<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1995
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From __________ To __________
Commission File Number
0-12406
IMMUNEX CORPORATION
(exact name of registrant as specified in its charter)
WASHINGTON 51-0346580
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
51 UNIVERSITY STREET, SEATTLE, WA 98101
(Address of principal executive offices) (zip code)
(206) 587-0430
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK, $.01 PAR VALUE 39,601,899
- ---------------------------- ----------
Class Outstanding at November 7, 1995
<PAGE>
IMMUNEX CORPORATION
QUARTERLY REPORT ON FORM 10-Q
SEPTEMBER 30, 1995
TABLE OF CONTENTS
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
a) Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994 3
b) Consolidated Statements of Operations -
For the three-month periods ended September 30, 1995
and September 30, 1994 4
c) Consolidated Statements of Operations -
For the nine-month periods ended September 30, 1995
and September 30, 1994 5
d) Consolidated Statements of Cash Flows -
For the nine-month periods ended September 30, 1995
and September 30, 1994 6
e) Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
IMMUNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30,
1995 December 31,
(unaudited) 1994
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,311 $ 14,818
Securities available-for-sale - 9,919
Accounts receivable, net 21,707 18,259
Inventories 8,833 11,725
Other assets 2,533 2,618
--------- ---------
Total current assets 47,384 57,339
Property, plant and equipment, net 89,699 96,323
Other assets 36,483 39,003
--------- ---------
$ 173,566 $ 192,665
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,058 $ 21,520
Accrued compensation and related items 4,507 4,109
Current portion of long-term debt 553 11,595
Other liabilities 2,531 4,498
--------- ---------
Total current liabilities 29,649 41,722
Note payable - Cyanamid - 34,000
Long-term liabilities 5,040 5,016
Shareholders' equity:
Common stock, $.01 par value 581,055 547,182
Guaranty payment receivable from Cyanamid (33,873) (35,768)
Accumulated deficit (408,305) (399,487)
--------- ---------
Total shareholders' equity 138,877 111,927
--------- ---------
$ 173,566 $ 192,665
========= =========
</TABLE>
3
<PAGE>
Item 1. FINANCIAL STATEMENTS (continued)
IMMUNEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
September 30, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Revenues:
Product sales $33,464 $33,100
Royalty and contract revenue 4,132 2,003
------- -------
37,596 35,103
Operating expenses:
Cost of product sales 5,607 6,714
Research and development 21,124 19,161
Selling, general and administrative 13,506 16,411
------- -------
40,237 42,286
------- -------
Operating loss (2,641) (7,183)
Other income (expense):
Interest income 336 243
Interest expense (92) (639)
Other income (expense), net 16 (1)
------- -------
260 (397)
------- -------
Loss before income taxes (2,381) (7,580)
Provision for income taxes 79 65
------- -------
Net loss $(2,460) $(7,645)
======= =======
Net loss per common share $ (.06) $ (.20)
======= =======
Number of shares used for per share amounts 39,602 39,283
======= =======
</TABLE>
4
<PAGE>
Item 1. FINANCIAL STATEMENTS (continued)
IMMUNEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Nine months Nine months
ended ended
September 30, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Revenues:
Product sales $103,107 $102,253
Royalty and contract revenue 12,614 6,398
-------- --------
115,721 108,651
Operating expenses:
Cost of product sales 18,523 21,512
Research and development 62,389 59,046
Selling, general and administrative 43,036 52,450
-------- --------
123,948 133,008
-------- --------
Operating loss (8,227) (24,357)
Other income (expense):
Interest income 858 658
Interest expense (1,019) (1,729)
Other income (expense), net (480) (435)
-------- --------
(641) (1,506)
-------- --------
Loss before income taxes (8,868) (25,863)
Provision for income taxes 198 1,892
-------- --------
Net loss $ (9,066) $(27,755)
======== ========
Net loss per common share $ (.23) $ (.71)
======== ========
Number of shares used for per share amounts 39,586 39,087
======== ========
</TABLE>
5
<PAGE>
Item 1. FINANCIAL STATEMENTS (continued)
IMMUNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months Nine months
ended ended
September 30, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (9,066) $ (27,755)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 11,997 10,845
Accounts receivable (3,448) 7,413
Inventories 2,892 1,482
Accounts payable, accrued liabilities and other
current liabilities (301) (4,649)
Other current assets 872 563
-------- ---------
Net cash provided by (used in) operating activities 2,946 (12,101)
-------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment (3,760) (6,229)
Proceeds from sale of properties - 12,490
Proceeds from sales and maturities of securities
available-for-sale 9,897 4,016
Purchases of securities available-for-sale - (3,917)
Other (340) (1,317)
-------- ---------
Net cash provided by investing activities 5,797 5,043
-------- ---------
Cash flows from financing activities:
Construction loan payments (10,600) (3,600)
Cyanamid line of credit (34,000) 16,000
Guaranty payments received from Cyanamid 35,768 7,416
Other (418) (1,489)
-------- ---------
Net cash provided by (used in) financing activities (9,250) 18,327
-------- ---------
Net increase (decrease) in cash and cash equivalents (507) 11,269
Cash and cash equivalents, beginning of period 14,818 2,968
-------- ---------
Cash and cash equivalents, end of period $ 14,311 $ 14,237
======== =========
</TABLE>
6
<PAGE>
Item 1. FINANCIAL STATEMENTS (continued)
IMMUNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by
Immunex Corporation without audit, according to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to
such rules and regulations. The financial statements reflect, in the opinion
of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position and results
of operations as of and for the periods indicated. The statements should be
read in conjunction with the financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
The results of operations for the nine-month period ended September 30, 1995,
are not necessarily indicative of results to be expected for the entire year
ending December 31, 1995.
