<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition Period from ____________ to ____________________________
Commission File Number 0-11094
------------
RIBI IMMUNOCHEM RESEARCH, INC.
(Exact name of registrant as specified in its charter)
Delaware 81-0394349
- --------------------------- -------------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
553 Old Corvallis Road, Hamilton, MT 59840-3131
- --------------------------------------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (406) 363-6214
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
- --------------------------------------------------------------------------------
(Title of Class)
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 .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
The aggregate market value of Registrant's voting stock held by non-affiliates
of the Registrant was $105,377,000, based upon the last sale price of such stock
on March 4, 1996, as reported by the Nasdaq National Market tier of The Nasdaq
Stock Market.
As of March 4, 1996, Registrant had 18,888,543 shares of common stock, $.001 par
value, outstanding.
Page 1 of 2 Cover Pages
===============================================================================
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions entitled "Election of Directors," "Compliance with Section 16(a) of the
Exchange Act", "Committees and Meetings," "Principal Stockholders and
Management's Stockholdings," "Executive Compensation" and "Directors
Compensation" from the Definitive Proxy Statement for the Annual Meeting of
Stockholders to be held April 24, 1996 . . . . . . . . . . . . . . . . Part III
Such Definitive Proxy Statement for Annual Meeting of Stockholders to be held
April 24, 1996, except for portions thereof which have been specifically
incorporated by reference, shall not be deemed "filed" as part of this Annual
Report on Form 10-K.
Page 2 of 2 Cover Pages
<PAGE>
TABLE OF CONTENTS
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 15
Executive Officers of the Registrant . . . . . . . . . . . . . . . . . 15
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . 16
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 18
Item 8. Financial Statements and Supplementary Data . . . . . . . . . 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . 38
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Item 10. Directors and Executive Officers of the Registrant . . . . . 38
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . 38
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . 38
Item 13. Certain Relationships and Related Transactions . . . . . . . 38
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
<PAGE>
PART I
------
Item 1. BUSINESS
GENERAL
The Company was incorporated on January 9, 1981, under the laws of Delaware and
is engaged in the development of biopharmaceutical products that stimulate the
immune system to generate a cascade of natural agents and signals to prevent and
treat human disease. Ribi immunostimulants can be combined with disease-
specific antigens which may direct the immune system to respond to a particular
cancer or infectious disease or can be used to modulate the immune response
which may prevent conditions such as ischemia-reperfusion injury. The Company
is engaged in the research, development, production and marketing of these
products, some of which are under investigation by other companies for use as
adjuvants. In addition, the Company engages in related activities such as the
custom formulation and sale of research products.
The Company has an active research and development program for new products and
the improvement of its existing products. Also, the Company manufactures all of
its clinical products and has developed and continues to develop processes for
the commercial-scale production of its compounds. The Company protects its
proprietary products and processes through the filing of patent applications and
the use of confidentiality agreements. The Company has 21 issued United
States patents covering its compounds, processes and certain uses of its
products. The expiration dates for United States patents held by the Company
range from 2001 to 2011. Patents have also been applied for or issued on a
selected basis in foreign countries.
The Company is headquartered near Hamilton, Montana, in a modern facility
housing approximately 60,000 square feet of laboratory, administrative,
marketing, pilot plant and commercial-scale production functions. In addition
to the plant and equipment, the Company owns approximately 35 acres allowing for
potential future expansion. To date most of the Company's revenues have been
from investment income earned on cash balances and investments, product license
and contract research fees, and sales of research and animal health products.
Products for use as human biopharmaceuticals have not yet been approved for
sale.
THE COMPANY'S TECHNOLOGY
The technology of the Company is based on the potent capacities of certain
microbial products to modulate the cytokine (regulatory substances produced by
cells) cascade in man and other animals. Slight modifications of these products
and/or their physical and biological delivery to the immune system profoundly
influence the qualitative and quantitative natures of the subsequent cytokine
modulation and the physiological responses. The Company believes that appro-
priate delivery of products of this core technology can be used to suppress an
unwanted immunological or inflammatory response or to enhance a protective
response.
The Company believes it has developed a distinct approach to immune modulation.
The Company's materials activate macrophages, lymphocytes and other cells
relating to the immune system. This activation stimulates an immunological
cascade of cytokine production that complements the normal, protective responses
that are initiated during infection or injury. Furthermore, this type of
stimulation results in an individually tailored response, similar to the manner
in which the body would respond to natural stimuli.
The concept of using microbial products to provide a general immune modulation
as a therapeutic approach dates back to the late 1800s. However, little
progress was made in exploiting the therapeutic potentials of these products
until the 1980s. First of all, much reliance had been placed on
chemotherapeutics, antibiotics and radiation as panaceas for infectious and
neoplastic (abnormal tissue growth) diseases. Secondly, there appeared to be
unsolvable toxicity problems associated with the microbial immunotherapeutic
products. In 1981 the late Dr. Edgar Ribi, a co-founder of the Company, and his
colleagues discovered
1
<PAGE>
a reproducible process which led to the detoxification of endotoxin, a bacterial
cell-wall component and one of the most potent known stimulators of the immune
system. By separating and isolating selected portions of bacterial cell walls,
Dr. Ribi and his colleagues were able to define chemically the precise structure
of the endotoxin molecule which possessed immunomodulatory activities and to
attenuate the toxicity of this molecule without destroying its beneficial
biological properties. The result was a chemical entity referred to as
monophosphoryl lipid A, trademarked by the Company as MPL immunostimulant. In
addition to attenuating toxicity of the endotoxin molecule, the Company's
scientists have extracted biologically active components from the cell walls of
MYCOBACTERIUM BOVIS or PHLEI and have formulated combinations of these
components as potential immunomodulatory agents.
Knowledge of the structures of MPL and other immunomodulators now makes it
possible to prepare these compounds and closely related derivatives by synthetic
methods. Comparison of the biological activities of these synthetic derivatives
with their structures is allowing a detailed picture of the relationships of
structures to activities to be developed. This may lead to the identification
of derivatives that may have unique uses as new immunomodulatory products.
The core of the Company's product development is the use of MPL immunostimulant
by itself or in combination with other immunomodulators and appropriate delivery
vehicles to modify selectively the immunological status of an individual. This
is accomplished primarily through precise enhancement or suppression of cellular
hormones called cytokines.
Modulation of the cascade of cytokines, both suppression and enhancement, is an
extremely complicated process. The particular roles played by the cytokines,
alone and in combination with others, have not yet been defined completely.
Furthermore, it is unlikely that it will ever be possible to assess the immune
status of a patient to such an extent that treatment with exogenous cytokines
can be tailored to the patient's exact needs. Poor distribution of cytokines
from the blood stream to desired target tissues also limits their utility as
drug products. By studying the structure-function relationships of natural and
synthetic immunomodulators, Company scientists hope to discover ways to
selectively stimulate and suppress cytokine responses in various tissues
naturally. Information from these studies may provide new insights about how
the beneficial effects of cytokine modulation can be exploited in the treatment
of disease.
The Company's products are in various stages of development. Other than certain
veterinary vaccine adjuvants and certain laboratory research products which
presently generate limited sales revenue, the Company has no commercial
products. There is no assurance that the products under development, including
MELACINE melanoma theraccine, MPL-C immunostimulant, or any adjuvants, vaccines
or other immunological agents will yield successful results. While there is
evidence that the biological response modifiers produced by the Company and
others may provide treatment for certain cancers, infectious or other diseases,
the workings of the immune system, particularly in conjunction with biological
response modifiers, are not yet fully understood. As a result, the Company's
research and development activities, as well as those of its competitors, are
based on theories and concepts which may not have been completely proven or
defined. The Company has been testing certain of its compounds on humans in the
United States pursuant to Investigational New Drug ("IND") applications filed
with the United States Food and Drug Administration ("FDA"). To date limited
data indicate product activity, and there have been no significant unexpected,
untoward effects associated with the administration of the Company's products.
However, considerable additional testing in human subjects is required to
demonstrate efficacy and confirm product safety. If results are successful,
there is no assurance that the Company will receive the necessary governmental
approvals for its products, that additional satisfactory collaborative or
licensing arrangements will be available to the Company, or that any of the
Company's products will be accepted by the medical community.
2
<PAGE>
THE COMPANY'S PRODUCTS
In the United States, human biopharmaceutical products are regulated by the FDA.
The FDA requires every new drug intended for human use to be tested under
strictly regulated treatment protocols, all of which require substantial time
and cost. (See below "Government Regulation - FDA Approvals.")
The table on the following page summarizes the current status of the Company's
product development programs, which are discussed in more detail beginning on
page 5. Results which have been reported in Phase I and Phase II trials
involving the Company's products do not establish product efficacy, and there
can be no assurance that any of the listed products will progress beyond their
current state of development or ultimately receive necessary regulatory approval
from the FDA or comparable agencies in foreign countries or be accepted by the
medical community.
3
<PAGE>
<TABLE>
<S> <C> <C> <C>
Product Proposed Application Status Collaborator/License
- ------- -------------------- ------ --------------------
Adjuvants Enhancement of Phase I/II/III SmithKline Beecham -
infectious disease (herpes exclusive rights for
vaccines simplex I/II, herpes; hepatitis A, B
hepatitis B, and C; influenza A and B;
influenza, Lyme disease; malaria;
malaria, among others - co-
genital warts, exclusive rights for DPT;
AIDS) HAEMOPHILUS INFLUENZA b;
otitis media; polio;
among others - non-
exclusive rights for AIDS
Lederle-Praxis
Biologicals - co-
exclusive rights for DPT;
HAEMOPHILUS INFLUENZA b;
otitis media; polio;
among others
Cantab Pharmaceuticals
Research, Ltd. - option
for co-exclusive rights
for genital warts
Adjuvants Enhancement of Preclinical SmithKline Beecham -
cancer vaccines nonexclusive rights for
cancer vaccines
MELACINE Stage IV (advanced) Phase III Biomira, Inc. (exclusive
melanoma malignant melanoma rights for Canada only)
theraccine
Stage II (early Phase III
stage) malignant
melanoma (prevention
of recurrence after
surgery)
MELACINE Stage IV (advanced) Phase III Schering-Plough
melanoma malignant melanoma Corporation -
theraccine collaboration
+ inter-
feron-alfa
2b
MPL -C Prevention of Phase II None (1)
Ischemia-reperfusion
injury in coronary
artery bypass graft
patients
DETOX Enhancement of Phase I/II and Biomira (non-exclusive to
therapeutic vaccines preclinical specific antigens)
(theraccine) for
breast, lung Jenner Technologies and
gastrointestinal, National Cancer Institute
ovarian, uterine, - collaborations
colon and prostate
cancers
</TABLE>
- ---------------------
(1) See "Marketing"
4
<PAGE>
Infectious Disease Vaccines
- ---------------------------
The Company's immunostimulant technology appears to have beneficial application
in the creation of vaccines for the prevention of viral and bacterial
infections. The Company believes that current emphasis on preventative health
care, the recent resurgence of certain previously controlled infectious diseases
and the continued emergence of new diseases, such as AIDS and Lyme disease, will
lead to greater use of prophylactic vaccines. The immunostimulating
characteristics of MPL make it well suited for use as an adjuvant with various
specific antigens for the creation of vaccines. Alum, the adjuvant historically
used in vaccines, is proving to be inadequate for many new vaccine antigens,
particularly those created with advanced DNA and subunit technology.
In May 1991, the Company licensed its adjuvants to SmithKline Beecham ("SB") on
an exclusive, worldwide basis for use in defined SB vaccines. This first
license agreement for a number of primarily adult vaccines provides for transfer
payments to the Company for supplies of adjuvant and royalties upon
commercialization. SB is conducting human clinical testing with the Company's
adjuvants for vaccines against herpes, hepatitis B, malaria and influenza.
During 1995 SB continued to advance the development of several vaccines covered
by this agreement including a clinical trial designed to test the efficacy of a
novel herpes vaccine in a 600-patient study using a selected consort design. In
the trial one partner in a couple has herpes and other does not. Data from this
study may be available in 1997.
A second license agreement with SB was signed in December 1992 for a group of
bacterial infectious disease vaccines, including some pediatric vaccines. Under
this agreement SB is actively evaluating a new generation of combination
vaccines containing diphtheria, pertussis, tetanus, HAEMOPHILUS INFLUENZA b
(meningitis) and polio antigens and is in early research with several other
bacterial vaccines which use the Company's adjuvants. Pursuant to this second
license agreement, the Company granted to SB a co-exclusive, worldwide license
to use the Company's adjuvants commercially upon regulatory approval.
In addition to an annual license fee, the Company receives transfer payments for
supplies of the adjuvants and will be entitled to royalties from SB upon
commercial sale of the vaccines.
