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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 June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-22891
CORIXA CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 91-1654387
(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 June 30, 2000, there were approximately 21,005,182 shares of the
Registrant's common stock outstanding.
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Corixa Corporation
INDEX
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Page
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS .............................
Consolidated Balance Sheets as of June 30, 2000 (Unaudited) and
December 31, 1999 ............................................. 1
Consolidated Statements of Operations (Unaudited) for the three
months ended June 30, 2000 and 1999 and the six months ended
June 30, 2000 and 1999 ........................................ 2
Consolidated Statements of Cash Flows (Unaudited) for the six
months ended June 30, 2000 and
1999 .......................................................... 3
Notes to Unaudited Consolidated Financial
Statements .................................................... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ..................................... 8
ITEM 3. QUANTITATIVE & QUALITATIVE DISCLOSURE ABOUT MARKET RISK
PART II. OTHER INFORMATION
ITEM 1. LEGAL Proceedings ............................................. 18
ITEM 2. CHANGES IN SECURITIES AND USE OF Proceeds ..................... 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........... 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .............................. 18
SIGNATURES ................................................................... 19
EXHIBIT INDEX ................................................................ 20
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CORIXA CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
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JUNE 30, DECEMBER 31,
ASSETS 2000 1999
--------- ---------
(UNAUDITED)
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Current assets:
Cash and cash equivalents ............................................ $ 21,709 $ 780
Securities available-for-sale ........................................ 67,432 33,425
Accounts receivable, net ............................................. 3,442 2,792
Interest receivable .................................................. 1,322 759
Prepaid expenses and other current assets ............................ 2,477 1,779
Deposits ............................................................. 1,704 1,657
--------- ---------
Total current assets ......................................... 98,086 41,192
Property and equipment, net ............................................ 20,676 21,281
Securities available-for-sale, noncurrent .............................. 8,061 11,348
Investments ............................................................ 2,245 4,000
Acquisition related intangible assets, net ............................. 13,160 14,516
Deferred charges and deposits .......................................... 143 143
--------- ---------
Total assets ................................................. $ 142,371 $ 92,480
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ............................. $ 8,149 $ 8,701
Dividend payable ..................................................... 156 469
Deferred revenue ..................................................... 16,030 8,236
Current portion of long-term obligations ............................. 3,042 2,867
--------- ---------
Total current liabilities .................................... 27,377 20,273
Long-term obligations, less current portion ............................ 9,726 11,426
Commitments and contingencies
Redeemable common stock ................................................ 2,000 2,000
Stockholders' equity:
Convertible preferred stock, $0.001 par value:
Authorized - 10,000,000 shares;
Designated Series A - 50,000 shares;
Series A issued and outstanding - 12,500 shares at June 30, 2000
and December 31, 1999 .............................................. -- --
Common stock, $0.001 par value:
Authorized - 100,000,000 shares;
Issued and outstanding - 21,005,182 shares at June 30, 2000 and
18,627,225 at December 31, 1999 (including 141,576 redeemable common
shares at June 30, 2000 and December 31, 1999) ..................... 21 19
Additional paid-in capital ........................................... 210,152 147,926
Deferred compensation ................................................ (207) (441)
Accumulated other comprehensive loss ................................. (496) (687)
Accumulated deficit .................................................. (106,202) (88,036)
--------- ---------
Total stockholders' equity ................................ 103,268 58,781
--------- ---------
Total liabilities and stockholders' equity ............................. $ 142,371 $ 92,480
========= =========
</TABLE>
See accompanying notes.
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CORIXA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------ ------------------------
2000 1999 2000 1999
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Revenue:
Collaborative agreements ........................ $ 6,594 $ 5,583 $ 15,053 $ 8,411
Government grants ............................... 689 437 1,138 743
-------- -------- -------- --------
Total revenue ..................................... 7,283 6,020 16,191 9,154
Operating expenses:
Research and development ........................ 15,308 10,039 31,168 18,663
General and administrative ...................... 1,870 1,155 3,358 1,745
Acquired in-process research and development .... -- -- -- 11,612
Amortization of acquisition related intangibles . 729 -- 1,556 --
-------- -------- -------- --------
Total operating expenses ...................... 17,907 11,194 36,082 32,020
-------- -------- --------
Loss from operations .............................. (10,624) (5,174) (19,891) (22,866)
Interest income ................................... 1,499 928 1,978 1,396
Interest expense .................................. (172) (190) (341) (392)
Other income ...................................... 31 431 88 471
-------- -------- -------- --------
Net loss .......................................... (9,266) (4,005) (18,166) (21,391)
Preferred stock dividend .......................... (156) (5,685) (312) (5,685)
-------- -------- -------- --------
Net loss applicable to common stockholders ........ $ (9,422) $ (9,690) $(18,478) $(27,076)
======== ======== ======== ========
Basic and diluted net loss per common share ....... $ (0.46) $ (0.66) $ (0.94) $ (1.88)
======== ======== ======== ========
Shares used in computation of basic and diluted net
loss per common share ........................... 20,680 14,683 19,721 14,398
======== ======== ======== ========
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See accompanying notes.
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CORIXA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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SIX MONTHS ENDED JUNE 30,
-------------------------------
2000 1999
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OPERATING ACTIVITIES
Net loss .................................................................... $(18,166) $(21,391)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Acquired in-process research and development .............................. -- 11,612
Amortization of deferred compensation ..................................... 234 454
Depreciation and amortization ............................................. 3,480 1,403
Equity instruments issued in exchange for technology and services ......... 1,679 81
Changes in operating assets and liabilities:
Accounts receivable ....................................................... (650) 926
Interest receivable ....................................................... (563) (251)
Prepaid expenses, deposits and other current assets ....................... (745) (524)
Accounts payable and accrued expenses ..................................... (552) (1,230)
Deferred revenue .......................................................... 7,794 9,949
-------- --------
Net cash (used in) provided by operating activities ......................... (7,489) 1,029
INVESTING ACTIVITIES
Purchases of securities available-for-sale .................................. (49,934) (35,147)
Proceeds from maturities of securities available-for-sale ................... 12,614 11,991
Proceeds from sale of securities ............................................ 6,791 9,041
Purchases of property and equipment ......................................... (1,319) (1,615)
Proceeds from sale of investment in Immgenics ............................... 1,755 --
Investment in Immgenics ..................................................... -- (1,250)
Net cash (paid) received in acquisitions .................................... (200) 369
-------- --------
Net cash used in investing activities ....................................... (30,293) (16,611)
-------- --------
FINANCING ACTIVITIES
Proceeds from issuance of common stock ...................................... 60,861 154
Proceeds from issuance of preferred stock ................................... -- 12,500
Principal payments made on long-term obligations ............................ (1,006) (1,147)
Proceeds from long-term obligations ......................................... -- 2,000
Principal payments on capital leases ........................................ (519) (564)
Payment of preferred stock dividend ......................................... (625) --
-------- --------
Net cash provided by financing activities ................................... 58,711 12,943
-------- --------
Net increase (decrease) in cash and cash equivalents ........................ 20,929 (2,639)
Cash and cash equivalents at beginning of period ............................ 780 9,098
-------- --------
Cash and cash equivalents at end of period .................................. $ 21,709 $ 6,459
======== ========
Supplemental disclosures of cash flow information:
Interest paid ............................................................. $ 333 $ 329
Supplemental schedule of noncash investing and financing activities:
Equity instruments issued for acquisitions ................................ $ -- $ 10,245
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See accompanying notes.
