1
UNITED STATES
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 December 31, 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 0-17999
ImmunoGen, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2726691
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
333 Providence Highway
Norwood, MA 02062
(Address of principal executive offices, including zip code)
(781) 769-4242
(Registrant's telephone number, including area code)
(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
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
At February 10, 1999 there were 25,495,219 shares of common stock, par
value $.01 per share, of the registrant outstanding.
Exhibit Index at Page: 17
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IMMUNOGEN, INC.
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
a. Condensed Consolidated Balance Sheets as of
December 31, 1998 and June 30, 1998................................ 3
b. Condensed Consolidated Statements of Operations
for the three months and six months ended December 31, 1998
and 1997........................................................... 4
c. Condensed Consolidated Statements of Stockholders' Equity for
the six months ended December 31, 1998 and the year ended
June 30, 1998...................................................... 5
d. Condensed Consolidated Statements of Cash Flows
for the six months ended December 31, 1998 and 1997................ 6
e. Notes to Condensed Consolidated Financial Statements............... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 10
Item 3. Quantitative and Qualitative Disclosure about Market Risk............. 17
PART II. OTHER INFORMATION..................................................... 17
SIGNATURES............................................................................ 19
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IMMUNOGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND JUNE 30, 1998
(Unaudited)
DECEMBER 31, JUNE 30,
1998 1998
------------------- --------------
ASSETS
Cash and cash equivalents $ 2,040,590 $ 1,741,825
Due from related party 874,056 915,473
Current portion of note receivable 1,022,935 960,000
Prepaids and other current assets 31,098 51,360
------------- -------------
Total current assets 3,968,679 3,668,658
------------- -------------
Property and equipment, net of accumulated depreciation 1,565,539 1,891,696
Note receivable -- 272,638
Other assets 43,700 43,700
------------- -------------
TOTAL ASSETS $ 5,577,918 $ 5,876,692
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 732,850 $ 699,418
Accrued compensation 108,549 225,126
Other current accrued liabilities 399,385 553,246
Current portion of deferred lease 52,756 52,756
------------- -------------
Total current liabilities 1,293,540 1,530,546
------------- -------------
Deferred lease 8,800 35,176
Stockholders' equity:
Preferred stock; $.01 par value; authorized 5,000,000 shares as of
December 31, 1998 and June 30, 1998:
Convertible preferred stock, Series E, $.01 par value; issued and
outstanding 2,400 and 1,200 shares as of December 31, 1998 and
June 30, 1998, respectively (liquidation preference-stated value) 24 12
Common stock, $.01 par value; authorized 50,000,000 shares as of
as of December 31, 1998 and June 30, 1998; issued and
outstanding 25,494,552 and 25,419,552 shares as of December 31,
1998 and June 30, 1998, respectively 254,945 254,195
Additional paid-in capital 156,842,558 152,782,585
Accumulated deficit (152,821,949) (148,725,822)
------------- -------------
Total stockholders' equity 4,275,578 4,310,970
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,577,918 $ 5,876,692
============= =============
The accompanying notes are an integral part of the
condensed consolidated financial statements.
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IMMUNOGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------- ------------------------------
1998 1997 1998 1997
-------------- ------------- ------------ ------------
REVENUES:
Development fees $ 157,623 $ 40,000 $ 262,295 $ 117,000
Interest 72,787 54,591 143,913 100,463
Licensing 300 942 828 1,539
------------ ------------ ------------ ------------
Total revenues 230,710 95,533 407,036 219,002
------------ ------------ ------------ ------------
EXPENSES:
Research and development 1,420,868 1,350,530 2,846,082 2,903,073
General and administrative 472,713 580,174 817,130 960,050
Other 986 1,414 2,428 2,969
------------ ------------ ------------ ------------
Total expenses 1,894,567 1,932,118 3,665,640 3,866,092
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (1,663,857) (1,836,585) (3,258,604) (3,647,090)
------------ ------------ ------------ ------------
Gain on sale of assets 1,000 2,900 4,200 2,900
Other income 333 -- 25,280 --
------------ ------------ ------------ ------------
NET LOSS BEFORE MINORITY INTEREST (1,662,524) (1,833,685) (3,229,124) (3,644,190)
------------ ------------ ------------ ------------
Minority interest in net loss of consolidated subsidiary (25,290) (37,282) (50,580) (64,887)
------------ ------------ ------------ ------------
NET LOSS (1,637,234) (1,796,403) (3,178,544) (3,579,303)
------------ ------------ ------------ ------------
Non-cash dividends on convertible preferred stock -- 400,327 917,583 411,880
------------ ------------ ------------ ------------
NET LOSS TO COMMON STOCKHOLDERS $ (1,637,234) $ (2,196,730) $ (4,096,127) $ (3,991,183)
============ ============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.06) $ (0.09) $ (0.16) $ (0.17)
============ ============ ============ ============
SHARES USED IN COMPUTING BASIC AND DILUTED
LOSS PER SHARE AMOUNTS 25,494,552 24,031,944 25,488,845 23,282,851
============ ============ ============ ============
The accompanying notes are an integral part of the
condensed consolidated financial statements.
