1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 2000
---------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- -------------------------- ---------------
Commission file number 0-19612
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IMCLONE SYSTEMS INCORPORATED
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2834797
- ----------------------------------------- --------------------------------------------------------------------------------- ------------------------------
(State or other jurisdiction of incorporation (IRS Employer Identification
No.)
incorporation or organization) No.)
180 VARICK STREET, NEW YORK, NY 10014
- ----------------------------------------- --------------------------------------------------------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
(212) 645-1405
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Registrant's telephone number, including area code
Not Applicable
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Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- -------- -----
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Class Outstanding as of May 11, 2000
- ------------------------------------------- ---------------------------------
Common Stock, par value $.001 31,263,291
Class Outstanding as of August 10, 2000
------------------------------- ---------------------------------
Common Stock, par value $.001 32,226,061 Shares
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IMCLONE SYSTEMS INCORPORATED
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31,June 30, 2000 (unaudited)
and December 31, 1999 1
Unaudited Consolidated Statements of Operations - Three
and six months ended March 31,June 30, 2000 and 1999 2
Unaudited Consolidated Statements of Cash Flows - Three
and six months ended March 31,June 30, 2000 and 1999 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 1214
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use4. Submission of Proceeds 12Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 1215
3
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
IMCLONE SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share and share data)
MARCH 31,JUNE 30, DECEMBER 31,
ASSETS 1999 2000
1999
--------- ------------------------- --------------
(UNAUDITED)
Current assets:
Cash and cash equivalents ........................................equivalents.................................... $ 20,51210,442 $ 12,016
Securities available for sale ..................................... 322,037sale................................ 317,335 107,352
Prepaid expenses .................................................. 3,498expenses............................................. 3,596 158
Other current assets .............................................. 10,458assets......................................... 7,262 7,599
--------- ---------------------- --------------
Total current assets ....................... 356,505assets.................. 338,635 127,125
--------- ---------------------- --------------
Property and equipment:
Land .............................................................. 1,087Land......................................................... 1,113 1,087
Building and building improvements ................................ 10,913improvements........................... 10,921 10,810
Leasehold improvements ............................................ 4,891improvements....................................... 7,211 4,891
Machinery and equipment ........................................... 9,177equipment...................................... 9,330 9,049
Furniture and fixtures ............................................ 1,003fixtures....................................... 1,233 898
Construction in progress .......................................... 9,912progress..................................... 13,330 5,209
--------- ---------------------- --------------
Total cost ................................. 36,983cost............................ 43,138 31,944
Less accumulated depreciation and amortization .................. (15,198)amortization............. (15,999) (14,729)
--------- ---------------------- --------------
Property and equipment, net ................ 21,785net........... 27,139 17,215
--------- ---------------------- --------------
Patent costs, net ...................................................... 983................................................ 975 1,013
Deferred financing costs, net .......................................... 8,008net..................................... 7,926 37
Other assets ........................................................... 309assets...................................................... 7,797 304
--------- ---------------------- --------------
$ 387,590382,472 $ 145,694
========= ====================== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................................payable.............................................. $ 4,9213,534 $ 3,987
Accrued expenses ................................................... 5,032............................................. 5,463 5,123
Interest payable ................................................... 1,225payable.............................................. 4,443 45
Fees potentially refundable fromto corporate partner ................. 24,000partner.............. 26,000 20,000
Current portion of long-term liabilities ........................... 880..................... 810 906
Preferred stock dividends payable .................................. 448payable............................. 895 -
--------- ---------------------- --------------
Total current liabilities .................. 36,506liabilities............. 41,145 30,061
--------- ---------------------- --------------
Long-term debt ............................................................................................................ 242,200 2,200
Other long-term liabilities, less current portion ...................... 918................ 749 1,135
--------- ---------------------- --------------
Total liabilities .......................... 279,624liabilities..................... 284,094 33,396
--------- ---------------------- --------------
Commitments and contingencies
Stockholders' equity:equity :
Preferred stock, $1.00 par value; authorized 4,000,000 shares; issued
and outstanding Series A Convertible: 300,000 at March 31,June 30, 2000 and
December 31, 1999 (preference in liquidation $30,448$30,895 and $30,000,
respectively) ........................................................... 300 300
Common stock, $.001 par value; authorized 60,000,000120,000,000 shares;
issued 31,230,18331,716,381 and 29,703,090 at March 31,June 30, 2000 and December 31,
1999, respectively; outstanding 31,179,366,31,665,564, and 29,652,273 at March 31,June
30, 2000 and December 31, 1999, respectively .................................................. 31respectively............. 32 30
Additional paid-in capital ......................................... 292,968capital.................................... 297,335 286,038
Accumulated deficit ................................................ (185,514)deficit........................................... (199,363) (173,457)
Treasury stock, at cost; 50,817 shares at March 31,June 30, 2000
and December 31, 1999 .........................................1999.................................... (492) (492)
Note receivable - officer and stockholder ..........................stockholder..................... - (142)
Accumulated other comprehensive income:
Unrealized gain on securities available for sale .............. 673sale......... 566 21
--------- ---------------------- --------------
Total stockholders' equity ................. 107,966equity............ 98,378 112,298
--------- ---------------------- --------------
$ 387,590382,472 $ 145,694
========= ====================== ==============
See accompanying notes to consolidated financial statements.
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IMCLONE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
THREE MONTHS ENDED MARCH 31,
------------------------SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
2000 1999 -------- --------2000 1999
---------- --------- ---------- -----------
Revenues:
License fees from third parties .......................................... $ - $ - $ 40 $ -
Research and development funding from third
parties and other ................................... 166 629
-------- --------other.............................. 160 254 326 883
---------- --------- ---------- -----------
Total revenues ........................... 206 629
-------- --------revenues...................... 160 254 366 883
---------- --------- ---------- -----------
Operating expenses:
Research and development ............................... 11,101 6,354
General........................ 12,743 7,151 23,844 13,505
Marketing, general and administrative ............................. 3,126 2,002
-------- --------............ 3,782 1,675 6,908 3,677
---------- --------- ---------- -----------
Total operating expenses .................. 14,227 8,356
-------- --------............ 16,525 8,826 30,752 17,182
---------- --------- ---------- -----------
Operating loss .............................................. (14,021) (7,727)
-------- --------........................................ (16,365) (8,572) (30,386) (16,299)
---------- --------- ---------- -----------
Other:
Interest income ........................................ (3,187) (604)income................................... (6,165) (564) (9,352) (1,168)
Interest expense ....................................... 1,221expense.................................. 3,667 123 4,888 246
Loss (gain) on securities available for sale .................. 2sale...... (18) - (16) 832
-------- ------------------ --------- ---------- -----------
Net interest and other income .............. (1,964) 351
-------- --------income......... (2,516) (441) (4,480) (90)
---------- --------- ---------- -----------
Net loss .................................................... (12,057) (8,078)loss............................................... (13,849) (8,131) (25,906) (16,209)
Preferred dividends (including assumed incremental yield
attributible to beneficial conversion feature of
$254$256 and $336 for the three months ended March 31,June 30,
2000 and 1999, respectively and $510 and $672 for
the six months ended June 30, 2000 and 1999,
respectively) ................................ 702 928
-------- --------..................................... 703 934 1,405 1,862
---------- --------- ---------- -----------
Net loss to common stockholders ............................. $(12,759)stockholders........................ $ (9,006)
======== ========(14,552) $ (9,065) $ (27,311) $ (18,071)
========== ========= ========== ===========
Basic and diluted net loss per common share .................share............ $ (0.43)(0 46) $ (0.37)
======== ========(0 36) $ (0 89) $ (0.73)
========== ========= ========== ===========
Weighted average common shares outstanding .................. 29,968 24,447
======== ========outstanding.................... 31,302 24,986 30,635 24,718
========== ========= ========== ===========
See accompanying notes to consolidated financial statements.
