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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 September 30, 1999
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)
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<CAPTION>
DELAWARE 91-1654387
<S> <C>
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
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1124 COLUMBIA STREET, SUITE 200
SEATTLE, WA 98104-2040
(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 September 30, 1999, there were approximately 14,930,619 shares of the
Registrant's common stock outstanding.
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Corixa Corporation
INDEX
PART I. FINANCIAL INFORMATION
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Page
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ITEM 1. FINANCIAL STATEMENTS.
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Consolidated Balance Sheets as of September 30, 1999 (Unaudited) and
December 31, 1998......................................................... 1
Consolidated Statements of Operations (Unaudited) for the three months
ended September 30, 1999 and 1998 and the nine months ended
September 30, 1999 and 1998............................................... 2
Consolidated Statements of Cash Flows (Unaudited) for the nine months
ended September 30, 1999 and 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...................................................... 27
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................. 27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES........................................ 27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................... 27
ITEM 5. OTHER INFORMATION...................................................... 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................... 28
SIGNATURES 28
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CORIXA
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------------
1999 1998
-------- --------
(Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents ................................................ $ 6,730 $ 9,098
Securities available-for-sale ............................................ 48,694 36,043
Accounts receivable (including $206 and $161 receivable from an affiliated
company at September 30, 1999
and December 31, 1998, respectively) .................................. 1,757 3,449
Interest receivable ...................................................... 834 567
Prepaid expenses ......................................................... 667 516
-------- --------
Total current assets .................................................. 58,682 49,673
Property and equipment, net ................................................ 9,884 8,831
Investments ................................................................ 4,049 2,544
Deferred charges and deposits .............................................. 142 136
-------- --------
Total assets .......................................................... $ 72,757 $ 61,184
======== ========
Current liabilities:
Accounts payable and accrued liabilities ................................. $ 5,007 $ 4,368
Deferred revenue ......................................................... 8,388 100
Current portion of obligations ........................................... 3,327 2,697
-------- --------
Total current liabilities ............................................. 16,722 7,165
Commitments ................................................................ -- --
Long-term obligations, less current portion ................................ 11,520 11,835
Stockholders' equity:
Convertible preferred stock, $.001 par value:
Authorized shares -- 10,000,000 (1999 and 1998)
Issued and outstanding shares -- 12,500 in 1999 ....................... -- --
Common stock, $0.001 par value:
Authorized shares -- 40,000,000
Issued and outstanding shares -- 14,930,619 in 1999
and 13,400,895 in 1998 ............................................... 15 13
Additional paid-in capital ............................................... 96,188 76,539
Common stock warrants .................................................... 5,269 --
Deferred compensation .................................................... (584) (1,180)
Accumulated comprehensive income(loss) ................................... (530) 90
Accumulated deficit ...................................................... (55,843) (33,278)
-------- --------
Total stockholders' equity ............................................ 44,515 42,184
-------- --------
Total liabilities and stockholders' equity ............................ $ 72,757 $ 61,184
======== ========
</TABLE>
1
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CORIXA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Collaborative agreements .................. $ 7,785 $ 1,890 $ 16,196 $ 7,279
Government grants ......................... 439 583 1,182 1,068
-------- -------- -------- --------
Total revenue ........................... 8,224 2,473 17,378 8,347
Operating expenses:
Research and development .................. 9,701 6,761 28,364 19,661
General and administrative ................ 441 597 2,186 1,766
In-process research and development ....... -- 12,019 11,612 12,019
-------- -------- -------- --------
Total operating expenses ................ 10,142 19,377 42,162 33,446
-------- -------- -------- --------
Loss from operations ........................ (1,918) (16,904) (24,784) (25,099)
Interest income ............................. 833 800 2,229 2,414
Interest expense ............................ (207) (189) (599) (513)
Other income ................................ 119 22 590 272
-------- -------- -------- --------
Net loss .................................... (1,173) (16,271) (22,564) (22,926)
Preferred stock dividend .................... (156) -- (5,851) --
-------- -------- -------- --------
Net loss applicable to common stockholders .. $ (1,329) $(16,271) $(28,415) $(22,926)
======== ======== ======== ========
Basic and diluted loss per share: ........... $ (0.09) $ (1.35) $ (1.95) $ (1.93)
======== ======== ======== ========
Shares used in computation
of basic and diluted net loss
per share applicable to common
stockholders............................... 14,896 12,013 14,566 11,862
======== ======== ======== ========
</TABLE>
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CORIXA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss .................................................................. $(22,564) $(22,927)
Adjustments to reconcile net loss to net cash used in operating activities:
In-process research and development ..................................... 11,612 12,019
Amortization of deferred compensation ................................... 596 1,131
Depreciation and amortization ........................................... 2,166 1,092
Equity instruments issued in exchange for technology and services ....... 81 131
Equity instruments issued as payment of an up-front royalty ............. 189
Valuation of stock options .............................................. 50
Write-off of warrant receivable ......................................... -- 489
Changes in operating assets and liabilities:
Accounts receivable ................................................... 1,766 (119)
Interest receivable ................................................... (267) (585)
Prepaid expenses ...................................................... (94) 25
Deferred charges and deposits ......................................... 30 47
Accounts payable and accrued expenses ................................. (1,263) 806
Deferred revenue ...................................................... 7,839 (597)
-------- --------
Net cash provided by (used in) operating activities ...................... 141 (8,488)
INVESTING ACTIVITIES
Purchases of securities available-for-sale ................................ (41,489) (77,973)
Proceeds from maturities of securities available-for-sale ................. 19,178 56,510
Proceeds from sale of securities .......................................... 9,041 20,961
Purchases of property and equipment ....................................... (2,272) (3,267)
Ribi preacquisition cost .................................................. (412) --
Investment in Immgenics ................................................... (1,250) --
Purchase of Genquest, net of cash received ................................ -- (4,735)
Net cash received in Anergen acquisition .................................. 469 --
-------- --------
Net cash used in investing activities ..................................... (16,735) (8,504)
FINANCING ACTIVITIES
Principal payments on capital leases ...................................... (811) (769)
Principal payments made on long term obligations .......................... (1,710) --
Net proceeds from issuance of preferred stock ............................ 12,482 --
Net proceeds from issuance of common stock ............................... 2,265 52
Proceeds from long term obligations ....................................... 2,000 4,000
Advances and borrowings from collaborative agreements ..................... -- 2,000
Payments on receivables for warrants ...................................... -- 163
-------- --------
Net cash provided by financing activities ................................ 14,226 5,446
Net decrease in cash and cash equivalents ................................. (2,368) (11,546)
Cash and cash equivalents at beginning of period .......................... 9,098 16,458
-------- --------
Cash and cash equivalents at end of period ................................ $ 6,730 $ 4,912
======== ========
SUPPLEMENTAL DISCLOSURES
Interest paid ........................................................... $ 516 $ 394
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING, INVESTING, AND
FINANCING ACTIVITIES
Equity instruments issued-Anergen acquisition ............................. $ 8,664 $ --
Equity instruments issued-Chinook acquisition ............................. -- 7,352
Equity instruments issued in exchange for technology and services ........ 81 131
Equity instruments issued to relieve acquisition related debt ............ 1,500 --
Assets acquired pursuant to capital leases ............................... -- 308
</TABLE>
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CORIXA CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Corixa Corporation is focused on the discovery and early clinical
development of vaccines and other antigen-based 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
subsidiaries. These statements have been prepared in accordance with Generally
Accepted Accounting Principles (GAAP) and the rules and regulations of the
Securities and Exchange Commission (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 and unaudited
consolidated financial statements and footnotes thereto for the year ended
December 31, 1998 and quarters ended March 31 and June 30, 1999, included in the
Company's Forms 10-K and 10-Q's filed with the SEC on March 22, May 6, and
August 9, 1999, respectively.
PRINCIPLES OF CONSOLIDATION
The mergers with Anergen and GenQuest were accounted for as purchase
transactions. The assets and liabilities of Anergen and GenQuest have been
recorded on the books of the Company at their fair market values. The operating
results of the acquired businesses have been included in the consolidated
statements of operations from February 10, 1999 and September 15, 1998, the
effective date of the acquisitions, respectively. 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; short and mid-term corporate notes
and bonds, with no more than 10% of the portfolio in any one corporate issuer;
and Federal agencies with terms not exceeding four years. Such securities are
stated at fair value, with the unrealized gains and losses reflected in
stockholders' equity and included in comprehensive income(loss). 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.
MANAGEMENT OF CREDIT RISK
The Company is subject to concentration of credit risk, primarily from its
investments. Credit risk for investments is managed by purchase of investment
grade securities, A1/P1 for
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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 and development funding, 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 development payments is 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. The
Company recognized 93% of its revenue during the nine-month period ended
September 30, 1999 and 87% for the same period in 1998 from collaborative
partners.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform to the 1999 presentation.
