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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 March 31, 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)
DELAWARE 91-1654387
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1124 COLUMBIA STREET, SUITE 200
SEATTLE, WA 98104-2040
(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 March 31, 2000, there were approximately 18,937,323 shares of the
Registrant's common stock outstanding.
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Corixa Corporation
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Page
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
Consolidated Balance Sheets as of March 31, 2000 (Unaudited) and
December 31, 1999........................................................................ 1
Consolidated Statements of Operations (Unaudited) for the three months
ended March 31, 2000 and 1999............................................................ 2
Consolidated Statements of Cash Flows (Unaudited) for the three months
ended March 31, 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..................................................... 9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.............................................................. 24
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...................................... 24
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................ 24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................ 24
ITEM 5. OTHER INFORMATION.............................................................. 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................... 24
SIGNATURES.................................................................................................... 25
</TABLE>
II
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CORIXA CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
--------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ....................................................... $ 7,378 $ 780
Securities available-for-sale ................................................... 28,347 33,425
Accounts receivable, net ........................................................ 7,950 2,792
Interest receivable ............................................................. 649 759
Prepaid expenses and other current assets ....................................... 2,685 1,779
Deposits ........................................................................ 1,681 1,657
--------- ---------
Total current assets .............................................................. 48,690 41,192
Property and equipment, net ....................................................... 20,975 21,281
Securities available-for-sale, noncurrent ......................................... 11,130 11,348
Investments ....................................................................... 4,000 4,000
Acquisition related intangible assets, net ........................................ 13,690 14,516
Deferred charges and deposits ..................................................... 142 143
--------- ---------
Total assets ...................................................................... $ 98,627 $ 92,480
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ........................................ $ 8,944 $ 8,701
Dividend payable ................................................................ 625 469
Deferred revenue ................................................................ 19,879 8,236
Current portion of long-term obligations ........................................ 3,538 2,867
--------- ---------
Total current liabilities ......................................................... 32,986 20,273
Long-term obligations, less current portion ....................................... 9,931 11,426
Commitment and contingencies ...................................................... -- --
Redeemable common stock ........................................................... 2,000 2,000
Stockholders' equity:
Convertible preferred stock, $0.001 par value: Authorized shares - 10,000,000
shares; Designated Series A - 50,000 shares; Issued and outstanding - 12,500
shares in 2000 and 1999 ....................................................... -- --
Common stock, $0.001 par value
Authorized-40,000,000 shares;
Issued and outstanding-18,938,323 shares in 2000 and 18,627,225 in 1999
(including 141,576 redeemable common shares) .................................. 19 19
Additional paid-in-capital ...................................................... 151,520 147,926
Deferred compensation ........................................................... (308) (441)
Accumulated other comprehensive income (loss) ................................... (585) (687)
Accumulated deficit ............................................................. (96,936) (88,036)
Total stockholders' equity ........................................................ 53,710 58,781
--------- ---------
Total liabilities and stockholders' equity ........................................ $ 98,627 $ 92,480
========= =========
</TABLE>
See accompanying notes.
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CORIXA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Revenue:
Collaborative agreements ...................... $ 8,459 $ 2,828
Government grants ............................. 449 306
-------- --------
Total revenue ................................... 8,908 3,134
Operating expenses:
Research and development ...................... 15,860 8,624
General and administrative .................... 1,489 590
Acquired in-process research and development .. -- 11,612
Intangible amortization ....................... 826 --
-------- --------
Total operating expenses .................... 18,175 20,826
-------- --------
Loss from operations ............................ (9,267) (17,692)
Interest income ................................. 479 468
Interest expense ................................ (169) (202)
Other income .................................... 57 40
-------- --------
Net loss ........................................ (8,900) (17,386)
Preferred stock dividend ........................ (156) --
Net loss applicable to common stockholders ...... $ (9,056) $(17,386)
======== ========
Basic and diluted net loss
per common share .............................. $ (0.48) $ (1.23)
======== ========
Shares used in computation
of basic and diluted net loss
per common share .............................. 18,763 14,097
======== ========
</TABLE>
See accompanying notes.
