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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-12406
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IMMUNEX CORPORATION
(Exact name of registrant as specified in its charter)
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WASHINGTON 51-0346580
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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51 UNIVERSITY STREET, SEATTLE, WA 98101
(Address of principal executive offices)
(206) 587-0430
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. / /
The approximate aggregate market value of the voting stock held by
nonaffiliates of the registrant as of February 25, 2000 was: $15,526,735,910.
Common stock outstanding at February 25, 2000: 166,112,429 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Portions of the Company's definitive Proxy Statement for the annual
meeting of shareholders to be held on April 25, 2000, are incorporated by
reference in Part III.
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TABLE OF CONTENTS
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PART I
ITEM 1. BUSINESS......................................................... 1
General.......................................................... 1
Marketed Products................................................ 2
ANTI-INFLAMMATORY........................................... 2
ONCOLOGY.................................................... 3
Research and Product Development................................. 4
NEW INDICATIONS FOR MARKETED PRODUCTS....................... 4
INVESTIGATIONAL PRODUCTS IN HUMAN CLINICAL TRIALS........... 5
PRECLINICAL RESEARCH AND DEVELOPMENT PIPELINE............... 5
CYTOKINE PRODUCTS........................................... 6
ADDITIONAL CYTOKINES AND OTHER NEW MOLECULES................ 8
RECEPTOR PRODUCTS........................................... 9
RESEARCH COLLABORATIONS..................................... 12
NON-BIOLOGICAL ONCOLOGY PRODUCTS............................ 13
Relationship with AHP and Cyanamid............................... 14
1993 MERGER................................................. 14
GOVERNANCE AGREEMENT........................................ 14
TACE AGREEMENTS............................................. 15
TNFR LICENSE AND DEVELOPMENT AGREEMENT...................... 15
ENBREL PROMOTION AGREEMENT.................................. 15
PRODUCT RIGHTS AGREEMENT.................................... 17
Convertible Subordinated Note.................................... 18
Marketing and Distribution....................................... 18
ENBREL...................................................... 18
ONCOLOGY AND OTHER PRODUCTS................................. 19
DISTRIBUTION................................................ 19
Competition...................................................... 19
LEUKINE..................................................... 20
NOVANTRONE.................................................. 20
ENBREL...................................................... 20
GENERIC ONCOLOGY PRODUCTS................................... 21
Raw Materials and Supply......................................... 21
Government Regulation............................................ 22
Patents, Licenses and Trademarks................................. 23
PATENTS ON BIOLOGICAL PRODUCTS.............................. 24
PATENTS ON NON-BIOLOGICAL ONCOLOGY PRODUCTS................. 25
PATENT AND TECHNOLOGY LICENSES.............................. 25
TRADEMARKS.................................................. 26
Properties....................................................... 26
Personnel........................................................ 26
Risks............................................................ 27
ITEM 2. PROPERTIES....................................................... 32
ITEM 3. LEGAL PROCEEDINGS................................................ 32
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 32
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PART II
ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS......................................... 33
ITEM 6. SELECTED FINANCIAL DATA.......................................... 33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS....................................... 34
Results of Operations............................................ 34
Overview.................................................... 34
Revenues.................................................... 34
Operating Expenses.......................................... 35
Other Income (Expense)...................................... 36
Provision for Income Taxes.................................. 36
Liquidity and Capital Resources.................................. 36
Outlook.......................................................... 37
Year 2000........................................................ 38
Market Risk...................................................... 38
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK...... 39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................... 39
Consolidated Balance Sheets...................................... 40
Consolidated Statements of Operations............................ 41
Consolidated Statements of Shareholders' Equity.................. 42
Consolidated Statements of Cash Flows............................ 43
Notes to Consolidated Financial Statements....................... 44
Note 1. Organization and Basis of Presentation.............. 44
Note 2. Summary of Significant Accounting Policies.......... 44
Note 3. Investments......................................... 46
Note 4. Property, Plant and Equipment....................... 47
Note 5. Long-term Obligations............................... 47
Note 6. Shareholders' Equity................................ 48
Note 7. Income Taxes........................................ 50
Note 8. Employee Benefits................................... 52
Note 9. Transactions with AHP............................... 52
Note 10. Commitments and Contingencies...................... 54
Note 11. Concentrations of Risk............................. 55
Note 12. Net Income per Common Share........................ 56
Note 13. Subsequent Events.................................. 56
Note 14. Quarterly Financial Results (unaudited)............ 57
Report of Ernst & Young LLP, Independent Auditors........... 58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE........................................ 59
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............. 59
ITEM 11. EXECUTIVE COMPENSATION.......................................... 59
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................. 59
ITEM 13. RELATIONSHIPS AND RELATED TRANSACTIONS.......................... 59
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K................................................... 60
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PART I
ITEM 1. BUSINESS
Our disclosure and analysis in this report and in our 1999 Annual Report to
shareholders 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, expenses, the outcome of contingencies such as legal
proceedings, and financial results. From time to time, we also may provide oral
or written forward-looking statements in other materials we release to the
public. Any or all of our forward-looking statements in this report, in the 1999
Annual Report and in any other public statements we make may turn out to be
wrong. Inaccurate assumptions we might make and known or unknown risks and
uncertainties can affect our forward-looking statements. Consequently, no
forward-looking statement can be guaranteed and our actual results may differ
materially.