2. EARNINGS PER SHARE
The Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
Per Share," requires the calculation and presentation of "Basic" and "Diluted"
earnings per share. Basic earnings per share is calculated by dividing net loss
by the weighted average number of common shares outstanding. Diluted earnings
per share is calculated by dividing net loss by the weighted average common
shares outstanding plus the dilutive effect of outstanding stock options, stock
warrants and preferred stock. Since Corixa reports a net loss, diluted earnings
per share is the same as basic earnings per share because the effect of
outstanding stock options, stock warrants and preferred stock being added to
weighted average shares outstanding would reduce the loss per share. Therefore,
outstanding stock options, stock warrants and preferred stock are not included
in the calculation.
3. COMPREHENSIVE LOSS
For the three and nine months ended September 30, 1999 and 1998, the
Company's comprehensive loss was as follows (in thousands):
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For the three months ended For the nine months ended
------------------------------- ------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Loss ......................... $(1,173) $(16,271) $(22,564) $(22,926)
Other comprehensive income (loss):
Unrealized holding gains
(losses) arising during period . (95) 225 (620) 203
------- -------- -------- --------
Total comprehensive loss ......... $(1,268) $(16,046) $(23,184) $(22,723)
======= ======== ======== ========
</TABLE>
4. BUSINESS COMBINATIONS
Acquisition of GenQuest
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On September 15, 1998, the Company acquired all of the outstanding shares
of common stock of GenQuest. GenQuest is 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 in diagnosis, drug screening, gene therapy and antibody development in the
areas of prostate, breast, lung, colon, and ovarian cancer. While at the time of
acquisition no program was at a stage beyond very early research, each
identified program had specific objectives and data supporting its intended
purpose in the field of oncology. Prior to the acquisition, Corixa was a
stockholder in GenQuest. The acquisition was accounted for as a purchase
transaction. 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 (IPR&D) 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>
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Acquired in-process research and development........... $12,019
Assets acquired........................................ 1,083
Liabilities assumed.................................... (662)
-------
Total purchase price................................... $12,440
=======
</TABLE>
Acquisition of Anergen
On February 10, 1999, the Company acquired all of the outstanding shares of
common stock of Anergen. Anergen is a biotechnology company focused on the
treatment of autoimmune diseases through the discovery and development of
proprietary therapeutics that selectively interrupt the disease process. The
acquisition was accounted for as a purchase transaction. Aggregate consideration
for the acquisition was approximately $9.6 million, which consisted of 1,058,031
shares of Corixa common stock, with a market value of approximately $8.7
million, approximately $200,000 in cash, and approximately $700,000 of
acquisition costs. The aggregate purchase price exceeded the fair value of
tangible assets by approximately $11.6 million, and this amount was allocated to
IPR&D during the first quarter of 1999. The aggregate purchase price was
allocated, based on estimated fair values on the acquisition date, as follows
(in thousands):
<TABLE>
<S> <C>
Acquired in-process research and development.............. $11,612
Assets acquired........................................... 1,684
Liabilities assumed....................................... (3,663)
-------
Total purchase price...................................... $ 9,663
=======
</TABLE>
For each of the above acquisitions, acquired IPR&D represents the present
value of the estimated after-tax cash flows expected to be generated by the
purchased technology, which, at the acquisition dates, had not yet reached
technological feasibility. The cash flow projections for revenues were based on
estimates of growth rates and the aggregate size of the respective market for
each product; probability of technical success given the stage of development at
the time of acquisition; royalty rates based on prior licensing agreements;
products sales cycles; and the estimated life of a product's underlying
technology. Estimated operating expenses and income taxes were deducted from
estimated revenue projections to arrive at estimated after-tax cash flows.
Projected operating expenses include general and administrative expenses, and
research and development costs. The rates utilized to discount projected cash
flows were 38% to 55% for in-process technologies used depending upon the
relative risk of each in-process technology and were
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based primarily on venture capital rates of return and the weighted average cost
of capital for Corixa at the time of acquisition.
All of the foregoing estimates and projections regarding the GenQuest and
Anergen acquisitions were based on assumptions Corixa believed to be reasonable
at the time of the acquisitions, but which are inherently uncertain and
unpredictable. If these projects are not successfully developed, the business,
operating results, and financial condition of Corixa may be adversely affected.
As of the date of each acquisition, Corixa concluded that once completed, the
technologies under development can only be economically used for their specific
and intended purposes and that such in-process technology has no alternative
future use after taking into consideration the overall objectives of the
project, progress toward the objectives, and uniqueness of developments to these
objectives. If the Company fails in its efforts, no alternative economic value
will result. If the projects fail, the economic contribution expected to be made
by the IPR&D will not materialize. The risk of untimely completion includes the
risk that alternative vaccines, immunotherapeutics, or diagnostics will be
developed by competitors. See Factors Affecting Future Results -- "OUR
TECHNOLOGY AND PRODUCT DEVELOPMENT ARE UNPROVEN."
The following table reflects unaudited consolidated pro forma results of
operations for the nine months ended September 30, 1999 which give effect to the
Anergen acquisition as if it had occurred on January 1, 1999 and for the nine
months ended September 30, 1998 which give effect to the Anergen acquisition and
GenQuest acquisition as if each had occurred on January 1, 1998. Such pro forma
amounts are not necessarily indicative of what the actual consolidated results
of operations might have been if the acquisition had been effective at the
beginning of the respective periods. The following pro forma information does
not include the one-time charges for purchased IPR&D or other
transaction-related costs relating to the acquisition of Anergen or Genquest (in
thousands, except per share data):
<TABLE>
<CAPTION>
For the nine months ended
--------------------------------
September 30, September 30,
1999 1998
------------ ------------
<S> <C> <C>
Revenue $ 17,510 $ 10,628
Net loss $ (12,055) $ (19,051)
Basic and diluted net loss per share $ (0.83) $ (1.37)
</TABLE>
Acquisition of Ribi ImmunoChem Research, Inc.
In June 1999, Corixa announced that it had signed a definitive agreement to
acquire all outstanding shares of Ribi ImmunoChem Research, Inc. (Ribi). Ribi, a
Hamilton, Montana-based biopharmaceutical company founded in 1981, focuses on
developing novel agents that modulate the human immune response to prevent or
treat certain diseases including cancer, infectious diseases and cardiovascular
injury. On October 6, 1999, the purchase of Ribi was finalized. Corixa purchased
Ribi for approximately $57.7 million, which consists of Corixa common stock and
options to purchase Corixa common stock valued at $48.0 million, cash of $7.9
million paid by Corixa to Ribi for the redemption of Ribi Series A preferred
stock and transaction costs of approximately $1.8 million. The purchase price
will be allocated based on the fair value of assets acquired and liabilities
assumed and purchased goodwill. The conversion of Ribi common stock into Corixa
common stock has been calculated using a fixed exchange ratio of 0.1685 per
share of Ribi common stock outstanding at the time of closing. All outstanding
shares of Ribi Series A Preferred Stock have been redeemed in accordance with
the terms of the acquisition agreement. The transaction is intended to qualify
as a tax-free reorganization and will be accounted for as a purchase. Through
September 30, 1999, Corixa has incurred approximately $1.0 million in
pre-acquisition costs associated with this transaction, which are included in
investments.
5. STOCKHOLDERS' EQUITY
Preferred Stock
On April 9, 1999 Corixa announced that on April 8, 1999, it entered into an
agreement (the Agreement) with Castle Gate, L.L.C., a Northwest investment
partnership focusing primarily on health care and biomedical companies (Castle
Gate), to provide Corixa with an equity line of
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credit of up to $50 million (the Equity Line of Credit). Under the Agreement,
Castle Gate is obligated to provide the Equity Line of Credit to the Company for
a period of two years. The Company may draw down funds pursuant to the Equity
Line of Credit at its sole option and may use such funds for expenses associated
with various technology or company acquisitions. When funds are drawn down under
the Equity Line of Credit, the Company will issue to Castle Gate shares of
Series A preferred stock (Preferred Stock) at a price of $1,000 per share and
warrants to purchase shares of the Company's common stock (Common Stock). On
September 24, 1999 the Company obtained shareholder approval for any additional
funds that we may elect to draw under the equity line of credit, provided that
each draw is a minimum of $12.5 million.
The Preferred Stock has an annual cumulative dividend of 5% which may be
paid, at the Company's option, in cash or in shares of the Company's common
stock. Upon execution of the Agreement, the Company consummated an initial
draw-down under the Equity Line of Credit of $12.5 million (the Initial Draw)
and issued Castle Gate 12,500 shares of Preferred Stock and warrants to purchase
an aggregate of up to 1,037,137 shares of common stock (the Initial Closing
Warrants). Certain Initial Closing Warrants to purchase 312,500 shares have an
exercise price of $8.50 per share and certain Initial Closing Warrants to
purchase 724,637 shares have an exercise price of $8.28 per share. Common stock
warrants valued at $4.4 million for Castle Gate are included in equity at
September 30, 1999.