NOTE 2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Raw materials $1,093 $ 1,600
Work in process 5,399 6,253
Finished goods 2,341 3,872
------ -------
Total $8,833 $11,725
====== =======
</TABLE>
NOTE 3. CONTINGENT LIABILITIES
In September 1993, Cistron Biotechnology Inc. ("Cistron") filed suit against
Immunex asserting that Immunex misappropriated information regarding
Interluekin-1 beta ("IL-1 beta") and that such information was used by
Immunex in patent applications relating to IL-1 beta. Immunex filed a
complaint seeking a declaratory judgment that Cistron's claims are preempted
by patent law, barred by a judgment in a patent interference decided by the
United States Patent and Trademark Office and time-barred by the statue of
limitations and doctrine of laches. In June 1994, the Court entered an order
finding that issues of fact existed concerning the applicability of the
statute of limitations and laches to Cistron's claims and, accordingly,
denied Immunex's motion on the time bar issues. A trial has been scheduled
for April 1996. The Company has, and intends to continue to, vigorously
defend the allegations of the suit. Based on the available information,
management of the Company does not expect the suit to have a material adverse
impact on the financial condition or results of operations of the Company.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the three and nine-month periods ended September 30, 1995, the Company's
net losses decreased to $2.5 million and $9.1 million, respectively, compared
to net losses of $7.6 million and $27.8 million in the respective 1994
periods. The improved operating results during the current year periods are
attributable to both increased operating revenues and decreased operating
expenses. The Company has increased its operating revenues primarily by
utilizing the available capacity at its manufacturing development center to
perform contract manufacturing services. Expense levels of the Company have
declined due to improved gross margins on product sales combined with a
decrease in expenditures related to the Company's selling, general and
administrative activities.
Product sales for the quarter ended September 30, 1995 totaled $33.5 million,
compared to $33.1 million in the prior year quarter. For the nine-month
periods ended September 30, 1995 and 1994, product sales totaled $103.1
million and $102.3 million, respectively. Product sales for the nine months
ended September 30, 1994 includes $2.1 million of revenue from the sale of
certain products licensed to the Company from Bristol-Myers Squibb Company.
The Company ceased marketing these products in January 1994.
Improvements in product sales during the 1995 periods is attributable
primarily to the launch in February 1995 of THIOPLEX, an improved formulation
of THIOTEPA, combined with growth in sales of NOVANTRONE. Net sales of
NOVANTRONE and THIOPLEX for the three and nine months ended September 30,
1995 totaled $16.0 million and $47.3 million, respectively, an increase of
$2.0 million and $6.3 million compared to the respective 1994 periods. Sales
of leucovorin calcium for the nine months ended September 30, 1995 are
slightly ahead of the sales level achieved in the comparable 1994 nine
month-period. However, leucovorin calcium sales experienced a downturn during
the quarter ended September 30, 1995 as compared to the sales levels during
the first six months of 1995 and to the quarter ended September 30, 1994.
This decrease in sales reflects a decrease in units sold and declining
average selling prices resulting from recent entrants into the leucovorin
calcium market. Sales of LEUKINE increased to $10.1 million for the quarter
ended September 30, 1995, from $9.2 million in the second quarter of 1995.
For the nine months ended September 30, 1995 LEUKINE sales totaled $30.5
million. The 1995 three and nine-month results represent a decline from the
net sales of LEUKINE during the three and nine months ended September 30,
1994 of $11.3 million and $34.2 million, respectively. In September 1995, the
FDA approved LEUKINE for treatment of Acute Myelogenous Leukemia. This
expanded label indication is expected to contribute to future increases in
LEUKINE sales, however, there can be no assurances as to the impact this
approval will have on sales of LEUKINE.
