<PAGE> 1
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, 1998
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 0-22891
CORIXA CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 91-1654387
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1124 COLUMBIA STREET, SUITE 200
SEATTLE, WA 98104
(206) 754-5711
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
____________________________
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.
[X] Yes [ ] No
As of August 6, 1998, there were 11,817,542 shares of the registrant's Common
Stock outstanding.
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Corixa Corporation
INDEX
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Page
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997....... 1
Statements of Operations (unaudited) for the three months ended June 30,
1998 and 1997 and the six months ended June 30, 1998 and 1997 and period
from September 8, 1994 (Date of Inception) to June 30,
1998....................................................................... 2
Statements of Cash Flows (unaudited) for the six months ended June 30,
1998 and 1997 and for the period from September 8, 1994 (Date of
Inception) through June 30, 1998........................................... 3
Notes to the Financial Statements.......................................... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................... 6
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
ITEM 5. OTHER INFORMATION.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
SIGNATURES
</TABLE>
<PAGE> 3
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
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<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
1998 1997
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Current assets:
Cash and cash equivalents $ 1,602,516 $16,457,641
Securities available-for-sale 53,426,910 39,859,649
Accounts receivable (including $124,753 and $61,706
receivable from an affiliated company at June 30, 1998
and December 31, 1997, respectively) 765,790 601,940
Interest receivable 789,542 134,035
Prepaid expenses 617,166 506,578
----------- -----------
Total current assets 57,201,924 57,559,843
Property and equipment, net 4,704,390 4,046,484
Deferred charges and deposits 468,579 200,632
----------- -----------
Total assets $62,374,893 $61,806,959
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1,980,699 $ 1,571,023
Deferred revenue 500,000 1,096,665
Current portion of obligations and commitments 1,690,304 930,429
------------ ------------
Total current liabilities 4,171,003 3,598,117
Long-term obligations and commitments, less current portion 11,971,974 6,923,786
Stockholders' equity:
Common stock, $0.001 par value:
Authorized shares -- 40,000,000
Issued and outstanding shares -- 11,808,752 in 1998
and 11,774,214 in 1997 11,805 11,774
Additional paid-in capital 66,572,942 66,466,994
Receivable for warrants - (651,565)
Deferred compensation (1,708,204) (2,574,949)
Accumulated comprehensive loss (27,124) (5,355)
Deficit accumulated during development stage (18,617,503) (11,961,843)
------------ ------------
Total stockholders' equity 46,231,916 51,285,056
------------ ------------
Total liabilities and stockholders' equity $ 62,374,893 $ 61,806,959
============ ============
</TABLE>
<PAGE> 4
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, SEPTEMBER 8, 1994
---------------------------- ----------------------------- (DATE OF INCEPTION)
1998 1997 1998 1997 TO JUNE 30, 1998
----------- ----------- ------------ ----------- -------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Collaborative agreements .......... $ 2,762,779 $ 3,084,603 $ 5,388,676 $ 6,939,588 $ 25,591,023
Government grants ................. 314,753 238,139 485,336 553,571 3,169,083
----------- ----------- ------------ ----------- ------------
Total revenue ................... 3,077,532 3,322,742 5,874,012 7,493,159 28,760,106
Operating expenses:
Research and development .......... (7,007,414) (3,844,054) (12,900,163) (7,104,054) (46,771,742)
General and administrative ........ (621,843) (449,299) (1,168,772) (779,047) (4,720,032)
In-process research and development -- -- -- -- (428,059)
----------- ----------- ------------ ----------- ------------
Total operating expenses ........ (7,629,257) (4,293,353) (14,068,935) (7,883,101) (51,919,833)
----------- ----------- ------------ ----------- ------------
Loss from operations ................ (4,551,725) (970,611) (8,194,923) (389,942) (23,159,727)
Interest income ..................... 785,428 229,050 1,613,923 390,652 4,411,160
Interest expense .................... (176,842) (83,734) (323,662) (155,571) (898,113)
Other income......................... 124,500 94,444 249,000 187,274 1,029,175
----------- ----------- ------------ ----------- ------------
Net income (loss) ................... $(3,818,639) $ (730,851) $ (6,655,662) $ 32,413 $(18,617,505)
=========== ============ ============ =========== ============
Basic and diluted net loss
per share ......................... $ (0.32) $ (0.28) $ (0.56) $ 0.01
============ ============ ============ ===========
Shares used in computation
of basic and diluted net loss
per share ......................... 11,793,014 2,622,891 11,785,089 2,608,540
============ ============ ============ ===========
Pro forma basic and diluted
net loss per share ................ $ (0.32) $ (0.09) $ (0.56) $ 0.00
============ ============ ============ ===========
Shares used in computation
of pro forma basic and diluted
net loss per share ............... 11,793,014 7,774,087 11,785,089 7,759,736
============ ============ ============ ===========
</TABLE>
<PAGE> 5
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS ENDED JUNE 30, SEPTEMBER 8, 1994
------------------------------ (DATE OF INCEPTION)
1998 1997 TO JUNE 30, 1998
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OPERATING ACTIVITIES
Net income (loss) ......................................................... $ (6,655,662) $ 32,412 $ (18,617,505)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of deferred compensation ................................... 866,745 371,210 2,195,591
Depreciation and amortization ........................................... 711,514 457,530 2,670,191
Equity instruments issued in exchange for technology and services ....... 87,135 245,784 263,419
Write-off of warrant receivable ......................................... 488,676 -- 488,676
In-process research and development ..................................... -- -- 428,059
Changes in certain assets and liabilities:
Accounts payable and accrued expenses ................................. 409,678 (60,065) 1,756,898
Prepaid expenses ...................................................... (110,587) (143,226) (615,600)
Deferred revenue ...................................................... (596,667) 26,972 499,998
Other assets .......................................................... (267,948) (472,097) (379,062)
Interest receivable ................................................... (655,507) 1,500 (784,391)
Accounts receivable ................................................... (163,850) 269,811 (770,941)
------------ ----------- -------------
Net cash provided by (used in) operating activities ...................... (5,886,473) 729,831 (12,864,667)
INVESTING ACTIVITIES
Purchases of securities available-for-sale ................................ (67,831,768) (7,444,636) (132,058,920)
Proceeds from maturities of securities available-for-sale ................. 40,379,999 2,800,000 64,742,149
Proceeds from sale of securities .......................................... 13,862,739 -- 13,862,739
Purchases of property and equipment ....................................... (1,061,260) (543,395) (2,791,279)
Cash acquired in acquisitions ............................................. -- -- 29,939
------------ ----------- -------------
Net cash used in investing activities ..................................... (14,650,290) (5,188,031) (56,215,372)
FINANCING ACTIVITIES
Net proceeds from issuance of stock ...................................... 18,844 27,648 61,067,488
Proceeds from long term debt .............................................. 4,000,000 -- 6,000,000
Advances and borrowings from collaborative agreements ..................... 2,000,000 3,000,000 5,000,000
Principal payments on capital leases ...................................... (500,095) (362,423) (1,897,087)
Payments on receivables for warrants ...................................... 162,889 -- 651,324
Other ..................................................................... -- -- (139,170)
------------ ----------- -------------
Net cash provided by financing activities ................................. 5,681,638 2,665,225 70,682,555
Net increase (decrease) in cash and cash equivalents ...................... (14,855,125) (1,792,975) 1,602,516
Cash and cash equivalents at beginning of period .......................... 16,457,641 2,088,226 --
------------ ----------- -------------
Cash and cash equivalents at end of period ................................ $ 1,602,516 $ 295,251 $ 1,602,516
============ =========== =============
SUPPLEMENTAL DISCLOSURES
Interest paid ........................................................... $ 234,505 $ 155,571 $ 808,956
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING, INVESTING, AND
FINANCING ACTIVITIES
Assets acquired pursuant to capital leases ............................... $ 308,159 $ 1,593,294 $ 4,615,451
Equity instruments issued in exchange for technology and services ........ 87,135 245,784 263,419
</TABLE>
<PAGE> 6
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(Unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Corixa Corporation (the Company), a development stage company, is focused on
the discovery and early clinical development of vaccine products that induce
specific and potent pathogen- or tumor-reactive T lymphocyte (T cell)
responses for the treatment and prevention of cancers and certain infectious
diseases.
