UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-12104
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IMMUNOMEDICS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 61-1009366
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(State of Incorporation) (I.R.S. Employer Identification No.)
300 AMERICAN ROAD, MORRIS PLAINS, NEW JERSEY 07950
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(Address of principal executive offices) (Zip Code)
The Company's telephone number, including area code: (973) 605-8200
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
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(Title of Class)
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 requirement for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Company's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of September 23, 1997, 36,363,002 shares of the Company's common
stock were outstanding, and the aggregate market value of common stock held by
non-affiliates of the registrant, computed by reference to the last reported
sale price for the Company's common stock on the Nasdaq National Market at that
date, was $115,833,627.
Documents Incorporated by Reference: PORTIONS OF THE COMPANY'S DEFINITIVE PROXY
STATEMENT TO BE MAILED TO STOCKHOLDERS IN CONNECTION WITH THE ANNUAL MEETING OF
STOCKHOLDERS OF THE REGISTRANT TO BE HELD ON NOVEMBER 5, 1997 (THE "1997
DEFINITIVE PROXY STATEMENT"), WHICH WILL BE FILED WITH THE COMMISSION NOT LATER
THAN 120 DAYS AFTER THE END OF THE FISCAL YEAR TO WHICH THIS REPORT RELATES, ARE
INCORPORATED BY REFERENCE IN PART III HEREOF.
PART I
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ITEM 1--BUSINESS
INTRODUCTION
Immunomedics, Inc. (the "Company") is a biopharmaceutical company
applying innovative proprietary technology in antibody selection, modification
and chemistry to the development of products for the detection and treatment of
cancers and infectious diseases. Integral to these products are highly specific
monoclonal antibodies designed to deliver radioisotopes, chemotherapeutic agents
or toxins to tumors and sites of infection.
The Company is developing a line of IN VIVO imaging products for the
detection of various cancers and infectious diseases. In April, 1991, the
Company filed a Product License Application, now called a Biologics License
Application ("BLA"), to which a supplement was filed in June, 1993, with the
U.S. Food and Drug Administration ("FDA") seeking approval to manufacture and
market, in the United States, the Company's proprietary IN VIVO colorectal
cancer imaging product, CEA-Scan(R). On June 28, 1996, the FDA licensed CEA-Scan
for use with other standard diagnostic modalities for the detection of recurrent
and/or metastatic colorectal cancer. In March, 1992, the Company filed with the
Committee for Proprietary Medicinal Products ("CPMP") to market the product in
Europe. On October 4, 1996, the Company was granted marketing authorization by
the European Commission for use of CEA-Scan in the 15 countries comprising the
European Union for the same indication as approved in the United States. Phase
III clinical trials of CEA-Scan for the detection of lung cancer are continuing,
and the Company is in discussion with both the FDA and CPMP to evaluate Phase II
clinical trial data for the detection of breast cancer. However, no assurance
can be given as to if, or when, final regulatory approvals for any of these
additional indications for CEA-Scan may be forthcoming. In February, 1992, the
Company filed with the Health Protection Branch ("HPB") to market CEA-Scan in
Canada. On September 16, 1997, the Company received a notice of compliance from
the HPB permitting it to market CEA-Scan in Canada for colorectal cancer for
recurrent and metastatic colorectal cancer.
On February 14, 1997, the Company was granted regulatory approval by
the European Commission to market LeukoScan(R), an IN VIVO infectious disease
diagnostic imaging product, in all 15 countries which are members of the
European Union, for the detection and diagnosis of osteomyelitis (bone
infection) in long bones and in diabetic foot ulcer patients. On December 19,
1996, the Company filed a BLA for LeukoScan with the FDA for the same indication
approved in Europe, plus an additional indication for the diagnosis of acute,
atypical appendicitis. The Company has also been pursuing the broadening of its
approval for LeukoScan in Europe to include the acute, atypical appendicitis
indication. As with all regulatory filings, there can be no assurance that such
filings will be approved by the FDA or by the European Commission. Phase III
trials for infected prostheses are continuing, and the Company is examining
other applications for the product.
1
The Company has developed and filed an Investigational New Drug
application ("IND") for two other IN VIVO cancer imaging products: AFP-Scan(TM)
for the detection and diagnosis of liver and germ cell cancers, currently in
Phase II clinical trials, and LymphoScan(TM) for detection and diagnosis of
non-Hodgkin's lymphomas, currently in Phase III clinical trials (see "Clinical
Trial Programs").
The Company also is applying its expertise in antibody selection,
modification and chemistry to develop therapeutic products for cancer using
monoclonal antibodies labeled with radioisotopes or conjugated with drugs. The
Company has been conducting a multicenter Phase I/II clinical trial for
LymphoCide(TM) (formerly ImmuRAIT-LL2), a non-Hodgkin's B-cell lymphoma
therapeutic product. This trial was designed to obtain knowledge about targeting
and dosing with the murine form of the monoclonal antibody. The Company is now
advancing the humanized form of LymphoCide into Phase I/II clinical trials and
is discontinuing trials with the murine form (see "IN VIVO Therapeutic
Products").
In March, 1995, the Company entered into a license agreement with
Mallinckrodt Medical B.V., pursuant to which Mallinckrodt Medical B.V., markets,
sells and distributes CEA-Scan throughout Western Europe and in specified
Eastern European countries, subject to receipt of regulatory approval in the
specified countries. In April, 1996, the Company entered into a marketing and
distribution agreement with Mallinckrodt Medical, Inc., pursuant to which
Mallinckrodt Medical, Inc., markets, sells and distributes CEA-Scan for use in
colorectal cancer diagnostic imaging in the U.S. on a consignment basis (see
"Marketing and Sales" for the current status of these agreements).
In August, 1995, the Company announced that its license agreement with
Pharmacia, Inc. (formerly Adria Laboratories Division of Erbamont, Inc., and
which subsequently became Pharmacia & Upjohn) ("Pharmacia"), had been
terminated. In June, 1996, the Company filed a claim against Pharmacia before
the American Arbitration Association claiming damages for breach of contract and
fiduciary duty in an amount in excess of $60 million plus punitive damages.
Final closing arguments were made on September 17, 1997, and a decision should
be forthcoming in the near future. The Company is unable at this time to predict
the outcome of these proceedings (see "Legal Proceedings").
The Company was incorporated in Delaware in 1982. The Company's
principal offices are located at 300 American Road, Morris Plains, New Jersey
07950. The Company's telephone number is (973) 605-8200. The Company also has a
subsidiary, Immunomedics Europe, with offices located in Hillegom, The
Netherlands, to assist the Company in managing sales and marketing efforts and
coordinate clinical trials in Europe.
2
CLINICAL TRIAL PROGRAMS
IN VIVO Imaging Products
The Company's IN VIVO imaging products utilize radioimmunodetection,
which involves injecting a patient with a radioisotope linked, or conjugated, to
an antibody. An antibody is a protein that can recognize and selectively attach
itself to a specific substance called an antigen. Such antigens are present on
tumor cells, white blood cells that accumulate at the sites of infections, and
other disease entities. By attaching a radioisotope to a disease-targeting
antibody, the radioisotope may be delivered to a disease site for imaging. A
gamma camera (standard nuclear medicine equipment used for imaging) is then used
to display radioisotope concentrations, revealing the presence, location and
approximate size of the site of disease.
The Company's IN VIVO imaging products utilize only one of the upper
arms of the antibody, the FAB' fragment. The Company uses its proprietary
chemistry to produce the FAB' fragment of a mouse-derived antibody capable of
direct and virtually instant attachment or "labeling" with technetium-99m.
Technetium-99m is the radioisotope most frequently used in nuclear medicine
because of its high quality imaging capabilities, short half-life, widespread
availability and low cost. The use of a fragment of the antibody, rather than
the whole, minimizes the human body's immune response to the injection of
mouse-derived antibodies. This benefit is enhanced by the low FAB' dosage used
in the Company's imaging products. An additional advantage of using
technetium-99m and an antibody fragment is that imaging is enhanced in the
liver, the first site of distant metastasis for many cancers. Intact antibodies
and certain other imaging radioisotopes accumulate in the liver, potentially
interfering with adequate imaging of tumors in this organ.
The Company's IN VIVO imaging products, contained in single vials, can
be easily prepared by nuclear medicine technicians without assistance from a
radiochemist or nuclear pharmacist. Once the technetium-99m is added to the vial
in a saline solution, the product is ready for injection in approximately five
minutes.
On June 28, 1996, the FDA licensed CEA-Scan for the detection of
colorectal cancer for use with other standard diagnostic modalities. On October
4, 1996, this product also was approved by the European Commission for the same
indication. On September 16, 1997, the Company received a notice of compliance
from the HPB permitting it to market CEA-Scan in Canada for recurrent and
metastatic colorectal cancer. In addition, Immunomedics has seven proposed IN
VIVO imaging products or indications in various stages of clinical testing and
regulatory review by the FDA - four for cancer imaging (CEA-Scan for lung and
breast cancer and AFP-Scan for liver and germ cell cancer), one for imaging
infectious diseases (LeukoScan), one for non-Hodgkin's lymphoma imaging
(LymphoScan), and one for the specific imaging of Pneumocystis carinii pneumonia
("PCP")(PCP-Scan(TM)).
3
The antibody in CEA-Scan is directed at carcinoembryonic antigen
("CEA"), which is abundant at the site of virtually all cancers of the colon or
rectum (both primary tumors and metastases). CEA is also associated with many
other cancers, and the Company estimates that three quarters of all human cancer
patients have elevated CEA levels at some of their tumor sites. As part of
receiving FDA approval for CEA-Scan, the Company has agreed to conduct Phase IV
clinical studies to evaluate the product following readministration. The Company
also is performing Phase III clinical trials, using CEA-Scan, for imaging lung
cancer. In addition, Phase II clinical trials for breast cancer imaging have
been completed, results of which are currently being discussed with FDA and CPMP
officials to determine whether such data will support the submission of
applications for this additional indication in the U.S. and Europe,
respectively.
LeukoScan is a monoclonal antibody fragment which seeks out and binds
to granulocytes (white blood cells) associated with a potentially wide range of
infectious diseases. On February 14, 1997, the Company received European
regulatory approval to market the product for detecting and diagnosing
osteomyelitis (bone infection) in long bones and in diabetic foot ulcer
patients. On December 19, 1996, the Company filed a BLA with the FDA, seeking
approval to market LeukoScan in the U.S. for the same indication approved in
Europe, plus an additional indication for diagnosis of acute, atypical
appendicitis. The Company is also discussing with the European regulatory
authorities expansion of the LeukoScan approval to include the latter
indication.
Two other imaging products are being studied pursuant to IND's
submitted to the FDA. The Company also has ongoing clinical trials in Europe for
these agents:
- LymphoScan, employing an antibody capable of targeting an
antigen on non-Hodgkin's B-cell lymphoma (Phase III clinical
trials are underway).
- AFP-Scan, employing an antibody capable of targeting
alpha-fetoprotein, a marker on liver cancer and germ cell
tumors of the ovaries and testes (Phase II clinical trials are
underway).
PCP-Scan has been studied for the imaging and diagnosis of Pneumocystis
carinii pneumonia (PCP) in a pilot clinical trial in collaboration with the
Center for Molecular Medicine and Immunology ("CMMI"), a not-for-profit cancer
research center (see "Relationship with the Center for Molecular Medicine and
Immunology"). In these trials it has been shown that specific antibodies against
a pathogenic organism, such as Pneumocystis, can target the disease site.
Further studies to evaluate this potential product are beginning. PCP is a
serious opportunistic infection of immunosuppressed patients, such as organ
transplant patients and certain patients with cancer or Acquired Immune
Deficiency Syndrome ("AIDS").
4
IN VIVO Therapeutic Products
The Company is applying its expertise in antibody selection,
modification and chemistry to cancer therapeutics, using monoclonal antibodies
labeled with therapeutic radioisotopes or conjugated with drugs. The Company is
engaged in developing products for treating cancer which primarily use a
technique called radioimmunotherapy. The principal advantage of this technique
may be its ability to deliver radioactive therapeutic agents to tumor sites more
selectively, while minimizing debilitating side effects. The Company conducted a
multicenter Phase I/II clinical trial with the murine form of its non-Hodgkin's
B-cell lymphoma proposed therapeutic product, LymphoCide, for over four years.
This product consists of a monoclonal antibody, highly specific in targeting
B-cell lymphomas, labeled with the radioisotope iodine-131. In this Phase I/II
clinical trial of LymphoCide, several patients, all of whom were late-stage and
were unresponsive to other therapies, experienced varying degrees of tumor
regression. Reversible bone marrow toxicity was also observed. By conducting
this trial, the Company increased its knowledge of antibody targeting and
dosage. The Company is now advancing its humanized antibody program into Phase
I/II clinical trials and is discontinuing its trials with the murine antibody
form of LymphoCide. The Company is currently conducting, in collaboration with
CMMI and other academic or research centers, research on murine and humanized
forms of targeting antibodies, alternative radioisotopes and new conjugation
methods (see "Research Programs").
RESEARCH PROGRAMS
The Company incurred approximately $13,114,000, $12,504,000 and
$12,492,000, in total research and development expense during its fiscal years
ended June 30, 1997, 1996 and 1995, respectively.
Antibody Engineering
A major obstacle in the field of monoclonal antibody therapy has been
the patient's immune response to mouse-derived antibodies, making repeated use
of such products impracticable. The Company is currently researching whether
this response may be avoided by clinically altering the dose, antibody form, and
schedule of administration. However, this may be only a partial solution to the
problem and, consequently, the Company is actively investigating methods to
engineer the mouse antibody molecule in such a way that it retains the desirable
targeting features to cancer cells, and also minimizes the amount of
mouse-derived protein present. The Company has made significant progress in
humanizing certain mouse antibodies (i.e., replacing certain components of a
mouse antibody with human antibody components), and with respect thereto the
Company has licensed technology from a third party. Moreover, using the
techniques of molecular biology, the Company's scientists have re-engineered the
humanized antibodies with improved characteristics, such as favorable
pharmacokinetic properties and increased radionuclide and drug loading
capacities.
