Finance/10Q697
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934
For Quarter Ended June 30, 1998
Commission File Number 0-23252
IGEN International, Inc.
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-2852543
- -----------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
16020 INDUSTRIAL DRIVE, GAITHERSBURG, MD 20877
----------------------------------------------------------------
(Address of principal executive offices) Zip Code)
301-984-8000
----------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Act of 1934 during the
preceding 12 months, (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X ______ No _______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 30, 1998
------ ----------------------------
Common Stock, $0.001 par value 15,312,235
IGEN International, Inc.
Form 10-Q
For the Quarter Ended June 30, 1998
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
- ------------------------------
Item 1: FINANCIAL STATEMENTS
Balance Sheets - June 30, 1998 and March 31, 1998 3
Statements of Operations - For the three months ended
June 30, 1998 and 1997 4
Statements of Cash Flows - For the three months ended
June 30, 1998 and 1997 5
Notes to Financial Statements 6
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
PART II OTHER INFORMATION
- ---------------------------
Item 1: LEGAL PROCEEDINGS 14
Item 6: EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
2
IGEN International, Inc.
BALANCE SHEETS
(In thousands)
June 30, March 31,
1998 1998
---------------- ----------------
ASSETS (Unaudited)
------
CURRENT ASSETS:
Cash and cash equivalents $ 1,212 $ 1,502
Short term investments 17,339 21,620
Accounts receivable, net 2,019 1,552
Inventory 1,531 1,435
Other current assets 852 864
---------------- ----------------
Total current assets 22,953 26,973
---------------- ----------------
EQUIPMENT, FURNITURE, AND IMPROVEMENTS 7,645 7,124
Accumulated depreciation and amortization (4,383) (4,111)
---------------- ---------------
Equipment, furniture, and improvements, net 3,262 3,013
---------------- ---------------
OTHER ASSETS 398 405
---------------- ---------------
TOTAL $ 26,613 $ 30,391
---------------- ---------------
---------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 5,224 $ 5,152
Deferred revenue 2,728 4,139
Obligations under capital leases 100 92
---------------- ---------------
Total current liabilities 8,052 9,383
---------------- ---------------
NONCURRENT LIABLITIES:
Obligations under capital leases 313 146
Convertible preferred stock dividend payable 1,035 -
----------------- ---------------
1,348 146
----------------- ---------------
COMMITMENTS AND CONTINGENCIES (See Note 3)
- -
STOCKHOLDERS' EQUITY:
Convertible Preferred Stock, $0.001 par value, 10,000,000 shares
authorized, issuable in Series: Series A, 600,000 shares
designated, none issued; Series B, 25,000 shares issued and
outstanding - liquidation value of $25,000,000 plus accrued
and unpaid dividends
1 1
Common stock: $.001 par value, 50,000,000 shares
authorized: 15,310,250 and 15,261,240 issued and
outstanding 15 15
Additional paid-in capital 88,632 89,376
Accumulated deficit (71,435) (68,530)
----------------- ------------
Total stockholders' equity 17,213 20,862
----------------- ------------
TOTAL $ 26,613 $ 30,391
----------------- ------------
----------------- ------------
See notes to financial statements.
3
IGEN International, Inc.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three months ended
June 30,
1998 1997
--------- --------
(Unaudited)
REVENUES:
Product sales $ 1,256 $ 1,764
Royalty income 2,226 464
License and contract revenue 205 395
----------------- ----------------
Total 3,687 2,623
----------------- ----------------
OPERATING COSTS AND EXPENSES:
Product costs 301 643
Research and development 3,023 2,901
Marketing, general and administrative 3,418 2,711
----------------- ----------------
Total 6,742 6,255
----------------- ----------------
LOSS FROM OPERATIONS (3,055) (3,632)
INTEREST INCOME (EXPENSE) - net 150 (39)
----------------- ----------------
NET LOSS $ (2,905) $ (3,671)
----------------- -----------------
----------------- -----------------
LOSS PER SHARE (Note 2):
Basic and diluted per common share $ (0.22) $ (0.24)
----------------- -----------------
----------------- -----------------
See notes to financial statements.
4
IGEN International, Inc.