We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any further disclosures we make on related
subjects in our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
Annual Reports on Form 10-K. Also note that we provide a cautionary discussion
of risks, uncertainties and possibly inaccurate assumptions relevant to our
business under the caption RISKS of this report. These are risks that we think
could cause our actual results to differ materially from expected and historical
results. Other risks besides those listed in this report could also adversely
affect us.
GENERAL
Immunex Corporation is a biopharmaceutical company that discovers, develops,
manufactures and markets innovative therapeutic products for the treatment of
human diseases, including cancer, infectious diseases and immunological
disorders such as rheumatoid arthritis. Immunex was founded in 1981. 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 targets some of the most serious medical challenges
people face, including cancer, multiple sclerosis, heart disease and asthma.
American Home Products Corporation, or AHP, through several of its wholly
owned subsidiaries, owns approximately 54% of the outstanding common stock of
Immunex. AHP is one of the world's largest research-based pharmaceutical and
healthcare products companies.
Our home page on the Internet is at www.immunex.com. Information contained
on our Web site does not constitute part of this report.
Our business is regulated primarily by the U.S. Food and Drug
Administration, or FDA. As we discuss under the caption GOVERNMENT REGULATION,
the FDA regulates the products we sell, our manufacturing processes and our
promotion and advertising.
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MARKETED PRODUCTS
Almost all of our product revenues come from products in two major
therapeutic classes: anti-inflammatory and oncology. Our marketed products in
the United States can be grouped as follows:
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ANTI-INFLAMMATORY ONCOLOGY
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ENBREL-REGISTERED TRADEMARK- LEUKINE-REGISTERED TRADEMARK-
(etanercept) (sargramostim, GM-CSF)
NOVANTRONE-REGISTERED TRADEMARK-
(mitoxantrone for injection
concentrate)
THIOPLEX-REGISTERED TRADEMARK-
(thiotepa for injection)
AMICAR-REGISTERED TRADEMARK-
(aminocaproic acid)
Methotrexate sodium injectable
Leucovorin calcium
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We own rights to ENBREL in the United States and Canada, and AHP owns rights
to ENBREL in all other countries. We own worldwide rights to LEUKINE and U.S.
rights to the other marketed products listed above. A summary of our marketed
products is provided below.
ANTI-INFLAMMATORY
ENBREL. ENBREL, our newest product, was approved by the FDA on November 2,
1998, and launched in the United States on November 4, 1998. ENBREL is our brand
name, or trademark, for etanercept. ENBREL was the first in a new class of
drugs, known as biologic response modifiers, for the treatment of rheumatoid
arthritis, also referred to as RA. ENBREL represents a new approach to RA
management and the first breakthrough treatment in many years for people with
RA. 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. RA is a serious 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. The FDA has approved
ENBREL for the following indications or uses:
- reduction of signs and symptoms of moderately to severely active RA in
patients who have had an inadequate response to one or more
disease-modifying, antirheumatic drugs, or DMARDs;
- in combination with methotrexate in patients who do not respond adequately
to methotrexate alone; and
- for the treatment of moderately to severely active polyarticular-course
juvenile rheumatoid arthritis, or JRA, in patients who have had an
inadequate response to one or more DMARDs.
ENBREL is sold in a powder formulation and is administered to patients as a
subcutaneous injection, which means that it is injected under the skin. AHP and
Immunex are marketing ENBREL in the United States under the ENBREL Promotion
Agreement, which we discuss below under the caption RELATIONSHIP WITH AHP AND
CYANAMID.
ENBREL acts by supplementing the body's natural process of regulating
levels of tumor necrosis factor, or TNF, a protein known to be pivotal to the
RA disease process. In clinical trials, ENBREL has been shown to reduce pain
and duration of morning stiffness and improve swollen and tender joints,
enabling patients to better participate in daily activities. ENBREL acts by
binding to and neutralizing 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. ENBREL inhibits the binding of TNF molecules
to cell surface TNF receptors, or TNFR. The binding of ENBREL to TNF renders
the bound TNF biologically inactive, resulting in significant reduction in
inflammatory activity.
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ONCOLOGY
LEUKINE. Immunex discovered and developed LEUKINE as our first marketed
product. We launched LEUKINE in the United States in 1991. LEUKINE is our
trademark for sargramostim. LEUKINE is sometimes referred to as
granulocyte-macrophage colony stimulating factor, or GM-CSF. LEUKINE is a
recombinant form of a protein, called a cytokine, that is almost identical to a
protein normally produced in the body. This cytokine 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.
