<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 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.
Yes [X] No [ ]
As of October 31, 1998, there were 12,939,439 shares of the registrant's common
stock outstanding.
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<PAGE> 2
Corixa Corporation
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Page
----
<S> <C>
ITEM 1. FINANCIAL STATEMENTS.
Consolidated Balance Sheets as of September 30, 1998
(unaudited) and December 31, 1997 ................................................... 1
Consolidated Statements of Operations (unaudited) for the three
months ended September 30, 1998 and 1997 and the nine months
ended September 30, 1998 and 1997 and period from September 8,
1994 (Date of Inception) to September 30, 1998 ...................................... 2
Consolidated Statements of Cash Flows (unaudited) for the nine
months ended September 30, 1998 and 1997 and for the period from
September 8, 1994 (Date of Inception) through September 30,
1998 ................................................................................ 3
Notes to Unaudited Consolidated Financial Statements ................................ 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ............................................................... 10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ........................................................... 20
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ................................... 20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ............................................. 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ......................... 20
ITEM 5. OTHER INFORMATION ........................................................... 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................................ 20
SIGNATURES
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 4,912,179 $ 16,457,641
Securities available-for-sale ................................... 40,564,766 39,859,649
Accounts receivable - $89,434 and $79,348 from an affiliate
at September 30, 1998 and December 31, 1997, respectively .... 724,389 601,940
Interest receivable ............................................. 719,234 134,035
Prepaid expenses ................................................ 600,623 506,578
------------- -------------
Total current assets ......................................... 47,521,191 57,559,843
Property and equipment, net ....................................... 7,025,132 4,046,484
Deferred charges and deposits ..................................... 154,572 200,632
------------- -------------
Total assets ................................................. $ 54,700,895 $ 61,806,959
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ........................ $ 2,380,026 $ 1,571,023
Deferred revenue ................................................ 600,000 1,096,665
Current portion of obligations and commitments .................. 2,133,889 930,429
------------- -------------
Total current liabilities .................................... 5,113,915 3,598,117
Long-term obligations and commitments, less current portion ....... 11,707,243 6,923,786
Stockholders' equity:
Common stock, $0.001 par value:
Authorized shares -- 40,000,000
Issued and outstanding shares -- 12,907,738 at
September 30, 1998 and 11,774,214 at December 31, 1997 ..... 12,908 11,774
Additional paid-in capital ...................................... 74,001,185 66,466,994
Receivable for warrants ......................................... -- (651,565)
Deferred compensation ........................................... (1,443,885) (2,574,949)
Accumulated other comprehensive income/(loss) ................... 198,164 (5,355)
Deficit accumulated during development stage .................... (34,888,635) (11,961,843)
------------- -------------
Total stockholders' equity ................................... 37,879,737 51,285,056
------------- -------------
Total liabilities and stockholders' equity ................... $ 54,700,895 $ 61,806,959
============= =============
</TABLE>
<PAGE> 4
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED PERIOD FROM
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 8, 1994
----------------------------- ----------------------------- (DATE OF INCEPTION)
1998 1997 1998 1997 TO SEPTEMBER 30, 1998
------------ ------------ ------------ ------------ ---------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Collaborative agreements ............. $ 1,889,898 $ 3,097,335 $ 7,278,574 $ 10,036,923 $ 27,480,921
Government grants .................... 582,781 179,707 1,068,117 733,278 3,751,864
------------ ------------ ------------ ------------ ------------
Total revenue ...................... 2,472,679 3,277,042 8,346,691 10,770,201 31,232,785
Operating expenses:
Research and development ............. (6,760,991) (4,271,159) (19,661,154) (11,375,213) (53,532,733)
General and administrative ........... (597,095) (487,901) (1,765,867) (1,266,948) (5,317,127)
In-process research and development .. (12,019,304) -- (12,019,304) -- (12,447,363)
------------ ------------ ------------ ------------ ------------
Total operating expenses ........... (19,377,390) (4,759,060) (33,446,325) (12,642,161) (71,297,223)
------------ ------------ ------------ ------------ ------------
Loss from operations ................... (16,904,711) (1,482,018) (25,099,634) (1,871,960) (40,064,438)
Interest income ........................ 800,131 214,123 2,414,054 604,775 5,211,291