STATEMENTS OF CASH FLOWS
(In thousands)
Three months ended
June 30,
1998 1997
------------ ----------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,905) $ (3,671)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 272 217
Deferred revenue (1,411) (336)
Add (deduct) items not affecting cash:
Increase in accounts receivable (467) (164)
(Increase) decrease in inventory (96) 369
Decrease in other current assets 12 88
Increase (decrease) in accounts payable and accrued expenses 72 (21)
Decrease in other non-current assets 7 7
--------- -------
Net cash used in operating activities (4,516) (3,511)
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for equipment, furniture and improvements (323) (151)
Purchase of short-term investments (8,506) --
Sale of short-term investments 12,787 7,195
-------- --------
Net cash provided by investing activities 3,958 7,044
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes receivable from sale of common stock, net -- 15
Issuance of common stock - net 291 136
Principal payments under capital lease obligations (23) (60)
-------- --------
Net cash provided by financing activities 268 91
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (290) 3,624
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,502 790
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,212 $ 4,414
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the quarter ended June 30, 1998, the Company incurred capital
lease obligations and accrued but unpaid preferred stock dividends of
approximately $200,000 and $494,000, respectively. There were no such
comparable items for the period end June 30, 1997.
See notes to financial statements.
5
IGEN International, Inc.
Form 10-Q
For the Quarter Ended June 30, 1998
NOTES TO FINANCIAL STATEMENTS (unaudited)
1. Basis of Presentation and Accounting Policies
The financial statements of IGEN International, Inc. (the "Company") reflect, in
the opinion of management, all adjustments, consisting only of normal and
recurring adjustments, necessary to present fairly the Company's financial
position at June 30, 1998 and the Company's results of operations and cash flows
for the three month periods ended June 30, 1998 and 1997. Interim period results
are unaudited and are not necessarily indicative of results of operations or
cash flows for a full year period. The balance sheet at March 31, 1998 was
derived from audited financial statements at such date.
Pursuant to accounting requirements of the Securities and Exchange Commission
applicable to quarterly reports on Form 10-Q, the accompanying financial
statements and these notes do not include all disclosures required by generally
accepted accounting principles for complete financial statements. Accordingly,
these statements should be read in conjunction with the Company's most recent
annual financial statements included in the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1998.
2. Summary of Significant Accounting Policies
Cash Equivalents and Short-Term Investments - Cash equivalents include cash in
banks, and money market funds, securities of the U.S. Treasury and certificates
of deposit with original maturities of three months or less.
Concentration of Credit Risks - The Company has invested its excess cash
generally in securities of the U.S. Treasury, money market funds, certificates
of deposit and corporate bonds. The Company invests its excess cash in
accordance with a policy objective that seeks to ensure both liquidity and
safety of principal. The policy limits investments to certain types of
instruments issued by institutions with strong investments grade credit ratings
and places restrictions on their terms and concentrations by type and issuer.
Inventory is recorded at the lower of cost or market using the first-in,
first-out method and consists of the following (in thousands):
June 30, 1998 March 31, 1998
Finished goods $ 796 $ 824
Work in process 292 117
Raw materials 443 494
------ ------
Total $1,531 $1,435
------ ------
------ ------
6
IGEN International, Inc.
Form 10-Q
For the Quarter Ended June 30, 1998
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
2. Summary of Significant Accounting Policies (continued)
Equipment, Furniture, and Improvements are carried at cost. Depreciation is
computed over the estimated useful lives of the assets, generally five years,
using accelerated methods.
Revenue Recognition - Product sales revenue is recorded as products are shipped.
Nonrefundable license fees, option fees, and milestone payments in connection
with research and development contracts or commercialization agreements with
corporate partners are recognized when they are earned in accordance with the
applicable performance requirements and contractual terms. Amounts received in
advance of performance under contracts or commercialization agreements are
recorded as deferred revenue until earned. Royalty income is recorded based
upon licensees' reports furnished to the Company.
Loss Per Share - Effective December 31, 1997, the Company adopted Statement of
Financial Accounting Standard No. 128 "Earnings per Share" ("SFAS 128"). There
was no change in loss per share reported in periods prior to the adoption of
SFAS 128. Loss per share computations at June 30, 1998 and 1997 follow:
Three months ended
June 30,
1998 1997
--------- ---------
Weighted average number of common shares outstanding 15,294 15,013
--------- ---------
Net loss $ (2,905) $ (3,671)
Plus accrued Series B convertible preferred stock dividend
(494) --
-------- --------
Loss attributable to common shareholders $ (3,399) $ (3,671)
-------- --------
-------- --------
Loss per share - basic and diluted $ (0.22) $ (0.24)
-------- --------
-------- --------
Under SFAS 128, accrued Series B preferred stock dividends are added to the
net loss for the purpose of computing loss per share. Generally, dividends
are payable upon conversion, maturity or redemption and the Company may
periodically elect to pay dividends in stock rather than cash. Accrued
dividends through June 30, 1998 have been recorded as a long-term liability
in the accompanying financial statements.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, and SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information, both of which are effective for the
Company's fiscal year 1999. SFAS No. 130 requires businesses to disclose
comprehensive income (loss) and its components in the financial statements.