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IMCLONE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
March 31,
--------------------------SIX MONTHS ENDED
JUNE 30,
------------------------------------
2000 1999
--------- -------------------- ----------
Cash flows from operating activities:
Net loss ..................................................................................................................................................... $ (12,057)(25,906) $ (8,078)(16,209)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization .................................................. 499 462................................................... 1,330 925
Amortization of deferred financing costs ....................................... 140 2costs......................................... 560 -
Expense associated with issuance
of options and warrants .................................................... 1,114 417warrants...................................................... 2,565 1,064
Loss (gain) on securities available for sale .......................................... 2.................................... (16) 832
Changes in:
Prepaid expenses ............................................................ (3,340) 11............................................................. (3,438) 138
Other current assets ........................................................ (2,859) (204)......................................................... 337 (284)
Other assets ................................................................ (5) (119)................................................................. 8 (135)
Interest payable ............................................................ 1,180 63............................................................. 4,398 (2)
Accounts payable ............................................................ 934 257............................................................. (453) (165)
Accrued expenses ............................................................ (91) (2,377)............................................................. 340 (1,279)
Deferred revenue ............................................................revenue.............................................................. - (75)
Fees potentially refundable fromto corporate partner .......................... 4,000 -
--------- ---------partner.............................. 6,000 8,000
----------- ----------
Net cash used in operating activities ........................ (10,483) (8,809)
--------- ---------......................... (14,275) (7,190)
----------- ----------
Cash flows from investing activities:
Acquisitions of property and equipment ......................................... (5,039) (910).......................................... (11,194) (2,010)
Purchases of securities available for sale ..................................... (291,740) (7,199)sale....................................... (320,282) (18,508)
Sales and maturities of securities available for sale .......................... 77,705 13,814........................... 110,859 23,500
Investment in Valigen N.V........................................................ (7,500) -
Additions to patents ........................................................... - (67)
--------- ---------............................................................ (22) (87)
----------- ----------
Net cash (used in) provided by investing activities .......... (219,074) 5,638
--------- ---------........... (228,139) 2,895
----------- ----------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants ........................... 6,194 311............................ 9,462 3,335
Proceeds from issuance of common stock under the employee stock purchase plan .. 68 13... 164 50
Proceeds from issuance of 5 1/2% convertible subordinated notes ................notes.................. 240,000 -
Deferred financing costs ....................................................... (8,111)costs......................................................... (8,449) -
Proceeds from equipment and building improvement financings...................... - 94
Proceeds from repayment of note receivable by- officer -and stockholder,
including interest ........................................................interest.......................................................... 145 -11
Payments of other liabilities .................................................. (243) (199)
--------- ---------................................................... (482) (411)
----------- ----------
Net cash provided by financing activities .................... 238,053 125
--------- ---------..................... 240,840 3,079
----------- ----------
Net increase (decrease)decrease in cash and cash equivalents ................................. 8,496 (3,046)............................................. (1,574) (1,216)
Cash and cash equivalents at beginning of period ........................................................................... 12,016 3,888
--------- -------------------- ----------
Cash and cash equivalents at end of period ....................................................................................... $ 20,51210,442 $ 842
--------- ---------
Supplemental cash flow information:
Cash paid for interest, including amounts capitalized................................. $ 47,000 $ 51,0002,672
=========== ==========
See accompanying notes to consolidated financial statements.
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IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) BASIS OF PRESENTATION
The consolidated financial statements of ImClone Systems Incorporated
("ImClone" or the "Company") as of March 31,June 30, 2000 and for the three and six
months ended March 31,June 30, 2000 and 1999 are unaudited. In the opinion of
management, these unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation. These financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999, as filed with the
Securities and Exchange Commission.
Results for the interim periods are not necessarily indicative of results for
the full years.
(2) SEGMENT INFORMATION
The Company is a biopharmaceutical company engaged in the research and
development of novel cancer treatments. The Company is currently pursuing three
research and development programs that it believes show potential for treating
cancer:certain cancers: growth factor inhibitors, cancer vaccines and angiogenesis
inhibitors. A substantial portion of the Company's efforts and resources are
devoted to research and development conducted on its own behalf and through
collaborations with corporate partners and academic research and clinical
institutions. The Company has not derived any commercial revenue from product
sales. The Company is managed and operated as one business. The entire business
is comprehensively managed by a single management team that reports to the
Chief Operating Officer. The Company does not operate separate lines of
business or separate business entities with respect to any of its product
candidates. Except for contract services (see Note 4) and clinical trials
conducted by independent investigators on behalf of the Company, the Company
does not conduct any of its operations outside of the United States.
Accordingly, the Company does not prepare discrete financial information with
respect to separate product areas or by location and does not have separately
reportable segments as defined by SFAS No. 131.
(3) FOREIGN CURRENCY TRANSACTIONS
Gains and losses from foreign currency transactions, such as those resulting
from the translation and settlement of receivables and payables denominated in
foreign currencies, are included in the consolidated statement of operations.
The Company does not currently use derivative financial instruments to manage
the risks associated with foreign currency fluctuations. The Company recorded
no
gains or losses on foreign currency transactions for the three months ended
March 31, 2000 and recorded losses on foreign currency transactions of approximately $21,000$4,000 in both six
month periods ended June 30, 2000 and 1999, respectively. The Company recorded
gains on foreign currency transactions of approximately $4,000 and $2,000 for
the three months ended March 31, 1999.June 30, 2000 and 1999, respectively.
(4) CONTRACT SERVICES
The Company signed a definitive agreement in April 1999 with Boehringer
Ingelheim Pharma KG ("BI Pharma") for the further development, production
scale-up and manufacture of the Company's lead therapeutic product candidate,
IMC-C225, for use in human clinical trials. The total cost under the agreement
was DM11,440,000 or $6,283,000 based on the foreign currency rate on the date
of payment. All of the material manufactured under this agreement has been
provided to Merck KGaA for use in clinical trials in Europe and Merck KGaA has
reimbursed the Company an aggregate amount of $4,442,000 during March and April
2000. This reimbursable amount has been accounted for as a reduction of
research and development expense in the fourth quarter of 1999.
In December 1999, the Company entered into a development and manufacturing
services agreement with Lonza Biologics PLC ("Lonza"). Under the agreement,
Lonza is engaging in process development and scale-up for the manufacture of
IMC-C225.IMC-C225, the Company's lead interventional therapeutic product for the
treatment of cancer. These steps are being taken to assure that its process
will produce bulk material that conforms with the Company's reference material.
Under ourthe Company's arrangements with Lonza, Lonza will manufacture six 5,000
liter production runs under cGMP conditions the output of material thatwhich may be used for
clinical and/or commercial supply. The Company also has agreed in principle
with Lonza to the material terms of a three-year commercial supply agreement
for which the definitive agreement is being completed. As of March 31,June 30, 2000, the
Company has incurred approximately $159,000$259,000 for services provided under this
agreement.
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agreement.
