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 March 31, 1999
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 May 10, 1999 there were 25,556,803 shares of common stock, par value
$.01 per share, of the registrant outstanding.
Exhibit Index at Page: 20
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IMMUNOGEN, INC.
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
a. Condensed Consolidated Balance Sheets as of
March 31, 1999 and June 30, 1998.................................. 3
b. Condensed Consolidated Statements of Operations for the three
months and the nine months ended March 31, 1999 and 1998 ......... 4
c. Condensed Consolidated Statements of Stockholders' Equity for
the year ended June 30, 1998 and the nine months ended
March 31, 1999.................................................... 5
d. Condensed Consolidated Statements of Cash Flows
for the nine months ended March 31, 1999 and 1998................. 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 March 31, 1999 and June 30, 1998
(Unaudited)
MARCH 31, JUNE 30,
1999 1998
------------- -------------
ASSETS
Cash and cash equivalents $ 2,841,445 $ 1,741,825
Due from related party 862,426 915,473
Current portion of note receivable 690,077 960,000
Prepaids and other current assets 56,719 51,360
------------- -------------
Total current assets 4,450,667 3,668,658
------------- -------------
Property and equipment, net of accumulated depreciation 1,492,967 1,891,696
Note receivable - 272,638
Other assets 43,700 43,700
------------- -------------
TOTAL ASSETS $ 5,987,334 $ 5,876,692
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 713,728 $ 699,418
Accrued compensation 171,061 225,126
Other current accrued liabilities 499,770 553,246
Current portion of capital lease obligation 7,769 -
Current portion of deferred lease 48,360 52,756
------------- -------------
Total current liabilities 1,440,688 1,530,546
------------- -------------
Capital lease obligation 19,735 -
Deferred lease - 35,176
------------- -------------
TOTAL LIABILITIES 1,460,423 1,565,722
------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock; $.01 par value; authorized 5,000,000 shares as of March
31, 1999 and June 30, 1998: Convertible preferred stock, Series E,
$.01 par value; issued and outstanding 2,400 and 1,200 shares as of
March 31, 1999 and June 30, 1998, respectively (liquidation
preference-stated value) 24 12
Common stock; $.01 par value; authorized 50,000,000 shares as of
March 31, 1999 and June 30, 1998; issued and outstanding 25,546,303
and 25,419,552 shares as of March 31, 1999
and June 30, 1998, respectively 255,463 254,195
Additional paid-in capital 157,758,247 152,782,585
Accumulated deficit (153,486,823) (148,725,822)
------------- -------------
Total stockholders' equity 4,526,911 4,310,970
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,987,334 $ 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 the nine months ended March 31, 1999 and 1998
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
REVENUES:
Revenue earned under collaboration agreement $ 1,000,000 $ - $ 1,000,000 $ -
Development fees 115,310 110,000 377,605 227,000
Interest 45,494 76,571 189,407 177,033
Licensing 329 502 1,157 2,041
------------ ------------ ------------ ------------
Total revenues 1,161,133 187,073 1,568,169 406,074
------------ ------------ ------------ ------------
EXPENSES:
Research and development 1,417,456 1,395,878 4,263,538 4,298,952
General and administrative 432,287 368,643 1,249,417 1,328,693
Other 754 666 3,182 3,635
------------ ------------ ------------ ------------
Total expenses 1,850,497 1,765,187 5,516,137 5,631,280
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (689,364) (1,578,114) (3,947,968) (5,225,206)
------------ ------------ ------------ ------------
Purchase of incomplete research and
development technology - (871,930) - (871,930)
Gain on sale of assets - 8,059 4,200 10,959
Other income/(expense) (800) - 24,480 -
------------ ------------ ------------ ------------
NET LOSS BEFORE MINORITY INTEREST (690,164) (2,441,985) (3,919,288) (6,086,177)
------------ ------------ ------------ ------------
Minority interest in net loss
of consolidated subsidiary 25,290 40,463 75,870 105,350
------------ ------------ ------------ ------------
NET LOSS (664,874) (2,401,522) (3,843,418) (5,980,827)
------------ ------------ ------------ ------------
Non-cash dividends on convertible preferred stock - 193,599 917,583 605,479
------------ ------------ ------------ ------------
NET LOSS TO COMMON STOCKHOLDERS $ (664,874) $ (2,595,121) $ (4,761,001) $ (6,586,306)
============ ============ ============ ============