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IMMUNOGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND THE YEAR ENDED JUNE 30, 1998
(Unaudited)
COMMON STOCK
-----------------------------------------------
ADDITIONAL
PAID-IN
SHARES AMOUNT CAPITAL
------------- -------------- --------------
BALANCE AT JUNE 30, 1997 21,779,767 $ 217,797 $ 139,260,550
============= ============= =============
Stock options exercised 114,302 1,143 101,728
Issuance of Common Stock in exchange
for shares of subsidiary 475,425 4,754 867,176
Conversion of Series A Convertible Preferred
Stock into Common Stock 1,347,491 13,475 2,209,764
Conversion of Series C Convertible Preferred
Stock into Common Stock 701,180 7,012 1,126,815
Conversion of Series D Convertible Preferred
Stock into Common Stock 1,001,387 10,014 1,303,287
Issuance of Series E Convertible Preferred
Stock, net of financing costs -- -- --
Value of Common Stock purchase
warrants issued -- -- 580,056
Value ascribed to ImmunoGen warrants
issued to BioChem, net of financing costs -- -- 4,870,088
Non-cash dividends on convertible preferred
stock -- -- --
Net loss for the year ended June 30, 1998 -- -- --
------------- ------------- -------------
BALANCE AT JUNE 30, 1998 25,419,552 $ 254,195 $ 150,319,464
============= ============= =============
Issuance of Series E Convertible Preferred
Stock, net of financing costs -- -- --
Issuance of Common Stock in exchange for
Series E Preferred Stock placement services 75,000 750 107,062
Value of Common Stock purchase
warrants issued -- -- 917,583
Compensation for stock option vesting
acceleration -- -- 13,275
Value ascribed to ImmunoGen warrants
issued to BioChem, net of financing costs -- -- 1,634,672
Non-cash dividends on convertible preferred
stock -- -- --
Net loss for the six months ended
December 31, 1998 -- -- --
------------- ------------- -------------
BALANCE AT DECEMBER 31, 1998 25,494,552 $ 254,945 $ 152,992,056
============= ============= =============
PREFERRED STOCK
------------------------------------------------
ADDITIONAL
PAID-IN
SHARES AMOUNT CAPITAL
------------- ---------------- -------------
BALANCE AT JUNE 30, 1997 2,800 $ 28 $ 5,492,988
============= ============= =============
Stock options exercised -- -- --
Issuance of Common Stock in exchange
for shares of subsidiary -- -- --
Conversion of Series A Convertible Preferred
Stock into Common Stock (1,100) (11) (2,089,817)
Conversion of Series C Convertible Preferred
Stock into Common Stock (700) (7) (1,101,334)
Conversion of Series D Convertible Preferred
Stock into Common Stock (1,000) (10) (1,287,092)
Issuance of Series E Convertible Preferred
Stock, net of financing costs 1,200 12 1,448,376
Value of Common Stock purchase
warrants issued -- -- --
Value ascribed to ImmunoGen warrants
issued to BioChem, net of financing costs -- -- --
Non-cash dividends on convertible preferred
stock -- -- --
Net loss for the year ended June 30, 1998 -- -- --
------------- ------------- -------------
BALANCE AT JUNE 30, 1998 1,200 $ 12 $ 2,463,121
============= ============= =============
Issuance of Series E Convertible Preferred
Stock, net of financing costs 1,200 12 1,495,193
Issuance of Common Stock in exchange for
Series E Preferred Stock placement services -- -- (107,812)
Value of Common Stock purchase
warrants issued -- -- --
Compensation for stock option vesting
acceleration -- -- --
Value ascribed to ImmunoGen warrants
issued to BioChem, net of financing costs -- -- --
Non-cash dividends on convertible preferred
stock -- -- --
Net loss for the six months ended
December 31, 1998 -- -- --
------------- ------------- -------------
BALANCE AT DECEMBER 31, 1998 2,400 $ 24 $ 3,850,502
============= ============= =============
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
-------------- -------------
BALANCE AT JUNE 30, 1997 ($140,509,406) $ 4,461,957
============= =============
Stock options exercised -- 102,871
Issuance of Common Stock in exchange
for shares of subsidiary -- 871,930
Conversion of Series A Convertible Preferred
Stock into Common Stock -- 133,411
Conversion of Series C Convertible Preferred
Stock into Common Stock -- 32,486
Conversion of Series D Convertible Preferred
Stock into Common Stock -- 26,199
Issuance of Series E Convertible Preferred
Stock, net of financing costs -- 1,448,388
Value of Common Stock purchase
warrants issued -- 580,056
Value ascribed to ImmunoGen warrants
issued to BioChem, net of financing costs -- 4,870,088
Non-cash dividends on convertible preferred
stock (605,479) (605,479)
Net loss for the year ended June 30, 1998 (7,610,937) (7,610,937)
------------- -------------
BALANCE AT JUNE 30, 1998 ($148,725,822) $ 4,310,970
============= =============
Issuance of Series E Convertible Preferred
Stock, net of financing costs -- 1,495,205
Issuance of Common Stock in exchange for
Series E Preferred Stock placement services -- --
Value of Common Stock purchase
warrants issued -- 917,583
Compensation for stock option vesting
acceleration -- 13,275
Value ascribed to ImmunoGen warrants
issued to BioChem, net of financing costs -- 1,634,672
Non-cash dividends on convertible preferred
stock (917,583) (917,583)
Net loss for the six months ended
December 31, 1998 (3,178,544) (3,178,544)
------------- -------------
BALANCE AT DECEMBER 31, 1998 ($152,821,949) $ 4,275,578
============= =============
The accompanying notes are an integral part of the
condensed consolidated financial statements.