The accompanying unaudited financial statements of Corixa Corporation have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q.
Accordingly, certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. In the opinion of management, the information reflects all
adjustments and estimates necessary for a fair presentation of the results of
operations for the interim period presented. Interim results are not
necessarily indicative of results for a full year. The accompanying financial
statements and related footnotes should be read in conjunction with the
audited financial statements and footnotes thereto for the year ended
December 31, 1997, included in the Company's Form 10-K filed with the
Securities and Exchange Commission.
NET INCOME PER SHARE CALCULATION
The Company adopted Statement of Financial Accounting Standards ("Statement")
No. 128, "Earnings per Share," in 1997. All pro forma per share amounts for
all periods have been presented to conform to the Statement 128 requirements.
Basic earnings per share is based on the weighted average number of common
shares outstanding for the period, and excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share
assumes the conversion of all dilutive securities, such as options, warrants
and convertible preferred stock. All outstanding Corixa preferred stock was
converted to common stock at the closing of the Company's fourth quarter 1997
initial public offering. Accordingly, pro forma basic and diluted per share
amounts for 1997 are computed on the basis of the average number of common
shares outstanding plus the effect of preferred shares using the
"if-converted" method.
<PAGE> 7
For the quarter ended June 30, 1998 and 1997:
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Three Months ended
June 30, 1998 June 30, 1997
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Net income (loss) ...................... $(3,818,639) $ (730,851)
Weighted average outstanding:
Common stock ........................... 11,793,014 2,622,891
Convertible preferred stock ............ 0 5,151,196
----------- ----------
Total weighted average outstanding ..... 11,793,014 7,774,087
Loss per share:
Basic and diluted .................... (0.32) (0.28)
Proforma basic and diluted ........... (0.32) (0.09)
For the six months ended June 30, 1998 and 1997:
Six Months ended
June 30, 1998 June 30, 1997
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Net income (loss) ...................... $ (6,655,662) $ 32,413
Weighted average outstanding:
Common stock ........................... 11,785,089 2,608,540
Convertible preferred stock ............ 0 5,151,196
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Total weighted average outstanding ..... 11,785,089 7,759,736
Loss per share:
Basic and diluted .................... (0.56) 0.01
Pro forma basic and diluted .......... (0.56) 0.00
</TABLE>
COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Financial Accounting Standards Board
Statement No. 130, "Reporting Comprehensive Income." Statement No. 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's net income or shareholders' equity. Statement 130 requires unrealized
gains or losses on the Company's available-for-sale securities, which prior to
adoption were reported separately in shareholders' equity, to be included in
other comprehensive income. Prior year financial statements have been restated
to conform to the requirements of Statement 130. Comprehensive income (loss) for
the quarters ended June 30, 1998 and 1997, were a losses of $3,802,919 and
$730,072 respectively. For the six months ended June 30, 1998 and 1997,
comprehensive income (loss) was a loss of $6,677,495 and income of $2,493,
respectively.
SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information" Statement
No. 131 establishes standards for the manner in which public companies report
information about operating segments in annual and interim financial statements.
The Company is currently evaluating the statement to determine whether this will
have an impact on its financial statement reporting. The Company will be
required to report its results according to Statement No. 131 guidance for its
year-end 1998 results.
<PAGE> 8
MAJOR TRANSACTIONS
In June 1998, the Company entered into a definitive agreement to acquire
GenQuest, Inc. ("GenQuest"). GenQuest, a development stage biotechnology
company, is focused on applying functional genomics technology to discover
novel genes and to develop the potential of such genes and related gene products
to be used as diagnostics, therapeutics, and drug screening targets in the
field of oncology. Corixa will purchase GenQuest for approximately $11.8
million, $4.5 million of which will be paid in cash. The balance will be paid
in approximately 1,064,186 shares of Corixa Common Stock. The Company expects
the transaction to be completed in the fourth quarter of 1998.
SUBSEQUENT EVENTS
Subsequent to the end of the quarter, in July 1998, the Company
announced that it signed an extension of its tuberculosis vaccine collaboration
research agreement with SmithKline Beecham Biologicals S.A. ("SmithKline
Beecham") which provides for additional research funding in the area of
tuberculosis antigen discovery through August 1999. The agreement provides
SmithKline Beecham with an exclusive option to license vaccine antigens
discovered under the Company's Mycobacterium tuberculosis ("Mtb") antigen
discovery program for use as a vaccine through August 1999. The agreement has
been in place since October 1995.
In July 1998, Corixa and Pasteur Merieux Connaught ("PMC") agreed to extend
PMC's option to license a protein, known as LeIF, that functions as a potent
adjuvant for enhancing immune responses directed at T cell vaccine antigens.
Under the terms of the extension, the option termination date was extended to
the date that is the earlier of (i) 5 months following the date that Corixa
receives certain research materials from PMC to allow Corixa to perform
additional analysis of LeIF and (ii) December 31, 1998.
In August 1998, the Company's credit facility with Sumitomo Bank Limited
("Sumitomo"), as well as all rights and obligations thereunder, was transferred
to Banque Nationale de Paris by Sumitomo.
On August 6, 1998, the Company's Registration Statement on Form S-4, filed in
connection with the Company's acquisition of GenQuest, was declared effective
by the Securities and Exchange Commission. Pursuant to such registration
statement, the Company has registered a total of 1,080,000 shares of its Common
Stock.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform to the 1998 presentation.
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q, including management's discussion and analysis of
financial condition and results of operations contains "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
including, without limitation, statements regarding regulatory approvals,
operating results and capital requirements. Except for historical information,
the matters discussed in this Form 10-Q are forward looking statements that are
subject to certain risks and uncertainties that could cause the actual results,
performance or achievements of Corixa or its corporate partners, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, uncertainties related to the early stage of the Company's research and
development programs; uncertainties related to the effectiveness of the
Company's technology and the development of its products; dependence on and
management of existing and future corporate partnerships; dependence on
in-licensed technology; dependence on proprietary technology and uncertainty of
patent protection; history of operating losses; possible volatility of stock
price; future capital needs and uncertainty of additional funding; the Company's
lack of manufacturing and marketing experience and reliance on third parties to
perform such functions; existing government regulations and changes in, or the
failure to comply with, government regulations, as well as the risk factors
discussed below in "Factors Affecting Future Results" and those listed from time
to time in the Company's public disclosure filings with the Securities and
Exchange Commission (the "SEC"), including the Company's Final Prospectus for
its initial public offering filed with the SEC on October 2, 1997, the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and the
Company's Registration Statement Form S-4 filed with the SEC on August 5, 1998.
The Company assumes no obligation to update the forward-looking statements
included in this Form 10-Q.
