UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-22769
LEUKOSITE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3173859
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
215 FIRST STREET 02142
CAMBRIDGE, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (617) 621-9350
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- -----
The number of shares outstanding of each of the registrant's classes of
common stock as of:
Date Class Outstanding Shares
November 3, 1998 Common Stock, $.01 par value 11,900,842
- -----------------------------------------------------------------------------
LEUKOSITE, INC.
( A Development Stage Company)
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as
December 31, 1997 and September 30, 1998 3
Condensed Consolidated Statements of Operation
for the three and nine months ended September 30, 1997 and
1998, and for the Period from Inception
(May 1, 1992) to September 30, 1998 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997 and 1998, and for the Period
from Inception (May 1, 1992) to September 30, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
PART I FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LeukoSite, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Balance Sheets
December 31, 1997 September 30,1998
--------------------- ---------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 10,587,873 $ 7,164,249
Marketable securities 14,569,100 19,298,829
Other current assets 408,811 874,723
------------ ------------
Total current assets 25,565,784 27,337,801
------------ ------------
Property and equipment, net of accumulated
depreciation and amortization 2,439,289 3,032,194
------------ ------------
Other assets 27,090 25,873
------------ ------------
Total assets $ 28,032,163 $ 30,395,868
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,063,410 $ 3,654,706
Obligation to fund L&I Joint Venture (Note 4) 1,770,310 1,520,498
Deferred revenue 1,161,250 2,601,231
Deferred rent, current portion 243,171 243,171
Current portion of capital lease obligations 866,835 633,471
------------ ------------
Total current liabilities 6,104,976 8,653,077
------------ ------------
Deferred rent, net of current portion 222,907 40,529
------------ ------------
Capital lease obligations, net of current portion 896,578 724,434
------------ ------------
Stockholders' equity:
Preferred stock $.01 par value-
Authorized-5,000,000 share
Issued and outstanding-no shares -- --
Common stock, $.01 par value-
Authorized-25,000,000 shares
Issued and outstanding-9,875,741 shares at
December 31, 1997 and 11,898,174
shares at September 30, 1998 98,758 118,983
Additional paid-in capital 53,294,367 65,239,791
Deficit accumulated during the development stage (32,585,423) (44,380,946)
------------ ------------
Total stockholders' equity 20,807,702 20,977,828
------------ ------------
Total liabilities and stockholders' equity $ 28,032,163 $ 30,395,868
------------ ------------
------------ ------------
3
LeukoSite, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(Unaudited)
Inception
(May 1, 1992)
Three Months Ended September 30, Nine Months Ended September 30, Through
1997 1998 1997 1998 September 30, 1998
---- ---- ---- ---- ------------------
REVENUES:
Corporate collaborations $ 1,558,750 $ 2,201,920 $ 3,628,774 $ 6,479,586 $ 15,669,037
Government grants 50,948 175,233 256,370 590,577 1,250,806
------------- ------------- ------------- ------------- --------------
Total revenue 1,609,698 2,377,153 3,885,144 7,070,163 16,919,843
------------- ------------- ------------- ------------- --------------
OPERATING EXPENSES:
Research and development 3,053,638 6,057,468 8,505,075 14,997,469 49,167,589
General and administrative 371,879 555,454 1,107,441 1,872,147 7,184,229
------------- ------------- ------------- ------------- --------------
Total operating expenses 3,425,517 6,612,922 9,612,516 16,869,616 56,351,818
------------- ------------- ------------- ------------- --------------
LOSS FROM OPERATIONS ( 1,815,819) (4,235,769) ( 5,727,372) (9,799,453) (39,431,975)
OTHER INCOME (EXPENSE):
Equity in operations of joint ( 1,649,400) (937,351) ( 1,649,400) (2,922,256) ( 6,280,172)
venture
Interest income 235,031 392,941 529,825 1,039,935 2,709,944
Interest expense ( 39,027) ( 34,241) ( 122,384) ( 113,749) ( 768,743)
------------- ------------- ------------- ------------- --------------
NET LOSS $ (3,269,215) $ (4,814,420) $ (6,969,331) $ (11,795,523) $ (43,770,946)
------------- ------------- ------------- ------------- --------------
------------- ------------- ------------- ------------- --------------
NET LOSS PER COMMON SHARE
Basic and diluted $(2.32) $(.41) $(6.23) $(1.12)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Pro forma $ (.48) $(1.12)
------------- -------------
------------- -------------
SHARES USED IN COMPUTING NET LOSS