5
During fiscal years 1997, 1996 and 1995, the Company, in collaboration
with CMMI, continued to demonstrate successful targeting in patients with the
Company's humanized monoclonal antibodies (hMN-14 and hLL2) against the CEA
cancer marker and non-Hodgkin's B-cell lymphoma, respectively, as compared to
the murine counterparts (MN-14 and LL2). The anticancer humanized antibodies are
about 95% human and have shown very good uptake in the patients' tumors. In
August, 1995, data were presented from a pilot clinical trial which demonstrated
that the low immunogenicity and high cancer-binding capability of these
antibodies allowed repeated administration to increase the amount of therapeutic
radiation delivered directly to the sites of disease. As many as three
injections were given without evoking an immune response to the antibody.
Accordingly, the Company has proceeded with clinical testing at therapeutic
doses.
Alternative Radioisotopes
The Company has used iodine-131 to label its anti-lymphoma antibody
(LL2), which has been evaluated in a phase I/II clinical trial against
non-Hodgkin's lymphoma. This disease has previously been found to respond well
to radioimmunotherapy using iodine-131- labeled, murine-based anti-lymphoma
antibodies by investigators at several institutions. However, one potential
drawback of an iodine-131-labeled LL2 antibody is the finding that LL2, as a
rapidly internalizing antibody, is readily metabolized with the iodine-131-bound
metabolite and is quickly excreted from the target cell. This means that full
advantage is not taken of the eight-day half-life of the iodine-131
radionuclide, in this one particular disease. In contrast, yttrium-90 from
administered yttrium-90 labeled LL2 has been shown to be retained inside
lymphoma cells for long periods after antibody metabolism. For this reason, and
also for reasons of greater efficacy against larger tumors and the potential for
out-patient use due to lack of any associated gamma-ray emissions, the Company's
scientists are developing yttrium-90-LL2 as a second-generation product (see
"Government Grants"). The Company anticipates beginning a Phase I/II clinical
trial early in calendar year 1998, or earlier.
New Conjugation Methods
During fiscal year 1997, the Company made additional progress in the
development of new methods for the construction of immunoconjugates, utilizing
the discovery of novel carbohydrate components on the variable region of the
lymphoma targeting antibody, LL2, which facilitates the creation of more
efficient immunoconjugates, and which appears to be appropriate for use with
antibody fragments. These carbohydrate components are relatively distant from
the antigen-binding site, representing novel conjugation sites, which would not
interfere with the immunoreactivity of the antibody. This is significant
because, to date, efforts to directly link antibodies and drugs have been
limited by a resulting loss of the antibody's ability to bind to the cancer
site. This work supports the Company's hypothesis that, by using antibody
engineering
6
techniques, this carbohydrate component can be "grafted" on the corresponding
regions of different antibodies and used as a conjugation site for the
attachment of drugs or radioisotopes with no adverse effects on
immunoreactivity. Furthermore, the Company's scientists have been able to
engineer this carbohydrate addition site on antibody fragments. The Company
believes that this has the advantage of greater tumor penetration and less human
immune response, potentially leading to the creation of fragment-based cancer
therapeutics as a central part of the Company's future product development
efforts. A patent was issued to the Company in August, 1995, relating to the use
of one of these sites for conjugation. There can be no assurance, however, that
these developments will lead to products that are successful for treating
cancers in patients.
Other Antibody-Directed Therapy Approaches
The Company is continuing work on selective coupling of therapeutic
site-specific agents onto engineered carbohydrate residues on antibody
fragments. The proprietary antibody constructs offer the advantage of loading
multiple therapeutic moieties onto antibody fragments at a particular site and
in a manner, which is known not to interfere with antigen binding. The Company
also is continuing to investigate "pre-targeting", whereby an antibody is
administered first and then followed by a separate radionuclide administration.
Secondary recognition groups are attached, one to the targeting antibody and the
other to the radionuclide, such that the radionuclide is localized to the
antibody pre-targeted to the tumor site. Using such methods in preclinical
animal tumor models, target-to-blood uptake ratios of radionuclide have been
improved by orders of magnitude compared to the antibody radiolabeled in the
conventional manner. The advantage of markedly increased target-to-blood ratios
is somewhat offset by the greater complexity involved in multiple administration
and timing of reagents. Accordingly, there can be no assurance at the present
time that this "pre-targeting" approach will offer a practical alternative for
radioimmunotherapy.
Peptides
During fiscal year 1997, the Company continued to improve its
proprietary methods for technetium-99m radiolabeling of peptides, which were
successfully developed in fiscal year 1996, up to clinical-scale levels using
single vial kits. These automated synthetic methods will be generally applicable
to the preparation of radioconjugates of other diverse chelate-peptides, and
will enable rapid evaluation of different peptide-receptor systems directly with
peptide analogs labeled with technetium-99m, the optimum imaging radionuclide.
This technology has been applied to the preparation of analogs of somatostratin
and has demonstrated reagent utility in preclinical IN VIVO models. In related
work, similar novel synthetic methods have also been used to prepare
chelate-peptide conjugates which can be radiolabeled with indium-111 and
yttrium-90.
7
Intraoperative Cancer Detection
The Company has been developing intraoperative cancer detection
applications with CEA-Scan, utilizing hand-held, radiation-detecting probes. The
Company has learned that surgeons have successfully used CEA-Scan in this way,
within 48 hours of its injection and external imaging. A U.S. patent was issued
in 1990 to the Company for this and endoscopic applications, and another
important patent will soon be issued. The company is planning additional
clinical trials in support of gaining regulatory approval for this new
intraoperative use of CEA-Scan. However, there can be no assurance that such
clinical trials or regulatory filings will be successful.
Government Grants
During fiscal year 1997, the Company was awarded a phase I Small
Business Innovation Research ("SBIR") grant from the National Cancer Institute
("NCI") of the National Institutes of Health, for $100,000, for therapy
applications using the Company's antibodies. The grant covers the development of
radioiodinated antibodies, prepared using novel chemistries, from which the
iodine-131 is retained for extended periods inside tumor cells (like yttrium-90)
for enhanced radioimmunotherapy. Also during fiscal year 1997, the Company was
awarded a SBIR Phase I grant for $100,000 supporting the development of an
antibody-targeted drug for the treatment of PCP (see "IN VIVO Imaging
Products").
RELATIONSHIP WITH THE CENTER FOR MOLECULAR MEDICINE AND IMMUNOLOGY
The Company's product development has involved, to varying degrees,
CMMI, a specialized cancer research center, for the performance of certain basic
research and patient evaluations. CMMI is a not-for-profit corporation funded
primarily by grants from the NCI. CMMI was previously located adjacent to the
Company's former Newark, New Jersey manufacturing facility (Newark Facility),
but in November, 1996, moved to improved facilities in Belleville, New Jersey.
Dr. David M. Goldenberg, Chairman of the Board and Chief Executive Officer of
the Company, is the founder, current President and a member of the Board of
Trustees of CMMI. Dr. Goldenberg devotes more of his time working for CMMI than
for the Company. Certain consultants to the Company have employment
relationships with CMMI, and Drs. Carl Pinsky and Hans Hansen, officers of the
Company, are adjunct members of CMMI. Despite these relationships, CMMI is
independent of the Company, and CMMI's management and fiscal operations are the
responsibility of CMMI's Board of Trustees (see "Certain Relationships and
Related Transactions").
CMMI performs pilot and pre-clinical trials in product areas of
importance to the Company. In addition, CMMI and its clinical subsidiary, The
Garden State Cancer Center, conduct basic research and patient evaluations in a
number of areas of potential interest to the Company, the results of which are
made available to the Company pursuant to a collaborative research and license
agreement.
Effective July, 1995, the Company amended its license agreement with
CMMI to assist CMMI in complying with Internal Revenue Service criteria for its
then recently completed tax-exempt financing. Under the terms of the amended
license agreement, the Company has the right of first negotiation to obtain
exclusive, worldwide licenses from CMMI to manufacture and market potential
products and technology covered by the license agreement under terms
representing fair market price, to be negotiated in good-faith at the time the
license is obtained. To date, no products have been licensed from CMMI. The
Company retains licensing rights to inventions made during the term of the
agreement for a period of five years from the time of disclosure. The amended
license agreement terminates on December 31, 1999, with the Company having the
right to seek good-faith negotiation to extend the agreement for an additional
five-year period.
8
The potential for conflicts of interest exists in the relationship
between the Company and CMMI, and the provisions of the agreement between the
Company and CMMI have been designed to prevent such conflicts from occurring.
The Company and CMMI have agreed that neither will have any right, title or
interest in or to the research grants, contracts or other agreements obtained by
the other. The decision as to whether a potential product has reached the stage
of development such that it must be offered by CMMI to the Company is made by
the Board of Trustees of CMMI, and Dr. Goldenberg has agreed not to participate
in the determination of any such issue. Similarly, the decision by the Company
as to whether or not to exercise its right of first negotiation or release of
any potential product offered by CMMI is determined by a majority vote of the
Board of Directors (or a subcommittee thereof), and Dr. Goldenberg has agreed
not to participate in the determination of any such issue.
The Company has reimbursed CMMI for expenses incurred on behalf of the
Company, including amounts incurred pursuant to research contracts, in the
amount of approximately $69,000, $64,000 and $57,000 during the years ended June
30, 1997, 1996 and 1995, respectively. The Company also provides, at no cost to
CMMI, laboratory materials and supplies in connection with research conducted in
areas of potential interest to the Company.
During the years ending June 30, 1997, 1996 and 1995 the Board of
Directors of the Company made grants to CMMI of $200,000, $200,000 and $300,000,
respectively, to support research and clinical work being performed at CMMI,
such grants to be expended in a manner deemed appropriate by the Board of
Trustees of CMMI. Pursuant to a collaborative research and license agreement,
dated as of January 21, 1997, between the Company and CMMI, the Company has
agreed to pay CMMI an annual license fee of $200,000.
BUSINESS RISKS
The Company's products are in various stages of development and face a
high degree of technological, regulatory and competitive risk. In addition, the
Company's products must be approved for marketing by regulatory agencies such as
the FDA (with the exception of CEA-Scan and LeukoScan, which have been licensed
as discussed above), and no assurance can be given as to if or when such
approvals could be forthcoming. Product discovery and development activities
require substantial cash outlays. At least until CEA-Scan and/or LeukoScan are
successfully commercialized, future revenues will be dependent in large part
upon the Company entering into new arrangements with collaborative partners and
upon public and private financings. In addition, the Company has only recently
established a sales and marketing organization, including the addition of
specialized salesforces in the U.S. and Europe (see "Marketing and Sales"). No
assurance can be given that the Company's manufacturing costs will be
economically viable, or that the Company can develop an effective sales and
marketing strategy to effectively promote any marketed product.
9
The risks discussed herein reflect the Company's immediate stage of
development. Inherent in this stage is a range of additional risks, including
the Company's history of losses and the need for, and uncertainty of, obtaining
future financing. The Company also faces numerous risks stemming from the nature
of the biopharmaceutical industry, including the risk of competition and
competing patents, the risk of regulatory change, including potential changes in
health care coverage, and uncertainties associated with obtaining and enforcing
patents and proprietary technology, among others.
MARKETING AND SALES
IN VIVO Products
The Company's marketing strategy initially consisted of forming
corporate alliances with pharmaceutical companies for the sale and distribution
of its proposed IN VIVO imaging and therapeutic products, whereby the partner's
established marketing, sales and distribution networks would minimize the
Company's need to expend funds to develop these areas of expertise. However, the
Company now believes that development of its own salesforce, complementary to
those of its partners, will be necessary to increase the likelihood of
maximizing market penetration for its products.
In March, 1995, the Company entered into a license agreement with
Mallinckrodt Medical B.V., pursuant to which Mallinckrodt Medical B.V., markets,
sells and distributes CEA-Scan throughout Western Europe and in specified
Eastern European countries, subject to receipt of regulatory approval in the
specified countries. The Company manufactures CEA-Scan, for which Mallinckrodt
Medical B.V., pays the Company a pre-determined percentage of the net selling
price.
In April, 1996, the Company entered into a Marketing and Distribution
Agreement with Mallinckrodt Medical, Inc., pursuant to which Mallinckrodt
Medical, Inc., markets, sells and distributes CEA-Scan for use in colorectal
cancer diagnostic imaging in the U.S. on a consignment basis, and is required to
commit financial resources to this effort. The Company retains manufacturing and
co-promotional rights, pays Mallinckrodt Medical, Inc., a pre-determined amount
or percentage of the net selling price, and is allowed to commit additional
financial resources to promotional activities. In connection therewith, the
Company has entered into an agreement with MMD Specialty Services, Inc. ("MMD")
pursuant to which MMD will provide the Company, during fiscal year 1998, with a
full-time oncology sales force for the marketing and sale of CEA-Scan in the
United States.
The Company has not been satisfied with the performance of Mallinckrodt
Medical B.V., or Mallinckrodt Medical, Inc., (collectively, the "Mallinckrodt
Affiliates") under the respective agreements. This has raised a number of issues
which have been the subject of meeting and correspondence between the parties.
If these issues cannot be resolved, the Company may have no alternative but to
terminate the agreements with the Mallinckrodt Affiliates for what it believes
to be cause under those respective agreements. Meanwhile, the Company is
exploring potential relationships with new distributors for CEA-Scan in the
United States and Europe. At the same time, working with its marketing
consultant, the Company has been building, directly and through MMD, an oncology
sales and marketing force in the United States. See "Legal Proceedings".
10
The Company is currently negotiating with several companies for
marketing and distribution rights to CEA-Scan in Canada.
In connection with the launch of LeukoScan in Europe, which occurred in
April, 1997, the Company has retained all marketing, selling and distribution of
the product and is in the process of adding personnel to assist in this effort.
Accordingly, the Company has moved its European operations to new facilities
in Hillegom, The Netherlands.
The Company's intent, possibly in collaboration with another corporate
partner, is to combine LymphoScan with the Company's proposed lymphoma therapy
product, LymphoCide, as companion detection/therapy clinical applications to
focus on disease management for lymphoma patients.
MANUFACTURING
To date, the Company has manufactured all materials used in its
clinical trial programs and currently manufactures CEA-Scan and LeukoScan for
commercial use. The Company performs antibody processing and purification of its
clinical products at its Morris Plains, New Jersey, facility (see "Properties").
