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 JUNE 30, 1999
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
August 10, 1999 Common stock, $.01 par value 14,609,761
-----------------------------------------------------------------------------
1
LEUKOSITE, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
December 31, 1998 and June 30, 1999 3
Condensed Consolidated Statements of Operations
for the three and six months ended June 30, 1998 and
1999 4
Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 1998 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 15
Item 4. Submission of Matters to a Vote of Security 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
PART I FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LEUKOSITE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 JUNE 30, 1999
----------------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 5,361,339 $ 3,314,650
Marketable securities 15,802,376 14,530,359
Investment in Joint Venture -- 272,581
Receivable from UCB -- 6,000,000
Other current assets 544,779 1,074,237
------------ ------------
Total current assets 21,708,494 25,191,827
------------ ------------
Property and equipment, net 3,393,873 3,382,975
Marketable Securities 2,168,324 4,155,885
Other assets 231,930 282,327
------------ ------------
Total assets $ 27,502,621 $ 33,013,014
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 4,387,429 $ 4,599,269
Obligation to fund L&I Joint Venture 203,445 --
Deferred revenue 2,172,058 2,531,226
Deferred rent 222,907 101,321
Current portion of capital lease obligations 733,848 816,020
------------ ------------
Total current liabilities 7,719,687 8,047,836
------------ ------------
Capital lease obligations, less current portion 1,315,813 1,162,101
------------ ------------
Stockholders' equity:
Preferred stock $.01 par value-
Authorized-5,000,000 shares
Issued and outstanding-no shares -- --
Common stock, $.01 par value-
Authorized-25,000,000 shares
Issued and outstanding-11,916,339 shares at
December 31, 1998 and 12,922,206 shares
at June 30, 1999 119,164 129,223
Additional paid-in capital 65,280,443 81,174,803
Accumulated deficit (46,932,486) (57,500,949)
------------ ------------
Total stockholders' equity 18,467,121 23,803,077
------------ ------------
Total liabilities and stockholders' equity $ 27,502,621 $ 33,013,014
------------ ------------
------------ ------------
3
LEUKOSITE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ----------------------------
1998 1999 1998 1999
---- ---- ---- ----
REVENUES:
Corporate collaborations $ 1,748,707 $ 2,296,130 $ 3,832,454 $ 4,926,521
Joint venture 311,758 918,371 445,212 1,282,041
Government grants 274,500 244,156 415,344 488,311
----------- ------------ ------------ ------------
Total revenue 2,334,965 3,458,657 4,693,010 6,696,873
----------- ------------ ------------ ------------
OPERATING EXPENSES:
Research and development 4,834,187 6,477,869 8,940,001 12,953,680
General and administrative 684,433 898,562 1,316,693 1,564,068
Acquired in-process research and
development -- -- -- 1,588,612
----------- ------------ ------------ ------------
Total operating expenses 5,518,620 7,376,431 10,256,694 16,106,360
----------- ------------ ------------ ------------
LOSS FROM OPERATIONS (3,183,655) (3,917,774) (5,563,684) (9,409,487)
OTHER INCOME (EXPENSE):
Equity in operations of joint venture (718,698) (1,109,643) (1,984,905) (1,756,015)
Interest income 308,493 324,123 646,994 682,504
Interest expense (39,766) (42,011) (79,508) (85,465)
----------- ------------ ------------ ------------
NET LOSS $(3,633,626) $ (4,745,305) $ (6,981,103) $(10,568,463)
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
NET LOSS PER COMMON SHARE
Basic and diluted $ (.37) $ (.38) $ (.71) $ (.87)
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
SHARES USED IN COMPUTING NET LOSS PER
COMMON SHARE
Basic and diluted 9,897,766 12,349,556 9,889,575 12,140,748
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
4
LEUKOSITE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
1998 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,981,103) $(10,568,463)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 542,203 689,579
Stock compensation expense -- 152,488
Equity in operations of joint venture 1,984,905 1,756,015
Acquired in-process research and
development -- 1,588,612
Change in operating assets and liabilities:
Other current assets (279,858) 7,664
Accounts payable and accrued expenses 215,200 (335,338)
Deferred revenue 2,719,980 359,168
Deferred rent (121,585) (121,586)
------------ ------------
Net cash used in operating activities (1,920,258) (6,471,861)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in marketable securities (7,863,717) (4,760,066)