Effective April 1993, the Company entered into license and supply agreements
with Lederle-Praxis Biologicals ("LP"), a business unit of Wyeth-Ayerst
Laboratories, which is a division of American Home Products Corp., for the co-
exclusive use of the Company's adjuvants in the development of prophylactic
vaccines, including pertussis, HAEMOPHILUS INFLUENZA b and STREPTOCOCCUS
PNEUMONIAE and for supply by the Company of commercial quantities of adjuvants.
The agreements with LP provide for an annual license fee, transfer payments for
supplies of adjuvants and for royalty payments upon commercial sale of vaccines.
In 1995 LP announced that it had completed necessary preclinical research and
plans to initiate Phase I/II clinical testing in 1996 of at least one vaccine
incorporating the Company's adjuvants.
In 1995 the Company signed an option agreement with Cantab Pharmaceuticals
Research, Ltd. covering the use of MPL immunostimulant as an adjuvant for
inclusion in a therapeutic vaccine against genital warts. Under the agreement,
the Company granted Cantab a one-year option for a co-exclusive worldwide
license to use MPL immunostimulant commercially upon regulatory approval of
Cantab's genital warts vaccine. Cantab is evaluating and developing recombinant
human papillomavirus ("HPV") proteins for a vaccine with potential prophylactic
and therapeutic application. The Company received a fee for the initial one-
year option period. Cantab may extend the option for up to two additional one-
year periods upon additional payments. If Cantab exercises its option for the
license and supply agreement, the Company will receive an annual license fee
until commercialization, at which point the license fee will be replaced by
minimum annual royalties, transfer payments for commercial quantities of MPL and
royalties on any commercial sales of approved genital warts vaccines
incorporating MPL immunostimulant.
5
<PAGE>
The Company's strategy in the area of AIDS vaccines is to grant licenses on a
nonexclusive basis. Additional preclinical and clinical data indicating the
ability of the Company's adjuvants to stimulate important cellular immune
responses to infectious disease vaccines were presented in late 1995.
Researchers from the Walter Reed Army Institute of Research presented favorable
animal data from an experimental AIDS vaccine incorporating a Company adjuvant.
The AIDS vaccine is being formulated for primate testing, which could lead to
human clinical testing.
Cancer Theraccines
- ------------------
A. MELACINE Melanoma Theraccine
Melanoma is a cancer of the skin cells that produce the dark pigment melanin.
While early stage melanoma is limited to the skin, it spreads to the liver,
lungs and other organs in later stages. Prognosis is dire for patients with
advanced disease. Median survival for advanced-disease patients is 12 months
using currently available chemotherapy. It was estimated that in 1994, melanoma
was diagnosed in approximately 32,000 people in the United States, with an
estimated 6,900 deaths due to the disease. Over the past 13 years the incidence
of malignant melanoma in the United States has risen by 60% and is currently
rising at a faster rate than any other cancer. Increased exposure to
ultraviolet rays may be an important factor contributing to the increase in new
cases of melanoma.
The Company is developing MELACINE, a therapeutic vaccine to treat melanoma.
MELACINE uses tumor-associated antigens and DETOX immunostimulant to help the
melanoma patient slow or stop the natural progression of the disease. During
1995 the Company completed a meta-analysis of published survival data for
patients with disseminated melanoma who received various available therapies.
The results of this meta-analysis were then compared with the median survival
for a similar cohort of patients treated with MELACINE melanoma theraccine. A
highly significant difference in median survival was observed with 11 months for
evaluable MELACINE patients compared to 7.8 months for the other evaluable
therapies included in the meta-analysis. Survival data for late-stage patients
treated with MELACINE had been determined in an interim analysis, reported in
mid-1994, of the first MELACINE Phase III study, which compared MELACINE therapy
with an aggressive, experimental four-drug chemotherapy regimen. This interim
analysis found no statistically significant survival advantage between MELACINE
and the four-drug chemotherapy regimen, known also as the Dartmouth Protocol.
However, the study found that during the treatment period, patients receiving
MELACINE experienced significantly better quality of life compared to patients
receiving chemotherapy. The meta-analysis, a recognized statistical method for
combining results of several independent studies of a particular subject,
reviewed the survival characteristics of 1,731 patients with disseminated
melanoma from 26 published clinical studies by leading melanoma researchers of
various available therapies, including chemotherapy, interferon, interleukin-2,
lymphokine-activated killer cells and other melanoma vaccines. The only drugs
approved by the FDA for melanoma are dacarbazine ("DTIC"), which has only
limited effectiveness, and interferon alfa-2b ("INTRON A", Schering-Plough
Corporation), which was only recently approved for post-operative therapy in
patients whose tumors can be surgically removed. Final data collection for this
first Phase III study of MELACINE is scheduled for mid-1996, followed by a
planned review of the definitive survival statistics with the appropriate
regulatory agencies.
A second ongoing clinical trial, which is sponsored by the National Cancer
Institute ("NCI") and being conducted by the Southwest Oncology Group ("SWOG"),
is designed to determine the ability of MELACINE to prevent recurrence of
melanoma in Stage II (early stage) patients. These patients have had melanoma
lesions surgically removed. In this study, MELACINE is being given to half of
the patients, and they are being compared to the other half of the patients in
the study who do not receive treatment but are only observed. Complete patient
accrual in this study is now expected in 1996 rather than in 1995 as the Company
agreed to expand the number of patients in the trial. The patient groups will
be followed for two years, with final data expected in 1998.
6
<PAGE>
The FDA in 1995 allowed the Company to begin a third Phase III clinical trial.
This study compares patients with Stage IV (disseminated) melanoma receiving the
combined therapy of MELACINE and INTRON A (a brand of interferon alfa-2b) with a
control arm of patients receiving only INTRON A. In an early pilot study,
researchers suggested there may be synergy between the two drugs as indicated by
a 44% overall clinical response rate (tumor regression) and extended survival in
the responding melanoma patients in comparison to non-responders. The 44%
response rate (8 of 18 patients) was higher than that obtained with either agent
alone. Malcolm S. Mitchell, M.D., at the University of California-San Diego,
has been a principal investigator in the development of MELACINE. Dr. Mitchell
published results from a study of treatment with MELACINE followed by
interferon alfa-2b in the first quarter of 1994. He reported that all patients
in the trial who responded to interferon alfa-2b had previously had an increase
in a certain type of white blood cells as a result of previous immunotherapy
with MELACINE.
In 1992, the Company licensed to Biomira, Inc. ("Biomira") of Edmonton, Alberta,
Canada, exclusive Canadian marketing rights to MELACINE. Biomira is responsible
for conducting clinical trials and obtaining regulatory approval in Canada. In
addition to license fees, the Company will receive transfer payments for
supplies of MELACINE and will be entitled to royalties upon commercial sale of
MELACINE in Canada.
MELACINE was given Orphan Drug status by the FDA in 1989, which provides seven
years of marketing exclusivity from the date of marketing approval.
The Company has exclusive marketing rights for MELACINE through an agreement
with the University of Southern California where the melanoma tumor associated
antigens were developed through the work of Dr. Mitchell. The University is
entitled to royalty payments from the Company upon commercial sale of MELACINE
theraccine.
B. Other Theraccines
In addition to MELACINE, the Company has sponsored research programs and has
established relationships to evaluate therapies that incorporate the Company's
immunostimulants with tumor-associated antigens for the treatment of other types
of cancers. In April 1990, the Company entered into a collaboration with
Biomira. Biomira produces synthetic carbohydrate antigens which can be combined
with the Company's adjuvants to produce theraccines with potential application
against breast, lung, gastrointestinal, ovarian and uterine cancers. Human
clinical data have been published which demonstrate that the Company's DETOX-B
adjuvant plays a key role in generating a significant immune response with
Biomira's line of THERATOPE cancer theraccines. Biomira has licensed DETOX-B
adjuvant from the Company for the clinical development and potential
commercialization of THERATOPE theraccines. In 1995 Biomira published a report
indicating that patients with late-stage breast, colorectal and ovarian cancers
experienced survival as good as or possibly better than that achieved
historically with chemotherapy and without the toxicity of chemotherapy.
Biomira also expanded its use of DETOX-B to a new cancer vaccine under
development incorporating an important cancer peptide antigen (MUC-1).
During 1995 the Company completed a license and supply agreement with SB
covering the use of the Company's adjuvants in cancer theraccines under
development by SB. Under the license/supply agreement, the Company has granted
SB a non-exclusive, worldwide license to use its adjuvants commercially upon
regulatory approval of SB's cancer vaccines. The Company will receive an annual
license fee and milestone payments for each SB vaccine incorporating the
Company's adjuvants that is submitted for regulatory review and subsequent
milestone payments upon regulatory approval of each vaccine incorporating a
Company adjuvant. In addition to transfer payments for commercial quantities of
adjuvant, the Company will also receive royalties on any commercial sales of
approved vaccines incorporating its adjuvants.
Also in 1995 Jenner Technologies, a collaborative partner, began a Phase I/II
human clinical trial of a genetically engineered prostate cancer vaccine
incorporating a Company adjuvant.
7
<PAGE>
MPL Immunostimulant
- -------------------
Throughout evolution, the human body has developed remarkably sophisticated
systems to protect itself from damage. Such damage can arise from external
challenges such as infections or the introduction of toxins, as well as internal
dysfunctions such as ischemia with its attendant tissue damage. As long as the
immunological and inflammatory responses remain controlled as to location and
intensity, they provide the response by which the human host may contain or
eliminate the cause or extent of the insult and repair the damage that has been
done. If the inflammatory response becomes generalized systemically and its
intensity outstrips the body's inherent control capabilities, it becomes a
self-destructive process. Even with the most advanced current medical
intervention, once this cascade is in progress it can result in widespread
tissue damage with attendant organ dysfunction and even death.
The lipid A subunit of endotoxin, a component of gram-negative bacteria, is
responsible for its toxicity. Endotoxin stimulates a wide range of cellular
actions among such diverse cell populations as macrophages, neutrophils and
reticuloendothelial cells. When exposed to endotoxin these cells release many
substances, including tumor necrosis factor ("TNF"), colony stimulating factors
("CSFs"), interferons ("IFNs") and interleukins ("ILs"). While these cytokines
are an integral part of the host response to infection, their unchecked
production can contribute to the development of septic shock and death.
Although endotoxin and lipid A have toxic properties, they also have many
beneficial effects, including the promotion of resistance to infection and the
induction of endotoxin tolerance. Unfortunately, many of their beneficial
actions occur at concentrations where toxic effects are also prominent, limiting
their clinical usefulness.
The Company has focused on the development of a compound that produces the
beneficial effects of endotoxin while attenuating its harmful properties. MPL
appears to modulate immunological response, thereby having possible application
for the prevention or reduction of life-threatening infections and ischemia-
reperfusion injury.
MPL, when given prophylactically, can suppress the body's response to a
subsequent insult in a manner which allows normal damage control and repair to
proceed, while making uncontrolled, deleterious responses much less likely.
While the precise mechanism by which this activity is mediated is still being
defined, MPL appears to diminish the intensity of the cellular responses to
challenges, including the release of cytokines such as TNF and IL-8, and lessen
the intracellular production of potentially dangerous products such as oxygen
free radicals.
A. MPL-C for Treatment of Reperfusion Injury
Ischemia-reperfusion injury is the damage that can occur in tissue when blood
flow is restored after such events as cardiovascular surgery, angioplasty or
organ transplantation. Paradoxically, restoring blood flow to ischemic tissue
may induce a complex series of events leading to both reversible and
irreversible cardiac tissue damage beyond any damage that may have occurred
during the ischemic period. It is believed that a significant factor in
reperfusion injury is the generation of "free radical" molecules, which attack
and damage cardiac tissue. Such damage may reduce cardiac function, and/or
cause cardiac cell death.
MPL-C immunostimulant has potential to be used prophylactically to address
ischemia-reperfusion injury which can result from a number of cardiovascular
surgical procedures. Each year in the United States more than 400,000
cardiovascular surgeries require stopping the heart, which can result in cardiac
injury. More than 350,000 angioplasty procedures, which first reduce and then
restore blood flow to the heart, are performed each year in the United States.
Surgical procedures requiring cardiopulmonary bypass have been implicated to
result in complications such as myocardial stunning and infarction, with
clinically significant morbidity and mortality in the acute perioperative and
8
<PAGE>
postoperative period. A significant number of these patients are potentially at
elevated risk for experiencing adverse long-term effects, including congestive
heart failure.
The results of preclinical testing in four different animal species have shown
that prophylactic administration of MPL-C immunostimulant significantly reduces
the amount of irreversible tissue damage (necrosis) that generally occurs
following re-establishment of blood flow to myocardial tissue, thereby helping
to preserve or restore heart function. Preclinical data indicate that
administration of MPL-C prior to cardiac ischemia and reperfusion reduces
cardiac infarct size (area of irreversible tissue damage) 50% to 70% compared to
a control group. One of these studies also found that MPL-C reduces
infiltration by neutrophils into the border regions of the infarct area.
Neutrophils are a type of white blood cell implicated in tissue damage following
reperfusion.