On the date of the Initial Draw, the effective conversion price of the
preferred stock (after allocating the portion of the proceeds to the common
stock warrants based on the relative fair values) was at a discount to the price
of the common stock into which the preferred stock is convertible. The discount
was recorded as a preferred stock dividend valued at $5.5 million. See the Form
8-K filed by the Company on April 23, 1999.
7. SCIENTIFIC COLLABORATION AND LICENSE AGREEMENTS
On August 19, 1999 Corixa entered into a multi-year license and research
and development funding agreement with Zenyaku Kogyo Co. Ltd., a pharmaceutical
company based in Japan (Zenyaku Kogyo). The agreement covers the psoriasis
immunotherapeutic product (PVAC) developed by Corixa and Genesis Research and
Development Corporation (Genesis). The agreement provides Zenyaku Kogyo with
exclusive rights to PVAC in Japan, while Corixa and Genesis retain exclusive
rights with respect to the rest of the world.
Under the terms of the agreement, Corixa will receive license fees,
research funding and milestone payments based upon successful clinical and
commercial progress, as well as a royalty stream on future product sales.
8. NEW ACCOUNTING STANDARDS
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 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 Company does not expect the adoption of the provisions
to have a significant impact on the Company's financial position or results of
operations.
9. SUBSEQUENT EVENTS
On October 7, 1999, Corixa signed a licensing and collaborative research
agreement with LigoCyte Pharmaceuticals, Inc. (LigoCyte) to utilize LigoCyte
technology for the development of therapeutic and vaccine products that target
infections arising from Candida albicans.
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Under the terms of the agreement and related agreements, LigoCyte will
receive equity funding, license fees, research funding and milestone payments
based upon successful clinical and commercial progress, as well as a royalty on
future product sales.
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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:
o uncertainties related to the early stage of our research and development
programs;
o uncertainties related to the effectiveness of our technology and the
development of our products;
o our failure to acquire additional companies or technologies to expand or
support the growth of our business;
o our failure to successfully manage any future growth;
o dependence on and management of existing and future corporate partnerships;
o our failure to establish corporate collaborations either at all or early in
the development process for all aspects of product development and
commercialization;
o dependence on in-licensed technology;
o dependence on proprietary technology and uncertainty of patent protection;
o history of operating losses;
o possible volatility of stock price;
o future capital needs and uncertainty of additional funding;
o our lack of manufacturing and marketing experience and reliance on third
parties to perform such functions;
o possible risks related to adverse clinical results if products including
any of such technology or our other technologies such as PVAC move into or
progress in clinical trials;
o existing governmental regulations and changes in, or the failure to comply
with, governmental regulations;
o impact of alternative technological advances and competition on us and the
collaborative relationships between us and our corporate partners;
o the potential dilutive effect of equity purchases by SmithKline Beecham plc
(SmithKline Beecham) and Castle Gate, L.L.C. (Castle Gate) to our other
stockholders; and
o the impact of the GenQuest Inc. (GenQuest), Anergen Inc. (Anergen) and Ribi
ImmunoChem Research, Inc. (Ribi) acquisitions and other acquisitions or
equity investments, if any, in early stage companies such as ImmGenics
Pharmaceuticals, Inc. (ImmGenics) and LigoCyte Pharmaceuticals, Inc.
(LigoCyte) as well as the risk factors discussed below in "Factors
Affecting Future Results" and those listed from time to time in our public
disclosure filings with the SEC, including our Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, our current reports on Forms
8-K, filed with the SEC on August 9, 1999, August 18, 1999 and October 21,
1999, and Amendment One to our Registration Statement to Form S-4, filed
with the SEC on August 12, 1999.
We assume no obligation to update the forward-looking statements included
in this Form 10-Q.
OVERVIEW
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Our objective is to be a leader in the discovery and commercialization of
immunotherapeutic products useful in preventing, treating or diagnosing cancer,
certain infectious diseases and certain autoimmune diseases. Our strategy is to
dedicate our 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. We believe that this research-and partner-driven approach creates
significant scientific, operational and financial advantages for us and
accelerates the commercial development of new therapeutic and prophylactic T
cell vaccines and other immunotherapeutic products. For the nine months ended
September 30, 1999, approximately 93% of our revenue resulted from such
collaborative agreements. In particular, we have entered into the following
significant corporate partnerships:
o In October 1998, Corixa and SmithKline Beecham entered into a multi-field
agreement which expanded our previous collaborations with SmithKline
Beecham Biologicals and SmithKline Beecham Manufacturing covering
tuberculosis, breast cancer and prostate cancer. The multi-field agreement
includes payment for work that is performed in ovarian and colon and two
chronic infectious pathogens, Chlamydia trachomitis and Chlamydia
pneumoniae. The expanded collaboration agreement also allows for the
selection of one additional disease field to be agreed upon at a future
date. We have also granted SmithKline Beecham an exclusive worldwide
license to develop, manufacture, and sell vaccine products resulting from
our clinical program based on Her-2/neu for the treatment of breast and
ovarian cancer as well as our preclinical program based on Mammoglobin, a
novel gene product associated with breast cancer. For certain of these
disease areas, we granted SmithKline Beecham certain rights to develop,
manufacture and sell passive immunotherapeutic products such as T cell or
antibody therapeutics and therapeutic drug monitoring products. SmithKline
Beecham has committed $43.6 million to fund work in such programs through
August 2002.
o In May 1999, we entered into a collaboration agreement with Zambon for the
research, development and commercialization of vaccine products aimed at
the prevention and/or treatment of lung cancer. We granted Zambon an
exclusive license to develop and sell these vaccine products and
therapeutic drug monitoring products in Europe, the countries of the former
Soviet Union, Argentina, Brazil and Colombia, as well as co-exclusive
rights in China. We also granted Zambon the non-exclusive right to
formulate the vaccines in our microsphere delivery system with our
proprietary protein adjuvants. We have also agreed to supply pre-clinical
and clinical grade materials as well as commercial materials to Zambon in
connection with the collaboration. Under the terms of the agreement, Zambon
is committed to funding work that is performed in lung cancer antigen
program over the next three years.
o In June 1999, we entered into a license and collaboration agreement with
the pharmaceutical division of Japan Tobacco for the research, development
and commercialization of vaccine and antibody-based products aimed at the
prevention and/or treatment of lung cancer. We granted Japan Tobacco an
exclusive license to develop and sell vaccine products in the United
States, Japan and all other countries not exclusively licensed to Zambon,
and Japan Tobacco's rights are co-exclusive in China. We also granted Japan
Tobacco an option to a nonexclusive license to formulate vaccines that may
result from the collaboration in our microsphere delivery system with our
proprietary protein adjuvants. We have also agreed to supply preclinical
and clinical grade materials to Japan Tobacco in connection with the
collaboration. Japan Tobacco may also elect to require us to supply
commercial materials for products licensed to Japan Tobacco under the
agreement. Under the agreement, Japan Tobacco has committed to funding the
lung cancer program over the next three years. The agreement became
effective on July 17, 1999.
For the nine months ended September 30, 1999, approximately 7% of our
revenue has resulted from funds awarded through government grants. As of
September 30, 1999, our stockholders' equity was approximately $44.5 million.
We have entered, and currently intend to continue to enter, into
collaborative agreements early in the product development process. We believe
that this active corporate partnering strategy
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enables us to maintain our focus on our fundamental strengths in vaccine
discovery and research, capitalizes on our corporate partners' strengths in
product development, manufacturing and commercialization, and significantly
diminishes our financing requirements. When entering into such corporate
partnering relationships, we seek to cover a significant portion of our 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.
In April 1999, we entered into an agreement with Castle Gate, a Northwest
investment partnership focusing primarily on health care and biomedical
companies, to provide us with an equity line of credit of up to $50 million.
Under this agreement, Castle Gate is obligated to provide the equity line of
credit for a period of two years. We may draw down funds under the equity line
of credit at our sole option and may use such funds for expenses associated with
various technology or company acquisitions. When such funds are drawn down under
the equity line of credit, we will issue Castle Gate shares of our Series A
preferred stock at a price of $1,000 per share and warrants to purchase shares
of our common stock.
Upon execution of the Castle Gate agreement, we completed an initial
draw-down under the equity line of credit of $12.5 million and a corresponding
issuance to Castle Gate of 12,500 shares of Series A preferred stock and
warrants to purchase a total of up to 1,037,137 shares of common stock. On
September 24, 1999 we obtained stockholder approval for any additional funds
that we may elect to draw under the equity line of credit. We may elect to draw
down additional funds under the equity line of credit, provided that each draw
is a minimum of $12.5 million. We have no present intention to make any
additional draws under the equity line of credit.
