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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
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
Securities registered pursuant to Section 12(b)
of the Act:
None
Securities registered pursuant to Section 12(g)
of the Act:
Common Stock, $.01 par value
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 amendments to
this Form 10-K. [ X ]
The approximate aggregate market value of the voting stock held by
nonaffiliates of the registrant as of March 10, 1998 was: $1,223,324,000.
Common stock outstanding at March 10, 1998: 39,737,721 shares.
Documents incorporated by reference:
(1) Portions of the Company's definitive Proxy Statement for the annual meeting
of shareholders to be held on April 30, 1998 are incorporated by reference
in Part III.
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PART I
Item 1. Business
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," "expects" and similar
expressions are intended to identify such forward-looking statements, but
their absence does not mean the statement is not forward-looking. 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 Immunex Corporation ("Immunex" or the "Company"). Factors that could
affect the Company's actual results are described in the "Risk Factors"
section of this document. 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.
PRODUCTS
Immunex is a biopharmaceutical company that discovers, develops,
manufactures and markets innovative therapeutic products for the treatment of
human diseases, including cancer, infectious diseases and immunological
disorders.
Immunex is currently manufacturing and marketing Leukine-Registered
Trademark- granulocyte-macrophage colony stimulating factor ("Leukine" or
"GM-CSF"), and marketing Novantrone-Registered Trademark- (mitoxantrone) and
five additional oncology products (the foregoing products other than Leukine,
together with certain other products under development, are referred to
herein as the "Non-Biological Oncology Products") in the United States
("U.S."). As a result of the 1993 merger (the "Merger") of Immunex and
Lederle Oncology Corporation, a subsidiary of American Cyanamid Company
("Cyanamid") created for the purpose of merging Cyanamid's Lederle
Laboratories oncology business in the U.S. and Canada ("North America") (the
"Lederle Oncology Business") with the biopharmaceutical business of Immunex,
Immunex was assigned certain rights relating to the Non-Biological Oncology
Products in North America. Cyanamid currently owns approximately 54.1% of the
outstanding common stock of Immunex. In November 1994, American Home Products
Corporation ("AHP") acquired all of the common stock of Cyanamid. Prior to
the acquisition of Cyanamid by AHP, Immunex and AHP entered into an agreement
under which AHP agreed to protect Immunex's rights under its agreements with
Cyanamid and be bound by Cyanamid's obligations under such agreements,
including certain standstill restrictions agreed to by Cyanamid in connection
with the Merger. As discussed below, AHP or various divisions or affiliates
of AHP, including Wyeth-Ayerst Research, Wyeth-Ayerst Laboratories and
Wyeth-Ayerst International, Inc., have assumed certain of the rights and
obligations of Cyanamid under the various agreements that Immunex and
Cyanamid entered into at the time of the Merger or thereafter. In the
following discussion, "AHP" refers to AHP, or its various divisions or
affiliates, including Cyanamid.
Immunex, alone or with Wyeth-Ayerst Research, is testing three
proprietary investigational biotechnology products in human clinical trials:
Enbrel-TM-, a soluble tumor necrosis factor ("TNF") receptor fusion protein
("Enbrel" or "TNFR:Fc") that binds to and neutralizes TNF; Mobist-TM-, a
cytokine that induces the proliferation of blood progenitor cells and
specialized immune cells ("Mobist" or "Flt3-L"); and Nuvance-TM-, a soluble
Interleukin-4 ("IL-4") receptor ("Nuvance" or "IL-4R") that binds to and
neutralizes IL-4. In addition, Immunex is testing Leukine and Novantrone in
clinical trials for potential supplemental indications. Immunex also expects
to clinically test another proprietary investigational biotechnology product,
CD40 ligand ("CD40-L"), when sufficient drug supplies are available. Immunex
is investigating certain other potential biotherapeutics in preclinical
research, including Interleukin-1 ("IL-1") receptor Type II ("IL-1R Type
II"), Interleukin-15 ("IL-15"), TNF Related Apoptosis Inducing Ligand
("TRAIL"), Interleukin-17 receptor ("IL-17R") and 4-1BB ligand ("4-1BBL").
Immunex and Wyeth-Ayerst Research are jointly collaborating on a preclinical
program to develop TNF-alpha converting enzyme ("TACE") antagonists.
Wyeth-Ayerst Research is investigating certain non-biologic compounds for
cancer treatment and prevention.
Pharmaceutical products under development are required to undergo
several phases of testing before receiving approval for marketing. In the
preclinical phase, a product is evaluated in animal models of human disease
to enable preparation of an investigational new drug application ("IND").
There are three phases of clinical trials. In general, Phase I trials
determine the safety of a proposed therapeutic for administration to
patients; Phase II trials examine efficacy and dosing; and Phase III trials,
which are typically randomized, blinded, controlled studies, measure the
efficacy of a proposed therapeutic in comparison to approved therapies. These
trials generate the data required for regulatory approval to market products.
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Data from human trials are submitted to the U.S. Food and Drug
Administration (the "FDA") in a new drug application ("NDA") or a biologics
license application ("BLA") and, with respect to products to be marketed in
Canada, to the Canadian Health Protection Bureau ("CHPB") in a new drug
submission ("NDS"). Data regarding manufacturing and bioequivalence of
generic drug products are submitted to the FDA in an abbreviated NDA ("ANDA")
and to the CHPB in an abbreviated NDS ("A/NDS"). Preparing an NDA, BLA, NDS,
ANDA or A/NDS involves considerable data collection, verification and
analysis.
A summary of the Company's products is provided in the following table.
The information in the table is provided solely for convenience of reference
and is qualified in its entirety by the detailed discussion of each product
and the related research and development activities following the table.
Products for which Immunex owns marketing rights or which are in human
clinical trials are described in the table below.
<TABLE>
<CAPTION>
Geographic Development
Product Market Status Clinical Indications
- ----------------------- ---------- ----------- --------------------
<S> <C> <C> <C>
Leukine-Registered U.S. Marketed (1) Bone marrow transplant engraftment (autologous
Trademark- (GM-CSF) and allogeneic) or failure, acceleration of
neutrophil recovery and reduction of severe
and life-threatening infections in patients
with acute myelogenous leukemia ("AML"),
peripheral blood progenitor cell ("PBPC")
mobilization and post-transplantation support
BLA Filed (2) Treatment of neutropenia resulting from
chemotherapy in solid tumors
U.S. and Canada Phase II/III Treatment of opportunistic infections in
patients infected with the human
immunodeficiency virus ("HIV"), vaccine
adjuvancy, malignant melanoma
Novantrone-Registered U.S. Marketed Acute nonlymphocytic leukemia ("ANLL"),
Trademark- hormone refractory prostate cancer ("HRPC")
mitoxantrone
U.S. Phase II Breast cancer, Non-Hodgkin's lymphoma ("NHL"),
multiple sclerosis ("MS")
Thioplex-Registered U.S. Marketed Palliative treatment of a variety of tumors
Trademark-
lyophilized thiotepa
Phase II Small cell lung cancer
Methotrexate injectable U.S. Marketed Various neoplastic diseases
Amicar-Registered U.S. Marketed Hemostasis
Trademark-
aminocaproic acid
Levoprome-Registered U.S. Marketed Analgesia
Trademark-
methotrimeprazine
Leucovorin calcium U.S. Marketed Methotrexate rescue, modulation of 5-fluorouracil
("5-FU") drug therapy in advanced colorectal
cancer
</TABLE>
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<TABLE>
<CAPTION>
Geographic Development
Product Market Status Clinical Indications
- ----------------------- ---------- ----------- --------------------
<S> <C> <C> <C>
Paclitaxel injection Canada Marketed (3) Breast and ovarian cancers
U.S. ANDA filed Breast and ovarian cancers
Enbrel-TM- (TNFR:Fc) U.S. and Canada Phase III Rheumatoid arthritis ("RA"), disease modification
of RA, juvenile RA
Phase I/II Congestive heart failure ("CHF")
Mobist-TM- (Flt3-L) U.S. and Canada Phase II Peripheral blood stem cell mobilization and
transplantation, dendritic cell growth, NHL,
breast cancer, prostate cancer, malignant melanoma
Preclinical Vaccine adjuvancy
Nuvance-TM- (IL-4R) U.S. and Canada Phase I/II Asthma
CD40-L Worldwide U.S. IND filed B-cell lymphomas, solid tumors
</TABLE>
- --------------------
(1) Immunex also owns marketing rights for Leukine in Canada, but
Leukine is not currently approved in Canada.
(2) Leukine is approved in the U.S. for the clinical indications
described in the foregoing table. Immunex has submitted amendments to its BLA
for GM-CSF, seeking FDA approval for additional label indications for
prophylaxis of chemotherapy-induced neutropenia ("CIN") in patients with
solid tumors.
(3) Boehringer-Ingelheim (Canada) Ltd. has acquired Canadian marketing
rights for Immunex's paclitaxel injection ("Paclitaxel Injection") product
and is responsible for product distribution.
Cytokine Products
The Company's biotechnology products are recombinant analogs of
cytokines and cytokine receptors. Cytokines are protein messengers that
coordinate the functions of immune cells (white blood cells) and certain
other cells and tissues. Immune cells include granulocytes and macrophages,
which are scavenger cells specialized for uptake and disposal of foreign
particles or infectious agents; B-cells, which produce antibodies to "flag"
foreign particles or diseased cells for destruction; cytotoxic T-cells and
natural killer cells, which recognize, contact and kill cancerous or
virus-infected cells; helper T-cells, which control and coordinate the
function of other immune cells; and dendritic cells, which take up and
process protein antigens for presentation to T-cells and B-cells. Immunex has
developed recombinant cytokine products capable of expanding and activating
these immune cell populations, all of which must interact to provide a normal
immune response. Immunex has also cloned and expressed genes encoding
cytokine receptors. Using genetic engineering techniques, Immunex has
produced soluble versions of cytokine receptors, including fusions of soluble
receptors with fragments of human antibodies, that have been shown to be
capable of suppressing cytokine-induced responses by specifically binding to
and inactivating their target cytokines. Immunex has also cloned and
expressed genes coding for certain enzymes that are involved in secretion of
cytokines, intracellular signalling proteins involved in immune responses,
and viral proteins that interact with human immune proteins. These enzymes,
signalling proteins, and viral proteins are being investigated as targets for
small molecule drug discovery or as protein therapeutics.
Leukine (sargramostim, GM-CSF). Leukine GM-CSF stimulates the growth and
differentiation of granulocytes, macrophages and dendritic cells. Leukine has
been approved by the FDA for facilitating allogeneic and autologous bone
marrow transplant ("BMT") therapies currently used for treatment of acute
leukemia, lymphoma, and Hodgkin's disease and in rescuing patients whose BMT
grafts have failed; for accelerating neutrophil recovery and reducing
mortality in treatment of patients with AML; and for use in PBPC mobilization
and post-transplantation support. Leukine is available in lyophilized and
multi-dose liquid formulations.
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Leukine is the subject of regulatory filings and clinical trials
intended to result in additional FDA-approved indications. These filings and
trials are described below. In March 1993, Immunex filed an amendment to its
BLA for Leukine to obtain FDA approval for an additional label indication for
prophylaxis of CIN. Since the 1993 filing, Immunex has supplemented the
original filing with additional data as it became available. In April 1995,
the FDA Biological Response Modifiers Committee declined to recommend
approval of Leukine for the CIN indication. The Committee's decision not to
recommend approval contravened a prior agreement between the FDA and Immunex
regarding the acceptability of surrogate clinical endpoints (e.g., neutrophil
recovery data) as primary endpoints for approval. In view of this and certain
other issues concerning the Committee's decision-making process, Immunex has
continued to seek approval of this indication. Immunex has met with the FDA
to discuss various approaches to approval of this indication and updated its
amendment by filing supplemental data acquired from ongoing clinical trials.
Thus, the BLA amendment for the CIN indication is still pending at the FDA.
Although Immunex believes that this amendment to the BLA for Leukine is
approvable, no assurances can be given regarding the duration or outcome of
the FDA review process.
Apart from the Company's efforts to secure approval of Leukine in CIN, a
number of clinical trials were conducted in 1997 to investigate whether
Leukine could be approved for other uses. These investigational uses include
HIV infections, malignant melanoma, vaccine adjuvancy, and infection
prevention in premature neonates. The results of a small Phase I trial of
GM-CSF completed in the fourth quarter of 1997 indicate that GM-CSF may
increase the number of CD4+ T-cells in patients with HIV, and that GM-CSF is
not associated with an increase in the levels of HIV in patients receiving
antiretroviral therapies. The Company is conducting a Phase III trial of
GM-CSF in prevention of opportunistic infections in HIV.
In 1997 the Company announced positive results of an open-label Phase II
trial of GM-CSF as an adjuvant therapy following surgery to remove the
tumor(s) in patients with advanced melanoma who were at high risk for relapse
or death. This trial demonstrated that using GM-CSF as a therapy following
surgery increased the one-year survival rate of patients with advanced stages
of malignant melanoma when compared to matched historical control patients.
The Company is evaluating whether controlled Phase III trials of GM-CSF
should be conducted for this patient population. In addition, clinical trials
are also being conducted with various third parties to investigate the
potential of Leukine as a vaccine adjuvant. Finally, a Phase III clinical
trial of GM-CSF therapy for preventing infections in premature neonates was
completed in late 1997, and while GM-CSF was generally safe and well
tolerated by the premature neonates in the trial, the primary endpoint, which
was a significant reduction in the incidence of infections, was not achieved.
Mobist (Flt3-L). In 1993, Immunex cloned cDNAs encoding a ligand for the
Flt3 receptor ("Flt3-L"). Flt3-L binds to a receptor located on primitive
hematopoietic cells, and has been shown to be capable of mobilizing PBPC
alone, and in combination with other cytokines such as GM-CSF or
granulocyte-colony stimulating factor ("G-CSF"). In 1997, Immunex completed
Phase I safety trials of Mobist as a PBPC mobilizer. The trials, which were
conducted in healthy volunteers, showed that both single and multiple doses
of Mobist could be safely administered. The multiple-dose trial also showed
that Mobist increased the number of circulating PBPCs. Phase II trials of
Mobist, in conjunction with GM-CSF or G-CSF, were begun in 1997 in patients
with breast cancer or NHL. Mobist may also be useful as an anti-tumor agent
or vaccine adjuvant, as a result of its capacity to generate and activate
dendritic cells. In 1997, Immunex also commenced Phase II trials of Mobist as
an anti-tumor agent in patients with prostate cancers or NHL.
CD40-L. Immunex has also cloned cDNAs encoding a ligand for the cell
surface receptor CD40. This ligand appears to be a required signal in the
development of an antibody-based immune response. Thus, CD40-L may be useful
as a vaccine adjuvant. In addition, soluble CD40-L has been shown to be
useful in directly arresting the growth of certain B-cell lymphomas and
epithelial cancers in laboratory experiments. Immunex filed an IND with the
FDA for CD40-L in 1997. Immunex expects to commence a Phase I trial of CD40-L
in patients with B-cell NHL and solid tumors when sufficient drug supplies
are available.
Interleukin-2 ("IL-2"). IL-2 is a cytokine that controls the
proliferation and activation of T-cells. It can both augment normal immune
function and help restore deficient immune responses. In 1983, Immunex
entered into license agreements with Hoffmann-La Roche, Inc. and its parent,
F. Hoffmann La Roche & Company, Limited Company of Basel, Switzerland
(collectively, "Roche"), pursuant to which Immunex is receiving royalties on
worldwide sales of IL-2 products by Roche and its sublicensees, including
Chiron Corporation ("Chiron"). Chiron's Proleukin-Registered Trademark- IL-2
is approved in the U.S., Canada and many other countries as a treatment for
metastatic renal cancers. In late 1997, an FDA advisory committee recommended
that FDA approve Proleukin IL-2 as a treatment for metastatic melanoma.
Proleukin is a trademark of Chiron.
New Cytokines. Immunex scientists have cloned genes encoding several new
cytokines that are now being characterized in preclinical studies.
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IL-15. Immunex has cloned and expressed cDNAs encoding a cytokine
now known as IL-15, a T-cell growth factor that mimics certain effects of
IL-2. In pre-clinical studies, IL-15 has been shown to protect intestinal
epithelial cells in the mucosa from the harmful effects of chemotherapy or
radiation. Other potential uses of IL-15 that have been suggested by
preclinical studies include use as a treatment for HIV infection or as a
treatment for muscle atrophy. Immunex is currently evaluating its development
strategy for IL-15, which may include licensing IL-15 rights to a
collaborator or strategic alliance partner for continued development.
TRAIL; 4-1BBL. Immunex has cloned TRAIL, which induces apoptosis of
a number of tumor cell types. Recombinant TRAIL has been shown to be
effective at reducing tumor growth in experimental animals. Recombinant
4-1BBL is a stimulator of anti-tumor immune responses and it is being
produced and is expected to be tested in in vivo tumor models in 1998.
Other New Cytokines. Several other novel cytokines are currently at
earlier stages of in vitro assessment with third-party collaborators. Immunex
has cloned and expressed cDNAs for a family of molecules known as "ligands
for eph-related protein kinases" or "LERKS," and in 1995, Immunex granted an
exclusive, royalty-bearing worldwide license for neurobiology uses under its
LERKS patent rights and technology to Genentech, Inc. ("Genentech"). In 1996,
Immunex entered into an agreement with Biogen, Inc. ("Biogen") for
development outside the U.S. of anti-CD40-L antibodies in the areas of
transplantation and inflammation.
Receptor Products
Cytokines act upon their target cells by binding to specific cell
surface receptors. The binding of a cytokine to its receptor triggers a
complex series of events within a responsive cell that transmits the
cytokine's signal to that cell. This signal can stimulate cell division or
production of antibodies, enzymes or other cytokines. In this way,
circulating cytokines can control and coordinate the function of immune cells
located throughout the body.
Using genetic engineering techniques, Immunex scientists have produced
soluble versions of cytokine receptors. A soluble cytokine receptor retains
the ability to bind to a specific cytokine, but lacks that portion of the
natural receptor that is attached to a cell. This property enables the
soluble cytokine receptor to circulate in the body after administration,
where it can bind to and inactivate circulating cytokines, preventing
interaction of the cytokines with immune cells and thereby neutralizing the
development of an autoimmune or inflammatory response. In view of results
obtained in certain preclinical and clinical studies, Immunex believes that
soluble cytokine receptors may be effective as therapeutics to counteract
autoimmune or inflammatory diseases.
Immunex owns exclusive rights to TNF receptor ("TNFR"), IL-4R, IL-1R,
and Interleukin-7 receptor ("IL-7R") (together, the "Receptor Products") for
North America. Pursuant to a 1990 agreement, Immunex granted exclusive rights
to the Receptor Products to Behringwerke AG ("Behringwerke"), a former
subsidiary of Hoechst AG ("Hoechst"), for all parts of the world outside of
North America. This grant was made in consideration of a grant by
Behringwerke to Immunex of U.S. co-marketing rights for GM-CSF and certain
other colony stimulating factor ("CSF") products. Immunex is entitled to
royalties on future sales of Receptor Products by Behringwerke. In 1992,
Immunex reacquired ex-North American rights to TNFR from Behringwerke. See
"Relationship with Hoechst AG." At the effective date of the Merger,
Immunex's ex-North American rights to TNFR were licensed to Cyanamid and are
currently held by AHP. See "Relationship with AHP and Cyanamid." In 1994,
Immunex and Cyanamid re-acquired all rights in GM-CSF previously held by
Behringwerke.
Immunex has developed a comprehensive array of soluble cytokine receptor
technologies, which has led to proprietary rights relating to IL-1 receptors,
TNF receptor (p80), IL-4R, IL-7R, G-CSF receptor, IL-15 receptor and IL-17R.
Immunex is conducting clinical trials of Enbrel, a TNF receptor fusion
protein, as a treatment for RA and CHF, and Nuvance as a therapy for asthma.
Immunex is evaluating whether to proceed with the development of a natural
soluble form of IL-1R Type II as a potential treatment for osteoporosis or
inflammation. IL-17R may be useful as a treatment for solid organ transplant
rejection. Immunex has also commenced a licensing program under its cytokine
receptor patents to enable other companies to use patented cytokine receptors
in drug screening. Under this program, Immunex granted a license to use G-CSF
receptor for drug screening to one company in 1997, and is continuing license
discussions with other companies interested in using G-CSF receptor or IL-1
receptors in drug screening.
Enbrel (TNFR:Fc). TNF is a cytokine produced by activated T-cells and
macrophages in the course of severe immune reactions. TNF has been implicated
in the pathogenesis of RA, sepsis, asthma, graft-versus-host disease,
inflammatory bowel disease, insulin-dependent diabetes, CHF and numerous
other clinical conditions. Immunex has produced a soluble TNF receptor fusion
protein (TNFR:Fc) that combines two p80 TNF-binding domains derived from TNF
receptor with a fragment of a human antibody molecule. TNFR:Fc exhibits a
long serum half-life and has been shown to be capable of rapidly lowering
serum TNF levels.
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Immunex is developing TNFR:Fc as a new therapy for RA based on TNF
inhibition. In September 1997, Immunex announced the results of its pivotal
Phase III randomized, placebo-controlled, blinded clinical trial of TNFR:Fc
in advanced RA, a progressively crippling disorder. Positive and
statistically significant results in favor of treatment with TNFR:Fc were
achieved with respect to all primary and secondary clinical endpoints, the
key measurements used to judge the drug's effectiveness. Both doses of
TNFR:Fc administered in the trial (10 milligrams and 25 milligrams) were
effective, with the 25 milligram dose demonstrating the most effectiveness.
The drug was found to be generally safe and well tolerated. These new data
confirmed results previously reported from the similarly designed Phase II
trial of TNFR:Fc in advanced RA.
The Company expects to submit a BLA with the FDA for Enbrel for advanced
RA during the second quarter of 1998. In March 1998, the Company announced
that the FDA designated Enbrel as a "Fast Track Product" for the treatment of
advanced RA patients. Under the FDA Modernization Act of 1997, Fast Track
Product designation means that the FDA will take appropriate actions to
expedite the development and review of Enbrel. The designation of Enbrel as a
`Fast Track Product' by the FDA initiates the application and review process
for Enbrel. Portions of the Company's BLA for Enbrel were submitted to the
FDA in March 1998. Upon submission of the remaining portions of the BLA for
Enbrel, the FDA will establish the formal BLA submission date for Enbrel. The
Company intends to submit the results of its Phase III clinical trial of
TNFR:Fc as part of the BLA, combined with the results of its earlier Phase II
randomized, placebo-controlled, blinded clinical trial of TNFR:Fc, which was
completed in November 1995. Positive and statistically significant results in
favor of treatment with TNFR:Fc were achieved with respect to multiple
clinical endpoints in the Phase II clinical trial. Immunex also intends to
submit safety data from all completed TNFR:Fc trials, as well as numerous
ongoing TNFR:Fc trials, as part of the BLA.
In March 1998, Immunex announced the results of a Phase III randomized,
placebo-controlled, blinded clinical trial of TNFR:Fc in combination with
methotrexate versus methotrexate alone in patients with RA. The results
demonstrated that RA patients treated with TNFR:Fc in combination with
methotrexate experienced a statistically significant decrease in disease
activity and an increase in their functional ability when compared to
methotrexate alone. In addition, the results indicated that the combination
therapy of TNFR:Fc and methotrexate was generally well tolerated, and that
there was no significant difference in the rate of occurrence of side effects
between the treatment groups in the trial.
In June 1997, the Company announced that TNFR:Fc appeared to be
generally safe in an open-label safety study of TNFR:Fc administration to
patients that received the drug in the earlier Phase II clinical trial, with
some patients having received the drug for up to one year. In 1998 Immunex
intends to continue an open-label trial of TNFR:Fc in patients with RA who
have been treated with TNFR:Fc or placebo in previous Immunex clinical trials
with TNFR:Fc. In early 1998, Immunex completed a pharmacokinetic study with
TNFR:Fc demonstrating comparability of product manufactured at Immunex's
Bothell, Washington mammalian cell-based protein manufacturing facility and
product manufactured by Immunex's contract manufacturer.
Significant tasks remain to be accomplished before Enbrel can be
commercialized. These tasks include, but are not limited to, broadening
Immunex's safety database of patients who have received therapy with TNFR:Fc
in Immunex's various clinical trials, completing preparation of a BLA for
Enbrel for filing with the FDA, obtaining a favorable recommendation for
Enbrel from the Arthritis Advisory Committee of the FDA, completing a
long-term supply agreement with Immunex's contract manufacturer of the
product, successfully manufacturing commercial inventory of the product,
receiving FDA approval of Enbrel, and satisfactorily addressing relevant
patent claims of third parties which might be asserted to cover the
manufacture or sale of Enbrel. Since there are other companies developing TNF
inhibitors for RA, any delay could have a material adverse effect on the
Company's ability to gain market share for Enbrel.
There can be no assurance that the BLA for Enbrel will in fact be
submitted in the second quarter of 1998, or that, if submitted, the FDA will
accept such BLA submission for review. In addition, there can be no assurance
that if the Company submits the BLA to the FDA as expected, the FDA will
approve the BLA for Enbrel, nor can the time of any such approval (if
received) be predicted with certainty. Furthermore, there can be no assurance
that Enbrel, even if approved by the FDA, will achieve commercial success or
that competitive products will not preempt any market opportunity which might
exist for Enbrel.
Immunex is conducting additional clinical trials of TNFR:Fc, which may
form the basis for supplemental indications for Enbrel. In 1998 Immunex
intends to continue a large Phase III randomized, placebo-controlled, blinded
clinical trial of TNFR:Fc in earlier-stage methotrexate-naive RA patients.
This Phase III clinical trial is aimed at documenting the ability of TNFR:Fc
to slow the progression of joint damage in RA disease over a year of
treatment. Enrollment in this trial has been completed. In 1998 Immunex also
intends to complete a clinical trial of TNFR:Fc in patients with juvenile RA,
which began in 1997, and if the results of this trial are positive, Immunex
intends to file data from such trial with the FDA in 1998.
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Immunex intends to study TNFR:Fc in other indications in addition to RA.
In November 1997, results were announced of a small Phase I clinical trial of
TNFR:Fc in patients with CHF. The results indicated that a single dose of
TNFR:Fc reduced circulating levels of TNF and improved certain clinical
parameters. A multiple-dose, Phase II clinical trial of TNFR:Fc in patients
with CHF is currently underway, and if the results of the multiple dose trial
are positive, in 1998 the Company intends to begin Phase II/III randomized,
placebo-controlled, blinded clinical trials of TNFR:Fc in patients with CHF.
