<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission File Number 0-12406
IMMUNEX CORPORATION
(exact name of registrant as specified in its charter)
Washington 51-0346580
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
51 University Street, Seattle, WA 98101
(Address of principal executive offices)
Registrant's telephone number, including area code (206) 587-0430
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value 39,915,049
- ----------------------------- -----------------------------
Class Outstanding at August 6, 1998
<PAGE>
IMMUNEX CORPORATION
QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements:
a) Consolidated Condensed Balance Sheets -
June 30, 1998 and December 31, 1997 4
b) Consolidated Condensed Statements of Operations -
for the three-month periods ended June 30, 1998
and June 30, 1997 5
c) Consolidated Condensed Statements of Operations -
for the six-month periods ended June 30, 1998
and June 30, 1997 6
d) Consolidated Condensed Statements of Cash Flows -
for the six-month periods ended June 30, 1998
and June 30, 1997 7
e) Notes to Consolidated Condensed Financial Statements 8-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
The consolidated condensed financial statements included herein have been
prepared by Immunex Corporation without audit, according to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The financial statements reflect, in
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position and results of
operations as of and for the periods indicated. The statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
The results of operations for the six-month period ended June 30, 1998, are not
necessarily indicative of results to be expected for the full year ending
December 31, 1998.
3
<PAGE>
Item 1. FINANCIAL STATEMENTS
IMMUNEX CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(unaudited) 1997
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 46,478 $ 66,176
Marketable securities 61,717 20,364
Accounts receivable, net 15,255 17,296
Accounts receivable - AHP scheduled payment 20,000 -
Inventories 6,714 9,031
Other current assets 2,498 3,726
-------- --------
Total current assets 152,662 116,593
Property, plant and equipment, net 89,189 73,645
Other assets 37,565 37,095
-------- --------
$279,416 $227,333
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 32,189 $ 30,924
Accrued compensation and related items 7,091 8,572
Current portion of long-term obligations 3,304 3,460
Other current liabilities 2,450 2,588
-------- --------
Total current liabilities 45,034 45,544
Long-term obligations 5,803 5,633
Shareholders' equity:
Common stock, $.01 par value 715,735 711,485
Guaranty payment receivable from AHP - (60,032)
Unrealized gain on investment 1,617 4,646
Accumulated deficit (488,773) (479,943)
-------- --------
Total shareholders' equity 228,579 176,156
-------- --------
$279,416 $227,333
-------- --------
-------- --------
</TABLE>
See accompanying notes.
4
<PAGE>
Item 1. FINANCIAL STATEMENTS (continued)
IMMUNEX CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
June 30, June 30,
1998 1997
------------- -------------
<S> <C> <C>
Revenues:
Product sales $ 39,961 $ 38,961
Royalty and contract revenue 24,194 4,045
--------- ---------
64,155 43,006
Operating expenses:
Cost of product sales 7,691 6,228
Research and development 36,910 26,770
Selling, general and administrative 20,780 19,541
--------- ---------
65,381 52,539
--------- ---------
Operating loss (1,226) (9,533)
Other income (expense):
Interest income 1,550 1,051
Interest expense (111) (160)
Other income, net 70 1
--------- ---------
1,509 892
--------- ---------
Income (loss) before income taxes 283 (8,641)
Provision for income taxes 88 58
--------- ---------
Net income (loss) $ 195 $ (8,699)
--------- ---------
--------- ---------
Earnings (loss) per common share, basic and diluted $ 0.00 $ (0.22)
--------- ---------
--------- ---------
Number of shares used for per share amounts 41,815 39,614
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
5
<PAGE>
Item 1. FINANCIAL STATEMENTS (continued)
IMMUNEX CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Six months Six months
ended ended
June 30, June 30,
1998 1997
---------- ----------
<S> <C> <C>
Revenues:
Product sales $ 78,777 $ 74,860
Royalty and contract revenue 27,244 7,593
--------- ---------
106,021 82,453
Operating expenses:
Cost of product sales 14,782 12,514
Research and development 63,816 50,724
Selling, general and administrative 39,217 37,899
--------- ---------
117,815 101,137
--------- ---------
Operating loss (11,794) (18,684)
Other income (expense):
Interest income 3,090 1,709
Interest expense (221) (316)
Other income, net 241 6