PER COMMON SHARE
Basic and diluted 1,460,104 11,862,108 1,216,761 10,554,312
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Pro forma 6,995,725 6,752,382
------------- -------------
------------- -------------
4
LeukoSite, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Inception
Nine Months Ended (May 1, 1992)
September 30, through September 30,
---------------------------------- ----------------------
1997 1998 1998
----- ----- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,969,331) $ (11,795,523) $ (43,770,946)
Adjustments to reconcile net loss to net
cash used in operating activities:
Stock compensation expense -- -- 89,339
Depreciation and amortization 884,999 863,304 3,834,620
Equity in operations of joint venture 1,649,400 2,922,256 6,280,172
Change in operating assets and liabilities:
Other current assets (143,470) (465,912) (874,723)
Accounts payable and accrued expenses 1,220,762 1,591,296 4,221,408
Deferred revenue 1,575,000 1,439,981 2,601,231
Deferred rent (48,314) (182,378) 283,700
--------------- --------------- ---------------
Net cash used in operating activities (1,830,954) (5,626,976) (27,335,199)
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in marketable securities (10,923,111) (17,234,631) (55,298,712)
Proceeds from maturities of marketable securities 7,851,382 12,504,902 35,991,438
Investment in joint venture (652,500) (3,172,068) (4,759,674)
Purchases of property and equipment (432,388) (1,109,437) (2,944,225)
Decrease in other assets 436 1,217 (25,873)
--------------- --------------- ---------------
Net cash used in investing activities (4,156,181) (9,010,017) (27,037,046)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital leases (621,682) (752,280) (3,032,441)
Net proceeds from notes payable -- -- 2,086,312
Proceeds from redeemable convertible preferred stock,
net of issuance costs 3,819,506 -- 23,256,599
Proceeds from initial public offering, net of issuance
costs 15,297,036 -- 15,297,020
Issuance of common stock -- 11,731,366 15,701,366
Exercise of stock options 37,015 234,283 315,763
Issuance of convertible preferred stock,
net of issuance costs -- -- 7,911,875
--------------- --------------- ---------------
Net cash provided by financing activities 18,531,875 11,213,369 61,536,494
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS 12,544,740 (3,423,624) 7,164,249
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 4,430,507 10,587,873 --
--------------- --------------- ---------------
CASH AND EQUIVALENTS, END OF PERIOD $ 16,975,247 $ 7,164,249 $ 7,164,249
--------------- --------------- ---------------
--------------- --------------- ---------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $ 122,384 $ 113,749 $ 982,356
--------------- --------------- ---------------
--------------- --------------- ---------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Property and equipment purchased under capital
lease obligations $ 298,545 $ 346,771 $ 4,164,145
--------------- --------------- ---------------
--------------- --------------- ---------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Operations and Basis of Presentation
LeukoSite, Inc. (the "Company") was incorporated on May 1, 1992. The Company
is engaged in the development of immunomodulatory therapeutics with
potential applications in inflammatory, autoimmune, and viral diseases and
cancer.
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission and include, in the opinion of
management, all adjustments, consisting of normal, recurring adjustments,
necessary for a fair presentation of interim period results. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes, however, that its disclosures are
adequate to make the information presented not misleading. The results for
the interim periods presented are not necessarily indicative of results to
be expected for the full fiscal year. These condensed financial statements
should be read in conjunction with the audited consolidated financial
statements and notes related thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 filed with the Securities
and Exchange Commission.
2. Summary of Significant Accounting Policies
(a) Cash Equivalents and Marketable Securities
Cash equivalents are highly liquid investments with original maturities of
less than three months. Marketable securities consist of securities with
original maturities of greater than three months. The Company accounts for
cash equivalents and marketable securities in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." In accordance with SFAS No. 115,
the Company has classified its investments as held-to-maturity as the
Company has the positive intent and ability to hold such investments to
maturity. Accordingly, marketable securities are reported at amortized
cost, which approximates fair market value.