OVERVIEW
Corixa's objective is to be the leader in the discovery and
commercialization of T cell vaccine products for the treatment and prevention of
cancers and certain infectious diseases. The Company's strategy is to dedicate
its resources to vaccine discovery and to establish corporate collaborations
early in the development process for all aspects of product development and
commercialization, including research, clinical development, obtaining
regulatory approval, manufacturing and marketing. Corixa believes that this
research- and partner-driven approach creates significant scientific,
operational and financial advantages for the Company and accelerates the
commercial development of new therapeutic and prophylactic T cell vaccines. To
date, approximately 89% of the Company's revenue has resulted from payments from
such collaborative agreements. In particular, the Company has entered into
significant corporate partnerships with SmithKline Beecham Biologicals S.A.
("SmithKline Beecham") with respect to breast and prostate cancer vaccine
products and tuberculosis vaccine products pursuant to which the Company may
receive up to an aggregate of $78.8 million, of which up to $29.8 million is
payable under the breast cancer collaboration, up to $29.8 million is payable
under the prostate cancer collaboration and up to $19.2 million is payable under
the tuberculosis collaboration. A substantial amount of such funding is required
to be used for research and development activities pursuant to the terms of such
collaborations. SmithKline Beecham may terminate either or both of the breast
and prostate cancer programs in the event the Company does not meet certain
scientific milestones after the second anniversary of the effective date of the
respective agreements, and may terminate the tuberculosis research program by
failing to exercise the extension thereunder at its option within the time
provided by the agreement. Additionally, since the Company's inception,
approximately 11% of the Company's revenue has resulted from funds awarded
<PAGE> 10
through government grants. As of June 30, 1998, the Company had total
stockholders' equity of $46 million.
Corixa has entered, and intends to continue to enter, into collaborative
agreements early in the development process. The Company believes that this
active corporate partnering strategy enables Corixa to maintain its focus on its
fundamental strengths in vaccine discovery and research, capitalizes on its
corporate partners' strengths in product development, manufacturing and
commercialization, and significantly diminishes the Company's financing
requirements. When entering into such corporate partnering relationships, the
Company seeks to cover its research and development expenses through research
funding, milestone payments and option, technology or license fees, while
retaining significant downstream participation in product sales through either
profit-sharing or product royalties paid on annual net sales. Revenue recognized
from inception through June 30, 1998 under the Company's collaborative
agreements was approximately $25.6 million.
In June 1998, the Company announced that it had signed a definitive
agreement to acquire all the outstanding shares of GenQuest, a development
stage biotechnology company. GenQuest is focused on applying functional
genomics technology to discover novel genes and to develop the potential of
such genes and related gene products to be used as diagnostics, therapeutics,
and drug screening targets in the field of oncology. Corixa is a principal
stockholder in GenQuest, which was founded in July 1995 by Paul Fisher, Ph.D.,
Professor of Urology and Pathology at Columbia University College of Physicians
and Surgeons, and Forward Ventures, a San Diego-based venture capital firm.
Since 1996, Corixa and GenQuest have entered into several license and research
collaboration agreements under which Corixa and GenQuest each licensed to the
other, rights in certain cancer technology fields.
Corixa will purchase GenQuest for approximately $11.9 million,
approximately $4.5 million of which will be paid in cash. The balance will be
paid in approximately 1,063,695 shares of Corixa common stock at a price of
$6.84 per share. The share price was calculated using the average closing price
of shares of Corixa common stock on the Nasdaq National Market during the 30
trading days immediately preceding and the 30 trading days including and
immediately following the execution of the definitive purchase agreement on June
22, 1998. The issuance of Corixa Common Stock in connection with this
acquisition may have the effect of reducing Corixa's net income per share from
levels otherwise expected and could reduce the market price of the Corixa Common
Stock unless revenue growth or cost savings and other business synergies
sufficient to offset the effect of such issuance can be achieved. Corixa
anticipates closing the acquisition of GenQuest during the fourth quarter of
1998. The Company recognized a $489,000 charge in the second quarter of fiscal
year 1998 to reflect a write-off of the receivable for warrants issued to
purchase 454,533 shares of Corixa Common Stock associated with the collaboration
with GenQuest.
In the second quarter of 1998, the Company began the build-out of
approximately 40,000 square feet of additional laboratory and office space, of
which approximately half will be additional laboratory facilities. The Company
intends to capitalize the $4.6 million of anticipated costs related to the
build-out and expects to amortize such costs over the remaining seven years of
its facilities lease beginning in the fourth quarter of 1998.
The Company has experienced significant operating losses in each year
since its inception. As of June 30, 1998, the Company's accumulated deficit was
approximately $18.6 million. The Company may incur substantial additional
operating losses over at least the next several years. Such losses have been and
may continue to be principally the result of the various costs associated with
the Company's discovery, research and development programs, and preclinical and
clinical activities. Substantially all of the Company's revenue to date has
resulted from corporate partnerships, other research, development and licensing
arrangements, research grants and interest income. The Company's ability to
achieve a consistent, profitable level of operations is dependent in large part
upon entering into collaborative agreements with corporate partners for product
discovery, research, development and commercialization, obtaining regulatory
approvals for its products and successfully manufacturing and marketing
commercial products. There can be no assurance that the Company will be able to
achieve consistent profitability. In addition, payments under collaborative
agreements and licensing arrangements will be subject to significant
fluctuations in both timing and amounts, resulting in quarters of profitability
and quarters of
<PAGE> 11
losses by the Company. Therefore, the Company's results of operations for any
period may fluctuate significantly and may not be comparable to the results of
operations for any other period.
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
Total Revenue
Revenue decreased to $3.1 million for the three months ended June 30,
1998 from $3.3 million for the same period in 1997, a decrease of 6%. Revenue
for each period consisted primarily of ongoing research and development revenue
from partnership programs. Revenue for the second quarter of 1998 decreased from
the same period in 1997 due primarily to the termination of the Company's
ex-vivo adoptive immunotherapy collaboration with CellPro, Incorporated
("CellPro") in the first quarter of 1998. Revenue decreased to $5.9 million for
the six month period ending June 30, 1998 from $7.5 million for the first six
months of 1997, a decrease of 21%. The reduction in revenue for the first six
months of 1998 from the same period in 1997 is due mainly to a significant
technology access fee recognized in the first quarter of 1997 upon the
commencement of the Company's collaborations with SmithKline Beecham in the
areas of breast cancer and prostate cancer. Corixa recognized revenue of
$500,000 during each of the second quarters of 1998 and 1997 in conjunction with
a collaboration agreement with GenQuest, and revenue of $1,000,000 and $800,000
was recognized during the first half of 1998 and 1997, respectively, in
conjunction with this GenQuest collaboration.
Research and Development Expenses
Research and development expenses increased to $7.0 million for the
three months ended June 30, 1998 from $3.8 million for the same period in 1997,
an increase of 84%. The increase was primarily attributable to increased payroll
and personnel expenses incurred as the Company hired additional research and
development personnel, increases in collaboration expenses, a $489,000 charge to
reflect a write-off of the receivable for warrants issued associated with the
collaboration with GenQuest, and increased purchases of laboratory supplies.
Research and development expenses of approximately $600,000 and $500,000 were
incurred during the three months ended June 30, 1998 and 1997, respectively, in
conjunction with the GenQuest collaboration agreement.