--------- ---------
3,110 1,399
--------- ---------
Loss before income taxes (8,684) (17,285)
Provision for income taxes 146 115
--------- ---------
Net loss $ (8,830) $ (17,400)
--------- ---------
--------- ---------
Loss per common share, basic and diluted $ (0.22) $ (0.44)
--------- ---------
--------- ---------
Number of shares used for per share amounts 39,840 39,610
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
6
<PAGE>
Item 1. FINANCIAL STATEMENTS (continued)
IMMUNEX CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six months Six months
ended ended
June 30, June 30,
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (8,830) $ (17,400)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 9,293 7,788
Cash flow impact of changes in:
Accounts receivable (17,958) (3,330)
Inventories 2,317 1,135
Accounts payable, accrued liabilities and
other current liabilities (355) 6,146
Other current assets 436 764
-------- --------
Net cash used in operating activities (15,097) (4,897)
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (22,453) (4,824)
Purchases of marketable securities (85,822) (24,960)
Proceeds from sales and maturities of marketable
securities 44,397 5,655
Acquisition of product rights (5,000) -
Other (20) (691)
-------- --------
Net cash used in investing activities (68,898) (24,820)
-------- --------
Cash flows from financing activities:
Guaranty payments received from AHP 60,032 56,000
Proceeds from the issuance of common stock to AHP 2,330 -
Proceeds from exercise of stock options 1,921 -
Other 14 533
-------- --------
Net cash provided by financing activities 64,297 56,533
-------- --------
Net increase (decrease) in cash and cash equivalents (19,698) 26,816
Cash and cash equivalents, beginning of period 66,176 23,861
-------- --------
Cash and cash equivalents, end of period $ 46,478 $ 50,677
-------- --------
-------- --------
</TABLE>
See accompanying notes.
7
<PAGE>
IMMUNEX CORPORATION
Notes to Consolidated Condensed 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 human therapeutic products to
treat cancer, infectious diseases and immunological disorders.
The Company operates in a highly regulated and competitive environment. The
manufacturing and marketing of pharmaceutical products requires approval from
and is subject to ongoing oversight by the United States Food and Drug
Administration ("FDA") 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 sales of its pharmaceutical products is the
United States. The Company primarily uses wholesaler distributors for the
sale of its products to clinics and hospitals.
The condensed consolidated financial statements are prepared in conformity with
generally accepted accounting principles which require management estimates and
assumptions that affect the amounts reported on the financial statements and
accompanying notes. Actual results could differ from those estimates.
American Home Products Corporation ("AHP"), holds a majority interest in
Immunex, totaling approximately 54%. All references to AHP include AHP and its
various affiliates, divisions and subsidiaries.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH EQUIVALENTS
Cash equivalents consist principally of deposits in money market accounts
available on demand or securities with purchased maturities of 90 days or less.
MARKETABLE SECURITIES
Marketable securities are classified as available-for-sale and are stated at
fair value. Marketable securities consist of United States government and
corporate obligations.
8
<PAGE>
IMMUNEX CORPORATION
Notes to Consolidated Financial Statements (continued)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INVENTORIES
Inventories are stated at the lower of cost, using a weighted-average method, or
market. The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
Raw materials $ 1,003 $ 1,069
Work in process 4,409 5,377
Finished goods 1,302 2,585
-------- --------
Totals $ 6,714 $ 9,031
-------- --------
-------- --------
</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.
REVENUES
Product sales are recognized when products are shipped. The Company performs
ongoing credit evaluations of its customers and does not require collateral.
Product sales are recorded net of reserves for estimated chargebacks, returns,
discounts, Medicaid rebates and administrative fees. The Company maintains
reserves at a level which management believes is sufficient to cover estimated
future requirements.
Revenues received under royalty, licensing and contract manufacturing agreements
are recognized based on the terms of the underlying contractual agreements.
Expenses related to the performance of contract manufacturing are included in
research and development expenses.
