<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration Statement No. 333-43354
PROSPECTUS SUPPLEMENT
(To Prospectus dated August 30, 2000)
70,000,000 Shares
[LOGO OF IMMUNEX]
COMMON STOCK
----------------
Immunex Corporation is offering 20,000,000 shares and American Home Products
Corporation, our principal shareholder, is offering 50,000,000 shares. We will
not receive any of the proceeds from the sale of shares by American Home
Products Corporation.
----------------
Our common stock is quoted on the Nasdaq National Market under the symbol
"IMNX." On November 9, 2000, the reported last sales price of our common stock
on the Nasdaq National Market was $39 3/4 per share.
----------------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page S-11 of this prospectus supplement and page 5 of the accompanying
prospectus.
----------------
PRICE $39 3/4 A SHARE
----------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to Proceeds to
Public Commissions Immunex AHP
-------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Per Share............... $39.75 $1.07 $38.68 $38.68
Total................... $2,782,500,000 $74,900,000 $773,600,000 $1,934,000,000
</TABLE>
American Home Products Corporation has granted the underwriters the right to
purchase up to an additional 10,500,000 shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
supplement or the accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on November 15, 2000.
----------------
MORGAN STANLEY DEAN WITTER MERRILL LYNCH & CO.
CREDIT SUISSE FIRST BOSTON LEHMAN BROTHERS
BANC OF AMERICA SECURITIES LLC
BEAR, STEARNS & CO. INC.
ROBERTSON STEPHENS
November 9, 2000
<PAGE>
[DESCRIPTION OF GATEFOLD ARTWORK]
Table of Immunex product pipeline listing
. 21 product names
. stage of testing for each product, and whether product is being marketed
. the indication or research area for which the product will or is being
marketed
. the territories in which Immunex has marketing rights for the product
[Photos of 7 bottles of Immunex products]
[text]
IMMUNEX CREATING THE FUTURE OF MEDICINE(TM)
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Supplement Summary............................................ S-3
Special Note Regarding Forward-Looking Statements........................ S-10
Risk Factors............................................................. S-11
Use of Proceeds.......................................................... S-20
Price Range of our Common Stock.......................................... S-21
Dividend Policy.......................................................... S-21
Capitalization........................................................... S-22
Selected Consolidated Financial Data..................................... S-23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... S-24
Business................................................................. S-32
Relationship With AHP.................................................... S-53
Management............................................................... S-61
Selling Shareholder...................................................... S-63
Important United States Tax Consequences to Non-U.S. Holders of our
Common Stock............................................................ S-64
Underwriters............................................................. S-67
Validity of Common Stock................................................. S-69
Experts.................................................................. S-69
Index to Consolidated Financial Statements............................... F-1
</TABLE>
Prospectus
<TABLE>
<CAPTION>
Page
----
<S> <C>
Where You Can Find More Information...................................... 3
Special Note Regarding Forward-Looking Statements........................ 4
About This Prospectus.................................................... 4
Risk Factors............................................................. 5
Immunex and the Selling Shareholder...................................... 14
Use of Proceeds.......................................................... 14
Description of Capital Stock............................................. 15
Plan of Distribution..................................................... 18
Validity of Common Stock................................................. 18
Experts.................................................................. 18
</TABLE>
----------------
You should rely only on the information contained in, or incorporated by
reference into, this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with information different from that
contained in, or incorporated by reference into, this prospectus supplement
and the accompanying prospectus. We and AHP are offering to sell shares of
common stock and seeking offers to buy shares of common stock only in
jurisdictions where offers and sales are permitted. The information contained
in, or incorporated by reference into, this prospectus supplement and the
accompanying prospectus is accurate only as of the dates of this prospectus
supplement and the accompanying prospectus, regardless of the time of delivery
of this prospectus supplement and the accompanying prospectus or any sale of
the common stock. In this prospectus supplement, references to "Immunex,"
"we," "us" and "our" refer to Immunex Corporation and our wholly owned
subsidiary. References to "AHP" and the "selling shareholder" refer to
American Home Products Corporation, our principal shareholder, and its direct
and indirect wholly owned subsidiaries.
We and AHP have not taken any action to permit a public offering of the
shares of common stock outside the United States or to permit the possession
or distribution of this prospectus supplement and the accompanying prospectus
outside the United States. Persons outside the United States who come into
possession of this prospectus supplement and the accompanying prospectus must
inform themselves about and observe any restrictions relating to the offering
of the shares of common stock and the distribution of this prospectus
supplement and the accompanying prospectus outside the United States.
----------------
Enbrel(R) (etanercept), Leukine(R) (sargramostim, GM-CSF), Novantrone(R)
(mitoxantrone for injection concentrate), Thioplex(R) (thiotepa for injection)
and Amicar(R) (aminocaproic acid) are our registered trademarks. Nuvance(TM)
(IL-4 receptor), Mobista(TM) (Flt3 ligand or Flt3L) and Avrend(TM) (CD40
ligand) are our trademarks. Other trademarks and trade names used in this
prospectus supplement and in the accompanying prospectus are the property of
their owners.
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
This summary contains basic information about us and this offering. Because
it is a summary, it does not contain all of the information that you should
consider before investing. You should carefully read this entire prospectus
supplement, the accompanying prospectus and the other documents we refer to or
incorporate by reference, including "Risk Factors" and our consolidated
financial statements and related notes included in this prospectus supplement,
before making an investment decision.
We incorporate important information into the accompanying prospectus by
reference. You may obtain the information incorporated by reference into the
accompanying prospectus without charge by following the instructions in the
accompanying prospectus under "Where You Can Find More Information." Except as
otherwise noted, all information in this prospectus supplement assumes no
exercise of the underwriters' over-allotment option.
Immunex
We are a leading biopharmaceutical company dedicated to developing immune
system science to protect human health. Applying our scientific expertise in
the fields of immunology, cytokine biology, vascular biology, antibody-based
therapeutics and small molecule research, we work to discover new targets and
new therapeutics for treating rheumatoid arthritis, or RA, asthma and other
inflammatory diseases, as well as cancer and cardiovascular diseases. In the
first six months of 2000, we had total revenues of $392.2 million and net
income of $73.7 million. For the full year 1999, we had total revenues of
$541.7 million and net income of $44.3 million.
Our Products
We have successfully developed two products and are currently marketing in
the United States seven products treating multiple indications.
Enbrel. Enbrel is a soluble tumor necrosis factor, or TNF, receptor that
inhibits the binding of TNF to TNF receptors, resulting in a significant
reduction in inflammatory activity in RA, a chronic condition requiring long-
term therapy. The U.S. Food and Drug Administration, or FDA, first approved
Enbrel in November 1998 for treating moderately to severely active RA in
patients who have had an inadequate response to one or more disease-modifying
antirheumatic drugs, or DMARDs. We believe there are approximately 350,000 of
these RA patients in the United States. In May 1999, the FDA approved Enbrel
for treating moderately to severely active polyarticular-course juvenile RA, or
JRA, in patients who have had an inadequate response to one or more DMARDs. We
believe approximately 35,000 patients in the United States currently suffer
from JRA. In June 2000, the FDA approved Enbrel for reducing signs and symptoms
and delaying structural damage in patients with moderately to severely active
RA. This expanded June 2000 indication supersedes the November 1998 indication
of Enbrel in that RA patients are no longer required to have an inadequate
response to one or more DMARDs before treatment with Enbrel is indicated. As a
result, we believe approximately 700,000 additional patients and a total of
approximately 1.1 million patients in the United States are now eligible for
treatment with Enbrel.
We own rights to Enbrel in the United States and Canada, and AHP owns rights
to Enbrel in all other countries. In July 2000, over 56,000 patients in the
United States were taking Enbrel. Sales of Enbrel were $286.2 million, or
approximately 79% of our product sales, in the first six months of 2000 and
$366.9 million, or approximately 71% of our product sales, in the full year
1999. We and AHP are marketing Enbrel in the United States under an Enbrel
promotion agreement.
Leukine. Leukine is a yeast produced granulocyte-macrophage colony
stimulating factor, or GM-CSF, that stimulates infection-fighting white blood
cells. Leukine is approved for use in patients with acute myelogenous
S-3
<PAGE>
leukemia and those undergoing a bone marrow or peripheral blood stem cell
transplant. Sales of Leukine totaled $35.0 million, or approximately 10% of our
product sales, in the first six months of 2000 and $69.1 million, or
approximately 13% of our product sales, in the full year 1999. A number of
Phase II and Phase III clinical trials are underway to investigate whether
Leukine could be approved for additional indications, including mucositis and
anti-tumor adjuvancy.
Novantrone. Novantrone is a chemotherapy injection concentrate that is
approved for initial therapy of acute nonlymphocytic leukemia and in
combination with steroids for treating patients with pain related to hormone
refractory prostate cancer. Sales of Novantrone totaled $26.7 million, or
approximately 7% of our product sales, in the first six months of 2000 and
$44.5 million, or approximately 9% of our product sales, in the full year 1999.
In October 2000, the FDA approved Novantrone for reducing neurologic
disability and/or the frequency of clinical relapses in patients with secondary
progressive, progressive relapsing or worsening relapsing-remitting multiple
sclerosis, or MS. We believe approximately 140,000 patients in the United
States suffer from these forms of MS. MS is a condition that can result in a
variety of symptoms that range from numbness in the limbs to complete
paralysis.
Our Product Pipeline
We have an extensive product pipeline focused on cancer and immune system
disorders.
Enbrel. We are researching the use of Enbrel in anti-inflammatory,
cardiovascular and other conditions. We are currently conducting clinical
trials to expand the indications of Enbrel to include:
. Chronic Heart Failure. We believe approximately 2.5 million of the
patients in the United States who are treated for chronic heart failure,
or CHF, each year are potential candidates for treatment with Enbrel. In
1999, we and AHP commenced two large randomized, placebo-controlled,
double-blind Phase II/III clinical trials of Enbrel in patients with
CHF, one in the United States and one in Europe and Australia.
Enrollment of patients in the U.S. clinical trial is expected to be
completed in 2000.
. Psoriatic Arthritis. We believe psoriatic arthritis affects
approximately 250,000 people in the United States. There are currently
no FDA-approved treatments for this condition. In August 1999, we
announced the results of a three-month randomized, placebo-controlled,
double-blind Phase II clinical trial indicating that psoriatic arthritis
patients treated with Enbrel experienced improved signs and symptoms of
their disease. We have completed enrollment of patients in a six-month
Phase III clinical trial of Enbrel for psoriatic arthritis.
. Psoriasis. We believe approximately 400,000 people in the United States
suffer from severe forms of psoriasis. We will be collecting data in our
Phase III clinical trial in psoriatic arthritis that will enable us to
evaluate the safety and efficacy of Enbrel in treating patients with
psoriasis. We commenced a Phase II clinical trial on psoriasis in the
third quarter of 2000.
Nuvance. Nuvance is a recombinant human version of a naturally occurring
protein that we are investigating as a novel approach to treating persistent
asthma. We believe approximately 17 million people in the United States suffer
from asthma and approximately 8.8 million have persistent asthma. Nuvance acts
by binding to IL-4, a cytokine present in asthmatic lungs that promotes
production of specific types of antibodies, including the IgE antibody involved
in allergic and asthmatic reactions. In May 2000, we completed the first large
randomized, placebo-controlled, double-blind Phase II clinical trial of
Nuvance. Our preliminary analysis of the Phase II clinical trial indicates that
Nuvance was generally well tolerated and that asthma patients treated with
Nuvance experienced improved daily lung function when compared with placebo. In
this trial, however, patients treated with Nuvance did not experience
significantly improved weekly lung function when compared with patients treated
with placebo. Based on the results of this Phase II clinical trial and results
of our previous
S-4
<PAGE>
clinical trials of Nuvance, we believe Nuvance may be effective in treating
persistent asthma, and we intend to devote significant resources to developing
Nuvance for this disease. We have begun three new Phase II clinical trials to
further study the dosing and efficacy of Nuvance in treating persistent asthma.
Other Potential Products. In addition to Enbrel and Nuvance, we currently
have multiple product candidates in clinical trials and in preclinical stages,
including:
. Mobista, a cytokine that induces the proliferation of blood progenitor
cells and specialized immune cells, which we are researching in the
immunotherapy of a number of human cancers;
. Avrend, an immune system molecule that plays a primary role in various
immune processes and may directly arrest the growth of some tumors,
which we are researching in Phase II clinical trials for treating
metastatic renal cell carcinoma and head and neck cancer;
. ABX-EGF, a fully human antibody created by Abgenix, Inc., which we and
Abgenix are researching in a Phase I clinical trial for treating a
variety of tumors; and
. TRAIL/Apo2L, a ligand which we are researching in preclinical studies in
collaboration with Genentech, Inc. as a therapy to suppress tumor growth
and cause tumor remission.
Our Strategy
Our goal is to capitalize on the opportunities presented by our marketed
products and to discover, develop and commercialize new products to further
solidify our position as a leader in the innovation and commercialization of
products that treat a variety of immune system disorders and to expand our new
product development into treating numerous other conditions. Key elements of
our strategy for achieving this goal include:
. seeking new indications for our existing products, particularly Enbrel;
. expanding our manufacturing capacity to meet our manufacturing
requirements for Enbrel and for our products under development and to
improve our ability to attract collaborative partners;
. investing in research and development to help us develop new products
and bring them to market sooner;
. expanding our research and development and other collaborations to
enhance our technology base and increase our pool of product candidates;
and
. acquiring and investing in businesses, products and technologies that
are complementary to our own.
Relationship With AHP
In June 1993, we merged with American Cyanamid Company's Lederle Oncology
business. In November 1994, AHP acquired all of the outstanding shares of
common stock of Cyanamid. As of June 30, 2000, AHP beneficially owned
approximately 55% of our outstanding common stock and, after this offering,
will own approximately 44% of our common stock, or approximately 42% if the
underwriters' over-allotment option is exercised in full. The framework of our
relationship with AHP is established in a number of agreements, including a
governance agreement and a product rights agreement. In August 2000, we and AHP
entered into several new agreements, including the following:
. we and AHP agreed to amend our governance agreement to increase our
operational and strategic flexibility if AHP's beneficial ownership of
our common stock falls below 45% as a result of this offering;
. AHP agreed to sell to us at a future date, which is expected to be in
the second half of 2002, its recently acquired manufacturing facility in
West Greenwich, Rhode Island, which is being retrofitted to increase
manufacturing capacity of Enbrel;
S-5
<PAGE>
. AHP agreed to provide financing guarantees to third-party lenders of up
to $550 million toward the cost of designing and constructing our
planned new research and technology center in Seattle, Washington,
provided that these financing guarantees will be reduced to $450 million
if this offering is completed;
. AHP agreed to convert its $450 million convertible subordinated note
into common stock concurrently with the completion of the financing for
our planned new research and technology center;
. we and AHP agreed that a substantial majority of the Enbrel produced at
Boehringer Ingelheim Pharma KG, or BI Pharma, will be allocated to us
until the Rhode Island facility receives regulatory approval and
produces specified quantities of Enbrel; and
. we and AHP agreed that thereafter a substantial majority of the combined
production of Enbrel at the BI Pharma facility, at the Rhode Island
facility and at a new manufacturing facility that AHP plans to establish
in Ireland will be allocated to us.
AHP converted its $450 million convertible subordinated note on October 31,
2000.
Recent Developments
We reported net income of $31.5 million, or $0.06 per diluted share, on
total revenues of $219.0 million for the third quarter of 2000. These results
compare to net income of $21.0 million, or $0.04 per diluted share, on revenues
of $152.4 million reported in the third quarter of 1999. Revenues last year
included a $10.0 million one-time scheduled payment earned under the Enbrel
promotion agreement with AHP when net sales of Enbrel exceeded $200.0 million
for the preceding 12-month period. Total product sales increased 56% over third
quarter 1999 to $217.2 million for the third quarter of 2000.
For the first nine months of 2000, we reported net income of $105.2 million,
or $0.19 per diluted share, compared to a net income of $28.1 million, or $0.05
per diluted share, for the first nine months of 1999. Revenues for the first
nine months of 2000 were $611.2 million, an increase of 61% over the same
period last year.
Sales of Enbrel totaled $172.1 million for the third quarter of 2000, an
increase of 69% over sales in the third quarter of 1999. Sales of Enbrel for
the first nine months of 2000 were $458.3 million, an increase of more than 84%
compared to sales of $248.6 million during the same period last year.
Sales of our specialty therapeutic products, including Leukine and
Novantrone, increased 24% to $44.8 million for the third quarter of 2000,
compared to $36.0 million for the third quarter of 1999. Sales of Leukine grew
18% over the second quarter of 2000 to $24.0 million. Specialty therapeutic
product sales for the first nine months of 2000 were $119.9 million compared to
$108.5 million during the same period last year.
Total operating expense for the third quarter of 2000 was $198.3 million, an
increase from $130.1 million in the third quarter of 1999. Increased expense
reflects higher costs of product sales, which is a function of growing sales
volume, and sales and marketing costs associated with Enbrel. Selling, general
and administrative expense was $88.8 million in the third quarter of 2000,
compared to $56.9 million in the third quarter of 1999 in part due to profit-
sharing payments to AHP for Enbrel.
Research and development expense in the third quarter of 2000 was $44.2
million, compared to $31.1 million in the third quarter of 1999. Cash flow from
operations was $168.2 million for the nine months ended September 30, 2000.
Cash and short-term investments totaled $817.7 million as of September 30,
2000.
For further information concerning our third quarter results, see our
quarterly report on Form 10-Q for the quarter ended September 30, 2000 filed
with the SEC on November 7, 2000.
----------------
We were incorporated in Washington in 1981. Our principal executive offices
are located at 51 University Street, Seattle, Washington 98101. Our telephone
number at this location is (206) 587-0430.
S-6
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common stock offered by Immunex..................... 20,000,000 shares
Common stock offered by AHP......................... 50,000,000 shares
Common stock to be outstanding after this offering.. 537,502,833 shares
Over-allotment option granted by AHP................ 10,500,000 shares
Use of proceeds by Immunex.......................... For expansion of our
manufacturing facilities,
design and construction
of our planned new
research and technology
center, research and
development and
commercialization
activities for new
products and new
indications for existing
products, additional
working capital and other
general corporate
purposes, as well as the
possible acquisition of
complementary businesses,
products and
technologies. We will not
receive any of the
proceeds from the sale of
shares by AHP.
Lock-up agreements.................................. AHP has agreed with the
underwriters that it will
not, without the prior
written consent of Morgan
Stanley & Co.
Incorporated, sell shares
of our common stock for
90 days after the date of
this prospectus
supplement. We, and each
of our directors and
executive officers, have
also agreed with the
underwriters that we will
not issue or sell shares
of our common stock
during this period,
except for specified
issuances in the course
of our business. AHP has
separately agreed with us
that it will not, without
our prior written
consent, sell or transfer
shares of our common
stock prior to September
30, 2001.
Nasdaq National Market symbol....................... IMNX
</TABLE>
The number of shares of our common stock to be outstanding after this
offering (using the actual number of outstanding shares as of June 30, 2000)
assumes the conversion of the $450 million convertible subordinated note held
by AHP into 15,544,041 shares of our common stock. The number of shares of
common stock to be outstanding after this offering does not take into account
the following as of June 30, 2000:
. 36,759,649 shares of common stock available for grant under our stock
option plans;
. 54,641,402 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $12.77 per
share, of which options to purchase 17,400,291 shares were exercisable;
and
. 2,827,104 shares of common stock available for issuance under our
employee stock purchase plan.
Unless we specifically state otherwise, all of the information in this
prospectus supplement, including all references to the number of shares of
common stock, is based on the actual number of shares outstanding as of June
30, 2000 and assumes the conversion of the $450 million convertible
subordinated note held by AHP into 15,544,041 shares of our common stock and
gives effect to our 2-for-1 stock splits that occurred on March 25, 1999 and
August 26, 1999, and our 3-for-1 stock split that occurred on March 20, 2000.
S-7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data for each of the years in
the three-year period ended December 31, 1999 and the six-month periods ended
June 30, 1999 and 2000 have been derived from our consolidated financial
statements and should be read in conjunction with our consolidated financial
statements and related notes and with "Capitalization," "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus
supplement. The information shown for the six-month period ended June 30, 2000
is not necessarily indicative of full-year results.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
---------------------------- -----------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues:
Product sales................ $149,672 $169,907 $519,287 $221,091 $362,894
Royalty and contract
revenue..................... 35,625 73,543 22,431 5,560 29,294
-------- -------- -------- -------- --------
Total revenues............. 185,297 243,450 541,718 226,651 392,188
Operating expenses:
Cost of product sales........ 24,552 33,285 159,269 66,887 104,832
Research and development..... 109,312 119,954 126,682 58,473 75,892
Selling, general and
administrative.............. 71,275 93,777 216,714 97,210 154,243
-------- -------- -------- -------- --------
Total operating expenses... 205,139 247,016 502,665 222,570 334,967
-------- -------- -------- -------- --------
Operating income (loss)........ (19,842) (3,566) 39,053 4,081 57,221
Other income, net.............. 4,282 6,752 17,771 5,401 17,167
-------- -------- -------- -------- --------
Income (loss) before income
taxes......................... (15,560) 3,186 56,824 9,482 74,388
Provision for income taxes..... 212 2,200 12,500 2,370 714
-------- -------- -------- -------- --------
Net income (loss).............. $(15,772) $ 986 $ 44,324 $ 7,112 $ 73,674
======== ======== ======== ======== ========
Net income (loss) per common
share:
Basic........................ $ (0.03) $ 0.00 $ 0.09 $ 0.01 $ 0.15
======== ======== ======== ======== ========
Diluted...................... $ (0.03) $ 0.00 $ 0.08 $ 0.01 $ 0.14
======== ======== ======== ======== ========
Number of shares used for per
share amounts:
Basic........................ 475,644 478,500 489,390 486,480 498,974
======== ======== ======== ======== ========
Diluted...................... 475,644 502,680 529,974 525,690 543,860
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 2000
-------------------------------
Pro Forma,
Actual Pro Forma As Adjusted
--------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
investments.................................. $ 750,004 $ 750,004 $1,522,004
Working capital............................... 716,022 716,022 1,488,022
Total assets.................................. 1,114,072 1,114,072 1,886,072
Long-term obligations, including current
portion...................................... 452,415 2,415 2,415
Total shareholders' equity.................... 511,737 961,737 1,733,737
</TABLE>
S-8
<PAGE>
The table above summarizes:
. our actual consolidated balance sheet data;
. our pro forma consolidated balance sheet data after giving effect to the
conversion of the $450 million convertible subordinated note held by AHP
into 15,544,041 shares of our common stock; and
. our consolidated pro forma balance sheet data as adjusted to give effect
to the conversion of the $450 million convertible subordinated note held
by AHP into 15,544,041 shares of our common stock and our sale of
20,000,000 shares of common stock in this offering at the public
offering price of $39.75 per share, after deducting underwriting
discounts and commissions and estimated offering expenses.
S-9
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this prospectus supplement, in the
accompanying prospectus and in the documents incorporated by reference in the
accompanying prospectus 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 supply capabilities and
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 prospectus supplement, in the
accompanying prospectus, in the documents incorporated by reference in the
accompanying prospectus 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 Current Reports on Form 8-K, Quarterly Reports
on Form 10-Q 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 "Risk Factors." These
are risks that we think could cause our actual results to differ materially
from expected and historical results.
S-10
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. Before you invest in our
common stock, you should be aware of various risks, including those described
below. You should carefully consider these risk factors, together with all of
the other information included in or incorporated by reference into this
prospectus supplement and the accompanying prospectus, before you decide
whether to purchase shares of our common stock. If any of the following risks
actually occur, our business and operating results could be harmed. This could
cause the market price of our common stock to decline, and you may lose all or
part of your investment.
Risks Related to our Business
We may be unable to sustain or increase profitability or raise sufficient
additional capital, 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 likely 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;
. construction of facilities and purchases of capital equipment, including
a new process development facility in Bothell, Washington;
. design and construction of our planned 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
purchasing and 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 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 from Enbrel will be limited, which could result in a decline in
our stock price.
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.
Because we only began marketing Enbrel in 1998, its long-term effects are
largely unknown. Adverse developments regarding the long-term safety and
efficacy of Enbrel could adversely affect demand for the product, or restrict
our ability to market and sell it for its current or potential indications.
Other factors that would adversely affect sales of Enbrel include:
. competition from existing products for treating RA or development of
new, superior products;
. our ability to maintain adequate and uninterrupted sources of supply to
meet demand;
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. events adversely affecting the ability of our manufacturing
collaborators to produce 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.
For the year ended December 31, 1999, sales of Enbrel accounted for 71% of
our product sales, and for the six months ended June 30, 2000, sales of Enbrel
accounted for 79% of our product sales. We expect revenue generated by Enbrel
to continue to account for a substantial majority of our product sales.
If market demand for Enbrel continues to grow, limits on our current sources
of supply for Enbrel will constrain our sales growth unless and until
additional manufacturing capacity for Enbrel is approved.
The market demand for Enbrel in the United States 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 market demand. In addition, because of the periodic nature
of the production cycle described below, we may from time to time experience
brief supply interruptions. This risk of near-term shortfall and the risk of
brief supply interruptions will 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. and Canadian supply of Enbrel from BI Pharma could potentially support
sales of up to a maximum of approximately $750 million annually, assuming some
additional production runs scheduled by BI Pharma in 2001, an anticipated
price increase and no significant improvement in production yields. Actual
U.S. supply of Enbrel could be lower since our U.S. supply is impacted by many
manufacturing and production variables, such as the timing of production runs,
production success rate, bulk drug yield and the timing and outcome of product
quality testing. Our sales of Enbrel will be adversely affected if we at any
time are unable to meet market demand. We are currently implementing a program
in the United States to identify and register patients prescribed Enbrel so
that we can best manage the overall number of patients using Enbrel in view of
available supply and to help ensure that the patients registered in the
program receive an uninterrupted supply of Enbrel. As a result of this
program, our annual sales of Enbrel may be lower than the annual supply that
BI Pharma can produce.
We are working with AHP to substantially increase our supply of Enbrel for
sale in the United States and Canada. 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 at any time include, without limitation, the following:
. Variability in BI Pharma's production cycle. BI Pharma does not produce
Enbrel continuously; rather, it produces the drug through a series of
periodic campaigns throughout the year. The amount of commercial
inventory available to us at any time depends on a variety of factors,
including the timing of BI Pharma's production runs, level of production
yields and success rates, timing and outcome of product quality testing
and amount of vialing capacity. We are making substantial investments in
manufacturing process improvements for Enbrel produced by BI Pharma
that, assuming FDA approval of the process improvements, we anticipate
could result in a significant increase in the level of production yields
for Enbrel commencing in the latter part of 2001.
. Ability of BI Pharma to provide additional capacity for Enbrel. In June
2000, we, AHP and BI Pharma amended the BI Pharma supply agreement to
offer BI Pharma financial incentives to provide additional near-term
production capacity for Enbrel. While we have indications from BI Pharma
that some additional production runs have been scheduled in 2001 for
Enbrel, we do not currently know the extent to which these scheduled
additional production runs and the potential for more production runs
will become binding commitments from BI Pharma. If BI Pharma elects to
and is able to provide
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more production capacity for Enbrel above and beyond the scheduled
additional production runs, our U.S. and Canadian supply of Enbrel from
BI Pharma could potentially increase by up to a maximum of approximately
$100 million of sales annually, assuming an anticipated price increase
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 additional
runs. BI Pharma's ability to provide additional production runs depends
in part on factors beyond its control, including contractual commitments
to other customers.
. Potential bottlenecks in the vialing process. BI Pharma schedules the
vialing production runs for Enbrel in advance, based on the expected
timing and yield of bulk drug production runs. Therefore, if BI Pharma
realizes production yields beyond expected levels, or provides
additional manufacturing capacity for Enbrel, it may not have sufficient
vialing capacity for all of the Enbrel bulk drug that it produces. As a
result, even if we are able to increase our supply of Enbrel bulk drug,
BI Pharma may not be able to vial the extra bulk drug in time to prevent
any supply interruptions. 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 any brief supply interruptions.
. Timely completion and approval of the Rhode Island manufacturing
facility. We and AHP are investing substantial sums and working closely
together to retrofit a Rhode Island facility that AHP purchased in 1999
to accommodate the commercial production of Enbrel bulk drug. We and AHP
have reached agreements regarding the allocation of Enbrel produced at
the BI Pharma facility and that may be produced at the Rhode Island
facility. As presently configured, we currently estimate that, when
completed, the retrofit of the Rhode Island facility could, on an annual
basis, double our current U.S. and Canadian 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 in mid-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 the United States unless and until the Rhode
Island facility is approved by the FDA, which approval is not assured.
We cannot assure you that these estimated dates relating to the Rhode
Island facility will not be delayed.
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. To address these limitations, we are evaluating other options to
further expand our manufacturing capacity for Enbrel, including building
additional capacity at the Rhode Island facility. In addition, AHP plans to
establish a new manufacturing facility in Ireland by 2005, which could enhance
the U.S. and Canadian supply of Enbrel. We and AHP also have reached an
agreement regarding the allocation of Enbrel that may be produced at a
potential expansion of the Rhode Island facility and the Ireland facility. If
additional manufacturing capacity at the Rhode Island facility is not built or
if the Ireland facility is not completed, or if these facilities do not
receive FDA approval before we encounter supply constraints, our future U.S.
sales growth would again be restricted.
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 for any reason, including due to
labor shortages or disputes. This in turn could materially reduce our ability
to satisfy demand for these products, which could 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
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raw material for Amicar. In addition, two of the raw materials used to produce
Enbrel and our other recombinant protein products under development 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.
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.
Our products and product candidates are subject to extensive regulatory
approval processes and ongoing 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 it permits
us to manufacture, market and sell them to the public. Compliance with these
requirements is 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. The actual 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 approval for the labeling claims
necessary or desirable for promoting our products. Even if approval is
obtained, we may be required or may elect to undertake post-marketing trials.
We may be required to perform additional clinical trials or change the
labeling of our products if we or others identify side effects after our
products are on the market, which could adversely affect sales of the affected
products.