LEUKINE is only available in the United States and is marketed by our specialty
sales force. While LEUKINE is available in both multi-dose liquid and powder
formulations, most of our sales are of the multi-dose liquid formulation. The
FDA has approved LEUKINE for the following indications:
- facilitating allogeneic and autologous bone marrow transplant therapies
currently used for treatment of acute leukemia, lymphoma, and Hodgkin's
disease and in rescuing patients whose bone marrow transplant grafts have
failed;
- accelerating neutrophil recovery and reducing mortality in treatment of
patients with acute myelogenous leukemia; and
- for use in peripheral blood progenitor cell mobilization and
post-transplantation support.
NOVANTRONE. NOVANTRONE is our trademark for mitoxantrone for injection
concentrate. NOVANTRONE is a compound similar to doxorubicin and idarubicin, but
with a molecular change that results in less damage to the heart. NOVANTRONE is
sold in a concentrated liquid form for injection. The FDA has approved
NOVANTRONE for the following indications:
- initial therapy of acute nonlymphocytic leukemia; and
- in combination with steroids, for treatment of patients with pain related
to hormone refractory prostate cancer.
When used in combination with steroids, therapy with NOVANTRONE has been
shown to significantly reduce pain and improve quality of life in patients with
hormone refractory prostate cancer. In 1997, the FDA authorized us to supplement
the approved labeling for NOVANTRONE to cite clinical results showing its
potential, in combination with corticosteroids, to reduce levels of
prostate-specific antigen, also known as PSA. PSA is an important indicator used
by many physicians and patients to monitor prostate cancer. On January 28, 2000,
the FDA Peripheral and Central Nervous System Drugs Advisory Panel unanimously
recommended NOVANTRONE for approval to slow the worsening of neurologic
disability and to reduce the relapse rate in patients with clinically worsening
forms of relapsing-remitting and secondary progressive multiple sclerosis. This
FDA Advisory Panel recommendation, although not binding, will be considered by
the FDA in its final review of our new drug application, or NDA, for NOVANTRONE.
THIOPLEX. THIOPLEX is our trademark for a powder formulation of thiotepa
for injection. Thiotepa is a cytotoxic agent, which means that it kills cells.
THIOPLEX is approved for the palliative treatment of a wide variety of tumor
types, which means that it alleviates symptoms without curing the underlying
disease. The FDA has approved THIOPLEX for a number of oncology indications. We
have been selling and distributing THIOPLEX in the United States since FDA
approval of a supplemental NDA in December 1994.
AMICAR. AMICAR is our trademark for aminocaproic acid. AMICAR is used to
decrease bleeding in specific surgical procedures and other medical situations.
We sell syrup, tablet and powder injectable formulations of AMICAR. AMICAR has
generic competition from another company.
METHOTREXATE SODIUM INJECTABLE. Methotrexate sodium injectable is an
antimetabolite, a substance that replaces a particular metabolite, that is used
in the treatment of a number of neoplastic, or tumor, diseases. Patients with
breast cancer, non-Hodgkin's lymphoma and lung cancer benefit from this product.
Methotrexate sodium injectable has significant generic competition. We
distribute this product in the United States under a distribution agreement with
American Cyanamid Company, or Cyanamid, which is a wholly owned subsidiary of
AHP.
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LEUCOVORIN CALCIUM. Leucovorin calcium is used in methotrexate rescue
therapy and in modulation of 5-fluorouracil drug therapy in advanced colorectal
cancer. We sell both tablet and powder formulations of leucovorin calcium.
Leucovorin calcium has significant generic competition.
RESEARCH AND PRODUCT DEVELOPMENT
Since Immunex was founded in 1981, we have focused our scientific efforts on
understanding the biology of the immune system. Our goal is to understand 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 technology that has
produced a number of promising biological therapeutic candidates. We spent
$126.7 million in 1999, $120.0 million in 1998 and $109.3 million in 1997 on
research and development. These amounts include expenses related to third-party
research collaborations and the acquisition of third-party product rights.
NEW INDICATIONS FOR MARKETED PRODUCTS
We recognize that an efficient way to generate increased revenue is by
adding new indications to a product that is already on the market. We have
increased our focus on development activities to find potential new indications
for our existing drugs. Our goal is to build pharmaceutical franchises and
expand the commercial usefulness and revenue-producing ability of our key
products. We are studying several of our key marketed products in the
indications and research areas listed below.