In an animal model of repeated episodes of transient ischemia followed by
reperfusion, prophylactic treatment with MPL-C immunostimulant allowed 60% to
80% recovery of cardiac function at two hours of reperfusion compared to
approximately 25% recovery in the control group.
It is well established in animal models that a phenomenon termed
"preconditioning" can protect heart tissue from ischemia-reperfusion injury.
Short periods of ischemia followed by reperfusion can protect a heart which is
subsequently subjected to prolonged ischemia (as in surgical procedures). Most
physicians do not consider it desirable to mechanically induce short periods of
ischemia in patients prior to a surgical procedure to precondition the heart.
The Company has experimental evidence that MPL-C can preserve or enhance
concentration of an important energy source in ischemic rabbit heart tissue and
reduce degradation of adenosine (an endogenous protective molecule) to various
metabolites in a fashion similar to that reported for ischemic preconditioning.
Two distinct forms of preconditioning are now recognized: a short-lived form,
which occurs within minutes of transient ischemia or treatment with agents, such
as adenosine, and lasts one to two hours, and a long-lived form, which reappears
a number of hours following dissipation of the initial transient preconditioned
state. The Company believes that a longer-lived preconditioning may be induced
by the pre-surgical administration of MPL-C and that this form of
preconditioning may offer substantial clinical benefit to patients at risk of
ischemia-reperfusion injury. In the 68th annual American Heart Association
Scientific Meeting in November 1995, data from four animal studies indicated
that MPL-C used before planned ischemia protected the heart and significantly
reduced cardiac infarct size in animal models. The research was done at the
Medical College of Wisconsin, Good Samaritan Hospital Heart Institute and the
University of Southern California, and the Hatter Institute, University College
Hospital in London, in collaboration with the Company.
During 1995 a Phase II safety/activity clinical trial of MPL-C, which was
started in 1993, continued in patients undergoing coronary artery bypass graft
(CABG) surgery who are at risk of ischemia-reperfusion injury. This study,
which is randomized, placebo-controlled and double-blinded, is designed to
determine the safety profile and activity of a single dose of MPL-C administered
prior to CABG surgery. Various dose levels are being studied to determine a
safe, active dose for possible further clinical testing.
B. MPL-S for Prophylactic Protection Against Septic Shock
Septic shock results from an uncontrolled systemic inflammatory response
resulting in diffuse intravascular coagulation, cardiovascular collapse, adult
respiratory distress syndrome and multiple organ failure. Antibiotic treatment
of infection may not prevent the development of septic shock, since the release
of bacterial endotoxin responsible for the systemic inflammatory response will
not immediately be affected by antibiotic therapy. The Company opened a Phase
II trial in the first quarter of 1994 to measure safety and to give some
indication of the extent to which prophylactic administration of MPL-S
immunostimulant can prevent inflammatory responses from becoming uncontrolled.
However, after further review, the Company decided that cancer vaccine, vaccine
adjuvant and cardiac applications offer the best opportunities for continued
9
<PAGE>
success. Thus, the development of MPL-S immunostimulant for the prevention of
sepsis and septic shock has been discontinued so that the Company may devote its
resources to its core businesses. MPL-S is available for licensing by others
for this indication.
Research Products
- -----------------
The Company currently produces approximately 20 research products. These
products, which include adjuvants, are used in various research projects by
industrial, academic and government research laboratories and clinics, as well
as by physicians and veterinarians in the development of treatments for a
variety of diseases and to study the body's immune responses.
The Company also uses some of the research products it produces in its efforts
to develop immunotherapeutic agents capable of treating malignant tumors and
other diseases.
Contract Services
- -----------------
The Company, from time to time, engages in contract services, whereby it
conducts specialized projects on behalf of others utilizing the expertise of its
research and production teams.
Sources and Availability of Raw Materials
- -----------------------------------------
Materials for producing the Company's pharmaceutical products come from a number
of sources. The pharmaceutical products are derived from biological organisms,
which are grown and maintained within the Company's facilities. Backup supplies
of critical organisms, which are not readily available from other sources, are
stored in secure locations outside of the Company's facilities. Chemicals and
agents used in the manufacturing process are fairly common and are readily
available from several different vendors.
COMPETITION
The biotechnology and pharmaceutical industries are characterized by rapidly
evolving technology and intense competition. The Company's products under
development are expected to address a broad range of markets. The Company's
competition will be determined in part by the potential indications for which
the Company's products are developed and ultimately approved by regulatory
authorities. The first pharmaceutical product to reach the market in a
therapeutic or preventive area is often at a significant competitive advantage
relative to later entrants to the market. Accordingly, the relative speed with
which the Company or its corporate partners can develop products, complete the
clinical trials and approval processes and supply commercial quantities of the
products to the market are expected to be important competitive factors. The
Company's competitive position will also depend on, among other things, its
ability to attract and retain qualified scientific and other personnel, develop
effective proprietary products, develop and implement production and marketing
plans, obtain and maintain patent protection and secure adequate capital
resources. The Company expects its products, if approved for sale, to compete
primarily on the basis of product efficacy, safety, patient convenience,
reliability, value and patent position. In addition to potential competition
from other biopharmaceutical products, the products presently under development
by the Company may compete with nonbiologic drugs and other therapies. The
Company's competitors include major pharmaceutical, chemical and specialized
biotechnology companies, many of which have financial, technical and marketing
resources significantly greater than those of the Company.
The Company is aware that research is being conducted by others in areas in
which the Company is seeking to establish commercial products. The Company's
competitors might offer products which, by reason of price or efficacy, may be
superior to any products that may be developed by the Company. There can be no
assurance that the discoveries of and products introduced by others will not
render the Company's current or future products obsolete, or that the Company
will otherwise be able to effectively compete with such competitors.
10
<PAGE>
MARKETING
<TABLE>
<CAPTION>
The Company's revenues were derived from the following sources:
1995 1994 1993
---------- ---------- ----------
(In Thousands)
<S>
Sales: <C> <C> <C>
Research products $ 543 514 599
Custom adjuvants and research
products 347 396 168
Veterinary products 56 88 85
Other 7 10 8
------ ------ ------
Total sales 953 1,008 860
Investment income, net 1,216 1,460 984
Fees from licenses and
contracts 1,848 2,075 1,307
Other 6 11 11
------ ------ ------
Total revenues $ 4,023 4,554 3,162
====== ====== ======
Export sales $ 294 351 132
====== ====== ======
</TABLE>
The Company plans to license its products to marketing partners for all
applications. The Company will conduct clinical trials of MELACINE plus
interferon-alfa 2b in the United States and possibly some foreign countries
primarily at its expense, and, depending on the results of such trials, intends
to grant marketing rights within the United States and those foreign countries
in exchange for license fees, transfer payments, royalties and financial
contributions toward the cost of obtaining marketing approval. The Company
intends to manufacture MELACINE to supply worldwide demand and transfer finished
product to its partner or partners. In the areas of vaccine adjuvants and
ischemia-reperfusion injury, if clinical trial data are favorable, the Company
intends to grant licenses to marketing partners in exchange for license fees,
transfer payments and royalties on commercial sales, or a combination thereof.
For these applications, the Company would manufacture its products as bulk
intermediates for transfer to marketing partners for finishing. The Company
plans to remain involved in clinical trials of MPL for ischemia-reperfusion
injury, but does not expect to be involved in clinical trials of infectious
disease vaccines. The Company is currently conducting a Phase II dose
escalation human clinical trial with MPL-C in the prevention of heart damage
associated with open-heart surgery. This study, along with another Phase II
study planned for 1996, which is intended to show indications of activity, may
demonstrate safety and proof of concept. During 1996, the Company will seek
corporate partners to assist in the final stages of development and to share the
substantial financial risk of final development.
In the United States the Company markets its research products through direct
mail, scientific journal and trade show advertising and markets them worldwide,
generally to nonexclusive distributors. RIBIGEN, a United States Department of
Agriculture ("USDA") licensed veterinary anti-cancer agent, has been marketed by
the Company to a nonexclusive distributor network. Export sales, consisting
mainly of research products and veterinary products, were shipped primarily to
Europe, Japan and Canada.
Under USDA regulations it is possible for a company that does not have a USDA
license to manufacture certain components of veterinary products and ship them
to a USDA-licensed animal health company for completion and distribution (split
manufacturing). Approximately 14%, 5% and 10% of the Company's total sales in
1993, 1994, and 1995, respectively, were from sales of one custom adjuvant to
one customer under such an agreement.
11
<PAGE>
Toward the end of 1994, the Company made a decision to manufacture only health
care products for humans in its manufacturing facility. All remaining
inventories of RIBIGEN were sold in 1995. In view of the decision to discontinue
the manufacture of RIBIGEN, the Company did not renew its USDA license when it
expired in 1995. The Company continues to produce a veterinary adjuvant in
appropriate conditions within its research facility for the split manufacturing
agreement discussed in the preceding paragraph. The loss of RIBIGEN sales
revenues will not have a material impact on the Company's net loss.
There can be no assurance that the Company will be successful in any of its
proposed marketing efforts.
RESEARCH AND DEVELOPMENT
With the exception of the cell lines for the MELACINE melanoma theraccine
antigens which have been licensed from the University of Southern California for
a royalty fee from commercial sales of MELACINE, the primary source of new
product candidates is internal research. Costs and expenses for research and
development activities were $3,730,000 in 1993, $4,993,000 in 1994 and
$5,530,000 in 1995.
GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and other countries
is a significant factor in the research, preclinical development, clinical
trials, production and marketing of the Company's human biopharmaceutical
products.
FDA Approvals
- -------------
In order to produce and market human biopharmaceuticals, the Company must
satisfy mandatory procedures and meet safety and efficacy standards established
by the FDA and equivalent foreign regulatory authorities. The process of
seeking and obtaining FDA approval for the manufacturing and marketing of a new
human biopharmaceutical product may require a number of years and substantial
funding. The steps required before a human biopharmaceutical can be produced
and marketed include preclinical studies, the filing of an Investigational New
Drug ("IND") application, human clinical trials and approval of a Product
License Application ("PLA"), and in some cases, approval of an Establishment
License Application ("ELA").
Preclinical studies are conducted in the laboratory and in animal model systems
to gain preliminary information on a product's activity and to identify major
safety problems. The results of these studies are submitted to the FDA as part
of the IND application before allowance can be obtained to begin testing in
humans. Protocols for the human trials, outlines for production of the
materials and statements describing the testing facilities are also included in
the IND.
The clinical testing program required for a new biopharmaceutical product
principally involves three phases. However, in conducting actual clinical
trials, the demarcation between phases at times becomes indistinct. Phase I
studies are conducted on human volunteers or in healthy patients to determine
the maximum tolerated dose and to discover the possible side effects of the
substance. Phase II studies are conducted on groups of patients having a
specific disease in order to determine the most effective doses and schedules of
administration. Phase III involves wide-scale studies that are adequately
controlled in order to provide statistically valid data on response rates which
can be compared with currently available drugs or biologics.
In the United States, data from Phase I, II and III trials are submitted in a
PLA to the FDA. The PLA involves considerable data collection, verification and
analysis. It also includes the preparation of summaries of the manufacturing
and testing processes, preclinical studies and clinical trials. PLA approval by
the FDA is necessary before the product may be marketed in the United States.
12
<PAGE>
During the PLA review period, in addition to consideration of the safety and
efficacy data, the FDA also determines what labeling it will require and permit
for marketing of the product. The agency may also require postmarketing testing
and surveillance for possible adverse reactions as a condition of its approval.
The Company obtained Orphan Drug designation for MELACINE in 1989, and if
appropriate may request Orphan Drug designation for other products. Under the
Orphan Drug Act, the FDA may grant Orphan Drug status to drugs intended to treat
a "rare disease or condition," which is a disease or condition that affects less
than 200,000 individuals in the United States or more than 200,000 persons in
the United States if there is no reasonable expectation that sales will be
sufficient to recover the costs of developing and making available the drug. If
a product is designated an Orphan Drug, then the sponsor is entitled to receive
certain incentives to undertake the development and marketing of the product,
including limited tax credits, where applicable. In addition, the sponsor that
obtains the first marketing approval for a designated Orphan Drug for a given
indication is eligible to receive marketing exclusivity for a period of seven
years. There may be multiple designations of Orphan Drug status for a given
drug (or biologic) and indication; however, only the sponsor of the first
approved New Drug Application ("NDA") or PLA for a given drug (or biologic) for
its use in treating a given rare disease may receive marketing exclusivity.
There is no assurance that any additional products of the Company will receive
Orphan Drug status. While it may be advantageous to obtain Orphan Drug status
of eligible products, there can be no assurance that the precise scope of
protection that is currently afforded by Orphan Drug status or the current level
of economic benefits and incentives will remain in effect in the future.
Governmental Reforms
- --------------------
In the past few years health care reform has received considerable attention.
