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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 2000
OR
__ 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 0-28494
MILLENNIUM PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 04-3177038
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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75 SIDNEY STREET, CAMBRIDGE, MA 02139
(Address of principal executive offices, including zip code)
617-679-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities 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 / /
Number of shares of Common Stock, $.001 par value per share, outstanding as of
April 27, 2000 was 91,489,480.
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MILLENNIUM PHARMACEUTICALS, INC.
REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
TABLE OF CONTENTS
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PAGE
PART I - FINANCIAL INFORMATION
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ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999 .............................. 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 2000 and 1999 ................ 4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2000 and 1999 ................ 5
Notes to Condensed Consolidated Financial Statements ................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .................................. 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK ............ 13
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS .............................. 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .................... 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ....................................... 14
SIGNATURES ....................................................................... 16
EXHIBIT INDEX .................................................................... 17
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MILLENNIUM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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MARCH 31 DECEMBER 31
(in thousands, except per share amounts) 2000 1999
-------- -----------
(unaudited)
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ASSETS
Current assets:
Cash and cash equivalents ................................ $ 266,059 $ 56,775
Marketable securities .................................... 388,745 204,941
Due from strategic partners .............................. 9,325 11,579
Prepaid expenses and other current assets ................ 9,665 13,215
--------- ---------
Total current assets .................................... 673,794 286,510
Property and equipment, net ............................... 64,856 59,543
Restricted cash and other assets .......................... 12,470 12,965
Debt issuance costs ....................................... 11,461 --
Intangible assets, net .................................... 180,559 182,607
--------- ---------
Total assets ............................................ $ 943,140 $ 541,625
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................... $ 15,970 $ 22,953
Accrued expenses ......................................... 32,232 17,306
Deferred revenue ......................................... 4,275 7,936
Current portion of capital lease obligations ............. 11,429 10,968
--------- ---------
Total current liabilities ............................... 63,906 59,163
Capital lease obligations, net of current portion ......... 28,177 27,488
Long term debt ............................................ 400,000 --
Minority interest ......................................... 16,055 15,568
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.001 par value; 5,000 shares
authorized, non issued .................................. -- --
Common Stock, $0.001 par value; 100,000 shares
authorized, 91,429 shares in 2000 and 89,301 shares
in 1999 issued and outstanding .......................... 91 89
Additional paid-in capital ............................... 911,932 883,125
Deferred compensation .................................... (1,548) (1,055)
Notes receivable from officers ........................... (483) (1,026)
Accumulated other comprehensive loss ..................... (770) (739)
Accumulated deficit ...................................... (474,220) (440,988)
--------- ---------
Total stockholders' equity .............................. 435,002 439,406
--------- ---------
Total liabilities and stockholders' equity .............. $ 943,140 $ 541,625
========= =========
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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MILLENNIUM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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Three Months Ended
March 31,
------------------------
(in thousands, except per share amounts) 2000 1999
---------- ----------
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Revenue under strategic alliances .................... $ 46,773 $ 40,992
--------- ---------
Costs and expenses:
Research and development ............................ 60,100 35,433
General and administrative .......................... 10,823 7,126
Amortization of intangible assets ................... 11,970 676
--------- ---------
Total costs and expenses......................... 82,893 43,235
--------- ---------
Loss from operations ................................. (36,120) (2,243)
Interest income ...................................... 8,480 2,759
Interest expense ..................................... (5,451) (697)
Minority interest .................................... (141) 2,253
--------- ---------
Net income (loss) .................................... $ (33,232) $ 2,072
========= =========
Basic net income (loss) per share .................... $ (0.37) $ 0.03
========= =========
Shares used in computing basic net
income (loss) per share ............................ 90,445 70,630
========= =========
Diluted net incoome (loss) per share ................. $ (0.37) $ 0.03
========= =========
Shares used in computing diluted
net income (loss) per share ........................ 90,445 76,387
========= =========
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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MILLENNIUM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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Three Months Ended
March 31,
----------------------------
(in thousands) 2000 1999
---------- ----------
OPERATING ACTIVITIES
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Net income (loss) .................................... $(33,232) $ 2,072
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Depreciation and amortization ........................ 17,785 4,546
Minority interest .................................... 141 (2,253)
Stock compensation ................................... 1,633 224
Changes in operating assets and liabilities:
Prepaid expenses and other current assets .......... 6,549 (2,015)
Due from strategic partners ........................ 2,254 3,337
Restricted cash and other assets ................... 339 184
Accounts payable and accrued expenses .............. 5,020 3,127
Deferred revenue ................................... (3,661) 3,815
--------- ---------
Net cash provided by (used in) operating activities .. (3,172) 13,037
--------- ---------
INVESTING ACTIVITIES
Purchase of property and equipment ................... (7,143) (3,778)
Sales of marketable securities ....................... 61,222 15,500
Purchase of marketable securities .................... (245,056) (101,034)
--------- ---------
Net cash used in investing activities ................ (190,977) (89,312)
--------- ---------
FINANCING ACTIVITIES
Issuance of convertible subordinated notes,
net of issuance costs .............................. 388,695 --
Net proceeds from employee stock purchases ........... 17,572 9,817
Proceeds from sale of subsidiary stock ............... -- 15,000
Repurchase of common stock ........................... -- (1)
Payments of capital lease obligations ................ (2,834) (1,902)
---------- ---------
Net cash provided by financing activities ............ 403,433 22,914
---------- ---------
Increase (decrease) in cash and cash equivalents ..... 209,284 (53,361)
Cash and cash equivalents at beginning of period ..... 56,775 138,284
---------- ---------
Cash and cash equivalents at end of period ........... $266,059 $ 84,923
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest ............................... $ 746 $ 682
NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital leases .............. $ 3,984 $ 2,615
Issuance of common stock to Abgenix, Inc. ............ 10,000 --
Deferred compensation relating to issuance
of stock options ................................... 345 --
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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MILLENNIUM PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(unaudited)
1- BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Interim results for the three month period ended March 31, 2000
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1999 which was filed with the
Securities and Exchange Commission on February 25, 2000.
2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The effective date of this
statement was deferred to fiscal years beginning after June 15, 2000 by SFAS No.
137 "Accounting for Derivative Instruments and Hedging Activities -- Deferral of
the Effective Date of SFAS No. 133." The Company believes the adoption of this
new accounting standard will not have a significant effect on its financial
statements as the Company's investment policies prohibit the use of derivatives.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101 ("SAB 101"), "Revenue Recognition in Financial
Statements" which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. The effective date of this
bulletin was deferred to no later than the second fiscal quarter beginning after
December 15, 1999. SAB 101 requires companies to report any changes in revenue
recognition as a cumulative change in accounting principle at the time of
implementation in accordance with Accounting Principles Board Opinion No. 20,
"Accounting Changes." The Company is currently in the process of evaluating the
impact SAB 101 will have on its financial position or results of operations.
(b) NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is based on the weighted
average number of common shares outstanding. For the three month period ended
March 31, 2000, diluted net loss per common share is the same as basic net loss
per common share as the inclusion of weighted average shares of common stock
issuable upon exercise of stock options and warrants would be antidilutive. For
the three month period ended March 31, 1999, the difference between basic and
diluted shares
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used in the computation of income per share is the 5,756,920
weighted-average common equivalent shares resulting from outstanding
common stock options and warrants.
(c) CASH EQUIVALENTS AND MARKETABLE SECURITIES
Cash equivalents consist principally of money market funds and
corporate bonds with original maturities of three months or less at the date of
purchase. Marketable securities consist of high-grade corporate bonds, which are
carried at fair value, with the unrealized gains and losses reported in a
separate component of stockholders' equity. Marketable securities at March 31,
2000 and December 31, 1999 are classified as "available-for-sale." There have
been no realized gains or losses on sales of any securities in 2000 or 1999.