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IMMUNOGEN, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Unaudited)
SIX MONTHS ENDED DECEMBER 31,
------------------------------
1998 1997
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,096,127) $(3,991,183)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization 334,657 627,447
Gain on sale of property and equipment (4,200) (2,900)
Accretion of interest on note receivable (50,297) (51,950)
Compensation for stock option vesting acceleration 13,275 --
Non-cash dividend on convertible preferred stock 917,583 411,880
Minority interest in net loss of consolidated subsidiary (50,580) (64,887)
Amortization of deferred lease (26,376) (34,290)
Changes in operating assets and liabilities:
Due from related party 41,417 --
Prepaids and other current assets 20,262 476,055
Accounts payable 33,432 183,467
Accrued compensation (116,577) (74,888)
Other accrued liabilities (153,861) (88,334)
----------- -----------
Net cash used for operating activities (3,137,392) (2,609,583)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (8,500) --
Payment received on note receivable 260,000 --
Proceeds from sale of property and equipment 4,200 2,900
----------- -----------
Net cash provided by investing activities 255,700 2,900
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible preferred stock, net 1,495,205 986,908
Proceeds from issuance of subsidiary convertible preferred stock, net 1,685,252 2,540,626
Principal payments on capital lease obligations -- (37,068)
----------- -----------
Net cash provided by financing activities 3,180,457 3,490,466
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 298,765 883,783
----------- -----------
CASH AND CASH EQUIVALENTS, BEGINNING BALANCE 1,741,825 1,669,050
----------- -----------
CASH AND CASH EQUIVALENTS, ENDING BALANCE $ 2,040,590 $ 2,552,833
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Conversion of Series A Preferred Stock to Common Stock $ -- $ 1,709,859
=========== ===========
Conversion of Series C Preferred Stock to Common Stock $ -- $ 1,101,341
=========== ===========
Conversion of Series D Preferred Stock to Common Stock $ -- $ 1,287,102
=========== ===========
Due from related party for quarterly investment payment $ 843,000 $ 843,000
=========== ===========
Minority interest $ 50,580 $ 106,140
=========== ===========
The accompanying notes are an integral part
of the condensed consolidated financial statements.
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IMMUNOGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
ImmunoGen, Inc. ("ImmunoGen" or the "Company") was incorporated in
Massachusetts in 1981 to develop, produce and market commercial anti-cancer and
other pharmaceuticals based on molecular immunology. The Company continues the
research and development of its various products and technologies, and expects
no revenues to be derived from pharmaceutical product sales in the foreseeable
future.
In February, 1999, subsequent to the balance sheet date, the Company
entered into an exclusive license agreement with SmithKline Beecham Plc,
London/SmithKline Beecham, Philadelphia ("SmithKline") to develop and
commercialize ImmunoGen's lead tumor activated prodrug ("TAP"), huC242-DM1.
Under the terms of the agreement, in addition to royalty payments on future
product sales, if any, the Company could receive up to $41.5 million in up-front
cash and milestone payments, subject to the achievement by the Company of
certain milestones. Additionally, at ImmunoGen's option, SmithKline will
purchase up to $5.0 million of ImmunoGen Common Stock over the next two years,
subject to certain conditions (see note B).