While it appears that federal governmental intervention is not imminent at this
time, certain reform measures currently being considered by various state
governments and certain related market restructuring could adversely affect the
pricing of therapeutic or prophylactic products or the amount of reimbursement
available. Such events could have an adverse impact on the profitability of
companies developing, manufacturing or marketing pharmaceutical products. The
Company cannot predict the extent of possible future governmental reforms or the
effect such reforms or other measures may have on its business.
Other Governmental Regulations
- ------------------------------
In addition to the foregoing, the Company is and will be subject to various
regulations relating to the maintenance of safe working conditions, good
laboratory and manufacturing practices and the use and disposal of harmful or
potentially harmful substances.
There can be no assurance that any required approvals will be granted on a
timely basis, if at all, or that such approvals, once granted, will not be
withdrawn. Furthermore, there is no assurance that additional regulation will
not be imposed on the Company's activities or products in the future.
PATENTS AND PROPRIETARY PROTECTION
The Company has obtained and applied for patents in the United States and
several foreign countries. The Company has 21 issued United States patents with
expiration dates ranging from 2001 to 2011. There is no assurance that patents
applied for by the Company will be obtained, and there can be no assurance that
the claims embodied in existing patents to which the Company has rights will not
be challenged. The issuance of a patent to the Company or to a licensor of the
Company is not conclusive as to validity or as to the enforceable scope of
claims therein. The validity and enforceability of a patent can be challenged
by a request for re-examination or litigation after its issuance and, if the
outcome of such litigation is adverse to the owner of the patent, other parties
may be free to use the subject matter covered by the patent.
13
<PAGE>
There can be no assurance that additional patents will be obtained by the
Company in the United States or in other jurisdictions, or that any patents will
provide substantial protection, or be of commercial benefit to the Company. The
cost of enforcing the Company's patent rights in lawsuits which the Company may
bring against infringers or which may be brought challenging the Company's
patents may be high and could interfere with the Company's operations. The
patent laws of other countries may differ from those of the United States as to
the patentability of the Company's products and processes. Moreover, the degree
of protection afforded by foreign patents may be different from that in the
United States. On an ongoing basis, the Company reviews its patent portfolio
and has abandoned and may in the future abandon patents or patent applications
for reasons including limited protection, lack of commercial importance and
limited enforceability, among other considerations.
Although the Company attempts to protect its products and processes by seeking
patent protection when deemed appropriate, it also relies upon trade secrets,
proprietary know-how and continuing technological innovation to develop and
maintain its competitive position. Product development contracts and
relationships between the Company, its consultants and other pharmaceutical
companies may provide access to the Company's know-how. The Company requires
such parties to execute confidentiality agreements. Insofar as the Company
relies on confidentiality arrangements, there can be no assurance that others
may not independently develop similar technology or that secrecy will not be
breached.
All employees are required to sign a confidential information agreement that
contains terms assigning patent rights to the Company as well as obligations not
to use or disclose any such information during and for a period of two years
following termination of their employment.
The Company maintains an active trademark protection program in the United
States and in those foreign countries where it expects to market its products.
RIBIGEN veterinary anticancer agent, MELACINE melanoma theraccine, MPL
immunostimulant and the Company's logo are registered trademarks in the United
States. RIBIGEN is a registered trademark in several foreign countries.
INTRON-A is a registered trademark of Schering-Plough Corporation and THERATOPE
is a registered trademark of Biomira, Inc. In this document, registered
trademarks are designated with capital letters.
EMPLOYEES
As of December 31, 1995, the Company had 88 full-time and 3 part-time employees.
The Company also uses outside consultants and collaborators to support and
complement the activities of its scientific staff. The Company utilizes such
persons to aid in specific research and development projects, rather than to act
as a general scientific advisory board.
Item 2. PROPERTIES
The Company's facilities are located near Hamilton, Montana, on a 35-acre
complex owned by the Company. The Company's buildings contain approximately
60,000 square feet of laboratory, commercial scale manufacturing, animal
production, marketing and administrative facilities. The manufacturing facility
has been built to FDA standards for Good Manufacturing Practices. The Company
believes that its present facility will meet its manufacturing and other
requirements for the foreseeable future.
Item 3. LEGAL PROCEEDINGS
The Company, the National Institutes of Health ("NIH") and the Bitterroot Valley
Sanitary Landfill ("Landfill") were notified by the Montana Department of Health
and Environmental Sciences (now known as the Department of Environmental Quality
{"DEQ"}) in March 1991 that they had been identified as potentially responsible
parties ("PRPs") for groundwater contamination located at and near the site of
the Landfill in Ravalli County, Montana. The DEQ has filed an action against
the Landfill, the operator of the Landfill and the Company, seeking
reimbursement of
14
<PAGE>
costs associated with its oversight activities. Additionally, two landowners in
the vicinity of the Landfill have filed civil suits seeking unspecified damages
for alleged diminished value of land, possible health hazards and loss of
domestic water source. As of December 31, 1995, the Company has a reserve of
$190,000 primarily to cover billed and potential legal, consulting and DEQ
reimbursement costs associated with the Company as a PRP and the civil suits.
At least some costs related to the civil suits have been or are expected to be
covered by insurance. However, the Company is unable to determine its potential
liability with respect to the Landfill at this time. (See Note 8 of Notes to
Financial Statements for a more complete discussion of these proceedings.)
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders during the fourth
quarter of 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of all executive
officers of the Company. All executive officers are serving a current term of
office which continues until the next Annual Meeting of Directors, which is
expected to be held on or about April 24, 1996.
<TABLE>
<S> <C> <C>
Name Age Position and Period Served
- ---- --- --------------------------
Robert E. Ivy 62 President, Chief Executive Officer and
director of the Company since 1987;
Chairman of the Board of Directors
since 1989; director and Chairman of
the Finance Committee of St. Patrick
Hospital, Missoula, Montana, since
1991; director of The International
Heart Institute of Montana since 1995;
member of the Advisory Council to the
President, Montana State University
("MSU"), since 1993; member of the
Advisory Board for the Center for
Economic Renewal and Technology
Transfer, MSU, since 1994.
John L. Cantrell, Ph.D. 57 Executive Vice President and director
of the Company since 1981.
Lonnie L. Bookbinder 49 Vice President-Director of Corporate
Development of the Company since 1994;
Vice President, Corporate Development
of Nycomed-Salutar, Inc., a multi-
national medical company, from 1992 to
1994; director, IN VIVO Products and
Corporate Development of Immunomedics,
Inc., an antibody based diagnostic
imaging and therapeutic company, from
1990 to 1992.
Vern D. Child, C.P.A. 51 Vice President-Finance of the Company
since 1988; Treasurer since 1986;
Assistant Secretary since 1989.
Gary T. Elliott, Pharm.D., 39 Vice President-Pharmaceutical
Ph.D. Development of the Company since 1994;
Director of Pharmaceutical Sciences
from 1992 to 1994; Head Immunochemist
from 1988 to 1992.
Ronald H. Kullick, R.Ph., J.D. 53 Vice President-Legal Counsel and
Secretary of the Company since 1989.
15
<PAGE>
Name Age Position and Period Served
- ---- --- --------------------------
Charles E. Richardson, Ph.D. 44 Vice President-Pharmaceutical
Discovery of the Company since 1994;
Director of Production, Engineering
and Technical Services from 1989 to
1994.
Kenneth B. Von Eschen, 47 Vice President-Clinical Regulatory
Ph.D. Affairs of the Company since 1994;
Director of Clinical and Regulatory
Affairs form 1992 to 1994; Manager of
Clinical and Regulatory Affairs from
1988 to 1992.
</TABLE>
PART II
-------
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol: RIBI. The high and low sales prices shown
below were compiled from the monthly Summary of Activity reports provided by The
Nasdaq Stock Market. The prices represent interdealer prices, without retail
mark-up, mark-down or commission, and may not represent actual transactions. As
of March 4, 1996, the Company had approximately 1,710 stockholders of record.
<TABLE>
1995 1994
---- ----
High Low High Low
---- --- ---- ----
<C> <C> <C> <C> <C>
First quarter $ 4.63 3.38 11.13 7.63
Second quarter 4.75 3.38 9.13 6.63
Third quarter 6.25 3.75 5.38 3.38
Fourth quarter 6.50 3.88 4.88 3.75
</TABLE>
The Company has not declared any cash dividends with respect to its common
stock. The Company does not intend to declare or pay any cash dividends on its
common stock, and there can be no assurance that the Company will ever declare
or pay cash dividends on its common stock.
16
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The selected financial information below should be read in conjunction with the
Company's historical financial statements and notes. Such information may not
be indicative of the Company's future financial condition or results of
operations.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In Thousands Except per Share Data)
Year Ended December 31,
- ----------------------
<S> <C> <C> <C> <C> <C>
Sales & other revenues $ 959 1,019 871 1,118 888
Licenses and contracts 1,848 2,075 1,307 135 60
Investment income, net 1,216 1,460 984 863 438
Net loss (5,317) (3,790) (3,684) (3,603) (3,217)
Net loss per common
share (.28) (.20) (.25) (.27) (.31)
Dividends per common
share - - - - -
Average number of
shares outstanding 18,877 18,657 14,658 13,250 10,274
Research & development
expenses 5,530 4,993 3,730 2,993 2,367
December 31,
- -----------
Cash, cash equivalents
& investments 19,824 25,967 29,140 17,806 10,427
Total assets 33,911 38,824 35,468 23,368 15,279
Long-term debt - - - - -
Stockholders' equity 32,427 37,338 34,557 22,790 14,866
</TABLE>
17
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Since its inception in 1981, the Company has been engaged primarily in the
research and development of immunostimulants for use in preventing and treating
human diseases. To date, the Company has received limited revenues from
commercial sales and sales of clinical supplies. The Company has incurred net
losses in each year since its inception and expects to incur additional losses
for at least the next few years. At December 31, 1995, the Company's
accumulated deficit was approximately $30,047,000.
The Company's results of operations can vary significantly from quarter to
quarter and depend, among other factors, on costs related to the progress of
clinical trials conducted by the Company and, to a lesser extent, on revenues
and costs associated with manufacturing. To date, research and development
expenses, together with manufacturing costs, have exceeded product and other
revenues in all periods.
The Company is not able to estimate with certainty the amount of cash and
working capital which may be needed for operations. Such requirements typically
vary depending upon the results of basic research and clinical trials, the time
and expense required for governmental approval of products, and competitive and
technical developments, most of which are beyond management's control. There is
no assurance that the Company will be able to obtain the necessary funding in
sufficient amounts or at the appropriate time for its planned activities. In
the event the Company may require additional funding and is not successful in
obtaining additional funding, it might not be able to proceed as rapidly as it
would like, if at all, with the development and commercialization of its
products, which would have a material adverse effect on its future financial
condition and results of operations.
Pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, several forward-looking statements that involve a number of
risks and uncertainties are included within this Management's Discussion and
Analysis of Financial Condition and Results of Operations. Those statements are
identified as "Looking Forward." In addition to the risks and uncertainties
discussed with each forward-looking statement, there are a number of other
factors that could cause actual results to differ materially from projected
results, including but not limited to the following: results of the Company's
research, results of other companies' research who are using the Company's
products, competition from other companies, changes in government regulation,
including price controls for newly developed drugs, and risk factors listed from
time-to-time in the Company's SEC reports, including but not limited to this
report on Form 10-K for the year ended December 31, 1995.
RESULTS OF OPERATIONS
Revenues
- --------
To date, the Company has received only limited revenues from commercial sales
and sales of clinical supplies. The balance of the Company's revenues has been
from contracts and licenses and investment income earned on cash balances and
investments. The Company anticipates that its revenues from operations, which
increased from approximately $3,162,000 in 1993 to approximately $4,554,000 in
1994 and decreased to approximately $4,023,000 in 1995, will continue to be
limited for at least the next few years.
Fees from licenses and contracts increased from $1,307,000 in 1993 to $2,075,000
in 1994 and decreased to $1,848,000 in 1995. In 1993 the Company received a
payment from Lederle-Praxis Biologicals ("LPB"), a division of American Cyanamid
Company (now a business unit of Wyeth-Ayerst Laboratories, which is a division
of American Home Products Corporation), upon signing a binding letter-of-intent
to negotiate for a product license agreement. The non-refundable portion of the
LPB payment was recognized as revenue in 1993 and the remainder was deferred
18
<PAGE>
until the license agreement was signed in 1994, retroactive to 1993. The LPB
agreement provides for annual license fees and, when products are marketed
commercially, revenues based on transfer prices and royalties. Late in 1995,
the Company signed a third license and supply agreement with SmithKline Beecham
("SB"). This agreement is for the nonexclusive use of the Company's adjuvants
in cancer vaccines under development by SB. The Company will receive an annual
license fee and certain milestone payments, as well as transfer payments for
supplies of adjuvant and royalties on commercial sales of approved cancer
vaccines incorporating its adjuvants. Additionally, late in 1995 Cantab
Pharmaceuticals Research, Ltd. signed a one-year option agreement for a co-
exclusive worldwide license to use MPL immunostimulant commercially upon
regulatory approval of Cantab's vaccine being developed for treating and
preventing genital warts. Increased revenues from these recent agreements will
more than offset revenue from a research contract with SB, which expired at the
end of 1995.