3- STRATEGIC ALLIANCES
On January 6, 2000, the Company announced that it had signed an
agreement regarding the licensing of LDP-977, for the treatment of chronic
asthma, to Taisho Pharmaceutical Co., Ltd. ("Taisho"). Under the agreement,
Taisho will hold an exclusive license to LDP-977 in Japan, Asia and Europe while
the Company will retain rights for the rest of the world, including North
America. In exchange, Taisho will fund all of the research and development
expenses of the compound in Japan and Asia, and two-thirds of the expenses in
the United States and Europe. Taisho will also have right of first negotiation
for commercialization in the U.S. should the Company seek to sub-license in that
territory. Quarterly research and development payments began in the first
quarter of 2000. In addition to funding research and development expenses,
Taisho paid a licensing fee to the Company in the first quarter of 2000 which
was recognized as revenue and, in addition, will pay milestone payments for
research and development progress in each of Taisho's licensed territories. The
Company will also receive a supply fee based on net sales of the product in each
of Taisho's licensed territories in exchange for the Company's manufacture and
supply of the product to Taisho.
The Company and AstraZeneca AB ("AstraZeneca") mutually decided to end
the research phase of their inflammatory respiratory collaboration in order to
pursue independent research efforts. In January 2000, the Company received a
concluding payment and will be entitled to receive milestone and royalty
payments on sales of therapeutic products resulting from certain targets
discovered during the collaboration and on which AstraZeneca will continue to
conduct research and development efforts.
On March 6, 2000, the Company entered into a collaboration with
Abgenix, Inc. ("Abgenix") which provides the Company with access to Abgenix's
XenoMouse(TM) technology for the creation of fully human antibodies. In exchange
for this technology, the Company made a $10 million upfront payment consisting
of shares of the Company's common stock and potential future payments may be
made by the Company upon the achievement of agreed-upon milestones . The Company
will also pay to Abgenix royalties on future product sales.
4- CONVERTIBLE DEBT
In January 2000, the Company completed a sale, pursuant to Rule 144A of
the Securities Act of 1933, of $400.0 million of 5.5% convertible subordinated
notes due January 15, 2007. The notes are convertible into Millennium common
stock at any time prior to maturity at a price equal to
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$84.14 per share, subject to adjustment, unless previously repurchased
or redeemed by the Company under certain circumstances. Under the terms
of the notes, the Company is required to make semi-annual interest
payments on the outstanding principal balance of the notes on January 15
and July 15 of each year.
5- MILLENNIUM PREDICTIVE MEDICINE
On March 2, 2000, the Company announced that it will acquire the
outstanding preferred and common shares of its Millennium Predictive Medicine,
Inc. ("MPMx") subsidiary that it does not already own, making it a wholly-owned
subsidiary of the Company. The transaction will be a stock-for-stock exchange.
Under the terms of the agreement, MPMx shareholders, including Becton Dickinson
and Company ("Becton Dickinson"), will receive 0.4 shares of Millennium common
stock in exchange for each MPMx share. The total value of Millennium common
stock to be received by MPMx's stockholders in the merger based upon the fair
value of Millennium common stock at the date of the announcement of the merger,
March 2, 2000, is approximately $143.6 million. Minority interest will no longer
be recorded upon the close of the merger which is anticipated in the second
quarter of 2000.
6- SUBSEQUENT EVENT
On April 12, 2000, the Company filed a Certificate of Amendment of
Certificate of Incorporation increasing the authorized common stock, $0.001
par value per share, of the Company, from 100,000,000 shares to 500,000,000
shares. On February 28, 2000, the Board of Directors of the Company delcared
a two-for-one stock split of the common stock, to be effected in the form of
a 100% stock dividend payable on April 18, 2000 to stockholders of record as
of March 28, 2000. Stockholders' equity has been restated to give retroactive
application to the April 18, 2000 stock split in prior periods by
reclassifying from additional paid-in capital to common stock the par value
of the additional shares arising from the stock split. In addition, all
references in the condensed consolidated financial statements to the number
of shares and per share amount have been restated.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THIS REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS. FOR THIS
PURPOSE, ANY STATEMENTS CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL
FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE
FOREGOING, THE WORDS "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS," "INTENDS,"
AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
THERE ARE A NUMBER OF IMPORTANT FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING
STATEMENTS. THESE FACTORS ARE SET FORTH UNDER THE CAPTION "RISK FACTORS THAT MAY
AFFECT RESULTS" IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1999, WHICH "RISK FACTORS THAT MAY AFFECT RESULTS" DISCUSSION IS
EXPRESSLY INCORPORATED BY REFERENCE HEREIN.
OVERVIEW
Millennium Pharmaceuticals, Inc. was founded in 1993. We incorporate
large-scale genetics, genomics, high throughput screening, and informatics in an
integrated science and technology platform which we apply primarily in
discovering and developing proprietary therapeutic and diagnostic human
healthcare products and services. We currently derive substantially all of our
revenue from strategic alliances with major pharmaceutical and biotechnology
companies.
During 1999, we expanded our operations through internal growth,
additional strategic alliances and acquisitions. We also hired additional staff
in research and drug discovery, development, informatics, biotherapeutics and
diagnostics/prognostics, as well as in other support areas. In December 1999, we
acquired LeukoSite, Inc. ("LeukoSite") in a stock-for-stock acquisition
accounted for as a purchase. LeukoSite has been a leader in the discovery and
development of therapeutics based upon the biology of leukocytes. Therapeutics
acquired from LeukoSite may be used to treat cancer and inflammatory, autoimmune
and viral diseases. Through the LeukoSite acquisition, we extended our pipeline
of small molecule and biotherapeutic drug candidates, principally in the areas
of oncology and inflammation and added several preclinical product candidates
and five product candidates in clinical trials.
To date, all of our revenues have resulted from payments from
strategic partners and United States government research grants. We have not
received any revenue from the sale of products. Our current strategic
alliances include the following: two agreements with the Wyeth-Ayerst
Division of American Home Products in certain disorders of the central
nervous system and in bacterial diseases; an agreement with Bayer AG in
cardiovascular disease, and certain areas of oncology, osteoporosis, pain,
liver fibrosis, hematology and viral infections; and an agreement with
Monsanto Company in plant agriculture. In addition through our acquisition of
LeukoSite we gained the following strategic alliances: a partnership with
ILEX Oncology, Inc. ("ILEX") for product development of Campath-Registered
Trademark-, a monoclonal antibody being investigated for use in the treatment
of chronic lymphocytic leukemia, for which we are currently seeking FDA
approval; and an agreement, through our joint venture partnership with ILEX,
with Schering AG/Berlex Laboratories for distribution of the
CAMPATH-Registered Trademark- product candidate. In addition, we have a
number of other strategic alliances. Our strategic alliance agreements have
provided us with various combinations of equity investments, license fees and
research funding, and may provide certain additional payments contingent upon
the attainment of research and regulatory milestones
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and royalty and/or profit sharing payments based on sales of any products
resulting from the collaborations.
During 2000, we expect to continue to pursue additional alliances and
to consider joint development, merger, or acquisition opportunities that may
provide us with access to products on the market or in later stages of
commercial development than those represented within our current programs. We
expect that we will incur increasing expenses and may incur increasing operating
losses for at least the next several years, primarily due to expansion of
facilities and research and development programs, and as a result of efforts to
advance acquired products or our own development programs to commercialization.
Our revenues under strategic alliance and licensing arrangements may fluctuate
from period to period or year to year; these fluctuations, as well as
fluctuations in spending, may result in periods of profitability and periods of
losses. Therefore, our results of operations for any period may not be
indicative of future results of operations.
RESULTS OF OPERATIONS
QUARTERS ENDED MARCH 31, 2000 AND MARCH 31, 1999
For the three months ended March 31, 2000 (the "2000 Quarterly
Period"), we reported a net loss of $33.2 million or ($0.37) per basic and
diluted share as compared to net income of $2.1 million or $0.03 per basic and
diluted share for the three months ended March 31, 1999 (the "1999 Quarterly
Period"). Operating results for the 2000 Quarterly Period represent the first
reported quarter of fully combined revenues and expenses related to the
acquisition of LeukoSite.
Revenue under strategic alliances increased to $46.8 million for the
2000 Quarterly Period from $41.0 million for the 1999 Quarterly Period. The
increase in revenue is primarily due to our receipt of a lump sum payment upon
conclusion of our collaboration agreement with AstraZeneca, the signing of a new
strategic alliance agreement with Taisho, and a milestone payment from our
strategic alliance with Monsanto Company. This increase is offset in part by a
scheduled decrease in funding from our alliance with Bayer AG. We expect revenue
under our existing and from new strategic alliances to continue, however,
revenues may fluctuate from period to period and there can be no assurance that
strategic alliance agreements will continue for their initial term or beyond.