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CORIXA CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
We are focused on the discovery and early clinical development of
vaccines, antigen-based products and adjuvants useful in preventing, treating or
diagnosing autoimmune disease, cancer and certain infectious diseases.
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of our wholly owned subsidiaries. These statements have been prepared
in accordance with U.S. generally accepted accounting principles (GAAP) and the
rules and regulations of the Securities and Exchange Commission (SEC) for
interim financial information. Accordingly, we have condensed or omitted certain
information and footnote disclosures normally included in financial statements
prepared in accordance with GAAP and in accordance with the SEC rules and
regulations.
In the opinion of our 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 consolidated
financial statements and related footnotes for the year ended December 31, 1999,
included in the our Form 10-K/A filed with the SEC.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include our financial statements
and the financial statements of our wholly owned subsidiaries. We have
eliminated all significant inter-company account balances and transactions in
consolidation.
SECURITIES AVAILABLE-FOR-SALE
Our investment portfolio is classified as available-for-sale and is
segregated into current and non-current portions based on the remaining term of
the instrument. Our primary investment objectives are preservation of principal,
a high degree of liquidity and a maximum total return. We invest 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. These securities are
stated at fair value, with the unrealized gains and losses reflected in
stockholders' equity. Interest earned on securities is included in interest
income. The amortized cost of investments is adjusted for amortization of
premiums and accretion of discounts to maturity, with the amortization and
accretion included in interest income. The cost of securities sold is calculated
using the specific identification method.
MANAGEMENT OF CREDIT RISK
We are subject to concentration of credit risk, primarily from our
investments. We manage our credit risk for investments by purchasing
investment-grade securities, grade A1/P1 for money market instruments and grade
A or better for debt instruments, and diversification of the investment
portfolio among issuers and maturities.
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REVENUE RECOGNITION
Revenue under collaborative agreements typically consists of
nonrefundable up-front fees, ongoing research and development funding,
technology access payments and milestone and royalty payments. We recognize
revenue from nonrefundable up-front fees upon satisfaction of related
obligations. We recognize revenue from ongoing research and development payments
ratably over the term of the agreement, as we believe such payments approximate
the research and development expense incurred in connection with the agreement.
We recognize revenue from milestone, royalty and other contingent payments as
earned. We record advance payments received under any agreements in excess of
amounts earned as deferred revenue. We recognize revenue under
cost-reimbursement contracts as the related costs are incurred. We recognized
93% and 92% of our revenue from collaborative partners during the six-month
periods ended June 30, 2000 and 1999.
We have recognized as revenue nonrefundable, up-front license fees in
connection with collaboration agreements, upon satisfaction of the related
obligations. In December 1999, the SEC issued Staff Accounting Bulletin No. 101
(SAB 101), "Revenue Recognized in Financial Statements," effective for the first
quarter of 2000. Among other things, SAB 101 discusses the SEC's view on
accounting for non-refundable up-front fees received in connection with
collaborative agreements. In March 2000, the SEC delayed the effective date of
SAB 101 until the second quarter of 2000, and in May 2000 further delayed the
effective date to the fourth quarter of 2000 and indicated that it would issue a
Frequently Asked Questions document on SAB 101 to provide additional
implementation guidance. We are currently evaluating the applicability of SAB
101 to our collaboration agreements. Should we conclude that the approach
described in SAB 101 is more appropriate, we will change our method of
accounting in the fourth quarter of 2000 to recognize such fees over the term of
the related research agreement. We would record the cumulative effect of this
change in accounting principle, if made, as of January 1, 2000. We would record
the cumulative effect as deferred revenue and we would recognize such effect as
revenue over the remaining contractual terms of the collaborative research
agreements. We expect to adopt SAB 101 in the fourth quarter of 2000.
RECLASSIFICATIONS
We have made certain reclassifications to our prior years' financial
statements to conform to the 2000 presentation.
2. NET LOSS PER SHARE
We calculate basic net loss per common share by dividing net loss
applicable to common stockholders by the weighted average number of common
shares outstanding. We calculate diluted net loss per common share by dividing
net loss by the weighted average common shares outstanding plus the dilutive
effect of outstanding stock options, stock warrants and preferred stock. Because
we reported a net loss, diluted net loss per share is the same as basic net loss
per share because adding outstanding stock options, stock warrants and preferred
stock to weighted average shares outstanding would reduce the loss per share.
Therefore, we did not include outstanding stock options, stock warrants and
preferred stock in the calculation.
3. COMPREHENSIVE LOSS
For the three and six months ended June 30, 2000 and 1999, our comprehensive
loss was as follows (in thousands):
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For the three months ended For the six months ended
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June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
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Net loss $ (9,266) $ (4,005) $(18,166) $(21,391)
Other comprehensive income:
Unrealized holding gains (losses)
during the period 89 (575) 191 (525)
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Total comprehensive loss $ (9,177) $ (4,580) $(17,975) $(21,916)
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4. EQUITY
On April 12, 2000, we completed a follow-on public offering of 1,900,000
shares of our common stock to the public, at a price of $32 per share. We
received net proceeds of approximately $57.1 million, after deducting
underwriting discounts and commissions and before deducting expenses payable by
Corixa.
