<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
( ) 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 502,912,758
--------------------------------------- -------------------------------
Class Outstanding at August 8, 2000
<PAGE>
IMMUNEX CORPORATION
QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 2000
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements:
a) Consolidated Condensed Balance Sheets -
June 30, 2000 and December 31, 1999 4
b) Consolidated Condensed Statements of Income -
for the three-month periods ended June 30, 2000
and June 30, 1999 5
c) Consolidated Condensed Statements of Income -
for the six-month periods ended June 30, 2000
and June 30, 1999 6
d) Consolidated Condensed Statements of Cash Flows -
for the six-month periods ended June 30, 2000
and June 30, 1999 7
e) Notes to Consolidated Condensed Financial Statements 8-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-24
Item 3. Market Risks 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 27
2
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
Immunex Corporation has prepared the consolidated condensed financial
statements included herein without audit, according to the rules and regulations
of the Securities and Exchange Commission, or SEC. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been omitted pursuant to such rules and regulations. The financial
statements reflect, in the opinion of management, all 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 our Annual Report on Form
10-K for the year ended December 31, 1999.
The results of operations for the six-month period ended June 30, 2000, are
not necessarily indicative of results to be expected for the entire year ending
December 31, 2000.
3
<PAGE>
Item 1. FINANCIAL STATEMENTS
--------------------
IMMUNEX CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ---------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 151,377 $ 260,770
Short term investments 598,627 449,066
Accounts receivable, net 92,609 61,781
Inventories 19,029 13,125
Other current assets 5,879 6,439
---------- ---------
Total current assets 867,521 791,181
Property, plant and equipment, net 140,773 110,445
Investments 68,890 10,704
Other assets 36,888 28,911
---------- ---------
$1,114,072 $ 941,241
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 69,435 $ 71,832
Accounts payable - AHP 52,256 37,088
Accrued compensation and related items 13,825 20,001
Current portion of long-term obligations 1,579 1,578
Interest payable - AHP 2,250 2,250
Other current liabilities 12,154 2,336
---------- ---------
Total current liabilities 151,499 135,085
Convertible subordinated note - AHP 450,000 450,000
Other long-term obligations 836 826
Shareholders' equity:
Common stock, $.01 par value 845,940 791,802
Unrealized gain on investments, net 31,314 2,719
Accumulated deficit (365,517) (439,191)
---------- ---------
Total shareholders' equity 511,737 335,330
---------- ---------
$1,114,072 $ 941,241
========== =========
</TABLE>
See accompanying notes.
4
<PAGE>
Item 1. FINANCIAL STATEMENTS (continued)
--------------------
IMMUNEX CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended June 30,
---------------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues:
Product sales $196,196 $125,854
Royalty and contract revenue 16,954 2,620
-------- --------
213,150 128,474
Operating expenses:
Cost of product sales 57,029 39,678
Research and development 41,192 30,264
Selling, general and administrative 81,943 52,937
-------- --------
180,164 122,879
-------- --------
Operating income
32,986 5,595
Other income (expense):
Interest income 12,182 5,075
Interest expense (3,439) (1,628)
Other income, net 74 69
-------- --------
8,817 3,516
-------- --------
Income before income taxes 41,803 9,111
Provision for income taxes 290 2,250
-------- --------
Net income $ 41,513 $ 6,861
======== ========
Net income per common share:
Basic $0.08 $0.01
======== ========
Diluted $0.08 $0.01
======== ========
Number of shares used for per share amounts:
Basic 500,640 488,538
======== ========
Diluted 543,039 531,186
======== ========
</TABLE>
See accompanying notes.
5
<PAGE>
Item 1. FINANCIAL STATEMENTS (continued)
--------------------
IMMUNEX CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six months ended June 30,
---------------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues:
Product sales $362,894 $221,091
Royalty and contract revenue 29,294 5,560
-------- --------
392,188 226,651
Operating expenses:
Cost of product sales 104,832 66,887
Research and development 75,892 58,473
Selling, general and administrative 154,243 97,210
-------- --------
334,967 222,570
-------- --------
Operating income
57,221 4,081
Other income (expense):
Interest income 23,193 6,949
Interest expense (6,873) (1,697)
Other income, net 847 149
-------- --------
17,167 5,401
-------- --------
Income before income taxes 74,388 9,482
Provision for income taxes 714 2,370
-------- --------
Net income $ 73,674 $ 7,112
======== ========
Net income per common share:
Basic $0.15 $0.01
======== ========
Diluted $0.14 $0.01
======== ========
Number of shares used for per share amounts:
Basic 498,974 486,480
======== ========
Diluted 543,860 525,690
======== ========
</TABLE>
See accompanying notes.
6
<PAGE>
Item 1. FINANCIAL STATEMENTS (continued)
--------------------
IMMUNEX CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
------------------------------
2000 1999
--------- ---------
<S> <C> <C>
Operating Activities:
Net income $ 73,674 $ 7,112
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,845 9,728
Deferred income tax provision - 2,075
License fee received in the form of common stock - (990)
Cash flow impact of changes to:
Accounts receivable (30,828) (26,730)
Inventories (7,733) 5,561
Accounts payable, accrued liabilities and
other current liabilities 10,742 27,424
Other current assets 560 1,323
--------- ---------
Net cash provided by operating activities 57,260 25,503
--------- ---------
Investing Activities:
Purchases of property, plant and equipment (39,150) (13,562)
Purchases of investments (409,720) (317,166)
Proceeds from sales and maturities of
investments 230,568 25,150
Acquisition of rights to marketed products, net (2,500) (15,500)
Other - (370)
--------- ---------
Net cash used in investing activities (220,802) (321,448)
--------- ---------
Financing Activities:
Proceeds from common stock issued to AHP 28,859 40,777
Proceeds from common stock issued to employees 25,279 12,232
Proceeds from AHP convertible note, net - 449,000
Other 11 93
--------- ---------
Net cash provided by financing activities 54,149 502,102
--------- ---------
Net increase (decrease) in cash and cash equivalents (109,393) 206,157
Cash and cash equivalents, beginning of period 260,770 43,600
--------- ---------
Cash and cash equivalents, end of period $ 151,377 $ 249,757
========= =========
</TABLE>
See accompanying notes.
7
<PAGE>
IMMUNEX CORPORATION
Notes to Consolidated Condensed Financial Statements
Note 1. Organization and Basis of Presentation
-----------------------------------------------
Immunex Corporation 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 such as rheumatoid arthritis.