Proceeds from maturities of marketable securities 8,916,468 11,419,358
Investment in joint venture (2,796,778) (2,232,041)
Purchases of property and equipment (431,833) (253,796)
Cash acquired in CytoMed acquisition -- 564,875
Decrease (increase) in other assets -- (45,397)
------------ ------------
Net cash provided by (used in) investing activities (2,175,860) 4,692,933
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital leases (573,560) (391,973)
Issuance of common stock 45,368 69,641
Exercise of stock options 21,038 54,571
------------ ------------
Net cash used in financing activities (507,154) (267,761)
------------ ------------
NET DECREASE IN CASH AND EQUIVALENTS (4,603,272) (2,046,689)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 10,587,873 5,361,339
------------ ------------
CASH AND EQUIVALENTS, END OF PERIOD $ 5,984,601 $ 3,314,650
------------ ------------
------------ ------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $ 79,508 $ 85,465
------------ ------------
------------ ------------
Property and equipment purchased under capital lease
obligations $ 346,771 $ 320,433
------------ ------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of CytoMed:
Marketable securities $ -- $ 7,374,386
Accounts receivable -- 6,355,681
Prepaid expenses -- 181,441
Property and equipment -- 104,452
Other assets -- 5,000
Acquired in-process research and development -- 1,588,612
Accounts payable and accrued expenses -- (547,178)
Stock issued -- (15,627,269)
------------ ------------
$ -- $ (564,875)
------------ ------------
5
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 therapeutics with potential
applications in cancer and inflammatory, autoimmune, and viral diseases.
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, 1998 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 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. The investments that the Company has the positive intent
and ability to hold to maturity are reported at amortized cost, which
approximates fair market value.
As of June 30, 1999 there were no material unrealized gains or losses on
any investments. Cash and cash equivalents and marketable securities
consisted of the following:
December 31, 1998 June 30, 1999
Cash and cash equivalents:
Cash $ 3,219,315 $ 526,009
Money market funds 1,341,651 1,986,882
Taxable auction securities 800,373 801,759
------------- ------------
$ 5,361,339 $ 3,314,650
------------- ------------
------------- ------------
Marketable securities, short term:
Corporate bonds and notes (average
maturity of 6 and 5 months respectively) $ 15,802,376 $ 14,530,359
------------- ------------
------------- ------------
Marketable securities, long term:
Corporate bonds and notes (average
maturity of 16 and 17 months
respectively) $ 2,168,324 $ 4,155,885
------------- ------------
------------- ------------
6
(b) Net Loss per Common Share
Basic net loss per common share is based on the weighted average number of
common shares outstanding. For the three and six month periods ended June
30, 1999 diluted net loss per common share is the same as basic net loss
per common share as the inclusion of 519,576 weighted average shares of
common stock issuable upon exercise of stock options and warrants would be
antidilutive.
3. 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 CAMPATH(R). 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. 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. The joint venture
has sublicensed the rights to CAMPATH(R) from the Company. For the six
months ended June 30, 1999 the Company's share of the joint venture's
recorded loss was $1,756,015 and the Company's investment in the joint
venture as of June 30, 1999 was $272,581. The Company charged the joint
venture $1,282,041 for costs incurred on its behalf for the six months
ended June 30, 1999.
4. CytoMed Acquisition
On February 11, 1999 the Company acquired all of the issued and outstanding
capital stock of CytoMed, Inc. ("CytoMed") through the issuance of 935,625
shares of the Company's Series A Convertible Preferred Stock, par value
$.01 per share, to CytoMed shareholders. The Series A Convertible Preferred
Stock automatically converted into common stock on a one-for-one basis upon
the required approval by the Company's shareholders at the annual meeting
held May 25, 1999. The Company may issue another 631,313 common shares to
CytoMed shareholders upon receipt of a $6,000,000 payment to CytoMed from
UCB Pharma which is required to be paid in October 1999. In addition,
CytoMed shareholders may receive up to $23,000,000 in cash and up to an
additional 84,000 shares of the Company's common shares upon the
achievement of milestones related to certain CytoMed product candidates.