The Company has been unprofitable since inception and expects to incur
net losses over the next several years. As of December 31, 1998, the Company's
cash resources were approximately $2.0 million. In January 1999, the Company
received an additional $1.2 million as follows: $350,000 was received as payment
on the note receivable from the assignee of one of the Company's facilities and
$865,000 was received by the Company's majority-owned subsidiary, Apoptosis
Technology, Inc. ("ATI"), from its collaborator, BioChem Pharma Inc., a Canadian
biopharmaceutical company ("BioChem"), with respect to BioChem's quarterly
investment of $843,000 plus certain reimbursable expenses. The Company
anticipates that its existing capital resources, which includes the $1.2 million
received subsequent to December 31, 1998, and a $1.0 million cash payment
expected to be received under the SmithKline agreement in the quarter ended
March 31, 1999, will enable the Company to maintain its current and planned
operations through the end of fiscal year 1999. If the Company is unable to meet
some or all of the specific terms and conditions as set forth within the
SmithKline agreement, it may be required to seek alternative financing
arrangements, or be required to further curtail or discontinue its operations.
The financial statements do not include any adjustments that may result from the
discontinuance of operations.
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The Company is subject to risks common to companies in the
biotechnology industry including, but not limited to, the development by the
Company or its competitors of new technological innovations, dependence on key
personnel, protection of proprietary technology, manufacturing and marketing
limitations, collaboration arrangements, third-party reimbursements, the need to
obtain additional funding, and compliance with governmental regulations.
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements at
December 31, 1998 and June 30, 1998 and for the three months and six months
ended December 31, 1998 and 1997 include the accounts of the Company and its
subsidiaries, ImmunoGen Securities Corp. and ATI. Although the condensed
consolidated financial statements are unaudited, they include all of the
adjustments, consisting only of normal recurring adjustments, which management
considers necessary for a fair presentation of the Company's financial position
in accordance with generally accepted accounting principles for interim
financial information. Certain information and footnote disclosures normally
included in the Company's annual financial statements have been condensed or
omitted. The preparation of interim financial statements requires the use of
management's estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the interim financial statements and the reported amounts of
revenues and expenditures during the reported period. The Company has been
unprofitable since inception and expects to incur a net loss for the fiscal year
ended June 30, 1999. The results of the interim periods are not necessarily
indicative of the results for the entire year. Accordingly, the interim
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 June 30, 1998.
COMPUTATION OF LOSS PER COMMON SHARE
Basic and diluted earnings per share is calculated based upon the
weighted average number of common shares outstanding during the period. Diluted
earnings per share incorporates the dilutive effect of stock options, warrants
and other convertible securities. As of December 31, 1998 and 1997, the total
number of stock options, warrants and other securities convertible into Common
Stock equaled 12,435,690 and 9,252,534, respectively. Common stock equivalents,
as calculated in accordance with the treasury-stock accounting method, totaled
2,798,286 and 1,400,360 as of December 31, 1998 and 1997, respectively. Common
stock equivalents have not been included in the per share calculation because
their effect is antidilutive.
B. SUBSEQUENT EVENT
In February 1999, the Company entered into an exclusive license
agreement with SmithKline to jointly develop and commercialize the Company's
lead anti-cancer tumor-activated prodrug, huC242-DM1. In addition to royalty
payments on future product sales, if any, the SmithKline agreement is
anticipated to provide up to $41.5 million in up-front cash and milestone
payments.
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The agreement also provides for an equity investment in the Company by
SmithKline of up to an additional $5.0 million, at the Company's option, subject
to the achievement by the Company of certain milestones. The Company will be
responsible for the product's initial assessment in humans, which is expected to
begin in the second half of calendar year 1999.
C. MINORITY INTEREST
In July 1997, ATI entered into a collaboration agreement with BioChem
(the "BioChem Agreement"). The BioChem Agreement grants BioChem an exclusive
worldwide license to ATI's proprietary screens based on two families of proteins
involved in apoptosis, for use in identifying leads for anti-cancer drug
development.
Under the BioChem Agreement, BioChem will invest a total of $11,125,000
in non-voting, non-dividend-bearing convertible preferred stock of ATI in a
series of private placements over an initial three-year research term. Proceeds
are to be used exclusively to support the research and development activities of
the collaboration. The BioChem Agreement also establishes certain restrictions
on the transferability of assets between ATI and the Company. As of December 31,
1998, BioChem had invested $6,910,000, of which $6,067,000 had been received and
$843,000 remained outstanding and included within the asset entitled "due from
related party" on the condensed consolidated balance sheet. As previously noted,
the outstanding $843,000 payment was received in January 1999. The remaining
$4,215,000 balance of the investment will be paid in equal quarterly
installments of $843,000 through July 2000. The preferred stock issued to
BioChem is convertible into ATI common stock at any time after three years from
the first date of issuance, at a conversion price equal to the then current
market price of the ATI common stock, but in any event at a price that will
result in BioChem acquiring at least 15% of the then outstanding ATI common
stock. Through December 31, 1998, 6,910 shares of ATI preferred stock were
issued or issuable to BioChem, representing a 9.3% minority interest (on an
if-converted and fully-diluted basis) in the net equity of ATI. This minority
interest portion of ATI's loss reduced ImmunoGen's net loss for the quarters
ended December 31, 1998 and 1997 by $25,290 and $37,282, respectively. Based
upon an independent appraisal, approximately 3% of the $6,910,000 invested to
date, or approximately $207,000, has been allocated to the minority interest in
ATI, with the remainder, or approximately $6,703,000, allocated to the Company's
equity. Under the BioChem agreement, the research term may be extended beyond
the initial three-year term, on terms substantially similar to those for the
original term. BioChem will also make milestone payments up to $15.0 million for
each product over the course of its development. In addition, if and when
product sales commence, ATI will receive royalties on any future worldwide sales
of products resulting from the collaboration. BioChem's obligation to provide
additional financing to ATI each quarter is subject to satisfaction of special
conditions, including a condition that ATI maintain sufficient cash and other
resources to allow it to continue its planned operations (other than performance
of its obligations under the research agreement) for a minimum period of time.
