<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 MARCH 31, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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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)
Registrant's telephone number, including area code (206) 587-0430
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
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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 39,602,225
- ----------------------------------- -----------------------------------
Class Outstanding at May 7, 1996
<PAGE>
IMMUNEX CORPORATION
QUARTERLY REPORT ON FORM 10-Q
MARCH 31, 1996
TABLE OF CONTENTS
Page No.
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PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements:
a) Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 4
b) Consolidated Statements of Operations -
for the three-month periods ended March 31, 1996
and March 31, 1995 5
c) Consolidated Statements of Cash Flows -
for the three-month periods ended March 31, 1996
and March 31, 1995 6
d) Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
<PAGE>
PART I. FINANCIAL INFORMATION
FORWARD-LOOKING STATEMENTS
This document includes certain forward-looking statements made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The words "believes," "anticipates" and similar expressions are intended
to identify such forward-looking statements. Such statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those anticipated by the statements made by the Company.
Factors which could affect the Company's financial results are described in the
preceding paragraphs and in the Company's latest Annual Report on Form 10-K
filed with the Securities and Exchange Commission. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
3
<PAGE>
Item 1. FINANCIAL STATEMENTS
IMMUNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31,
1996 December 31,
(unaudited) 1995
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 58,777 $ 20,437
Accounts receivable, net 22,506 20,697
Inventories 8,953 8,302
Other assets 1,130 979
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Total current assets 91,366 50,415
Property, plant and equipment, net 86,405 87,540
Other assets 35,237 36,082
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$ 213,008 $ 174,037
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 24,983 $ 21,660
Accrued compensation and related items 6,238 8,397
Current portion of long-term debt 645 715
Other liabilities 857 2,013
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Total current liabilities 32,723 32,785
Long-term liabilities 4,520 4,609
Shareholders' equity:
Common stock, $.01 par value 606,395 592,470
Guaranty payment receivable from AHP (13,924) (45,288)
Accumulated deficit (416,706) (410,539)
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Total shareholder's equity 175,765 136,643
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$ 213,008 $ 174,037
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</TABLE>
4
<PAGE>
Item I. FINANCIAL STATEMENTS (continued)
IMMUNEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, March 31,
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Product sales $ 32,020 $ 35,260
Royalty and contract revenue 9,730 3,647
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41,750 38,907
Operating expenses:
Cost of product sales 5,260 6,618
Research and development 24,970 20,674
Selling, general and administrative 17,988 14,909
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48,218 42,201
Operating loss (6,468) (3,294)
Other income (expense):
Interest income 415 168
Interest expense (56) (830)
Other income (expense), net 7 6
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366 (656)
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Loss before income taxes (6,102) (3,950)
Provision for income taxes 64 48
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Net loss $ (6,166) $ (3,998)
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--------- ---------
Net loss per common share $ (.16) $ (.10)
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Number of shares used for per share amounts 39,602 39,553
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</TABLE>
5
<PAGE>
Item I. FINANCIAL STATEMENTS (continued)
IMMUNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, March 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,166) $ (3,998)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,798 3,828
Accounts receivable (1,809) 3,381
Inventories (651) (305)
Accounts payable, accrued liabilities and
other current liabilities 98 278
Other current assets 309 1,730
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Net cash provided by (used in) operating
activities (4,421) 4,914
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Cash flows from investing activities:
Purchases of property, plant and equipment (2,032) (1,161)
Proceeds from sales and maturities of securities
available-for-sale - 9,786
Other (336) (7)
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Net cash provided by (used in) investing
activities (2,368) 8,618
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Cash flows from financing activities:
Guaranty payments received from AHP 45,288 35,768
AHP line of credit - (34,000)
Construction loan pay-off - (10,600)
Other (159) (247)
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Net cash provided by (used in) financing
activities 45,129 (9,079)
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Net increase in cash and cash equivalents 38,340 4,453
Cash and cash equivalents, beginning of period 20,437 14,818
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Cash and cash equivalents, end of period $ 58,777 $ 19,271
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</TABLE>
6
<PAGE>
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, 1995.
The results of operations for the three-month period ended March 31, 1996, are
not necessarily indicative of results to be expected for the entire year ending
December 31, 1996.