Basic and diluted loss per common share $ (0.03) $ (0.10) $ (0.19) $ (0.28)
============ ============ ============ ============
Shares used in computing basic and diluted
loss per share amounts 25,514,229 24,938,749 25,497,183 23,826,759
============ ============ ============ ============
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 YEAR ENDED JUNE 30, 1998 AND THE NINE MONTHS ENDED MARCH 31, 1999
(Unaudited)
COMMON STOCK PREFERRED STOCK
--------------------------------------------- ------------------------------
ADDITIONAL
PAID-IN
SHARES AMOUNT CAPITAL SHARES AMOUNT
------------- ------------- ------------- ------------- -------------
BALANCE AT JUNE 30, 1997 21,779,767 $ 217,797 $ 139,260,550 2,800 $ 28
============= ============= ============= ============= =============
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 (1,100) (11)
Conversion of Series C Convertible Preferred
Stock into Common Stock 701,180 7,012 1,126,815 (700) (7)
Conversion of Series D Convertible Preferred
Stock into Common Stock 1,001,387 10,014 1,303,287 (1,000) (10)
Issuance of Series E Convertible Preferred
Stock, net of financing costs - - - 1,200 12
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 1,200 $ 12
============= ============= ============= ============= =============
Stock options exercised 51,751 518 98,681 - -
Issuance of Series E Convertible Preferred
Stock, net of financing costs - - - 1,200 12
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 - - 2,451,680 - -
Non-cash dividends on convertible preferred
stock - - - - -
Net loss for the nine months ended
March 31, 1999 - - - - -
------------- ------------- ------------- ------------- -------------
BALANCE AT MARCH 31, 1999 25,546,303 $ 255,463 $ 153,907,745 2,400 $ 24
============= ============= ============= ============= =============
PREFERRED STOCK
-------------
ADDITIONAL TOTAL
PAID-IN ACCUMULATED STOCKHOLDERS'
CAPITAL DEFICIT EQUITY
------------- ------------- -------------
BALANCE AT JUNE 30, 1997 $ 5,492,988 ($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 (2,089,817) - 133,411
Conversion of Series C Convertible Preferred
Stock into Common Stock (1,101,334) - 32,486
Conversion of Series D Convertible Preferred
Stock into Common Stock (1,287,092) - 26,199
Issuance of Series E Convertible Preferred
Stock, net of financing costs 1,448,376 - 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 $ 2,463,121 ($148,725,822) $ 4,310,970
============= ============= =============
Stock options exercised - - 99,199
Issuance of Series E Convertible Preferred
Stock, net of financing costs 1,495,193 - 1,495,205
Issuance of Common Stock in exchange for
Series E Preferred Stock placement services (107,812) - -
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 - - 2,451,680
Non-cash dividends on convertible preferred
stock - (917,583) (917,583)
Net loss for the nine months ended
March 31, 1999 - (3,843,418) (3,843,418)
------------- ------------- -------------
BALANCE AT MARCH 31, 1999 $ 3,850,502 ($153,486,823) $ 4,526,911
============= ============= =============
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 NINE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
NINE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss to common stockholders $(4,761,001) $(6,586,306)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization 444,803 873,712
Purchase of incomplete research and development technology - 871,930
Loss (gain) on sale of property and equipment (4,200) (10,959)
Accretion of interest on note receivable (67,439) (77,564)
Compensation for stock option vesting acceleration 13,275 -
Non-cash dividend on convertible preferred stock 917,583 605,479
Minority interest in net loss of consolidated subsidiary (75,870) (105,350)
Amortization of deferred lease (39,572) (47,476)
Changes in operating assets and liabilities:
Due from related party 53,047 -
Prepaids and other current assets (5,359) 204,092
Accounts payable 14,310 (52,039)
Accrued compensation (54,065) (102,970)
Other accrued liabilities (53,476) (136,656)
----------- -----------
Net cash used for operating activities (3,617,964) (4,564,107)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (18,570) -
Proceeds from the sale of property and equipment 4,200 22,200
Payment received on note receivable 610,000 330,000
----------- -----------
Net cash provided by investing activities 595,630 352,200
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock options exercised 99,199 49,050
Proceeds from convertible preferred stock, net 1,495,205 1,429,136
Proceeds from issuance of subsidiary convertible preferred stock, net 2,527,550 3,372,705
Principal payments on capital lease obligations - (37,068)