Nuvance (IL-4R). IL-4 is a cytokine that promotes production of specific
types of antibodies, including the IgE antibody involved in allergic and
asthmatic reactions. Soluble IL-4R has been shown to inhibit IL-4-dependent
immune responses in animal models. Based on these preclinical studies, and on
the results of certain clinical trials, Immunex believes that soluble IL-4R
may be effective in the treatment of asthma or allergy. In February 1997, the
Company announced the results of a Phase I clinical trial of IL-4R in mild
asthmatic patients. This dose escalating trial, which involved a single dose
of IL-4R by inhalation of a nebulized aqueous formulation, showed that the
product was well tolerated at the doses tested. During the course of the
trial, patients reported reduced use of steroids and a decrease in asthma
symptoms. In 1997, the Company repeated this Phase I trial of IL-4R in
moderate asthmatic patients, adding a placebo-control group, and similar
results were obtained. Immunex is currently focusing its efforts on
development of an efficient manufacturing process for IL-4R, conducting
pharmacokinetic studies of the metabolism of IL-4R in the lung, and
identifying a suitable formulation and method of administration for treatment
of allergic asthma. The Company intends to continue clinical development of
IL-4R in Phase II clinical trials in moderate asthmatics as drug supplies are
made available.
IL-1R. IL-1R is a molecule that binds both IL-1 alpha and IL-1 beta.
IL-1 alpha and IL-1 beta bind to cell surface receptors of two types: type I
and type II. Overproduction or inappropriate production of IL-1 has been
implicated in the development of autoimmune, inflammatory and allergic
diseases such as diabetes, asthma, systemic lupus erythematosus and
inflammatory bowel disease, and also in the development of osteoporosis and
septic shock. Immunex has produced genetically engineered soluble IL-1
receptors of two types, designated Type I and Type II, and has conducted
clinical studies of IL-1R Type I. Recent studies indicate that IL-1R Type II
is superior to IL-1R Type I as an antagonist of IL-1, and Immunex is
currently focused on preclinical testing of IL-1R Type II. Based upon data
obtained in preclinical and Phase I clinical trials, Immunex believes that
IL-1R Type II may be of therapeutic value in the treatment of a number of
inflammatory diseases and osteoporosis.
IL-17R. The IL-17R has been identified by Immunex, and preliminary
studies have shown that a dimeric IL-17R:Fc fusion protein can prevent graft
rejection in a mouse model of solid organ transplant. Further studies are
being conducted to assess the utility of IL-17R in the transplant setting.
Non-Biological Oncology Products
Effective as of the Merger, Immunex acquired certain intellectual
property rights, including marketing rights, in North America relating to the
Non-Biological Oncology Products, including Novantrone mitoxantrone,
leucovorin calcium, thiotepa (including Thioplex), Amicar aminocaproic acid,
Levoprome methotrimeprazine, methotrexate injectable, etoposide injection,
and certain other products under development. The rights acquired by Immunex
as a result of the Merger include patents, know-how, trademarks, clinical and
other supporting data, registrations and approvals from the FDA and the CHPB.
Cyanamid also transferred to Immunex its U.S. oncology marketing and sales
force. In 1996, as part of the Company's renegotiation of its research and
development relationship with AHP (see "Relationship with AHP and Cyanamid"),
the Company relinquished rights to certain products under development,
including humanized monoclonal antibody toxin conjugates, a multidrug
resistance reversal agent and an oral CSF inducer. In 1997, Immunex sold its
rights to etoposide injection to Supergen, Inc.
Cyanamid did not transfer any manufacturing facilities, research assets,
other tangible assets or other personnel to Immunex. At the effective time of
the Merger (the "Effective Time"), Immunex, Cyanamid and certain of its
subsidiaries entered into agreements providing for, among other things,
Immunex's contribution to and participation in oncology research by Cyanamid,
the supply and toll manufacturing of the Non-Biological Oncology Products by
Cyanamid and Lederle Parenterals, Inc. ("LPI") and Cyanamid's provision of
certain other services to Immunex. See "Relationship with AHP and Cyanamid."
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Novantrone. Novantrone is currently approved for the initial therapy of
ANLL and, in combination with steroids, for treatment of patients with pain
related to HRPC. Novantrone is an anthracenedione similar in chemical
structure to anthracyclines (doxorubicin and idarubicin), yet lacking an
amino sugar component that is thought to contribute to the cardiotoxicity
characteristic of anthracyclines. Novantrone has a more favorable
nonhematological toxicity profile than anthracyclines; while the use of
Novantrone may result in toxicities similar to those commonly occurring with
other chemotherapeutic agents (nausea, vomiting, alopecia, mucositis and
cardiotoxicity), these can be less frequent and less severe with Novantrone
than with competing anthracycline products. When used in combination with
steroids, therapy with Novantrone has been demonstrated to significantly
reduce pain and improve quality of life in patients with HRPC.
Immunex is sponsoring Phase II clinical trials using high dosage
Novantrone alone and in combination with other oncology agents in breast
cancer and in NHL. One of the protocols tested involved use of Novantrone in
combination with paclitaxel in breast cancer patients. In addition,
Novantrone is being tested by Wyeth-Ayerst in two European Phase II clinical
trials in patients with MS, and data from the smaller European clinical trial
was positive. If the data from the larger European clinical trial of
Novantrone in patients with MS is also positive, Immunex intends to evaluate
the data and may pursue a new indication for Novantrone in the U.S. in this
patient population.
In June 1997, the FDA authorized Immunex to augment the approved
labeling for Novantrone to cite clinical results showing its potential, in
combination with corticosteroids, to reduce levels of prostate-specific
antigen ("PSA"). Novantrone is the first chemotherapy product in the U.S.
with labeling describing its potential to reduce PSA levels, an important
marker used by many physicians and patients to monitor prostate cancer.
Leucovorin calcium. Leucovorin is a racemic mixture of the dextro- and
levo- isomers of leucovorin used in methotrexate rescue therapy and in
modulation of 5-FU drug therapy in advanced colorectal cancer. Immunex sells
both liquid and tablet formulations of leucovorin. Leucovorin has significant
generic competition. A liquid formulation of leucovorin has been developed
and an ANDA for the liquid formulation was filed with the FDA in November
1996.
Thiotepa and Thioplex. Thiotepa is a cytotoxic agent approved for the
palliative treatment of a wide variety of tumor types, including
adenocarcinomas of the breast and ovary, superficial papillary bladder
cancers and other lymphomas such as lymphosarcomas and Hodgkin's disease, and
for the control of intracavity effusions secondary to localized or diffuse
neoplastic disease of serosal cavities. Following FDA approval of an NDA for
Thioplex in December 1994, Immunex has been selling and distributing this
lyophilized formulation of thiotepa in the U.S. Thioplex is more stable and
has a longer shelf life than thiotepa.
Methotrexate injectable. Methotrexate injectable is an antimetabolite
used in the treatment of certain neoplastic diseases. Methotrexate injectable
has significant generic competition. Immunex distributes methotrexate
injectable in the U.S. pursuant to a distribution agreement with Cyanamid.
Amicar aminocaproic acid. Amicar is a fibrinolysis-inhibitory agent
useful in enhancing hemostasis when fibrinolysis contributes to bleeding,
which is sometimes associated with neoplastic diseases.
Levoprome methotrimeprazine. Levoprome is a potent injectable analgesic
that is indicated for the relief of pain of moderate to marked degree of
severity in nonambulatory patients. Immunex intends to discontinue sales of
Levoprome in 1998 once existing inventory is depleted.
Oncology Discovery Research by Wyeth-Ayerst Research
Wyeth-Ayerst Research and Immunex are also researching and developing
certain new technologies for which Immunex has the option to acquire North
American rights. These research programs are focused on developing inhibitors
of specific molecular targets thought to be important in cancer development
and progression. Such research programs include the screening of Wyeth-Ayerst
Research chemical libraries for products with anti-cancer potential. In 1997,
the Company elected not to co-develop a rapamycin analog and an EGFR
antagonist that were presented to Immunex by Wyeth-Ayerst Research as
potential IND filing candidates.
Paclitaxel
Paclitaxel is a chemotherapeutic agent that is used in treatment of
various cancers. Bristol-Myers Squibb Company ("BMS") currently markets
paclitaxel for treatment of metastatic breast and ovarian cancers in North
America under the trademark Taxol-Registered Trademark-. BMS's marketing
exclusivity for paclitaxel in the U.S. under the Drug Price Competition and
Patent Term Restoration Act of 1984 ("Waxman-Hatch Legislation") expired
December 29, 1997. In 1994, Cyanamid entered into an exclusive supply
agreement with Hauser Chemical Research, Inc. ("Hauser") under which Hauser
agreed to supply Cyanamid with Immunex's requirements for paclitaxel for
development and marketing in North America. At that same time, Immunex and
Cyanamid entered into a taxane agreement under which Cyanamid and Immunex
agreed to collaborate in obtaining regulatory approval of paclitaxel in their
respective territories. Additionally, Cyanamid agreed to manufacture
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and supply finished paclitaxel product to Immunex for sale in North America.
In 1996, Cyanamid converted its supply arrangement with Hauser to a
nonexclusive basis, permitting Hauser to supply paclitaxel bulk drug to
other parties in territories outside North America. In 1997, Cyanamid
informed Immunex of Cyanamid's intent to terminate its manufacturing
obligations with respect to the supply of finished paclitaxel product to
Immunex, effective December 31, 1998.
In July 1997, Immunex received the first approval from the CHPB to
market Paclitaxel Injection in Canada. Boehringer-Ingelheim (Canada) Ltd. has
acquired Canadian marketing rights for Immunex's Paclitaxel Injection product
and is currently marketing and distributing the product in Canada.
Immunex submitted an ANDA for generic Paclitaxel Injection on August 8,
1997, which was accepted for review by the FDA on October 7, 1997. The
Immunex ANDA contains a certification by the Company, known as a "Paragraph
IV" certification, that U.S. Patents 5,641,803 and 5,670,537 held by BMS and
relating to methods of using Taxol in the treatment of cancer patients, are
invalid and not infringed by the filing of the Immunex paclitaxel ANDA. On
January 8, 1998, BMS filed a complaint in the U.S. District Court in Newark,
New Jersey, alleging infringement by Immunex of these two U.S. patents
pertaining to Taxol. See "Legal Proceedings" below, under Item 3. The legal
action by BMS was anticipated by Immunex, and because of BMS's legal action,
the FDA will withhold approval of Immunex's ANDA until the earlier of June
2000, which is approximately seven and one-half years after the original
approval of Taxol, or until a court enters a final judgment finding the BMS
patents invalid, unenforceable or not infringed. As an incentive for a
successful patent challenge, the first applicant to file an ANDA and meet FDA
requirements is accorded 180 days of marketing co-exclusivity with the
reference listed drug (in this case Taxol). Immunex believes that its ANDA is
the first filed for a generic paclitaxel product. The FDA is expected to
continue its review of the Immunex ANDA during the litigation. However, there
can be no assurance that Immunex will be successful or be granted
co-exclusivity, that the FDA will approve Immunex's ANDA, or that BMS will
not obtain or enforce additional patents relating to Taxol. If such events
occur, Immunex may discontinue development of its paclitaxel product.
RELATIONSHIP WITH AHP AND CYANAMID
At a special meeting of stockholders held June 1, 1993, the stockholders
of predecessor Immunex Corporation ("Predecessor") approved and adopted an
Amended and Restated Agreement and Plan of Merger dated as of December 15,
1992 (the "Merger Agreement") among Predecessor, Cyanamid, LPI and Lederle
Oncology Corporation, a wholly owned subsidiary of Cyanamid ("Merger
Subsidiary"). Pursuant to the Merger Agreement, Predecessor was merged with
and into Merger Subsidiary in accordance with the General Corporation Law of
the State of Delaware, with Merger Subsidiary as the surviving corporation.
In 1994, the Company re-incorporated in the state of Washington. Prior to the
Merger, Cyanamid and LPI contributed to Merger Subsidiary certain assets and
contractual obligations of the Lederle Oncology Business, together with $350
million in cash.
As a result of the Merger, the separate corporate existence of
Predecessor ceased, and the assets and liabilities of Predecessor and Merger
Subsidiary became the assets and liabilities of a new corporation that was
renamed "Immunex Corporation." Each share of Predecessor Common Stock
outstanding immediately prior to the Effective Time was converted into the
right to receive $21 in cash (the "Cash Consideration"), and one share of
common stock ("Common Stock") of the surviving corporation. A substantial
portion of the $350 million contributed to Merger Subsidiary by Cyanamid was
used to pay the Cash Consideration.
The common stock of Merger Subsidiary outstanding immediately prior to
the Effective Time, all of which was held by Cyanamid and LPI, was converted
into that number of shares of the Company's Common Stock equal to 53.5% of
the total number of shares of Common Stock and dilutive securities
outstanding immediately following the Effective Time on a fully diluted
basis. When it acquired all of the common stock of Cyanamid in late 1994, AHP
became the effective owner of the shares of the Company's Common Stock held
by Cyanamid.
Simultaneously with entering into the Merger Agreement, Predecessor,
Cyanamid and Merger Subsidiary entered into an Amended and Restated
Governance Agreement ("Governance Agreement"), which sets forth, among other
things, certain agreements of the parties relating to (i) the corporate
governance of Immunex, including the composition of its Board of Directors
(the "Immunex Board"), (ii) rights of Cyanamid to purchase additional shares
of Immunex Common Stock from Immunex upon the occurrence of certain events,
(iii) future acquisitions and dispositions of Immunex securities by Cyanamid,
(iv) the right of members of the Immunex Board designated by Cyanamid to
approve certain corporate actions of Immunex, (v) the requirement that a
supermajority of the members of the Immunex Board approve certain corporate
actions of Immunex, and (vi) payments to be made by Cyanamid to Immunex in
the event that products of the Lederle Oncology Business and certain other
products of Immunex do not achieve net sales targets. AHP has agreed to
protect Immunex's rights under the Governance Agreement and be bound by
certain standstill restrictions set forth therein.
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The provisions governing Cyanamid's acquisition and disposition of
Immunex Common Stock now prohibit AHP from acquiring additional Immunex
Common Stock except (a) in purchases from Immunex to maintain AHP's
percentage interest following the issuance of Immunex Common Stock or other
voting securities, (b) in open market purchases, provided that AHP
previously publicly disclosed its intentions to the Immunex Board and the
public, and provided that Cyanamid's interest does not exceed 70% after
such purchases, (c) pursuant to a cash tender offer if immediately after such
tender offer AHP's interest does not exceed 70%, or (d) pursuant to a cash
tender offer for all of the remaining shares that is (i) disclosed to the
Immunex Board promptly after the decision is made to propose the
transaction, (ii) approved by a majority of the non-AHP
shareholders, (iii) deemed fair in the opinion of a nationally
recognized investment banking firm retained by the Immunex Board, and (iv)
approved by a two-thirds majority of the Immunex Board (excluding directors
designated by AHP and including at least two independent directors). The
standstill provisions also bar AHP, with certain exceptions, from
participating in any proxy fight or proxy solicitation, alone or in
combination with other firms holding Immunex Common Stock, or communicating
with the shareholders regarding the merits of any offer. The foregoing
restrictions expire June 1, 1998. The practical effect of the lapse of these
restrictions will be to make Immunex more susceptible to a hostile tender
offer by AHP for the shares of Immunex Common Stock it does not own. In
addition to the restrictions upon the acquisition of Immunex Common
Stock, restrictions on transfer prohibit AHP from transferring shares of
Immunex Common Stock except pursuant to an underwritten public
offering, or in accordance with the volume and manner of sale limitations
of Rule 144 under the Securities Act of 1933, as amended, or to a
wholly owned subsidiary. Moreover, except pursuant to an underwritten
public offering, AHP may not transfer an amount in excess of 1% of the
outstanding shares of Immunex Common Stock on any given day, nor in any
event may any AHP transfer result in the creation of a 5% shareholder of
Immunex Common Stock. AHP may, however, transfer all, but not less than
all, of its shares of Immunex Common Stock provided that the purchaser has
offered to acquire all outstanding shares on the same terms, and provided
further that Immunex has first been notified and allowed three months to find
an alternative purchaser. These restrictions on transfer will continue
beyond June 1, 1998.
Regarding AHP's payment obligations under the Governance Agreement, the
relevant specified net sales target for the Lederle Oncology Business was
$216.5 million in 1997. This target was not achieved for 1997, and thus AHP
was required to pay Immunex $60 million in respect of the 1997 sales year,
which amount was paid to Immunex in February 1998. The 1997 sales year was
the last year for which any payment obligation could accrue to AHP under
these provisions.
Pursuant to the Merger Agreement, Cyanamid, Immunex and certain of their
respective subsidiaries entered into certain agreements (collectively, the
"Related Agreements"). The Related Agreements included a Research and
Development Agreement, which was replaced in 1996 by a new Research Agreement
among Immunex, Cyanamid and AHP. This new Research Agreement and another
Related Agreement together provide for the commercialization of new oncology
products by Immunex in North America, and by AHP elsewhere. To the extent
Immunex develops products or technology other than new oncology products and
determines not to market such products or technology itself, Immunex has
agreed to offer to AHP exclusive marketing rights to any such products or
technology before offering any marketing rights to third parties. Other
Related Agreements provide for, among other matters, the supply and toll
manufacture by Cyanamid or its subsidiaries for Immunex or its subsidiaries
of the Non-Biological Oncology Products, and various other implementing
licenses and distribution agreements. The Related Agreements, together with
the Governance Agreement, establish the framework for the ongoing
relationship between Immunex and AHP.
In December 1995, AHP and Immunex entered into certain research and
license agreements under which Immunex granted AHP exclusive worldwide rights
to develop compounds that inhibit an enzyme known as TACE. TACE is involved
in the processing of cell-bound TNF to provide circulating TNF. There is
evidence that inhibiting this enzyme may be beneficial in treating
inflammatory diseases and conditions such as RA. Under the agreements, AHP
will screen compounds using recombinant TACE provided by Immunex. Immunex
will receive license fees, research payments, commercial development
milestones and royalties on any compounds that are commercialized by AHP. In
September 1997, in conjunction with the Enbrel Promotion Agreement with AHP
discussed below, AHP and Immunex amended one of the TACE agreements in order
to substantially increase the royalty payable by AHP to Immunex on the first
TACE molecule approved by the FDA, if any.
On July 17, 1996, the Immunex Board approved the terms of revised and
amended research agreements among Immunex, Cyanamid and AHP relating to
oncology products and TNFR:Fc. Following such approval, Immunex, Cyanamid and
AHP entered into a new Research Agreement effective July 1, 1996, which
terminates and replaces the Research and Development Agreement between
Immunex and Cyanamid dated as of June 1, 1993. Immunex and AHP also (i)
entered into a new TNFR License and Development Agreement effective as of
July 1, 1996 (the "TNFR Agreement") and (ii) amended the Immunex New Oncology
Product License Agreement between Immunex and Cyanamid dated June 1, 1993
(the "INOP Agreement") effective as of July 1, 1996 (the "INOP Amendment").
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Under the terms of the superseded Research and Development Agreement,
Immunex was obligated to contribute $26.1 million in 1996, up to $38.3
million in 1997 and 50% of AHP's oncology research and development expenses
thereafter. Under the terms of the revised Research Agreement, Immunex
currently funds 50% of AHP's oncology discovery research expenditures, up to
a maximum amount of $16 million per year (adjusted annually for inflation
beginning in 1997) and Immunex has the option to elect which products it will
continue to support beyond the discovery stage. Also, under the terms of the
new and amended agreements, Immunex retains North American marketing rights
to Enbrel and those oncology products resulting from its own research. AHP
retains ex-North American rights to oncology products discovered by Immunex.
Immunex's rights with respect to AHP oncology products were converted
into an option to obtain North American marketing rights to oncology products
arising from certain discovery research activities conducted by Wyeth-Ayerst
Research that are supported by Immunex contributions. Immunex's product
rights do not extend to any products resulting from third-party
collaborations of AHP, products or technology acquired by AHP from third
parties, or certain non-small molecule products developed by AHP.
The option held by Immunex will be exercisable for a period of 90 days
following receipt by Immunex of notice from Wyeth-Ayerst Research that a
product has been selected by Wyeth-Ayerst Research for preclinical and
clinical development, together with certain relevant information concerning
such product. If Immunex exercises its option, the parties will negotiate and
develop the terms of a product license and development agreement under which
Immunex will be granted exclusive marketing rights in North America, and the
parties will equally share development expenses for such product for the
North American and European markets. If Immunex elects not to exercise its
option, all rights in the product will revert to Wyeth-Ayerst Research and
AHP without further obligations of any kind on Immunex. Immunex will also be
entitled to discontinue its support of the development process at certain
decision events coordinated with the product development cycle. If its
decision to discontinue development occurs following the completion of Phase
II or Phase III trials, Immunex will be entitled to a royalty or revenue
sharing if AHP continues to develop the product or licenses the product to a
third party in North America.
Under the terms of the INOP Amendment, Immunex will provide notice to
Cyanamid if an Immunex product is selected by Immunex for preclinical and
clinical development, together with certain relevant information concerning
such product. Following receipt of such notice and information, Cyanamid will
have 90 days in which to notify Immunex that it intends to retain its rights
in such product. If Cyanamid elects to retain its rights, the parties will
negotiate and develop the terms of a product development agreement governing
the ongoing development and commercialization of the retained product,
including the equal sharing of development expenses for such product for the
North American and European markets. If Cyanamid does not elect to retain its
rights, all rights in the product will revert to Immunex without further
obligations of any kind to Cyanamid or AHP.
The right of first refusal (the "ROFR") previously held by Cyanamid that
applies to Immunex products and technology was transferred to AHP under the
new Research Agreement and amended to address the diversity of technologies
and opportunities that may result from Immunex research, as well as the data
needed by Wyeth-Ayerst Research to make a decision regarding exercise of the
ROFR. The ROFR was extended to include Enbrel and Immunex oncology products.
A 90-day, rather than 180-day, decision period for the ROFR applies to these
products. At Immunex's request, AHP will review any product prior to
completion of Phase I clinical trials to exclude products of no interest to
AHP.
Immunex and AHP entered into a new TNFR Agreement that restates AHP's
exclusive rights to TNFR:Fc outside of North America and addresses joint
project management, cost sharing, manufacturing responsibilities,
intellectual property protection and disposition of rights upon
relinquishment or termination of product development. Previously, AHP's
rights in TNFR:Fc had been stated in the Research and Development Agreement
between Immunex and Cyanamid. The Research and Development Agreement has been
terminated and replaced by the new Research Agreement discussed above.
Pursuant to the TNFR Agreement, Immunex and AHP have also agreed to negotiate
the terms of a supply agreement for the commercial supply of TNFR:Fc to AHP
outside North America.
Immunex and AHP entered into a Flt-3 Ligand License and Development
Agreement (the "Flt3-L Agreement") effective as of July 1, 1996, which states
AHP's exclusive rights to Flt3-L outside North America. AHP pays Immunex a
royalty equal to 5% of the net sales of Flt3-L outside North America. The
Flt3-L Agreement also addresses joint project management, cost sharing,
manufacturing responsibilities, intellectual property protection and
disposition of rights upon relinquishment or termination of product
development. Pursuant to the Flt3-L Agreement, Immunex and AHP have also
agreed to negotiate the terms of a manufacturing agreement for the commercial
supply of Flt3-L to AHP outside North America.
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On September 25, 1997, Immunex and AHP entered into an Enbrel Promotion
Agreement (the "Promotion Agreement"), pursuant to which AHP, acting through
its Wyeth-Ayerst Laboratories division, will, upon regulatory approval
promote Enbrel to all appropriate customer segments in North America for all
approved indications other than oncology. Immunex has reserved the right to
promote Enbrel in North America for any approved oncology indications. Under
the terms of this long-term Promotion Agreement, Immunex may receive up to
$100 million from AHP in nonrefundable milestone payments for the North
American promotion rights to Enbrel. Milestone payments include $15 million
upon signing of the Promotion Agreement, which payment was received in
September 1997, $20 million if and when an acceptable BLA for Enbrel for
advanced RA is submitted to the FDA, $30 million if and when such FDA
approval for Enbrel is received, $15 million if and when a disease
modification claim for Enbrel is obtained from the FDA, and two separate
payments of $10 million each if and when certain net sales goals for Enbrel
in North America are achieved. No assurance can be given that Enbrel will be
approved by the FDA or that, if approved by the FDA, any of the other
milestone payments referenced in this paragraph will be payable to Immunex.
Under the Promotion Agreement, AHP has agreed to reimburse Immunex for
more than a majority of the clinical and regulatory expenses made by or on
behalf of Immunex in connection with the filing and approval of any new
indications for Enbrel in North America, excluding oncology and RA
indications. AHP's reimbursement of such clinical and regulatory expenses
under the Promotion Agreement is in addition to the existing cost-sharing
arrangement between the parties for certain development costs related to
Enbrel as set forth in the TNFR Agreement. The additional AHP reimbursement
for clinical and regulatory expenses under the Promotion Agreement, a portion
of which is payable upon regulatory filing of any such new indication and the
remainder of which is payable upon regulatory approval of any such new
indication, if any, applies with respect to that portion of the North
American clinical and regulatory expenses for Enbrel for which Immunex is
otherwise financially responsible for in accordance with the cost sharing
provisions in the TNFR Agreement. AHP has also agreed to reimburse Immunex
under the Promotion Agreement for less than a majority of certain patent
expenses related to Enbrel, including any patent litigation expenses. In
addition, AHP has agreed to pay substantially more than a majority of the
commercial expenses (meaning marketing expenses and sales force costs) for
Enbrel incurred prior to any commercial launch of Enbrel in North America,
and to pay a declining but still majority percentage of the commercial
expenses incurred during the two years following any commercial launch of
Enbrel in North America. Thereafter, the parties will share such commercial
expenses in North America on an equal basis.
Pursuant to the Promotion Agreement, in the event Enbrel receives
regulatory approval in any country in North America, Immunex may elect at any
time to supplement AHP's detailing (meaning visits and communications with
specified physicians by AHP's sales representatives to increase physician
prescribing preferences for Enbrel) and promotion of Enbrel in such North
American country with Immunex's own sales force to detail Enbrel for any
approved indications promoted by AHP. Immunex will pay the majority of its
sales force costs for two years commencing on the date, if any, its sales
force begins detailing Enbrel, with the parties sharing such sales force
costs on an equal basis thereafter.
Immunex will record any and all product sales of Enbrel in North America
under the Promotion Agreement, and Immunex will pay AHP a percentage of any
and all annual gross profits of Enbrel in North America attributable to all
indications other than oncology indications on a scale that increases as
gross profits increase, with Immunex always retaining a majority percentage
of such gross profits on an annual basis. Additionally, Immunex will pay AHP
certain residual royalties on a declining scale based on any and all net
sales of Enbrel in North America in the three years following the expiration
or termination of AHP's detailing and promotion of Enbrel.
