930
Property and equipment, net 32,953 29,030
Restricted cash and other assets 11,737 5,140
Intangible assets, net 7,062 8,413
--------- ---------
$ 139,667 $ 144,513
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,647 $ 3,165
Accrued expenses 5,203 4,294
Deferred revenue 2,507 3,053
Current portion of capital lease obligations 7,505 5,847
--------- ---------
Total current liabilities 20,862 16,359
Capital lease obligations, net of current portion 20,330 19,809
Minority interest 10,588 16,590
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.001 par value; 5,000,000 shares authorized;
none issued -- --
Common Stock, $0.001 par value: 100,000,000 shares authorized;
29,530,230 shares in 1998 and 29,169,398 shares in 1997 issued
and outstanding 30 29
Additional paid-in capital 195,372 193,254
Deferred compensation (1,373) (1,992)
Notes receivable from officers (126) (166)
Unrealized gain (loss) on marketable securities (23) (4)
Accumulated deficit (105,993) (99,366)
--------- ---------
Total stockholders' equity 87,887 91,755
--------- ---------
Total liabilities and stockholders' equity $ 139,667 $ 144,513
========= =========
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
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Millennium Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations
and Comprehensive Loss (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
(in thousands, except per share and share data)
- ----------------------------------------------
Revenue under strategic alliances $ 28,236 $ 13,372 $ 49,279 $ 24,328
Costs and expenses:
Research and development 28,036 18,333 50,465 29,932
General and administrative 5,927 4,514 11,838 7,863
Acquired in-process research and development
-- -- -- 83,800
Amortization of intangible assets 676 675 1,351 1,046
----------- ----------- ----------- -----------
34,639 23,522 63,654 122,641
----------- ----------- ----------- -----------
Loss from operations (6,403) (10,150) (14,375) (98,313)
Interest income 1,339 976 2,786 2,053
Interest expense (479) (303) (1,124) (636)
Minority interest 3,342 -- 6,086 --
----------- ----------- ----------- -----------
Net Loss $ (2,201) $ (9,477) $ (6,627) $ (96,896)
Unrealized gain (loss) on marketable securities 19 84 (19) (4)
----------- ----------- ----------- -----------
Comprehensive loss (2,182) (9,393) (6,646) (96,900)
=========== =========== =========== ===========
Basic and diluted net loss per share $ (0.07) $ (0.33) $ (0.23) $ (3.50)
Shares used in computing basic and diluted net
loss per share 29,500,860 28,764,467 29,396,532 27,663,696
=========== =========== =========== ===========
See notes to condensed consolidated financial statements.
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Millennium Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
SIX MONTHS ENDED JUNE 30, 1998 1997
(in thousands) -------- --------
CASH USED IN OPERATIONS $(17,906) $ (5,874)
INVESTING ACTIVITIES
Purchase of property and equipment (3,004) (4,842)
Sale of marketable securities 35,785 37,805
Purchase of marketable securities (48,936) (23,487)
-------- --------
Net cash (used in) provided by investing activities (16,155) 9,476
FINANCING ACTIVITIES
Acquisition of ChemGenics, net of cash acquired -- 7,087
Net proceeds from employee stock purchases 2,134 910
Repurchase of Common Stock (15) (86)
Payments of long-term debt -- (800)
Payments of capital lease obligations (3,216) (2,210)
-------- --------
Net cash (used in) provided by financing activities (1,097) 4,901
-------- --------
(Decrease) increase in cash and cash equivalents (35,158) 8,503
Cash and cash equivalents at beginning of period 69,236 10,088
-------- --------
Cash and cash equivalents at end of period $ 34,078 $ 18,591
======== ========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital leases $ 5,395 $ 6,202
======== ========
See notes to condensed consolidated financial statements.
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MILLENNIUM PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(unaudited)
1 - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Interim results for the six-month period ended June 30, 1998 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report on 10-K
for the fiscal year ended December 31, 1997 which was filed with the Securities
Exchange Commission on March 26, 1998.
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net loss or shareholders' equity.
Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities, which prior to adoption were reported separately
in shareholders' equity, to be included in other comprehensive income. Prior
year financial statements have been reclassified to conform to the requirements
of Statement 130.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Report on Form 10-Q contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," "intends,"
and similar expressions are intended to identify forward-looking statements.
There are a number of important factors that could cause the Company's actual
results to differ materially from those indicated by such forward-looking
statements. These factors are set forth under the caption "Factors That May
Affect Results" in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, which "Factors That May Affect Results" discussion is
expressly incorporated by reference herein.
OVERVIEW
Millennium Pharmaceuticals, Inc. ("Millennium" or the "Company"), was
incorporated in January 1993 and is applying a comprehensive platform of
genomics and related technologies to pursue multiple opportunities in the
discovery and development of life-science-based products and services. Most of
the Company's activities currently are directed at the field of human
healthcare. As used herein, the terms "the Company" and "Millennium" include
the Company's subsidiaries where appropriate in the context.
RESULTS OF OPERATIONS
QUARTERS ENDED JUNE 30, 1998 AND JUNE 30, 1997
Revenue under strategic alliances increased to $28.2 million for the
three months ended June 30, 1998 (the "1998 Quarterly Period") from $13.4
million for the three months ended June 30, 1997 (the "1997 Quarterly Period").
The increase in revenue in the 1998 Quarterly Period is due primarily to
revenue from research funding and payments for technology transfer under the
Company's alliance with Monsanto Company (the "Monsanto alliance"). The
Monsanto alliance was entered into in October 1997 and, therefore, was not in
place in the 1997 Quarterly Period.
Research and development expenses increased to $28.0 million for the
1998 Quarterly Period from $18.3 million for the 1997 Quarterly Period. The
increase was attributable primarily to increased personnel expenses as the
Company hired additional research and development personnel, increased purchases
of laboratory supplies, and increased equipment depreciation and facilities
expenses in connection with the expansion of the Company's research efforts.
General and administrative expenses increased to $5.9 million for the
1998 Quarterly Period from $4.5 million for the 1997 Quarterly Period. The
increase was attributable primarily to increased personnel expenses as the
Company hired additional management, business
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development and administrative personnel, and to professional fees in
connection with the further expansion of the Company's operations.
The Company's total operating expenses increased to $34.6 million for
the 1998 Quarterly Period from $23.5 million for the 1997 Quarterly Period.
Interest income was $1.3 million for the 1998 Quarterly Period and $1.0
million for the 1997 Quarterly Period. The increase resulted from an increase in
the Company's average balance of cash, cash equivalents and marketable
securities. Interest expense increased to $.5 million for the 1998 Quarterly
Period from $.3 million for the 1997 Quarterly Period due to increased capital
lease obligations.
Minority interest represents the minority shareholder interest of Eli
Lilly and Company ("Lilly") in the net loss for the 1998 Quarterly Period of the
Company's majority-owned subsidiary, Millennium BioTherapeutics, Inc. ("MBio").
SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
Revenue under strategic alliances increased to $49.3 million for the
six months ended June 30, 1998 (the "1998 Six Month Period") from $24.3 million
for the six months ended June 30, 1997 (the "1997 Six Month Period"). The
increase is due primarily to revenue from research funding and the achievement
of mutually agreed upon technology transfer objectives relating to the Monsanto
alliance which was not in place during the 1997 Six Month Period. In addition,
revenue relating to MBio's alliance with Lilly during the 1998 Six Month Period
increased compared to the 1997 Six Month Period. The increase in revenues under
the alliance with Lilly is primarily due to the fact that the research program
with Lilly commenced late in the 1997 Six Month Period.
Research and development expenses increased to $50.5 million for the
1998 Six Month Period from $29.9 million for the 1997 Six Month Period. The
increase was attributable primarily to increased personnel expenses as the
Company hired additional research and development personnel, increased purchases
of laboratory supplies, and increased equipment depreciation and facilities
expenses in connection with the expansion of the Company's research efforts.