The Company is building a new manufacturing facility adjacent to its current
manufacturing facility in New Jersey. This new facility will contain three
10,000 liter fermentors and will be dedicated to the commercial production of
IMC-C225. The 80,000 square foot fully equipped facility will cost approximately $45 million
and will beis being built on land purchased in December 1999 for $700,000.1999. The Company has incurred
approximately $7,607,000$13,241,000 in engineering, pre-construction and construction
costs associated with the new manufacturing facility through March 31,June 30, 2000. The
costs incurred to date associated with the construction of the facility have
been paid from the Company's cash reserves.
(5) RELATED PARTY TRANSACTIONSINVESTMENT IN VALIGEN N.V.
In January 1998,May 2000, the Company acceptedmade an equity investment in Valigen N.V. ("Valigen"),
a promissory note totalingprivate biotechnology company specializing in therapeutic target
identification and validation using the tools of genomics and gene expression
analysis. The Company purchased 705,882 shares of Valigen's series A preferred
stock for an aggregate purchase price of $7,500,000 which represents ownership
in Valigen of approximately $131,000 from its President and CEO in6%. In connection with this investment, the exercise ofCompany
received a warrant to purchase 87,305388,235 shares of the Company'sValigen's common stock at a per
share purchase price of $12.50. The Valigen preferred stock contains voting
rights identical to holders of Valigen's common stock. Each share of Valigen
preferred stock is convertible into one share of Valigen common stock. The
note was due no
laterCompany may elect to convert the Valigen preferred stock at any time; provided,
that the Valigen preferred stock will automatically convert into Valigen common
stock upon the closing of an initial public offering of Valigen's common stock
with gross proceeds not less than two years from issuance$20,000,000. The Company recorded its
investment in Valigen using the cost method of accounting and was full recourse. Interest was payable
onis classified as a
long-term asset included in other assets in the first anniversary date of the promissory note and on the stated maturity
or any accelerated maturity at the annual rate of 8 1/2%. In March 2000, the
note, including all interest, was paid in full.consolidated balance sheet.
(6) LONG-TERM DEBT
Long termLong-term debt consists of the following:
MARCH 31, DECEMBER 31,JUNE 30, JUNE 30,
2000 1999
------------ --------------------------------- --------------------
5 1/2% Convertible Subordinated Notes due March 1, 2005 .. $240,000,0002005.......... $ 240,000,000 $ -
11 1/4% Industrial Development Revenue Bond with an annual interest
rate of 11 1/4%, due May 1, 2004 .......................2004...... 2,200,000 2,200,000
------------ ------------
$242,200,000--------------------- --------------------
$ 242,200,000 $ 2,200,000
============ ================================= ====================
In February 2000, the Company completed a private placement of $240,000,000 in
convertible subordinated notes due March 1, 2005. The Company received net
proceeds from this offering of approximately $231,900,000,$231,600,000, after deducting
costs associated with the offering. The notes bear interest at an annual rate
of 5 1/2% payable semi-annually on September 1 and March 1 of each year,
beginning September 1, 2000. Accrued interest on the notes was approximately
$4,400,000 at June 30, 2000. The holders may convert all or a portion of the
notes into common stock at any time on or before March 1, 2005 at a conversion
price of $110.18 per share, subject to adjustment if certain events affecting
the common stock of the Company occur. The notes arewill be subordinated to all
existing and future senior indebtedness. The Company may redeem some or all of
the notes at any time prior to March 6, 2003, at a redemption price of 100% of theequal to
$1,000 per $1,000 aggregate principal amount of notes plus accrued and unpaid
interest to the redemption date if (1) the closing price of the common stock
has exceeded 150% of the conversion price for at least 20 trading days in any
consecutive 30-trading day period and (2) if the redemption occurswould occur before
March 1, 2002, the shelf registration statement covering resales of the notes
and the common stock is effective and expected to remain effective and
available for use for the 30 days following the redemption date. If the notes
are redeemed under these circumstances, the Company will make an additional
payment of $152.54 per $1,000 aggregate principal amount of notes, minus the
amount of allany interest actually paid on such principal amount since
February 29, 2000the note prior to the date the redemption notice
iswas mailed. On or after March 6, 2003, the Company may redeem some or all of
the notes at specified redemption prices, plus accrued and unpaid interest to
the day preceding the redemption date. Noteholders may require the Company to redeem all notes at
100% of the principal amount plus accrued interest in the event of a
"fundamental change" as defined in the note indenture. The Company is required to file withand
obtain the Securities and Exchange Commissioneffectiveness of a shelf registration statement covering resales of
the notes and the common stock.
In January and February 2000, the Company entered into financing arrangements
with Finova Technology Finance, Inc. ("Finova") and Transamerica Business Credit
Corporation ("Transamerica") under which it may obtain at its option up to an
aggregate of $25,000,000 for its utilization primarily in connection with the
build-out of its new commercial manufacturing facility. The fundsFunds may be
obtained through multiple leases of equipment and building improvements for not
less than specified minimum amounts. Each lease contains a balloon purchase
option at the end of a 48-month term. During the first quarter of 2000 the
Company paid $100,000 in application fees associated with these agreements,
which may be applied against future principal and interest payments.
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(7) COMMON STOCK
On May 31, 2000, the date of the annual shareholders meeting, the stockholders
approved the amendment of the Company's certificate of incorporation to
increase the total number of shares of common stock the Company is authorized
to issue from 60,000,000 shares to 120,000,000 shares.
(8) STOCK OPTIONS
On May 31, 2000, the date of the annual shareholders meeting, the stockholders
approved an amendment to the Company's 1996 Incentive Stock Option Plan and
1996 Non-Qualified Stock Option Plan (the "Plans") to increase the total number
of shares of common stock which may be issued in the aggregate pursuant to
options which may be granted under the Plans from 4,000,000 to 5,500,000.
At this meeting, the stockholders also approved the amendments to a total of
1,600,000 options held by the Company's President and Chief Executive Officer
and Executive Vice President and Chief Operating Officer. The options were
amended to provide that each tranche vests immediately upon achievement of the
relevent stock target price associated with such tranche without regard to the
passage of time which was a requirement in the original options. The options
became fully vested and exercisable upon the approval of the amendments.
(9) NET LOSS PER COMMON SHARE
Basic and diluted loss per common share isare computed based on the net loss for
the relevant period, adjusted for cumulative Series A Convertible Preferred
Stock dividends and the assumed incremental yield attributable to the
beneficial conversion feature in the preferred stock, divided by the weighted
average number of common shares outstanding during the period. Potentially
dilutive securities, including convertible preferred stock, convertible debt,
options and warrants, have not been included in the diluted loss per common
share computation because they are anti-dilutive.
