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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-28494
----------------------------
MILLENNIUM PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3177038
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
75 SIDNEY STREET 02139
CAMBRIDGE, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 679-7000
----------------------------
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
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The number of shares outstanding of each of the registrant's classes of
common stock as of:
DATE CLASS OUTSTANDING SHARES
July 21, 2000 Common stock, $.001 par value 93,816,282
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MILLENNIUM PHARMACEUTICALS, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations
for the three and six months ended June 30, 2000 and
1999 4
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 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 Disclosures about Market Risk 14
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index
</TABLE>
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PART I FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MILLENNIUM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
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(UNAUDITED)
<S> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
Current assets:
Cash and cash equivalents $ 154,865 $ 56,775
Marketable securities 489,885 204,941
Due from strategic partners 18,919 11,579
Prepaid expenses and other current assets 13,179 13,215
--------- ---------
Total current assets 676,848 286,510
Property and equipment, net 68,477 59,543
Restricted cash and other assets 19,776 12,965
Debt issuance costs 10,867 -
Intangible assets, net 162,382 182,607
--------- ---------
Total assets $ 938,350 $ 541,625
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,843 $ 22,953
Accrued expenses 37,281 17,306
Deferred revenue 17,155 7,936
Current portion of capital lease obligations 12,527 10,968
--------- ---------
Total current liabilities 79,806 59,163
Capital lease obligations, less current portion 28,053 27,488
Long term debt 400,000 -
Minority interest - 15,568
Commitments and contingencies
Stockholders' equity:
Preferred stock $.001 par value-
Authorized-5,000 shares
Issued and outstanding-no shares - -
Common stock, $.001 par value-
Authorized-500,000 shares
Issued and outstanding-93,676 shares at June 30, 2000
and 89,301 shares at December 31, 1999 94 89
Additional paid-in capital 943,598 883,125
Deferred compensation (1,731) (1,055)
Notes receivable from officers (523) (1,026)
Accumulated other comprehensive loss (1,146) (739)
Accumulated deficit (509,801) (440,988)
--------- ---------
Total stockholders' equity 430,491 439,406
--------- ---------
Total liabilities and stockholders' equity $ 938,350 $ 541,625
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
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MILLENNIUM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
REVENUES:
Revenue under strategic alliances $ 46,873 $ 47,273 $ 93,646 $ 88,265
----------- ---------- ---------- --------
COSTS AND EXPENSES:
Research and development 62,011 39,484 122,111 74,917
General and administrative 11,057 8,502 21,880 15,628
Amortization of intangibles 12,161 675 24,131 1,351
----------- ---------- ---------- --------
Total costs and expenses 85,229 48,661 168,122 91,896
----------- ---------- ---------- --------
LOSS FROM OPERATIONS (38,356) (1,388) (74,476) (3,631)
OTHER INCOME (EXPENSE):
Equity in operations of joint venture (1,400) - (1,400) -
Interest income 10,781 3,133 19,261 5,892
Interest expense (6,684) (775) (12,135) (1,472)
Minority interest 78 34 (63) 2,287
----------- ---------- ---------- --------
NET INCOME (LOSS) (35,581) 1,004 (68,813) 3,076
Deemed preferred stock dividend (45,668) - (45,668) -
----------- ---------- ---------- --------
Net income (loss) attributable to common
stockholders $ (81,249) $ 1,004 $ (114,481) $ 3,076
=========== ========== ========== ========
Basic and diluted net income (loss) per
share $ (0.88) $ 0.01 $ (1.25) $ 0.04
=========== ========== ========== ========
Shares used in computing basic net
income (loss) per share 92,220 71,638 91,332 71,140
=========== ========== ========== ========
Shares used in computing diluted net
income (loss) per share 92,220 76,982 91,332 76,376
=========== ========== ========== ========
</TABLE>
See notes to condensed consolidated financial statements.