In June 1999, we announced that we had entered into an Agreement and Plan
of Merger with Ribi, a Hamilton, Montana-based biopharmaceutical company founded
in 1981. Ribi focuses on developing novel agents that modulate the human immune
response to prevent or treat certain diseases including cancer, infectious
diseases and cardiovascular injury. On September 23 and September 24, 1999, the
stockholders of Ribi and Corixa, respectively, approved the merger. On October
6, 1999, the merger was completed. As a result, Ribi ceased to exist as a
separate company. Corixa purchased Ribi for approximately $57.7 million, which
consisted of Corixa common stock and options to purchase Corixa common stock
valued at $48.0 million, cash of $7.9 million paid by Corixa to Ribi for the
redemption of Ribi Series A preferred stock and transaction costs of
approximately $1.8 million. The purchase price will be allocated based on the
fair value of assets acquired and liabilities assumed and purchased goodwill.
The conversion of Ribi common stock into Corixa common stock was calculated
using a fixed exchange ratio of 0.1685 per share of Ribi common stock
outstanding at the time of closing. All outstanding shares of Ribi Series A
Preferred Stock were redeemed in accordance with the terms of the acquisition
agreement. The transaction is intended to qualify as a tax-free reorganization
and will be accounted for as a purchase.
We remain 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. We have also broadened our
scope to include other immune system based therapies for cancer, infectious
diseases and autoimmune diseases.
We have experienced significant operating losses in each year since our
inception. As of September 30, 1999, our accumulated deficit was approximately
$55.8 million of which 42.3% was attributable to in-process research and
development (IPR&D) associated with the acquisitions of GenQuest and Anergen. We
may incur substantial additional operating losses over the next several years.
Such losses have been and may continue to be principally the result of various
costs associated with our acquisition activities, including the expenses
associated with the write-off of IPR&D, discovery, research and development
programs and preclinical studies and clinical activities. Substantially all of
our revenue to date has resulted from corporate partnerships, other research,
development and licensing arrangements, research grants and interest income. Our
ability to achieve a consistent, profitable level of operations is dependent in
large part upon:
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o entering into agreements with corporate partners for product discovery,
research, development and commercialization;
o obtaining regulatory approvals for our products, directly or through
corporate partners; and
o successfully manufacturing and marketing commercial products, either
directly or through corporate partners.
We may not 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, potentially
resulting in quarters of profitability and quarters of losses. Therefore, our
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, 1999 AND SEPTEMBER 30, 1998
Total Revenue
Revenue increased to $8.2 million for the three months ended September 30,
1999 from $2.5 million for the same period in 1998. This increase was primarily
attributable to revenue recognition from the collaboration agreements with
SmithKline Beecham, Zambon, Infectious Disease Research Institute (IDRI) and
Japan Tobacco, which consisted primarily of ongoing research and development
revenue. Revenue increased to $17.4 million for the nine-month period ended
September 30, 1999 from $8.3 million for the first nine months of 1998. The
increase in revenue for the first nine months of 1999 was due mainly to revenue
recognition from the collaboration agreements with SmithKline Beecham, the lung
cancer antigen discovery collaboration agreements with Zambon and Japan Tobacco
and the ex vivo therapies collaboration agreement with IDRI. In the nine months
ended September 30, 1998, we recognized revenue of $1.0 million in conjunction
with a collaboration agreement with GenQuest while no revenue was recognized in
1999 due to the acquisition of GenQuest.
Research and Development Expenses
Research and development expenses increased to $9.7 million for the three
months ended September 30, 1999 from $6.8 million for the same period in 1998.
The increase was primarily attributable to increased salaries and benefits which
were a result of additional hires of research and development personnel,
increased equipment depreciation and facilities expenses which are in connection
with the expansion of our research efforts, higher consulting fees, outside
manufacturing expenses and additional research and development expenses incurred
by our subsidiaries.
For the nine months ended September 30, 1999, research and development
expenses increased to $28.4 million from $19.7 million in the same period in
1998. The increase was primarily attributable to increased salaries and benefits
which were the result additional hires of research and development personnel,
increased equipment depreciation and facilities expenses which are in connection
with the expansion of our research efforts, higher consulting fees, outside
manufacturing expenses and additional research and development expenses incurred
by our subsidiaries. For the first nine months of 1998, a charge of $330,000 was
recognized to reflect the expenses associated with the termination of the
collaboration with CellPro. In June 1999, we recovered these expenses from
CellPro in the form of cash, which has been recognized as other income.
General and Administrative Expenses
General and administrative expenses decreased to $441,000 for the three
months ended September 30, 1999, from $597,000 for the same period in 1998. The
decrease in general and
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administrative expenses for the three months ended September 30, 1999 was the
result of a decrease in patent expenses in the third quarter of 1999. For the
nine months ended September 30, 1999, general and administrative expenses
increased to $2.2 million from $1.8 million for the same period in 1998. The
increase for the nine months ended September 30, 1999 compared to the same
period in 1998 is primarily due to increased expenses related to legal fees,
business development and additional administrative expenses incurred from
Anergen operations. We expect general and administrative expenses to increase in
the future to support the expansion of its business activities.
In-Process Research and Development
For the nine months ended September 30, 1999, IPR&D decreased to $11.6
million from $12.0 million in the same period in 1998. The $11.6 million
reflects the amount allocated to IPR&D acquired in the Anergen acquisition
compared to $12.0 million in the GenQuest acquisition during 1998.
Acquired IPR&D for each of the above acquisitions represents the present
value of the estimated after-tax cash flows expected to be generated by the
purchased technology, which, at the acquisition dates, had not yet reached
technological feasibility. The cash flow projections for revenues were based on
estimates of growth rates and the aggregate size of the respective markets for
each product; probability of technical success given the stage of development at
the time of acquisition; royalty rates based on prior licensing agreements;
products sales cycles; and the estimated life of a product's underlying
technology. Estimated operating expenses and income taxes were deducted from
estimated revenue projections to arrive at estimated after-tax cash flows.
Projected operating expenses include general and administrative expenses, and
research and development costs. The rate utilized to discount projected cash
flows ranged from 38% to 55% for in-process technologies and was based primarily
on venture capital rates of return and the weighted average cost of capital for
Corixa at the time of acquisition.
At the acquisition date, Anergen's IPR&D projects were potential therapies
for the treatment of autoimmune diseases which focus on destroying or
inactivating T cells without affecting the protective functions of the immune
system, or stimulate the immune system to produce antibodies that may interfere
with the presentation of self-antigens to destructive T cells. AnervaX.RA, a
potential product to treat rheumatoid arthritis, is the primary product.
AnervaX.RA is a synthetic peptide vaccine consisting of a small portion of the
human leukocyte antigen (HLA) II molecule. AnervaX.RA is designed to elicit an
immune response that interferes with the presentation of self-antigens to T
cells. This immune response is intended to stimulate the production of the
patient's own antibodies to a subset of the HLA molecules on the patient's
antigen presenting cells. AnervaX.RA peptide vaccine has completed a 53-patient
randomized Phase II double-blinded clinical trial.
At the date of acquisition, GenQuest's primary IPR&D projects related to
functional genomics technology to discover and develop novel genes and related
gene products to be used in diagnosis and therapeutic monoclonal antibodies.
These potential products are in the areas of prostate, breast, lung, colon and
ovarian cancer.
All of the foregoing estimates and projections were based on assumptions we
believed to be reasonable at the time of the acquisition but which are
inherently uncertain and unpredictable. If these projects are not successfully
developed, our business, operating results, and financial condition may be
adversely affected. As of the date of the acquisition, we concluded that once
completed, the technologies under development can only be economically used for
their specific and intended purposes and that such in-process technologies have
no alternative future use after taking into consideration the overall objectives
of the project, progress toward the objectives, and uniqueness of developments
to these objectives. If the projects fail, the economic contribution expected to
be made by the in-process research and development will not materialize. The
risk of untimely completion includes the risk that alternative products will be
developed by competitors. See Factors Affecting Future Results - "OUR TECHNOLOGY
AND PRODUCT DEVELOPMENT ARE UNPROVEN."
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Interest Income
Interest income remained relatively constant at approximately $800,000 for
the three months ended September 30, 1999 and 1998. For the nine months ended
September 30, 1999, interest income decreased to $2.2 million from $2.4 million
for the same period in 1998. The decrease in the nine months ended September 30,
1999 resulted from higher average cash balance in 1998 as compared to 1999. The
1998 average cash balance was higher as a result of the proceeds from our
initial public offering which was completed on October 2, 1997.
Interest Expense
Interest expense increased to $207,000 for the three months ended September
30, 1999 from $189,000 for the same period in 1998. For the nine months ended
September 30, 1999, interest expense increased to $599,000 from $513,000 for the
same period in 1998. The increase for the three-month and nine-month periods
ended September 30, 1999 resulted from higher loan and capital lease financing
balances.
Other Income
Other income increased to $119,000 for the three months ended September 30,
1999 from $22,000 for the same period in 1998. The increase for the three months
ended September 30, 1999 was primarily attributable to increased sublet rental
income and an insurance refund. For the nine months ended September 30, 1999,
other income increased to $590,000 from $272,000 for the same period in 1998.