The Company has agreed to manufacture and supply all of Mallinckrodt Medical,
Inc.'s and Mallinckrodt Medical B.V.'s requirements for CEA-Scan, subject to
certain conditions and limitations, and will receive transfer fees in
consideration therefore (see "Marketing and Sales"). The Company has entered
into a manufacturing agreement with SP Pharmaceuticals, formerly the Oncology
Division of Pharmacia & Upjohn, pursuant to which SP Pharmaceuticals performs
certain end-stage portions of the manufacturing process. Under the terms of such
agreement, the Company pays according to an established price structure for
these services. The Company has identified and qualified a second entity to
perform similar end-stage manufacturing and is presently negotiating an
agreement with such entity.
11
In February, 1997, the Company closed its Newark, New Jersey,
manufacturing facility and moved these operations to the Company's Morris Plains
headquarters, which also houses regulatory, medical, research and development,
finance, marketing and executive offices (see "Properties"). The Company has now
scaled-up to commercial levels its antibody purification and fragmentation
manufacturing processes. The new manufacturing facility consists of four
independent antibody-manufacturing suites, several support areas, and a quality
control ("QC") laboratory. Start-up validation and inspection of the new
facility has been completed, encompassing the adoption of a new, more efficient
manufacturing process. However, there can be no assurance at this time that the
regulatory authorities will approve this facility in a timely manner to meet the
manufacturing needs of the Company.
The Company's proposed monoclonal antibody products are currently
derived from ascites fluid produced in mice, and the Company has entered into an
agreement with a third-party supplier for the production of ascites fluid.
Although CEA-Scan has been approved in the U.S., Canada, and Europe, and
LeukoScan has been approved in Europe, regulatory authorities, particularly in
Europe, have expressed concerns about the use of ascites for the production of
monoclonal antibodies. The Company believes that its current quality control
procedures help ensure the purity of the ascites used in its products, but there
can be no assurance that the regulatory authorities will agree that these
procedures will be adequate for future products. The Company's effort to convert
to cell culture production for certain monoclonal antibodies is progressing.
Products manufactured by cell culture processes will require regulatory approval
for this substantial change in process, and will require additional
manufacturing equipment and resources for this effort.
PATENTS AND PROPRIETARY RIGHTS
The Company actively pursues a policy of seeking patent protection,
both in the United States and abroad, for its proprietary technology. The
Company has a diverse patent portfolio for its IN VIVO diagnostic products,
currently consisting of 35 issued United States patents and 193 issued foreign
patents, with 29 United States patent applications pending, of which 8 have been
allowed, and 120 foreign patent applications pending, of which 2 have been
allowed. Included in the foregoing are 8 United States patents and their foreign
counterparts, to which the Company has rights pursuant to an exclusive license
granted by Dr. Goldenberg. The Company also has certain rights with respect to
patents and patent applications owned by CMMI, by virtue of a license agreement
between the Company and CMMI.
The Company owns or has licensed patents that contain broad claims
covering significant aspects of current radioimmunodetection technology for
tumor imaging with radiolabeled antibodies and antibody fragments. These United
States issued patents expire beginning in 1999, subject to extension under
certain circumstances. The Company's patents also contain broad claims relating
to tumor therapy with radiolabeled antibodies and antibody fragments. These
patents contain claims covering the Company's potential IN VIVO cancer imaging
and therapeutic products currently under development.
12
In March, 1997, the Company was issued a U.S. patent with claims to
methods of treating infection and autoimmune disease with a combination of
antibody-targeted drugs and cytokines to mitigate side effects. At the same
time, a Japanese patent was issued to the Company covering a class of highly
specific antibodies to the tumor-associated marker CEA, their use for detection
of the CEA-specific antigen in body fluids and tissues, and for the imaging and
treatment of cancers expressing the CEA marker.
In May, 1997, the Company was issued a U.S. patent covering
antibody-targeted imaging and therapy using chimeric antibodies, which are
proteins engineered to resemble human antibodies but having binding regions
derived from non-human mammals.
In June, 1997, the Company was issued two U.S. patents, the first with
claims to an agent for imaging a tumor or an infection, for which the agent is
efficiently excreted. With resulting inhibited kidney uptake, target sites in
proximity to the kidneys can be detected more easily. The second patent claims
methods of diagnosis and therapy of infections using an agent that can bind to
more than one kind of white blood cell. The enhanced binding capability can help
to more efficiently target a diagnostic or therapeutic component of the agent to
the infection.
In July, 1997, the Company was issued a U.S. patent covering new
methods and agents for the imaging and detection of cardiovascular lesions, such
as atherosclerotic plaques, vascular clots (including thrombi and emboli) and
myocardial infarcts. This patent's claims involve the use of an antibody
conjugate targeted to monocytes or to other antigens present at the disease
site, such as platelets or fibrin.
Pursuant to a License Agreement between the Company and Dr. Goldenberg,
certain patent applications owned by Dr. Goldenberg were licensed to the Company
at the time of the Company's formation in exchange for a royalty in the amount
of 0.5% of the first $20,000,000 of annual net sales of all products covered by
any of such patents and 0.25% of annual net sales of such products in excess of
$20,000,000. Dr. Goldenberg's Amended and Restated Employment Agreement with the
Company dated November 1, 1993 (the "Employment Agreement") extends the
ownership rights of the Company, with an obligation to diligently pursue all
ideas, discoveries, developments and products, into the entire medical field,
which, at any time during his past or continuing employment by the Company (but
not when performing services for CMMI), Dr. Goldenberg has made or conceived or
hereafter makes or conceives, or the making or conception of which he has
materially contributed to or hereafter contributes to, all as defined in the
Employment Agreement (collectively "Goldenberg Discoveries").
Further, pursuant to the Employment Agreement, Dr. Goldenberg will
receive incentive compensation of 0.5% on the first $75,000,000 of all defined
Annual Net Revenue of the Company and 0.25% on all such Annual Net Revenue in
excess thereof (collectively "Revenue Incentive Compensation"). Annual Net
Revenue includes the proceeds of certain dispositions of assets or
13
interests therein (other than defined Undeveloped Assets), including defined
Royalties, certain equivalents thereof and, to the extent approved by the Board,
non-royalty license fees. Revenue Incentive Compensation will be paid with
respect to the period of Dr. Goldenberg's employment, and two years thereafter,
unless he unilaterally terminates his employment without cause or he is
terminated by the Company for cause. With respect to the period that Dr.
Goldenberg is entitled to receive Revenue Incentive Compensation on any given
products, it will be in lieu of any other percentage compensation based on sales
or revenue due him with respect to such products under this Agreement or the
existing License Agreement between the Company and Dr. Goldenberg. With respect
to any periods that Dr. Goldenberg is not receiving such Revenue Incentive
Compensation for any products covered by patented Goldenberg Discoveries or by
certain defined Prior Inventions of Dr. Goldenberg, he will receive 0.5% on
cumulative annual net sales of, royalties on, certain equivalents thereof, and,
to the extent approved by the Board, other consideration received by the Company
for such products, up to a cumulative annual aggregate of $75,000,000 and 0.25%
on any cumulative Annual Net Revenue in excess of $75,000,000 (collectively
"Incentive Payments"). A $100,000 annual minimum payment will be paid in the
aggregate against all Revenue Incentive Compensation and Royalty Payments
("Annual Minimum Payment") and the License Agreement (discussed above).
Dr. Goldenberg also will receive a percent, not less than 20%, to be
determined by the Board, of net consideration (including license fees) which the
Company receives for any disposition, by sale, license or otherwise (discussions
directed to which commence during the term of his employment plus two years) of
any defined Undeveloped Assets of the Company which are not budgeted as part of
the Company's strategic plan.
Dr. Goldenberg will not be entitled to any incentive compensation with
respect to any products, technologies or businesses acquired from third parties
for a total consideration in excess of $5,000,000, unless the Company had made a
material contribution to the invention or development of such products,
technologies or businesses prior to the time of acquisition. Except as affected
by a defined Change in Control or otherwise approved by the Board, Dr.
Goldenberg will also not be entitled to any Revenue Incentive Compensation or
Incentive Payments other than the Annual Minimum Payment with respect to any
time during the period of his employment (plus two years, unless employment is
terminated by mutual agreement or by Dr. Goldenberg's death or permanent
disability) that he is not the direct or beneficial owner of shares of the
Company's voting stock with an aggregate market value of at least twenty times
his defined annual cash compensation.
Pursuant to a License Agreement dated July 7, 1983, the Company must
pay to Dr. F. James Primus, a co-inventor with Dr. Goldenberg of certain
monoclonal antibodies and immunoassays which are the subject matter of a U.S.
patent and foreign counterparts thereof that are owned jointly by Drs. Primus
and Goldenberg, a royalty in the amount of 0.25% of the first $20,000,000 of
annual net sales of certain products utilizing a CEA-specific antibody (e.g.,
CEA-Scan), and 0.125% of annual net sales of such products in excess of
$20,000,000.
14
The Company has entered into patent license agreements with
non-affiliated companies, pursuant to which the Company granted to the licensee,
for an initial non-refundable fee plus royalties, a non-exclusive license under
the Company's patents to manufacture and sell certain cancer imaging products.
To date, no royalties have been received under these licenses. In addition, the
Company has sought to enter into patent license agreements with companies that
may be developing or marketing products that could infringe on one or more of
the patents which the Company owns or has licensed. In certain situations, such
companies have declined to enter into license agreements with the Company and
have raised questions as to the scope and validity of certain of the Company's
patents. Discussions are continuing with these companies and the Company intends
to vigorously protect and enforce its patent rights. Although there can be no
assurances as to the outcome of any patent disputes, the Company believes that
its patents are valid and will be upheld if challenged.
In November, 1996, the Company filed an infringement action in The
Netherlands against Hoffmann-La Roche for infringement of the Company's European
patent covering specific anti-CEA antibodies, which Roche is using in its CEA
immunoassay. The patent also covers the antibody, which the Company uses in its
CEA-Scan imaging product. The Company is seeking an injunction prohibiting sale
of Roche's assay in The Netherlands and other European Union countries in which
the Company's European patent has been issued. Roche has denied infringement and
has filed nullity proceedings in The Netherlands and in Germany, seeking to
invalidate the Company's patents in those countries. The Company has filed its
Statement of Defense in the Dutch nullity action and expects to file shortly its
German defense. Trial on the infringement action commenced in The Hague on
August 8, 1997. There can be no assurance that the Company will prevail in the
infringement suit or that its patents will survive the nullity actions, although
the Company believes that Roche's infringement defense and nullity attacks are
unlikely to succeed.
The Company also relies in part on trade secrets, unpatented know-how
and continuing technological advancements to maintain its competitive position.
It is the practice of the Company to enter into confidentiality agreements with
employees, consultants and corporate sponsors. There can be no assurance,
however, that these measures will prevent the unauthorized disclosure or use of
the Company's trade secrets and know-how.
The mark "IMMUNOMEDICS" is registered in the United States and 20
foreign countries, and the Company's logo also is registered in the United
States and in several foreign countries. The mark "IMMUSTRIP" is registered in
the United States and Canada. The mark "CEA-SCAN" is registered in the United
States and 6 foreign countries, applications are pending in three foreign
countries and an application for a European Community Trademark is pending. The
mark "LEUKOSCAN" is registered in the United States and 11 foreign countries,
applications are pending in 3 foreign countries, and an application for a
European Community Trademark is pending. An application for the mark
"LYMPHOSCAN" is pending in the United States, the mark is registered in 7
foreign countries, applications are pending in 2 foreign countries, and an
application for a European Community Trademark is pending. In addition, the
Company has applied for registration in the United States for several other
trademarks for use on products now in development or testing, and for
corresponding foreign and/or European Community Trademarks for certain of those
marks.
15
GOVERNMENT REGULATION
The manufacture and marketing of pharmaceutical or biological products
requires approval of the FDA and comparable agencies in foreign countries and,
to a lesser extent, state regulatory authorities. In the United States, the
regulatory approval process for antibody-based products, which are considered
"biologics" under FDA regulations, is similar to that for any new drug for human
use. The FDA has established mandatory procedures and safety standards that
apply to the clinical testing, manufacturing and marketing of pharmaceutical
products. Noncompliance with applicable requirements can result in fines,
recalls or seizure of products, total or partial suspension of production,
refusal of the FDA to approve product license applications or to allow the
Company to enter into supply contracts, and criminal prosecution. The FDA also
has the authority to revoke previously granted product licenses and
establishment licenses.
Generally, there is a substantial period of time between technological
conception of a proposed product and its availability for commercial sale. The
period between technological conception and filing of a Biologics License
Application with the FDA is usually five to ten years for IN VIVO products and a
minimum of two to three years for IN VITRO diagnostic products. The period
between the date of submission to the FDA and the date of approval has averaged
two to four years for IN VIVO products, although the approval process may take
longer, as was the case with CEA-Scan.
The amount of time taken for this approval process is a function of a
number of variables, including the quality of the submission and studies
presented, the potential contribution that the compound will make in improving
the diagnosis and/or treatment of the disease in question and the workload at
the FDA. There can be no assurance that any new product will successfully
proceed through this approval process or that it will be approved in any
specific period of time. Depending upon marketing and distribution plans and
arrangements for a particular product, the Company may require additional time
before a proposed IN VIVO product is available for commercial sale.
The steps required before biological products can be produced and
marketed usually include preclinical non-human studies, the filing of an IND
application, human clinical trials and the filing and approval of a BLA. In
addition to obtaining FDA approval for each product, the FDA must also approve
any production facilities for the product.
Pre-clinical studies are conducted in the laboratory and in animal
model systems to gain preliminary information on the drug's effectiveness and to
identify major safety problems. The results of these studies are submitted to
the FDA as part of the IND application before approval can be obtained for the
commencement of testing in humans. The human clinical testing program required
for a new biologic or pharmaceutical product involves several phases. The
initial clinical evaluation, Phase I, consists of administering the product and
testing for safe and tolerable dosages while noting the effectiveness of the
product at the various dose levels. Typically, for cancer agents, testing is
16
done with a small group of patients with widespread cancers that have been
unresponsive to other forms of therapy. Phase II involves a study to evaluate
the effectiveness of the product for a particular indication and to refine
optimal dosage and schedule of administration and identify possible side effects
and risks in a larger patient group. When a product is determined to be
effective in Phase II trials, it is then evaluated in Phase III clinical trials.