Research and development expenses increased to $12.9 million for the six
month period ended June 30, 1998 from $7.1 million for the same period in 1997,
an increase of 82%. The increase was primarily due to increased payroll and
personnel expenses, increases in collaboration expenses, increased purchases of
laboratory supplies and increased deferred compensation costs associated with
the amortization of certain stock option grants. Additionally, increased
research and development expense for the six month period includes the second
quarter charge to reflect write off the receivable for warrants issued
associated with the GenQuest collaboration and a $330,000 charge in the first
quarter to reflect expenses associated with termination of the collaboration
with CellPro. The non-cash compensation expense associated with the stock option
grant amortization will continue to be recognized over the remaining vesting
period of such options, through June 2001. Research and development expenses of
approximately $1,200,000 and $800,000 were incurred during the six months ended
June 30, 1998 and 1997, respectively, in conjunction with the GenQuest
collaboration agreement. The Company expects research and development expenses
to increase in the future to support the expansion of its research and
development activities.
General and Administrative Expenses
General and administrative expenses increased to $622,000 for the three
months ended June 30, 1998, from $449,000 for the same period in 1997, an
increase of 39%. For the six months ended June 30, 1998, general and
administrative expenses increased to $1,169,000 from $779,000 for the same
period in 1997, an increase of 50%. The increases for the three and six month
periods are primarily due to increased
<PAGE> 12
expenses related to business development and the general and administrative
portions of the amortized deferred compensation expense associated with the
grant of certain stock options. The Company expects general and administrative
expenses to increase in the future to support the expansion of its business
activities.
Interest Income
Interest income increased to $785,000 for the three months ended June
30, 1998, from $229,000 for the same period in 1997. For the six months ended
June 30, 1998, interest income increased to $1,614,000 from $391,000 for the
same period in 1997. The increases for the three month and six month periods
ended June 30, 1998 resulted from higher average cash balances in such periods
in 1998 as compared to 1997 as a result of the Company's initial public
offering.
Interest Expense
Interest expense increased to $177,000 for the three months ended June
30, 1998 from $84,000 for the same period in 1997. For the six months ended June
30, 1998, interest expense increased to $324,000 from $156,000 for the same
period in 1997. The increases for the three month and six month periods ended
June 30, 1998 resulted from higher loan balances and capital lease balances
outstanding in such periods in 1998 as compared to such periods in 1997.
Other Income
Other income increased to $125,000 for the three months ended June 30,
1998 from $94,000 for the same period in 1997. Other income for the six months
ended June 30, 1998 increased to $249,000 from $187,000 in the same period of
1997. Other income consists of proceeds from management and administrative
services agreements with GenQuest and the Infectious Disease Research Institute,
a not-for-profit, grant-funded private research institute, pursuant to which the
Company provides services with respect to corporate management, record keeping,
personnel administration, human resources and treasury services as required by
such agreements.
Deferred Compensation
Deferred compensation of approximately $3.9 million was recorded in
fiscal year 1997, representing the difference between the exercise prices of
645,000 shares of Common Stock subject to options granted during the first half
of 1997 and the deemed fair market value of the Company's Common Stock on the
grant dates. Deferred compensation expense of approximately $384,000 and
$282,000 was amortized for the three months ended June 30, 1998 and 1997,
respectively. For the six months ended June 30, 1998, deferred compensation
expense of $867,000 was amortized compared to $371,000 for the six months ended
June 30, 1997.
Option Payment
During 1997, the Company entered into an option agreement with
SmithKline Beecham pursuant to which the SmithKline Beecham agreed to advance
consideration in exchange for exclusive options to license two of Corixa's
early-stage cancer vaccine research programs. In the event such options are
exercised, the consideration will be credited against future milestone payments
or converted to Common Stock of Corixa at SmithKline Beecham's election. In
January 1998, pursuant to the agreement, SmithKline Beecham advanced $2 million
to extend the expiration of one of the options from March 1, 1998 until
September 1, 1999. If this extended option is not exercised before September 1,
1999 and if the other option is not exercised or extended before September 1,
1998, the Company will be required to refund the consideration related to one or
both option(s), as applicable, over a three-year period beginning March 2000.
Year 2000 Compliance
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. While uncertainty exists
concerning the potential effects associated with such compliance, Corixa
currently does not believe that year 2000
<PAGE> 13
compliance will result in a material adverse effect on its business, financial
condition or results of operations. However, there can be no assurance that
Corixa or its corporate partners will not be materially adversely affected as a
result of the year 2000 compliance measures or the failure of any such measures.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception through an
initial public offering of its Common Stock, collaborative agreements, private
placements of equity securities, debt instruments, capital leases and
government grants. From inception through June 30, 1998, the Company's
operations have used cash of $12.9 million. The October 1997 initial public
offering and preceding private placements of equity securities have provided
the Company with aggregate proceeds of approximately $61.0 million. From
inception through June 30, 1998, the Company recognized approximately $28.8
million of revenue under corporate partnerships and grants. The Company has
drawn $6.0 million on a bank loan, $5.0 million from advances under
collaborative agreements and $4.6 million through capital lease financings. As
of June 30, 1998, the Company had approximately $55.0 million in cash, cash
equivalents and securities available-for-sale.
The Company has invested $7.4 million in property and equipment since
inception, including approximately $4.6 million of equipment acquired under
capital lease financings. The Company expects capital expenditures to increase
over the next several years as it expands its facilities and acquires scientific
equipment to support the planned expansion of its research and development
efforts.
The Company believes that the proceeds from the initial public offering,
its existing capital resources, committed payments under its existing
collaborative agreements and licensing arrangements, equipment financing and
interest income will be sufficient to fund its current and planned operations
until at least September 30, 1999. There is, however, no assurance such sources
of capital will be sufficient for such period of time. The Company intends to
enter into additional corporate collaborations that will provide funding for all
or a part of the Company's research and development activities. The Company's
future capital requirements will depend on many factors, including, among
others, the following: continued scientific progress in its discovery, research
and development programs; the magnitude and scope of these activities; the
ability of the Company to maintain existing, and enter into additional,
corporate partnerships and licensing arrangements; progress with preclinical
studies and clinical trials; the time and costs involved in obtaining regulatory
approvals; the costs of acquiring companies with complementary technology; the
costs involved in preparing, filing, prosecuting, maintaining, defending and
enforcing patent claims; and the potential need to develop, acquire or license
new technologies and products and other factors not within the Company's
control. The Company intends to seek additional funding through some or all of
the following methods: corporate collaborations, licensing arrangements, public
or private equity or debt financings and capital lease transactions. There can
be no assurance, however, that additional financing will be available on
acceptable terms, if at all. If sufficient capital is not available, the Company
may be required to delay, reduce the scope of, eliminate or divest one or more
of its discovery, research or development programs, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
FACTORS AFFECTING FUTURE RESULTS
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company will require substantial capital resources in order to
conduct its operations. If the Company were to undertake additional equity
financings significant dilution to stockholders could result. If sufficient
capital is not available, the Company may be required to delay, reduce the scope
of, eliminate or divest one or more of its discovery, research or development
programs, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. A substantial number of
the payments to be made by Corixa's corporate partners and other licensees are
dependent upon the achievement by the Company of development and regulatory
milestones. Failure to
<PAGE> 14
achieve such milestones would have a material adverse effect on the Company's
future capital needs. In addition, the Company has entered into an option
agreement with SmithKline Beecham pursuant to which SmithKline Beecham has
agreed to pay certain consideration in exchange for exclusive options to license
two of Corixa's early-stage cancer antigen discovery programs. In January 1998,
SmithKline Beecham elected to extend its option to pursue one of the two
early-stage cancer targets. The second option is up for renewal in September,
1998. If this option is not exercised or extended, the Company will be required
to refund the consideration attributable to such option over a three year period
of time, beginning March 2000.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the principal members of its
scientific and management staff, the loss of whose services might significantly
delay or prevent the Company's achievement of its scientific or business
objectives. Competition among biotechnology and biopharmaceutical companies for
qualified employees is intense, and the ability to retain and attract qualified
individuals is critical to the Company's success. There can be no assurance that
the Company will be able to attract or retain such individuals currently or in
the future on acceptable terms, or at all, and the failure to do so would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company does not maintain "key person"
life insurance on any officer, employee or consultant of the Company.