5. IN-PROCESS RESEARCH AND DEVELOPMENT
On February 10, 1999, we acquired all of the outstanding shares of
common stock of Anergen, Inc. (Anergen), a biotechnology company focused on the
treatment of autoimmune diseases through the discovery and development of
proprietary therapeutics that selectively interrupt the disease process. We
accounted for the acquisition 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 in acquisition costs.
The aggregate purchase price exceeded the fair value of tangible assets by
approximately $11.6 million, which we allocated to in-process research and
development (IPR&D) during the first quarter of 1999. We allocated the aggregate
purchase price based on estimated fair values on the acquisition date, as
follows (in thousands):
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Acquired in-process research and development $ 11,612
Net liabilities assumed (1,949)
========
Total purchase price $ 9,663
========
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Acquired IPR&D represents the present value of the estimated after-tax
cash flows that we expect to be generated by the purchased technology that had
not yet reached technological feasibility at the acquisition date. We based the
cash flow projections for revenues 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. We deducted estimated
operating expenses and income taxes 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. We used rates of
38% to 55% to discount projected cash flows for in-process technologies used,
depending upon the relative risk of each in-process technology, and we based
these rates primarily on venture capital rates of return and our weighted
average cost of capital for Corixa at the time of acquisition.
We based the foregoing estimates and projections regarding the Anergen
acquisition 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 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 we
fail in our efforts, no alternative economic value will result and the economic
contribution expected to be made by the IPR&D will not materialize. The risk of
untimely completion includes the risk that competitors will develop alternative
vaccines or immunotherapeutics.
We have recorded assets and liabilities of Anergen on our books at their
fair market values. We have included the operating results of the acquired
business in the consolidated statements of operations from February 10, 1999,
the effective date of the acquisition.
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6. CONTINGENCIES
GROUNDWATER CONTAMINATION
In March 1999, the Montana Department of Environmental Quality (DEQ)
notified Ribi ImmunoChem Research, Inc. (Ribi), which merged with Corixa in
October 1999, the National Institute of Health (NIH) and the Bitterroot Valley
Sanitary Landfill that they had been identified as potentially responsible
parties, and were therefore jointly and severally liable for groundwater
contamination at a landfill in Ravalli County, Montana. The NIH voluntarily
initiated and completed work pursuant to an interim remediation plan approved by
the DEQ. In August 1995, the DEQ announced that it had approved a second interim
action in the vicinity of the landfill that was voluntarily conducted by the
NIH, which involved installing individual replacement and new wells.
The DEQ initiated an action in April 1997 in the state district court in
Lewis and Clark County, Montana against Ribi, the landfill and the owners of the
landfill, seeking recovery of alleged past costs associated with its oversight
activities and a declaratory judgment finding the parties liable for future
oversight costs, as well as civil penalties in the event the parties fail to
comply. The state action has been stayed pending outcome of the federal action
described below.
In April 1998, Ribi received notice that the United States, acting on
behalf of the Department of Health and Human Services, which oversees the NIH,
had filed suit in the United States district court, seeking contribution from
Ribi of an equitable share of past and future response costs incurred by the NIH
in connection with the remediation at and near the landfill.
In June 1998, the United States Department of Environmental Quality
filed a complaint in the United States district court under the Federal
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
against Ribi, the landfill and the owners of the landfill, seeking recovery of
alleged past costs associated with its oversight activities plus interest and
attorneys' fees and costs, as well as a declaratory judgment finding the parties
liable for future response costs.
We have initiated settlement discussions with the federal government and
the state of Montana. We currently believe that a settlement can be reached with
the federal government and the state of Montana releasing us from past and
future liability related to the Bitterroot Landfill, and we recorded $2,600,000
as part of the purchase price of Ribi to cover the settlement we may pay in
2000.
WRONGFUL DISCHARGE
In May 2000, we settled a confidential, alleged wrongful discharge claim
filed in June 1997 by a former employee of Ribi. The amount of the settlement
was not material to our financial condition or operating results. We recorded
the settlement as an adjustment to the purchase price of Ribi.
OTHER
We are aware that a complaint was filed in Montana state district court
in February 2000 by a former Ribi employee claiming damages associated with
working conditions during her employment at Ribi. Although we have not yet been
served with the complaint, based on our current understanding and initial
investigation of the matter, we believe the claim to be without merit.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements,
including statements regarding product development and discovery, regulatory
approvals, operating results and capital requirements and other statements that
are not historical facts. These forward-looking statements are based on the
opinions and estimates of our management at the time the statements are made.
They are subject to risks and uncertainties that could cause our actual results,
performance or achievements, and those of our corporate partners, to be
materially different from those expressed or implied by the forward-looking
statements. A number of factors could cause or contribute to such differences,
including the risks described in the section below entitled "Factors Affecting
Our Operating Results, Our Business, and Our Stock Price" and those listed from
time to time in our public disclosure filings with the SEC, copies of which are
available from our investor relations department. You should not unduly rely on
these forward-looking statements, which apply only as of the date of this Form
10-Q. We assume no obligation to update any forward-looking statements as new
information becomes available.
OVERVIEW
Our objective is to be a leader in the discovery and commercialization
of products useful in preventing, treating or diagnosing autoimmune diseases,
cancer and certain infectious diseases. Our strategy is to dedicate our
resources to the discovery of vaccines and other antigen-based products and to
establish corporate collaborations in various stages of the development process
for 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 and accelerates the commercial
development of new therapeutic and prophylactic vaccines and other
immunotherapeutic products. For the six months ended June 30, 2000,
approximately 93% of our revenue has resulted from such collaborative
agreements. Additionally, for the six months ended June 30, 2000, approximately
7% of our revenue has resulted from funds awarded through government grants. As
of June 30, 2000, our stockholders' equity was approximately $103.3 million.