NOTE 3. SCHEDULED PAYMENT RECEIVABLE FROM AHP
In June 1998, the Company's Biologics License Application ("BLA") for ENBREL-TM-
(etanercept) for treatment of advanced rheumatoid arthritis was accepted for
review by the FDA. Under the terms of an Enbrel Promotion Agreement ("Promotion
Agreement") with AHP, the Company earned a $20.0 million scheduled payment upon
acceptance for review of the BLA by the FDA and accordingly reported the payment
as contract revenue in the second quarter of 1998. In accordance with the terms
of the Promotion Agreement, the payment was received in July 1998, thirty days
subsequent to the date of such FDA acceptance.
NOTE 4. ACQUISITION OF EX-NORTH AMERICAN RIGHTS TO RECEPTOR-BASED PRODUCTS
In April 1998, the Company acquired the ex-North American rights to IL-4
receptor, the IL-1 receptors and IL-7 receptor for $10.0 million from Hoechst
Marion Roussel Inc. The cost of the acquisition was expensed as in-process
research and development in the second quarter of 1998.
9
<PAGE>
IMMUNEX CORPORATION
Notes to Consolidated Financial Statements (continued)
NOTE 5. REPORTING COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this statement had no impact on the
Company's net income or shareholders' equity. SFAS No. 130 requires unrealized
gains or losses on the Company's available-for-sale securities to be included in
comprehensive income. For quarterly reporting purposes, the following table
sets forth the components of comprehensive loss (in thousands):
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $ 195 $ (8,699) $ (8,830) $ (17,400)
------ --------- --------- ----------
------ --------- --------- ----------
Unrealized loss on investments,
net of reclassification adjustment (934) (1,899) (3,029) (4,515)
------ --------- --------- ----------
Comprehensive income (loss) $ (739) $ (10,598) $ (11,859) $ (21,915)
------ --------- --------- ----------
------ --------- --------- ----------
</TABLE>
NOTE 6. EARNINGS PER COMMON SHARE
As of December 31, 1997, the Company adopted SFAS No. 128, "Earnings per
Share." The Statement replaced the previously reported primary and fully
diluted earnings per share with basic and diluted earnings per share. Basic
earnings per share is calculated using the weighted average number of common
shares outstanding. Diluted earnings per share is computed on the basis of
the weighted average number of common shares outstanding plus the effect of
dilutive outstanding stock options using the "treasury stock" method, if
dilutive. The components of calculating earnings (loss) per share is set
forth in the following table (in thousands, except per share data):
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $ 195 $ (8,699) $ (8,830) $ (17,400)
------ --------- --------- ----------
------ --------- --------- ----------
Weighted average common shares
outstanding, basic 39,815 39,614 39,840 39,610
Net effect of dilutive stock options 2,000 - - -
------ --------- --------- ----------
Weighted average common shares
outstanding, diluted 41,815 39,614 39,840 39,610
------ --------- --------- ----------
------ --------- --------- ----------
Earnings (loss) per common share,
basic $ 0.00 $ (0.22) $ (0.22) $ (0.44)
------ --------- --------- ----------
------ --------- --------- ----------
Earnings (loss) per common share,
diluted $ 0.00 $ (0.22) $ (0.22) $ (0.44)
------ --------- --------- ----------
------ --------- --------- ----------
</TABLE>
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The following discussion of results of operations, liquidity and capital
resources includes certain forward-looking statements 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. Certain risk factors have been identified
which could affect the Company's actual results and are described in the
Company's latest Annual Report on Form 10-K filed with the Securities and
Exchange Commission. Readers are cautioned not to place undue reliance on
these forward-looking statements which speak only as of the date of this
report. 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 of this report or to reflect
the occurrence of unanticipated results.
RESULTS OF OPERATIONS
OVERVIEW
For the three months ended June 30, 1998, the Company recognized net
income of $0.2 million versus a net loss of $8.7 million for the comparable
1997 period. For the six-month periods ended June 30, 1998 and 1997, the
Company incurred net losses of $8.8 million and $17.4 million, respectively.
The results for the 1998 three and six-month periods are affected by two
one-time events. First, in April 1998, the Company acquired the ex-North
American product rights to four receptor-based products for $10.0 million,
the cost of which was expensed as in-process research and development.