Corixa also has relationships with scientific collaborators at academic
and other institutions, some of whom conduct research at the Company's request
or assist the Company in formulating its research and development strategy.
These scientific collaborators are not employees of the Company and may have
commitments to, or consulting or advisory contracts with, other entities that
may limit their availability to the Company. The Company has limited control
over the activities of these scientific collaborators and, except as otherwise
required by its license, consulting and sponsored research agreements, can
expect only limited amounts of time to be dedicated to the Company's activities
by such individuals. Failure of any such persons to devote sufficient time and
resources to the Company's programs could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
these collaborators may have arrangements with other companies to assist such
companies in developing technologies that may prove competitive to those of
Corixa.
INTENSE COMPETITION
The biotechnology and biopharmaceutical industries are intensely
competitive. Several biotechnology and biopharmaceutical companies, as well as
certain research organizations, currently engage in or have in the past engaged
in efforts related to the development of vaccines for the treatment and
prevention of cancers and various infectious diseases, as well as the
development of diagnostic products for infectious disease indications.
Many companies, including Corixa's corporate partners, as well as
academic and other research organizations, are also developing alternative
therapies to treat cancers and infectious diseases and, in this regard, are
competitive with the Company. Moreover, technology controlled by third parties
that may be advantageous to the Company's business may be acquired or licensed
by competitors of the Company, thereby preventing the Company from obtaining
such technology on favorable terms, or at all.
Many of the companies developing competing technologies and products
have significantly greater financial resources and expertise in discovery,
research and development, manufacturing, preclinical and clinical testing,
obtaining regulatory approvals and marketing than Corixa or its corporate
partners. Other smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large and established
companies. Academic institutions, government agencies and other public and
private research organizations may also conduct research, seek patent protection
and establish collaborative arrangements for discovery, research, clinical
development and
<PAGE> 15
marketing of products similar to those of the Company. These companies and
institutions compete with the Company in recruiting and retaining qualified
scientific and management personnel as well as in acquiring technologies
complementary to the Company's programs. Corixa and its corporate partners will
face competition with respect to product efficacy and safety, the timing and
scope of regulatory approvals, availability of resources, reimbursement
coverage, price and patent position, including potentially dominant patent
positions of others. There can be no assurance that competitors will not develop
more effective or more affordable products, or achieve earlier patent protection
or product commercialization than the Company and its corporate partners, or
that such competitive products will not render the Company's products obsolete.
UNCERTAINTIES RELATED TO EARLY STAGE OF DEVELOPMENT
Corixa is at an early stage in the development of its therapeutic,
prophylactic and diagnostic products. To date, almost all of the Company's
revenue have resulted from payments made under agreements with its corporate
partners, and the Company expects that most of its revenue for the foreseeable
future will continue to result from existing corporate partnerships and future
corporate partnerships, if any. The Company has generated only minimal revenue
from diagnostic product sales and no revenue from therapeutic product sales
since inception. Vaccine products that may result from the Company's research
and development programs are not expected to be commercially available for a
number of years, if at all, and it will be a number of years, if ever, before
Corixa will receive any significant revenue from commercial sales of such
products.
UNCERTAINTIES RELATED TO TECHNOLOGY AND PRODUCT DEVELOPMENT
The Company's technological approach to the development of therapeutic
and prophylactic vaccines for cancers and certain infectious diseases is
unproven in humans. Products based on the Company's technologies are currently
in the discovery, preclinical or early clinical investigation stages, and to
date, neither the Company nor any of its corporate partners have conducted any
clinical trials that incorporate the Company's proprietary microsphere delivery
systems or its proprietary adjuvants. In addition, no therapeutic vaccines for
cancers or infectious diseases targeted by the Company have been successfully
commercialized by the Company or others. There can be no assurance that Corixa
will be able to successfully develop effective vaccines for such diseases in a
reasonable timeframe, if ever, or that such vaccine will be capable of being
commercialized.
A majority of Corixa's programs are currently in the discovery stage or
in preclinical development, and only three of the Company's therapeutic vaccine
products have advanced to Phase I clinical trials. The Company's vaccines have
not been demonstrated to be safe or effective in clinical settings. There can be
no assurance that any of the Company's programs will move beyond its current
stage of development. Assuming clinical trials of any product are successful and
other data are satisfactory, the Company or its applicable corporate partner
will submit an application to the U.S. Food and Drug Administration ("FDA") and
appropriate regulatory bodies in other countries to seek permission to market
the product. Typically, the review process at the FDA takes several years, and
there can be no assurance that the FDA will approve the Company's or its
corporate partner's application or will not require additional clinical trials
or other data prior to approval.
RISKS ASSOCIATED WITH ACQUISITIONS
The merger of Corixa and GenQuest involves the integration of GenQuest's
operations into Corixa's operations. The successful integration of the
operations of GenQuest and Corixa following the acquisition of GenQuest by
Corixa will require substantial effort from both companies, and no assurance can
be given that the benefits expected from such integration will be realized. The
process of integrating operations will cause a strain on Corixa's management,
and could cause an interruption of, or loss of momentum in, the activities of
Corixa's business. Difficulties encountered in connection with the acquisition
and the integration of the operations of GenQuest could have a material adverse
effect on the
<PAGE> 16
business, financial condition and results of operations of Corixa and the
combined company. Subsequent to the acquisition, Corixa expects to incur a
charge in the quarter ending September 30, 1998, currently estimated to be $10.6
million, to reflect the write-off of in-process technology. This amount is a
preliminary estimate only and is therefore subject to change. In addition, there
can be no assurance that Corixa will not incur additional charges in subsequent
quarters to reflect costs associated with the acquisition. There can be no
assurance that Corixa or the combined company will not discover adverse
information concerning GenQuest subsequent to the completion of the acquisition,
including, among other things, information with respect to research management
policies and intellectual property controls, such as the possible inadequacy of
GenQuest's current patent protection and potential patent infringement by
GenQuest. Any such discovery could have a material adverse effect on the
business, financial condition and results of operations of Corixa.
In the future, Corixa may make additional acquisitions of complementary
companies, products or technologies. Managing acquired businesses entails
numerous operational and financial risks and strains, including difficulties in
assimilating acquired operations and scientific cultures, diversion of
management's attention to other business concerns, amortization of acquired
intangible assets and potential loss of key employees or strategic
relationships of acquired entities. There can be no assurance that Corixa will
be able to effectively manage growth, and failure to do so could have a
material adverse effect on the combined company's operating results.
POTENTIAL DILUTION
Corixa's stockholders will experience immediate and substantial dilution
as a result of the shares of Corixa Common Stock to be issued to GenQuest
stockholders in connection with the Company's pending acquisition of GenQuest.
The Company registered 1,080,000 shares of its Common Stock, representing
approximately 9% of the outstanding Common Stock as of August 1, 1998, in
connection with such acquisition. In addition, dilution will also occur upon
exercise of outstanding options and warrants to purchase Corixa Common Stock.