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MARKETED PRODUCT INDICATION/RESEARCH AREA DEVELOPMENT STATUS
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- - ENBREL Disease modification of active Supplemental biologics license
RA application, or sBLA, filed with
FDA in July 1999
Chronic heart failure Phase II/III
Psoriatic Arthritis Phase III
Psoriasis Phase I/II
- - LEUKINE Immune stimulation/ Phase II/III
immunomodulation for malignant
melanoma
Mucositis Phase II/III
Venous stasis ulcers Phase II
Anti-tumor adjuvancy; vaccine Phase II
adjuvancy
- - NOVANTRONE Secondary progressive multiple NDA filed with FDA in June 1999;
sclerosis, or MS broader MS indication
recommended by FDA Advisory
Panel in January 2000
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INVESTIGATIONAL PRODUCTS IN HUMAN CLINICAL TRIALS
We are studying the following proprietary investigational biotechnology
products in the indications and research areas listed below. We own worldwide
rights to each of these products, subject to a right of first refusal held by
AHP for NUVANCE-TM- (Interleukin-4 receptor, or IL-4R) under a Product Rights
Agreement. We are not obligated to accept any AHP offer for NUVANCE under its
right of first refusal. Details about the Product Rights Agreement are provided
below under the caption RELATIONSHIP WITH AHP AND CYANAMID.
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PRODUCT INDICATION/RESEARCH AREA DEVELOPMENT STATUS
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- - NUVANCE (IL-4R), a soluble Asthma Phase II
receptor that binds to and
neutralizes a cytokine known
as Interleukin-4, or IL-4
- - MOBISTA-TM- (Flt3 ligand, or Anti-cancer (prostate, non- Phase II
Flt3L) (formerly Mobist), a Hodgkin's lymphoma, malignant
cytokine that induces the melanoma)
proliferation of blood
progenitor cells and
specialized immune cells
(dendritic cells and natural
killer cells)
Peripheral blood stem cell Phase II
mobilization and
transplantation, dendritic cell
growth and mobilization
- - AVREND-TM- (CD40 ligand, or Metastatic renal cell carcinoma Phase II
CD40L), an immune system
molecule that plays a primary
role in various immune
processes and directly
arrests the growth of some
types of tumors
Epithelial solid tumors Phase I
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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 get the most value from our molecular portfolio, we are
focusing first on those product candidates with the largest market potential.
Our most promising preclinical candidates are listed below.
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MOLECULE INDICATION/RESEARCH AREA STATUS
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- - TNF related apoptosis Anti-cancer Pre-investigational new
inducing ligand, or drug application, or IND;
TRAIL/Apo2 ligand collaboration with
(Apo2L) Genentech, Inc.
- - Interleukin-1 receptor Anti-inflammatory, Pre-IND development
Type II (IL-1R TYPE II) osteoporosis, stroke,
myeloma
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- - Interleukin-15 (IL-15) Chemo/radiotherapy-induced Late preclinical
mucositis
- - TNF-alpha converting Inflammation, RA Late preclinical; licensed
enzyme (TACE) antagonist to AHP
- - ORK/Tek Anti-angiogenesis Late preclinical
- - Soluble CD39 Stroke, cardiovascular Late preclinical
- - Receptor activator of Osteoporosis Late preclinical
nuclear factor Kappa B
(RANK)
- - 4-1BB agonist Anti-cancer Early preclinical
- - Therapeutic monoclonal Anti-inflammatory, anti- Early preclinical
antibodies cancer, asthma
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CYTOKINE PRODUCTS
Our biotechnology products 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.
Immune cells include the following:
- granulocytes, which are scavenger cells specialized for uptake and
disposal of foreign particles or infectious agents;
- B-cells, which produce antibodies to "flag" foreign particles or diseased
cells for destruction;
- helper T-cells, which control and coordinate the function of other immune
cells;
- macrophages and dendritic cells, which take up and process protein
antigens for presentation to T-cells and B-cells; and
- natural killer cells, which directly kill tumor cells or some types of
virally infected cells.
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. We have also cloned and expressed genes
encoding cytokine receptors. Using genetic engineering techniques, we have
produced soluble versions of cytokine receptors, including fusions of soluble
receptors with fragments of human antibodies, that have been shown to be
capable of suppressing cytokine-induced responses by specifically binding to
and inactivating their target cytokines. We have also cloned and expressed
genes coding for a number of different enzymes that are involved in secretion
of cytokines, intracellular signalling proteins involved in immune responses,
extracellular interactions, and viral proteins that interact with human
immune proteins. These enzymes, signalling proteins, and viral proteins are
being investigated as targets for small molecule drug discovery, antibody
development or as protein therapeutics.
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LEUKINE (SARGRAMOSTIM, GM-CSF). A number of clinical trials are underway to
investigate whether LEUKINE could be approved for additional uses. These
investigational uses include malignant melanoma, mucositis, venous stasis
ulcers, anti-tumor adjuvancy and vaccine adjuvancy, and are described below. We
are not actively working to secure FDA approval to add a chemotherapy-induced
neutropenia indication to the label for LEUKINE.
- 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.