NOTE 2. ACCOUNTING POLICIES
INVENTORIES
Inventories are stated at the lower of cost, using a weighted-average method, or
market. The components of inventories are as follows (in thousands):
March 31, December 31,
1996 1995
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Raw materials $ 1,325 $ 1,295
Work in process 4,549 3,947
Finished goods 3,079 3,060
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Totals $ 8,953 $ 8,302
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RECENTLY ADOPTED ACCOUNTING STANDARDS
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". Statement No. 121 requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. The adoption of
Statement No. 121 had no effect on the Company's financial position and results
of operations as of the date of adoption and for the period ended March 31,
1996.
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," using the
intrinsic-value method prescribed by Accounting Principles Board Opinion No. 25,
as allowed for in the statement. The adoption of Statement No. 123 had no
effect on the Company's financial position and results of operations as of the
date of adoption and for the period ended March 31, 1996.
7
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NOTE 3. CONTINGENT LIABILITIES
Since September 1993, Immunex has been involved in litigation with Cistron
Biotechnology, Inc. ("Cistron") concerning claims arising from Cistron's
allegation that Immunex misappropriated certain Cistron proprietary information
regarding Interleukin-1 beta ("IL-1 beta") in 1984, and that such information
was used by Immunex in patent applications relating to IL-1 beta. All
litigation has been consolidated in the U.S. District Court in Seattle. The
causes of action pending in Cistron's most recently amended complaints, which
have been filed against Immunex and against two founders, who are former
officers and directors of Immunex, include misappropriation of trade secrets,
unfair competition, breach of contract, and breach of a confidential
relationship. As indicated below, other claims by Cistron, including fraud,
alleged violations of The Racketeer Influenced and Corrupt Organizations
("RICO") Act, conversion, and a demand that scientists associated with Cistron
be named co-inventors of an Immunex patent, have been dismissed by the court
upon motions for summary judgment. In its counterclaims, Immunex seeks
declaratory judgment that it did not misappropriate any trade secrets of
Cistron, and seeks entry of an order enjoining Cistron from engaging in unfair
competition by claiming rights in Immunex's patents or patent applications. A
declaratory judgment action by Immunex that involved an IL-1 beta patent
controlled by Cistron was dismissed, after Cistron filed declarations agreeing
not to sue Immunex for infringement of the patent. In the pending litigation,
Cistron seeks recovery of actual, punitive and exemplary damages, as well as
costs and attorney's fees.
Immunex believes that Cistron possessed no enforceable trade secret rights in
IL-1 beta, since it disclosed such information in a written manuscript and in
public presentations without restriction. Immunex also believes that Cistron's
claims are barred by the statute of limitations, since Cistron's suit was
brought many years after Cistron had notice of potential claims. In October
1995, Immunex filed motions for summary judgment seeking a ruling that Cistron
lost any trade secret protection in 1984, that Cistron's conversion claim was
preempted, and that all of Cistron's claims should be dismissed for statute of
limitations or laches reasons. Immunex's motion to dismiss the conversion claim
was granted in January 1996, but the motions concerning the trade secret and
statute of limitations issues were denied in order to permit evidence to be
considered on these issues by a jury at trial. Denial of these pre-trial
motions on the trade secret and statute of limitations does not prevent Immunex
from obtaining a judgment in its favor on these issues at a trial or on appeal.
In February 1996, defendants filed a motion for summary judgment seeking a
ruling that Cistron may not rely upon a theory of damages based upon a claim to
a percentage of Immunex's total market capitalization. Cistron advanced this
theory to support claims to significant damages, since damages calculations
based upon lost profits, or royalties based upon actual sales, are not likely to
be material. IL-1 beta is not a commercially successful product and Immunex
incurred significant expenses in trying to develop IL-1 beta. At the same time,
the defendants sought summary judgment dismissing Cistron's RICO, fraud and co-
inventorship claims. On April 10, 1996, the court issued an order granting, in
whole or in part, each of the motions filed by Immunex. The result is that
Cistron's RICO, fraud and co-inventorship claims have been dismissed and that
Cistron cannot rely upon a theory of damages based upon market capitalization.