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CORIXA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ........................................................................ $ (8,900) $(17,386)
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 ......................................... 133 252
Depreciation and amortization ................................................. 1,758 647
Equity instruments issued in exchange for technology and services ............. 335 --
Changes in operating assets and liabilities:
Accounts receivable ........................................................... (5,158) 1,810
Interest receivable ........................................................... 110 (113)
Prepaid expenses, deposits and other current assets ........................... (930) (231)
Accounts payable and accrued expenses ......................................... 243 (381)
Deferred revenue .............................................................. 11,643 6,760
-------- --------
Net cash (used in) provided by operating activities ............................. (766) 2,970
INVESTING ACTIVITIES
Purchases of securities available-for-sale ...................................... (5,928) (20,502)
Proceeds from maturities of securities available-for-sale ....................... 5,209 8,225
Proceeds from sale of securities ................................................ 6,115 9,050
Purchases of property and equipment ............................................. (624) (831)
Net cash received in acquisitions ............................................... -- 442
-------- --------
Net cash provided by (used in) investing activities ............................. 4,772 (3,616)
FINANCING ACTIVITIES
Proceeds from issuance of common stock .......................................... 3,416 71
Principal payments made on long term obligations ................................ (569) (1,084)
Principal payments on capital leases ............................................ (255) (279)
-------- --------
Net cash provided by (used in) financing activities ............................. 2,592 (1,292)
Net increase (decrease) in cash and cash equivalents ............................ 6,598 (1,938)
Cash and cash equivalents at beginning of period ................................ 780 9,098
-------- --------
Cash and cash equivalents at end of period ...................................... $ 7,378 $ 7,160
======== ========
Supplemental disclosures of cash flow information:
Interest paid ................................................................. $ 172 $ 222
Supplemental schedule of noncash investing and financing activities:
Equity instruments issued for acquisitions .................................... $ -- $ 10,164
</TABLE>
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
Corixa Corporation (the Company or Corixa) is 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 of Corixa
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, 1999, included in the Company's Form 10-K/A filed with the SEC.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements
of Corixa and its wholly owned subsidiaries. All significant inter-company
account balances and transactions have been eliminated in consolidation.
SECURITIES AVAILABLE-FOR-SALE
The Company's 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. The Company's primary 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/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. 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 accretion is 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 money market instruments and 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 funding, development and
technology access payments, and milestone and royalty payments. Revenue from
nonrefundable up-front fees is recognized upon satisfaction of related
obligations. Revenue from ongoing research and co-development payments 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 are 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 95% and 90% of its revenue from
collaborative partners during the three-month periods ended March 31, 2000 and
1999, respectively.
The Company has recognized nonrefundable, up-front license fees in
connection with collaboration agreements as revenue upon satisfaction of related
obligations. In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognized in Financial Statement",
or SAB 101. Among other things, SAB 101 discusses the SEC staff's view on
accounting for non-refundable up-front fees received in connection with
collaborative agreements. The Company is currently evaluating the applicability
of SAB 101 to its collaboration agreements. Should the Company conclude that the
approach described in SAB 101 is more appropriate, it will change its method of
accounting effective January 1, 2000 to recognize such fees over the term of the
related research agreement. The cumulative effect of this change in accounting
principle, if made, would be approximately $6.5 million as of January 1, 2000
and would be recorded as a charge in the six months ending June 30, 2000. The
cumulative effect would be recorded as deferred revenue and would be recognized
as revenue over the remaining contractual terms of the collaborative research
agreements.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform to the 2000 presentation.
2. NET LOSS PER SHARE
Basic net loss per common share is calculated by dividing net loss
applicable to common stockholders by the weighted average number of common
shares outstanding. Diluted net loss per common 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. Because
Corixa reports a net loss, diluted net loss per share is the same as basic net
loss 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.
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3. COMPREHENSIVE LOSS
For the three months ended March 31, 2000 and 1999, the Company's
comprehensive loss was as follows (in thousands):
<TABLE>
<CAPTION>
For the three months
ended March 31,
------------------------
2000 1999
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<S> <C> <C>
Net Loss $(8,900) $(17,386)
Other comprehensive income:
Unrealized holding gains
during the period 102 51
------- --------
Total comprehensive loss $(8,798) $(17,335)
======= ========
</TABLE>
4. IN-PROCESS RESEARCH AND DEVELOPMENT
On February 10, 1999, the Company acquired all of the outstanding shares
of common stock of Anergen Inc. (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 in-process research and development (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
Net liabilities assumed .............................. (1,949)
--------
Total purchase price ................................. $ 9,663
========
</TABLE>
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 date, 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 based primarily on venture capital rates of return and the weighted
average cost of capital for Corixa at the time of acquisition.
The foregoing estimates and projections regarding the Anergen
acquisition were based on assumptions Corixa believed to be reasonable at the
time of the acquisition, 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 the 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
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the risk that alternative vaccines, immunotherapeutics, or diagnostics will be
developed by competitors.
The assets and liabilities of Anergen have been recorded on the books of
the Company at their fair market values. The operating results of the acquired
business have been included in the consolidated statements of operations from
February 10, 1999, the effective date of the acquisition.
For pro forma purposes, the operating results of the Company and Anergen
for the quarter ended March 31, 1999 have been combined as if the acquisition
occurred on January 1, 1999. This pro forma information does not purport to be
indicative of what would have occurred had the acquisition been made as of that
date, or of results which may occur in the future. The pro forma information
does not include the charge for in-process research and development of $11.6
million associated with the acquisition of Anergen. Total pro forma revenue for
the quarter ended March 31, 1999 is $3,266,000; net loss applicable to common
shareholders is $6,876,000; and net loss per common share is $0.48.