We have entered, and intend to continue to enter, into collaborative
agreements early in the development process. We believe that this active
corporate partnering strategy enables us to maintain our focus on our
fundamental strengths in vaccine discovery and research, capitalizes on our
corporate partners' strengths in product development, and significantly
diminishes our financing requirements. When entering into such corporate
partnering relationships, we seek to cover our research and development expenses
through research funding, milestone payments and technology or license fees,
while retaining significant downstream participation in product sales through
either product royalties paid on annual net sales or profit-sharing. Our
significant collaboration agreements include a corporate partnership with SB
Biologicals and SB Manufacturing with respect to breast, prostate, ovarian and
colon cancers and tuberculosis vaccine discovery and development and vaccine
discovery programs for two chronic infectious pathogens, Chlamydia trachomatis
and Chlamydia pneumoniae; corporate partnerships with Zambon Group spa and Japan
Tobacco, respectively, for the research, development and commercialization of
vaccine products aimed at the prevention and/or treatment of lung cancer; a
corporate partnership with Zenyaku Kogyo Co. Ltd. for research and development
related to the psoriasis immunotherapeutic, PVAC (TM), treatment, developed by
Corixa and Genesis Research and Development Corporation (Genesis); and a
research agreement with the Infectious Disease Research Institute (IDRI) to
research and develop ex vivo therapies for the treatment of cancer. In addition,
through our acquisition of Ribi in October 1999, we acquired license agreements
granting Wyeth-Lederle and entities affiliated with SmithKline Beecham the right
to use the MPL(R) adjuvant in more than twenty-five disease targets.
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 autoimmune
diseases, cancer and infectious diseases. We also intend to broaden our scope to
include other
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strategic relationships that complement our approach to immune system-based
therapies for autoimmune diseases, cancer and infectious diseases.
We have experienced significant operating losses each year since our
inception. As of June 30, 2000, our accumulated deficit was approximately $106.2
million, of which $49.7 million is attributable to the write-off of in-process
research and development costs associated with the acquisitions of Ribi, Anergen
and GenQuest, Inc. (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 various costs associated with our
discovery, research and development programs and preclinical and clinical
activities and the purchase of technology, like that of the GenQuest
acquisition. 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 depend in large part on entering into
collaborative agreements with corporate partners for product discovery,
research, development and commercialization, obtaining regulatory approvals for
our products and successfully manufacturing and marketing commercial products.
We may be unable to achieve or sustain consistent profitability. In addition,
because payments under collaborative agreements and licensing arrangements are
subject to significant fluctuations in both timing and amounts, we may
experience 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 SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
Total Revenue
Revenue increased to $7.3 million for the three months ended June 30,
2000 from $6.0 million for the same period in 1999. Revenue increased to $16.2
million for the six months ended June 30, 2000 from $9.2 million for the first
six months of 1999. These increases were primarily attributable to revenue
related to research funding under collaboration agreements with the
pharmaceutical division of Japan Tobacco, Inc., IDRI, Organon, Zambon Group spa
and Zenyaku Kogyo. Revenue for the second quarter of 2000 also included
approximately $1.0 million received under collaborative agreements acquired in
our October 1999 acquisition of Ribi.
Research and Development Expenses
Research and development expenses increased to $15.3 million for the
three months ended June 30, 2000 from $10.0 million for the same periods in
1999. Research and development expenses increased to $31.2 million for the six
months ended June 30, 2000 from $18.7 million for the same period in 1999. These
increases were primarily attributable to increased payroll and personnel
expenses, due in part to increased headcount resulting from the acquisitions of
Anergen and Ribi in 1999, increased collaboration and patent expenses and costs
associated with increased clinical and preclinical activities. We expect
research and development expenses to increase in the future as current programs
advance through clinical trials and as we add additional programs.
General and Administrative Expenses
General and administrative expenses increased to $1.9 million for the
three months ended June 30, 2000 from $1.2 million for the same period in 1999.
General and administrative expenses increased to $3.4 million for the six months
ended June 30, 2000 from $1.7 million for the same period in 1999. These
increases were primarily attributable to increased expenses related to payroll
and personnel expenses due in part to increased headcount resulting from the
acquisitions of Anergen and Ribi in 1999, legal fees and business development
activities. We expect general and administrative expenses to increase in the
future to support the expansion of our business activities.
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Acquired In-Process Research and Development
For the six months ended June 30, 2000, acquired in-process research and
development (IPR&D) decreased to $0 from $11.6 million for the same period in
1999. The $11.6 million balance at June 30, 1999 reflects the amount allocated
to IPR&D we acquired in the Anergen acquisition in February 1999.
Intangible Amortization
We are amortizing amounts allocated to goodwill, adjuvant know-how and
assembled workforce resulting from the acquisition of Ribi in October 1999 on a
straight-line basis over periods of four to seven years. Amortization expense
related to these intangible assets was $729,000 for the three months ended June
30, 2000 and $1.6 million for the six months ended June 30, 2000, compared to $0
for the same periods in 1999.
Other Income
Other income decreased to $31,000 for the three months ended June 30,
2000 from $431,000 for the same period in 1999. For the six months ended June
30, 2000, other income decreased to $88,000 from $471,000 for the same period in
1999. These decreases were primarily attributable to proceeds received from
CellPro Inc. (CellPro) that were associated with the recovery of expenses
incurred in the termination of our collaboration with CellPro. We had initially
charged these expenses to research and development in the first quarter ended
March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, we had approximately $97.2 million in cash, cash
equivalents and marketable securities, an increase of $51.6 million from
December 31, 1999. The increase in cash, cash equivalents and marketable
securities is primarily due to our April 12, 2000 follow-on public offering of
1,900,000 shares of common stock, at a price of $32 per share, which provided
net cash of approximately $57.1 million. The increase in cash, cash equivalents
and marketable securities was partially offset by the cost of investing
activities, which used $30.1 million for the purchase of investment securities,
and the cost of operating activities, which used cash of approximately $7.7
million. Working capital increased approximately $50.1 million to $71.0 million
at June 30, 2000, from $20.9 million at December 31, 1999. We invest 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, in all cases with terms not exceeding four years.
On April 7, 2000, we sold 1,058,990 shares of Class A preferred stock of
ImmGenics Pharmaceuticals Inc. (ImmGenics) owned by Corixa to holders of
ImmGenics Class B preferred stock, for a total purchase price of $1,755,000. The
remaining ImmGenics Class A preferred stock held by Corixa represents
approximately 6.6% of the outstanding shares of ImmGenics.
In April 1999, we entered into an agreement with Castle Gate, an
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 through March 2001. We may draw down funds under the equity line of
credit at our sole option and may use these funds for expenses in connection
with various technology or company acquisitions. When funds are drawn, 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. At the time we
executed the Castle Gate agreement, we completed an initial draw-down of $12.5
million under the equity line of credit and issued to Castle Gate 12,500 shares
of our Series A preferred stock, convertible into common stock at $8.50 per
share, and warrants to purchase up to an aggregate of 1,037,137 shares of our
common stock. The warrants have exercise prices of $8.28 and $8.50 per share. If
we elect to draw down additional funds under the equity line of credit, each
draw must be for a minimum of $12.5 million. We have no present intention to
make any additional draws under the equity line of credit.