Second, in June 1998, the Company's BLA for ENBREL for the treatment of
advanced rheumatoid arthritis was accepted for review by the FDA. This
earned the Company a $20.0 million scheduled payment under the terms of the
Promotion Agreement for ENBREL with AHP. The $20.0 million is reported as
royalty and contract revenue. Excluding the financial impact of these
non-recurring transactions, operating results for the current year periods
reflect increased products sales, primarily from growth in sales of
LEUKINE-Registered Trademark- (sargramostim), offset by pre-launch marketing
expenses for ENBREL and increased spending on research and development.
REVENUES
Product sales increased to $40.0 million from $39.0 million and to $78.8
million from $74.9 million for the three and six months ended June 30, 1998 and
1997, respectively. The improvement during both 1998 periods is due primarily
to increased sales of LEUKINE. Demand for LEUKINE continues to increase,
representing expansion of the customer base in both the outpatient and hospital
settings. For the three and six-month periods ended June 30, 1998, sales of
LEUKINE totaled $16.2 million and $31.3 million, respectively, versus $12.5
million and $25.5 million for the comparable 1997 periods. Sales of
NOVANTRONE-Registered Trademark- (mitoxantrone) have leveled over the past
several quarters following an initial increase in demand after the product
received an expanded label indication in late 1996. Sales of NOVANTRONE totaled
$13.1 million and $26.5 million for the three and six months ended June 30,
1998, respectively, compared to $13.2 million and $24.6 million for the 1997
three and six-month periods. Beginning in the second half of 1997, the Company's
sales force began promoting THIOPLEX-Registered Trademark- (thiotepa for
injection). Sales of THIOPLEX increased to $5.7 million from $5.4 million and
to $11.5 million from $10.7 million during the quarter and six months ended June
30, 1998 and 1997, respectively.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
The sales results of LEUKINE, NOVANTRONE and THIOPLEX were partially offset by
decreased sales of leucovorin calcium. Leucovorin calcium has experienced
declining sales volume and selling prices as a result of generic competition.
The decline in sales was accelerated during 1997 following the entry of an
additional competitor into the leucovorin calcium market. As a result, sales of
leucovorin calcium decreased to $1.1 million and $2.6 million during the three
and six months ended June 30, 1998, respectively, versus $2.9 million and $5.7
million for the comparable 1997 periods. In addition, in December 1997, the
Company sold its rights to certain oncology products in Canada to Lederle
Parenterals, Inc., a wholly owned subsidiary of AHP. Accordingly, the Company
is no longer generating product sales from this business in Canada.
Royalty and contract revenue increased to $24.2 million from $4.0 million
and to $27.2 million from $7.6 million for the three and six-month periods ended
June 30, 1998. As previously noted, the Company recognized revenue of $20.0
million under the Promotion Agreement for ENBREL with AHP. The revenue was
earned when the BLA for ENBREL for advanced rheumatoid arthritis was accepted
for review by the FDA in June 1998. The Company can earn additional revenues
under the terms of the Promotion Agreement upon the occurrence of certain
events, including $30.0 million if the BLA is approved by the FDA. However,
there can be no assurance that the FDA will approve the BLA for ENBREL or, if
approved, the timing of such approval.
In June 1998, the Company entered into an agreement for the sale of the
Company's Abbreviated New Drug Application for paclitaxel injection, a
generic form of TAXOL-Registered Trademark-, to IVX BioScience, Inc. The
agreement became effective upon completion of the pre-acquisition review of
the sale by the United States Federal Trade Commission in July 1998 and
completion of certain closing conditions in August 1998, and is expected to
generate revenues totaling approximately $6.0 million in the third quarter of
1998 from license fees and sale of paclitaxel inventory.