5. CONTINGENCIES
GROUNDWATER CONTAMINATION
Ribi ImmunoChem Research, Inc. (Ribi), which merged with Corixa in
October 1999 the NIH and the Bitterroot Valley Sanitary Landfill were notified
by the Montana Department of Environmental Quality (DEQ) in March 1991 that they
had been identified as potentially responsible parties and as such were 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 that involved installing individual
replacement and new wells.
The DEQ initiated an action in 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 past alleged costs associated with its oversight
activities, as well as a declaratory judgment finding the parties liable for
future oversight costs, plus 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,
filed suit in 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 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 past alleged
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 United States and the
State of Montana. We currently believe that a settlement can be reached with the
United States and the State of Montana releasing us from past and future
liability related to the Bitterroot Landfill, and we have reserved $2,600,000 to
cover the settlement we may pay in 2000.
WRONGFUL DISCHARGE
In June 1997, a complaint was filed in state district court in Ravalli
County, Montana against Ribi by a former employee who was discharged for cause
in June 1996. The former employee alleged he was discharged in violation of the
Montana Wrongful Discharge from Employment Act and further, that the discharge
was for his refusal to violate public policy in connection with his
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employment. The court granted dismissal with respect to the portion of the
complaint alleging that termination was due to his refusal to violate public
policy. The former employee then filed a motion for reconsideration asking the
court to reverse its decision, and requested permission to amend his complaint
to include additional allegations relative to the public policy issue. Our
motion for partial summary judgment on the public policy issue is currently
pending. The plaintiff has filed a motion for partial summary judgment on the
issue of discharge in violation of the Wrongful Discharge Act.
While we believe our defenses to these employment allegations are
meritorious, we may incur substantial litigation costs to defend ourselves. A
potential adverse outcome could cause our business, financial condition and
results of operations to suffer.
Other
We understand that a complaint was filed in Montana district court in
February 2000 by a former Ribi employee claiming damages associated with working
conditions while she was employed 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.
6. SUBSEQUENT EVENTS
On April 12, 2000 the Company completed a follow-on public offering
through the issuance of 1,900,000 shares of its common stock to the public at a
price of $32 per share. The Company received net proceeds of approximately $57.1
million, after deducting underwriting discounts and commissions and before
deducting expenses payable by the Company. The Company expects to use the
proceeds to fund product development and clinical research, acquisition of
technologies and companies and for general corporate purposes, capital
expenditures and other working capital requirements.
On April 7, 2000 the Company agreed to sell 1,058,990 Class A preferred
shares of ImmGenics Pharmaceuticals Inc. (ImmGenics) to holders of Immgenics
Class B preferred shares for approximately $1.7 million. The remaining Class A
preferred shares held by Corixa represent approximately 6.6% of the outstanding
shares of ImmGenics.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q, including management's discussion and analysis of
financial condition and results of operations, contains "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
including, without limitation, statements regarding regulatory approvals,
operating results and capital requirements. Except for historical information,
the matters discussed in this Form 10-Q are forward-looking statements that are
subject to certain risks and uncertainties that could cause the actual results,
performance or achievements of Corixa or its corporate partners, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to:
- - uncertainties related to the early stage of our research and development
programs;
- - uncertainties related to the effectiveness of our technology and the
development of our products;
- - our failure to acquire additional companies or technologies to expand or
support the growth of our business;
- - our failure to successfully manage any future growth;
- - dependence on and management of existing and future corporate partnerships;
- - our failure to establish corporate collaborations either at all or early in
the development process for all aspects of product development and
commercialization;
- - dependence on in-licensed technology;
- - dependence on proprietary technology and uncertainty of patent protection;
- - history of operating losses;
- - possible volatility of stock price;
- - future capital needs and uncertainty of additional funding;
- - our limited manufacturing and lack of marketing and sales experience and
reliance on third parties to perform such functions;
- - 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;
- - existing governmental regulations and changes in, or the failure to comply
with, governmental regulations;
- - impact of alternative technological advances and competition on us and the
collaborative relationships between us and our corporate partners;
- - 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
- - 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, 1999, as amended, and our
registration statement on Form S-3, filed with the SEC on March 7, 2000, as
amended.
We assume no obligation to update the forward-looking statements
included in this Form 10-Q.
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OVERVIEW
Corixa's objective is to be a leader in the discovery and
commercialization of products useful in preventing, treating or diagnosing
cancer and certain infectious and autoimmune diseases. Corixa's strategy is to
dedicate its 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. Corixa believes that this research-and partner-driven approach
creates significant scientific, operational and financial advantages for the
Company and accelerates the commercial development of new therapeutic and
prophylactic T cell vaccines and other immunotherapeutic products. For the three
months ended March 31, 2000, approximately 95% of Corixa's revenue has resulted
from such collaborative agreements. Additionally, for the three months ended
March 31, 2000, approximately 5% of Corixa's revenue has resulted from funds
awarded through government grants. As of March 31, 2000, Corixa's stockholders'
equity was approximately $53.7 million.