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We believe that our existing capital resources, committed payments under
existing corporate partnerships and licensing arrangements, bank credit
arrangements, equity credit lines, equipment financing, interest income and the
proceeds from our follow-on public offering completed April 12, 2000 will be
sufficient to fund our current and planned operations over at least the next 18
months. We may attempt to raise additional capital as a result of favorable
market conditions or strategic considerations, however, even if we have
sufficient funds for planned operations.
FACTORS AFFECTING OUR OPERATING RESULTS, OUR OPERATIONS, OUR BUSINESS AND OUR
STOCK PRICE
WE ARE AT AN EARLY STAGE OF DEVELOPMENT AND HAVE LIMITED SOURCES OF REVENUE.
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 and therapeutic product sales. We cannot predict
when, if ever, our research and development programs will result in commercially
available immunotherapeutic or prophylactic products or we will receive any
significant revenue from commercial sales of any such products. We may not
receive anticipated revenue under existing corporate partnerships, and we may
not be able to enter into any additional corporate partnerships.
WE EXPECT TO INCUR FUTURE OPERATING LOSSES AND MAY NOT ACHIEVE CONSISTENT
PROFITABILITY.
We have experienced significant operating losses in each year since our
inception in 1994. As of June 30, 2000, our accumulated deficit was
approximately $106.2 million, of which $49.7 million is attributable to the
write-off of in-process research and development costs associated with the
acquisitions of Ribi, Anergen and Genquest. We may incur substantial additional
operating losses over at least the next several years. These 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, research and development
programs and preclinical studies and clinical activities. We may experience
increased clinical development expenses if we move nonpartnered potential
products into and through clinic. Substantially all of our revenue and other
income to date have resulted from corporate partnerships, other research,
development and licensing agreements, research grants and interest income. We
may never achieve consistent profitability, and we may be unable to achieve a
consistent, profitable level of operations if we do not successfully and timely:
- enter into agreements with corporate partners for product
discovery, research, development and commercialization;
- obtain regulatory approvals for our products; and
- successfully manufacture and market commercial products.
In addition, because payments under corporate partnerships and licensing
arrangements may be subject to significant fluctuations in both timing and
amounts, our results of operations for any period may fluctuate and may not be
comparable to the results of operations for any other period.
BECAUSE OUR TECHNOLOGY AND PRODUCT DEVELOPMENT ARE UNPROVEN, OUR BUSINESS MAY
NOT SUCCEED.
Our technological approach to the development of therapeutic and
prophylactic vaccines and other immunotherapeutic products for autoimmune
diseases, cancer and infectious diseases is unproven in humans. Products based
on our technologies are currently in the research, preclinical or clinical
investigation stages and have not all been demonstrated to be safe and effective
in clinical settings. Currently, only a small number of our immunotherapeutic
products have advanced to clinical trials. Only one of our clinical trials has
incorporated our proprietary microsphere delivery system. In addition, except
for Phase I Her-2/neu vaccine trials, we have not, nor have any of our corporate
partners, conducted any clinical trials using our proprietary vaccine antigens
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for cancer or infectious diseases. Except for the approval of the Melacine(R)
vaccine in Canada, neither we nor any other company has received regulatory
approval for, or successfully commercialized, any therapeutic vaccines for the
autoimmune diseases, cancer or the infectious diseases that we target. We may be
unable to develop effective vaccines for these diseases within a reasonable
time, if ever, and we may be unable to commercialize our vaccines. Furthermore,
our programs may not move beyond their current stages of development.
WE MAY NOT SUCCESSFULLY MANAGE OUR GROWTH OR INTEGRATE POTENTIAL FUTURE
ACQUISITIONS.
We have acquired or in-licensed several complementary technologies,
product candidates and businesses and we may make additional acquisitions in
the future. Managing these acquisitions has entailed, and may in the future
entail, numerous operational and financial risks and difficulties, including:
- higher-than-expected acquisition and integration costs and
increased amortization expenses, which may cause our quarterly
and annual operating results to fluctuate;
- exposure to unknown liabilities of acquired companies;
- difficulties and significant expense in combining the operations
and personnel of acquired businesses with our own and
integrating or completing the development and application of any
acquired technologies, both of which may disrupt our business
and divert our management's time and attention;
- impairment of relationships with key customers of acquired
businesses due to changes in management and ownership of the
acquired businesses; and
- inability to retain key employees of an acquired business or
hire enough qualified personnel to staff any new or expanded
operations.
If we do not effectively manage our business or otherwise adapt to
anticipated growth, our business and stock price may suffer.
IF OUR CORPORATE PARTNERSHIPS ARE NOT SUCCESSFUL, OUR BUSINESS MAY NOT SUCCEED.
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 result from this strategy. We derived 93% of our
revenue for the six months ended June 30, 2000, and 92% of our revenue for the
quarter ended June 30, 1999, from research and development and other funding
under our existing corporate partnerships. We have also entered into corporate
partnerships with several companies for the development, commercialization and
sale of diagnostic products incorporating our proprietary antigen technology.
The process of establishing corporate partnerships is difficult, time consuming
and involves significant uncertainty. Our discussions with potential partners
may not lead to the establishment of new corporate partnerships on favorable
terms or at all. Our corporate partners may terminate any of our current
partnerships, and we may not be able to negotiate additional corporate
partnerships in the future on acceptable terms, or at all. Even if we are
successful in maintaining our current corporate partnerships or establishing new
partnerships they may never result in the successful development,
commercialization, or marketing of our products or the generation of significant
revenues. In addition, some of our corporate partners have options to license
some aspects of our technology. These corporate partners may not exercise their
option to license such technology and we would not receive revenue that would
result from the license.
Management of our relationships with our corporate partners will require:
- the devotion of significant time and effort by our management
team;
- coordination of our research with the research priorities of our
corporate partners;
- effective allocation of our resources to multiple projects; and
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- attracting and retaining key management, scientific and other
personnel.
If we are unable to timely and successfully accomplish these task, our corporate
partnerships, and our business, may not succeed.