Of the Company's total $2.0 million in cash and cash equivalents as of December
31, 1998, $1.6 million represents cash and cash equivalents restricted to fund
ATI's research and administrative expenditures.
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As part of the BioChem Agreement with ATI, BioChem also receives
warrants to purchase shares of ImmunoGen Common Stock equal to the amount
invested in ATI during the three-year research term. These warrants will be
exercisable for a number of shares of ImmunoGen Common Stock determined by
dividing the amount of BioChem's investment in ATI by the market price of
ImmunoGen Common Stock on the exercise date, subject to certain limitations
imposed by the Nasdaq Stock Market rules which limit the sale or issuance by an
issuer of certain securities at a price less than the greater of book or market
value. Consequently, BioChem's ability to convert all of its ImmunoGen warrants
into ImmunoGen Common Stock is limited to a total of 20% of the number of shares
of ImmunoGen's Common Stock outstanding on the date of the initial transaction
to the extent that the conversion price would be less than the market price of
the Common Stock on that date, unless stockholder approval for such conversion
is obtained, if required, or unless the Company has obtained a waiver of that
requirement. The exercise price is payable in cash or shares of ATI's preferred
stock, at BioChem's option. The warrants are expected to be exercised only in
the event that the shares of ATI common stock do not become publicly traded. In
such event, ImmunoGen expects that BioChem will use its shares of ATI preferred
stock, in lieu of cash, to exercise the warrants.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
OVERVIEW
Since inception, the Company has been principally engaged in the
research and development of immunoconjugate products which the Company believes
have significant commercial potential as human therapeutics. ATI focuses its
efforts on the discovery and development of anti-cancer and anti-viral
therapeutics based upon regulation of programmed cell death, or apoptosis. Since
July 1, 1997, the Company's primary sources of working capital have been the
proceeds from convertible equity financing, federally-sponsored development
grants and income earned on invested assets.
In July 1997, ATI began a three-year research and development
collaboration with BioChem. This collaboration has provided and will continue to
provide significant funding for ATI's operations. The collaboration also
provides for significant milestone and royalty payments for any developed
products. Such funding for ATI's operations will initially continue through July
2000.
In February 1999, the Company entered into an exclusive license
agreement with SmithKline (the "SmithKline Agreement") to jointly develop and
commercialize the Company's lead anti-cancer tumor-activated prodrug,
huC242-DM1. In preclinical studies, the Company has shown that huC242-DM1 is
active against colorectal, pancreatic and non-small cell lung cancers. Under the
SmithKline Agreement, the Company could receive up to a total of $41.5 million
in up-front and cash-based milestone payments, as well as royalties paid on
future product sales, if any. The SmithKline Agreement also provides for an
equity investment in the Company by SmithKline of
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up to an additional $5.0 million, at the Company's option, subject to the
achievement by the Company of certain milestones. The Company will be
responsible for conducting the product's initial assessment in humans, which is
expected to begin in the second half of calendar year 1999.
To date, the Company has not generated revenues from product sales and
expects to incur significant operating losses for the foreseeable future. The
Company anticipates that its existing capital resources, which include a $1.0
million cash payment expected to be received under the SmithKline Agreement in
the quarter ended March 31, 1999, will enable the Company to maintain its
current and planned operations through the end of fiscal year 1999. Moreover,
the Company believes that the SmithKline Agreement, while subject to the
achievement by the Company of certain milestones, is expected to provide
sufficient cash-based milestone payments and equity investments to allow current
and planned operations to continue beyond the next fiscal year. However, no
assurances can be given that such milestones will in fact be realized. If the
Company is unable to meet some or all of the terms and conditions in the
SmithKline Agreement, it may be required to pursue alternative financing
arrangements, or be required to further curtail or discontinue its operations.
