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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 September 30, 2000, there were approximately 21,070,713 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 September 30, 2000 (Unaudited)
and December 31, 1999 ................................................ 1
Consolidated Statements of Operations (Unaudited) for the three
months ended September 30, 2000 and September 30, 1999 and the nine
months ended September 30, 2000 and September 30, 1999 ............... 2
Consolidated Statements of Cash Flows (Unaudited) for the nine
months ended September 30, 2000 and September 30, 1999 ............... 3
Notes to Unaudited Consolidated Financial Statements ................. 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ................................................... 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK ............................................ 25
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ............................................ 26
ITEM 5. OTHER INFORMATION ............................................ 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................. 27
SIGNATURES .......................................................................... 28
EXHIBIT INDEX ....................................................................... 29
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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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SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
--------- ---------
(UNAUDITED)
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Current assets:
Cash and cash equivalents .............................................. $ 22,070 $ 780
Securities available-for-sale .......................................... 72,392 33,425
Accounts receivable, net ............................................... 4,309 2,792
Interest receivable .................................................... 1,325 759
Prepaid expenses and other current assets .............................. 5,140 1,779
Deposits ............................................................... 1,704 1,657
--------- ---------
Total current assets ........................................... 106,940 41,192
Property and equipment, net .............................................. 20,691 21,281
Securities available-for-sale, noncurrent ................................ 14,195 11,348
Investments .............................................................. 2,245 4,000
Acquisition related intangible assets, net ............................... 12,422 14,516
Deferred charges and deposits ............................................ 1,121 143
--------- ---------
Total assets ................................................... $ 157,614 $ 92,480
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ............................... $ 17,393 $ 8,701
Dividend payable ....................................................... 312 469
Current portion of deferred revenue .................................... 18,888 8,236
Current portion of long-term obligations ............................... 3,924 2,867
--------- ---------
Total current liabilities ...................................... 40,517 20,273
Long-term obligations, less current portion .............................. 11,906 11,426
Deferred revenue, less current portion ................................... 1,750 --
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 September 30, 2000
and December 31, 1999 .............................................. -- --
Common stock, $0.001 par value:
Authorized - 100,000,000 shares;
Issued and outstanding - 21,070,713 shares at September 30, 2000 and
18,627,225 at December 31, 1999 (including 141,576 redeemable common
shares at September 30, 2000 and December 31, 1999) ................ 21 19
Additional paid-in capital ............................................. 210,488 147,926
Deferred compensation .................................................. (146) (441)
Accumulated other comprehensive loss ................................... (109) (687)
Accumulated deficit .................................................... (108,813) (88,036)
--------- ---------
Total stockholders' equity .................................. 101,441 58,781
--------- ---------
Total liabilities and stockholders' equity ............................... $ 157,614 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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2000 1999 2000 1999
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Revenue:
Collaborative agreements ........................ $ 16,853 $ 7,785 $ 31,906 $ 16,196
Government grants ............................... 537 439 1,675 1,182
-------- -------- -------- --------
Total revenue ..................................... 17,390 8,224 33,581 17,378
Operating expenses:
Research and development ........................ 19,488 9,701 50,656 28,364
General and administrative ...................... 1,140 441 4,498 2,186
Acquired in-process research and development .... -- -- -- 11,612
Amortization of acquisition related intangibles . 777 -- 2,333 --
-------- -------- -------- --------
Total operating expenses ...................... 21,405 10,142 57,487 42,162
-------- -------- -------- --------
Loss from operations .............................. (4,015) (1,918) (23,906) (24,784)
Interest income ................................... 1,522 833 3,500 2,229
Interest expense .................................. (175) (207) (516) (599)
Other income ...................................... 57 119 145 590
-------- -------- -------- --------
Net loss .......................................... (2,611) (1,173) (20,777) (22,564)
Preferred stock dividend .......................... (156) (156) (468) (5,851)
-------- -------- -------- --------
Net loss applicable to common stockholders ........ $ (2,767) $ (1,329) $(21,245) $(28,415)
======== ======== ======== ========
Basic and diluted net loss per common share ....... $ (0.13) $ (0.09) $ (1.05) $ (1.95)
======== ======== ======== ========
Shares used in computation of basic and diluted net
loss per common share ........................... 21,026 14,896 20,159 14,566
======== ======== ======== ========
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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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NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
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OPERATING ACTIVITIES
Net loss ...................................................................... $(20,777) $(22,564)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Acquired in-process research and development ................................ -- 11,612
Amortization of deferred compensation ....................................... 296 596
Depreciation and amortization ............................................... 4,964 2,166