----------- -----------
Net cash provided by financing activities 4,121,954 4,813,823
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,099,620 601,916
----------- -----------
CASH AND CASH EQUIVALENTS, BEGINNING BALANCE 1,741,825 1,669,050
----------- -----------
CASH AND CASH EQUIVALENTS, ENDING BALANCE $ 2,841,445 $ 2,270,966
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Capital lease obligation assumed for new equipment $ 27,504 $ -
=========== ===========
Due from related party for quarterly investment payment $ 843,000 $ 843,000
=========== ===========
Minority interest $ 75,870 $ 131,430
=========== ===========
Conversion of Series A Preferred Stock to Common Stock $ - $ 2,089,828
=========== ===========
Conversion of Series C Preferred Stock to Common Stock $ - $ 1,101,341
=========== ===========
Conversion of Series D Preferred Stock to Common Stock $ - $ 1,287,102
=========== ===========
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. SIGNIFICANT EVENTS
In February 1999, the Company entered into an exclusive license
agreement with SmithKline Beecham Plc, London and SmithKline Beecham,
Philadelphia (collectively, "SmithKline") to develop and commercialize
ImmunoGen's lead tumor activated prodrug, huC242-DM1 (the "SmithKline
Agreement"). Under the terms of the agreement, the Company could receive up to a
total of $41.5 million, subject to the achievement by the Company of certain
development milestones. The Company is also entitled to receive royalty payments
on future product sales, if and when they commence. Finally, 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.
The SmithKline Agreement is expected to provide the Company with
sufficient cash funding to carry out its responsibilities in developing
huC242-DM1. To that end, 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. All costs subsequent to the initial assessment will be the
responsibility of SmithKline. The SmithKline Agreement is also expected to
provide enough additional funding to support further development of the
Company's other current and planned research and development efforts.
As of March 31, 1999, the first milestone payment of $1.0 million had
been received and recorded as collaboration revenue. Pursuant to the SmithKline
Agreement, the payment represented a non-refundable, unrestricted milestone
where no future obligation to perform exists.
B. 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 to
research and develop its various products and technologies, and expects no
revenues to be derived from pharmaceutical product sales in the foreseeable
future.
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The Company has been unprofitable since inception and expects to
incur net operating losses over the next several years. As of March 31, 1999,
the Company's cash resources were approximately $2.8 million. In April 1999, an
additional $860,000 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. It is
anticipated that the Company's existing capital resources will enable current
and planned operations to be maintained through at least the end of July 1999.
If the Company is unable to meet some or all of the specific terms and
conditions as set forth within the SmithKline Agreement to secure future
milestone payments, 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.
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 March
31, 1999 and June 30, 1998 and for the three months and the nine months ended
March 31, 1999 and 1998 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.
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REVENUE RECOGNITION
Collaboration revenue is recognized pursuant to licensing and
collaborative agreements upon the scientific and or regulatory achievement of
specified milestones. Non-refundable, unrestricted milestone payments due from
collaborators are recognized as revenue in the period in which they are earned.
COMPUTATION OF LOSS PER COMMON SHARE
Basic and diluted earnings/(loss) per common 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 March 31, 1999 and 1998, the
total number of stock options, warrants and other securities convertible into
ImmunoGen Common Stock equaled 12,830,206 and 9,869,486, respectively. ImmunoGen
Common Stock equivalents, as calculated in accordance with the treasury-stock
accounting method, totaled 3,188,497 and 1,579,628 as of March 31, 1999 and
1998, respectively. ImmunoGen Common Stock equivalents have not been included in
the loss per common share calculation because their effect is antidilutive.
C. MINORITY INTEREST
In July 1997, ATI entered into a collaboration agreement with BioChem.
