<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, 1997
( ) 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)
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
------ ------
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 39,612,487
------------------------------ ------------------------------
Class Outstanding at May 8, 1997
<PAGE>
IMMUNEX CORPORATION
QUARTERLY REPORT ON FORM 10-Q
MARCH 31, 1997
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements:
a) Consolidated Condensed Balance Sheets - 4
March 31, 1997 and December 31, 1996
b) Consolidated Condensed Statements of Operations - 5
for the three-month periods ended March 31, 1997
and March 31, 1996
c) Consolidated Condensed Statements of Cash Flows - 6
for the three-month periods ended March 31, 1997
and March 31, 1996
d) Notes to Consolidated Condensed Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial 9-11
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
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PART I. FINANCIAL INFORMATION
The consolidated condensed 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, 1996.
The results of operations for the three-month period ended March 31, 1997, are
not necessarily indicative of results to be expected for the entire year ending
December 31, 1997.
3
<PAGE>
Item 1. FINANCIAL STATEMENTS
--------------------
IMMUNEX CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31,
1997 December 31,
(unaudited) 1996
------------- -------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 47,725 $ 23,861
Marketable securities 24,956 -
Accounts receivable, net 21,083 18,428
Inventories 7,762 8,893
Other current assets 3,339 3,429
------------- -------------
Total current assets 104,865 54,611
Property, plant and equipment, net 78,997 80,021
Other assets 40,090 43,155
------------- -------------
$ 223,952 $ 177,787
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 23,126 $ 22,305
Accrued compensation and related items 5,569 4,858
Current portion of long-term debt 3,287 3,491
Other current liabilities 808 843
------------- -------------
Total current liabilities 32,790 31,497
Long-term liabilities 8,708 8,580
Shareholders' equity:
Common stock, $.01 par value 663,503 648,475
Guaranty payment receivable from AHP (14,967) (56,000)
Unrealized gain on investment 6,790 9,406
Accumulated deficit (472,872) (464,171)
------------- -------------
Total shareholder's equity 182,454 137,710
------------- -------------
$ 223,952 $ 177,787
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
4
<PAGE>
Item 1. FINANCIAL STATEMENTS (continued)
IMMUNEX CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, March 31,
1997 1996
-------------- --------------
<S> <C> <C>
Revenues:
Product sales $ 35,899 $ 32,020
Royalty and contract revenue 3,548 9,730
-------------- --------------
39,447 41,750
Operating expenses:
Cost of product sales 6,278 5,260
Research and development 23,962 24,970
Selling, general and administrative 18,358 17,988
-------------- --------------
48,598 48,218
-------------- --------------
Operating loss (9,151) (6,468)
Other income (expense):
Interest income 658 415
Interest expense (156) (56)
Other income, net 5 7
-------------- --------------
507 366
-------------- --------------
Loss before income taxes (8,644) (6,102)
Provision for income taxes 57 64
-------------- --------------
Net loss $ (8,701) $ (6,166)
-------------- --------------
-------------- --------------
Net loss per common share $ (0.22) $ (0.16)
-------------- --------------
-------------- --------------
Number of shares used for per share amounts 39,604 39,602
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
5
<PAGE>
Item 1. FINANCIAL STATEMENTS (continued)
IMMUNEX CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, March 31,
1997 1996
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (8,701) $ (6,166)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,944 3,798
Cash flow impact of changes to:
Accounts receivable (2,655) (1,809)
Inventories 1,132 (651)
Accounts payable, accrued liabilities and
other current liabilities 1,498 98
Other current assets 89 309
-------------- --------------
Net cash used in operating activities (4,693) (4,421)
-------------- --------------
Cash flows from investing activities:
Purchases of property, plant and equipment (2,110) (2,032)
Purchases of marketable securities (24,960) -
Other (358) (336)
-------------- --------------
Net cash used in investing activities (27,428) (2,368)
-------------- --------------
Cash flows from financing activities:
Guaranty payments received from AHP 56,000 45,288
Other (15) (159)
-------------- --------------
Net cash provided by financing activities 55,985 45,129
-------------- --------------
Net increase in cash and cash equivalents 23,864 38,340
Cash and cash equivalents, beginning of period 23,861 20,437
-------------- --------------
Cash and cash equivalents, end of period $ 47,725 $ 58,777
-------------- --------------
-------------- --------------
</TABLE>
6
<PAGE>
IMMUNEX CORPORATION
Notes to Consolidated Condensed Financial Statements
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
- -----------------------------------------------
Immunex Corporation (the "Company") is a biopharmaceutical company that
discovers, develops, manufactures and markets human therapeutic products to
treat cancer, infectious diseases and immunological disorders.