Equity instruments issued in exchange for technology and services ........... 1,739 320
Changes in operating assets and liabilities:
Accounts receivable ......................................................... (1,517) 1,766
Interest receivable ......................................................... (566) (267)
Prepaid expenses, deposits and other assets ................................. (4,386) (64)
Accounts payable and accrued expenses ....................................... 8,692 (1,263)
Deferred revenue ............................................................ 12,402 7,839
-------- --------
Net cash provided by operating activities ..................................... 847 141
INVESTING ACTIVITIES
Purchases of securities available-for-sale .................................... (74,251) (41,489)
Proceeds from maturities of securities available-for-sale ..................... 23,054 19,178
Proceeds from sale of securities .............................................. 9,960 9,041
Purchases of property and equipment ........................................... (2,280) (2,272)
Proceeds from sale of investment in ImmGenics ................................. 1,755 --
Investment in ImmGenics ....................................................... -- (1,250)
Net cash received in acquisitions ............................................. -- 57
-------- --------
Net cash used in investing activities ......................................... (41,762) (16,735)
-------- --------
FINANCING ACTIVITIES
Proceeds from issuance of common stock ........................................ 61,294 2,265
Proceeds from issuance of preferred stock ..................................... -- 12,482
Principal payments made on long-term obligations .............................. (1,738) (1,710)
Proceeds from short term obligations .......................................... 1,000 --
Proceeds from long term obligations ........................................... 3,000 2,000
Principal payments on capital leases .......................................... (726) (811)
Payment of preferred stock dividend ........................................... (625) --
-------- --------
Net cash provided by financing activities ..................................... 62,205 14,226
-------- --------
Net increase (decrease) in cash and cash equivalents .......................... 21,290 (2,368)
Cash and cash equivalents at beginning of period .............................. 780 9,098
-------- --------
Cash and cash equivalents at end of period .................................... $ 22,070 $ 6,730
======== ========
Supplemental disclosures of cash flow information:
Interest paid ............................................................... $ 494 $ 516
Supplemental schedule of noncash investing and financing activities:
Equity instruments issued for acquisitions and services ..................... $ - $ 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 focus 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 intercompany 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. Current securities available-for-sale
include $4 million of short-term deposits at September 30, 2000 that are
restricted for use in connection with a financing lease agreement.
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
95% and 93% of our revenue from collaborative partners during the nine-month
periods ended September 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 that is required to be implemented by the fourth 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. We are currently evaluating the applicability of SAB 101 to our
collaboration agreements. It is possible that, under SAB 101, certain of these
fees, and related expenses, if any, including a multi-million dollar up-front
fee received from a certain development, commercialization and license agreement
in the third quarter, would be required to be deferred and recognized as revenue
over future periods rather than immediately on a one-time basis. 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, as of January 1, 2000.
RECLASSIFICATIONS
We have made 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. NEW ACCOUNTING PRONOUNCEMENTS
In July 1999, the Financial Accounting Standards Board ("FASB")
announced the delay of the effective date of Statement of Accounting Standard
133, "Accounting for Derivative Instruments and Hedging Activities, ("SFAS 133")
to the first quarter of 2001. SFAS 133 establishes accounting and reporting
standards for derivative instruments embedded in other contracts, and for
hedging activities. It requires companies to recognize all derivatives as either
assets or liabilities on the balance sheet and measure those instruments at fair
value. Gains and losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting under SFAS 133. The impact of SFAS 133
on our financial position and results of operations is not expected to be
material.
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4. COMPREHENSIVE LOSS
For the three and nine months ended September 30, 2000 and September 30,
1999, our comprehensive loss was as follows (in thousands):
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For the three months ended For the nine months ended
------------------------------- -------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
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Net loss .......................... $ (2,611) $ (1,173) $(20,777) $(22,564)
Other comprehensive income:
Unrealized holding gains (losses) 387 (95) 578 (620)
during the period
-------- -------- -------- --------
Total comprehensive loss .......... $ (2,224) $ (1,268) $(20,199) $(23,184)
======== ======== ======== ========
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5. 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.
6. 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,
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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.
7. 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 September 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 an adjustment to the purchase price of Ribi to cover the settlement we may
pay in 2000.
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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8. SUBSEQUENT EVENTS
On October 15, 2000 we signed a definitive agreement to acquire all
outstanding shares of Coulter Pharmaceutical, Inc. (Coulter), in exchange for
shares of Corixa stock. The transaction is intended to qualify as a tax-free
reorganization and will be accounted for as a purchase. The effectiveness of the
merger is subject to certain customary closing conditions, including the
approval of the merger by stockholders of Corixa and Coulter and the expiration
or early termination of the required waiting period under the Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended. The transaction is expected to
close in December 2000.