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MILLENNIUM PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
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2000 1999
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<S> <C> <C>
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ( loss) $ (68,813) $ 3,076
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 31,742 10,149
Minority interest 63 (2,283)
Stock compensation expense 1,371 454
Equity in operations of joint venture 1,400 -
Change in operating assets and liabilities:
Prepaid expenses and other current assets 3,037 (2,146)
Due from strategic partners (7,340) (7,219)
Restricted cash and other assets 627 (992)
Accounts payable and accrued expenses 8,465 8,646
Deferred revenue 9,219 5,915
---------- ---------
Net cash provided by (used in) operating activities (20,229) 15,600
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in marketable securities (402,384) (154,573)
Proceeds from maturities of marketable securities 117,021 31,025
Purchases of property and equipment (13,689) (14,931)
---------- ---------
Net cash used in investing activities (299,052) (138,479)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of convertible subordinated notes, net of issuance costs 388,695 -
Proceeds from sale of common stock and exercise of warrants 2,930 -
Proceeds from sale of subsidiary stock - 15,000
Net proceeds from employee stock purchases 29,817 14,247
Repurchase of common stock - (1)
Repayment of notes receivable from officers 555 -
Principal payments on capital leases (4,626) (4,204)
---------- ---------
Net cash provided by financing activities 417,371 25,042
---------- ---------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 98,090 (97,837)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 56,775 138,284
---------- ---------
CASH AND EQUIVALENTS, END OF PERIOD $ 154,865 $ 40,447
========== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $ 1,417 $ 1,443
========== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Equipment acquired under capital lease $ 6,750 $ 4,700
Write off of capital assets 1,350 -
Issuance of common stock to Abgenix, Inc. 10,000 -
MPI buyout of Becton Dickinson interest in MPMx 61,160 -
MPI buyout of common stock interest in MPMx 82,400 -
Deferred compensation relating to issuance of stock options 1,160 -
</TABLE>
See notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 of the accompanying condensed consolidated
financial statements have been included. Interim results for the three and
six month periods ended June 30, 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 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. SAB 101A was released on
March 24, 2000 and deferred the effective date to no later than the second
fiscal quarter beginning after December 15, 1999. In June 2000, the SEC
issued SAB 101B which delays the implementation date of SAB 101 until no
later than the fourth fiscal quarter of fiscal years 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
and results of operations.
In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation-an
Interpretation of APB Opinion No. 25." FIN 44 is generally effective for
transactions occurring after July 1, 2000 but applies to repricings and some
other transactions after December 15, 1998. The Company believes this
interpretation will not have a significant effect on its financial
statements.
(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 and six months ended
June 30, 2000, diluted net loss per
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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 and six months
ended June 30, 1999 the difference between basic and diluted shares used in
the computation of earnings per share is 5.3 million and 5.2 million
weighted-average common equivalent shares resulting from outstanding common
stock options and warrants, respectively. For the three and six months ended
June 30, 2000, net loss attributable to common stockholders is calculated by
including the deduction of a deemed preferred stock dividend relating to the
excess of the fair value of the Company's common stock consideration over
the carrying value of the Millennium Predictive Medicine, Inc. ("MPMx")
preferred stock acquired from Becton Dickinson and Company ("Becton
Dickinson"). See Note 5.
(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 June
30, 2000 and December 31, 1999 are classified as "available-for-sale".
3. Strategic Alliances
On January 6, 2000, the Company signed an agreement regarding the licensing
of LDP-977, for the treatment of chronic asthma, with Taisho Pharmaceutical
Co., LTD. ("Taisho"). Under the agreement, Taisho was granted an exclusive
license to LDP-977 in Japan, Asia and Europe while the Company retained
rights for the rest of the world, including North America. In exchange,
Taisho agreed to 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 has a right of first negotiation for
commercialization in the U.S. should the Company seek to sub-license in that
territory. Quarterly research and development funding 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, agreed to pay
milestone payments for research and development progress in each of Taisho's
licensed territories. The Company also is entitled to 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 is entitled to receive milestone and royalty payments
on sales of therapeutic products resulting from certain targets discovered
during the collaboration and on which AstraZeneca continues 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. Potential future
payments may be made by the Company upon the achievement of agreed-upon
milestones. The Company also is required to pay to Abgenix royalties on
future product sales.