Investment income increased from $984,000 in 1993 to $1,460,000 in 1994 and
decreased to $1,216,000 in 1995. The changes in investment income have been due
primarily to the amount of funds invested during the periods. The average
interest rate in the investment portfolio increased from approximately 4.50% at
December 31, 1993 to 5.35% at December 31, 1994 and 5.59% at December 31, 1995.
Additionally, in 1995 the Company sold investments in certain debt mutual funds
for proceeds of $3,592,000, on which it realized an investment loss of $71,000.
Approximately $3,033,000 of the proceeds were reinvested in held-to-maturity
securities with the intention of increasing future yield and reducing interest
rate risk.
Purchases and Production
- ------------------------
Purchases and production costs increased from $441,000 in 1993 to $751,000 in
1994 and to $775,000 in 1995. Such costs were proportionately higher in 1994
and 1995 than in 1993 compared to sales. The increase in 1994 was caused by two
main factors. The Company determined in 1994 to manufacture only health-care
products for humans in its manufacturing facility, which resulted in a write-off
of certain animal health care inventory components with a cost of nearly
$90,000. The Company completed a manufacturing plant expansion in 1994 and has
been involved in the scale-up and refinement of some of its manufacturing
processes, which resulted in additional costs in 1994 and 1995. Looking
forward, the Company expects manufacturing costs to remain relatively high until
throughput in its expanded plant, which started producing materials in the third
quarter of 1995, increases to nearer plant capacity. Decreases in per-unit
manufacturing cost will be dependent upon the Company's ability to acquire labor
and raw materials at current or near-current prices and its ability to achieve
the anticipated yield of product from the manufacturing process at higher levels
of production.
Research and Development
- ------------------------
The Company incurred research and development expenses of approximately
$3,730,000, $4,993,000, and $5,530,000 in 1993, 1994 and 1995, respectively.
The year-to-year increase principally reflects the increasing costs of expanding
preclinical and clinical programs for the Company's products under development.
These expenses consisted primarily of salaries, contract consulting costs
largely related to clinical and preclinical studies, and laboratory supplies.
Labor costs decreased from approximately 53% of total research and development
costs in 1993 to 49% in 1994 and 47% in 1995. Supply costs increased from
approximately 20% of total research and development expenses in 1993 to 23% in
1994 and decreased to approximately 22% in 1995. Contract consulting costs
increased from approximately 15% of total research and development expenses in
1993 to 17% in 1994 and 22% in 1995. In addition to preclinical and toxicology
studies, the Company completed a Phase I/II trial in early 1993 using MPL-S
immunostimulant to prevent or block the effects of septic shock and began a
Phase II trial testing MPL-C immunomodulator in preventing cardiac reperfusion
injury in late 1993, which ran through 1995.
19
<PAGE>
Patient accrual was completed during 1993 and in 1994 the results were announced
from an interim analysis of the data from a Phase III human clinical trial being
conducted to compare MELACINE melanoma theraccine with a four-drug regimen of
chemotherapy in treating late-stage melanoma. While the quality of life of
patients, based on the interim analysis, was superior during treatment, there
was no significant statistical advantage in survival benefit of one form of
therapy over the other. The Company has continued to evaluate MELACINE in
patients with early stage melanoma and, in addition, opened a Phase III clinical
trial in late 1995 testing MELACINE administered in conjunction with interferon
alfa-2b to treat patients with late-stage melanoma.
Selling, General and Administrative
- -----------------------------------
This category of expense remained relatively flat at approximately $2,675,000
and $2,600,000 in 1993 and 1994, respectively, and increased to $3,035,000 in
1995. During this three-year period, labor costs increased from $1,062,000 in
1993 to $1,300,000 in 1994 to $1,636,000 in 1995. Additionally, in 1995
depreciation and amortization increased by $347,000 when compared to the
previous year and expenses related to the Bitterroot Valley Sanitary Landfill
("Landfill") increased by $99,000, net of insurance reimbursements. Offsetting
these increases were decreases in advertising of research products and an
increase in administrative and depreciation costs allocated to manufacturing,
reflecting the operation of the new plant in 1995. In 1994 compared to 1993,
increased labor costs were offset by a reduction in costs related to the
Landfill and a greater allocation of costs to manufacturing. During 1994 the
Company offset Landfill expenses with $125,000 in insurance proceeds received
from one insurance company, which was in rehabilitation, in a one-time
settlement of any claims associated with the Landfill issues. (See Note 8 of
Notes to Financial Statements.) The Company allocates part of its
administrative and depreciation costs to the cost of manufacturing products for
sale and for use in clinical trials. Such costs allocated in each year 1993,
1994 and 1995 were $181,000, $286,000 and $638,000, respectively.
Net Loss
- --------
Net loss increased only slightly from approximately $3,684,000 in 1993 to
$3,790,000 in 1994 and increased to $5,317,000 in 1995. Net loss per share over
the same period was $.25 per share in 1993, $.20 per share in 1994 and $.28 per
share in 1995. Late in 1993 and early 1994, 4,487,000 shares were issued in a
public offering and from warrant exercises, resulting in a decrease in loss per
share in 1994.
Inflation has not had a material impact on the results of operations of the
Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily from the issuance and sale of
equity securities, limited sales of products, interest earned on investments and
payments under contract research and license agreements. The financing sources
have, to date, enabled the Company to maintain adequate liquidity. Cash, cash
equivalents and investments totaled approximately $19,824,000 at December 31,
1995, as compared to approximately $25,967,000 at December 31, 1994.
The principal uses of cash during 1995 were approximately $4,956,000 for
operations and approximately $1,475,000 for plant and equipment. The Company
used approximately 65% more cash in operations in 1995 than in 1994, reflecting
on a cash basis reduced revenues and higher research and product development
expenses. Cash was collected in January 1996 under license and option
agreements signed in December 1995 which, if collected in December, would have
reduced the increase in cash used in operations to approximately 46%. Looking
forward, cash requirements for operating activities in 1996 are expected to
increase significantly over 1995 levels. While revenues are expected to
increase in 1996, expenses are expected to continue to outpace revenue as the
Company expands its work in clinical and regulatory areas. Projected cash
requirements are dependent upon the Company receiving the revenues that are
anticipated and conducting the
20
<PAGE>
research, particularly the clinical trials, that is projected. It is possible
that sales could be lower, because customers may not order as much material as
expected. It is also possible that patient accrual within planned clinical
trials will be slower than anticipated or that the results of the trials or
other research will not be as expected.
The Company did not raise a significant amount of cash outside of operations
during 1995. In 1994 the Company's primary sources of cash were approximately
$6,302,000 from the exercise of outstanding warrants and stock options and
$578,000 from collections on notes receivable accepted in a 1992 private
placement of common stock and warrants. During 1993, the Company raised
$14,740,000 from the sale of common stock and the exercise of options and
approximately $647,000 from collections on the investor notes receivable. At
December 31, 1995, the Company had warrants and options outstanding to acquire
shares and warrants which were issued in private placements in 1991 and 1992 at
exercise prices ranging from $3.00 to $8.25 per share. All such warrants expire
in 1997 if not exercised. In January 1995 the Company decided to extend the
expiration date of the warrants which expired in April 1995 to April 1997 and
reduce the exercise price from $11.55 per share to $6.00 per share. The change
was made to preserve for the Company the opportunity to raise additional capital
at a very economical cost if the warrants are exercised. If exercised, the
warrants and options in total could provide up to an additional $5,889,000 to
the Company. (See Note 6 of Notes to Financial Statements.)
During 1994 the Company constructed and equipped an expanded manufacturing plant
with a total cost of approximately $6,652,000, of which approximately $715,000
was paid in 1995. The Company has been testing and validating the plant and it
began producing materials in the third quarter of 1995. The Company believes
that this expansion will enable it to meet its anticipated manufacturing and
other facility requirements for the foreseeable future.
The Company will require substantial additional funds to continue its research
and development programs and to commercialize its products under development.
Future capital requirements will depend upon a number of factors, including the
rate of expenditure on and the progress of the Company's research and
development programs, the time and cost to obtain regulatory approvals, and
demand for products based on the Company's technology. Looking forward, the
Company believes that its available cash, cash equivalents and investments
together with funds from licensing agreements and product sales should be
sufficient to meet its capital requirements through 1998.
The Company, the National Institutes of Health and the Bitterroot Valley
Sanitary Landfill ("Landfill") were notified by the Montana Department of Health
and Environmental Sciences (now the Department of Environmental Quality
{"DEQ"}), in March 1991 that they had been identified as potentially responsible
parties ("PRPs") for groundwater contamination located at and near the site of
the Landfill in Ravalli County, Montana. The DEQ has filed an action against
the Landfill, the operator of the Landfill and the Company seeking reimbursement
of costs associated with its oversight activities. Additionally, two landowners
in the vicinity of the Landfill have filed civil suits seeking unspecified
damages for alleged diminished value of land, possible health hazards and loss
of domestic water source. As of December 31, 1995, the Company has a reserve of
$190,000 primarily to cover billed and potential legal, consulting and DEQ
reimbursement costs associated with the Company as a PRP and the civil suits.
At least some costs related to the civil suits have been and are expected to
continue to be covered by insurance. However, the Company is unable to
determine its potential liability with respect to the Landfill at this time.
(See Note 8 of Notes to Financial Statements for a discussion of commitments and
contingencies.)
21
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . 23
Balance Sheets as of December 31, 1995 and 1994 . . . . . . . . . . . . . . . 24
Statements of Operations for the years ended
December 31, 1995, 1994, and 1993 . . . . . . . . . . . . . . . . . . . . . 25
Statements of Stockholders' Equity for the years
ended December 31, 1995, 1994, and 1993 . . . . . . . . . . . . . . . . . . 26
Statements of Cash Flows for the years ended
December 31, 1995, 1994, and 1993 . . . . . . . . . . . . . . . . . . . . . 27
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 28
22
<PAGE>
RIBI IMMUNOCHEM RESEARCH, INC.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Ribi ImmunoChem Research, Inc.:
We have audited the accompanying balance sheets of Ribi ImmunoChem Research,
Inc. as of December 31, 1995 and 1994, and the related statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ribi ImmunoChem Research, Inc.
at December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Billings, Montana
January 18, 1996
23
<PAGE>
<TABLE>
<CAPTION>
RIBI IMMUNOCHEM RESEARCH, INC.
BALANCE SHEETS
(In Thousands Except Share Data)
December 31,
----------------------
1995 1994
-------- --------
Assets
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 284 714
Held-to-maturity investment securities
and accrued interest 6,574 6,660
Accounts receivable 725 141
Inventories 983 678
Other current assets 250 290
-------- --------
Total current assets 8,816 8,483
Available-for-sale investment securities 5,079 8,092
Held-to-maturity investment securities 7,887 10,501
Property, plant and equipment, net 11,580 11,226
Other assets, net 549 522
-------- --------
Total assets $ 33,911 38,824
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 253 460
Accrued liabilities 601 838
Deferred revenue 630 188
-------- --------
Total current liabilities 1,484 1,486
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.10 par, 10,000,000
authorized shares; none issued and
outstanding - -
Common stock, $.001 par; 30,000,000 authorized
shares; 18,888,243 and 18,871,193 issued and
outstanding in 1995 and 1994, respectively 19 19
Additional paid-in capital 62,460 62,377
Unrealized investment holding losses (5) (328)
Accumulated deficit (30,047) (24,730)
-------- --------
Total stockholders' equity 32,427 37,338
-------- --------
Total liabilities and stockholders'
equity $ 33,911 38,824
======== ========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
<TABLE>
<CAPTION>
RIBI IMMUNOCHEM RESEARCH, INC.