Interest expense ....................... (189,144) (86,074) (512,806) (241,645) (1,087,257)
Other income ........................... 22,594 124,751 271,594 312,025 1,051,769
------------ ------------ ------------ ------------ ------------
Net loss ............................... $(16,271,130) $ (1,229,218) $(22,926,792) $ (1,196,805) $(34,888,635)
============ ============ ============ ============ ============
Basic and diluted net loss
per share ............................ $ (1.35) $ (0.46) $ (1.93) $ (0.46)
============ ============ ============ ============
Shares used in computation
of basic and diluted net loss
per share ............................ 12,012,606 2,672,974 11,862,434 2,630,018
============ ============ ============ ============
Pro forma basic and diluted
net loss per share ................... $ (1.35) $ (0.16) $ (1.93) $ (0.15)
============ ============ ============ ============
Shares used in computation
of pro forma basic and diluted
net loss per share .................. 12,012,606 7,824,170 11,862,434 7,781,214
============ ============ ============ ============
</TABLE>
2
<PAGE> 5
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED PERIOD FROM
SEPTEMBER 30, SEPTEMBER 8, 1994
----------------------------- (DATE OF INCEPTION)
1998 1997 TO SEPTEMBER 30, 1998
------------- ------------- ---------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss .................................................................... $ (22,926,792) $ (1,196,805) $ (34,888,635)
Adjustments to reconcile net loss to net cash used in operating activities:
In-process research and development ....................................... 12,019,304 -- 12,447,363
Amortization of deferred compensation ..................................... 1,131,064 850,027 2,459,910
Depreciation and amortization ............................................. 1,092,554 770,065 3,051,231
Equity instruments issued in exchange for technology and services ......... 130,877 64,981 307,161
Write-off of warrant receivable ........................................... 488,676 -- 488,676
Changes in certain assets and liabilities:
Accounts receivable ..................................................... (119,062) 491,996 (726,153)
Interest receivable ..................................................... (585,199) -- (714,083)
Prepaid expenses ........................................................ 24,696 (502,443) (480,317)
Other assets ............................................................ 47,106 (878,587) (64,008)
Accounts payable and accrued liabilities ................................ 805,671 606,499 2,152,891
Deferred revenue ........................................................ (596,665) 26,971 500,000
------------- ------------- -------------
Net cash provided by (used in) operating activities ........................ (8,487,770) 232,704 (15,465,964)
INVESTING ACTIVITIES
Purchases of securities available-for-sale .................................. (77,972,975) (9,714,584) (142,200,127)
Proceeds from maturities of securities available-for-sale ................... 56,509,999 5,531,553 80,872,149
Proceeds from sale of securities ............................................ 20,961,377 -- 20,961,377
Purchases of property and equipment ......................................... (3,267,258) (685,080) (4,997,277)
Purchase of subsidiary, net of cash acquired ................................ (4,735,441) -- (4,705,502)
------------- ------------- -------------
Net cash used in investing activities ....................................... (8,504,298) (4,868,111) (50,069,380)
FINANCING ACTIVITIES
Net proceeds from issuance of stock ........................................ 52,286 69,071 61,100,930
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 ........................................ (768,569) (584,437) (2,165,561)
Payments on receivables for warrants ........................................ 162,889 348,369 651,324
Other ....................................................................... -- -- (139,170)
------------- ------------- -------------
Net cash provided by financing activities ................................... 5,446,606 2,833,003 70,447,523
Net increase (decrease) in cash and cash equivalents ........................ (11,545,462) (1,802,404) 4,912,179
Cash and cash equivalents at beginning of period ............................ 16,457,641 2,088,226 --
------------- ------------- -------------
Cash and cash equivalents at end of period .................................. $ 4,912,179 $ 285,822 $ 4,912,179
============= ============= =============
SUPPLEMENTAL DISCLOSURES
Interest paid ............................................................. $ 393,893 $ 241,645 $ 968,344
SUPPLEMENTAL SCHEDULE OF NON-CASH OPERATING, INVESTING, AND
FINANCING ACTIVITIES
Equity instruments issued-GenQuest acquisition ............................. $ 7,352,161 $ -- $ 7,352,161
Assets acquired pursuant to capital leases ................................. 308,159 1,786,321 4,615,451
Equity instruments issued in exchange for technology and services .......... 130,877 64,981 307,161
</TABLE>
3
<PAGE> 6
CORIXA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Corixa Corporation, a development stage company, is focused on the
discovery and early clinical development of products useful in preventing,
treating or diagnosing cancer and certain infectious diseases as well as
immunotherapeutic products for the treatment of certain autoimmune diseases.