Because we generally enter into research and development collaborations
with corporate partners at an early stage of product development, our success
largely depends upon the performance of our corporate partners. We do not
directly control the amount or timing of resources devoted by our corporate
partners to collaborative activities. As a result, 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, our related preclinical or clinical development
could be delayed or terminated. Also, our current corporate partners, or any
future corporate partners, may pursue any competitors' existing products, other
development-stage products or alternative technologies in preference to those
being developed in collaboration with us. In addition, disputes may arise with
respect to ownership of technology developed under any such corporate
partnership.
OUR INABILITY TO LICENSE TECHNOLOGY FROM THIRD PARTIES MAY IMPAIR OUR ABILITY TO
DEVELOP AND COMMERCIALIZE OUR PRODUCTS.
Our success depends on our ability to enter into licensing arrangements
with commercial or academic entities to obtain third-party technology that is
advantageous or necessary for research, development and commercialization of our
or our partners' products. Disputes may arise regarding the invention and
corresponding ownership 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 or the failure of
any of our corporate partners to meet any agreed milestones could allow the
licensor to terminate an agreement. Our current license agreements also may be
terminated for our material breach or bankruptcy or insolvency and, in some
circumstances, for failure to meet our diligence obligations under the license.
In addition, we may be unable to maintain the exclusivity of our exclusive
licenses. If we cannot obtain or maintain licenses to technologies advantageous
or necessary to the development or the commercialization of our products, we and
our corporate partners may be required to expend significant time and resources
to develop or in-license similar technology. If we are unable to do so, we may
be unable to commercialize those products and our business and stock price may
suffer.
THE PROPRIETARY RIGHTS UNDERLYING OUR PRODUCTS MAY NOT BE ADEQUATE, WHICH COULD
ENABLE THIRD PARTIES TO USE OUR TECHNOLOGY AND WOULD REDUCE OUR ABILITY TO
COMPETE.
Our success depends in part on our ability to obtain commercially
valuable patents, protect trade secrets, operate without infringing upon the
proprietary rights of others and prevent others from infringing on our
proprietary rights. We are able to protect our proprietary rights from
unauthorized use only to the extent that we can cover these rights with valid
and enforceable U.S. or foreign patents or effectively maintain them as trade
secrets. As of June 30, 2000, the technology we own or license has been covered
by 107 issued United States patents that expire at various times between May
2002 and May 2018, as well as 315 pending United States Patent applications. Our
patent position is generally uncertain and involves complex legal and factual
questions. Because legal standards relating to the validity and scope of claims
in the biotechnology and biopharmaceutical field are still evolving, the degree
of future protection for our proprietary rights is uncertain. The risks and
uncertainties that we face with respect to our patents and other proprietary
rights include the following:
- the pending patent applications we have filed or to which we
have exclusive rights may not result in issued patents or may
take longer than we expect to result in issued patents;
- any patents issued to us or our partners may not provide
meaningful protection or a competitive advantage;
- we may be unable to develop additional proprietary technologies
that are patentable; and
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- other companies may independently develop similar or alternative
technologies or design around technologies we have licensed or
developed.
We also rely on trade secret protection and confidentiality agreements
to protect our interests in proprietary know-how that is not patentable and
processes for which patents are difficult to enforce. The security measures we
have taken to protect our proprietary know-how and confidential data, and any
further methods of protection we may implement, may be insufficient to protect
our proprietary rights. Although we require all employees, consultants, partners
and customers to enter into confidentiality agreements, we may be unable to
meaningfully protect our trade secrets. Any material leak of confidential data
into the public domain or to third parties could cause our business, financial
condition and results of operations to suffer.
IF THIRD PARTIES CHALLENGE THE VALIDITY OF OUR PATENTS AND PROPRIETARY RIGHTS,
OUR BUSINESS MAY SUFFER.
A substantial number of patents have been issued, and an even larger
number of patent applications have been filed, in the fields of immunology and
molecular biology. Our commercial success depends significantly on our ability
to operate our business without infringing the patents and other proprietary
rights of third parties. However, our technologies may infringe the patents or
violate other proprietary rights of third parties, which could prevent our
corporate partners and us from pursuing product development or commercialization
of our technologies and product candidates and significantly harm our business.
We have licensed patent applications related to our microsphere
encapsulation technology from Southern Research Institute (SRI). Two of these
patent applications are currently the subject of opposition proceedings before
the European Patent Office. In one such opposition, the European Patent Office
has revoked a European patent previously issued to SRI. Although SRI has
appealed this decision, SRI may not ultimately prevail in this or any other
opposition proceedings. As a result, these patents may not issue in Europe,
which would harm our business. The defense and prosecution of intellectual
property rights, United States Patent and Trademark Office interference
proceedings and related legal and administrative proceedings in the United
States and elsewhere involve complex legal and factual questions. As a result,
these proceedings are costly and time-consuming, and their outcome is uncertain.
Litigation may be necessary to assess claims of infringement, enforce
our issued and licensed patents, protect trade secrets or know-how or determine
the enforceability, scope and validity of the proprietary rights of others. Any
litigation or interference or other administrative proceedings would result in
substantial expense and would divert the efforts of our technical and management
personnel. An adverse determination may subject us to significant liabilities,
restrict or prevent us from developing and commercializing our products, or
require us to seek licenses that may not be available from third parties on
commercially reasonable terms. Any of these outcomes would significantly harm
our business.
IF WE ARE UNABLE TO SECURE ADDITIONAL FUNDING, WE WILL HAVE TO REDUCE OR CEASE
OPERATIONS.
We require substantial capital resources in order to conduct our
operations. We intend to seek additional funding through corporate partnerships
and also may seek additional funding through public or private equity
financings; public or private debt financings; and capital lease transactions.
However, additional financing may not be available on acceptable terms, if at
all. In addition, a substantial number of payments to be made by our corporate
partners and other licensors are dependent on our achievement of development and
regulatory milestones. Failure to achieve such milestones may significantly harm
our future capital position. If sufficient capital is not available, we may be
required to delay, reduce the scope of, eliminate or divest one or more of our
research, development, preclinical or clinical programs or manufacturing
efforts. We believe that we will not require additional capital to fund our
current and planned operations over at least the next 18 months. We may attempt
to raise additional capital as a result of favorable market conditions or
strategic considerations, however, even if we have sufficient funds for current
and planned operations. Future equity financings could result in significant
dilution to our stockholders.
WE DEPEND HEAVILY ON THE PRINCIPAL MEMBERS OF OUR MANAGEMENT AND SCIENTIFIC
STAFF, THE LOSS OF WHOM COULD IMPAIR OUR ABILITY TO COMPETE.