During the quarter ended June 30, 1998 and 1997, the Company's comprehensive
income (loss) approximated its net income (loss) for the period. SFAS No. 131
redefines how operating segments are determined and requires disclosure of
certain financial and descriptive information about the Company's operating
segments. The Company is continuing to assess operating segments that it may
report on upon adoption of SFAS No. 131.
7
IGEN International, Inc.
Form 10-Q
For the Quarter Ended June 30, 1998
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
2. Summary of Significant Accounting Policies (continued)
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 is
effective for years beginning after June 15, 1999 and requires the recognition
of all derivatives at fair value as either assets or liabilities in the
statement of financial position. Under certain conditions, a derivative may be
designated as a hedging instrument. For a derivative not designated as a hedging
instrument, any gain or loss in fair value is recognized in earnings in the
period of change. For a derivative instrument designated as a hedge, earnings or
comprehensive income will reflect the extent to which the hedge is not effective
in achieving offsetting changes in fair value in the period of change. The
Company does not believe that adoption of SFAS No. 133 will have a material
impact on its financial position or results of operations.
3. LITIGATION
Boehringer Mannheim
On September 15, 1997, the Company filed a lawsuit in Maryland against
Boehringer Mannheim GmbH, now a business unit of F. Hoffman LaRoche ( referred
to herein as Roche-BMG), to which the Company has licensed certain rights to
develop and commercialize diagnostic products based on the Company's ORIGEN
technology. That lawsuit is pending in the Southern Division of the United
States District Court for the District of Maryland. The Company's dispute with
Roche-BMG arises out of a 1992 License and Technology Development Agreement (the
"Agreement"), pursuant to which Roche-BMG developed and launched its "Elecsys"
line of diagnostic products, which is based on ORIGEN technology. The Company
alleges that Roche-BMG has failed to perform certain material obligations under
the Agreement, including development and commercialization of ORIGEN technology
according to the contractual timetable; exploitation of the license to the
extent contemplated by the parties; phase out of certain non-royalty-bearing
product lines; exploitation of ORIGEN technology only within Roche-BMG's
licensed fields; proper treatment of intellectual property rights regarding
ORIGEN technology; maintenance of records essential to the computation of
royalties; and proper computation of royalties. In its lawsuit, the Company
seeks damages as well as injunctive and declaratory relief, including a judicial
determination of its entitlement to terminate the Agreement. The Company has
agreed not to terminate the Agreement unless and until the Court determines its
entitlement to do so. This litigation against Roche-BMG may have a material
adverse effect upon the Company regardless of whether the outcome is favorable
or not.
On July 27, 1998, the Maryland court enjoined Roche-BMG from marketing its
Elecsys products in physician's office laboratories or in other markets outside
of its licensed field of central hospital laboratories and clinical reference
laboratories, to escrow all revenues from past sales outside of its licensed
field pending the outcome of the litigation, and to transfer all of its current
Elecsys customers that are outside of its license to IGEN for ongoing supply
needs.
8
IGEN International, Inc.
Form 10-Q
For the Quarter Ended June 30, 1998
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
3. Litigation (continued)
The Company has recorded cumulative royalty income from this Agreement of $7
million, of which $1.9 million was recognized during the quarter ended June 30,
1998. The Company received a $6 million interest bearing royalty advance from
Roche-BMG in January 1997, which was secured by future royalties.
Hitachi
In December 1997, IGEN International K.K., a Japanese subsidiary of the Company,
field a lawsuit in Tokyo District Court against Hitachi Ltd. ("Hitachi"). This
lawsuit seeks to enjoin Hitachi from manufacturing, using or selling the Elecsys
2010 immunoassay instrument in Japan. The lawsuit also seeks to enjoin Hitachi
from infringing the subsidiary's license registration, known in Japan as a
"senyo-jisshi-ken," in connection with the development of the Mosys instrument.