(8)(10) COMPREHENSIVE INCOME (LOSS)
The following table reconciles net loss to comprehensive loss:
THREE MONTHS ENDED MARCH 31,
--------------------------------SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------- ---------------------------------------
2000 1999 ------------ ------------2000 1999
------------------ ----------------- ------------------- ------------------
Net loss ................................................. $(12,057,000) $ (8,078,000)loss.................................... $(13,849,000) $(8,131,000) $(25,906,000) $(16,209,000)
Other comprehensive income (loss):
Unrealized holding gain (loss)
arising during the period .... 650,000 13,000period........... (89,000) 56,000 561,000 69,000
Less: Reclassification adjustment
for net realized lossgain (loss)
included in net loss ........................... (2,000)loss................ 18,000 - 16,000 (832,000)
------------ ------------------------------ ------------------ ------------------- ------------------
Total other comprehensive income
................ 652,000 845,000
------------ ------------(loss).............................. (107,000) 56,000 545,000 901,000
------------------ ------------------ ------------------- ------------------
Total comprehensive loss ................................. $(11,405,000) $ (7,233,000)
============ ============loss.................... $(13,956,000) $(8,075,000) $(25,361,000) $(15,308,000)
================== ================== =================== ==================
(9)(11) COLLABORATIVE AGREEMENTS
The Company has a development and license agreement with Merck KGaA with
respect to IMC-C225, its lead interventional therapeutic product for the
treatment of cancer. In exchange for certain marketing and development rights,
the Company can receive up to $60,000,000 in milestone payments ($30,000,000 of
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9
which is
equity based)are equity-based) assuming the achievement of certain milestones and a
$30,000,000 secured line of credit or guaranty forrelating to the build-out of a
manufacturing facility for the commercial production of IMC-C225. This
agreement may be terminated by Merck KGaA in various instances, including (i)
at its discretion on any date on which a milestone is achieved (in which case
no milestone payment will be made), (ii) for a one-year period after first
commercial sale of IMC-C225 in Merck KGaA's territory, upon Merck KGaA's
reasonable determination that the product is economically unfeasible (in which
case Merck KGaA is entitled to receive back 50% of the cash-based milestone
payments then paid to date, but only out of revenues received, if any, based
upon a royalty rate applied to the gross profit from IMC-C225 sales or IMC-C225
license fees in the United States and Canada), or (iii) in the event the
Company does not obtain certain collateral license agreements in which case
Merck KGaA also is entitled to a return of all cash amounts with respect to
milestone payments to date, plus liquidated damages of $500,000. In April 1999,
the parties agreed on the production concept for the manufacturing facility and
are currently working towardnegotiating securing Merck KGaA's guaranty of the Company's obligations
under a proposed $30,000,000 credit facility relating to the construction of
the manufacturing facility. In the event of termination of the agreement, the
Company will be required to use its best reasonable efforts to cause the
release of Merck KGaA as guarantor. As of March
31,June 30, 2000, the Company has
received $24,000,000$26,000,000 in milestone payments. These payments have been recorded
as fees potentially refundable fromto corporate partner and revenue recognition of
such amounts will commence upon the Company obtaining the defined collateral
license agreements.
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(10)(12) REVENUE RECOGNITION
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB 101"). SAB 101 summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements, including the recognition of non-refundable fees received upon
entering into arrangements. The Company is in the process of evaluating this
SAB and the effect it maywill have on its financial statements and current revenue
recognition policies. The Company must adopt SAB 101, as amended, in the secondfourth
quarter of 2000 with an effective date of January 1, 2000 and the recognition
of thea cumulative effect adjustment, if any, calculated as of January 1, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis by our management is provided to identify
certain significant factors whichthat affected our financial position and operating
results during the periods included in the accompanying financial statements.
RESULTS OF OPERATIONS
ThreeSix Months Ended March 31,June 30, 2000 and 1999
REVENUES.
Revenues for the threesix months ended March 31,June 30, 2000 and 1999 were $206,000$366,000 and
$629,000,$883,000, respectively, a decrease of $423,000,$517,000, or 67%59%. Revenues for the threesix
months ended March 31,June 30, 2000 included $166,000primarily consisted of $326,000 in royalty revenue
from our strategic corporate alliance with Abbott Laboratories ("Abbott") in
diagnostics. Revenues for the threesix months ended March 31,June 30, 1999 primarily
consisted of (i) $75,000$150,000 in research support from our partnershipstrategic corporate
alliance with American Home Products Corporation ("American Home") in
infectious disease vaccines, (ii) $425,000$533,000 in research and support payments
from our research and license agreementstrategic corporate alliance with Merck KGaA for our principal cancer
vaccine product candidate, BEC2, and (iii) $124,000$195,000 in royalty revenue from our
strategic corporate alliance with Abbott in diagnostics. The decrease in
revenues for the threesix months ended March 31,June 30, 2000 was primarily attributable to
the decrease in research and support revenue as a result of the completion of
all research and support
Page 7
10
payments due from our researchstrategic corporate alliance with American Home in
infectious disease vaccines and license agreementour strategic corporate alliance with Merck
KGaA for BEC2. The decrease was partially offset by increased royalty revenue
from our strategic corporate alliance with Abbott in diagnostics.
OPERATING EXPENSES;EXPENSES: RESEARCH AND DEVELOPMENT.
Total operating expenses for the threesix months ended March 31,June 30, 2000 and 1999 were
$14,227,000$30,752,000 and $8,356,000,$17,182,000, respectively, an increase of $5,871,000,$13,570,000, or 70%79%.
Research and development expenses for the threesix months ended March 31,June 30, 2000 and
1999 were $11,101,000$23,844,000 and $6,354,000,$13,505,000, respectively, an increase of $4,747,000$10,339,000
or 75%77%. Such amounts for the threesix months ended March 31,June 30, 2000 and 1999
represented 78% and 76%79%, respectively, of total operating expenses. Research
and development expenses for the threesix months ended March 31,June 30, 2000 and 1999 have
been offsetreduced by $824,000$1,514,000 and $516,000,$583,000, respectively, for clinical trial costs
that are reimbursable by Merck KGaA. The increase in research and development
expenses for the threesix months ended March 31,June 30, 2000 was primarily attributable to
(i) the costs associated with two pivotal Phase III clinical trials of IMC-C225
in treating head and neck cancer, one in combination with radiation and one in
combination with cisplatin, (ii) the costs associated with two additional Phase
II clinical trials of IMC-C225, one in refractory head and neck cancer in
combination with cisplatin and one in refractory colorectal cancer in
combination with irinotecan, (iii) expenditures in the functional areas of
product development, manufacturing, clinical and regulatory affairs associated
with IMC-C225, and (iv) non-cash expenses recognized in connection with the
issuance of options granted to scientific consultants and collaborators and (v)
expenditures associated with additional staffing in the area of discovery
research.consultants. We expect research and
development costs to increase in future periods as we continue to expand our
efforts in product development and clinical trials.
Page 7
10OPERATING EXPENSES: MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES.
GeneralADMINISTRATIVE.
Marketing, general and administrative expenses include administrative personnel
costs, costs to develop our internal marketing and sales capabilities, costs incurred
in connectionto
pursue arrangements with pursuing arrangements withstategic corporate partners and technology licensors,
and expenses associated with applying for patent protection for our technology
and products. Such expenses for the threesix months ended March 31,June 30, 2000 and 1999 were
$3,126,000$6,908,000 and $2,002,000,$3,677,000, respectively, an increase of 1,124,000,$3,231,000, or 56%88%. The
increase in marketing, general and administrative expenses primarily reflected
(i) costs associated with theour marketing efforts, of the Company and (ii) additional support
staffing for theour expanding research, development, clinical and manufacturing
efforts, of the Company, particularly with respect to IMC-C225.IMC-C225 and (iii) expenses associated
with the pursuit of strategic corporate alliances and other corporate
development efforts. We expect marketing, general and administrative expenses to
increase in future periods to support our planned increases in research,
development, clinical and manufacturing efforts.
INTEREST AND OTHER INCOME AND INTEREST EXPENSE.