Immunex has and intends to vigorously and completely defend itself from the
claims presented by Cistron. Cistron has requested a jury trial, which is
scheduled to begin on September 24, 1996. Due to the uncertainties inherent in
all litigation, there can be no assurance regarding the outcome of trial.
However, Immunex has the right to appeal any material unfavorable verdict.
Based upon the available information, management of the Company does not expect
the litigation to have a material adverse impact on the financial condition or
results of operations of the Company.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
For the three months ended March 31, 1996, the Company incurred a net loss
of $6.2 million, versus a net loss of $4.0 million for the comparable prior year
period. The net loss includes expenses totaling approximately $1.5 million
related to a November 1995 offer by American Home Products Corporation ("AHP")
to acquire the remaining shares of the Company, which it does not already own.
In addition, operating expenses increased during the 1996 period related to the
Company's investment in research and development programs and increased selling
and promotional expenditures. The increased level of operating expenses was
partially offset by an increase in operating revenues earned during the three-
month period ended March 31, 1996.
REVENUES
Product sales decreased to $32.0 million during the quarter ended March 31,
1996 compared to $35.3 million in the first quarter of 1995. The decrease in
products sales is attributable primarily to increased purchases by wholesalers
in advance of anticipated price increases on NOVANTRONE-REGISTERED TRADEMARK-
(mitoxantrone) during both the first and fourth quarters of 1995. Net sales of
NOVANTRONE decreased to $7.9 million during the first quarter of 1996 compared
to $10.6 million and $11.8 million during the first and fourth quarters of 1995,
respectively. Sales of leucovorin calcium also decreased during the 1996 period
due to continued generic competition. The decline was mitigated by a bulk sale
to a single customer during the 1996 three-month period. Sales of LEUKINE-
REGISTERED TRADEMARK- (sargramostim) approximated historical sales levels
during the period, totaling $10.7 million and $11.2 million for the three months
ended March 31, 1996 and 1995, respectively.
For the three-month periods ended March 31, 1996 and 1995, royalty and
contract revenue increased to $9.7 million from $3.6 million, respectively. The
increase is due primarily to license fee income earned during the period and an
increase in revenue recognized under collaborative research agreements. In
1996, the Company entered into two license agreements under which the Company
recognized license fee income of $4.5 million. In December 1995, the Company
entered into research and license agreements with AHP covering tumor necrosis
factor alpha converting enzymes ("TACE"), whereby AHP was licensed exclusive
worldwide rights to TACE technology. Under this agreement, the Company is
receiving quarterly payments of $1.0 million. License fee income is not
expected to continue at the level obtained during the first quarter of 1996.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OPERATING EXPENSES
Cost of product sales, as a percentage of product sales, was 16.4% for the
quarter ended March 31, 1996, compared to 18.8% for the quarter ended March 31,
1995. The decrease is due primarily to the launch of THIOPLEX-REGISTERED
TRADEMARK- (thiotepa for injection). THIOPLEX, which replaced thiotepa during
the first quarter of 1995, has a lower production cost than thiotepa. Other
factors contributing to the decrease in the cost of sales percentage for the
comparable three-month periods includes the cost of the bulk sale of leucovorin
calcium, as discussed above, a decrease in period costs incurred at the
manufacturing facilities utilized by the Company and a decrease in trademark
royalties incurred on the sale of the former Lederle oncology products. The
Company is obligated to pay a royalty on the sale of products which bear the
Lederle trademark. Beginning in 1994, the Company began the process of
discontinuing the use of the Lederle trademark, thus decreasing cost of product
sales. Cost of product sales, as a percentage of product sales, will fluctuate
moderately from period to period, reflecting any change in the mix of product
sales. Significant fluctuations are not expected to occur unless the mix of
product sales changes substantially or if substantial period costs are incurred.
Research and development expense for the three months ended March 31, 1996
and 1995 totaled $25.0 million and $20.7 million, respectively. Expenses
incurred under an agreement to fund a portion of AHP's oncology research and
development programs increased to $6.5 million during the first quarter of 1996
compared to $4.0 million during the first quarter of 1995. Obligations under
other collaborative funding agreements also increased during the comparable 1996
and 1995 periods to $1.5 million from $0.9 million, respectively. The remaining
increase reflects the costs related to the Company's products in various phases
of clinical development. The Company expects to begin Phase III clinical
studies of tumor necrosis factor receptor fusion protein during the second
quarter of 1996 and will begin Phase I testing of Flt3 ligand later this year.
