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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 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 0-19117
IMMULOGIC PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3397957
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
610 Lincoln Street, Waltham, MA 02451
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 466-6000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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 requirement for the past 90 days. Yes X No
Number of shares of $.01 par value common stock outstanding as of
August 5, 1998: 20,358,780
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IMMULOGIC PHARMACEUTICAL CORPORATION
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION Page No.
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Item 1. Unaudited Condensed Consolidated Financial Statements
and Notes
Unaudited Condensed Consolidated Balance Sheets 3
June 30, 1998 and December 31, 1997
Unaudited Condensed Consolidated Statements of Operations 4
Three and Six Months Ended June 30, 1998 and 1997
Unaudited Condensed Consolidated Statements of Cash Flows 5
Six Months Ended June 30, 1998 and 1997
Notes to Unaudited Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Matters 10
Item 6. Exhibits 11
Reports on Form 8-K 11
SIGNATURES 12
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
IMMULOGIC PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands)
JUNE 30, DECEMBER 31,
1998 1997
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ASSETS
Current assets:
Cash and cash equivalents $ 14,633 $ 8,437
Investments 11,672 19,068
Prepaid expenses and other current assets 601 561
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Total current assets 26,906 28,066
Property and equipment, net 5,709 6,685
Investments 22,669 24,788
Other assets 49 49
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Total assets $ 55,333 $ 59,588
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 284 $ 539
Deferred rent 823 1,016
Payroll and payroll taxes 422 1,796
Security deposit on sublease 500 --
Accrued expenses and other current liabilities 868 1,893
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Total current liabilities 2,897 5,244
Other long-term liabilities 275 325
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Total liabilities 3,172 5,569
Stockholders' equity:
Preferred stock - $.01 par value;
1,000,000 shares authorized; no shares issued
or outstanding -- --
Common stock - $.01 par value; 40,000,000 shares
authorized; 20,358,780 and 20,340,727 shares issued
and outstanding at June 30, 1998 and
December 31, 1997, respectively 204 203
Additional paid-in capital 185,284 185,250
Accumulated deficit (133,327) (131,434)
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Total stockholders' equity 52,161 54,019
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Total liabilities and stockholders' equity $ 55,333 $ 59,588
========= =========
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
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IMMULOGIC PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
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Revenues:
Sponsored research revenues $ 432 $ 368 $ 962 $ 920
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Total revenues 432 368 962 920
Operating expenses:
Research and development 1,321 5,113 2,808 10,004
General and administrative 513 1,396 1,380 4,284
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Total operating expenses 1,834 6,509 4,188 14,288
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Operating loss (1,402) (6,141) (3,226) (13,368)
Interest income 630 851 1,333 1,742
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Net loss $ (772) $(5,290) $(1,893) $(11,626)
======= ======= ======= ========
Basic and diluted net loss per
common share $ (0.04) $ (0.26) $ (0.09) $ (0.57)
======= ======= ======= ========
Weighted average number of
common shares outstanding 20,359 20,242 20,357 20,241
======= ======= ======= ========
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
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IMMULOGIC PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
SIX MONTHS ENDED
JUNE 30,
1998 1997
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Cash flows for operating activities:
Net loss $ (1,893) $(11,626)
Adjustments used to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 976 1,318
Employer 401K match 34 85
Change in assets and liabilities:
Prepaid and other current assets (40) (260)
Accounts payable (255) (53)
Sublease deposit 500 --
Other liabilities (2,641) (1,283)
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Total adjustments (1,426) (193)
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Net cash used in operating activities (3,319) (11,819)
Cash flows from investing activities:
Purchase of equipment and improvements -- (588)
Purchase of short term investments (13,320) (20,450)
Redemption of short term investments 20,716 20,525
Purchase of long term investments -- (4,002)
Redemption of long term investments 2,119 12,240
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Net cash provided by investing activities 9,515 7,725
Cash flows from financing activities:
Proceeds from exercise of stock options -- 6
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Net cash provided by financing activities -- 6
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Net increase (decrease) in cash and cash equivalents 6,196 (4,088)
Cash and cash equivalents, beginning of period 8,437 23,742
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Cash and cash equivalents, end of period $ 14,633 $ 19,654
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The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
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IMMULOGIC PHARMACEUTICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements reflect
all adjustments (consisting of only normally recurring adjustments) which are
necessary, in the opinion of management, for a fair presentation of results of
the interim periods presented. The statements do not include all information and
footnote disclosures required by generally accepted accounting principles and
therefore should be read in conjunction with the consolidated financial
statements and footnotes included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997. The results of operations and cash flows
for the interim periods presented are not necessarily indicative of the results
of operations and cash flows for the full fiscal year.
NOTE B - NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position (SOP
98-5), "Accounting for the cost of start-up activities". SOP 98-5 requires all
costs of start-up activities (as defined by the SOP) to be expensed as incurred.