Royalty and contract revenue increased to $4.1 million and $12.6 million for
the three and nine-month periods ended September 30, 1995, respectively,
compared to $2.0 million and $6.4 million in the comparable prior year
periods. In 1995, the Company commenced a program of utilizing the available
capacity at its manufacturing development center to perform contract
manufacturing services for certain customers. Contract manufacturing revenue
recognized for the three and nine months ended September 30, 1995 totaled
$1.5 million and $5.2 million, respectively. No related revenue was
recognized during 1994. The amount of revenue from these services will
fluctuate from period to period depending on the available capacity at the
Company's manufacturing development center and to the extent that demand for
these services continues. Royalty revenue has also increased during 1995,
contributing to the increase in royalty and contract revenue for the 1995
three and nine-month periods.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, continued
RESULTS OF OPERATIONS, CONTINUED
Cost of product sales was $5.6 million, or 16.8% of product sales and $6.7
million or 20.3% of product sales for the quarters ended September 30, 1995
and 1994, respectively. For the nine months ended September 30, 1995 and
1994, cost of product sales was $18.5 million or 18.0% of product sales and
$21.5 million, or 21.0% of product sales, respectively. The decrease in cost
of product sales as a percentage of product sales during the 1995 periods is
primarily attributable to the February 1995 launch of THIOPLEX, which has a
lower production cost than THIOTEPA, combined with a favorable change in the
mix of product sales to include a relatively higher percentage of the
Company's more profitable products. In addition, trademark royalties incurred
on the sale of the former Lederle oncology products, which is expensed to
cost of product sales, have been reduced to a nominal amount following the
relabeling of most product lines with an Immunex label. For the three and
nine months ended September 30, 1994, royalties incurred on the former
Lederle products totaled $0.4 million and $1.3 million, respectively.
For the three and nine months ended September 30, 1995, research and
development expense increased to $21.1 million and $62.4 million,
respectively, versus $19.2 million and $59.0 million in the respective 1994
periods. Cost to fund certain collaborative research agreements increased a
total of $1.0 million and $2.2 million for the three and nine-month periods
ended September 30, 1995 compared to the same periods in 1994. The remaining
increase in research and development expense is due primarily to costs
associated with operating the Company's manufacturing development center. The
manufacturing development center is used primarily for the production of
clinical material; accordingly, the costs of operating the facilities, which
are not inventoriable, are expensed to research and development. As a result,
the costs classified as research and development expense may fluctuate from
period to period.
Selling, general and administrative expense totaled $13.5 million and $43.0
million for the three and nine-month periods ended September 30, 1995,
respectively, a decrease of $2.9 million and $9.4 million compared to the
respective 1994 periods. The decrease in selling, general and administrative
expenditures is primarily attributable to certain expense reduction programs
initiated during the third quarter of 1994. The 1994 expense level includes a
charge of $1.7 million related to the implementation of these programs. In
addition, the Company has eliminated, or brought in-house, virtually all of
the services formerly provided by American Cyanamid Company ("Cyanamid")
under a transitional services agreement with the majority shareholder. Costs
incurred under this agreement totaled $1.7 million and $5.1 million for the
September 30, 1994 three and nine-month periods, respectively, compared to
less than $22,000 during the third quarter of 1995 and $0.9 million for the
nine-months ended September 30, 1995. These cost reductions have, to a
certain extent, been offset by transition costs and ongoing support costs
associated with bringing these services in-house. The reductions in selling,
general and administrative expenses have been partially offset by increased
legal defense costs related to litigation between the Company and Cistron
Biotechnology, Inc. The Company has incurred costs totaling approximately
$3.0 million in defense of this lawsuit during the first nine months of 1995
compared to $0.7 million for the nine months ended September 30, 1994. It is
expected that these expenses will continue until such time that the
litigation is resolved. Trial is currently scheduled for April 1996.
For the three and nine months ended September 30, 1995 interest income
totaled $0.3 million and $0.9 million, respectively, compared to $0.2 million
and $0.7 million for the three and nine months ended September 30, 1994,
respectively. Funds available for investment purposes have stabilized over
the past year as a result of improvements in the Company's cash flows.
Interest income is expected to remain at a similar level until such time that
the Company is able to increase its funds available for investment.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, continued
RESULTS OF OPERATIONS, CONTINUED
Interest expense has decreased to a nominal level following the pay-off of
the outstanding balance of the Cyanamid line of credit and the Company's
construction loan in March 1995 and is not expected to be significant over
the last quarter of 1995. Last year, at September 30, the Company owed $26.0
million under the Cyanamid loan agreement and had a balance payable on its
construction loan of $11.8 million.