Interest income was $3,187,000$9,352,000 for the threesix months ended March 31,June 30, 2000 compared
with $604,000$1,168,000 for the threesix months ended March 31,June 30, 1999, an increase of
$2,583,000.$8,184,000 or 700%. The increase was primarily attributable to the increase in
our investment portfolio as a result of ourthe November 1999 public stock offering
and ourthe February 2000 private placement of 5 1/2% convertible subordinated
notes. Interest expense was $1,221,000$4,888,000 and $123,000$246,000 for the threesix months ended
March
31,June 30, 2000 and 1999, respectively, an increase of $1,098,000.$4,642,000. Interest
expense for both periods primarily included (i) interest on an outstanding
Industrial Development Revenue Bond issued in 1990 ("the outstanding 1990 IDA BondBond") with a
principal amount of $2,200,000 and (ii) interest recorded on various capital
lease obligations under a December 1996 Financing Agreement (the "1996
Financing Agreement") and an April 1998 Financing Agreement (the "1998
Financing Agreement") with Finova. Interest expense for the six months ended
June 30, 2000 was offset by capitalized interest costs during the construction
period of the Company's new manufacturing facility in the amount of $307,000.
The increase in interest expense is attributable to interest associated with the
outstanding convertible subordinated notes. Gains on securities available for
sale for the six months ended June 30, 2000 were $16,000 and losses on
securities available for sale for the six months ended June 30, 1999 were
$832,000. The loss for the six months ended June 30, 1999 was primarily
attributable to the $828,000 write-down of our investment in CombiChem Inc. as a
result of an other than temporary impairment.
Page 8
11
NET LOSSES.
We had a net loss to common stockholders of $27,311,000 or $0.89 per share for
the six months ended June 30, 2000 compared with $18,071,000 or $0.73 per share
for the six months ended June 30, 1999. The increase in the net losses and per
share net loss to common stockholders was due primarily to the factors noted
above.
Three Months Ended June 30, 2000 and 1999
REVENUES.
Revenues for the three months ended March 31,June 30, 2000 and 1999 were $160,000 and
$254,000, respectively, a decrease of $94,000, or 37%. Revenues for the three
months ended June 30, 2000 consisted of $160,000 in royalty revenue from our
strategic corporate alliance with Abbott in diagnostics. Revenues for the three
months ended June 30, 1999 consisted of (i) $75,000 in research support from
our strategic corporate alliance with American Home in infectious disease
vaccines, (ii) $108,000 in research and support payments from our strategic
corporate alliance with Merck KGaA for our principal cancer vaccine product
candidate, BEC2, and (iii) $71,000 in royalty revenue from our strategic
corporate alliance with Abbott in diagnostics. The decrease in revenues for the
three months ended June 30, 2000 was primarily attributable to the decrease in
research and support revenue as a result of the completion of all research and
support payments due from our strategic corporate alliance with American Home
in infectious disease vaccines and our strategic corporate alliance with Merck
KGaA for BEC2. The decrease was partially offset by increased royalty revenue
from our strategic corporate alliance with Abbott in diagnostics.
OPERATING EXPENSES: RESEARCH AND DEVELOPMENT.
Total operating expenses for the three months ended June 30, 2000 and 1999 were
$16,525,000 and $8,826,000, respectively, an increase of $7,699,000, or 87%.
Research and development expenses for the three months ended June 30, 2000 and
1999 were $12,743,000 and $7,151,000, respectively, an increase of $5,592,000
or 78%. Such amounts for the three months ended June 30, 2000 and 1999
represented 77% and 81%, respectively, of total operating expenses. Research
and development expenses for the three months ended June 30, 2000 and 1999 have
been reduced by $690,000 and $67,000, respectively, for clinical trial costs
that are reimbursable by Merck KGaA. The increase in research and development
expenses for the three months ended June 30, 2000 was primarily attributable to
(i) the costs associated with two pivotal Phase III clinical trials of IMC-C225
in treating head and neck cancer, one in combination with radiation and one in
combination with cisplatin, (ii) the costs associated with two additional Phase
II clinical trials of IMC-C225, one in refractory head and neck cancer in
combination with cisplatin and one in refractory colorectal cancer in
combination with irinotecan, (iii) expenditures in the functional areas of
product development, manufacturing, clinical and regulatory affairs associated
with IMC-C225, and (iv) non-cash expenses recognized in connection with the
issuance of options granted to scientific consultants. We expect research and
development costs to increase in future periods as we continue to expand our
efforts in product development and clinical trials.
OPERATING EXPENSES: MARKETING, GENERAL AND ADMINISTRATIVE.
Marketing, general and administrative expenses include administrative personnel
costs, costs to develop internal marketing and sales capabilities, costs
incurred in connection with pursuing arrangements with corporate partners and
technology licensors, and expenses associated with applying for patent
protection for our technology and products. Such expenses for the three months
ended June 30, 2000 and 1999 were $3,782,000 and $1,675,000, respectively, an
increase of 2,107,000, or 126%. The increase in marketing, general and
administrative expenses primarily reflected (i) costs associated with our
marketing efforts, (ii) additional support staffing for our expanding research,
development, clinical and manufacturing efforts, particularly with respect to
IMC-C225 and (iii) expenses associated with the pursuit of strategic corporate
alliances and other corporate development efforts. We expect marketing, general
and administrative expenses to increase in future periods to support our planned
increases in research, development, clinical and manufacturing efforts.
Page 9
12
INTEREST AND OTHER INCOME AND INTEREST EXPENSE.
Interest income was $6,165,000 for the three months ended June 30, 2000
compared with $564,000 for the three months ended June 30, 1999, an increase of
$5,601,000 or 993%. The increase was primarily attributable to the increase in
our investment portfolio as a result of the November 1999 public stock offering
and the February 2000 private placement of 5 1/2% convertible subordinated
notes. Interest expense was $3,667,000 and $123,000 for the three months ended
June 30, 2000 and 1999, respectively, an increase of $3,544,000. Interest
expense for both periods primarily included (i) interest on the outstanding
1990 IDA Bond with a principal amount of $2,200,000 and (ii) interest recorded
on various capital lease obligations under the 1996 Financing Agreement and the
1998 Financing Agreement with Finova. Interest expense for the three months
ended June 30, 2000 was offset by capitalizing interest costs during the
construction period of the Company's new manufacturing facility in the amount
of $154,000.$153,000. The increase in interest expense is attributable to interest
onassociated with the outstanding convertible subordinated notes.
Losses on securities available for sale for the
three months ended March 31, 2000 and 1999 were $2,000 and $832,000,
respectively. The loss for the three months ended March 31, 1999 is primarily
attributable to the $828,000 write-down of our investment in CombiChem Inc. as
a result of an other than temporary impairment.
NET LOSSES.
We had a net lossesloss to common stockholders of $12,759,000$14,552,000 or $0.43$0.46 per share for
the three months ended March 31,June 30, 2000 compared with $9,006,000$9,065,000 or $0.37$0.36 per
share for the three months ended March 31,June 30, 1999. The increase in the net losses
and per share net loss to common stockholders was due primarily to the factors
noted above.