OPERATING EXPENSES
Cost of product sales was $7.7 million, or 19.2% of product sales and
$6.2 million, or 16.0% of product sales for the quarters ended June 30, 1998
and 1997, respectively. For the six months ended June 30, 1998 and 1997,
cost of product sales was $14.8 million, or 18.8% of product sales and $12.5
million, or 16.7% of product sales, respectively. The increase in the cost
of sales percentage during 1998 is due primarily to an increase in period
costs charged to cost of product sales in the current year and the change in
the mix of product sales to include a relatively higher percentage of sales
of LEUKINE. The cost of LEUKINE, as a percentage of product sales, is higher
than the cost of NOVANTRONE and THIOPLEX. Accordingly, as sales of LEUKINE
have increased, the overall cost of sales percentage has also increased. In
addition, the cost of LEUKINE has increased during 1998 as compared to the
prior year. In January 1998, the Company reached a settlement with the
remaining party to an ongoing GM-CSF patent interference proceeding. In
accordance with the settlement, beginning in January 1998, the Company began
incurring additional royalties payable on net sales of LEUKINE. As part of
the resolution of the GM-CSF patent interference, the Company made a one-time
payment of $5.0 million to Genetics Institute, Inc. ("G.I."), a wholly owned
subsidiary of AHP. The $5.0 million payment was capitalized as a cost of
acquired product rights and is being amortized to cost of product sales over
the estimated life of the Company's franchise for LEUKINE. These increases
in the Company's cost of sales percentage were partially offset by the effect
of decreased sales of leucovorin calcium which has a higher cost of sales
percentage than the Company's other products as a whole.
12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Research and development expense increased to $36.9 million from $26.8 million
and to $63.8 million from $50.7 million for the three and six months ended June
30, 1998 and 1997, respectively. In April 1998, the Company acquired the ex-
North American rights to IL-4 receptor, the IL-1 receptors and IL-7 receptor for
$10.0 million from Hoechst Marion Roussel Inc. The cost of the acquisition was
expensed as in-process research and development in the second quarter of 1998.
Excluding the $10.0 million charge, research and development expense is
relatively unchanged for the second quarters of 1998 and 1997 and increased $3.1
million for the six-month period ended June 30, 1998 versus the comparable 1997
period. The increase during the 1998 six-month period is due primarily to
increased spending on clinical studies for ENBREL. In addition, spending on
development of NUVANCE-TM- (IL-4 receptor) has increased as the Company has
progressed with early stage clinical trials of NUVANCE for treatment of asthma
and expanded manufacturing activity for production of clinical requirements of
the product. Increased spending on ENBREL and NUVANCE was partially offset by a
decrease in clinical expenses for LEUKINE due to the completion of certain
studies during 1997 and decreased spending on development work for paclitaxel
injection.
In July 1998, Immunex and AHP announced they had terminated their
oncology collaboration and entered into a new Product Rights Agreement (the
"Product Rights Agreement"). Under the terms of the superseded research
agreement, Immunex was funding AHP's oncology discovery research expenditures
up to approximately $16.5 million in 1998 and adjusted annually for inflation
thereafter. In exchange, Immunex had certain rights to AHP's cancer product
candidates in North America. Under the research agreement, AHP held ex-North
American rights to new cancer products resulting from Immunex research. As a
result of the termination of the research agreement, Immunex's funding
requirements for AHP oncology discovery research cease effective July 1,
1998, eliminating $8.3 million of previously committed spending over the last
half of 1998. In addition, the Product Rights Agreement terminated each
party's territorial rights to the other party's cancer products. Under the
terms of the Product Rights Agreement, AHP may acquire exclusive worldwide
rights to up to four future Immunex product candidates after such product
reaches Investigational New Drug ("IND") status. If AHP exercises its rights
under the agreement, Immunex would be eligible for certain payments and
royalties on future worldwide sales of such products. However, Immunex may
elect to retain the worldwide rights to up to two of such products. In such
case, AHP would be eligible for certain payments and royalties on future
worldwide sales of such products. Additional details of the Product Rights
Agreement are set forth in a Current Report on Form 8-K dated July 1, 1998
that was filed by the Company with the Securities and Exchange Commission.
See "Reports on Form 8-K" Item 6b below.
Selling, general and administrative expenses increased to $20.8 million
from $19.5 million and to $39.2 million from $37.9 million for the three and
six-month periods ended June 30, 1998 and 1997, respectively. Beginning in the
second quarter of 1998, Immunex and AHP began increasing spending on pre-launch
marketing activities for ENBREL. Under the terms of the Promotion Agreement,
for the period prior to a launch of ENBREL, Immunex is funding a minority of
such expenses and AHP is funding the remainder. The Company's obligation for
the second quarter of 1998 totaled $1.4 million. Excluding the ENBREL pre-
launch marketing expenditures, spending for selling, general and administrative
expenses decreased slightly from the 1997 three and six-month periods. In the
first quarter of 1997, the Company implemented certain programs intended to
capitalize on the expanded label indication for NOVANTRONE and the launch of a
liquid formulation of LEUKINE. Although the Company continues to promote
NOVANTRONE and LEUKINE through its selling and marketing activities, the level
of spending has decreased from that incurred during the first half of 1997.