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 reformulation of our products, additional clinical trials,
additional changes in labeling of our products and changes to or re-approvals
of our manufacturing facilities may be required, any of which could have a
material adverse effect on sales of the affected products and on our business
and results of operations.
In October 2000, we revised the warning section of the U.S. package insert
for Enbrel and sent a healthcare professional notification, commonly referred
to as a Dear Doctor letter, to physicians in the United States advising them
of these changes to the package insert. We made these revisions, after
consulting with the FDA, in response to spontaneous adverse events reported to
us in the course of our post-marketing surveillance of patients with RA who
have been treated with Enbrel, and concurrently with a request initiated by
the European
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Medicines Evaluation Agency that AHP send a similar letter to physicians in
Europe. The causal relationship between these adverse events and therapy with
Enbrel remains unclear. These adverse event reports included rare cases of
pancytopenia, including aplastic anemia, some with a fatal outcome.
Pancytopenia and aplastic anemia are hematologic disorders characterized by a
reduction in red and white blood cells and of blood platelets. These adverse
event reports also included rare cases of central nervous system disorders,
including demyelinating disorders such as MS, myelitis and optic neuritis.
AHP, after consulting with the European Medicines Evaluation Agency, revised
the European package leaflet for Enbrel in response to spontaneous adverse
event reports of the hematologic disorders mentioned above and sent letters to
physicians in Europe advising them of the changes to the package leaflet. It
is possible that additional spontaneous adverse events will be reported to us
as experience with Enbrel continues or as a result of any Dear Doctor letter
sent to physicians advising them of changes to the package insert for Enbrel.
If we or others identify new adverse events for patients treated with Enbrel,
additional precautions, warnings or other changes in the label for Enbrel may
be required.
Our ability to discover, develop or commercialize products could be adversely
affected if our research and marketing collaborations are terminated.
We have relationships with various collaborators who conduct research at
our request. Some of our collaborators also have shared marketing rights to
products subject to the collaboration. 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, develop and commercialize products 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 treating RA. In particular, we
face competition for Enbrel, principally from the generic drug methotrexate
and from Johnson & Johnson's product Remicade(R) (infliximab). There are other
products in late-stage development that are targeting RA. Depending on the
market acceptance of these products or potential products, 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;
. 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.
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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. Third parties have obtained or are seeking
patents which, if issued or granted, may have a material adverse effect on our
ability to successfully commercialize Enbrel in the United States. Although we
have a substantial intellectual property portfolio, which includes patents and
patent applications, we cannot be certain that we will be able to protect and
enforce our rights. Patent law relating to the scope of claims in the
biotechnology field 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 or they are challenged in court
or in other proceedings. A third party may challenge the validity or
enforceability of a patent after it is issued 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. It is also possible that competitors may
infringe our patents or successfully avoid them through design innovation.
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. The research and development contracts
we enter into with our scientific consultants generally contain
confidentiality and nondisclosure provisions. 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, manufacture and commercialize our
products, to label and sell our products for new indications or, in the event
we do not prevail in a dispute over the patent rights of others, in order to
continue our current activities. 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 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
currently 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 be unable to
obtain sufficient reimbursement for our future products.
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Our selling practices for 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
investigations 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 a 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
similar requests from the U.S. Department of Health and Human Services and
state agencies. According to press reports, approximately 20 other
pharmaceutical companies are under investigation by the U.S. Department of
Justice and/or state agencies related to the pricing of their products.
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 their investigations.
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.
A deterioration in the financial condition of major pharmaceutical wholesalers
could result in substantial lost receivables.
In the first six months of 2000, approximately 64% of our product sales
were made to three pharmaceutical wholesalers. Financial insolvency by one or
more of these wholesalers would require us to write off all or a
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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 for Enbrel, 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.
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. Our management has limited prior experience in assimilating
acquired companies. Any acquisitions or investments we complete 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;
. reduction in the overall growth rate of the combined organization;
. risks of entering markets in which we have little or no prior
experience; and
. impairment of relationships with employees or customers.
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 fluctuations in our quarterly and annual operating
results;
. actual or anticipated product supply constraints;
. adverse developments regarding the safety or efficacy of our products or
changes to the labels for our products;
. clinical trial results and other product-development announcements by us
or our competitors;
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. loss of any of our key executives;
. 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 our common stock by AHP and its resulting
control over many of our strategic decisions 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 June 30, 2000, AHP beneficially owned
approximately 55% of the outstanding shares of our common stock and, after
this offering, will own approximately 44% of our common stock, or
approximately 42% if the underwriters' over-allotment option is exercised in
full. Under our governance agreement with AHP, unless and until AHP's
percentage ownership of the outstanding shares of our common stock drops below
35%, AHP, through members of our board of directors designated by AHP, will
continue to exercise significant control over many of our strategic and
operational decisions. So long as AHP has the right to designate at least two
directors, which applies if AHP's beneficial ownership of our common stock is
at least 35%, many actions that we may wish to take will require the approval
of at least one director designated by AHP. These actions include, with
specified exceptions:
. any change in the composition of our board (other than directors
designated by us);
. consolidations, mergers or similar transactions above a specified
threshold;
. any change in our capital stock; 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 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 may occur, could adversely affect prevailing market prices for our
common stock. Under our governance agreement, 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 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 with the
underwriters that it will not, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the underwriters, sell shares of our
common stock for 90 days after the date of this prospectus supplement. AHP has
separately agreed with us that it will not, without our prior written consent,
sell or transfer shares of our common stock prior to September 30, 2001.
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USE OF PROCEEDS
We expect to receive approximately $772.0 million in net proceeds from our
sale of 20,000,000 shares of common stock in this offering at the public
offering price of $39.75 per share, after deducting underwriting discounts and
commissions and estimated offering expenses. We will not receive any of the
proceeds from the sale of shares by AHP.
We intend to use the net proceeds from this offering primarily to expand
our manufacturing capacity. We expect to spend approximately $400 million
through 2002 to acquire AHP's Rhode Island manufacturing facility, which we
and AHP are retrofitting to produce Enbrel. We may also build additional
manufacturing capacity at Rhode Island or other locations to help meet the
manufacturing requirements for Enbrel and our other products under development
and to improve our ability to attract collaborative partners with products
under development.
We also intend to use a portion of the net proceeds to design and construct
our planned new research and technology center in Seattle, Washington. The
total cost for the initial phase of this center is expected to be up to
approximately $750 million. AHP has agreed to provide financing guarantees to
third-party lenders of up to $550 million in connection with the construction
of this center, provided that these financing guarantees will be reduced to
$450 million if this offering is completed. Under the terms of our agreement
with AHP, we will be required to collateralize up to $300 million of the
third-party financing for this center. The financing of this center may be
subject, in part, to the financial position of AHP, including related events
of default under AHP credit facilities.
Finally, we may use a portion of the net proceeds to fund research and
development and commercialization activities for new products and new
indications for existing products, for additional working capital and for
other general corporate purposes, as well as the possible acquisition of
complementary businesses, products and technologies. We have not determined
the amounts that we will spend, if any, for each of these purposes. We have
discussions in the regular course of business regarding potential acquisitions
and licensing opportunities that may be complementary to our business.
Although we may use a portion of the net proceeds for all of the above
purposes, we will retain broad discretion in allocating the net proceeds from
this offering.
S-20
<PAGE>
PRICE RANGE OF OUR COMMON STOCK
Our common stock is quoted on the Nasdaq National Market under the symbol
"IMNX." The following table lists high and low sales prices per share of our
common stock as reported on the Nasdaq National Market for the periods
indicated.
<TABLE>
<CAPTION>
Price Range of
Common Stock
---------------
Period High Low
------ ------- -------
<S> <C> <C>
1997
First Quarter.................................................. $ 2.750 $ 1.573
Second Quarter................................................. 3.250 1.938
Third Quarter.................................................. 5.688 2.740
Fourth Quarter................................................. 6.698 3.771
1998
First Quarter.................................................. $ 6.281 $ 3.927
Second Quarter................................................. 6.135 4.792
Third Quarter.................................................. 6.125 4.000
Fourth Quarter................................................. 10.531 3.990
1999
First Quarter.................................................. $15.667 $ 9.583
Second Quarter................................................. 24.313 11.000
Third Quarter.................................................. 24.500 13.958
Fourth Quarter................................................. 40.167 13.771
2000
First Quarter.................................................. $83.604 $27.750
Second Quarter................................................. 69.875 24.188
Third Quarter.................................................. 67.125 39.500
Fourth Quarter (through November 9, 2000)...................... 49.000 35.063
</TABLE>
The last reported sales price of our common stock on the Nasdaq National
Market was $39.75 per share on November 9, 2000. As of June 30, 2000, there
were approximately 1,042 holders of record of our common stock, which does not
include the number of shareholders whose shares are held of record by a broker
or clearing agency, but does include such broker or clearing agency as a
holder of record.
DIVIDEND POLICY
We have not paid any cash dividends since our inception. We currently do
not intend to pay any cash dividends in the foreseeable future, but intend to
retain all earnings, if any, for use in our business operations.
S-21
<PAGE>
CAPITALIZATION
The following table sets forth:
. our actual capitalization as of June 30, 2000;
. our pro forma capitalization after giving effect to the conversion of
the $450 million convertible subordinated note held by AHP into
15,544,041 shares of our common stock; and
. our pro forma capitalization as adjusted to give effect to the
conversion of the $450 million convertible subordinated note held by AHP
into 15,544,041 shares of our common stock and our sale of 20,000,000
shares of common stock in this offering at the public offering price of
$39.75 per share, after deducting underwriting discounts and commissions
and estimated offering expenses.
You should read this table in conjunction with our consolidated financial
statements and related notes and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus supplement.
<TABLE>
<CAPTION>
As of June 30, 2000
----------------------------------
Pro Forma,
Actual Pro Forma As Adjusted
--------- ---------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term obligations:
Convertible subordinated note - AHP ...... $ 450,000 $ -- $ --
Other long-term obligations, less current
portion.................................. 836 836 836
--------- ---------- ----------
Total long-term debt.................... 450,836 836 836
--------- ---------- ----------
Shareholders' equity:
Preferred stock, $.01 par value;
30,000,000 shares authorized; none
outstanding.............................. -- -- --
Common stock, $.01 par value;
1,200,000,000 shares authorized;
501,958,792 shares outstanding, actual;
517,502,833 shares outstanding, pro
forma; 537,502,833 shares outstanding,
pro forma, as adjusted................... 845,940 1,295,940 2,067,940
Unrealized gain on investments, net....... 31,314 31,314 31,314
Accumulated deficit....................... (365,517) (365,517) (365,517)
--------- ---------- ----------
Total shareholders' equity.............. 511,737 961,737 1,733,737
--------- ---------- ----------
Total capitalization.................. $ 962,573 $ 962,573 $1,734,573
========= ========== ==========
</TABLE>
The number of shares of our common stock outstanding as of June 30, 2000
does not take into account the following as of that date:
. 36,759,649 shares of common stock available for grant under our stock
option plans;
. 54,641,402 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $12.77 per
share, of which options to purchase 17,400,291 shares were exercisable;
and
. 2,827,104 shares of common stock available for issuance under our
employee stock purchase plan.
S-22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data have been derived from
our consolidated financial statements for each of the years in the five-year
period ended December 31, 1999, which statements have been audited by Ernst &
Young LLP, and the unaudited six-month periods ended June 30, 1999 and 2000.
You should read the information set forth below in conjunction with our
consolidated financial statements and related notes and with "Capitalization"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included elsewhere in this prospectus supplement. The
information shown for the six-month period ended June 30, 2000 is not
necessarily indicative of full-year results.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------------------------------ ------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues:
Product sales.......... $137,639 $129,528 $149,672 $169,907 $519,287 $221,091 $362,894
Royalty and contract
revenue............... 18,977 21,670 35,625 73,543 22,431 5,560 29,294
-------- -------- -------- -------- -------- -------- --------
Total revenues....... 156,616 151,198 185,297 243,450 541,718 226,651 392,188
Operating expenses:
Cost of product
sales................. 24,555 21,860 24,552 33,285 159,269 66,887 104,832
Research and
development........... 83,463 96,612 109,312 119,954 126,682 58,473 75,892
Selling, general and
administrative........ 59,318 69,968 71,275 93,777 216,714 97,210 154,243
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses............ 167,336 188,440 205,139 247,016 502,665 222,570 334,967
-------- -------- -------- -------- -------- -------- --------
Operating income
(loss)................. (10,720) (37,242) (19,842) (3,566) 39,053 4,081 57,221
Other income (expense):
Interest income........ 1,123 2,156 3,790 6,793 26,150 6,949 23,193
Interest expense....... (1,145) (293) (596) (425) (8,656) (1,697) (6,873)
Other income
(expense), net........ (312) (18,093) 1,088 384 277 149 847
-------- -------- -------- -------- -------- -------- --------
Total other income
(expense)........... (334) (16,230) 4,282 6,752 17,771 5,401 17,167
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes........... 11,054 (53,472) (15,560) 3,186 56,824 9,482 74,388
Provision for income
taxes.................. 246 160 212 2,200 12,500 2,370 714
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $(11,300) $(53,632) $(15,772) $ 986 $ 44,324 $ 7,112 $ 73,674
======== ======== ======== ======== ======== ======== ========
Net income (loss) per
common share:
Basic.................. $ (0.02) $ (0.11) $ (0.03) $ 0.00 $ 0.09 $ 0.01 $ 0.15
======== ======== ======== ======== ======== ======== ========
Diluted................ $ (0.02) $ (0.11) $ (0.03) $ 0.00 $ 0.08 $ 0.01 $ 0.14
======== ======== ======== ======== ======== ======== ========
Number of shares used
for per share amounts:
Basic.................. 475,080 475,224 475,644 478,500 489,390 486,480 498,974
======== ======== ======== ======== ======== ======== ========
Diluted................ 475,080 475,224 475,644 502,680 529,974 525,690 543,860
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of June 30,
2000
--------------
(in thousands)
<S> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents........................................ $ 151,377
Short-term investments........................................... 598,627
Working capital.................................................. 716,022
Total assets..................................................... 1,114,072
Long-term obligations, including current portion................. 452,415
Total shareholders' equity....................................... 511,737
</TABLE>
S-23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our
consolidated financial statements and related notes included elsewhere in this
prospectus supplement.
Overview
We have successfully developed two products and are currently marketing in
the United States seven products treating multiple indications. We derive, and
expect to continue to derive, the substantial majority of our product sales
from sales of Enbrel. Sales of our specialty therapeutic products, which
include Leukine and Novantrone, comprise the substantial majority of the
remainder of our product sales.
Enbrel originally was approved by the FDA in November 1998 for treating
moderately to severely active RA in patients who have had an inadequate
response to one or more DMARDs. In May 1999, the FDA approved Enbrel for
treating moderately to severely active JRA in patients who have had an
inadequate response to one or more DMARDs. In June 2000, the FDA approved
Enbrel for reducing signs and symptoms and delaying structural damage in
patients with moderately to severely active RA. This expanded June 2000
indication supersedes the November 1998 indication of Enbrel in that RA
patients are no longer required to have an inadequate response to one or more
DMARDs before treatment with Enbrel is indicated. Primarily as a result of
increased sales of Enbrel, our revenues have grown from $185.3 million in 1997
to $243.5 million in 1998, to $541.7 million in 1999, and to $392.2 million
for the six months ended June 30, 2000. We achieved profitability in the
fourth quarter of 1998 and our net income has grown from $1.0 million in 1998
to $44.3 million in 1999. Our net income totaled $73.7 million for the six
months ended June 30, 2000.
Our operating expenses have increased over the past three years, primarily
as a result of manufacturing, selling and marketing expenses for Enbrel. In
addition, we have increased spending on products in our development pipeline
and increased our investment in discovery research. We expect to continue to
increase research and development spending to further develop our product
pipeline.
Results of Operations
Six Months Ended June 30, 2000 and June 30, 1999
Revenues
Total revenues increased to $392.2 million for the six months ended June
30, 2000 compared to $226.7 million for the six months ended June 30, 1999.
The following table summarizes our sources of revenues.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------
1999 2000
-------- --------
(in millions)
<S> <C> <C>
Enbrel....................................................... $ 146.5 $ 286.2
Specialty therapeutic products............................... 73.0 75.1
Other product sales.......................................... 1.6 1.6
-------- --------
Total product sales........................................ 221.1 362.9
Royalty and contract revenue................................. 5.6 29.3
-------- --------
Total revenues............................................. $ 226.7 $ 392.2
======== ========
</TABLE>
Product sales increased to $362.9 million for the six months ended June 30,
2000, compared to $221.1 million for the six months ended June 30, 1999. This
improvement was 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
S-24
<PAGE>
profits from U.S. sales of Enbrel and we share the costs of selling, marketing
and distributing Enbrel in the United States with AHP. 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 and
Novantrone, totaled $75.1 million for the six months ended June 30, 2000,
compared to $73.0 million for the six 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 for 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 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 $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. In October
2000, the FDA approved Novantrone for reducing neurologic disability and/or
the frequency of clinical relapses in patients with secondary progressive,
progressive relapsing or worsening relapsing-remitting MS.
Royalty and contract revenue totaled $29.3 million for the six months ended
June 30, 2000, compared to $5.6 million for the six months ended June 30,
1999. 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. 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. These were the final scheduled payments to
be earned by us under the Enbrel promotion agreement with AHP. The remaining
royalty and contract revenue recognized in the six months ended June 30, 2000
and the royalty and contract revenue recognized during the six months ended
June 30, 1999 reflects recurring amounts recognized under existing royalty and
license agreements.
Operating Expenses
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 cost of product sales, as a percentage of
product sales, during the six months ended June 30, 2000 was due to:
. lower costs for Enbrel primarily due to a reduction in internal costs
and favorable exchange rates on purchases of Enbrel from BI Pharma, our
contract manufacturer for Enbrel, which is located in Germany; and
. a favorable mix of sales of our specialty therapeutic products.
Partially offsetting these items was increased sales of Enbrel. Like
Leukine, Enbrel is a biologic, and generally has a higher manufacturing cost
than traditional pharmaceutical products and is subject to multiple royalty
obligations. Cost of product sales as a percentage of product sales is
expected to increase to the extent sales of Enbrel become a greater percentage
of product sales. In addition, in June 2000, we, AHP and BI Pharma amended the
BI Pharma supply agreement to offer BI Pharma financial incentives to provide
additional near-term production capacity for Enbrel. As an incentive to BI
Pharma, we will pay more to BI Pharma on a per unit basis for any additional
production runs, which will result in an increase in our incremental
production costs for these additional runs.
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 primarily due to
the continuing development of:
. Enbrel for treating CHF, RA, psoriatic arthritis and other diseases;
. TRAIL/Apo2L for treating cancer, in collaboration with Genentech;
S-25
<PAGE>
. Avrend (CD40 ligand) for treating renal cell cancer;
. Nuvance for treating persistent asthma; and
. IL-1 receptor Type II for treating 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 collaborative research activities.
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 was primarily due to expenses
associated with selling and marketing Enbrel. Under the terms of the Enbrel
promotion agreement, AHP assumed a majority of these expenses in the United
States in the year following launch of Enbrel, and a decreasing majority of
these expenses in the second year following launch of Enbrel. Beginning in
November 2000, we 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. Our share of costs incurred under the
Enbrel promotion agreement, including the obligation to AHP for its share of
the gross profits from U.S. sales of Enbrel, totaled $97.2 million for the six
months ended June 30, 2000 and $52.4 million for the six months ended June 30,
1999. 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 infrastructure costs;
. selling expenses for our specialty therapeutics line of products; and
. preparing for FDA approval of Novantrone for treating worsening forms of
MS.
Selling, general and administrative expense will continue to increase to
the extent sales of Enbrel grow, reflecting the corresponding increase in the
share of gross profits due AHP under the Enbrel promotion agreement.
Other Income (Expense)
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 million convertible subordinated note to AHP in May 1999,
sales of common stock to AHP and our employees and improved operating cash
flow 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 $450 million convertible subordinated note.
Provision for Income Taxes
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 six months ended June 30, 2000
consisted only of our tax obligation in the states in which we sell our
products. Our federal income tax expense in 2000, for financial reporting
purposes, was offset by utilizing our net operating loss, or NOL,
carryforwards. As of June 30, 2000, the amount of NOL carryforwards available
to offset federal income tax expense, for financial reporting purposes,
totaled approximately $79.0 million. In the six months ended June 30, 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.
S-26
<PAGE>
Years Ended December 31, 1999, 1998 and 1997
Revenues
Total revenues increased to $541.7 million in 1999, compared to $243.5
million in 1998 and $185.3 million in 1997. The following table summarizes our
sources of revenues.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998 1999
------- ------- -------
(in millions)
<S> <C> <C> <C>
Enbrel................................................. $ -- $ 12.7 $ 366.9
Specialty therapeutic products......................... 148.3 155.8 148.5
Other product sales.................................... 1.4 1.4 3.9
------- ------- -------
Total product sales.................................. 149.7 169.9 519.3
Royalty and contract revenue........................... 35.6 73.6 22.4
------- ------- -------
Total revenues....................................... $ 185.3 $ 243.5 $ 541.7
======= ======= =======
</TABLE>
Product sales increased to $519.3 million in 1999, compared to $169.9
million in 1998 and $149.7 million in 1997. The improvement in product sales
in 1999, as compared to 1998, was primarily due to increased sales of Enbrel,
which totaled $366.9 million in 1999 and $12.7 million in 1998. Product sales
growth in 1998, as compared to 1997, was due to the U.S. launch of Enbrel in
November 1998 and increased demand for Leukine.
Sales of our specialty therapeutic products totaled $148.5 million in 1999,
compared to $155.8 million in 1998 and $148.3 million in 1997. Sales of
Leukine totaled $69.1 million in 1999, compared to $63.8 million in 1998 and
$52.7 million in 1997. Unit volume of Leukine began to increase in 1997
following the launch of a liquid formulation of the product, which was
previously available only in a powdered formulation that required
reconstitution prior to administration. The improved convenience of the liquid
formulation combined with the success of our sales programs contributed to the
addition of several large customers for Leukine. Sales of Leukine have also
benefited from overall growth in the market for colony stimulating factors, or
CSFs, during the three-year period ended December 31, 1999. Sales of
Novantrone remained essentially flat during 1999, following a decline in sales
levels in the fourth quarter of 1998.
Sales of our other specialty therapeutic products, as a whole, declined
during 1999 and 1998. Also, in late 1997, we sold the marketing rights to our
nonbiological products in Canada to a wholly owned subsidiary of AHP.
Accordingly, we earned no revenue from sales of those products in Canada in
1999 and 1998.
Royalty and contract revenue totaled $22.4 million in 1999, compared to
$73.6 million in 1998 and $35.6 million in 1997. In August 1999, we earned a
one-time payment of $10.0 million from AHP under the Enbrel promotion
agreement when net sales of Enbrel exceeded $200.0 million for the preceding
12-month period. The remaining royalty and contract revenue recognized during
1999 was primarily due to recurring amounts recognized under existing royalty
and license agreements. In 1998, we earned $50.0 million from AHP under the
Enbrel promotion agreement. Of the $50.0 million, we earned the first $20.0
million when the biologics license application, or BLA, for Enbrel was
accepted for review by the FDA and the other $30.0 million was earned when the
FDA approved Enbrel. We also earned nonrecurring contract revenue of
approximately $10.0 million related to the sale of the U.S. rights to
paclitaxel injection, a generic form of Taxol(R), and to the settlement of
claims related to paclitaxel injection in Canada. Royalty and contract revenue
in 1997 included $15.0 million earned from AHP under the Enbrel promotion
agreement and other revenue of approximately $7.0 million.
S-27
<PAGE>
Operating Expenses
Cost of product sales was 30.7% of product sales in 1999, compared to 19.6%
of product sales in 1998 and 16.4% of product sales in 1997. The increase in
cost of product sales, as a percentage of product sales, in 1999 was due to:
. increased sales of Enbrel; and
. an unfavorable change in the mix of our specialty therapeutic product
sales.
Research and development expense increased to $126.7 million in 1999,
compared to $120.0 million in 1998 and $109.3 million in 1997. Spending on
research and development activities has increased in recent years, reflecting
both an increased investment in discovery research and increased development
costs. Excluding $10.0 million of expense incurred in 1998 to acquire the
rights outside the United States and Canada to Nuvance and other receptor
product candidates, research and development expense increased by
$16.7 million in 1999 compared to 1998. The increase in research and
development expense in 1999 compared to 1998 was primarily due to the
development of:
. Nuvance for treating persistent asthma;
. Enbrel for treating CHF and RA;
. TRAIL/Apo2L for treating cancer, in collaboration with Genentech;
. Novantrone for treating worsening forms of MS; and
. Avrend for treating renal cell cancer.
In addition, we have increased staffing and laboratory space to support our
discovery research activities.
The increase in research and development expense in 1998 compared to 1997
was primarily due to increased spending to develop Enbrel. In addition,
spending to develop Nuvance and Mobista increased during 1998 due in part to
expanded clinical trials for these product candidates and also to increased
costs of manufacturing the product requirements for these clinical trials. The
above increases were partially offset in 1998 by decreased clinical expenses
for Leukine and decreased manufacturing costs for Avrend.
Selling, general and administrative expense increased to $216.7 million in
1999, compared to $93.8 million in 1998 and $71.3 million in 1997. The
increase in 1999 expense was primarily due to expenses associated with selling
and marketing Enbrel. Our share of costs incurred under the Enbrel promotion
agreement, including the obligation to AHP for its share of gross profits from
U.S. sales of Enbrel, totaled $120.3 million in 1999 and $14.8 million in
1998. The increase also reflects the cost of:
. increased staffing levels and other infrastructure costs;
. preparing for FDA approval of Novantrone for treating worsening forms of
MS;
. higher product liability insurance premiums due to higher average
limits; and
. expenses associated with new information systems.
The increase in selling, general and administrative expense in 1998
compared to 1997 was primarily due to spending on pre-launch activities and on
launch-related selling and marketing activities for Enbrel. The increase also
reflects the cost of:
. increased staffing levels;
. expenses associated with new information systems; and
. expanded office space.
S-28
<PAGE>
Other Income
Interest income increased to $26.2 million in 1999 compared to $6.8 million
in 1998 and $3.8 million in 1997. The issuance of a $450 million convertible
subordinated note to AHP in May 1999, combined with improved operating cash
flow and sales of common stock to AHP and our employees, resulted in a
significant increase in funds available for investment purposes and the
interest income earned on those funds. Interest income in 1999 was partially
offset by an increase in interest expense incurred on the $450 million
convertible subordinated note. The increase in interest income in 1998,
compared to 1997, reflects an increase in funds available for investment
purposes due to improved operating results and the interest income earned on
those funds.
Provision for Income Taxes
The provision for income taxes totaled $12.5 million in 1999, $2.2 million
in 1998 and $0.2 million in 1997. The provision for income taxes in both 1999
and 1998 was primarily for federal income taxes. The tax provisions for 1999
and 1998 are noncash transactions because we are using our NOL carryforwards.
The benefit from utilizing our NOL carryforwards, for financial reporting
purposes, was used to reduce the recorded value of goodwill and intangible
product rights and, in part, to offset federal income tax expense in 1999 for
financial reporting purposes. As of December 31, 1999, our NOL carryforwards
totaled approximately $286.7 million. Not all of these NOL carryforwards will
be available to offset federal income tax provisions. The provision for income
taxes in 1997 consists only of our tax obligation in the states in which we
sell our products.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments totaled $750.0 million as
of June 30, 2000 and $709.8 million as of 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 six months
ended June 30, 2000, reflecting income earned in operations, which was
partially offset by increased working capital requirements. The change in
working capital was due to an increase in accounts receivable from increased
product sales, $15.0 million earned from AHP under the terms of the Enbrel
promotion agreement, and an increase in inventory of Enbrel.
Operating activities provided cash of $112.7 million in 1999, compared to
$23.2 million in 1998 and $15.1 million in 1997. The increase in operating
cash flow in 1999 was primarily due to improved operating results and, to a
lesser extent, favorable changes in working capital. Working capital changes
reflect an increase in accounts receivable from sales of Enbrel, which was
more than offset by increases in accounts payable and payables to AHP under
the Enbrel promotion agreement, and decreased inventory levels. The
improvement in 1998, compared to 1997, can be attributed to improved operating
results and a favorable change in working capital requirements primarily due
to the U.S. launch of Enbrel in November 1998.
We expect our operating cash flows to continue to improve in the last six
months of 2000, primarily from increased operating income. However, the extent
of any improvement will be significantly affected by changes in our working
capital requirements. Under a supply agreement we entered into in November
1998 with AHP and BI Pharma, we have made commitments to purchase inventory of
Enbrel totaling at least $200 million through June 30, 2002. A portion of this
inventory will be purchased by AHP from BI Pharma. In June 2000, we, AHP and
BI Pharma amended the BI Pharma supply agreement to offer BI Pharma financial
incentives to provide additional near-term production capacity for Enbrel. Our
commitment to BI Pharma will increase if BI Pharma elects to and is able to
provide additional production runs. Our accounts receivable will continue to
be directly affected by U.S. sales of Enbrel and accounts payable will
continue to be affected by costs incurred under the Enbrel promotion
agreement. Accordingly, operating cash flows are highly dependent on sales and
inventory levels of Enbrel.
Cash used in investing activities totaled $220.8 million for the six months
ended June 30, 2000. The majority of the cash used for investing activities
was due to the net $179.2 million in purchases of investment
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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 in Bothell, Washington.
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.
Cash used in investing activities increased to $403.2 million in 1999,
compared to $116.3 million in 1998 and $28.7 million in 1997. The majority of
cash used in investing activities in 1999 was due to increased purchases of
investment securities of $460.1 million, offset by $107.8 million in proceeds
from the sales and maturities of investment securities. In addition,
expenditures for capital equipment increased to $35.6 million in 1999 from
$29.4 million in 1998. In 1999, we began construction of our new process
development facility. We also leased additional laboratory and office space
during 1999 and incurred costs to build out the new leased space. Other
capital expenditures included computer hardware and software, and laboratory
and manufacturing equipment. We also incurred costs totaling $15.5 million
related to patent licenses. The increase in net cash used in investing
activities in 1998, compared to 1997, was due to increased purchases of
marketable securities, purchases of property, plant and equipment and a
payment made under a patent interference settlement.