The increase for the nine months ended September 30, 1999 was attributable to
increased sublet rent income, an insurance refund and proceeds received from
CellPro which were associated with the recovery of expenses incurred in the
termination of the collaboration with CellPro. These expenses were initially
charged to research and development in the first quarter ended March 31, 1998.
Deferred Compensation
Amortization of deferred compensation of approximately $142,000 and
$264,000 was recorded in the three months ended September 30, 1999 and 1998,
respectively. For the nine months ended September 30, 1999 and 1998, deferred
compensation was $596,000 and $1.1 million, respectively. Deferred compensation
represents the amortization of the difference between the exercise prices of
options for 645,000 shares of common stock granted during the year ended
December 31, 1997 and the deemed fair value of our common stock on the grant
dates. The remaining balance of $584,000 will be amortized over the rest of 1999
and the fiscal years 2000 and 2001 as the subject options vest.
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. We have completed our assessment of our internal
systems affected by the Year 2000 issue and anticipate that we will not be
required to modify or replace significant portions of our software to cause our
computer systems will properly utilize dates past December 31, 1999.
We have completed communications, in the form of questionnaires, with our
significant suppliers and customers to determine the extent to which we are
vulnerable to those third parties' failure to solve their own Year 2000 issues.
At this time, we do not anticipate any significant issues related to the Year
2000 with respect to our significant suppliers and customers. We intend to
continue to monitor the progress of these third parties and have developed
contingency plans as considered necessary. The total exposure of the Year
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2000 issue is estimated to be less than $100,000 and will be funded through
operating cash flows. Management does not currently expect our financial
condition or results of operations to be materially adversely affected by the
Year 2000 issue. However, we cannot guarantee that the systems of other
companies on which our systems rely will be timely converted, or that a failure
to convert by another company, or a conversion that is incompatible with our
systems, would not have a material adverse effect on us.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily through the issuance of equity
securities, collaborative agreements and debt instruments. Our October 1997
initial public offering and preceding private placements of equity securities
have provided us with aggregate proceeds of approximately $61.1 million. Through
September 30, 1999, we have recognized approximately $58.5 million of revenue
under corporate partnerships and grants and have drawn $9.0 million on a bank
loan, $5.0 million from credit lines under collaborative agreements and $12.5
million from the issuance of Series A Preferred Stock under an equity line of
credit. Through September 30, 1999 (since inception), our operations have used
cash of approximately $14.4 million.
We have invested $9.6 million in property and equipment and have acquired
an additional $4.6 million of equipment through capital lease financing since
inception. We expect capital expenditures to stabilize because our facility
expansion was completed March 1999.
During the nine months ended September 30, 1999, net cash provided by our
operations was $141,000, compared to net cash used of $8.5 million in the same
period in 1998. The positive net change in cash from operations was primarily
due to advance payments received under collaborative agreements. Investing
activities used $16.7 million, compared to $8.5 million over the same period in
1998 primarily due to cash invested in marketable securities and the purchase of
additional Class A preferred shares of ImmGenics. Financing activities provided
$14.2 million, compared to $5.4 million for the same period in 1998. The
positive net change was attributable to the equity line of credit from Castle
Gate and was offset by a decrease in draws and cash payments on long-term debt.
As of September 30, 1999, we had approximately $55.4 million in cash, cash
equivalents and securities available-for-sale compared to $45.1 million at
December 31, 1998. Working capital decreased approximately $500,000 to $42.0
million at September 30, 1999 from $42.5 million at December 31, 1998.
We believe that our existing capital resources, committed payments under
our existing collaborative agreements and licensing arrangements, equipment
financing and interest income will be sufficient to fund our current and planned
operations until at least December 2000. See Factors Affecting Future Results --
"OUR NEED FOR, AND ABILITY TO SECURE, ADDITIONAL FUNDING IS UNCERTAIN."
FACTORS AFFECTING FUTURE RESULTS
WE MAY NEVER GENERATE SUFFICIENT REVENUE TO ACHIEVE PROFITABILITY.
We are at an early stage in the development of our therapeutic,
prophylactic and diagnostic products. To date, almost all of our revenue has
resulted from payments made under agreements with our corporate partners, and we
expect that most of our revenue for the foreseeable future will continue to
result from corporate partnerships. Since our inception, we have generated only
minimal revenue from diagnostic product sales and no revenue from therapeutic or
prophylactic product sales. We do not expect immunotherapeutic products that may
result from our research and development programs to be commercially available
for a number of years, if at all. It is uncertain when, if ever, we will receive
any significant revenue from commercial sales of such products. We may not
receive anticipated revenue under existing corporate partnerships or be able
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to enter into any additional corporate partnerships. Thus, we may never achieve
consistent profitability.
OUR TECHNOLOGY AND PRODUCT DEVELOPMENT ARE UNPROVEN.
Our technological approach to the development of therapeutic and
prophylactic vaccines and other immunotherapeutic products for cancers and
infectious and autoimmune diseases is unproven in humans. Products based on our
technologies are currently in the discovery, preclinical or early clinical
investigation stages. To date, only one of our corporate partners has conducted
clinical trials that incorporate our proprietary microsphere delivery systems
and, other than a Phase I clinical trial in Brazil, neither we nor any of our
corporate partners have conducted any clinical trials that incorporate our
proprietary adjuvants. In addition, neither we nor any other company has
successfully commercialized any therapeutic vaccines for cancer or the
infectious or autoimmune diseases we target. We may not be able to develop
effective vaccines for such diseases within a reasonable time, if ever, and such
vaccines may not be capable of being commercialized.
Most of our programs are currently in the discovery stage or in preclinical
development. Only seven of our immunotherapeutic products have advanced to
clinical trials. Our vaccines have not been demonstrated to be safe and
effective in clinical settings. Our programs may not move beyond their current
stages of development.
OUR STOCKHOLDERS FACE POTENTIAL DILUTION.
Our stockholders will experience dilution if:
o we elect or are required to sell shares of our common stock to SmithKline
Beecham plc under the terms of our multi-field collaboration and license
agreement with SmithKline Beecham;
o we issue additional shares of our Series A preferred stock and warrants to
purchase our common stock to Castle Gate in connection with additional
draw-downs of funds under the Castle Gate equity line of credit; or
o we enter into additional corporate partnerships or acquire additional
technologies or companies in connection with which we agree to sell shares
of our capital stock.
RISKS RELATED TO THE RIBI MERGER.
INTEGRATION OF OPERATIONS MAY BE DIFFICULT AND LEAD TO ADVERSE EFFECTS.
The anticipated benefits of the merger will depend in part on whether
Corixa can integrate Ribi's operations in an efficient and effective manner.
Integrating Ribi into Corixa will be a complex, time consuming and expensive
process. Successful integration will require combining the companies'
respective:
o research, development and manufacturing efforts;
o scientific cultures;
o strategic goals;
o business development efforts; and
o geographically separate facilities.
Corixa may not accomplish this integration smoothly or successfully. The
diversion of the attention of management to the integration effort and any
difficulties encountered in combining operations could cause the interruption
of, or a loss of momentum in, the activities of either or both of the companies'
businesses. Furthermore, employee morale may suffer, Corixa may have
difficulties retaining key scientific and managerial personnel.
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THE MERGER WILL RESULT IN COSTS OF INTEGRATION AND TRANSACTION EXPENSES THAT
COULD ADVERSELY AFFECT COMBINED FINANCIAL RESULTS.
If the benefits of the merger do not exceed the costs associated with the
merger, including the dilution to Corixa's stockholders resulting from the
issuance of shares of Corixa common stock in connection with the merger,
Corixa's financial results, including earnings per share, could be adversely
affected. The combined company also expects to incur costs after completion of
the merger associated with integrating the operations of Corixa and Ribi. Such
costs may include:
o elimination of duplicate operations; and
o consolidation of certain administration, support and research and
development activities.
In addition, unanticipated expenses associated with integrating the two
companies may arise. We expect to incur a one-time charge currently estimated to
be $26.0 million in the fourth quarter of 1999 to reflect our write-off of
Ribi's in-process research and development efforts. Corixa may also incur
additional charges in subsequent quarters to reflect costs associated with the
merger.
THERE MAY BE UNKNOWN RISKS INHERENT IN THE MERGER, ESPECIALLY PERTAINING TO
RIBI'S INTELLECTUAL PROPERTY.
Although we have conducted scientific due diligence with respect to Ribi,
we did not perform the research and development activities or control the patent
application process related to those activities itself. The combined company may
discover adverse information concerning Ribi's intellectual property subsequent
to the completion of the merger, such as the possible inadequacy of Ribi's
current patent protection and/or potential patent infringement by Ribi.
Additionally, many other biotechnology companies currently are filing patents in
the fields of antigens, adjuvants and biopharmaceutical compounds at a rapid
pace, and Ribi may not have been the first to file patent application covering
Ribi discoveries, or may not have obtained adequate patent protection for its
proprietary products.
WE MAY NOT SUCCESSFULLY MANAGE OUR GROWTH OR INTEGRATE POTENTIAL FUTURE
ACQUISITIONS.