If AHP sells or otherwise distributes a product in North America that is
directly competitive with Enbrel, as defined in the Promotion Agreement, and
subject to certain exclusions, AHP will give Immunex prior written notice
and, upon Immunex's request, the parties will attempt in good faith to either
establish mutually acceptable terms pursuant to which Immunex will co-promote
such competitive product (or other terms for a commercial relationship), or
negotiate an adjustment to the gross profits allocated to AHP under the
Promotion Agreement. If the parties are unable to establish such terms within
90 days of Immunex's request, Immunex may at its option reacquire all
marketing rights to Enbrel in North America and terminate the Promotion
Agreement, subject to Immunex's payments of certain amounts to AHP. In the
event that AHP obtains a product that is directly competitive with Enbrel
through the acquisition of another company and Immunex reacquires the
marketing rights to Enbrel in North America, AHP's primary field sales force
that had detailed Enbrel in the relevant territory within North America for a
specified period may not sell, detail or otherwise distribute the competitive
product for a specified period in North America.
The Promotion Agreement requires the parties to form the Enbrel
Management Committee, which will be composed of an equal number of
representatives from Immunex and from AHP. The Enbrel Management Committee
will have responsibility for such areas as strategic planning, approval of an
annual marketing plan and product pricing.
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Commencing when the Promotion Agreement was signed on September 25,
1997, AHP will make working capital loans for a portion of the U.S. launch
inventory for Enbrel available to Immunex during a specified period, provided
that the aggregate principal amount of such working capital loans outstanding
at any one time will not exceed $25 million. Immunex may prepay such loans
without premium or penalty.
In December 1997, Immunex received $4 million from LPI for the sale of
all of Immunex's Canadian rights and ownership to certain existing products,
including Novantrone, Thioplex, Amicar, methotrexate injectable, and
leucovorin calcium. Immunex retains the North American rights to Leukine and
any future Immunex oncology products and other products.
RELATIONSHIP WITH HOECHST AG
Pursuant to a 1984 research and license agreement that has been amended
periodically, Immunex and Hoechst, through its former subsidiary
Behringwerke, conducted collaborative research in the field of CSFs.
Behringwerke has been assimilated into Hoechst and its separate corporate
existence ceased in 1997. Under the agreement, Immunex granted exclusive
worldwide license rights to Behringwerke to develop, manufacture and market
CSF products in consideration for technology transfer payments, research
support payments, and royalties on sales of licensed products. Immunex and
Behringwerke, together with Behringwerke's U.S. affiliate, Hoechst-Roussel
Pharmaceuticals, Inc. (now named Hoechst Marion Roussel Inc.) collaborated in
the clinical development of GM-CSF (sargramostim) in the U.S. As a
consequence of agreements with Behringwerke and Hoechst that were completed
in 1989, 1993 and 1994, Immunex reacquired worldwide rights to Leukine GM-CSF
and all related technologies in consideration of cash payments, licenses and
technology transfers relating to soluble cytokine receptors, and royalties in
respect of GM-CSF sales. In 1990, Immunex granted Behringwerke exclusive
license rights to the Receptor Products for development and marketing outside
North America. Pursuant to a 1992 agreement between Behringwerke and Immunex,
Immunex reacquired Behringwerke's worldwide rights to TNFR, and Immunex
subsequently licensed ex-North American rights to TNFR to AHP as part of the
Merger. Immunex is entitled to certain payments and royalties on sales of the
other Receptor Products licensed to Behringwerke or its sublicensees.
MARKETING AND DISTRIBUTION
Immunex sells its products in the U.S. through a specialized
oncology-based sales force that consists of approximately 106 sales
representatives and sales managers. The Company sells its products both to
pharmaceutical wholesalers and end users such as oncology clinics, hospitals
and pharmacies. Orders are received and processed by the Company through a
centralized customer service and sales support group. Shipping, warehousing
and certain data processing services are provided on a fee basis by an
outside contractor. If and when Enbrel receives final approval from the FDA,
pursuant to the Promotion Agreement, the Wyeth-Ayerst Laboratories division
of AHP will market Enbrel to appropriate customer segments in the U.S. for
all approved indications other than oncology. The Company may elect to
supplement AHP's detailing of Enbrel in the U.S. with the Company's own sales
force for certain customer segments. See "Relationship with AHP and Cyanamid."
COMPETITION
Competition in researching, developing, manufacturing and marketing
biopharmaceuticals and other oncology products is intense. Immunex is
marketing a group of cancer products and simultaneously developing an
extensive portfolio of cytokines, cytokine receptors and other immunological
therapeutic products. There are other companies, including established
pharmaceutical and biotechnology companies, that are researching, developing
and marketing products, based on related or competing technologies, that will
compete with products being developed by Immunex. Most of the cancer products
marketed by Immunex have established competitors. Significant competitors in
the field of oncology include BMS and Amgen. These competitors, in certain
cases, have substantially greater capital resources, greater marketing
experience, and larger research and development staffs and manufacturing
facilities than Immunex.
Several companies are marketing or developing products that compete or
are expected to compete with Leukine. One such company, Amgen, has been
marketing its competing G-CSF product since early 1991 and has achieved a
majority share of the U.S. market for CSFs. In late 1997, Neumega-Registered
Trademark- IL-11 was approved by the FDA for treatment of thrombocytopenia
caused by cancer chemotherapy. Since IL-11 is being marketed by an AHP
subsidiary for use in combination with G-CSF in patient populations in which
GM-CSF is now being used, sales of Leukine may be adversely affected. Immunex
and AHP are cooperating to study the use of GM-CSF and IL-11 together in
clinical trials in patients with breast cancer and AML. If such clinical
trials are positive, both Immunex and AHP intend to pursue an expanded label
in the U.S. for their respective products, GM-CSF and IL-11, to include the
use of such products in combination in certain patient populations. In
addition, Cangene Corporation ("Cangene") is developing a
Streptomyces-derived GM-CSF product. Cangene commenced a Phase III
multicenter clinical trial in the U.S. with its GM-CSF product in early 1998
for the mobilization of peripheral blood stem cells in patients with breast
cancer.
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Several companies, including those listed below, are developing products
that are expected to compete with Enbrel. Centocor Inc. is developing a
monoclonal antibody known as Avakine-TM-(infliximab), an anti-inflammatory
agent that is currently in Phase III trials in RA. Centocor submitted a BLA
to the FDA for infliximab for the treatment of moderate to severe Crohn's
disease, including fistulizing Crohn's disease, in December 1997, and it is
possible that the FDA could approve infliximab for such indication prior to
any FDA decision with respect to the approval of Enbrel. If infliximab is
approved for treatment of Crohn's disease, physicians may prescribe
infliximab in RA prior to the time of any FDA approval of Enbrel. In
addition, Amgen is developing Antril-TM- (anakinra), a 1L-1RA (receptor
antagonist), as well as a TNFbp (binding protein); Bayer AG and BASF AG
("BASF") are developing monoclonal antibodies or antibody fragments that bind
to TNF; and Roche is developing Tenefuse-TM- (lenercept), a TNFR:Fc fusion
protein based upon a distinct and different TNF receptor designated "p55." In
late 1997, Roche terminated its Phase III trial of lenercept in RA. Roche may
continue development of lenercept in clinical indications other than RA.
Also, SmithKline Beecham plc ("SKB") is developing an anti-CD4 monoclonal
antibody (IDEC-CE9.1) in collaboration with IDEC Pharmaceuticals Corporation
("IDEC"). Although in June 1997, SKB and IDEC suspended further enrollment
and treatment in their Phase III clinical trials of IDEC-CE9.1 for the
treatment of RA, SKB is currently in clinical trials with a second-generation
anti-CD4 antibody for RA known as IDEC-151.
Other companies, including Hoechst Marion Roussel Inc.
(Arava-TM-(leflunomide)), are developing non-biological products for patients
with RA. Immunex does not currently expect such products to compete with
Enbrel in patients with advanced RA, but there can be no assurance that such
products, including leflunomide, will not compete directly with Enbrel in
patients with earlier stage RA. Due to its mechanism of action, Immunex
believes that Enbrel may be effective in combination with some of these
products in development, as well as with some existing disease-modifying
anti-rheumatic drugs ("DMARDs") for RA. This belief is based on clinical
results demonstrating that RA patients treated with Enbrel in combination
with the DMARD methotrexate experienced a statistically significant decrease
in disease activity and an increase in their functional ability when compared
to methotrexate alone.
Immunex and other pharmaceutical firms compete primarily in performing
research and clinical testing, acquiring patents, developing efficient
manufacturing processes, securing regulatory approvals and marketing the
resulting products to physicians. Immunex believes that its strategic focus
on immunology has resulted in expertise that can be applied to reduce
development times, create innovative and cost-saving research techniques,
optimize product quality, and discover new products and applications. Immunex
possesses manufacturing facilities to produce recombinant protein products
using microbial or mammalian cell culture technologies. Professional
clinical, legal, regulatory affairs, marketing and sales staffs have been
developed to enhance the Company's scientific resources. Immunex possesses a
specialized, well-trained oncology sales force and comprehensive professional
services, including continuing medical educational programs, publications,
literature searches and treatment information. These professional services
are important because, historically, new anticancer drugs have provided
incremental treatment advances, but few outright cures. Therefore, physicians
rely heavily on peer-reviewed clinical data in making treatment decisions.
Competition in the sale of generic pharmaceutical products is intense
due to the entry of multiple sources for each product after expiration of
patents and exclusivity grants previously covering such products.
Manufacturers of generic products compete aggressively, primarily on the
basis of price. Immunex currently faces aggressive generic competition from
numerous suppliers on methotrexate injectable and leucovorin calcium,
resulting in lower prices and lower sales. Thiotepa may be subject to generic
competition in the future.
SUPPLY
All finished dosage forms for the Non-Biological Oncology Products are
manufactured by AHP subsidiaries or sourced by AHP from third-party
manufacturers. Bulk active raw materials for the Non-Biological Oncology
Products are either manufactured by AHP subsidiaries or sourced by AHP from
third-party manufacturers. Aminocaproic acid for Amicar is sourced through an
unaffiliated third-party vendor and manufactured by a sole-source supplier,
Daiichi Pharmaceutical Co. Ltd., a Japanese company. Substantially all the
raw materials used to manufacture Immunex's recombinant protein products are
available from multiple sources.
In 1997 Immunex signed agreements with an unaffiliated contract
manufacturer with respect to manufacturing scale-up activities and
manufacturing of Phase III clinical trial supplies for TNFR:Fc. Based on the
successful manufacturing scale-up of TNFR:Fc to commercial quantities by the
contract manufacturer in 1997, and the manufacturing of sufficient Phase III
clinical trial supplies for TNFR:Fc, Immunex has initiated steps in an effort
to ensure that inventory of Enbrel is available to meet Immunex's expected
initial commercial requirements in the U.S. In late 1997, Immunex ordered
certain quantities of U.S. launch inventory of Enbrel from the contract
manufacturer, and expects to order additional quantities in 1998. Although
the Phase III data for Enbrel released by Immunex in September 1997 were
positive, there can be no assurance that Enbrel will be approved by the FDA,
or if approved, that Enbrel will actually be
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launched in the U.S., or if Enbrel is launched in the U.S., that Immunex's
estimates of U.S. launch inventory requirements for Enbrel will reflect
actual demand for the product. Immunex is also negotiating a long-term supply
agreement with such contract manufacturer to manufacture commercial
quantities of TNFR:Fc. Pending the completion of the long-term supply
agreement, the contract manufacturer and Immunex are working under short-term
arrangements to manufacture launch quantities of commercial inventory of
Enbrel. No assurance can be given that Immunex will be able to execute such a
long-term supply agreement with such contract manufacturer or with any other
third party. Further, no assurance can be given that if Enbrel receives
regulatory approval, any contract manufacturer will be able to successfully
manufacture sufficient quantities of TNFR:Fc for commercial supply.
Immunex presently does not have its own fill and finish capabilities for
producing and labeling final drug products from bulk drug substances or bulk
proteins. Immunex relies upon an unaffiliated third party and AHP for the
fill and finish of all drug products marketed by Immunex.
GOVERNMENT REGULATION
The manufacturing and marketing of pharmaceutical products in the U.S.
requires the approval of the FDA under the Food, Drug and Cosmetic Act.
Similar approvals by comparable agencies are required in foreign countries.
The FDA has established mandatory procedures and safety standards that apply
to the clinical testing, manufacture and marketing of pharmaceutical and
biotechnology products. Obtaining FDA approval for a new therapeutic product
may take several years and involve expenditure of substantial resources.
The federal government regulates certain recombinant DNA research
activity through National Institutes of Health guidelines for research
involving recombinant DNA molecules (the "NIH Guidelines"). The Company
complies with the NIH Guidelines which, among other things, restrict or
prohibit certain recombinant DNA experiments and establish levels of
biological and physical containment of recombinant DNA molecules that must be
met for various types of research.
The Company's operations are also subject to regulation under, among
others, the Occupational Safety and Health Act, the Environmental Protection
Act, the Nuclear Energy and Radiation Control Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation, and Liability Act, Title III of the
Superfund Amendments and Reauthorization Act (Community Right-to-Know and
Emergency Response Act), national restrictions on technology transfer,
federal regulations on the protection of human subjects in clinical studies,
the protection of animal welfare in preclinical studies, import, export and
customs regulations and other present or possible future local, state or
federal regulation. From time to time Congressional Committees and federal
agencies have indicated an interest in implementing further regulation of
biotechnology and its applications.
PATENTS, LICENSES AND TRADEMARKS
Patents, trade secrets and other proprietary rights are very important
to the Company. Immunex has filed applications for U.S. and foreign patents
covering numerous aspects of its technology. As of December 31, 1997, the
Company has been granted and maintains 89 U.S. and 260 foreign patents, and
has 101 patent applications pending in the U.S. Patent and Trademark Office
(the "USPTO") and 312 applications pending abroad. There can be no assurance
that any of its pending or future applications will result in issued patents
or that the rights granted thereunder will provide competitive advantage to
the Company or its licensees. The Company also relies upon trade secrets,
unpatented proprietary know-how and continuing technological innovation to
develop and maintain its competitive position. There can be no assurance that
others will not acquire or independently develop the same or similar
technology, or that the Company's issued patents will not be circumvented,
invalidated or rendered obsolete by new technology.
Due to unresolved issues regarding the scope of protection provided by
certain of the Company's patents, as well as the possibility of patents being
granted to others, there can be no assurance that the patents owned by or
licensed to the Company and its licensees will provide substantial protection
or commercial benefit. The rapid rate of development and the intense research
efforts throughout the world in biotechnology, the significant time lag
between the filing of a patent application and its review by appropriate
authorities and the lack of significant legal precedent involving
biotechnology inventions make it difficult to predict accurately the breadth
or degree of protection that patents will afford the Company's or its
licensees' biotechnology products or their underlying technology. It is also
difficult to predict whether valid patents will be granted based on
biotechnology patent applications or, if such patents are granted, to predict
the nature and scope of the claims of such patents or the extent to which
they may be enforceable.
Under U.S. law, although a patent has a statutory presumption of
validity, the issuance of a patent is not conclusive as to validity or as to
the enforceable scope of its claims. Accordingly, there can be no assurance
that the Company's patents will afford protection against competitors with
similar inventions, nor can there be any assurance that the patents will not
be infringed or designed around by others or that others will not obtain
patents that the Company would need to license or design around.
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It is the Company's policy to respect the valid patent rights of others.
Immunex has obtained patent licenses from various parties covering
technologies relating to its products. The Company, however, may need to
acquire additional licenses or, if such licenses are denied or are not
available on commercially reasonable terms, successfully prevail in the event
that litigation is commenced by patent owners to interfere with the
development or commercialization of the Company's products.
GM-CSF. Immunex has been issued three U.S. patents covering an altered,
or analog, form of GM-CSF (sargramostim), that is marketed by the Company
under the Leukine trademark. Since July 1990, a GM-CSF interference
proceeding has been pending in the USPTO directed to human GM-CSF DNAs. The
interference was declared between competing U.S. patent applications filed by
or licensed to Immunex, Novartis, Research Corporation Technologies, Inc.
("RCT"), Schering-Plough, Inc. ("Schering-Plough") and Biogen. As of February
1995, all parties to the interference except Immunex and Novartis had been
eliminated from future participation in the priority determination.
Proceedings in the interference have been suspended since 1995 to permit the
parties to negotiate a settlement of the interference. In 1997, the USPTO
issued RCT a patent covering DNAs encoding mammalian GM-CSF proteins,
including human, outside of the pending interference. Immunex and RCT entered
into a royalty-bearing nonexclusive license under such patent in 1997. In
January 1998, Novartis and Immunex signed a global GM-CSF Settlement
Agreement. Under this agreement, Immunex agreed to concede priority to
Novartis in the interference, and Novartis agreed not to assert its GM-CSF
patent rights to prevent Immunex from making, using or selling sargramostim
in the U.S., or making sargramostim in the U.S. for export to and sale in
Canada or any country in which Novartis or Schering-Plough do not hold GM-CSF
patent rights. In consideration of the foregoing immunity from suit, Immunex
agreed to grant Novartis immunity from suit under certain patent rights owned
by Immunex relating to methods of using GM-CSF, and to pay Novartis royalties
in respect of Immunex's future sales of Leukine. In addition, as part of the
resolution of the GM-CSF interference among the various parties, in early
1998 Immunex paid Genetics Institute, Inc. $5 million.
Enbrel. Enbrel (TNFR:Fc) is a fusion protein consisting of a dimer of
two subunits, each comprising a TNF receptor domain derived from a TNF
receptor known as "p80," fused to a segment derived from a human antibody
molecule known as an "Fc domain." Immunex believes that it was the first to
isolate a recombinant DNA encoding p80 TNFR and also the first to express the
protein using recombinant DNA technology. The Company has been issued two
U.S. patents covering DNAs encoding p80 TNFR, as well as a U.S. patent
covering methods of using TNFR:Fc, including the treatment of RA, and was
granted a European patent in December 1995 covering p80 TNFR DNAs, proteins
and related technology. Two other companies, however, BASF and Yeda Research
& Development Co. ("Yeda"), filed patent applications disclosing partial
amino acid sequence information of certain TNF-binding proteins ("TBPs")
shortly prior to the time Immunex filed its patent applications, claiming the
full-length p80 TNFR DNAs and proteins corresponding in part to the TBPs
disclosed by BASF and Yeda. BASF was issued a U.S. patent based on its TBP
disclosure with claim limitations that exclude TNFR:Fc. This patent is
currently involved in an interference with a pending TBP application filed by
Yeda. No TBP protein patents have been issued to Yeda in the U.S., but two
patents have been granted to Yeda by the European Patent Office ("EPO") that
claim TBPs. Immunex has filed oppositions to the Yeda European TBP patents.
Yeda has also filed applications regarding multimers of proteins related to
TBPs. While no patent has issued in Europe, a patent has issued in the U.S.,
which is involved in an interference with an Immunex application. Immunex is
the senior party in the interference, which is in its preliminary stages.
Yeda has also filed applications claiming methods of using TBPs in treatment
of various diseases, including RA. A patent has issued to Yeda in the U.S.
that claims a method of using TBPs to treat RA. The Company believes that
this patent may be invalid, and also that an interference may be declared
between this patent and an Immunex patent application. Roche and Amgen,
through Synergen Inc. ("Synergen"), also filed patent applications directed
to p80 TNFR DNAs after the date Immunex filed its application. No patents
have been issued to Roche. In January 1998, the EPO granted a patent to Amgen
claiming DNA and amino acid sequences encoding a variant of p80 TNFR
disclosed in the Synergen application that differs from that disclosed in the
Immunex granted patents covering p80 TNFR. Since the applications giving rise
to the Immunex patents covering TNFR were filed earlier than Synergen's, the
Company believes that the Amgen patent cannot be legally asserted to cover
TNFR:Fc, which includes the sequences patented by Immunex. If BASF, Roche,
Amgen or Yeda were able to validly assert TNFR patents to cover TNFR:Fc, the
Company's or AHP's commercialization of TNFR:Fc would be impeded in any
territories in which such patents were in force. A U.S. patent has also been
issued to the Board of Regents of the University of Texas System ("U.T.")
that contains claims relating to TNFR:Fc fusions. U.T. has assigned this
patent to Immunex. Immunex has also been granted a royalty-bearing worldwide
exclusive license under patent rights jointly owned by Hoechst and
Massachusetts General Hospital claiming cytokine receptor-Fc fusion proteins,
including TNFR:Fc. Genentech has been issued U.S. patents having claims
directed to certain fusion proteins comprising Fc domains, and has also filed
corresponding European applications that have not yet been granted. Immunex
has also completed a comprehensive analysis of the validity and scope of the
Genentech patents, which indicates that substantial defenses may exist to the
enforcement of such patents. If Genentech was able to validly assert its
fusion patents to cover TNFR:Fc, the Company's or AHP's commercialization of
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TNFR:Fc would be impeded in any territories in which such patents were in
force. In general, with respect to any of the patents discussed above,
it is the Company's intention to mount a vigorous defense should any
patent be asserted against activities relating to TNFR:Fc, or, in
appropriate cases, to take a license under appropriate terms. At this
time, however, it remains uncertain whether any of these patents will be
asserted against activities relating to TNFR:Fc, and, if so, the outcome
of any litigation or licensing negotiations.
Mobist Flt3-L. In 1996 Immunex was granted a U.S. patent covering Flt3-L
DNA, and Immunex is currently seeking patents worldwide for Flt3-L proteins
and various methods of using Flt3-L.
Nuvance IL-4R. Immunex has been issued a U.S. patent covering IL-4R
proteins and pharmaceutical compositions, and an Immunex U.S. patent directed
to IL-4R DNAs has been allowed by the USPTO. IL-4R patents have also been
granted to Immunex in Europe and certain other foreign countries.
Non-Biological Oncology Products. Novantrone (mitoxantrone) is a
proprietary product that is covered by several U.S. and Canadian patents. The
patent covering the mitoxantrone compound in the U.S. expired in August 1997.
However, a separate U.S. patent covering pharmaceutical formulations
containing mitoxantrone does not expire until July 2000. A U.S. patent
covering methods of using mitoxantrone to treat leukemia and solid tumors
does not expire until April 2006, and another U.S. patent covering methods of
using mitoxantrone to treat neuroimmunologic diseases, including MS, does not
expire until June 2005. AHP holds a manufacturing process patent on thiotepa
in the U.S. and Canada. Although methotrexate is the subject of certain
patents held by AHP, the protection afforded by such patents is not material.
Immunex has no patent protection on leucovorin calcium, Amicar or Levoprome.
Wyeth-Ayerst Research and Immunex are pursuing several collaborative
preclinical research areas to discover or develop other new oncology
products. AHP and Immunex intend to pursue all protection of all forms of
intellectual property, including, but not limited to, patents, trade secrets,
Orphan Drug exclusivity, and benefits of the Waxman-Hatch Legislation, for
all inventions, discoveries and developments in these areas of research.
Patent and Technology Licenses. Under its royalty-bearing patent and
technology license agreements, Immunex is obligated to pay royalties on sales
of products produced using the licensed technologies. Following the
expiration of the Cohen-Boyer patents in 1997, Immunex is no longer obligated
to pay royalties under such patents in respect of all recombinant DNA based
products. However, Immunex continues to pay royalties to university licensors
of certain yeast and mammalian-cell expression technologies employed in
making Leukine and certain other products. Immunex is also obligated to pay
royalties to Hoechst, Novartis and RCT in respect of the sales of Leukine,
and has agreed to pay royalties to Hoechst and Massachusetts General Hospital
in respect of the sales of Enbrel, if any. Immunex may elect to enter into
additional royalty-bearing license agreements with licensors of patents
claiming technologies related to Enbrel. Although the total royalty burden
for Enbrel is subject to the successful completion of negotiations with such
licensors, it is not expected to adversely affect the Company's ability to
successfully commercialize Enbrel. There can be no assurance, however, that
patent license negotiations with any licensors can be successfully maintained
or completed, or that the total royalties payable under any agreements
resulting from such negotiations will not have a material adverse effect on
the Company's business.
Trademarks. The Company is the owner of all of its trademarks used in
its business.
PROPERTIES
Immunex's principal place of business is located in two adjacent
buildings located in the 1200 block of Western Avenue in Seattle, Washington.
These buildings, comprising a total of 160,000 square feet, house its primary
laboratory and office facilities, as well as a 10,000 square foot
fermentation and pharmaceutical manufacturing facility that has been licensed
by the FDA to produce Leukine. The current lease terms for these buildings
extend through August 2000, with three three-year renewal options at market
value. In addition to its primary facility, Immunex leases a total of
approximately 70,000 square feet of additional office space in two other
buildings located in downtown Seattle, and also a 13,000 square foot
ancillary research facility in a third building in Seattle. The total current
rent payments for the foregoing facilities was approximately $3.3 million in
1997 and is forecast to be approximately $4.4 million in 1998.
Immunex owns a manufacturing and development center in Bothell,
Washington that includes a large-scale microbial manufacturing facility and a
separate mammalian cell-based protein manufacturing facility. These
facilities were used to produce TNFR:Fc for Immunex's clinical trials in
1997; however, such facilities lack sufficient capacity to produce commercial
quantities of TNFR:Fc. See "Supply." The microbial manufacturing facility and
the mammalian cell facility have previously been used to conduct contract
manufacturing for other companies. Immunex did not use the microbial
manufacturing facility or the mammalian cell manufacturing facility for
contract manufacturing for other companies in 1997. Immunex does not
anticipate entering into any contract manufacturing agreements with other
companies for such
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facilities in the foreseeable future. In 1998, the Company intends to
begin construction of a new process science facility at the Company's site in
Bothell, Washington. This new process science facility is expected to
speed process improvements and development of the Company's recombinant
products.
The Company is currently exploring several alternatives in order to meet
its long-term facility needs. The Company owns approximately 20 acres of
undeveloped land adjacent to its manufacturing and development center in
Bothell, Washington. In addition, Immunex has entered into a purchase and
sale agreement with the Port of Seattle concerning the purchase of a 29-acre
parcel of land located in Seattle, Washington, known as Terminal 88. Pursuant
to the terms of the agreement, Immunex will not be committed to complete the
purchase until it has approved the results of complete due diligence review
of the property and obtained a master use permit and other governmental
authorizations needed to enable the property to be developed and used in
accordance with the Company's plans. Immunex anticipates that all of these
conditions will be satisfied and that it will purchase Terminal 88 in the
first half of 1998.
PERSONNEL
As of December 31, 1997, Immunex and its wholly owned subsidiary,
Immunex Manufacturing Corporation, employed a total of 886 persons, of whom
109 hold doctoral degrees, 401 were engaged in research and development, 155
in manufacturing and 149 in sales and marketing. Each employee has entered
into a confidentiality agreement that contains provisions requiring
disclosure of ideas, developments, discoveries or inventions conceived during
employment, and assignment to the Company of all proprietary rights to such
matters.
None of the Company's employees is covered by a collective bargaining
agreement.
The Company's ability to maintain its competitive position will depend,
in part, upon its continued ability to attract and retain qualified
scientific and managerial personnel, and certain key employees. Competition
for such personnel is intense, and there can be no assurance that the Company
will be able to attract and retain such personnel.