Research and development expenses increased to $60.1 million for the
2000 Quarterly Period from $35.4 million for the 1999 Quarterly Period. The
increase was primarily attributable to our investment in six product candidates
in clinical trials and several preclinical products, increases in personnel
expenses, purchases of laboratory supplies and technology license payments for
access to gene database information. We expect research and development expenses
to continue to increase above the 2000 Quarterly Period rate of spending, as
personnel are added and as research and development activities are expanded to
accommodate our existing strategic alliances and development efforts.
General and administrative expenses increased to $10.8 million for the
2000 Quarterly Period from $7.1 million for the 1999 Quarterly Period. The
increase was primarily attributable to increased expenses for additional
management and administrative personnel, as well as to increases in facilities
expenses, consulting, and other professional fees associated with the expansion
and increased complexity of our operations and increased business development
activity. We expect
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that general and administrative expenses will continue to increase as we add
capabilities to support the further advancement of our development efforts.
On December 22, 1999, we acquired LeukoSite for an aggregate purchase
price of $550.4 million primarily consisting of 13,353,866 shares of common
stock and 1,768,174 shares of common stock issuable upon the exercise of
LeukoSite options and warrants. The transaction was recorded as a purchase for
accounting purposes and accordingly, the purchase price was allocated to the
assets purchased and liabilities assumed based upon their respective fair
values. The excess of the purchase price over the estimated fair market value of
net tangible assets was allocated to specific intangible assets and goodwill. We
also incurred a nonrecurring charge to operations for acquired in-process
research and development. Our research and development projects acquired in
connection with LeukoSite are expected to continue in line with the estimates
set forth in our 1999 Annual Report on Form 10-K. Goodwill is being amortized on
a straight-line basis over four years. Amortization expense related to the
LeukoSite acquisition for the 2000 Quarterly Period was approximately $11.3
million.
Interest income increased to $8.5 million for the 2000 Quarterly Period
from $2.8 million for the 1999 Quarterly Period. The increase resulted from a
higher level of invested funds due to proceeds from the convertible debt
offering in January 2000. Interest expense increased to $5.5 million for the
2000 Quarterly Period from $.7 million for the 1999 Quarterly Period due to
interest obligations arising from the convertible debt offering, which closed in
January 2000.
Minority interest represents the minority shareholder interest of
Becton Dickinson in the net income for the 2000 Quarterly Period of our
majority-owned subsidiary MPMx. Minority interest for the 1999 Quarterly period
represents the minority shareholder interest of Eli Lilly and Company in the net
loss of our majority-owned subsidiary, Millennium BioTherapeutics, Inc. ("MBio")
as well as the minority shareholder interest of Becton Dickinson in the net
income of MPMx. As of October 14, 1999, Lilly no longer owned a minority
interest in MBio. On December 21,1999 we merged MBio into us. As we have
announced we will acquire all the outstanding shares of MPMx, including those
owned by Becton Dickinson, minority interest will no longer be recorded upon the
close of the merger which is anticipated in the second quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, we had approximately $654.8 million in cash, cash
equivalents and marketable securities, an increase of $393.1 million from
December 31, 1999. This excludes $11.2 million of interest-bearing marketable
securities classified as restricted cash and other assets on our balance sheet
which serve as security deposits for certain of our facilities leases.
The increase in cash, cash equivalents and marketable securities is
primarily due to $388.7 million of net proceeds from the convertible debt
offering and $17.6 million of proceeds from exercises of stock options, partly
offset by cash outflows for the purchase of $7.1 million of property and
equipment, $2.8 million to pay capital lease obligations and $3.2 million for
operating activities.
In January 2000, we completed a sale, pursuant to Rule 144A of the
Securities Act of 1933, of $400.0 million of 5.5% convertible subordinated notes
due January 15, 2007. The notes are
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convertible into shares of our common stock at any time prior to maturity at a
price equal to $84.14 per share, subject to adjustment, unless previously
repurchased or redeemed by us under certain circumstances. Under the terms of
the notes, we are required to make semi-annual interest payments on the
outstanding principal balance of the notes on January 15 and July 15 of each
year.
On March 6, 2000, we entered into a collaboration with Abgenix, which
provides us with access to Abgenix's XenoMouse(TM) technology for the creation
of fully human antibodies. In exchange for this technology, we made a $10
million upfront payment consisting of shares of our common stock. We may make
potential future payments upon the achievement of agreed-upon milestones. We
will also pay to Abgenix royalties on future product sales.
We believe that existing cash, including the proceeds from our January
2000 convertible debt offering, our investment securities and the anticipated
cash payments from our current strategic alliances will be sufficient to support
our operations for the near term. Our actual future cash requirements, however,
will depend on many factors, including the progress of our disease research
programs, the number and breadth of these programs, achievement of milestones
under strategic alliance arrangements, acquisitions, our ability to establish
and maintain additional strategic alliance and licensing arrangements, and the
progress of our development efforts and the development efforts of our strategic
partners.
We expect that we will require significant additional financing in the
future, which we may seek to raise through public or private equity offerings,
debt financings, additional strategic alliances or other financing sources.
However, additional financing, strategic alliances or licensing arrangements may
not be available when needed or, if available, such financing may not be
obtained on terms favorable to us or our stockholders. Our forecast of the
period of time through which our financial resources will be adequate to support
our operations is forward-looking information, and, as such, actual results may
vary.
SUBSEQUENT EVENT
On March 2, 2000, we announced that we will acquire the outstanding
preferred and common shares of MPMx that we do not already own, making it a
wholly-owned subsidiary. The transaction will be a stock-for-stock exchange.
Under the terms of the agreement, MPMx shareholders, including Becton
Dickinson, will receive 0.4 shares of our common stock in exchange for each
MPMx share. The total value of our common stock to be received by MPMx's
stockholders in the merger based upon the fair value of our common stock at
the date of the announcement of the merger, March 2, 2000, is approximately
$143.6 million. Minority interest will no longer be recorded upon the close
of the merger which is anticipated in the second quarter of 2000.
On April 12, 2000, we filed a Certificate of Amendment of
Certificate of Incorportation increasing the authorized common stcok, $0.001
par value per share, of the Company, from 100,000,000 shares to 500,000,000
shares. On February 28, 2000, our Board of Directors declared a two-for-one
stock split of the common stock, to be effected in the form of a 100% stock
dividend payable on April 18, 2000 to stockholders of record as of March
28,2000. Stockholders' equity has
12
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been restated to give retroactive application to the April 18, 2000 stock split
in prior periods by reclassifying from additional paid-in capital to common
stock the par value of the additional shares arising from the stock split. In
addition, all references in the condensed consolidated financial statements to
the number of shares and per share amount have been restated to reflect the
stock split.
IMPACT OF YEAR 2000
In prior years, we discussed the nature and progress of our plans to
prepare for any system or processing failures which could result from computer
programs recognizing the dates represented as "00" as the year 1900 rather than
the year 2000. In late 1999, we completed our remediation and testing of our
software and hardware systems. As a result of our planning and implementation
efforts, we experienced no significant disruptions in mission critical
information technology and non-information technology systems and we believe
those systems successfully responded to the Year 2000 date change. Our costs to
date concerning the Year 2000 problem have not been material. We are not aware
of any material problems resulting from Year 2000 issues, either with our
product candidates, our internal systems, or the products and services of third
parties. We will continue to monitor our mission critical computer applications
and those of our suppliers and vendors throughout the year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We maintain an investment portfolio in accordance with our Investment
Policy. The primary objectives of our Investment Policy are to preserve
principal, maintain proper liquidity to meet operating needs and maximize
yields. Although our investments are subject to credit risk, our Investment
Policy specifies credit quality standards for our investments and limits the
amount of credit exposure from any single issue, issuer or type of investment.
Our investments are also subject to interest rate risk. However, due to the
conservative nature of our investments and relatively short duration, we believe
interest rate risk is mitigated. We do not own derivative financial instruments
in our investment portfolio.
The interest rates on our convertible subordinated notes and capital
lease obligations are fixed and therefore not subject to interest rate risk.