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 March 31,
1999, BioChem had invested $7,753,000, of which $6,910,000 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 April 1999. The remaining
$3,372,000 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 March 31, 1999, 7,753 shares of ATI preferred stock were issued
or issuable to BioChem, representing a 10.5% 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
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ended March 31, 1999 and 1998 by $25,290 and $40,463, respectively. Based upon
an independent appraisal, approximately 3% of the $7,753,000 invested to date,
or approximately $235,000, has been allocated to the minority interest in ATI,
with the remainder, or approximately $7,518,000, 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 the 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 $2.8 million in cash and cash equivalents
as of March 31, 1999, $1.6 million represents cash and cash equivalents
restricted to fund ATI's research and administrative expenditures.
As part of the BioChem agreement, 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 ImmunoGen 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 OPERATIONS
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
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convertible equity financing, revenue earned under collaborative agreements,
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 Beecham Plc, London and SmithKline Beecham,
Philadelphia (collectively, "SmithKline") to develop and commercialize
ImmunoGen's lead tumor activated prodrug, huC242-DM1 (the "SmithKline
Agreement"). In preclinical studies, the Company has shown that huC242-DM1 is
active against colorectal, pancreatic and non-small cell lung cancers. Under the
terms of the SmithKline Agreement, the Company could receive up to a total of
$41.5 million, subject to the achievement by the Company of specified
development milestones. The Company is also entitled to receive royalty payments
on future product sales, if and when they commence. Finally, 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. As of March 31, 1999,
the first non-refundable, unrestricted milestone payment of $1.0 million had
been received and recorded as collaboration revenue. The SmithKline Agreement is
expected to provide the Company with sufficient funding to carry out its
responsibilities in developing huC242-DM1. To that end, 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. All costs subsequent to the
initial assessment will be the responsibility of SmithKline. The SmithKline
Agreement is also expected to provide sufficient cash funding to support further
development of the Company's other current and planned research and development
efforts.
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 will enable the Company
to maintain its current and planned operations through at least July 1999.
Further, 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.
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RESULTS OF OPERATIONS
Three months ended March 31, 1999 and 1998
Net loss from operations totaled $689,000 for the third quarter of
fiscal 1999, representing a 56% decrease from the $1.58 million net loss from
operations for the third quarter of fiscal 1998. The significant improvement in
operational performance is attributed almost entirely to the initial $1.0
million milestone payment received subsequent to the execution of the SmithKline
Agreement. This amount represented a non-refundable unrestricted milestone
payment where no future obligation to perform exists and, therefore, was
recorded as collaboration revenue in the period earned. The Company also
continues to effectively manage its ongoing operational expenditures. However,
future research and development costs are expected to significantly increase as
the Company completes preclinical work on its huC242-DM1 and huN901-DM1 product
candidates and prepares to submit an Investigational New Drug ("IND")
application to the FDA with respect to huC242-DM1. It is anticipated that the
IND application could be submitted as early as the second half of calendar year
1999.
Total revenues for the third quarter of fiscal 1999 were $1.16 million,
representing an increase of $973,000, or 520%, from the same quarter ended in
fiscal 1998. As previously described, the $1.0 million SmithKline payment
recognized as collaboration revenue in the quarter ended March 31, 1999
represents the largest component of the quarter-to-quarter increase. In both
three-month periods ended March 31, total revenue was also derived from
development fees received, on a cost reimbursement basis, under the
federally-sponsored Small Business Innovation Research Program ("SBIR") program
and interest income earned on invested cash balances and on a note receivable
from an assignee of one of the Company's facilities. The slight decrease in
total interest income from the third quarter of fiscal 1998 to the same period
in fiscal 1999 is due primarily to a significant decrease in the principal
balance of the outstanding note receivable, offset by interest earned on the
SmithKline payment received in late February 1999.
Research and development expenses marginally increased from $1.40
million for the three months ended March 31, 1998, to $1.42 million for the
three months ended March 31, 1999. The increase is due primarily to the
additional costs associated with the further development of the huC242-DM1 and
huN901-DM1 product candidates, offset by a decrease in equipment-related
depreciation expense.
General and administrative expenses increased 17%, to $432,000, for the
three months ended March 31, 1999, from $369,000 for the three months ended
March 31, 1998. The increase was due primarily to increased facility, public
reporting, and legal fees associated with the SmithKline Agreement incurred
during the quarter ended March 31, 1999. Offsetting the increase was a
significant reduction in depreciation. General and administration costs are not
expected to substantially increase through the remainder of fiscal 1999.