RISK FACTORS
The Company may from time to time make written or oral forward-looking
statements. Written forward-looking statements may appear in documents filed
with the Securities and Exchange Commission, in press releases, and in
reports to shareholders. The Private Securities Litigation Reform Act of 1995
contains a safe harbor for forward-looking statements on which the Company
relies in making such disclosures. In connection with this safe harbor
provision, the Company is hereby identifying important factors that could
cause actual results to differ materially from those contained in any
forward-looking statement made by or on behalf of the Company. Any such
statement is qualified by reference to the following cautionary statements:
History of Operating Losses and Uncertainty of Financial Results
The Company's revenues to date have consisted of product sales, royalty
and contract revenue, and interest income. Historically, the Company's
expenses have generally exceeded revenues and there can be no assurance that
significant additional losses will not occur in the future or that the
Company will be profitable in the future. The Company had an accumulated
deficit as of December 31, 1997 of approximately $480 million. The Company
anticipates that its operating expenses and capital expenditures may increase
significantly in 1998 and in subsequent years as it adds the personnel and
facilities associated with advancing products through development, clinical
trials and manufacturing scale-up. The amounts and timing of expenditures
will depend on the progress of ongoing research and development, the results
of preclinical testing and clinical trials, the rate at which operating
losses are incurred, the execution of any development and licensing
agreements with corporate partners, the Company's development of products,
the FDA regulatory process and other factors, many of which are beyond the
Company's control. Incremental costs in the future may include, but are not
limited to, those associated with the Company's own product development,
preclinical studies, clinical trials, manufacturing scale-up, construction of
a new process science facility at the Company's site in Bothell, Washington
and, subject to completion of certain conditions, the acquisition of Terminal
88 for the relocation of the Company's corporate offices and research
facilities. Other incremental costs may also include, but are not limited to,
sharing of development expenses with AHP under various research and
development agreements entered into between the Company and AHP. Although the
Company expects its current production facilities to be suitable for
production of sufficient quantities of the Company's products for
early-stage, and, in some cases, late-stage clinical trials of its
recombinant products, such facilities will not be capable of or suitable for
producing the quantity of some of the Company's products necessary for all
clinical trials or commercial sale, including TNFR:Fc. If the Company chooses
to establish additional manufacturing capability, significant capital
expenditures would be required.
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The Company expects to incur additional operating losses in 1998. The
ability of the Company to achieve profitability in subsequent years depends,
among other things, on increasing sales of its existing products,
successfully completing product development efforts and obtaining timely
regulatory approvals of its lead clinical products, particularly Enbrel. The
development of the Company's products will require the commitment of
substantial resources to conduct the time-consuming research, preclinical
development and clinical trials necessary to bring such products to market
and to establish production capabilities. There can be no assurance that the
Company will generate significant revenues or achieve profitability.
The Company anticipates that its accumulated cash reserves, together
with AHP's payment obligations to the Company, including milestone payments
under the Promotion Agreement, should be sufficient to fund the Company's
cash requirements through 1998. 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 Enbrel and its other products and technology. There can
be no assurance that these products and technologies will be successfully
developed or commercialized. Further, there can be no assurance that the
underlying assumed levels of revenue and expense will prove to be accurate.
Uncertainty Associated With Preclinical and Clinical Testing
Before obtaining regulatory approvals for the commercial sale of any of
the Company's potential new products, the products will be subjected to
extensive preclinical and clinical testing to demonstrate their safety and
efficacy in humans. Results of initial preclinical and clinical testing of
products under development by the Company are not necessarily indicative of
results that will be obtained from subsequent or more extensive preclinical
and clinical testing. Furthermore, there can be no assurance that clinical
trials of products under development will be completed or will demonstrate
the safety and efficacy of such products at all or to the extent necessary to
obtain regulatory approvals. Companies in the biotechnology industry have
suffered significant setbacks in advanced clinical trials, even after
achieving promising results in earlier trials. The failure to adequately
demonstrate the safety and efficacy of a therapeutic product under
development could delay or prevent regulatory approval of such product.
The rate of completion of clinical trials depends on, among other
factors, the enrollment of patients. Patient accrual is a function of many
factors, including the size of the patient population, the proximity of
patients to clinical sites, the eligibility criteria for the study and the
existence of competitive clinical trials. Delays in planned patient
enrollment in the Company's current clinical trials or future clinical trials
may result in increased costs, program delays or both.
No Assurance That New Products Will Be Successfully Developed
The Company's realization of its long-term potential will be dependent
upon the successful development and commercialization of products currently
under development, particularly Enbrel. There can be no assurance that Enbrel
or any of the other Company products under development will be developed
successfully or receive regulatory approval. Furthermore, there can be no
assurance that Enbrel or these other Company products, if developed and
approved, can be successfully manufactured in quantities necessary for
commercialization or that Enbrel or such other Company products will receive
market acceptance.
Governmental Regulation; No Assurance of Product Approval
The FDA and comparable agencies in foreign countries impose substantial
requirements on biotechnology and pharmaceutical companies prior to the
introduction of therapeutic products. These requirements include lengthy and
detailed laboratory and clinical testing procedures, sampling activities and
other costly and time-consuming procedures, all of which taken together
involve the expenditure of substantial resources. Satisfaction of these
requirements typically takes a number of years and varies substantially based
on the type, complexity and novelty of the pharmaceutical. The Company cannot
accurately predict when it might submit product applications or submissions
for FDA or other regulatory review with respect to its products under
development, including Enbrel. Governmental regulation also affects the
manufacture and marketing of pharmaceutical products.
Any future FDA or other governmental approval of products developed by
the Company may entail limitations on the indicated uses for which such
product may be marketed. Approved products may be subject to additional
testing and surveillance programs as required by regulatory agencies. In
addition, product approvals may be withdrawn or limited for noncompliance
with regulatory standards or the occurrence of unforeseen problems following
initial marketing.
20
<PAGE>
The effect of governmental regulation may be to delay marketing new
products for a considerable period of time, to impose costly requirements on
the Company's activities or to provide a competitive advantage to other
companies that compete with the Company. There can be no assurance that FDA
or other regulatory approval for any future products or for any additional
indications for previously approved products developed by the Company will be
granted on a timely basis, if at all. Adverse clinical results by others
could have a negative impact on the regulatory process and timing. A delay in
obtaining or failure to obtain regulatory approvals could adversely affect
the marketing of the Company's products and the Company's liquidity and
capital resources. In addition, future legislation or administrative action
may result in governmental regulations adverse to the Company. The extent of
potentially adverse governmental regulation that might arise from future
legislation or administrative action cannot be predicted.
The Company is also subject to various federal, state and local laws,
regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices, the experimental use of animals and
the use and disposal of hazardous or potentially hazardous substances,
including radioactive compounds and infectious disease agents, used in
connection with its research work. See "Government Regulation."
Uncertain Availability of Third-Party Reimbursement and Product Pricing
The Company's ability to commercialize products successfully will depend
substantially on reimbursement of the costs of such products and related
treatments at acceptable levels from government authorities, private health
insurers and other organizations, such as health maintenance organizations
("HMOs"). To date, efforts to obtain reimbursement in connection with the
Company's marketed products have been largely successful; however,
uncertainty exists, and will continue to exist, as to the reimbursement
status of newly approved healthcare products. There can be no assurance that
the extent of government or third-party reimbursement will permit the Company
to realize an appropriate return on its investment in developing new
therapies, including Enbrel, or, if available, will not be decreased in the
future, or that reimbursement amounts will not reduce the demand for, or the
price of, the Company's products, thereby adversely affecting its business.
As a part of their efforts to control health care costs, government and other
third-party payors have focused on limiting both coverage and the extent of
reimbursement for new therapeutic products. If adequate coverage and
reimbursement levels are not provided by government and third-party payors
for uses of the Company's therapeutic products, including Enbrel, the market
acceptance of these products would be adversely affected.
Third-party payors are increasingly challenging the prices charged for
medical products and services. Also, the trend toward managed healthcare in
the U.S. and the concurrent growth of organizations, such as HMOs, that can
control or significantly influence the purchase of healthcare services and
products, as well as legislative proposals to reform healthcare or reduce
government insurance programs, may result in lower prices for therapeutic
products. The cost-containment measures that healthcare providers are
instituting, including practice protocols and guidelines, clinical pathways,
and the effect of any healthcare reform could materially adversely affect the
Company's ability to sell its existing products and to sell additional
products if successfully developed and approved. Moreover, the Company is
unable to predict what additional legislation or regulation, if any, relating
to the healthcare industry or third-party coverage and reimbursement may be
enacted in the future or what effect such legislation or regulation would
have on the Company's business.
Limited Manufacturing Capability
The Company does not currently possess sufficient manufacturing capacity
to manufacture its forecasted commercial requirements for Enbrel or all of
its mammalian cell-based protein products under development. In 1997 the
Company signed agreements with an unaffiliated contract manufacturer to
manufacture Phase III clinical trial supplies for TNFR:Fc. The Company is
negotiating a long-term supply agreement with the contract manufacturer to
manufacture commercial quantities of TNFR:Fc. There can be no assurance that
these negotiations will be successfully completed. No assurance can be given
that, if Enbrel receives regulatory approval, any contract manufacturer will
be able to successfully manufacture sufficient quantities of TNFR:Fc for
commercial supply, or that the Company will not be required to invest
substantial sums to construct facilities sufficient to meet its long-term
manufacturing requirements for Enbrel and other products.
21
<PAGE>
Dependence on Others
All finished dosage forms for the Non-Biological Oncology Products are
manufactured by AHP subsidiaries or sourced by AHP through third-party
manufacturers. Bulk active raw materials for the Non-Biological Oncology
Products are either manufactured by AHP subsidiaries or sourced by AHP from
third-party manufacturers. AHP is dependent on a single supplier for all of
its requirements of the essential raw material for Amicar. Substantially all
the raw materials used to manufacture the Company's recombinant protein
products are available from multiple sources. The Company also relies upon an
unaffiliated third party and AHP for the fill and finish of all drug products
marketed by the Company. If AHP subsidiaries or third-party manufacturers or
suppliers were to cease production or otherwise fail to supply such materials
or products to AHP or the Company, as the case may be, the Company could
experience a disruption in obtaining these products. In addition, if the
Company's contract manufacturer for TNFR:Fc were to cease production or
otherwise fail to supply TNFR:Fc to the Company, the Company would experience
a disruption in obtaining this product.
Risk of Competitive Conflict with AHP
In December 1996, Genetics Institute, Inc. ("GI"), a major biotechnology
concern that is developing immunology and oncology products, became a wholly
owned subsidiary of AHP. Initially, GI operated as a separate subsidiary
within AHP. In March 1998, AHP announced the integration of the research and
development operations of GI and Wyeth-Ayerst Research, AHP's pharmaceutical
research division, and appointed former senior managers of GI to fill senior
management positions at Wyeth-Ayerst Research. Currently, Immunex is
developing a number of products that may compete with products being
developed by GI. In addition, since Immunex and GI have major research
projects in molecular biology and immunology, the potential for additional
competition exists among compounds and molecules that are in the early stage
of development at Immunex and GI. AHP has acknowledged its fiduciary duty to
the minority shareholders of Immunex as the majority shareholder, and has
represented to Immunex that it will protect Immunex's proprietary scientific
and business information and will not use Immunex's proprietary information
to aid development of competitive AHP products or place any Immunex product
at a competitive disadvantage. Also, certain of the agreements between AHP
and Immunex contain confidentiality provisions, and Immunex has commenced
discussions with AHP regarding the implementation of additional safeguards to
protect Immunex's proprietary information. Notwithstanding the foregoing,
however, there can be no assurance that Immunex's proprietary information or
competitive position will be protected. Any failure to protect Immunex's
proprietary information or competitive position could have a material adverse
effect on Immunex's business and financial condition.
Uncertainty Relating to Patents and Proprietary Rights
Because of the length of time and expense associated with bringing new
products through development and the governmental approval process to the
marketplace, the biotechnology and pharmaceutical industries rely on patent
and trade secret protection for significant new technologies, products and
processes. The Company, like other biotechnology and pharmaceutical firms, is
seeking and maintaining patents for its products and technologies. The
enforceability of patents issued to biotechnology and pharmaceutical firms
can be highly uncertain. Federal court decisions indicating legal
considerations surrounding the validity of patents in the field are in
transition, and there can be no assurance that the historical legal standards
surrounding questions of validity will continue to be applied or that current
defenses as to issued patents in the field will, in fact, be considered
substantial in the future. In addition, there can be no assurance as to the
degree and range of protection any patents will afford, whether patents will
issue or the extent to which the Company will be successful in avoiding
infringement of patents granted to others.
While the Company pursues patent protection for products and processes
where appropriate, it also relies on trade secrets, know-how and continuing
technological advancement to develop and maintain its competitive position.
The Company's policy is to have each employee enter into a confidentiality
agreement that contains provisions prohibiting the disclosure of confidential
information to anyone outside the Company, and which also contains provisions
requiring disclosure of ideas, developments, discoveries or inventions
conceived during employment, and assignment to the Company of all proprietary
rights to such matters. Research and development contracts and relationships
between the Company and its scientific consultants provide access to aspects
of the Company's know-how that is protected generally under confidentiality
agreements with the parties involved. There can be no assurance, however,
that these confidentiality agreements will be honored or that the Company can
effectively protect its rights to its unpatented trade secrets. Moreover,
there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets.
22
<PAGE>
The Company may be required to obtain licenses to patents or other
proprietary rights from third parties. There can be no assurance that any
licenses required under any patents or proprietary rights will be made
available on terms acceptable to the Company, if at all. If the Company does
not obtain required licenses, it could encounter delays in product
development while it attempts to redesign products or methods or it could
find that the development, manufacture or sale of products requiring such
licenses could be foreclosed. In addition, the Company could incur
substantial costs in defending any patent litigation brought against it or in
asserting the Company's patent rights, including those licensed to the
Company by others, in a suit against another party. Competitors of the
Company have obtained or are seeking patents which, if issued or granted, may
have a material adverse effect on the Company's ability to successfully
commercialize TNFR:Fc. See "Patents, Licenses and Trademarks."
Technological Change and Competition
The Company is engaged in fields characterized by extensive research
efforts and rapid technological development. New drug discoveries and
developments in the fields of genomics, rational drug design and other drug
discovery technologies are accelerating. There are many companies and
institutions, both public and private, including pharmaceutical companies,
chemical companies, specialized biotechnology companies and research,
government or academic institutions, that are engaged in developing synthetic
pharmaceuticals and biotechnological products for human therapeutic
applications, including the applications targeted by the Company.
A number of competitors of the Company have substantially more capital,
research and development, regulatory, manufacturing, marketing, human and
other resources and experience than the Company. The trend among large
pharmaceutical companies toward increasing consolidation has increased the
resources available to the major companies and further concentrated
intellectual property assets in such competitors. Such competitors may
succeed in developing products that are more effective or less costly than
any developed by, or that may be developed by, the Company and may also be
more successful than the Company in production and marketing. There can be no
assurance that competitors will not succeed in developing technologies and
products that are more effective than any being developed by the Company or
that would render the Company's technology and products obsolete or
noncompetitive. See "Competition."
Potential Product Liability
The testing and marketing of biotechnology and pharmaceutical products
entail an inherent risk of product liability. Such risk exists in human
clinical trials and even with respect to those products that receive
regulatory approval for commercial sale. There can be no assurance that the
Company can avoid significant product liability exposure. The Company
currently maintains product liability insurance coverage, which management
believes to be adequate, based on the Company's product portfolio, sales
volumes and claims experience to date. It is intended that the Company will
continue such coverage. Such insurance is expensive and may become
unavailable or difficult to obtain in the future, or available coverage may
become more limited. There can be no assurance that the Company will be able
to obtain or maintain such insurance in the future on acceptable terms or
that such insurance will provide adequate coverage against potential
liabilities either for clinical trials or commercial sales. The Company's
business may be adversely affected by successful product liability claims in
excess of its insurance coverage.
Hazardous Materials; Environmental Matters
The Company's research and development activities involve the controlled
use of hazardous materials, chemicals, viruses and radioactive compounds. The
Company is subject to federal, state and local laws and regulations governing
the use, manufacture, storage, handling and disposal of such materials and
certain waste products. Although the Company believes that its safety
procedures for the handling and disposal of such materials comply with the
standards prescribed by such laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated.
In the event of such an accident, the Company could be held liable for any
damages that result and any such liability could exceed the Company's
resources. The Company may be required to incur significant costs to comply
with environmental laws and regulations in the future. The Company's
operations, business or assets may be materially adversely affected by
current or future environmental laws or regulations. See "Government
Regulation."
23
<PAGE>
Item 2. Properties
See "Properties" above, under Item 1.
Item 3. Legal Proceedings
Immunex is currently a party to several interference proceedings in the
USPTO. In addition to the GM-CSF interference, which Immunex and Novartis
have agreed to settle, Immunex is involved in other interferences, including
an interference involving a patent issued to Yeda that discloses and claims
certain TBP multimers. See "Patents and Trademarks" above, under Item 1. In
the Company's opinion, an adverse result in any of the other pending
interference proceedings would not have a material adverse effect on the
Company's operations or prospects. However, additional interferences may be
declared involving other products or technologies being developed by Immunex,
including TNFR:Fc, Flt3-L or CD40-L.
On January 8, 1998, BMS filed a complaint in the U.S. District Court in
Newark, New Jersey, alleging infringement by Immunex of two U.S. patents held
by BMS pertaining to Taxol. See "Paclitaxel" above, under Item 1. Immunex
filed an answer to the complaint on February 9, 1998. In the Company's
opinion, an adverse result in this lawsuit would not have a material adverse
effect on the Company's operations or prospects.
Immunex is not a party to any other material litigation.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of its fiscal year ended December 31, 1997.
24
<PAGE>
PART II
Item 5. Market Price of the Registrant's Common Stock and Related
Stockholder Matters
The Company's common stock is traded on The Nasdaq Stock Market-sm-
under the symbol IMNX.
The following table sets forth for each period indicated the high and low
sales prices for the Company's common stock as quoted on The Nasdaq Stock
Market.-sm-
<TABLE>
<CAPTION>
1997 1996
-------------------- ------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter 33 18 7/8 17 15 1/8
2nd Quarter 39 23 1/4 16 1/2 13 5/8
3rd Quarter 68 1/4 32 7/8 14 1/8 11 1/2
4th Quarter 80 3/8 45 1/4 19 1/2 12 5/8
</TABLE>
There were approximately 1,334 holders of record of the Company's common
stock as of March 10, 1998, which does not include the number of shareholders
whose shares are held of record by a broker or clearing agency, but does include
such a broker or clearing agency as a holder of record.
The Company has not paid any cash dividends since its inception. The
Company currently does not intend to pay any cash dividends in the foreseeable
future, but intends to retain all earnings, if any, for use in its business
operations.
In connection with the Company's stock option plan, the Company has issued
shares of Immunex Common Stock upon exercise of employee stock options. Under
the terms of the Governance Agreement with AHP, AHP has the right to purchase
shares from Immunex to maintain AHP's percentage ownership interest following
the issuance of Immunex Common Stock. See "Relationship with Cyanamid and AHP"
in Item 1, above. In November 1997, AHP exercised their right under the
Governance Agreement and Immunex issued 28,223 shares of common stock to AHP for
$1,280,000. The Company believes that the sale of these securities were exempt
from registration under the Securities Act of 1933, as amended, pursuant to
Section 4.2 thereof.
Item 6. Selected Financial Data (in thousands, except per share amounts)
On June 1, 1993, the Company was merged with and into Lederle Oncology
Corporation, a wholly owned subsidiary of American Cyanamid Company. See the
notes to the consolidated financial statements in Item 8 below for a description
of the Merger. The selected financial data as of and for the years ended
December 31, 1997, 1996, 1995 and 1994, respectively, and the period June 2,
1993 to December 31, 1993, are those of the Company subsequent to the Merger.
The selected financial data for the period January 1, 1993 to June 1, 1993 are
those of the Company prior to the Merger.
<TABLE>
<CAPTION>
Period Period
6/2/93 1/1/93
to to
1997 1996 1995 1994 12/31/93 6/1/93
----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 185,297 $ 151,198 $ 156,616 $ 144,332 $ 95,310 $ 27,556
Net loss (15,772) (53,632) (11,300) (33,104) (366,135) (64,167)
Net loss per common share (0.40) (1.35) (0.29) (0.85) (9.58) (4.17)
Total assets 227,333 177,787 174,037 192,665 204,118 -
Long-term debt and obligations,
including current portion 9,093 12,071 5,324 50,611 23,450 -
Shareholders' equity 176,156 137,710 136,643 111,927 137,863 -
</TABLE>
25
<PAGE>
Item 7. 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 made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
words "believes," "anticipates," "expects" and similar expressions are intended
to identify such forward-looking statements, but their absence does not mean a
statement is not forward-looking. 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 Immunex Corporation ("Immunex" or the "Company"). Certain risk factors
have been identified that could affect the Company's actual results and are
described in the "Risk Factors" section in Item 1 above. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as to 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.
RESULTS OF OPERATIONS
Overview
For the year ended December 31, 1997, the Company incurred a net loss of
$15.8 million, compared to net losses of $53.6 million and $11.3 million for
the years ended December 31, 1996 and 1995, respectively. The 1997 operating
results reflect growth in sales of the Company's two lead products,
Novantrone-Registered Trademark- (mitoxantrone) and Leukine-Registered
Trademark- (sargramostim), as compared to sales levels in fiscal 1996 and
1995. In addition, following the announcement that the results of a pivotal
Phase III study for Enbrel-TM- (TNFR:Fc) were positive, the Company entered
into an Enbrel Promotion Agreement ("Promotion Agreement") with American Home
Products Corporation ("AHP") which contributed to increased contract revenues
during the year. The increase in operating revenues during 1997 was partially
offset by increased spending on the Company's near-term product
opportunities, discovery research and selling and marketing programs.
Revenues
Product sales increased in 1997 to $149.7 million, versus $129.5 million
and $137.6 million in 1996 and 1995, respectively. The Company believes that the
increase in product sales in 1997 resulted from two key events. In November
1996, the Company received an expanded label indication for Novantrone and in
January 1997, the Company launched a multi-dose liquid formulation of Leukine.
These developments were followed by sales and marketing programs designed to
capitalize on these opportunities. The higher product sales in 1997 were
partially offset by the continued erosion of leucovorin calcium sales levels.
Leucovorin calcium has experienced intense generic competition over the past
several years, resulting in decreased sales of this product in each of the years
presented. Product sales for 1996, as compared to 1995, reflected a decline in
sales of Novantrone that were affected by distributor buying patterns late in
1995.
Net sales of Leukine totaled $52.7 million, $43.1 million, and $41.4
million in 1997, 1996, and 1995, respectively. After several years of little or
no growth in sales of Leukine, sales volumes increased substantially during
1997. This performance is attributable to several factors. In late 1995, the
Company received United States Food & Drug Administration ("FDA") approval to
market Leukine for treatment of acute myelogenous leukemia, allogenic bone
marrow transplantation and for mobilizing and post-transplantation support of
peripheral blood progenitor cells. These additional indications contributed to
sales growth in the hospital setting during fiscal 1996 and 1997. The growth in
1996 in the hospital setting, however, was largely offset by a decrease in the
use of Leukine in the outpatient setting. Prior to November 1996, Leukine was
only available in a lyophilized formulation that required reconstitution prior
to administration. Hospitals utilized specialized mixing equipment, not widely
available in the outpatient setting, to reconstitute Leukine. In November 1996,
the FDA approved a multi-dose liquid formulation of Leukine that did not require
reconstitution, thereby offering increased convenience for all patient settings.
The improved formulation, coupled with the Company's sales and marketing
strategies, resulted in an increase in Leukine sales during 1997.
Net sales of Novantrone totaled $51.6 million, $36.7 million and $43.0
million in 1997, 1996 and 1995, 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 ("HRPC"). Sales of Novantrone benefited immediately from this
approval as oncologists' use of Novantrone in 1997 as a treatment therapy for
HRPC increased significantly from historical levels. Sales of Novantrone during
fiscal 1996 decreased, as compared to 1995, primarily due to distributor
purchasing patterns in late 1995 which adversely affected sales levels in early
1996. During the last quarter of 1995, wholesalers and oncology distributors
increased their purchases of Novantrone above historical purchasing levels. This
was followed by a much lower than anticipated sales level during the first
quarter of 1996.
26
<PAGE>
Net sales of leucovorin calcium declined to $8.2 million in 1997 from $12.1
million in 1996 and $18.4 million in 1995. Leucovorin calcium is a generic
product that has been subject to intense competition over the past several years
resulting in declining sales volumes and selling prices. In June 1997, a
competitor received FDA approval to market a 350 mg vial of leucovorin calcium,
the only remaining leucovorin calcium product the Company markets that did not
have direct competition. This development accelerated the decline in sales of
leucovorin calcium to the point that leucovorin calcium is not, nor is expected
to be in the future, a significant revenue source for the Company.
Royalty and contract revenue increased to $35.6 million in 1997, compared
to $21.7 million and $19.0 million in 1996 and 1995, respectively. The amount of
revenues recognized each year has been largely dependent upon business
opportunities identified during the year and the achievement of milestones under
existing contracts. Due to the nature of these agreements and the dynamic nature
of intellectual property transactions in the biotechnology industry, the timing
and amounts of these revenues may fluctuate significantly from year to year. In
September 1997, following the unblinding of the results of a pivotal Phase III
study for Enbrel, the Company and AHP entered into a Promotion Agreement
pursuant to which AHP, acting through its Wyeth-Ayerst Laboratories division,
has agreed to promote Enbrel in North America, if and when the product receives
regulatory approval. Upon signing of the Promotion Agreement in September 1997,
the Company received $15.0 million from AHP. In addition, in December 1997, the
Company sold its rights to certain products marketed in Canada to a wholly owned
subsidiary of AHP for $4.0 million.
The incremental royalty and contract revenues earned during fiscal 1997
were partially offset by a drop in license fee income, as compared to fiscal
1996. License fee income in 1997, 1996 and 1995 totaled $7.8 million, $10.8
million and $6.6 million, respectively, of which $6.0 million was earned in each
of the years presented under license agreements with AHP. In 1995, the Company
initiated a program to use surplus capacity at its manufacturing development
center to perform contract manufacturing services for certain customers. Due to
the internal manufacturing needs for the development and manufacturing of the
Company's clinical and preclinical product candidates, the Company ceased
initiating new contract manufacturing arrangements in 1996. Revenue recognized
from performing these services decreased to $3.3 million in 1996, compared to
$6.4 million in 1995. No related revenue was earned in 1997, nor is any such
revenue expected to be earned for the foreseeable future. The Company earns
royalty income under several technology license agreements. Royalties earned by
the Company under such agreements in 1997, 1996, and 1995 totaled $6.9 million,
$5.7 million and $5.8 million, respectively.