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We depend heavily on the principal members of our management and
scientific staff, the loss of whose services might significantly delay or
prevent the achievement of our scientific or business objectives. Competition
among biotechnology and biopharmaceutical companies for qualified employees is
intense, and the ability to retain and attract qualified individuals is critical
to our success. We may be unable to attract and retain such individuals
currently or in the future on acceptable terms, and the failure to do so would
significantly harm our business. We do not maintain "key person" life insurance
on any of our officers, employees or consultants.
We also have relationships with scientific collaborators at academic and
other institutions, some of whom 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 them to devote only limited amounts of
time to our activities. Failure of any of these 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 compete with our products.
MANY OF OUR COMPETITORS HAVE GREATER FINANCIAL RESOURCES AND EXPERTISE IN
DISCOVERY, RESEARCH AND DEVELOPMENT, TESTING, OBTAINING REGULATORY APPROVAL AND
MARKETING THAN WE DO.
The biotechnology and biopharmaceutical industries are intensely
competitive. Many companies and institutions compete with us in developing
alternative therapies to treat or prevent autoimmune diseases, cancer and
infectious diseases, including pharmaceutical companies, biotechnology
companies, academic institutions and research organizations. Many of the
companies developing competing technologies and products have significantly
greater financial resources and expertise in research and development,
manufacturing, preclinical and clinical testing, obtaining regulatory approvals
and marketing than we or our corporate partners do. 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 research and development, manufacturing, preclinical and
clinical development, obtaining regulatory approval 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.
Competitors may develop more effective or more affordable products, or
may achieve earlier patent protection or product commercialization than our
corporate partners and we do. These competitive products may render our products
obsolete. Moreover, our competitors may acquire or license technology controlled
by third parties that may be advantageous to our business, thereby preventing us
from obtaining such technology on commercially reasonable terms, or at all.
WE HAVE LIMITED EXPERIENCE IN MANUFACTURING OUR PRODUCTS AND MAY ENCOUNTER
PROBLEMS OR DELAYS THAT COULD RESULT IN LOST REVENUE.
Our current manufacturing facilities may not be sufficient to support
our or our corporate partners' needs for clinical quantities of our products and
commercial quantities of our current adjuvant products. We have limited
experience producing commercial quantities of any product or in producing
clinical grade or commercial amounts of our proprietary antigens. Although we
currently manufacture limited quantities of some antigens and several adjuvants,
we may rely on third-party contract manufacturers to produce larger quantities
of such substances for clinical trials and product commercialization. We and
these contract manufacturers may not be able to manufacture our proprietary
antigen vaccines at an acceptable cost or in quantities necessary to make them
commercially viable. Third-party manufacturers also may be unable to meet our
needs with respect to timing, quantity or quality. If we are unable to contract
for a sufficient supply of required products on acceptable terms, or if we
encounter delays or difficulties in our relationships with manufacturers, our
preclinical and clinical testing would be delayed, which would delay submission
of products for regulatory approval or in the market introduction and commercial
sale. Moreover, contract manufacturers must continually adhere to current Good
Manufacturing Practices (GMP) regulations enforced by the United States Food and
Drug Administration (FDA),
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through its facilities inspection program. If the facilities of the
manufacturers we use cannot pass a pre-approval plant inspection, FDA approval
of our products will not be granted.
BECAUSE WE LACK SALES, MARKETING AND DISTRIBUTION CAPABILITIES, OUR BUSINESS MAY
SUFFER.
We currently have no sales, marketing or distribution capabilities. 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 sales, marketing and distribution relationships
and are required to market any of our products directly, we will need to build a
marketing and sales force with technical expertise and with supporting
distribution capabilities. We may be unable to maintain or establish marketing
relationships with corporate partners or build in-house sales and distribution
capabilities.
BECAUSE OUR SUCCESS DEPENDS ON A GOVERNMENT REGULATORY APPROVAL PROCESS THAT IS
UNCERTAIN, TIME-CONSUMING AND EXPENSIVE, OUR BUSINESS MAY SUFFER.
Before any product we or our corporate partners develop may be marketed
in a particular country, it must receive all relevant regulatory approvals or
clearances by federal, state and local governmental authorities in the United
States, including the FDA, and by similar agencies in other countries. 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. Data from a recently completed Phase III
clinical trial of Melacine, our melanoma vaccine, showed no statistically
significant therapeutic benefit on patients who met the criteria for treatment
in connection with the trial. We are currently reviewing, together with our
corporate partner for this product, what additional studies, if any, will be
conducted for this product. In addition, we may encounter delays or rejections
because of changes in regulatory policy during the period of product development
or the period of regulatory review. Delays in obtaining regulatory approvals or
clearances would adversely affect the marketing of any products that we or our
corporate partners develop.
Regulatory approval, if granted, may entail limitations on the indicated
uses for which we or our corporate partners may market the approved product,
which could reduce the size of 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 ongoing
regulation, including compliance with detailed regulations governing GMP.
Failure to comply with manufacturing regulations could 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. 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
research, 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.
IF WE CANNOT SUCCESSFULLY DEVELOP OUR PRODUCTS, OR IF OUR PRODUCTS ARE NOT
ACCEPTED BY THE MARKET, WE WILL NOT GENERATE REVENUE AND OUR BUSINESS WILL
SUFFER.
Our therapeutic, prophylactic and diagnostic products may not achieve
market acceptance or commercial viability. Physicians, patients or the medical
community generally may not accept or use any products that we or our corporate
partners may develop. Any potential products could be found unsafe, ineffective
or not as effective as alternative treatment methods. Our potential products
could be difficult or impossible to manufacture on a large scale or market
economically, or may not qualify for reimbursement from government and
third-party payors. In addition, any products we or our corporate partners
successfully develop will compete with drugs and therapies manufactured and
marketed by other major pharmaceutical and other biotechnology companies. If we
do not successfully develop and market our products, we will not generate
revenue and our business will suffer.
ANY CLAIMS RELATING TO IMPROPER HANDLING, STORAGE OR DISPOSAL OF THE HAZARDOUS
MATERIAL WE USE IN OUR BUSINESS COULD BE TIME CONSUMING AND COSTLY.