Phase III trials consist of additional testing for effectiveness and safety with
a further expanded patient group, usually at multiple test sites. A therapeutic
cancer product must be compared to standard treatments, if such treatments
exist, to determine its relative effectiveness in randomized trials.
Human clinical trials of IN VIVO monoclonal antibody products may
combine Phase I and Phase II trials. In selected cases, a more traditional Phase
II study may be performed to examine the effectiveness of a single product in
one or a limited number of configurations or dose schedules in a single tumor
type.
When Phase III studies are complete, the results of the pre-clinical
and clinical studies, along with manufacturing information, are submitted to the
FDA in the form of a BLA. The BLA involves considerable data collection,
verification and analysis, as well as the preparation of summaries of the
production and testing processes, pre-clinical studies and clinical trials. The
BLA is submitted to the FDA for product marketing approval. The FDA must approve
the BLA and manufacturing facilities before the product may be marketed. The FDA
may also require post-marketing testing, including extensive Phase IV studies,
and surveillance to monitor the effects of the product in general use. Product
approvals may be withdrawn if compliance with regulatory standards is not
maintained or if problems occur following initial marketing. In addition, the
FDA may in some circumstances impose restrictions on the use of the drug that
may limit its market potential, and also make it difficult and expensive to
administer.
The Company seeks to have its proposed products, when applicable,
designated as "Orphan Drugs" under the Orphan Drug Act of 1983. The Orphan Drug
Act generally provides incentives to manufacturers to develop and market
products to treat relatively rare diseases, i.e., diseases affecting fewer than
200,000 persons in the United States. The Company has received Orphan Drug
designation for, among others, AFP-Scan, LymphoScan and LymphoCide, the
Company's liver and germ cell imaging, lymphoma imaging and lymphoma therapeutic
products, respectively, and for CEA-Scan for the diagnosis of medullary thyroid
cancer. A drug that receives Orphan Drug designation and is the first product to
receive FDA marketing approval for its product claim is entitled to a seven-year
exclusive marketing period in the United States for that claim for the product.
However, a drug that is considered by the FDA to be different from a particular
Orphan Drug is not barred from sale in the United States during this seven-year
exclusive marketing period.
Manufacture of a biological product must be in a facility approved by
the FDA for such product. The manufacture, holding and distribution of both
biological and nonbiological drugs must be in compliance with Good Manufacturing
Practices ("GMP"). Manufacturers must continue to
17
expend time, money and effort in the area of production and quality control to
ensure full technical compliance with those requirements. The labeling,
advertising and promotion of drug or biological product must be in compliance
with FDA regulatory requirements. Failure to comply with applicable requirements
relating to manufacture, distribution or promotion can lead to FDA demands that
production and shipment cease, and, in some cases, that products be recalled, or
to enforcement actions that can include seizures, injunctions and criminal
prosecution. Such failures, or new information reflecting on the safety and
effectiveness of the drug that comes to light after approval, can also lead to
FDA withdrawal of approval to market the product.
The drug approval process is similar in other countries and is also
regulated by specific agencies in each geographic area. Approval by the FDA does
not ensure approval in other countries. Generally, however, products that are
approved by the FDA in the U.S. will ultimately gain marketing approval in other
countries, but may require considerable additional time to do so.
The Company's ability to commercialize its products successfully may
also depend in part on the extent to which reimbursement for the cost of such
products and related treatment will be available from government health
administration authorities, private health insurers and other organizations.
Such third-party payers are increasingly challenging the price of medical
products and services. Several proposals have been made that may lead to a
government-directed national health care system. Adoption of such a system could
further limit reimbursement for medical products, and there can be no assurance
that adequate third-party coverage will be available to enable the Company to
maintain price levels sufficient to realize an appropriate return on this
investment in product development. In addition, there can be no assurance that
the U.S. government will not implement a system of price controls. Any such
system might adversely affect the ability of the Company to market its products
profitably.
The Company's present and future business is also subject to regulation
under state and Federal law regarding work place safety, laboratory practices,
the use and handling of radioisotopes, environmental protection and hazardous
substance control and to other present and possible future local, federal and
foreign regulations. The Company believes its operations comply, in all material
respects, with applicable environmental laws and regulations, and the Company is
continuing its efforts to ensure its full compliance with such laws and
regulations.
COMPETITION
The biotechnology industry is highly competitive, particularly in the
area of cancer diagnostic, imaging and therapeutic products. The Company is
likely to encounter significant competition with respect to its proposed
products currently under development. A number of companies which are engaged in
the biotechnology field, and in particular the development of cancer diagnostic
and therapeutic products, have financial, technical and marketing resources
significantly greater than those of the Company. Some companies with established
positions in the pharmaceutical industry may be
18
better equipped than the Company to develop, refine and market products based on
technologies applied to the diagnosis and treatment of cancers and infectious
diseases. The Company's ability to compete in the future will depend, in part,
on its ability to foster an environment in which multi-disciplinary teams work
together to develop low-cost, well-defined processes and bring cost-beneficial
products successfully through clinical testing and regulatory approval. A
significant amount of research and antibody-based technology are also carried
out at universities and other non-profit research organizations, which are
becoming increasingly aware of the commercial value of their findings and are
becoming more active in seeking patent and other proprietary rights, as well as
licensing revenues.
The Company is pursuing an area of product development in which there
is the potential for extensive technological innovation in relatively short
periods of time. The Company's competitors may succeed in developing products
that are safer or more effective than those of the Company's potential products.
Rapid technological change or developments by others may result in the Company's
present products and potential products becoming obsolete or non-competitive.
The Company believes that the technological attributes of its proposed
diagnostic imaging products, including the ease of use (e.g., single vial, rapid
imaging), employment of technetium-99m (the most widely available radioisotope)
and its use of an antibody fragment (better liver imaging, decreased HAMA
response) will enable the Company to compete effectively in the marketplace.
EMPLOYEES
As of September 26, 1997, the Company employed 91 persons on a
full-time basis, 23 of whom are in research and development departments, 22 of
whom are engaged in clinical research and regulatory affairs, 21 of whom are
engaged in operations and manufacturing, and 25 of whom are engaged in finance,
administration and marketing. Of these employees, 20 hold M.D., Ph.D. or other
advanced degrees. In addition, through MMD, there are 14 sales representatives
working in marketing. The Company believes that it has been successful in
attracting skilled and experienced scientific personnel; however, competition
for such personnel is intensifying. The Company's employees are not covered by a
collective bargaining agreement, and the Company believes that its relationship
with its employees is excellent.
ITEM 2--PROPERTIES
The Company's headquarters is located at 300 American Road, Morris
Plains, New Jersey, where it leases approximately 60,000 square feet. The
Company has a seven-year lease expiring in May, 1999, plus two renewal periods
for a total of 15 years, at a base annual rental of $471,000 through May, 1998
and $448,000 through May, 1999. The lease provides for an option to purchase the
facility, subject to certain terms and conditions as specified in the lease. The
Company's regulatory, medical, research and development laboratories, finance,
marketing and executive offices are currently located in this facility,
occupying approximately 40,000 square feet. The Company has also completed the
construction and equipping of a 7,500 square-foot commercial-scale manufacturing
facility at its Morris Plains headquarters, which consists of four independent
antibody manufacturing suites, several support areas, and a QC laboratory (see
"Manufacturing"). In addition, the Company's European subsidiary, Immunomedics
Europe, leases executive office space in Hillegom, The Netherlands.
19
ITEM 3--LEGAL PROCEEDINGS
Pursuant to its 1991 agreement with Adria Laboratories Division of
Erbamont, Inc., which later became Pharmacia, Inc. and subsequently Pharmacia &
Upjohn ("Pharmacia"), the Company granted to Pharmacia an exclusive license to
market and sell CEA-Scan, AFP-Scan and LymphoScan products for certain specified
indications in the United States and Canada. In June, 1994, the Company and
Pharmacia, in the context of discussions directed towards restructuring their
relationship, agreed to release Pharmacia from certain obligations, whereby the
Company regained the marketing and selling rights and assumed financial
responsibility for all future clinical, marketing and selling activities for
LymphoScan and AFP-Scan. On August 2, 1995, the Company announced that its
agreement with Pharmacia was terminated, and that the Company had regained the
North American marketing and selling rights for CEA-Scan from Pharmacia.
Subsequent to termination of the Agreement, the Company and Pharmacia were
unable to agree on the amount of a final payment by Pharmacia to the Company to
satisfy Pharmacia's remaining obligations. In June, 1996, the Company filed a
claim against Pharmacia before the American Arbitration Association claiming
damages for breach of contract and fiduciary duty in the amount of $60 million
plus punitive damages. Arbitration proceedings commenced soon thereafter. Final
closing arguments were made on September 17, 1997, and a decision should be
forthcoming in the near future. The Company and its attorneys are unable at this
time to predict the outcome of the case.
As described in "Business-Marketing and Sales", the Company is
attempting to resolve a number of outstanding issues with the Mallinckrodt
Affiliates under the respective agreements with those entities. In the course of
those attempts, the Company understood that the Mallinckrodt Affiliates had
agreed in principle to the Company's request to the voluntary termination of the
respective agreements and the return to the Company of all their rights
thereunder with respect to CEA-Scan, with full cooperation during the transition
period. However, the Mallinckrodt Affiliates are denying that there was any such
agreement in principle, asserting that they are awaiting a proposal of
definitive terms and conditions, including an exchange of general releases
covering such termination, and further alleging breaches by the Company of the
respective agreements and tortuous interference with the Mallinckrodt
Affiliates' alleged contractual relationships. The Company does not believe that
is has breached either of the agreements or that it has tortuously interfered
with any alleged contractual relationships. Moreover, the Company is unwilling
to give the releases demanded by the Mallinckrodt Affiliates without having the
opportunity to evaluate the full extent of damages the Company may have suffered
as a result of what it believes to be the failure of the Mallinckrodt Affiliates
to perform their obligations under the agreements and has reserved all of its
rights and remedies in connection therewith including the right to terminate the
agreements and to damages, if the outstanding issues cannot otherwise be
resolved.
The Company is involved in various other claims and litigation arising
in the normal course of business. Management believes that the outcome of such
claims and litigation will not have a material adverse effect on the Company's
financial position and results of operations.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of securities holders during the
fourth quarter of fiscal year 1997.
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20
EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive Officers of the Company and their positions with the
Company are as follows:
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
David M. Goldenberg 59 Chairman of the Board, CEO
and Director
Hans J. Hansen 64 Vice President,
Research and Development
Carl M. Pinsky 59 Vice President,
Medical Affairs
Robert F. Komenda 58 Vice President,
Finance & Administration,
Treasurer and Chief Financial Officer
Joseph E. Presslitz 56 Vice President, Regulatory Affairs
Each of the Executive Officers was elected as such by the Board of
Directors of the Company and holds his office at the discretion of the Board of
Directors or until his earlier death or resignation, except that Dr. Goldenberg
holds his office pursuant to an employment agreement (See "Executive
Compensation").
Dr. David M. Goldenberg founded the Company in July, 1982, and since
that time, has been Chairman of the Board of the Company. Dr. Goldenberg has
served as Chief Executive Officer since February, 1994. He has also served as
Chief Executive Officer of the Company from July, 1982, through July, 1992, and
as Treasurer of the Company from July, 1996, until March, 1997. Dr. Goldenberg
was Professor of Pathology at the University of Kentucky Medical Center from
1973 until 1983 and Director of such University's Division of Experimental
Pathology from 1976 until 1983. From 1975 to 1980 he also served as Executive
Director of the Ephraim McDowell Community Cancer Network, Inc., and from 1978
to 1980 he was President of the Ephraim McDowell Cancer Research Foundation,
Inc., both in Lexington, Kentucky. Dr. Goldenberg is a graduate of the
University of Chicago College and Division of Biological Sciences (S.B.), the
University of Erlangen-Nuremberg (Germany) Faculty of Natural Sciences (Sc.D.),
and the University of Heidelberg (Germany) School of Medicine (M.D.). He has
written or co-authored more than 950
21
journal articles, book chapters and abstracts on cancer research, detection and
treatment, and has researched and written extensively in the area of
radioimmunodetection using radiolabeled antibodies. In addition to his position
with the Company, Dr. Goldenberg is President of CMMI, an independent non-profit
research center, and its clinical unit, the Garden State Cancer Center. He also
holds the position of Adjunct Professor of Microbiology and Immunology with the
New York Medical College in Valhalla, New York. In 1985 and again in 1992, Dr.
Goldenberg received an "Outstanding Investigator grant" award from the National
Cancer Institute ("NCI") for his work in radioimmunodetection, and in 1986 he
received the New Jersey Pride Award in Science and Technology. Dr. Goldenberg
was honored as the ninth Herz Lecturer of the Tel Aviv University Faculty of
Life Sciences. In addition, he received the 1991 Mayneord 3M Award and
Lectureship of the British Institute of Radiology for his contributions to the
development of radiolabeled monoclonal antibodies used in the imaging and
treatment of cancer. Dr. Goldenberg was also named the co-recipient of the 1994
Abbott Award by the International Society for Oncodevelopmental Biology and
Medicine.
Dr. Hans J. Hansen has been Vice President, Research and Development,
since March 1987. Prior to joining the Company in 1985 as Director of Cell
Biology, he was for three years the Director of Product Development at Ortho
Diagnostic Systems, Inc., a subsidiary of Johnson & Johnson Corporation, where
he developed monoclonal antibodies for the diagnosis of leukemia and other
cancers. From 1969 to 1982, Dr. Hansen was with Hoffmann-La Roche in a variety
of positions, becoming Director of the Department of Immunology in 1982. While
at Hoffmann-La Roche, he developed the first IN VITRO diagnostic CEA immunoassay
and had a major role in establishing its clinical importance in the diagnosis
and management of cancer. Dr. Hansen has spent 38 years conducting clinical and
basic research in the fields of cancer and autoimmune disease. His work has
resulted in the issuance of eight United States patents and over 90 publications
relating to cancer and autoimmune diseases.