- VENOUS STASIS ULCERS. We are conducting a clinical development program to
study LEUKINE in the healing of venous stasis ulcers. Pilot Phase I
clinical trials were encouraging and a multi-center Phase II clinical
trial is underway to determine dose and overall efficacy. If the Phase II
clinical trial results are positive, the data could potentially support a
Phase III clinical trial in this indication.
- ANTI-TUMOR ADJUVANCY. In addition to the clinical trial of LEUKINE in
malignant melanoma mentioned above, we are also supporting 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.
We have also conducted a clinical development program to study LEUKINE as
a potential adjunctive therapy for patients with acquired immune deficiency
syndrome, or AIDS. In 1998, results of a Phase II randomized,
placebo-controlled, blinded clinical trial indicated that patients who
received LEUKINE in addition to either RETROVIR-Registered Trademark-
(zidovudine) or in combination with another nucleoside analog, experienced
reductions in viral load and increases in CD4+ cell counts. Viral load is an
important marker used by physicians and patients to monitor the progression
of the human immunodeficiency virus, or HIV, disease. CD4+ cells, which help
fight infections, are progressively depleted by HIV disease. In this clinical
trial, the most frequently reported adverse event was anemia, occurring at a
similar rate in both the LEUKINE and placebo groups. RETROVIR is a trademark
of Glaxo Wellcome Inc. Results of an earlier small Phase I clinical trial
reported in 1998 showed that LEUKINE was generally well tolerated and may
have contributed to reductions in viral load and increases in CD4+ cell
counts in a number of patients that received LEUKINE in combination with
stable protease inhibitor regimens. In addition to the clinical trials for
LEUKINE discussed above, in 1999 we completed a Phase III clinical trial
studying the impact of LEUKINE on the incidence of opportunistic infections,
survival, viral load, and CD4+ cell counts. Results of this Phase III
clinical trial, which involved late-stage AIDS patients with CD4+ cell counts
of less than 100, showed that while we did not meet our primary endpoints, we
may have met some of our secondary endpoints. When we presented these Phase
III clinical data to the FDA, the FDA concluded that these data did not
support a regulatory filing for LEUKINE in this indication because the
proposed efficacy claims for LEUKINE in HIV were based upon retrospectively
defined endpoints, meaning that the endpoints of the clinical trials were
defined after the clinical data was unblinded and analyzed. We are currently
evaluating our development strategy for LEUKINE in HIV, which may include
finding a strategic alliance partner for continued development.
MOBISTA (FLT3L). 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 (G-CSF). MOBISTA is our trademark for
Flt3L. In 1997, we completed Phase I safety trials of MOBISTA. The trials, which
were conducted in healthy volunteers, showed that both single and multiple doses
of MOBISTA could be safely administered. The multiple-dose trial also showed
that MOBISTA increased the number of circulating peripheral blood progenitor
cells. Phase II clinical trials of MOBISTA to mobilize peripheral blood
progenitor cells for transplant, in conjunction with either LEUKINE or G-CSF,
were completed in 1999 in patients with breast cancer or non-Hodgkin's
lymphoma/ovarian cancer.
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MOBISTA may also be useful as an anti-tumor agent or vaccine adjuvant, as a
result of its capacity to generate dendritic cells. 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 mobilizes CD34+ cells. We are
evaluating the best approach to using these characteristics of MOBISTA to
facilitate immunotherapy of cancer or infectious diseases.
AVREND (CD40L). 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. AVREND is our trademark for CD40L. Engagement of CD40 on
antigen presenting cells by AVREND plays a key role in activating the immune
system. Pre-clinical 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, it may be
possible to develop combination cytokine therapies involving the use of MOBISTA
and AVREND. We expect to carry out toxicology studies of this combination in
2000. 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 trial of AVREND in patients with B-cell
non-Hodgkin's lymphoma and solid tumors. The results allowed us to move forward
into a Phase II clinical trial in the most common form of kidney cancer,
metastatic renal cell carcinoma. The results of this Phase II clinical trial are
expected in early 2000. An additional Phase II clinical trial of AVREND in a
separate solid tumor type is planned for 2000.
ADDITIONAL CYTOKINES AND OTHER NEW MOLECULES
Our scientists have cloned genes encoding several additional cytokines and
other new molecules that are now being characterized in preclinical studies.
- TRAIL/APO2L. In May 1999, we entered into a worldwide collaboration with
Genentech to co-develop and market TRAIL/Apo2L. TRAIL/Apo2L appears in
animal models to suppress tumor growth and causes remission of tumors, by
a direct and specific mechanism known as apoptosis, or programmed cell
death. 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 to undergo apoptosis while sparing normal
cells.
- 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 as a treatment for HIV
infection or as a treatment for 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 which 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.
- 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 are developing soluble CD39 initially for stroke,
since platelets have been shown to preferentially accumulate in the part
of the brain subjected to stroke.
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- RANK. Stimulation of the receptor named 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.