LIQUIDITY AND CAPITAL RESOURCES
At March 31,June 30, 2000, our principal sources of liquidity consisted of cash
and cash equivalents and short-term securities available for sale of
approximately $342.5$327.8 million. From inception through March 31,June 30, 2000 we have
financed our operations through the following means:
- Public and private sales of equity securities and convertible notes in
financing transactions have raised approximately $489.8$489.5 million in net
proceeds
- We have earned approximately $35.2$35.4 million from license fees, contract
research and development fees and royalties from collaborative
partners. Additionally, we have received $24.0$26.0 million in potentially
refundable fees from our IMC-C225 development and license agreement
with Merck KGaA. And, as of
March 31, 2000, Merck KGaA has confirmed that we have achieved
milestones, with respect to which we are entitled to receive
an additional $2.0 million in payments. The amounts from Merck KGaA with respect to IMC-C225
have yet to be recognized as revenue because they are refundable under
certain circumstances
Page 8
11
- We have earned approximately $14.5$20.7 million in interest income
- The sale of the IDA Bonds in each of 1985, 1986 and 1990 raised an
aggregate of $6.3 million, the proceeds of which have been used for
the acquisition, construction and installation of our research and
development facility in New York City, and of which $2.2 million is
outstanding
We may from time to time consider a number of strategic alternatives
designed to increase shareholder value, including joint ventures, acquisitions
and other forms of alliances as well as the sale of all or part of the company.Company.
The 1990 IDA Bond in the outstanding principal amount of $2,200,000
becomes due in 2004. We will incur annual interest on the 1990 IDA Bond
aggregating approximately $250,000. In order to secure our obligations to the
NYIDANew York Industrial Development Agency ("NYIDA") under the 1990 IDA Bond, we
have granted the NYIDA a security interest in facility equipment purchased with
the bond proceeds.
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13
In February 2000, we completed a private placement of $240,000,000 in
convertible subordinated notes due March 1, 2005. We received net proceeds from
this offering of
approximately $231,900,000,$231,600,000, after deducting expenses associated with the
offering. The notes bear interest at 5.5%5 1/2% payable semi-annually on September
1 and March 1 of each year, beginning September 1, 2000. Accrued interest on
the notes was approximately $4,400,000 at June 30, 2000. A holder may convert
all or a portion of a note into common stock at any time on or before March 1,
2005 at a conversion price of $110.18 per share, subject to adjustment if
certain events affecting our common stock occur. We may redeem some or all of
the notes prior to March 6, 2003 if specified common stock price thresholds are
met. On or after March 6, 2003, we may redeem some or all of the notes at
specified redemption prices.
In December 1999, we entered into a development and manufacturing
services agreement with Lonza. Under the agreement, Lonza is engaging in
process development and scale-up for the manufacture of IMC-C225. These steps
are being taken to assure that its process will produce bulk material that
conforms with the Company'sour reference material. Under our arrangements with Lonza, Lonza
will manufacture six 5,000 liter production runs under cGMP conditions of
material that may be used for clinical and/or commercial supply. The CompanyWe also hashave
agreed in principle with Lonza to the material terms of a three-year commercial
supply agreement for which the definitive agreement is being completed. As of
March 31,June 30, 2000, the Company haswe have incurred approximately $159,000$259,000 for services provided
under this agreement.
We can not be certain that we will be able to enter into agreements for
commercial supply with third party manufacturers on terms acceptable to us.
Even if we are able to enter into such agreements, we cannot be certain that we
will be able to produce or obtain sufficient quantities for commercial sale of
our products. Any delays in producing or obtaining commercial quantities of our
products could have a material effect on our business, financial condition and
results of operations.
We have obligations under various capital leases for certain laboratory,
office and computer equipment and also certain building improvements primarily
under the 1996 Financing Agreement and the 1998 Financing Agreement with
Finova. The 1996 Financing Agreement allowed us to finance the lease of
equipment and make certain building and leasehold improvements to existing
facilities involving amounts totaling approximately $2,500,000. Each lease has
a fair market value purchase option at the expiration of a 42-month term.
Pursuant to the 1996 Financing Agreement, we issued to Finova a warrant expiring December
31, 1999 to
purchase 23,220 shares of our common stock at an exercise price of $9.69 per
share.share which was exercised in November 1999. We recorded a non-cash debt
discount of approximately $125,000 in connection with this financing, which
discount is being amortized over the 42-month term of the first lease. The 1996
Financing Agreement with Finova expired in December 1997. We1997 and we utilized only
$1,745,000 of the full $2,500,000 under the agreement. In April 1998, we
entered into the 1998 Financing Agreement with Finova totaling approximately
$2,000,000. The terms of the 1998 Financing Agreement are substantially similar
to the expired 1996 Financing Agreement except that each lease has a 48-month
term. We have entered into twelve individual leases under both the 1996
Financing Agreement and the 1998 Financing Agreement aggregating a total cost
of $3,695,000. The 1998 Financing Agreement expired in May 1999. In January and
February 2000, we entered into financing arrangements with Finova and
Transamerica under which we may obtain at our option up to an aggregate of
$25,000,000 for our utilization primarily in connection with the build-out of
our new commercial manufacturing facility. The funds may be obtained through
multiple leases of equipment and building
improvements for not less than specified minimum amounts. Each lease contains
a balloon purchase option at the end of a 48-month term. The Company hasWe paid $100,000 in
application fees associated with these agreements which may be applied against
future principal and interest payments.
We rent our New York facility under an operating lease that expires in
December 2004. We are in the processhave substantially completed renovations of renovating the facility to
better suit our needs. The renovation is expected toneeds at a cost of approximately $2,000,000 and is
substantially complete.
Page 9
12$2,500,000.
Under our agreement with Merck KGaA for IMC-C225, we developed, in
consultation with Merck KGaA, a production concept for a new manufacturing
facility for the commercial production of IMC-C225. Merck KGaA is to provide
us, if we so choose, subject to certain conditions, with a guaranty under a $30
million credit facility for the build-out of this facility. We have determined
to erectare currently
erecting this facility adjacent to our current manufacturing facility in New
Jersey, which supplies IMC-C225 to support our clinical trials. We broke ground
on the facility in January 2000 and estimate that the total cost will be
approximately $45 million. We
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14
are currently in the process of negotiating the terms of the loan agreement and guaranty. We expect to fund
the remaining cost of this facility through a combination of cash on hand,
proceeds from our February 2000 private placement of convertible notes and
equipment financing transactions.
Total capital expenditures made during the threesix months ended March 31,June 30, 2000
were $5,039,000. Of the total capital expenditures made during the three
months ended March 31, 2000, $591,000$11,194,000 of which (i) $1,002,000 related to the purchase of equipment
for and costs associated with the retrofit of our corporate office and research
laboratories in New York and other capital expenditures relating to the New
York facility. We incurred $4,290,000facility; (ii) $9,923,000 related to engineering, pre-construction and
construction costs associated with the build-out of the commercial manufacturing facility to bebeing erected
adjacent to our current manufacturing facility in New Jersey. TheJersey and (iii) the
remaining $158,000 is$269,000 related to improving and equipping our existing
manufacturing facility.
In 1998,To prepare for the marketing and sale of IMC-C225 in the U.S. and Canada
we hired a Vice President of Marketing and Sales in 1998 and have recently
hired directors of marketing, field sales and sales operations, each with
experience in the commercial launch of a monoclonal antibody cancer
therapeutic, to develop our internal marketing and sales capabilities.therapeutic. We are
preparing for the marketing and sale of IMC-C225 in the U.S. and Canada, and in
that regard, we planexpect to hire regional sales managers and approximately 40
sales peoplerepresentatives prior to the commencement of IMC-C225 sales.