Accordingly, we do not believe that there is any material market risk
exposure with respect to derivative or other financial instruments which would
require disclosure under this item.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 6, 2000, the Company issued and sold to Abgenix, Inc. 163,600
shares (subject to adjustment) of its Common Stock, $0.001 par value per share,
for aggregate proceeds of approximately $10.0 million. These shares were issued
in connection with a collaboration agreement between the parties and no person
served as an underwriter with respect to this
13
<PAGE>
transaction. The Company relied on Section 4(2) of the Securities Act of 1933,
as amended (the "Securities Act") for exemption from the registration
requirements of the Securities Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 2000 Annual Meeting of Stockholders was held on April 12,
2000 (the "Annual Meeting"). The following is a summary of each matter voted
upon at the Annual Meeting and the number of votes cast for, against or
withheld, and broker non-votes and abstentions, adjusted for the April 18, 2000
stock split as to each such matter:
1. Election of two Class I directors, each for a term of three years.
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------------
For Withheld
<S> <C> <C>
Christopher K. Mirabelli, Ph.D. ................ 76,063,742 585,828
Steven C. Wheelwright, Ph.D. ................... 76,129,292 520,278
</TABLE>
2. Approval of an amendment to the Company's Restated Certificate of
Incorporation increasing the number of shares of Common Stock authorized for
issuance from 100,000,000 to 500,000,000.
<TABLE>
<S> <C>
For ...................... 63,089,406
Against .................. 13,521,566
Abstain .................. 38,598
Non-votes ................ --
</TABLE>
3. Approval of the Company's 2000 Stock Incentive Plan.
<TABLE>
<S> <C>
For ............................. 41,395,856
Against ......................... 21,881,050
Abstain ......................... 141,344
Non-votes ....................... 13,231,320
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits listed in the Exhibit Index are included in this
report.
(b) Reports on Form 8-K
The following current reports on Form 8-K were filed by the
Company during the last quarter:
14
<PAGE>
<TABLE>
<S> <C>
1. Current Report on Form 8-K filed with the Securities and Exchange Commission on January 6, 2000.
2. Current Report on Form 8-K/A filed with the Securities and Exchange Commission on January 6, 2000
3. Current Report on Form 8-K filed with the Securities and Exchange Commission on January 11, 2000
4. Current Report on Form 8-K filed with the Securities and Exchange Commission on January 19, 2000
5. Current Report on Form 8-K/A filed with the Securities and Exchange Commission on January 27, 2000
6. Current Report on Form 8-K filed with the Securities and Exchange Commission on February 9, 2000
7. Current Report on Form 8-K filed with the Securities and Exchange Commission on April 13, 2000
8. Current Report on Form 8-K filed with the Securities and Exchange Commission on April 25, 2000
</TABLE>
15
<PAGE>
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.
MILLENNIUM PHARMACEUTICALS, INC.
(Registrant)
Date: May 2, 2000 By: /s/ Kevin P. Starr
-------------------------------------------
Kevin P. Starr
Chief Financial Officer
(Principal Financial and Accounting Officer)
16
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report on Form
10-Q:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<S> <C>
3.1 Amendment to Amended and Restated By-Laws of the Company dated March 1, 2000.
27.1 Financial Data Schedule for the quarter ended March 31, 2000
99.1 Pages 22 through 34 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 as filed with the Securities and Exchange Commission which are deemed
to be filed except to the extent that any such portions are not expressly incorporated
herein by reference.
</TABLE>
17
<PAGE>
EXHIBIT 3.1
MILLENNIUM PHARMACEUTICALS, INC.
AMENDMENT TO THE BY-LAWS
Section 1.8 of the By-laws of Millennium Pharmaceuticals, Inc. is
hereby amended and restated in its entirety to read as follows:
1.8 VOTING AND PROXIES. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by the General Corporation Law of the State of Delaware, the Certificate of
Incorporation or these By-Laws. Each stockholder of record entitled to vote at a
meeting of stockholders, or to express consent or dissent to corporate action in
writing without a meeting, may vote or express such consent or dissent in person
or in such other manner as may from time to time be permitted by law, or may
authorize another person or persons to vote or act for him by written proxy
executed by the stockholder or his authorized agent and delivered to the
Secretary of the corporation or in such other manner as may from time to time be
permitted by law. No such proxy shall be voted or acted upon after three years
from the date of its execution, unless the proxy expressly provides for a longer
period.
Adopted by the Board of Directors as of March 1, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 266,059
<SECURITIES> 388,745
<RECEIVABLES> 9,325
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 673,794
<PP&E> 112,337
<DEPRECIATION> 47,481
<TOTAL-ASSETS> 943,140
<CURRENT-LIABILITIES> 63,906
<BONDS> 400,000
0
0
<COMMON> 91
<OTHER-SE> 434,911
<TOTAL-LIABILITY-AND-EQUITY> 943,140
<SALES> 0
<TOTAL-REVENUES> 46,773
<CGS> 0
<TOTAL-COSTS> 82,893
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,451
<INCOME-PRETAX> (33,232)
<INCOME-TAX> 0
<INCOME-CONTINUING> (33,232)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,232)
<EPS-BASIC> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
<PAGE>
RISK FACTORS THAT MAY AFFECT RESULTS
This Annual Report on Form 10-K, together with the accompanying letter to
shareholders, contains forward-looking statements. For this purpose, any
statements contained herein that are not statements of historical fact may be
considered to be forward-looking statements. Although not a complete list of
words that might identify forward-looking statements, we use the words
"believes," "anticipates," "plans," "expects," "intends" and similar expressions
to identify forward-looking statements. There are a number of important factors
that could cause Millennium's actual results to differ materially from those
indicated by forward-looking statements. Factors that could cause or contribute
to such differences include those discussed below, as well as those discussd
elsewhere in this Form 10-K.
REGULATORY RISKS
CLINICAL TRIALS OF OUR PRODUCT CANDIDATES MAY NOT BE SUCCESSFUL
In order to obtain regulatory approvals for the commercial sale of any
products, we or our alliance partners will be required to demonstrate through
preclinical testing and clinical trials that the product is safe and
efficacious. Prior to our merger with LeukoSite in December 1999, neither we nor
any of our alliance partners had initiated human clinical trials with respect to
any product or service based upon our discoveries or filed an investigational
new drug application with the United States Food and Drug Administration, or
FDA, to do so.
The results from preclinical testing of a product that is under development
may not be predictive of results that will be obtained in human clinical trials.
In addition, the results of early human clinical trials may not be predictive of
results that will be obtained in larger scale, advanced stage clinical trials.
Furthermore, we, our collaborators or the FDA may suspend clinical trials at any
time if the subjects or patients participating in such trials are being exposed
to unacceptable health risks or for other reasons.
The rate of completion of any clinical trials that we conduct will be
dependent on the rate of patient enrollment. Patient enrollment is a function of
many factors, including the size of the patient population, the nature of the
protocol, the availability of alternative treatments, the proximity of patients
to clinical sites and the eligibility criteria for the study. Delays in planned
patient enrollment may cause us to incur increased costs and program delays.
RELIANCE ON THIRD PARTIES TO CONDUCT TRIALS
To date, all of our clinical trials have been conducted by third parties
under contract to us. Although we acquired certain clinical trial capabilities
in our merger with LeukoSite, for the foreseeable future we expect to rely
primarily on our strategic alliance partners and other third parties to conduct
clinical trials of our products in most circumstances. We will have less control
over such clinical trials than if we were conducting the trials directly. As a
result, these trials may not begin or be completed as planned.
WE MAY NOT OBTAIN REGULATORY APPROVALS; THE APPROVAL PROCESS IS COSTLY AND
LENGTHY
We must obtain regulatory approvals for our ongoing development activities
and before marketing or selling any product or service. We may not receive
regulatory approvals to conduct clinical trials of our products or to
manufacture or market our products and services. In particular, we may not
receive regulatory approval from the FDA or any other regulatory authority to
market CAMPATH-Registered Trademark- monoclonal antibody, our most advanced
product candidate. In addition, regulatory agencies may not grant such approvals
on a timely basis or may revoke previously granted approvals.
The process of obtaining FDA and other required regulatory approvals,
including approvals in other countries, is lengthy and expensive. The time
required for FDA and other clearances or approvals
22
<PAGE>
is uncertain and typically takes a number of years, depending on the complexity
and novelty of the product. Any delay in obtaining or failure to obtain required
clearance or approvals could materially adversely affect our ability to generate
revenues from the affected product or service. We have only limited experience
in filing and prosecuting applications necessary to gain regulatory approvals.