RECEPTOR PRODUCTS
Cytokines act upon their target cells by binding to specific cell surface
receptors. The binding of a cytokine to its receptor triggers a complex series
of events within a responsive cell that transmits the cytokine's signal to that
cell. This signal can stimulate cell division or production of antibodies,
enzymes or other cytokines. In this way, circulating cytokines can control and
coordinate the function of cells located throughout the body.
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. With our success in obtaining FDA approval
of ENBREL, we believe that soluble cytokine receptors can be effective as
therapeutics to counteract autoimmune or inflammatory diseases.
We have developed a comprehensive array of cytokine receptor
technologies. As a result of our cytokine receptor research efforts, we have
obtained proprietary rights relating to ENBREL, NUVANCE, Interleukin-1
receptor Type I (IL-1R TYPE I), IL-1R Type II, Interleukin-7 receptor
(IL-7R), G-CSF receptor (G-CSFR), IL-15 receptor, Interleukin-17 receptor,
TRAIL/Apo2L receptors, ORK receptor and RANK receptor. We are conducting
additional clinical trials of ENBREL, a TNF receptor fusion protein, as a
treatment for other diseases discussed below, including chronic heart
failure, or CHF. We are also conducting clinical trials of NUVANCE as a
therapy for asthma. We have decided to proceed with the development of a
natural soluble form of IL-1R Type II as a potential treatment for
inflammation, osteoporosis or other Interleukin-1, or IL-1, related diseases.
We have also commenced a licensing program under our cytokine receptor
patents to enable other companies to use our patented cytokine receptors in
drug screening. Under this program, we granted a license to use G-CSFR for
drug screening to one company in 1997, to a second company in 1998 and to a
third company in 2000. We are continuing license discussions with other
companies also interested in using G-CSFR or our IL-1R receptors in drug
screening.
ENBREL. TNF is a cytokine produced by activated T-cells and macrophages in
the course of severe immune reactions. TNF has been implicated in the
pathogenesis of RA, CHF, psoriatic arthritis, psoriasis, amyloidosis,
myelodysplastic syndrome, multiple myeloma, Crohn's disease, Wegeners
granulomatosis, gastric and duodenal ulcers, chronic prostatitis/pelvic pain
syndrome, ovarian cancer, and numerous other clinical conditions. We have
produced a soluble TNF receptor fusion protein, or TNFR:Fc, that combines two
p80 TNF-binding domains derived from TNF receptor with a fragment of a human
antibody molecule. Our trademark for TNFR:Fc, generically known as etanercept,
is ENBREL. ENBREL exhibits a long serum half-life and has been shown to be
capable of rapidly lowering serum TNF levels. We have successfully developed
ENBREL as a therapeutic breakthrough for RA based on TNF inhibition. The FDA
approved ENBREL for the treatment of advanced RA in November 1998.
In 1999, we continued to collect long-term safety and efficacy data on
ENBREL. Some RA patients have received ENBREL for over three years, and these
data indicate that the response to ENBREL was sustained over time, and that
there were no significant differences in rate or type of adverse event when
patients continued to receive ENBREL over time. In May 1999, we announced an
update to the prescribing information for ENBREL to advise doctors not to start
the drug in patients who have an active infection, and for doctors to exercise
caution when considering the use of ENBREL in patients with a history of
recurring infections or with underlying conditions that may predispose patients
to infections. The long-term effects of treatment with ENBREL on the development
or course of serious infection, malignancy and autoimmune disease are unknown.
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In 1998, we completed a clinical trial of ENBREL in patients with juvenile
rheumatoid arthritis, or JRA, which began in 1997. JRA is an immune system
disease that strikes before age 16. The results were consistent with results
reported from clinical trials of ENBREL in patients with adult RA. The results
of the clinical trial indicated that children and teenagers suffering from JRA
experienced less pain and swelling in their joints and decreased incidence of
disease activity when using ENBREL, compared with patients on placebo. On
November 25, 1998, we filed an sBLA with the FDA for ENBREL to treat children
and teenagers age 4-17 with moderately to severely active polyarticular-course
JRA. On May 28, 1999, ENBREL was approved by the FDA for the treatment of
moderately to severely active polyarticular-course JRA in patients who have had
an inadequate response to one or more DMARDs.
In November 1998, Immunex filed a new drug submission, or NDS, for ENBREL
for the treatment of active RA with the Canadian Health Protection Bureau, or
CHPB. We cannot be certain when, or if, the CHPB will approve this NDS. In
February 2000, the European Medicines Evaluation Agency, or EMEA, approved
ENBREL for the treatment of active RA in adults when the response to DMARDs,
including methotrexate, has been inadequate. The EMEA also approved ENBREL in
the treatment of polyarticular-course juvenile chronic arthritis. AHP owns
rights to ENBREL outside the United States and Canada. We do not receive either
royalties or a share of gross profits from sales of ENBREL outside the United
States and Canada.