The holders of the Series A Convertible Preferred Stock (the "seriesseries A preferred stock")stock are entitled to receive
cumulative dividends at an annual rate of $6.00 per share. Dividends accrue as
of the issuance date of the series A preferred stock and are payable on the
outstanding series A preferred stock in cash on December 31 of each year
beginning December 31, 1999 or at the time of conversion or redemption of the
series A preferred stock on which the dividend is to be paid, whichever is
sooner. Accrued dividends were approximately $448,000$895,000 at March 31,June 30, 2000.
We believe that our existing cash and cash equivalents and securities
available for sale and amounts expected to be available under our credit
facilities should enable us to maintain our current and planned operations
through at least 2002. We are also entitled to reimbursement for certain
research and development expenditures and to certain milestone payments,
including $6$4 million in cash-based milestone payments and $30 million in
equity-based milestone payments from our IMC-C225 development and license
agreement with Merck KGaA, which are to be paid subject to our attaining
research and development milestones certain of which have recently been
attained, and certain other conditions. There can be
no assurance that we will achieve the unachieved milestones. Additionally, the
termination of the agreement due to our failure to obtain the necessary
collateral license agreements would require us to return all milestone payments
made to date, plus $500,000 in liquidated damages. Our future working capital
and capital requirements will depend upon numerous factors, including, but not
limited to:
- progress and results of our research and development programs,
pre-clinical testing and clinical trials
- our corporate partners' fulfilling their obligations to us
- timing and cost of seeking and obtaining regulatory approvals
- timing and cost of manufacturing scale-up and effective
commercialization activities and arrangements, including costs of
establishing manufacturing capacity in our facility and those of
others
- level of resources that we devote to the development of marketing and
sales capabilities
- costs involved in filing, prosecuting and enforcing patent claims
- technological advances
Page 10
13
- status of competitorscompetitive products and candidates
Page 12
15
- our ability to maintain existing and establish new collaborative
arrangements with other companies to provide funding to support these
activities
- costs of establishing both clinical scale and commercial scale
manufacturing capacity in our facility and those of others
In order to fund our capital needs after 2002, we will require
significant levels of additional capital andwhich we intend to raise the capital through
additional arrangements with corporate partners, equity or debt financings, or
from other sources including the proceeds of product sales, if any. There is no
assurance that we will be successful in consummating any such arrangements. If
adequate funds are not available, we may be required to significantly curtail
our planned operations.
At December 31, 1999, we had net operating loss carryforwards for United
States federal income tax purposes of approximately $151 million, which expire
at various dates from 2000 through 2019. At December 31, 1999 we had research
credit carryforwards of approximately $7.7 million, which expire at various
dates from 2009 through 2019. Under Section 382 of the Internal Revenue Code of
1986, as amended, a corporation's ability to use net operating loss and
research credit carryforwards may be limited if the corporation experiences a
change in ownership of more than 50 percentage points within a three-year
period. Since 1986, we have experienced at least two such ownership changes. As
a result, we are only permitted to use in any one year approximately $5.2
million of our available net operating loss carryforwards that relate to
periods before these ownership changes. Similarly, we are limited in using our
research credit carryforwards. It has not been determinedWe are in the process of determining whether the
November 1999 public stock offering and the February 2000 private placement of
convertible subordinated notes will result inbe viewed as additional ownership changes
that would further limit the use of our net operating losses and research
credit carryforwards.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
Financial Statements ("SAB 101"). SAB 101 summarizes certain of the staff's
views in applying generally accepted accounting principles to revenue
recognition in financial statements, including the recognition of
non-refundable fees received upon entering into arrangements. We are in the
process of evaluating this SAB and the effect it maywill have on our financial
statements and current revenue recognition policies. We must adopt SAB 101, as
amended, in the secondfourth quarter of 2000 with an effective date of January 1,
2000 and the recognition of thea cumulative effect adjustment, if any, calculated
as of January 1, 2000.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Financial Instruments and Hedging Activities.
This Statement standardizes the accounting for derivative instruments including
certain derivative instruments embedded in other contracts. The effective date
of SFAS No. 133 was delayed to fiscal year 2001 by the issuance of SFAS No.
137. SFAS No. 137 is an amendment to SFAS No. 133. We will adopt this statement
as of January 1, 2001. We have not determined the impact this statement will
have on our financial statements.
CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS--SAFE HARBOR STATEMENT
Those statements contained herein that do not relate to historical
information are forward-looking statements. There can be no assurance that the
future results covered by such forward-looking statements will be achieved.
Actual results may differ materially due to the risks and uncertainties
inherent in the Company's business, including without limitation, the risks and
uncertainties associated with completing pre-clinical and clinical trials of
the Company's compounds that demonstrate such compounds' safety and
effectiveness; obtaining additional financing to support the Company's
operations; obtaining and maintaining regulatory approval for such compounds
and complying with other governmental regulations applicable to the Company's
business; obtaining the raw materials necessary in the development of such
compounds; consummating collaborative arrangements with corporate partners for
product development; achieving milestones under collaborative arrangements with
corporate partners; developing the capacity and ability to manufacture, as well
as market and sell the Company's products,
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16
either directly or with collaborative partners; developing market demand for
and acceptance of such products; competing effectively with other
pharmaceutical and biotechnological products; obtaining adequate reimbursement
from third party payors; attracting and retaining key personnel; obtaining and
protecting proprietary rights; and those other factors set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview and Risk Factors," in the Company's most recent
Registration Statement on Form 10-K.
Page 1114
1417
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our holdings of financial instruments comprise a mix of securities which may
include U.S. corporate debt, foreign corporate debt, U.S. government debt,
foreign government/agency guaranteed debt and commercial paper. All such
instruments are classified as securities available for sale. Generally, we do
not invest in portfolio equity securities or commodities or use financial
derivatives for trading purposes. Our debt security portfolio represents funds
held temporarily pending use in our business and operations. We manage these
funds accordingly. We seek reasonable assuredness of the safety of principal
and market liquidity by investing in investment grade fixed income securities
while at the same time seeking to achieve a favorable rate of return. Our
market risk exposure consists principally of exposure to changes in interest
rates. Our holdings are also exposed to the risks of changes in the credit
quality of issuers. We invest in securities whichthat have a range of maturity
dates. Typically, those with a short-term maturity are fixed-rate, highly
liquid, debt instruments and those with longer-term maturities are highly
liquid debt instruments with periodic interest rate adjustments. We also have
certain foreign exchange currency risk. See footnote 3 of the financial
statements. The table below presents the principal amounts and related weighted
average interest rates by year of maturity for our investment portfolio as of
March 31,June 30, 2000:
2005 AND
2000 2001 2002 2003 2004 THEREAFTER TOTAL ------------ ------------ ---------- ---------- ------------ ------------ ------------FAIR VALUE
-------------------------------------------------------------------------------------------------------------------
Fixed Rate $ 15,913,000 $ 6,889,000 $1,448,000$5,980,000 $11,892,000 $1,444,000 - $ 40,022,000 $131,583,000 $195,855,000$40,087,000 $131,817,000 $191,220,000 $191,722,000
Average
Interest Rate 5.05% 6.41%5.10% 6.55% 8.00% - 6.60% 6.64% 6.50% -
Variable Rate - - - - $ 15,315,000(1) $110,194,000(1) $125,509,000$16,738,000(1) $108,811,000(1) $125,549,000 $125,613,000
Average
Interest Rate - - - - 6.27% 6.35% 6.34%
------------ ------------ ---------- ---------- ------------ ------------ ------------
$ 15,913,000 $ 6,889,000 $1,448,0006.82% 6.76% -
$ 55,337,000 $241,777,000 $321,364,000
============ ============ ========== ========== ============ ============ ============
FAIR VALUE
------------
Fixed Rate $190,418,000
Average
Interest Rate-------------------------------------------------------------------------------------------------------------------
$5,980,000 $11,892,000 $1,444,000 - Variable Rate $131,619,000
Average
Interest Rate -
------------
$322,037,000
============$56,825,000 $240,628,000 $316,769,000 $317,335,000
===================================================================================================================
(1) These holdings consist of U.S. corporate and foreign corporate floating
rate notes. Interest on the securities are adjusted at fixed dates using
prevailing interest rates. These holdings are highly liquid. Weliquid and we consider
the potential for loss of principal to be minimal.