In the future, we may make additional acquisitions of complementary
companies, products or technologies. Managing these acquired businesses will
entail numerous operational and financial risks and strains, including:
o difficulties in assimilating acquired operations and scientific cultures;
o amortization of acquired intangible assets; and
o potential loss of key employees or strategic relationships of acquired
entities.
We may not be able to effectively manage our growth, and failure to do so
may adversely affect our business and stock price.
WE ARE DEPENDENT ON EXISTING AND FUTURE CORPORATE PARTNERSHIPS.
The success of our business strategy is largely dependent on our ability to
enter into multiple corporate partnerships and to manage effectively the
numerous relationships that may exist as a result of this strategy. We have
established significant relationships with various corporate partners,
including, among others, the following:
o in October 1998, we entered into a strategic collaboration and license
agreement with SmithKline Beecham for the research, development and
commercialization of vaccine
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products aimed at the prevention and/or treatment of tuberculosis,
chlamydia trachomatis infection, chlamydia pneumoniae infection, breast
cancer, prostate cancer, ovarian cancer and colon cancer;
o in May 1999, we entered into a collaboration agreement with Inpharzam
International S.A., a wholly-owned subsidiary of Zambon, for the research,
development and commercialization (exclusively in Europe and certain South
American countries and co-exclusively in China) of vaccine products aimed
at the prevention and/or treatment of lung cancer; and
o in June 1999, we entered into a license and collaborative research
agreement with the pharmaceutical division of Japan Tobacco, Inc. for the
research, development and commercialization (exclusively in North America,
Japan and all other countries not exclusively licensed to Zambon, and
co-exclusively in China) of vaccine and antibody-based products aimed at
the prevention and/or treatment of lung cancer.
We derived 93% of our revenue during the nine months ended September 30,
1999 and each of the years ended December 31, 1998 and December 31, 1997 from
research and development and other funding under our existing corporate
partnerships.
Certain of our corporate partners have entered into agreements granting
them options to license certain aspects of our technology. Any of these
corporate partners may not exercise its option to license such technology. We
have also entered into corporate partnerships with several companies for the
development, commercialization and sale of diagnostic products incorporating our
proprietary antigen technology. These diagnostic corporate partnerships may
never generate significant revenues. Furthermore, we are currently engaged in
discussions with a number of pharmaceutical and diagnostic companies with
respect to potential corporate partnering arrangements covering various aspects
of our technologies. The process of establishing corporate partnerships is
difficult and time-consuming and involves significant uncertainty. These
discussions may not lead to the establishment of new corporate partnerships on
favorable terms, if at all. If established, such corporate partnerships may
never result in the successful development of our products or the generation of
significant revenues.
Because we enter into research and development collaborations with
corporate partners at an early stage of product development, our success depends
upon the performance of our corporate partners. We do not directly control the
amount or timing of resources to be devoted to activities by our corporate
Partners. Any of our corporate partners may not commit sufficient resources to
our research and development programs or the commercialization of our products.
If any corporate partner fails to conduct its activities in a timely manner, or
at all, our preclinical or clinical development related to such corporate
partnership could be delayed or terminated. Also, our current corporate partners
or future corporate partners, if any, may pursue existing or other
development-stage products or alternative technologies in preference to those
being developed in collaboration with us. Further, disputes may arise with
respect to ownership of technology developed under any such corporate
partnership. Finally, any of our current corporate partnerships may be
terminated by its corporate partner, and we may not be able to negotiate
additional corporate partnerships in the future on acceptable terms, or at all.
Management of our relationships with our corporate partners will require:
o significant time and effort from our management team:
o coordination of our research with the research of its corporate partners;
o effective allocation of our resources to multiple projects; and
o an ability to obtain and retain management, scientific and other personnel.
WE ARE DEPENDENT ON IN-LICENSED TECHNOLOGY.
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Our success is also dependent on our 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 our
products. We have various license agreements that give us rights to use
technologies owned or licensed by third parties in our and our corporate
partners' discovery, research, development and commercialization activities.
Disputes may arise regarding the invention and corresponding rights in
inventions and know-how resulting from the joint creation or use of intellectual
property by us and our licensors or scientific collaborators. Additionally, many
of our in-licensing agreements contain milestone-based termination provisions.
Our failure to meet any significant milestones in a particular agreement could
allow the licensor to terminate such agreement.
We may not be able to negotiate additional license agreements in the future
on acceptable terms, if at all. In addition, our current license agreements may
be terminated, and we may not be able to maintain the exclusivity of our
exclusive licenses. If we cannot obtain or maintain licenses to technology
advantageous or necessary to our business, we and our corporate partners may be
required to expend significant time and resources to develop or in-license
similar technology. If we are not able to do so, we may be prevented from
commercializing certain of its products.
OUR PATENT POSITION IS UNCERTAIN AND ITS SUCCESS DEPENDS ON PROPRIETARY RIGHTS.
Our success depends in part on our ability to:
o obtain patents;
o protect trade secrets;
o operate without infringing upon the proprietary rights of others; and
o prevent others from infringing on our proprietary rights.
We will only be able to protect our proprietary rights from unauthorized
use by third parties to the extent that these rights are covered by valid and
enforceable patents or are effectively maintained as trade secrets. We try to
protect our proprietary position by filing United States and foreign patent
applications related to our proprietary technology, inventions and improvements
that are important to the development of our business. As of September 30, 1999,
we owned, licensed or optioned 72 issued United States patents that expire at
various times between December 2004 and August 2016, and 156 pending United
States patent applications.
The patent positions of biotechnology and biopharmaceutical companies
involve complex legal and factual questions and, therefore, enforceability
cannot be predicted with certainty. Patents, if issued, may be challenged,
invalidated or circumvented. Thus, any patents that we own or licenses from
third parties may not provide any protection against competitors. Our pending
patent applications, those we may file in the future, or those we may license
from third parties, may not result in patents being issued. Also, patent rights
may not provide us with proprietary protection or competitive advantages against
competitors with similar technology. Furthermore, others may independently
develop similar technologies or duplicate any technology that we have developed.
The laws of certain foreign countries may not protect our intellectual property
rights to the same extent as do the laws of the United States.
In addition to patents, we rely on trade secrets and proprietary know-how.
We seek protection, in part, through confidentiality and proprietary information
agreements. These agreements may not provide meaningful protection or adequate
remedies for our technology in the event of unauthorized use or disclosure of
confidential and proprietary information. The parties may breach such
agreements. Furthermore, our trade secrets may otherwise become known to, or be
independently developed by, our competitors.
WE MAY FACE CHALLENGES FROM THIRD PARTIES REGARDING THE VALIDITY OF OUR PATENTS
AND PROPRIETARY RIGHTS.
20
<PAGE> 23
Research has been conducted for many years in the fields of molecular
biology and immunology. This has resulted in a substantial number of issued
patents and an even larger number of patent applications. Patent applications in
the United States are, in most cases, maintained in secrecy until patents are
issued. The publication of discoveries in the scientific or patent literature
frequently occurs substantially later than the date on which the underlying
discoveries were made. Our commercial success depends significantly on our
ability to operate without infringing the patents and other proprietary rights
of third parties. Our technologies may infringe the patents or violate other
proprietary rights of third parties. In the event of infringement or violation,
we and our corporate partners may be prevented from pursuing product development
or commercialization. Such a result will significantly harm our business.
We have licensed certain patent applications from Southern Research
Institute, or SRI, related to our microsphere encapsulation technology, two of
which are currently the subjects of opposition proceedings before the European
Patent Office. SRI may not prevail in these opposition proceedings and patents
may not issue in Europe related to such technology.
The biotechnology and pharmaceutical industries have been characterized by
extensive litigation regarding patents and other intellectual property rights.
The defense and prosecution of intellectual property suits, United States Patent
and Trademark Office interference proceedings and related legal and
administrative proceedings in the United States and internationally involve
complex legal and factual questions. As a result, such proceedings are costly
and time-consuming to pursue and their outcome is uncertain. Litigation may be
necessary to:
o enforce our issued and licensed patents;
o protect trade secrets or know-how that we own or license; or
o determine the enforceability, scope and validity of the proprietary rights
of others.
If we become involved in any litigation, interference or other
administrative proceedings, we will incur substantial expense and the efforts of
our technical and management personnel will be significantly diverted. An
adverse determination may subject us to significant liabilities or require us to
seek licenses that may not be available from third parties. We may be restricted
or prevented from manufacturing and selling our products, if any, in the event
of an adverse determination in a judicial or administrative proceeding or if we
fails to obtain necessary licenses. Costs associated with these arrangements may
be substantial and may include ongoing royalties. Furthermore, we may not be
able to obtain the necessary licenses on satisfactory terms, if at all. These
outcomes would significantly harm our business.
WE HAVE A HISTORY OF OPERATING LOSSES.