Hitachi is the sole manufacturer for Roche-BMG of the Elecsys 2010 immunoassay
instrument. Roche-BMG sells the Elecsys 2010 worldwide to central hospital
laboratories and clinical reference laboratories. The Company's Japanese
subsidiary alleges that both the Elecsys 2010 and the Mosys are based on ORIGEN
technology. The Company's ORIGEN technology is licensed to its Japanese
subsidiary and to Eisai K.K. pursuant to a "senyo-jisshi-ken." The Company's
Japanese subsidiary further alleges that Hitachi's manufacture and sale of the
Elecsys 2010 and development of the Mosys violate the "senyo-jisshi-ken."
Hitachi alleges that its manufacture and sale of clinical diagnostic instruments
in Japan are under a license from Roche-BMG and that Roche-BMG has an exclusive,
worldwide license from the Company. Hitachi further alleges that it is not
developing the Mosys. The lawsuit requests injunctive relief against Hitachi and
destruction of the Elecsys 2010 and Mosys instruments in Hitachi's possession.
9
IGEN International, Inc.
Form 10-Q
For the Quarter Ended June 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results Of Operations
Overview
The Company devotes substantially all of its resources to the research
and development of its proprietary technologies, primarily the ORIGEN(R)
technology for clinical diagnostic and life science research products.
Historically, the Company's sources of revenue have consisted primarily of
license or research payments pursuant to licensing or collaborative research
agreements. The Company has entered into arrangements with corporate
collaborators that provide for the development and marketing of certain
ORIGEN-based systems. These agreements provide fees and royalties payable to the
Company in exchange for licenses to produce and sell products. Beginning in the
fourth quarter of fiscal 1997, the Company's revenues from license fees and
contract research were substantially replaced by royalties based on corporate
licensees' product sales. In the near term, the Company may selectively pursue
additional strategic alliances, although over time, it expects an increasing
amount of its revenues to be derived from sales of its products and royalties
from corporate collaborations.
In addition to historical information, this document contains
forward-looking statements within the meaning of the "safe-harbor" provisions of
the Private Securities Litigation Reform Act of 1995. Reference is made in
particular to statements regarding the Company's expectations with respect to
the level of anticipated royalty and revenue growth in the future, the outcome
of litigation, the Company's plans and objectives for future operations,
assumptions underlying such plans and objectives, the Company's plans with
regard to the Year 2000 issues and other forward-looking statements. In
addition, forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may", "will", "expect", "intend",
"estimate", "anticipate", "believe" or "continue" or the negative thereof or
variations thereon or similar terminology. Such statements are based on
management's current expectations and are subject to a number of factors, risks
and uncertainties which could cause actual results to differ materially from
those described in the forward-looking statements. In particular, careful
consideration should be given to the cautionary statements in the "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and to
the risks and uncertainties detailed in the Company's Annual Report on Form 10-K
for the year ended March 31, 1998 previously filed with the Securities and
Exchange Commission. The Company disclaims any intent or obligation to update
these forward-looking statements.
Results of Operations
The Quarter in Review
The Company reported a net loss of $2.9 million ($0.22 per share - see Note 2 in
Notes to Financial Statements) on revenues of $3.7 million for its first quarter
ended June 30, 1998. This compares with a net loss of $3.7 million ($0.24 per
share) on revenues of $2.6 million for the same period last year. The 41%
increase in revenue during the current quarter is attributable to higher
royalties on sales of product by corporate collaborators, particularly Roche
Diagnostics (referred to herein as Roche-BMG). Direct product sales by the
Company decreased to $1.3 million in the first quarter of the current year
reflecting the discontinuation of sales after June 30, 1997 to Organon Teknika
which assumed direct manufacturing of its NASBA products, previously supplied by
the Company.
10
IGEN International, Inc.
Form 10-Q
For the Quarter Ended June 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results Of Operations (continued)
In 1992, the Company entered into a License and Technology Development
Agreement with Roche-BMG. Pursuant to the Agreement, Roche-BMG launched its
Elecsys product line in 1996, which is based on the Company's ORIGEN
technology. The Company is involved in litigation with Roche-BMG arising out
of this Agreement. One of the disputes at issue in the litigation relates to
the computation of royalties to which the Company is entitled under the
Agreement. The Company has recorded cumulative royalty income from this
Agreement of $7 million, which has completely offset the $6 million interest
bearing royalty advance secured by future royalties, received from Roche-BMG
in January 1997. At June 30, 1998, the Company established a receivable of
approximately $500,000. Under the Company's interpretation of the Agreement
which Roche-BMG is disputing, cumulative royalties due from Roche-BMG which
have not yet been recorded total at least $3.2 million.