The Company has determined that adoption of SOP 98-5 will have no impact on it's
consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
has determined that adoption of SFAS 133, which is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999, will have no impact on
its consolidated financial statements.
NOTE C - NET LOSS PER SHARE
Basic net loss per share is the same as diluted net loss per common share for
the three and six months ended June 30, 1998 and 1997, respectively. Certain
securities were not included in the computation of the Company's diluted
earnings per share for the three and six months ended June 30, 1998 and 1997,
respectively because they would have an anti-dilutive effect due to the
Company's net loss for each period. For the three and six months ended June 30,
1998 and 1997, these securities included 1,412,665 stock options and 3,012,093
stock options respectively.
NOTE D - SUBLEASE SECURITY DEPOSIT
During the first quarter of 1998, the Company received a security deposit in the
amount of $500,000 in accordance with the sublease agreement for its Waltham, MA
facility.
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NOTE E - LICENSE AGREEMENTS
During the second quarter of 1998, the Company signed an exclusive license
agreement, except in Japan, with Heska Corporation. The Company licensed the
worldwide exclusive rights, except in Japan, to develop and commercialize its
recombinant allergen technology for diagnosis, immunotherapy, and gene therapy
for both companion animals and humans. The Company may receive license fees,
milestone payments, and royalties for both veterinary and human applications.
The license is non-exclusive in Japan, where ImmuLogic licensed its recombinant
allergen technology for Japanese cedar on a non-exclusive basis to Sankyo Co.,
Ltd in May 1998. Total revenues recorded under these two agreements totaled
$200,000 for the period ending June 30, 1998.
NOTE F - SUBSEQUENT EVENT
In July 1998, the Company entered into an agreement with Chesapeake Biological
Laboratories Inc. for the latter to provide manufacturing services for the
Company's cocaine and nicotine vaccine products.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
Revenues for the second quarter of 1998 were $432,000 compared to $368,000 for
the second quarter of 1997. For the first six months of 1998, revenues were
$962,000 consisting primarily of sponsored research revenues from the National
Institute of Health (NIH) for a grant related to the research and development of
a cocaine vaccine and research funding from Schering AG, Germany (Schering)
related to a joint development and collaboration agreement in the Company's
multiple sclerosis program which ended as of March 31, 1998. For the first six
months of 1997, revenues were $920,000, consisting primarily of research funding
from Schering related to the aforementioned joint development and collaboration
agreement in the Company's multiple sclerosis program and research revenues from
the NIH.
OPERATING EXPENSES
Total operating expenses for the second quarter of 1998 decreased $4,675,000 or
71.8% to $1,834,000 as compared to the second quarter of 1997. On a year-to-date
basis, total expenses decreased by $10,100,000 or 70.7% to $4,188,000 as
compared to the first six months of 1997. The decrease in operating expenses in
both the three and six-month periods was primarily due to the Company's
restructuring which occurred during 1997. Specifically, reduced compensation and
related expenses as a result of lower headcount, the sublease of a portion of
the Company's facility and related savings and reduced expenditures for the
Company's discontinued ALLERVAX(R) CAT and RAGWEED programs contributed to the
savings.
INTEREST INCOME
Interest income for the second quarter of 1998 was $630,000 compared to $851,000
for the second quarter of 1997, a decrease of $221,000 or 26.0%. For the first
six months of 1998, interest income was $1,333,000 compared to $1,742,000 for
the first six months of 1997, a decrease of $409,000 or 23.5%. The decrease in
interest income for both the quarter and year-to-date periods resulted from a
lower available investment balance as compared to the prior year.
NET LOSS
The Company reported a net loss of $772,000 ($(0.04) per share) for the second
quarter of 1998 compared to a net loss of $5,290,000 ($(0.26) per share) for the
second quarter of 1997, a decrease of $4,518,000 or 85.4%. For the first six
months of 1998, the Company reported a net loss of $1,893,000 ($(0.09) per
share) compared to a net loss of $11,626,000 ($0.57) per share) for the
comparable 1997 period. The decrease in net loss in both the three and six-month
periods was primarily due to the Company's restructuring which occurred during
1997 offset in part by lower interest income as compared to the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and investments were $48,974,000 at June 30, 1998
compared to $52,293,000 at December 31, 1997. Net cash used in operations for
the six months ended June 30, 1998 was $3,319,000 as compared to $11,819,000 in
the comparable 1997 period. The decrease of $8,500,000 was due primarily to the
Company's restructuring which occurred during 1997. In addition, the Company
received a security deposit in the amount of $500,000 in accordance with the
sublease agreement for its Waltham, MA facility. Offsetting these savings was a
decrease in accounts
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payable and accrued expenses of $2,896,000 due to the payment of expenses
accrued as of December 31, 1997 and reduced interest income for the first six
months of 1998 as compared to prior year.