The merger was accounted for as a purchase in accordance with the
requirements of Accounting Principles Board (APB) Opinion No.16, Business
Combinations, and accordingly CytoMed's results of operations are included
in those of the Company beginning on the date of the acquisition. The total
purchase price, including transaction costs, was approximately $16,100,000.
The total purchase price was allocated to the fair value of the assets
acquired and liabilities assumed including an allocation to in-process
research and development of $1,588,612. The nature of the efforts to
develop the purchased in-process technologies into commercially viable
products principally relate to the completion of all development, testing,
and high-volume manufacturing activities that are necessary to establish
that the products can be produced to meet its design specifications and are
proven to be safe and effective for their respective indications. As of the
acquisition date, technological feasibility of the compounds in development
had not
7
been established and the technologies have no alternative future uses. If
these projects are not successfully developed, the Company will not realize
the value assigned to the in-process research and development, therefore
the value of the in-process research and development was charged to
operations in the current period.
Total consideration allocated to the fair market value of assets acquired
and liabilities assumed on the purchase date is as follows:
Cash and cash equivalents $ 1,044,875
Marketable securities 7,374,386
Accounts receivable 6,355,681
Prepaid expenses 181,441
Property and equipment 104,452
Other assets 5,000
Acquired in-process research and development 1,588,612
Accounts payable and accrued expenses (547,178)
------------
$ 16,107,269
------------
------------
The following unaudited pro forma condensed consolidated statement of
operations information has been prepared to give effect to the merger as if
such transaction had occurred at the beginning of the periods presented. In
October 1998 CytoMed sold to UCB Pharma assets relating to certain research
programs. CytoMed's historical results of operations included in the
following pro forma information have been adjusted to reflect the revenues
and expenses related to the remaining research programs acquired by the
Company. The historical results of operations have been adjusted to reflect
(i) elimination of the one-time charge to operations for the purchase of
acquired in-process research and development and (ii) reduction of interest
income resulting from use of $480,000 for transaction costs at an annual
interest rate of 5.47%.
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- ----------------
REVENUES $ 13,584,460 $ 6,696,874
NET LOSS $ (7,334,735) $ (9,737,325)
NET LOSS PER COMMON SHARE
Basic and diluted $(1.39) $(.72)
------ -----
SHARES USED IN COMPUTING NET LOSS PER
COMMON SHARE
Basic and diluted 12,462,349 13,521,595
---------- ----------
---------- ----------
5. Subsequent Events
On July 19, 1999 the Company acquired all of the issued and outstanding
capital stock of ProScript, Inc. ("ProScript") by payment of $411,719 in
cash to ProScript shareholders and through the issuance of 187,970 shares
of the Company's common stock, par value $0.01 per share, to certain
ProScript shareholders. In addition, ProScript shareholders will be
entitled to additional cash payments upon the achievement of certain
milestones and royalties related to certain ProScript compounds and related
to a ProScript research collaboration with Hoechst Marion Roussel, Inc.
8
The merger will be accounted for as a purchase in accordance with the
requirements of APB Opinion No. 16, Business Combinations, and accordingly
ProScript's results of operations will be included in those of the Company
beginning on the date of the acquisition. The aggregate purchase price was
approximately $2.8 million, which includes net liabilities assumed of
approximately $497,000. The total purchase price will be allocated to the
fair value of assets acquired and liabilities assumed.
In a separate transaction on July 20, 1999 the Company completed a private
placement of 1,487,548 unregistered shares of its common stock for total
net proceeds of $14.2 million after expenses of the offering.
6. Segment Reporting
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. This statement established standards
for the way that public business enterprises report information about
operating segments in annual financial statements and requires that
enterprises report selected information about operating segments in interim
financial reports issued to stockholders. The Company has adopted this
statement for the fiscal year ending December 31, 1998. In accordance with
SFAS No. 131, the Company has one operating segment. Additional disclosure
of revenue information about products and services is, therefore, not
required.