STATEMENTS OF OPERATIONS
(In Thousands Except per Share Data)
Years Ended December 31,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Sales $ 953 1,008 860
Contracts and licenses 1,848 2,075 1,307
Investment income, net 1,216 1,460 984
Other, net 6 11 11
-------- -------- --------
4,023 4,554 3,162
Cost and expenses:
Purchases and production 775 751 441
Research and development 5,530 4,993 3,730
Selling, general and administrative 3,035 2,600 2,675
-------- -------- --------
9,340 8,344 6,846
-------- -------- --------
Net loss $ (5,317) (3,790) (3,684)
======== ======== ========
Net loss per common share $ (.28) (.20) (.25)
======== ======== ========
Average number of shares outstanding 18,877 18,657 14,658
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
25
<PAGE>
<TABLE>
<CAPTION>
RIBI IMMUNOCHEM RESEARCH, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands Except Share Data)
Notes
Receiv- Unreal-
Addi- able - ized Total
tional Common Holding Accumu- Stock-
Common Paid-in Stock, Gains lated holders'
Stock Capital Net (Losses) Deficit Equity
----- ------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $ 14 41,257 (1,225) - (17,256) 22,790
Issuance of 600 shares
under stock grant program - 4 - - - 4
Issuance of 124,025 shares
upon exercise of options - 370 - - - 370
Compensation relating to
stock options - 55 - - - 55
Sale of 2,587,500 shares in
public offering, net 3 14,367 - - - 14,370
Collections and interest on
notes receivable - common
stock, net - - 647 - - 647
Unrealized gain on investment
securities, net - - - 5 - 5
Net loss - - - - (3,684)
(3,684)
----- ------ ----- ----- ------ ------
Balance at December 31, 1993 17 56,053 (578) 5 (20,940) 34,557
Issuance of 1,200 shares
under stock grant program - 9 - - - 9
Issuance of 139,700 shares
upon exercise of options - 483 - - - 483
Issuance of 1,899,668 shares
upon exercise of warrants 2 5,817 - - - 5,819
Compensation relating to
stock options - 14 - - - 14
Collections and interest on
notes receivable - common
stock, net - - 578 - - 578
Unrealized loss on investment
securities, net and other - 1 - (333) -
(332)
Net loss - - - - (3,790)
(3,790)
----- ------ ----- ----- ------ ------
Balance at December 31, 1994 19 62,377 - (328) (24,730) 37,338
Issuance of 3,000 shares
under stock grant program - 12 - - - 12
Issuance of 14,050 shares
upon exercise of options - 40 - - - 40
Compensation relating to
stock options - 31 - - - 31
Unrealized gain on investment
securities, net - - - 323 - 323
Net loss - - - - (5,317)
(5,317)
----- ------ ----- ----- ------ ------
Balance at December 31, 1995 $ 19 62,460 - (5) (30,047) 32,427
===== ====== ===== ===== ====== ======
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
RIBI IMMUNOCHEM RESEARCH, INC.
STATEMENTS OF CASH FLOWS
(In Thousands)
Years Ended December 31,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (5,317) (3,790) (3,684)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization 817 470 434
Common stock issued in payment of
operating expenses 12 9 4
Compensation relating to stock
options 31 14 55
Investment losses and discount
accretion, net (25) (21) (106)
Abandoned patents and asset sales 8 (2) 7
Changes in operating assets and
liabilities:
Accounts receivable (584) (73) (2)
Accrued interest 25 21 (15)
Inventories (305) 193 (152)
Other current assets 40 (51) (167)
Accounts payable (122) 174 (20)
Accrued liabilities 22 103 165
Deferred revenue 442 (45) 188
-------- -------- --------
Net cash used by operating
activities (4,956) (2,998) (3,293)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (1,475) (6,626) (818)
Payments for other assets (78) (100) (68)
Proceeds from sale of assets 3 3 -
Proceeds from maturities of
held-to-maturity securities 7,239 12,977 7,695
Sales of available-for-sale securities 3,592 - -
Purchases of available-for-sale
securities (327) (408) (8,012)
Purchases of held-to-maturity
securities (4,468) (10,736) (9,632)
-------- -------- --------
Net cash provided (used) by
investing activities 4,486 (4,890) (10,835)
-------- -------- --------
Cash flows from financing activities:
Sale of common shares, net - - 14,370
Collections and interest on notes
receivable - common stock, net - 578 647
Proceeds from exercise of warrants - 5,819 -
Proceeds from exercise of options 40 483 370
Other - 1 -
-------- -------- --------
Net cash provided by financing
activities 40 6,881 15,387
-------- -------- --------
Increase (decrease) in cash and cash
equivalents (430) (1,007) 1,259
Cash and cash equivalents at beginning
of year 714 1,721 462
-------- -------- --------
Cash and cash equivalents at end of year $ 284 714 1,721
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
OPERATIONS. Ribi ImmunoChem Research, Inc. (the Company) was incorporated
on January 9, 1981, and is principally engaged in the development of
biopharmaceutical products designed to stimulate an immune response in
humans in order to prevent or treat malignant, infectious and other
diseases. The Company also engages in related activities such as the
custom formulation and sale of research products and contract research.
REVENUE RECOGNITION. Revenues from the sale of research products are
recognized when products are shipped to customers. Revenues from contract
research are recognized as related expenses are incurred. Nonrefundable
license fees received in connection with product license agreements are
recognized over the term of the contract.
CASH AND CASH EQUIVALENTS. In the statement of cash flows, the Company
considers all highly liquid debt instruments with a maturity on the date of
acquisition of three months or less to be cash equivalents.
INVESTMENT SECURITIES. Investment securities consist of marketable debt
securities and mutual funds which have invested in marketable debt
securities. Securities which the Company expects to hold to maturity
("held-to-maturity") are stated at cost and adjusted for amortization of
premium and accretion of discount to the earlier of the call date or
maturity using the interest method. All other securities ("available-for-
sale") are recorded at fair value. Fair values of investment securities
are based on quoted market prices.
Any gains and losses from the sale of investment securities are computed
under the specific identification method. Unrealized holding gains and
losses, net of related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component of stock-
holders' equity until realized. Unrealized losses, if any, for all
investment securities that are other than temporary are charged against
earnings. Investments that mature within one year are classified as
current assets.
INVENTORIES. Inventories are stated at the lower of cost or market on a
specific identification basis. Cost is based on the actual costs
associated with producing the inventories, which include direct labor and
materials, quality control and manufacturing overhead.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at
cost and depreciated on a straight-line basis over estimated useful lives
of 25 to 30 years for buildings and 3 to 12 years for equipment, furniture
and fixtures. Maintenance and repairs are charged to expense as incurred.
Significant betterments are capitalized.
NET LOSS PER COMMON SHARE. Net loss per common share is based on the
weighted average number of shares outstanding. Common share equivalents
are not included in loss per share calculations as the effect is
antidilutive.
PATENTS AND OTHER ASSETS. Other assets consist principally of the costs of
patents filed, deferred patent application costs and patent maintenance
costs. Such costs are amortized on a straight-line basis over the
estimated remaining useful lives of the patented technology ranging from 4
to 20 years. Unsuccessful patent application costs are expensed when the
patent is denied or abandoned.
28
<PAGE>
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS- continued
INCOME TAXES. Deferred tax assets and liabilities are recognized for the
estimated future consequences attributable to differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases. The current and noncurrent portions of these
deferred tax assets and liabilities are classified in the balance sheet
based on the respective classification of the assets and liabilities which
give rise to such deferred income taxes. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in tax expense in
the period that includes the enactment date.
FAIR VALUE OF CERTAIN FINANCIAL INSTRUMENTS. The carrying amounts for
cash, cash equivalents, accounts receivable, accounts payable, and accrued
expenses approximate fair value because of the short duration of those
instruments.
ESTIMATES. Management of the Company has made certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
RECLASSIFICATION. Certain reclassifications have been made to the prior
year financial statements to conform to the 1995 presentation of
depreciation in the Statements of Operations and of accretion of investment
discount in the Statements of Cash Flows.
29
<PAGE>
<TABLE>
<CAPTION>
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS - continued
(2) Investment Securities
The following is a summary of the Company's investment securities as of December 31,
1995 and 1994:
Fair
Amortized Market Unrealized Unrealized
December 31, 1995 Cost Value Gains Losses
----------------- --------- --------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
Mutual funds investing primarily in
short to intermediate term
securities of the U.S. Government
and its agencies $ 5,084 5,079 30 35
--------- --------- ---------- ----------
Held-to-maturity:
Securities of the U.S. Government
and its agencies 8,150 8,140 13 23
Corporate mid-term notes 5,898 6,037 152 13
Insured certificates of deposit 290 289 - 1
--------- --------- ---------- ----------
14,338 14,466 165 37
Accrued interest 123 123 - -
--------- --------- ---------- ----------
19,545 19,668 195 72
========= ========== ==========
Recorded unrealized losses (5)
---------
$ 19,540
=========
December 31, 1994
-----------------
Available-for-sale:
Mutual funds investing primarily in
short to intermediate term
securities of the U.S. Government
and its agencies $ 5,279 5,021 - 258
Other mutual funds 3,141 3,071 - 70
--------- --------- ---------- ----------
8,420 8,092 - 328
--------- --------- ---------- ----------
Held-to-maturity:
Securities of the U.S. Government
and its agencies 10,529 10,126 - 403
Corporate mid-term notes 5,800 5,667 - 133
Insured certificates of deposit 684 673 - 11
--------- --------- ---------- ----------
17,013 16,466 - 547
Accrued interest 148 148 - -
--------- --------- ---------- ----------
25,581 24,706 - 875
========= ========== ==========
Recorded unrealized losses (328)
---------
$ 25,253
=========
</TABLE>
<TABLE>
<CAPTION>
The following is a schedule of the contractual maturity of the held-to-maturity
securities as of December 31, 1995:
Amortized Fair Market
Cost Value
--------- ----------
(In Thousands)
<S> <C> <C>
Within one year $ 6,451 6,424
After one year through fourth year 7,887 8,042
--------- ----------
$ 14,338 14,466
========= ==========
</TABLE>
30
<PAGE>
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS - continued
During 1995 the Company received $3,592,000 from sales of available-for-sale
securities. Losses totaling $71,000 were realized on the sales. Approximately
$3,033,000 of the proceeds were reinvested in held-to-maturity securities with
the intention of increasing future yield and reducing interest rate risk.
(3) Inventories
<TABLE>
<CAPTION>
Inventories are as follows:
December 31,
----------------------------
1995 1994
---------- ----------
(In Thousands)
<S> <C> <C>
Raw materials $ 99 58
Work in process 780 469
Finished goods 104 151
---------- ----------
$ 983 678
========== ==========
</TABLE>
(4) Property, Plant and Equipment
<TABLE>
<CAPTION>
Property, plant and equipment consists of the following:
December 31,
---------------------------
1995 1994
---------- ----------
(In Thousands)
<S> <C> <C>
Buildings $ 9,427 3,552
Equipment, furniture and fixtures 5,779 3,688
---------- ----------
15,206 7,240
Less accumulated depreciation 3,835 3,071
---------- ----------
11,371 4,169
Construction in progress 20 6,868
Land 189 189
---------- ----------
$ 11,580 11,226
========== ==========
</TABLE>
(5) Deferred Revenue
Deferred revenue consists of deferred license fees at December 31, 1995 and
1994.
(6) Stockholders' Equity
During 1993, the Company sold 2,587,500 shares of common stock in a public
offering at a price of $6.00 per share for $15,525,000.
During 1992 the Company sold units of common stock and warrants in a private
placement. Certain qualified purchasers were allowed to purchase units with a
portion of the purchase price due within ten days after a registration statement
covering the underlying stock was declared effective. After the registration
statement was declared effective, the Company agreed to accept extended notes
from two qualified purchasers. The notes accrued interest at the prime rate
plus 2% and required periodic payments. All such notes were paid in full by
January 1994.
31
<PAGE>
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS - continued
The following table sets forth activity relative to warrants and options to
acquire shares of common stock which were issued in common stock offerings in
1991 and 1992. All such warrants and options expire in 1997.
<TABLE>
<CAPTION>
Year issued 1991 1992 Total
---------------------- ------------------ -------
<C> <C> <C> <C> <C> <C> <C>
Exercise price $ 3.00 3.60 4.00 6.00 8.25
------ ------ ------ ------- -------
(In Thousands)
Total common shares 2,300 200 467 708 93 3,768
Exercised:
1991 (100) - (200) - - (300)
1992 (209) - (267) - - (476)
1993 - - - - - -
1994 (1,700) (200) - - - (1,900)
1995 - - - - - -
------ ------ ------ ------- ------- -------
Unexercised 291 - - 708 93 1,092
====== ====== ====== ======= ======= =======
</TABLE>
In January 1995 the Company reduced the exercise price from $11.55 to $6.00 per
share and extended the expiration date from 1995 to 1997 on the warrants to
purchase 708,000 common shares. The Company may call the warrants if its common
stock trades at a price of $8.00 or more per share for a period of 20
consecutive trading days. The change was made to preserve for the Company the
opportunity to raise additional capital at a very economical cost if the
warrants are exercised.
(7) Stock Compensation Plans
The Company has a stock grant program under which common stock may be issued to
key employees, consultants and other persons providing services deemed important
to the Company. The program requires the employee to assign to the Company all
know-how, patents and proprietary information developed while employed by, or
developed as a result of employment with the Company and to agree not to engage
in any activity which could be considered to be in competition with the
Company's proposed business while employed by the Company. If the employee
violates any one of these conditions, the shares issued pursuant to the program
shall revert to the Company. Non-employees receiving grants are not subject to
the conditions imposed on employees receiving grants. Additionally, the Company
grants 100 shares of stock to each employee who is not an officer of the Company
after their completion of one year of employment. Such 100 share grants are not
subject to the forfeiture conditions described above. The difference between
the fair value of the stock at grant date and the amount the grantee is required
to pay (normally a nominal amount) is charged to expense.