We operate in a highly regulated and competitive environment. Our business
is regulated primarily by the U.S. Food and Drug Administration, or FDA. The FDA
regulates the products we sell, our manufacturing processes and our promotional
activities. Obtaining approval for a new therapeutic product is never certain,
may take several years, and is very costly. Competition in researching,
developing and marketing pharmaceutical products is intense. Any of the
technologies covering our existing products or products under development could
become obsolete or diminished in value by discoveries and developments of other
organizations.
Our market for pharmaceutical products is primarily the United States. Our
sales are primarily to pharmaceutical wholesalers. Approximately 64% of our
product sales are made to three of these wholesalers.
The consolidated condensed financial statements are prepared in conformity
with accounting principles generally accepted in the United States. In preparing
the financial statements, management must make some estimates and assumptions
that affect reported amounts and disclosures.
American Home Products Corporation, or AHP, holds a majority interest in
Immunex. All references to AHP include AHP and its various affiliates, divisions
and subsidiaries.
Note 2. Summary of Significant Accounting Policies
---------------------------------------------------
Inventories
Inventories are stated at the lower of cost, using a weighted-average
method, or market. The components of inventories are as follows (in thousands):
June 30, December 31,
2000 1999
------- -------
Raw materials $ 1,479 $ 1,387
Work in process 9,110 5,310
Finished goods 8,440 6,428
------- -------
Totals $19,029 $13,125
======= =======
Depreciation and amortization
The cost of buildings and equipment is depreciated evenly over the
estimated useful lives of the assets, which range from three to 31.5 years.
Leasehold improvements are amortized evenly over either their estimated useful
lives, or the term of the lease, whichever is shorter. Intangible product rights
and other intangible assets are amortized evenly over their estimated useful
lives, ranging from five to 15 years.
8
<PAGE>
IMMUNEX CORPORATION
Notes to Consolidated Condensed Financial Statements (continued)
Note 2. Summary of Significant Accounting Policies, continued
--------------------------------------------------------------
Revenues
Product sales are recognized when product is shipped and are recorded net
of reserves for estimated chargebacks, returns, discounts, Medicaid rebates and
administrative fees. We maintain reserves at a level that we believe is
sufficient to cover estimated future requirements.
Revenues received under royalty, licensing and contract manufacturing
agreements are recognized based upon performance under the terms of the
underlying agreements.
Recent Accounting Guidance
In December 1999, the SEC issued Staff Accounting Bulletin, or SAB, No.
101, Revenue Recognition in Financial Statements. The new SAB provides guidance
related to revenue recognition based on interpretations and practices
recommended by the SEC. Within the biotechnology industry, the guidance provided
by SAB 101 is anticipated to have its largest impact on the timing of revenue
recognition for upfront fees and milestone payments. SAB 101 is effective for
the fourth quarter of 2000 and requires companies to report any changes in
revenue recognition as a cumulative change in accounting principle at the time
of implementation. We will continue to evaluate the interpretations and guidance
on revenue recognition and the SEC staff's views on the application of
accounting principles to selected revenue recognition issues.
During June 1999, the Financial Accounting Standards Board, or FASB, issued
SFAS 137, Accounting for Derivative Instruments and Hedging Activities-Deferral
of the Effective Date of FASB Statement 133. The Statement defers the effective
date of SFAS 133 to fiscal 2001. During June 2000, the FASB issued SFAS 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities,
which amends certain provisions of SFAS 133. We are currently evaluating these
standards and do not believe that their adoption will have a material impact on
our financial statements.
Note 3. Reporting Comprehensive Income
---------------------------------------
Our 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. During the first six months of 2000 and 1999,
there were no material realized gains or losses. The following table sets forth
the components of comprehensive income, (in thousands):
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net income $41,513 $ 6,861 $ 73,674 $ 7,112
Unrealized gain (loss) on investments 1,278 (2,199) 28,595 (2,304)
------- ------- -------- -------
Comprehensive income $42,791 $ 4,662 $102,269 $ 4,808
======= ======= ======== =======
</TABLE>
9
<PAGE>
IMMUNEX CORPORATION
Notes to Consolidated Condensed Financial Statements (continued)
Note 4. Income Taxes
--------------------
The provision for income taxes for the three and six-month periods ended
June 30, 2000 is comprised of state income taxes. Related federal income taxes
have been offset by net operating loss, or NOL, carryforwards. The benefits from
use of a portion of the NOL carryforwards in the comparable periods of 1999 were
recorded as a reduction of goodwill, thereby resulting in a federal income tax
provision for financial reporting purposes.
Note 5. Net income per Common Share
------------------------------------
Basic earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per share
is calculated using the weighted average number of common shares outstanding
plus the dilutive effect of outstanding stock options using the "treasury stock"
method, and, if dilutive, the effect of the convertible subordinated note held
by AHP using the "if-converted" method.
The components for calculating net income per share are set forth in the
following table (in thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------- ---------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 41,513 $ 6,861 $ 73,674 $ 7,112
======== ======== ======== ========
Weighted average common shares
outstanding, basic 500,640 488,538 498,974 486,480
Net effect of dilutive stock options 42,399 42,648 44,886 39,210
-------- -------- -------- --------
Weighted average common shares
outstanding, diluted 543,039 531,186 543,860 525,690
======== ======== ======== ========
Net income per common share, basic $ 0.08 $ 0.01 $ 0.15 $ 0.01
======== ======== ======== ========
Net income per common share, diluted $ 0.08 $ 0.01 $ 0.14 $ 0.01
======== ======== ======== ========
</TABLE>
The 15,544,041 shares issuable upon the conversion of the AHP convertible
subordinated note are not included in the calculation of diluted earnings per
share because the effect on adjusted net income would be anti-dilutive.
Note 6. Stock Split
--------------------
On March 20, 2000, we effected a three-for-one stock split. The record date
of the stock split was March 6, 2000. Stockholders were entitled to receive the
additional shares on March 20, 2000. All references to accumulated deficit,
common stock, average number of common shares outstanding and per share amounts
in the financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations prior to the record date of the
stock split have been restated to reflect the three-for-one stock split on a
retroactive basis.
10
<PAGE>
IMMUNEX CORPORATION
Notes to Consolidated Condensed Financial Statements (continued)
Note 7. Subsequent Event
-------------------------
On August 9, 2000, we filed a shelf registration statement with the SEC
that, once it becomes effective, would allow us to sell up to 20 million shares
of newly-issued Immunex common stock in a primary offering and AHP to sell up to
50 million shares of Immunex common stock in a secondary offering.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
INTRODUCTION
Our disclosure and analysis in this report contain forward-looking
statements. Forward-looking statements provide our current expectations or
forecasts of future events. In particular, these include statements relating to
future actions, prospective products or product approvals, future performance or
results of current and anticipated products, sales efforts, expected performance
of third-party manufacturers, expected completion dates for new manufacturing
and other facilities, expected progress in clinical trials, expenses, the
outcome of contingencies such as legal proceedings, and financial results. From
time to time, we also may provide oral or written forward-looking statements in
other materials we release to the public. Any or all of our forward-looking
statements in this report and in any other public statements we make may turn
out to be wrong. Inaccurate assumptions we might make and known or unknown risks
and uncertainties can affect our forward-looking statements. Consequently, no
forward-looking statement can be guaranteed and our actual results may differ
materially.