Dr. Carl M. Pinsky has been Vice President, Medical Affairs since May,
1989, focusing since 1996 in medical marketing activities. From August, 1988
through May, 1989, Dr. Pinsky was the Vice President, Medical Affairs of IMRE
Corp., a pharmaceutical company. From 1985 through 1988, Dr. Pinsky was a Branch
Chief and Chief Medical Officer at the Biological Response Modifiers Program
("BRMP") of the National Cancer Institute of the National Institutes of Health,
where he directed a $25 million program of grants and contracts covering both
basic science and clinical trials involving biological response modifiers. At
the BRMP, Dr. Pinsky directed the formulation of the initial plan for NCI's
extramural development of monoclonal antibodies. Following his formal training
at the University of Pennsylvania (A.B.), Jefferson Medical College (M.D.) and
the University of Kentucky Medical School (Intern/Resident), Dr. Pinsky has 31
years of diversified experience in basic and clinical cancer research, including
19 years at Memorial Sloan-Kettering Cancer Center, where he conducted major
studies evaluating immunodeficiency in cancer patients and helped pioneer the
development of immunotherapy for these patients.
22
Mr. Robert Komenda has been Vice President, Finance and Administration,
Treasurer, and Chief Financial Officer since March, 1997. Prior to joining the
Company, Mr. Komenda was a consultant with the consulting firms of KPMG Baymark
Strategies from September, 1995, until March, 1996, and Whitestone Associates
from May, 1996, until February, 1997. From January, 1993, until May, 1995, Mr.
Komenda was Chief Financial Officer of Colorado Prime, Inc., a food purveyor.
From October, 1989, until January, 1993, Mr. Komenda was Chief Financial Officer
of NuKote International, Inc., a manufacturing company. Mr. Komenda has a B.A.
degree from Harvard College and an M.B.A. from Harvard Business School.
Dr. Joseph E. Presslitz has been employed by the Company since
February, 1992, and has served as Vice President, Regulatory Affairs since
September, 1997, and prior thereto as Executive Director, Regulatory Affairs.
From 1985 until 1992, he held the position of Director, International Regulatory
Affairs at the Lederle Division of American Cyanamid. From 1980 until 1985, he
was Director of Laboratories at Masti-Kure, Inc., a veterinary pharmaceutical
company. Prior thereto, Dr. Presslitz spent nine years in research and
development in the areas of infectious disease and rheumatology at Pfizer, Inc.
He received his Ph.D. in biochemistry from St. Louis University, and
post-doctoral training in molecular biology at the Massachusetts Institute of
Technology.
23
PART II
-------
ITEM 5--MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on The Nasdaq National Market
under the symbol "IMMU". The table below sets forth for the periods indicated
the high and low sales prices for the Company's Common Stock, as reported by The
Nasdaq Stock Market. As of September 23, 1997, there were approximately 1,200
holders of record of the Company's Common Stock.
FISCAL QUARTER ENDED HIGH LOW
- -----------------------------------------------------------------------
September 30, 1995 8 1/2 2 1/4
December 31, 1995 8 1/4 3 3/4
March 31, 1996 10 3/8 5 1/8
June 30, 1996 9 7/8 6 1/2
- -----------------------------------------------------------------------
September 30, 1996 13 6 3/8
December 31, 1996 8 5/8 4 1/2
March 31, 1997 7 3/8 3 5/8
June 30, 1997 6 1/16 3 11/16
- -----------------------------------------------------------------------
ITEM 6--SELECTED FINANCIAL DATA (FISCAL YEAR ENDED JUNE 30)
1997 1996 1995 1994 1993
--------------------------------------------------------
In thousands, except per share amounts
Total revenues $ 3,841 $ 1,700 $ 3,189 $ 4,237 $ 5,055
Total operating expenses 17,775 15,000 14,593 19,293 14,482
Net loss prior to dividend (13,934) (13,300) (11,404) (15,056) (9,427)
Dividends on preferred stock 13 -- -- -- --
Net loss (13,947) (13,300) (11,404) (15,056) (9,427)
Net loss per common share $ (0.39) $ (0.40) $ (0.38) $ (0.50) $ (0.32)
Weighted average
Shares outstanding 35,445 32,904 30,098 30,051 29,420
Cash, cash equivalents and
Marketable securities $ 15,024 $ 28,691 $ 22,814 $ 25,230 $ 41,813
Total assets 22,635 35,720 28,224 31,833 46,165
Stockholders' equity (1) 17,446 31,153 23,629 27,392 42,622
(1) The Company has not paid cash dividends on its Common Stock since its
inception.
24
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Statements made in this Form 10-K, other than those concerning
historical information, should be considered forward-looking and subject to
various risks and uncertainties. Such forward-looking statements are made based
on management's belief as well as assumptions made by, and information currently
available to, management pursuant to the `safe harbor' provisions of the Private
Securities Litigation Reform Act of 1995. The Company's actual results may
differ materially from the results anticipated in these forward-looking
statements as a result of a variety of factors, including those identified in
"Business" and elsewhere in this Annual Report on Form 10-K for the fiscal year
ended June 30, 1997.
Since its inception, the Company has been engaged primarily in the
research and development and, more recently, the commercialization of
proprietary products relating to the detection, diagnosis and treatment of
cancer and infectious diseases. On June 28, 1996, the FDA licensed CEA-Scan for
the detection of recurrent and/or metastatic colorectal cancer. On October 4,
1996, the European Commission granted marketing authorization for use of the
product in the 15 countries comprising the European Union. On February 19, 1997,
the Company received European Commission approval for LeukoScan for the
diagnosis of osteomyelitis in long bones and in patients with diabetic foot
ulcers. The product is currently under review by the FDA for the same indication
approved in Europe, with the additional indication for diagnosis of acute,
atypical appendicitis. On September 16, 1997, the Company received a notice of
compliance from the HPB permitting it to market CEA-Scan in Canada for recurrent
and metastatic colorectal cancer.
The Company is also engaged in developing other biopharmaceutical
products, which are in various stages of development and clinical testing. The
Company has not achieved profitable operations and does not anticipate achieving
profitable operations during fiscal year 1998. The Company will continue to
experience operating losses until such time, if at all, that it is able to
generate sufficient revenues from sales of CEA-Scan, LeukoScan, and its other
proposed IN VIVO products. Further, the Company's working capital will continue
to decrease until such time, if at all, that the Company is able to generate
positive cash flow from operations or until such time, if at all, that the
Company receives an additional infusion of cash from the sale of the Company's
securities, from other financings or from corporate alliances to finance the
Company's operating expenses and capital expenditures.
RESULTS OF OPERATIONS
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Revenues for fiscal year 1997 were $3,841,000 as compared to $1,700,000
in fiscal year 1996, representing an increase of $2,141,000. The increase was
principally due to product sales and an increase in research and development
revenues, partially offset by lower interest income. Product
25
sales and royalty revenue for fiscal year 1997 was $1,975,000 as compared to
$186,000 in fiscal year 1996, representing an increase of $1,789,000, of which
$1,332,000 is attributable to product sales. In addition, the Company received a
license fee of $500,000 from a corporate partner. Research and development
revenues for fiscal year 1997 were $620,000 as compared to $150,000 in fiscal
year 1996, representing an increase of $470,000 which is mainly due to an
increase in government grant income. Interest income in fiscal year 1997 as
compared to fiscal year 1996 decreased by $236,000, primarily as a result of
reduced levels of cash available for investment (see "Liquidity and Capital
Resources").
Total operating expenses for fiscal year 1997 were $17,776,000 as
compared to $15,000,000 in fiscal year 1996, representing an increase of
$2,776,000. Research and development costs increased by $610,000 as compared to
fiscal year 1996 due to ongoing validation of the Company's new manufacturing
facility and expenses related to the filing of the application to the FDA for
approval of LeukoScan. General and administrative costs increased by $2,179,000
as compared to fiscal year 1996. This increase was principally due to legal
expenses of $944,000 incurred in connection with a claim against Pharmacia &
Upjohn, Inc. filed in June, 1996, marketing expenses for CEA-Scan of $674,000
and operating expenses for Immunomedics, B.V. of $488,000, which expenses were
not significant in the prior year.
Net loss for fiscal year 1997 was $13,947,000, or $0.39 per share, as
compared to a net loss of $13,299,000, or $0.40 per share, in fiscal year 1996.
The greater net loss resulted principally from higher general and administrative
expense partially offset by product sales and increased royalty revenues, as
explained above. The net loss per share for fiscal year 1997 was impacted by the
higher weighted average number of shares outstanding during such period, as
compared to fiscal year 1996, due to the conversion of the Company's preferred
stock (see "Liquidity and Capital Resources").
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Revenues for fiscal year 1996 were $1,700,000 as compared to $3,189,000
in fiscal year 1995, representing a decrease of $1,489,000. The decrease was
principally due to a decrease in research and development revenue resulting from
the termination, in August, 1995, of the Development and License Agreement with
Pharmacia. Accordingly, research and development revenues decreased by
$1,728,500 to $150,000 in fiscal year 1996. In fiscal year 1995, these revenues
totaled $1,878,500, of which $1,665,000 was received from Pharmacia. Partly
offsetting the decline in research and development revenue was increased
interest income of $254,000 in fiscal year 1996, as compared to fiscal year
1995, primarily as a result of higher levels of cash available for investment
resulting from completion of two financing transactions (see "Liquidity and
Capital Resources").
26
Total operating expenses for fiscal year 1996 were $15,000,000 as
compared to $14,593,000 in fiscal year 1995, representing an increase of
$407,000. The increase was due to higher general and administrative expense,
largely due to increases in consulting, recruiting and employee benefits
expenses of $178,000, $102,000 and $96,000, respectively. The higher consulting
expenses were primarily due to a strategic planning study undertaken in fiscal
year 1996. The higher employee benefits expenses reflected higher payroll taxes,
due in part to the exercise of stock options by employees, and higher expenses
for executive life insurance for an executive officer of the Company. Research
and development costs in fiscal year 1996 were essentially unchanged from fiscal
year 1995.
Net loss for fiscal year 1996 was $13,299,000, or $0.40 per share, as
compared to a net loss of $11,404,000, or $0.38 per share, in fiscal year 1995.
The greater net loss resulted principally from lower research and development
revenue and increased general and administrative expense, as explained above.
The net loss per share for fiscal year 1996 was impacted by the higher weighted
average number of shares outstanding during such period as compared to fiscal
year 1995, which increase was principally due to the conversion of the Company's
preferred stock (see Liquidity and Capital Resources").
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had working capital of $11,753,000,
representing a decrease of $13,290,000 from June 30, 1996, and had no long-term
debt other than certain lease obligations (see Note 11 of Notes to Consolidated
Financial Statements). The decrease in working capital resulted principally from
the funding of operating expenses and capital expenditures.
On June 27, 1996, the Company completed an equity financing pursuant to
Regulation S under the Securities Act of 1933 ("Regulation S"), pursuant to
which several foreign investors purchased 200,000 shares of 5% Series D
Convertible Preferred Stock (the "Series D Preferred") for $10,000,000. The
terms of the transaction allowed the investors, at their discretion, to convert
the Series D Preferred into shares of the Company's common stock during a
twenty-four month period beginning in June, 1996, at a price equal to 89% of the
average market price per share over a 20-day trading period surrounding the date
of conversion. Dividends on the Series D Preferred were payable annually,
commencing June 30, 1997, on all shares of Series D Preferred that have not been
converted into common stock as of the dividend payment date. (In August, 1997, a
dividend payment of $12,498 was made.) As of June 30, 1997, 195,001 shares of
Series D Preferred had been converted into 1,733,439 shares of the Company's
common stock. In August, 1997, the remaining 4,999 shares of Series D Preferred
were converted into 62,332 shares of the Company's common stock.
In addition, during fiscal year 1997, the remaining 28,415 shares of
the Company's Series C Preferred Stock (the "Series C Preferred") were converted
into 182,646 shares of the Company's common stock. The Company had issued an
aggregate of 200,000 shares of the Series C Preferred in fiscal 1996 for
$10,000,000.
27
On August 2, 1995, the Company announced that its Development and
License Agreement with Pharmacia was terminated and that the Company had
regained the North American marketing and selling rights for CEA-Scan from
Pharmacia (see "Legal Proceedings").
In February, 1994, the Company entered into a master lease agreement,
which was subsequently amended, pursuant to which the Company may lease
equipment for research, development and manufacturing purposes having an
aggregate acquisition cost of up to $2,200,000. The basic lease payments under
the master lease agreement are determined based on current market rates of
interest at the inception of each equipment schedule take-down and are payable
in monthly installments over a four-year period. The lease agreement contains an
early purchase option, at an amount that is deemed to be fair value, exercisable
no later than ninety days before the thirty-sixth installment is due. On
November 1, 1996, December 9, 1996, and April 1, 1997 the Company exercised
early purchase options on equipment leased on February 14, 1994, April 1, 1994,
and June 1, 1994, respectively.
Under the lease agreement, continued compliance with certain financial
ratios is required and, in the event of default, the Company will be required to
provide an irrevocable letter of credit which is generally equal to the
outstanding balance of lease payments due at the time of default. As of June 30,
1997, the Company has leased equipment with a cost basis aggregating $1,247,000
under the master lease agreement and recorded lease expense for fiscal year 1997
of $497,000.
The Company's liquid asset position, as measured by its cash, cash
equivalents and marketable securities, was $15,024,000 at June 30, 1997,
representing a decrease of $13,667,000 from June 30, 1996. It is anticipated
that working capital and cash, cash equivalents, and marketable securities will
decrease during fiscal year 1998 as a result of planned operating expenses and
capital expenditures, offset in part by projected revenues from product sales in
the U.S. and Europe. However, there can be no assurance as to the amount of
revenues, if any, these products will provide. At present, the Company believes
that its financial resources will be sufficient to fund operating expenses and
capital expenditures through fiscal year 1998 based on reduced spending levels,
if necessary. The Company intends to supplement its financial resources from
time to time, as market conditions permit, through additional financing, bank
loans and collaborative marketing and distribution agreements. In addition, the
Company continues to evaluate various programs to raise additional capital and
to seek additional revenues from the licensing of its proprietary technology. At
the present time, the Company is unable to determine whether any of these
activities will be successful and, in such cases, the terms and timing of any
definitive agreements or financing. There can be no assurance that the Company
will be able to obtain additional funds in the future.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per
Share". SFAS 128 establishes standards for computing and presenting earnings per
share. In accordance with the effective date of SFAS 128, the Company will adopt
SFAS 128 as of December 31, 1997. This statement is not expected to have a
material impact on the Company's financial statements.