Our 5 1/2% convertible subordinated notes in the principal amount of
$240,000,000 due March 1, 2005 and other long-term debt have fixed interest
rates and the fair value of these instruments is affected by changes in market
interest rates. The subordinatesubordinated notes are convertible into the Company's common stock
at a conversion price of $110.18 per share. The fair value of this
instrument is subject tofixed interest
rate instruments are affected by changes in interest rates and in the case of
the convertible notes by changes in the price of the Company's common stock.
PART II - OTHER INFORMATION
ITEM 24 - CHANGES IN SECURITIES AND USESUBMISSION OF PROCEEDS
During the three months ended MarchMATTERS TO A VOTE OF SECURITY HOLDERS
(a) An annual meeting of stockholders was held on May 31, 2000 we issued an aggregate of
600,850 shares of unregistered common stock to holders of warrants upon exercise
of such warrants for a total purchase price of $1,389,219, which(the
"Annual Meeting").
(b) The directors elected at the Annual Meeting were consummated as private sales under Section 4(2) of the Securities Act of 1933,
as amended (the "Securities Act").
On February 29, 2000, we completed a private placement of $240,000,000
aggregate principal amount of 5 1/2% convertible subordinated notes due March 1,
2005. We received net proceeds from this offering of approximately $231,900,000,
after deducting costs associated with the offering. The notes bear interest at
an annual rate of 5 1/2% payable semi-annually on September 1Richard Barth,
Vincent T. DeVita, Jr., Robert F. Goldhammer, David M. Kies, Paul B. Kopperl,
Arnold Levine, John Mendelsohn, William R. Miller, Harlan W. Waksal and March 1 of
each year, beginning September 1, 2000. The holders may convert all or any
portion of a note, in multiples of $1,000, into common stock at any time on or
before March 1, 2005 at a conversion price of $110.18 per share, subject to
adjustment if certain events affecting the common stock occur. In lieu of
fractional shares, we will pay a cash adjustment based on the closing price of
the common stock on the last business day prior to the conversion. The notesSamuel
D. Waksal. Such persons are subordinated to all existing and future senior indebtedness. We may redeem
some or all of the notes at any time prior to March 6, 2003, at a redemption
price of 100%directors of the principal amount plus accruedCompany whose term of
office as a director continued after the Annual Meeting.
(c) The matters voted upon at the Annual Meeting and unpaid interestthe results of the
voting are set forth below. Broker non-votes were not applicable.
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(i) Election of directors
NAME IN FAVOR WITHHELD
---- -------- --------
Richard Barth 26,803,815 93,654
Arnold Levine 26,798,835 98,634
Vincent T. DeVita, Jr. 26,763,723 133,746
Robert F. Goldhammer 26,762,643 134,826
David M. Kies 26,805,135 93,334
Paul B. Kopperl 26,804,100 93,369
John Mendelsohn 26,804,765 92,704
William R. Miller 26,804,115 93,354
Harlan W. Waksal 26,339,136 558,333
Samuel D. Waksal 25,711,026 1,186,443
(ii) The stockholders approved amendments to the redemption date if (1)Company's 1996
Incentive Stock Option Plan and 1996 Non-Qualified Stock Option
Plan (the "Plans") to increase the closing pricetotal number of theshares of common
stock has exceeded 150%which may be issued in the aggregate pursuant to options
which may be granted under the Plans from 4,000,000 to 5,500,000.
The stockholders voted 18,786,001 shares in favor and 8,056,062
shares against. 55,406 shares abstained from voting.
(iii) The stockholders approved a proposal to amend the Company's
certificate of incorporation to increase the conversion price for at least 20 trading days in any consecutive
30-trading day period and (2) if the redemption occurs before March 1, 2002,
the shelf registration statement, to be filed, covering resalestotal number of the notes
and theshares
of common stock the Company is effectiveauthorized to issue from 60,000,000
shares to 120,000,000 shares. The stockholders voted 26,119,685
shares in favor and expected717,559 shares against. 60,225 shares abstained
from voting.
(iv) The stockholders approved amendments to remain effectiveoptions held by the
Company's President and available for useChief Executive Officer and Executive Vice
President and Chief Operating Officer. The stockholders voted
19,603,979 shares in favor and 7,173,670 shares against. 119,820
shares abstained from voting.
(v) The stockholders ratified the appointment by the Board of Directors
of KPMG LLP as the Company's independent certified public
accountants for the 30 days following the redemption date. We shall mail
the notice for redemption within five trading days of the consecutive 30-trading
day period. If the notes are redeemed under these circumstances, we will make an
additional payment of $152.54 per $1,000 aggregate principal amount of notes,
minus the amount of all interest paid on such principal amount since February
29, 2000 to the date the notice was mailed. On or after March 6, 2003, we may
redeem some or all of the notes at specified redemption prices, plus accruedfiscal year ending December 31, 2000. The
stockholders voted 26,880,617 shares in favor and unpaid interest to the day preceding the redemption date. The holders have
the right, upon the occurrence of certain specified events constituting a
fundamental change, to require us to redeem all or any part of such holder's
notes at a price equal to 100% of the principal amount of the notes being
redeemed, together with accrued interest to, but excluding, the date of
redemption. We are required to file with the Securities and Exchange Commission
a shelf registration statement covering resales of the notes and the common
stock.
Morgan Stanley & Co. Incorporated and Merrill Lynch & Co., who acted as
the initial purchasers for the convertible notes, received an aggregate fee of
$7,800,000. The notes were issued pursuant to safe-harbor exemptions19,912 shares
against. 56,940 shares abstained from the registration requirements of the Securities Act, solely to qualified
institutional buyers and to a limited number of institutional "accredited
investors" pursuant to Rule 144A and Regulation D of the Securities Act.voting.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
Exhibit No. Description
----------- -----------
3.1A Amendment dated June 12, 2000 to the Company's
certificate of incorporation, as amended.
27.1 Financial Data Schedule
99.7 1996 Non-Qualified Stock Option Plan, as amended.
99.8 1996 Incentive Stock Option Plan, as amended.
(b) Reports on Form 8-K
None.
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1519
None.
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.
IMCLONE SYSTEMS INCORPORATED
(Registrant)
Date: May 12,August 11, 2000 By /s/ Samuel D. Waksal
----------------------------------------------------------------------------
Samuel D. Waksal
President and Chief Executive Officer
Date: May 12,August 11, 2000 By /s/ Carl S. Goldfischer
-------------------------------------
Carl S. GoldfischerPaul A. Goldstein
---------------------------------------
Paul A. Goldstein
Assistant Vice President, Finance and
Chief
Financial OfficerController
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