These expense reductions have been largely offset by increased expense levels
for information systems, facilities and depreciation. In addition, the Company
has increased spending in connection with patent procurement and patent defense
activities. Selling, general and administrative expense levels are expected to
increase significantly in the third quarter of
13
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
1998 as the Company increases spending for pre-launch activities for ENBREL.
Furthermore, if the Company's BLA for ENBREL is approved by the FDA and the
Company begins selling ENBREL in the current year, certain launch expenditures
will be accelerated into 1998. However, there can be no assurance that the FDA
will approve the BLA for ENBREL or, if approved, the timing of such approval.
OTHER INCOME (EXPENSE)
Interest income increased to $1.6 million and $3.1 million for the three
and six months ended June 30, 1998 compared to $1.0 million and $1.7 million for
the same periods in 1997. The improvement reflects an increase in funds
available for investment purposes and the interest earned therefrom. The
Company's cash and marketable securities have increased significantly since
early 1997 due primarily to payments received from AHP as settlement of their
1996 and 1997 revenue shortfall obligations ("Revenue Guaranty") and
improvements in the Company's operating results.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities totaled $108.2 million and
$86.5 million at June 30, 1998 and December 31, 1997, respectively. The
Company's cash reserves are held in a variety of interest-bearing instruments
including government and corporate obligations.
Operating activities used cash of $15.1 million during the first six months
of 1998. However, the $20.0 million scheduled payment earned under the
Promotion Agreement with AHP was received in July 1998 and, accordingly, is not
included in operating cash flow for the six months ended June 30, 1998.
Exclusive of the $20.0 million scheduled payment, operating activities will
continue to use cash for the remainder of 1998 as the Company prepares for the
possible launch of ENBREL.
Capital expenditures increased to $22.5 million for the six months ended
June 30, 1998. In April 1998, the Company acquired property in the vicinity of
its corporate headquarters for possible development and relocation of its
corporate offices and research facilities. The cost of the property totaled
approximately $15.0 million. The Company has identified a need to expand its
process development capacity in order to exploit its product pipeline
opportunities. In order to address this issue, the Company has initiated a
project to construct a process science facility. The project is currently in
the planning phase and is expected to begin in 1999. In addition to the
expenditures for property and equipment, the Company made a payment of $5.0
million to G. I. in January 1998, in accordance with the GM-CSF patent
interference settlement, discussed above.
Financing activities provided cash of $64.3 million for the six-month
period ended June 30, 1998. The Company received $60.0 million from AHP in
February 1998 as payment of the 1997 Revenue Guaranty. This payment was the
final AHP Revenue Guaranty payment. In addition, the Company received $1.9
million from the exercise of employee stock options and $2.3 million from the
issuance of common stock to AHP. Under the terms of a governance agreement with
AHP, AHP has the right to acquire additional shares in order to maintain its
ownership interest. In April 1998, AHP exercised this right and in accordance
with the governance agreement, the Company issued 34,412 shares of common stock
to AHP in exchange for $2.3 million.
14
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Spending on selling and marketing activities is expected to increase
significantly in the third quarter of 1998 as the Company accelerates certain
pre-launch activities for 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. The Company
will incur additional costs related to the development of the Company's
infrastructure to support the possible launch and sale of ENBREL, that will not
be shared by AHP. The Company has also made orders of launch inventory of
ENBREL with the contract manufacturer utilized by the Company. A portion of the
Company's launch inventory requirements have been manufactured and are expected
to be shipped to the Company beginning in the third quarter of 1998, following
completion of quality control procedures. Certain risk factors have been
identified that could affect the Company's ability to commercialize ENBREL and
are described in the "Risk Factors" section in the Company's latest Annual
Report on Form 10-K filed with the Securities and Exchange Commission.
Accordingly, any amounts that will be recorded as inventory of ENBREL and any
related purchase commitments are subject to risk until such uncertainties are
resolved.
Existing cash reserves are believed to be sufficient to support the
Company's operating requirements and planned capital expenditures for the
remainder of 1998. In 1999, 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.