28
ITEM 8-FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
IMMUNOMEDICS, INC.
CONSOLIDATED BALANCE SHEETS
June 30, June 30,
1997 1996
------------ -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 6,013,355 13,646,000
Marketable securities 9,010,275 15,044,821
Inventory 690,695 193,672
Other current assets 1,227,000 725,291
------------ -----------
Total current assets 16,941,325 29,609,784
Property and equipment, net of accumulated
depreciation of $4,852,000 and $5,372,000 at
June 30, 1997 and June 30, 1996, respectively 5,693,193 6,110,191
------------ -----------
$ 22,634,518 35,719,975
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 2,360,256 1,631,071
Other current liabilities 2,827,970 2,935,698
------------ -----------
Total current liabilities 5,188,226 4,566,769
------------ -----------
Commitments and contingencies
Stockholders' Equity:
Preferred stock; $.01 par value, authorized 10,000,000 shares;
Series C convertible, authorized 200,000 shares;
issued and outstanding 28,415 shares at June 30,1996 -- 284
Series D convertible, authorized 200,000 shares;
issued and outstanding 4,999 and 200,000 shares
at June 30, 1997 and June 30, 1996, respectively 50 2,000
Common stock; $.01 par value, authorized 70,000,000 shares at
June 30, 1997 and 50,000,000 shares at June 30, 1996;
issued and outstanding 36,297,170 and 34,305,485 shares
at June 30, 1997 and June 30, 1996, respectively 362,971 343,055
Capital contributed in excess of par 93,111,855 92,894,349
Accumulated deficit (76,027,392) (62,080,861)
Accumulated net unrealized loss on securities (1,192) (5,621)
------------ -----------
Total stockholders' equity 17,446,292 31,153,206
------------ -----------
$ 22,634,518 35,719,975
============ ===========
29
IMMUNOMEDICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
REVENUES:
Product sales and royalties $ 1,974,806 $ 185,887 $ 201,006
Research and development .. 620,543 150,000 1,878,500
Interest and other ........ 1,246,118 1,364,205 1,109,721
------------ ------------ ------------
3,841,467 1,700,092 3,189,227
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of goods sold ........ 14,508 28,124 41,829
Research and development .. 13,113,991 12,503,837 12,491,847
General and administrative. 4,647,001 2,467,608 2,059,279
------------ ------------ ------------
17,775,500 14,999,569 14,592,955
------------ ------------ ------------
Net loss prior to dividends .... (13,934,033) (13,299,477) (11,403,728)
------------ ------------ ------------
Dividends ...................... 12,498 -- --
Net loss ....................... $(13,946,531) $(13,299,477) $(11,403,728)
============ ============ ============
Net loss per common share ...... $ (0.39) $ (0.40) $ (0.38)
============ ============ ============
Weighted average number of
common shares outstanding ... 35,445,033 32,903,764 30,097,584
============ ============ ============
See accompanying notes to consolidated financial statements.
30
IMMUNOMEDICS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
CAPITAL
CONVERTIBLE COMMON CAPITAL ACCUMULATED
PREFERRED STOCK STOCK CONTRIBUTED UNREALIZED
---------------------------------------- IN EXCESS ACCUMULATED (LOSS)/GAIN
SHARES AMOUNT SHARES AMOUNT OF PAR DEFICIT ON SECURITIES TOTAL
--------------------------------------------------------------------------------------------------
Balance, at June 30, 1994 ....... -- $ -- 30,055,469 $300,555 $ 64,676,957 $(37,377,656) $(204,435) $27,395,421
Issuance of convertible
preferred stock (Series B), net 150,000 1,500 -- -- 7,371,000 -- -- 7,372,500
Issuance of common stock
in exchange for convertible
preferred stock (Series B), net (25,473) (255) 544,116 5,441 (5,186) -- -- --
Exercise of options to ..........
purchase common stock ........... -- -- 25,000 250 56,000 -- -- 56,250
Net unrealized gain on securities -- -- -- -- -- -- 208,732 208,732
Net loss ........................ -- -- -- -- -- (11,403,728) -- (11,403,728)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, at June 30, 1995 ....... 124,527 1,245 30,624,585 306,246 72,098,771 (48,781,384) 4,297 23,629,175
Issuance of common stock
in exchange for convertible
preferred stock (Series B), net (124,527) (1,245) 2,000,584 20,006 (18,761) -- -- --
Issuance of convertible
preferred stock (Series C), net 200,000 2,000 -- -- 9,980,500 -- -- 9,982,500
Issuance of common stock
in exchange for convertible
preferred stock (Series C), net (171,585) (1,716) 1,356,041 13,560 (11,844) -- -- --
Issuance of convertible
preferred stock (Series D), net 200,000 2,000 -- -- 9,980,500 -- -- 9,982,500
Exercise of options to
purchase common stock .......... -- -- 324,275 3,243 865,183 -- -- 868,426
Net unrealized loss on securities -- -- -- -- -- -- (9,918) (9,918)
Net loss ........................ -- -- -- -- -- (13,299,477) -- (13,299,477)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, at June 30, 1996 ....... 228,415 2,284 34,305,485 343,055 92,894,349 (62,080,861) (5,621) 31,153,206
Issuance of common stock
in exchange for convertible
preferred stock (Series C), net (28,415) (284) 182,646 1,826 (1,542) -- -- --
Issuance of common stock
in exchange for convertible
preferred stock (Series D), net (195,001) (1,950) 1,733,439 17,334 (15,384) -- -- --
Exercise of options to
purchase common stock .......... -- -- 75,600 756 234,432 -- -- 235,188
Dividend on preferred stock ..... -- -- -- -- -- (12,498) -- (12,498
Net unrealized gain on securities -- -- -- -- -- -- 4,429 4,429
Net loss ........................ -- -- -- -- -- (13,934,033) -- (13,934,033)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, at June 30, 1997 ....... 4,999 $ 50 36,297,170 $362,971 $ 93,111,855 $(76,027,392) $ (1,192) $ 17,446,292
===================================================================================================================================
See accompanying notes to consolidated financial statements.
31
IMMUNOMEDICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30,
----------------------------------------------
1997 1996 1995
-------------- -------------- --------------
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss $(13,946,531) $(13,299,477) $(11,403,728)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,139,163 944,282 937,107
Amortization of bond premium 7,245 61,632 113,318
Changes in operating assets and liabilities:
Inventories (497,023) (193,672) 9,349
Other current assets (501,709) (37,617) 390,429
Accounts payable 716,687 (301,837) (258,407)
Other Current Liabilities (95,229) 273,297 416,102
------------ ------------ ------------
Net cash used in operating activities (13,177,397) (12,553,392) (9,795,830)
------------ ------------ ------------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchase of marketable securities (36,095,876) (32,047,487) (11,639,212)
Proceeds from maturities of marketable securities 42,127,605 32,582,485 14,691,866
Proceeds from sale of marketable securities -- -- 250,000
Additions to property and equipment (722,165) (2,331,869) (143,982)
------------ ------------ ------------
Net cash provided by (used in) investing activities 5,309,564 (1,796,871) 3,158,672
------------ ------------ ------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Issuance of convertible preferred stock, net -- 19,965,000 7,372,500
Exercise of stock options 235,188 868,426 56,250
------------ ------------ ------------
Net cash provided by financing activities 235,188 20,833,426 7,428,750
------------ ------------ ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (7,632,645) 6,483,163 791,592
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 13,646,000 7,162,837 6,371,245
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 6,013,355 $ 13,646,000 $ 7,162,837
============ ============ ============
See accompanying notes to consolidated financial statements.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS OVERVIEW
Immunomedics, Inc. (the "Company") is engaged in researching,
developing, manufacturing and marketing biopharmaceutical products, particularly
antibody-based diagnostics and therapeutics for cancer and infectious diseases.
The Company's operations encompass all the risks inherent in developing
and expanding a new business enterprise, including: (1) a limited operating
history and uncertainty regarding the timing and amount of future revenues to be
derived from the Company's technology; (2) obtaining future capital as needed;
(3) attracting and retaining key personnel; and (4) a business environment with
heightened competition, rapid technological change and strict government
regulation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Immunomedics, Inc. and its wholly-owned subsidiary. All significant intercompany
balances and transactions have been eliminated in consolidation.
CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company considers all highly liquid investments with maturities of
three months or less, at the time of purchase, to be cash equivalents.
The Company's investments in marketable securities are available for
sale to fund its operations. The Company, subject to changes in market
conditions, does not intend to hold all marketable securities to their maturity
dates and, accordingly, the portfolio has been classified as a current asset.
The portfolio primarily consists of U.S. government securities, corporate bonds,
and equity securities.
CONCENTRATION OF CREDIT RISK
The Company invests its cash in U.S. government securities and debt
instruments of financial institutions and corporations with strong credit
ratings. The Company has established guidelines relative to diversification and
maturities that are designed to help ensure safety and liquidity. These
guidelines are periodically reviewed to take advantage of trends in yields and
interest rates.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INVENTORY
Inventory is stated at the lower of average cost (which approximates
first-in, first-out) or market, and includes materials, labor and manufacturing
overhead. Inventory at June 30, 1997 and 1996 consists of the cost of vials of
CEA-Scan which were produced following the Company's receipt on April 9, 1996 of
an approvability letter from the U.S. Food and Drug Administration. Final
marketing clearance for this product was received on June 28, 1996.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives (5-10 years) of the
respective assets.
REVENUE RECOGNITION
Payments received under contracts to fund certain research activities
are recognized as revenue in the period in which the research activities are
performed. Payments received in advance, which are related to future
performance, are deferred and recognized as revenue when the research projects
are performed.
Non-refundable payments received under licensing arrangements are
recognized as revenue in the period in which they are received.
Revenue from the sale of diagnostic products is recognized at the time
of shipment.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities relate to the expected future tax
consequences of events that have been recognized in the Company's financial
statements and tax returns. The Company has not recorded any tax benefits
associated with its net deferred tax assets.
NET LOSS PER SHARE
Net loss per share is based upon the weighted average number of common
shares outstanding. Common share equivalents, consisting of outstanding stock
options and convertible preferred stock, are not included in the computations
since the effect would be antidilutive.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
LONG-LIVED ASSETS TO BE DISPOSED OF
In accordance with SFAS No. 121, the Company reviews long-lived assets
for impairment whenever events or changes in business circumstances occur that
indicate that the carrying amount of the assets may not be recoverable. The
Company assesses the recoverability of long-lived assets held and to be used
based on undiscounted cash flows, and measures the impairment, if any, using
discounted cash flows. Adoption of SFAS No. 121 in fiscal 1997 did not have a
material impact on the Company's consolidated financial position, operating
results or cash flows.
EMPLOYEE STOCK OPTIONS
Employee stock options are granted with an exercise price equal to the
market price and, therefore, compensation expense is not recognized on the
issuance of employee stock options. Effective July 1, 1996, the Company adopted
the disclosure provisions of SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. For the fair value of the employee stock options issued, see Note
7.
FINANCIAL INSTRUMENTS
The carrying amounts of cash, marketable securities, and other current
assets and current liabilities approximate fair value due to the short-term
maturity of these instruments.
3. MARKETABLE SECURITIES
The Company classifies securities for which there is not the positive
intent and ability to hold to maturity as available-for-sale, and they are
carried at fair value. Unrealized holding gains and losses on securities
classified as available-for-sale are carried as a separate component of
stockholders' equity. The Company considers all of its current investments to be
available-for-sale. Consequently, the Company has recognized an approximate
$1,000 unrealized holding loss and a $6,000 unrealized holding loss as a
separate component of stockholders' equity as of June 30, 1997 and 1996,
respectively. Marketable securities at June 30, 1997 and 1996 consist of the
following:
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
FAIR MARKET UNREALIZED HOLDING
JUNE 30, 1997 COST BASIS VALUE GAIN/(LOSS)
- ------------------------------------------------ ------------ ------------ ------------------
Securities with contractual maturities from date
of Acquisition of one year or less:
U.S. Debt Securities $ 2,459,000 $ 2,459,000 $ --
Corporate Debt Securities 6,437,000 6,437,000 --
----------- ------------ --------
$ 8,896,000 $ 8,896,000 $ --
=========== ============ ========
Securities with contractual maturities from date
of Acquisition of greater than one year:
U.S. Debt Securities $ 115,000 $ 114,000 $ (1,000)
=========== ============ ========
Total Marketable Securities $ 9,011,000 $ 9,010,000 $ (1,000)
=========== ============ ========
FAIR MARKET UNREALIZED HOLDING
JUNE 30, 1996 COST BASIS VALUE GAIN/(LOSS)
- ------------------------------------------------ ------------ ------------ ------------------
Securities with contractual maturities from date
of Acquisition of one year or less:
U.S. Debt Securities $ 2,934,000 $ 2,984,000 $ 50,000
Corporate Debt Securities 7,399,000 7,397,000 (2,000)
Equity Securities 541,000 470,000 (71,000)
----------- ------------ --------
$10,874,000 $ 10,851,000 $(23,000)
=========== ============ ========
Securities with contractual maturities from date
of Acquisition of greater than one year:
U.S. Debt Securities $ 4,177,000 $ 4,194,000 $ 17,000
=========== ============ ========
Total Marketable Securities $15,051,000 $ 15,045,000 $ (6,000)
=========== ============ ========
4. OTHER CURRENT ASSETS
Included in other current assets are trade accounts receivable of
$559,000 and $3,000 at June 30, 1997 and 1996, respectively. Also included in
other current assets is accrued interest income earned on marketable securities
and cash equivalents of approximately $104,000 and $181,000 at June 30, 1997 and
1996, respectively. Further, included at June 30, 1997 and 1996 are prepaid
expenses of $120,000 and $314,000, respectively.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and Equipment consists of the following at June 30:
1997 1996
------------ ------------
Machinery and equipment $ 2,857,000 $ 3,069,000
Leasehold improvements 6,463,000 7,343,000
Furniture and fixtures 637,000 548,000
Computer equipment 588,000 522,000
------------ ------------
10,545,000 11,482,000
Accumulated depreciation and amortization (4,852,000) (5,372,000)
------------ ------------
$ 5,693,000 $ 6,110,000
============ ============
Fully amortized property and equipment totaling $1,553,000 were retired in
fiscal year 1997.