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 we and AHP are
investing substantial sums and working closely together to retrofit the
facility to accommodate the commercial production of Enbrel bulk drug. AHP has
agreed to sell the Rhode Island facility to us at a future date, anticipated
to be in the second half of 2002. We have agreed with AHP to fund 50% of the
retrofit and make-ready costs of the Rhode Island facility on a quarterly
basis as they are incurred. At the time ownership is transferred to us, we
will reimburse AHP for the remaining 50% of the retrofit and make-ready costs
plus AHP's cost to originally acquire the facility, which was $60 million. The
total cost of the project, which we will pay to AHP for retrofitting and
purchasing the Rhode Island facility, is expected to be approximately $400
million. We are also evaluating other options to further expand our
manufacturing facilities. We may also build additional manufacturing capacity
at Rhode Island or other locations to help meet the manufacturing requirements
for Enbrel and our other products under development and to improve our ability
to attract collaborative partners with products under development.
We are currently in the preliminary design phase of building a planned new
research and technology center in Seattle, Washington. The center will allow
us to expand our laboratory and office space and to consolidate facilities
currently spread among multiple separate locations in the Seattle area into a
single location. The total cost for the initial phase of this center is
expected to be up to approximately $750 million. AHP has agreed to provide
financing guarantees to third-party lenders of up to $550 million in
connection with the construction of this center, provided that these financing
guarantees will be reduced to $450 million if this offering is completed.
Under the terms of our agreement with AHP, we will be required to
collateralize up to $300 million of the third-party financing for this center.
The financing of this center may be subject, in part, to the financial
position of AHP, including related events of default under AHP credit
facilities.
Other capital expenditures are expected to continue to be significant. We
are considering transferring production of Leukine from Seattle to our full-
scale microbial manufacturing facility in Bothell, Washington. We are
currently evaluating the scope of this project, which may be expanded to
accommodate manufacturing of other products. The timing and extent of these
expenditures is uncertain, but could be significant. Finally, in order to
support our continued growth, we also expect to continue to increase spending
for computer hardware and software and laboratory equipment. The level of
expenditure for computer hardware and software and laboratory equipment is
expected to increase moderately from current year levels, excluding current
year expenditures for the new process development facility.
Financing activities provided cash of $54.1 million for the six months
ended June 30, 2000. We received $23.4 million from the exercise of employee
stock options for the purchase of 6,786,474 shares of common stock during the
six months ended June 30, 2000. In addition, under the terms of a governance
agreement with AHP,
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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.
Financing activities provided cash of $507.6 million in 1999, $70.5 million
in 1998 and $56.0 million in 1997. The majority of the increase in 1999 was
attributable to the $449.0 million in net proceeds from the convertible
subordinated note issued to AHP.
In addition, we received $40.8 million from the issuance of 3,498,726
shares of our common stock to AHP during 1999 under the terms of the
governance agreement. We received an additional $20.1 million in 1999 from the
exercise of employee stock options for the purchase of 8,670,207 shares of
common stock. The increase in cash provided by financing activities in 1998,
compared to 1997, was primarily due to the final revenue shortfall obligation
payment from AHP totaling $60.0 million in connection with our 1993 merger
with Cyanamid. In 1998, we also received an additional $6.8 million from the
exercise of employee stock options for the purchase of 3,983,460 shares of
common stock and $6.9 million from the issuance of 1,335,396 shares of our
common stock to AHP.
On October 31, 2000, AHP converted its $450 million convertible
subordinated note into shares of our common stock. The note would have been
due in 2006 and interest on the note would have totaled $13.5 million
annually. As a result of this conversion, we made our last interest payment on
the note during October 2000.
We believe that, based on current plans, our current capital resources,
together with the estimated net proceeds from this offering, cash generated
from operations and anticipated financing for our planned new research and
technology center, are adequate to satisfy our working capital and capital
expenditure requirements for at least the next two years.
Market Risk
We have financial instruments that are subject to interest rate risk,
including both debt instruments and investments. We invest our cash reserves
in marketable securities consisting primarily of U.S. government and corporate
obligations. If market interest rates were to change by as much as 10%, the
net effect on our operating results would not be material.
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BUSINESS
Overview
We are a leading biopharmaceutical company dedicated to developing immune
system science to protect human health. Applying our scientific expertise in
the fields of immunology, cytokine biology, vascular biology, antibody-based
therapeutics and small molecule research, we work to discover new targets and
new therapeutics for treating RA, asthma and other inflammatory diseases, as
well as cancer and cardiovascular diseases.
We have successfully developed two products and are currently marketing in
the United States seven products treating multiple indications. Our lead
products are:
. Enbrel, a soluble TNF receptor that inhibits the binding of TNF to TNF
receptors, currently is approved for reducing signs and symptoms and
delaying structural damage in patients with moderately to severely
active RA, and for treating children and teenagers with moderately to
severely active JRA in patients who have had an inadequate response to
one or more DMARDs;
. Leukine, a yeast produced GM-CSF that stimulates infection-fighting
white blood cells and is approved for use in patients with acute
myelogenous leukemia and those undergoing a bone marrow or peripheral
blood stem cell transplant; and
. Novantrone, a chemotherapy injection concentrate that is approved for
initial therapy of acute nonlymphocytic leukemia and in combination with
steroids for treating patients with pain related to hormone refractory
prostate cancer, and for treating worsening forms of MS.
We are researching the use of Enbrel in treating other indications, including
CHF, psoriatic arthritis, psoriasis and numerous other conditions.
We also have an extensive product pipeline focused on cancer and immune
system disorders. We are researching the use of Nuvance, a recombinant human
version of a naturally occurring protein, as a novel approach to treating
persistent asthma. In addition to Nuvance, we currently have multiple product
candidates in our development pipeline, including products in clinical trials
and preclinical stages.
Strategy
Our goal is to capitalize on the opportunities presented by our marketed
products and to discover, develop and commercialize new products to further
solidify our position as a leader in the innovation and commercialization of
products that treat a variety of immune system disorders and to expand our new
product development into treating numerous other conditions. Key elements of
our strategy for achieving this goal include:
Seeking New Indications for our Existing Products, Particularly Enbrel
We believe that an efficient way to generate increased revenue is to add
new indications to a product that is already being marketed. We have increased
our focus on development activities to find potential new indications for our
existing drugs. For example, we are researching the use of Enbrel in treating
additional diseases characterized by poor regulation of TNF, including CHF,
psoriatic arthritis, psoriasis and numerous other conditions. By securing new
indications, our strategy is to build pharmaceutical franchises and expand the
commercial usefulness and revenue-producing ability of our key products.
Expanding our Manufacturing Capacity to Meet our Manufacturing Requirements
for Enbrel and for our Products Under Development and to Improve our Ability
to Attract Collaborative Partners
In September 1999, AHP completed the purchase of a large-scale
biopharmaceutical manufacturing facility in Rhode Island. AHP has agreed to
sell the Rhode Island facility to us at a future date, anticipated to be in
the second half of 2002. We and AHP are investing substantial sums and working
closely together to retrofit the
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Rhode Island facility to accommodate the commercial production of Enbrel bulk
drug. As presently configured, we currently estimate that, when completed, the
retrofit of 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 in
mid-2002. We may also build additional manufacturing capacity at Rhode Island
or other locations to help meet the manufacturing requirements for Enbrel and
our products under development and to improve our ability to attract
collaborative partners with products under development.
Investing in Research and Development to Help Us Develop New Products and
Bring Them to Market Sooner
Since our founding in 1981, we have focused our scientific efforts on
understanding the biology of the immune system. We study the complex
interactions between cells of the immune system and other tissues that can
trigger the underproduction or overabundance of key immune system components,
leading to serious human diseases. From this research focus, we have created a
portfolio of proprietary molecules and other technologies that have produced a
number of promising biological therapeutic candidates. We spent $75.9 million
on research and development in the six months ended June 30, 2000 and $126.7
million in the full year 1999. We expect to continue to increase research and
development spending to further develop our product pipeline. In addition, our
new process development facility and our planned new research and technology
center will further enhance our research and development resources.
Expanding our Research and Development and Other Collaborations to Enhance
our Technology Base and Increase our Pool of Product Candidates
We have entered into a number of important research collaborations using
varied technology platforms in our continuing efforts to identify new drug
candidates and capitalize on research and knowledge developed by others. We
have established research collaborations with many leading pharmaceutical and
biotechnology companies, including Abgenix, Genentech, Celera Genomics,
Digital Gene Technologies, Inc., Medarex, Inc. and Genesis Research and
Development Corporation Limited. With our planned new research and technology
center, our new process development facility and our expanding commercial
manufacturing capacity, we believe we will be a more attractive research and
collaboration partner for other pharmaceutical and biotechnology companies
with products under development.
Acquiring and Investing in Businesses, Products and Technologies that are
Complementary to our Own
We intend to make acquisitions and invest in businesses, products and
technologies that we believe are complementary to our own. From time to time,
we have had discussions and negotiations with companies regarding investing in
these companies' businesses, products or technologies, and we regularly engage
in these discussions in the ordinary course of our business. We believe our
existing technology and product base can be expanded by selected acquisitions
and investments, and that acquisitions or investments may lead to additional
commercial opportunities.
Products
Cytokines and Cytokine Receptors
Many of our current biotechnology products and products under development
are recombinant analogs of cytokines and cytokine receptors. Cytokines are
protein messengers that coordinate the functions of immune cells, which are
white blood cells, and other types of cells and tissues. We have developed
recombinant cytokine products capable of expanding and activating these immune
cell populations, all of which must interact to provide a normal immune
response.
Cytokines act upon their target cells by binding to specific cell surface
receptors. The binding of a cytokine to its receptor triggers a complex series
of events within a responsive cell that transmits the cytokine's signal to
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that cell. This signal can stimulate cell division or production of
antibodies, enzymes or other cytokines. In this way, circulating cytokines can
control and coordinate the function of cells located throughout the body.
We have also cloned and expressed genes encoding cytokine receptors. Using
genetic engineering techniques, our scientists have produced soluble versions
of cytokine receptors. A soluble cytokine receptor retains the ability to bind
to a specific cytokine, but lacks that portion of the natural receptor that is
attached to a cell. This property enables the soluble cytokine receptor to
circulate in the body after administration, where it can bind to and
inactivate cytokines. By preventing interaction of the cytokines with immune
cells, the soluble cytokine receptor neutralizes the development of an
autoimmune or inflammatory response. We have shown with Enbrel that soluble
cytokine receptors can be effective as therapeutics to counteract some
autoimmune or inflammatory diseases.
Marketed Products
Our product revenues come from products in two major therapeutic classes:
anti-inflammatory and specialty therapeutics, principally oncology. Our
marketed products in the United States can be grouped as follows:
<TABLE>
<CAPTION>
Anti-Inflammatory Specialty Therapeutics
----------------- ------------------------------
<S> <C>
Enbrel Leukine
Novantrone
Thioplex
Amicar
Methotrexate sodium injectable
Leucovorin calcium
</TABLE>
Enbrel
RA is a serious, chronic autoimmune disorder that causes the body's immune
system to attack the lining of the joints, and can lead to joint deformity or
destruction, organ damage, disability and premature death. Enbrel originally
was approved by the FDA in November 1998 for treating moderately to severely
active RA in patients who have had an inadequate response to one or more
DMARDs. We believe there are approximately 350,000 of these RA patients in the
United States. In May 1999, the FDA approved Enbrel for treating moderately to
severely active polyarticular-course JRA in patients who have had an
inadequate response to one or more DMARDs. We believe approximately 35,000
patients in the United States currently suffer from JRA. In June 2000, the FDA
approved Enbrel for reducing signs and symptoms and delaying structural damage
in patients with moderately to severely active RA. This expanded June 2000
indication supersedes the November 1998 indication of Enbrel in that RA
patients are no longer required to have an inadequate response to one or more
DMARDs before treatment with Enbrel is indicated. As a result, we believe
approximately 700,000 additional patients and a total of approximately 1.1
million patients in the United States are now eligible for treatment with
Enbrel.
In July 2000, over 56,000 patients in the United States were taking Enbrel.
Sales of Enbrel were $286.2 million, or approximately 79% of our product
sales, in the first six months of 2000 and $366.9 million, or approximately
71% of our product sales, in the full year 1999. We expect to continue to
depend on sales of Enbrel for a substantial majority of our revenues.
Enbrel was the first in a new class of drugs, known as biologic response
modifiers, for treating RA. Enbrel represents a new approach to RA management
and the first breakthrough treatment in many years for people with RA, who
previously were treated primarily with methotrexate, a DMARD. Enbrel is sold
in a powder formulation and is administered to patients twice a week as a
subcutaneous injection, which means that it is injected under the skin.
Because RA is a chronic disorder, patients must continue taking Enbrel to
continue experiencing any beneficial effects of treatment.
Enbrel is a recombinant protein, which means that it is man-made by genetic
engineering. Enbrel is based on a naturally occurring protein normally
produced in the body and acts by binding to and neutralizing TNF,
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thereby supplementing the body's natural process of regulating levels of TNF.
TNF is one of the dominant cytokines or proteins that play an important role
in the cascade of reactions that cause the inflammatory process of RA. It has
been implicated in the pathogenesis of RA, CHF, psoriatic arthritis,
psoriasis, ankylosing spondylitis, amyloidosis, myelodysplastic syndrome,
Crohn's disease, Wegener's granulomatosis, cachexia and numerous other
conditions. Enbrel exhibits a long half-life in the patient's bloodstream and
has been shown to be capable of rapidly lowering serum TNF levels.
Our original clinical trials for Enbrel indicated that adults suffering
from RA and children and teenagers suffering from JRA experienced less pain
and swelling in their joints and decreased incidence of disease activity when
using Enbrel when compared with placebo. A more recent Phase III clinical
trial documented the ability of Enbrel to delay joint erosion resulting from
RA. In this trial, approximately 75% of patients with early, active RA
experienced no progression of erosion after one year. This trial formed the
basis for our June 2000 FDA approval for reducing signs and symptoms and
delaying structural damage in patients with moderately to severely active RA.
In October 2000, we announced the two-year results from our Phase III
clinical trial comparing monotherapy with Enbrel versus monotherapy with
methotrexate in patients with early, active RA. The results indicated that,
using standard measurements, Enbrel was significantly better than methotrexate
in clinical effectiveness and in preventing radiographic progression of the
disease.
Because Enbrel has only been marketed since 1998, its long-term effects on
the development or course of serious infection, malignancy and autoimmune
disease are largely unknown and more rarely occurring side effects may not be
known. In May 1999, we announced an update to the prescribing information for
Enbrel to advise doctors not to start using Enbrel in patients who have an
active infection, and for doctors to exercise caution when considering using
Enbrel in patients with a history of recurring infections or with underlying
conditions that may predispose patients to infections. In June 2000, we
announced U.S. and European long-term clinical data for RA patients who have
received Enbrel for up to 43 months. These data indicate that the positive
response to Enbrel was sustained for up to 43 months. These data also indicate
that there were no significant differences in rate or type of adverse events
when patients continued to receive Enbrel over this time period. We cannot
assure you that differences in the rate or type of adverse events will not
result from patients continuing to receive Enbrel for a longer period of time.
In October 2000, we revised the warning section of the U.S. package insert
for Enbrel and sent a Dear Doctor letter to physicians in the United States
advising them of the changes to the package insert. We made these revisions,
after consulting with the FDA, in response to spontaneous adverse events
reported to us in the course of our post-marketing surveillance of patients
with RA who have been treated with Enbrel and concurrently with a request
initiated by the European Medicines Evaluation Agency that AHP send a similar
letter to physicians in Europe. The causal relationship between these adverse
events and therapy with Enbrel remains unclear. These adverse event reports
included rare cases of pancytopenia, including aplastic anemia, some with a
fatal outcome. Pancytopenia and aplastic anemia are hematologic disorders
characterized by a reduction in red and white blood cells and of blood
platelets. These adverse event reports also included rare cases of central
nervous system disorders, including demyelinating disorders such as MS,
myelitis and optic neuritis. AHP, after consulting with the European Medicines
Evaluation Agency, revised the European package leaflet for Enbrel in response
to spontaneous adverse event reports of the hematologic disorders mentioned
above and sent letters to physicians in Europe advising them of the changes to
the package leaflet. It is possible that additional spontaneous adverse events
will be reported to us as experience with Enbrel continues or as a result of
any Dear Doctor letter sent to physicians advising them of changes to the
package insert for Enbrel. If we or others identify new adverse events for
patients treated with Enbrel, additional precautions, warnings or other
changes in the label for Enbrel may be required.
We own rights to Enbrel in the United States and Canada, and AHP owns
rights to Enbrel in all other countries. Accordingly, we do not receive either
royalties or a share of gross profits from sales of Enbrel outside
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the United States and Canada. We and AHP are marketing Enbrel in the United
States under the Enbrel promotion agreement, which we discuss in "Relationship
With AHP."
Leukine
We launched Leukine in the United States in 1991 as our first marketed
product. Leukine is a yeast produced GM-CSF. Leukine helps to increase the
number and improve the function of specific types of white blood cells. These
white blood cells, which are made in the bone marrow, help prevent infections.
The FDA has approved Leukine for the following indications:
. facilitating allogeneic and autologous bone marrow transplant therapies
currently used for treating acute myelogenous leukemia, lymphoma and
Hodgkin's disease, and in rescuing patients whose bone marrow transplant
grafts have failed;
. accelerating neutrophil recovery and reducing mortality in treating
patients with acute myelogenous leukemia; and
. for use in peripheral blood progenitor cell mobilization and post-
transplantation support.
Leukine is only available in the United States and is marketed by our
specialty sales force. Sales of Leukine totaled $35.0 million, or
approximately 10% of our product sales, in the first six months of 2000 and
$69.1 million, or approximately 13% of our product sales, in the full year
1999.
Novantrone
Novantrone is a compound similar to doxorubicin and idarubicin, two
chemotherapeutic agents frequently used to treat some cancers, but with a
molecular change that results in less damage to the heart.
The FDA has approved Novantrone for the following indications:
. initial therapy of acute nonlymphocytic leukemia;
. in combination with steroids for treating patients with pain related to
hormone refractory prostate cancer; and
. reducing neurologic disability and/or the frequency of clinical relapses
in patients with secondary progressive, progressive relapsing or
worsening relapsing-remitting MS.
Novantrone is sold in a concentrated liquid form for injection. Sales of
Novantrone totaled $26.7 million, or approximately 7% of our product sales, in
the first six months of 2000 and $44.5 million, or approximately 9% of our
product sales, in the full year 1999.
Product Development
Clinical Trials
We are studying the following marketed products and proprietary
investigational biotechnology products in the indications and research areas
listed below.
Enbrel
We are seeking to expand the indications of Enbrel to include the following
disorders, which are characterized by poor regulation of TNF:
. CHF. CHF is one form of heart disease in which the failing heart keeps
working, but becomes inefficient, resulting in fluid retention,
shortness of breath, fatigue and exercise intolerance. We believe
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approximately 2.5 million of the patients in the United States who are
treated for CHF each year are potential candidates for treatment with
Enbrel. In November 1997, we announced results of a small Phase I
clinical trial of Enbrel in patients with CHF. The results indicated
that a single dose of Enbrel reduced circulating levels of TNF and
improved several clinical parameters. In 1999, we and AHP commenced two
large randomized, placebo-controlled, double-blind Phase II/III clinical
trials of Enbrel in patients with CHF. We are conducting one of these
Phase II/III clinical trials in the United States, and AHP is conducting
the other Phase II/III clinical trial in Europe and Australia.
Enrollment of patients in the U.S. clinical trial is expected to be
completed in 2000.
. Psoriatic Arthritis. Psoriatic arthritis is a form of arthritis that
occurs in patients with psoriasis, which is a skin disease. We believe
psoriatic arthritis affects approximately 250,000 people in the
United States. There are currently no FDA-approved treatments for this
condition. In August 1999, we announced the results of a three-month
randomized, placebo-controlled, double-blind Phase II clinical trial
indicating that psoriatic arthritis patients treated with Enbrel
experienced improved signs and symptoms of their disease and an increase
in their functional ability and improved skin scores compared to
patients who were treated with placebo. We have completed enrollment of
patients in a six-month Phase III clinical trial of Enbrel for psoriatic
arthritis.
. Psoriasis. Psoriasis is a skin disorder that most commonly appears as
inflamed swollen skin lesions, which can be extremely painful and
disfiguring. We believe approximately 400,000 people in the United
States suffer from severe forms of psoriasis. We will be collecting data
in our Phase III clinical trial in psoriatic arthritis that will enable
us to evaluate the safety and efficacy of Enbrel in treating patients
with psoriasis. We commenced a Phase II clinical trial on psoriasis in
the third quarter of 2000.
We are also researching the use of Enbrel in treating ankylosing spondylitis,
amyloidosis, myelodysplastic syndrome, Crohn's disease, Wegener's
granulomatosis, cachexia and numerous other conditions.
Leukine
A number of clinical trials are underway to investigate whether Leukine
could be approved for additional uses. These investigational uses include:
. Malignant Melanoma. In 1997, we announced positive results of an open-
label Phase II clinical trial of Leukine as an adjuvant therapy
following surgery to remove tumors in patients with advanced melanoma
who were at high risk for relapse or death. This trial demonstrated that
using Leukine as a therapy following surgery increased the one-year
survival rate of patients with advanced stages of malignant melanoma
when compared to matched historical control patients. We are supporting
a controlled Phase III trial of Leukine in this patient population with
a cooperative oncology group.
. Mucositis. Data from pilot clinical trials have indicated that Leukine
may ameliorate chemo/ radiotherapy-induced oral mucositis. We are
supporting a controlled Phase III clinical trial of this potential
indication with a cooperative radiation-oncology group.
. Anti-tumor Adjuvancy. We are also supporting Phase II clinical trials
conducted by an oncology group to study the potential of Leukine as an
immune adjuvant therapy in breast cancer.
. Vaccine Adjuvancy. Various third parties are conducting clinical trials
to investigate the potential of Leukine as a vaccine adjuvant.
Nuvance
Nuvance is a recombinant human version of a naturally occurring protein
that we are investigating as a novel approach to treating persistent asthma.
We believe approximately 17 million people in the United States suffer from
asthma and approximately 8.8 million have persistent asthma. Nuvance acts by
binding to IL-4, a cytokine present in asthmatic lungs that promotes
production of specific types of antibodies, including the IgE antibodies
involved in allergic and asthmatic reactions. IL-4 mediates important
functions in diseases such as asthma by
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facilitating production of numerous other cytokines which promote the
pathology of the disease. The binding of Nuvance to IL-4 renders the bound IL-
4 biologically inactive, which may reduce the IL-4 driven signs and symptoms
of asthma. Increased levels of IL-4 appear to be related to increased severity
of asthma that results in breathing difficulty.
In early 1999, we completed a multi-dose randomized, placebo-controlled,
double-blind Phase I/II clinical trial to evaluate primarily the safety of
nebulized Nuvance in adult patients with moderate asthma. Efficacy parameters
were also evaluated in this clinical trial. Based on the results of this first
multi-dose clinical trial of Nuvance, we decided to expedite the clinical
development of Nuvance. In this Phase I/II clinical trial, Nuvance was
generally well tolerated for up to 12 weeks of weekly treatment, and there
were no serious adverse events related to the product. In 1999, we also
completed a Phase I safety and pharmacokinetic trial of intravenous,
subcutaneous and nebulized Nuvance.
In May 2000, we completed the first large randomized, placebo-controlled,
double-blind Phase II clinical trial of Nuvance. In this multi-center Phase II
clinical trial, we delivered Nuvance as an aerosol by using a third-party
collaborator's proprietary pulmonary drug delivery system, which means that
the drug is delivered by inhalation into the lungs. Our preliminary analysis
of the Phase II clinical trial indicates that asthma patients treated with
Nuvance experienced improved lung function, as measured by daily forced
expiratory volume in one second, or FEV1, when compared with placebo, and
patients with more severe asthma experienced significant improvement in FEV1
when compared with placebo. In the trial, FEV1 was also measured on a weekly
basis in the clinic just prior to the patients taking their next dose of study
drug or placebo. When FEV1 was measured weekly in the clinic, there was not a
significant difference in patients treated with Nuvance when compared with
patients treated with placebo. Nuvance was generally well tolerated by
patients in the trial.
Based on the results of this Phase II clinical trial and results of our
previous clinical trials of Nuvance, we believe Nuvance may be effective in
treating persistent asthma, and we intend to devote significant resources to
developing Nuvance for this disease. We have begun three new randomized,
placebo-controlled, double-blind Phase II clinical trials to further study the
dosing and efficacy of Nuvance in treating persistent asthma. A Phase II
clinical trial is being conducted to determine the safety and efficacy of
soluble IL-4 receptor given weekly by inhalation using a nebulizer to patients
who are currently being treated with inhaled beta-agonists only. In this
trial, three doses of soluble IL-4 receptor will be compared with placebo over
four weeks of double-blind treatment. A total of approximately 100 patients
will be enrolled. A second Phase II clinical trial is being conducted to
determine the safety and efficacy of soluble IL-4 receptor given daily by
inhalation using a nebulizer to patients who are currently being treated with
inhaled beta-agonists only. In this trial, two doses of soluble IL-4 receptor
will be compared with placebo over four weeks of double-blind treatment.
Approximately 75 patients will be enrolled. The third multicenter Phase II
clinical trial is being conducted to determine the safety and efficacy of
soluble IL-4 receptor given weekly by inhalation using a nebulizer to patients
who are currently being treated with inhaled corticosteroids. In this trial,
three doses of soluble IL-4 receptor will be compared with placebo over
12 weeks of double-blind treatment. Approximately 160 patients will be
enrolled. Trial enrollment for the first and second Phase II clinical trials
commenced in August 2000 and enrollment for the third Phase II clinical trial
commenced in October 2000.
We are evaluating several other delivery device options for Nuvance.
Clinical development of Nuvance could be delayed if unanticipated delays or
problems arise in connection with design, manufacture, quality, regulatory or
intellectual property issues associated with the delivery device(s) selected
for Nuvance.
Mobista
We have cloned cDNAs encoding Flt3L, which is a ligand for the Flt3
receptor. Flt3L binds to a receptor located on primitive hematopoietic cells
and has been shown to be capable of mobilizing peripheral blood progenitor
cells alone, and in combination with other cytokines such as Leukine or
granulocyte-colony stimulating factor. In 1997, we completed Phase I safety
trials of Mobista. The trials, which were conducted in
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healthy volunteers, showed that both single and multiple doses of Mobista
could be safely administered. The multi-dose trial also showed that Mobista
increased the number of circulating peripheral blood progenitor cells.
As a result of its capacity to generate dendritic cells, Mobista may be
useful as an anti-tumor agent or vaccine adjuvant. In 1999, we completed Phase
II clinical trials of Mobista as an anti-tumor agent in patients with prostate
cancer or non-Hodgkin's lymphoma, and in patients with malignant melanoma. No
significant anti-tumor responses were observed in these Phase II clinical
trials. Clinical trials of Mobista conducted to date have demonstrated that
Mobista was generally well tolerated and provided sustained increases in
dendritic cell populations and effectively mobilized CD34+ cells. We are
evaluating the best approach to using these characteristics of Mobista to
facilitate immunotherapy of cancer.
Avrend
We have cloned cDNAs encoding a ligand known as CD40L for the cell surface
receptor CD40. CD40L is a protein primarily expressed on the surface of
activated CD4+ T-cells. Its receptor, CD40, is expressed on B-cells, antigen
presenting cells such as dendritic cells, macrophages and on some other normal
and tumor cells. Engagement of CD40 on antigen presenting cells by Avrend
plays a key role in activating the immune system. Preclinical research has
shown that Avrend can stop tumor growth and actually kill many tumor cell
types. Avrend does this in two ways. The first way is by direct binding to its
CD40 partner present on many tumor cell types generating a signal for the
tumor cell to either stop growing or self destruct, also known as apoptosis.
The second way is by stimulating specific immune responses to the tumor. In
addition, in 1998 we reported preclinical data that showed that mice treated
with a combination of Mobista and Avrend demonstrated a higher rate of tumor
rejection than either molecule alone. Thus, we are exploring the possibility
of developing combination cytokine therapies involving the use of Mobista and
Avrend. We completed toxicology studies of this combination in 2000 and are
currently analyzing the data we collected. Avrend also appears to be a
required signal in the development of an antibody-based immune response and is
required for the generation of cytotoxic T-cells. Thus, Avrend may also be
useful as a vaccine adjuvant.
In 1999, we completed a Phase I clinical trial of Avrend in cancer
patients. The results allowed us to move forward into Phase II clinical trials
in both metastatic renal cell carcinoma and head and neck cancer. At higher
doses of Avrend, we observed abnormal increases in patient liver enzymes.
These increases were transient and reversible, and have defined the dosing
regimens to be used in further clinical trials of Avrend.
ABX-EGF
In July 2000, we entered into a joint development and commercialization
agreement for ABX-EGF, a fully human antibody created by Abgenix. ABX-EGF
targets the receptor for human epidermal growth factor, or EGFr, which is
overexpressed on some of the most prevalent human tumor types, including lung,
prostate, pancreatic, colorectal, renal cell and esophageal. It has been
demonstrated that cancer cells can become dependent on growth signals mediated
through EGFr for their survival. ABX-EGF in mouse models can both eradicate
established human tumors and block the growth of human tumors. Safety of ABX-
EGF is currently being evaluated in cancer patients in a Phase I clinical
trial.
Glaxo Wellcome Inc. has a family of patents which it is asserting against
Genentech in ongoing litigation. If any of the claims of these patents are
finally determined in the litigation to be valid and if they can be asserted
by Glaxo to be infringed by ABX-EGF, then we may need to obtain a license
should one be available. Should a license be denied or unavailable on
commercially reasonable terms, our commercialization of ABX-EGF could be
impeded in any territories in which these patents were in force.