Research and development expense levels will fluctuate in 1996 depending on the
funding requirements under the Company's collaborative research agreements and
the costs to support the Company's clinical development efforts.
Selling, general and administrative expense increased for the quarter ended
March 31, 1996 to $18.0 million from $14.9 million for the comparable 1995
quarter. The 1996 expense level includes costs totaling approximately $1.5
million related to the adoption of certain employee retention programs,
investment banking, legal and other fees following AHP's November 1995 offer to
buy all outstanding shares of the Company's common stock. In addition,
promotional programs and other sales activities to support the Company's
existing product line increased, as compared to the first quarter of 1995.
General and administrative expenses for both the 1996 and 1995 three-month
periods include legal defense costs associated with litigation between the
Company and Cistron Biotechnology, Inc. ("Cistron"). During the first quarter
of 1996, the start of the trial was delayed from April 1996 until September
1996. Expenses related to the AHP offer will decrease from the level incurred
during the first three months of 1996. Legal costs related to the Cistron
litigation will fluctuate from period to period, but are expected to continue
until such time that the litigation is resolved.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OTHER INCOME (EXPENSE)
Other income (expense) improved during the quarter ended March 31, 1996,
totaling a net other income amount of $0.4 million, compared to a net other
expense of $0.7 million during the quarter ended March 31, 1995. The
improvement is a result of increased interest income combined with decreased
interest expense during the first three-months of 1996 versus the comparable
1995 period. Following the receipt of $35.8 million from AHP in March 1995, as
settlement of the 1994 revenue shortfall obligation, the Company paid the $34.0
million outstanding balance on its loan with AHP and made the final $10.6
million payment on its construction loan. No additional borrowings have
subsequently been made.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $58.8 million and $20.4 million at March
31, 1996 and December 31, 1995, respectively. The Company had no investments in
marketable securities at either period end. During the first three months of
1996, the Company utilized its cash reserves to fund operating activities and
investments in property, plant and equipment. Operating activities used cash of
$4.4 million during the three months ended March 31, 1996, reflecting the
increase in the net loss. Investments in property, plant and equipment utilized
an additional $2.0 million. In March 1996, the Company received $45.3 million
from AHP as settlement of the 1995 revenue shortfall obligation.
The Company's loan agreement with AHP expired in March 1996 and no
additional sources of short-term financing have been obtained. The Company
intends to rely on operating activities and to the extent required, existing
cash reserves, to meet its capital requirements for the remainder of 1996.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See Notes to the Consolidated Financial Statements for a description of the
litigation between Immunex and Cistron Biotechnology, Inc.
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, 1995.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None
(b) REPORTS ON FORM 8-K
None
12
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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: May 10, 1996 /s/Edward V. Fritzky
-------------------- ------------------------------
Edward V. Fritzky, Chairman
and Chief Executive Officer
(Principal Executive Officer)
Date: May 10, 1996 /s/Douglas G. Southern
-------------------- ------------------------------
Douglas G. Southern, Senior Vice
President and Chief Financial Officer
(Principal Financial and Accounting
Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1996, AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1996, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 58,777
<SECURITIES> 0
<RECEIVABLES> 17,753
<ALLOWANCES> 372
<INVENTORY> 8,953
<CURRENT-ASSETS> 91,366
<PP&E> 115,509
<DEPRECIATION> 29,104
<TOTAL-ASSETS> 213,008
<CURRENT-LIABILITIES> 32,723
<BONDS> 0
0
0
<COMMON> 606,395
<OTHER-SE> (430,630)
<TOTAL-LIABILITY-AND-EQUITY> 213,008
<SALES> 32,020
<TOTAL-REVENUES> 41,750
<CGS> 5,260
<TOTAL-COSTS> 48,218
<OTHER-EXPENSES> 7
<LOSS-PROVISION> 40
<INTEREST-EXPENSE> 56
<INCOME-PRETAX> (6,102)
<INCOME-TAX> 64
<INCOME-CONTINUING> (6,166)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,166)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