RESULTS OF OPERATIONS
Three months ended December 31, 1998 and 1997
Net loss from operations totaled $1.7 million for the second quarter of
fiscal 1999, representing a 9% decrease from the $1.8 million net loss from
operations for the second quarter of fiscal 1998. The Company continues to
effectively manage its ongoing operational expenditures. However, future costs
are expected to significantly increase as the Company completes preclinical work
on its huC242-DM1 product candidate and prepares to submit an Investigational
New Drug application to the FDA, which could occur as early as the second
quarter of calendar year 1999.
Total revenues for the second quarter of fiscal 1999 were $231,000, an
increase of $135,000, or 141%, from the same quarter ended in fiscal 1998. In
both periods, total revenue was derived almost entirely from two sources:
development fees received, on a cost reimbursement basis, under the
federally-sponsored Small Business Innovation Research Program ("SBIR") program;
and interest income. Specifically, for the three months ended December 31, 1998,
total revenues consisted of $158,000 in SBIR revenue and $73,000 in interest
income. The Company's revenue for the three months ended December 31, 1997 was
comprised of $40,000 in SBIR grant revenue and $55,000 in interest income. The
increase in SBIR revenue resulted from additional reimbursable TAP development
expenditures incurred through the three-month period ended December 31, 1998, as
compared to the three-month period ended December 31, 1997. Interest income in
both periods includes interest earned on cash balances available for investment,
and to a lesser extent, interest earned on a note receivable from an assignee of
one of the Company's facilities. The increase in total interest income from the
second quarter of fiscal 1998 to the same period in fiscal 1999 is directly
attributable to increases in the average daily invested cash balances.
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Research and development expenses increased 5%, to $1.42 million, for
the three months ended December 31, 1998 from $1.35 million for the three months
ended December 31, 1997. The increase is due primarily to the additional costs
associated with the further development of huC242-DM1, offset by a decrease in
depreciation expense for the three-month period ended December 31, 1998.
General and administration expenses decreased 19%, to $473,000, for the
three months ended December 31, 1998, from $580,000 for the three months ended
December 31, 1997. The decrease was due primarily to reduced depreciation
expense and decreases in legal and financing activities incurred in the second
quarter of fiscal 1999. General and administration costs are not expected to
substantially increase through the remainder of fiscal 1999.
ATI operating losses of $25,000 and $37,000 for the quarters ended
December 31, 1998 and 1997, respectively, were allocated to ATI's minority
stockholder within the Company's condensed consolidated financial statements.
In connection with the December 1997 sale of 800 shares of Series E
Convertible Preferred Stock ("Series E Stock"), 941,176 warrants to purchase
Common Stock were issued to an institutional investor. The value of the
warrants, approximately $390,000, was determined at the time of their issuance
and accounted for as a non-cash dividend on convertible preferred stock. Other
non-cash dividends accrued in the three-month period ended December 31, 1997,
totaling $10,000, represented dividends earned on the then outstanding dividend
bearing convertible preferred stock.
Six months ended December 31, 1998 and 1997
Net loss from operations totaled $3.3 million for the first six months
of fiscal 1999, representing a 11% decrease from the $3.6 million net loss from
operations for the first six months of fiscal 1998. Total revenues for the six
month period ended December 31, 1998 were $407,000, an increase of $188,000, or
86%, from the same six-month period ended December 31, 1997. In both periods,
total revenue was primarily derived from development fees received under the
SBIR program. Specifically, for the six months ended December 31, 1998, total
revenues consisted of $262,000 in SBIR revenue and $144,000 in interest income.
The Company's revenue for the six months ended December 31, 1997 was comprised
of $117,000 in SBIR grant revenue and $100,000 in interest income. The increase
in SBIR revenue resulted from additional reimbursable TAP development
expenditures incurred through the six-month period ended December 31, 1998 as
compared to the six months ended December 31, 1997. Interest income in both
periods includes interest earned on cash balances available for investment and,
to a lesser extent, interest earned on a note receivable from an assignee of one
of the Company's facilities. The increase in total interest income from the
first half of fiscal 1998 to the same period in fiscal 1999 is directly
attributable to increases in the average daily invested cash balances.
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Research and development expenses remained consistent at approximately
$2.9 million. Although reduced depreciation expense and staffing levels provided
for a reduction in total research and development spending over the six-month
period ended December 31, 1998, the total savings was offset by increased costs
associated with the further development of huC242-DM1.
General and administration expenses decreased 15% to $817,000 for the
six months ended December 31, 1998 from $960,000 for the six months ended
December 31, 1997. The decrease is primarily related to reduced depreciation
expense and reduced legal and financing related expenditures.
Non-operating income of $30,000 for the six months ended December 31,
1998 was primarily comprised of prior period, retroactive insurance rate
adjustments and, to a lesser extent, gains on the sales of idle assets. For the
six-month period ended December 31, 1997, no such rate settlements occurred;
however, the Company did realize an immaterial gain on the sale of assets.