Genentech owns a U.S. patent that relates to inhibiting the growth of tumor
cells involving an anti-EGF receptor antibody in combination with a cytotoxic
factor. If these claims are valid, we may be required to obtain a license to
Genentech's patent to label and sell ABX-EGF for some or all such combination
indications. Should a license be denied or unavailable on commercially
reasonable terms, our commercialization of ABX-EGF could be impeded in the
United States.
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ImClone Systems, Inc. has announced that the PTO has issued a notice of
allowability of a patent covering a composition of matter of any EGFr
monoclonal antibody that inhibits the binding of EGF to its receptor in
combination with any anti-neoplastic agent, as well as the therapeutic use of
such combinations. In addition, other third parties have or may receive other
patents relating to EGFr monoclonal antibodies, their manufacture, or their
use. We will evaluate the scope and validity of each such patent to ascertain
the relevance of such patent to our planned activities.
Preclinical Research and Development Pipeline
Innovation by our research and development operations is very important to
the success of our business. Our goal is to discover, develop and bring to
market innovative products that address major unmet healthcare needs. This
goal has been supported by our substantial research and development
investments. To obtain the most value from our molecular portfolio, we are
focusing first on those product candidates that we believe have the largest
market potential. Our most promising preclinical candidates are described
below.
TRAIL/Apo2L. In May 1999, we entered into a worldwide collaboration with
Genentech to co-develop and market TRAIL/Apo2L. In animal models, TRAIL/Apo2L
appears to suppress tumor growth and cause remission of tumors by a direct and
specific mechanism known as apoptosis. TRAIL/Apo2L binds to at least four
distinct receptors found on many tumor cells and signals these cells to
destroy themselves through apoptosis. In preclinical research, TRAIL/Apo2L has
been shown to cause a wide variety of tumor cells in animal models to undergo
apoptosis while sparing normal cells. A third-party researcher has publicly
stated that another form of TRAIL/Apo2L causes toxicity to isolated liver
cells. Different forms of TRAIL/Apo2L have different toxicities. The clinical-
grade material in our collaboration shows minimal toxicity in laboratory
evaluation and preclinical studies. Pending completion of additional
toxicology evaluations, we anticipate beginning a Phase I clinical trial of
TRAIL/Apo2L in 2001.
IL-1R Type II. IL-1 alpha and IL-1 beta bind to cell surface receptors of
two types: Type I and Type II. Overproduction or inappropriate production of
IL-1 has been implicated in the development of autoimmune, inflammatory and
allergic diseases such as diabetes, asthma, systemic lupus erythematosus and
inflammatory bowel disease, and also in the development of osteoporosis, RA,
septic shock, stroke and periodontal disease. We have produced genetically
engineered soluble IL-1 receptors of two types, designated Type I and Type II,
and have conducted clinical trials of IL-1R Type I. Studies indicate that IL-
1R Type II is superior to IL-1R Type I as an antagonist of IL-1, and we are
currently focused on preclinical testing of IL-1R Type II. Based on these
data, we believe that IL-1R Type II may be of therapeutic value in treating a
number of inflammatory diseases such as those mentioned above, either alone or
in combination with Enbrel. In 1999, we began process scale-up to produce IL-
1R Type II for future toxicology studies. In the second half of 2000, we
intend to produce IL-1R Type II for toxicology studies and to carry out
pharmacokinetic and efficacy studies of IL-1R Type II in a primate model of
arthritis. Pending the results of these studies, we anticipate conducting a
Phase I clinical trial of IL-1R Type II in 2001.
IL-15. We have cloned and expressed cDNAs encoding a cytokine known as IL-
15, a growth factor that shares some biological activities with Interleukin-2.
In preclinical studies, IL-15 has been shown to protect intestinal epithelial
cells in the mucosa from the harmful effects of chemotherapy or radiation.
Other potential uses of IL-15 that have been suggested by preclinical studies
include use for treating the human immunodeficiency virus, or HIV, infection
or for treating muscle atrophy. We are currently evaluating our development
strategy for IL-15, which may include licensing IL-15 rights to a collaborator
or strategic alliance partner for continued development.
ORK/Tek. We cloned the human receptor tyrosine kinase, called ORK, and
received a patent on the DNA encoding ORK in 1995. ORK is the receptor for the
angiopoietins that stimulate the process of blood vessel development. We have
constructed a soluble ORK molecule, which has been shown to prevent tumor
angiogenesis, or new blood vessel development. This molecule has also been
shown to retard tumor growth in experimental models of cancer. Tek is another
name for ORK.
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Soluble CD39. CD39 is an enzyme that degrades adenosine diphosphate, or
ADP. ADP is released by activated platelets and recruits additional platelets
to form a clot. We have developed a soluble CD39, which retains the ability to
degrade ADP. Soluble CD39 may have potential as a novel anti-thrombotic. We
intend to develop soluble CD39 initially for stroke, since platelets have been
shown to preferentially accumulate in the part of the brain subject to stroke.
RANK. Stimulation of the receptor RANK results in development of
osteoclasts, which resorb bone. We are evaluating the potential of a soluble
RANK receptor as an inhibitor of osteoclast development for osteoporosis and
other conditions of bone resorption.
4-1BB Agonist. Recombinant 4-1BBL and agonistic anti 4-1BB antibodies are
stimulators of anti-tumor immune responses via their effects on T-cells. We
produced these molecules and tested them in in vivo tumor models in 1999.
Combination studies of 4-1BB agonist with Mobista in tumor models suggest that
these two cytokines have synergistic effects when used together.
Research Collaborations
Abgenix. In July 2000, we entered into a joint development and
commercialization agreement with Abgenix for ABX-EGF, a fully human antibody
created by Abgenix. Under the agreement, we made an initial license fee
payment to Abgenix, and will make a second license fee payment upon
commencement of Phase II clinical trials of ABX-EGF. Development and
commercialization costs will be shared equally, as would any potential profits
from sales of ABX-EGF. We have formed a joint steering committee and project
team with Abgenix which will manage the development process, for which each
company will share responsibility, and allocate clinical responsibilities.
Abgenix has responsibility for completing the ongoing Phase I clinical trial,
we share responsibility with Abgenix for Phase II clinical trials and we have
primary responsibility for Phase III clinical trials. If the clinical trials
for ABX-EGF are successful and regulatory approval is received, we would play
the primary role in marketing ABX-EGF, while Abgenix would retain co-promotion
rights.
Genentech. In May 1999, we entered into a worldwide collaboration with
Genentech to co-develop and market TRAIL/Apo2L. Each company had previously
conducted extensive preclinical testing of different forms of TRAIL/Apo2L. The
companies have formed a joint steering committee and project team which has
selected Genentech's lead molecule for development, and which will manage the
development process, and allocate clinical, manufacturing and marketing
responsibilities to each company. We and Genentech each have filed patent
applications covering TRAIL/Apo2L and its uses, and we were awarded a patent
covering the TRAIL gene in June 1998. Under the terms of the collaboration
agreement, the companies will share all development and commercialization
costs. If TRAIL/Apo2L is successful in future clinical trials and receives
regulatory approval, both companies have the right to co-promote TRAIL/Apo2L
worldwide, and will share profits from the worldwide sales of the product.
Celera. In June 2000, we entered into a five-year comprehensive genomics
agreement with Celera Genomics, including a subscription to Celera's current
database products. The database subscription gives our researchers access to
four databases developed by Celera until 2005, which is extendable until 2007
at our option. All four of Celera's databases include Celera proprietary
information, as well as publicly available data. First, the Celera Human Gene
Index provides customers with the predicted set of all human proteins. Second,
Celera's Human Genome Database is expected to provide the complete sequence of
the human genome and the entire collection of human genes with links to
associated biological and disease information. Third, the Drosophila Genome
Database provides the complete sequence of the Drosophila melanogaster, or
fruit fly, genome. The Drosophila genome database is extensively annotated
with gene, protein and biological information. Fourth, the Mouse Genome
Database being generated by Celera should allow for comparative analysis with
the human genome that may be especially significant for the identification of
genes and gene regulatory regions of importance to understanding human
biology. Access to the databases also provides us with associated
comprehensive bioinformatics systems and tools for viewing, browsing and
analyzing genomic information. We may have to make clinical milestone and
royalty payments for products created using Celera database products.
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Digital Gene Technologies. In December 1997, we announced a genomics
research collaboration with Digital Gene Technologies, or DGT, using DGT's
patented total gene expression analysis, or TOGA(TM), platform to discover
novel approaches to the diagnosis and treatment of inflammatory diseases of
the gastrointestinal, or GI, system, including inflammatory bowel disease.
TOGA is a method of identifying and determining the concentration of nearly
all of the genes active in a sample cell or tissue. This program significantly
enhances our discovery research programs in the field of GI biology. TOGA
allows us to link our biological models to an important new technology that
may provide us with new molecules to develop as therapeutics or as targets for
small molecule discovery. For exclusivity in the field of GI inflammation, we
have paid an up-front fee to DGT, with additional fees due over the course of
the five-year agreement. In addition, we will pay DGT for assay processing and
identification of new molecules. For each molecule successfully developed in
the United States and Europe, we have agreed to pay DGT clinical milestone
payments, plus a royalty on worldwide sales of that molecule. Through this
research collaboration, during 1998, we obtained experimentation licenses on
six new molecules and, during 1999, we obtained experimentation licenses on 84
new molecules.
Medarex. In January 1999, we entered into a licensing agreement with
Medarex involving Medarex's HuMAb-Mouse(TM) technology. Under this agreement,
we obtained the rights to use the HuMAb-Mouse technology for an unlimited
number of targets for up to 10 years. We will pay Medarex technology access
fees, and may also pay Medarex research payments, license fees and milestone
payments, as well as royalties on commercial sales of products developed with
the HuMAb-Mouse technology. The HuMAb-Mouse technology is a transgenic mouse
system that creates high affinity, fully human antibodies instead of mouse
antibodies. Using standard, well-proven laboratory techniques, scientists can
produce these antibodies in a matter of months. We expect the incorporation of
the HuMAb-Mouse technology into our broad drug discovery program to
significantly enhance our continuing efforts to identify new drug candidates.
The ability to generate human antibodies against our proprietary antigens will
permit us to develop potential therapeutics without the treatment risks
associated with non-human antibodies.
Genesis. Since 1994, we have collaborated with Genesis, a New Zealand
company. Genesis has sequenced cDNA libraries for specialized cell types to
create a proprietary DNA database for us. In addition, Genesis expresses and
purifies novel proteins for biological experimentation at Genesis and by us,
and provides molecular biology services for us. We are currently testing
several genes identified by Genesis.
Marketing and Distribution
Through our marketing and professional services organization, we explain
the approved uses and advantages of our products to medical professionals in
the United States. We work to gain access to managed care organization
formularies, which are lists of recommended or approved medicines and other
products compiled by pharmacists and physicians, by demonstrating the
qualities and treatment benefits of our products. AHP's marketing
organization, working together with us, performs similar activities for
Enbrel.
Marketing prescription pharmaceuticals depends to a degree on complex
decisions about the scope of clinical trials made years before product
approval. All drugs must complete clinical trials required by regulatory
authorities to show that they are safe and effective for treating one or more
particular medical problems. A manufacturer may choose, however, to undertake
additional studies to demonstrate additional advantages of a product, such as
a better tolerability profile or greater cost effectiveness than existing
therapies.
Those studies can be costly, the results are uncertain, and they can take
years to complete. Balancing these considerations makes it difficult to decide
whether and when to undertake additional studies. When these studies are
successful, they can have a major impact on approved claims and marketing
strategies.
Enbrel. Under the Enbrel promotion agreement, Wyeth-Ayerst markets Enbrel
in the United States to healthcare providers such as doctors and hospitals,
pharmacy benefit managers and managed care organizations. Several hundred AHP
sales representatives currently detail Enbrel in the United States. As
discussed in "Relationship With AHP," we also have the right to supplement
AHP's detailing of Enbrel in the United States
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with our own sales force. In addition to AHP's and our coordinated marketing
efforts for Enbrel in the United States, we have approximately 30 allied
health professionals to support educational needs of healthcare providers in
the United States relating to Enbrel.
Specialty Therapeutic and Other Products. We market our specialty
therapeutic and other products to healthcare providers in the United States
through a specialty sales force of approximately 152 sales representatives and
sales managers. Currently, our sales force conducts details in the United
States for our specialty therapeutic products, Leukine and Novantrone.
Distribution. We distribute our products through pharmaceutical wholesalers
and specialty distributors, as well as to end users such as oncology clinics,
physicians' offices, hospitals and pharmacies. A significant majority of our
sales are made to three pharmaceutical wholesalers. For Enbrel, rather than
stocking inventory of product at wholesalers, we drop-ship wholesaler orders
for Enbrel directly to pharmacies for end users. We receive and process
product orders through a centralized customer service and sales support group.
A third party provides us with shipping, warehousing and data processing
services on a fee basis.
Competition
Competition in researching, developing, manufacturing and marketing
biopharmaceuticals and other oncology products is intense. We are marketing a
group of cancer products and simultaneously developing an extensive portfolio
of cytokines, cytokine receptors and other immunological therapeutic products.
In addition, we are collaborating with AHP to market Enbrel in the United
States and Canada. There are other companies, including established
pharmaceutical and biotechnology companies, that are researching, developing
and marketing products based on related or competing technologies that will
compete with products being developed by us.
The principal means of competition vary among product categories. The
following technological innovations are important to success in our business:
. efficacy;
. tolerability;
. ease of use by patients; and
. cost effectiveness.
We compete with other pharmaceutical firms in performing research and
clinical testing, acquiring patents, developing efficient manufacturing
processes, securing regulatory approvals and marketing the resulting products
to physicians. We believe that our strategic focus on immunology has resulted
in expertise that can be applied to reduce development times, create
innovative and cost-saving research techniques, optimize product quality, and
discover new products and applications. We possess manufacturing facilities to
produce recombinant protein products using microbial or mammalian cell culture
technologies. Professional services, clinical, legal, regulatory affairs,
marketing and sales staffs have been developed to enhance our scientific
resources. We possess a specialty sales force and offer comprehensive
professional services, including continuing medical educational programs,
publications, literature searches and treatment information. These
professional services are important because, historically, new anti-cancer
drugs provide incremental treatment advances, but few outright cures.
Therefore, physicians rely heavily on peer-reviewed clinical data in making
treatment decisions.
Most of the cancer products that we market have established competitors.
Significant competitors in the field of oncology include Bristol-Myers Squibb
Company and Amgen, Inc. These competitors, in some cases, have substantially
greater capital resources, greater marketing experience, and larger research
and development staffs and manufacturing facilities than we do.
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Enbrel
A number of companies, including those listed below, are marketing or
developing biological products that compete or are expected to compete with
Enbrel. In addition to the currently marketed Remicade, if any of these other
products are approved by the FDA for treating RA, sales of Enbrel could be
adversely affected.
. Johnson & Johnson. In November 1999, Johnson & Johnson received FDA
approval for Centocor's anti-inflammatory agent known as Remicade for
use with methotrexate for treating patients with RA who have had
inadequate response to methotrexate alone. Remicade is a chimeric part-
mouse, part-human monoclonal antibody. The FDA had previously approved
Remicade for treating Crohn's disease in August 1998. In October 1999,
Johnson & Johnson filed a supplemental biologics license application, or
sBLA, for Remicade with the FDA for the prevention of joint damage in RA
patients in combination with methotrexate. The FDA's Arthritis Advisory
Committee voted unanimously in July 2000 to recommend approval of this
use. Centocor and Ortho-McNeil Pharmaceutical, Inc., both Johnson &
Johnson affiliates, are co-promoting Remicade for RA in the United
States. Medicare covers prescriptions for Remicade, but not for Enbrel.
. Amgen. Amgen is developing an IL-1Ra (receptor antagonist) for RA, and
has submitted a BLA to the FDA based on data from two large Phase II
clinical trials. IL-1Ra requires a high dose in a daily injection when
used in combination with other drugs, such as methotrexate. Amgen is
also developing sTNF-R1, a TNF modulator which just completed a Phase I
clinical trial.
. BASF/Knoll. BASF and its affiliate Knoll Pharmaceuticals Company Inc.
are developing D2E7 as a fully humanized monoclonal antibody that binds
to TNF. D2E7 is in a Phase III clinical trial for RA.
Other companies, as listed below, have developed nonbiological products for
treating some aspects of RA. Although we do not currently expect these
products to compete with Enbrel in patients with advanced RA, they may compete
with Enbrel now that we have obtained FDA approval to market Enbrel for
earlier-stage RA. Some of these products are COX-2 inhibitors, a new class of
drugs for arthritis and pain that are generally as effective as current
initial RA therapy with nonsteroidal anti-inflammatory drugs. We believe that
Enbrel may be effective in combination with some of these products in
development, as well as with some existing DMARDs for RA. This belief is based
on preclinical studies and clinical results demonstrating that RA patients
treated with Enbrel in combination with the DMARD methotrexate experienced a
statistically significant decrease in disease activity and an increase in
their functional ability when compared to methotrexate alone.
. Hoechst Marion Roussel. Hoechst Marion Roussel received FDA approval for
Arava(R) (leflunomide) in September 1998 for treating active RA to
reduce signs and symptoms and to retard structural damage as evidenced
by x-ray erosions and joint space narrowing. Arava is an oral treatment
for RA, has side effects similar to methotrexate, and is priced
significantly less than Enbrel.
. Pharmacia. Pharmacia received FDA approval for Celebrex(R) (celecoxib)
in December 1998 for relieving the signs and symptoms of osteoarthritis
and RA. Celebrex is a COX-2 inhibitor, and is priced significantly less
than Enbrel. Celebrex is an oral treatment and is co-promoted by G.D.
Searle & Co., a pharmaceutical unit of Pharmacia, and Pfizer Inc.
. Merck. Merck received FDA approval for Vioxx(R) (rofecoxib) in May 1999
for relieving the signs and symptoms of osteoarthritis, for managing
acute pain in adults, and for treating primary dysmenorrhea. Vioxx is a
COX-2 inhibitor, and is priced significantly less than Enbrel.
Leukine
Several companies are marketing or developing products that compete or are
expected to compete with Leukine, including:
. Amgen. Amgen has been marketing its competing granulocyte-colony
stimulating factor, or G-CSF, product since early 1991 and has achieved
a majority share of the market for CSFs in the United States.
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Amgen is also developing a sustained duration G-CSF molecule, SD/01,
which entered Phase III clinical trials in 1999 in breast cancer
patients.
. Cangene Corporation. Cangene is developing a Streptomyces-derived GM-CSF
product. Cangene commenced a multi-center Phase III clinical trial in
the United States with its GM-CSF product in early 1998 for the
mobilization of peripheral blood stem cells in patients with breast
cancer. In January 2000, Cangene announced that this clinical trial has
been closed due to slow patient accrual. Cangene has commenced a Phase
III clinical trial with its GM-CSF product in Canada for chemotherapy-
induced neutropenia.
Novantrone
A number of companies, including those listed below, are marketing products
that compete with Novantrone for its oncology indications or may compete with
Novantrone for its new MS indication. In October 2000, the FDA approved
Novantrone for reducing neurologic disability and/or the frequency of clinical
relapses in patients with secondary progressive, progressive relapsing or
worsening relapsing-remitting MS. Other treatments currently approved for MS
require a subcutaneous or intramuscular self-injection on a daily or weekly
basis. If the FDA were to approve new MS indications for any of the marketed MS
products covering any of the MS indications for Novantrone, our sales of
Novantrone in MS could be adversely affected.
. Biogen. Biogen is marketing Avonex(R) (interferon beta-1a) for
relapsing-remitting MS. Avonex is in Phase III clinical trials in
secondary progressive MS.
. Berlex Laboratories, Inc. Berlex, a subsidiary of Schering A.G., is
marketing Betaseron(R) (interferon beta-1b) for relapsing-remitting MS.
Berlex filed for FDA approval of an expanded indication for Betaseron
for secondary progressive MS in June 1998.
. Teva Pharmaceuticals Industries Limited. Teva is marketing Copaxone(R)
(glatiramer acetate for injection) for relapsing-remitting MS.
. Pharmacia. Pharmacia has been marketing Idamycin(R) (idarubicin) for
acute myelogenous leukemia and Emcyt(R) (estramustine) for prostate
cancer.
. Bedford Laboratories. Bedford Laboratories, a division of Ben Venue
Laboratories, Inc., is marketing Cerubidine(R) (daunorubicin) for acute
myelogenous leukemia.
Generic Pharmaceutical Products
Competition in the sale of generic pharmaceutical products is intense due to
the entry of multiple sources for each product after expiration of patents and
exclusivity grants previously covering these products. Manufacturers of generic
pharmaceutical products compete aggressively, primarily on the basis of price.
We currently face aggressive generic competition from numerous suppliers of
methotrexate injectable and leucovorin calcium, and from at least one supplier
of aminocaproic acid. This competition results in lower prices and lower sales.
Raw Materials and Supply
Overview
Along with our third-party manufacturers, we purchase raw materials
essential to our business in the ordinary course of business from numerous
suppliers. Substantially all the raw materials used to manufacture our
recombinant protein products and other products are available from multiple
sources. However, two of the raw materials used in the production of Enbrel and
our other recombinant protein products, other than Leukine, are manufactured by
single suppliers.
All finished dosage forms of Enbrel are manufactured by BI Pharma and
packaged by a third-party contract packager. We manufacture all Leukine bulk
drug substance, which is then vialed and labeled by third parties. All
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finished dosage forms for our nonbiological oncology products are manufactured
by AHP subsidiaries or sourced by AHP from third-party manufacturers. Bulk
active raw materials for our nonbiological oncology products are either
manufactured by AHP subsidiaries or sourced by AHP from third-party
manufacturers. Aminocaproic acid for Amicar is sourced through an unaffiliated
third-party vendor and manufactured by a single supplier.
We presently do not have our own capabilities for producing and labeling
final drug products from bulk drug substances or bulk proteins. We rely upon
unaffiliated third parties and AHP to vial and label the drug products we
market.
BI Pharma Supply Agreement
In November 1998, we and AHP entered into a long-term supply agreement with
BI Pharma to manufacture commercial quantities of Enbrel. Our sales of Enbrel
are currently entirely dependent on BI Pharma manufacturing the product. We
have made significant purchase commitments to BI Pharma under the BI Pharma
supply agreement to manufacture commercial inventory of Enbrel.
Under the BI Pharma supply agreement, BI Pharma has reserved a specified
level of production capacity for Enbrel, and our purchase commitments for
Enbrel are manufactured from that reserved production capacity. The BI Pharma
supply agreement contains provisions for increasing or decreasing BI Pharma's
reserved production capacity for Enbrel, subject to lead-times and other
related terms. Because of the long lead-time required for ordering raw
materials for Enbrel and for scheduling BI Pharma's facilities, we are
required to submit a rolling three-year forecast for manufacturing the bulk
drug for Enbrel, and a rolling forecast for a shorter period for the number of
finished vials of Enbrel to be manufactured from the bulk drug. A significant
portion of each of the above forecasts becomes a purchase commitment when
issued to BI Pharma. We have submitted firm orders for the maximum production
capacity that BI Pharma currently has reserved for Enbrel.
BI Pharma's pricing of Enbrel depends on specified production assumptions
that the parties have made relating to the production efficiency of
manufacturing Enbrel. Under the BI Pharma supply agreement, the pricing of
Enbrel is also subject to volume discounts depending on the amount of Enbrel
ordered during each calendar year. We and AHP will be responsible for
substantial payments to BI Pharma if we and AHP fail to use a specified
percentage of the production capacity that BI Pharma has reserved for Enbrel
each calendar year, or if the BI Pharma supply agreement is terminated
prematurely under specified conditions.
In June 2000, we, AHP and BI Pharma amended the BI Pharma supply agreement
to offer BI Pharma financial incentives to provide additional near-term
production capacity for Enbrel. As an incentive to BI Pharma, we will pay more
to BI Pharma on a per unit basis for any additional production runs, which
will result in an increase in our incremental production costs for these runs.
For a discussion of the factors affecting our supply of Enbrel under the BI
Pharma supply agreement, see "Risk Factors--If market demand for Enbrel
continues to grow, limits on our current sources of supply for Enbrel will
constrain our sales growth unless and until additional manufacturing capacity
for Enbrel is approved."
Expansion of Manufacturing Facilities
In September 1999, a wholly owned subsidiary of AHP completed the purchase
of a large-scale biopharmaceutical manufacturing facility in Rhode Island. AHP
has agreed to sell the Rhode Island facility to us at a future date,
anticipated to be in the second half of 2002. We and AHP are investing
substantial sums and working closely together to retrofit the Rhode Island
facility to accommodate the commercial production of Enbrel bulk drug. As
presently configured, we currently estimate that, when completed, the retrofit
of 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 in mid-2002.
We may also build additional manufacturing capacity at Rhode Island or other
locations to help meet the manufacturing requirements for Enbrel and our
products under development and to improve our ability to attract collaborative
partners with products under development.
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Governmental Regulation
The manufacturing and marketing of pharmaceutical products in the United
States requires the approval of the FDA under the federal Food, Drug and
Cosmetic Act. Similar approvals by comparable agencies are required in foreign
countries. The FDA has established mandatory procedures and safety standards
that apply to the clinical testing, manufacture and marketing of
pharmaceutical and biotechnology products. Obtaining FDA approval for a new
therapeutic product may take several years and involve spending substantial
resources.
Data from human clinical trials are submitted to the FDA in an NDA for
drugs or a BLA for biologics. For products to be marketed in Canada, these
submissions are made to the Canadian Health Protection Bureau, or CHPB, in a
new drug submission, or NDS. Data from clinical trials for new indications or
uses for approved products are submitted to the FDA in a supplemental NDA for
drugs and in an sBLA for biologics. Data regarding manufacturing and
bioequivalence of generic drug products are submitted to the FDA in an
abbreviated new drug application, and to the CHPB in an abbreviated NDS.
Preparing any of these regulatory submissions involves considerable data
collection, verification and analysis.
Any products manufactured or distributed by us pursuant to FDA approvals
are subject to extensive continuing regulation by the FDA, including record-
keeping requirements and a requirement to report adverse experiences with the
drug. In addition to continued compliance with standard regulatory
requirements, the FDA also may require post-marketing testing and surveillance
to monitor the safety and efficacy of the marketed product. Adverse
experiences with the product must be reported to the FDA and may result in
changes in labeling of products. Product approvals may be withdrawn if
compliance with regulatory requirements is not maintained or if problems
concerning safety or efficacy of the product are discovered following
approval.
The federal government regulates recombinant DNA research activity through
National Institutes of Health, or NIH, guidelines for research involving
recombinant DNA molecules. We comply with the NIH guidelines which, among
other things, restrict or prohibit some types of recombinant DNA experiments
and establish levels of biological and physical containment of recombinant DNA
molecules that must be met for various types of research.
Many other laws regulate our operations, including, among others, the
Occupational Safety and Health Act, the Environmental Protection Act, the
Nuclear Energy and Radiation Control Act, the Toxic Substances Control Act,
the Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation, and Liability Act, Title III of the Superfund
Amendments and Reauthorization Act (Community Right-to-Know and Emergency
Response Act), national restrictions on technology transfer, federal
regulations on the protection of human subjects in clinical studies, the
protection of animal welfare in preclinical studies, import, export and
customs regulations and other present or possible future local, state or
federal regulation. From time to time Congressional committees and federal
agencies have indicated an interest in implementing further regulation of
biotechnology and its applications.
Patents, Licenses and Trademarks
Patents, trade secrets and other proprietary rights are very important to
us. We have obtained U.S. and foreign patents and have filed applications for
additional U.S. and foreign patents covering numerous aspects of our
technology. We cannot be certain that any of our pending or future
applications will result in issued patents or that the rights granted under
existing or future patents will provide competitive advantages to us or our
licensees. We also rely on trade secrets, unpatented proprietary know-how and
continuing technological innovation to develop and maintain our competitive
position. We cannot be certain that others will not acquire or independently
develop the same or similar technology, or that our issued patents will not be
circumvented, invalidated or rendered obsolete by new technology.
Due to unresolved issues regarding the scope of protection provided by some
of the patents owned or licensed to us, as well as the possibility of patents
being granted to others, we cannot be certain that the patents
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owned by or licensed to us and our licensees will provide substantial
protection or commercial benefit. The rapid rate of development and the
intense research efforts throughout the world in biotechnology, the
significant time lag between the filing of a patent application and its review
by appropriate authorities and the lack of sufficient legal precedents
concerning the validity and enforceability of some types of biotechnology
patent claims make it difficult to predict accurately the breadth or degree of
protection that patents will afford our or our licensees' biotechnology
products or their underlying technology. It is also difficult to predict
whether valid patents will be granted based on biotechnology patent
applications or, if they are granted, to predict the nature and scope of the
claims of these patents or the extent to which they may be enforceable.
Under U.S. law, although a patent has a statutory presumption of validity,
the issuance of a patent is not conclusive as to validity or as to the
enforceable scope of its claims. Accordingly, we cannot be certain that the
patents owned or licensed to us will afford protection against competitors
with similar inventions, nor can we be certain that those patents will not be
infringed or designed around by others or that others will not obtain patents
that we would need to license or design around.
It is our policy to respect the valid patent rights of others. We have
obtained patent licenses from various parties covering technologies relating
to our products. However, we may need to acquire additional licenses or, if
these licenses are denied or are unavailable on commercially reasonable terms,
we may need to prevail in the event that litigation is commenced by patent
owners to interfere with the development or commercialization of our products.
We intend to pursue protection of all forms of intellectual property,
including, but not limited to, patents, trade secrets and Orphan Drug
exclusivity, for all significant inventions, discoveries and developments in
our various areas of research. Under our product rights agreement with AHP,
AHP has an option to obtain royalty-bearing worldwide exclusive licenses to a
limited number of our products for all product indications. This option is
discussed more fully in "Relationship With AHP."