In January 1998, a minority interest holder of ATI common stock
exercised a put option which required the Company to issue the equivalent of
$871,930 in ImmunoGen Common Stock in exchange for the holder's 500,000 shares
of ATI common stock. The value of the ImmunoGen Common Stock issued was
pre-determined by the terms of the put option and subject to the closing price
of the ImmunoGen Common Stock on the date of exercise. The value of the
incremental ATI
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ownership purchased by the Company was ascribed to incomplete research and
development technology and, therefore, the cost of the acquisition, $871,930, or
($0.03) per basic and diluted share, was charged to operations.
ATI operating losses of $25,000 and $40,000 for the quarters ended March
31, 1999 and 1998, respectively, were allocated to ATI's minority stockholder
within the Company's condensed consolidated financial statements.
In connection with the March 1998 sale of 400 shares of Series E
Convertible Preferred Stock ("Series E Stock"), 470,589 warrants to purchase
Common Stock were issued to an institutional investor. The value of the
warrants, approximately $194,000, was determined at the time of their issuance
and accounted for as a non-cash dividend on convertible preferred stock.
Nine months ended March 31, 1999 and 1998
Net loss from operations totaled $3.95 million for the first nine
months of fiscal 1999, representing a 24% decrease from the $5.23 million net
loss from operations for the first nine months of fiscal 1998. Total revenues
for the nine-month period ended March 31, 1999 were $1.57 million, an increase
of $1.16 million, or 283%, from the same nine-month period ended March 31, 1998.
Consistent with the quarterly results, the decrease in the cumulative loss from
operations resulted from the recognition of $1.0 million in milestone-related
collaboration revenue. In both nine-month periods ended March 31, 1999 and 1998,
revenue was also derived from development fees received under the SBIR program
and interest income. The increase in SBIR revenue is attributed to the Company
incurring additional reimbursable huC242-DM1 and huN901-DM1 preclinical
development expenditures through the nine-month period ended March 31, 1999 as
compared to the nine months ended March 31, 1998. 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 the assignee of
one of the Company's facilities. The increase in total interest income in the
nine-month period ended March 31, 1998 to the same period in 1999 is a result of
increases in the average daily invested cash balances, offset by decreases in
the average principal balance of the outstanding note receivable.
Research and development expenses remained consistent at approximately
$4.3 million for the nine months ended March 31, 1999 and 1998. Although reduced
depreciation expense and staffing levels provided for a reduction in total
research and development costs, the total savings was offset by increased
spending associated with the further development of huC242-DM1 and huN901-DM1.
Future research and development expenses are expected to increase as the Company
prepares to begin clinical testing of its lead product candidate, huC242-DM1,
anticipated for the second half of calendar 1999. Similarly, additional
preclinical development costs associated with the Company's huN901-DM1 product
candidate are also expected to increase future research and development
spending.
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General and administrative expenses decreased 6%, to $1.25 million, for
the nine months ended March 31, 1999, from $1.33 million for the nine months
ended March 31, 1998. The decrease is primarily related to reduced depreciation
expense and reduced legal and financing-related expenditures incurred during the
first nine months of fiscal 1999 as compared to the same period in fiscal 1998.
Non-operating income of approximately $29,000 for the nine months ended
March 31, 1999 was primarily composed of prior period, retroactive insurance
rate adjustments and, to a lesser extent, gains on the sales of idle assets. For
the nine-month period ended March 31, 1998, no such rate settlements occurred;
however, the Company did realize a small gain on the sale of idle assets. ATI
operating losses of $76,000 and $105,000 for the nine-month periods ended March
31, 1999 and 1998, respectively, were allocated to ATI's minority stockholder
within the Company's condensed consolidated financial statements.
Through March 1998, 1,200 shares of Series E Stock were sold to an
institutional investor as part of an original agreement to sell a total of 2,400
shares of Series E Stock for $3.0 million. In connection with the sales of the
preferred stock through March 1998, warrants for approximately 1.4 million
shares of ImmunoGen Common Stock were issued. The value of these warrants,
approximately $584,000, was determined at the time of their issuance and
accounted for as non-cash dividends on convertible preferred stock. Other
non-cash dividends accrued in the nine-month period ended March 31, 1998,
totaling approximately $22,000, represented dividends accrued on the then
outstanding dividend-bearing convertible preferred stock.