The Company operates in a highly regulated and competitive environment. The
manufacturing and marketing of pharmaceutical products requires approval from
and is subject to ongoing oversight by the Food and Drug Administration in
the United States and by comparable agencies in other countries. Obtaining
approval for a new therapeutic product is never certain and may take several
years and involve expenditure of substantial resources. Competition in
researching, developing and marketing pharmaceutical products is intense.
Any of the technologies covering the Company's existing products or products
under development could become obsolete or diminished in value by discoveries
and developments of other organizations.
The Company's market for pharmaceutical products is the United States, Canada
and Puerto Rico. The Company has arrangements with Wyeth-Ayerst Canada, Inc.
and Wyeth-Ayerst Laboratories Puerto Rico, Inc. for distribution and sale of
its pharmaceutical products in Canada and Puerto Rico, respectively.
Products are sold primarily to wholesalers, oncology distributors, clinics
and hospitals in the United States.
The financial statements are prepared in conformity with generally accepted
accounting principles which require management estimates and assumptions that
affect the amounts reported on the financial statements and accompanying
notes. Actual results could differ from those estimates.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH EQUIVALENTS
Cash equivalents consist principally of deposits in money market accounts
available on demand or securities with purchased maturities of 90 days or
less.
MARKETABLE SECURITIES
Marketable securities are classified as available-for-sale and are stated at
fair value. At March 31, 1997, the Company had an unrealized loss of $4,000.
Marketable securities consist of U.S. government and corporate obligations.
7
<PAGE>
IMMUNEX CORPORATION
Notes to Consolidated Condensed Financial Statements
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
- --------------------------------------------------------------
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):
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------------- ----------------
<S> <C> <C>
Raw materials $ 1,903 $ 2,453
Work in process 2,537 2,689
Finished goods 3,322 3,751
---------------- ----------------
Totals $ 7,762 $ 8,893
---------------- ----------------
---------------- ----------------
</TABLE>
DEPRECIATION AND AMORTIZATION
Depreciation of buildings, equipment and capital leases is calculated using
the straight-line method over the estimated useful lives of the related
assets which range from 3 to 31.5 years. Leasehold improvements are
amortized on a straight-line basis over the lesser of the estimated useful
life or the term of the lease. The costs of acquiring leasehold interests
are amortized over the remaining term of the lease.
REVENUES
Product sales are recognized when product is shipped. The Company performs
ongoing credit evaluations of its customers and does not require collateral.
Product sales are recorded net of reserves for estimated chargebacks,
returns, discounts, Medicaid rebates and administrative fees. The Company
maintains reserves at a level which management believes is sufficient to
cover estimated future requirements.
Revenues received under royalty, licensing and contract manufacturing
agreements are recognized based on the terms of the underlying contractual
agreements. Expenses related to the performance of contract manufacturing are
included in research and development expense.
NET LOSS PER COMMON SHARE
Net loss per common share is calculated by dividing net loss by the weighted
average number of common shares and dilutive common stock equivalents
outstanding.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," which is required to be adopted on December
31, 1997. The adoption of Statement No. 128 will required the presentation of
Basic Loss per Share and Diluted Loss per Share in the Company's Consolidated
Statements of Operations. Basic Loss per Share is expected to equal Diluted
Loss per Share for the period ending December 31, 1997.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-----------------------------------------------------------
INTRODUCTION
The following discussion of results of operations, liquidity and capital
resources includes certain forward-looking statements. The words "believes,"
"anticipates," "expects" and similar expressions are intended to identify
such forward-looking statements. Such statements are based on current
expectations and 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. Certain risk factors have been identified
which could affect the Company's actual results and are described in the
Company's latest Annual Report on Form 10-K filed with the Securities and
Exchange Commission.
RESULTS OF OPERATIONS
OVERVIEW
For the three months ended March 31, 1997, the Company incurred a net
loss of $8.7 million, versus a net loss of $6.2 million for the comparable
prior year period. The increase in the net loss reflects a decrease in
revenue recognized under certain non-recurring license agreements partially
offset by an increase in product sales in the first quarter of 1997.