We have experienced significant operating losses in each year since our
inception on September 8, 1994. As of September 30, 1999, our accumulated
deficit was approximately $55.8 million, of which 42.3% is attributable to the
write-off of in-process research and development costs associated with the
acquisitions of Anergen and GenQuest. We 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
our acquisition activities, including the expenses associated with the write-off
of in-process research and development, discovery, research and development
programs and preclinical studies and clinical activities. Substantially all of
our revenue and other income to date have resulted from corporate partnerships,
other research, development and licensing arrangements, research grants and
interest income. Our ability to achieve a consistent, profitable level of
operations is dependent in large part upon:
o entering into agreements with corporate partners for product discovery,
research, development and commercialization;
o obtaining regulatory approvals for its products; and
21
<PAGE> 24
o successfully manufacturing and marketing commercial products.
We may not be able to achieve consistent profitability. 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 us. Therefore, our results of operations
for any period may fluctuate and may not be comparable to the results of
operations for any other period.
OUR NEED FOR, AND ABILITY TO SECURE, ADDITIONAL FUNDING IS UNCERTAIN.
We will require substantial capital resources in order to conduct our
operations. Our future capital requirements will depend on many factors,
including, among others, the following:
o continued scientific progress in our discovery, research and development
programs;
o the magnitude and scope of our discovery, research and development
programs;
o our ability to maintain existing, and establish additional, corporate
partnerships and licensing arrangements;
o progress with preclinical studies and clinical trials;
o the time and costs involved in obtaining regulatory approvals;
o the costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims;
o the potential need to develop, acquire or license new technologies and
products; and
o other factors not within our control.
We intend to seek additional funding through corporate partnerships, and
also may seek additional funding through:
o public or private equity financings;
o public or private debt financings; and
o capital lease transactions.
However, additional financing may not be available on acceptable terms, if
at all. Additional equity financings could result in significant dilution to
stockholders. If sufficient capital is not available, we may be required to
delay, reduce the scope of, eliminate or divest one or more of our discovery,
research, development, preclinical or clinical programs or manufacturing
efforts. We believe that our existing capital resources, committed payments
under existing corporate partnerships and licensing arrangements, bank credit
arrangements, equity credit lines, equipment financing and interest income will
be sufficient to fund our current and planned operations over at least the next
18 months. Such funds, however, may not be sufficient to meet our capital needs
for the same period of time. In addition, a substantial number of payments to be
made by our corporate partners and other licensors are dependent upon the
achievement by us of development and regulatory milestones. Failure to achieve
such milestones may significantly harm our future capital position.
WE ARE DEPENDENT ON OUR KEY PERSONNEL.
We are highly dependent on the principal members of our scientific and
management staff, the loss of whose services might significantly delay or
prevent the achievement of our scientific or
22
<PAGE> 25
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 our success. We may not be able to
attract and retain such individuals currently or in the future on acceptable
terms, or at all, and the failure to do so would significantly harm our
business. In addition, we do not maintain "keyperson" life insurance on any of
our officers, employees or consultants.
We also have relationships with scientific collaborators at academic and
other institutions, some of who conduct research at our request or assist us in
formulating our research, development or clinical strategy. These scientific
collaborators are not our employees and may have commitments to, or consulting
or advisory contracts with, other entities that may limit their availability to
us. We have limited control over the activities of these scientific
collaborators and can generally expect such individuals to devote only limited
amounts of time to our activities. Failure of any such persons to devote
sufficient time and resources to our programs could harm our business. In
addition, these collaborators may have arrangements with other companies to
assist such companies in developing technologies that may prove competitive to
us.
WE FACE INTENSE COMPETITION.
The biotechnology and biopharmaceutical industries are intensely
competitive. Many companies compete with us in developing alternative therapies
to treat cancer, infectious and autoimmune diseases, including:
o pharmaceutical companies;
o biotechnology companies;
o academic institutions; and
o research organizations.
Moreover, technology controlled by third parties that may be advantageous
to our business may be acquired or licensed by our competitors, thereby
preventing us 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 us and our 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, preclinical and clinical
development, manufacturing and marketing of products similar to ours. These
companies and institutions compete with us in recruiting and retaining qualified
scientific and management personnel as well as in acquiring technologies
complementary to our programs. We and our corporate partners will face
competition with respect to:
o product efficacy and safety;
o the timing and scope of regulatory approvals;
o availability of resources;
o reimbursement coverage;
o price; and
o patent position, including potentially dominant patent positions of others.
23
<PAGE> 26
Competitors may develop more effective or more affordable products, or may
achieve earlier patent protection or product commercialization than us and our
corporate partners. Such competitive products may render our products obsolete.
WE LACK MANUFACTURING EXPERIENCE AND RELY ON CONTRACT MANUFACTURERS.
We do not currently have significant manufacturing facilities and do not
have significant experience in managing a manufacturing facility. Although we
currently manufacture limited quantities of some antigens and adjuvants, we
intend to rely on third party contract manufacturers to produce large quantities
of such substances for clinical trials and product commercialization until such
time, if ever, that we are in a position to manufacture such substances itself.
Our vaccines and other products have never been manufactured on a commercial
scale. Such products may not be able to be manufactured at a cost or in
quantities necessary to make them commercially viable. Third party manufacturers
may not be able to meet our needs with respect to timing, quantity or quality.
If we are unable to contract for a sufficient supply of required products and
substances on acceptable terms, or if we should encounter delays or difficulties
in our relationships with such manufacturers, our preclinical and clinical
testing would be delayed, thereby delaying the submission of products for
regulatory approval or the market introduction and subsequent sales of such
products. Moreover, contract manufacturers that we may use must continually
adhere to current Good Manufacturing Practices (GMP) regulations enforced by the
United States Food and Drug Administration (FDA) through its facilities
inspection program. If the facilities of such manufacturers cannot pass a
pre-approval plant inspection, the FDA premarket approval of our products will
not be granted.
WE LACK SALES, MARKETING AND DISTRIBUTION CAPABILITY.
We currently have no sales, marketing or distribution capability. We intend
to rely on our corporate partners to market our products. Our corporate partners
may not have effective sales forces and distribution systems. If we are unable
to maintain or establish such relationships and are required to market any of
our products directly, we will need to develop a marketing and sales force with
technical expertise and with supporting distribution capabilities. We may not be
able to maintain or establish such relationships with third parties or develop
in-house sales and distribution capabilities.
WE FACE HEAVY GOVERNMENT REGULATION.
Any products we or our corporate partners develop are subject to regulation
by federal, state and local governmental authorities in the United States,
including the FDA, and by similar agencies in other countries. Any product we or
our corporate partners develop 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. Data
obtained from preclinical and clinical activities are susceptible to varying
interpretations, which could delay, limit or prevent regulatory approval or
clearance. In addition, delays or rejections may be encountered based upon
changes in regulatory policy during the period of product development and/or the
period of review of any application for regulatory approval or clearance for a
product. Delays in obtaining regulatory approvals or clearances:
o would adversely affect the marketing of any products we or our corporate
partners develop;
o could impose significant additional costs on us or our corporate partners;
o would diminish any competitive advantages that we or our corporate partners
may attain; and
o could adversely affect our ability to receive royalties and generate
revenues and profits.
24
<PAGE> 27
Regulatory approval, if granted, may entail limitations on the indicated
uses for which the new product may be marketed that could limit the potential
market for such product. Product approvals, once granted, may be withdrawn if
problems occur after initial marketing. Furthermore, manufacturers of approved
products are subject to pervasive review, including compliance with detailed
regulations governing GMP. The FDA has recently revised the GMP regulations. The
new Quality System Regulation imposes design controls and makes other
significant changes in the requirements applicable to manufacturers. Failure to
comply with applicable regulatory requirements can result in, among other
things, warning letters, fines, injunctions, civil penalties, recall or seizure
of products, total or partial suspension of production, refusal of the
government to renew marketing applications and criminal prosecution.
We are also subject to numerous federal, state and local laws, regulations
and recommendations relating to:
o safe working conditions;
o laboratory and manufacturing practices;
o the experimental use of animals;
o the environment; and
o the use and disposal of hazardous substances, including radioactive
compounds and infectious disease agents.
In addition, we cannot predict the extent of government regulations or the
impact of new governmental regulations that might have an adverse effect on the
discovery, development, production and marketing of our products. We may be
required to incur significant costs to comply with current or future laws or
regulations. Our business may be harmed by the cost of such compliance.
WE FACE PRODUCT LIABILITY EXPOSURE AND POTENTIAL UNAVAILABILITY OF INSURANCE.
We may experience losses due to product liability claims. We have obtained
limited product liability insurance coverage. Such coverage may not be adequate
or may not continue to be available in sufficient amounts or at an acceptable
cost, or at all. We may not be able to obtain commercially reasonable product
liability insurance for any product approved for marketing. A product liability
claim, product recalls or other claim, as well as any claims for uninsured
liabilities or in excess of insured liabilities, may significantly harm our
business.
OUR PRODUCTS MAY NOT BE ACCEPTED BY THE MARKET.