On June 23, 2000, the Company entered into an alliance with Aventis Pharma
("Aventis"), the pharmaceutical company of Aventis S.A., covering the joint
development and commercialization
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of drugs for the treatment of inflammatory diseases; joint development of
new drug discovery technologies; transfer of key elements of the Company's
technology platform to Aventis to enhance its existing capabilities; and
purchase of an equity interest in the Company by Aventis. The companies have
agreed to share the responsibility for and cost of developing, marketing and
manufacturing products as well as profits in North America. Outside of North
America, Aventis is responsible for developing and marketing products
arising from the alliance, with a royalty obligation to the Company. Under a
Technology Transfer Agreement, the Company agreed to provide Aventis with
rights to its drug discovery technologies in exchange for payments of up to
$200 million over a five-year period. Under an Equity Investment Agreement,
Aventis agreed to invest $250 million in the Company's common stock. As part
of this $250 million investment, a $150 million stock purchase is to be made
in the third quarter of 2000 and two $50 million stock purchases are
required to be made in 2001.
On June 30, 2000, the Company, through its wholly-owned subsidiary MPMx,
signed an agreement regarding the licensing of intellectual property of MPMx
for diagnostic use in the area of human colon cancer to Becton Dickinson.
Under the terms of the agreement, Becton Dickinson paid a one time license
fee in the second quarter of 2000 which was recognized as revenue in
exchange for certain research and development rights to select diagnostic
markers and related intellectual property developed by MPMx in this disease
area. Becton Dickinson also has an option to exercise a commercial license
in the future.
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 $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 June 2, 2000, the Company acquired the outstanding preferred and common
stock of its MPMx subsidiary that it did not already own, making MPMx a
wholly-owned subsidiary of the Company. The transaction was a
stock-for-stock exchange. Under the terms of the agreement, MPMx
shareholders, including Becton Dickinson, received 0.4 shares of Millennium
common stock in exchange for each MPMx share. The total value of Millennium
common stock received by MPMx's stockholders in the merger, based upon the
fair value of Millennium common stock on the date of the announcement of the
merger, March 2, 2000, is approximately $143.6 million.
6. Stock Split
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 declared
a two-for-one stock split of the common stock, which was effected in the
form of a 100% stock dividend paid 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
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condensed consolidated financial statements to the number of shares and per
share amount have been restated.
7. Millennium & ILEX Partners, L.P.
Through the Company's 1999 acquisition of LeukoSite, Inc, the Company gained
a joint venture partnership with ILEX Oncology, Inc. ("ILEX") for product
development of CAMPATH(R), a monoclonal antibody being investigated for use
in the treatment of chronic lymphocytic leukemia. Under terms of the
partnership, the Company is required to fund 50% of the partnership's
working capital requirements.
The Company accounts for its investment in the joint venture under the
equity method of accounting and records its share of the income or loss in
other income (expense). The Company is reimbursed by the joint venture for
certain costs incurred on behalf of the joint venture. The joint venture has
sublicensed the rights to CAMPATH(R) from the Company.
8. Subsequent Event
On July 6, 2000 the Company announced that it entered into an agreement to
acquire Cambridge Discovery Chemistry(TM), a wholly-owned subsidiary of
Oxford Molecular Group. The purchase price is (pound)35 million (equal to
approximately $53.1 million, based on the exchange rate on July 26, 2000),
which will be paid in cash. The acquisition will be accounted for using the
purchase method of accounting. The transaction is expected to close on
July 27, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This quarterly report on Form 10-Q contains forward-looking statements. These
statements include descriptions of Millennium's operational plans, expectations
about future earnings and other results of operations, views of future industry
or market conditions, and other statements that include words like "may,"
"expects," "believes" and "intends," and that describe opinions about future
events. Known and unknown risks may cause Millennium's actual results and
performance to be materially different from those expressed or implied by these
statements. Factors that could cause or contribute to such differences include
those discussed below as well as those discussed in Exhibit 99.1 to this
quarterly report, which 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.