7. Recent Accounting Pronouncements
In June 1998 the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement is effective for the year
ended December 31,2000. SFAS No. 133 establishes accounting and reporting
disclosure standards for derivative instruments including certain
derivative instruments embedded in other contracts (collectively referred
to as derivatives) and for hedging activities. The Company does not expect
adoption of this statement to have a material impact on its consolidated
financial position or results of operations.
9
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 early
2001, (ii) statements about the amount of capital expenditures that the Company
expects to incur in 1999 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,
1998.
OVERVIEW
The Company is a leader in the discovery and development of therapeutics used
to treat cancer and inflammatory, autoimmune and viral diseases. 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 June 30, 1999, the Company
had an accumulated deficit of approximately $57.3 million.
In 1994, 1995 and 1996, the Company signed agreements with Warner-Lambert for
the discovery and development of drugs that are intended to antagonize the
MCP-1, IL-8 and CCR5 and CXCR4 receptors found on certain classes of leukocytes.
In December 1998 the Company and Warner-Lambert signed an agreement related to
the (ALPHA)4(BETA)7 and (ALPHA)E(BETA)7 integrin targets implicated in asthma
and inflammatory bowel disease. 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 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 for the development of CAMPATH(R) for the
treatment of chronic lymphocyctic 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 for the
development of a monoclonal antibody intended as therapy for inflammatory bowel
disease. In August 1998 the Company entered into a collaboration agreement with
MorphoSys AG for the discovery of therapeutic monoclonal antibodies for
inflammatory and autoimmune disorders.
On February 11, 1999 the Company acquired all of the issued and outstanding
capital stock of CytoMed for approximately $16.1 million in stock. On July
19, 1999 the Company acquired all of the issued and outstanding capital stock
of ProScript for approximately $2.8 million in cash and stock.
10
RESULTS OF OPERATIONS
REVENUES FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998.
For the three months ended June 30, 1999 revenues were $3,459,000
compared to $2,335,000 for the comparable period of 1998. The increase of
approximately $1,124,000 was primarily due to greater research funding from
Warner-Lambert offset in part by lower research funding from Roche Bioscience
and Kyowa Hakko.
For the six months ended June 30, 1999, revenues were $6,697,000
compared to $4,693,000 for the comparable period of 1998. The increase of
approximately $2,004,000 was primarily due to greater research funding from
Warner-Lambert offset in part by lower research funding from Roche Bioscience
and Kyowa Hakko.
RESEARCH AND DEVELOPMENT EXPENSES FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE
30, 1999 AND 1998.
For the three months ended June 30, 1999 research and development
expenses were $6,478,000 compared to $4,834,000 for the comparable period of
1998. The increase of approximately $1,644,000 was primarily due to the
external expenses associated with the manufacture of clinical trial material
and ongoing clinical trials for the Company's LDP-02 program, development of
LDP-977, and increased staffing and materials expenses associated with the
Company's development and drug discovery programs.
For the six months ended June 30, 1999 research and development expenses
were $12,954,000 compared to $8,940,000 for the comparable period of 1998.
The increase of approximately $4,014,000 was primarily due to the external
expenses associated with the manufacture of clinical trial material and
ongoing clinical trials for the Company's LDP-02 program, development of
LDP-977, and increased staffing and materials expenses associated with the
Company's development and drug discovery programs. To a lesser extent the
increase was due to increased sponsored research and patent expenses.
GENERAL AND ADMINISTRATIVE EXPENSES FOR THE THREE AND SIX MONTH PERIODS ENDED
JUNE 30, 1999 AND 1998.
For the three months ended June 30, 1999 general and administrative
expenses were $899,000 compared to $684,000 for the comparable period of
1998. The increase of approximately $215,000 was primarily due to an increase
in expenses associated with business development and intellectual property
management.
For the six months ended June 30, 1999 general and administrative
expenses were $1,564,000 compared to $1,317,000 for the comparable period of
1998. The increase of approximately $247,000 was primarily due to an increase
in expenses associated with business development and intellectual property
management.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT EXPENSE FOR THE THREE AND SIX MONTH
PERIODS ENDED JUNE 30, 1999 AND 1998.
An expense was recorded for acquired in-process research and development
in the amount of $1,589,000 in connection with the CytoMed acquisition in
February 1999. This one-time charge represents the excess purchase price paid
over the net asset value of CytoMed.