Certain of the products that are likely to result from our research and
development programs may be based on new technologies and new therapeutic
approaches that have not been extensively tested in humans. One example of such
a technology is gene therapy. The regulatory requirements governing these types
of products may be more rigorous than for conventional products. As a result, we
may experience a longer regulatory process in connection with any products that
we develop based on these new technologies or new therapeutic approaches.
Our analysis of data obtained from preclinical and clinical activities is
subject to confirmation and interpretation by regulatory authorities, which
could delay, limit or prevent regulatory approval. Any regulatory approval to
market a product may be subject to limitations on the indicated uses for which
we may market the product. These limitations may limit the size of the market
for the product.
We also are subject to numerous and varying foreign regulatory requirements
governing the design and conduct of clinical trials and the manufacturing and
marketing of our future products and services. The approval procedure varies
among countries. The time required to obtain foreign approvals often differs
from that required to obtain FDA approval. Approval by the FDA does not ensure
approval by regulatory authorities in other countries.
All of these regulatory risks also are applicable to development,
manufacturing and marketing undertaken by our alliance partners or other
collaborators.
EVEN IF WE OBTAIN MARKETING APPROVAL, OUR PRODUCTS WILL BE SUBJECT TO ONGOING
REGULATORY REVIEW
The manufacturer of products for which we obtain marketing approval and the
manufacturing facilities used to make such products will be subject to continual
review and periodic inspections by the FDA. The subsequent discovery of
previously unknown problems with the product, manufacturer or facility may
result in restrictions on the product or manufacturer, including withdrawal of
the product from the market.
If we fail to comply with applicable regulatory requirements, we may be
subject to fines, suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions and criminal prosecutions.
RISKS RELATING TO OUR INDUSTRY, BUSINESS AND STRATEGY
THE GENOMICS INDUSTRY IS NEW; WE HAVE NOT COMMERCIALIZED ANY PRODUCTS
The genomics industry is new and evolving rapidly. To date, we have not
commercialized any products. In addition, relatively few products based on gene
discoveries have been developed and commercialized by others. Rapid
technological development by us or others may result in compounds, products or
processes becoming obsolete before we recover our development expenses.
We have completed development of only one product,
CAMPATH-Registered Trademark- monoclonal antibody, and have only recently
applied to the FDA for approval to market this product. All of the other
products that we are developing will require additional research and
development, extensive preclinical studies and clinical trials and regulatory
approval prior to any commercial sales. We may need to successfully address a
number of technological challenges in order to complete development of any of
our products. Moreover, these products may not be effective in treating any
disease or may prove to have undesirable or unintended side effects, toxicities
or other characteristics that may prevent or limit commercial use.
23
<PAGE>
WE PLAN TO EXPAND RAPIDLY; IF WE CANNOT MANAGE OUR GROWTH SUCCESSFULLY, OUR
GROWTH MAY SLOW OR STOP
We have rapidly expanded our operations and expect to continue to expand.
Our growth has placed, and will continue to place, a significant strain on our
management, operating and financial systems. If we cannot manage our expanding
operations, we may not be able to continue to grow or we may grow at a slower
pace. Furthermore, our operating costs may escalate faster than planned. In
order to manage our growth successfully, we must:
- Maintain close coordination among our executive, finance, operations,
research and development organizations;
- Improve our operating, financial and accounting systems, procedures and
controls;
- Expand, train and manage our employee base effectively; and
- Acquire and lease significant additional equipment and facilities.
THE ACQUISITIONS WE MAKE MAY NOT BE SCIENTIFICALLY OR COMMERCIALLY SUCCESSFUL
We completed our merger with LeukoSite on December 22, 1999. We may not be
able to successfully integrate or profitably manage LeukoSite's businesses. In
addition, the combination of our businesses with LeukoSite's may not achieve
revenues, net income or loss levels, efficiencies or synergies that justify the
merger. The combined company may experience slower rates of growth as compared
to the historical rates of growth of Millennium and LeukoSite independently.
All acquisitions, including our merger with LeukoSite, involve a number of
operational risks, including:
- Difficulty and expense of assimilating the operations, technology and
personnel of the acquired business;
- Inability to retain the management, key personnel and other employees of
the acquired business;
- Inability to maintain the acquired company's relationships with key third
parties, such as alliance partners;
- Exposure to legal claims for activities of the acquired business prior to
acquisition;
- Diversion of management attention; and
- Amortization of substantial goodwill and write-off of in-process research
and development costs, adversely affecting our reported results of
operations.
If we make additional significant acquisitions in which the consideration
paid includes stock or other securities, our outstanding common stock may be
significantly diluted. If we make one or more significant acquisitions in which
the consideration paid includes cash, we may be required to use a substantial
portion of our available cash.
OUR GROWTH COULD BE LIMITED IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL
Our success is substantially dependent on the ability, experience and
performance of our senior management and other key personnel. If we lose one or
more of the members of our senior management or other key employees, our
business and operating results could be seriously harmed.
In addition, our future success will depend heavily on our ability to
continue to hire, train, retain and motivate additional skilled managerial and
scientific personnel. The pool of personnel with the skills that we require is
limited. Competition to hire from this limited pool is intense.
24
<PAGE>
The stock options held by LeukoSite employees became fully vested upon the
closing of our acquisition of LeukoSite. This acceleration may adversely affect
our ability to retain former LeukoSite employees.
WE FACE SUBSTANTIAL COMPETITION, WHICH MAY RESULT IN OTHERS DISCOVERING,
DEVELOPING OR COMMERCIALIZING PRODUCTS AND SERVICES BEFORE OR MORE SUCCESSFULLY
THAN WE DO
The fields of genomics, biotechnology and pharmaceuticals are highly
competitive. We will not succeed if we cannot compete effectively in these
fields. Many of our competitors are substantially larger than we are and have
substantially greater capital resources, research and development staffs and
facilities than we have. Furthermore, many of our competitors are more
experienced than we are in drug discovery, development and commercialization,
obtaining regulatory approvals and product manufacturing and marketing. As a
result, our competitors may identify genes associated with diseases or discover,
develop and commercialize products or services based on such genes before we do.
In addition, our competitors may discover, develop and commercialize products or
services which render non-competitive or obsolete the products or services that
we or our strategic alliance partners are seeking to develop and commercialize.
Under the Orphan Drug Act, a sponsor of an application to the FDA may seek
to obtain a seven-year period of marketing exclusivity for a drug intended to
treat a rare disease or condition, which is defined as a disease or condition
that occurs in fewer than 200,000 patients. In the event that a competitor
receives orphan drug designation and obtains the FDA marketing exclusivity for a
drug intended to treat the same rare disease or condition before we obtain such
approval, we would not be permitted by the FDA to market our product in the
United States for the same use during the exclusivity period. If we receive an
orphan drug designation, it may be very expensive to assert our rights under the
Orphan Drug Act. In addition, if we receive seven-year marketing exclusivity,
the FDA may rescind the period of exclusivity under certain circumstances,
including our failure to assure a sufficient quantity of the drug.
RISKS RELATING TO OUR FINANCIAL RESULTS AND NEED FOR FINANCING
WE HAVE INCURRED SUBSTANTIAL LOSSES, WE EXPECT TO CONTINUE TO INCUR LOSSES AND
WE WILL NOT BE SUCCESSFUL UNLESS WE REVERSE THIS TREND
We have incurred losses in four of the last six years including losses in
the year ended December 31, 1999. We expect to continue to incur substantial
operating losses in future periods.
To date, substantially all of our revenues have resulted from payments from
strategic alliance partners. We have not received any revenues from the sale of
products.
We expect to increase our spending significantly as we continue to expand
our infrastructure, research and development programs and commercialization
activities. As a result, we will need to generate significant revenues to
achieve profitability. We cannot be certain whether or when this will occur
because of the significant uncertainties that affect our business.