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
form 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,
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pain, liver fibrosis, hematology and viral infections; an agreement with
Monsanto Company in plant agriculture; a partnership with ILEX Oncology, Inc.
("ILEX") for product development of CAMPATH(R), 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(R) 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 and royalty and/or profit
sharing payments based on sales of any products resulting from the
collaborations.
Millennium and & ILEX Partners, L.P. submitted a Biologics License Application
("BLA") for CAMPATH(R) in December 1999. The FDA accepted the application for
filing in February 2000. CAMPATH(R) received "fast track" designation from the
FDA and has been undergoing a six-month priority review. The FDA also granted
CAMPATH(R) orphan drug designation. In Europe, the partnership submitted a
Marketing Authorization Application in March 2000, which is being reviewed under
the European Agency for the Evaluation of Medicinal Products' centralized
procedures required for biotechnology products. In June 2000, the partnership
announced the receipt of a complete response letter from the FDA related to the
partnership's BLA. In the complete response letter, the FDA delineated the
deficiencies noted after complete review of the licensing application, the
resolution of which is necessary to continue the review of the application for
consideration for marketing approval. The complete review of the application
satisfied FDA's performance goal for priority review under the Prescription Drug
User Fee Act (PDUFA). The partnership intends to respond rapidly to the FDA
letter, and the agency is expected to reinitiate its review upon receipt of the
partnership's complete response.
We are in the process of building an integrated biopharmaceutical company and as
a result we 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 results of operations for
any period may not be indicative of future results as 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.
RESULTS OF OPERATIONS
QUARTERS ENDED JUNE 30, 2000 AND JUNE 30, 1999
For the three months ended June 30, 2000 (the "2000 Quarterly Period"), we
reported a net loss of $35.6 million or ($0.88) per basic and diluted share as
compared to net income of $1.0 million or $0.01 per basic and diluted share for
the quarter ended June 30, 1999 ("the 1999 Quarterly Period"). Operating results
for the 2000 Quarterly Period represent the second reported quarter of fully
combined revenues and expenses related to the December 1999 acquisition of
LeukoSite.
Revenue under strategic alliances decreased to $46.9 million for the 2000
Quarterly Period from $47.3 million for the 1999 Quarterly Period. The decrease
in revenue was primarily due to a one-time license fee payment made by Bayer AG
in the 1999 Quarterly Period, offset in part by a one-time license fee paid by
Becton Dickinson in the 2000 Quarterly Period and funding from the strategic
alliances we gained which were not in place in the 1999 Quarterly Period. We
expect revenue under
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existing and 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 full initial terms or beyond.
Research and development expenses increased to $62.0 million for the 2000
Quarterly Period from $39.5 million for the 1999 Quarterly Period. The increase
was primarily attributable to increased personnel and facilities expenses, our
continued investment in our clinical trials and preclinical product candidates,
increased purchases of laboratory supplies, and increased technology license
payments for access to gene database information. We expect research and
development expenses to continue to increase as personnel are added and as
research and development activities are expanded to accommodate our existing and
additional strategic alliances and development efforts.
General and administrative expenses increased to $11.1 million for the 2000
Quarterly Period from $8.5 million for the 1999 Quarterly Period. The increase
was attributable primarily to increased expenses for additional management and
administrative personnel, as well as an increase in facilities expenses and
other professional fees associated with the expansion and increased complexity
of our operations and increased business development activity. We expect 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 of $12.2 million for the 2000
Quarterly Period is primarily related to the LeukoSite acquisition.