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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 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 nine months ended September 30, 2000,
approximately 95% of our revenue has resulted from such collaborative
agreements. Additionally, for the nine months ended September 30, 2000,
approximately 5% of our revenue has resulted from funds awarded through
government grants. As of September 30, 2000, our stockholders' equity was
approximately $101.4 million.
We have entered, and intend to continue to enter, into collaborative
agreements at various stages 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
SmithKline Beecham 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
commercialization and license agreement with Medicis Pharmaceutical Corporation
(Medicis) and a research and development agreement with Zenyaku Kogyo Co. Ltd.
related to Corixa's candidate psoriasis immunotherapeutic product, PVAC(TM)
treatment, developed by Corixa and Genesis Research and Development Corporation
Limited (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 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 September 30, 2000, our accumulated deficit was approximately
$108.8 million, of which $49.7 million is attributable to the write-off of IPR&D
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 depends 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 NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
Total Revenue
Revenue increased to $17.4 million for the three months ended September
30, 2000 from $8.2 million for the same period in 1999. Revenue increased to
$33.6 million for the nine months ended September 30, 2000 from $17.4 million
for the first nine months of 1999. These increases were primarily attributable
to an upfront fee received under a development, commercialization and
license agreement related to the our PVAC(TM) treatment.
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 which is required to be implemented by the fourth 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. We are currently evaluating the applicability of SAB 101 to our
collaboration agreements. We continue to recognize fees in accordance with our
historical revenue recognition policy while we evaluate the impact of SAB 101.
It is possible that, under SAB 101, some of these fees, and related expenses, if
any, including the PVAC treatment upfront fee received from a development,
commercialization and license agreement in the third quarter, would be required
to be deferred and recognized as revenue over future periods rather than
immediately on a one-time basis.
Research and Development Expenses
Research and development expenses increased to $19.5 million for the
three months ended September 30, 2000 from $9.7 million for the same period in
1999. Research and development expenses increased to $50.7 million for the nine
months ended September 30, 2000 from $28.4 million for the same period in 1999.
These increases were primarily attributable to increased collaboration fees
associated with PVAC, additional research and development expenses, 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 pursue
additional programs.
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General and Administrative Expenses
General and administrative expenses increased to $1.1 million for the
three months ended September 30, 2000 from $441,000 for the same period in 1999.
General and administrative expenses increased to $4.5 million for the nine
months ended September 30, 2000 from $2.2 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, and business development activities. We expect general
and administrative expenses to increase in the future to support the expansion
of our business activities.
Acquired IPR&D
For the nine months ended September 30, 2000, acquired IPR&D decreased
to $0 from $11.6 million for the same period in 1999. The $11.6 million charge
for September 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 $777,000 for the three months ended
September 30, 2000 and $2.3 million for the nine months ended September 30,
2000, compared to $0 for the same periods in 1999.
Other Income
Other income decreased to $57,000 for the three months ended September
30, 2000 from $119,000 for the same period in 1999. For the nine months ended
September 30, 2000, other income decreased to $145,000 from $590,000 for the
same period in 1999. The decrease for the nine months ended September 30, 2000
was 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 September 30, 2000, we had approximately $108.7 million in cash,
cash equivalents and marketable securities, an increase of $63.1 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. Working capital increased approximately
$45.5 million to $66.4 million at September 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
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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.
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 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
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WE ARE AT AN EARLY STAGE OF DEVELOPMENT AND HAVE LIMITED SOURCES OF REVENUE.
We are at an early stage in the development of the majority 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 will continue to result
from corporate partnerships until therapeutic product approval and
commercialization. Since our inception, we have generated only minimal
revenue from diagnostic product sales and no revenue from therapeutic or
prophylactic product sales. With the exception of Melacine, which has been
approved for sale in Canada, 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, it will receive
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any significant revenue from commercial sales of these products. We may not
receive anticipated revenue under existing corporate partnerships, and we
may be unable to enter into any additional corporate partnerships.
WE EXPECT TO INCUR FUTURE OPERATING LOSSES.
We have experienced significant operating losses in each year since our
inception on September 8, 1994. As of September 30, 2000, our accumulated
deficit was approximately $108.8 million, of which $49.7 million is attributable
to the write-off of IPR&D costs associated with the acquisitions of Ribi,
Anergen and GenQuest, Inc. 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 IPR&D, research and development programs, 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 profitability, and our ability to achieve a
consistent, profitable level of operations depends in large part on 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.
However, our operations may not be profitable even if any of our products
under development are commercialized.
OUR QUARTERLY RESULTS OF OPERATIONS ARE UNCERTAIN AND MAY FLUCTUATE
SIGNIFICANTLY, WHICH COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO
DECREASE.