We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any further disclosures we make on related
subjects in our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
Annual Reports on Form 10-K. Also note that we provide a cautionary discussion
of risks, uncertainties and possibly inaccurate assumptions relevant to our
business under the caption Risks within Item 2 of this report. These are risks
that we think could cause our actual results to differ materially from expected
and historical results.
RESULTS OF OPERATIONS
Overview
Net income totaled $41.5 million for the three months ended June 30, 2000,
compared to net income of $6.9 million for the three months ended June 30, 1999.
Net income totaled $73.7 million for the six months ended June 30, 2000,
compared to $7.1 million for the six months ended June 30, 1999. The improvement
in operating results is due primarily to U.S. sales of Enbrel(R) (etanercept),
which was approved in November 1998 by the FDA for treatment of advanced
rheumatoid arthritis, or RA. Our operating results also reflect increased costs,
primarily related to manufacturing, selling and marketing expenses for Enbrel.
In addition, we have increased spending on products in our development pipeline
and increased the level of investment in discovery research.
Revenues
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
(in millions) (in millions)
--------------------------- ---------------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Enbrel $155.1 $ 86.9 $286.2 $146.5
Specialty therapeutic products 40.4 38.4 75.1 73.0
Other product sales 0.7 0.6 1.6 1.6
------ ------ ------ ------
Total product sales 196.2 125.9 362.9 221.1
Royalty and contract revenue 17.0 2.6 29.3 5.6
------ ------ ------ ------
Total revenue $213.2 $128.5 $392.2 $226.7
====== ====== ====== ======
</TABLE>
12
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS (continued)
-------------------------
Product sales increased to $196.2 million for the three months ended June
30, 2000, compared to $125.9 million for the three months ended June 30, 1999.
Product sales increased to $362.9 million for the six months ended June 30,
2000, compared to $221.1 for the six months ended June 30, 1999. The improvement
during both 2000 periods is primarily due to increased sales of Enbrel. Under an
Enbrel Promotion Agreement with AHP, Enbrel is being promoted in the United
States by Wyeth-Ayerst Laboratories, or Wyeth-Ayerst, the pharmaceutical
division of AHP. AHP shares in the gross profits from U.S. sales of Enbrel and
both AHP and Immunex share the selling, marketing and distribution costs of
Enbrel in the United States. Our share of these expenses and the amount of gross
profits shared with AHP from sales of Enbrel are included in selling, general
and administrative expenses.
Sales of our specialty therapeutic products, which include Leukine(R)
(sargramostim, GM-CSF) and Novantrone(R) (mitoxantrone for injection
concentrate), totaled $40.4 million for the three months ended June 30, 2000,
compared to $38.4 million for the three months ended June 30, 1999. Sales of our
specialty therapeutic products totaled $75.1 for the six months ended June 30,
2000, compared to $73.0 for the six months ended June 30, 1999. Sales of Leukine
totaled $20.4 million for the three months ended June 30, 2000, compared to
$16.6 million during the three months ended June 30, 1999. Sales of Leukine
totaled $35.0 million for the six months ended June 30, 2000, compared to $32.6
million during the six months ended June 30, 1999. In order to improve the
profitability of Leukine, we discontinued certain distributor price discounts
during the first quarter of 2000. This contributed to a temporary decline in
sales volume of Leukine in the first quarter of 2000, as distributors reduced
inventory levels before ordering additional product. During the second quarter
of 2000, sales of Leukine increased, reflecting a return to prior demand levels
at higher realized prices. Sales of Novantrone totaled $13.9 million for the
three months ended June 30, 2000, compared to $11.1 million for the three months
ended June 30, 1999. Sales of Novantrone totaled $26.7 million for the six
months ended June 30, 2000, compared to $21.9 million for the six months ended
June 30, 1999. The improvement reflects higher realized selling prices for
Novantrone.
Royalty and contract revenue totaled $17.0 million for the three months
ended June 30, 2000, compared to $2.6 million for the three months ended June
30, 1999. Royalty and contract revenue totaled $29.3 million for the six months
ended June 30, 2000, compared to $5.6 million for the comparable 1999 period. In
June 2000, we earned $15.0 million from AHP under the terms of the Enbrel
Promotion Agreement when an expanded indication for Enbrel was approved by the
FDA for reducing signs and symptoms and delaying structural damage in patients
with moderately to severely active RA. In February 2000, we earned a one-time
payment of $10.0 million from AHP under the Enbrel Promotion Agreement, when net
sales of Enbrel in the United States exceeded $400.0 million for the preceding
12-month period. These were the final payments to be earned under the Enbrel
Promotion Agreement with AHP. The remaining royalty and contract revenue
recognized in 2000 and the royalty and contract revenue recognized during the
three and six-month periods ended June 30, 1999 reflects recurring amounts
recognized under existing royalty and license agreements.
Operating Expenses
Cost of product sales was 29.1% of product sales for the three months ended
June 30, 2000, compared to 31.5% of product sales for the three months ended
June 30, 1999. Cost of product sales was 28.9% of product sales for the six
months ended June 30, 2000, compared to 30.3% of product sales for the six
months ended June 30, 1999. The decrease in the cost of product sales percentage
during the current year periods is due to the following:
. a lower than anticipated cost for Enbrel due primarily to a reduction in
internal costs and favorable exchange rates on purchases of Enbrel from
Boehringer Ingelheim Pharma KG, or BI Pharma, our contract manufacturer
for Enbrel, located in Germany; and
. a favorable mix of sales of our other products.
13
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS (continued)
-------------------------
Partially offsetting these items was increased sales of Enbrel (which, like
Leukine, is a biologic, and generally has a higher manufacturing cost than
traditional pharmaceutical products and, in the case of our biologic products,
are subject to multiple royalty obligations). Cost of product sales as a
percentage of total product sales is expected to increase to the extent sales of
Enbrel become a greater percentage of total product sales.