Operating Expenses
Cost of product sales was $24.6 million, or 16.4% of product sales, $21.9
million, or 16.9% of product sales and $24.6 million, or 17.8% of product sales,
for the years ended December 31, 1997, 1996 and 1995, respectively. Cost of
product sales, as a percentage of product sales, varies from period to period
due to the relative mix of the products sold during each period presented and
fluctuations in costs not charged to a specific manufacturing lot ("Period
Costs") from year to year. Period Costs consist primarily of product stability
testing, standard material variances and excess capacity charges. A decrease in
the cost of product sales percentage occurred during fiscal 1997 due to
favorable changes in the mix of products during the year to include a relatively
higher percentage of the Company's more profitable products. This decrease was
partially offset, however, by a moderate increase in Period Costs incurred
during the year and, to a lesser extent, deteriorating margins on sales of
leucovorin calcium. The decrease in the cost of product sales percentage during
1996, as compared to 1995, was due primarily to a decrease in Period Costs and
changes in product mix.
Research and development expense increased to $109.3 million in 1997
compared to $96.6 million and $83.5 million in 1996 and 1995, respectively. The
increase in each of the years presented is due primarily to increased
expenditures related to the Company's development research activities, which
include charges for production of clinical material, manufacturing production
scale-up and the costs of conducting clinical studies. Following the positive
results of a Phase II clinical study of TNFR:Fc in patients with rheumatoid
arthritis in late 1995, the Company began making substantial investments in the
development of Enbrel. In 1997, accelerating development of this product
candidate became a primary focus of the Company and spending levels increased
significantly. The Company has been conducting numerous clinical studies with
Enbrel, including a pivotal Phase III study in patients with advanced rheumatoid
arthritis, which was completed in the third quarter of 1997. The Company has
also been working with a contract manufacturer for the production of clinical
material and, during the third quarter of 1997, successfully completed the
manufacturing scale-up of Enbrel to commercial quantities. Spending on other
product candidates, including Mobist-TM- (Flt3-L), Nuvance-TM- (IL-4 receptor)
and CD40 ligand has also increased during each of the years presented. To a
lesser extent, the increase in research and development expense in the current
year represents increased investment in discovery research as the Company
increased staffing levels in this area. In 1996, discovery research expense
decreased, as compared to 1995, as resources were re-allocated to support the
Company's clinical development programs.
27
<PAGE>
In July 1996, Immunex and AHP amended their agreements related to research
and development of new oncology products and development of Enbrel and Mobist.
Under the terms of the revised research agreement, the Company will contribute
50%, up to a maximum amount of $16 million per year (adjusted annually for
inflation beginning in 1997), to support AHP's discovery research in oncology.
If the Company elects to retain its North American product rights to any
clinical products emerging from certain internal AHP oncology discovery
programs, the Company and AHP will share the related development costs. Expenses
incurred under these agreements totaled $16.2 million in 1997 compared to $21.2
million and $15.8 million in 1996 and 1995, respectively. Immunex and AHP also
established joint project management systems for development of Enbrel and
Mobist and agreed to share the costs of developing these products in North
America and Europe. Under the terms of these agreements, Immunex retains North
American marketing rights and AHP retains marketing rights for territories
outside North America. To date, Immunex has been incurring a significant
majority of these development costs and, accordingly, has been receiving
reimbursement from AHP for its share of these costs. With the increased spending
on development of Enbrel in 1997, AHP's obligation for shared development costs
also increased, totaling $18.7 million in 1997 compared to $3.9 million in 1996.
In addition to its agreements with AHP, the Company has entered into several
other collaborative research agreements to facilitate the achievement of its
research and development goals. Expenses under these other agreements totaled
$4.5 million, $1.6 million and $1.1 million in 1997, 1996 and 1995,
respectively.
Selling, general and administrative expenses totaled $71.3 million, $70.0
million and $59.3 million in 1997, 1996 and 1995, respectively. The growth in
expense levels during both 1997 and 1996 was due primarily to an increase in
selling and marketing expenses. Beginning in 1996, and continuing in 1997, the
Company increased spending on selling and marketing programs in order to promote
expanded label indications for both Novantrone and Leukine and a multi-dose
liquid formulation for Leukine. Also, in 1997, selling expenses increased as
additional sales programs were implemented and the Company's sales force was
expanded. In addition, beginning in 1996, the Company increased spending on
corporate infrastructure, primarily through investment in information
technology, which continued into 1997. Finally, the Company incurred legal fees
and expenses in 1997 in connection with patent procurement and patent defense
activities.
Although total selling, general and administrative expenses increased by
only $1.3 million during 1997 as compared to 1996, and by $12.0 million compared
to 1995, the Company was able to increase its investment in selling and
marketing programs and spending on corporate infrastructure by an amount greater
than reflected in the year to year expense comparisons. Expenditures in 1996 and
1995 include certain significant expenses that did not occur during 1997. In
November 1996, the Company agreed to settle ongoing litigation with Cistron
Biotechnology, Inc. ("Cistron"). Legal defense costs related to the litigation
totaled $4.7 million and $3.7 million in 1996 and 1995, respectively. In
addition, in the third quarter of 1996, severance payments under an employment
agreement, totaling approximately $1.0 million, were made to a former officer of
the Company. Finally, 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, legal and other fees of approximately $1.5 million and $2.2 million in
1996 and 1995, respectively.
Other Income (Expense)
In 1997, interest income increased to $3.8 million from $2.2 million in
1996 and $1.1 million in 1995. The Company's average cash and investment balance
has increased during each of the last three years, resulting in increased
interest income during each successive year. This improvement is due largely to
the $56.0 million, $45.3 million and $35.8 million paid to the Company by AHP in
1997, 1996 and 1995, respectively, as settlement of its annual revenue shortfall
obligation. AHP was required to make payments to the Company if revenues from
certain products did not meet established annual amounts ("Revenue Guaranty")
through December 31, 1997.
Interest expense totaled $0.6 million, $0.3 million and $1.1 million in
1997, 1996 and 1995, respectively. In the first quarter of 1995, the Company
paid the $34.0 million outstanding balance on its loan with AHP and made the
final $10.6 million payment on a construction loan. No additional borrowings
have been made since that time and as a result, interest expense decreased
significantly from 1995 to 1996. The increase in interest expense during 1997
represents the imputed interest related to the obligation recorded pursuant to
the settlement of the Cistron litigation in November 1996. The Company recorded
a charge of $18.1 million to other expense as its share of the obligation under
the settlement.
28
<PAGE>
Provision for Income Taxes
The Company's provision for income tax consists of the tax obligation of
the Company's operations in the states in which the Company sells its products.
At December 31, 1997, the Company had a net operating tax loss carryforward of
approximately $252 million. The provision for income taxes is not expected to be
significant until such time that the Company becomes profitable.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities totaled $86.5 million and
$23.9 million at December 31, 1997 and 1996, respectively. The increase during
1997 was due to the receipt of $56.0 million in February 1997 from AHP as
payment of the 1996 Revenue Guaranty combined with cash generated from operating
activities of $15.1 million. 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.
Following the positive clinical results in September 1997 from a pivotal
Phase III study of Enbrel for treatment of advanced rheumatoid arthritis, the
Company began implementing plans for the possible commercialization of Enbrel.
The Company is working with AHP, under the terms of the Promotion Agreement for
Enbrel, to coordinate the sales, marketing, distribution, customer service and
other necessary systems to support sales of Enbrel in the United States, if and
when it is approved by the FDA. Under the terms of the Promotion Agreement, AHP
will assume a majority of the pre-launch commercial expenses. However, the
Company is expected to incur additional costs related to the development of the
Company's infrastructure to support the possible launch and sale of Enbrel,
which will not be shared by AHP. In addition, based on the successful
manufacturing scale-up of Enbrel to commercial quantities by the contract
manufacturer utilized by the Company, certain steps have been initiated in an
effort to ensure that inventory of Enbrel is available to meet the Company's
expected initial commercial requirements. The Company has made orders of launch
inventory of Enbrel from the contract manufacturer and expects to order
additional quantities in 1998. The launch inventory requirements of Enbrel are
expected to be invoiced to the Company beginning in mid-1998. Completion of
these commercialization related steps, as discussed above, will require
significant cash investments by the Company. However, the timing and amount of
these expenditures are uncertain and dependent on several factors including the
manufacturing schedule for producing Enbrel, the Company's approach for selling,
distributing and marketing Enbrel and the timing of regulatory approval.
Although the Phase III data for Enbrel released by the Company in September 1997
were positive, there can be no assurance that Enbrel will be approved by the FDA
or, if approved, that Enbrel will actually be launched in the United States, or
if launched, whether the Company's estimates of launch inventory requirements
will reflect actual demand for the product. Certain risk factors have been
identified which could affect the Company's ability to commercialize Enbrel and
are described in the "Risk Factors" section in Item 1 above, including those
related to competition, patents, regulatory approval, supply and third-party
reimbursement. Accordingly, any amounts recorded as launch inventory of Enbrel
and any related purchase commitments are subject to risk until such
uncertainties are resolved.
Investments in capital equipment totaled $7.4 million during 1997,
primarily for purchases of computer systems and improvements to existing
systems. Spending in this area is expected to increase further in 1998 as
additional projects are initiated and existing projects continue. In addition,
purchases of research equipment are expected to increase moderately in 1998 from
what has been a maintenance level of investment over the past several years.
Management has initiated a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue. The Year
2000 issue is the result of computer programs being written using two digits
rather than four to define the applicable year. Any of the Company's computer
systems that have time-sensitive software may recognize a date using "00" as the
year 1900 rather then the year 2000. This could result in a system failure or
miscalculations with respect to current programs. The Company expects to incur
internal staff costs and may incur consulting and other expenses in order to
prepare the Company's computer systems for the year 2000. The extent of the
Company's exposure is uncertain at this time, but the Company believes that the
Year 2000 issue will not pose significant operational problems. However, if any
required modifications or conversions necessary as a result of the Year 2000
issue are not completed in a timely manner, there could be a material impact on
the operations of the Company.
29
<PAGE>
The Company has identified a need to improve its ability to scale-up
manufacturing of multiple products in an accelerated time-frame and to increase
its capacity to manufacture clinical grade material to support clinical trials.
This would allow the Company to more effectively exploit its product pipeline
opportunities by eliminating an existing bottleneck in the Company's current
clinical material manufacturing process. In order to address these issues, the
Company expects to begin construction of a process science facility during 1998.
The Company has reached capacity at its current corporate facilities. In
order to accommodate planned growth during 1998, the Company has entered into a
lease for additional office space. To meet its long-term facilities needs, the
Company has entered into a purchase and sale agreement for property in the
vicinity of its corporate headquarters. Development of this property would allow
for the consolidation of its corporate office and research facilities in a
single location and allow for future growth of the organization. The current
amendment to the purchase and sale agreement expires in March 1998 and
expenditures for the property are estimated at $15 million.
Financing activities provided $56.0 million during 1997. In February 1997,
the Company received $56.0 million from AHP as payment of the 1996 Revenue
Guaranty. At December 31, 1997, the Company recorded a receivable from AHP of
$60.0 million related to the 1997 Revenue Guaranty, which was received in
February 1998. This payment was the final AHP Revenue Guaranty payment the
Company will receive. Proceeds from the exercise of stock options and issuance
of common stock provided $3.0 million. The above financing proceeds were offset
by the $2.2 million payment under the Cistron settlement obligation for 1997,
together with payments of $0.7 million under other obligations.
During 1998, the Company expects to continue to utilize its cash reserves
and the final payment under the AHP Revenue Guaranty for investment in property,
plant and equipment and the costs associated with the possible commercialization
of Enbrel, including the anticipated purchase of commercial inventory of Enbrel.
In addition, if necessary, under the terms of the Promotion Agreement, AHP has
agreed to make available a working capital loan of up to $25.0 million toward
the purchase of commercial launch inventory of Enbrel. 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 Enbrel and its other products and technology.
OUTLOOK
The Company made significant progress during 1997, achieving its goals with
respect to development of Enbrel, growth in sales of its core products and
advancement of its other clinical opportunities. However, the near-term growth
of the Company is dependent upon both the approval of Enbrel by the FDA and the
successful commercialization of Enbrel, if and when it is approved by the FDA.
The Company will increase spending significantly in 1998 in order to capitalize
on this opportunity. In addition, investment in discovery research and other
product candidates is expected to increase and the Company intends to continue
to maintain an increased level of spending to support the selling and marketing
of its existing products. Accordingly, the Company expects that operating losses
will continue to be incurred until such time it is able to generate significant
growth in product sales.
Additional label indications for both Leukine and Novantrone and the launch
of an improved formulation of Leukine contributed to increased sales in 1997.
Continued growth of these products is dependent upon increased market acceptance
and the development of opportunities in new markets. The growth in sales of
Novantrone during 1997 occurred largely with oncologists who treat HRPC with
chemotherapy. Although the Company will continue its programs to promote
Novantrone in this setting, a large percentage of the patients with HRPC are
treated by urologists. Accordingly, the Company is implementing educational
programs intended to increase referrals of patients with HRPC from urologists to
oncologists. In an effort to increase the market opportunities for Leukine,
certain clinical studies of Leukine are being conducted, including its use for
treatment of opportunistic and viral infections, malignant melanoma and vaccine
adjuvancy.
30
<PAGE>
A portion of the Company's revenues will continue to be derived from
existing license and royalty agreements. The Company has existing agreements
under which revenues may be earned if certain milestones are achieved. The
timing and achievement of a milestone is never certain and, accordingly, the
revenues from these existing agreements cannot be predicted. The Promotion
Agreement with AHP to promote Enbrel in North America, if and when the product
receives regulatory approval, includes certain nonrefundable milestone payments.
The Company received $15.0 million upon signing of the Promotion Agreement in
September 1997, and the Company can earn $20.0 million upon acceptance for
review of a biologics license application ("BLA") for Enbrel for advanced
rheumatoid arthritis by the FDA and $30.0 million if the BLA is approved by the
FDA. The Company expects to submit the BLA for Enbrel to the FDA during the
second quarter of 1998. There can be no assurance that the BLA will be submitted
to the FDA in the second quarter of 1998, or that, if submitted, the FDA will
accept the BLA for review or, if accepted, if or when the FDA may approve the
BLA. The Company may enter into additional agreements to license its marketing
rights and technology patent rights. The timing of such agreements, if any, and
the revenue recognized therefrom cannot be predicted.
For several years, the Company has been a party to a GM-CSF patent
interference proceeding. In January 1998, the Company reached a settlement with
the remaining party to the proceeding. Under the terms of the settlement, the
Company will incur additional royalties on future net sales of Leukine.
In 1998, spending for clinical trials and product development is expected
to continue near 1997 expense levels. The Company will continue numerous
clinical trials for Enbrel, Leukine and Mobist. In addition, in 1998, the
Company intends to continue clinical development of Nuvance and to commence a
clinical trial of CD40 ligand when sufficient drug supplies are available. The
Company also expects that spending on discovery research will increase during
1998. Finally, the Company expects to enter into an agreement in the first half
of 1998 to reacquire the ex-North American rights to IL-1 receptor, IL-4
receptor and IL-7 receptor for $10 million. These costs will be charged to
research and development expense.
Growth in selling, general and administrative expense during 1998 will be
due largely to the costs of preparing for the possible commercialization of
Enbrel, as discussed above. In addition, investment in information technology
will continue to increase, as well as facility and other costs to support
anticipated staffing increases during 1998.
Item 7A. Qualitative and Quantitative Disclosures About Market Risk
N/A
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Page in
Form 10-K
----------
<S> <C>
Consolidated Balance Sheets at December 31, 1997 and 1996. 32
Consolidated Statements of Operations for the years ended December 31, 1997,
1996 and 1995. 33
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1997,
1996 and 1995. 34
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995. 35
Notes to Consolidated Financial Statements for the years ended December 31, 1997,
1996 and 1995. 36 - 46
Report of Ernst & Young LLP, Independent Auditors. 47
</TABLE>
31
<PAGE>
IMMUNEX CORPORATION
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
December 31,
1997 1996
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 66,176 $ 23,861
Marketable securities 20,364 -
Accounts receivable - trade, net 13,741 15,675
Accounts receivable - related parties 3,555 2,401
Inventories 9,031 8,893
Prepaid expenses and other current assets 3,726 3,781
------------------- -------------------
Total current assets 116,593 54,611
Property, plant and equipment, net 73,645 80,021
Other assets:
Property held for future development 5,768 5,687
Investment in common stock 6,859 11,759
Intangible product rights, net 6,924 7,700
Goodwill, net 11,182 13,239
Patent costs and other, net 6,362 4,770
------------------- -------------------
Total assets $ 227,333 $ 177,787
------------------- -------------------
------------------- -------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 29,007 $ 20,579
Accounts payable - related parties 1,917 1,726
Accrued compensation and related items 8,572 4,858
Current portion of long-term obligations 3,460 3,491
Other current liabilities 2,588 843
------------------- -------------------
Total current liabilities 45,544 31,497
Long-term obligations 5,633 8,580
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized,
none outstanding - -
Common stock, $.01 par value, 100,000,000
shares authorized, 39,718,023 and 39,602,225
outstanding at December 31, 1997 and 1996, respectively 711,485 648,475
Guaranty payment receivable from AHP (60,032) (56,000)
Unrealized gain on investments 4,646 9,406
Accumulated deficit (479,943) (464,171)
-------------------- --------------------
Total shareholders' equity 176,156 137,710
------------------- -------------------
Total liabilities and shareholders' equity $ 227,333 $ 177,787
------------------- -------------------
------------------- -------------------
</TABLE>
See accompanying notes.
32
<PAGE>
IMMUNEX CORPORATION
Consolidated Statements of Operations
(In thousands, except per share amounts)
<TABLE>
Year ended December 31,
1997 1996 1995
------------------- ------------------- -------------------
<S> <C> <C> <C>
Revenues:
Product sales $ 149,672 $ 129,528 $ 137,639
Royalty and contract revenue 35,625 21,670 18,977
------------------- ------------------- -------------------
185,297 151,198 156,616
Operating expenses:
Cost of product sales 24,552 21,860 24,555
Research and development 109,312 96,612 83,463
Selling, general and administrative 71,275 69,968 59,318
------------------- ------------------- -------------------
205,139 188,440 167,336
------------------- ------------------- -------------------
Operating loss (19,842) (37,242) (10,720)
Other income (expense):
Interest income 3,790 2,156 1,123
Interest expense (596) (293) (1,145)
Other income (expense), net 1,088 (18,093) (312)
------------------- -------------------- -------------------
4,282 (16,230) (334)
------------------- ------------------- -------------------
Loss before income taxes (15,560) (53,472) (11,054)
Provision for income taxes 212 160 246
------------------- ------------------- -------------------
Net loss $ (15,772) $ (53,632) $ (11,300)
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Net loss per common share $ (0.40) $ (1.35) $ (0.29)
------------------- ------------------- -------------------
------------------- ------------------- -------------------
Number of shares used for per share amounts 39,637 39,602 39,590
------------------- ------------------- -------------------
------------------- ------------------- -------------------
</TABLE>
See accompanying notes.
33
<PAGE>
IMMUNEX CORPORATION
Consolidated Statements of Shareholders' Equity
(In thousands, except share data)
<TABLE>
Guaranty
Payment Unrealized
Common Stock Receivable Gain (Loss) Accumu-
$.01 Par Value from on lated
Shares Amount AHP Investments Deficit Total
----------- ----------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 39,449,199 $ 547,182 $ (35,768) $ (248) $ (399,239) $ 111,927
Issuance of common stock upon
the redemption of warrants 152,700 - - - - -
Guaranty payment received
from AHP - - 35,768 - - 35,768
Guaranty payment receivable
from AHP - 45,288 (45,288) - - -
Unrealized gain on investments - - 248 - 248
Net loss for the year ended
December 31, 1995 - - - - (11,300) (11,300)
----------- ----------- ------------ ------------ ------------- -------------
Balance, December 31, 1995 39,601,899 592,470 (45,288) - (410,539) 136,643
----------- ----------- ------------- ------------ ------------- ------------
Issuance of common stock upon
the exercise of stock options 326 5 - - - 5
Guaranty payment received
from AHP - - 45,288 - - 45,288
Guaranty payment receivable
from AHP - 56,000 (56,000) - - -
Unrealized gain on investment - - - 9,406 - 9,406
Net loss for the year ended
December 31, 1996 - - - - (53,632) (53,632)
----------- ----------- ------------ ------------ ------------- -------------
Balance, December 31, 1996 39,602,225 648,475 (56,000) 9,406 (464,171) 137,710
----------- ----------- ------------- ------------ ------------- ------------
Issuance of common stock upon
the exercise of stock options 87,575 1,698 - - - 1,698
Net proceeds from issuance of
common stock to AHP 28,223 1,280 - - - 1,280
Guaranty payment received
from AHP - - 56,000 - - 56,000
Guaranty payment receivable
from AHP - 60,032 (60,032) - - -
Net unrealized loss on
investments - - - (4,760) - (4,760)
Net loss for the year ended
December 31, 1997 - - - - (15,772) (15,772)
----------- ----------- ------------ ------------ ------------- -------------
Balance, December 31, 1997 39,718,023 $ 711,485 $ (60,032) $ 4,646 $ (479,943) $ 176,156
----------- ----------- ------------- ------------ ------------- ------------
----------- ----------- ------------- ------------ ------------- ------------
</TABLE>
See accompanying notes.
34
<PAGE>
IMMUNEX CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
Year ended December 31,
1997 1996 1995
------------------- ------------------- -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (15,772) $ (53,632) $ (11,300)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 16,931 15,157 15,901
Equity in loss of affiliate - - 514
Cash flow impact of changes to:
Trade and other receivables 780 2,269 (2,438)
Inventories (138) (591) 3,423
Prepaid expenses and other current assets (816) (1,990) 1,747
Accounts payable, accrued
compensation and other current liabilities 14,078 (4,262) 3,551
------------------- ------------------- -------------------
Net cash provided by (used in) operating 15,063 (43,049) 11,398
activities
Cash flows from investing activities:
Purchases of property, plant and equipment (7,409) (4,656) (5,246)
Proceeds from sales and maturities of marketable 13,804 - 9,897
securities
Purchases of marketable securities (33,158) - -
Patent costs and other (1,985) (1,255) (567)
-------------------- -------------------- -------------------
Net cash provided by (used in) investing (28,748) (5,911) 4,084
activities
Cash flows from financing activities:
Guaranty payment received from AHP 56,000 45,288 35,768
Deferred portion of settlement obligation - 7,703 -
Payment under settlement obligation (2,235) - -
Proceeds from exercise of stock options 1,698 - -
Proceeds from issuance of common stock 1,280 - -
AHP line of credit - - (34,000)
Construction loan payments - - (10,600)
Other (743) (607) (1,031)
-------------------- -------------------- -------------------
Net cash provided by (used in) financing 56,000 52,384 (9,863)
------------------- ------------------- -------------------
activities
Net increase in cash and cash equivalents 42,315 3,424 5,619
Cash and cash equivalents, beginning of period 23,861 20,437 14,818
------------------- ------------------- -------------------
Cash and cash equivalents, end of period $ 66,176 $ 23,861 $ 20,437
------------------- ------------------- -------------------
------------------- ------------------- -------------------
</TABLE>
See accompanying notes.
35
<PAGE>
IMMUNEX CORPORATION
Notes to Consolidated Financial Statements
Note 1. Organization and Basis of Presentation
Immunex Corporation ("Immunex" or the "Company") is a biopharmaceutical
company that discovers, develops, manufactures and markets innovative
therapeutic products for the treatment of human diseases, including 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 ("FDA")
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 current market for pharmaceutical products is the United
States. The Company primarily uses wholesale distributors for the sale of its
products to clinics and hospitals. For the years ended December 31, 1997, 1996
and 1995, sales to two large wholesale distributors comprised 19% and 18%, 20%
and 19%, and 13% and 15% of total revenues, respectively.
The consolidated financial statements are prepared in conformity with
generally accepted accounting principles which require management estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
On June 1, 1993, the shareholders of predecessor Immunex Corporation (the
"Predecessor") approved an agreement pursuant to which the Predecessor was
merged (the "Merger") with a subsidiary of American Cyanamid Company
("Cyanamid"), creating the Company. Cyanamid received that number of shares
equal to 53.5% of the Company's common stock and dilutive securities
outstanding, immediately following the Merger. Shareholders of the Predecessor
exchanged their shares for an equal number of shares of the Company.
In November 1994, all of the outstanding shares of common stock of Cyanamid
were acquired by American Home Products Corporation ("AHP"). AHP and certain of
its divisions or affiliates assumed the rights and obligations of Cyanamid under
the various agreements that the Company and Cyanamid entered into at the time of
the Merger or thereafter. As a result, AHP now holds a majority interest in
Immunex. All references to AHP include AHP and its various affiliates, divisions
and subsidiaries, including Cyanamid.
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 consist of securities available-for-sale, which are
stated at fair value with the unrealized gains and losses included as a
component of shareholders' equity on the Company's balance sheet. Cost of
securities is calculated using the specific-identification method. Securities
available-for-sale at December 31, 1997 consist primarily of United States
government and corporate obligations, all of which mature within two years.
36
<PAGE>
IMMUNEX CORPORATION
Notes to Consolidated 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 at December 31, 1997 and 1996
are as follows (in thousands):
<TABLE>
1997 1996
------------------- ------------------
<S> <C> <C>
Raw materials $ 1,069 $ 2,453
Work in process 5,377 2,689
Finished goods 2,585 3,751
------------------ ------------------
Total inventory $ 9,031 $ 8,893
------------------ ------------------
------------------ ------------------
</TABLE>
Depreciation and amortization
Depreciation of buildings and equipment 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.
Property held for future development
The Company owns certain property intended for the possible future
expansion of its manufacturing facilities which are recorded at cost.
Investment in common stock
The Company has an investment in Targeted Genetics Corporation ("TGC"), a
biotechnology company engaged in developing gene delivery technology and
therapies for treatment for cystic fibrosis and cancer. In 1996, following the
dilution of the Company's ownership interest in TGC to below 20%, the Company
began accounting for the investment as an available-for-sale security (see Note
3).
Goodwill and other intangible assets
Goodwill is being amortized using the straight-line method over a ten-year
period. Accumulated amortization at December 31, 1997 and 1996 totaled
$9,384,000 and $7,327,000, respectively.
Intangible product rights are amortized using the straight-line method over
their estimated useful lives, ranging from 11 to 15 years. Accumulated
amortization at December 31, 1997 and 1996 totaled $3,560,000 and $2,783,000,
respectively.
The Company seeks patent protection on processes and products in various
countries. Patent application costs are capitalized and amortized over their
estimated useful lives, not exceeding 17 years, on a straight-line basis from
the date the related patents are issued. Accumulated amortization at December
31, 1997 and 1996 totaled $496,000 and $338,000, respectively.
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 that management believes is sufficient to cover estimated
future requirements. Allowances for discounts, returns and bad debts, which are
netted against accounts receivable, totaled $8,653,000 and $7,181,000 at
December 31, 1997 and 1996, respectively. Reserves for chargebacks, Medicaid
rebates and administrative fees are included in accounts payable and totaled
$9,715,000 and $7,580,000 at December 31, 1997 and 1996, respectively.
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.