Also, if SmithKline Beecham elects to exercise either one of its options to
license Corixa's early stage antigen discovery programs in cancer, Corixa may be
required to issue shares of its Common Stock to SmithKline Beecham, which
issuance will result in additional dilution to Corixa's stockholders.
DEPENDENCE ON AND MANAGEMENT OF EXISTING AND FUTURE CORPORATE
PARTNERSHIPS
The success of Corixa's business strategy is largely dependent on its
ability to enter into multiple corporate partnerships and to effectively manage
the numerous relationships that may exist as a result of this strategy. Corixa
has established significant relationships with several corporate partners as of
June 30, 1998. For example, to date the Company has entered into three
collaboration and license agreements with SmithKline Beecham for the research,
development and commercialization of vaccine products aimed at the prevention
and/or treatment of tuberculosis, breast cancer and prostate cancer. In
addition, Corixa has established corporate partnerships with Abbott Laboratories
and Pasteur Merieux Connaught, among others. The Company derived 93% of its
revenue for the year ended December 31, 1997 and for the first six months ended
June 30, 1998, from research and development and other funding under such
corporate partnerships. The termination of any of these corporate partnerships
would have a material adverse effect on the Company's business, financial
condition and results of operations. Several of the Company's corporate partners
have entered into agreements granting them options to license certain aspects of
the Company's technology. There can be no assurance that any such corporate
partner will exercise its option to license such technology. The Company has
also entered into corporate partnerships with several companies for the
development, commercialization and sale of diagnostic products incorporating the
Company's proprietary antigen technology. There can be no assurance that any
such diagnostic corporate partnership will ever generate significant revenue.
Furthermore, Corixa is currently engaged in discussions with a number of
pharmaceutical and diagnostic companies with respect to potential corporate
partnering arrangements covering various aspects of the Company's technologies.
However, due in part to the early
<PAGE> 17
stage of Corixa's technologies, the process of establishing corporate
partnerships is difficult, time-consuming and involves significant uncertainty,
and there can be no assurance that such discussions will lead to the
establishment of any new corporate partnership on favorable terms, or at all, or
that, if established, any such corporate partnership will result in the
successful development of any of the Company's products or the generation of
significant revenue.
Because the success of the Company's business is largely dependent upon
its ability to enter into multiple corporate partnerships and to effectively
manage the numerous issues that arise from such partnerships, management of
these relationships will require, at a minimum, significant time and effort from
Corixa's management team and effective allocation of the Company's resources to
multiple projects, as well as an ability to obtain and retain management,
scientific and other personnel sufficient to accomplish the foregoing.
DEPENDENCE ON IN-LICENSED TECHNOLOGY
In addition to its dependence on existing and future corporate
partnerships, Corixa's success is also dependent on its ability to enter into
licensing arrangements with commercial or academic entities to obtain technology
that is advantageous or necessary to the development and commercialization of
Corixa's products. If the Company is unable to obtain or maintain licenses to
technology advantageous or necessary to the Company's business, Corixa and its
corporate partners may be required to expend significant time and resources to
develop or in-license similar technology, and there can be no assurance that the
Company and its corporate partners will be successful in this regard. If the
Company cannot acquire or develop necessary technology, it may be prevented from
commercializing certain of its products.
DEPENDENCE ON PROPRIETARY TECHNOLOGY AND UNCERTAINTY OF PATENT
PROTECTION
Corixa's success will depend in part on its ability and that of its
corporate partners to obtain and enforce their respective patents and maintain
trade secrets, both in the United States and in other countries. As of June 30,
1998, the Company owned or had licensed 20 issued United States patents that
expire at various times between December 2008 and August 2016, 99 corresponding
issued foreign patents, 136 pending United States patent applications, as well
as 16 corresponding international filings under the Patent Cooperation Treaty
and 269 pending foreign national patent applications. The above numbers reflect
Corixa's license from GenQuest of 3 issued United States patents that expire at
various times between July 2014 and January 2016 and 37 pending United States
patent applications, as well as 5 corresponding international filings under the
Patent Cooperation Treaty and 32 pending foreign national patent applications.
Corixa also holds an option to exclusively license cancer vaccine antigens
discovered by GenQuest through December 2001. The Company has licensed certain
patent applications from Southern Research Institute ("SRI") related to the
Company's microsphere encapsulation technology, one of which is currently the
subject of an opposition proceeding before the European Patent Office. There can
be no assurance that SRI will prevail in this opposition proceeding or that any
patents will issue in Europe related to such technology. There can also be no
assurance that the Company's or its corporate partners' current patents, or
patents that issue on pending applications, will not be challenged, invalidated,
infringed or circumvented, or that the rights granted thereunder will provide
proprietary protection or competitive advantages to Corixa.
The commercial success of Corixa depends significantly on its ability to
operate without infringing the patents and proprietary rights of third parties,
and there can be no assurance that the Company's and its corporate partners'
technologies do not or will not infringe the patents or proprietary rights of
others. A number of pharmaceutical companies, biotechnology companies,
universities and research institutions may have filed patent applications or may
have been granted patents that cover technologies similar to the technologies
owned, optioned by or licensed to the Company or its corporate partners. In
addition, the Company is unable to determine the patents or patent applications
that may materially affect the Company's or its corporate partners' ability to
make, use or sell any products.
<PAGE> 18
Litigation may also be necessary to enforce patents issued or licensed
to the Company or its corporate partners or to determine the scope or validity
of a third party's proprietary rights. Corixa could incur substantial costs if
litigation is required to defend itself in patent suits brought by third
parties, if Corixa participates in patent suits brought against or initiated by
its corporate partners or if Corixa initiates such suits, and there can be no
assurance that funds or resources would be available to the Company in the event
of any such litigation. Additionally, there can be no assurance that the Company
or its corporate partners would prevail in any such action. An adverse outcome
in litigation or an interference to determine priority or other proceeding in a
court or patent office could subject the Company to significant liabilities,
require disputed rights to be licensed from other parties or require the Company
or its corporate partners to cease using certain technology, any of which may
have a material adverse effect on the Company's business, financial condition
and results of operations.
POSSIBLE VOLATILITY OF STOCK PRICE
The market prices for securities of biotechnology companies have in the
past been, and can in the future be expected to be, especially volatile. The
market price of the Company's Common Stock has been and is likely to continue to
be subject to substantial volatility depending upon many factors, including
announcements regarding the results of discovery efforts and announcements
regarding the acquisition of technologies or companies, preclinical and clinical
activities, technological innovations or new commercial products developed by
the Company or its competitors, changes in government regulations, changes in
the Company's patent portfolio, developments or disputes concerning proprietary
rights, changes in existing corporate partnerships or licensing arrangements,
the establishment of additional corporate partnerships or licensing
arrangements, the progress of regulatory approvals, the issuance of new or
changed stock market analyst reports and/or recommendations, and economic and
other external factors, as well as operating losses by the Company, fluctuations
in the Company's financial results and the degree of trading liquidity in the
Common Stock. These factors could have a material adverse effect on the
Company's business, financial condition and results of operations and the price
of the Company's Common Stock in the public market.
FLUCTUATIONS IN FUTURE EARNINGS
Substantially all of the Company's revenue to date has resulted from
corporate partnerships, other research, development and licensing arrangements,
research grants and interest income. The Company's ability to achieve a
consistent, profitable level of operations is dependent in large part upon
entering into agreements with corporate partners for product discovery,
research, development and commercialization, obtaining regulatory approvals for
its products and successfully manufacturing and marketing commercial products.