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Corixa
Corporation ("Corixa" or the "Company") include the accounts of its wholly-owned
subsidiary, Chinook, a Delaware corporation (formerly known as Chinook
Acquisition Corporation) ("Chinook") created to effect the merger with GenQuest,
Inc., a Delaware corporation ("GenQuest"). Pursuant to the terms set forth in
the Agreement and Plan of Merger by and among the Company, Chinook and GenQuest
merged with and into Chinook and the separate corporate existence of GenQuest
ceased, with Chinook surviving as a wholly-owned subsidiary of Corixa. These
statements have been prepared in accordance with Generally Accepted Accounting
Principles ("GAAP") and the rules and regulations of the Securities and Exchange
Commission (the "SEC") for interim financial information. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with GAAP have been condensed or omitted pursuant to such
rules and regulations.
In the opinion of management, the accompanying consolidated balance
sheets and related interim consolidated statements of operations and cash flows
reflect all normal recurring adjustments necessary for their fair presentation
in conformity with GAAP. Interim results are not necessarily indicative of
results for a full year. The accompanying consolidated 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 SEC.
PRINCIPLES OF CONSOLIDATION
The merger with GenQuest was accounted for as a purchase transaction.
The assets and liabilities of GenQuest have been recorded on the books of the
Company at their fair market values. The operating results of the acquired
business have been included in the consolidated statements of operations from
September 15, 1998, the effective date of the acquisition. All significant
intercompany account balances and transactions have been eliminated in
consolidation.
SECURITIES AVAILABLE-FOR-SALE
The Company's investment portfolio is classified as available-for-sale.
The Company's main investment objectives are preservation of principal, a high
degree of liquidity and a maximum total return. The Company invests primarily in
(U.S. denominated only): commercial paper; corporate notes/bonds, with no more
than 10% of the portfolio in any one corporate issuer; and U.S. Treasury
instruments with terms not exceeding four years. Such securities are stated at
fair value, with the unrealized gains and losses reflected in stockholders'
equity. Interest earned on securities is included in interest income. The
amortized cost of investments is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization and accretions are
included in interest income. The cost of securities sold is calculated using the
specific identification method.
4
<PAGE> 7
MANAGEMENT OF CREDIT RISK
The Company is subject to concentration of credit risk, primarily from
its cash investments. Credit risk for cash investments is managed by purchase of
investment grade securities, A1/P1 for money market instruments and A or better
for debt instruments, and diversification of the investment portfolio among
issuers and maturities.
REVENUE
Revenue under collaborative agreements typically consists of
nonrefundable up-front fees, ongoing research, development and technology access
payments, and milestone and royalty payments. Revenue from nonrefundable
up-front fees is recognized upon satisfaction of related obligations. Revenue
from ongoing research and co-development payments are recognized ratably over
the term of the agreement, as the Company believes such payments approximate the
research and development expense being incurred associated with the agreement.
Revenue from milestone, royalty, and other contingent payments will be
recognized as earned. Advance payments received under any agreements in excess
of amounts earned are recorded as deferred revenue. Revenue under cost
reimbursement contracts is recognized as the related costs are incurred. Two
collaborative partners made up 65% and 13% of the Company's revenue during the
nine month period ended September 30, 1998 and 62% and 13% during the same
period in 1997.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the 1998 presentation.
2. BASIC AND DILUTED LOSS PER COMMON SHARE CALCULATION
The Company adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," in 1997. All pro forma per share amounts for all periods have been
presented to conform to the SFAS No. 128 requirements. 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. As of September 30, 1998, common stock equivalents
are considered anti-dilutive and are excluded from this calculation.