ATI operating losses of $51,000 and $65,000 for the six months ended
December 31, 1998 and 1997, respectively, were allocated to ATI's minority
stockholder within the Company's condensed consolidated financial statements.
In connection with the December 1997 sale of 800 shares of Series E
Stock, 941,176 warrants to purchase Common Stock were issued to an institutional
investor. The value of the warrants, approximately $390,000, was determined at
the time of their issuance and accounted for as a non-cash dividend on
convertible preferred stock. Other non-cash dividends accrued in the six-month
period ended December 31, 1997, totaling $22,000, represented dividends earned
on the then outstanding convertible preferred stock.
In July 1998, 1,200 shares of Series E Stock were sold to an
institutional investor for an aggregate of $1.5 million. In connection with the
sale of preferred stock, warrants for approximately 1.4 million shares of
ImmunoGen Common Stock were also issued. The value of these warrants, $918,000
was recorded as non-cash dividends on convertible preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
Since July 1, 1997, the Company has financed its cumulative operating
deficit of approximately $9.1 million, exclusive of non-cash charges, from
various sources, including issuances of convertible equity securities, SBIR
grant support, amounts received from the assignment of facilities and equipment,
income earned on invested assets and, to a lesser extent, proceeds from
exercised stock options.
Subsequent to December 31, 1998, the Company received an additional
$1.2 million, as follows: $350,000 was received as payment on the note
receivable from the assignee of one of the Company's facilities, and $865,000
was received by ATI from BioChem with respect to BioChem's
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quarterly investment of $843,000 plus certain reimbursable expenses.
Substantially all cash expended for operations for the six months ended
December 31, 1998 was used in supporting the Company's various research and
development activities. In addition to funding the net loss of $2.9 million for
the six months ended December 31, 1998, exclusive of the non-cash dividends,
depreciation and amortization charges, operating cash of approximately $269,000
was used for payment of accrued compensation and other accrued liabilities.
No material amounts were expended on capital purchases for the
six-month period ended December 31, 1998. The Company does not anticipate
significant expenditures on property and equipment through the remainder of
fiscal 1999.
In July 1998, the Company sold 1,200 shares of Series E Stock for an
aggregate of $1.5 million. Proceeds were used to fund working capital. The sale
represented the final installment under a December 1997 agreement, as amended,
to sell $3.0 million in Series E Stock to an institutional investor. Under the
terms of the agreement, in addition to the 1,200 shares of Series E Stock, the
institutional investor also received warrants to purchase 1,411,764 shares of
Common Stock. These warrants expire in 2005 and are exercisable after a two-year
holding period, subject to certain provisions, at $2.125 per share. Also in
connection with the final phase of the Series E Stock sale, 75,000 shares of
Common Stock were issued to a third party as a finder's fee.
From July 1, 1998 to December 31, 1998, an aggregate of $1.7 million
was received from BioChem with respect to the June 30, 1998 and the September
30, 1998 quarterly investments. As previously described, in January 1999,
another $843,000 payment was received as payment of the December 1998 quarterly
investment.
The Company anticipates that its existing capital resources, which
includes the $1.2 million received subsequent to December 31, 1998, and a $1.0
million cash payment expected to be received under the SmithKline Agreement in
the quarter ended March 31, 1999, will enable the Company to maintain its
current and planned operations through the end of fiscal year 1999. Moreover,
the Company believes that the SmithKline Agreement, while subject to the
achievement of certain milestones, will provide sufficient milestone and equity
payments to allow current and planned operations to continue beyond the next
fiscal year. However, no assurances can be given that such milestones will in
fact be realized. If the Company is unable to achieve some or all of the
milestones in connection with the SmithKline Agreement, it could be required to
seek alternative financing arrangements or further scale back or discontinue its
planned operations.
YEAR 2000 ISSUES
Many computer systems were not designed to handle any dates beyond the
year 1999; therefore, computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional; this is the so-called
"Year 2000" problem. Because the Company utlilzes commercially produced
software, for which Year 2000 compliant upgrades are available and will
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be integrated, the Company does not believe that it has material exposure with
respect to its own Year 2000 issues. Although considered unlikely, the failure
by the Company to convert its systems on a timely basis, or a conversion by the
Company that is incompatible with other information systems, could have a
material effect on its business, financial condition and results of operations.