EQUITY IN OPERATION OF JOINT VENTURE FOR THE THREE AND SIX MONTH PERIODS ENDED
JUNE 30, 1999 AND 1998.
11
For the three months ended June 30, 1999 equity in operations of joint
venture was a loss of $1,110,000 compared to $719,000 for the comparable
period of 1998. The increase of approximately $391,000 was primarily to due
to data analysis and activities related to regulatory submissions of CAMPATH(R).
For the six months ended June 30, 1999 equity in operations of joint
venture was a loss of $1,756,000 compared to $1,985,000 for the comparable
period of 1998. The decrease of approximately $229,000 was primarily due to
the substantial completion of manufacture of clinical trial material offset
in part by increased activities related to regulatory submissions. The
Company and ILEX met with the U.S. Food and Drug Administration (FDA) for a
pre-BLA (Biologics License Application) meeting in March 1999. A "rolling
BLA" submission for CAMPATH(R) was approved by the FDA in June 1999. To date,
the Chemistry Manufacturing and Controls and Non-Clinical Pharmacology and
Toxicology sections have been submitted to the FDA. The remaining Clinical
sections will be submitted before the end of the year.
INTEREST INCOME (EXPENSE), NET FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE
30, 1999 AND 1998.
For the three months ended June 30, 1999 interest income (expense), net
was $282,000 compared to $269,000 for the comparable period of 1998. The
increase of $13,000 was primarily due to the Company's higher cash and cash
equivalents balance and investments in marketable securities provided by a
private placement in July 1998 and the CytoMed acquisition in February 1999.
For the six months ended June 30, 1999 interest income (expense), net
was $597,000 compared to $567,000 for the comparable period of 1998. The
increase of $30,000 was primarily due to the Company's higher cash and cash
equivalents balance and investments in marketable securities provided by a
private placement in July 1998 and the CytoMed acquisition in February 1999.
NET LOSS FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998.
For the three months ended June 30, 1999 net loss was $4,745,000
compared to $3,634,000 for the comparable period of 1998. The increase of
approximately $1,111,000 was primarily due to the manufacture of clinical
trial material and clinical research for the Company's LDP-02 program,
development of LDP-977, and greater research and development expenses related
to the Company's drug discovery programs. Higher overall expenses were offset
in part by increased research funding from Warner-Lambert.
For the six months ended June 30, 1999 net loss was $10,562,000 compared
to $6,981,000 for the comparable period of 1998. The increase of
approximately $3,587,000 was primarily due to the one-time charge for the
purchase of acquired in-process research and development due to the CytoMed
acquisition, the manufacture of clinical trial material and clinical research
for the Company's LDP-02 program, development of LDP-977, and greater
research and development expenses related to the Company's drug discovery
programs. Higher overall expenses were offset in part by increased research
funding from Warner-Lambert.
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 $25.7 million, and capital lease obligations, which
have generated approximately $5.4 million. The Company has used cash to fund
operating losses of approximately $56.9 million, the investment of approximately
$3.3 million in equipment and leasehold improvements and the repayment of
approximately $3.7 million of capital lease obligations. The Company had no
significant commitments as of June 30, 1999 for capital
12
expenditures. At June 30, 1999 the Company had on hand cash, cash equivalents
and marketable securities of approximately $22 million.
As of June 30, 1999 other current assets were approximately $7.1 million.
Included in other current assets is a current receivable of $6 million due to
CytoMed from UCB Pharma which is required to be paid in October 1999.
The Company has entered into sponsored research and consulting agreements with
certain hospitals, academic institutions and consultants, requiring periodic
payments by the Company. Aggregate minimum funding obligations under these
agreements, which include certain cancellation provisions, total approximately
$1.7 million, of which approximately $1.3 million will be paid in 1999. The
Company also has a remaining total commitment to the Therapeutic Antibody Centre
at the University of Oxford in England to provide funding of $250,000 in
semi-annual installments through the year 1999.
In May 1997 the Company and ILEX entered into a joint venture whereby the
parties formed a limited partnership to develop CAMPATH(R) for the treatment
of chronic lymphocytic leukemia and other diseases. The Company and ILEX are
required to make contributions each time the joint venture requires working
capital. The Company and ILEX will generally share equally in profits from
the sales of CAMPATH(R) and in research, development, and clinical expenses.