As of September 30, 1998 there were no material unrealized gains or losses
on any investments. Cash and cash equivalents and marketable securities
consisted of the following:
December 31, 1997 September 30, 1998
Cash and cash equivalents:
Cash $ 1,373,786 $ 296,491
Money market funds 6,609,783 5,562,820
Corporate notes -- 500,054
Taxable auction securities 2,604,304 804,884
------------ -------------
$ 10,587,873 $ 7,164,249
------------ -------------
------------ -------------
Marketable securities:
U.S. government agency obligations
(average maturity of 5 months) $ 6,094,401 $ --
Corporate bonds and notes (average
maturity of 5 and 7 months 8,474,699 19,298,829
respectively) ------------ -------------
$ 14,569,100 $ 19,298,829
------------ -------------
------------ -------------
6
(b) Net Loss per Common Share
In March 1997 the Financial Accounting Standards Board issued SFAS No. 128,
Earnings per Share. The Company adopted SFAS No. 128 effective December 15,
1997. Basic net loss per common share is computed on the weighted average
number of common shares outstanding. Diluted net loss per common share is
the same as basic net loss per common share as the inclusion of stock
options and warrants would be antidilutive. Pro forma net loss per common
share assumes the automatic conversion of all outstanding shares of
redeemable convertible preferred stock and convertible preferred stock into
common stock using the as-converted method, which occurred upon the closing
of the Company's initial public offering on August 15, 1997. In addition,
the net loss available to common stockholders for the three months and the
nine months ended September 30, 1997 has been adjusted to include $122,000
and $610,000, respectively, of dividends attributable to redeemable
convertible preferred stock.
3. Private Placement
In July 1998, the Company completed a private placement of 1,967,169 shares
of its common stock at $6 per share, for net proceeds of $11.7 million
after expenses of the offering.
4. Ilex Agreement
In May 1997 the Company and Ilex Oncology, Inc. (Ilex) entered into a joint
venture agreement that established a limited partnership for the purpose of
developing LDP-03 (CAMPATH-1H). Under the terms of the partnership, the
Company is required to fund 50% of the partnership's working capital
requirements. The joint venture expires in 2017, but provides for either
partner under certain circumstances to purchase the other partner's
ownership position of the joint venture after October 2000. Should either
party fail to fulfill its funding obligations, control of the joint
venture may change.
The Company accounts for its investment in the joint venture under the
equity method of accounting and records its share of the income or loss in
other income (expense). The Company is reimbursed by the joint venture for
certain costs incurred on behalf of the joint venture. For the nine months
ended September 30, 1998 the Company's share of the joint venture's recorded
loss was $2,922,256 and the Company had a funding liability of $1,520,498 to
the joint venture as of September 30, 1998. The Company charged the joint
venture $820,503 for costs incurred by the Company on behalf of the joint
venture.
The joint venture has entered into an agreement with a third party to
manufacture LDP-03. In connection with this agreement, the Company and Ilex
have guaranteed the payment of the obligations of the joint venture due
under the manufacturing agreement. As of September 30, 1998 the remaining
obligation was approximately $1.6 million.
5. MorphoSys
The Company entered into a two-year collaboration agreement with MorphoSys
AG (MorphoSys) in August 1998 to discover and develop therapeutic monoclonal
antibodies for inflammatory and autoimmune disorders. Under the terms of the
agreement, the Company received exclusive worldwide rights to develop and
commercialize antibody therapeutics resulting from the collaboration. The
Company made a technology access fee payment in August 1998 of $750,000.
The agreement calls for payments to be made to MorphoSys upon the
achievement of certain milestones as well as future royalties based upon
commercial sales of products developed under the collaboration.
7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations and this Quarterly Report on Form 10-Q contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities and Exchange Act of 1934,
including but not limited, (i) statements about the adequacy of the Company's
capital resources, interest income and revenues from its collaboration
agreements to fund its operating expenses and capital requirements into 2000,
(ii) statements about the amount of capital expenditures that the Company
expects to incur in 1998 and (iii) certain statements identified or qualified by
words such as "anticipate," "plan," "believe," "estimate," "expect" and similar
expressions. Investors are cautioned that forward-looking statements are
inherently uncertain and that the Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed under the caption "Risk Factors" in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
OVERVIEW
The Company is a leader in the discovery and development of products based
upon the biology of leukocytes. Therapeutics developed using the Company's
technology may be used to treat inflammatory, autoimmune, and viral diseases
and cancer. The Company has been funded to date primarily through proceeds
from the sale of equity securities and funding from collaboration agreements.
To date, the Company has not received any revenue from the sale of products.
The Company has experienced operating losses since its inception and expects
that the activities required to develop and commercialize its products will
result in further operating losses for the next several years. As of
September 30, 1998 the Company had an accumulated deficit of approximately
$44.4 million.