Through our 1999 acquisition of LeukoSite, Inc, we gained a joint venture
partnership with ILEX Oncology, Inc. ("ILEX") for product development of
CAMPATH(R), a monoclonal antibody being investigated for use in the treatment
of chronic lymphocytic leukemia. Under terms of the partnership, we are
required to fund 50% of the partnership's working capital requirements. We
account for our investment in the joint venture under the equity method of
accounting and record our share of the income or loss in other income
(expense). Equity in operations of joint venture was a loss of $1.4 million
for the 2000 Quarterly Period. The loss is primarily attributable to a
license payment made by the joint venture partnership in the 2000 Quarterly
Period to maintain the rights to CAMPATH(R) .
Interest income increased to $10.8 million for the 2000 Quarterly Period from
$3.1 million for the 1999 Quarterly Period. The increase resulted from a higher
level of invested funds due to proceeds from the $400.0 million convertible debt
offering which closed in January 2000. Interest expense increased to $6.7
million for the 2000 Quarterly Period from $0.8 million for the 1999 Quarterly
Period due to interest obligations arising from the same convertible debt
offering.
Minority interest represents the minority shareholder interest of Becton
Dickinson in the net income for the 2000 Quarterly Period of our wholly-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
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no longer owned a minority interest in MBio. On December 21, 1999 we merged MBio
into us. On June 2, 2000, we acquired the outstanding preferred and common
shares of our MPMx subsidiary that we did not already own, making it a
wholly-owned subsidiary. As we acquired all the outstanding shares of MPMx,
including those owned by Becton Dickinson, minority interest will not be
recorded in future periods.
SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
For the six months ended June 30, 2000 (the "2000 Six Month Period"), the
Company reported a net loss of $68.8 million or ($1.25) per basic and diluted
share as compared to net income of $3.1 million or $0.04 per basic and
diluted share for the six months ended June 30, 1999 ("the 1999 Six Month
Period").
Revenue under strategic alliances increased to $93.6 million for the 2000 Six
Month Period from $88.3 million for the 1999 Six Month Period. The increase was
primarily due to the timing of alliance revenues, including milestone payments
and research funding. We expect revenue under our existing and 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 $122.1 million for the 2000 Six
Month Period from $74.9 million for the 1999 Six Month Period. The increase was
attributable primarily to increased personnel expenses, our investment in
clinical trails and preclinical products, increased purchases of laboratory
supplies, technology license payments for access to gene database information,
and increased equipment depreciation and facilities expenses in connection with
the expansion of our research efforts. We expect research and development
expenses to continue to increase as personnel are added and as research and
development activities are expanded to accommodate our existing and additional
strategic alliances and development efforts.
General and administrative expenses increased to $21.9 million for the 2000 Six
Month Period from $15.6 million for the 1999 Six Month Period. The increase was
attributable primarily to increased expenses for additional management and
administrative personnel, as well to increased facilities expenses and
professional fees associated with the expansion and increased complexity of our
operations and increased business development activity. We expect that general
and administrative expenses will continue to increase as we add capabilities to
support the further advancement of our development efforts.
Amortization expense of $24.1 million for the 2000 Six Month Period is primarily
related to the LeukoSite acquisition.
Through our 1999 acquisition of LeukoSite, Inc, we gained a joint venture
partnership with ILEX Oncology, Inc. ("ILEX") for product development of
CAMPATH(R), a monoclonal antibody being investigated for use in the treatment
of chronic lymphocytic leukemia. Under terms of the partnership, we are
required to fund 50% of the partnership's working capital requirements. We
account for our investment in the joint venture under the equity method of
accounting and record our share of the income or loss in other income
(expense). Equity in operations of joint venture was a loss of $1.4 million
for the 2000 Six Month Period. The loss is primarily attributable to a
license payment made by the joint venture partnership in the 2000 Six Month
Period to maintain the rights to CAMPATH(R) .