Corixa has entered, and intends to continue to enter, into collaborative
agreements early in the development process. Corixa believes that this active
corporate partnering strategy enables the Company to maintain its focus on its
fundamental strengths in vaccine discovery and research, capitalizes on its
corporate partners' strengths in product development, manufacturing and
commercialization, and significantly diminishes Corixa's financing requirements.
When entering into such corporate partnering relationships, Corixa seeks to
cover its research and development expenses through research funding, milestone
payments, 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. 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; a research agreement with the Infectious Disease
Research Institute ("IDRI") to research and develop ex vivo therapies for the
treatment of cancer; 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; and a
corporate partnership with Zenyaku Kogyo Co. Ltd. for the research and
development related to the psoriasis immunotherapeutic product (PVAC(TM)
treatment) developed by Corixa and Genesis Research and Development Corporation
(Genesis). In addition, through our acquisition of Ribi ImmunoChem Research in
October 1999, we acquired license agreements granting SmithKline Beecham and
Wyeth-Lederle the right to use the MPL(R) adjuvant in more than twenty-five
disease targets.
During the first quarter of 2000, the Company entered into several new
agreements, including an agreement with Genset SA in which Genset will sequence
the genome of an undisclosed organism; an agreement with Incyte Pharmaceuticals,
Inc in which Corixa gained access to Incyte's LifeSeq Gold Database for use in
vaccine, therapeutic monoclonal antibody and diagnostic development; an
agreement with Vancouver-based QLT PhotoTherapeutics Inc. to combine our
respective technologies to fight disease; a collaboration agreement with
Abgenix, Inc. to discover and develop human monoclonal antibodies against
selected targets from Corixa's library of proprietary autoimmune disease, cancer
and infectious disease antigens; and an expanded agreement with Wyeth-Lederle
allowing access to an oil based formulation of Corixa's MPL adjuvant and adding
several infectious disease fields, including HIV, to the original MPL adjuvant
license and supply agreements.
Corixa remains focused on the discovery and early clinical development
of proprietary vaccine products that induce specific and potent pathogen- or
tumor-reactive T cell responses for the treatment and prevention of autoimmune
diseases cancer and infectious diseases. Corixa also intends to broaden its
scope to include other strategic relationships that complement its approach to
immune system-based therapies for autoimmune diseases, cancer and infectious
diseases.
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Corixa has experienced significant operating losses each year since its
inception. As of March 31, 2000, Corixa's accumulated deficit was approximately
$96.9 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. Corixa may incur substantial additional operating
losses over, at a minimum, the next several years. Such losses have been and may
continue to be principally the result of various costs associated with Corixa's
discovery, research and development programs and preclinical and clinical
activities and the purchase of technology, for example the GenQuest acquisition.
Substantially all of Corixa's revenue to date has resulted from corporate
partnerships, other research, development and licensing arrangements, research
grants and interest income. Corixa's ability to achieve a consistent, profitable
level of operations is dependent in large part upon entering into collaborative
agreements with corporate partners for product discovery, research, development
and commercialization, obtaining regulatory approvals for its products and
successfully manufacturing and marketing commercial products. There can be no
assurance that Corixa will be able to achieve consistent profitability. In
addition, payments under collaborative agreements and licensing arrangements
will be subject to significant fluctuations in both timing and amounts,
resulting in quarters of profitability and quarters of losses by Corixa.
Therefore, Corixa's results of operations for any period may fluctuate
significantly and may not be comparable to the results of operations for any
other period.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999.
Total Revenue
Revenue increased to $8.9 million for the three months ended March 31,
2000 from $3.1 million for the same period in 1999. This increase was primarily
attributable to revenue related to research funding under collaboration
agreements with the pharmaceutical division of Japan Tabacco, Inc., the
Infectious Disease Research Institute (IDRI), Organon, Zambon Group Spa and
Zenyaku Kogyo.
Research and Development Expenses
Research and development expenses increased to $15.9 million for the
three months ended March 31, 2000 from $8.6 million for the same period in 1999.
The increase was primarily attributable to increased payroll and personnel
expenses due in part to 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 $1.5 million for the
three months ended March 31, 2000, from $590,000 for the same period in 1999.
The increase was primarily attributable to increased expenses related to payroll
and personnel expenses due in part to the acquisitions of Anergen and Ribi in
1999, legal fees, business development, and the general and administrative
portions of the amortization of deferred compensation associated with certain
stock option grants. We expect general and administrative expenses to increase
in the future to support the expansion of our business activities.