37
<PAGE>
IMMUNEX CORPORATION
Notes to Consolidated Financial Statements
Note 2. Summary of Significant Accounting Policies, continued
Net loss per common share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" effective December 31, 1997. However, given the net loss
position of the Company, there are no implications on the calculation of net
loss per share. Net loss per common share is calculated by dividing net loss by
the weighted average number of common shares outstanding.
Reclassifications
Certain prior year amounts in the consolidated financial statements have
been reclassified to conform to current year presentations.
Impact of recently issued accounting standards
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income," which is effective for periods beginning
after December 15, 1997. Statement No. 130 establishes standards for reporting
comprehensive income and its components. The adoption of Statement No. 130 will
increase disclosure only and will have no impact on the Company's financial
position or results of operations.
Note 3. Investments
The Company's investments are considered available-for-sale and are stated
at fair value on the balance sheet with the unrealized gains and losses included
as a component of shareholders' equity. For the year ended December 31, 1997,
there were no material realized gains or losses. In 1996, the only investment
held by the Company was an investment in the common stock of TGC (see Investment
in Common Stock, Note 2), and there were no realized gains or losses during the
year. The unrealized gain related to the investment in TGC totaled $9,406,000 at
December 31, 1996. Information with respect to the Company's investments for the
year ended December 31, 1997 is as follows (in thousands):
<TABLE>
Gross Gross
Fair Amortized Unrealized Unrealized
Year ended December 31, 1997 Value Cost Gains Losses
- ---------------------------- ----- ---- ----- ------
<S> <C> <C> <C> <C>
Type of security:
Commercial paper $ 4,988 $ 4,988 $ - $ -
Corporate debt securities 3,048 3,045 3 -
U.S. government and agency
obligations 24,811 24,675 136 -
Common stock (see Note 2) 6,859 2,352 4,507 -
------------------ ------------------- ------------------ ------------------
$ 39,706 $ 35,060 $ 4,646 $ -
------------------ ------------------- ------------------ ------------------
------------------ ------------------- ------------------ ------------------
Classification in the balance sheet:
Cash and cash equivalents $ 12,483
Marketable securities 20,364
Investment in common stock 6,859
------------------
$ 39,706
------------------
------------------
</TABLE>
38
<PAGE>
IMMUNEX CORPORATION
Notes to Consolidated Financial Statements
Note 4. Property, Plant and Equipment
Property, plant and equipment, at cost, consist of the following at
December 31, 1997 and 1996 (in thousands):
<TABLE>
1997 1996
------------------- ------------
<S> <C> <C>
Land $ 2,140 $ 2,140
Buildings and improvements 50,001 49,698
Equipment 53,230 46,779
Leasehold improvements 21,469 19,442
------------------- ------------------
126,840 118,059
Less accumulated depreciation and amortization (53,195) (38,038)
-------------------- -------------------
Property, plant and equipment, net $ 73,645 $ 80,021
-------------------- -------------------
-------------------- -------------------
</TABLE>
Note 5. Long-term Obligations
Long-term obligations consist of the following at December 31, 1997 and
1996 (in thousands):
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Deferred state sales tax on manufacturing facility,
due in annual installments from 1998 to 2000 $ 2,576 $ 3,092
Deferred portion of Cistron settlement obligation 5,468 7,703
Termination benefits payable to a former officer 892 915
Other 157 361
------------------ ------------------
9,093 12,071
Less current portion (3,460) (3,491)
------------------- ------------------
$ 5,633 $ 8,580
------------------- ------------------
------------------- ------------------
</TABLE>
In November 1996, the Company settled litigation with Cistron
Biotechnology, Inc. In accordance with the terms of the settlement, a payment
was made at the time of the settlement, to be followed by four successive annual
payments. The deferred payments have been discounted using a rate of 7%.
In 1993, the Board of Directors elected to award termination benefits to a
former Chief Executive Officer who retired from the Predecessor. Benefits are
payable over approximately 20 years in varying amounts and have been discounted
using a rate of 7%.
Scheduled annual maturities of long-term obligations in 1999 through 2002
are as follows: $3,307,000, $1,514,000, $31,000 and $33,000, respectively, and
$748,000 thereafter.
There was no interest paid on borrowings in 1997 and 1996. Interest paid on
all borrowings was $1,226,000 for the year ended December 31, 1995.
39
<PAGE>
IMMUNEX CORPORATION
Notes to Consolidated Financial Statements
Note 6. Fair Values of Financial Instruments
At December 31, 1997 and 1996, the Company had several categories of
financial instruments. With the exception of the deferred state sales tax, the
balance sheet carrying value for all categories of financial instruments
approximates fair value at December 31, 1997 and 1996. The fair value of the
deferred state sales tax on the Company's manufacturing facility was estimated
by discounting future cash flows using the Company's current estimated
incremental borrowing rate. At December 31, 1997 and 1996, the fair value of the
deferred state sales tax was $2,203,000 and $2,524,000, respectively, compared
to a balance sheet carrying value of $2,576,000 and $3,092,000, respectively.
Note 7. Shareholders' Equity
Stock options
The Company has a stock option plan (the "Plan") that provides for the
issuance of incentive and non-qualified stock options to employees and officers.
There have been 6,225,267 shares of common stock reserved for the Plan. Options
are granted by a committee of the Company's Board of Directors. Under policy of
the Company, options are not granted at less than the fair market value of the
Company's common stock at the date of grant. Each outstanding option has a term
of ten years from the date of grant and, depending on the option, becomes
exercisable at a rate of 20% or 33% per year beginning one year from the date of
grant.
The Company has a stock option plan with 100,000 shares of common stock
reserved for nonemployee directors which provides each independent director a
grant of an option to purchase 10,000 shares of common stock on the day such
director is initially elected or appointed to the Board of Directors and an
annual grant of 5,000 shares thereafter. Each option is granted at fair market
value of the Company's common stock at the date of grant. Each outstanding
option has a term of ten years from the date of grant and becomes exercisable at
a rate of 20% per year beginning one year from the date of grant.
The Company has elected to follow Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" and adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-Based Compensation." Accordingly, since all options are granted at
fair market value, no compensation expense has been recognized for options
issued under the Plan. Had compensation expense been recognized based on the
estimated fair value at the date of grant for options awarded under the Plan,
the pro forma amounts of the Company's net loss and net loss per share for the
years ended December 31, 1997, 1996 and 1995 would have been as follows (in
thousands, except per share amounts):
<TABLE>
1997 1996 1995
----------------- ----------------- ----------
<S> <C> <C> <C>
Net loss - as reported $ (15,772) $ (53,632) $ (11,300)
Net loss - pro forma (20,643) (55,336) (11,843)
Net loss per common share - as reported $ (0.40) $ (1.35) $ (0.29)
Net loss per common share - pro forma (0.52) (1.40) (0.30)
</TABLE>
The estimated fair value of each option grant was calculated using the
Black-Scholes option pricing model and totaled $15.43, $8.33 and $8.08 per share
during 1997, 1996 and 1995, respectively. Fair value was estimated using an
expected option life of six years, no dividends and an expected volatility of
45% in each of the years presented. The risk-free interest rate at the date of
grant during 1997, 1996 and 1995 ranged from 6.0% to 6.6%, 6.3% to 6.7% and 6.2%
to 7.6%, respectively. The effect of applying Statement No. 123 for providing
pro-forma disclosures for each of the years presented is not likely to be
representative of the effects in future years because it does not take into
consideration pro-forma compensation expense related to grants made prior to
1995.
40
<PAGE>
IMMUNEX CORPORATION
Notes to Consolidated Financial Statements
Note 7. Shareholders' Equity, continued
Information with respect to the Company's stock option plans is as follows:
<TABLE>
Weighted-
Shares Subject Exercise Average
to Option Price Range Exercise Price
------------------- -------------------- -------------------
<S> <C> <C> <C>
Options outstanding balance at December 31, 1994 830,990 $ 11.75 - 31.50 $ 27.72
Granted 445,725 12.25 - 15.00 14.82
Canceled (191,345) 11.75 - 31.50 25.32
----------------- ------------------ ------------------
Options outstanding balance at December 31, 1995 1,085,370 $ 11.75 - 31.50 $ 22.85
Granted 1,216,000 12.44 - 15.88 15.79
Exercised (326) 11.75 - 15.00 14.00
Canceled (228,480) 11.75 - 31.50 21.53
----------------- ------------------ ------------------
Options outstanding balance at December 31, 1996 2,072,564 $ 11.75 - 31.50 $ 18.85
Granted 1,227,650 24.25 - 76.75 30.75
Exercised (87,575) 11.75 - 31.50 19.43
Canceled (110,111) 12.25 - 41.75 21.62
------------------- -------------------- ------------------
Options outstanding balance at December 31, 1997 3,102,528 $ 11.75 - 76.75 $ 23.35
------------------- -------------------- ------------------
------------------- -------------------- ------------------
Shares available for future grants at December 31, 1997 3,134,838
-------------------
-------------------
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1997:
<TABLE>
Outstanding Exercisable
--------------------------- ------------------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Prices Contractual Life Options Exercise Price Options Exercise Price
- -------------------- ------------------ -------------- ---------------------- ---------- -------------------
<C> <C> <C> <C> <C> <C>
$ 11.75 - 15.00 7 years 415,747 $ 14.44 213,347 $ 14.57
15.88 - 15.88 8 years 1,021,540 15.88 186,660 15.88
17.50 - 18.88 6 years 120,800 18.76 74,220 18.73
24.25 - 24.25 9 years 932,950 24.25 - -
27.25 - 31.50 6 years 433,491 30.89 307,518 31.25
41.75 - 41.75 10 years 49,000 41.75 - -
76.75 - 76.75 10 years 129,000 76.75 - -
- ------------------ -------------- ------------------ ------------- ---------------
$ 11.75 - 76.75 3,102,528 $ 23.35 781,745 $ 21.84
- ------------------ -------------- ------------------ ------------- ---------------
- ------------------ -------------- ------------------ ------------- ---------------
</TABLE>
Guaranty payments receivable from AHP
AHP was required to make payments or contribute products to the Company if
revenues from certain marketed products did not achieve established levels
through December 31, 1997. The revenue shortfall obligation was limited to a
maximum amount in each year. Such payments are treated as additional
contributions to the capital of the Company. The Company recorded a receivable
from AHP of $60,032,000, $56,000,000 and $45,288,000 for the revenue shortfall
for the years ended December 31, 1997, 1996 and 1995, respectively.
41
<PAGE>
IMMUNEX CORPORATION
Notes to Consolidated Financial Statements
Note 8. Income Taxes
The Company's deferred tax assets consist primarily of the benefit to be
derived from unused net operating tax loss carryforwards of approximately $252
million and carryforwards of approximately $13 million for research and
experimental credits at December 31, 1997. The carryforwards expire from 1998
through 2012. Net operating tax loss carryforwards and research and experimental
credits of $2,400,000 and $170,000, respectively, expired in 1997. Due to the
uncertainty regarding the Company's ability to generate taxable income in the
future to realize the benefit from its net deferred tax assets at December 31,
1997 and 1996, valuation allowances of $101.7 million and $96.6 million,
respectively, have been recognized for financial reporting purposes to offset
the excess of the Company's deferred tax assets over its deferred tax
liabilities. This represents an increase in the valuation allowances of $5.1
million and $17.4 million for the years ended December 31, 1997 and 1996,
respectively. In the event the Company is able to utilize its net operating tax
loss carryforwards, the carryforwards would be used on a first-in, first-out
basis to reduce the unamortized balance of goodwill and intangible product
rights recorded pursuant to the Merger with Cyanamid (see Note 1) and to
increase additional paid-in capital for the unrecorded tax benefits related to
stock option exercises. Any remaining unused carryforward would then be used to
reduce federal income tax expense.
The significant components of the Company's deferred tax assets and
liabilities at December 31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 87,289 $ 83,688
Research and experimental credits 13,152 12,012
In-process research and development 1,063 1,248
Accounts receivable allowances 3,029 2,513
Accrued liabilities 2,832 4,007
Other 1,762 1,713
------------- -------------
Total deferred tax assets 109,127 105,181
Valuation allowance for deferred tax assets (101,736) (96,628)
-------------- --------------
Net deferred tax assets 7,391 8,553
Deferred tax liabilities:
Tax over book depreciation 2,334 3,394
Purchase accounting adjustments 2,694 3,230
Other 2,363 1,929
------------- -------------
Total deferred tax liabilities 7,391 8,553
------------- -------------
$ - $ -
------------- -------------
------------- -------------
</TABLE>
The provision for income taxes consists of the tax obligation incurred
in the states in which the Company sells its products. The entire provision for
the period is current. Income taxes paid during the years ended December 31,
1997, 1996 and 1995, totaled $132,000, $148,000 and $1,289,000, respectively.
42
<PAGE>
IMMUNEX CORPORATION
Notes to Consolidated Financial Statements
Note 8. Income Taxes, continued
Reconciliation of the U.S. federal statutory tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
U.S. federal statutory tax rate (35.0)% (35.0)% (35.0)%
Non-deductible amortization of goodwill 4.6 1.4 6.5
Increase in valuation reserve 32.7 32.5 36.6
State taxes 1.4 0.3 2.4
Foreign income subject to different rates - - (6.8)
Tax benefit from research and development
expenses and credits (7.3) (0.9) (5.3)
Other 5.0 2.0 3.8
-------------- --------------- --------------
Effective tax rate 1.4% 0.3% 2.2%
-------------- --------------- --------------
-------------- --------------- --------------
</TABLE>
Note 9. Employee Benefits
As a retirement vehicle, the Company has a defined contribution plan
covering all full-time salaried employees. The plan is a salary deferral
arrangement pursuant to Internal Revenue Code section 401(k) and is subject to
the provisions of the Employee Retirement Income Security Act of 1974. The
Company matches 100% of the first 2% of an employee's deferred salary and 50% of
the next 4% of an employee's deferred salary. Employees with five or more years
of service receive a match of 100% of the first 2% of deferred salary and 75% of
the next 4% of deferred salary. The matching contributions to the plan were
$1,900,000, $1,707,000 and $1,370,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
Note 10. Related Party Transactions
On June 1, 1993, the Predecessor merged with a subsidiary of Cyanamid,
forming the Company. In November 1994, all of the outstanding shares of common
stock of Cyanamid were acquired by AHP. AHP, its subsidiaries and affiliates
have assumed the rights and obligations of Cyanamid under various agreements
entered into at the time of the Merger or thereafter. Underlying the Merger are
numerous agreements under which, among other things, Immunex and AHP collaborate
in research and development, manufacture clinical materials, manufacture and
distribute marketed products and provide certain services. Significant
transactions under these agreements are summarized below.
Revenue guaranty
AHP was required to make payments or contribute products to Immunex if
revenues from certain marketed products did not achieve established levels
through December 31, 1997 (see Note 7). At December 31, 1997 and 1996, Immunex
had recorded a receivable from AHP of $60,032,000 and $56,000,000 related to the
revenue shortfall for the years ended December 31, 1997 and 1996, respectively.
AHP's payment obligation to Immunex under these provisions ceases with respect
to calendar years after 1997.
43
<PAGE>
IMMUNEX CORPORATION
Notes to Consolidated Financial Statements
Note 10. Related Party Transactions, continued
Research and development
Immunex and AHP are parties to research and development agreements under
which the parties cooperate to research, develop and commercialize new products.
Under the terms of these agreements, certain of which were revised in 1996,
Immunex is obligated to support AHP's oncology discovery research programs. Each
party, upon notification, may elect which products it will continue to support
during clinical testing and receive an exclusive license to sell and market in
its territory the products resulting from the research and development programs
encompassed by these agreements. If the election to continue support is made by
the applicable party, Immunex and AHP share equally the development costs for
the North American and European markets. For the years ended December 31, 1997,
1996 and 1995, Immunex paid $16,240,000, $21,156,000 and $15,800,000,
respectively, to support AHP's oncology research programs. Immunex's annual
funding obligation for discovery research is 50% of AHP's oncology discovery
research expenditures, up to a maximum of $16,000,000 per year, adjusted
annually for inflation beginning in 1997. AHP's obligation for shared
development costs related to Immunex's programs totaled $18,768,000, and
$3,923,000, for the years ended December 31, 1997, and 1996, respectively. There
was no obligation in 1995.
In order to retain the ex-North American rights to Enbrel(TM) (TNFR:Fc),
AHP paid Immunex $2,000,000 and $4,000,000 during the years ended December 31,
1996 and 1995, respectively. This agreement was superseded during 1996 by the
revised research agreements, discussed above.
Oncology product license agreements
Immunex and AHP are parties to certain oncology product license agreements
under which AHP and its sub-licensees have a license to sell certain existing
oncology products outside North America. AHP is entitled to a royalty-bearing
license outside North America to any products resulting from Immunex's oncology
research and development activities ("New Oncology Products"). Royalties earned
by Immunex for the years ended December 31, 1997, 1996 and 1995 totaled
$2,972,000, $2,379,000 and $2,546,000, respectively.
In the event that a New Oncology Product is to be manufactured by Immunex
for AHP or by AHP for Immunex, the manufacturing party will supply such product
at a price that will reimburse the manufacturing party for its manufacturing,
process development and reasonable overhead costs allocable to such product
plus, in the case of commercial quantities, a reasonable profit. Immunex
recognized revenue under this agreement of $1,246,000, $1,645,000 and $651,000
for the years ended December 31, 1997, 1996 and 1995, respectively. Under the
terms of a subsequent related agreement, the Company incurred costs of
$3,243,000, $3,081,000 and $2,434,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
Enbrel Promotion Agreement
In September 1997, Immunex and AHP entered into a promotion agreement for
AHP to promote Enbrel in North America, if and when the product receives
regulatory approval. Under the terms of the agreement, AHP will promote Enbrel
in North America and will share a percentage of the gross profits and expenses
from selling and commercializing Enbrel. Immunex received milestone payments of
$15,000,000 in 1997 under the agreement.
TACE agreements
In December 1995, Immunex licensed exclusive worldwide rights to tumor
necrosis factor alpha converting enzyme ("TACE") technology to AHP. Immunex
received milestone payments of $6,000,000 and $4,000,000 in 1997 and 1996,
respectively, and received a license fee of $2,000,000 upon signing of the
agreement in 1995. The TACE agreements also include additional milestone
payments and royalties on future product sales. Under the agreements, AHP will
be responsible for developing inhibitors of TACE.
44
<PAGE>
IMMUNEX CORPORATION
Notes to Consolidated Financial Statements
Note 10. Related Party Transactions, continued
Supply and manufacturing
Immunex and AHP are parties to a supply agreement and a toll manufacturing
agreement under which AHP manufactures and supplies the reasonable commercial
requirements of certain oncology products at a price equal to 125% of AHP's or
its subsidiaries' manufacturing costs. Immunex and AHP also have a methotrexate
distributorship agreement whereby AHP agreed to supply methotrexate at certain
established prices which are adjusted annually. Immunex and its subsidiaries
purchased $7,905,000 and $9,657,000 of inventory from AHP and its subsidiaries
under these agreements during the years ended December 31, 1997 and 1996,
respectively. In addition, AHP billed Immunex $988,000, $686,000 and $659,000
for other expenses under such agreement for the years ended December 31, 1997,
1996 and 1995, respectively.
Distribution
Immunex and Wyeth-Ayerst Canada, Inc. ("Wyeth-Ayerst Canada"), a wholly
owned subsidiary of AHP, are parties to a distributorship agreement under which
Wyeth-Ayerst Canada distributes certain oncology products in Canada. Immunex
supplies the oncology products to Wyeth-Ayerst Canada at certain established
prices which are subject to annual adjustment. Immunex sold $2,010,000,
$1,511,000 and $1,631,000 of inventory to Wyeth-Ayerst Canada during the years
ended December 31, 1997, 1996 and 1995, respectively. In December 1997, Immunex
sold its rights to these products in Canada to AHP for $4,000,000.
Immunex has agreed to supply the commercial requirements of Immunex
products to Wyeth-Ayerst Laboratories Puerto Rico, Inc., a wholly owned
subsidiary of AHP. Net revenue recognized under this agreement for the years
ended December 31, 1997 and 1996, totaled $580,000 and $446,000, respectively.
No revenue was recognized under this agreement in 1995.
Trademark license agreement
Immunex and AHP are parties to a trademark license agreement under which
Immunex received the right to use certain trademarks relating to oncology
products. Immunex pays a royalty of 2% of net sales of the products sold under
these trademarks. Immunex ceased using such trademarks on sales of its products
during 1996 and accordingly, no costs were incurred under this agreement in
1997. Royalty expense for the years ended December 31, 1996 and 1995, was
$18,000 and $267,000, respectively.
Services agreement
Immunex and AHP are parties to a transitionary services agreement under
which AHP agreed to provide, among other things, marketing, customer service,
distribution, and credit and collections services related to certain contributed
products. In 1995, nearly all the services provided under this agreement were
terminated. Immunex incurred costs under this agreement totaling $87,000,
$80,000 and $968,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
Note 11. Commitments and Contingencies
The Company leases office and laboratory facilities under certain
noncancelable operating leases that expire through December 2002. These leases
provide the Company with options to renew the leases at fair market rentals
through August 2015. A summary of minimum future rental commitments under
noncancelable operating leases at December 31, 1997 follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31, Operating Leases
----------------------- ----------------
<S> <C> <C>
1998 $ 4,359
1999 4,359
2000 2,959
2001 755
2002 755
----------------
Total minimum lease payments $ 13,187
----------------
----------------
</TABLE>
Rental expense on operating leases was $3,339,000, $2,781,000 and
$2,704,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
45
<PAGE>
IMMUNEX CORPORATION
Notes to Consolidated Financial Statements
Note 11. Commitments and Contingencies, continued
The Company is utilizing a contract manufacturer for the production of
inventory of Enbrel. The Company has made initial orders of launch inventory of
Enbrel from the contract manufacturer, totaling approximately $35,000,000 at
December 31, 1997 and expects to make additional orders in 1998. The launch
inventory requirements of Enbrel are expected to be invoiced to the Company
beginning in mid-1998 and will be capitalized as inventory. Although the Phase
III data for Enbrel released by the Company in September 1997 were positive,
there can be no assurance that Enbrel will be approved by the FDA or, if
approved, that Enbrel will actually be launched in the United States, or if
launched, whether the Company's estimates of launch inventory requirements will
reflect actual demand for the product. Accordingly, any amounts capitalized
related to launch inventory of Enbrel are subject to risk until such
uncertainties are resolved.
In November 1997, Immunex announced that the FDA accepted for review
Immunex's abbreviated new drug application ("ANDA") for generic paclitaxel. In
January 1998, Bristol-Myers Squibb Company ("BMS") filed a complaint alleging
that Immunex's paclitaxel product infringed certain patents pertaining to
Taxol(R), an oncology product marketed by BMS. The legal action by BMS was
anticipated by Immunex, and based on BMS's legal action, the FDA may withhold
clearance of Immunex's ANDA until the earlier of June 2000 or until a court
enters a final judgment finding the BMS patents invalid, unenforceable or not
infringed.
For several years, the Company has been a party to a GM-CSF patent
interference proceeding. In January 1998, the Company reached a settlement with
the remaining party to the proceeding and will incur additional royalties
payable to such party on future net sales of Leukine. In addition, Immunex made
a one-time payment of $5,000,000 to Genetics Institute, Inc. as part of the
resolution of the GM-CSF interference.
The Company has entered into a purchase and sale agreement for certain
property in the vicinity of its corporate headquarters. The closing date under
the agreement is March 31, 1998, and the cost of the property is approximately
$15,000,000.
In addition to its research and development agreements with AHP (see Note
10), the Company has certain additional agreements to fund third-party research.
Commitments under these other agreements are estimated at $3,392,000 and
$500,000 in 1998 and 1999, respectively.
Various license agreements exist that require the Company to pay royalties
based on a percentage of sales of products manufactured using licensed
technology or sold under license. Royalty costs incurred under these agreements
are included in cost of product sales and totaled $8,139,000, $6,136,000 and
$5,844,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Certain of these agreements contain minimum annual royalty provisions totaling
$3,890,000 in 1998 and $3,640,000 per year in year thereafter, until expiration
of the related agreements.
In accordance with a 1992 settlement agreement with Hoechst Roussel
Pharmaceuticals, Inc. ("HRPI"), a payment of $2,000,000 million will be made to
HRPI if the Company receives an expanded label indication for Leukine for
treatment of chemotherapy-induced neutropenia.
46
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Shareholders and Board of Directors
Immunex Corporation
We have audited the accompanying consolidated balance sheets of Immunex
Corporation as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31,
1997. Our audits also included the financial statement schedule listed
in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Immunex Corporation as of December 31, 1997 and 1996, and
the consolidated results of its operations and its cash flows for the
each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. Also, in our
opinion the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Seattle, Washington
January 30, 1998
47
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated by reference from the
section labeled "Election of Directors" and "Executive Officers" in the
Company's definitive Proxy Statement for the annual meeting of shareholders to
be held on April 30, 1998.
Item 11. Executive Compensation
The information required by this item is incorporated by reference from the
section labeled "Executive Compensation" in the Company's definitive Proxy
Statement for the annual meeting of shareholders to be held on April 30, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from the
section labeled "Principal Holders of Voting Securities" in the Company's
definitive Proxy Statement for the annual meeting of shareholders to be held on
April 30, 1998.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from the
section labeled "Relationship with American Home Products Corporation and
American Cyanamid Company" in the Company's definitive Proxy Statement for the
annual meeting of shareholders to be held on April 30, 1998.
48
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Form 10-K:
1. Financial Statements. The following consolidated financial statements
are included in Part II, Item 8:
<TABLE>
<CAPTION>
Page in
Form 10-K
<S> <C>
Consolidated Balance Sheets at December 31, 1997 and 1996. 32
Consolidated Statements of Operations for the years ended December 31, 1997,
1996 and 1995. 33
Consolidated Statements of Shareholders' Equity for the years ended December
31, 1997, 1996 and 1995. 34
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995. 35
Notes to Consolidated Financial Statements for the years ended December 31,
1997, 1996 and 1995. 36 - 46
Report of Ernst & Young LLP, Independent Auditors. 47
</TABLE>
2. Financial Statement Schedule. The following schedule supporting the
foregoing consolidated financial statements for the years ended
December 31, 1997, 1996 and 1995 is filed as part of this Form 10-K:
<TABLE>
<CAPTION>
Page in
Form 10-K
<S> <C>
II - Valuation and Qualifying Accounts 55
</TABLE>
All other schedules are omitted because they are not applicable, or
not required, or because the required information is included in the
consolidated financial statements or notes thereto.
49
<PAGE>
3. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- ------------
<C> <S> <C>
2.1 Amended and Restated Agreement and Plan of Merger, dated as of
December 15, 1992, among the Company, American Cyanamid Company,
Lederle Parenterals, Inc. and Lederle Oncology Corporation.