The Company expects that its quarterly results will vary as it enters new
agreements, and receives license and/or milestone payments. The Company expects
operating expenses to continue to increase as it adds to the number and scope of
its research and development programs, enters into clinical trials and as it
adds additional laboratory and office space. In addition, payments under
corporate partnerships and licensing arrangements will be subject to significant
fluctuations in both timing and amounts, resulting in quarters of profitability
and quarters of losses by the Company. Therefore, the Company's results of
operations for any period may fluctuate significantly and may not be comparable
to the results of operations for any other period.
GOVERNMENT REGULATION
The preclinical testing and clinical trials of any products developed by
the Company or its corporate partners and the manufacturing, labeling, sale,
distribution, export or import, marketing, advertising and promotion of any new
products resulting therefrom are subject to rigorous regulation by federal,
state and local governmental authorities in the United States, the principal one
of which is the FDA, and by similar agencies in other countries. Any product
developed by the Company or its corporate partners must receive all relevant
regulatory approvals or clearances before it may be marketed in a particular
country. The regulatory process, which includes extensive preclinical studies
and clinical trials
<PAGE> 19
of each product in order to establish its safety and efficacy, is uncertain, can
take many years and requires the expenditure of substantial resources. Delays in
obtaining regulatory approvals or clearances would adversely affect the
marketing of any products developed by the Company or its corporate partners,
impose significant additional costs on the Company and its corporate partners,
diminish any competitive advantages that the Company or its corporate partners
may attain and adversely affect the Company's ability to receive royalties and
generate revenue and profits. There can be no assurance that, even after such
time and expenditures, any required approvals or clearances will be obtained for
any products developed by or in collaboration with the Company. Noncompliance
with applicable requirements can result in enforcement actions by the FDA
including, among other things, fines, injunctions, civil penalties, recall or
seizure of products, refusal of the FDA to grant pre-market clearances or
approvals, withdrawal of marketing approvals and criminal prosecution. Any such
action would have a material adverse effect on the Company's business, financial
condition and results of operations.
For a more complete discussion of risks and uncertainties involving the
Company's business, please see the risk factors described under the heading
"Factors That May Affect Future Results of Operations" set forth in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997
and "Risk Factors" set forth in the Company's Registration Statement on Form S-4
filed with the SEC on August 5, 1998.
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In connection with its initial public offering of Common Stock (the
"Offering") in 1997, the Company filed a Registration Statement (the
"Registration Statement") on Form S-1, SEC File No. 333-32147, which was
declared effective by the Commission on October 2, 1997. The net offering
proceeds to the Company after deducting the total expenses was $40,778,100. The
entire amount of the net proceeds has been allocated for general corporate
purposes, including working capital requirements of the Company. None of the net
proceeds of the Offering were paid directly or indirectly to any director,
officer, general partner of the Company or their associates, persons owning 10
percent or more of any class of equity securities of the Company, or an
affiliate of the Company. This use of proceeds does not represent a material
change in the use of proceeds described in the prospectus of the Registration
Statement.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Shareholders (the "Meeting") was held on
June 3, 1998 in Seattle, Washington. At the Meeting the stockholders elected
five directors, each of whom will serve until the next Annual Meeting of
Shareholders or until his respective successor shall have been elected and
qualified or until his earlier resignation or removal. The Board of Directors
elected at the Meeting and the votes cast in favor of their election (with the
votes cast in favor of their election out of a total of 11,783,304 entitled to
vote) are as follows: Dr. Steven Gillis (9,148,773 votes in favor, 3900 votes
withheld and no abstentions); Joseph Lacob (9,148,773 votes in favor, 3900 votes
withheld and no abstentions); Mark McDade (9,148,773 votes in favor, 3900 votes
withheld and no abstentions); Dr. Arnold Oronsky, (9,148,773 votes in favor,
3900 votes withheld and no abstentions); and Dr. Andrew Senyei, (9,148,773 votes
in favor, 3900 votes withheld and no abstentions). The shareholders also
ratified the appointment of Ernst & Young LLP as the Company's independent
public accountants by a vote of 9,141,298 votes in favor, 11,175 votes against
and 200 abstentions.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Index to Exhibits.
(b) No reports on Form 8-K were filed by the Registrant during
the quarter ended June 30, 1998.
<PAGE> 21
CORIXA CORPORATION
Index to Exhibits for Form 10-Q for the quarter ended June 30, 1998
<TABLE>
<S> <C>
Exhibit No. Exhibit Description
10.4# Amendment No. 1 dated September 29, 1997 to the Licensing
Agreement dated January 1, 1998 by and between Corixa
Corporation and Dana-Farber Cancer Institute, Inc.
10.5 Amendment dated May 22, 1998 to License, Development
and Supply Agreement dated July 24, 1997 by and between
Corixa Corporation and Abbott Laboratories
10.6# Amendment No. 2 dated June 5, 1998 to License, Development
and Supply Agreement dated July 24, 1997 by and between
Corixa Corporation and Abbott Laboratories
10.7# Letter Agreement dated July 22, 1998 regarding the
Tuberculosis Collaboration and License Agreement by and
between Corixa Corporation and SmithKline Beecham
Biologicals S.A.
10.8 Letter Agreement dated July 1, 1998 regarding the Option
and License Agreement dated December 23, 1996 by and
between Corixa Corporation and Pasteur Merieux Connaught.
27.1 Financial Data Schedule
</TABLE>
# Confidential Treatment Requested
<PAGE> 22
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.
CORIXA CORPORATION
By: /s/ Michelle Burris
-------------------------------------
MICHELLE BURRIS
VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Date: August 11, 1998
<PAGE> 1
Exhibit 10.4
AMENDMENT NO. 1 TO LICENSING AGREEMENT
This Amendment No. 1 to Licensing Agreement (this "Amendment"),
dated as of September 29, 1997, is entered into by and between the Dana-Farber
Cancer Institute, Inc., a Massachusetts non-profit corporation ("DFCI"), and
Corixa Corporation, a Delaware corporation ("Corixa").
RECITALS
A. DFCI and Corixa are parties to that certain Licensing Agreement, dated as
of January 1, 1995 (the "License Agreement"), pursuant to which DFCI has
granted to Corixa certain rights under the Patent Rights and Technical
Information.
B. DFCI and Corixa desire to amend the License Agreement to incorporate terms
and conditions governing confidential information.
NOW THEREFORE, the parties hereto agree to amend the License Agreement as
follows:
AMENDMENT
1. DEFINITIONS
Except as otherwise defined herein, capitalized terms used in this
Amendment shall have the meanings designated in the License Agreement.
2. CONFIDENTIALITY
A new Article XXI shall be inserted following Article XX, to read as
follows:
ARTICLE XXI
In connection with the parties' performance under this Agreement, it
may be desirable or necessary for Corixa, its Affiliates or Sublicensee to
disclose certain confidential or proprietary information ("Confidential
Information") of any of the foregoing to DFCI. In the event of receipt of
Confidential Information clearly designated as such by Corixa, its Affiliates or
its Sublicensees, DFCI agrees to preserve such information as confidential and
not to disclose it to third parties or to use it other than for its intended
purposes hereunder for a period of [***] years after receipt. The foregoing
obligations shall not apply to any information that:
(a) is now in the public domain or becomes generally available to
the public through no fault of DFCI;
(b) is already known to, or in the possession of DFCI as can be
demonstrated by
<PAGE> 2
documentary evidence;
(c) is disclosed to DFCI on a nonconfidential basis by a third party
who does not impose any obligation of confidentiality on DFCI;
(d) is independently developed by DFCI as can be demonstrated by
documentary evidence; or
(e) as required by applicable law, regulation or judicial process,
provided that DFCI shall give Corixa (i) prior written notice thereof, (ii)
adequate opportunity to object to any such disclosure or to request confidential
treatment thereof, and (iii) shall take all steps reasonably possible to
minimize the disclosure to that level mandated by law.