Any products successfully developed by us or our corporate partners, if
approved for marketing, may never achieve market acceptance. Such products, if
successfully developed, will compete with drugs and therapies manufactured and
marketed by major pharmaceutical and other biotechnology companies. Physicians,
patients or the medical community in general may not accept and utilize any
products that may be developed by us or our corporate partners.
The degree of market acceptance of any products developed by us or our
corporate partners will depend on a number of factors, including:
o the establishment and demonstration of the clinical efficacy and safety of
the product candidates;
o their potential advantage over alternative treatment methods; and
o reimbursement policies of government and third-party payors.
25
<PAGE> 28
WE FACE POTENTIAL VOLATILITY IN OUR 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 our common stock may be subject to substantial volatility
depending upon many factors, including:
o announcements regarding the results of discovery efforts, preclinical and
clinical activities;
o announcements regarding the acquisition of technologies or companies;
o technological innovations or new commercial products developed by us or our
competitors;
o changes in government regulations;
o changes in our patent portfolio;
o developments or disputes concerning proprietary rights;
o changes in existing corporate partnerships or licensing arrangements;
o establishment of additional corporate partnerships or licensing
arrangements;
o progress of regulatory approvals;
o issuance of new or changed stock market analyst reports and/or
recommendations;
o economic and other external factors;
o operating losses by us; and
o fluctuations in our financial results and degree of trading liquidity in
our common stock.
One or more of these factors could significantly harm our business and
decrease the price of our common stock in the public market.
WE FACE UNCERTAINTY RELATED TO PRICING AND REIMBURSEMENT AND HEALTH CARE REFORM.
In both domestic and foreign markets, sales of our or our corporate
partners' products will depend in part on the availability of reimbursement from
third-party payors such as:
o government health administration authorities;
o private health insurers;
o health maintenance organizations;
o pharmacy benefit management companies; and
o other healthcare-related organizations.
Both the federal and state governments in the United States and foreign
governments continue to propose and pass new legislation designed to contain or
reduce the cost of health care. Existing regulations affecting the pricing of
pharmaceuticals and other medical products may also change before any of our or
our corporate partners' products are approved for marketing. Cost control
initiatives could decrease the price that we receive for any product we or any
of our corporate partners may develop in the future. In addition, third-party
payors are increasingly challenging the price and cost-effectiveness of medical
products and services. Significant
26
<PAGE> 29
uncertainty exists as to the reimbursement status of newly approved health care
products, including pharmaceuticals. Our or our corporate partners' products, if
any, may not be considered cost effective or adequate third-party reimbursement
may not be available to enable us or our corporate partners to maintain price
levels sufficient to realize a return on our investment.
WE ARE CONTROLLED BY A SMALL NUMBER OF EXISTING STOCKHOLDERS.
As of September 30, 1999, our executive officers and directors, together
with entities affiliated with them, beneficially own approximately 33.6% of our
outstanding common stock together with applicable options and warrants held by
such stockholders. The voting power of these stockholders could have the effect
of delaying or preventing a change in control of Corixa.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As a result of Corixa's acquisition of Ribi on October 6, 1999, Corixa is
now the defendant as Ribi's successor-in-interest in an ongoing environmental
litigation matter related to the Bitterroot Valley Sanitary Landfill in Ravalli
County, Montana.
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.
In May 1999, Corixa entered into a collaboration agreement with Zambon
Group spa for the research, development and commercialization of vaccine
products aimed at the prevention and/or treatment of lung cancer. In connection
with the agreement, in July 1999 Zambon purchased $2.0 million worth of Corixa
common stock at a premium to its fair market value. The stock purchase agreement
allows Zambon to sell the common stock shares back to Corixa if the technology
does not result in a commercial product.
Pursuant to the Licensing Agreement, effective as of January 1, 1995,
between the Company and the Dana-Farber Cancer Institute (DFCI), on September
30, 1999, the Company issued 15,151 shares of common stock to DFCI in connection
with the issuance of the first patent containing claims covering the technology
licensed by DFCI to the Company. Such shares were issued pursuant to the
exemption from registration under Section 4(2) of the Securities Act of 1933,
as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At a special meeting of the stockholders of the Company, held on September
24, 1999, holders representing a total of 10,253,614 shares of common stock
entitled to vote, constituting a quorum, voted (1) to approve the merger of Ribi
with and into Corixa, (2) to approve the terms of Corixa's equity line of credit
with Castle Gate L.L.C. and (3) to amend Corixa's Amended and Restated 1994
Stock Option Plan to increase the shares available for issuance thereunder by
2,500,000 shares and to increase the maximum annual automatic increase in the
number of reserved shares to 750,000. In connection with the approval of the
merger of Ribi with and into Corixa, holders representing 10,210,288 shares of
common stock present at the meeting voted in favor, 13,377 voted against and
29,949 abstained. In connection with the approval of the terms of Corixa's
equity line of credit with Castle Gate L.L.C., holders representing 9,685,436
shares of common stock present at the meeting voted in favor, 535,344 voted
against and 32,834 abstained. In connection with the approval of amending
Corixa's Amended and Restated 1994 Stock Option Plan, holders representing
9,049,817 shares of common stock present at the meeting voted in favor,
1,163,380 voted against and 40,417 abstained.
27
<PAGE> 30
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Index to Exhibits.
(b) Reports on Form 8-K.
(1) On October 21, 1999, the Company filed a current report on Form 8-K
reporting that on October 6, 1999 Corixa acquired Ribi ImmunoChem
Research Inc., a Hamilton, Montana-based biopharmaceutical company
founded in 1981.
(2) On August 18, 1999, the Company filed a current report on Form 8-K
reporting that on June 9, 1999 Corixa entered into an agreement and
plan of merger with Ribi ImmunoChem Research, Inc., a Hamilton,
Montana-based biopharmaceutical company founded in 1981.
(3) On August 9, 1999, the Company filed a current report on Form 8-K
reporting that on September 15, 1998, GenQuest, Inc. merged with and
into Chinook Corporation, a wholly-owned subsidiary of Corixa
Corporation. The separate corporate existence of GenQuest, Inc. ceased
upon consummation of the merger.
(4) On August 9, 1999, the Company filed a current report on Form 8-K
reporting that on February 11, 1999, Yakima Acquisition Corporation, a
wholly-owned subsidiary of Corixa Corporation ("Corixa") merged with
and into Anergen, Inc. Anergen, Inc. is now a wholly-owned subsidiary
of Corixa.
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
November 4, 1999 By: /s/ MICHELLE BURRIS
- ---------------- ------------------------------------
DATE Michelle Burris
Vice President and
Chief Financial Officer
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- ------- ------------------- ----
<S> <C> <C>
3.01 Amended and Restated Certificate of Incorporation of Corixa
Corporation.................................................................... (A)
3.02 Bylaws of Corixa Corporation................................................... (A)
4.01 Amended and Restated Investors' Rights Agreement dated as of May 10, 1996
between Corixa Corporation and certain holders of its capital stock............ (A)
4.02 Certificate of Designation of Series A Preferred Stock of Corixa Corporation... (C)
4.03+ Equity Line of Credit and Securities Purchase Agreement between Corixa
Corporation and Castle Gate, L.L.C. dated April 8, 1999........................ (C)
</TABLE>
28
<PAGE> 31
<TABLE>
<S> <C>
4.04+ Registration Rights Agreement between Corixa Corporation and
Castle Gate, L.L.C. dated April 8, 1999........................................ (C)
4.05+ Standstill Agreement between Corixa Corporation and Castle
Gate, L.L.C. dated April 8, 1999............................................... (C)
4.06+ Warrant Number CG-1 issued by Corixa Corporation to Castle
Gate, L.L.C. on April 8, 1999.................................................. (C)
4.07+ Warrant Number CG-2 issued by Corixa Corporation to Castle
Gate, L.L.C. on April 8, 1999.................................................. (C)
4.08+ Form of Warrant Number CG-3 to be issued by Corixa Corporation to Castle Gate,
L.L.C. upon the occurrence of certain events in accordance with the terms of
the Equity Line of Credit and Securities Purchase Agreement.................... (C)
4.09+ Form of Warrant Number CG-4 to be issued by the Corixa Corporation to Castle
Gate, L.L.C. upon the occurrence of certain events in accordance with the
terms of the Equity Line of Credit and Securities Purchase Agreement........... (C)
27.01 Financial Data Schedule........................................................
</TABLE>
- ----------
(A) Incorporated herein by reference the Company's Form S-1, as amended, (File
No. 333-32147), filed with the Commission on September 30, 1997.
(B) Incorporated by herein reference to the Company's Form S-4 (File No.
333-81939), filed with the Commission on June 30, 1999.
(C) Incorporated herein by reference to the Company's Form 8-K (File No.
0-22891), filed with the Commission on April 23, 1999.
+ Confidential treatment granted by order of the SEC on June 14, 1999.
29
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<SECURITIES> 48,694
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0
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