Patents on Biological Products
Enbrel. Enbrel is a fusion protein consisting of a dimer of two subunits,
each comprising a TNF receptor domain derived from a TNF receptor known as
"p80," fused to a segment derived from a human antibody molecule known as an
"Fc domain." We believe that we were the first to isolate a recombinant DNA
encoding p80 TNFR and also the first to express the protein using recombinant
DNA technology. We have been issued U.S. patents covering p80 TNFR, DNAs
encoding p80 TNFR, and methods of using TNFR:Fc, including for the treatment
of RA. We were granted a European patent in December 1995 covering p80 TNFR
DNAs, proteins and related technology.
Two other companies, however, BASF and Yeda Research & Development Company,
Ltd., filed patent applications disclosing partial amino acid sequence
information of specified TNF-binding proteins, or TBPs, shortly prior to the
time we filed our patent applications, claiming the full-length p80 TNFR DNAs
and proteins corresponding in part to the TBPs disclosed by BASF and Yeda
Research. BASF was issued a U.S. patent based on its TBP disclosure. Due to
limitations in the claims of the BASF U.S. patent, we believe that it cannot
be asserted to cover Enbrel. Consequently, we have not entered into a license
with BASF for its U.S. patent. This BASF U.S. patent is currently involved in
an interference proceeding. In June 2000, we entered into a royalty-bearing
license agreement with respect to the BASF TBP patent family excepting the
U.S. patent. If BASF were able to validly assert its U.S. TBP patent to cover
TNFR:Fc in the United States, our commercialization of Enbrel made in the
United States could be impeded.
The Yeda Research TBP patents and patent applications are controlled by
Ares-Serono International S.A. and its affiliate Inter-Lab Ltd. (collectively
Serono). In January 1999, we entered into a settlement agreement with Serono
under which we and Serono agreed to settle potential disputes concerning the
patents and patent applications controlled by Serono that relate to TBPs.
Under the settlement, Serono has agreed not to assert any
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of the foregoing patent rights against the manufacture, use or sale of Enbrel
in any territory in consideration of the payment by us to Serono of fees and
royalties for a specified term in respect of the net sales of Enbrel sold or
manufactured in designated countries, including Germany and the United States,
where Yeda Research's patent rights have been filed.
After the effective dates on which we filed our patent applications,
Hoffmann-La Roche, or Roche, and Amgen, through Synergen Inc., also filed
patent applications directed to p80 TNFR DNAs. No patents covering full-length
TNFR or the intact extracellular domain of TNFR have been issued to Roche. In
January 1998, the European Patent Office granted a patent to Amgen claiming
DNA and amino acid sequences encoding a variant of p80 TNFR disclosed in the
Amgen application that differs from that disclosed in our granted patents
covering p80 TNFR. We have filed an opposition to this Amgen patent. Since an
application giving rise to our patents covering TNFR and disclosing the
relevant DNA sequence was filed earlier than Amgen's first application
disclosing the relevant DNA sequence, we believe that the Amgen patent cannot
be legally asserted to cover TNFR:Fc, which includes the sequences patented by
us. If Amgen were able to validly assert TNFR patents to cover TNFR:Fc, our or
AHP's commercialization of Enbrel could be impeded in any territories in which
these patents were in force, which territories include Germany but do not
currently include the United States.
We have also been granted a royalty-bearing worldwide exclusive license
under patent rights jointly owned by Aventis SA (through its predecessor
Hoechst AG) and Massachusetts General Hospital claiming cytokine receptor-Fc
fusion proteins, including TNFR:Fc. Roche has filed patent applications with
claims covering TNFR:Fc fusions, which were filed after the Aventis and
Massachusetts General Hospital patent applications licensed to us. Roche has
been granted a patent containing these claims in Japan. In September 1999, we
entered into a royalty-bearing worldwide co-exclusive license agreement with
Roche under these Roche patents and patent applications.
ZymoGenetics, Inc. and Genentech have separately been issued U.S. patents
having claims directed to specified fusion proteins comprising immunoglobulin
constant region domains and specified processes for making these proteins, and
have also filed corresponding European applications that have not yet been
granted. Due to limitations in the claims of the ZymoGenetics patent, we
believe that it cannot be asserted to cover Enbrel. Consequently, we have not
entered into a license with ZymoGenetics. In May 1999, we entered into a
royalty-bearing worldwide co-exclusive license agreement under the Genentech
patents under which we made an up-front payment to Genentech, a portion of
which was reimbursed to us by AHP under the Enbrel promotion agreement.
In general, with respect to any of the patents discussed above, it is our
intention to mount a vigorous defense should any patent be asserted against
activities relating to Enbrel, or, in appropriate cases, to take a license
under appropriate terms. At this time, however, we do not know whether any of
these patents will be asserted against activities relating to Enbrel, and, if
so, what the outcome of any litigation or licensing negotiations would be.
We may be required to obtain licenses to patents or other proprietary
rights from third parties to label and sell Enbrel for new indications.
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 any
required licenses, we could be unable to label and sell Enbrel for one or more
new indications.
Leukine. We have been issued three U.S. patents covering an altered, or
analog, form of GM-CSF (sargramostim) that we market under the Leukine
trademark. From July 1990 to January 1998, a GM-CSF interference proceeding
had been pending in the PTO directed to human GM-CSF DNAs. Novartis AG
prevailed in the interference and has subsequently received several patents
relating to GM-CSF. As part of the resolution of the interference, Novartis
agreed not to assert its GM-CSF patent rights against us in exchange for
royalties on any sales of Leukine in the United States and Canada. Research
Corporation Technologies, Inc., or RCT, has also received a U.S. patent
relating to GM-CSF. We have received a royalty-bearing nonexclusive license to
the RCT GM-CSF patent.
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Mobista. In 1996, we were granted a U.S. patent covering Flt3L DNA. In
1998, we were granted a U.S. patent covering methods of using Flt3L. We are
currently seeking other U.S. and foreign patents for Flt3L proteins, DNAs and
various methods of using Flt3L.
Nuvance. We have been granted a total of five U.S. patents relating to IL-
4R proteins and DNAs, methods for inhibiting IL-4 mediated immune or
inflammatory responses by administering soluble IL-4R, and antibodies
immunoreactive with IL-4R. IL-4R patents have also been granted to us in
Europe and countries outside Europe. We have additional U.S. and foreign
patent applications pending relating to IL-4R.
Avrend. In 1998, we were granted a U.S. patent for soluble fusion proteins
that include soluble portions of CD40L and methods of making them. In 1999, we
were granted a U.S. patent for recombinant soluble CD40L polypeptides and
pharmaceutical compositions and a patent for DNA encoding CD40L. We, together
with the U.S. government, have also received a U.S. patent relating to the use
of soluble CD40L to treat neoplastic diseases. In 2000, we received a patent
relating to the use of soluble CD40L to treat persons having defective CD40L.
We have additional U.S. and foreign patent applications pending relating to
CD40L.
TRAIL. In 1998, we were granted a U.S. patent covering the DNA encoding
TRAIL. This is believed to be the first U.S. patent granted for this molecule.
We have additional U.S. and foreign patent applications pending relating to
TRAIL.
IL-1R Type II. In 1998, we were granted a U.S. patent covering methods of
using soluble IL-1R Type II to regulate an IL-1 mediated immune or
inflammatory response in a mammal. Previously we have received two U.S.
patents covering the DNA and the protein for IL-1R Type II. We have additional
U.S. and foreign patent applications pending relating to IL-1R Type II.
TACE. In 1998, we were granted a U.S. DNA and protein patent on TACE, which
includes claims to anti-TACE antibodies and to methods of using TACE to
discover TACE inhibitors. This is believed to be the first patent issued for
this molecule. In January 2000, we were granted a U.S. patent that includes
additional claims to methods of using TACE to discover TACE inhibitors. We
have additional U.S. and foreign patent applications pending relating to TACE
and to a crystalline form of TACE. We have licensed our TACE technology to AHP
and are working together to develop and test small molecule TACE inhibitors.
Patents on Nonbiological Oncology Products
Novantrone. Certain uses of Novantrone are covered by two U.S. patents. A
U.S. patent covering methods of using mitoxantrone to treat leukemia and solid
tumors does not expire until April 2006, and another U.S. patent covering
methods of using mitoxantrone to treat neuroimmunologic diseases, including
MS, does not expire until June 2005.
Methotrexate Sodium Injectable, Leucovorin Calcium and Amicar (aminocaproic
acid). None of methotrexate sodium injectable, leucovorin calcium nor Amicar
is the subject of any material patent protection.
Patent and Technology Licenses
Under our royalty-bearing patent and technology license agreements, we are
obligated to pay royalties on U.S. sales of products produced using the
licensed technologies. We pay royalties to university licensors of specific
yeast and mammalian-cell expression technologies employed in making Leukine
and some other products. We are also obligated to pay royalties to Aventis,
Novartis and RCT on sales of Leukine, and to Aventis, Massachusetts General
Hospital, Serono, Genentech, Roche and BASF on sales of Enbrel. From time to
time we may elect to enter into other royalty-bearing license agreements with
licensors of patents with claims related to our products or technologies. We
cannot be sure, however, that patent license negotiations with any licensors
can be successfully completed, or that the total royalties payable under any
agreements resulting from license negotiations will not have a material
adverse effect on our business.
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Trademarks
We own all of the trademarks used in our business.
Properties
Our principal place of business is located in two adjacent buildings in
downtown Seattle, Washington. These buildings, comprising a total of 197,574
square feet, house our primary laboratory and office facilities, as well as a
10,000-square-foot fermentation and pharmaceutical manufacturing facility that
has been licensed by the FDA to produce Leukine. The current lease for these
buildings extends to 2005, and both buildings have two five-year renewal
options. In addition to our primary facility, we lease a total of
approximately 203,673 square feet of additional office and research space in
multiple other buildings located in downtown Seattle and approximately 13,000
square feet of office space in a building in Bothell, Washington. We recently
added 21,126 square feet of office and laboratory space in a second building
in Bothell, Washington. The total current rent payments for the foregoing
facilities were approximately $5.2 million in 1999 and $3.5 million in the
first six months of 2000.
We own a manufacturing and development center in Bothell, Washington that
includes a large-scale microbial manufacturing facility and a separate
mammalian cell-based protein manufacturing facility. These facilities were
used to produce Enbrel for our clinical trials in 1997; however, these
facilities lack sufficient capacity to produce commercial quantities of
Enbrel. We are nearing completion of a new process development facility at our
site in Bothell. This new process development facility is expected to
accelerate development of our manufacturing processes. We own approximately 20
acres of undeveloped land adjacent to our manufacturing and development center
in Bothell, Washington.
We also own 29 acres of land in Seattle, Washington known as Terminal 88,
and we have identified the Terminal 88 site as the location for our new
research and technology center, which we expect will allow us to consolidate
most of our non-manufacturing operations on one campus. We also are in the
process of acquiring additional acreage adjacent to Terminal 88 for potential
future expansion of the new campus. We have completed a preliminary design and
budget for the construction of a new research and technology center at the
Terminal 88 site. The total cost for the initial phase of this center is
expected to be up to approximately $750 million. AHP has agreed to provide
financing guarantees to third-party lenders of up to $550 million in
connection with the financing for this center, provided that these financing
guarantees will be reduced to $450 million if this offering is completed.
Under the terms of our agreement with AHP, we will be required to
collateralize up to $300 million of the third-party financing for this center.
Personnel
In our innovation-intensive business, our employees are vital to our
success. We believe we have good relationships with our employees, and none of
our employees is covered by a collective bargaining agreement. As of June 30,
2000, we employed 1,334 people in our operations, 352 of whom have graduate
degrees in various subjects. The employee count as of June 30, 2000 includes:
. 575 employees in research and development;
. 255 employees in manufacturing; and
. 247 employees in sales and marketing.
Each of our employees has entered into a confidentiality agreement that
contains terms requiring disclosure of ideas, developments, discoveries or
inventions conceived during employment, and assignment to us of all
proprietary rights to these matters.
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,
and we cannot assure you that we will be able to attract and retain necessary
personnel.
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Legal Proceedings
We are not a party to any material litigation. We have received a 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 similar requests from the U.S. Department of
Health and Human Services and state agencies. According to press reports,
approximately 20 other pharmaceutical companies are under investigation by the
U.S. Department of Justice and/or state agencies related to the pricing of
their products. 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 their
investigations.
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RELATIONSHIP WITH AHP
Background
In June 1993, we merged with American Cyanamid Company's Lederle Oncology
business. In November 1994, AHP acquired all of the outstanding shares of
common stock of Cyanamid. As of June 30, 2000, AHP beneficially owned
approximately 55% of our outstanding common stock and, after this offering,
will own approximately 44% of our common stock, or approximately 42% if the
underwriters' over-allotment option is exercised in full.
The agreements summarized below, in particular the governance agreement and
the product rights agreement, establish the framework for our ongoing
relationship with AHP. The summary is not complete and is qualified in its
entirety by reference to the governance agreement and the product rights
agreement themselves, which are filed as exhibits to various reports, proxy
statements or other information we have filed with the SEC.
Governance Agreement
Overview
The governance agreement includes, among other matters, provisions relating
to:
. our corporate governance, including the composition of our board of
directors;
. AHP's right to purchase additional shares of our common stock from us if
specified events occur;
. future purchases and sales of our common stock by AHP;
. the requirement that members of our board designated by AHP approve
specified corporate actions; and
. the requirement that a supermajority of the members of our board approve
specified corporate actions.
In August 2000, we and AHP amended some terms of the governance agreement.
These changes, which are described below, will take effect only if AHP's
ownership interest in our common stock falls below 45% as a result of AHP's
sale of shares in this offering.
Designation of Candidates for our Board
Our board consists of up to 10 directors, but we currently have nine
directors. Under the governance agreement as currently in effect and given
AHP's current percentage ownership of our common stock, three directors are
designated for election by our management, three are designated for election
by AHP and three independent directors are designated for election by
agreement between us and AHP. AHP has the right to designate a fourth
independent director for election, but has not exercised this right.
During the term of the current governance agreement, subject to the
provisions of the August 2000 amendment described below, the number of
directors that AHP and our management have the right to designate is
determined by AHP's current percentage ownership of our common stock. If AHP
beneficially owns:
. less than 20%, AHP will have no right to designate any directors, and
our management will have the right to designate six directors;
. 20% or above but less than 35%, AHP will have the right to designate one
director, and our management will have the right to designate five
directors;
. 35% or above but less than 45%, AHP will have the right to designate two
directors, and our management will have the right to designate four
directors;
. 45% or above but less than 65%, AHP will have the right to designate
three directors, and our management will have the right to designate
three directors; and
. 65% or above, AHP will have the right to designate four directors by
adding an additional AHP director to our board, and our management will
have the right to designate three directors.
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As a result of the August 2000 amendment, if AHP's beneficial ownership is
reduced below 45% as a result of this offering, AHP will continue to have the
right to designate no more than two directors, our management will have the
right to designate three directors, and there will be at least four
independent directors, so long as AHP's percentage ownership remains below
45%.
AHP has agreed with us not to sell or transfer any shares of our common
stock until nine months after the date of this prospectus supplement or
September 30, 2001, whichever is later. During this period, for purposes of
the governance agreement, any shares of our common stock issued upon exercise
of employee or director stock options will not be considered in determining
AHP's percentage ownership of our common stock.
In the event that changes to AHP's interest result in more AHP directors on
our board than AHP has the right to designate, AHP has agreed that it will
promptly cause to resign, and take all other action reasonably necessary to
cause the prompt removal of, that number of AHP directors as required to make
the remaining number of AHP directors conform with the terms of the governance
agreement. Similarly, in the event that changes to AHP's interest result in
more management directors on our board than our management has the right to
designate, we have agreed that our management will promptly cause to resign,
and take all other action reasonably necessary to cause the prompt removal of,
that number of management directors as required to make the remaining number
of management directors conform with the terms of the governance agreement.
AHP and the management directors each have the right, with some exceptions,
to designate replacement directors for AHP or management directors whose terms
have ended or who have been removed from office upon resignation, retirement,
disqualification, death or other cause. Our board will elect each person so
designated upon nomination by the Nominating Committee, which consists of an
equal number of management directors and AHP directors. No individual who is
an officer, director, partner or principal shareholder of any of our
competitors (other than AHP and its affiliates) may be designated to serve as
our director.
In any election of directors or any meeting of our shareholders called
expressly for the removal of directors, AHP has agreed to vote its shares for
all nominees in proportion to the votes cast by our other shareholders, except
that AHP and its affiliates may cast any or all of their votes, in their sole
discretion, (a) in favor of any nominee designated by AHP under the governance
agreement and (b) in connection with any election contest to which Rule 14a-11
under the Securities Exchange Act of 1934 applies. With limited exceptions, in
all other matters submitted to a vote of our shareholders, AHP may vote any or
all of its shares in its sole discretion.
Approval Rights
So long as AHP has the right to designate at least two of our directors,
the approval of at least one director designated by AHP is required for our
board to approve and authorize certain corporate actions. Actions requiring
this approval include:
. our entry into any merger or consolidation or acquisition of any
business or assets that would constitute more than 10% of the fair
market value of our total assets;
. our sale, lease, pledge, grant of a security interest in, license,
transfer or other disposal of more than 10% of the fair market value of
our total assets;
. with specified exceptions, our issuance of any debt or equity securities
or other capital stock;
. subject to specified exceptions, a reclassification, split, redemption
or other acquisition of any of our debt or equity securities;
. any amendment to our articles of incorporation or bylaws or any change
in the size or composition of our board or a committee thereof, except
in accordance with the governance agreement;
. the establishment of any committee of the board not specifically
described in the governance agreement;
. our institution of any shareholder rights plan or similar plan or
device;
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. our dissolution, adoption of a plan of liquidation or any action to
commence any bankruptcy or similar proceeding;
. any change in our accounting policies or procedures;
. our acquisition of technology or products under any license or similar
arrangement unless the payments under that license or arrangement would
not exceed $500,000;
. our payment or discharge of any claim, liability or obligation other
than in the ordinary course of business, except where such claim,
liability or obligation does not exceed a threshold of $350,000;
. the commencement or termination of any suit, litigation or proceeding
with respect to patent rights, and any other suit, litigation or
proceeding that involves a claim, liability or obligation in excess of
$350,000 or that is material to our business or assets; and
. any (a) incurrence of indebtedness for borrowed money other than as
provided for in our annual operating plans provided to AHP or (b)
capital expenditure by us that is greater than both (1) $350,000 and (2)
the amount provided for such expenditure in our annual operating plans.
Upon the completion of this offering, and if AHP's ownership falls below
45%, (a) a change in our accounting policies will no longer require approval
by at least one director designated by AHP, (b) our acquisition of technology
or products under license or similar arrangements will no longer require
approval by at least one director designated by AHP unless the purchase price
or the fair market value of the technology or products exceeds $15 million,
and (c) each of the $350,000 thresholds listed in the last three items above
will automatically increase to $15 million.
The approval of seven directors (or, if the board consists of more than
nine persons, that number of directors that represents 70% of the total number
of directors, rounded up) is required under the governance agreement for board
approval of:
. the employment of our Chief Executive Officer, Chief Operating Officer,
Chief Financial Officer and Chief Scientific Officer;
. our annual operating plans, which are required to include all material
capital expenditures and borrowing plans applicable to the year in
question;
. our five-year product development and facility plans; and
. amendment of the governance agreement or provisions of our articles of
incorporation or bylaws implementing the governance agreement (this act
also requires the approval of two independent directors).
The approval of six directors, which six directors must include each of the
independent directors, is required to authorize and approve the termination of
any of our senior officers listed above.
Subscription Rights of AHP
So long as AHP has the right to designate at least one of our directors, we
must offer AHP the right, in advance, to purchase a pro rata share of any new
securities we propose to issue. This right does not apply, however, to
securities issued upon exercise of outstanding options or warrants, to shares
we issue in this offering, or to other issuances specified in the governance
agreement.
So long as AHP has the right to designate at least one of our directors,
AHP has the option to purchase from us on a quarterly basis additional shares
of our common stock or other voting stock to the extent necessary to permit
AHP to maintain its percentage ownership of our common stock or other voting
stock, as the case may be, as of the immediately preceding quarter. The per
share price of the shares purchased pursuant to this right 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.
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Transfer of our Common Stock by AHP
AHP may transfer all, but not less than all, of the shares of our common
stock it beneficially owns to any other person other than an affiliate of AHP,
provided that the other person has offered to acquire all of our outstanding
shares of common stock on the same terms and conditions as those offered to
AHP. If AHP intends to transfer its shares of our common stock, AHP is
required to notify us of that intent and, for three months after that notice,
we have the opportunity to present to AHP a potential buyer willing to
purchase all, but not less than all, of the shares of our common stock
beneficially owned by AHP and its wholly owned subsidiaries. In the event that
we present a potential buyer, AHP may not consummate a sale on terms less
favorable to AHP than those proposed by the potential buyer.
Material Transactions With AHP
We may not enter into any contract, agreement or transaction with AHP or
any of its affiliates that is material to our business, taken as a whole,
unless two-thirds of the members of our board, excluding our directors
designated by AHP and including at least two independent directors, approve
that contract, agreement or transaction.
Registration Rights
Under the governance agreement, a group of our securities, all of which are
currently beneficially owned by AHP, are referred to as registrable
securities. The registrable securities include the securities issued to
Cyanamid as part of the 1993 merger, any securities issued pursuant to the
governance agreement and, at AHP's option, the securities issued upon
conversion of the $450 million convertible subordinated note held by AHP. The
holders of at least 25% of the registrable securities may request that we file
a registration statement under the Securities Act of 1933 covering the
registration of any or all registrable securities held by those holders. We
are not obligated to effect more than three of these registrations. The
governance agreement, however, does not limit the number of short-form
registrations on Form S-3 that may be requested and obtained if we are
eligible to use Form S-3, as long as the estimated aggregate offering price to
the public exceeds $25 million and the other provisions of the governance
agreement are satisfied.
Subject to specified conditions, if we propose to file a registration
statement under the Securities Act on any form (other than on Form S-4 or S-8)
that also would permit the registration of registrable securities, and the
filing is for the general registration of shares of common stock for cash, we
must give notice to the holders of the registration rights and permit those
holders to include registrable securities in the registration.
AHP's registration rights are subject to conditions set forth in the
governance agreement. In addition, the governance agreement sets forth
specific procedures relating to those registration rights and detailed
obligations of the parties. All expenses incident to the performance by us of
our obligations relating to the registration of AHP's shares of common stock
will be paid by us, except that the holders exercising registration rights
will pay all expenses incident to the second or third long-form registration.
In addition, the holders of registrable securities will pay the underwriting
commissions and discounts applicable to securities offered for their account
in connection with any registrations, filings and qualifications made pursuant
to the governance agreement, as well as related attorneys' fees. We and the
holders of registrable securities each have agreed to indemnify the other, in
certain instances, for liabilities incurred in connection with the
registrations.
Termination
The governance agreement will terminate when AHP beneficially owns 95% of
all classes and series of our common stock, or when AHP no longer owns any of
our common stock.
Product Rights Agreement
In July 1998, we entered into a product rights agreement with AHP, under
which we granted AHP an option to obtain royalty-bearing worldwide exclusive
licenses to a limited number of our products for all clinical
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indications. This option is referred to as a "product call." Under the product
rights agreement, AHP also owns a right of first refusal to our covered
products and technologies that may only be exercised if our board decides that
we will not market a covered product or technology by ourself in any part of
the world where we have or acquire marketing rights. AHP's right of first
refusal, which is subject to specified negotiation periods and establishment
of mutually acceptable terms, applies to our covered products and technologies
in all fields, including Nuvance, ABX-EGF and TRAIL, but not including
Leukine, Mobista, Avrend, IL-15 and several of our other products. We are not
obligated to accept any offer for our covered products and technologies under
AHP's right of first refusal.
The product rights agreement provides AHP with a product call for up to
four of our products over the period discussed below. The product rights
agreement also provides that AHP must exercise a product call within specified
time periods determined by our decision to formally designate the product as
an investigational new drug, or IND, track product and when the first positive
Phase II clinical data for that product is available, or AHP will lose the
right to use a product call on that product. Some of our products are excluded
from AHP's product calls, including Enbrel, Nuvance, Leukine, Mobista, Avrend,
IL-15, any product we marketed on or before July 1, 1998, and several other
products. In August 1999, we notified AHP that we had accorded IND-track
status to TRAIL, thereby commencing the time period during which AHP may
exercise a product call with respect to our interest in TRAIL.
If AHP exercises a product call for one of our products, we will enter into
an elected product agreement with AHP granting AHP exclusive worldwide rights
(or if less than exclusive worldwide rights are held by us, all of our rights)
to this product for all indications. Under the elected product agreement, AHP
will pay us an initial fee, milestone payments and royalties on any future
worldwide net sales of the product after regulatory approvals. The initial
fee, milestone payments and royalties are determined by the development stage
of the product when AHP exercises the product call. In total, the initial fees
and milestone payments range from $25 million if we have given the product IND
status, up to $70 million if we have given notice to AHP that data from the
first positive Phase II clinical trial results are available for the product.
The royalties AHP pays to us increase based on the development stage of the
product and based on the product attaining specified annual net sales
thresholds.
Under the product rights agreement, we have the right to keep ownership of
up to two of our products for which AHP has exercised product calls, referred
to as a "conversion right," in exchange for our commitment to pay milestone
payments and royalties to AHP and, in the case of the second exercise of our
conversion right only, an initial fee. Our milestone payments to AHP are fixed
at one-half the amount AHP would otherwise pay us for a product call, and our
royalties payable to AHP are always fixed at the lowest of the four levels of
royalties that AHP would otherwise pay us after exercising a product call. If
we exercise one of our conversion rights for one of our products, which must
be exercised within 30 days after AHP exercises one of its product calls, we
will enter into a converted product agreement with AHP for the product that
provides for us to make payments to AHP as discussed above, unless AHP has
exercised its option to obtain a replacement product call, as discussed below.
We cannot exercise our conversion rights on both of the first two product
calls AHP exercises. If we exercise a conversion right, AHP may within 30 days
elect to obtain one replacement product call from us. AHP's right to elect a
replacement call may be exercised only one time. If AHP makes this election,
AHP waives its right to receive any applicable initial fee, milestone payments
and royalties from us on this converted product. If either party exercises its
rights under the product rights agreement and acquires or retains rights to
one of our products, the company that exercised these rights assumes
independent development responsibility for that product, including the payment
of all costs for future product development.
AHP's rights to exercise product calls under the product rights agreement
terminates upon the first to occur of the following events:
. AHP has exercised product calls and entered into elected product
agreements for four of our products, subject to our two conversion
rights and AHP's replacement product call;
. June 30, 2008, with an additional year if we exercise both of our
conversion rights; or
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. the later of June 30, 2003, or the date by which AHP has received a
total of eight opportunities to exercise a product call, except that
this number increases to nine opportunities in specified circumstances.
AHP's right of first refusal to our covered products and technologies
terminates upon the later of
. June 30, 2003 or
. the date on which AHP and its affiliates no longer own a majority of our
common stock.
TACE Agreements
In December 1995, we entered into research and license agreements with AHP
relating to tumor necrosis factor alpha converting enzyme, or TACE. Pursuant
to these TACE agreements, we granted AHP a worldwide exclusive license under
our intellectual property relating to TACE, and agreed to collaborate with AHP
in developing TACE inhibitors, in consideration of specified fixed payments
for research services, and contingent additional payments that are payable
upon achieving specified research and clinical milestone events. In September
1997, in conjunction with the promotion agreement discussed below, we and AHP
amended one of the TACE agreements to substantially increase the royalty
payable by AHP to us on the first TACE molecule approved by the FDA, if any.
In 1999, we recognized $1.6 million in revenues under the TACE agreements.
TNFR License and Development Agreement
In July 1996, we entered into a TNFR license and development agreement with
AHP under which we retained marketing rights to Enbrel in the United States
and Canada, and AHP retained marketing rights to Enbrel outside of the United
States and Canada. The TNFR agreement also addresses joint project management,
cost sharing for development activities related to Enbrel, manufacturing
responsibilities, intellectual property protection and disposition of rights
upon relinquishment or termination of product development.
Enbrel Promotion Agreement
In September 1997, we entered into an Enbrel promotion agreement with AHP,
under which AHP, acting through Wyeth-Ayerst, acquired the rights to promote
Enbrel to all appropriate customer segments in the United States and Canada
for all approved indications other than oncology. Under the terms of the
Enbrel promotion agreement, AHP was obligated to pay us up to $100 million in
nonrefundable scheduled payments for the U.S. and Canadian promotion rights to
Enbrel. To date, we have earned and received $100 million of these scheduled
payments.
Under the Enbrel promotion agreement, AHP has agreed to reimburse us for
more than a majority of the clinical and regulatory expenses we incur in
connection with the filing and approval of any new indications for Enbrel in
the United States and Canada, excluding oncology and RA indications. AHP's
reimbursement of these clinical and regulatory expenses under the Enbrel
promotion agreement is in addition to the existing cost-sharing arrangement
between us for development costs related to Enbrel as provided in the TNFR
agreement. The additional AHP reimbursement for clinical and regulatory
expenses under the Enbrel promotion agreement, a portion of which is payable
upon regulatory filing of any new indication and the remainder of which is
payable upon regulatory approval of any new indication, if any, applies for
that part of the U.S. and Canadian clinical and regulatory expenses for Enbrel
for which we are otherwise financially responsible under the cost-sharing
provisions in the TNFR agreement. AHP has also agreed to reimburse us under
the Enbrel promotion agreement for less than a majority of specified patent
expenses related to Enbrel, including any up-front license fees and
milestones, as well as patent litigation and interference expenses. In
addition, AHP has agreed to pay substantially more than a majority of the
marketing expenses and sales force costs for Enbrel incurred prior to any
commercial launch of Enbrel in the United States and Canada, and to pay a
declining but still majority percentage of these expenses and costs incurred
during the two years following commercial launch of Enbrel in the United
States and Canada. In November 2000, we began sharing AHP's U.S. marketing and
selling expenses for Enbrel equally. Similarly, beginning with the third year
following commercial launch of Enbrel in Canada, we will share AHP's Canadian
marketing and selling expenses for Enbrel equally.