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Our research and development involves the controlled use of hazardous
and radioactive materials and biological waste. We are subject to federal, state
and local laws and regulations governing the use, manufacture, storage, handling
and disposal of these materials and some waste products. Although we believe
that our safety procedures for handling and disposing of these materials comply
with legally prescribed standards, we cannot completely eliminate the risk of
accidental contamination or injury from these materials. In the event of an
accident, we could be held liable for damages or penalized with fines, and this
liability could exceed our resources. We may have to incur significant costs to
comply with future environmental laws and regulations. As part of our
acquisition of Ribi, we assumed responsibility as a potential responsible party
in connection with groundwater contamination at the Bitterroot Valley Sanitary
Landfill. We have initiated settlement discussions with the federal government
and the state of Montana and currently believe that a settlement can be reached
releasing us from past and future liability related to the groundwater
contamination. We have recorded $2.6 million as part of the purchase price of
Ribi to cover the settlement we may pay in 2000. If we incur costs in excess of
this amount in resolving this action, however, our financial condition may
suffer.
WE FACE PRODUCT LIABILITY EXPOSURE AND POTENTIAL UNAVAILABILITY OF INSURANCE.
We may experience losses due to product liability claims. Although we
have obtained limited product liability insurance coverage, it may be inadequate
or may not continue to be available in sufficient amounts, at an acceptable
cost, or at all. We may be unable to obtain commercially reasonable product
liability insurance for any product approved for marketing. A product liability
or other claim, a product recall or any claim for uninsured liabilities or in
excess of insured liabilities could significantly harm our business.
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 government health administration authorities, private
health insurers, health maintenance organizations, pharmacy benefit management
companies and other health care-related organizations. Both 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 also may change before any of our or our corporate partners' products
are approved for marketing. In addition, third-party payors are increasingly
challenging the price and cost-effectiveness of medical products and services.
Cost-control initiatives by governments or third-party payors could decrease the
price that we receive for any future product. Significant uncertainty exists as
to the reimbursement status of newly approved health care products, including
pharmaceuticals. Our or our corporate partners' potential products may not be
considered cost-effective, and 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.
OUR STOCK PRICE COULD BE VOLATILE.
In recent years the stock market in general and the market for
biotechnology-related companies in particular have experienced extreme price and
volume fluctuations, often unrelated to the operating performance of the
affected companies. Our common stock has experienced, and is likely to continue
to experience, these fluctuations in price, regardless of our performance. These
fluctuations could cause the market price of our common stock to decline.
ITEM 3. QUANTITATIVE & QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not use derivative financial instruments in our operations or
investment portfolio. However, we regularly invest excess operating cash in
deposits with major financial institutions, money market funds, notes issued by
the United States government and fixed income investments that can be readily
purchased or sold using established markets. We believe that the market risk
arising from our holdings of these financial instruments is minimal. We do not
have any material exposure to market risks associated with changes in interest
rates because we have no variable-interest-rate debt outstanding.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See "Note 6 of the Notes to the Consolidated Financial Statements."
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In connection with our 1997 initial public offering of our common stock,
we filed a Registration Statement on Form S-1, SEC File No 333-32147, which was
declared effective by the Commission on October 2, 1997. Proceeds to Corixa,
after deducting expenses, were $40,778,100.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At our annual meeting of stockholders held on May 31, 2000, stockholders
representing a total of 17,963,517 shares of common stock entitled to vote at
the meeting, constituting a quorum, voted to:
- elect five directors to our board of directors;
- increase to 100 million the number of shares of common stock we
are authorized to issue; and
- ratify the appointment of Ernst & Young LLP as our independent
public auditors for the fiscal year 2000.
In the election of directors, each director received the approval of
more than 98% of the shares voted at the annual meeting. In the vote to approve
the increase in the number of authorized shares of common stock, 14,783,245
shares were voted in favor, 1,693,420 shares were voted against and 1,486,852
shares were abstained. In the vote to ratify Ernst & Young LLP as our
independent public auditors, 17,949,528 shares were voted in favor, 7,270 shares
were voted against and 6,719 shares were abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Index to Exhibits.
(b) We did not file any reports on Form 8-K during the quarter ended
June 30, 2000.
18
<PAGE> 21
SIGNATURE
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
August __, 2000 By: /s/ MICHELLE BURRIS
----------------------------- --------------------------------
DATE Michelle Burris
Vice President and
Chief Financial Officer
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<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
------ ------------------- ----
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation ..................... (A)
3.2 Bylaws ................................................................ (A)
3.3 Articles of Amendment to Amended and Restated Certificate of
Incorporation .........................................................
4.1 Amended and Restated Investors' Rights Agreement dated as of
May 10, 1996 between Corixa Corporation and certain holders
of its capital stock .................................................. (A)
4.2 Certificate of Designation of Series A Preferred Stock of Corixa
Corporation ........................................................... (B)
4.3+ Equity Line of Credit and Securities Purchase Agreement
between Corixa Corporation and Castle Gate, L.L.C. dated
April 8, 1999 ......................................................... (B)
4.4+ Registration Rights Agreement between Corixa Corporation and
Castle Gate, L.L.C. dated April 8, 1999 ............................... (B)
4.5+ Standstill Agreement between Corixa Corporation and Castle
Gate, L.L.C. dated April 8, 1999 ...................................... (B)
4.6+ Warrant Number CG-1, issued by Corixa Corporation to Castle
Gate, L.L.C. on April 8, 1999 ......................................... (B)
4.7+ Warrant Number CG-2, issued by Corixa Corporation to Castle
Gate, L.L.C. on April 8, 1999 ......................................... (B)
4.8+ Form of Warrant Number CG-3, to be issued by Corixa
Corporation to Castle Gate, L.L.C. upon the occurrence of
events specified in the Equity Line of Credit and Securities
Purchase Agreement .................................................... (B)
4.9+ Form of Warrant Number CG-4, to be issued by Corixa
Corporation to Castle Gate, L.L.C. upon the occurrence of
events specified in the Equity Line of Credit and Securities
Purchase Agreement .................................................... (B)
27.1 Financial Data Schedule
</TABLE>
(A) Incorporated by reference Corixa's Registration Statement on Form S-1,
as amended (File No. 333-32147), initially filed with the SEC on
September 30, 1997.
(B) Incorporated by reference to Corixa's Current Report on Form 8-K (File
No. 0-22891), filed with the SEC on April 23, 1999.
+ Portions of this exhibit have been omitted pursuant to a request for
confidential treatment, granted by order of the SEC on June 14, 1999.
20