Product costs as a percentage of product sales decreased to 24% during the
current quarter from 36% in the corresponding prior year quarter. This decrease
is attributable to discontinued sales in 1998 to Organon Teknika whose license
arrangement with the Company provided for product sales at a transfer price
equal to the Company's fully burdened manufacturing cost, with no gross margin
on such sales. Sales, marketing and administrative expenses increased to $3.4
million in the current quarter when compared to $2.7 million in the comparable
quarter a year ago. This increase is due to legal fees associated with the
Roche-BMG litigation.
Interest income (expense), net increased to $150,000 of income for the quarter
ended June 30, 1998 compared to $39,000 of expense in the corresponding prior
year period. This was due to an increase in interest income from a higher
balance of short term investments coupled with a decrease in interest expense on
the interest bearing royalty advance from Roche-BMG.
Results of operations over the next several years is likely to fluctuate
substantially from quarter to quarter as a result of differences in the timing
of revenues earned under license and product development agreements, and
associated product development expenses.
The Company has reviewed its business and its financial and accounting
systems for Year 2000 issues. The Company is addressing its Year 2000 issues
in connection with the Company's plan to install a more automated and fully
integrated Enterprise Resource Planning (ERP) system. The Company's plan to
install new systems was motivated primarily by the need to expand its
manufacturing, distribution and financial systems rather than Year 2000
issues. The Company does not believe that its plan will be modified
significantly, in either cost or timing, in order address Year 2000 issues.
The installation of new hardware and software is expected to be completed
during 1999 addressing any Year 2000 issues without causing any material
disruptions, malfunctions or failures to its business. The Company is
currently in the process of assessing whether its suppliers and collaborators
have any Year 2000 issues. There can be no assurance that the Company's
suppliers and collaborators are or will be Year 2000 compliant or that a
failure of such timely Year 2000 compliance would not have a material adverse
effect on the Company.
11
IGEN International, Inc.
Form 10-Q
For the Quarter Ended June 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results Of Operations (continued)
The Company currently believes that its systems will be Year 2000 compliant
during 1999 and therefore has not developed a contingency plan. The Company
will continue to evaluate the possible need for such a plan as it moves
forward and may need to develop a contingency plan in the event that any of
its significant suppliers or collaborators will not be Year 2000 compliant in
a timely manner . The total cost to the Company of these Year 2000 compliance
activities has not been, and is not anticipated to be, material to its
financial position or results of operations in any given year.
Liquidity and Capital Resources
The Company has financed its operations through placements of preferred and
common stock, aggregating approximately $85 million through June 30, 1998. In
December 1997, the Company completed a $25 million convertible preferred stock
financing which included several of the Company's current investors, as well as
new investor groups. Plans for the net proceeds from the preferred stock
financing include continuing research and development, as well as working
capital needs related to general corporate expenditures, including the sales and
marketing efforts related to current and future products and services. In
addition, the Company has received funds from collaborative research and
licensing agreements, royalty payments and sales of its ORIGEN line of products.
As of June 30, 1998, the Company had $18.6 million in cash, cash equivalents and
short term investments. Working capital was $14.9 million at June 30, 1998.
Net cash used in operating activities was $4.5 million for the three months
ended June 30, 1998, as compared to $3.5 million for the corresponding prior
year period. This increase in net cash used was due primarily to recognition in
the current quarter of previously deferred revenue. During the current quarter,
the Company's cumulative earned and recognized royalty revenue from Roche-BMG
exceeded their $6 million interest-bearing royalty advance made by Roche-BMG in
January 1997. Accordingly, the Company established a receivable of approximately
$500,000 at June 30, 1998.
The Company used approximately $323,000 and $151,000 of net cash for investing
activities substantially related to the acquisition of laboratory equipment,
furniture and leasehold improvements during the three months ended June 30, 1998
and 1997, respectively. During the current quarter, the Company financed
approximately $200,000 of these capital expenditures through long-term
third-party financing. The Company believes material commitments for capital
expenditures may be required in a variety of areas, such as product development
programs. The Company has not, at this time, made commitments for any such
capital expenditures or secured additional sources to fund such commitments.