Payments under corporate partnerships and licensing arrangements, from
which we receive substantially all of our revenues, are subject to significant
fluctuations in both timing and amounts. As a result, our results of operations
have varied significantly from quarter to quarter in the past and are expected
to continue to fluctuate. Because of these fluctuations, we believe that
period-to-period comparisons of our results of operations are not meaningful. In
addition, our results of operations for a particular quarter or year may fall
below the expectations of securities analysts and investors, which could result
in a decrease in our stock price.
IF OUR CORPORATE PARTNERSHIPS ARE NOT SUCCESSFUL OR IF WE ARE UNABLE TO
FIND CORPORATE PARTNERSHIPS IN THE FUTURE, OUR BUSINESS MAY SUFFER.
The success of our business strategy largely depends 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%,
94% and 93% of our revenue for the nine months ended September 30, 2000 and for
the years ended December 31, 1999 and 1998 from research and development and
other funding under our existing corporate partnerships.
We have established relationships with various corporate partners,
including Medicis Pharmaceutical Corporation, SmithKline Beecham plc and various
of its affiliates, the pharmaceutical division of Japan Tobacco Inc., Zambon
Group spa, Zenyaku Kogyo Co., Ltd., Schering Corporation and Schering-Plough
Ltd. and N.V. 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, if at all. If we successfully
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establish new corporate partnerships, such partnerships may never result in the
successful development of our products or the generation of significant revenue.
Some of our corporate partners have options to license aspects of our
technology. Any of these corporate partners may not exercise its option to
license this 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 revenue.
Because we generally enter into research and development collaborations
with corporate partners at an early stage of product development, our success
largely depends on 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, if at all, our preclinical or clinical
development related to the 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. Finally, our
corporate partners may terminate any of our current partnerships, and we may be
unable to negotiate additional corporate partnerships in the future on
acceptable terms, if 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 attract and retain key management, scientific and other
personnel.
WE MAY NOT BE ABLE TO DEVELOP PRODUCTS SUCCESSFULLY.
The development of safe and effective therapies for treating people with
autoimmune diseases, cancer or infectious diseases is highly uncertain and
subject to numerous risks. Product candidates that may appear to be promising at
early stages of development may not reach the market for a number of reasons.
Product candidates may be found ineffective or cause harmful side effects during
clinical trials, may take longer to progress through clinical trials than had
been anticipated, may fail to receive necessary regulatory approvals, may prove
impracticable to manufacture in commercial quantities at reasonable cost and
with acceptable quality or may fail to achieve market acceptance.
We are at an early stage in the development of the majority of our
therapeutic, prophylactic and diagnostic products, and we cannot assure you
that clinical trials of our product candidates under development will
demonstrate the safety and efficacy of those products to the extent necessary to
obtain regulatory approvals for the indications being studied, if at all.
Companies in the pharmaceutical and biotechnology industries have suffered
significant setbacks in advanced clinical trials, even after obtaining promising
results in earlier trials. The failure to demonstrate adequately the safety and
efficacy of any of the products under development by us could delay or
prevent regulatory approval of the product and may harm our business.
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OUR SUCCESS DEPENDS ON OUR PRODUCTS BEING APPROVED THROUGH A GOVERNMENT
REGULATORY APPROVAL PROCESS THAT IS UNCERTAIN, TIME-CONSUMING AND EXPENSIVE, AND
IF ANY OF OUR PRODUCTS ARE NOT APPROVED, 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. If any of our
products are not approved by the regulatory authorities in the jurisdictions in
which we are seeking to market our products, our business may suffer.
The regulatory process, which includes extensive preclinical studies and
clinical trials of each product in order to study 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.
The timing and completion of current and planned clinical trials of our
products depend on, among other factors, the rate at which patients are
enrolled, which is a function of many factors, including:
- the size of the patient population;
- the proximity of patients to the clinical sites;
- the number of clinical sites; and
- the eligibility criteria for the study and the existence of competing
clinical trials.
We cannot assure you that delays in patient enrollment in clinical
trials will not occur, and any delays may result in increased costs, program
delays or both, which may harm our business.
Data from a Phase III clinical trial of Melacine, our melanoma
vaccine, with the primary endpoint being the comparison of disease-free survival
between patients with Stage II melanoma who, following surgical removal,
received Melacine vaccine versus observation only, found no statistically
significant difference in disease-free survival of the eligible patient
population. However, the results of the intent-to-treat analysis on the total
population indicated that there was a statistically significant difference in
disease-free survival. In September 2000, we announced our intent to file a
biologics license application, or BLA, for the use of Melacine vaccine for
treating Stage II melanoma.