General and administrative expenses increased to $11.8 million for the
1998 Six Month Period from $7.9 million for the 1997 Six Month Period. The
increase was attributable primarily to increased personnel expenses as the
Company hired additional management, business development and administrative
personnel, and to professional fees in connection with the further expansion of
the Company's operations.
The Company's total operating expenses decreased to $63.7 million for
the 1998 Six Month Period from $122.6 million for the 1997 Six Month Period. The
decrease is primarily attributable to a one-time charge of $83.8 million in the
1997 Six Month Period for acquired in-process research and development
associated with the Company's acquisition of ChemGenics Pharmaceuticals, Inc.
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Interest income was $2.8 million for the 1998 Six Month Period compared
to $2.1 million for the 1997 Six Month Period. The increase resulted from an
increase in the Company's average balance of cash, cash equivalents and
marketable securities. Interest expense increased to $1.1 million for the 1998
Six Month Period from $.6 million for the 1997 Six Month Period due to increased
capital lease obligations.
Minority interest represents the minority shareholder interest of Lilly
in the net loss for the 1998 Six Month Period of the Company's majority owned
subsidiary, MBio.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has recognized approximately $201.8
million of revenue under strategic alliances. As of June 30, 1998, the Company
had approximately $74.6 million in cash, cash equivalents and marketable
securities. This excludes $9.8 million of marketable securities classified as
restricted cash and other assets on the balance sheet which serve as collateral
for the Company's letters of credit.
During the six months ended June 30, 1998, the Company used $17.9
million of cash in its operations, purchased $3.0 million of property and
equipment and used cash of $3.2 million to pay capital lease obligations. In
addition, during the six months ended June 30, 1998, the Company acquired
equipment under capital leases of $5.4 million.
The Company believes that existing cash and marketable securities and
anticipated cash payments from its strategic alliances will be sufficient to
support the Company's operations for the next twelve months.
IMPACT OF YEAR 2000
Based on a recent assessment, the Company determined that it will not
be required to modify or replace significant portions of its software so that
its computer systems will function properly with respect to dates in the year
2000 and thereafter. The Company's systems are based upon technology acquired in
the last few years. Therefore, the Company presently believes that no
significant modifications to existing software are needed based on presently
available information.
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1998 Annual Meeting of Stockholders was held on June 2, 1998
(the "Annual Meeting"). At the Annual Meeting, Eugene Cordes, Raju Kucherlapati
and Eric S. Lander were elected as Class II Directors for a three year term. The
other directors whose terms of office as a director continue after the meeting
are as follows: Mark J. Levin, Joshua Boger, A. Grant Heidrich and William W.
Helman.
The following is a summary of each matter voted at the meeting and the
number of votes cast for, against or withheld, and abstentions, as to each such
matter:
1. To elect three Class II Directors for the ensuing three years.
For: 22,948,522 Withheld: 15,020
2. To ratify the selection by the Board of Directors of Ernst & Young LLP as
the Company's independent auditors for 1998.
For: 22,943,092 Against: 10,850 Abstain: 9,600
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits listed in the Exhibit Index are included in this report.
(b) Reports on Form 8-K
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.
MILLENNIUM PHARMACEUTICALS, INC.
(Registrant)
Date: August 12, 1998 By: /s/ Janet C. Bush
----------------------------------
Janet C. Bush
Vice President, Finance
(Principal Financial Officer)
Date: August 12, 1998 By: /s/ William J. Curry
----------------------------------
William J. Curry
Controller
(Principal Accounting Officer)
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EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report on
Form 10-Q:
Exhibit
No. Description
- ------- -----------
10.1 Lease dated June 12, 1998 by and between the Company and 270
Albany Street Realty Trust.
10.2 Lease dated June 17, 1998 by and between the Company and
Transamerica Business Credit Corporation.
27.1 Financial Data Schedule for the quarter ended June 30, 1998
27.2 Restated Financial Data Schedule for the quarter ended
June 30, 1997
99.1 Pages 44 through 58 of the Company's Annual Report of Form
10-K for the year ended December 31, 1997, as filed with the
Securities Exchange Commission (which are deemed filed except
to the extent that portions are not expressly incorporated by
reference herein).
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