Research and development expense was $41.2 million for the three months
ended June 30, 2000, compared to $30.3 million for the three months ended June
30, 1999. Research and development expense was $75.9 million for the six months
ended June 30, 2000, compared to $58.5 million for the six months ended June 30,
1999. The increase in research and development expense was due primarily to the
continuing development of:
. Enbrel for treatment of chronic heart failure;
. the TRAIL/Apo2 ligand molecule for treatment of cancer, in collaboration
with Genentech, Inc.;
. Avrend (CD40 ligand) to treat renal cell cancer;
. Nuvance for treatment of asthma; and
. Interleukin-1 receptor Type II for treatment of inflammation,
osteoporosis and other diseases.
In addition, we have increased staffing and laboratory space to support our
discovery research activities and incurred increased costs associated with
funding of collaborative research activities.
Selling, general and administrative expense increased to $81.9 for the
three months ended June 30, 2000, compared to $52.9 million for the three months
ended June 30, 1999. Selling, general and administrative expense increased to
$154.2 million for the six months ended June 30, 2000, compared to $97.2 million
for the six months ended June 30, 1999. The increase is due primarily to
expenses associated with selling and marketing of Enbrel. Under the terms of the
Enbrel Promotion Agreement, AHP is currently assuming a majority of these
expenses in the United States. Beginning in November 2000, Immunex and AHP will
share AHP's U.S. marketing and selling expenses for Enbrel equally. AHP also
shares in the gross profits from U.S. sales and potential Canadian sales of
Enbrel. Selling, general and administrative expenses include our share of these
expenses and the amounts of the gross profits shared with AHP from these sales
of Enbrel. In addition to expenses incurred under the Enbrel Promotion
Agreement, selling, general and administrative expense increased due to the
following:
. increased staffing levels and other infastructure costs;
. selling expenses for our specialty therapeutics line of products; and
. preparing for anticipated approval of Novantrone in a new multiple
sclerosis indication.
Other Income (Expense)
Interest income totaled $12.2 million for the three months ended June 30,
2000, compared to $5.1 million for the three months ended June 30, 1999.
Interest income totaled $23.2 million for the six months ended June 30, 2000,
compared to $6.9 million for the six months ended June 30, 1999. The issuance of
a $450.0 million convertible subordinated note to AHP in May 1999, additional
issuances of common stock and improved cash flow from operations resulted in a
significant increase in funds available for investment purposes and the interest
income earned on these funds. The increase in interest income was partially
offset by an increase in interest expense, incurred on the convertible
subordinated note.
14
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS (continued)
-------------------------
Provision for Income Taxes
The provision for income taxes was $0.3 million for the three months ended
June 30, 2000, compared to $2.3 million for the three months ended June 30,
1999. The provision for income taxes was $0.7 million for the six months ended
June 30, 2000, compared to $2.4 million for the six months ended June 30, 1999.
The provision for income taxes during the first six months of 2000 consisted
only of our tax obligation in the states in which we sell our products. Our
federal tax expense in 2000, for financial reporting purposes, was offset by
utilizing NOL carryforwards. This is expected to continue for the remainder of
2000. In the first six months of 1999, the benefit of utilizing our NOL
carryforwards, for financial reporting purposes, was used to reduce goodwill. As
of December 31, 1999, the goodwill balance had been reduced to zero.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short term investments totaled $750.0 million at
June 30, 2000 and $709.8 million at December 31, 1999. These amounts are held in
a variety of interest-bearing instruments including government and corporate
obligations, and money market accounts.
Operating activities provided cash of $57.3 million during the first six
months of 2000, reflecting income earned in operations which was partially
offset by increased working capital requirements. The change in working capital
is due to an increase in accounts receivable from increased product sales and
the $15.0 million earned from AHP under the terms of the Enbrel Promotion
Agreement, and an increase in inventory of Enbrel. We expect our operating cash
flows to continue to grow in 2000, primarily from increased operating income.
Cash used in investing activities totaled $220.8 million for the first six
months of 2000. The majority of the cash used for investing activities is due to
the net $179.2 million in purchases of investment securities. In addition,
expenditures for property, plant and equipment totaled $39.2 million, primarily
for purchases of computer hardware and software, lab equipment, leasehold
improvements and expenditures on construction of our new process development
facility. The process development facility will accelerate the development of
the manufacturing processes of materials for clinical trials and is expected to
be completed by the end of 2000.
We are collaborating with AHP to expand the production capacity for Enbrel.
In September 1999, AHP completed the purchase of a large-scale biopharmaceutical
manufacturing facility in Rhode Island and Immunex and AHP are working together
to retrofit the facility to accommodate the commercial production of Enbrel.
Under an agreement with AHP, AHP will sell the Rhode Island facility to us at a
future date anticipated to be in the second half of 2002. We have agreed to fund
equally the retrofit and make-ready costs of the Rhode Island facility with AHP
and at the time ownership is transferred to us, we will reimburse AHP for the
remaining retrofit and make-ready costs plus their costs to originally acquire
the facility. The total cost to us for the Rhode Island facility is expected to
be in the range of $250 million to $300 million.
Financing activities provided cash of $54.1 million for the six-month
period ended June 30, 2000. We received $23.4 million from the exercise of
employee stock options for the purchase of 6,777,553 shares during the first six
months of 2000. In addition, under the terms of a Governance Agreement with AHP,
AHP can purchase additional shares of our common stock from us in order to
maintain its percentage ownership. The purchase price is equal to the fair
market value of the shares, as determined in accordance with the Governance
Agreement, on the date of AHP's purchase. Under the terms of the Governance
Agreement, we received $28.9 million from the issuance of 1,042,995 additional
shares of our common stock to AHP during the first half of 2000.
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Risks
We may be unable to sustain or increase profitability, which could result in a
decline in our stock price.
Future operating performance is never certain, and if our operating results
fall below the expectations of securities analysts or investors, the trading
price of our common stock will decline. Until 1998, we had a history of
operating losses. Although we have been profitable for two years, we may be
unable to sustain or increase profitability on a quarterly or annual basis.
Moreover, we anticipate that our operating and capital expenditures will
increase significantly in 2000 and in future years primarily due to:
. additional spending to support the marketing and sales of Enbrel;
. working capital requirements for sales of Enbrel;
. growth in research and development expenses as we progress with the
development of our clinical and preclinical product candidates;
. increased purchases of capital equipment, including the continued
construction of a new process development facility in 2000;
. development of our new research and technology center in Seattle,
Washington; and
. investment in additional manufacturing capacity for our existing
products and products in development, including our investment in
retrofitting a Rhode Island manufacturing facility to produce Enbrel.