6. OTHER CURRENT LIABILITIES
Included in other current liabilities are amounts payable to medical
institutions participating in the Company's clinical trial programs of
approximately $458,000 and $546,000 at June 30, 1997 and 1996, respectively.
Also included are amounts payable to various legal counsel of approximately
$417,000 and $177,000, and accrued health insurance liabilities of approximately
$239,000 and $246,000 at June 30, 1997 and 1996, respectively. Further, included
at June 30, 1997 and 1996 is $892,000 and $1,042,000, respectively, received
from a former corporate partner for the funding of ongoing clinical trials (see
Note 10).
7. STOCKHOLDERS' EQUITY
The Certificate of Incorporation of the Company authorizes 10,000,000
shares of preferred stock at $.01 par value per share. The preferred stock may
be issued from time to time in one or more series, with such distinctive serial
designations, rights and preferences as shall be determined by the Board of
Directors.
On September 29, 1995, the Company completed an equity financing
pursuant to Regulation S under the Securities Act of 1933 ("Regulation S"),
pursuant to which several foreign investors purchased 200,000 shares of
non-dividend paying Series C Convertible Preferred Stock (the "Series C
Preferred") for $10,000,000. The terms of the transaction allowed the investors,
at their discretion, to convert the Series C Preferred into shares of the
Company's common stock during a twenty-two month period beginning in September
1995, at pre-determined discounts from the average market
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
price per share over a 30-day trading period surrounding the date of conversion.
As of June 30, 1997, all 200,000 shares of Series C Preferred had been converted
into 1,538,687 shares of the Company's common stock.
On June 27, 1996, the Company completed an equity financing pursuant to
Regulation S, pursuant to which several foreign investors purchased 200,000
shares of 5% Series D Convertible Preferred Stock (the "Series D Preferred") for
$10,000,000. The terms of the transaction allowed the investors, at their
discretion, to convert the Series D Preferred into shares of the Company's
common stock during a twenty-four month period beginning in June, 1996, at a
price equal to 89% of the average market price per share over a 20-day trading
period surrounding the date of conversion. As of June 30, 1997, 195,001 shares
of Series D Preferred had been converted into 1,733,439 shares of the Company's
common stock. In August, 1997, the remaining 4,999 shares of Series D Preferred
were converted into 62,332 shares of common stock.
Under the terms of the Company's 1983 Stock Option, as amended (the
"1983 Plan"), stock options were granted to employees and members of the Board
of Directors, as determined by the Compensation Committee of the Board of
Directors, at fair market value, become exercisable at 25% per year on each of
the first through fourth anniversaries of the date of grant, and terminate if
not exercised within ten years. In June, 1993, the 1983 Plan expired, although
options granted under the 1983 plan which have not terminated may continue to be
exercised. On November 5, 1992, at the Company's Annual Meeting of Stockholders,
adoption of the Company's 1992 Stock Option Plan (the "1992 Plan") was ratified.
The basic terms of the 1992 Plan are substantially similar to those under the
Company's 1983 Plan. Under the 1992 Plan, 3,000,000 shares were originally
reserved for possible future issuance upon exercise of stock options, of which
962,975 were still available at June 30, 1997 for future grant. At June 30,
1997, 3,127,125 shares of common stock were reserved for possible future
issuance upon exercise of stock options outstanding and future stock option
grants.
Pursuant to the terms of the 1992 Plan, each outside Director of the
Company who was a Director on July 1 is granted, on the first business day of
July of each year, an option to purchase 10,000 shares of the Company's common
stock, subject to reduction if such individual was a Director for less than 12
months, at fair market value at the date of grant. On July 1, 1997, 40,000 stock
options were granted to these Directors, and on June 25, 1997, the Company
granted 10,000 stock options to a Director who joined the Board on such date.
On April 11, 1995, the Compensation Committee of the Board of Directors
granted the Company's employees the opportunity to terminate their existing
options and receive new options at fair market value of the Company's common
stock on April 11, 1995, with a corresponding recommencement of vesting.
Accordingly, options to purchase 790,000 shares were terminated and an equal
number of new options were issued, which is reflected in the following table.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has adopted the disclosure-only provisions of SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, and applies APB Opinion No. 25 in
accounting for its plans and, accordingly, has not recognized compensation cost
for stock option plans and stock purchase plans in its financial statements. Had
the Company determined compensation cost based on the fair value at the grant
date consistent with the provisions of SFAS 123, the Company's net loss would
have been changed to the pro forma amounts indicated below:
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
Net loss-as reported $ 13,946,531 $ 13,299,477
Net loss-pro forma 14,225,532 13,463,193
Net loss per share-as reported .39 .40
Net loss per share-pro forma .40 .41
- --------------------------------------------------------------------------------
The fair value of the stock options granted in 1997 and 1996 is
estimated at grant date using the Black-Scholes option-pricing model with the
following weighted average assumptions for 1997 and 1996; dividend yield of 0%;
expected volatility of 42%; a risk-free interest rate of 6.5%; and expected
lives of 9.9 years.
The pro forma effects on net income (loss) and earnings (loss) per
share for 1997 and 1996 may not be representative of the pro forma effects in
future years since compensation cost is allocated on a straight-line basis over
the vesting periods of the grants, which extends beyond the reported years.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Information concerning options for the years ended June 30, 1997, 1996
and 1995 is summarized as follows:
Option Price Plan
FISCAL 1997
SHARES OPTION PRICE RANGE
------ ------------------
Outstanding, July 1, 1996 2,280,475 $2.25 - 10.75
Granted 552,000 4.75 - 12.88
Exercised (75,600) 2.25 - 3.63
Terminated (536,625) 2.31 - 12.88
----------
Outstanding, June 30, 1997 2,220,250 2.25 - 12.88
========== =============
Exercisable, June 30, 1997 842,625
==========
FISCAL 1996
SHARES OPTION PRICE RANGE
------ ------------------
Outstanding, July 1, 1995 1,800,000 $2.25 - 10.75
Granted 890,500 2.31 - 9.50
Exercised (324,275) 2.25 - 6.75
Terminated (85,750) 2.63 - 6.63
----------
Outstanding, June 30, 1996 2,280,475 2.25 - 10.75
========== =============
Exercisable, June 30, 1996 569,475
==========
FISCAL 1995
SHARES OPTION PRICE RANGE
------ ------------------
Outstanding, July 1, 1994 1,655,750 $2.25 - 10.75
Granted 1,214,000 2.63 - 3.38
Exercised (25,000) 2.25
Terminated (1,044,750) 2.25 - 9.13
----------
Outstanding, June 30, 1995 1,800,000 2.25 - 10.75
========== =============
Exercisable, June 30, 1995 558,750
==========
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES
The Company utilizes SFAS No. 109 to account for income taxes. Pursuant
to the accounting standard, the tax effects of temporary differences that give
rise to significant portions of the Company's deferred tax assets as of June 30,
1997 and 1996 are presented below:
1997 1996
------------ ------------
Deferred tax assets:
Net operating loss carry forwards $ 29,210,000 $ 24,362,000
Research and development credits 3,830,000 3,253,000
Property and equipment 500,000 293,000
Other 565,000 422,000
------------ ------------
Total 34,105,000 28,330,000
Valuation allowance (34,105,000) (28,330,000)
------------ ------------
Net deferred taxes $ -- $ --
============ ============
The valuation allowances for fiscal years 1997, 1996 and 1995 have been
applied to offset the deferred tax assets in recognition of the uncertainty that
such tax benefits will be realized. The valuation allowances as of June 30,
1997, 1996 and 1995 include $5,775,000, $6,250,000 and $4,851,000 relating to
fiscal years 1997, 1996 and 1995 operations, respectively.
At June 30, 1997, the Company has available net operating loss
carryforwards for federal income tax reporting purposes of approximately
$73,845,000 which expire beginning in fiscal year 1998. The Company made no
payments of federal or state income taxes during fiscal years 1997, 1996 and
1995.
9. RELATED-PARTY TRANSACTIONS
The Center for Molecular Medicine and Immunology ("CMMI") is a
not-for-profit corporation established in 1983 by Dr. David M. Goldenberg,
Chairman of the Board, Chief Executive Officer and the major shareholder of the
Company. CMMI is devoted primarily to cancer research.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dr. Goldenberg currently serves as the President of CMMI pursuant to an
employment agreement and devotes substantially more of his working time to CMMI
than to the Company. Allocations between CMMI and the Company regarding research
projects are overseen by the Board of Trustees of CMMI and the Board of
Directors of the Company, excluding Dr. Goldenberg, to minimize potential
conflicts of interest. Certain employees of CMMI serve as consultants to the
Company.
CMMI is currently conducting basic research and patient evaluations in
a number of areas of potential interest to the Company. Effective July, 1995,
the Company amended its license agreement with CMMI to assist CMMI in complying
with Internal Revenue Service criteria for its then recently completed
tax-exempt financing. Under the original terms of the license agreement, the
Company had the right to an exclusive, worldwide license to manufacture and
market potential products developed by CMMI (other than those funded by third
parties) for specified royalty payments and on other specified terms. Under the
amended license agreement, the Company maintains the right of first negotiation
to obtain exclusive, worldwide licenses from CMMI to manufacture and market
potential products and technology covered by the license agreement under terms
representing fair market price, to be determined at the time the license is
obtained. The Company retains licensing rights to inventions made during the
term of the agreement for a period of five years from the time of disclosure.
The amended license agreement terminates on December 31, 1999, with the
Company having the right to seek good-faith negotiation to extend the agreement
for an additional five-year period. Prior to amendment, the license agreement
terminated on December 11, 2010, with the Company having the right to extend the
agreement for two additional five-year periods with specified minimum annual
royalties to be paid during these two periods.
The Company has reimbursed CMMI for expenses incurred on behalf of the
Company, including amounts incurred pursuant to research contracts, in the
amount of approximately $69,000, $64,000 and $57,000 during the years ended June
30, 1997, 1996 and 1995, respectively. The Company also provides CMMI with
laboratory materials and supplies in connection with research conducted in areas
of potential interest to the Company at no cost to CMMI.
During the years ended June 30, 1997, 1996 and 1995, the Board of
Directors of the Company authorized grants to CMMI of $200,000, $200,000 and
$300,000, respectively, to support research and clinical work being performed at
CMMI, such grants to be expended in a manner deemed appropriate by the Board of
Trustees of CMMI. Pursuant to a collaborative research and license agreement,
dated as of January 21, 1997, between the Company and CMMI, the Company has
agreed to pay CMMI an annual license fee of $200,000.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. LICENSE AND DISTRIBUTION AGREEMENTS
On August 2, 1995, the Company announced that its Development and
License Agreement with Pharmacia, Inc. (which subsequently became Pharmacia &
Upjohn Inc.--"Pharmacia") was terminated and that the Company regained the North
American marketing and selling rights for CEA-Scan. The Company and Pharmacia
were subsequently unable to agree on the amount of a final payment by Pharmacia
to the Company to satisfy Pharmacia's remaining obligations. In June, 1996, the
Company filed a claim against Pharmacia before the American Arbitration
Association, claiming damages for breach of contract and fiduciary duty in the
amount of $60 million plus punitive damages. Payments previously received from
Pharmacia to fund ongoing clinical trials for CEA-Scan are being recorded as
income as the trials are conducted.
In March, 1995, the Company entered into a license agreement with
Mallinckrodt Medical (Mallinckrodt), pursuant to which Mallinckrodt markets,
sells and distributes CEA-Scan throughout Western Europe and in specified
Eastern European countries, subject to receipt of regulatory approval in the
specified countries. The Company manufactures CEA-Scan, for which Mallinckrodt
pays the Company a pre-determined percentage of the net selling price.
In April, 1996, the Company entered into a Marketing and Distribution
Agreement with Mallinckrodt Medical, Inc., pursuant to which Mallinckrodt
Medical, Inc. markets, sells and distributes CEA-Scan for use in colorectal
cancer diagnostic imaging in the U.S. on a consignment basis, and is required to
commit financial resources to this effort. The Company retains manufacturing and
co-promotional rights, pays Mallinckrodt Medical, Inc. a pre-determined amount
or percentage of the net selling price, and is allowed to commit additional
financial resources to promotional activities. The Company is currently
attempting to resolve a number of outstanding issues with Mallinckrodt under the
U.S. and European marketing and distribution agreements for CEA-Scan. It is
unclear at this time what the ultimate resolution of these issues will be and
the effect, if any, on future performance by both parties under the agreements.
The Company has recently entered into an agreement with MMD Specialty Services,
Inc. ("MMD") pursuant to which MMD will provide the Company, during fiscal year
1998, with a full-time oncology sales force for the marketing and sale of
CEA-Scan in the United States.
11. COMMITMENTS AND CONTINGENCIES
On November 1, 1993, the Company and Dr. Goldenberg entered into a
five-year employment agreement (the "Agreement") with an additional one-year
assured renewal and thereafter automatically renewable for additional one-year
periods unless terminated by either party as provided in the Agreement. Dr.
Goldenberg will receive an annual base salary of not less than $220,000, subject
to increases as determined by the Board of Directors. Effective July 1, 1997,
the Board of Directors increased Dr. Goldenberg's annual base salary to
$265,000.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pursuant to the Agreement, Dr. Goldenberg may engage in other business,
general investment and scientific activities, provided such activities do not
materially interfere with the performance of any of his obligations under the
Agreement, allowing for those activities he presently performs for CMMI (see
Note 9). The Agreement extends the ownership rights of the Company, with an
obligation to diligently pursue all ideas, discoveries, developments and
products, in the entire medical field, which, at any time during his past or
continuing employment by the Company (but not when performing services for
CMMI), Dr. Goldenberg has made or conceived or hereafter makes or conceives, or
the making or conception of which he has materially contributed to or hereafter
contributes to, all as defined in the Agreement (collectively "Goldenberg
Discoveries").