For the three months ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three months ended
------------------------------------
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
Net loss $ (16,271,130) $ (1,229,218)
Weighted average outstanding:
Common stock 12,012,606 2,672,974
Convertible preferred stock -- 5,151,196
------------- -------------
Total weighted average outstanding 12,012,606 7,824,170
Loss per share:
Basic and diluted (1.35) (0.46)
Pro forma basic and diluted (1.35) (0.16)
</TABLE>
5
<PAGE> 8
For the nine months ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
Nine months ended
------------------------------------
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
Net loss $ (22,926,792) $ (1,196,805)
Weighted average outstanding:
Common stock 11,862,434 2,630,018
Convertible preferred stock -- 5,151,196
------------- -------------
Total weighted average outstanding 11,862,434 7,781,214
Loss per share:
Basic and diluted (1.93) (0.46)
Pro forma basic and diluted (1.93) (0.15)
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
September December 31,
30, 1998 1997
------------- -------------
<S> <C> <C>
Laboratory equipment $ 4,422,298 $ 3,577,341
Computers and office equipment 1,741,962 1,151,114
Leasehold improvements 1,268,764 1,256,002
Construction in progress 2,621,297 --
------------- -------------
Accumulated depreciation and 10,054,321 5,984,457
amortization (3,029,189) (1,937,973)
------------- -------------
Total property and equipment $ 7,025,132 $ 4,046,484
============= =============
</TABLE>
Construction in progress includes expenditures related to leasehold
improvements on the Company's leased office and research facilities.
4. COMPREHENSIVE LOSS
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements and requires reclassification of financial statements for
earlier periods to be provided for comparative purposes. Such adoption had no
effect on the Company's financial condition or results of operations. Prior year
financial statements have been restated to conform to the requirements of SFAS
No. 130. The Company's comprehensive loss includes all items which comprise net
loss plus/(minus) the unrealized holding gains/(losses) on available-for-sale
securities. For the three and nine month periods ended September 30, 1998 and
1997, the Company's comprehensive loss was as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------------------------ ------------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Loss $ (16,271,130) $ (1,229,218) $ (22,926,792) $ (1,196,805)
Other comprehensive income:
Unrealized holding gains
arising during period 225,288 31,830 203,519 1,910
------------- ------------- ------------- -------------
Total comprehensive loss $ (16,045,842) $ (1,197,388) $ (22,723,273) $ (1,194,895)
============= ============= ============= =============
</TABLE>
6
<PAGE> 9
5. ACQUISITION OF GENQUEST
On September 15, 1998, the Company acquired all of the outstanding
shares of common stock of GenQuest. GenQuest was a development stage
biotechnology company 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. Prior to the acquisition, Corixa was 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.
Aggregate consideration for the acquisition was approximately $12.4
million, which consisted of 1,063,695 shares of Corixa common stock, with a
market value of approximately $7.3 million, approximately $4.5 million in cash,
and approximately $600,000 of acquisition costs. The aggregate purchase price
exceeded the fair value of tangible assets by approximately $12.0 million, and
this amount was allocated to in-process research and development during the
third quarter of 1998. The aggregate purchase price was allocated, based on
estimated fair values on the acquisition date, as follows (in thousands):
<TABLE>
<S> <C>
In-process research and $12,019
development
Net assets acquired 421
-------
Total purchase price $12,440
=======
</TABLE>
The following table reflects unaudited consolidated pro forma results of
operations of Corixa and GenQuest on the basis that the acquisition had taken
place at the beginning of each period presented. Such pro forma amounts are not
necessarily indicative of what the actual consolidated results of operations
might have been if the acquisitions had been effective at the beginning of the
respective periods. The pro forma information does not include the one-time
charges for purchased in-process research and development or other
transaction-related costs relating to the acquisition of GenQuest.
<TABLE>
<CAPTION>
Nine months ended
September 30, 1998
-----------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenue $ 7,507,683 $ 9,380,647
Net loss (13,118,848) (4,034,112)
Basic and diluted net loss
per share $ (1.02) $ (0.46)
</TABLE>
6. CONTRACTS
In July 1998, the Company announced that it signed an extension of its
tuberculosis vaccine collaboration research agreement with SmithKline Beecham
Biologicals S.A. ("SB Biologicals"), a division of SmithKline Beecham plc
("SmithKline Beecham"). The extension provides for additional research funding
in the area of tuberculosis antigen discovery through August 1999. The agreement
provides SB Biologicals 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. See Note 8 -- Subsequent Events of the Notes
to Unaudited Consolidated Financial Statements and the Form 8-K filed by the
Company November 10, 1998 (the "SKB Form 8-K").
In July 1998, Corixa and Pasteur Merieux Connaught ("PMC") agreed to
extend PMC's option to license Corixa's proprietary adjuvant, known as LeIF, in
human vaccines, exclusively in the fields of influenza and respiratory syncitial
virus and nonexclusively in the fields of AIDS, malaria and tuberculosis. Under
the terms of the extension, the option termination date was extended to the date
that is the earlier of (i) five months following the date that Corixa receives
certain research materials from PMC and (ii) December 31, 1998.