Acquired In-Process Research and Development
For the three months ended March 31, 2000, acquired in-process research
and development (IPR&D) decreased to $0 from $11.6 million in the same period in
1999. The $11.6 million at March 31, 1999 reflects the amount allocated to IPR&D
acquired in the Anergen acquisition.
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Intangible Amortization
Amounts allocated to goodwill, adjuvant know-how and assembled workforce
resulting from the recent acquisition of Ribi., in October 1999 are being
amortized on a straight-line basis over periods of four to seven years.
Amortization expense related to these intangible assets for the period ended
March 31, 2000 was $826,000, compared to $0 for the same period in 1999.
Interest Expense
Interest expense decreased to $169,000 for the three months ended March
31, 2000 from $202,000 for the same period in 1999. The decrease for the
three-month period ended March 31, 2000 resulted from lower loan and capital
lease financing balances.
Other Income
Other income increased to $57,000 for the three months ended March 31,
2000 from $40,000 for the same period in 1999. The increase for the three months
ended March 31, 2000 was primarily attributable to increased sublet rental
income.
Deferred Compensation
Amortization of deferred compensation of approximately $133,000 and
$252,000 was recorded in the three months ended March 31, 2000 and 1999,
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 $308,000 will
be amortized over the rest of 2000 and 2001 as the subject options vest.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, we had approximately $46.9 million in cash, cash
equivalent and marketable securities, an increase of $1.3 million from December
31, 1999. The Company invests primarily in (U.S. denominated only); commercial
paper; short and mid-term corporate notes/bonds, with no more than 10% of the
portfolio in any one corporate issuer; and Federal agencies with terms not
exceeding four years.
The increase in cash, cash equivalents and marketable securities is
primarily due to our investing activities which provided net cash of
approximately $4.8 million from the sale and maturity of marketable securities,
financing activities which provided net cash of approximately $2.6 million due
primarily to the issuance of equity securities, offset by operating activities
which used cash of approximately $766,000. Working capital decreased
approximately $5.2 million to $15.7 million at March 31, 2000 from $20.9 million
at December 31, 1999.
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 the 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
under the equity line of credit of $12.5 million and a corresponding issuance to
Castle Gate of 12,500 shares of our Series A preferred stock convertible into
common stock at $8.50 per share and warrants to purchase up to a total of
1,037,137 shares of our common stock. The warrants have exercise prices of
$8.28 and $8.50 per share. In the event we elect to draw down additional funds
under the equity line of credit,
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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.
On April 12, 2000 the Company completed a follow-on public offering
through the issuance of 1,900,000 shares of its common stock to the public at a
price of $32 per share. The Company received net proceeds of approximately $57.1
million, after deducting underwriting discounts and commissions and before
deducting expenses payable by the Company.
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 over at least 18 months. See Factors Affecting Future Results -- "OUR
NEED FOR, AND ABILITY TO SECURE, ADDITIONAL FUNDING IS UNCERTAIN".
FACTORS AFFECTING FUTURE RESULTS
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 products. We do not know when, if ever, we will
receive any significant revenue from commercial sales of these 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 on September 8, 1994. As of March 31, 2000, our accumulated deficit
was approximately $96.9 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. Substantially all of
our revenue and other income to date has resulted from corporate partnerships,
other research, development and licensing arrangements, research grants and
interest income. We may never achieve consistent profitability, and our ability
to achieve a consistent, profitable level of operations is dependent in large
part upon our:
- - entering into agreements with corporate partners for product discovery,
research, development and commercialization;
- - obtaining regulatory approvals for our products; and
- - successfully manufacturing and marketing commercial products.
In addition, payments under corporate partnerships and licensing
arrangements will be subject to significant fluctuations in both timing and
amounts. Accordingly, our results of operations for any period may fluctuate and
may not be comparable to the results of operations for any other period.
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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 not all have 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 corporate partners
has conducted clinical trials that incorporate our proprietary microsphere
delivery system. In addition, with the exception of 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 for cancer or infectious
diseases. With the exception of the approval of Melacine(R) vaccine in Canada,
we have not, nor has any other company, received regulatory approval for, or
successfully commercialized, any therapeutic vaccines for the autoimmune
diseases, cancer or infectious diseases that we target. We may not be able to
develop effective vaccines for these diseases within a reasonable time, if ever,
and our vaccines may not be capable of being commercialized. 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 recently completed several acquisitions of complementary
technologies, product candidates and businesses. In the future, we may acquire
additional complementary companies, products or technologies. Managing these
acquisitions has entailed and may in the future entail numerous operational and
financial risks and strains, including:
- - exposure to unknown liabilities of acquired companies;
- - higher than expected acquisition and integration costs which may cause our
quarterly and annual operating results to fluctuate;
- - combining the operations and personnel of acquired businesses with our own
which may be difficult and costly, and integrating or completing the
development and application of any acquired technologies 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;
- - inability to retain key employees of any acquired businesses or hire enough
qualified personnel to staff any new or expanded operations; and
- - increased amortization expenses if an acquisition results in significant
goodwill or other intangible assets.