Further, pursuant to the Agreement, Dr. Goldenberg will receive,
subject to certain restrictions, incentive compensation of 0.5% on the first
$75,000,000 of all defined annual net revenue of the Company and 0.25% on all
such annual net revenue in excess thereof (collectively "Revenue Incentive
Compensation"). With respect to the period in which Dr. Goldenberg is entitled
to receive Revenue Incentive Compensation on any given products, it will be in
lieu of any other percentage compensation based on sales or revenue due him with
respect to such products under this Agreement or the existing License Agreement
between the Company and Dr. Goldenberg. With respect to any periods in which Dr.
Goldenberg is not receiving such Revenue Incentive Compensation for any products
covered by patented Goldenberg Discoveries or by certain defined prior
inventions of Dr. Goldenberg, he will receive 0.5% on cumulative annual net
sales of royalties, certain equivalents thereof, and, to the extent approved by
the Board, other consideration received by the Company for such products, up to
a cumulative annual aggregate of $75,000,000 and 0.25% on any cumulative annual
aggregate in excess of $75,000,000 (collectively "Incentive Payments"). A
$100,000 annual minimum payment will be paid in the aggregate against all
Revenue Incentive Compensation and Royalty Payments and any payments under the
License Agreement. Dr. Goldenberg will also receive a percent, not less than
20%, to be determined by the Board, of net consideration (including license
fees) which the Company receives for any disposition, by sale, license or
otherwise (discussions directed to which commence during the term of his
employment plus two years), of any defined Undeveloped Assets of the Company
which are not budgeted as part of the Company's strategic plan.
On February 1, 1994, the Company entered into a master lease agreement,
which was subsequently amended, pursuant to which the Company may lease
equipment for research, development and manufacturing purposes having an
aggregate acquisition cost of up to $2,200,000. The basic lease payments under
the master lease agreement are determined based on current market rates of
interest at the inception of each equipment schedule take-down, and payable in
monthly installments over a four-year period. The lease agreement contains an
early purchase option, at an amount that is deemed to be fair value, exercisable
no later than ninety days before the thirty-sixth installment is due. On
November 1, 1996, December 9, 1996, and April 1, 1997 the Company exercised
early purchase options on equipment leased on February 14, 1994, April 1, 1994,
and June 1, 1994, respectively.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under the lease agreement, continued compliance with certain financial
ratios is required and, in the event of default, the Company will be required to
provide an irrevocable letter of credit which is generally equal to the
outstanding balance of lease payments due at the time of default. As of June 30,
1997, the Company has leased equipment with a cost basis aggregating $1,247,000
under the master lease agreement and recorded lease expense for fiscal year 1997
of $497,000.
The Company is obligated under an operating lease for facilities used
for research and development, manufacturing and office space. The lease
currently expires in May, 1999, with the latter containing renewal provisions as
specified in the respective lease. The lease expiring in May, 1999 provides for
escalating lease payments and an option to purchase the facility, exercisable by
the Company any time after December, 1993, subject to certain terms and
conditions as specified in the lease. Lease expense was approximately $428,000,
$453,000 and $495,000 in fiscal years 1997, 1996 and 1995, respectively. Minimum
lease commitments for facilities and equipment are as follows:
1998 ........................... $819,000
1999 ........................... $705,000
Thereafter ..................... $155,000
The Company is involved in various claims and litigation arising in the
normal course of business. Management believes that the outcome of such claims
and litigation will not have a material adverse effect on the Company's
financial position and results of operations.
45
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Immunomedics, Inc.:
We have audited the accompanying consolidated balance sheets of
Immunomedics, Inc., as of June 30, 1997 and 1996, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the three-year period ended June 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Immunomedics, Inc. as of June 30, 1997 and 1996, and the result of its
operations and its cash flows for each of the years in the three-year period
ended June 30, 1997, in conformity with generally accepted accounting
principles.
Short Hills, New Jersey KPMG Peat Marwick LLP
August 4, 1997
46
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
--------
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required for this item is incorporated herein by
reference to the 1997 Definitive Proxy Statement. See also "Executive Officers
of the Registrant" in Part I, following Item 4.
ITEM 11--EXECUTIVE COMPENSATION
The information required for this item is incorporated herein by
reference to the 1997 Definitive Proxy Statement.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required for this item is incorporated herein by
reference to the 1997 Definitive Proxy Statement.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required for this item is incorporated herein by
reference to the 1997 Definitive Proxy Statement.
47
PART IV
-------
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT:
1. Consolidated Financial Statements:
Consolidated Balance sheets - June 30, 1997 and 1996
Consolidated Statements of Operations for the years ended June 30,
1997, 1996, and 1995 Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1997, 1996, 1995 Consolidated Statements
of Cash Flows for the years ended June 30, 1997, 1996, 1995 Notes to
Consolidated Financial Statements Independent Auditors' Report - KPMG
Peat Marwick LLP
2. Financial Statement:
All schedules have been omitted because of the absence of conditions
under which they would be required or because the required information
is included in the financial statements or the notes thereto.
3. Articles of incorporation and by-laws
3.1(a) Certificate of Incorporation of the Company, as filed with the
Secretary of State of the State of Delaware on July 6, 1982
[e]
3.1(b) Certificate of Amendment of the Certificate of Incorporation
of the Company as filed with the Secretary of State of the
State of Delaware on April 4, 1983 [e]
3.1(c) Certificate of Amendment of the Certificate of Incorporation
of the Company as filed with the Secretary of State of the
State of Delaware on December 14, 1984 [e]
3.1(d) Certificate of Amendment of the Certificate of Incorporation
of the Company as filed with the Secretary of State of the
State of Delaware on March 19, 1986 [e]
3.1(e) Certificate of Amendment of the Certificate of Incorporation
of the Company as filed with the Secretary of State of the
State of Delaware on November 17, 1986 [e]
3.1(f) Certificate of Amendment of the Certificate of Incorporation
of the Company as filed with the Secretary of State of the
State of Delaware on November 21, 1990 [f]
48
3.1(g) Certificate of Designation of Rights and Preferences, as filed
with the Secretary of State of the State of Delaware on March
1, 1991 [g]
3.1(h) Certificate of Amendment of the Certificate of Incorporation
of the Company, as filed with the Secretary of State of the
State of Delaware on December 7, 1992 [k]
3.1(i) Certificate of Designation of Rights and Preferences of the
Company's Series B Convertible Preferred Stock filed with the
Secretary of State of the State of Delaware on December 21,
1994 (m)
3.1(j) Certificate of Designation of Rights and Preferences of the
Company's Series C Convertible Preferred Stock, as filed with
the Secretary of State of the State of Delaware on September
25, 1995 (q)
3.1(k) Certificate of Designation of Rights and Preferences of the
Company's Series D Convertible Preferred Stock, as filed with
the Secretary of State of the State of Delaware on June 26,
1996 (s)
3.1(l) Certification of Amendment of the Certificate of Incorporation
of the Company as filed with the Secretary of State of the
State of Delaware on November 7, 1996 (u).
3.2 Amended and Restated By-Laws of the Company [k]
4. Instruments defining the rights of security holders, including
indentures.
4.1 Specimen Certificate for Common Stock [e]
10. Material contracts
10.1(a) 1983 Stock Option Plan, as amended [h]
10.1(b) Form of Stock Option Agreement [e]
10.2 Exclusive License Agreement with David M. Goldenberg, dated as
of July 14, 1982 [a]
10.3 Agreement among the University of Medicine and Dentistry of
New Jersey, the Center of Molecular Medicine and Immunology,
Inc. and the Company, dated September 16, 1983, including
Lease Agreement [a]
10.4 Agreement among the Company, David M. Goldenberg and the
Center for Molecular Medicine and Immunology, Inc. dated, May,
1983 [a]
49
10.5 Memorandum of Understanding with David M. Goldenberg, dated
September 10, 1984 [b]
10.6 Immunomedics, Inc. 401(k) Retirement Plan [c]
10.7 Executive Supplemental Benefits Agreement with David M.
Goldenberg, dated as of July 18, 1986 [c]
10.8 License Agreement between Hoffmann-La Roche, Inc. and David M.
Goldenberg, dated as of April 29, 1986 [c]
10.9 License Agreement with F. James Primus dated July 7, 1983 [d]
10.10 Employment Letter with Carl Pinsky dated April 29, 1989 [e]
10.11 Amended and Restated License Agreement among the Company, CMMI
and David M. Goldenberg, dated December 11, 1990 [h]
10.12 Development and License Agreement with Adria Laboratories
Division of Erbamont Inc. (Confidential treatment has been
requested for certain portions of the Agreement) [h]
10.13 Lease Agreement with Baker Properties Limited partnership,
dated January 16, 1992 [i]
10.14 Amendment to Lease between the University of Medicine and
Dentistry of New Jersey and Immunomedics, Inc., dated August
13, 1992 [j]
10.15 Immunomedics, Inc. 1992 Stock Option Plan [u]
10.16 Amended and Restated Employment Agreement, dated November 1,
1993, between the Company and Dr. David M. Goldenberg [l]
10.17 Convertible Stock Purchase Agreement, dated as of January 6,
1995, between the purchasers named therein [n]
10.18 License Agreement, dated as of March 10, 1995, between the
Company and Mallinckrodt Medical, B.V. (Confidential treatment
has been requested for certain portions of the Agreement) [o]
10.19 Amendment, dated March 11, 1995, to the Amended and Restated
License Agreement among the Company, CMMI, and David M.
Goldenberg, dated December 11, 1990 [p]
50
10.20 Convertible Stock Purchase Agreement, dated as of September
29, 1995, between the Company and the purchasers named therein
[q]
10.21 Distribution and Marketing Agreement, dated as of April 4,
1996, between the Company and Mallinckrodt Medical,
Inc.(Confidential treatment has been requested for certain
portions of the Agreement) [r]
10.22 Manufacturing Agreement, dated as of April 4, 1996, between
the Company and SP Pharmaceuticals, formerly the Oncology
Division of Pharmacia & Upjohn (Confidential treatment has
been requested for certain portions of the Agreement) [s]
10.23 License Agreement, dated as of January 21, 1997, between the
Company and the Center for Molecular Medicine and Immunology,
Inc. [v]
10.24 Consulting Agreement, dated as of June 23, 1997, between the
Company and MMD Specialty Services, Inc. (Confidential
treatment has been requested for certain portions of the
Agreement)
10.25 Convertible Stock Purchase Agreement, dated as of June 27,
1996, between the Company and the purchasers named therein [r]
11. Statement recomputation of per share earnings - Not required
since such computation can be clearly determined from the
material contained in this Annual Report on Form 10-K.
12. Statements re computation of ratios - Not applicable.
21. Subsidiaries of the Company - Immunomedics Europe
23. Consent of Experts and Counsel
23.1 Consent of Independent Accountants - KPMG Peat Marwick LLP
27. Financial Data Schedule
[a] Incorporated by reference from the Exhibits to the
Company's Registration Statement on Form S-1
effective October 6, 1983 (Commission File No.
2-84940).
[b] Incorporated by reference from the Exhibits to the
Company's Annual Report on Form 10-K for the year
ended June 30, 1985.
51
[c] Incorporated by reference from the Exhibits to the
Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1986.
[d] Incorporated by reference from the Exhibits to the
Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1988.
[e] Incorporated by reference from the Exhibits to the
Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1990.
[f] Incorporated by reference from the Exhibits to the
Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended December 31, 1990.
[g] Incorporated by reference from the Exhibits to the
Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1991.
[h] Incorporated by reference from the Exhibits to the
Company's Registration Statement on Form S-2
effective July 24, 1991 (Commission File No.
33-41053).
[i] Incorporated by reference from the Exhibits to the
Company's Registration Statement on Form S-2
effective January 30, 1992 (Commission File No.
33-44750).
[j] Incorporated by reference from the Exhibits to The
Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1992.
[k] Incorporated by reference from the Exhibits to the
The Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1993.
[l] Incorporated by reference from the Exhibits to the
Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1993.
[m] Incorporated by reference from the Exhibits to the
Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended December 31, 1994.
[n] Incorporated by reference from the Exhibits to
Amendment No. 1 to the Registrant's Quarterly Report
on Form 10-Q/A for the fiscal quarter ended December
31, 1994.
[o] Incorporated by reference from the Exhibits to the
Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1995.
52
[p] Incorporated by reference from the Exhibits to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1995.
[q] Incorporated by reference from the Exhibits to the
Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1995.
[r] Incorporated by reference from the Exhibits to
Amendment No. 1 to the Registrant's Quarterly Report
on Form 10-Q/A for the fiscal quarter ended March 31,
1996.
[s] Incorporated by reference from the Exhibits to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1996.
[t] Incorporated by reference from the Exhibits to
Amendment No. 1 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1996.
[u] Incorporated by reference from the Exhibits to the
Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1996.
[v] Incorporated by reference from the Exhibits to the
Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended December 31, 1996.
(B) REPORTS ON FORM 8-K:
None
53
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IMMUNOMEDICS, INC.
Date: September 29, 1997 By: /s/ DAVID M. GOLDENBERG
----------------------------------------
David M. Goldenberg,
Chairman and Chief Executive Officer
(Principal Executive Officer)
54
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: September 29, 1997 By: /s/ DAVID M. GOLDENBERG
----------------------------------------
David M. Goldenberg,
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: September 29, 1997 By: /s/ ROBERT F. KOMENDA
----------------------------------------
Robert F. Komenda
Vice President, Finance &
Administration (Principal
Financial and Accounting Officer)
Date: September 29, 1997 By: /s/ W. ROBERT FRIEDMAN, JR.
----------------------------------------
W. Robert Friedman, Jr., Director
Date: September 29, 1997 By: /s/ MARVIN E. JAFFE
----------------------------------------
Marvin E. Jaffe, Director
Date: September 29, 1997 By: /s/ RICHARD R. PIVIROTTO
----------------------------------------
Richard R. Pivirotto, Director
Date: September 29, 1997 By: /s/ WARREN W. ROSENTHAL
----------------------------------------
Warren W. Rosenthal, Director
Date: September 29, 1997 By: /s/ RICHARD C. WILLIAMS
----------------------------------------
Richard C. Williams, Director
55