7
<PAGE> 10
7. NEW ACCOUNTING STANDARDS
SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." SFAS No. 131 establishes standards
for the manner in which public companies report information about operating
segments in annual and interim financial statements. The statement shall be
effective for fiscal years beginning after December 15, 1997. Segment
information for earlier years that is reported with corresponding information
for the initial year of application shall be restated to conform to the
requirements of Statement No. 131 unless it is impracticable to do so. Statement
No. 131 need not be applied to interim financial statements in the initial year
of its application, but comparative information for interim periods in the
initial year of application shall be reported in financial statements for
interim periods in the second year of application. The Company does not
anticipate that Statement No. 131 will have a significant impact on its
financial statement reporting.
EMPLOYERS' DISCLOSURE ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure
about Pensions and Other Postretirement Benefits," which is effective for fiscal
years beginning after December 15, 1997. The statement standardizes the annual
disclosure requirements for pensions and other postretirement benefit plans by
requiring additional information on changes in the benefit obligations and fair
values of the plan assets and eliminating certain disclosures that are no longer
useful. It does not change the measurement or recognition of those plans.
Management does not expect the adoption of this statement will have a material
effect on the Company's financial condition or results of operations.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for fiscal years
beginning after June 15, 1999. Earlier application is encouraged but it is
permitted only as of the beginning of any fiscal quarter that begins after June
1998. The statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. The Company will be required to adopt SFAS No. 133 as of the quarter
ended March 31, 2000. The impact of the adoption of the provisions of this
statement on the Company's financial position or results of operations has not
been determined.
8. SUBSEQUENT EVENTS
SMITHKLINE BEECHAM AGREEMENT
On October 28, 1998, the Company entered into a collaboration and
license agreement with SmithKline Beecham, which superseded and significantly
expanded the scope of Company's then-existing agreements with SB Manufacturing
and SB Biologicals. The Company granted SmithKline Beecham an exclusive
worldwide license to develop, manufacture and sell vaccine products and certain
dendritic cell therapy products that incorporate antigens discovered or
in-licensed under this corporate partnership; provided that with respect to
tuberculosis, such rights are co-exclusive with Corixa in Japan. Under the
collaboration and license agreement, SmithKline Beecham agreed to provide
payment for work that is performed under the Company's existing antigen
discovery programs in tuberculosis, breast cancer and prostate cancer. In
addition, SmithKline Beecham agreed to provide payment for work that is
performed in additional programs in the following areas: (i) ovarian and colon
carcinoma vaccine discovery and development programs and (ii) vaccine discovery
programs for two chronic infectious pathogens, Chlamydia trachomatis, which
causes sexually transmitted diseases, and Chlamydia pneumoniae, which is
associated with the development of atherosclerosis. The discovery phase of the
agreement also allows for the selection of one additional disease field to be
agreed upon at a future date. The Company also granted SmithKline Beecham an
exclusive worldwide license to develop, manufacture and sell vaccine products
resulting from the Company's clinical program based on Her-2/neu for the
treatment of breast and ovarian cancer as well as the Company's preclinical
program based on Mammoglobin, a novel gene and protein associated with breast
cancer. For certain of these disease areas, the Company granted SmithKline
Beecham certain license rights to develop, manufacture and sell passive immune
products such as T cell or antibody therapeutics and therapeutic drug
monitoring products.
8
<PAGE> 11
SmithKline Beecham has committed to funding of $43.6 million for work
that is performed in such discovery programs during the next four years. The
Company and SmithKline Beecham may mutually agree to extend the research and
development programs beyond the initial four year term.
In addition, SmithKline Beecham agreed to purchase $2.5 million worth of
Corixa Common Stock at a premium to its fair market value, and Corixa has the
right to require SmithKline Beecham to purchase an additional $2.5 million of
Common Stock, at a premium in the future. The equity component combined with the
discovery program payment results in aggregate funding of $48.6 million during
the first four years of the agreement. Additionally, with respect to the $5.0
million previously paid to the Company by SmithKline Beecham under the prior
option agreement, which covered the fields of ovarian and colon cancer,
SmithKline Beecham may elect to have Corixa repay such amount to SmithKline
Beecham on September 1, 2003 or convert such amounts into the purchase of
Corixa common stock at a premium.