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Under the Enbrel promotion agreement, we may elect at any time to
supplement AHP's detailing and promotion of Enbrel in the United States with
our own sales force to detail Enbrel for any approved indications promoted by
AHP. Detailing means visiting and communicating with physicians by sales
representatives to increase physician prescribing preferences for the detailed
product. We have the same right in Canada if Enbrel is approved there. We pay
the majority of our sales force costs for two years beginning on the date our
sales force began detailing Enbrel, and we will share our sales force costs
with AHP on an equal basis thereafter.
We record any and all product sales of Enbrel in the United States and
Canada under the Enbrel promotion agreement. We pay AHP a percentage of any
and all annual gross profits of Enbrel in the United States and Canada
attributable to all indications for Enbrel, other than oncology indications,
on a scale that increases as gross profits increase. We retain a majority
percentage of these nononcology gross profits in the United States and Canada
on an annual basis. We are entitled to keep all of the gross profits
attributable to any future U.S. or Canadian oncology indications for Enbrel.
Also, we will pay AHP specified residual royalties on a declining scale based
on any and all net sales of Enbrel in the United States and Canada in the
three years following the expiration or termination of AHP's detailing and
promotion of Enbrel.
If AHP sells or distributes a biologic product in the United States and
Canada that is directly competitive with Enbrel, as defined in the Enbrel
promotion agreement, and subject to several exclusions, AHP will give us prior
written notice and, upon our request, we will attempt in good faith to either
establish mutually acceptable terms with AHP under which we will co-promote
this competitive biologic product or establish other terms for a commercial
relationship with AHP, or negotiate an adjustment to the gross profits
allocated to AHP under the Enbrel promotion agreement. If we are unable to
establish acceptable terms with AHP within 90 days of our request, we may at
our option reacquire from AHP all marketing rights to Enbrel in the United
States and Canada and terminate the Enbrel promotion agreement, subject to our
payment of substantial amounts to AHP over a defined period. If AHP obtains a
biologic product that is directly competitive with Enbrel through the
acquisition of another company and we reacquire the marketing rights to Enbrel
in the United States and Canada, AHP's primary field sales force that had
detailed Enbrel in the relevant territory within the United States and Canada
for a specified period may not sell, detail or otherwise distribute the
competitive biologic product for a specified period in the United States and
Canada.
The Enbrel promotion agreement requires the parties to form an Enbrel
management committee, which is composed of an equal number of representatives
from us and from AHP. The Enbrel management committee has responsibility for
areas including strategic planning, approval of an annual marketing plan and
product pricing.
Convertible Subordinated Note
On May 20, 1999, we issued a seven-year, 3% coupon, convertible
subordinated note to AHP. The principal amount of the note, which was
purchased by AHP in a private placement transaction, totaled $450 million. The
note was convertible into our common stock at a price of $28.95 per share. The
conversion price was set at a 30% premium over the average of the closing
prices of our common stock for the eight trading days up to and including May
19, 1999. On October 31, 2000, AHP converted the principal amount of the note
into 15,544,041 shares of our common stock.
Recent Agreements
In August 2000, we and AHP entered into several new agreements, including
the following:
. AHP agreed to sell to us at a future date, which is expected to be in
the second half of 2002, its recently acquired manufacturing facility in
West Greenwich, Rhode Island, which is being retrofitted to increase
manufacturing capacity of Enbrel;
. AHP agreed to provide financing guarantees to third-party lenders of up
to $550 million toward the cost of designing and constructing our
planned new research and technology center in Seattle, Washington,
provided that these financing guarantees will be reduced to $450 million
if this offering is completed;
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. AHP agreed to convert its $450 million convertible subordinated note
into common stock concurrently with the completion of the financing for
our planned new research and technology center;
. we and AHP agreed that a substantial majority of the Enbrel produced at
BI Pharma will be allocated to us until the Rhode Island facility
receives regulatory approval and produces specified quantities of
Enbrel; and
. we and AHP agreed that thereafter a substantial majority of the combined
production of Enbrel at the BI Pharma facility, at the Rhode Island
facility and at a new manufacturing facility that AHP plans to establish
in Ireland will be allocated to us.
AHP converted its $450 million convertible subordinated note on October 31,
2000.
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MANAGEMENT
The following table sets forth the name, age and position of our directors
and executive officers as of November 7, 2000.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Edward V. Fritzky....... 50 Chairman of the Board, Chief Executive Officer and President
David A. Mann........... 41 Senior Vice President, Chief Financial Officer and Treasurer
Barry G. Pea............ 42 Senior Vice President, General Counsel and Secretary
Peggy V. Phillips....... 47 Executive Vice President, Chief Operating Officer and Director
Douglas E. Williams..... 42 Executive Vice President, Chief Technology Officer and Director
Kirby L. Cramer......... 64 Director
John E. Lyons........... 74 Director
Joseph M. Mahady(1)..... 47 Director
Edith W. Martin......... 55 Director
Lawrence V. Stein(1).... 50 Director
</TABLE>
--------
(1) Designated for election by AHP.
Mr. Fritzky has been Chief Executive Officer and Chairman of the Board
since January 1994. In April 1999, Mr. Fritzky was named President. Mr.
Fritzky was President of Lederle Laboratories, a division of American Cyanamid
Company, from 1992 to 1994 and Vice President of Lederle from 1989 to 1992.
Prior to joining Lederle, Mr. Fritzky was an executive of Searle
Pharmaceuticals, Inc., a subsidiary of Monsanto Company. During his tenure at
Searle, Mr. Fritzky was Vice President, Marketing and later President and
General Manager of Searle Canada, Inc. and Lorex Pharmaceuticals, a joint
venture company. Mr. Fritzky also serves on the board of directors of Geron
Corporation and SonoSite, Inc. Mr. Fritzky is the Chair of our Succession
Planning Committee. Mr. Fritzky received a B.A. from Duquesne University and
is a graduate of the Advanced Executive Program, J.L. Kellogg Graduate School
of Management at Northwestern University.
Mr. Mann joined Immunex in 1995 as Vice President and Controller, a
position he served in until April 1999. From April 1999 to October 1999, he
was Interim Chief Financial Officer and Vice President. Mr. Mann was named
Treasurer in July 1999 and Senior Vice President and Chief Financial Officer
in October 1999. From 1986 to 1995, he was Controller of Fred Hutchinson
Cancer Research Center and from 1982 to 1984, he was an auditor at KPMG Peat
Marwick. Mr. Mann also serves on the board of directors of the Seattle-King
County Economic Development Council. Mr. Mann received a B.A. in accounting
from Western Washington University and an M.B.A. from the University of
Washington. Mr. Mann is a Certified Public Accountant in Washington.
Mr. Pea joined Immunex in 1996 as Associate General Counsel. He served as
Vice President and Deputy General Counsel from 1998 to June 2000. In June
2000, Mr. Pea was named Senior Vice President, General Counsel and Secretary.
From 1989 to 1996, Mr. Pea served in various legal positions at Glaxo Wellcome
and Burroughs Wellcome Co. He received a B.A. with high honors from Wheaton
College and a J.D. with honors from Duke University School of Law.
Ms. Phillips has been a director since July 1996. She joined Immunex in
1986 and was named Senior Vice President, Pharmaceutical Development in
September 1994. In October 1999, Ms. Phillips was named Executive Vice
President and Chief Operating Officer. She was elected an executive officer of
Immunex in July 1995. From 1991 until its dissolution in January 1995, Ms.
Phillips was Senior Vice President and Chief Operating Officer of Immunex
Research and Development Corporation, our former wholly owned research and
development subsidiary. Ms. Phillips received an M.S. in microbiology from the
University of Idaho.
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Dr. Williams has been a director since April 1996. He joined Immunex in
1988 and was Vice President, Research and Development from 1992 until
September 1994, when he was named Senior Vice President, Discovery Research.
Dr. Williams was named Executive Vice President and Chief Technology Officer
in October 1999. He was elected an executive officer of Immunex in July 1995.
Dr. Williams also serves on the board of directors of Genesis Research and
Development Corporation Limited, Auckland, New Zealand and is a Trustee of the
Corporate Council of the Arts. Dr. Williams received a Ph.D. in physiology
from the State University of New York at Buffalo, Roswell Park Memorial
Institute Division.
Mr. Cramer has been a director since October 1987. Mr. Cramer is Chairman
of SonoSite, Inc. and Northwestern Trust and Investors Advisory Company and
Chairman Emeritus of Hazleton Laboratories Corporation. He also serves on the
board of directors of Array Bio Pharma, DJ Orthopedics, LLC, Huntington Life
Sciences, Landec Corporation and The Commerce Bank of Washington. Mr. Cramer
is the Chair of our Compensation Committee and our Stock Option Plan
Administration Committee.
Mr. Lyons has been a director since June 1993. Mr. Lyons retired as Vice
Chairman of the Board of Merck Company in 1991. He joined Merck in 1950 as a
Research Chemist and held a number of senior marketing and sales positions in
the Merck, Sharp & Dohme division of Merck & Company, serving as its President
from 1975 to 1985. He was named Corporate Senior Vice President of Merck in
1982, Executive Vice President in 1985, and Vice Chairman of the Board in
1988. Mr. Lyons also serves on the board of directors of Synaptic
Pharmaceutical Company.
Mr. Mahady has been a director since February 1998. Mr. Mahady has held
various positions with AHP and Wyeth-Ayerst since 1979. He has been President
of Wyeth-Ayerst North America since September 1997. From August 1995 to
October 1997, he was President of Wyeth-Ayerst Pharmaceutical Business
Division, having been named Senior Vice President in February 1995 and Vice
President in October 1991. For a discussion of AHP's right to designate Mr.
Mahady as our director, see "Relationship With AHP."
Dr. Martin has been a director since June 1993. Dr. Martin has been the
Chief Executive Officer of Advanced Global Technologies, Inc. since 1992 and
Chief Executive Officer of Mill Iron 4 Mill Iron Enterprises since 1994. From
March 1999 to September 2000, Dr. Martin was Vice President and Chief
Information Officer of Halliburton Company. Dr. Martin was Vice President and
Chief Information Officer of Eastman Kodak Company from January 1996 to
December 1997. From September 1994 to February 1996, Dr. Martin was the
Executive Vice President and Chief Technology Officer of the Student Loan
Marketing Association, or Sallie Mae. From 1992 to September 1994, Dr. Martin
was Vice President and Chief Information Officer of the International
Telecommunications Satellite Organization, or INTELSAT. Prior to joining
INTELSAT, Dr. Martin was Vice President, High Technology Center, The Boeing
Company. Dr. Martin also serves on the board of directors of Heska Corporation
and Pharmacopeia, Inc. Dr. Martin is the Chair of our Audit Committee.
Mr. Stein has been a director since June 2000. Mr. Stein has been Vice
President and Deputy General counsel of AHP and Senior Vice President and
Chief Legal Counsel of Wyeth-Ayerst and Genetics Institute, Inc. since
September 1997. From November 1992 to August 1997, Mr. Stein was Senior Vice
President and General Counsel of Genetics Institute. For a discussion of AHP's
right to designate Mr. Stein as our director, see "Relationship With AHP."
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SELLING SHAREHOLDER
The following table sets forth information with respect to the beneficial
ownership of our common stock as of June 30, 2000 by AHP. As of June 30, 2000,
there were 517,502,833 shares of our common stock outstanding. The amounts and
percentage of common stock beneficially owned are reported on the basis of
regulations of the SEC governing the determination of beneficial ownership of
securities. Under the rules of the SEC, a person is deemed to be a "beneficial
owner" of a security if that person has or shares "voting power," which
includes the power to vote or to direct the voting of the security, or
"investment power," which includes the power to dispose of or to direct the
disposition of the security. A person is also deemed to be a beneficial owner
of any securities of which that person has a right to acquire beneficial
ownership within 60 days. Under these rules, more than one person may be
deemed a beneficial owner of the same securities and a person may be deemed to
be a beneficial owner of securities as to which the person has no economic
interest.
In a filing on Schedule 13D/A, dated June 23, 2000, AHP reported shared
voting and dispositive power over all of the shares that it beneficially owns.
These shares include shares held by two wholly owned subsidiaries of AHP.
Under the rules of the SEC, AHP is deemed to be the beneficial owner of the
shares issued upon conversion of the $450 million convertible subordinated
note. The shares to be sold by AHP are held in the names of AHP and of MDP
Holdings, Inc., an indirect wholly owned subsidiary of AHP.
<TABLE>
<CAPTION>
Percent of Shares
Beneficially
Shares Shares Owned
Beneficially Shares to Beneficially -----------------
Name and Address of Owned Before Be Sold in Owned After Before After
Beneficial Owner Offering Offering Offering Offering Offering
------------------- ------------ ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
American Home Products
Corporation............ 283,878,088 50,000,000 233,878,088 54.86% 43.51%
Five Giralda Farms
Madison, New Jersey
07940
</TABLE>
In addition, AHP has granted the underwriters the right to purchase up to
an additional 10,500,000 shares of common stock to cover over-allotments. If
the underwriters exercise this over-allotment option in full, AHP will
beneficially own 41.56% of our common stock after this offering.
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<PAGE>
IMPORTANT UNITED STATES TAX CONSEQUENCES
TO NON-U.S. HOLDERS OF OUR COMMON STOCK
This section is a general discussion of important United States federal
income and estate tax consequences of the ownership and disposition of our
common stock by a non-U.S. holder. You are a non-U.S. holder if you are, for
United States federal income tax purposes:
. a nonresident alien individual;
. a foreign corporation;
. a foreign partnership; or
. an estate or trust that in either case is not subject to United States
federal income tax on a net income basis on income or gain from our
common stock.
We do not, however, discuss all aspects of United States federal taxation
that may be important to a particular non-U.S. holder in light of specific
facts and circumstances relevant to that non-U.S. holder. For example, this
section does not describe special tax rules that could apply to a non-U.S.
holder who was previously a U.S. resident or citizen. This section also does
not address the treatment of a non-U.S. holder under the laws of any state,
local or foreign taxing jurisdiction. This section is based on the tax laws of
the United States, including the Internal Revenue Code of 1986, as amended, or
the Code, existing and proposed regulations, and administrative and judicial
interpretations, all as currently in effect. These laws are subject to change,
possibly on a retroactive basis.
You should consult a tax advisor regarding the United States federal tax
consequences of acquiring, holding and disposing of our common stock in your
particular circumstances, as well as any tax consequences that may arise under
the laws of any state, local or foreign taxing jurisdiction.
Dividends
Except as described below, if you are a non-U.S. holder of our common
stock, dividends paid to you are subject to withholding of United States
federal income tax at a 30% rate or at a lower rate if you are eligible for
the benefits of an income tax treaty that provides for a lower rate. Under
currently effective United States Treasury regulations, for purposes of
determining if dividends are subject to the 30% withholding tax, dividends
paid to an address in a foreign country are presumed to be paid to a resident
of that country, unless the person making the payment has knowledge to the
contrary. Under current interpretations of United States Treasury regulations,
this presumption also applies for purposes of determining whether a lower
withholding rate applies under an income tax treaty.
Under United States Treasury regulations that will generally apply to
dividends paid after December 31, 2000, you must satisfy certification
requirements in order to claim the benefit of a lower treaty rate. In
addition, if you are a partner in a foreign partnership, you, as well as the
foreign partnership, must satisfy the certification requirements and the
partnership must provide certain information. A look-through rule will apply
in the case of tiered partnerships.
If you are eligible for a reduced rate of United States withholding tax
under a tax treaty, you may obtain a refund of any amounts withheld in excess
of that rate by filing a refund claim with the United States Internal Revenue
Service, or the IRS.
If the dividends are "effectively connected" with your conduct of a trade
or business within the United States, and, if required by a tax treaty, the
dividends are attributable to a permanent establishment that you maintain in
the United States, then the dividends generally are not subject to withholding
tax. Instead, "effectively connected" dividends are taxed at rates applicable
to United States citizens, resident aliens and domestic United States
corporations.
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If you are a corporate non-U.S. holder, "effectively connected" dividends
that you receive may be subject to an additional "branch profits tax" at a 30%
rate or at a lower rate if you are eligible for the benefits of an income tax
treaty that provides for a lower rate.
Gain on Disposition of Common Stock
If you are a non-U.S. holder, you generally will not be subject to United
States federal income tax on gain that you recognize on a disposition of our
common stock unless:
. the gain is "effectively connected" with your conduct of a trade or
business in the United States, and the gain is attributable to a
permanent establishment that you maintain in the United States, if that
is required by an applicable income tax treaty as a condition for
subjecting you to United States taxation on a net income basis;
. you are an individual, you hold the common stock as a capital asset, you
are present in the United States for 183 or more days in the taxable
year of the sale or other disposition and certain other conditions
exist; or
. we are or have been a United States real property holding corporation
for federal income tax purposes and you held, directly or indirectly, at
any time during the five-year period ending on the date of disposition,
more than 5% of our common stock and you are not eligible for any treaty
exemption.
If you are an individual non-U.S. holder described in the first bullet
point above, you will be subject to tax on the net gain derived from the sale
under regular graduated United States federal income tax rates. If you are an
individual non-U.S. holder described in the second bullet point above, you
will be subject to a flat 30% tax on the gain derived from the sale, which may
be offset by United States source capital losses (even though you are not
considered a resident of the United States). If you are a non-U.S. holder that
is a foreign corporation and you are described in the first bullet point
above, "effectively connected" gains that you recognize may also, in some
circumstances, be subject to an additional "branch profits tax" at a 30% rate
or at a lower rate if you are eligible for the benefits of an income tax
treaty that provides for a lower rate.
We have not been, are not and do not anticipate becoming a United States
real property holding corporation for United States federal income tax
purposes.
Special rules may apply to certain non-U.S. holders, such as "controlled
foreign corporations," "passive foreign investment companies," "foreign
personal holding companies" and corporations that accumulate earnings to avoid
United States federal income tax, that are subject to special treatment under
the Code. These entities should consult their own tax advisors to determine
the United States federal, state, local and other tax consequences that may be
relevant to them.
Federal Estate Taxes
Common stock held by an individual who is a non-U.S. holder at the time of
death will be included in the holder's gross estate for United States federal
estate tax purposes, unless an applicable estate tax treaty provides
otherwise.
Information Reporting and Backup Withholding
We must report annually to the IRS and to each non-U.S. holder the amount
of dividends paid to each holder and the tax withheld with respect to the
dividends, regardless of whether withholding was required. Copies of the
information returns reporting dividends and withholding may also be made
available to the tax authorities in the country in which the non-U.S. holder
resides under the provisions of an applicable tax treaty.
Under currently applicable law, if you are a non-U.S. holder, dividends
paid to you at an address outside the United States generally will not be
subject to backup withholding tax. With respect to payments made after
S-65
<PAGE>
December 31, 2000, a non-U.S. holder will be entitled to such exemption only
if the non-U.S. holder provides a Form W-8BEN or otherwise meets documentary
evidence requirements for establishing that it is a non-U.S. holder, or
otherwise establishes an exemption.
The gross proceeds from the disposition of our common stock may be subject
to information reporting and backup withholding tax at a rate of 31%. If you
sell your common stock outside of the United States through a non-U.S. office
of a non-U.S. broker, and the sales proceeds are paid to you outside the
United States, then United States backup withholding and information reporting
requirements generally will not apply to that payment. However, United States
information reporting, but not backup withholding, will apply to a payment of
sales proceeds, even if that payment is made outside the United States, if you
sell your common stock through a non-U.S. office of a broker that:
. is a United States person;
. derives 50% or more of its gross income in specific periods from the
conduct of a trade or business in the United States;
. is a "controlled foreign corporation" as to the United States; or
. with respect to payments made after December 31, 2000, is a foreign
partnership, if at any time during its tax year:
. one or more of its partners are U.S. persons, as defined in United
States Treasury regulations, who in the aggregate hold more than 50%
of the income or capital interests in the partnership; or
. at any time during its tax year, the foreign partnership is engaged
in a United States trade or business;
unless the broker has documentary evidence in its files that you are a non-
U.S. person or you otherwise establish an exemption.
If you receive payments of the proceeds of a sale of common stock to or
through a United States office of a broker, the payment is subject to both
United States backup withholding and information reporting unless you certify,
under penalties of perjury, that you are a non-U.S. person or you otherwise
establish an exemption.
You generally may obtain a refund of any amounts withheld under the backup
withholding rules that exceed your income tax liability by filing a refund
claim with the IRS.
S-66
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus supplement, the underwriters named
below, for whom Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Credit Suisse First Boston Corporation, Lehman
Brothers Inc., Banc of America Securities LLC, Bear, Stearns & Co. Inc. and
Robertson Stephens, Inc. are acting as representatives, have severally agreed
to purchase, and we and AHP have agreed to sell to them, severally, the number
of shares indicated below:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ----------
<S> <C>
Morgan Stanley & Co. Incorporated............................ 17,010,250
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................ 17,010,250
Credit Suisse First Boston Corporation....................... 7,483,000
Lehman Brothers Inc. ........................................ 7,483,000
Banc of America Securities LLC............................... 4,088,000
Bear, Stearns & Co. Inc. .................................... 4,088,000
Robertson Stephens, Inc. .................................... 4,088,000
Adams, Harkness & Hill, Inc. ................................ 583,300
Sanford C. Bernstein & Co., Inc. ............................ 583,300
Chase Securities Inc. ....................................... 583,300
Commerzbank Capital Markets Corporation...................... 583,300
Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated................................................ 583,300
D.A. Davidson & Co. Incorporated............................. 583,300
First Union Securities, Inc. ................................ 583,300
Fortis Bank.................................................. 583,300
Janney Montgomery Scott Inc. ................................ 583,300
Edward D. Jones & Co., L.P. ................................. 583,300
Leerink Swann & Company...................................... 583,300
Neuberger Berman, LLC........................................ 583,300
Prudential Securities Incorporated........................... 583,300
Ragen MacKenzie, a division of Wells Fargo Investments LLC... 583,300
U.S. Bancorp Piper Jaffray Capital Markets................... 583,300
----------
Total...................................................... 70,000,000
==========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and AHP and subject to prior sale. The
underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of common stock
offered by this prospectus supplement are subject to various conditions. The
underwriters are obligated to take and pay for all of the shares of common
stock offered by this prospectus supplement if any such shares are taken.
However, the underwriters are not required to take or pay for the shares
covered by the underwriters' over-allotment option described below.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price listed on the cover
page of this prospectus supplement and part to certain dealers at a price that
represents a concession not in excess of $0.70 a share under the public
offering price. After the initial offering of the shares of common stock, the
offering price and other selling terms may from time to time be varied by the
representatives.
AHP has granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus supplement, to purchase up to an aggregate of
10,500,000 additional shares of common stock at the public
S-67
<PAGE>
offering price listed on the cover page of this prospectus supplement, less
underwriting discounts and commissions. The underwriters may exercise this
option solely for the purpose of covering over-allotments, if any, made in
connection with the offering of the shares of common stock offered by this
prospectus supplement. To the extent the option is exercised, each underwriter
will become obligated, subject to certain conditions, to purchase about the
same percentage of the additional shares of common stock as the number listed
next to the underwriter's name in the preceding table bears to the total
number of shares of common stock listed next to the names of all underwriters
in the preceding table. If the underwriters' option is exercised in full, the
total price to the public would be $3,199,875,000, the total underwriters'
discounts and commissions would be $86,135,000 and the total proceeds to AHP
would be $2,340,140,000.
AHP has agreed with the underwriters that it will not, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, during the period ending 90 days after the date of this
prospectus supplement, and we and each of our directors and executive officers
has agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, we or they will not, during the
period ending 90 days after the date of this prospectus supplement:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for 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 the
common stock;
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise. The restrictions
described in this paragraph do not apply to:
. the sale of shares to the underwriters;
. the issuance by us of shares of common stock upon the exercise of any
convertible security outstanding on the date of this prospectus
supplement of which the underwriters have been advised in writing;
. transactions by any person other than us and AHP relating to shares of
common stock or other securities acquired in open market transactions
after the completion of the offering of the shares;
. the issuance by us of up to approximately 8.1 million shares of common
stock in connection with acquisitions or other strategic transactions,
provided these shares of common stock are subject to the lock-up
restrictions described above;
. the issuance by us of shares of common stock or options to purchase
common stock to our employees pursuant to our stock option plans and
employee stock purchase plan; or
. the issuance by us to AHP of shares of common stock on a quarterly basis
pursuant to the provisions of the governance agreement.
AHP has separately agreed with us that it will not, without our prior
written consent, prior to September 30, 2001:
. 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
common stock or any securities convertible into or exercisable or
exchangeable for 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 the
common stock;
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise. After the first 90 days,
no underwriter consent would be required if we consent to any exceptions.
S-68
<PAGE>
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may sell more shares
than they are obligated to purchase under the underwriting agreement, creating
a short position. A short sale is covered if the short position is no greater
than the number of shares available for purchase by the underwriters under the
over-allotment option. The underwriters can close out a covered short sale by
exercising the over-allotment option or purchasing shares in the open market.
In determining the source of shares to close out a covered short sale, the
underwriters will consider, among other things, the open market price of
shares compared to the price available under the over-allotment option. The
underwriters may also sell shares in excess of the over-allotment option,
creating a naked short position. The underwriters must close out any naked
short position by purchasing shares in the open market. A naked short position
is more likely to be created if the underwriters are concerned that there may
be downward pressure on the price of the common stock in the open market after
pricing that could adversely affect investors who purchase in the offering. As
an additional means of facilitating the offering, the underwriters may bid
for, and purchase, shares of common stock in the open market to stabilize the
price of the common stock. The underwriting syndicate may also reclaim selling
concessions allowed to an underwriter or a dealer for distributing the common
stock in the offering, if the syndicate repurchases previously distributed
common stock to cover syndicate short positions or to stabilize the price of
the common stock. These activities may raise or maintain the market price of
the common stock above independent market levels or prevent or retard a
decline in the market price of the common stock. The underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
Morgan Stanley Dean Witter Online Inc., an affiliate of Morgan Stanley &
Co. Incorporated, will be distributing shares of common stock over the
Internet to its respective eligible account holders.
A prospectus in electronic format may be made available on the Web sites
maintained by one or more underwriters. The underwriters may agree to allocate
a number of shares to underwriters for sale to their online brokerage account
holders. Internet distributions will be allocated by the lead managers to
underwriters that may make Internet distributions on the same basis as other
allocations.
We, AHP and the underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
VALIDITY OF COMMON STOCK
The validity of the common stock to be sold by us and AHP has been passed
upon for us by Orrick, Herrington & Sutcliffe LLP, Seattle, Washington. The
validity of the common stock to be sold by us and AHP will be passed upon for
the underwriters by Sullivan & Cromwell, Palo Alto, California. Sullivan &
Cromwell will rely as to matters of Washington law upon the opinion of Orrick,
Herrington & Sutcliffe LLP.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedules at December 31, 1998 and 1999 and for each
of the three years in the period ended December 31, 1999, as set forth in
their reports. We have included our consolidated financial statements and
incorporated by reference our schedules in this prospectus supplement and
elsewhere in the registration statement of which the accompanying prospectus
forms a part in reliance on Ernst & Young LLP's reports, given on their
authority as experts in accounting and auditing.