Other income (expense) was nominal for the three-month periods ended
September 30, 1995 and 1994. For the nine-month periods ended September 30,
1995 and 1994, other expense totaled $0.5 million and $0.4 million,
respectively. These expenses resulted from the Company's equity investment in
Targeted Genetics Corporation ("TGC"). The 1994 amount was partially offset
by revenue generated from certain income producing properties which the
Company sold in June 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and securities available-for-sale totaled $14.3
million at September 30, 1995, compared to $24.7 million at December 31,
1994. The December 31, 1994 balance included $10.0 million which was
restricted in accordance with the terms of the Company's construction loan.
As of September 30, 1995, there were no restrictions on cash, cash
equivalents or securities available-for-sale. During the nine months ended
September 30, 1995, the Company received $35.8 million from Cyanamid as
settlement of their 1994 revenue guaranty obligations and generated an
additional $2.9 million from operating activities. These funds were used
primarily for payment of the $34.0 million outstanding balance on the
Cyanamid loan agreement, the final $10.6 million payment on the Company's
construction loan and for investments in property, plant and equipment of
$3.8 million.
For the first nine months of 1995, the Company has achieved positive cash
flow from operating activities through a combination of a decreased net loss
and working capital management. The Company anticipates cash flow from
operating activities to be positive or approximate break even through the
remainder of 1995. It is anticipated that the existing cash reserves will be
sufficient to meet the Company's funding needs through the end of 1995. The
Company has accrued $33.9 million related to the 1995 Cyanamid revenue
guaranty obligation. This amount is due to be paid to the Company near the
end of the first quarter of 1996. If additional funds are required, the
Company's borrowing capacity under the Cyanamid loan agreement at September
30, 1995 was $37.3 million.
RECENT EVENTS
On November 1, 1995, the Company received an unsolicited letter form American
Home Products Corporation ("AHP") proposing to purchase all of the Company's
outstanding shares of common stock not held by AHP at $14.50 per share. AHP
is the indirect owner of 54.6% of the Company's common stock. The Board of
Directors of the Company has formed a special committee, composed of three
independent directors, two directors who are also members of the Company's
management, and one director who was formerly a member of management, to
evaluate the proposed offer. The Company has retained outside financial and
legal advisors to assist the special committee and the independent directors.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Following AHP's announcement on November 1, 1995 that it proposed to purchase
the Company's outstanding shares of common stock not held by AHP (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Events"), two putative class action shareholder suits
were served on the Company and its Board of Directors. Both complaints
allege, among other things, that the terms of the proposed offer are
inadequate and the defendants are breaching their fiduciary duties as
officers and directors of the Company. The plaintiff shareholders are seeking
to block the transaction or to recover unspecified damages. The first action,
captioned BARISH V. FRITZKY, is currently pending before the Superior Court
of the State of Washington for King County. The second action captioned BRODY
V. FRITZKY, is currently pending before the Court of Chancery of the State of
Delaware for New Castle County. Additional shareholder suits may be filed
against the Company similar to those described above. The Company expects
that the suits which have been served and any such additional shareholder
suits, may be consolidated by the courts into a single matter.
The description of additional legal proceedings is incorporated by reference
to Item 3 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
11
<PAGE>
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMMUNEX CORPORATION
Date: November 9, 1995 /s/ Edward V. Fritzky
--------------------- --------------------------------------------
Edward V. Fritzky, Chairman
and Chief Executive Officer
(Principal Executive Officer)
Date: November 9, 1995 /s/ Douglas G. Southern
--------------------- --------------------------------------------
Douglas G. Southern, Senior Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1995, AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1995,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 14,311
<SECURITIES> 0
<RECEIVABLES> 21,707
<ALLOWANCES> 358
<INVENTORY> 8,833
<CURRENT-ASSETS> 47,384
<PP&E> 112,910
<DEPRECIATION> 23,211
<TOTAL-ASSETS> 173,566
<CURRENT-LIABILITIES> 29,649
<BONDS> 0
<COMMON> 581,055
0
0
<OTHER-SE> (442,178)
<TOTAL-LIABILITY-AND-EQUITY> 173,566
<SALES> 103,107
<TOTAL-REVENUES> 115,721
<CGS> 18,523
<TOTAL-COSTS> 123,948
<OTHER-EXPENSES> 480
<LOSS-PROVISION> 207
<INTEREST-EXPENSE> 1,019
<INCOME-PRETAX> (8,868)
<INCOME-TAX> 198
<INCOME-CONTINUING> (9,066)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,066)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