The following table sets forth the activity in the stock grant program for the
years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Shares available at beginning
of year 32,368 33,568 34,168
Shares granted 3,000 1,200 600
------ ------ ------
Shares available at end
of year 29,368 32,368 33,568
====== ====== ======
Weighted average grant date
fair value $ 4.03 6.94 6.91
====== ====== ======
</TABLE>
32
<PAGE>
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS - continued
The Company has a stock option plan whereby full- or part-time employees are
eligible to receive incentive stock options and nonqualified stock options and
certain directors and consultants are eligible to receive nonqualified stock
options. Any option granted under the plan may include a stock appreciation
right (SAR) to surrender to the Company all, or a portion, of the option in
exchange for cash or stock, the sum of which is equal to the value of the excess
of fair market value of the common stock over the option price. The plan
provides for awarding options for a maximum of 1,400,000 shares of the Company's
common stock at an exercise price not less than fair market value at the date of
the grant, except for options awarded to certain directors. Options are
nontransferable and expire if not exercised within ten years from the date of
the grant. Options can be exercised in cumulative installments of 20% per year
beginning on the date of the grant, except for discounted stock options issued
to certain directors as discussed below.
The stock option plan also provides for the issuance of nonqualified stock
options with an exercise price which is 20% below the market price of the
Company's common stock on the grant date. The discounted stock options may be
awarded to directors who are not employees of the Company who elect to receive
the discounted stock options rather than cash for all or a portion of their
director fees. The directors are required to make the voluntary election at
least six months prior to the beginning of each calendar year. The number of
options to be granted is determined by dividing the amount of the foregone cash
compensation by the amount of the per share price discount on the grant date.
Such options are granted at the end of each calendar quarter and are fully
vested on the grant date. The options, which expire if not exercised within ten
years from the grant date, are exercisable after a six month period following
the grant date.
The following table sets forth the activity in the stock option plan for the
years ended December 31, 1993, 1994 and 1995. There were no SAR's outstanding
under the plan during the three year period ended December 31, 1995.
<TABLE>
<CAPTION>
Non-employee
Employees Directors
-------------------- --------------------
Average Average Total
Common Exercise Common Exercise Common
Shares Price Shares Price Shares
------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C>
Shares under option:
Outstanding at
December 31, 1992 530,700 $ 5.25 - $ - 530,700
Granted 542,000 5.86 14,928 5.09 556,928
Exercised (49,025) 3.53 - - (49,025)
--------- ------- ---------
Outstanding at
December 31, 1993 1,023,675 5.66 14,928 5.09 1,038,603
Granted 104,500 7.49 23,748 4.46 128,248
Exercised (119,700) 3.54 - - (119,700)
Canceled (28,900) 6.69 - - (28,900)
--------- ------- ---------
Outstanding at
December 31, 1994 979,575 6.08 38,676 4.71 1,018,251
Granted 96,000 3.92 19,720 3.65 115,720
Exercised (14,050) 2.81 - - (14,050)
Canceled (115,475) 6.20 - - (115,475)
--------- ------- ---------
Outstanding at
December 31, 1995 946,050 5.90 58,396 4.35 1,004,446
========= ======= =========
Options exercisable at:
December 31, 1993 413,375 $ 5.18 8,628 $ 4.64 422,003
December 31, 1994 484,475 5.80 24,345 5.50 508,820
December 31, 1995 591,700 5.90 51,378 4.32 643,078
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS - continued
Non-employee
Employees Directors
-------------------- --------------------
Average Average Total
Common Exercise Common Exercise Common
Shares Price Shares Price Shares
------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C>
Ranges of exercise
prices and average months
(mo) to expiration of:
Options outstanding at
December 31, 1995
$1.50-$4.90 (82 mo) 192,550 $ 3.65 46,845 $ 3.84 239,395
$5.75-$7.50 (94 mo) 670,250 6.27 11,551 6.41 681,801
$8.00-$8.63 (95 mo) 83,250 8.11 - - 83,250
--------- ------- ---------
946,050 58,396 1,004,446
========= ======= =========
Options exercisable at
December 31, 1995
$1.50-$4.90 (69 mo) 116,550 $ 3.47 39,827 $ 3.72 156,377
$5.75-$7.50 (92 mo) 433,150 6.33 11,551 6.41 444,701
$8.00-$8.63 (93 mo) 42,000 8.13 - - 42,000
--------- ------- ---------
591,700 51,378 643,078
========= ======= =========
</TABLE>
The stock option plan described above expires in February 1996 and the Company
intends to seek stockholder approval in 1996 for a new plan.
The Company has entered into a Stock Option Agreement with its Chief Executive
Officer, President and Chairman ("CEO"). Pursuant to the 1987 agreement, and
later agreements, the CEO was granted options to purchase 228,000 shares of
common stock at prices ranging from $2.63 to $3.00 per share. Any excess of
fair value of the common stock over the exercise price at the grant date has
been charged to expense. All of the CEO's options under this agreement expire
if not exercised by June 30, 1997. During 1994 and 1993, the CEO exercised
options to purchase 20,000 and 75,000 shares, respectively, at prices of $3.00
and $2.63 per share, respectively. The CEO did not exercise any options in
1995. At December 31, 1995, there are options remaining to purchase 50,000
shares at $3.00 per share, all of which are exercisable. Additionally, the CEO
has been granted options to purchase stock under the Company's stock option plan
described above.
(8) Commitments and Contingencies
The Company has an employment agreement with its Chief Executive Officer,
President and Chairman, which currently provides for an annual salary of
$245,000. The agreement requires the payment of the salary, adjustable
annually, through June 30, 1997 unless there is termination for "cause".
The Company carries $10 million in product liability insurance for its products
which are being used in clinical trials and is self-insured for product
liability coverage for research products and veterinary products being marketed.
In addition, the Company has agreed to indemnify its directors and officers for
liabilities incurred as a result of their positions with the Company.
The Company, the National Institutes of Health ("NIH") and the Bitterroot Valley
Sanitary Landfill ("Landfill") were notified by the Montana Department of Health
and Environmental Sciences (now known as the Department of Environmental Quality
{"DEQ"}) in March 1991 that they had been identified as potentially responsible
parties
34
<PAGE>
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS - continued
("PRPs") and as such are jointly and severally liable for groundwater
contamination located at and near the site of the Landfill in Ravalli County,
Montana. The Company's involvement arises out of waste materials which it
deposited at the Landfill from 1982 to 1985 which the Landfill had permits to
receive. The NIH voluntarily initiated and completed work pursuant to an
interim remediation plan approved by the DEQ to remove and decontaminate the
believed source of the contamination and treat the aquifers which tests have
shown contain contaminants. Although decontamination of the soil at and around
the Landfill has been completed, treatment of the groundwater in the proximity
of the disposal site continues utilizing carbon filtering and air sparging, and
it is anticipated such treatment will continue through 1996 and possibly longer.
The DEQ conducted a "Risk Assessment" and issued a "Draft Final Feasibility
Study" in October 1994 that discussed possible final remediation alternatives.
In August 1995, the DEQ announced that it had approved a second interim action
in the vicinity of the Landfill being voluntarily conducted by the NIH and which
involves installing individual replacement wells to provide both an alternate
water supply for the affected residents and to develop additional information on
the site hydrogeology. Information collected from these wells through a multi-
year monitoring program will be used by the DEQ to evaluate the effectiveness of
the remediation efforts to date. The current plan calls for the wells to be
installed in three phases: Phase I includes occupied properties with the
highest remaining contamination levels; Phase II includes occupied properties
with lesser degrees of contamination; and Phase III consists largely of vacant
properties. Preliminary studies completed in 1994 estimated the cost of the
wells to be approximately $1,400,000. Completion of the first Phase is expected
by the spring of 1996. The DEQ could require the PRPs to implement further
remediation should these wells not provide sufficient quality or quantity of
water. The NIH, which has taken the lead and incurred substantially all of the
remediation costs, has represented publicly that it would continue to work with
the DEQ toward an acceptable final remediation plan. In 1993, the NIH stated
that as of that time, it had incurred costs and anticipated future interim
remediation costs which could total $2 million or more. The DEQ has filed an
action against the Landfill, the operator of the Landfill and the Company
seeking reimbursement of costs in the amount of $199,000 associated with its
oversight activities. The Company is in the process of filing a response to the
action. Because of these uncertainties, including the uncertainty of the cost
of further remediation and whether the NIH will seek and obtain partial
reimbursement from the other PRPs, it is not possible at this time to determine
the potential liability of the Company as a PRP.
Two landowners in the vicinity of the Landfill have filed civil suits seeking
unspecified damages for alleged diminished value of land, possible health
hazards and loss of domestic water source. The suits name the PRPs and the DEQ,
as well as unknown individuals and corporations which may be discovered to have
contributed to the injuries alleged. The Company has been served with and has
filed answers to these suits. The Company has denied any liability and in a
motion for summary judgement, denied the injuries alleged. It is not possible
at this time, however, to predict whether additional civil suits will be filed,
the outcome of the pending suits or the potential financial impact on the
Company or the probability of adverse decisions.
As of December 31, 1995, the Company has a reserve of approximately $190,000
primarily to cover billed and potential legal, consulting and DEQ reimbursement
costs associated with the Company as a PRP and the civil suits. Some of the
costs incurred in the defense of the civil suits have been paid by insurance and
at least some of the future defense costs are expected to be paid by insurance,
none of which have been accrued. During 1994 the Company received $125,000 in
insurance proceeds from one insurance company, which is in rehabilitation, in a
one-time settlement of any claims associated with the Landfill issues. Net
costs charged (credited) to operations during 1995, 1994 and 1993 were $64,000,
$(35,000) and $114,000, respectively.
35
<PAGE>
<TABLE>
<CAPTION>
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS - continued
(9) Income Taxes
The net operating loss carryforwards and tax credits available to reduce future
Federal taxable income or related taxes and the year of expiration are approxi-
mately as follows:
<C> <C> <C> <C>
Net Research and
Operating Investment Development
Expires December 31, Loss Credit Credit
- -------------------- ---------- ---------- ----------
(In Thousands)
1996 $ 181 26 5
1997 314 4 14
1998 254 7 31
1999 328 3 50
2000 529 9 58
2001 251 - 76
2002 821 - 82
2003 2,272 - 128
2004 2,751 - 106
2005 2,606 - 115
2006 3,595 - 154
2007 4,488 - 198
2008 4,238 - 243
2009 4,574 - 343
2010 5,469 - 163
------ ------ ------
$ 32,671 49 1,766
====== ====== ======
</TABLE>
<TABLE>
The tax effects of temporary differences that give rise to federal and state
deferred tax assets and liabilities consist of the following:
December 31,
--------------------------------------------------
1995 1994 1993
---------- ------------ ----------
(In Thousands)
<S> <C> <C> <C>
Gross deferred tax assets:
Net operating loss
carryforwards $ 13,579 11,311 9,481
General business credit
carryforwards 1,815 1,659 1,286
Loss contingency reserve 79 47 38
Employee benefits 79 54 15
Inventories - - 29
Other 21 20 20
----------- ----------- ----------
15,573 13,091 10,869
Valuation allowance (15,172) (12,792) (10,614)
----------- ----------- ----------
401 299 255
----------- ----------- ----------
Gross deferred tax
liabilities:
Depreciation 262 272 255
Inventories 139 27 -
----------- ----------- ----------
401 299 255
----------- ----------- ----------
$ - - -
=========== =========== ==========
</TABLE>
The Company has provided a valuation allowance for deferred tax assets which
management believes are not currently assured of being realized. The ultimate
realization of deferred tax assets is dependent upon the existence of, or
generation of, taxable income in the periods in which those temporary
differences are deductible.
36
<PAGE>
RIBI IMMUNOCHEM RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS - concluded
The net increase in the valuation allowance for the years ended December 31,
1995, 1994, and 1993 was $2,380,000, $2,178,000 and $2,120,000, respectively.
Additionally, when subsequently recognized, approximately $847,000 of the
valuation allowance will be credited to additional paid-in capital.
(10) International Sales and Major Customers
The Company markets its research products worldwide, generally to nonexclusive
distributors. During 1995, 1994 and 1993, export sales were 31%, 35% and 15% of
total sales, respectively. Export sales were primarily to Europe, Japan and
Canada.
In late 1995 the Company entered into a third license agreement with SmithKline
Beecham ("SB"), which covers the nonexclusive use of the Company's adjuvants in
cancer vaccines under development by SB. The Company will receive an annual
license fee and certain milestone payments, as well as transfer payments for
supplies of adjuvant and royalties on commercial sales of approved cancer
vaccines incorporating its adjuvants. Previously, the Company has entered into
two other license agreements, which also provide for the receipt of license
fees, transfer payments and royalties, for use of the Company's adjuvants in
certain infectious disease vaccines. The Company entered into a one-year
research and collaboration agreement with SB in late 1992 pursuant to which the
Company performed research for SB related to certain adjuvants and vaccines.