ENBREL is the subject of a regulatory filing and clinical trials intended to
result in additional FDA-approved indications. This filing and these clinical
trials are described below. These investigational uses currently include disease
modification of active RA, CHF, psoriatic arthritis and psoriasis. In addition,
a number of clinical trials are underway or will be conducted with third party
investigators in 2000 to investigate the use of ENBREL in multiple other disease
settings.
- DISEASE MODIFICATION OF ACTIVE RA. In May 1999, we announced the results
of a large Phase III randomized, placebo-controlled, blinded clinical
trial of ENBREL in earlier-stage methotrexate-naive RA patients. This
Phase III clinical trial documented the ability of ENBREL to halt joint
erosion resulting from RA in 75% of patients with early, active RA disease
over a year of treatment. In July 1999, we filed an sBLA for ENBREL with
the FDA for a new indication of prevention of structural damage in
patients with active RA. A decision by the FDA on this sBLA is expected in
2000. We cannot be certain when, or if, the FDA will approve this sBLA.
- CHF. In November 1997, results were announced 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. Based upon the results of a Phase I randomized,
placebo-controlled, blinded, multiple-dose clinical trial of ENBREL in
patients with CHF that were announced in March 1998, Immunex and AHP, our
collaborator in the development of ENBREL, in 1999 commenced two large
Phase II/III randomized, placebo-controlled, blinded 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. Accrual of patients
in the U.S. clinical trial is projected to be completed in 2000. CHF is
one form of heart disease that results when the heart is damaged from
diseases such as high blood pressure, a heart attack, poor blood supply to
the heart, a defective heart valve, atherosclerosis, rheumatic fever or
heart muscle disease. The failing heart keeps working, but becomes
inefficient, resulting in fluid retention, shortness of breath, fatigue
and exercise intolerance. The condition often progresses and becomes
irreversible. Research has shown that TNF is present in increased amounts
in damaged heart tissue. TNF exerts its effects by interacting with
specific TNF receptors that are on the surface of cells. When TNF binds
with TNF receptors, it sets off a chain of events within the cell that may
lead to further damage to the heart. ENBREL works by binding to TNF and
preventing it from interacting with cell surface receptors that are on the
cells in the heart and circulatory system.
- PSORIATIC ARTHRITIS. In August 1999, we announced that results of a
three-month 60-patient double-blind clinical trial indicated that
psoriatic arthritis patients treated with ENBREL experienced improvement
in the 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. Psoriatic arthritis is a form of arthritis that
occurs in patients with psoriasis, which is a form of skin disease. There
are no FDA-approved treatments for this condition. Based on the results of
this clinical trial, in the first half of 2000 we plan to begin enrolling
patients in our six-month multi-center, Phase III randomized,
placebo-controlled, blinded clinical trial of ENBREL in psoriatic
arthritis.
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- PSORIASIS. All of the patients in the foregoing psoriatic arthritis
clinical trial for ENBREL will also exhibit psoriasis. Psoriasis is a skin
disorder that most commonly appears as inflamed swollen skin lesions that
can become extremely painful and disfiguring, and this disorder occurs in
many patients that do not have psoriatic arthritis. We will be collecting
data in our psoriatic arthritis clinical trial that will enable us to
evaluate several secondary endpoints related to the safety and efficacy of
ENBREL in the treatment of patients with psoriasis. If the results of our
psoriatic arthritis clinical trial are positive for the psoriasis
secondary endpoints, we would anticipate beginning a Phase II/III clinical
trial of ENBREL in patients with psoriasis.
NUVANCE (IL-4R). NUVANCE, which is our trademark for soluble IL-4R, is a
recombinant human version of a naturally occurring protein, and represents a
novel investigational approach to treating asthma. NUVANCE acts by binding to
IL-4, which is a cytokine, or immune system protein, that is present in
asthmatic lungs and that promotes production of specific types of antibodies,
including the IgE antibody involved in allergic and asthmatic reactions. IL-4
mediates important functions in diseases such as asthma by 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. Based on the results of our clinical
trials with NUVANCE, we believe that NUVANCE may be effective in the treatment
of asthma, and we intend to devote significant resources to developing NUVANCE
for this disease.
In February 1997, we announced the results of a Phase I clinical trial of
NUVANCE in mild asthmatic patients. This dose-escalating trial, which involved a
single dose of NUVANCE by inhalation of a nebulized, water-based formulation,
showed that the product was generally well tolerated at the doses tested. During
the course of the trial, patients reported reduced use of steroids and a
decrease in asthma symptoms. In 1997, we repeated this Phase I trial of NUVANCE
in moderate asthmatic patients, adding a placebo-control group, and similar
results were obtained in 1998.