In addition, delays or rejections may be encountered based on changes in
regulatory policy during the period of product development and 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 the 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 FDA regulations governing Good Manufacturing Practices,
or 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 MAY BE REQUIRED TO PERFORM ADDITIONAL CLINICAL TRIALS OR CHANGE THE LABELING
OF OUR PRODUCTS IF WE OR OTHERS IDENTIFY SIDE EFFECTS AFTER OUR PRODUCTS ARE ON
THE MARKET, WHICH COULD ADVERSELY SALES OF THE AFFECTED PRODUCTS.
If we or others identify side effects after any of our products are on the
market, or if manufacturing problems occur,
- regulatory approval may be withdrawn;
- reformulation of our products, additional clinical trials, changes
in labeling of our products and changes to or re-approvals of
our manufacturing facilities may be required;
- sales of the affected products may drop significantly;
- our reputation in the marketplace may suffer; and
- lawsuits, including class action suits, may be brought against us.
Any of the above occurrences could have a material adverse effect on our
business.
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OUR BUSINESS WILL NOT SUCCEED IF OUR TECHNOLOGY AND PRODUCTS ARE REJECTED
BY THE MARKETPLACE.
Our technological approach to the development of therapeutic and
prophylactic vaccines and other immunotherapeutic products based on targeted
antigens for autoimmune diseases, cancer and infectious diseases is unproven in
humans. With the exception of our Melacine vaccine, products based on our
technologies are currently in the research, preclinical or clinical
investigation stages. 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.
Other than an immunotherapeutic product incorporating MPL adjuvant that has
been approved for sale on a named-patient basis in Germany, and Melacine, which
includes the Enhanzyn adjuvant, and is approved for sale in Canada, neither we
nor any of our corporate partners has commercialized any products that
incorporate our proprietary adjuvants. In addition, neither we nor any other
company has successfully commercialized any therapeutic vaccines for cancer or
the infectious or autoimmune diseases that we target. We may be unable to
develop effective vaccines for these diseases in a reasonable time frame, if
ever, and the vaccines may not be capable of being commercialized.
Most of our programs are currently in the discovery stage or in preclinical
development. Only seven of our immunotherapeutic products have advanced to
clinical trials. With the exception of Melacine, which has been approved for
sale in Canada and which has completed Phase III clinical trials in Canada and
the United States, our vaccines have not completed clinical trials. Our programs
may not move beyond their current stages of development. Even if approved for
marketing, our products or our corporate partners' products may not be as
effective as competing products or alternative treatment methods and may never
achieve market acceptance. Physicians, patients or the medical community
generally may not accept or utilize any products that may be developed by us or
our corporate partners.
IF WE DO NOT SUCCESSFULLY MANAGE OUR GROWTH, OUR BUSINESS WILL SUFFER.
We have experienced rapid growth through acquisitions. We will need to
continue to grow to successfully complete our research and development efforts
and plans for commercializing our products. Managing this growth will entail
numerous operational and financial risks and strains, including:
- inability to attract enough qualified personnel to staff any new or
expanded operations;
- impairment of relationships with employees or corporate partners as
we focus on different or additional projects;
- risks of entering new markets in which we have little or no prior
experience;
- inability of management to maintain uniform standards, controls,
procedures and policies;
- disruption of our ongoing business; and
- diversion of our resources.
IF WE DO NOT SUCCESSFULLY INTEGRATE POTENTIAL FUTURE ACQUISITIONS, OUR
BUSINESS WILL SUFFER.
We have recently completed several acquisitions of complementary
technologies, product candidates and businesses. On October 15, 2000, we signed
a definitive agreement to acquire Coulter Pharmaceutical, Inc. We expect the
merger to close in December 2000. In the future, we may acquire additional
complementary companies, products or technologies. Managing these acquisitions
has entailed and may in the future entail, both in connection with the merger
with Coulter and other potential acquisitions, 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;
- difficulty and cost in combining the operations and personnel of acquired
businesses with our operations and personnel;
- disruption of our business and diversion of our management's time and
attention to integrating or completing the development or
commercialization of any acquired technologies;
- 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; and
- increased amortization expenses if an acquisition results in significant
goodwill or other intangible assets.
If we do not successfully integrate Coulter and any future acquisitions,
our business will suffer.
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OUR INABILITY TO LICENSE TECHNOLOGY FROM THIRD PARTIES OR OUR INABILITY TO
MAINTAIN EXCLUSIVE LICENSES 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 developing and commercializing 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. 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.