To the extent that certain clinical and commercial milestones in the
programs are achieved, the Company is entitled to receive payments, which in the
aggregate could exceed $150 million. The individual amounts of such payments
vary depending on the milestones achieved and the types of product sold. The
Company is also entitled to receive future royalty payments on any product
sales, which royalties vary depending on the types of products sold.
The effectiveness of the agreement is subject to the expiration or early
termination of the requisite waiting period under the Hart Scott Rodino
Antitrust Improvements Act of 1976, as amended. The Company presently expects
this will occur in the fourth quarter of 1998, although there can be no
assurance that such events will occur within such time frame, or at all. See the
SKB Form 8-K.
IMMGENICS AGREEMENT
On November 5, 1998 Corixa announced it signed an exclusive agreement
with ImmGenics Pharmaceuticals, Inc. ("ImmGenics") to utilize ImmGenics'
proprietary Selected Lymphocyte Antibody Method ("SLAM") technology to develop
high potency therapeutic and diagnostic monoclonal antibodies targeting Corixa's
proprietary antigens in cancer and infectious disease. Under the terms of the
agreement, Corixa will make research and development payments and, if certain
milestones are achieved, additional milestone payments, as well as royalty
streams on future product sales. In addition to the collaborative agreement,
Corixa invested $1.75 million in exchange for preferred stock in ImmGenics,
convertible debt and warrants, and may be required to invest an additional $1.25
million in 1999, for a total investment by Corixa of $3.0 million. Corixa may
obtain additional ownership in ImmGenics over time under certain terms of the
agreements.
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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; impact of alternative
technological advances and competition on the collaborative relationships
between the Company and its corporate partners; the potential dilutive effect of
equity purchases by SmithKline Beecham to other Corixa shareholders; and the
impact of the GenQuest acquisition and other acquisitions or equity purchases of
early stage companies such as ImmGenics, 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 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, as amended,
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 products useful in preventing, treating or diagnosing
cancer, certain infectious diseases and certain autoimmune diseases. The
Company's strategy is to dedicate its resources to the discovery of vaccines and
other antigen-based products 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 and other
immunotherapeutic products. As of September 30, 1998, approximately 88% of the
Company's revenue has resulted from such collaborative agreements. In
particular, the Company has entered into significant corporate partnerships with
SB Biologicals and SB Manufacturing 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. Subsequent to the end of the quarter ended September 30, 1998,
Corixa and SmithKline Beecham entered into an expanded collaboration and license
agreement that superseded the previous breast cancer collaboration, prostate
cancer collaboration and tuberculosis collaboration. See Note 8 - Subsequent
Events of the Notes to Unaudited Consolidated Financial Statements and the SKB
Form 8-K. Additionally, since the Company's inception, approximately 12%
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of the Company's revenue resulted from funds awarded through government grants.
As of September 30, 1998, the Company had total stockholders' equity of $37.9
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 collaboration agreement credit lines, 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 September 30, 1998 under the
Company's collaborative agreements was approximately $27.5 million.
Corixa remains focused on the discovery and early clinical development
of proprietary vaccine products that induce specific and potent pathogen- or
tumor-reactive T cell responses for the treatment and prevention of cancer,
infectious diseases and certain autoimmune diseases. The Company also intends to
broaden its scope to include other strategic relationships that complement its
approach to immune system based therapies for cancer, infectious diseases and
autoimmune diseases.
The Company has experienced significant operating losses in each year
since its inception. As of September 30, 1998, the Company's accumulated deficit
was approximately $34.9 million. The Company may incur substantial additional
operating losses over, at a minimum, the next several years. Such losses have
been and may continue to be principally the result of the purchase of
technology, for example the GenQuest acquisition; 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 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 NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30,
1997
Total Revenue
Revenue decreased to $2.5 million for the three months ended September
30, 1998 from $3.3 million for the same period in 1997. Revenue for each period
consisted primarily of ongoing research and development revenue from partnership
programs. The reduction in revenue for the third quarter of 1998 from the same
period in 1997 resulted primarily from the absence of revenue from GenQuest, due
to Corixa's acquisition of GenQuest, and the termination of the Company's
ex-vivo adoptive immunotherapy collaboration with CellPro, Incorporated
("CellPro") in the first quarter of 1998. In conjunction with its collaboration
agreement with GenQuest, Corixa recognized no revenue during the third quarter
of 1998 and revenue of $500,000 during the third quarter of 1997. Revenue
decreased to $8.3 million for the nine month period ending September 30, 1998
from $10.8 million for the same period in 1997. The reduction 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 SB Manufacturing in the
areas of breast cancer and prostate cancer as well as the absence of revenue
from GenQuest, due to its acquisition by Corixa. During the first nine months of
1998 and 1997, $1.0 million and $1.4 million, respectively, were recognized in
conjunction with the GenQuest
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collaboration agreement. Corixa expects that its quarterly revenue will continue
to vary depending on when and if it enters into new agreements and receives
license and /or milestones payments.