Our ability to generate sufficient cash flow, or to raise sufficient
capital, to fund these operating and capital expenditures and remain profitable
depends on our ability to improve operating performance. This in turn depends,
among other things, on increasing sales of our existing products, especially
Enbrel, and successfully completing product development efforts and obtaining
timely regulatory approvals of our lead clinical products. We may not
successfully develop and commercialize these products.
If we are unable to increase sales of Enbrel, or if sales of Enbrel decline,
our revenues will be limited and our stock price will decline.
Because we depend, and expect to continue to depend, on sales of a single
product, Enbrel, for a substantial majority of our revenues, decreased or lower-
than-anticipated demand for Enbrel, or our inability to meet demand, could
materially adversely affect our operating results and harm our business. Factors
that could adversely affect sales of Enbrel include:
. competition from existing products for the treatment of RA, or
development of new, superior products;
. our ability to maintain adequate and uninterrupted sources of supply to
meet demand;
. events adversely affecting the ability of our manufacturing
collaborators to produce Enbrel;
. adverse developments regarding the safety or effectiveness of Enbrel;
. contamination of product lots or product recalls;
. our inability to gain regulatory approval to market Enbrel for
indications other than RA; and
. changes in private health insurer reimbursement rates or policies for
Enbrel.
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For the year ended December 31, 1999, sales of Enbrel accounted for 71% of
our total product sales, and for the six months ended June 30, 2000, sales of
Enbrel accounted for 79% of our total product sales. We expect product revenues
generated by Enbrel to continue to account for a substantial majority of our
product revenues.
If market demand continues to grow, limits on our manufacturing capacity for
Enbrel could constrain our sales growth.
The market demand for Enbrel in the United States, where we hold rights to
Enbrel, is growing and cannot be predicted with certainty. If demand for Enbrel
continues to grow, we expect that within the next year our current source of
supply of Enbrel will be unable to support growing market demand. This near-term
shortfall would continue unless and until the Rhode Island manufacturing
facility is able to produce commercial quantities of Enbrel for sale, which is
not expected to occur until the first half of 2002. Our current U.S. supply of
Enbrel from BI Pharma could potentially support sales of up to a maximum of
approximately $800 million annually, assuming current prices. Actual U.S. supply
of Enbrel could be lower since our U.S. supply is impacted by many manufacturing
and production variables, such as production success rate, bulk drug yield and
the timing of production runs and final product release. Our U.S. sales of
Enbrel could be adversely affected if we are unable to meet future growth in
market demand.
We are working with AHP to substantially increase our supply of Enbrel for
sale in the United States. In our current plan, we anticipate that in the near
term Enbrel would be produced at two sites: BI Pharma, currently our sole source
supplier, and a Rhode Island manufacturing facility, which is being retrofitted
to produce Enbrel. It is difficult to predict our actual near-term supply of
Enbrel with certainty because of the many complex variables involved in the
supply equation. Factors that will affect our actual supply of Enbrel include,
without limitation, the following:
. Variability in BI Pharma's Manufacturing Process. The amount of
commercial inventory supplied by BI Pharma will depend on a variety of
factors, including BI Pharma's production yields and success rates,
availability of qualified personnel, compliance with FDA regulations and
development of advanced manufacturing techniques and process controls.
If, as a result of any of the preceding manufacturing variables, BI
Pharma is unable to deliver the expected quantities of Enbrel within the
production capacity BI Pharma has reserved for Enbrel, our supply of
Enbrel available for sale would be reduced.
. Ability of BI Pharma to provide additional capacity for Enbrel. In June
2000, we, AHP and BI Pharma entered into an amendment to the BI Pharma
supply agreement under which BI Pharma was offered contractual
incentives to provide additional near-term production capacity for
Enbrel. If BI Pharma elects to provide additional production capacity
for Enbrel, and depending on the number of additional production runs,
our U.S. supply of Enbrel from BI Pharma could potentially increase by
up to a maximum of approximately $100 million of sales annually,
assuming current prices and depending on the manufacturing variables
described above. As an incentive to BI Pharma, we will pay more to
BI Pharma on a per unit basis for any of these additional production
runs, which will result in an increase in our incremental production
costs for these runs.
. Timely completion and approval of the Rhode Island manufacturing
facility. We and AHP are investing substantial sums to retrofit a Rhode
Island facility that AHP purchased in 1999 to accommodate the
commercial production of Enbrel bulk drug. We are working closely with
AHP to expedite the retrofit of the Rhode Island facility. We and AHP
have reached an agreement regarding the allocation of Enbrel produced
at this facility and the BI Pharma facility. As presently configured,
and assuming FDA approval, we currently estimate that the Rhode Island
facility could, on an annual basis, double our current U.S. supply of
Enbrel. We expect to file for FDA approval of the Rhode Island facility
in the second half of 2001, with estimated FDA approval of the Rhode
Island facility in the first half of 2002. We anticipate commencing
production runs at the Rhode Island facility and building inventory as
early as the first half of 2001. This inventory would not be available
for sale in
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the United States unless and until the Rhode Island facility is approved
by the FDA, which approval is not assured. If the FDA does not
ultimately approve the Rhode Island facility, we would not be able to
sell this inventory in the United States. If the FDA approves the Rhode
Island facility, BI Pharma would continue to manufacture Enbrel under
the terms of the BI Pharma supply agreement.
If U.S. market demand for Enbrel continues to grow, we may face future
supply limitations even after the Rhode Island facility begins producing Enbrel.
AHP plans to establish a new manufacturing facility in Ireland, which would
enhance the U.S. supply of Enbrel. If the Ireland facility is not completed, or
does not receive FDA approval before we encounter supply constraints, our future
U.S. sales growth would again be restricted.
Production bottlenecks could result in short-term supply interruptions of
Enbrel.
BI Pharma schedules in advance the bulk drug and vialing production runs
for Enbrel throughout the year. The timing of the BI Pharma production runs and
the final product release schedule for these production runs may not always
coincide with maintaining an uninterrupted supply of product. Also, if
insufficient vialing runs for Enbrel have been scheduled by BI Pharma because of
a larger-than-expected amount of bulk drug yielded from the bulk drug production
runs, BI Pharma may not have sufficient vialing capacity for all of the Enbrel .
bulk drug that it produces. We and AHP are working together with BI Pharma to
increase BI Pharma's vialing capacity and to qualify an additional contract
manufacturer to vial Enbrel bulk drug produced by BI Pharma and, if approved by
the FDA, the Rhode Island facility. We are not sure whether these arrangements
can be made or would be established in time to address production bottlenecks.
If third-party manufacturers or suppliers fail to perform, we will be unable
to meet demand for some of our products.