If we do not effectively manage our business or otherwise adapt to
anticipated growth, our business and stock price may suffer.
COMMERCIALIZATION OF SOME OF OUR POTENTIAL PRODUCTS DEPENDS ON CORPORATE
PARTNERSHIPS. IF OUR CORPORATE PARTNERSHIPS ARE NOT SUCCESSFUL, OR IF WE ARE
UNABLE TO ENTER INTO CORPORATE PARTNERSHIPS IN THE FUTURE, 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 95% of our
revenue during the three months ended March 31, 2000, and
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90% of our revenue for the quarter ended March 31, 1999 from research and
development and other funding under our existing corporate partnerships.
We have established relationships with various corporate partners,
including SmithKline Beecham, the pharmaceutical division of Japan Tobacco,
Zambon Group, Zenyaku Kogyo, Schering-Plough and Organon, among others. 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. If we are successful in establishing new corporate partnerships, they
may never result in the successful development of our products or the generation
of significant revenues.
Some of our corporate partners have options to license certain aspects
of our technology. Any of these corporate partners may not exercise their 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.
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, 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. In
addition, disputes may arise with respect to ownership of technology developed
under any such corporate partnership. Finally, 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.
Management of our relationships with our corporate partners will require:
- - significant time and effort from our management team;
- - coordination of our research with the research priorities of our corporate
partners;
- - effective allocation of our resources to multiple projects; and
- - an ability to obtain and retain key management, scientific and other
personnel.
OUR INABILITY TO LICENSE TECHNOLOGY FROM THIRD PARTIES MAY IMPAIR OUR ABILITY TO
DEVELOP AND COMMERCIALIZE OUR PRODUCTS.
Our success also depends 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 or our
partners' products. We have various license agreements that provide us rights to
use technologies owned or licensed by third parties. These license agreements
generally allow us and our corporate partners to use the licensed technology in
research, development and commercialization activities. 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. acceptable terms,
or 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 technologies advantageous or necessary to
the development or
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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 not able to do so, we may be prevented from
commercializing certain of our products and our business and stock price may
suffer.
OUR STOCK PRICE COULD BE VOLATILE.
The market prices for securities of biotechnology companies have in the
past been, and are likely to continue in the future to be, very volatile. The
market price of our common stock may be subject to substantial volatility
depending upon many factors, many of which are beyond our control, including:
- - announcements regarding the results of discovery efforts and preclinical
and clinical activities by us or our competitors;
- - announcements regarding the acquisition of technologies or companies:
- - changes in existing corporate partnerships or licensing arrangements;
- - establishment of additional corporate partnerships or licensing
arrangements;
- - technological innovations or new commercial products developed by us or our
competitors;
- - changes in our intellectual property portfolio;
- - developments or disputes concerning proprietary rights;
- - changes in government regulations;
- - progress of regulatory approvals;
- - issuance of new or changed securities analysts' reports and/or
recommendations;
- - economic and external factors;
- - additions or departure of key personnel;
- - operating losses by us; and
- - actual or anticipated fluctuations in our quarterly financial and operating
results and degree of trading liquidity in our common stock.
One or more of these factors could significantly harm our business and
cause a decline in the price of our common stock in the public market.
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
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- - prevent others from infringing on our proprietary rights.
We will only be able to protect our proprietary rights from unauthorized
use 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 positions by filing United States and foreign patent applications.
As of March 31, 2000, we owned or had licensed 103 issued United States patents
that expire at various times between May 2002 and May 2018, as well as 226
pending United States patent applications.
Our patent position is generally uncertain and involves complex legal
and factual questions. Legal standards relating to the validity and scope of
claims in the biotechnology and biopharmaceutical field are still evolving.
Accordingly, 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;
- - the claims of any patents which are issued may not provide meaningful
protection;
- - we may not be able to develop additional proprietary technologies that are
patentable;
- - the patents licensed or issued to us or our corporate partners may not
provide a competitive advantage;
- - other companies may challenge patents licensed or issued to us or our
corporate partners;
- - patents issued to other companies may harm our ability to do business;
- - other companies may independently develop similar or alternative
technologies or duplicate our technologies; and
- - other companies may 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 for
processes for which patents are difficult to enforce. We have taken security
measures to protect our proprietary know-how and confidential data and continue
to explore further methods of protection. Although we require all employees,
consultants, partners and customers to enter into confidentiality agreements, we
cannot be certain that we will be able 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 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. This could result in our
corporate partners and us being prevented from pursuing product development or
commercialization of our technologies and product candidates. This result would
significantly harm our business.