In July 1998, another 1,200 shares of Series E Stock were sold to the
institutional investor for an aggregate of $1.5 million. Consistent with prior
Series E Stock sales, warrants to purchase shares of ImmunoGen Common Stock were
also issued. The value of the additional 1.4 million warrants issued in July
1998, approximately $918,000, was determined at the time of their issuance and
recorded as non-cash dividends on convertible preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
Since July 1, 1997, the Company has financed its cumulative cash-based
operating deficit of approximately $9.6 million, exclusive of non-cash charges,
from various sources, including revenues earned under collaboration agreements,
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 March 31, 1999, the Company received $860,000 from BioChem with
respect to BioChem's quarterly investment of $843,000 plus certain reimbursable
expenses.
Substantially all cash expended for operations for the nine months
ended March 31, 1999 was used to support the Company's various research and
development activities. In addition to funding the net loss of $3.4 million for
the nine months ended March 31, 1999, exclusive of the non-cash
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dividends, depreciation and amortization charges, operating cash of
approximately $99,000 was used for certain prepaid expenses and other various
accrued liabilities.
No material amounts were expended on capital purchases for the
nine-month period ended March 31, 1999. However, in March 1999, the Company
entered into an agreement to lease additional computer hardware needed to
upgrade certain research and administrative functions. The basic lease payments
were derived using current market rates of interest available to the Company and
are payable in monthly installments over a three-year period. The lease
agreement contains an option to purchase the equipment at the end of the lease
term for 10% of the original capitalized cost. Although the Company is exploring
further computer and research equipment upgrades, significant cash-based
expenditures on property and equipment through the remainder of fiscal 1999 are
not expected.
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
represents the final installment under a December 1997 agreement, as amended, to
sell $3.0 million of 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 March 31, 1999, an aggregate of $2.5 million was
received from BioChem with respect to the June 30, 1998, September 30, 1998 and
December 31, 1998 quarterly investments. As previously described, in April 1999,
another $843,000 payment was received as payment of the March 1999 quarterly
investment.
The Company anticipates that its existing capital resources, which
include the $860,000 received from BioChem subsequent to March 31, 1999, will
enable the Company to maintain its current and planned operations through at
least the end of July 1999. Moreover, the Company believes that the SmithKline
Agreement, while subject to the achievement of certain development milestones,
will not only provide sufficient equity and milestone payments to carry out its
responsibilities in developing huC242-DM1, but also provide enough additional
funding to support further development of the Company's other current and
planned research and development efforts. 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
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to remain functional. This is the so-called "Year 2000" problem. The Company is
currently in the final phases of upgrading all of its operational and scientific
software to commercially produced Year 2000 compliant versions. Accordingly, the
Company does not believe that it has material exposure with respect to its own
Year 2000 issues. Although considered unlikely, conversions that are
incompatible with other information systems could have a material effect on the
Company's business, financial condition and results of operations. The Company
has also sent questionnaires to its currently engaged third-party suppliers,
vendors, administrators and custodians, inquiring of their progress in
identifying and addressing their respective 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 critical
vendors by the end of calendar year 1999. Should a vendor not be able to
overcome its respective 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 consultants,
has performed an evaluation of the impact of the Year 2000 issues on the
Company's information systems and has implemented the necessary modifications
and/or replacements of certain accounting, administration and research-focused
software applications, such that dates beyond June 30, 1999, the beginning of
the Company's fiscal year 2000, will be appropriately recognized. All upgraded
administrative and research-based information systems are commercially produced,
Year 2000-certified software applications. To date, Year 2000 remediation
expenses have not been material, and the Company does not anticipate that it
will incur any additional significant future expenditures in relation to Year
2000 issues. All implemented Year 2000 remediations have been 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
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the lack of assurance that the Company will receive any funding under such
relationships or be able to develop and maintain strategic alliances;
governmental regulation of the Company's activities, facilities, 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.
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, January 13, 1999 and April 9, 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.
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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)
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
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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: May 11, 1999 By: /s/ Mitchel Sayare
-------------------------------
Mitchel Sayare
President and Chief Executive
Officer
(principal executive officer)
Date: May 11, 1999 By: /s/ Kathleen A. Carroll
------------------------------
Kathleen A. Carroll
Vice President,
Finance and Administration
(principal financial officer)
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INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
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27 Financial Data Schedule