For all drug products that we market, we rely on unaffiliated third parties
and AHP to fill and label vials with our bulk drugs. We would be unable to
obtain these materials or products for an indeterminate period of time if AHP's
subsidiaries or third-party manufacturers or suppliers, including BI Pharma,
were to cease or interrupt production or otherwise fail to supply these
materials or products to us or AHP. This in turn could materially reduce our
ability to satisfy demand for these products as well as adversely affect our
operating results. AHP either manufactures through its subsidiaries or sources
through third-party manufacturers all finished dosage forms and bulk active raw
materials for our nonbiological oncology products, including Novantrone. AHP
depends on a single supplier for all of the essential raw material for Amicar(R)
(aminocaproic acid). In addition, two of the raw materials used to produce
Enbrel and our other recombinant protein products, other than Leukine, are
manufactured by single suppliers.
Our preclinical and clinical testing of potential products could be
unsuccessful, which could adversely affect our operating results.
Before obtaining regulatory approvals for the sale of any of our potential
products, we must subject these products to extensive preclinical and clinical
testing to demonstrate their safety and effectiveness in humans. If these tests
are unsuccessful, we will be unable to commercialize new products and, as a
result, we may be unable to sustain or increase profitability. Results of
initial preclinical and clinical testing are not necessarily indicative of
results to be obtained from later preclinical and clinical testing and, as a
result, we may suffer significant setbacks in advanced clinical trials. We may
not complete our clinical trials of products under development and the results
of the trials may fail to demonstrate the safety and effectiveness of new
products to the extent necessary to obtain regulatory approvals, which could
delay or prevent the approval.
The rate of completion of clinical trials depends, in part, on the
enrollment of patients, which in turn depends on factors such as the size of the
patient population, the proximity of target patients to clinical sites, the
eligibility criteria for the trial and the existence of competitive clinical
trials. Any delay in planned patient enrollment in our current or future
clinical trials may result in increased costs, trial delays or both.
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Our products are subject to extensive regulation, which can be costly and time-
consuming and subject us to unanticipated delays or lost sales.
The FDA imposes substantial requirements on our products before they permit
us to manufacture, market and sell them to the public. Compliance with these
requirements can be costly and time-consuming, and could delay sales of new
products or sales of our existing products for new indications. To meet FDA
requirements, we must spend substantial resources on lengthy and detailed
laboratory tests and clinical trials. It typically takes many years to complete
tests and trials for a product, and the length of time involved depends on the
type, complexity and novelty of the product. The FDA may not approve on a timely
basis, if at all, some or all of our future products or may not approve some or
all of our applications for additional indications for our previously approved
products.
If we violate regulatory requirements at any stage, whether before or after
marketing approval is obtained, we may be fined or forced to remove a product
from the market or may experience other adverse consequences, including delay or
increased costs, which could materially harm our financial results.
Additionally, we may not be able to obtain the labeling claims necessary or
desirable for promoting our products. Even if approval is obtained, we may also
be required or may elect to undertake post-marketing trials. In addition, if we
or others identify side effects after any of our products are on the market, or
if manufacturing problems occur, regulatory approval may be withdrawn and
reformation of our products, additional clinical trials, changes in labeling of
our products, and additional marketing applications may be required.
Our ability to discover new drugs could be adversely affected if our current
research collaborators terminate their relationships with us or develop
relationships with a competitor.
We have relationships with various collaborators who conduct research at
our request. These collaborators are not our employees. As a result, we have
limited control over their activities and, except as otherwise required by our
collaboration agreements, can expect only limited amounts of their time to be
dedicated to our activities. Our ability to discover new drugs will depend in
part on the continuation of these collaborations. If any of these collaborations
are terminated, we may not be able to enter into other acceptable
collaborations. In addition, our existing collaborations may not be successful.
Disputes may arise between us and our collaborators as to a variety of matters,
including financing obligations under our agreements and ownership of
intellectual property rights. These disputes may be both costly and time-
consuming and may result in delays in the development and commercialization of
products.
Competition and technological developments could render our products obsolete
or noncompetitive.
To succeed, we must maintain a competitive position with respect to
technological advances. We are 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. Many companies and institutions, both
public and private, are developing synthetic pharmaceuticals and
biotechnological products for human therapeutic application, including the
applications we have targeted.
Several products are currently approved for the treatment of RA. In
particular, we face competition for Enbrel, principally from Johnson & Johnson's
product Remicade(R). There are other products in late-stage development that
are targeting RA. If any of these other products are approved by the FDA for RA,
our sales of Enbrel could be adversely affected.
A number of our competitors have substantially more capital, research and
development, regulatory, manufacturing, marketing, human and other resources and
experience than we have. Furthermore, large pharmaceutical companies recently
have been consolidating, which has increased their resources and concentrated
valuable intellectual property assets. As a result, our competitors may:
. develop products that are more effective or less costly than any of our
current or future products or that render our products obsolete;
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. produce and market their products more successfully than we do;
. establish superior proprietary positions; or
. obtain FDA approval for labeling claims that are more favorable than
those for our products.
If we are unable to protect and enforce our patents and proprietary rights and
gain access to patent and proprietary rights of others, we may be unable to
compete effectively.
Our success depends in part on obtaining, maintaining and enforcing our
patents and other proprietary rights and on our ability to avoid infringing the
proprietary rights of others. We have a substantial intellectual property
portfolio, including patents and patent applications. Patent law relating to the
scope of claims in the biotechnology field in which we operate is still evolving
and, consequently, patent positions in our industry may not be as strong as in
other more well-established fields. Accordingly, the U.S Patent and Trademark
Office, or PTO, may not issue patents from the patent applications owned by or
licensed to us. If issued, the patents may not give us an advantage over
competitors with similar technology.
The issuance of a patent is not conclusive as to its validity or
enforceability and it is uncertain how much protection, if any, will be given to
our patents if we attempt to enforce them and they are challenged in court or in
other proceedings, such as oppositions, which may be brought in foreign
jurisdictions to challenge the validity of a patent. A third party may challenge
the validity or enforceability of a patent after its issuance by the PTO. It is
possible that a competitor may successfully challenge our patents or that a
challenge will result in limiting their coverage. Moreover, the cost of
litigation to uphold the validity of patents and to prevent infringement can be
substantial. If the outcome of litigation is adverse to us, third parties may be
able to use our patented invention without paying us. Moreover, it is possible
that competitors may infringe our patents or successfully avoid them through
design innovation. To stop these activities we may need to file a lawsuit. These
lawsuits are expensive and would consume time and other resources, even if we
were successful in stopping the violation of our patent rights. In addition,
there is a risk that a court would decide that our patents are not valid and
that we do not have the right to stop the other party from using the inventions.