S-69
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Financial Statements:
Report of Ernst & Young LLP, Independent Auditors........................ F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-4
Consolidated Statements of Shareholders' Equity.......................... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Directors
Immunex Corporation
We have audited the accompanying consolidated balance sheets of Immunex
Corporation as of December 31, 1998 and 1999, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Immunex Corporation as of December 31, 1998 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
Ernst & Young LLP
Seattle, Washington
January 21, 2000, except for the last paragraph of
Note 6 as to which the date is February 17, 2000
F-2
<PAGE>
IMMUNEX CORPORATION
Consolidated Balance Sheets
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31,
-------------------- June 30,
1998 1999 2000
--------- --------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................. $ 43,600 $ 260,770 $ 151,377
Short term investments..................... 101,245 449,066 598,627
Accounts receivable--trade, net............ 21,570 47,469 60,119
Accounts receivable--AHP................... 967 3,558 19,666
Accounts receivable--other................. 6,402 10,754 12,824
Inventories................................ 23,475 13,125 19,029
Prepaid expenses and other current assets.. 4,726 6,439 5,879
--------- --------- ----------
Total current assets..................... 201,985 791,181 867,521
Property, plant and equipment, net........... 90,092 110,445 140,773
Other assets:
Property held for future development....... 6,129 6,049 6,049
Investments................................ 3,837 10,704 68,890
Intangible product rights and other, net... 15,935 22,862 30,839
Goodwill, net.............................. 7,347 -- --
--------- --------- ----------
Total assets............................. $ 325,325 $ 941,241 $1,114,072
========= ========= ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable........................... $ 39,256 $ 71,832 $ 69,435
Accounts payable--AHP...................... 13,950 37,088 52,256
Accrued compensation and related items..... 13,756 20,001 13,825
Current portion of long-term obligations... 3,477 1,578 1,579
Interest payable--AHP...................... -- 2,250 2,250
Other current liabilities.................. 5,074 2,336 12,154
--------- --------- ----------
Total current liabilities................ 75,513 135,085 151,499
Convertible subordinated note--AHP........... -- 450,000 450,000
Other long term obligations.................. 2,349 826 836
Commitments and contingencies (Note 10)
Shareholders' equity:
Preferred stock, $.01 par value, 30,000,000
shares authorized, none outstanding....... -- -- --
Common stock, $.01 par value, 1,200,000,000
shares authorized, 481,782,132,
494,019,375 and 501,958,792 outstanding at
December 31, 1998 and 1999 and June 30,
2000, respectively........................ 729,750 791,802 845,940
Unrealized gain on investments, net........ 1,228 2,719 31,314
Accumulated deficit........................ (483,515) (439,191) (365,517)
--------- --------- ----------
Total shareholders' equity............... 247,463 355,330 511,737
--------- --------- ----------
Total liabilities and shareholders'
equity.................................. $ 325,325 $ 941,241 $1,114,072
========= ========= ==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
IMMUNEX CORPORATION
Consolidated Statements of Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Six months ended
Year ended December 31, June 30,
----------------------------- ------------------
1997 1998 1999 1999 2000
--------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales............. $ 149,672 $169,907 $519,287 $221,091 $362,894
Royalty and contract
revenue.................. 35,625 73,543 22,431 5,560 29,294
--------- -------- -------- -------- --------
185,297 243,450 541,718 226,651 392,188
Operating expenses:
Cost of product sales..... 24,552 33,285 159,269 66,887 104,832
Research and development.. 109,312 119,954 126,682 58,473 75,892
Selling, general and
administrative (Note 2).. 71,275 93,777 216,714 97,210 154,243
--------- -------- -------- -------- --------
205,139 247,016 502,665 222,570 334,967
--------- -------- -------- -------- --------
Operating income (loss)..... (19,842) (3,566) 39,053 4,081 57,221
Other income (expense):
Interest income........... 3,790 6,793 26,150 6,949 23,193
Interest expense.......... (596) (425) (8,656) (1,697) (6,873)
Other income, net......... 1,088 384 277 149 847
--------- -------- -------- -------- --------
4,282 6,752 17,771 5,401 17,167
--------- -------- -------- -------- --------
Income (loss) before income
taxes...................... (15,560) 3,186 56,824 9,482 74,388
Provision for income taxes.. 212 2,200 12,500 2,370 714
--------- -------- -------- -------- --------
Net income (loss)........... $ (15,772) $ 986 $ 44,324 $ 7,112 $ 73,674
========= ======== ======== ======== ========
Net income (loss) per common
share:
Basic..................... $ (0.03) $ 0.00 $ 0.09 $ 0.01 $ 0.15
========= ======== ======== ======== ========
Diluted................... $ (0.03) $ 0.00 $ 0.08 $ 0.01 $ 0.14
========= ======== ======== ======== ========
Number of shares used for
per share amounts:
Basic..................... 475,644 478,500 489,390 486,480 498,974
========= ======== ======== ======== ========
Diluted................... 475,644 502,680 529,974 525,690 543,860
========= ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
IMMUNEX CORPORATION
Consolidated Statements of Shareholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Guaranty Accumulated
Common Stock Payment Other Total
---------------- Receivable Comprehen- Accumulated Shareholders'
Shares Amount from AHP sive Income Deficit Equity
------- -------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1997................... 475,074 $653,033 $(56,000) $ 9,406 $(468,729) $137,710
Net loss for the year
ended December 31,
1997.................. -- -- -- -- (15,772) (15,772)
Unrealized loss on
investments, net...... -- -- -- (4,760) -- (4,760)
--------
Comprehensive loss..... (20,532)
Common stock issued to
employees............. 1,050 1,698 -- -- -- 1,698
Common stock issued to
AHP................... 339 1,280 -- -- -- 1,280
Guaranty payment
received from AHP..... -- -- 56,000 -- -- 56,000
Guaranty payment
receivable from AHP... -- 60,032 (60,032) -- -- --
------- -------- -------- ------- --------- --------
Balance, December 31,
1997................... 476,463 716,043 (60,032) 4,646 (484,501) 176,156
Net income for the year
ended December 31,
1998.................. -- -- -- -- 986 986
Unrealized loss on
investments, net...... -- -- -- (3,418) -- (3,418)
--------
Comprehensive loss..... (2,432)
Common stock issued to
employees............. 3,984 6,830 -- -- -- 6,830
Common stock issued to
AHP................... 1,335 6,877 -- -- -- 6,877
Guaranty payment
received from AHP..... -- -- 60,032 -- -- 60,032
------- -------- -------- ------- --------- --------
Balance, December 31,
1998................... 481,782 729,750 -- 1,228 (483,515) 247,463
Net income for the year
ended December 31,
1999.................. -- -- -- -- 44,324 44,324
Unrealized gain on
investments, net...... -- -- -- 1,491 -- 1,491
--------
Comprehensive income... 45,815
Common stock issued to
employees............. 8,739 21,275 -- -- -- 21,275
Common stock issued to
AHP................... 3,498 40,777 -- -- -- 40,777
------- -------- -------- ------- --------- --------
Balance, December 31,
1999................... 494,019 791,802 -- 2,719 (439,191) 355,330
Net income for the six
months ended June 30,
2000 (unaudited)...... -- -- -- -- 73,674 73,674
Unrealized gain on
investments, net
(unaudited)........... -- -- -- 28,595 -- 28,595
--------
Comprehensive income
(unaudited)........... 102,269
Common stock issued to
employees
(unaudited)........... 6,897 25,279 -- -- -- 25,279
Common stock issued to
AHP (unaudited)....... 1,043 28,859 -- -- -- 28,859
------- -------- -------- ------- --------- --------
Balance, June 30, 2000
(unaudited)............ 501,959 $845,940 $ -- $31,314 $(365,517) $511,737
======= ======== ======== ======= ========= ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
IMMUNEX CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six months ended
Year ended December 31, June 30,
------------------------------ --------------------
1997 1998 1999 1999 2000
-------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)...... $(15,772) $ 986 $ 44,324 $ 7,112 $ 73,674
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Depreciation and
amortization.......... 16,930 18,119 20,081 9,728 10,845
Deferred income tax
provision............. -- 1,900 12,051 2,075 --
License fee received in
the form of common
stock................. -- -- (990) (990) --
Cash flow impact of
changes to:
Accounts receivable... (90) (10,708) (32,842) (26,730) (30,828)
Inventories........... (138) (6,493) 11,296 5,561 (7,733)
Prepaid expenses and
other current
assets............... 55 (947) (1,713) 1,323 560
Accounts payable,
accrued compensation
and other current
liabilities.......... 14,078 20,371 60,525 27,424 10,742
-------- --------- --------- --------- ---------
Net cash provided by
operating
activities.......... 15,063 23,228 112,732 25,503 57,260
Investing activities:
Purchases of property,
plant and equipment... (7,409) (29,389) (35,563) (13,562) (39,150)
Proceeds from sales and
maturities of short-
term investments...... 13,804 40,169 107,843 25,150 230,568
Purchases of short-term
investments........... (33,158) (121,745) (460,050) (317,166) (409,720)
Acquisition of rights
to marketed products,
net................... -- (5,000) (15,500) (15,500) (2,500)
Other.................. (1,985) (312) 78 (370) --
-------- --------- --------- --------- ---------
Net cash used in
investing
activities.......... (28,748) (116,277) (403,192) (321,448) (220,802)
Financing activities:
Proceeds from common
stock issued to
employees............. 1,280 6,831 21,275 12,232 25,279
Proceeds from common
stock issued to AHP... 1,698 6,877 40,777 40,777 28,859
Proceeds from
convertible
subordinated note--
AHP, net.............. -- -- 449,000 449,000 --
Payment under
settlement
obligation............ (2,235) (2,391) (2,558) -- --
Guaranty payment
received from AHP..... 56,000 60,032 -- -- --
Other.................. (743) (876) (864) 93 11
-------- --------- --------- --------- ---------
Net cash provided by
financing
activities.......... 56,000 70,473 507,630 502,102 54,149
-------- --------- --------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents............ 42,315 (22,576) 217,170 206,157 (109,393)
Cash and cash
equivalents, beginning
of period.............. 23,861 66,176 43,600 43,600 260,770
-------- --------- --------- --------- ---------
Cash and cash
equivalents, end of
period................. $ 66,176 $ 43,600 $ 260,770 $ 249,757 $ 151,377
======== ========= ========= ========= =========
</TABLE>
See accompanying notes.
F-6
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Basis of Presentation
We are a leading biopharmaceutical company dedicated to developing immune
system science to protect human health. Applying our scientific expertise in
the fields of immunology, cytokine biology, vascular biology, antibody-based
therapeutics and small molecule research, we work to discover new targets and
new therapeutics for treating rheumatoid arthritis, asthma and other
inflammatory diseases, as well as cancer and cardiovascular diseases.
We operate in a highly regulated and competitive environment. Our business
is regulated primarily by the 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, generally takes many years and is
very costly. Competition in researching, developing and marketing
biotechnology and 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. During 1999 and in the
first six months of 2000, approximately 68% and 64% of our product sales were
made to three of these wholesalers, respectively.
On June 1, 1993, the predecessor to the current Immunex Corporation merged
with a subsidiary of American Cyanamid Company, or Cyanamid. Cyanamid received
the number of shares equal to 53.5% of our common stock and dilutive
securities outstanding immediately following the merger. In late 1994, AHP
acquired all of Cyanamid's outstanding shares of common stock. AHP and certain
of its subsidiaries and affiliates assumed the rights and obligations of
Cyanamid. As a result, AHP now holds a majority interest in us. We have also
entered into additional agreements with AHP (see Note 9). All references to
AHP include AHP and its various affiliates, divisions and subsidiaries,
including Cyanamid.
The financial information as of June 30, 2000 and for the six months ended
June 30, 1999 and 2000 is unaudited, but reflects, in the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial position and results of operations
as of and for the periods indicated. Operating results for the six months
ended June 30, 2000 are not necessarily indicative of results that may be
expected for the full year.
Note 2. Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include our accounts and the accounts
of our wholly owned subsidiary, Immunex Manufacturing Corporation. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Cash equivalents
Cash equivalents include items almost as liquid as cash, such as demand
deposits or debt securities with maturity periods of 90 days or less when
purchased. Our cash equivalents are carried at fair market value.
Short-term investments
Short-term investments consist of securities available-for-sale, which are
stated at fair value with the unrealized gains and losses included as a
component of shareholders' equity on the balance sheet. Cost of securities is
calculated using the specific-identification method. Securities available-for-
sale at December 31, 1998, December 31, 1999 and June 30, 2000 consisted
primarily of U.S. government and corporate debt obligations.
F-7
<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 at specific balance sheet
dates are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------- June 30,
1998 1999 2000
------- ------- --------
<S> <C> <C> <C>
Raw materials....................................... $ 807 $ 1,387 $ 1,479
Work in process..................................... 17,953 5,310 9,110
Finished goods...................................... 4,715 6,428 8,440
------- ------- -------
Total inventories................................... $23,475 $13,125 $19,029
======= ======= =======
</TABLE>
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.
Property held for future development
We own some property intended for the possible future expansion of our
manufacturing facilities. This property has been recorded at cost.
Investments
We own common stock in two biotechnology companies. During 2000 we also
began investing in other equity securities that are intended to be long-term
investments. Investments are accounted for as securities available-for-sale
and are recorded at fair value on the balance sheet (see Note 3).
Goodwill and other intangible assets
Goodwill was being amortized evenly over a 10-year period. Accumulated
amortization totaled $11,319,000 at December 31, 1998 and $12,098,000 at
December 31, 1999. In connection with the pretax income reported in 1998 and
1999, we recorded a tax provision and reduced our goodwill by $1,900,000 in
1998 and $6,568,000 in 1999 (see Note 7). As of December 31, 1999, the net
goodwill balance had been reduced to zero.
Intangible product rights and other intangible assets are amortized evenly
over their estimated useful lives, ranging from five to 15 years. Accumulated
amortization totaled $7,069,000 at December 31, 1998 and $9,998,000 at
December 31, 1999. In connection with the pretax income reported in 1999, we
recorded a tax provision and reduced the intangible product rights acquired
from the merger with Cyanamid by $5,483,000 (see Note 7). As of December 31,
1999, the net Cyanamid intangible product rights balance had been reduced to
zero.
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. Allowances for discounts,
returns and bad debts,
F-8
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 2. Summary of Significant Accounting Policies--(continued)
which are netted against accounts receivable, totaled $11,627,000 at December
31, 1998, $21,824,000 at December 31, 1999 and $24,756,000 at June 30, 2000.
Reserves for chargebacks, Medicaid rebates and administrative fees are
included in accounts payable and totaled $12,610,000 at December 31, 1998,
$21,970,000 at December 31, 1999 and $17,117,000 at June 30, 2000.
Revenues received under royalty, licensing and other contractual agreements
are recognized based upon performance under the terms of the underlying
agreements.
Selling, general and administrative expenses
Under an Enbrel promotion agreement with AHP, Enbrel is being promoted in
the United States by the sales and marketing organization of Wyeth-Ayerst
Laboratories, a division of AHP. We distribute a portion of the gross profits
to AHP for U.S. sales of Enbrel and reimburse AHP for a portion of the
selling, marketing, distribution and other costs incurred in the United States
for sales of Enbrel. Our obligation for such expenses, including AHP's share
of gross profits from U.S. sales of Enbrel, is included as a component of
selling, general and administrative expenses (see Note 9).
Advertising costs
The costs of advertising are expensed as incurred. We incurred
approximately $2,843,000 in advertising expenses in 1999. For both 1998 and
1997 there were no material advertising expenses.
Net income (loss) per common share
Basic and diluted earnings per share are calculated in accordance with
Financial Accounting Standards Board, or FASB, Statement No. 128, Earnings Per
Share. Basic earnings per share is calculated by dividing net income or net
loss 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 AHP
convertible note using the "if-converted" method.
Reclassifications
For comparison purposes, prior year amounts in the consolidated financial
statements have been reclassified to conform to current-year presentations.
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 in the fourth quarter of 2000 and requires companies to report any
changes in revenue recognition as a cumulative change in accounting principle.
The adoption of SAB 101 will not have a significant impact on our financial
position, cash flows or results of operations.
During June 1999, the FASB issued Statement of Financial Accounting
Standards, or SFAS, 137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement 133. SFAS 137
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.
F-9
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3. Investments
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 as comprehensive income. For both 1998 and
1999, there were no material realized gains or losses. Information about our
investments follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Fair Amortized Unrealized Unrealized
Value Cost Gains Losses
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1998
Type of security:
Commercial paper................... $ 4,178 $ 4,194 $ -- $ (16)
Corporate debt securities.......... 52,547 52,351 252 (56)
U.S. government and agency
obligations....................... 54,460 54,208 299 (47)
Corporate equity securities........ 3,837 3,041 796 --
--------- --------- ------ --------
$ 115,022 $ 113,794 $1,347 $ (119)
========= ========= ====== ========
Year ended December 31, 1999
Type of security:
Commercial paper................... $ 84,329 $ 84,258 $ 71 $ --
Corporate debt securities.......... 274,457 277,012 2 (2,557)
U.S. government and agency
obligations....................... 320,933 322,403 16 (1,486)
Corporate equity securities........ 10,704 4,031 7,943 (1,270)
--------- --------- ------ --------
$ 690,423 $ 687,704 $8,032 $ (5,313)
========= ========= ====== ========
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C> <C> <C>
Classification in the balance sheet:
Cash and cash equivalents.......... $ 9,940 $ 230,653
Short-term investments............. 101,245 449,066
Investments........................ 3,837 10,704
--------- ---------
$ 115,022 $ 690,423
========= =========
</TABLE>
Note 4. Property, Plant and Equipment
The major categories of property, plant and equipment, at historical cost,
consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------- June 30,
1998 1999 2000
-------- --------- ---------
<S> <C> <C> <C>
Land.......................................... $ 17,851 $ 17,874 $ 18,514
Buildings and improvements.................... 50,097 59,793 75,668
Equipment..................................... 64,727 84,267 104,962
Leasehold improvements........................ 23,469 28,650 29,274
-------- --------- ---------
156,144 190,584 228,418
Less accumulated depreciation and
amortization................................. (66,052) (80,139) (87,645)
-------- --------- ---------
Property, plant and equipment, net............ $ 90,092 $ 110,445 $ 140,773
======== ========= =========
</TABLE>
F-10
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5. Long-term Obligations
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------- June 30,
1998 1999 2000
------- -------- --------
<S> <C> <C> <C>
3% convertible subordinated note to AHP due
through 2006.................................. $ -- $450,000 $450,000
Deferred state sales tax on manufacturing
facility due through 2000..................... 1,889 1,031 1,031
Deferred portion of litigation settlement
obligation due through 2000................... 3,077 519 519
Other.......................................... 860 854 865
------- -------- --------
5,826 452,404 452,415
Less current portion........................... (3,477) (1,578) (1,579)
------- -------- --------
$ 2,349 $450,826 $450,836
======= ======== ========
</TABLE>
AHP convertible subordinated note
In May 1999, we issued a seven-year, 3% coupon, convertible subordinated
note to AHP. The principal amount of the note, purchased in a private
placement, totaled $450.0 million, resulting in related debt issuance costs of
$1.0 million. The note is convertible into our common stock at a price of
$28.95 per share. After three years, we can redeem the note, provided that the
closing price of our common stock for 20 consecutive days exceeds or equals
$34.74 per share. After four years, we can redeem the note at any time if the
closing price of our common stock for 20 days exceeds or equals the conversion
price. AHP may convert the note into our common stock at any time and,
accordingly, we have reserved 15,544,041 shares at December 31, 1999 for
potential issuance upon the conversion.
During 1999, interest paid on the note totaled $6,038,000. Based on our
common stock price of $36.50 per share at December 31, 1999, the fair value of
the note was approximately $567,423,000.
In August 2000, AHP agreed to provide us with financing guarantees to
third-party lenders toward the construction costs of our planned new research
and technology center. AHP also agreed to convert the 3% coupon, $450 million
convertible subordinated note into our common stock concurrently with the
financing guarantees.
Other obligations
In November 1996, we settled a litigation. In accordance with the terms of
the settlement, a payment was made at the time of the settlement, to be
followed by four successive annual payments. The deferred payments have been
discounted using a rate of 7%.
We had no interest-bearing debt in 1997, 1998 or 1999 other than the AHP
convertible note.
With the exception of deferred state sales tax and the AHP convertible
note, the balance sheet carrying value for all of our financial instruments
approximates fair value. The fair value of the deferred state sales tax
obligation was calculated by discounting future cash flows using our current
estimated incremental borrowing rate. The fair value of deferred state sales
tax was calculated as $1,700,000 at December 31, 1998 and $963,000 at December
31, 1999.
F-11
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6. Shareholders' Equity
Stock options
We may grant stock options, both incentive and nonqualified, to any
employee, including officers, under our 1993 stock option plan and our 1999
stock option plan. There are 74,703,204 and 36,000,000 shares of common stock
reserved for grant under our 1993 stock option plan and 1999 stock option
plan, respectively. Options are granted by a committee of our board of
directors. Under both plans, options are not granted with exercise prices less
than the fair market value of our common stock at the date of grant. Each
outstanding option has a term of 10 years from the date of grant and becomes
exercisable at a rate of 20% per year beginning one year from the date of
grant.
We also have a stock option plan with 1,200,000 shares of common stock
reserved for grant to nonemployee directors that provides each independent
director an initial grant of an option to purchase 10,000 shares of common
stock and an annual grant of 5,000 shares thereafter. The annual grant is
subject to proportionate adjustment for any stock split that occurs within 90
days before the annual grant. Each option is granted with an exercise price
equal to the fair market value of our common stock at the date of grant. Each
outstanding option has a term of 10 years from the date of grant and becomes
exercisable at a rate of 20% per year beginning one year from the date of
grant.
We have elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and have adopted the disclosure-
only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."
Stock options are granted with an exercise price equal to the fair market
value of the stock on the date of grant and, accordingly, we do not record
compensation expense for stock option grants. The pro forma disclosures,
assuming that the fair value of option grants were recorded as compensation,
for each of the years presented is not likely to be representative of the
effects in future years because it does not take into consideration pro forma
amortization of compensation expense related to grants made prior to 1995. The
following table summarizes results as if we had recorded compensation expense
for the option grants (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1998 1999
--------- -------- -------
<S> <C> <C> <C>
Net income (loss)--as reported................ $ (15,772) $ 986 $44,324
Net income (loss)--pro forma.................. $ (20,643) $(11,413) $ 7,003
Net income (loss) per common share, basic--as
reported..................................... $ (0.03) $ 0.00 $ 0.09
Net income (loss) per common share, basic--
pro forma.................................... $ (0.04) $ (0.02) $ 0.01
Net income (loss) per common share, diluted--
as reported.................................. $ (0.03) $ 0.00 $ 0.08
Net income (loss) per common share, diluted--
pro forma.................................... $ (0.04) $ (0.02) $ 0.01
</TABLE>
The estimated fair value of options granted in 1997, 1998 and 1999 was
calculated using the Black-Scholes option pricing model with the following
weighted average assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Estimated weighted average fair value....... $ 1.29 $ 2.95 $ 8.17
Expected life in years...................... 6 6 6
Risk-free interest rate..................... 6.0%-6.6% 4.6%-5.7% 5.1%-6.5%
Volatility.................................. 45% 52% 74%
Dividend yield.............................. -- -- --
</TABLE>
F-12
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6. Shareholders' Equity--(continued)
Information with respect to our stock option plans is as follows:
<TABLE>
<CAPTION>
Weighted
Shares Subject Exercise Average
to Option Price Range Exercise Price
-------------- ------------ --------------
<S> <C> <C> <C>
Options outstanding balance at
January 1, 1997................... 24,870,768 $ 0.98-2.63 $ 1.57
Granted.......................... 14,731,800 2.02-6.40 2.56
Exercised........................ (1,050,900) 0.98-2.63 1.62
Canceled......................... (1,321,332) 1.02-3.48 1.80
---------- ------------ ------
Options outstanding balance at
December 31, 1997................. 37,230,336 0.98-6.40 1.95
Options exercisable.............. 9,380,940 1.82
Granted.......................... 16,725,000 5.19-5.89 5.26
Exercised........................ (3,983,460) 0.98-3.48 1.71
Canceled......................... (2,147,988) 1.02-6.40 3.91
---------- ------------ ------
Options outstanding balance at
December 31, 1998................. 47,823,888 0.98-6.40 3.04
Options exercisable.............. 13,216,548 1.89
Granted.......................... 17,762,700 11.48-19.52 11.87
Exercised........................ (8,670,207) 0.98- 6.40 2.31
Canceled......................... (1,337,502) 0.98-19.52 5.97
---------- ------------ ------
Options outstanding balance at
December 31, 1999................. 55,578,879 0.98-19.52 5.90
Options exercisable.............. 13,472,337 2.38
Granted.......................... 6,286,580 25.88-64.73 63.50
Exercised........................ (6,786,474) 0.98-16.23 3.45
Canceled......................... (437,583) 1.32-64.73 12.79
---------- ------------ ------
Options outstanding balance at
June 30, 2000..................... 54,641,402 $ 1.02-64.73 $12.77
========== ============ ======
Options exercisable.............. 17,400,291 $ 4.00
</TABLE>
Shares available for future grants totaled 42,608,646 at December 31, 1999
and 36,759,649 at June 30, 2000.
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------------------ -------------------------
Weighted Average Weighted Weighted
Range of Remaining Average Average
Exercise Prices Options Contractual Life Exercise Price Options Exercise Price
--------------- ---------- ---------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.98-1.32 10,881,435 6 years $ 1.29 5,858,115 $1.28
1.46-2.02 9,530,772 7 years 1.99 3,360,552 1.93
2.27-3.48 2,385,330 5 years 2.97 1,762,530 2.62
5.19-5.19 12,236,382 8 years 5.19 1,855,470 5.19
5.57-6.40 3,178,230 8 years 5.92 635,670 6.06
11.48-19.52 17,366,730 9 years 11.87 -- --
---------- ------ ---------- -----
55,578,879 $ 5.90 13,472,337 $2.38
========== ====== ========== =====
</TABLE>
F-13
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6. Shareholders' Equity--(continued)
Employee Stock Purchase Plan
In April 1999, we introduced an Employee Stock Purchase Plan under which
3,000,000 shares of common stock have been reserved for issuance. Eligible
employees may purchase a limited number of shares of our stock at 85% of the
market value at plan-defined dates. During 1999, employees purchased 66,027
shares at a total cost of $1,179,000 under this plan.
At December 31, 1999, we reserved shares of common stock for future
issuances as follows:
<TABLE>
<S> <C>
Outstanding stock options..................................... 55,578,879
Stock options available for future grant...................... 42,608,646
Employee stock purchase plan.................................. 2,933,973
Conversion of convertible subordinated notes to AHP........... 15,544,041
-----------
116,665,539
===========
</TABLE>
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 prior to the record date of the
stock split have been restated to reflect the three-for-one stock split.
Note 7. Income Taxes
Significant components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1998 1999
---- ------ -------
<S> <C> <C> <C>
Current taxes
Federal............................................ $ -- $ -- $ --
State.............................................. 212 300 449
---- ------ -------
$212 $ 300 $ 449
Deferred taxes
Federal (noncash accounting entry)................. $ -- $1,900 $12,051
State.............................................. -- -- --
---- ------ -------
$212 $2,200 $12,500
==== ====== =======
</TABLE>
During 1998 and 1999, we generated taxable income for financial reporting
purposes. Our taxable income, for financial reporting purposes, was offset by
utilizing net operating loss, or NOL, carryforwards that originated prior to
the 1993 Cyanamid merger. A portion of the benefit from utilizing these NOLs
has been recorded as a tax expense and as a reduction of goodwill and
intangible product rights of $1,900,000 in 1998 and $12,051,000 in 1999. This
tax expense will not result in a cash outlay. We paid income taxes totaling
$132,000 for 1997, $275,000 for 1998 and $383,000 for 1999.
F-14
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 7. Income Taxes--(continued)
Reconciliation of the U.S. federal statutory tax rate to our effective tax
rate is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----- ---- -----
<S> <C> <C> <C>
U.S. federal statutory tax rate........................ (35.0)% 35.0% 35.0 %
Nondeductible amortization of goodwill................. 4.6 17.4 0.5
Increase in valuation reserve.......................... 29.7 -- --
State taxes (net of federal tax benefit)............... 1.4 6.1 0.8
Other.................................................. 0.7 10.6 0.9
Utilization of NOL carryforwards....................... -- -- (15.1)
----- ---- -----
Effective tax rate................................... 1.4 % 69.1% 22.1 %
===== ==== =====
</TABLE>
Significant components of tax assets and liabilities at December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1999
-------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 88,194 $ 100,330
Research and experimentation credits.................. 16,814 20,443
In-process research and development................... 3,901 3,547
Accounts receivable allowances........................ 4,070 7,638
Accrued liabilities................................... 1,885 9,670
Other................................................. 912 1,627
-------- ---------
Total deferred tax assets........................... 115,776 143,255
Valuation allowance for deferred tax assets........... (109,526) (139,720)
-------- ---------
Net deferred tax assets............................. 6,250 3,535
Deferred tax liabilities:
Tax over book depreciation............................ 1,515 1,251
Purchase accounting adjustments....................... 2,157 --
Other................................................. 2,578 2,284
-------- ---------
Total deferred tax liabilities...................... 6,250 3,535
-------- ---------
$ -- $ --
======== =========
</TABLE>
Our deferred tax assets consist primarily of the benefit resulting from
unused NOL carryforwards and research and experimentation credit
carryforwards. The amounts of these carryforwards are approximately
$286,658,000 and $20,443,000 at December 31, 1999. The carryforwards expire
from 2000 through 2019. During 1999, $58,342,000 of NOL carryforwards were
used for financial reporting purposes to reduce the recorded value of goodwill
and intangible products rights and to offset tax expense. An additional
$98,300,000 of NOL carryforwards were generated due to stock option deductions
for tax purposes. In 1999, approximately $5,300,000 of NOL carryforwards and
$420,000 of research and experimental credits expired.
Our ability to generate sufficient future taxable income for tax purposes
in order to realize the benefits of our net deferred tax assets is uncertain
primarily as a result of future stock option deductions. Therefore, a reserve
of $109,526,000 and $139,720,000 has been recorded for financial reporting
purposes at December 31, 1998 and 1999. This represents an increase in the
reserve of approximately $8,472,000 during 1998 and $30,194,000 during 1999.
F-15
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 7. Income Taxes--(continued)
To the extent we are able to generate taxable income in the future, NOL
carryforwards will be utilized in the following order (in thousands):
<TABLE>
<S> <C>
. NOL to be utilized to offset future tax expense.................. $152,535
. NOL to be utilized to increase paid-in capital for the unrecorded
tax benefit of stock options..................................... 134,123
--------
Total NOL carryforward........................................... $286,658
========
</TABLE>
Note 8. Employee Benefits
As a retirement plan, we offer a defined contribution plan covering
regularly scheduled full-time, part-time and temporary employees. The plan is
a salary deferral arrangement pursuant to Internal Revenue Code section 401(k)
and is subject to the provisions of the Employee Retirement Income Security
Act of 1974. We match 100% of the first 2% of an employee's deferred salary
and 50% of the next 4% of an employee's deferred salary. Employees with five
or more years of service receive a match of 100% of the first 2% of deferred
salary and 75% of the next 4% of deferred salary. We recorded compensation
expense resulting from matching contributions to the plan of $1,900,000 in
1997, $2,164,000 in 1998, and $2,860,000 in 1999.
Note 9. Transactions with AHP
On June 1, 1993, our predecessor corporation merged with a subsidiary of
Cyanamid. In late 1994, all of the outstanding shares of common stock of
Cyanamid were acquired by AHP. AHP and certain of its subsidiaries and
affiliates have assumed the rights and obligations of Cyanamid under various
agreements entered into at the time of the merger or thereafter. In addition,
we have entered into additional agreements with AHP. Significant transactions
under these agreements are discussed in the paragraphs below.
Enbrel promotion agreement
In 1997, we entered into an Enbrel promotion agreement with AHP. Under the
terms of the Enbrel promotion agreement, Enbrel is being promoted in the
United States by the sales and marketing organization of Wyeth-Ayerst
Laboratories, a division of AHP. We distribute a portion of the gross profits
to AHP from U.S. sales of Enbrel and reimburse AHP for a portion of the
selling, marketing, distribution and other costs incurred in the United States
for sales of Enbrel. Under the Enbrel promotion agreement, AHP paid a majority
of these expenses prior to the launch of Enbrel and pays a declining, but
still majority, percentage of these expenses during the two years following
launch. At the beginning of the third year following launch of Enbrel, we and
AHP will share these costs equally in the United States. Our obligation for
such expenses, including AHP's share of gross profits from U.S. sales of
Enbrel, is included as a component of selling, general and administrative
expenses and totaled $14,800,000 in 1998, $120,276,000 in 1999 and $97,173,000
for the six months ended June 30, 2000. In addition, under the Enbrel
promotion agreement, we earned revenues of $15,000,000 in 1997, $50,000,000 in
1998, $10,000,000 in 1999 and $25,000,000 for the six months ended June 30,
2000.