3. FULL FORCE AND EFFECT
Except as amended hereby, the License Agreement shall remain in full
force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the date first above written.
DANA-FARBER CANCER INSTITUTE, INC.
By: /s/ Bernard W. Janicki
-------------------------------------
Its: Director for Research
-------------------------------------
CORIXA CORPORATION
/s/ Mark McDade
-------------------------------------
Mark McDade, Chief Operating Officer
-2-
<PAGE> 1
Exhibit 10.5
Corixa Corporation
1124 Columbia Street
Suite 200
Seattle, WA 98104 USA
(206) 754-5711 Voice
(206) 754-5715 Fax
VIA FACSIMILE AND COURIER
May 22, 1998
Jane Smith, Ph.D.
Technology Acquisitions Manager
D-9RK AP6C2
Abbott Laboratories
100 Abbott Park Road
Abbott Park, IL 60064-3500
RE: LICENSE, DEVELOPMENT AND SUPPLY AGREEMENT, DATED AS OF JULY 24, 1997,
BETWEEN ABBOTT LABORATORIES AND CORIXA CORPORATION (THE "LICENSE AGREEMENT").
Dear Jane:
In connection with a recent review of the License Agreement, we have determined
that it would be in Corixa's best interest to modify the notice provision in
Section 13.5 from sixty (60) days to forty five (45) days. If this modification
is acceptable, please have this letter countersigned by a duly authorized
representative of Abbott and returned to my attention by facsimile with original
to follow.
<PAGE> 2
We appreciate your cooperation in this matter.
Best regards,
Mark McDade
/s/ Mark McDade
Chief Operating Officer
ACKNOWLEDGED AND AGREED
ABBOTT LABORATORIES
By: /s/ Jay B. Johnson
Its: Vice President
<PAGE> 1
Exhibit 10.6
AMENDMENT NO. 2 TO LICENSE, DEVELOPMENT
AND SUPPLY AGREEMENT
This Amendment No. 2 to License, Development and Supply Agreement, dated as of
June 5th, 1998, is entered into by and between ABBOTT LABORATORIES , an Illinois
corporation ("Abbott") and CORIXA CORPORATION, a Delaware corporation
("Corixa").
RECITALS
WHEREAS, Corixa and Abbott are parties to that certain License,
Development and Supply Agreement, dated July 24,1997 and amended by Letter
Agreement on May 22, 1998, (the "License Agreement").
WHEREAS, the parties desire to amend the License Agreement, to
modify certain provisions thereof regarding Milestone Payments.
NOW THEREFORE, the parties hereto agree as follows:
AMENDMENT
1. Except as otherwise defined herein, capitalized terms used in this
Amendment shall have the meanings designated in the License
Agreement.
2. Section 3.2 (a) the License Agreement is hereby amended in its
entirety to read as follows:
3.2 (a) Abbott shall pay Corixa [***] within thirty (30)
days following Abbott's initiation of clinical trials of
Licensed Product.
3. Except as amended hereby, the License Agreement shall continue in
full force and effect in accordance with its terms.
4. This Amendment No. 2 shall be governed by and construed in
accordance with the laws of the state of Washington, regardless of
its or any other jurisdiction's choice of law provisions.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
ABBOTT LABORATORIES CORIXA CORPORATION
By: /s/ James J. Koziarz /s/ Mark McDade
Its: Corporate Vice President, Diagnostic Mark McDade, Chief Operating
Research and Development Officer
<PAGE> 1
Exhibit 10.7
SmithKline Beecham Pharmaceuticals
Phone: (02) 656.88 32
Fax: (02) 656.81 44
SmithKline Beecham Biologicals s.a.
Rue de l'Institut 89
B-1330 Rixensart, France
Phone: (02) 656.81 11
Fax: (02) 656.80 00
CORIXA CORPORATION
1124 Columbia Street
Suite 200
Seattle, WA 98104
USA
Rixensart, July 22, 1998
Dear Sirs,
RE: TUBERCULOSIS COLLABORATION AND LICENSE AGREEMENT - RESEARCH PROGRAM
We refer to the Tuberculosis Collaboration and License Agreement between Corixa
Corporation ("Corixa") and SmithKline Beecham Biologicals S.A. ("SB") dated
October 6, 1995 as amended ("Agreement").
We are pleased to notify you hereby, in accordance with Section 5 (c) of the
above-referenced Agreement, of our intention to renew the Research Program for a
further period of one year from June 1, 1998 to May 31, 1999. A technology
access fee of [***] will be paid by SB to Corixa in equal quarterly installments
of [***] each to be reinvested in full in accordance with Section 10 (b) of the
Agreement, unless the parties agree on a broader strategic alliance. The Option
granted by Corixa to SB pursuant to Section 4 (a) of the Agreement will
accordingly be extended for a further one year period starting on September 1,
1998 and ending on August 30, 1999.
For the sake of good order, would you please sign and return to us the copy of
this letter which is being sent to you in duplicate.
Sincerely yours,
/s/ Jean Stephenne
Jean Stephenne
President and General Manager
ACKNOWLEDGED AND ACCEPTED
FOR AND ON BEHALF OF
CORIXA CORPORATION
/s/ Mark McDade
Name: Mark McDade
Title: Chief Operating Officer
Date: July 28, 1998
<PAGE> 1
Exhibit 10.8
Corixa Corporation
1124 Columbia Street
Suite 200
Seattle, WA 98104 USA
(206) 667-5711 Voice
(206) 667-5715 Fax
July 1, 1998
M. Charles de Taisne
Secretary General, External Research
Pasteur Merieux Connaught France
1541 Av. Marcel Merieux
69280 Marcy L'Etoile
FRANCE
RE: EXTENDED OPTION TO LeIF
Dear Charles:
Thank you for your letter dated June 24, 1998 agreeing to further extend PMC's
option to LeIF. In accordance with our Letter Agreement dated December 17, 1997
(the "December Letter Agreement"), PMC's option to LeIF (the "Option"), pursuant
to the Option and License Agreement between Corixa and PMC, (the "Initial Option
Agreement"), would expire June 30, 1998. Based on our recent correspondence,
Corixa is willing to extend the Option, until the date (the "Option Termination
Date"), that is the earlier of (i) five (5) months following the date that
Corixa receives sufficient amounts of PMC's influenza vaccine to allow Corixa to
perform additional analysis of LeIF in accordance with the Research Plan,
attached as Exhibit A to the December Letter Agreement and (ii) December 31,
1998.
PMC will have the right to exercise the Option in one or more of the disease
fields available to PMC under the Initial Option Agreement by providing Corixa
written notice of exercise on or before the Option Termination Date. In the
event PMC exercises the Option, Corixa and PMC shall then enter into a license
agreement on the terms and conditions of the Initial Option Agreement.
<PAGE> 2
If the foregoing is acceptable, please sign as indicated below and return a copy
of this letter to my attention.
Best regards,
For CORIXA CORPORATION
/s/ Mark McDade
Mark McDade
Executive Vice President and
Chief Operating Officer
Agreed and Accepted by:
PASTEUR MERIEUX CONNAUGHT FRANCE
/s/ Charles de Taisne
Charles de Taisne
Director Business Development
Pasteur Merieux Connaught France
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