Interest income increased to $19.3 million for the 2000 Six Month Period from
$5.9 million for the 1999 Six Month Period. The increase resulted from a higher
level of invested funds due to proceeds from the $400 million convertible debt
offering which closed in January 2000. Interest expense
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increased to $12.1 million for the 2000 Six Month Period from $1.5 million for
the 1999 Six Month Period due to increased obligations arising from the same
convertible debt offering.
Minority interest represents the minority shareholder interest of Becton
Dickinson in the net income for the 2000 Six Month Period of our wholly-owned
subsidiary MPMx. On June 2, 2000, we acquired the outstanding preferred and
common shares of our MPMx subsidiary that we did not already own, making it a
wholly-owned subsidiary. As we acquired all the outstanding shares of MPMx,
including those owned by Becton Dickinson, minority interest will not be
recorded in future periods.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, we had approximately $644.8 million in cash, cash
equivalents and marketable securities, an increase of $383.0 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
$29.8 million of proceeds from exercises of stock options, partly offset by cash
outflows of $20.2 million for operating activities, purchases of $13.7 million
of property and equipment, and $4.6 million to pay capital lease obligations.
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 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.
On June 23, 2000, we entered into an alliance with Aventis covering the joint
development and commercialization of drugs for the treatment of inflammatory
diseases; joint development of new drug discovery technologies; transfer of key
elements of our technology platform to Aventis to enhance their existing
capabilities; and purchase of an equity interest in us by Aventis. We have
agreed to share the responsibility for and cost of developing, marketing and
manufacturing products as well as profits in North America. Outside of North
America, Aventis is responsible for developing and marketing products arising
from the alliance, with a royalty obligation to us. Under a Technology Transfer
Agreement, we agreed to provide Aventis with rights to our drug discovery
technologies in exchange for payments of up to $200 million over a five-year
period. Under an Equity Investment Agreement, Aventis agreed to invest $250
million in our common stock. As part of this $250 million equity investment, a
$150 million stock purchase is to be made in the third quarter of 2000 and two
$50 million stock purchases are required to be made in 2001.
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
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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 security 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 estimate 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 July 6, 2000, we announced that we have entered into an agreement to
acquire Cambridge Discovery Chemistry(TM), a wholly-owned subsidiary of
Oxford Molecular Group. The purchase price is (pound)35 million (equal to
approximately $53.1 million, based on the exchange rate on July 26, 2000),
which will be paid in cash. The acquisition will be accounted for using the
purchase method of accounting. The transaction is expected to close on
July 27, 2000.
ITEM 3. QUANTITIVE 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 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.
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PART II OTHER INFORMATION
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 Forms 8-K.
The Company filed a Current Report on Form 8-K on April 13, 2000
The Company filed a Current Report on Form 8-K on April 25, 2000
The Company filed a Current Report on Form 8-K on June 30, 2000
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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)
Dated: July 26, 2000
/s/ Kevin P. Starr
--------------------
Kevin P. Starr
Chief Financial Officer
(principal financial and accounting officer)
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EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
EXHIBIT NO. DESCRIPTION
----------- -----------
+ 10.1 Collaboration and License Agreement dated June 22, 2000 by and
between the Company and Aventis Pharmaceuticals, Inc.
+ 10.2 Technology Development Agreement dated June 22, 2000 by and between
the Company and Aventis Pharmaceuticals, Inc.
+ 10.3 Technology Transfer Agreement dated June 22, 2000 by and between the
Company and Aventis Pharmaceuticals, Inc.
10.4 Registration Rights Agreement dated June 22, 2000 by and among the
Company and Aventis Pharmaceuticals, Inc.
10.5 Investment Agreement dated June 22, 2000 by and between the Company
and Aventis Pharmaceuticals Inc.
27.1 Financial Data Schedule for the quarter ended June 30, 2000.
99.1 Risk Factors.
+ Confidential treatment requested as to certain portions.
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