(Exhibit 2.1) (C)
3.1 Certificate of Incorporation, as filed with the Secretary of State
of Washington on April 14, 1994. (Exhibit 3.1) (E)
3.2 Amended and Restated Bylaws. (Exhibit 3.4) (C)
10.1 Real Estate Purchase and Sale Agreement by and between
Cornerstone-Columbia Development Company ("CCDC") and the Company
dated November 12, 1986; Master Lease, dated as of August 20, 1981
between OTR, an Ohio General Partnership, and CCDC; Assignment of
Master Lease between CCDC and the Company dated December 17, 1986;
Consent to Assignment of Master Lease from OTR to CCDC, the Company
and Weyerhaeuser Real Estate Company, dated December 8, 1986.
(Exhibit 10.22) (A)
10.2 Amendment to Master Lease dated May 1, 1994, between the Company
and Watumull Enterprises, LTD. (Exhibit 10.2) (E)
10.3 Amended and Restated Lease Agreement dated December 21, 1994,
between the Company and the Central Life Assurance Company.
(Exhibit 10.3) (E)
10.4 Amended and Restated Governance Agreement, dated as of December 15,
1992, among the Company, American Cyanamid Company and Lederle
Oncology Corporation. (Exhibit 2.2) (C)
*10.5 Settlement Agreement, dated as of July 22, 1992, among the Company,
Hoechst-Roussel Pharmaceuticals Inc. and Behringwerke AG.
(Exhibit 10.13) (B)
10.6 Lease Agreement between the Company and Second and Seneca Limited
Partnership dated as of December 24, 1992. (H)
10.7 Oncology Product License Agreement between the Company and American
Cyanamid Company dated as of June 1, 1993. (Exhibit 10.2) (D)
10.8 Immunex New Oncology Product License Agreement between the Company
and American Cyanamid Company dated as of June 1, 1993.
(Exhibit 10.3) (D)
10.9 United States Royalty-Bearing Trademark License Agreement
between the Company and American Cyanamid Company dated as of
June 1, 1993. (Exhibit 10.5) (D)
*10.10 Toll Manufacturing Agreement between Immunex Carolina Corporation,
a wholly owned subsidiary of the Company, and Lederle
Parenterals, Inc. dated as of June 1, 1993. (Exhibit 10.6) (D)
*10.11 Supply Agreement between the Company and American Cyanamid Company
dated as of June 1, 1993. (Exhibit 10.7) (D)
**10.12 Separation Agreement between the Company and Stephen A. Duzan
dated as of May 26, 1993. (Exhibit 10.8) (D)
10.13 Agreement between the Company and American Home Products dated
as of September 23, 1994. (Exhibit 10.24) (E)
**10.14 Form of Employment Agreement, together with schedule of actual
agreements. (Exhibit 10.24) (F)
10.15 Real Estate Purchase and Sales Agreement between the Company and
the Port of Seattle dated as of July 18, 1994. (Exhibit 10.17) (H)
</TABLE>
50
<PAGE>
<TABLE>
<C> <S> <C>
10.16 Research Agreement between the Company, the Wyeth-Ayerst Research
division of American Home Products Corporation and the Lederle
Pharmaceutical division of American Cyanamid Company dated as of
July 1, 1996. (Exhibit 10.1) (G)
10.17 TNFR License and Development Agreement between the Company and
the Wyeth-Ayerst Laboratories division of American Home Products
Corporation dated as of July 1, 1996. (Exhibit 10.2) (G)
10.18 Amendment No. 1 to Immunex New Oncology Product License Agreement
between the Company and American Cyanamid Company dated as of July
1, 1996. (Exhibit 10.3) (G)
10.19 Sublease Agreement between the Company and PathoGenesis
Corporation dated as of December 1, 1996. (Exhibit 10.21) (H)
10.20 Amended and Restated 1993 Stock Option Plan. (Exhibit 10.23) (H)
10.21 Amended and Restated Director Stock Option Plan. (Exhibit 10.24) (H)
*10.22 Enbrel Promotion Agreement between the Company and American Home
Products Corporation dated as of September 25, 1997. (Exhibit
10.1) (I)
10.23 Fourth Amendment to Real Estate Purchase and Sale Agreement between
the Company and the Port of Seattle dated as of December 1, 1997. 56-57
10.24 Lease Agreement between the Company and Martin Selig Real Estate
dated as of December 19, 1997. 58-69
21.1 Subsidiaries of the Registrant. 70
23.1 Consent of Ernst & Young LLP, Independent Auditors. 71
24.1 Power of Attorney. 72
27.1 Financial Data Schedule. 73
</TABLE>
- ---------------------
* Confidential treatment granted as to certain portions.
** Executive compensation plan or arrangement.
(A) Incorporated by reference to designated exhibit included with
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1986.
(B) Incorporated by reference to designated exhibit included with
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992.
(C) Incorporated by reference to designated exhibit included in the
Registration Statement on Form S-4 (SEC File No. 33-60254) filed
by Lederle Oncology Corporation March 18, 1993.
(D) Incorporated by reference to designated exhibit included with
the Company's Current Report on Form 8-K dated June 4, 1993.
(E) Incorporated by reference to designated exhibit included with
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994.
(F) Incorporated by reference to designated exhibit included with
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
(G) Incorporated by reference to designated exhibit included with
the Company's Current Report on Form 8-K dated July 1, 1996.
(H) Incorporated by reference to designated exhibit included with
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.
(I) Incorporated by reference to designated exhibit included with
the Company's Current Report on Form 8-K dated September 25,
1997.
51
<PAGE>
(b) Reports on Form 8-K.
On October 2, 1997, the Company filed a current report on Form 8-K
reporting that Immunex Corporation entered into a promotion agreement
for Enbrel in North America with AHP acting through its Wyeth-Ayerst
Laboratories division, dated September 25, 1997.
52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this Annual Report to be signed on its
behalf by the undersigned, hereunto duly authorized.
IMMUNEX CORPORATION
REGISTRANT
By: /s/ Douglas G. Southern March 18, 1998
-----------------------------------------------
Douglas G. Southern
Senior Vice President, Chief Financial Officer
and Treasurer
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:
/s/ Edward V. Fritzky March 18, 1998
--------------------------------------------------
Edward V. Fritzky
Chief Executive Officer, Chairman of the Board and
Director
(Principal Executive Officer)
/s/ Douglas E. Williams March 18, 1998
---------------------------------------------------
Douglas E. Williams
Sr. Vice President-Discovery Research and Director
/s/ Peggy V. Phillips March 18, 1998
---------------------------------------------------
Peggy V. Phillips
Sr. Vice President-Pharmaceutical Development and
Director
/s/ Douglas G. Southern March 18, 1998
---------------------------------------------------
Douglas G. Southern
Senior Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
Joseph J. Carr* March 18, 1998
---------------------------------------------------
Joseph J. Carr
Director
Kirby L. Cramer* March 18, 1998
---------------------------------------------------
Kirby L. Cramer
Director
Richard L. Jackson* March 18, 1998
---------------------------------------------------
Richard L. Jackson
Director
John E. Lyons* March 18, 1998
---------------------------------------------------
John E. Lyons
Director
Joseph M. Mahady* March 18, 1998
---------------------------------------------------
Joseph M. Mahady
Director
Edith W. Martin* March 18, 1998
---------------------------------------------------
Edith W. Martin
Director
53
<PAGE>
*By: /s/ Douglas G. Southern March 18, 1998
----------------------------------------------
Douglas G. Southern
Attorney-in-Fact
54
<PAGE>
SCHEDULE II
IMMUNEX CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
Balance at Additions Charged to Balance at
Beginning of Period Product Sales Deductions End of Period
------------------- -------------------- ------------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Reserve for discounts, returns
and bad debts $ 6,536 $ 10,323 $ 10,583 $ 6,276
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
Reserve for chargebacks, Medicaid rebates
and administrative fees $ 5,822 $ 38,571 $ 35,090 $ 9,303
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
Year ended December 31, 1996:
Reserve for discounts, returns
and bad debts $ 6,276 $ 11,358 $ 10,453 $ 7,181
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
Reserve for chargebacks, Medicaid rebates
and administrative fees $ 9,303 $ 38,608 $ 40,331 $ 7,580
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
Year ended December 31, 1997:
Reserve for discounts, returns
and bad debts $ 7,181 $ 11,649 $ 10,177 $ 8,653
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
Reserve for chargebacks, Medicaid rebates
and administrative fees $ 7,580 $ 47,769 $ 45,634 $ 9,715
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
</TABLE>
55
<PAGE>
Exhibit 10.23
FOURTH AMENDMENT
TO
REAL ESTATE PURCHASE AND SALE AGREEMENT
THIS FOURTH AMENDMENT TO REAL ESTATE PURCHASE AND SALE AGREEMENT
("Amendment") is made and entered into as December 1, 1997, by and between
THE PORT OF SEATTLE, a Washington special purpose municipal corporation
("Seller"), and IMMUNEX CORPORATION, a Washington corporation (.Buyer.).
RECITALS
A. Seller and Buyer entered into a Real Estate Purchase and Sale
Agreement dated as of July 18, 1994, which was amended by First Amendment to
Real Estate Purchase and Sale Agreement dated April 7, 1995 and Second
Amendment to Real Estate Purchase and Sale Agreement dated June 1, 1996 and
Third Amendment to Real Estate Purchase and Sale Agreement dated January 31,
1997 (as amended, "Agreement".), pursuant to which Seller agreed to sell and
Buyer agreed to buy approximately 29 acres of real property known as Terminal
88, as more particularly described on EXHIBIT A to the Agreement
("Property"). All capitalized terms not defined herein shall have the
meanings given them in the Agreement.
B. Seller and Buyer desire to amend the Agreement as set forth in
this Amendment.
AGREEMENT
IN CONSIDERATION of the respective agreements hereinafter set
forth, Seller and Buyer agree as follows:
1. CLOSING DATE. Seller and Buyer acknowledge that, as of the date
hereof, Buyer's Contingencies set forth in Sections 4.3(g)-(h) of the
Agreement (among others) have not been satisfied. The "Closing Date" shall be
extended to March 31, 1998, or such other date prior thereto as Seller and
Buyer may agree to in writing, provided that all of Contingencies and
Seller's Contingencies have then been either satisfied or waived in
accordance with Sections 4.3-4.6 of the Agreement. Seller acknowledges that
Buyer's Contingencies set forth in Sections 4.3(b), (c), (d), (e) and (f)
have been satisfied and that the City of Seattle Director of the Department
of Construction and Land Use will issue to Buyer the Master Use Permit for
the Project on the Closing Date.
2. EFFECT OF AMENDMENT. Except as forth in this Amendment, all of
the terms of the Agreement are hereby ratified and confirmed and shall remain
in full force and effect.
56
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
SELLER: THE PORT OF SEATTLE, a limited purpose
municipal corporation
By /s/ Maud Daudon
Name Maud Daudon
Title Chief Financial Officer
BUYER: IMMUNEX CORPORATION, a
Washington corporation
By /s/ D. G. Southern
Name D. G. Southern
Title Senior Vice President
57
<PAGE>
Exhibit 10.24
MARTIN SELIG REAL ESTATE
1000 SECOND AVENUE
OFFICE LEASE
THIS LEASE, made the 19th day of December, 1997, by and between MARTIN
SELIG, whose address is 1000 Second Avenue, Suite 1800, Seattle, Washington,
98104-1046, hereinafter referred to as "Lessor," and Immunex Corporation, whose
address is 51 University Street, Seattle, Washington 98101, hereinafter referred
to as "Lessee".
1. DESCRIPTION. Lessor, in consideration of the agreements contained in
this lease, does hereby lease to Lessee, upon the terms and conditions
hereinafter set forth, that certain space consisting of the rentable square
footage of 16,546 on the 9th floor and 16,584 on the 10th floor (hereinafter
referred to as the "Premises") of the 1000 Second Avenue Building, 1000 Second
Avenue, City of Seattle, State of Washington 98104, the legal description of
which is:
Parcel "A" Lots 1 and 4 in Block 11 of the Town of Seattle,
as laid out on the claims of C. D. Boren and A. A. Denny;
(commonly known as Boren & Denny's addition to the City of
Seattle), as per plat recorded in Volume 1 of plats, on Page
27, records of King County, Washington; except the
westerly 12 feet thereof condemned by the City of Seattle
for the widening of Second Avenue by judgment entered in
District Court No. 7097, pursuant to Ordinance No. 1107 of
said city;
Parcel "B" Lots 5 and 8 in Block 11 of the Town of Seattle, as
laid out on the claims of C. D. Boren and A. A. Denny;
(commonly known as Boren & Denny's addition to the City of
Seattle), as per plat recorded in Volume 1 of plats, on Page
27, records of King County, Washington; except the westerly 12
feet thereof condemned by the City of Seattle for the widening
of Second Avenue by judgment entered in District Court No.
1107 of said city; situate in the County of King, State of
Washington.
2. TERM. The term of this lease shall be for a period of 60 months,
commencing on the date that Lessor delivers possession of the 9th floor space to
Lessee for the purposes of doing Lessee's initial tenant improvement work in the
Premises, which Lessor agrees will be no earlier than January 1, 1998. Lessee's
obligation to pay rent for the Premises will commence, with respect to the 9th
floor space, on the day that is 60 days after Lessor delivers possession of the
9th floor space to Lessee for the purposes of doing its initial tenant
improvement work in the 9th floor space, and, with respect to the 10th floor
space, on the day that is 60 days after Lessor delivers possession of the 10th
floor space to I-essee for purposes of doing its initial tenant improvement work
in the 10th floor space.
Each of the 9th floor space and the 10th floor space shall be deemed
substantially completed when it is accessible and fully usable by Lessee for its
normal business operations. If the 9th floor space or the 10th floor space is
not substantially completed within 60 days after Lessor delivers possession of
such space to Lessee, and the delay is caused by Lessor, the commencement of
Lessee's obligation to pay rent for such space shall be postponed in such a
manner as to reflect the delay occasioned by the failure of the Premises to be
substantially completed. In no event shall Lessor or Lessee be liable for any
further damages. However, if Lessor fails to deliver possession of the 9th floor
space so that Lessee may begin its tenant improvement work in such space by
January 1, 1998, or if Lessor fails to deliver possession of the 10th floor
space so that Lessee may begin its tenant improvement work in such space by June
1, 1998, Lessee shall have the right to terminate this lease upon written notice
to Lessor.
3. RENT. Lessee covenants and agrees to pay Lessor rent each month in
advance on the first day of each calendar month. Rent shall be computed at the
annual base rental rate of $24.00 per square foot ($397,104 per year for the 9th
floor; $398,016 per year for the 10th floor; $795,120 per year for both floors,
when rent becomes payable for both floors). Rent and additional rent for
increases in Base Year Costs for any fractional calendar month at the beginning
or end of the term shall be the pro rated portion of the rent computed on an
annual basis (i.e., a 365 day calendar year).
<PAGE>
4. USES. Lessee agrees that Lessee will use and occupy said
Premises for general offices and related purposes and for no other purposes.
5. RULES AND REGULATIONS. Lessee and its agents, employees, servants
or those claiming under Lessee will at all times observe, perform and abide by
all of the Rules and Regulations printed on this instrument, or which may be
hereafter promulgated by Lessor, provided they are reasonable and Lessee is
given written notice thereof, all of which it is covenanted and agreed by the
parties hereto shall be and are hereby made a part of this lease.
6. CARE AND SURRENDER OF PREMISES. Lessee shall take good care of the
Premises and shall promptly make all necessary repairs except those required
herein to be made by Lessor. At the expiration or sooner termination of this
lease, Lessee, without notice, will immediately and peacefully quit and
surrender the Premises in good order, condition and repair (damage by reasonable
wear, the elements, or fire excepted). Lessee shall be responsible for removal
of all personal property from the Premises, (excepting fixtures being that which
is attached to the Premises, and property of the Lessor) including, but not
limited to, the removal of Lessee's telephone equipment (but not Lessee's
communication cabling) and signage. Lessee shall be responsible for repairing
any damage to the Premises caused by such removal. If Lessee fails to so remove
and repair the Premises at lease expiration, then Lessor shall have the right,
after giving Lessee prior written notice of the work to be done and the cost
thereof, to remove said property and repair the Premises, and Lessee shall be
responsible for all costs associated therewith.
7. ALTERATIONS. Lessee shall not make any alterations or improvements
in or additions to said Premises costing more the $20,000 in any one instance,
without first obtaining the written consent of Lessor, whose consent shall not
be unreasonably withheld or delayed. Except as provided in Section 29 of this
lease, all such alterations, additions and improvements shall be at the sole
cost and expense of Lessee and shall become the property of Lessor and shall
remain in and be surrendered with the Premises as a part thereof at the
termination of this lease, without disturbance, molestation or injury, except
for Lessee's personal property and trade fixtures. Lessee shall do all
alterations, additions and improvements in accordance with all applicable laws,
and shall deliver to Lessor updated plans showing changes to the layout of the
Premises or the building systems. Lessee shall be permitted to add data and\or
communications cabling without Lessor's prior consent.
8. RESTRICTIONS. Lessee will not use or permit to be used in said
Premises anything that will increase the rate of insurance on said building or
any part thereof, nor anything that may be dangerous to life or limb; nor in any
manner deface or injure said building or any part thereof; nor overload any
floor or part thereof; nor permit any objectionable noise or odor to escape or
to be emitted from said Premises, or do anything or permit anything to be done
upon said Premises in any way tending to create a nuisance or to unreasonably
disturb any other tenant or occupant of any part of said building. Lessee, at
Lessee's expense, will comply with all health, fire and police regulations
respecting said Premises. The Premises shall not be used for lodging or
sleeping, and no animals or birds will be allowed in the building.
9. WEIGHT RESTRICTIONS. Safes and bully articles in excess of 2,000
pounds may be moved in or out of said Premises, and major furniture moves (i.e.,
moves involving more than 5 offices at a time) may be accomplished only at such
hours and in such manner as will least inconvenience other tenants, which hours
and manner shall be at the reasonable discretion of Lessor. No safe or other
article of over 2,000 pounds shall be moved into said Premises without the
consent of Lessor, whose consent shall not be unreasonably withheld or delayed,
and Lessor shall have the right to locate the position of any article of such
weight in said Premises if Lessor so desires.
10. SIGN RESTRICTION. No sign, picture, advertisement or notice shall be
displayed, inscribed, painted or affixed to any of the glass or woodwork of the
building without the prior approval of Lessor, which shall not be unreasonably
withheld or delayed.
11. LOCKS. No additional locks shall be placed upon any existing entry
doors of the Premises, but Lessee may install locks on any new doors installed
by Lessee. Lessor shall provide Lessee with access to the Premises 24 hours per
day, 365 days per year via the building's security access system. Lessor shall
provide each of Lessee's employees (including those hired after the term of this
lease commences) with one door key to the Premises and one access card at no
additional cost to Lessee.
<PAGE>
12. KEY. Lessor, his janitor, engineer or other agents may retain a
pass key to said Premises to enable him to examine the Premises from time to
time with reference to any emergency or to the general maintenance of said
Premises. Lessor shall give Lessee 48 hours' prior notice of any such entry,
except for any entry required by an emergency or for routine janitorial
purposes.
13. TELEPHONE SERVICE. If Lessee desires telephonic or any other
electric connection, Lessor will direct Lessee's electricians as to where and
how the wires are to be introduced, and, without such directions, no boring or
cutting for wires or installation thereof will be permitted.
14. SERVICES. Lessor shall maintain Premises and the public and common
areas of building, such as lobbies, stairs, corridor and restrooms, in such good
order and condition as is fitting for a first class office building, except for
damage occasioned by the act of Lessee.
Lessor shall furnish the Premises with electricity for lighting and
operation of low power usage office machines (including without limitation,
hotocopiers, personal computers and peripherals), heat, normal office
air-conditioning, and elevator services from 6:00 a.m. to 10:00 p.m. on weekdays
and from 6:00 a.m. to 1:00 p.m. on weekend days. (Lessee has informed Lessor,
and Lessor acknowledges, that up to 20% of Lessee's employees may be working in
the Premises after the building's normal business hours.) Air-conditioning units
and electricity therefor for special air-conditioning requirements, such as for
computer centers, shall be at Lessee's expense. Lessor shall also provide
lighting replacement for Lessor furnished lighting, toilet room supplies, window
washing with reasonable frequency, and customary janitor service, as is fitting
for a first class office building.
Except in cases of emergency, Lessor shall give Lessee 48 hour's prior
notice of any repairs to be made to the Premises or of any repairs to the
building that will cause any variation, interruption or failure of services
supplied to the Premises or common areas. Lessor shall not be liable to Lessee
for any loss or damage caused by or resulting from any variation, interruption
or any failure of said services due to any cause whatsoever, except for Lessor's
negligence or willful misconduct. No temporary interruption or failure of such
services incident to the making of repairs, alterations, or improvements, or due
to accidents or strikes or conditions or events not under Lessor's control shall
be deemed as an eviction of Lessee or relieve Lessee from any of Lessee's
obligations hereunder.
In the event of any lack of attention on the part of Lessor and any
dissatisfaction with the service of the building, or any unreasonable annoyance
of any kind, Lessee is requested to make complaints to Lessor's building office
and not to Lessor's employees or agents seen within the building. Lessee is
further requested to remember that Lessor is as anxious as Lessee that a high
grade of service be maintained, and that the Premises be kept in a state to
enable Lessee to transact business with the greatest possible ease and comfort.
The rules and regulations are not made to unnecessarily restrict Lessee, but to
enable Lessor to operate the building to the best advantage of both parties
hereto. To this end, Lessor shall have the right to waive from time to time, and
in a nondiscriminatory manner, such part or parts of these rules and regulations
as in his reasonable judgment may not be necessary for the proper maintenance or
operation of the building or consistent with good service, and may from time to
time make such further reasonable rules and regulations as in his judgment may
be needed for the safety, care and cleanliness of the Premises and the building
and for the preservation of order therein. Lessee shall be given written notice
of all new rules and regulations.
15. SOLICITORS. Lessor will make an effort to keep solicitors
out of the building, and Lessee will not oppose Lessor in his attempt to
accomplish this end.
16. FLOOR PLAN. The floor plan of the Premises shall be attached
hereto and marked Exhibit A.
17. ASSIGNMENT. Lessee will not assign this lease, or any interest
hereunder, and this lease, or any interest hereunder, shall not be assigned by
operation of law. Lessee will not sublet said Premises or any part thereof and
will not permit the use of said Premises by others other than Lessee and the
agents of Lessee without first obtaining the written consent of Lessor, whose
consent shall not be unreasonably withheld or delayed. In the event such written
consent shall be given, no other or subsequent assignment or subletting shall be
made without the previous written consent of Lessor, whose consent shall not be
unreasonably withheld or delayed.
<PAGE>
Anything in this lease to the contrary notwithstanding, Lessor hereby
consents to an assignment of this lease, or a sublease of all or part of the
Premises, (a) to the parent of Lessee or to a wholly-owned subsidiary of Lessee
or of such parent, (b) to any corporation into or with which Lessee may be
merged or consolidated, or (c) in connection with the transfer of substantially
all the assets of Lessee to any assignee or subtenant, provided that any such
assignment of lease shall contain an assumption of all of the terms, covenants
and conditions of this lease to be performed by Lessee, and any subtenant shall
agree to perform all applicable provisions of this lease to be performed by
Lessee. Lessee agrees that no such assignment or subletting shall be effective
unless and until Lessee gives Lessor written notice thereof, together with a
true copy of the assignment or of the sublease.
18. OPERATING SERVICES AND REAL ESTATE TAXES. The annual base rental
rate per rentable square foot in Paragraph 3 includes Lessee's proportionate
share of Operating Services Costs and Real Estate Taxes for the first twelve
months of the lease term (collectively referred to as "Base Year Costs"). Only
actual increases from these Base Year Costs, if any, will be passed on to Lessee
on a proportionate basis.
DEFINITIONS
Base Year
For computing the Base Year Costs, the "Base Year" for the 9th and 10th floors
shall be the calendar year 1998, unless the term commences during a later
calendar year, in which case the base year shall be the calendar year in which
the lease term commences.
Comparison Year
The Comparison Year(s) shall be the calendar year(s) subsequent to the base
year.
Operating Services
"Operating Services Costs" include, but are not limited to, the charges incurred
by Lessor for: building operation salaries, benefits, management fee of 3% of
gross income for the building, insurance, electricity, janitorial, supplies,
telephone, HVAC, repair and maintenance, window washing, water and sewer,
security, landscaping, disposal, elevator, etc. Operating Services shall also
include the amortization cost of capital investment items and of the
installation thereof, which are solely for the purpose of safety, demonstrably
saving energy, or reducing operating costs, or which may be required by
governmental authority (all such costs shall be amortized over the reasonable
life of the capital investment item, with the reasonable life and amortization
schedule being determined in accordance with generally accepted accounting
principles). Notwithstanding anything to the contrary contained herein,
Operating Services Costs shall not include any of the following:
(i) Real Estate Taxes
(ii) legal fees, auditing fees, brokerage
commissions, advertising costs, or other related expenses incurred by Lessor
in an effort to generate rental income;
(iii) repairs, alterations, additions, improvements, or
replacements made to rectify or correct any defect in the original design,
materials or workmanship of the building or common areas (but not including
repairs, alterations, additions, improvements or replacements made as a result
of ordinary wear and tear);
(iv) damage and repairs attributable to fire or other
casualty;
(v) damage and repairs necessitated by the negligence
or willful misconduct of Lessor, Lessor's employees, contractors or agents;
(vi) executive salaries to the extent that such
services are not in connection with the management, repair, operation or
maintenance of the building;
<PAGE>
(vii) Lessor's general overhead expenses not related to
the building;
(viii) legal fees, accountant's fees and other expenses
incurred in connection with disputes with tenants or other occupants of the
building or associated with the enforcement of the terms of any leases with
tenants or the defense of Lessor's title to or interest in the building or any
part thereof;
(ix) costs (including permit, license and inspection
fees) incurred in renovating or otherwise improving, decorating painting or
altering (1) vacant space (excluding common areas) in the building or (2)
space for tenants or other occupants in the building, and costs incurred in
supplying any item or service to less than all of the tenants in the building;
(x) costs incurred due to violation by Lessor or any
other tenant of the building of applicable law or the terms and conditions of
a lease or any other legal obligation;
(xi) cost of any specific service provided to Lessee
or other occupants of the building for which Lessor is reimbursed (but
not including Operating Services Costs and Real Estate Tax increases above
Base Year Costs to the extent reimbursed Lessor) or any other expense for
which Lessor is or will be reimbursed by another source (i.e., expenses
covered by insurance or warranties);
(xii) costs and expenses which would be capitalized
under generally accepted accounting principles, with the exception of the
capital investment items specified hereinabove;
(xiii) building management fees in excess of the management
fees specified hereinabove;
(xiv) cost incurred with owning and/or operating the
parking lot(s) serving the building by independent parking operator(s);
(xv) fees paid to Lessor or any affiliate of Lessor for
goods or services in excess of the fees that would typically be charged by
unrelated, independent persons or entities for similar goods and services;
(xvi) rent called for under any ground lease or master
lease;
(xvii) principal and/or interest payments called for
under any debt secured by a mortgage or deed of trust on the building;
(xviii) depreciation of or reserves for replacement of
Lessor's assets; and
(xix) any Operating Services Costs to the extent they
exceed Operating Services Costs for comparable properties in the
Seattle Central Business District.