REVENUES
Product sales increased to $35.9 million during the quarter ended March
31, 1997 compared to $32.0 million in the first quarter of 1996. Sales of
LEUKINE-REGISTERED TRADEMARK- (sargramostim) totaled $13.0 million and $10.7
million for the three months ended March 31, 1997 and 1996, respectively. In
January 1997, the Company launched a multi-dose liquid formulation of
LEUKINE. The increase in sales of LEUKINE includes initial stocking of the
new formulation by certain distributors. It is uncertain at this time to
what extent, if any, the increase reflects sustainable demand for LEUKINE.
Sales of NOVANTRONE-REGISTERED TRADEMARK- (mitoxantrone) totaled $11.4
million and $7.9 million during the three-month periods ended March 31, 1997
and 1996, respectively. In November 1996, the Company received FDA approval
to market NOVANTRONE for use, in combination with steroids, for treatment of
patients with pain related to hormone refractory prostate cancer. The
Company believes the expanded label indication has contributed to growth in
sales of NOVANTRONE. The sales increase may also be attributed in part to
the fact that NOVANTRONE sales in the first quarter of 1996 were adversely
impacted by distributor purchasing patterns at the end of 1995. During the
first quarter of 1996 there was a bulk sale of leucovorin calcium totaling
$1.5 million which was not repeated in the first quarter of 1997. This
offset part of the increases in LEUKINE and NOVANTRONE sales.
Royalty and contract revenue totaled $3.5 million and $9.7 million for
the three-month periods ended March 31, 1997 and 1996, respectively. The
decrease is due primarily to decreased license fee income recognized during
the current year period. In the first quarter of 1996, the Company entered
into two license agreements under which the Company recognized license fee
income of $4.5 million. Due to internal manufacturing needs, the Company is
no longer initiating new contract manufacturing arrangements. The resources
previously utilized for the performance of contract manufacturing services
are currently being used on development and manufacturing of ENBREL-TM-
(TNFR-Fc) and other clinical and preclinical products. During the three
months ended March 31, 1996, the Company recognized $0.7 million from
contract manufacturing. No related revenue has been earned during 1997, nor
is expected to be for the foreseeable future.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
OPERATING EXPENSES
Cost of product sales was $6.3 million, or 17.5% of product sales and
$5.3 million or 16.4% of product sales for the quarters ended March 31, 1997
and 1996, respectively. The increase in the cost of sales percentage is the
result of declining profit margins on the Company's generic products
leucovorin calcium and methotrexate and an increase in period manufacturing
costs charged to cost of goods sold during the current year. The Company is
a party to a GM-CSF patent interference proceeding, the resolution of which
could result in an increase in cost of product sales related to LEUKINE.
Research and development expense decreased to $24.0 million for the
three months ended March 31, 1997 versus $25.0 million for the comparable
1996 period. The decrease is caused by smaller payments under the AHP
research and development agreement, increased reimbursements from AHP for
shared development costs of ENBREL, partially offset by higher development
costs for ENBREL. In July 1996, the Company and AHP revised their agreements
related to research and development of new oncology products and development
of ENBREL. As a result of the revised agreements, the Company's funding
obligation for AHP's oncology research and development decreased to $4.1
million during the first quarter of 1997 compared to $6.5 million during the
first quarter of 1996. The companies have established joint project
management systems and are sharing the costs of developing ENBREL and
Flt3-Ligand in North America and Europe. AHP's obligation to the Company for
shared development costs totaled $3.3 million for the quarter ended March 31,
1997. The Company has also decreased costs as a result of the cessation of
contract manufacturing services. These expense reductions have been offset,
to a large extent, by increased expenditures related to the development of
ENBREL. Costs incurred for development of ENBREL and investment in the
manufacturing process at the Company's manufacturing development center as
well as with an external manufacturer increased to $8.3 million during the
current year quarter compared to $1.9 million during the first quarter of
1996. The Company intends to invest substantial resources into the
development and commercialization of ENBREL. As a result, research and
development expense is expected to increase from current levels.