Research and Development Expenses
Research and development expenses increased to $6.8 million for the
three months ended September 30, 1998 from $4.3 million for the same period in
1997. The increase was primarily attributable to increased payroll and personnel
expenses incurred as the Company hired additional research and development
personnel, increased collaboration and patent expenses, consulting costs, and
increased purchases of laboratory supplies. In conjunction with the GenQuest
collaboration agreement, no GenQuest research and development expenses were
incurred during the three months ended September 30, 1998 and approximately
$700,000 was incurred during the same period in 1997.
Research and development expenses increased to $19.7 million for the
nine month period ended September 30, 1998 from $11.4 million for the same
period in 1997. The increase was primarily due to increased payroll and
personnel expenses, increased collaboration and patent expenses, increased
consulting costs, 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
nine month period ended September 30, 1998 includes the second quarter $489,000
charge to reflect a write-off of 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 $1.2 million and $1.7 million were incurred during the nine months
ended September 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 $597,000 for the three
months ended September 30, 1998, from $488,000 for the same period in 1997. For
the nine months ended September 30, 1998, general and administrative expenses
increased to $1.8 million from $1.3 million for the same period in 1997. The
increases for the three and nine month periods ended September 30, 1998 are
primarily due to increased expenses related to business development, legal fees
and other costs associated with being a public company, 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 $800,000 for the three months ended
September 30, 1998, from $214,000 for the same period in 1997. For the nine
months ended September 30, 1998, interest income increased to $2.4 million from
$605,000 for the same period in 1997. The increase for the three month and nine
month periods ended September 30, 1998 resulted from higher average cash
balances in such periods in 1998 as compared to 1997 as a result of the
completion of the Company's initial public offering during the fourth quarter of
1997.
Interest Expense
Interest expense increased to $189,000 for the three months ended
September 30, 1998 from $86,000 for the same period in 1997. For the nine months
ended September 30, 1998, interest expense increased to $513,000 from $242,000
for the same period in 1997. The increases for the three month and nine month
periods ended September 30, 1998 were the result of higher loan and capital
lease financing balances outstanding in such periods in 1998 as compared to such
periods in 1997.
Other Income
Other income decreased to $23,000 for the three months ended September
30, 1998 from $125,000 for the same period in 1997. Other income for the nine
months ended September 30, 1998 decreased to $272,000 from $312,000 in the same
period of 1997. These decreases were due
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primarily to the absence of management services revenue from GenQuest in the
third quarter of 1998, as a result of the Company's acquisition of GenQuest.
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 $264,000 and
$479,000 were amortized during the three months ended September 30, 1998 and
1997, respectively. Deferred compensation expense of $1.1 million and $800,000
were amortized during the nine months ended September 30, 1998 and 1997,
respectively.
Year 2000 Compliance
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. 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. If noncompliant systems
are not modified, the result could be a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. Corixa has largely completed its assessment of its internal
systems affected by the Year 2000 issue and anticipates that it will not be
required to modify or replace significant portions of its software so that its
computer systems will properly utilize dates past December 31, 1999.