The Company has sent questionnaires to its currently engaged third-party
suppliers, vendors, administrators and custodians, inquiring of their progress
in identifying and addressing Year 2000 problems. Based upon information
contained in responses received to date, the Company believes that Year 2000
issues have been or will be addressed by the Company's vendors by the end of
calendar year 1999. Should a vendor not be able to overcome its Year 2000 system
issues, the Company believes that appropriate, alternative vendors are readily
available. Though not considered likely, the failure of a major supplier or
vendor with Year 2000 problems to convert its systems on a timely basis, or a
conversion that is incompatible with the Company's information systems, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company, in conjunction with its information systems consultant,
has performed an evaluation of the impact of the Year 2000 issues on the
Company's information systems and has initiated the modification and/or
replacement of certain accounting and administration software applications such
that dates beyond June 30, 1999, the beginning of the Company's fiscal year
2000, will be appropriately recognized. The Company will be upgrading systems
with commercially produced, Year 2000-compliant software applications and
estimates that expenditures related to the Year 2000 evaluation and remediation
will not be material. All remediations are planned to be completed before the
end of fiscal year 1999, with all such Year 2000 expenditures recorded in
accordance with the Company's capitalization policy or otherwise expensed as
incurred.
CERTAIN FACTS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
This report contains forward-looking statements as that term is defined
in the Private Securities Litigation Reform Act of 1995. Such statements are
based on management's current expectations and are subject to a number of
factors and uncertainties which could cause actual results to differ materially
from those described in the forward-looking statements. The Company cautions
investors that there can be no assurances that actual results or business
conditions will not differ materially from those projected or suggested in such
forward-looking statements as a result of various factors, including, but not
limited to, the following: the Company's history of operating losses and
accumulated deficit; the Company's limited financial resources and uncertainty
as to the availability of additional capital to fund its development on
acceptable terms, if at all; the uncertainties associated with preclinical
studies and clinical trials; the early stage of the Company's initial product
development and lack of product revenues; the Company's lack of commercial
sales, distribution and marketing capabilities; reliance on suppliers of
antibodies necessary for production of the products and technologies; the
potential development of competitors of competing products and technologies; the
Company's dependence on existing and potential collaborative partners, and the
lack of assurance that the Company will receive any funding under such
relationships to develop and maintain strategic alliances; governmental
regulation of the Company's activities, facilities,
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products and personnel; the dependence on key personnel; uncertainties as to the
extent of reimbursement for the costs of the Company's potential products and
related treatment by government and private health insurers and other
organizations; the potential adverse impact of government-directed health care
reform; the risk of product liability claims; and economic conditions, both
generally and those specifically related to the biotechnology industry. As a
result, the Company's future development efforts involve a high degree of risk.
For further information, refer to the more specific risks and uncertainties
discussed throughout the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1998 as filed with the Securities and Exchange Commission.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
PART II.
Item 1. Legal Proceedings.
The Company is not a party to any material legal proceedings.
Item 2. Changes in Securities and Use of Proceeds.
In July 1997, the Company's majority-owned subsidiary, Apoptosis
Technology, Inc. ("ATI"), entered into a collaboration with a
biopharmaceutical company. As part of the agreement, the collaborator
receives warrants to purchase shares of ImmunoGen Common Stock equal to
the amount invested in ATI by the collaborator during a three-year
research term. These warrants will be exercisable at any time on or
after July 31, 2000, until and including July 31, 2002, into a number
of shares of ImmunoGen Common Stock determined by dividing the amount
invested in ATI by the market price of the ImmunoGen Common Stock on
the exercise date, subject to certain limitations. On each of October
6, 1998 and January 13, 1999, investments of $843,000 were made in ATI
and warrants corresponding to those amounts were issued in connection
with such investments.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Form of Warrant Certificate issued by the Registrant
to BioChem Pharma Inc. (previously filed as exhibit
10.5 to, and incorporated herein by reference from,
the Registrant's Registration Statement on Form 10-Q,
as amended by form 10-Q/A, for the quarter ended
September 30, 1997)
10.2 License Agreement dated February 1, 1999 between the
Registrant and
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SmithKline Beecham Corporation (a confidential
treatment request has been filed with the Commission
with respect to this document)
10.3 Stock Purchase Agreement dated February 1, 1999
between the Registrant and SmithKline Beecham Plc (a
confidential treatment request has been filed with
the Commission with respect to this document)
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
Form 8-K dated February 3, 1999 - Item 5: Other Events. The
Company announced the signing of a $45 million agreement
between the Registrant and SmithKline Beecham Plc, London
/SmithKline Beecham, Philadelphia for the development and
commercialization of huC242-DM1.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
IMMUNOGEN, INC.
DATE: FEBRUARY 16, 1999 BY: /S/ MITCHEL SAYARE
-------------------------------
MITCHEL SAYARE
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
DATE: FEBRUARY 16, 1999 BY: /S/ KATHLEEN A. CARROLL
-------------------------------
KATHLEEN A. CARROLL
VICE PRESIDENT,
FINANCE AND ADMINISTRATION
(PRINCIPAL FINANCIAL OFFICER)
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