The Company has no reason to believe that the existence of the Roche-BMG
litigation is having a material adverse affect on Roche-BMG's sales pursuant to
the Agreement or that a negative result for the Company in the Roche-BMG
litigation would have a material adverse affect on Roche-BMG's sales, although
there can be no assurance that the litigation or its outcome would not have such
an effect. On July 27, 1998, the Maryland court enjoined Roche-BMG from
12
IGEN International, Inc.
Form 10-Q
For the Quarter Ended June 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results Of Operations (continued)
marketing its Elecsys products in physician's office laboratories or in other
markets outside of its licensed field of central hospital laboratories and
clinical reference laboratories, to escrow all revenues from past sales
outside of its licensed field pending the outcome of the litigation, and to
transfer all of its current Elecsys customers that are outside of its license
to IGEN for ongoing supply needs. As it now stands, Roche-BMG has the right
to continue to market its Elecsys products to central hospital laboratories
and clinical reference laboratories during the term of the Agreement unless
and until the Company is determined to have the right to terminate the
Agreement and then determines to terminate the Agreement. If the Company
elects to terminate the Agreement, it would have a material adverse effect on
the Company's royalty revenue from license sales unless and until the Company
entered into a strategic partnership with another company that is able to
develop and commercialize diagnostic instruments for central hospital
laboratories and clinical reference laboratories. There can be no assurance,
if the Company decided to terminate the Agreement, that the Company would be
able to enter into such a strategic partnership on terms favorable to the
Company.
The Company does not expect that failure to prevail in the Hitachi litigation by
itself would have a material adverse effect on the Company's revenue or sales,
since Hitachi would continue to manufacture Roche-BMG instruments and the
Company would continue to earn royalties in connection therewith. There can be
no assurance that the Hitachi litigation will not could have a material adverse
effect on the Company's intellectual property, regardless of whether the outcome
of the litigation is favorable or not. Success by the Company in the Hitachi
litigation could have a material adverse effect on the Company's royalty
revenues from sales of Elecsys products to the extent that Roche-BMG's sales of
Elecsys (or Mosys) instruments are hindered because it needs to find a new
manufacturer for its instruments.
The Company has incurred and expects to incur substantial additional research
and development expenses, manufacturing costs and marketing and distribution
expenses and costs related to the Roche-BMG litigation in the future. It is the
Company's intention to selectively seek additional collaborative or license
agreement with suitable corporate collaborators, although there can be no
assurance the Company will be able to enter into such agreements or that amounts
received under such agreements will reduce substantially the Company's funding
requirements. Additional equity or debt financing may be obtained, but there can
be no assurance that these funds will be available on favorable terms, if at
all.
The Company's future capital requirements depend on many factors, including
continued scientific progress in its diagnostics programs, the magnitude of
these programs, the time and costs involved in obtaining regulatory approvals,
the costs involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, changes in its existing license and other
agreements, the ability of the Company to establish development arrangements,
the cost of manufacturing scale-up and effective commercialization activities
and arrangements.
13
IGEN International, Inc.
Form 10-Q
For the Quarter Ended June 30, 1998
PART II OTHER INFORMATION
- ------- ------------------
Item 1: Legal Proceedings
The information required under this item is incorporated
herein by reference to Part I, Item 1 - Notes to Financial
Statements, Note 3.
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
11.1 Statements regarding computation of per
share earnings for the three months ended
June 30, 1998 and 1997.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
14
IGEN International, Inc.
Form 10-Q
For the Quarter Ended June 30, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IGEN International, Inc.
Date: August 7, 1998 /s/ George V. Migausky
--------------- ------------------------------------
George V. Migausky
Vice President of Finance and Chief
Financial Officer
(On behalf of the Registrant and as
Principal Financial Officer)
15
IGEN International, Inc.
Form 10-Q
For the Quarter Ended June 30, 1998
EXHIBIT INDEX
Exhibit Number Description Page
- -------------- ------------ ----
11.1 Computation of per share data 13
16
IGEN International, Inc.
Form 10-Q
For the Quarter Ended June 30, 1998
EXHIBIT 11.1
Statement Re: Computation of Net Income Per Share
(In thousands, except per share data)
Three months ended
June 30,
1998 1997
------------- ----------
Weighted average number of common shares outstanding 15,294 15,013
-------- --------
Net loss $ (2,905) $ (3,671)
Plus accrued Series B convertible preferred stock dividend
(494) --
-------- --------
Loss attributable to common shareholders $ (3,399) $ (3,671)
-------- --------
-------- --------
Loss per share - basic and diluted $ (0.22) $ (0.24)
-------- --------
-------- --------
17