In 1994, 1995 and 1996 the Company signed agreements with Warner-Lambert
Company for the discovery and development of small molecule antagonists to
the MCP-1, IL-8, CCR5 and CXCR4 receptors found on certain classes of
leukocytes. In January 1998 Warner-Lambert Company made a $1 million payment
related to the achievement of certain milestones associated with the
Company's CCR5 program. In July 1996 the Company signed an agreement with
Roche Bioscience for the discovery and development of monoclonal antibodies
and small molecule antagonists to the CCR3 receptor found on a certain class
of leukocytes. In April 1997 the Company signed an agreement with Kyowa Hakko
Kogyo Co., Ltd., for the discovery and development of small molecule
antagonists to the CXCR3 and CCR1 receptors found on certain classes of
leukocytes. In May 1997 the Company entered into a joint venture with Ilex
Oncology, Inc. for the development of LDP-03 (CAMPATH-1H) for the treatment
of chronic lymphocytic leukemia. In October 1997 the Company, Warner-Lambert
and Kyowa agreed to jointly pursue research and development of antagonists
that target MCP-1, IL-8, CCR1 and CXCR3. In December 1997 the Company entered
into a collaboration agreement with Genentech, Inc. for the development of a
monoclonal antibody therapeutic intended to be used in the treatment of
inflammatory bowel disease. In August 1998 the Company entered into a
collaboration agreement with MorphoSys AG for the discovery and development
of therapeutic monoclonal antibodies for inflammatory and autoimmune
disorders.
8
RESULTS OF OPERATIONS
Revenues for the three and nine month periods ended September 30, 1998 and 1997.
For the three months ended September 30, 1998 revenues were $2,377,000
compared to $1,610,000 for the same period in 1997. The increase of $767,000
was primarily due to reimbursement by L&I Partners, L.P. for costs incurred
by the Company on behalf of the joint venture to develop CAMPATH-1H. To a
lesser extent the increase was a result of greater research funding from the
corporate collaboration with Warner-Lambert and from Small Business
Innovation Research ("SBIR") grants.
For the nine months ended September 30, 1998 revenues were $7,070,000
compared to $3,885,000 for the same period in 1997. The increase of
$3,185,000 was primarily due to greater research funding from corporate
collaborations with Kyowa Hakko, reimbursement by L&I Partners, L.P. for
costs incurred by the Company on behalf of the joint venture to develop
CAMPATH-1H and the achievement of a milestone payment associated with the
Company's CCR5 program with Warner-Lambert. To a lesser extent, the increase
was a result of greater research funding from the corporate collaboration
with Roche Bioscience and SBIR grants.
Research and development expenses for the three and nine month periods ended
September 30, 1998 and 1997.
For the three months ended September 30, 1998 research and development
expenses were $6,057,000 compared to $3,054,000 for the same period in 1997.
The increase of $3,003,000 was primarily due to the manufacture of clinical
trial material and ongoing clinical trials for the Company's LDP-01 and
LDP-02 programs and the technology access fee paid to MorphoSys AG, a
combinatorial biology company based in Munich, Germany. To a lesser extent,
the increase was the result of increased staffing and consumption of supplies
associated with the Company's drug discovery programs. The Company expects
that research and development expenses will increase over the next several
years as the Company further expands its discovery and development programs.
For the nine months ended September 30, 1998 research and development
expenses were $14,997,000 compared to $8,505,000 for the same period in 1997.
The increase of $6,492,000 was primarily due to the manufacture of clinical
trial material and ongoing clinical trials for the Company's LDP-01 and
LDP-02 programs, the technology access fee paid to MorphoSys and chemical
library purchases. To a lesser extent, the increase was the result of
increased staffing and consumption of supplies associated with the Company's
drug discovery programs. The Company expects that research and development
expenses will increase over the next several years as the Company further
expands its discovery and development programs.
General and administrative expenses for the three and nine month periods ended
September 30, 1998 and 1997.
For the three months ended September 30, 1998 general and administrative
expenses were $555,000 compared to $372,000 for the same period in 1997. The
increase of $183,000 was primarily due to an increase in expenses associated
with operating as a public company. General and administrative expenses will
likely increase in future periods to support the projected growth of the
Company.
For the nine months ended September 30, 1998 general and administrative
expenses were $1,872,000 compared to $1,107,000 for the same period in 1997.
The increase of $765,000 was primarily due to an increase in expenses
associated with operating as a public company. General and administrative
expenses will likely increase in future periods to support the projected
growth of the Company.
Equity in Operations of Joint Venture for the three and nine month periods ended
September 30, 1998 and 1997.