Under subsequent agreements, we recorded revenue of $3,864,000 in 1999 and
$1,637,000 for the six months ended June 30, 2000 for supplying Enbrel to AHP
outside the United States and Canada. In addition, we performed activities
related to Enbrel and the process of manufacturing Enbrel on behalf of AHP and
AHP agreed to reimburse us for these costs which totaled $1,310,000 during
1999 and $760,000 for the six months ended June 30, 2000.
F-16
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9. Transactions with AHP--(continued)
TACE agreements
In December 1995, we licensed exclusive worldwide rights to tumor necrosis
factor alpha converting enzyme, or TACE, technology to AHP. We recognized
revenue under these agreements of $6,000,000 in 1997, $4,000,000 in 1998 and
$1,600,000 in 1999. No related revenue was earned in 2000. The TACE agreements
also include additional milestone payments and royalties on future product
sales. Under the agreements, AHP will be responsible for developing inhibitors
of TACE.
Research and development
Under a license and development agreement for Enbrel, we and AHP agreed to
share equally the development costs of Enbrel in the United States, Canada and
Europe. AHP's share of the development costs under this agreement totaled
$19,256,000 in 1997, $22,092,000 in 1998, $23,986,000 in 1999 and $15,094,000
for the six months ended June 30, 2000.
In July 1998, we ended our oncology collaboration with AHP by terminating a
research agreement and other agreements and entered into a new products rights
agreement. As a result of the termination of the research agreement, our
funding requirements of AHP's oncology discovery research program ceased
effective July 1, 1998. Under the superseded agreement we paid $16,240,000 in
1997 and $8,258,000 in 1998 to support AHP's oncology research programs.
Under the terms of the product rights agreement, AHP may acquire exclusive
worldwide rights to up to four of our future product candidates. If AHP
exercises any of these rights, we would be eligible for payments and royalties
on future sales of these products. However, we may elect to retain the
worldwide rights to up to two of these products. In this case, AHP would
generally be eligible for payments and royalties on future sales of these
products.
Oncology product license agreements
AHP and its sublicensees have a royalty-bearing license to sell our
existing nonbiological oncology products outside the United States and Canada.
We earned royalties under the agreement totaling $2,972,000 in 1997,
$2,687,000 in 1998, $2,504,000 in 1999 and $1,237,000 for the six months ended
June 30, 2000.
As a result of the product rights agreement, territorial rights that each
party had to the other party's cancer product candidates were terminated.
Under the terms of the superseded agreements, AHP was entitled to a royalty-
bearing license outside the United States and Canada to any products resulting
from our oncology research and development activities. AHP reimbursed us for
costs related to manufacturing and process development. We recognized revenue
under the superseded agreement of $1,246,000 in 1997. No related revenue was
earned in 1998, 1999 or 2000.
Under the terms of a subsequent agreement, we and AHP agreed to collaborate
in the development of paclitaxel injection, a generic form of Taxol(R), an
oncology product marketed by Bristol-Myers Squibb Company. We incurred costs
under the agreement of $3,243,000 in 1997. In June 1998, we sold our U.S.
rights to paclitaxel injection to a third party, and accordingly are no longer
incurring such development expenses.
Supply and manufacturing
We and AHP are parties to a supply agreement and a toll manufacturing
agreement under which AHP manufactures and supplies the reasonable commercial
requirements of oncology products at a price equal to
F-17
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9. Transactions with AHP--(continued)
125% of AHP's or its subsidiaries' manufacturing costs. We also have a
methotrexate distributorship agreement with AHP under which AHP agreed to
supply methotrexate to us at established prices which are adjusted annually.
We purchased inventory totaling $6,172,000 in 1998, $8,154,000 in 1999 and
$3,215,000 during the six months ended June 30, 2000 from AHP and its
subsidiaries under these agreements. In addition, AHP billed us $988,000 in
1997, $458,000 in 1998, $377,000 in 1999 and $267,000 during the six months
ended June 30, 2000 for other expenses under these agreements.
Distribution
We have agreed to supply the commercial requirements of our products to
Wyeth-Ayerst Laboratories Puerto Rico, Inc. and Wyeth-Ayerst Canada, Inc.,
wholly owned subsidiaries of AHP. Net revenue recognized under these
agreements totaled $580,000 in 1997, $758,000 in 1998, $2,361,000 in 1999 and
$1,875,000 for the six months ended June 30, 2000.
We were party to a distributorship agreement with Wyeth-Ayerst Canada, Inc,
a wholly owned subsidiary of AHP, under which Wyeth-Ayerst Canada distributed
nonbiological oncology products in Canada. We supplied these oncology products
to Wyeth-Ayerst Canada at established prices, which were subject to annual
adjustment. In 1997, sales to Wyeth-Ayerst Canada totaled $2,010,000. In
December 1997, we sold all of our rights to these oncology products in Canada
to AHP for $4,000,000.
Convertible subordinated note
During 1999, we issued a seven-year, 3% coupon, $450.0 million convertible
subordinated note to AHP (see Note 5). Interest incurred on the note totaled
$8,288,000 during 1999 and $6,750,000 for the six months ended June 30, 2000.
Option to purchase additional shares of our common stock
We and AHP are parties to a 1993 governance agreement under which AHP has
the option to purchase from us, on a quarterly basis, additional shares of our
common stock to the extent necessary to maintain AHP's percentage ownership
interest in our stock as of the immediately preceding quarter. The per share
purchase price of these shares 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. AHP's exercise of this option has resulted in purchases of
338,676 shares for $1,280,000 in 1997, 1,335,396 shares for $6,877,000 in
1998, 3,498,726 shares for $40,777,000 in 1999 and 1,042,995 shares for
$28,859,000 during the six months ended June 30, 2000.
Note 10. Commitments and Contingencies
We lease office and laboratory facilities under noncancelable operating
leases that expire through December 2009. These leases provide us with options
to renew the leases at fair market rentals through August 2015. A summary of
minimum future rental commitments under noncancelable operating leases at
December 31, 1999 follows (in thousands):
<TABLE>
<CAPTION>
Operating
Year Ended December 31, Leases
----------------------- ---------
<S> <C>
2000............................................................ $ 7,901
2001............................................................ 8,307
2002............................................................ 8,164
2003............................................................ 7,290
2004............................................................ 6,557
Thereafter...................................................... 4,956
-------
Total minimum lease payments.................................... $43,175
=======
</TABLE>
F-18
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 10. Commitments and Contingencies--(continued)
Rental expense on operating leases was $3,339,000 in 1997, $4,000,000 in
1998 and $5,183,000 in 1999.
We are utilizing a contract manufacturer for the production of Enbrel. At
December 31, 1999, we had made commitments to purchase inventory totaling at
least $218,000,000 over the next two years. A portion of this inventory will be
purchased by AHP from the contract manufacturer.
Various license agreements exist that require us to pay royalties based on a
percentage of sales of products manufactured using licensed technology or sold
under license. Royalty costs incurred under these agreements are included in
cost of product sales and totaled $8,139,000 in 1997, $12,997,000 in 1998 and
$59,326,000 in 1999. These agreements contain minimum annual royalty provisions
as follows (in thousands):
<TABLE>
<CAPTION>
Minimum Annual
Year Ended December 31, Royalty Payment
----------------------- ---------------
<S> <C>
2000..................................................... $8,130
2001..................................................... 7,880
2002..................................................... 7,425
2003..................................................... 130
Per year thereafter...................................... 130
</TABLE>
We are a party to routine litigation incident to our business. We believe
the ultimate resolution of these matters will not have a material adverse
impact on our future financial position and results of operations.
Note 11. Concentrations of Risk
Financial instruments that potentially subject us to significant
concentrations of credit risk consist principally of short-term investments and
trade accounts receivable.
We maintain cash, cash equivalents and short-term investments with various
financial institutions. These financial institutions are located throughout the
country and our policy is designed to limit exposure to any one institution.
Our investments are managed by outside investment advisers who perform periodic
evaluations of the relative credit standings of those financial institutions
that are considered in our investment strategy.
The trade accounts receivable balance represents our most significant
concentration of credit risk. We perform ongoing credit evaluations of our
customers, if appropriate, and we do not require collateral on accounts
receivable. At December 31, 1999, our accounts receivable balance from our
three largest wholesalers and specialty distributors totaled $50.3 million. If
any of these companies became insolvent or were otherwise unable to meet their
obligations to us, the loss would likely exceed our reserve for bad debt.
Sales of Enbrel accounted for 71% of total product sales for the year ended
December 31, 1999. Currently, all finished dosage forms of Enbrel are
manufactured for us by a single contract manufacturer. If this source of supply
were disrupted, sales of Enbrel could be adversely affected.
F-19
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 12. Net Income per Common Share
The following table presents the calculation of basic and diluted net
income per common share as required under SFAS 128 (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Six months ended
Year ended December 31, June 30,
---------------------------- -----------------
1997 1998 1999 1999 2000
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net income (loss).............. $ (15,772) $ 986 $ 44,324 $ 7,112 $ 73,674
========= ======== ======== ======== ========
Weighted average common shares
outstanding, basic............ 475,644 478,500 489,390 486,480 498,974
Net effect of dilutive stock
options....................... -- 24,180 40,584 39,210 44,886
--------- -------- -------- -------- --------
Weighted average common shares
outstanding, diluted.......... 475,644 502,680 529,974 525,690 543,860
========= ======== ======== ======== ========
Net income (loss) per common
share, basic.................. $ (0.03) $ 0.00 $ 0.09 $ 0.01 $ 0.15
========= ======== ======== ======== ========
Net income (loss) per common
share, diluted................ $ (0.03) $ 0.00 $ 0.08 $ 0.01 $ 0.14
========= ======== ======== ======== ========
</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, including the effect on adjusted net income, would
be anti-dilutive.
Note 13. Subsequent Event (unaudited)
In August 2000, we and AHP announced a number of new business arrangements
between us. First, AHP agreed to the future sale to us of a biotechnology
manufacturing facility in Rhode Island that we and AHP are retrofitting to
increase the manufacturing capacity of Enbrel. We expect to spend
approximately $400.0 million through 2002 to acquire the Rhode Island
manufacturing facility from AHP. In addition, AHP has agreed to provide
financing guarantees to third-party lenders of up to $550.0 million toward the
cost of designing and constructing our planned new research and technology
center in Seattle, Washington, provided that these financing guarantees will
be reduced to $450.0 million if this offering is completed. The total cost of
this center is expected to be up to approximately $750.0 million.
On October 31, 2000, AHP converted the principal amount of a $450 million
note into 15,544,041 shares of our common stock. The $450 million 3%
convertible subordinated note due 2006 was converted into newly issued shares
at $28.95 a share. Following conversion, AHP's ownership interest in us
increased from approximately 53% to approximately 55%.
F-20
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 14. Quarterly Financial Results (unaudited)
Our consolidated operating results for each quarter of 1998 and 1999, and
the first and second quarters of 2000 are summarized as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Year ended December 31,
1998:
Product sales............ $ 38,816 $ 39,961 $ 40,125 $ 51,005
Royalty and contract
revenue................. 3,050 24,194(1) 9,051 37,248(2)
Net income (loss)........ $ (9,024) $ 195 $ (4,925) $ 14,740
Net income (loss) per
common share:
Basic.................. $ (0.02) $ 0.00 $ (0.01) $ 0.03
Diluted................ $ (0.02) $ 0.00 $ (0.01) $ 0.03
Year ended December 31,
1999:
Product sales............ $ 95,237 $125,854 $139,446 $158,750
Royalty and contract
revenue................. 2,940 2,620 12,976 (3) 3,895
Net income............... $ 251 $ 6,861 $ 20,996 $ 16,216
Net income per common
share:
Basic.................. $ 0.00 $ 0.01 $ 0.04 $ 0.03
Diluted................ $ 0.00 $ 0.01 $ 0.04 $ 0.03
Six months ended June 30,
2000:
Product sales............ $166,698 $196,196
Royalty and contract
revenue................. 12,340 (4) 16,954(5)
Net income............... $ 32,161 $ 41,513
Net income per common
share:
Basic.................. $ 0.06 $ 0.08
Diluted................ $ 0.06 $ 0.08
</TABLE>
--------
(1) Includes $20.0 million earned under the Enbrel promotion agreement when
the biologics license application for Enbrel was accepted for review by
the FDA.
(2) Includes $30.0 million earned under the Enbrel promotion agreement when
Enbrel was approved by the FDA.
(3) Includes $10.0 million earned under the Enbrel promotion agreement when
U.S. sales of Enbrel exceeded $200.0 million for the preceding 12-month
period.
(4) Includes $10.0 million earned under the Enbrel promotion agreement when
U.S. sales of Enbrel exceeded $400.0 million for the preceding 12-month
period.
(5) Includes $15.0 million earned under the Enbrel promotion agreement when
Enbrel was approved by the FDA for reducing signs and symptoms and
delaying structural damage in patients with moderately to severely active
rheumatoid arthritis.
F-21
<PAGE>
PROSPECTUS
70,000,000 Shares
[LOGO OF IMMUNEX CORPORATION]
COMMON STOCK
----------------
Immunex Corporation and American Home Products Corporation, our principal
shareholder, may offer shares of our common stock from time to time. We will
not receive any proceeds from the sale of common stock by American Home
Products.
The specific terms and amounts of the securities will be fully described in a
prospectus supplement that will accompany this prospectus. Please read both
the prospectus supplement and this prospectus carefully before you invest.
This prospectus may not be used to sell securities unless accompanied by a
prospectus supplement.
----------------
Our common stock is quoted on the Nasdaq National Market under the symbol
"IMNX." The last reported sales price of our common stock on August 7, 2000
was $54.875 per share.
----------------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 5.
----------------
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
----------------
MORGAN STANLEY DEAN WITTER MERRILL LYNCH & CO.
August 30, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Where You Can Find More Information........................................ 3
Special Note Regarding Forward-Looking Statements.......................... 4
About This Prospectus...................................................... 4
Risk Factors............................................................... 5
Immunex and the Selling Shareholder........................................ 14
Use of Proceeds............................................................ 14
Description of Capital Stock............................................... 15
Plan of Distribution....................................................... 18
Validity of Common Stock................................................... 18
Experts.................................................................... 18
</TABLE>
In this prospectus, "Immunex," "we," "us" and "our" refer to Immunex
Corporation and our wholly owned subsidiary. References to "AHP" and the
"selling shareholder" refer to American Home Products Corporation, our
principal shareholder, and its direct and indirect wholly owned subsidiaries.
You should rely only on the information provided or incorporated by
reference in this prospectus or any prospectus supplement. We have not
authorized anyone to provide you with different information. You should not
assume that the information in this prospectus or any prospectus supplement is
accurate as of any date after its date.
These documents are not an offer to sell these securities and are not
soliciting an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted.
2
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. In connection with this offering we have filed with
the SEC a registration statement under the Securities Act of 1933 relating to
the securities. As permitted by the SEC rules, this prospectus omits certain
information included in the registration statement. For a more complete
understanding of the securities and this offering, you should refer to the
registration statement, including its exhibits.
The SEC allows us to "incorporate by reference" the information we file
with it, which means we can disclose important information to you by referring
you to those documents. The information included in the following documents is
incorporated by reference and is considered to be a part of this prospectus.
The most recent information that we file with the SEC automatically updates
and supersedes older information. We have previously filed the following
reports with the SEC and are incorporating them by reference into this
prospectus:
1. Our Annual Report on Form 10-K for the year ended December 31, 1999;
2. Our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000
and June 30, 2000;
3. Our Current Report on Form 8-K filed August 10, 2000, as amended by Form
8-K/A on August 30, 2000; and
4. Our Registration Statement on Form 8-A/A filed on August 1, 1993, with
respect to our common stock.
We also incorporate by reference all documents filed by us pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after
the effectiveness of the registration statement of which this prospectus forms
a part and before all of the shares registered under that registration
statement are sold.
We will provide without charge to each person who receives a prospectus,
including any beneficial owner, a copy of the information that has been
incorporated by reference in this prospectus. If you would like to obtain this
information from us, please direct your request, either in writing or by
telephone, to the Secretary, Immunex Corporation, 51 University Street,
Seattle, Washington 98101, (206) 587-0430.
The registration statement can also be inspected and copied at prescribed
rates at the public reference facilities maintained by the SEC at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional
offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. The public may obtain information regarding the Washington,
D.C. Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition,
the registration statement is publicly available through the SEC's site on the
Internet's World Wide Web, located at http://www.sec.gov.
3
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this prospectus, in any prospectus
supplement and in the documents incorporated by reference 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 prospectus,
in any prospectus supplement, in the documents incorporated herein by
reference 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 Current Reports on Form 8-K, Quarterly Reports
on Form 10-Q 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 below under the caption "Risk Factors."
These are risks that we think could cause our actual results to differ
materially from expected and historical results.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we
filed with the SEC using a "shelf" registration process. This prospectus
provides you with a general description of the Immunex common stock we and AHP
may offer. Each time we or AHP sell Immunex common stock we will provide a
prospectus supplement that will contain specific information about the terms
of that offering. The prospectus supplement may also add, update or change
information contained in this prospectus. We may also update or supplement the
prospectus supplement relating to a particular offering of common stock. You
should read both this prospectus and any applicable prospectus supplement
together with additional information described above in "Where You Can Find
More Information."
4
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. Before you invest in our
common stock, you should be aware of various risks, including those described
below. You should carefully consider these risk factors, together with all of
the other information included in this prospectus and in any prospectus
supplement, before you decide whether to purchase shares of our common stock.
If any of the following risks actually occur, our business and operating
results could be harmed. This could cause the market price of our common stock
to decline, and you may lose all or part of your investment.
Risks Related to Our Business
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(R)
(etanercept);
. 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
purchasing and 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 rheumatoid
arthritis, or 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.
5
<PAGE>
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 Boehringer Ingelheim Pharma KG, or 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 U.S. Food and Drug
Administration, or 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
6
<PAGE>
in 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(R) (mitoxantrone for injection concentrate). 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(R)
(sagramostim, GM-CSF), 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 products
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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. We have granted AHP demand and piggyback registration rights
with respect to its shares of our common stock. As a result, AHP could cause a
significant number of 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
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consent, it will not, during the period ending September 30, 2001, or nine
months after the date of any sale of our common stock by AHP under this
prospectus, 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.
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IMMUNEX AND THE SELLING SHAREHOLDER
Immunex is a biopharmaceutical company that discovers, develops,
manufactures and markets innovative therapeutic products treating human
diseases, including cancer, infectious diseases and immunological disorders
such as RA. We are a leader in the scientific exploration of the human immune
system. Our products improve quality of life and help people enjoy longer,
healthier and more productive lives. Our products are currently marketed in
the United States and are available by prescription only. Our research focus
has produced a pipeline of potential products that target some of the most
serious medical challenges people face, including cancer, multiple sclerosis,
heart disease and asthma.
AHP owns approximately 55% of our outstanding common stock. AHP is one of
the world's largest research-based pharmaceutical and healthcare products
companies.
We were incorporated in Washington in 1981. Our principal executive offices
are located at 51 University Street, Seattle, Washington 98101. Our telephone
number at this location is (206) 587-0430.
USE OF PROCEEDS
Unless otherwise specified in the applicable prospectus supplement, we may
sell up to 20,000,000 shares of common stock, and AHP may sell up to
50,000,000 shares of common stock. The exact number of shares to be sold by us
and AHP in any offering will be described in the applicable prospectus
supplement. We will not receive any proceeds from the sale of common stock by
AHP. Unless otherwise specified in the applicable prospectus supplement, we
intend to use the net proceeds from the sale of common stock that we sell to
expand our manufacturing facilities, to design and construct our new research
and technology center, to fund research and development and commercialization
activities for new products, for additional working capital and for other
general corporate purposes, as well as the possible acquisition of
complementary businesses and technologies.
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DESCRIPTION OF CAPITAL STOCK
We are authorized to issue a total of 1,230,000,000 shares, consisting of
1,200,000,000 shares of common stock and 30,000,000 shares of preferred stock.
As of July 31, 2000, there were 502,692,116 shares of common stock outstanding
and no shares of preferred stock outstanding. The following is a summary of
some of the rights and privileges pertaining to our common stock. You should
refer to our restated articles of incorporation and to our bylaws for a full
description of our common stock and our preferred stock.
Common Stock. The holders of common stock are entitled to receive those
dividends as may be declared by our board out of funds legally available and
will be entitled to share pro rata in any distribution to shareholders,
subject to the prior rights of holders of any preferred stock that may be
issued in the future. Holders of common stock are entitled to one vote for
each share held of record. Upon any liquidation, dissolution or winding up of
Immunex, holders of our common stock will be entitled to receive, pro rata,
the assets of Immunex available for distribution subject to the prior rights
of holders of preferred stock. No preemptive rights are applicable to our
common stock. All outstanding shares of our common stock are validly issued,
fully paid and nonassessable, and not subject to liability for further call.
Our common stock is quoted on the Nasdaq National Market under the symbol
"IMNX."
Preferred Stock. Our board has the authority to issue preferred stock in
one or more series and to determine the rights, preferences, privileges and
restrictions, including dividend rights, voting rights, terms of redemption
(including sinking fund provisions), liquidation preferences, the number of
shares constituting any series and the designation thereof.
Antitakeover Provisions. Provisions of Washington law, our restated
articles of incorporation and bylaws could make it more difficult for a third
party to acquire us and to remove incumbent officers and directors. These
provisions, summarized below, are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of us to first negotiate with us. These
provisions could discourage potential acquisition proposals and could delay or
prevent a change in control. These provisions are also intended to enhance the
likelihood of continuity and stability in the composition of our board and in
the policies formulated by our board of directors and to discourage certain
types of transactions that may involve an actual or threatened change of
control. These provisions are designed to reduce our vulnerability to an
unsolicited acquisition proposal and to discourage certain tactics that may be
used in proxy fights. However, these provisions could have the effect of
discouraging others from making tender offers for our shares and, as a
consequence, they also may inhibit fluctuations in the market price of our
shares that could result from actual or rumored takeover attempts. These
provisions also may have the effect of preventing changes in our management.
We believe that the benefits of increased protection of our ability to
negotiate with the proponent of an unfriendly or unsolicited proposal to
acquire or restructure us outweigh the disadvantages of discouraging those
proposals because, among other things, negotiation of those proposals could
result in an improvement of their terms.
Shareholder Meetings. In order for a shareholder to properly bring business
before an annual meeting that shareholder must first comply with the advance
notice procedures in our bylaws. According to these procedures, a shareholder
must provide written notice no fewer than 60 days or more than 90 days prior
to the date fixed for the annual meeting (or, if notice of the meeting is
given less than 60 days prior to the meeting, 10 days from the date notice is
mailed). The notice must set forth (a) the name and address of the shareholder
proposing the business to be brought before the annual meeting, (b) a
representation that the shareholder is entitled to vote at that meeting and a
statement of the number of shares the shareholder beneficially owns, (c) a
representation that the shareholder intends to appear in person or by proxy at
the meeting to propose the business, and (d) a brief description of the
business to be brought before the meeting.
Under our restated articles of incorporation, special meetings of the
shareholders can only be called pursuant to a resolution adopted by our board
of directors, our chairman of the board, our president or by written demand
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by the holders of not less than 40% of all the votes entitled to be cast on
any issue to be considered at a special meeting. A shareholder who wishes to
initiate a special meeting must give signed written notice to the secretary.
Number and Term of Directors. Our restated articles of incorporation and
our bylaws provide that the number and term of directors are to be determined
by our board of directors, subject to the governance agreement between us and
AHP. Shareholders who wish to nominate directors for election must follow the
advance notice provisions in the bylaws which are similar to those provisions
regarding annual and special meetings.
Amendments. Any conflict between (a) any action taken by Immunex or our
board of directors, or any provision of the bylaws, and (b) the terms of the
governance agreement must be resolved in favor of the terms of the governance
agreement, unless AHP agrees otherwise in writing.
Washington Antitakeover Law. The laws of Washington, where we are
incorporated, also impose restrictions on various transactions between a
corporation and significant shareholders. Chapter 23B.19 of the Washington
Business Corporation Act, or the WBCA, prohibits a "target corporation," with
specific exceptions, from engaging in certain "significant business
transactions" with an "acquiring person" who beneficially owns 10% or more of
the voting securities of the target corporation for a period of five years
after that acquisition unless the transaction or acquisition of those shares
is approved by a majority of the members of the target corporation's board of
directors prior to the time of acquisition.
These prohibited transactions include, among other things:
. a merger, share exchange or consolidation with, disposition of assets
to, or issuance or redemption of stock to or from, the acquiring person;
. termination of 5% or more of the employees of the target corporation
employed in Washington as a result of the acquiring person's acquisition
of 10% or more of the shares; or
. allowing the acquiring person to receive disproportionate benefits as a
shareholder.
After the five-year period, a merger, consolidation or liquidation may take
place as long as it either complies with specific fair price provisions of the
statute or is approved at a meeting of shareholders by a majority of the votes
entitled to be counted within each voting group entitled to vote separately on
the transaction, not counting the votes of shares as to which the acquiring
person has beneficial ownership or voting control.
A public corporation may not "opt out" of this statute and, therefore, this
statute will apply to us. Chapter 23B.19 of the WBCA may have the effect of
delaying, deferring or preventing a change of control.
Registration Rights. Under the governance agreement between us and AHP, a
group of our securities, all of which are currently beneficially owned by AHP,
are referred to as registrable securities. The registrable securities include:
. the securities issued to American Cyanamid Company (the predecessor
corporation of AHP) in conjunction with our 1993 merger with a wholly
owned subsidiary of American Cyanamid;
. any securities issued pursuant to the governance agreement; and
. at AHP's option, the securities issuable upon conversion of a
convertible subordinated note held by AHP.
The holders of at least 25% of the registrable securities may request that
we file a registration statement under the Securities Act covering the
registration of any or all registrable securities held by those holders. We
are not obligated to effect more than three of these registrations. There is
no limit, however, as to the number of short-form registrations on Form S-3
that the holders may request under the governance agreement. Each
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must have an aggregate offering price to the public exceeding $25 million and
the other provisions of the governance agreement must be satisfied.
Subject to specified conditions, if we propose to file a registration
statement under the Securities Act on any form (other than on Form S-4 or S-8)
that also would permit the registration of registrable securities, and that
filing is for the general registration of shares of common stock for cash, we
must give notice of that fact to the holders of the registration rights and
permit those holders to include registrable securities in the registration
statement.
AHP's registration rights are subject to conditions set forth in the
governance agreement. In addition, the governance agreement sets forth
specific procedures relating to those registration rights and detailed
obligations of the related parties. All expenses incident to the performance
by us of our obligations relating to the registration of AHP's shares of
common stock will be paid by us, except that the holders exercising
registration rights will pay all expenses incident to the second or third
long-form registration. In addition, the holders of registrable securities
will pay the underwriting commissions and discounts applicable to securities
offered for their account in connection with any registrations, filings and
qualifications made pursuant to the governance agreement, as well as related
attorneys' fees. Immunex and the holders of registrable securities have each
agreed to indemnify the other, in certain instances, for liabilities incurred
in connection with these registrations.
Notwithstanding these registration rights, AHP has agreed that, without our
prior written consent, it will not, during the period ending September 30,
2001, or nine months after the date of any sale of our common stock by AHP
under this prospectus, 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.
Transfer Agent and Registrar. The transfer agent and registrar for the
common stock is ChaseMellon Shareholder Services LLC.
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PLAN OF DISTRIBUTION
Immunex and AHP may sell securities through or to underwriters or dealers,
and also may sell securities directly to other purchasers or through agents.
Each prospectus supplement will describe the method of distributing the
offered securities. None of the officers or directors of Immunex will be
selling shareholders.
The distribution of the common stock will be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, at
prices related to prevailing market prices or at negotiated prices.
Unless otherwise specified in the applicable prospectus supplement, Morgan
Stanley & Co. Incorporated and Merrill Lynch, Pierce, Fenner & Smith
Incorporated will act as representatives of the underwriters in connection
with the sale of the common stock. The underwriters may receive compensation
from us and AHP, or from purchasers of securities for whom they may act as
agents, in the form of discounts, concessions or commissions. Underwriters may
sell securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agents. Dealers and agents that participate in distributing securities may be
deemed to be underwriters, and any discounts or commissions received by them
from Immunex or AHP and any profit on the resale of securities by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
All underwriters or agents will be identified, and any compensation received
from Immunex or AHP will be described, in the prospectus supplement.
Underwriters and agents who participate in distributing securities may be
entitled under agreements which may be entered into by Immunex and AHP to
indemnification by Immunex and AHP against certain liabilities, including
liabilities under the Securities Act.
AHP has agreed that, without our prior written consent, it will not, during
the period ending September 30, 2001, or nine months after the date of any
sale of our common stock by AHP under this prospectus, 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.
VALIDITY OF COMMON STOCK
The validity of the common stock to be sold by us and AHP has been passed
upon for us by Orrick, Herrington & Sutcliffe LLP, Seattle, Washington. Unless
otherwise indicated in the applicable prospectus supplement, the validity of
the common stock to be sold by us and AHP will be passed upon for the
underwriters by Sullivan & Cromwell, Palo Alto, California. Sullivan &
Cromwell will rely as to matters of Washington law upon the opinion of Orrick,
Herrington & Sutcliffe LLP.
EXPERTS
The consolidated financial statements and schedule of Immunex Corporation
appearing in Immunex Corporation's Annual Report (Form 10-K) for the year
ended December 31, 1999, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements and
schedule are incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
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[text]
OUR COMMITMENT
We are passionate about science and confident about the future we are creating.
. . the future of medicine. Through our expertise in the human immune system
and cytokine biology we discover and develop new therapies that advance medical
care for the physician and the patient.
[Five photographs depicting (1) cells, (2) an individual, (3) an x-ray of a
hand, (4) a scientist, and (5) a child]
[overlay of scientific writing]
[text]
IMMUNEX CREATING THE FUTURE OF MEDICINE(TM)
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[LOGO OF IMMUNEX(R)
Creating the Future of Medicine]