We have licensed certain patent applications from Southern Research
Institute, or SRI, related to our microsphere encapsulation technology. Two of
these patent applications are currently the subject of opposition proceedings
before the European Patent Office. In one such opposition, the
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European Patent Office has revoked a previously issued European patent. Although
SRI has appealed this decision, it is uncertain whether SRI will ultimately
prevail in this or any other opposition proceedings. As a result, these patents
may not issue in Europe, in which case our business may suffer. 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:
- - assert 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.
If we become involved in any litigation, interference or other
administrative proceedings, we will incur substantial expense and will divert
the efforts of our technical and management personnel. An adverse determination
may subject us to significant liabilities or require us to seek licenses that
may not be available from third parties on commercially reasonable terms or at
all. We may be restricted or prevented from developing and commercializing our
products, if any, in the event of an adverse determination in a judicial or
administrative proceeding, or if we fail to obtain necessary licenses. Any of
these outcomes would significantly harm our business.
IF WE ARE UNABLE TO SECURE ADDITIONAL FUNDING, WE WOULD HAVE TO REDUCE OR CEASE
OPERATIONS.
We require substantial capital resources in order to conduct our
operations. Our future capital requirements will depend on many factors,
including:
- - continued scientific progress in our research and development programs;
- - the magnitude and scope of our research and development programs;
- - our ability to maintain existing, and establish additional, corporate
partnerships and licensing arrangements;
- - progress with preclinical studies and clinical trials;
- - the time and costs involved in obtaining regulatory approvals for our
products;
- - the costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims;
- - the potential need to develop, acquire or license new technologies and
products; and
- - other factors not within our control.
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
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- - 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 upon the achievement by us
of development and regulatory milestones. Failure to achieve such milestones may
significantly harm our future capital position. Additional equity financings
could result in significant dilution to our 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 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, 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 due to market conditions or strategic considerations even if we have
sufficient funds for planned operations.
WE DEPEND HEAVILY ON THE PRINCIPAL MEMBERS OF OUR MANAGEMENT AND SCIENTIFIC
STAFF, THE LOSS OF WHOM COULD IMPAIR OUR ABILITY TO COMPETE.
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 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 "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 these 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 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 US.
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.
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 commercially reasonable
terms, or at all.
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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. We
and our corporate partners will face competition with respect to:
- - product efficacy and safety;
- - the timing and scope of regulatory approvals;
- - availability of resources;
- - reimbursement coverage;
- - product price; and
- - patent position, including potentially dominant patent positions.
Competitors may develop more effective or more affordable products, or
may achieve earlier patent protection or product commercialization than our
corporate partners and us. These competitive products may render our products
obsolete.
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 a cost or in quantities necessary to make them commercially
viable. Third party manufacturers also 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 on acceptable terms, or if we encounter
delays or difficulties in our relationships with such manufacturers, our
preclinical and clinical testing would be delayed, thereby delaying submission
of products for regulatory approval, or the market introduction and commercial
sale of such products. Moreover, contract manufacturers that we may use must
continually adhere to current Good Manufacturing Practices, or GMP, regulations
enforced by the United States Food and Drug Administration, or FDA, through its
facilities inspection program. If the facilities of such manufacturers cannot
pass a pre-approval plant inspection, the FDA approval of our products will not
be granted.
BECAUSE WE LACK SALES, MARKETING AND DISTRIBUTION CAPABILITIES, OUR BUSINESS MAY
SUFFER.
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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 such 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
not be able to maintain or establish such relationships with third parties or
build in-house sales and distribution capabilities.
BECAUSE OUR SUCCESS DEPENDS ON OUR PRODUCTS BEING APPROVED THROUGH A GOVERNMENT
REGULATORY APPROVAL PROCESS THAT IS UNCERTAIN, TIME-CONSUMING AND EXPENSIVE, OUR
BUSINESS MAY SUFFER.
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. 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, 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:
- - would adversely affect the marketing of any products we or our corporate
partners develop;
- - could impose significant additional costs on us or our corporate partners;
- - would diminish any competitive advantages that we or our corporate partners
may attain; and
- - could adversely affect our ability to receive royalties and generate
revenues and profits.
Regulatory approval, if granted, may entail limitations on the indicated
uses for which the approved product may be marketed. These limitations could
reduce the size of the potential market for such product. Product approvals,
once granted, may be withdrawn if problems occur after initial marketing.
Further, manufacturers of approved products are subject to ongoing regulation,
including compliance with detailed regulations governing GMP. Failure to comply
with manufacturing regulations 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 USE HAZARDOUS MATERIALS IN OUR BUSINESS. ANY CLAIMS RELATING TO IMPROPER
HANDLING, STORAGE OR DISPOSAL OF THESE MATERIALS COULD BE TIME CONSUMING AND
COSTLY.