For the three months ended September 30, 1998 equity in operations of joint
venture was a loss of $937,000 compared to a loss of $1,649,000 for the same
period in 1997. The decrease of $712,000 was primarily due to the substantial
completion of the manufacture of clinical trial material for the Company's
ongoing pivotal trial of CAMPATH-1H in the second quarter which resulted in a
corresponding reduction in manufacturing related expenses in the third
quarter of 1998 when compared to the same period last year. Joint venture
expenses were primarily related to data analysis, regulatory submissions and
activities related to an ongoing pivotal clinical trial of CAMPATH-1H.
9
For the nine months ended September 30, 1998 equity in operations of joint
venture was a loss of $2,922,000 compared to a loss of $1,649,000 for the
same period in 1997. The increase of $1,273,000 was primarily due to increased
joint venture activity in 1998 including manufacturing, data analysis,
regulatory submissions and the conduct of a pivotal clinical study of
CAMPATH-1H.
Interest income (expense), net for the three and nine month periods ended
September 30, 1998 and 1997.
For the three months ended September 30, 1998 net interest income was
$359,000 compared to $196,000 for the same period in 1997. This increase of
approximately $163,000 was primarily due to an increase in interest income
resulting from higher average cash balances due to proceeds received from the
sale of common stock to Genentech completed in December 1997 and from the
private placement in July 1998.
For the nine months ended September 30, 1998 net interest income was $926,000
compared to $407,000 for the same period in 1997. This increase of
approximately $519,000 was primarily due to an increase in interest income
resulting from higher average cash balances due to proceeds received from
LeukoSite's initial public offering completed in August 1997, from the sale
of common stock to Genentech completed in December 1997 and from the private
placement in July 1998.
Net Loss for the three and nine month periods ended September 30, 1998 and 1997.
For the three months ended September 30, 1998 net loss was $4,814,000
compared to $3,269,000 for the same period in 1997. The increase in the net
loss of $1,545,000 and was primarily due to the manufacture of clinical trial
material and clinical research related to the Company's LDP-01 and LDP-02
programs. Higher overall expenses were offset in part by increased revenues
from research collaborations and interest income.
For the nine months ended September 30, 1998 net loss was $11,796,000
compared to $6,969,000 for the same period in 1997. The increase in the net
loss of $4,827,000 and was primarily due to the manufacture of clinical trial
material and clinical research related to the Company's LDP-01 and LDP-02
programs and CAMPATH-1H development expenses recorded by the joint venture.
Higher overall expenses were offset in part by increased revenues generated
from research collaborations and interest income.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company's operations have been funded primarily
through proceeds from the sale of equity securities, which have raised
approximately $64.6 million, and to a lesser extent license fees and
sponsored research, which have generated approximately $16.5 million, and
capital lease obligations, which have generated approximately $4.2 million.
The Company has used cash to fund operating losses of approximately $43.8
million, the investment of approximately $2.9 million in equipment and
leasehold improvements and the repayment of approximately $3.0 million of
capital lease obligations. The Company had no significant commitments as of
September 30, 1998 for capital expenditures. At September 30, 1998 the
Company had on hand cash, cash equivalents and marketable securities of
approximately $26.5 million. In July 1998, the Company completed a private
placement of 1,967,169 shares of its common stock at $6 per share, for net
proceeds of $11.7 million after expenses of the offering.
In May 1997 the Company and Ilex entered into a joint venture whereby the
parties formed a limited partnership to develop CAMPATH-1H for the treatment
of chronic lymphocytic leukemia and other diseases. The Company and Ilex are
required to make contributions when the joint venture requires working
capital. LeukoSite and Ilex will generally share equally in profits from the
sales of CAMPATH-1H and in research, development, and clinical expenses. The
capital requirements of the joint venture consist of clinical development
expenses. For the nine months ended September 30, 1998 the Company provided
the joint venture with approximately $2.4 million in funding and the Company
had a funding liability of $1,520,498 to the joint venture as of September
30, 1998. The Company charged the joint venture $820,503 for costs incurred
by the Company on behalf of the joint venture.
10
The Company has entered into sponsored research and consulting agreements with
certain hospitals, academic institutions and consultants, requiring periodic
payments by the Company. As of September 30, 1998 aggregate minimum funding
obligations under these agreements, which include certain cancellation
provisions, total approximately $1,451,000, of which approximately $414,000 will
be paid in 1998. The Company also has a remaining total commitment of $750,000
to the Therapeutic Antibody Centre at the University of Oxford in England to
provide funding in semi-annual installments through the year 1999.