The capital requirements of the joint venture consist of clinical development
and commercialization expenses.
On February 11, 1999 the Company acquired all of the issued and outstanding
capital stock of CytoMed. The total purchase price was approximately $16.1
million and the net assets acquired were approximately $14.5 million of which
approximately $8.5 million was cash and $6 million was a receivable from UCB
Pharma expected to be paid in October 1999.
On July 19, 1999 the Company acquired all of the issued and outstanding
capital stock of ProScript for approximately $2.8 million in cash and stock.
On July 20, 1999 the Company completed a private placement of 1,487,548
unregistered shares of its common stock for total net proceeds of
approximately $14.2 million after expenses of the offering.
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 2001. 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, commercialization of CAMPATH(R), 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 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
13
Company believes that the Year 2000 issue will not pose significant 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.
ITEM 3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company owns financial instruments that are sensitive to market risks as
part of its investment portfolio. The investment portfolio is used to preserve
the Company's capital until it is required to fund operations, including the
Company's research and development activities. All of these market-risk
sensitive instruments are classified as held-to-maturity and are not held for
trading purposes. The Company does not own derivative financial instruments in
its investment portfolio. The investment portfolio contains instruments that are
subject to the risk of a decline in interest rates.
Interest Rate Risk-The Company's investment portfolio includes investment grade
debt instruments. These bonds are subject to interest rate risk, and could
decline in value if interest rates fluctuate. Due to the short duration and
conservative nature of these instruments, the Company does not believe that it
has a material exposure to interest rate risk.
14
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(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 $15,297,000 has been
spent through June 30, 1999 for the following uses and in
the following amounts per use: $7,012,000 for the clinical
development of CAMPATH(R) through the Company's joint
venture with ILEX; $8,285,000 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on May 25, 1999 the
following proposals were adopted by the margins indicated:
1. To elect eight directors of the Company to serve until the 2000
Annual Meeting.
Number of Shares
For Withheld
Christopher K. Mirabelli, Ph.D. 10,155,775 15,130
Kate Bingham 10,155,775 15,130
Yasunori Kaneko, M.D. 10,155,775 15,130
James H. Cavanaugh 10,155,775 15,130
Martin Peretz, Ph.D. 10,155,775 15,130
Mark Skaletsky 10,155,775 15,130
Timothy A. Springer, Ph.D. 10,155,775 15,130
Christopher T.Walsh, Ph.D. 10,155,775 15,130
2. To consider and vote upon a proposal to ratify the adoption and
approval by the Board of Directors of an amendment to the Company's
Amended and Restated 1993 Stock Option Plan (the "1993 Plan") to
provide for an increase in the number of shares of Common Stock
authorized for issuance under the 1993 Plan from 2,125,000 to
2,575,000.
For 9,424,906
Against 731,059
Abstain 7,910
15
3. To consider and vote upon a proposal to approve (i) the
conversion into Common Stock of all outstanding shares of the
Company's Series A Convertible Preferred Stock issued to the former
stockholders of CytoMed, Inc. in connection with the Company's
recent acquisition (by merger) of CytoMed, Inc., and (ii) the
issuance of additional shares of Common Stock to the former
stockholders of CytoMed, Inc. as additional consideration for the
CytoMed acquisition, if and when the Company receives certain cash
payments or certain drug development milestones are achieved with
respect to certain CytoMed product candidates.
For 9,206,663
Against 20,500
Abstain 3,875
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Forms 8-K.
The Company filed a Report on Form 8-K on April 6, 1999
relating to the announcement that the Company and ILEX
Oncology, Inc. met with the FDA for a pre-BLA meeting on the
clinical development of CAMPATH(R).
The Company filed a Report on Form 8-K/A on April 27, 1999
relating to the CytoMed acquisition.
The Company filed a Report on Form 8-K on June 24, 1999
relating to the ProScript acquisition and the private
placement.
16
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: August 12, 1999
/s/ Augustine Lawlor
-------------------------------------
Augustine Lawlor
Chief Operating and Financial Officer
and Senior Vice President
(principal finance and accounting officer)