The Company has funded its operations to date primarily through the sale of
equity securities, sponsored research revenues, license payments, and earnings
on invested capital. The Company has expended substantial funds for the research
and development of its product candidates, and may in the future expend
substantial funds for further research and development of its product
candidates. The Company may seek to obtain additional funds for these purposes
through equity or debt financings, collaborative arrangements with corporate
partners, or from other sources. No assurance can be given that such additional
funds will be available to the Company for such purposes on acceptable terms, if
at all. Insufficient funds could require the Company to delay, scale back, or
eliminate certain of its research and development programs or to license third
parties to develop products or technologies that the Company would otherwise
develop itself. The Company anticipates that its existing capital resources will
enable it to maintain its current and planned operations through at least
December 31, 2000.
YEAR 2000
The Company is conducting a software review of products used both within the
Company and by third parties which assist the Company in managing its business
to ensure that the software will be "Year 2000" compliant. The Year 2000
problem is the result of computer programs being written to recognize two
digits rather than four to define the applicable year causing computer programs
to interpret a date using "00" as the year 1900 rather than the year 2000,
which could result in product failures or miscalculations. The Company is
undertaking actions to ensure that software used to manage its business will
continue to function properly in the year 2000. While the Company believes that
software used to manage its business operations will be Year 2000 compliant,
the Company may experience disruptions in its business operations as a result
of use by customers and suppliers of software that is not Year 2000 compliant.
There can be no assurance that Year 2000 problems will not be encountered or
that the costs incurred to resolve such problems will not be material.
NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position (SOP
98-5), "Accounting for the cost of start-up activities". SOP 98-5 requires all
costs of start-up activities (as defined by the SOP) to be expensed as incurred.
The Company has determined that adoption of SOP 98-5 will have no impact on it's
consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
has determined that adoption of SFAS 133, which is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999, will have no impact on
its consolidated financial statements.
FORWARD LOOKING STATEMENTS
This Quarterly 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 affect the future operating results
of the Company, including, without limitation, the factors set forth in the
preceding paragraph with respect to availability of funds and those set forth
under the heading "Factors Which May Affect Future Operating Results" and
elsewhere in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, as filed with the Securities and Exchange Commission, and the
information contained in this Quarterly Report on Form 10-Q should be read in
light of such factors.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
At the Annual Meeting of Stockholders held on June 17, 1998, the vote with
respect to the election of seven directors to the Board was as follows; C.
Garrison Fathman, M.D., 16,152,062 shares FOR and 331,364 shares WITHHELD;
Samuel C. Fleming, 16,156,604 shares FOR and 326,822 shares WITHHELD; Paul A.
Friedman, M.D., 16,157,012 shares FOR and 326,413 shares WITHHELD; Carl S.
Goldfischer, M.D., 16,148,642 shares FOR and 334,783 shares WITHHELD; Geraldine
A. Henwood, 16,148,862 shares FOR and 334,564 shares WITHHELD; J. Joseph Marr,
M.D., 16,146,609 shares FOR and 336,817 shares WITHHELD; and Richard F. Pops,
16,159,682 shares FOR and 323,743 shares WITHHELD. The vote with respect to
ratifying the selection of Price Waterhouse Coopers L.L.P. as the Company's
independent auditors for the current year was 16,366,142 shares FOR, 92,527
shares AGAINST and 24,757 shares ABSTAINING.
ITEM 5. OTHER INFORMATION
As set forth in the Company's Proxy Statement for its 1998 Annual Meeting of
Stockholders, stockholder proposals submitted pursuant to Rule 14a 8 under the
Exchange Act for inclusion in the Company's proxy materials for its 1999 Annual
Meeting of Stockholders must be received by the Secretary of the Company no
later than December 31, 1998.
In addition, in accordance with recent amendments to Rules 14a-4, 14a-5 and
14a-8 under the Exchange Act, written notice of stockholders proposals submitted
outside the processes of Rule 14a 8 for consideration at the 1999 Annual Meeting
of Stockholders must be received by the Company on or before March 20, 1999.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit:
Exhibit
Number Exhibit
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10.01* License Agreement With Heska Corporation
dated June 16, 1998
10.02* Clinical Supply and Process Development
Agreement with Chesapeake Biological
Laboratories, Inc. dated July 6, 1998
27 Financial Data Schedule
* Confidential Treatment requested as to certain portions
(b) Reports on Form 8-K: No Current Reports on Form 8-K were
filed during the quarter ended June 30,
1998.
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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.
IMMULOGIC PHARMACEUTICAL CORPORATION
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(Registrant)
Date: 8/13/98 /s/ J. Joseph Marr
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J. Joseph Marr, M.D.
Chief Operating Officer
Date: 8/13/98 /s/ J. Richard Crowley
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J. Richard Crowley
Chief Financial Officer
(Principal Financial and Accounting Officer)
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