The Company believes that its existing capital resources, interest income and
revenue from the collaboration agreements will be sufficient to fund its planned
operating expenses and capital requirements into 2000. However, there can be no
assurance that such funds will be sufficient to meet the Company's operating
expenses and capital requirements during such period. The Company's actual cash
requirements may vary materially from those now planned and will depend upon
numerous factors, including the results of the Company's research and
development and collaboration programs, the timing and results of preclinical
and clinical trials, the timing and costs of obtaining regulatory approvals, the
progress of the milestone and royalty producing activities of the Company's
collaborative partners, the level of resources that the Company commits to the
development of manufacturing, marketing, and sales capabilities, the cost of
filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights, the ability of the Company to maintain existing
and establish new collaboration agreements with other companies, the
technological advances and activities of competitors and other factors.
The Company expects to incur substantial additional expenses, including expenses
related to ongoing research and development activities, expenditures for
preclinical and clinical trials and the expansion of its laboratory and
administrative activities. Therefore, the Company will need to raise substantial
additional capital. The Company intends to seek such additional funding through
public or private financing or collaboration or other arrangements with
collaborative partners. There can be no assurance, however, that additional
financing will be available from any sources or, if available, will be available
on acceptable terms.
Year 2000 Issues
The Company is reviewing its information systems to assess what steps, if
any, are required to achieve full Year 2000 compliance. The Company relies
upon microprocessor-based personal computers and commercially available
applications software. The Company is currently discussing Year 2000
readiness with its supply and service vendors. The Company intends to
continue to assess its exposure to Year 2000 noncompliance on the part of any
of its vendors and there can be no assurance that their systems will be Year
2000 compliant. The Company does not anticipate that it will incur material
expenses to make its internal computer software and operating systems Year
2000 compliant. The Company believes that the Year 2000 issue will not pose
significant operational problems for the Company's systems. The Company
currently does not have any contingency plan in the event Year 2000
compliance cannot be achieved in a timely manner.
11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) On July 1, 1998, the Company completed a private placement
raising an aggregate of $11,803,014 by issuing 1,967,169
shares of Common Stock at a purchase price of $6.00 per
share. The issuance and sale of the shares of Common Stock
was made in reliance upon Rule 506 of Regulation D
promulgated under the Securities Act of 1933, as amended
(the "Securities Act") and upon Section 4(2) of the
Securities Act.
(d) The Company's Registration Statement on Form S-1 (Reg. No.
333-30213) in connection with the Company's initial public
offering of Common Stock was declared effective by the
Securities and Exchange Commission (the "SEC") on August 14,
1997. Such Registration Statement (the "IPO Registration
Statement") provided for the registration under the
Securities Act of 2,875,000 shares of the Company's
Common Stock (including underwriters overallotment).
The aggregate initial public offering price for all
2,875,000 shares of Common Stock registered under the
Securities Act pursuant to the IPO Registration Statement
was $17,250,000. The net proceeds to the Company from such
issuance and distribution, after deducting the aggregate
amount of expenses (including underwriting discounts and
commissions) paid by the Company in connection therewith,
were $15,297,000.
Of such net proceeds, an aggregate of $10,598,000 has been
spent through September 30, 1998 for the following uses
and in the following amounts per use: $4,760,000 for the
clinical development of CAMPATH-1H through the Company's
joint venture with Ilex Oncology; $5,838,000 for working
capital. All amounts spent by the Company for such uses,
other than payment of salaries to directors and officers
of the Company, consisted of direct payments to persons or
entities, none of which was a director or officer of the
Company, holder of 10 percent or more of any class of equity
securities of the Company or other affiliate of the Company.
The remaining cash balance of such net proceeds, consisting
of $4,699,000, is held in cash, cash equivalents, and
marketable securities.
12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Stock Purchase Agreement dated July 1,
1998 among the Registrant and the
purchasers listed on Exhibit A attached
thereto
10.2 Registration Rights Agreement dated
July 1, 1998 among the Registrant and the
investors listed on Exhibit A attached
thereto
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company
during the quarter for which this report is filed.
13
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.
LeukoSite, Inc.
(Registrant)
Dated: November 9, 1998 /s/ Augustine Lawlor
--------------------
Augustine Lawlor
Vice President, Corporate
Development and Chief Financial Officer
(principal finance and accounting officer)
14