The research was funded by SB and the agreement was renewed for the years 1994
and 1995. There are currently no plans to extend the agreement to 1996. The
Company also sells adjuvants and research products to SB. All revenues received
by the Company from SB were 31% of total revenue in 1995, 26% in 1994 and 37% in
1993.
As of December 31, 1995, S.R. One Limited, a subsidiary of SB, held 750,608
shares, or 4% of the Company's common stock.
In early 1994 the Company granted American Cyanamid Company a worldwide license,
effective April 1, 1993, to use the Company s adjuvants commercially upon
regulatory approval of certain vaccines being developed by American Cyanamid.
In addition to an annual license fee, the Company will receive transfer payments
for supplies of adjuvant and will be entitled to royalties upon commercial sale
of vaccines. All revenues received from American Cyanamid were 19% of the
Company s total revenue in 1995 and 25% (including retroactive fees) in 1994.
Through acquisition, the agreement is now with Lederle-Praxis Biologicals, a
business unit of Wyeth-Ayerst Laboratories, which is a division of American Home
Products Corporation.
(11) Employee Benefits
The Company provides an employee savings plan under Section 401(k) of the
Internal Revenue Code. This plan covers substantially all full-time employees.
The Company matches 30% of employee contributions of up to 6% of compensation.
The amount charged against income in 1995, 1994 and 1993 was $52,000, $44,000
and $40,000, respectively.
Additionally, the Company provides other employee benefits including health
insurance for employees who are actively employed. Charges against income for
health insurance were approximately $198,000, $147,000 and $91,000 in 1995, 1994
and 1993, respectively.
(12) Future Accounting Changes
During 1995 the Financial Accounting Standards Board released two Statements of
Financial Accounting Standards ("FAS") which the Company will be required to
adopt in 1996. FAS 121 deals with accounting for impairment of long-lived
assets and long-lived assets to be disposed of. FAS 123 pertains to accounting
for stock-based compensation. The Company is currently evaluating these
standards as they relate to its operations. FAS 121 is not expected to have a
material impact on the Company's financial position and results of operations.
It is still too early in the Company's evaluation to predict the impact of FAS
123.
37
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has not changed independent auditors and has not had any
disagreements with its independent auditors.
PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has filed with the Securities and Exchange Commission a Definitive
Proxy Statement for the Company's Annual Meeting of Stockholders to be held on
April 24, 1996. The information required by Items 10, 11, 12 and 13 of this
Annual Report on Form 10-K is set forth in such Definitive Proxy Statement in
the sections entitled "Election of Directors," "Compliance With Section 16(a) of
the Exchange Act," "Committees and Meetings," "Principal Stockholders and
Management's Stockholdings," "Executive Compensation" and "Directors
Compensation" on pages 1 through 10. Those portions of such Definitive Proxy
Statement containing such information are incorporated herein by this reference.
Information regarding the Company's executive officers is set forth in Part I of
this Annual Report on Form 10-K under the heading "Executive Officers of the
Registrant."
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements of Ribi ImmunoChem Research, Inc., are filed
with this Report on Form 10-K under Item 8 of Part II on pages 22 through 37:
Independent Auditors' Report
Balance Sheets as of December 31, 1995 and 1994
Statements of Operations for the years ended December 31, 1995, 1994
and 1993
Statements of Stockholders' Equity for the years ended December 31,
1995, 1994 and 1993
Statements of Cash Flows for the years ended December 31, 1995, 1994
and 1993
Notes to Financial Statements
2. Financial Statement Schedules
All schedules have been omitted as the required information is inapplicable or
the information is presented in the financial statements or related notes.
3. Exhibits
The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
Exhibit No. Description and Incorporation by Reference
- ----------- ------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation. This certificate was
filed June 22, 1992, as Exhibit 4.1 to Registrant's registration
statement on Form S-3, Registration No. 33-48713. Said Exhibit
4.1
38
<PAGE>
is incorporated herein by this reference.
3.2 Amended Bylaws of the Company. These Bylaws were filed on March
13, 1989, as Exhibit 3.2 to Registrant's annual report on Form
10-K dated December 31, 1988, File No. 0-11094. Said Exhibit 3.2
is incorporated herein by this reference.
*10.1 Employment Agreement with Mr. Robert E. Ivy dated July 1, 1987.
This agreement was filed on July 10, 1987, as Exhibit 10.1 to
Registrant's report on Form 8-K dated June 30, 1987, File No. 0-
11094. Said Exhibit 10.1 is incorporated herein by this
reference.
*10.2 Stock Option Agreement with Mr. Robert E. Ivy dated July 1, 1987.
This agreement was filed on July 10, 1987, as Exhibit 10.2 to
Registrant's report on Form 8-K dated June 30, 1987, File No. 0-
11094. Said Exhibit 10.2 is incorporated herein by this
reference.
*10.3 Amendment dated November 1, 1988, to the Stock Option Agreement
with Mr. Robert E. Ivy dated July 1, 1987. This agreement was
filed on March 13, 1989, as Exhibit 10.3 to Registrant's report
on Form 10-K dated December 31, 1988, File No. 0-11094. Said
Exhibit 10.3 is incorporated herein by this reference.
*10.4 Amendment dated January 30, 1989, to the Employment Agreement
with Mr. Robert E. Ivy dated July 1, 1987. This agreement was
filed on March 13, 1989, as Exhibit 10.4 to Registrant's report
on Form 10-K dated December 31, 1988, File No. 0-11094. Said
Exhibit 10.4 is incorporated herein by this reference.
*10.5 Second amendment dated March 5, 1990, to the Stock Option
Agreement with Mr. Robert E. Ivy dated July 1, 1987. This
agreement was filed on May 4, 1990, as Exhibit 10.1 to
Registrant's report on Form 10-Q dated March 31, 1990, File No.
0-11094. Said Exhibit 10.1 is incorporated herein by this
reference.
*10.6 Third amendment dated April 25, 1991, to the Stock Option
Agreement with Mr. Robert E. Ivy dated July 1, 1987. This
agreement was filed on August 9, 1991, as Exhibit 10.3 to
Registrant's report on Form 10-Q dated June 30, 1991, File No. 0-
11094. Said Exhibit 10.3 is incorporated herein by this
reference.
*10.7 1986 Stock Option Plan (as amended and restated effective April
29, 1992). This plan was filed on August 5, 1992, as Exhibit
10.2 to Registrant's report on Form 10-Q dated June 30, 1992,
File No. 0-11094. Said Exhibit 10.2 is incorporated herein by
this reference.
**24 Consent of independent auditors.
***27 Financial Data Schedule.
</TABLE>
- --------------------
*Management contract or compensatory plan or arrangement
**Filed herewith
***Filed only electronically
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by Registrant during the fourth quarter
of the fiscal year ended December 31, 1995.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
RIBI IMMUNOCHEM RESEARCH, INC.
Date: March 28, 1996 By: /s/ Robert E. Ivy
-----------------------------------------------
Robert E. Ivy, Chief Executive Officer, President
and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: March 28, 1996 By: /s/ Robert E. Ivy
-----------------------------------------------
Robert E. Ivy, Chief Executive Officer, President
and Chairman of the Board (principal executive
officer)
Date: March 28, 1996 By: /s/ Vern D. Child
-----------------------------------------------
Vern D. Child, Vice President Finance and
Treasurer (principal financial and accounting
officer)
Date: March 28, 1996 By: /s/ John L. Cantrell
-----------------------------------------------
John L. Cantrell, Executive Vice President and
Director
Date: March 28, 1996 By: /s/ John F. Chappell
-----------------------------------------------
John F. Chappell, Director
Date: March 28, 1996 By: /s/ Philipp Gerhardt
-----------------------------------------------
Philipp Gerhardt, Director
Date: March 28, 1996 By: /s/ Mark I. Greene
-----------------------------------------------
Mark I. Greene, Director
Date: March 28, 1996 By: /s/ Thomas N. McGowen, Jr.
-----------------------------------------------
Thomas N. McGowen, Jr., Director
Date: March 28, 1996 By: /s/ Frederick B. Tossberg
-----------------------------------------------
Frederick B. Tossberg, Director
40
<PAGE>
<TABLE>
RIBI IMMUNOCHEM RESEARCH, INC.
EXHIBIT INDEX
Exhibit No. Description and Incorporation by Reference Page
- ----------- ------------------------------------------ ----
<S> <C> <C>
3.1 Restated Certificate of Incorporation. This certificate
was filed June 22, 1992, as Exhibit 4.1 to Registrant's
registration statement on Form S-3, Registration No. 33-
48713. Said Exhibit 4.1 is incorporated herein by this
reference.
3.2 Amended Bylaws of the Company. These Bylaws were filed on
March 13, 1989, as Exhibit 3.2 to Registrant's annual
report on Form 10-K dated December 31, 1988, File No. 0-
11094. Said Exhibit 3.2 is incorporated herein by this
reference.
*10.1 Employment Agreement with Mr. Robert E. Ivy dated July 1,
1987. This agreement was filed on July 10, 1987, as
Exhibit 10.1 to Registrant's report on Form 8-K dated June
30, 1987, File No. 0-11094. Said Exhibit 10.1 is
incorporated herein by this reference.
*10.2 Stock Option Agreement with Mr. Robert E. Ivy dated July
1, 1987. This agreement was filed on July 10, 1987, as
Exhibit 10.2 to Registrant's report on Form 8-K dated June
30, 1987, File No. 0-11094. Said Exhibit 10.2 is incorporated
herein by this reference.
*10.3 Amendment dated November 1, 1988, to the Stock Option
Agreement with Mr. Robert E. Ivy dated July 1, 1987. This
agreement was filed on March 13, 1989, as Exhibit 10.3 to
Registrant's report on Form 10-K dated December 31, 1988,
File No. 0-11094. Said Exhibit 10.3 is incorporated
herein by this reference.
*10.4 Amendment dated January 30, 1989, to the Employment
Agreement with Mr. Robert E. Ivy dated July 1, 1987. This
agreement was filed on March 13, 1989, as Exhibit 10.4 to
Registrant's report on Form 10-K dated December 31, 1988,
File No. 0-11094. Said Exhibit 10.4 is incorporated
herein by this reference.
41
<PAGE>
*10.5 Second amendment dated March 5, 1990, to the Stock Option
Agreement with Mr. Robert E. Ivy dated July 1, 1987. This
agreement was filed on May 4, 1990, as Exhibit 10.1 to Regis-
trant's report on Form 10-Q dated March 31, 1990, File No. 0-
11094. Said Exhibit 10.1 is incorporated herein by this
reference.
*10.6 Third amendment dated April 25, 1991, to the Stock Option
Agreement with Mr. Robert E. Ivy dated July 1, 1987. This
agreement was filed on August 9, 1991, as Exhibit 10.3 to Regis-
trant's report on Form 10-Q dated June 30, 1991, File No. -
11094. Said Exhibit 10.3 is incorporated herein by this
reference.
*10.7 1986 Stock Option Plan (as amended and restated effective April
29, 1992). This plan was filed on August 5, 1992, as Exhibit
10.2 to Registrant's report on Form 10-Q dated June 30, 1992,
File No. 0-11094. Said Exhibit 10.2 is incorporated herein by
this reference.
**24 Consent of independent auditors. 43
***27 Financial Data Schedule.
</TABLE>
- --------------------
*Management contract or compensatory plan or arrangement.
**Filed herewith
***Filed only electronically
42
<PAGE>
Exhibit 24
Accountants' Consent
The Board of Directors
Ribi ImmunoChem Research, Inc.:
We consent to incorporation by reference in the registration statements No. 33-
6513 and No. 33-73478 filed on Form S-8 and registration statements No. 33-
44391, No. 33-48713 and No. 33-69984 filed on Form S-3 of Ribi ImmunoChem
Research, Inc. of our report dated January 18, 1996, relating to the balance
sheets of Ribi ImmunoChem Research, Inc. as of December 31, 1995 and 1994, and
the related statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1995, which report
appears in the December 31, 1995 annual report on Form 10-K of Ribi ImmunoChem
Research, Inc.
KPMG Peat Marwick LLP
Billings, Montana
March 25, 1996
43
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Balance Sheets at December 31, 1995 and 1994 and Statements of
Operations for the years ended December 31, 1995, 1994 and 1993, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<CASH> 284
<SECURITIES> 6,574
<RECEIVABLES> 725
<ALLOWANCES> 0
<INVENTORY> 983
<CURRENT-ASSETS> 8,816
<PP&E> 15,415
<DEPRECIATION> 3,835
<TOTAL-ASSETS> 33,911
<CURRENT-LIABILITIES> 1,484
<BONDS> 0
0
0
<COMMON> 19
<OTHER-SE> 32,408
<TOTAL-LIABILITY-AND-EQUITY> 33,911
<SALES> 953
<TOTAL-REVENUES> 4,023
<CGS> 775
<TOTAL-COSTS> 775
<OTHER-EXPENSES> 5,530
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,317)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,317)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,317)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> 0
</TABLE>