The Company has initiated communications, in the form of questionnaires,
with its significant suppliers and customers to determine the extent to which
the Company is vulnerable to those third parties' failure to solve their own
Year 2000 issues. At this time, the Company cannot predict the level of Year
2000 readiness with respect to its significant suppliers and customers. The
Company intends to continue to monitor the progress of these third parties and
will develop contingency plans during the fiscal year 1999 in the event the
Company becomes aware that one or more of these third parties fails to solve
their Year 2000 issues in such a way as to materially adversely affect the
operations of the Company. The total exposure of the Year 2000 issue is
estimated to be less than $100,000 and will be funded through operating cash
flows. To date the Company has incurred no significant costs related to the
assessment of, and preliminary efforts in connection with, its Year 2000 project
and the development of a remediation plan. Management does not currently expect
the Company's financial condition or results of operations will be materially
adversely affected by the Year 2000 issue. There can be no guarantee that the
systems of other companies on which the Company's systems rely will be timely
converted, or that a failure to convert by another company, or a conversion that
is incompatible with the Company's systems, would not have a material adverse
effect on the Company.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through the issuance of the Company's equity securities, collaborative
agreements and debt instruments. The October 1997 initial public offering and
preceding private placements of equity securities have provided the Company with
aggregate proceeds of approximately $61.1 million. Through September 30, 1998,
the Company recognized approximately $31.2 million of revenue under corporate
partnerships and grants and has drawn $6.0 million on a bank loan and $5.0
million from credit lines under collaborative agreements. From inception through
September 30, 1998, the Company's operations have used cash of approximately
$15.5 million.
The Company has invested $5.0 million in property and equipment and has
acquired an additional $4.6 million of equipment through capital lease
financings since inception. The Company expects capital expenditures to increase
over the next year as it completes its facility expansion in the first quarter
of 1999. After that, capital expenditures should stabilize.
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During the nine month period ended September 30, 1998, net cash used in
the Company's operations was $8.5 million, an increase of $8.7 million, compared
to cash provided by operations of $233,000 for the same period of the prior
year. The increase in cash used by operations was due primarily to an increase
in research and development expenses. Investing activities used $8.5 million, an
increase of $3.6 million, compared to $4.9 million over the same period in the
prior year due primarily to the third quarter 1998 acquisition of GenQuest, as
well as an increased investment in property and equipment during the second and
third quarters of 1998, offset by an increase in the net proceeds provided by
the sale of securities. As of September 30, 1998, the Company had approximately
$45.5 million in cash, cash equivalents and securities available-for-sale.
Working capital decreased to $42.4 million at September 30, 1998 from $54.0
million at December 31, 1997.
The Company believes that 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 achieve such milestones would have a material adverse
effect on the Company's future capital needs.
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.
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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 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. Immunotherapeutic 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.
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UNCERTAINTIES RELATED TO TECHNOLOGY AND PRODUCT DEVELOPMENT
The Company's technological approach to the development of
immunotherapeutic products for cancers, certain infectious diseases and certain
autoimmune 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 or other immunotherapeutic products for
cancers, infectious diseases or other autoimmune 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
products for such diseases in a reasonable timeframe, if ever, or that such
products 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 business, financial condition and results of operations of Corixa
and the combined company. 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 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
and the combined company.
In the future, the combined company 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 the combined
company 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
Potential dilution exists for the Company's stockholders. Such dilution
may occur upon the future issuance of the Company's common stock, which may
include, but is not limited to: the exercise of outstanding options and warrants
to purchase shares of the Company's common stock, or the election by SmithKline
Beecham to exercise either one of its options to license Corixa's early stage
antigen discovery programs in cancer, which may require Corixa to issue shares
of its common stock
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to elector. See Note 8 -- Subsequent Events of Notes to Unaudited Consolidated
Financial Statements and the SKB Form 8-K.
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
September 30, 1998. For example, to date the Company has entered into
collaboration and license agreements with SB Biologicals and SB Manufacturing
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. To date, the Company
has derived 88% of its revenue 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. Certain 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 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 September
30, 1998, the Company owned or had licensed 24 issued United States patents that
expire at various times between January 2007 and August 2016, 93, corresponding
issued foreign patents, 151 pending United States patent applications, as well
as 19 corresponding international filings under the Patent Cooperation Treaty
and 298 pending foreign national patent applications. The above numbers reflect
Corixa's license from GenQuest of 3 issued United States
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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 34 pending foreign
national patent applications. 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.
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 in the future can 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
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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 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, as amended, filed with the SEC on August 5, 1998.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
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 ten 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.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
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 SEC. Pursuant to such registration statement,
the Company registered a total of 1,080,000 shares of its common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Incorporated by reference from the Form 10-Q filed for
the quarterly period ended September 30, 1998, filed on
November 12, 1998.
(b) No reports on Form 8-K were filed by the Registrant during
the quarter ended September 30, 1998.
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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.
CORIXA CORPORATION
December 18, 1998 By: /s/ MICHELLE BURRIS
- ------------------------- -------------------------------------
DATE Michelle Burris
Vice President and
Chief Financial Officer
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