We may be unable to negotiate additional license agreements in the future
on acceptable terms, if at all. In addition, our current license agreements may
be terminated, and we may be unable to maintain the exclusivity of our exclusive
licenses. If we cannot obtain or maintain licenses to technologies advantageous
or necessary to develop and commercialize 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 prevented
from commercializing our products and our business may suffer. If we are unable
to maintain the exclusivity of our exclusive licenses, our competitive position
maybe harmed and our business may suffer.
IF WE ARE UNABLE TO GAIN ACCESS TO PATENT AND PROPRIETARY RIGHTS AND TO
PROTECT AND ENFORCE OUR PATENTS AND PROPRIETARY RIGHTS, WE MAY BE UNABLE TO
COMPETE EFFECTIVELY.
Our success depends in part on our ability to:
- obtain commercially valuable patents;
- protect trade secrets;
- operate without infringing the proprietary rights of others; and
- prevent others from infringing 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 U.S. and foreign patent applications related to
our proprietary technology, inventions and improvements that are important to
developing our business. As of
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September 30, 2000, we owned, licensed or optioned 122 issued U.S. patents that
expire at various times between May 2002 and August 2018, as well as 344 pending
U.S. 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 fields 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 that issue may not provide meaningful
protection;
- we may be unable 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;
- 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, our licensors, corporate partners and
other scientific collaborators;
- 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 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
harm our business.
We have licensed several patent applications from Southern Research
Institute, or SRI, related to its microsphere encapsulation technology. Two of
these patent applications are currently the subject of opposition proceedings
before the European Patent Office. In one of the oppositions, the 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 proceeding. As a result, these patents may not
issue in Europe, in which case our business may suffer.
Our registered trademarks, MPL and Melacine, are currently the subject of
opposition proceedings before the Office for the Harmonization in the Internal
Market, which handles initial prosecution and opposition of European trademarks.
It is uncertain whether we will ultimately prevail
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in these opposition proceedings. As a result, we may not receive trademark
protection for MPL and Melacine in Europe, in which case our business may
suffer.
LITIGATION REGARDING INTELLECTUAL PROPERTY RIGHTS OWNED OR USED BY US MAY BE
COSTLY AND TIME-CONSUMING, AND MAY 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:
- 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 it 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, if 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 could harm our business.
WE DEPEND HEAVILY ON THE PRINCIPAL MEMBERS OF OUR MANAGEMENT AND SCIENTIFIC
STAFF, THE LOSS OF WHOM COULD IMPAIR OUR ABILITY TO COMPETE.
The loss of the services of any of the principal members of our management
and scientific staff could 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 these individuals currently or in the future on
acceptable terms, if at all, and the failure to do so would 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 its request or assist us in
formulating our research, development or clinical strategy. These scientific
collaborators are not Corixa 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 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 the 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, 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;
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- 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 technology on commercially reasonable terms, if at
all.
Many of the companies developing competing technologies and products have
significantly greater financial resources and expertise in research and
development, manufacturing, preclinical and clinical development, 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 and developing technologies complementary to
its programs. We and our corporate partners will face competition with respect
to:
- product efficacy and safety;
- 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 us and our
corporate partners. These competitive products may achieve a greater market
share or 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 or
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 antigen-based products,
including recombinant proteins or antibodies. Although we currently manufacture
limited quantities of some antigens and several adjuvants, and are capable of
clinical GMP manufacturing of both adjuvants and some finished vaccine
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products, we intend to rely on third-party contract manufacturers to
produce larger quantities of recombinant protein or other cell culture-based
biologicals for clinical trials and product commercialization. We and these
contract manufacturers may be unable to manufacture our proprietary antigen
vaccines at a 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 these 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 the
products. Moreover, contract manufacturers that we may use must continually
adhere to current GMP regulations enforced by the FDA through our facilities
inspection program. If the facilities of those 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.
We currently have no sales, marketing or distribution capabilities. If
the merger with Coulter becomes effective, Coulter's sales and marketing
operations will be integrated into our corporate operations. We cannot assure
you that we will successfully be able to integrate Coulter's sales and marketing
operations or that, once integrated, we will be able to manage effectively these
sales and marketing operations. We intend to rely on our corporate partners to
market our products outside the United States and, in the case of autoimmune and
infectious disease products, worldwide. Our corporate partners may not have
effective sales forces and distribution systems. If we are unable to maintain or
establish relationships and we 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 relationships with third parties or build in-house sales
and distribution capabilities.
OUR STOCK PRICE COULD BE VOLATILE AND YOUR SHARES MAY SUFFER A DECLINE IN
VALUE.