YEAR 2000
The Year 2000 issue is the result of computer programs being unable to
differentiate between the year 1900 and the year 2000 because they were written
using two digits rather than four to define the applicable year. This could
result in a system failure or miscalculations with respect to current programs.
The Company has initiated a comprehensive review of its computer systems,
equipment utilizing date sensitive computer chips, security systems and other
applications that could be affected by the Year 2000 issue. Furthermore, the
Company has initiated contact with key third party suppliers, service providers,
distributors, wholesalers and other entities with which it has a business
relationship to address their compliance with Year 2000 requirements. The
Company is utilizing both internal and external resources to identify, correct
and test its computer systems for Year 2000 compliance. Although management
anticipates that required modifications of its critical systems and applications
will be completed prior to the year 2000, if such modifications are not
completed in a timely manner, or if there were a similar such failure on the
part of other companies which the Company has a business relationship, there
could be a material impact on the operations of the Company.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The description of legal proceedings is incorporated by reference to Item 3
of the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of the Company's Shareholders ("Shareholders") was held
on Thursday, April 30, 1998 ("Annual Meeting"). Of the 39,737,721 shares
outstanding as of the record date, March 10, 1998, there were 37,466,824 shares
or 94.29% of the total shares eligible to vote represented in person or proxy.
One matter was submitted to a vote of shareholders at the Annual Meeting.
Nine directors were elected to serve for a term of one year or until their
successors are elected and qualify, as follows:
<TABLE>
<CAPTION>
For Withheld
---------- ----------
<S> <C> <C>
Edward V. Fritzky 37,426,806 40,018
Joseph J. Carr 37,424,341 42,483
Kirby L. Cramer 37,426,896 39,928
Richard L. Jackson 37,425,266 41,558
John E. Lyons 36,304,378 1,162,446
Joseph M. Mahady 37,424,391 42,433
Edith W. Martin 37,424,726 42,098
Peggy V. Phillips 37,424,576 42,248
Douglas E. Williams 37,425,266 41,558
</TABLE>
Item 5. OTHER INFORMATION
In accordance with the Company's Bylaws, a shareholder proposing to
transact business at the Company's Annual Meeting must provide written notice of
such proposal, in the manner provided by the Company's Bylaws, not fewer than 60
nor more than 90 days prior to the date of such Annual Meeting (or, if the
Company provides less than 60 day's notice of such meeting, no later than 10
days after the date of the Company's notice). In addition, if the Company
receives notice of a shareholder proposal after February 9, 1999, the persons
named as proxies in such proxy statement and proxy will have discretionary
authority to vote on such shareholder proposal.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
Exhibit 27 Financial Data Schedule
b) REPORTS ON FORM 8-K
A Current Report on Form 8-K dated July 1, 1998, was filed with the
Securities and Exchange Commission reporting that Immunex Corporation
entered into a Product Rights Agreement with AHP acting through its
Wyeth-Ayerst Research division and with American Cyanamid Company
acting through its Lederle Pharmaceutical division.
16
<PAGE>
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMMUNEX CORPORATION
Date: August 10, 1998 /s/ Edward V. Fritzky
------------------------------
Edward V. Fritzky
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: August 10, 1998 /s/ Douglas G. Southern
------------------------------
Douglas G. Southern
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998, AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 46,478
<SECURITIES> 61,717
<RECEIVABLES> 24,641
<ALLOWANCES> 9,386
<INVENTORY> 6,714
<CURRENT-ASSETS> 2,498
<PP&E> 149,065
<DEPRECIATION> 59,876
<TOTAL-ASSETS> 279,416
<CURRENT-LIABILITIES> 45,034
<BONDS> 0
0
0
<COMMON> 715,735
<OTHER-SE> 487,156
<TOTAL-LIABILITY-AND-EQUITY> 279,416
<SALES> 78,777
<TOTAL-REVENUES> 106,021
<CGS> 14,782
<TOTAL-COSTS> 117,815
<OTHER-EXPENSES> 241
<LOSS-PROVISION> 109,887
<INTEREST-EXPENSE> 221
<INCOME-PRETAX> (8,684)
<INCOME-TAX> 146
<INCOME-CONTINUING> (8,830)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,830)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