There is also the risk that, even if the validity of our patents were upheld, a
court would refuse to stop the other party on the grounds that its activities do
not infringe our patents. Competitors have obtained or are seeking patents
which, if issued or granted, may have a material adverse effect on our ability
to successfully commercialize Enbrel.
While we pursue patent protection for products and processes where
appropriate, we also rely on trade secrets, know-how and continuing
technological advancement to develop and maintain our competitive position.
Therefore, others may independently develop substantially equivalent information
or techniques, or otherwise gain access to or disclose our technology. We may
not be able to effectively protect our rights in unpatented technology, trade
secrets and confidential information.
Our policy is to have each employee enter into a confidentiality agreement
that contains provisions prohibiting the disclosure of confidential information
to anyone outside Immunex. Research and development contracts and relationships
with our scientific consultants provide access to aspects of our know-how that
are protected generally under confidentiality agreements with the parties
involved. These confidentiality agreements may not be honored and we may be
unable to protect our rights to our unpatented trade secrets.
We may be required to obtain licenses to patents or other proprietary
rights from third parties to develop and commercialize our products. Licenses
required under third-party patents or proprietary rights may not be made
available on terms acceptable to us, if at all. If we do not obtain the required
licenses, we could encounter delays in product development while we attempt to
redesign products or methods or we could be unable to develop, manufacture or
sell products requiring these licenses at all.
Our customers may not get reimbursed from third parties, which could adversely
affect our sales.
The affordability of our products depends substantially on governmental
authorities, private health insurers and other organizations, such as health
maintenance organizations, reimbursing most of the costs of our
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products and related treatments to our customers. Low reimbursement levels may
reduce the demand for, or the price of, our products, which could prevent us
from maintaining or achieving profitability on specific products. Since Medicare
presently will not reimburse patients for self-administered drugs, Medicare does
not cover prescriptions of Enbrel. Although we have been able to obtain
sufficient reimbursement for most of our other products, governmental
authorities or third parties, or both, may decrease their reimbursement rates or
change their reimbursement policies. In addition, we may not be able to obtain
sufficient reimbursement for our future products.
Our selling practices for oncology products reimbursed by Medicare or Medicaid
may be challenged in court, which could result in claims for substantial money
damages or changes in our pricing procedures.
The federal government and several state agencies have initiated an
investigation into our pricing practices and could seek substantial money
damages or changes in the manner in which we price our products. If changes are
mandated, they could adversely affect the sales of those products. In the United
States, pharmaceutical companies frequently grant discounts from list price to
physicians and suppliers who purchase their products. Discounts on multiple-
source, or generic, pharmaceuticals may be substantial. Government reports have
noted that government programs that reimburse medical providers for drugs on the
basis of the average wholesale price or wholesale acquisition cost, such as
Medicare and Medicaid in many states, may provide significant margins to
providers who are able to obtain large discounts from pharmaceutical companies.
We have received notice from the U.S. Department of Justice requesting us
to produce documents in connection with the Civil False Claims Act investigation
of the pricing of our products for sale and eventual reimbursement by Medicare
or state Medicaid programs. We also have received a similar state request.
Several of our products are regularly sold at substantial discounts from list
price. We have consistently required in our contracts of sale that the
purchasers appropriately disclose to governmental agencies the discounts that we
give to them. We do not know what action, if any, the federal government or any
state agency will take as a result of its investigation.
We may be required to defend lawsuits or pay damages for product liability
claims.
Product liability is a major risk in testing and marketing biotechnology
and pharmaceutical products. We face substantial product liability exposure in
human clinical trials and for products that we sell after regulatory approval.
Product liability claims, regardless of their merits, could be costly and divert
management's attention, or adversely affect our reputation and the demand for
our products. We currently maintain product liability insurance coverage based
on our product portfolio, sales volumes and claims experienced to date. However,
this insurance may not provide us with adequate coverage against potential
liabilities either for clinical trials or commercial sales. In the future,
insurers may not offer us product liability insurance, may raise the price of
this insurance or may limit the coverage.
We may be required to pay damages for environmental accidents and to incur
significant costs for environmental compliance.
Our research and development activities involve the controlled use of
hazardous materials, chemicals, viruses and radioactive compounds. In the event
of an environmental accident, we could be held liable for any resulting damages,
and any liability could materially affect our financial condition. We cannot
eliminate the risk of accidental contamination or injury from these materials.
In addition, we may be required to incur significant costs to comply with
federal, state and local laws and regulations governing the use, manufacture,
storage, handling and disposal of these materials and some types of waste
products.
If we are unable to attract and retain key employees and consultants, our
business could be harmed.
The success of our business depends, in large part, on our continued
ability to attract and retain highly qualified management, scientific,
manufacturing and sales and marketing personnel. Competition for personnel among
companies in the biotechnology and pharmaceutical industries is intense. We
cannot assure you that we will be able to attract or retain the personnel
necessary to support the growth of our business.
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A deterioration in the financial condition of major pharmaceutical wholesalers
could result in substantial lost receivables.
A significant majority of our sales are made to three pharmaceutical
wholesalers. Financial insolvency by one or more of these wholesalers would
require us to write off all or a portion of the amounts due us. As of June 30,
2000, the amount due us from these three wholesalers totaled $55.5 million.
Foreign currency exchange rate fluctuations could cause our profits to decline.
Adverse currency fluctuations between the U.S. dollar and the Euro could
cause our manufacturing costs to increase and our profitability to decline.
Under the terms of our supply agreement with BI Pharma, the price for our
product orders initially is set in Euros. We have the option, at the time of any
firm order, to pay the purchase price in Euros, or to fix the currency exchange
rate on the date of the order and pay the purchase price in U.S. dollars.
Accordingly, future currency exchange rate fluctuations could substantially
increase the manufacturing cost of our future product orders, which typically
are placed up to nine months in advance. In addition, if we elect to pay the
purchase price of any future orders in Euros, currency fluctuations between the
time of that order and the time of payment could substantially increase our
manufacturing costs for that order. We do not engage in foreign currency hedging
transactions.
Future acquisitions of or investments in businesses, products or technologies
could harm our business, operating results and stock price.
We may acquire or invest in other businesses, products or technologies that
are intended to complement our existing business. From time to time, we have had
discussions and negotiations with companies regarding our acquiring or investing
in these companies' businesses, products or technologies, and we regularly
engage in these discussions and negotiations in the ordinary course of our
business. If completed, these acquisitions or investments will likely involve
some or all of the following risks:
. difficulty of assimilating the acquired operations and personnel,
products or technologies;
. commercial failure of acquired products;
. disruption of our ongoing business;
. diversion of resources;
. inability of management to maintain uniform standards, controls,
procedures and policies;
. difficulty of managing our growth and information systems;
. risks of entering markets in which we have little or no prior
experience; and
. impairment of relationships with employees or customers.