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 on numerous 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 by
us or our competitors;
- changes in our existing corporate partnerships or licensing
arrangements;
- establishment of additional corporate partnerships or licensing
arrangements by us or our competitors;
- technological innovations or new commercial products developed by us
or our competitors;
- changes in our intellectual property portfolio;
- developments or disputes concerning our proprietary rights;
- changes in government regulations;
- progress of our regulatory approvals;
- issuance of new or changed securities analysts' reports and
recommendations regarding us or our competitors;
- economic and other external factors;
- additions or departures of our key personnel;
- operating losses by us; and
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- actual or anticipated fluctuations in our quarterly financial and
operating results and degree of trading liquidity in its common stock.
ANY CLAIMS RELATING TO OUR IMPROPER HANDLING, STORAGE OR DISPOSAL OF HAZARDOUS
MATERIALS COULD BE TIME-CONSUMING, COSTLY AND MAY ADVERSELY AFFECT OUR BUSINESS.
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 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 are discussing settlement with the United States and the state of
Montana and currently believe that a settlement will be reached releasing us
from past and future liability related to the groundwater contamination. We have
reserved $2.6 million to cover our 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 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. Our coverage may not be adequate
or may not continue to be available in sufficient amounts or at an acceptable
cost, if at all. We may be unable to obtain commercially reasonable product
liability insurance for any product approved for marketing. A product liability
claim, as well as any claims for uninsured liabilities or in excess of insured
liabilities, may harm our business.
WE FACE UNCERTAINTY RELATED TO PRICING AND REIMBURSEMENT AND HEALTHCARE REFORM.
In both domestic and foreign markets, sales of our products 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 healthcare-related organizations.
Both the federal and state governments in the United States and foreign
governments continue to propose and pass new legislation designed to contain or
reduce the cost of healthcare. Existing regulations affecting the pricing of
pharmaceuticals and other medical products may also change before any of our
products 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 healthcare products, including
pharmaceuticals. Our products or our corporate partners' products, if
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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.
OUR STOCKHOLDERS FACE IMMEDIATE AND POTENTIAL DILUTION.
You will suffer immediate and substantial dilution of your investment if:
- We issue additional shares of our Series A preferred stock and warrants
to purchase common stock to Castle Gate in connection with additional
draw-downs of funds under the Castle Gate equity line of credit;
- We issue additional shares of our common stock under the terms of the
September 1998 multi-field collaboration and license agreement with
SmithKline Beecham; or
- We issue additional shares of our common stock in connection with
entering into new corporate partnerships or acquiring additional
technologies or companies.
In addition, if the merger with Coulter is completed, dilution of our
shares may occur as the result of the employee stock options and other stock
issuance rights that we will assume in connection with the merger.
STATE LAWS AND OUR CERTIFICATE OF INCORPORATION MAY INHIBIT POTENTIAL
ACQUISITION BIDS THAT COULD BE BENEFICIAL TO OUR STOCKHOLDERS.
Provisions of our amended and restated certificate of incorporation and
bylaws, 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.
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ITEM 3. QUANTITATIVE AND 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 7 of the Notes to the Unaudited Consolidated Financial Statements."
ITEM 5. OTHER INFORMATION
MEDICIS
On August 15, 2000, we executed a multi-year development,
commercialization and license agreement covering our candidate psoriasis
immunotherapeutic product, PVAC treatment, with Medicis Pharmaceutical
Corporation, or Medicis. The agreement provides Medicis with exclusive rights to
PVAC treatment in the United States and Canada. We will be responsible for
development and manufacturing, and Medicis will be responsible for
commercialization and distribution. PVAC treatment is currently in Phase II
clinical trials for treating of moderate to severe psoriasis.
Under the terms of the agreement, Medicis will pay us license fees,
research funding and milestone payments of up to $107 million. Upon
effectiveness, we received a nonrefundable payment of $17 million with
additional potential development milestone payments of $35 million, and
commercialization and cumulative net sales threshold milestone payments of $55
million. Additionally, upon commercial sale of the product, Medicis will
purchase inventory from us and pay a royalty on net sales of the product. The
agreement became effective on September 29, 2000 upon termination of the waiting
period under the Hart-Scott-Rodino Antitrust Act and the satisfaction of other
customary closing conditions.
PURDUE PHARMA
On September 25, 2000, we entered into a collaboration agreement focused
on tumor-antigen research and development with Purdue Pharma L.P., or Purdue.
Under the terms of the agreement, Corixa and Purdue may develop up to four
therapeutic antibodies directed against cell surface antigens chosen from our
selected tumor-antigen discovery programs.