Selling, general and administrative expense for the three months ended
March 31, 1997 and 1996 totaled $18.4 million and $18.0 million,
respectively. Expense levels increased during the 1997 three-month period due
primarily to expenditures for selling, marketing and promotional programs
intended to capitalize on the recent label expansion for NOVANTRONE and
formulation approval for LEUKINE. Other factors contributing to the increase
include legal costs related to the Company's patent position on existing
products and product pipeline as well as increased investment in information
technology. Expenses in 1996 include the following costs not incurred in
1997. Following AHP's November 1995 offer to purchase all outstanding shares
of the Company's common stock, the Company incurred costs related to the
adoption of certain employee retention programs, investment banking and legal
fees totaling approximately $1.5 million in the first three months of 1996.
Legal defense costs associated with litigation between the Company and
Cistron Biotechnology, Inc. ("Cistron") totaled approximately $1.1 million
during the first three months of 1996. The litigation was settled in
November 1996.
OTHER INCOME (EXPENSE)
Other income improved moderately during the comparable three-month
periods ended March 31, 1997 and 1996 due to an increase in interest income.
The Company's funds available for investment purposes increased substantially
following the receipt of $56.0 million from AHP in February 1997 as
settlement of the 1996 revenue shortfall obligation. The increase in
interest income was partially offset by increased interest expense. The
increase in interest expense represents the imputed interest on the deferred
portion of the Cistron settlement obligation.
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities totaled $72.7 million
and $23.9 million at March 31, 1997 and December 31, 1996, respectively. In
February 1997, the Company received $56.0 million from AHP as settlement of
the 1996 revenue shortfall obligation. These funds were added to the
Company's cash reserves and are held in a variety of interest bearing
instruments including government and corporate obligations and money market
funds. During the first three months of 1997, the Company utilized its cash
reserves to fund operating activities and investments in plant and equipment.
Operating activities used cash of $4.7 million and investments in plant and
equipment utilized an additional $2.1 million.
The Company is currently evaluating certain property in the vicinity of
its corporate headquarters for possible development and relocation of its
corporate offices and research facilities. The Company has entered into a
purchase and sale agreement for the property which, as amended, expires in
late 1997 and has completed initial environmental impact and other studies.
Certain actions brought by citizens groups opposing the development were
resolved during the first quarter of 1997 and the remaining contingencies are
expected to be completed prior to the expiration of the purchase and sale
agreement. If the Company moves forward with this project, expenditures for
land and related closing costs are expected to total approximately $15
million.
Operating activities are expected to result in the continued use of
cash. In addition, the Company is evaluating its long-term commercial
manufacturing requirements with respect to certain products under
development. Existing cash reserves are believed to be sufficient to support
the Company's operating requirements, planned capital expenditures and the
property acquisition discussed above, for the remainder of 1997. The Company
expects to receive its final payment under the AHP revenue guaranty in early
1998, the maximum amount of which is $60.0 million. Beyond 1998, the Company
intends to rely on accumulated cash reserves and cash generated from
operations, which will be highly dependent on the Company's successful
development and commercialization of its products and technology.
11
<PAGE>
PART II. OTHER INFORMATION
-----------------
Item 1. LEGAL PROCEEDINGS
-----------------
The description of 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, 1996.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a) EXHIBITS
--------
None
b) REPORTS ON FORM 8-K
-------------------
None
12
<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: May 12, 1997 /s/ Edward V. Fritzky
-------------------- ------------------------------------
Edward V. Fritzky
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: May 12, 1997 /s/ Douglas G. Southern
-------------------- ----------------------------------------------
Douglas G. Southern
Senior Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 47,725
<SECURITIES> 24,956
<RECEIVABLES> 21,083
<ALLOWANCES> 630
<INVENTORY> 7,762
<CURRENT-ASSETS> 3,339
<PP&E> 120,169
<DEPRECIATION> 41,172
<TOTAL-ASSETS> 223,952
<CURRENT-LIABILITIES> 32,790
<BONDS> 0
0
0
<COMMON> 663,563
<OTHER-SE> (481,049)
<TOTAL-LIABILITY-AND-EQUITY> 223,952
<SALES> 35,899
<TOTAL-REVENUES> 39,447
<CGS> 6,278
<TOTAL-COSTS> 48,598
<OTHER-EXPENSES> 5
<LOSS-PROVISION> 50
<INTEREST-EXPENSE> 156
<INCOME-PRETAX> (8,644)
<INCOME-TAX> 57
<INCOME-CONTINUING> (8,701)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,701)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