WE MAY NEED ADDITIONAL FINANCING, WHICH MAY BE DIFFICULT TO OBTAIN
We will require substantial funds to conduct research and development,
including preclinical testing and clinical trials of our potential products,
meet our obligations to our strategic alliance partners and manufacture and
market any products and services that are approved for commercial sale. Our
future capital requirements will depend on many factors, including the
following:
- Our ability to establish and maintain strategic alliances
- Continued progress in our discovery and development programs
25
<PAGE>
- The number and scope of our discovery and development programs
- The progress of the development efforts of our strategic partners
- The scope and results of clinical trials initiated by us
- The time and costs involved in obtaining regulatory approvals
- The cost of acquisitions of businesses, products and technologies
- The cost of manufacturing and commercialization activities
- The cost of continuing to build our infrastructure, including additional
requirements for facilities and costs of recruiting personnel
- The timing, receipt, and amount of milestones and other payments from our
alliance partners
- The timing, receipt and amount of sales and royalties from our potential
products and services in the market
- The costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims and other patent-related costs, including
litigation costs and the costs of obtaining any required licenses to
technologies
- Competing technological and market developments
We may seek to raise additional financing through public or private equity
offerings, debt financings or additional strategic alliance and licensing
arrangements. Such additional financing may not be available when we need it or
may not be available on terms that are favorable to us.
If we raise additional funds by issuing equity securities, further dilution
to our then existing stockholders will result. In addition, the terms of the
financing may adversely affect the holdings or the rights of such stockholders.
If we are unable to obtain adequate funding on a timely basis, we may be
required to significantly curtail one or more of our discovery or development
programs. We could be required to seek funds through arrangements with
collaborative partners or others that may require us to relinquish rights to
certain of our technologies, product candidates or products which we would
otherwise pursue on our own.
RISKS RELATING TO DEVELOPMENT OF GENOMICS AND GENETICS BASED TECHNOLOGY AND
PRODUCTS
IF OUR TECHNOLOGICAL APPROACHES ARE NOT SUCCESSFUL, WE MAY NOT BE ABLE TO
DEVELOP AND COMMERCIALIZE ANY PRODUCTS AND SERVICES
Our genomics research is focused primarily on diseases that may be linked to
several or many genes working in combination. Both we and the general scientific
and medical communities have a limited understanding relating to the role of
genes and their products in these diseases. Our technological approaches to drug
target identification and validation may not enable us to successfully identify
and characterize genes and their products that predispose individuals to
diseases. If we do not identify such drug targets, we may not be able to
successfully develop and commercialize any products or services. Even if we do
identify such drug targets, we will have to do substantial additional work to
translate these discoveries into products.
WE MAY NOT BE ABLE TO OBTAIN BIOLOGICAL MATERIAL, INCLUDING HUMAN AND ANIMAL DNA
SAMPLES REQUIRED FOR OUR GENETIC STUDIES
Our gene identification strategy includes genetic studies of families and
populations prone to particular diseases. These studies require the collection
of large numbers of DNA samples from
26
<PAGE>
affected individuals, their families and other suitable populations as well as
animal models. The availability of DNA samples and other biological material is
important to our ability to discover the genes responsible for human diseases
through human genetic approaches and other studies. Competition for these
resources is intense; and access to suitable populations, materials and samples
could be limited by forces beyond our control, including governmental actions.
Some of our competitors may have obtained access to significantly more family
and population resources and biological materials than we have obtained. As a
result, we may not be able to obtain access to DNA samples necessary to support
our human gene discovery programs.
RISKS RELATING TO STRATEGIC ALLIANCE PARTNERS
WE DEPEND ON STRATEGIC ALLIANCE PARTNERS; OUR BUSINESS MAY SUFFER IF ANY OF OUR
STRATEGIC ALLIANCE PARTNERS BREACHES THEIR AGREEMENT OR FAILS TO SUPPORT OR
TERMINATES THEIR ALLIANCE WITH US
We conduct most of our discovery and development activities through
strategic alliances. The success of these programs is heavily dependent on the
efforts and activities of our strategic alliance partners. Our agreements with
our alliance partners allow them significant discretion in determining the
efforts and resources that they will apply to the alliance. Our existing and any
future alliances may not be scientifically or commercially successful.
The risks that we face in connection with these alliances include:
- If any of our alliance partners were to breach or terminate an agreement
with us, reduce its funding or otherwise fail to conduct its collaborative
activities successfully, we could be required to devote additional
internal resources to the program that is the subject of the alliance,
scale back or terminate the program, seek an alternative partner or
license or otherwise secure intellectual property rights previously
associated with the alliance in order to continue the program.
- All of our strategic alliance agreements are subject to termination under
various circumstances, including in many cases on short notice without
cause. Some of our alliance agreements provide that if we fail to meet
specified performance criteria, our alliance partner may terminate the
agreement while maintaining rights and licenses to certain of our
discoveries. If an alliance partner terminates its alliance with us, it
may adversely affect the perception of us in the business and financial
communities.
- In our strategic alliance agreements, we generally agree not to conduct
certain research and development in the field that is the subject of the
alliance. These agreements may have the effect of limiting the areas of
research and development we may pursue, either alone or in collaboration
with third parties.
- Our alliance partners may develop and commercialize, either alone or with
others, products and services that are similar to or competitive with the
products and services that are the subject of the alliance with us. Such
competing products and services may result in our alliance partner
withdrawing financial and related support for our product and service
candidates.
- Reductions in marketing or sales efforts or a discontinuation of marketing
or sales efforts of our products or services by our alliance partners
would reduce our revenues, which in many cases will be based on a
percentage of net sales by our alliance partner. Our alliance partners may
change the focus of their development and commercialization efforts.
Pharmaceutical and biotechnology companies historically have re-evaluated
their priorities following mergers and consolidations, which have been
common in recent years in these industries.
- We will rely on our alliance partners to manufacture most products covered
by our alliances. For example, Becton Dickinson has the sole right to
manufacture Melastatin-TM-.
27
<PAGE>
WE MAY NOT BE SUCCESSFUL IN ESTABLISHING ADDITIONAL STRATEGIC ALLIANCES
An important element of our business strategy is entering into strategic
alliances for the development and commercialization of products and services
based on our discoveries. We face significant competition in seeking appropriate
alliance partners. We may not be successful in our efforts to establish
additional strategic alliances or other alternative arrangements. The terms of
any additional strategic alliances or other arrangements that we establish may
not be favorable to us. Moreover, such strategic alliances or other arrangements
may not be successful.
CONFLICTS MAY ARISE BETWEEN US AND OUR MAJORITY-OWNED SUBSIDIARY
We have a subsidiary, Millennium Predictive Medicine, Inc., or MPMx, in
which minority equity interests are held by third parties. In addition, we may
establish additional subsidiaries in the future in which the subsidiary sells
minority equity interests to third parties. Conflicts may arise between us and
such subsidiaries, including with respect to:
- the allocation of business opportunities;
- the sharing of rights, technologies, facilities, personnel and other
resources; and
- the fiduciary duties owed by officers and directors who provide services
to both us and one or more of these subsidiaries.
RISKS RELATING TO INTELLECTUAL PROPERTY
WE MAY NOT BE ABLE TO OBTAIN PATENT PROTECTION FOR OUR DISCOVERIES, THE PATENT
PROTECTION WE HAVE OR MAY OBTAIN MAY BE INADEQUATE AND WE MAY INFRINGE PATENT
RIGHTS OF THIRD PARTIES
The patent positions of pharmaceutical and biotechnology companies,
including us, are generally uncertain and involve complex legal, scientific and
factual questions.
Our success depends in significant part on our ability to:
- Obtain patents;
- Obtain licenses to the proprietary rights of others on commercially
reasonable terms;
- Operate without infringing upon the proprietary rights of others;
- Prevent others from infringing on our proprietary rights; and
- Protect trade secrets.
THERE IS SIGNIFICANT UNCERTAINTY ABOUT THE VALIDITY AND PERMISSIBLE SCOPE OF
GENOMICS PATENTS
The validity and permissible scope of patent claims in the pharmaceutical
and biotechnology fields, including the genomics field, involve important
unresolved legal principles. For example, there is significant uncertainty both
in the United States and abroad regarding the patentability of gene sequences in
the absence of functional data and the scope of patent protection available for
full-length genes and partial gene sequences. Moreover, certain groups have made
certain gene sequences available in publicly accessible databases. These and
other disclosures may adversely affect our ability to obtain patent protection
for gene sequences claimed by us in patent applications that we file subsequent
to such disclosures. There is also some uncertainty as to whether human clinical
data will be required for issuance of patents for human therapeutics. If such
data are required, our ability to obtain patent protection could be delayed or
otherwise adversely affected.