Our management has limited prior experience in assimilating acquired
companies. We may be unable to successfully integrate any businesses, products,
technologies or personnel that might be acquired in the future, and our failure
to do so could harm our business and operating results.
In addition, future acquisitions or investments could result in potentially
dilutive issuances of equity securities, use of cash or incurrence of debt and
assumption of contingent liabilities, any of which could have an adverse effect
on our business and operating results or the price of our common stock.
Risks Related to our Share Price and Corporate Control
Our stock price is volatile and the value of your investment may be subject to
sudden decreases.
Our common stock price, like that of other biotechnology companies, is
volatile. As a result, you may not be able to resell your shares at or above the
price that you pay for them. Our common stock price may fluctuate due to factors
such as:
. actual or anticipated product supply constraints;
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. actual or anticipated fluctuations in our quarterly and annual results;
. clinical trial results and other product-development announcements by us
or our competitors;
. regulatory announcements, proceedings or changes;
. announcements in the scientific and research community;
. competitive product developments;
. intellectual property and legal developments;
. changes in reimbursement policies or medical practices;
. mergers or strategic alliances in the biotechnology and pharmaceutical
industries;
. any financing transactions we may propose or complete; or
. broader industry and market trends unrelated to our performance.
During periods of stock market price volatility, share prices of many
biotechnology companies have often fluctuated in a manner not necessarily
related to the companies' operating performance. Accordingly, our common stock
may be subject to greater price volatility than the market as a whole.
AHP has a substantial degree of corporate control over many of our strategic
decisions, and the interests of AHP could conflict with those of the other
holders of our common stock.
The concentrated holdings of Immunex common stock by AHP and its resulting
control over many of our strategic decisions actions may result in a delay or
the deterrence of possible changes in our control, which may reduce the market
price of our common stock. As of July 31, 2000, AHP beneficially owned
approximately 55% of the outstanding shares of our common stock. As a result,
unless and until AHP's percentage ownership of the outstanding shares of our
common stock drops below 35%, AHP will continue to exercise significant control
over some matters requiring shareholder approval. Under the terms of our
governance agreement with AHP, the number of directors AHP is entitled to
designate depends on its percentage ownership of our common stock. AHP is
currently entitled to designate a total of three out of the nine members of our
board of directors. In addition, so long as AHP has the right to designate at
least two directors, which applies if AHP's percentage ownership of our common
stock is at least 35%, AHP has the right to veto many actions that we may wish
to take, including, with specified exceptions:
. any change in our capital stock;
. any payment of dividends;
. any change in the composition of our board (other than directors
designated by Immunex);
. consolidations, mergers or similar transactions; and
. any change in our governing documents, as well as specified operating
decisions, such as incurring incremental indebtedness above a specified
threshold.
The interests of AHP with regard to these matters may conflict with the
interests of the other holders of our common stock.
Future sales of shares by AHP could affect our stock price.
Sales of substantial amounts of our common stock, or the perception that
these sales could occur, may adversely affect prevailing market prices for our
common stock. On August 9, 2000, we filed a shelf registration statement with
the SEC that, once it becomes effective, would allow us to sell up to 20 million
shares of newly-issued common stock in a primary offering and AHP to sell up to
50 million shares of Immunex common stock in a secondary-offering. In addition,
AHP has demand and piggyback registration rights with respect to its shares of
our common stock. As a result, AHP could cause a significant number of
additional shares of our common stock to be registered and sold in the public
market, which could cause our stock price to decline. Notwithstanding these
registration rights, AHP has agreed that, without our prior written
23
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS (continued)
-------------------------
consent, it will not, during the period beginning on the date of a sale of our
common stock under the shelf registration statement filed August 9, 2000 and
ending September 30, 2001, or nine months after the date of the sale, whichever
is later:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of, directly or indirectly, any shares of
our common stock or any securities convertible into or exercisable or
exchangeable for our common stock; or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of our
common stock;
whether any transaction described above is to be settled by delivery of our
common stock or such other securities, in cash or otherwise.
24
<PAGE>
Item 3. MARKET RISKS
------------
We have financial instruments that are subject to interest rate risk
including both debt instruments and investment instruments. We invest our cash
reserves in marketable securities consisting primarily of U.S. government and
corporate obligations. If market interest rates changed relatively by as much as
10%, the net effect on our operating results would not be material.
25
<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, 1999.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
An annual meeting of the Company's Shareholders ("Shareholders") was held
on Tuesday, April 25, 2000 ("Annual Meeting"). Of the 166,608,925 shares
outstanding as of the record date, March 8, 2000, there were 152,955,428 shares
or 91.8% of the total shares eligible to vote represented in person or by proxy.
The following proposal was adopted by the margins indicated:
1. To elect a Board of Directors to hold office until the next annual meeting
of shareholders and until their successors are elected and qualified.
For Withheld
----------- ---------
Edward V. Fritzky 151,655,389 1,300,039
John R. Considine 148,527,062 4,428,366
Kirby L. Cramer 151,717,675 1,237,753
Robert I. Levy 145,168,677 7,786,751
John E. Lyons 151,720,920 1,234,508
Joseph M. Mahady 151,895,362 1,060,066
Edith W. Martin 151,703,686 1,251,742
Peggy V. Phillips 151,609,351 1,346,077
Douglas E. Williams 143,655,384 9,300,004
2. To approve Ernst & Young LLP as the independent auditors to Immunex.
For 152,780,027
Against 108,388
Abstain 67,013
Not Voted 13,653,497
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a) * Exhibit 10.1 Amendment No.1 to the Enbrel Supply Agreement among
Immunex, American Home Products Corporation and
Boehringer Ingelheim Pharma KG dated June 27, 2000.
Exhibit 10.2 Form of Indemnification Agreement between Immunex
and each of its Directors and Executive Officers.
Exhibit 27 Financial Data Schedule
* Confidential treatment requested as to certain portions
b) Reports on Form 8-K
None
26
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SIGNATURES
----------
Pursuant to requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
IMMUNEX CORPORATION
Date: 8/10/2000 /s/ Edward V. Fritzky
--------- ---------------------------------------
Edward V. Fritzky
Chief Executive Officer, President,
Chairman of the Board and Director
(Principal Executive Officer)
Date: 8/10/2000 /s/ David A. Mann
--------- ---------------------------------------
David A. Mann
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
27