Operating Services Costs shall be adjusted for the Base Year to reflect the
greater of actual occupancy or 95% occupancy.
Real Estate Taxes
Real Estate Taxes shall be the taxes paid by Lessor in the Base Year and each
respective Comparison Year. Real Estate Taxes shall be a separate category and
shall be treated as such.
Notwithstanding anything in this lease to the contrary, Real Estate
Taxes shall not include, and Lessee shall not be responsible for, (a) any
franchise, corporate, estate, inheritance, succession, capital levy or transfer
tax of Lessor, (b) any income, profits, business and occupation or revenue tax
of Lessor, or (c) any tax or assessment on rent or other charge payable by
Lessor under this lease imposed by any local, state, federal or other regulatory
agency.
If, after Lessee shall have made a payment of additional rent for Real
Estate Taxes, Lessor shall receive a refund of any portion of the Real Estate
Taxes payable during any Comparison Year upon which such payment of additional
rent shall have been based, as a result of a reduction of such Real Estate Taxes
by final determination of legal proceedings, settlement or otherwise, Lessor
shall, within 10 days after receiving the refund, pay to Lessee Lessee's share
of the refund.
<PAGE>
Proportionate Basis
Lessee's share of Base Year and Comparison Year(s) Costs shall be a fraction,
the numerator of which shall be the number of rentable square feet contained in
the Premises (see Paragraph 1) and the denominator of which shall be the number
of rentable square feet in the building in which the leased Premises are
located, which Lessor represents and warrants is 411,100/RSF. (Lessee's share is
4.02 % for the 9th floor; 4.03 % for the 10th floor; 8.06 % for both floors.)
Computation of Adjustments to Base Year Costs
Any adjustment to Base Year Costs will commence to occur in Month 13 of the
lease term with subsequent adjustments commencing every twelve months of the
lease term or in Months 25, 37, 49, etc. as appropriate under the lease term.
Lessee shall be responsible for any increase between Lessee's proportionate
share of Base Year Costs and Lessee's proportionate share of each respective
Comparison Year(s) Costs. The increase shall be the increase to each expense
individually. These costs shall be initially calculated based on estimated
(projected) costs with reconciliation to actual costs when annual audited
numbers are completed, which shall be no later than May 1 of each calendar year.
For the purpose of calculating projected increases to Base Year Cost, Lessor
shall review historical data to predict if any estimated increases would be
anticipated in a Comparison Year(s). If they are, then commencing in Month 13
and/or every twelve month period thereafter, Lessor will assess a monthly charge
to be paid together with monthly base rent. Once actual cost data for Comparison
Year(s) Real Estate Taxes and Operating Services Costs for the entire building
is formulated in accordance with generally accepted accounting principles (but
no later than May 1 of each calendar year), then Lessee's estimated pass-through
costs shall be corrected with Lessee or Lessor, as appropriate, reimbursing the
other for the difference between the estimated and actual costs, at that time in
lump sum payment.
Upon termination of this lease, the amount of any corrected amount between
estimated and actual costs with respect to the final comparison year shall
survive the termination of the lease and shall be paid to Lessee or Lessor as
appropriate within 30 days after final reconciliation. Computation of or
adjustment to Operating Services Costs and/or Real Estate Taxes pursuant to this
paragraph or to rent pursuant to Paragraph 3 shall be computed based on a
365-day year.
The statements of Operating Services Costs furnished by Lessor to
Lessee shall be certified by Lessor, shall be detailed and shall constitute a
final determination as between Lessor and Lessee of Operating Services Costs for
the periods represented thereby unless Lessee shall give a notice to Lessor that
it disputes their accuracy or their appropriateness, which notice shall specify
the particular respects in which the statement is inaccurate or inappropriate.
Lessee or Lessee's agent shall have the right, during reasonable business hours
and upon not less than 5 business days' prior written notice to Lessor, with
respect to current records, or 10 business days' prior written notice to Lessor,
with respect to archived records, to examine Lessor's books and records in
Lessor's office with respect to the foregoing.
Any dispute regarding Operating Services Costs shall be resolved (a) by
arbitration in Seattle, Washington by 3 arbitrators, each of whom shall have at
least 10 years' experience in the supervision of the operation and management of
commercial office buildings in Seattle, Washington, and (b) in accordance with
the Commercial Arbitration Rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof. Pending the resolution of such dispute, Lessee
shall continue to pay additional rent to Lessor in the same amounts as before
Lessee received the statement that is the subject of such dispute. Within 30
days after the resolution of such dispute, Lessee shall pay to Lessor any
deficiency in additional rent found by the arbitrators to be owing to Lessor by
Lessee, or Lessor shall refund any overage in additional rent found by the
arbitrators to have been paid by Lessee to Lessor. The cost of the arbitration
shall be borne by the losing party.
19. LATE PAYMENTS. Any payment required to be made pursuant to this
lease that is not made on the date that is 5 business days after Lessee receives
written notice that it is overdue shall bear interest at a rate equal to 3%
above the prime rate of interest charged from time to time by Seafirst National
Bank, or its successor.
In addition to any interest charged herein, a late charge of 5% of the
payment amount shall be incurred for payments received more than 5 business days
after Lessee receives written notice that it is overdue.
<PAGE>
20. RISK. All personal property of any kind or description whatsoever
in the Premises shall be at Lessee's sole risk. Lessor shall not be liable for
any damage done to or loss of such personal property or damage or loss suffered
by the business or occupation of the Lessee arising from any acts or neglect of
co-tenants or other occupants of the building, or of Lessor or the employees of
Lessor, or for any other persons, or from bursting, overflowing or leaking of
water, sewer or steam pipes, or from the heating, or plumbing or sprinklering
fixtures, or from electric wires, or from gas, or odors, or caused in any other
manner whatsoever except in the case of negligence or wilful misconduct on the
part of Lessor. Lessee shall keep in force throughout the term of this lease
such casualty and general liability insurance as a prudent tenant occupying and
using the Premises would keep in force. Lessor shall keep in force throughout
the term of the lease such casualty and general liability insurance as a prudent
landlord/owner of the building in which the Premises are located would keep in
force.
21. INDEMNIFICATION. Lessee will defend, indemnify and hold harmless
Lessor from any claim, liability or suit, including reasonable attorney's fees,
on behalf of any person, persons, corporation and/or firm for any injuries or
damages occurring in or about the said Premises or on or about the sidewalk,
stairs, or thoroughfares adjacent thereto to the extent said damages or injury
was caused or partially caused by the ordinary or gross negligence or
intentional act of Lessee and/or by Lessee's agents, employees, or servants.
Lessor shall defend, indemnify and hold harmless Lessee from any claim,
liability or suit, including reasonable attorney's fees, on behalf of any
person, persons, corporation and/or firm for any injuries or damages occurring
in the common areas of the building or caused or partially caused by the
ordinary or gross negligence or intentional act of Lessor or Lessor's agents,
employees or servants.
22. WAIVER OF SUBROGATION. Lessee and Lessor do hereby release and
relieve the other, and waive their entire claim of recovery for loss, damage,
injury and all liability of every kind and nature which may arise out of, or be
incident to, fire and extended coverage perils, in, on, or about the Premises
herein described, whether due to negligence of either of said parties, their
agents, or employees, or otherwise.
23. SUBORDINATION. This lease and all interest and estate of Lessee
hereunder is subject to and is hereby subordinated to all present and future
mortgages and deeds of trust affecting the Premises or the property of which
said Premises are a part. Lessee agrees to execute, at no expense to the Lessor,
any instrument which may be deemed necessary or desirable by the Lessor to
further effect the subordination of this lease to any such mortgage or deed of
trust. In the event of a sale or assignment of Lessor's interest in the
Premises, or in the event of any proceedings brought for the foreclosure of, or
in the event of exercise of the power of sale under any mortgage or deed of
trust made by Lessor covering the Premises, Lessee shall attorn to the purchaser
and recognize such purchaser as Lessor. Lessee agrees to execute, at no expense
to Lessor, any estoppel certificate deemed necessary or desirable by Lessor to
further effect the provisions of this paragraph, provided Lessor makes such
reasonable revisions to such estoppel certificate as Lessee may request.
Notwithstanding the foregoing, Lessee shall not be obligated to subordinate this
lease or attom to any transferee of Lessor's interest under this lease unless
the transferee agrees in writing (a) that Lessee shall not be disturbed under
this lease as long as Lessee is not in default under this lease beyond any
applicable notice and cure period and (b) to perform all of Lessor's obligations
hereunder.
24. CASUALTY. In the event the leased Premises or the said building is
destroyed or injured by fire, earthquake or other casualty to the extent that
they are untenantable in whole or in part, then Lessor may, at Lessor's option,
proceed with reasonable diligence to rebuild and restore the said Premises or
such part thereof as may be injured as aforesaid, provided that within sixty
(60) days after such destruction or injury Lessor will notify Lessee of Lessor's
intention to do so, and during the period of such rebuilding and restoration the
rent shall be abated in proportion to the portion of the Premises that is unfit
for occupancy. Lessor will provide access to any needed alternative space for
Lessee at the fair market rate, not to exceed Lessee's rental rate hereunder.
Notwithstanding the foregoing, if the repairs would foreseeably require more
than 180 days to complete or such repairs cannot be made under applicable laws,
this lease may be terminated at the option of Lessee, upon 30 days' written
notice to Lessor. Furthermore, if Lessor begins to make such repairs and is
unable to complete same within 180 days, or if a total or partial destruction of
the Premises or building occurs during the last 2 years of the lease term,
Lessee may terminate this lease upon 30 days' written notice to Lessor.
<PAGE>
25. INSOLVENCY. If Lessee becomes insolvent, or makes an assignment for
the benefit of creditors, or a receiver is appointed for the business or
property of Lessee, or a petition is filed in a court of competent jurisdiction
to have Lessee adjudged bankrupt, then Lessor may, at Lessor's option, terminate
this lease. Said termination shall reserve unto Lessor all of the rights and
remedies available under Paragraph 26 ("Default") hereof, and Lessor may accept
rents from such assignee or receiver without waiving or forfeiting said right of
termination. As an alternative to exercising his right to terminate this lease,
Lessor may require Lessee to provide adequate assurances, including the posting
of a cash bond, of Lessee's ability to perform its obligations under this lease.
26. DEFAULT. If this lease is terminated in accordance with any of the
terms herein (with the exception of Paragraph 25), or if Lessee vacates the
Premises or if Lessee shall fail at any time to keep or perform any of the
covenants or conditions of this lease, i.e. specifically the covenant for the
payment of monthly rent by the 5th business day after Lessee receives written
notice that is overdue, then, and in any of such events Lessor may with or
without notice or demand, at Lessor's option, and without being deemed guilty of
trespass and/or without prejudicing any remedy or remedies which might otherwise
be used by Lessor for arrearages or preceding breach of covenant or condition of
this lease, enter into and repossess said Premises and expel Lessee and all
those claiming under Lessee. (Notwithstanding the foregoing, if Lessee fails to
fulfill any of the covenants of this lease, other than the covenants for the
payment of base rent or additional rent, Lessee shall not be in default until
Lessee receives written notice of the failure and a 30 day period in which to
cure it. If the failure is not reasonably susceptible of cure within 30 days,
then Lessee shall be entitled to such longer cure period as is reasonably
necessary, as long as Lessee commences the cure within the initial 30-day period
and diligently pursues the cure thereafter.) In such event Lessor may eject and
remove from said Premises all goods and effects (forcibly if necessary). This
lease if not otherwise terminated may immediately be declared by Lessor as
terminated. The termination of this lease pursuant to this Article shall not
relieve Lessee of its obligations to make the payments required herein. In the
event this lease is terminated pursuant to this Article, or if Lessor enters the
Premises without terminating this lease and Lessor relets all or a portion of
the Premises, Lessee shall be liable to Lessor for all the costs of relenting,
including necessary repairs, but not renovation and alteration of the leased
Premises. Lessee shall remain liable for all unpaid rental which has been earned
plus late payment charges pursuant to Paragraph 19 and for the remainder of the
term of this lease for any deficiency between the amounts received following
reletting and the amounts due from Lessee, or if Lessor elects, Lessee shall be
immediately liable for all rent and additional rent (Paragraph 17) that would be
owing to the end of the term, less any rental loss Lessee proves could be
reasonably avoided, which amount shall be discounted by the discount rate of the
Federal Reserve Bank situated nearest to the Premises, plus one percent (1%).
27. PARKING. Lessor shall grant Lessee parking in the building based
or a ratio of one (1) stall per every 1,000 rentable square feet leased (16.5
spaces for the 9th floor; 16.5 spaces for the 10th floor; 33 spaces for both
floors, when both floors are leased). The monthly cost for such parking shall
be at the prevailing market rate, which shall mean the average rate then
charged for comparable parking stalls located within the area that has the
following boundaries: University Street, Columbia Street, Fourth Avenue and
Western Avenue.
28. EARLY POSSESSION. In order to construct its tenant improvements,
Lessee shall be allowed to occupy the 9th floor on January 1, 1998, and the 10th
floor on June 1, 1998. Lessee shall not be required to pay rent on the Premises
until the dates outlined in Paragraph 2 TERM.
29. TENANT IMPROVEMENT ALLOWANCE. Lessee shall be entitled to a tenant
improvement allowance at $15.00 per rentable square foot. This allowance will be
paid upon submittal of Lessee's paid invoices, which Lessee may submit, at its
option, either all at once or from time to time. If Lessor does not reimburse
Lessee for an invoiced amount within 5 days after submittal of the paid invoice
thereof, Lessee may offset such against rent owed to Lessor.
30. RIGHT OF FIRST OFFER. Lessor herein grants to Lessee the right of
first offer to lease any space on the 11th floor which becomes available during
the term of this lease. Promptly after Lessor becomes aware that any 11th floor
space will become available, but no earlier than 6 months before the space
becomes available, Lessor shall give Lessee written notice of the upcoming,
availability. The notice shall contain an offer by Lessor to lease the space to
Lessee for a base rent equal to 90% of the fair market rental value of the space
on the date of Lessor's offer to Lessee, determined in accordance with the
second sentence of Paragraph 41(ii), for a term to expire on the date this lease
expires, with a Base Year to be the calendar year in which the leasing of the
space commences, and otherwise on substantially the same terms
<PAGE>
and conditions as are contained in this lease. Lessee shall have until
60 days after receiving Lessor's offer to elect to lease all or any portion of
the offered space and to execute a binding lease therefor. If Lessee shall fail
to timely make such election and execute such lease, Lessee's rights with
respect to the refused space shall expire until the earlier of the date that is
6 months after the date of Lessor's offer with respect to the space, provided
Lessor shall not have leased the space to a third party during the 6-month
period, or the date when Lessor becomes aware that the space will once again
become available, when Lessee's rights under this paragraph with respect to the
space shall revive.
31. REAL ESTATE LEASING FEE. Lessor shall pay to Lessee's agent, David
Alexander Company, a real estate leasing fee equivalent to $3.50 per rentable
square foot or $115,822.00. Fifty percent (50%) of this fee is due upon full
execution of this lease and 50% is due upon occupancy of the 9th floor. If the
real estate commission has not been paid by Lessor within 30 days of when due,
Lessee may offset such against rents owing to Lessor. If Lessee exercises its
right of first refusal to rent additional space on the 11th floor, David
Alexander only shall be entitled to a real estate commission equal to $0.7 per
rentable square foot of space leased, multiplied by the number of years then
remaining in the term.
32. BINDING EFFECT. The parties hereto further agree with each other
that each of the provisions of this lease shall extend to and shall, as the case
may require, bind and inure to the benefit, not only of Lessor and Lessee, but
also of their respective heirs, legal representatives, successors and assigns,
subject, however, to the provisions of Paragraph 17 of this lease.
33. LEASE CONSTRUCTION. It is also understood and agreed that the terms
"Lessor" and 'Lessee" and verbs and pronouns in the singular number are
uniformly used throughout this lease regardless of gender, number or fact of
incorporation of the parties hereto. The typewritten riders or supplemental
provisions, if any, attached or added hereto are made a part of this lease by
reference. It is further mutually agreed that no waiver by Lessor of a breach by
Lessee of any covenant or condition of this lease shall be construed to be a
waiver of any subsequent breach of the same or any other covenant or condition.
34. HOLDING OVER. If Lessee holds possession of the Premises after term
of this lease, Lessee shall be deemed to be a month-to-month tenant upon the
same terms and conditions as contained herein, except rent which shall be
revised to reflect the then current market rate. During month-to-month tenancy,
Lessee acknowledges Lessor will be attempting to relet the Premises. Lessee
agrees to cooperate with Lessor and Lessee further acknowledges Lessor's
statutory right to terminate the lease with proper notice.
35. ATTORNEY'S FEES. If any legal action is commenced to enforce any
provision of this lease, the prevailing party shall be entitled to an award of
reasonable attorney's fees and disbursements. The phrase "prevailing party'
shall include a party who receives substantially the relief desired, whether by
dismissal, summary judgment, judgment, settlement or otherwise.
36. NO REPRESENTATIONS. The Lessor has made no representations or
promises except as contained herein or in some future writings signed by Lessor.
37. QUIET ENJOYMENT. So long as Lessee pays the rent and performs the
covenants contained in this lease, Lessee shall hold and enjoy the Premises
peaceably and quietly, subject to the provisions of this lease.
38. RECORDATION. Lessee shall not record this lease without the prior
written consent of Lessor. However, both parties shall execute a memorandum or
"short form" of this lease for the purposes of recordation in a form customarily
used for such purpose. Said memorandum or short form of this lease shall
describe the parties, the Premises and the lease term, and shall incorporate
this lease by reference.
39. MUTUAL PREPARATION OF LEASE. It is acknowledged and agreed that
this lease was prepared mutually by both parties. In the event of ambiguity, it
is agreed by both parties that it shall not be construed against either party as
the drafter of this lease.
40. GOVERNING LAW. This lease shall be governed by, construed and
enforced in accordance with the laws of the State of Washington.
<PAGE>
41. RENEWAL OPTION. Lessee shall have options to renew and extend the
term of this lease for up to a total of 7 years, which Lessee may exercise for
periods of no less than one year at a time, but for as many years as Lessee may
desire at a time, as long as the total number of years does not exceed 7 (each
period of time selected by Lessee shall be referred to as a "Renewal Term").
During each Renewal Term, the same terms and conditions as are contained in this
lease shall apply (unless changed or modified by mutual agreement) except that
(a) the base rent shall be as hereinafter set forth, and (b) the Base Year shall
be as hereinafter defined. The exercise of such options shall only be effective
upon strict compliance with the following terms and conditions:
(i) Written notice of the exercise of each such option shall
be given by Lessee to Lessor no later than 6 months prior to the expiration date
of the previous term of this lease.
(ii) If Lessee extends the term of this lease, the base rent
shall be adjusted on the anniversary of the commencement date of the initial
term of this lease and, if applicable, on the tenth anniversary of the
commencement date of the initial term of this lease (each, an "Adjustment
Date"), as follows: The base rent payable shall be adjusted to 90% of the fair
market rental value of the Premises as of the Adjustment Date, taking into
account the then-current rentals at which leases are being concluded for
comparable space in the building and in comparable buildings in the same rental
area as the building, the provisions of this paragraph, and no other provisions
of this lease. Lessor and Lessee shall seek to agree upon such fair market
rental value. If Lessor and Lessee cannot agree upon such fair market rental
value by the date that is 30 days before the Adjustment Date, such value shall
be determined by arbitration, initiated by either Lessor or Lessee and conducted
in Seattle, Washington by a 3-member panel composed of licensed real estate
brokers doing business in Seattle, Washington and having not less than 15 years'
active experience as real estate brokers in Seattle, Washington, in accordance
with the rules of the American Arbitration Association then obtaining. The
determination by the arbitrators shall be conclusive and binding on Lessor and
Lessee.
If, by an Adjustment Date, the amount of the base rent payable shall
not have been determined, then pending such determination, Lessee shall continue
to pay base rent at the rate payable immediately prior to the Adjustment Date
and within 30-days after the determination by the arbitrators, Lessee shall pay
to Lessor, for the period after the Adjustment Date during which such
determination was pending, the amount, if any, by which the base rent for such
period at the rate determined by the arbitrators exceeds the base rent for such
period at the rate theretofore paid, or Lessor shall pay to Lessee, for the
period after the Adjustment Date during which the determination was pending, the
amount, if any, by which the base rent for such period at the rate theretofore
paid by Lessee exceeds the base rent for such period at the rate determined by
the arbitrators.
(iii) Upon determination of the adjusted base rent, Lessor and
Lessee shall execute, acknowledge and deliver to each other an agreement
specifying the amount of the adjusted base rent. However, failure of either
party to do so shall not affect the validity or binding nature of such
determination.
(iv) Effective as of each Adjustment Date, the Base Year for
purposes of determining the expense escalation hereunder shall be adjusted to be
the calendar year in which the Adjustment Date occurs. If an Adjustment Date is
not the first day of a calendar year, then the additional rent due hereunder
shall be prorated on an actual per them basis.
42. HAZARDOUS SUBSTANCES. Lessor shall be solely responsible for and
shall defend, indemnify and hold harmless Lessee and its employees and agents
against all liabilities, obligations, damages, penalties, claims, causes of
action, costs, charges and expenses, including reasonable attorneys' fees, court
costs, administrative costs, and costs of appeals arising out of or in
connection with the presence of Hazardous Materials on, in or under the building
or other parts of the property on which the building is located, except to the
extent arising out of or in connection with or resulting from the acts or
omissions of any kind by Lessee or its employees, agents, licensees, invitees or
contractors. Lessor's obligations under this paragraph shall survive the
expiration or termination of this lease.
"Hazardous Material" shall mean any matter (whether gaseous, liquid or
solid) that is or may be harmful to persons or property, including but not
limited to petroleum products and byproducts, asbestos and any other materials,
now or hereafter designated as a hazardous substance or material pursuant to
Section 101 of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as now or hereafter amended, 42 U. S. C. 960 1, et seq.,
or that is now or hereafter regulated by any applicable law pertaining to
health, industrial hygiene or the environment.
<PAGE>
43. REPRESENTATIONS. Lessor represents and warrants to Lessee that it
is the fee simple owner of the building and that it has full right and power to
execute and perform this lease and to grant the estate leased herein.
44. CONSENT. Notwithstanding anything in this lease to the contrary,
Lessor shall not unreasonably withhold or delay any consent or approval that
Lessee is obligated to obtain from Lessor under this lease. If Lessor fails to
give Lessee notice that Lessor either gives or denies its consent or approval
within 5 business days after Lessee's request (or such other period as may be
set forth in this lease with respect to the consent or approval in question),
such consent or approval shall be deemed given.
45. NOTICES. Any notice or document required or permitted to be
delivered hereunder from one party to the other shall be in writing and shall be
deemed given when personally delivered, delivered by facsimile with prompt
confirmation of receipt by telephone or delivered by private courier service
(such as Federal Express) or 5 days after being deposited in the United States
Mail, in registered or certified form, return receipt requested, to the other
party's address or facsimile number set forth below or such other address or
facsimile number as shall have been last designated by notice in writing from
one party to the other.
If to Lessee, as follows:
Lessee: Immunex Corporation
51 University Street
Seattle, WA 98101
Attn: Vice President, Operations
Phone: (206) 587-0430
Fax: (206) 587-0606
Lessee Counsel: Davis Wright Tremaine LLP
2600 Century Square
1501 Fourth Avenue
Seattle, WA 98101-1688
Attention: Janine V. Roberts
Phone: (206) 622-3150
Fax: (206) 628-7040
If to the Lessor, as follows:
Lessor: Martin Selig Real Estate
1000 Second Avenue, Suite 1800
Seattle, WA 98104-1046
Attn: Martin Selig
Phone: (206) 467-7600
Fax: (206) 386-5296
<PAGE>
IN WITNESS WHEREOF, the parties hereof have executed this lease the day and year
first above written.
IMMUNEX CORPORATION
/S/ Martin Selig /S/ D.G. Southern
- ------------------------------- ------------------------------
Martin Selig By: D. G. Southern
------------------------------
Its: Senior Vice President
------------------------------
"Lessor" "Lessee
Attachment
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
SUBSIDIARIES:
Immunex Manufacturing Corporation
Incorporated in the State of Washington
51 University Street
Seattle, WA 98101
70
<PAGE>
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-59061 and 33-78694) pertaining to the Immunex Corporation
Amended and Restated 1993 Stock Option Plan and Amended and Restated Director
Stock Option Plan of our report dated January 30, 1998, with respect to the
consolidated financial statements and schedule of Immunex Corporation included
in its Annual Report (Form 10-K) for the year ended December 31, 1997.
Ernst & Young, LLP
Seattle, Washington
March 19, 1998
71
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENT that the individuals whose signatures appear
below, in their capacities as officers and directors of Immunex Corporation (the
"Company"), hereby constitute and appoint Douglas G. Southern their true and
lawful attorney-in-fact, with full power of substitution, to sign on behalf of
the undersigned the Company's Annual Report on Form 10-K for the 1997 fiscal
year pursuant to Section 13 of the Securities and Exchange Act of 1934 and to
file the same, with exhibits thereto and any other documents in connection
therewith, with the Securities and Exchange Commission. Each of the undersigned
does hereby ratify and confirm all that such attorney-in-fact may do or cause to
be done by virtue hereof.
Signature Title Date
/s/ Joseph J. Carr Director March 10, 1998
- ------------------------------- -------------------------
(Joseph J. Carr)
/s/ Kirby L. Cramer Director March 4, 1998
- ------------------------------- -------------------------
(Kirby L. Cramer)
/s/ Richard L. Jackson Director March 10, 1998
- ------------------------------- -------------------------
(Richard L. Jackson)
/s/ John E. Lyons Director March 1, 1998
- ------------------------------- -------------------------
(John E. Lyons)
/s/ Joseph M. Mahady Director March 4, 1998
- ------------------------------- -------------------------
(John E. Lyons)
/s/ Edith W. Martin Director March 8, 1998
- ------------------------------- -------------------------
(Edith W. Martin)
72
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 66,176
<SECURITIES> 20,364
<RECEIVABLES> 13,741
<ALLOWANCES> 760
<INVENTORY> 9,031
<CURRENT-ASSETS> 116,593
<PP&E> 126,840
<DEPRECIATION> 53,195
<TOTAL-ASSETS> 227,333
<CURRENT-LIABILITIES> 45,544
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0
0
<COMMON> 711,485
<OTHER-SE> (535,329)
<TOTAL-LIABILITY-AND-EQUITY> 227,333
<SALES> 149,672
<TOTAL-REVENUES> 185,297
<CGS> 24,552
<TOTAL-COSTS> 205,139
<OTHER-EXPENSES> (1,088)
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<INTEREST-EXPENSE> 596
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<INCOME-TAX> 212
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