28
<PAGE>
OUR COLLABORATORS MAY PUBLISH DATA THAT WILL LIMIT OUR ABILITY TO OBTAIN PATENT
PROTECTION
Our collaborators have certain rights to publish data and information in
which we have rights. While we believe that the limitations on publication of
data developed by our collaborators pursuant to our collaboration agreements
will be sufficient to permit us to apply for patent protection, there is
considerable pressure to publish discoveries. Such publication could affect our
ability to obtain patent protection for some inventions in which we may have an
interest.
THE PROTECTION THAT OUR PATENTS AND PATENT APPLICATIONS AFFORD US MAY BE LIMITED
United States and foreign patents may not issue from any patent applications
that we own or license. If patents do issue, the claims granted may not be
sufficiently broad to protect our technology. Any rights we may have under any
issued patents that we own or have licensed may not provide us with sufficient
protection against competitive products or otherwise cover commercially valuable
products or processes. In addition, issued patents that we own or license may be
challenged, infringed upon, invalidated, found to be unenforceable or
circumvented by others. Our patents also may not afford us protection against
competitors with similar technology. Because patent applications in the United
States may be maintained in secrecy until patents issue, third parties may have
issued patents or have filed or maintained patent applications for technology
used by us or covered by our pending patent applications without our being aware
of these patents or patent applications. We cannot be certain that the
applicants or inventors of subject matter covered by patent applications or
patents that we own or have licensed were the first to invent or the first to
file patent applications for such inventions.
DISPUTES REGARDING PATENT RIGHTS MAY BE COSTLY TO RESOLVE AND WE COULD LOSE OUR
RIGHTS
If another party claims the same subject matter or subject matter
overlapping with subject matter that we have claimed in a United States patent
application or patent, we may decide or be required to participate in
interference proceedings in the United States Patent and Trademark Office in
order to determine priority of invention. Loss of such an interference
proceeding would deprive us of patent protection sought or previously obtained.
Participation in such proceedings could result in substantial costs, whether or
not the eventual outcome is favorable. Similarly, patents or applications that
we have licensed could become the subject of interference proceedings in the
United States Patent and Trademark Office, and loss of such an interference
proceeding would deprive us of licensed rights under patent protection sought or
previously obtained.
OTHERS MAY OWN OR CONTROL PATENTS OR PATENT APPLICATIONS AND REQUIRE US TO SEEK
LICENSES OR BLOCK OUR COMMERCIALIZATION EFFORTS
We may not have rights under certain patents or applications related to our
proposed products, processes or services. These patents and patent applications
in the United States and abroad may be owned or controlled by third parties.
Therefore, in some cases, such as those detailed below, to develop, manufacture,
sell or import certain of our proposed products, processes or services, we or
our alliance partners may choose to seek or be required to seek licenses under
third party patents issued in the United States and abroad or those which might
issue from United States and foreign patent applications. If licenses are not
available to us on acceptable terms, we or our alliance partners may not be able
to develop, manufacture, sell or import these products, processes or services.
With respect to our product candidate LDP-01, we are aware of third party
patents and patent applications which relate to certain anti-CD18 antibodies and
their use in various methods of treatment including methods of reperfusion
therapy and methods of treating focal ischemic stroke. In addition, our LDP-01,
LDP-02, and CAMPATH-Registered Trademark- product candidates are humanized
monoclonal antibodies. We are aware of third party patents and patent
applications which relate to certain humanized or modified
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antibodies, products useful for making humanized or modified antibodies, and
processes for making and using humanized or modified antibodies. We are also
aware of third party patents and patent applications relating to certain
manufacturing processes, products thereof and materials useful in such
processes.
Our product candidates LDP-977, LDP-341, and LDP-519 are all small molecule
drug candidates. With respect to LDP-341, we are aware of third party patents or
patent applications which relate to either intermediates or synthetic processes
used in the synthesis of these compounds. Additionally, for the use of LDP-341
and LDP-519 in the treatment of infarctions we are aware of the existence of a
potentially interfering patent application filed by one of our former
consultants.
OUR RIGHT TO USE CERTAIN TECHNOLOGIES IS DEPENDENT ON LICENSES WHICH COULD BE
TERMINATED OR LOST
We are a party to various license agreements that give us rights under
certain intellectual property rights of third parties. We cannot assure you that
we will be able to continue to license these rights on commercially reasonable
terms, if at all. These licenses impose various commercialization, sublicensing,
royalty, insurance and other obligations on us. Our failure to maintain rights
under any license could have a material adverse effect on our business,
financial condition and results of operations.
WE MAY NOT BE ABLE TO KEEP OUR TRADE SECRETS CONFIDENTIAL
We also rely significantly upon unpatented proprietary technology,
information, processes and know-how, including proprietary software and
databases of proprietary gene sequences and biological information. We seek to
protect this information by confidentiality agreements with our respective
employees, consultants and other third party contractors as well as through
other security measures. These confidentiality agreements may be breached, and
we may not have adequate remedies for any such breach. In addition, our trade
secrets may otherwise become known or be independently developed by competitors.
WE MAY BECOME INVOLVED IN EXPENSIVE PATENT LITIGATION OR OTHER PROCEEDINGS WHICH
COULD RESULT IN LIABILITY FOR DAMAGES OR STOP OUR DEVELOPMENT AND
COMMERCIALIZATION EFFORTS
There has been substantial litigation and other proceedings regarding the
patent and other intellectual property rights in the pharmaceutical and
biotechnology industries. We may become a party to patent litigation or other
proceedings regarding intellectual property rights. For example, we believe that
we hold patent applications that cover genes that are also claimed in patent
applications filed by others. Interference proceedings before the United States
Patent and Trademark Office may be necessary to establish which party was the
first to invent these genes.
Other types of situations in which we may become involved in patent
litigation or other proceedings include:
- We may initiate litigation or other proceedings against third parties to
enforce our patent rights or licensed patent rights.
- We may initiate litigation or other proceedings against third parties to
seek to invalidate the patents they hold or to obtain a judgment that our
products, processes or services do not infringe their patents.
- If third parties file patent applications that claim inventions also
claimed by us, we may participate in interference or opposition
proceedings to determine the priority of invention or entitlement to a
patent.
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- If third parties initiate litigation or other proceedings claiming that
our processes, products or services infringe their patent or other
intellectual property rights, we will need to defend ourselves against
such claims.
There can be no assurance that any of the patents that we own or have
licensed will ultimately be held valid and enforceable or that efforts to assert
or defend any patents or other intellectual property rights would be successful.
Similarly, there can be no assurances that products or processes used by us or
our alliance partners will not be held to infringe patents or other intellectual
property rights of others.
The cost to us of any patent litigation or other proceeding, even if
resolved in our favor, could be substantial. Some of our competitors may be able
to sustain the cost of such litigation or proceedings more effectively than we
can because of their substantially greater financial resources. If a patent
litigation or other proceeding is resolved against us, we or our alliance
partners may be enjoined from developing, manufacturing, selling or importing
our products, processes or services without a license from the other party and
we may be held liable for significant damages. We may not be able to obtain any
required license on commercially acceptable terms or at all.
Uncertainties resulting from the initiation and continuation of patent
litigation or other proceedings could have a material adverse effect on our
ability to compete in the marketplace. Patent litigation and other proceedings
may also absorb significant management time.
RISKS RELATING TO PRODUCT MANUFACTURING, MARKETING AND SALES
THE MARKET MAY NOT BE RECEPTIVE TO OUR PRODUCTS AND SERVICES UPON THEIR
INTRODUCTION
The commercial success of our products and services that are approved for
marketing will depend upon their acceptance by the medical community and third
party payors as clinically useful, cost effective and safe. Many of the products
and services that we are developing are based upon new technologies or
therapeutic approaches. As a result, it may be more difficult for us to achieve
market acceptance of our products and services, particularly the first products
and services that we introduce to the market based on new technologies and
therapeutic approaches.
Other factors that we believe will materially affect market acceptance of
our products and services include:
- The timing of receipt of marketing approvals and the countries in which
such approvals are obtained
- The safety, efficacy and ease of administration of the product
- The success of physician education programs
WE HAVE NO SALES, MARKETING OR DISTRIBUTION EXPERIENCE AND CAPABILITIES
We have no sales, marketing or distribution experience and capabilities. We
plan to rely significantly on sales, marketing and distribution arrangements
with our strategic alliance partners and other third parties for the products
and services that we are developing. For example, our partnership that holds
CAMPATH-Registered Trademark- monoclonal antibody will rely solely upon Schering
AG and its U.S. affiliate, Berlex Laboratories, for the marketing, distribution
and sale of the CAMPATH-Registered Trademark- product throughout the world other
than the Far East. The terms of the arrangements that we enter into relating to
marketing and sales of our products may not be favorable to us. In addition, we
may have limited or no control over the sales, marketing and distribution
activities of third parties. Our future revenues will be materially dependent
upon the success of the efforts of these third parties with whom we enter into
these arrangements.