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 certain waste products. Although we believe
that our safety procedures for handling and disposing of these
21
<PAGE> 24
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
United States 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 reserved $2.6 million to cover reasonably
anticipated settlement costs. If we incur costs in excess of this amount in
resolving this action, our financial condition may suffer. 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.
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, 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.
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.
Development of therapeutic, prophylactic and diagnostic products is
subject to risks of failure inherent in their development or commercial
viability of such products. Also, physicians, patients or the medical community
generally may not accept or use any products that may be developed by our
corporate partners or us.
These risks include the possibility that any such products will:
- - be found unsafe;
- - be found ineffective;
- - fail to receive necessary regulatory approvals;
- - be difficult or impossible to manufacture on a large scale;
- - be uneconomical to market;
- - fail to be developed prior to the successful marketing of similar products
by competitors;
- - be impossible to market because they infringe on the proprietary rights of
third parties or compete with superior products marketed by third parties;
- - not be as effective as alternative treatment methods; and
- - not qualify for reimbursement from government and third-party payors.
22
<PAGE> 25
Any products successfully developed by us or our corporate partners, if
approved for marketing, may never achieve market acceptance. Such products 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.
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 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 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.
CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND
PRINCIPAL STOCKHOLDERS MAY PREVENT OTHER SHAREHOLDERS FROM INFLUENCING
SIGNIFICANT CORPORATE DECISIONS.
Our directors, entities affiliated with our directors, and our executive
officers beneficially own, in the aggregate, approximately 23.7% of our
outstanding capital stock. These stockholders as a group may be able to
influence our management and affairs and, if acting together, may be able to
influence most matters requiring the approval by our stockholders, including the
election of directors, any merger, consolidation or sale of all or substantially
all of our assets and any other significant corporate transaction.
STATE LAWS AND OUR CERTIFICATE OF INCORPORATION MAY INHIBIT POTENTIAL
ACQUISITION BIDS THAT COULD BE BENEFICIAL FOR STOCKHOLDERS.
Provisions of our amended and restated certificate of incorporation and
by-laws, as well as provisions of Delaware and Washington law, will make it more
difficult for a third party to acquire us, even if doing so would be beneficial
for our stockholders.
23
<PAGE> 26
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See "Notes to Consolidated Financial Statements."
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In connection with its initial public offering of Common Stock (the
Offering) in 1997, the Company filed a Registration Statement (the Registration
Statement) on Form S-1, SEC File No 333-32147, which was declared effective by
the Commission on October 2, 1997. The net offering proceeds to the Company
after deducting the total expenses was $40,778,100. The entire amount of the net
proceeds has been allocated for general corporate purposes, including working
capital requirements of the Company. None of the net proceeds of the Offering
were paid directly or indirectly to any director, officer, general partner of
the Company or their associates, persons owning ten percent or more of any class
of equity securities of the Company, or an affiliate of the Company. This use of
proceeds does not represent a material change in the use of proceeds described
in the prospectus of the Registration Statement.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Index to Exhibits.
(b) No reports on Form 8-K were filed by the Registrant during the
quarter ended March 31, 2000.
24
<PAGE> 27
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
May 12, 2000 By: /s/ MICHELLE BURRIS
- -------------------- --------------------------------
DATE Michelle Burris
Vice President and
Chief Financial Officer
25
<PAGE> 28
EXHIBIT INDEX
<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.............................................................. (B)
4.03+ Equity Line of Credit and Securities Purchase Agreement
between Corixa Corporation and Castle Gate, L.L.C. dated
April 8, 1999................................................................... (B)
4.04+ Registration Rights Agreement between Corixa Corporation and
Castle Gate, L.L.C. dated April 8, 1999......................................... (B)
4.05+ Standstill Agreement between Corixa Corporation and Castle
Gate, L.L.C. dated April 8, 1999................................................ (B)
4.06+ Warrant Number CG-1 issued by Corixa Corporation to Castle
Gate, L.L.C. on April 8, 1999................................................... (B)
4.07+ Warrant Number CG-2 issued by Corixa Corporation to Castle
Gate, L.L.C. on April 8, 1999................................................... (B)
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................................ (B)
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................................ (B)
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 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.
26
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 7,378
<SECURITIES> 39,477
<RECEIVABLES> 7,950
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 48,690
<PP&E> 20,975
<DEPRECIATION> 0
<TOTAL-ASSETS> 98,627
<CURRENT-LIABILITIES> 32,986
<BONDS> 9,931
2,000
0
<COMMON> 19
<OTHER-SE> 53,710
<TOTAL-LIABILITY-AND-EQUITY> 98,627
<SALES> 0
<TOTAL-REVENUES> 8,908
<CGS> 0
<TOTAL-COSTS> 18,175
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (169)
<INCOME-PRETAX> (8,900)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,900)
<EPS-BASIC> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