We will provide Purdue with an opportunity to develop antibody-based
therapeutics against four tumor antigens. Purdue will apply its proprietary
SYNTHEBODY(TM) technology, a unique antibody engineering platform, to develop
novel anti-tumor agents. Purdue will provide us with guaranteed research
funding, and based on the outcome of pre-clinical studies, Purdue may license
the antibodies and targets from us worldwide under currently defined terms that
include up-front license fees, milestone payments and royalties.
MELACINE(R) MELANOMA VACCINE
In September 2000, we announced our intent to file for regulatory
approval of our Melacine(R) melanoma vaccine. The BLA will be based
predominantly on data from the recently completed Phase III study of the use of
Melacine vaccine for treating Stage II melanoma, which started enrollment in
April 1992 and has followed patients through January 2000. The filing will also
contain data following the same group of patients through January 2001.
The results of this study, conducted by the former Ribi Immunochem
Research, Inc. (acquired by us in October 1999), were initially reported by the
Southwest Oncology Group, or SWOG in March 2000. This study examined the effects
of Melacine vaccination versus observation in a randomized, controlled trial of
689 Stage II melanoma patients. Patients in the study were randomized, following
surgical excision of their primary tumor, to either observation, as per standard
practice, or Melacine therapy, according to three predetermined stratification
factors, including sex and tumor thickness. The study closed accrual in 1996 and
initial results were reported when a pre-defined number of events (death or
disease recurrence) occurred. Analysis of the data in March 2000 revealed a
statistically significant improvement in disease-free survival in patients
treated with Melacine vaccine (p=0.04). We noted that we cannot assure that the
benefit of Melacine vaccine seen through January 2000 will continue to be seen
through January 2001. The BLA
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will also contain safety and clinical efficacy data from all other currently
completed clinical studies of Melacine in Stage III and IV melanoma. It is
expected that the submission of the BLA will occur in the second quarter of
2001. A full review of the BLA is anticipated to take approximately 12 months.
Malignant melanoma is a highly metastatic and lethal form of skin
cancer. It is the most common form of cancer in women between the ages of 25-29
and the second most common form of cancer in women ages 30-34. It is the third
most common form of cancer in men ages 35-44. According to the American Cancer
Society, cancer of the skin is the most common of all cancers. Melanoma accounts
for about 4% of skin cancer cases, but causes about 79% of skin cancer deaths.
The number of new cases of melanoma found in the United States is on the rise.
The American Cancer Society predicts that, in the year 2000, there will be
47,700 new cases of melanoma in the United States and about 7,700 deaths
resulting from melanoma.
CHANGE TO BOARD OF DIRECTORS
In September 2000 we announced the appointment of James W. Young, Ph.D.,
to our board of directors. Dr. Young occupies the board position left vacant by
the departure of Andrew Senyei, M.D.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Index to Exhibits.
(b) Reports on Form 8-K.
(1) On August 25, 2000, we filed a current report on
Form 8-K reporting that on August 25, 2000, we
entered into a multi-year development,
commercialization and license agreement with
Medicis Pharmaceutical Corporation.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amended report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORIXA CORPORATION
November 6, 2000 By: /s/ MICHELLE BURRIS
-------------------- -----------------------------------------
DATE Michelle Burris
Vice President and
Chief Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
------ ------------------- ----
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of Corixa
Corporation .......................................................... (A)
3.2 Bylaws of Corixa Corporation ......................................... (A)
3.3 Certificate of Amendment of Certificate of Incorporation
of Corixa Corporation ................................................ (D)
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
certain events in accordance with the terms of the Equity
Line of Credit and Securities Purchase Agreement ..................... (B)
4.9+ 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)
10.1++ Development, Commercialization and License Agreement
between Corixa Corporation and Medicis Pharmaceutical Corporation,
dated August 15, 2000 ............................................... (C)
10.2++ Amendment No. 1 to Multi-Field Vaccine Discovery Collaboration and
License Agreement between Corixa Corporation and SmithKline
Beecham plc. Dated May 25, 2000 ...................................... *
10.3 Corixa Corporation Retirement Savings Plan and Trust
(1998 Restatement) ................................................... *
10.4 First Amendment to the Corixa Retirement Savings Plan & Trust
(1998 Restatement) ................................................... *
10.5 Corixa Corporation 1997 Amended and Restated Employees
Stock Purchase Plan .................................................. *
10.6 Corixa Amended and Restated 1994 Stock Option Plan ................... *
27.1 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.
(C) Incorporated herein by reference the Company's Form 8-K/A (File No.
0-22891), filed with the Commission on October 31, 2000.
(D) Incorporated herein by reference the Company's Form 10-Q (File No.
0-22891), filed with the Commission on August 14, 2000.
+ Confidential treatment granted by order of the SEC on June 14, 1999.
++ Confidential treatment requested.
* Previously filed
29