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If in the future we determine to perform sales, marketing and distribution
functions ourselves, we would face a number of additional risks, including:
- We may not be able to attract and build a sufficient marketing staff or
sales force.
- The cost of establishing a marketing staff or sales force may not be
justifiable in light of any product or service revenues.
- Our direct sales and marketing efforts may not be successful.
WE HAVE LIMITED MANUFACTURING CAPABILITIES AND WILL BE DEPENDENT ON THIRD PARTY
MANUFACTURERS
We have limited manufacturing experience and no commercial scale
manufacturing capabilities. In order to continue to develop products and
services, apply for regulatory approvals and, ultimately, commercialize any
products and services, we will need to develop, contract for or otherwise
arrange for the necessary manufacturing capabilities.
We currently rely upon third parties to produce material for preclinical
testing purposes and expect to continue to do so in the future. We also expect
to rely upon other third parties, including our strategic alliance partners, to
produce materials required for clinical trials and for the commercial production
of certain of our products if we succeed in obtaining necessary regulatory
approvals. Our partnership with ILEX Oncology relies on Boehringer Ingleheim as
the sole source manufacturer of CAMPATH-Registered Trademark- monoclonal
antibody. There are a limited number of manufacturers that operate under the
FDA's good manufacturing practices regulations capable of manufacturing for us.
If we are unable to arrange for third party manufacturing of our products, or to
do so on commercially reasonable terms, we may not be able to complete
development of our products or market them.
To the extent that we enter into manufacturing arrangements with third
parties, we will be dependent upon these third parties to perform their
obligations in a timely manner. If such third party suppliers fail to perform
their obligations, we may be adversely affected in a number of ways, including:
- We may not be able to initiate or continue clinical trials of products
that are under development.
- We may be delayed in submitting applications for regulatory approvals for
our products.
- We may not be able to meet commercial demands for our products.
We may in the future determine to manufacture certain of our products in our
own manufacturing facilities. We will require substantial additional funds and
need to recruit qualified personnel in order to build or lease and operate any
manufacturing facilities. We may not be able to successfully develop our own
manufacturing capabilities. Moreover, it may be very costly and time consuming
for us to develop such capabilities.
The manufacture of products by us and our alliance partners and suppliers is
subject to regulation by the FDA and comparable agencies in foreign countries.
Delay in complying or failure to comply with such manufacturing requirements
could materially adversely affect the marketing of our products.
IF WE FAIL TO OBTAIN AN ADEQUATE LEVEL OF REIMBURSEMENT FOR OUR FUTURE PRODUCTS
OR SERVICES BY THIRD PARTY PAYORS, THERE MAY BE NO COMMERCIALLY VIABLE MARKETS
FOR OUR PRODUCTS OR SERVICES
The availability and levels of reimbursement by governmental and other third
party payors affects the market for any pharmaceutical product or service. These
third party payors continually attempt to contain or reduce the costs of
healthcare by challenging the prices charged for medical products and services.
In certain foreign countries, particularly the countries of the European Union,
the pricing of prescription pharmaceuticals is subject to governmental control.
We may not be able to sell our products profitably if reimbursement is
unavailable or limited in scope or amount.
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In both the United States and certain foreign jurisdictions, there have been
a number of legislative and regulatory proposals to change the healthcare
system. Further proposals are likely. The potential for adoption of these
proposals affects or will affect our ability to raise capital, obtain additional
collaborative partners and market our products.
If we or our alliance partners obtain marketing approvals for our products,
we expect to experience pricing pressure due to the trend toward managed health
care, the increasing influence of health maintenance organizations and
additional legislative proposals.
ETHICAL, LEGAL AND SOCIAL ISSUES RELATED TO GENETIC TESTING MAY CAUSE OUR
DIAGNOSTIC PRODUCTS TO BE REJECTED BY CUSTOMERS OR PROHIBITED OR CURTAILED BY
GOVERNMENTAL AUTHORITIES
Diagnostic tests that evaluate genetic predisposition to disease raise
issues regarding the use and confidentiality of the information provided by such
tests. Insurance carriers and employers might discriminate on the basis of such
information, resulting in a significant barrier to the acceptance of such tests
by customers. Such discrimination could cause governmental authorities to
prohibit or limit the use of such tests.
RISKS RELATING TO OUR ONGOING OPERATIONS
WE MAY BE EXPOSED TO PRODUCT LIABILITY CLAIMS AND MAY NOT BE ABLE TO OBTAIN
ADEQUATE PRODUCT LIABILITY INSURANCE
Our business exposes us to potential product liability risks which are
inherent in the testing, manufacturing, marketing and sale of human therapeutic
and diagnostic products. Product liability claims or product recalls, regardless
of the ultimate outcome, could require us to spend significant time and money in
litigation and to pay significant damages. We currently have a limited amount of
product liability insurance coverage. If we decide to increase our coverage, we
may not be able to obtain such additional product liability insurance at a
reasonable cost or in sufficient amounts to protect us against losses due to
liability claims.
WE COULD INCUR LIABILITIES RELATING TO HAZARDOUS MATERIALS THAT WE USE IN
RESEARCH AND DEVELOPMENT ACTIVITIES
Our research and development activities involve the controlled use of
hazardous materials, chemicals and various radioactive materials. There is a
risk of accidental contamination or injury from these materials. In the event of
such an accident, we could be held liable for any damages that result. This type
of liability could exceed our resources.
RISKS RELATING TO OUR CONVERTIBLE SUBORDINATED NOTES
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS MAY ADVERSELY AFFECT OUR CASH
FLOW
We have substantial amounts of outstanding indebtedness, primarily our 5.50%
Convertible Subordinated Notes due January 15, 2007. We also may obtain
additional long term debt and working capital lines of credit. As a result of
this indebtedness, our principal and interest payment obligations are
substantial. There is the possibility that we may be unable to generate cash
sufficient to pay the principal of, interest on and other amounts due in respect
of our indebtedness when due.
Our substantial leverage could have significant negative consequences,
including:
- increasing our vulnerability to general adverse economic and industry
conditions;
- limiting our ability to obtain additional financing;
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- requiring the dedication of a substantial portion of our cash from
operations to service our indebtedness, thereby reducing the amount of our
cash available for other purposes, including capital expenditures;
- limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete; and
- placing us at a possible competitive disadvantage vis-a-vis less leveraged
competitors and competitors that have better access to capital resources.
WE MAY BE UNABLE TO REPURCHASE OUR OUTSTANDING NOTES AS REQUIRED BY THEIR TERMS
At maturity, the entire outstanding principal amount of our 5.5% convertible
subordinated notes will become due and payable. In addition, if a change in
control, as defined in the indenture relating to the notes, occurs, each holder
of the notes may require us to repurchase all or a portion of that holder's
notes. At maturity or if a change in control occurs, we may not have sufficient
funds or may be unable to arrange for additional financing to pay the principal
amount or repurchase price due. Under the terms of the indenture for the notes,
we may elect, if we satisfy certain conditions specified in the indenture, to
pay the repurchase price with shares of common stock. Our borrowing arrangements
or agreements relating to senior debt to which we become a party may contain
restrictions on, or prohibitions against, our repurchases of the notes. If the
maturity date or change in control occurs at a time when our other arrangements
prohibit us from repurchasing the notes, we could try to obtain the consent of
the lenders under those arrangements to purchase the notes, or we could attempt
to refinance these borrowings that contain the restrictions. If we do not obtain
the necessary consents or refinance these borrowings, we will be unable to
repurchase the notes. In that case, our failure to repurchase any tendered notes
or notes due upon maturity would constitute an event of default under the
indenture. Any such default, in turn, may cause a default under the terms of our
senior debt. As a result, in those circumstances, the subordination provisions
of the indenture would, absent a waiver, prohibit any repurchase of the notes
until we pay the senior debt in full.
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