We continued our clinical development of NUVANCE in Phase I/II clinical
trials in moderate asthmatics. In early 1999, we completed a Phase I/II repeat
dose randomized, placebo-controlled, blinded 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 once weekly
treatment, and there were no serious adverse events related to the drug. The
first Phase II randomized, placebo-controlled, blinded clinical trial of NUVANCE
started in the second quarter of 1999 and will evaluate the safety and efficacy
of NUVANCE for the long-term control of asthma. In this multi-center Phase II
clinical trial, we are delivering 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. The Phase II clinical trial
results are expected to be available in the first half of 2000. In 1999, we also
completed a Phase I safety and pharmacokinetic study of intravenous,
subcutaneous and nebulized NUVANCE.
In addition to the third-party collaborator whose proprietary pulmonary drug
delivery system is being used in our Phase II clinical trial for NUVANCE, 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.
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. Recent 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 upon these
data, we believe that IL-1R Type II may be of therapeutic value in the treatment
of 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 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.
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RESEARCH COLLABORATIONS
The biotechnology industry is moving rapidly to discover and develop novel
therapeutics, in part by utilizing the rapidly accumulating knowledge concerning
the human genome. Several biotechnology companies have accumulated significant
genetic information from large-scale genomic DNA sequencing. Much of these data
have already been incorporated into patent applications by these companies, and
these companies will be incorporating more of these data into future patent
applications. We currently do not know the impact that this patent application
activity will have on our future gene discovery efforts. We have entered into a
number of important research collaborations, using varied technology platforms,
in an effort to gain a competitive edge in our continuing efforts to identify
new drug candidates.
TRAIL/APO2L WITH 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. Immunex and Genentech each have
filed patent applications covering TRAIL/Apo2L and its uses, and Immunex was
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.
DIGITAL GENE TECHNOLOGIES. In December 1997, we announced a genomics
research collaboration with Digital Gene Technologies, Inc., 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, Inc. 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. 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 risks associated with non-human antibodies.
GENESIS. Since 1994, we have collaborated with Genesis Research and
Development Corporation Limited, a New Zealand company. Genesis has sequenced
cDNA libraries for specialized cell types to create a proprietary DNA
database for Immunex. In addition, Genesis expresses and purifies novel
proteins for biological experimentation at Genesis and Immunex, and provides
molecular biology services for us. We are currently testing several genes
identified by Genesis.
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NON-BIOLOGICAL ONCOLOGY PRODUCTS
BACKGROUND. As a result of the merger in 1993 of the predecessor to the
current Immunex Corporation and Lederle Oncology Corporation, a subsidiary of
Cyanamid created for the purpose of merging Cyanamid's Lederle Laboratories
oncology business in the United States and Canada with our biopharmaceutical
business, we acquired intellectual property rights, including marketing rights,
in the United States and Canada relating to several non-biological oncology
products. Of these products, the following are currently marketed in the United
States: NOVANTRONE (mitoxantrone for injection concentrate), THIOPLEX (thiotepa
for injection), AMICAR (aminocaproic acid), methotrexate sodium injectable and
leucovorin calcium. The rights that we acquired as a result of the 1993 merger
include patents, know-how, trademarks, clinical and other supporting data, as
well as registrations and approvals from the FDA. Cyanamid also transferred to
us its oncology marketing and sales force in the United States, but did not
transfer to us any manufacturing facilities, research assets, other tangible
assets or other personnel. We entered into various supply, license and
distribution agreements with Cyanamid and its subsidiaries at the time of the
1993 merger relating to these products.
NOVANTRONE. In addition to its current FDA-approved indications discussed
above, NOVANTRONE is the subject of an NDA filed with the FDA for an additional
FDA-approved indication for secondary progressive MS. MS is a chronic,
debilitating disease of the central nervous system. The symptoms of MS result
when a breakdown occurs in the myelin sheath, the fatty substance that insulates
the nerve fibers of the brain and spinal cord. This demyelination process causes
patches of scar tissue, or sclerosis, which interfere with the nerve's ability
to transport messages from the brain to body parts. This condition can result in
a variety of symptoms that range from numbness in the limbs to complete
paralysis. NOVANTRONE has been tested in two European clinical trials in
patients with MS. In 1997, it was reported that data from the smaller European
Phase II clinical trial was positive. In 1998, we reported that in preliminary
results of the second European trial, which was a larger Phase III clinical
trial, NOVANTRONE had a statistically significant impact on relapse rate and
disability progression in patients with secondary progressive MS. Magnetic
resonance imaging data were also reported that supported these clinical
findings. In this Phase III clinical trial, NOVANTRONE was administered by
short, intravenous infusion once every three months, and treatment with
NOVANTRONE resulted in generally manageable side effects that were primarily
mild to moderate. Additional follow-up data presented in 1999 indicated that one
year after treatment was stopped, patients treated with NOVANTRONE continued to
experience a reduction in their number of attacks, and a delay in their
disability progression. Other treatments currently approved for MS require a
subcutaneous or intramuscular self-injection on a daily or weekly basis. In
June 1999, we filed an NDA with the FDA to expand the use of NOVANTRONE for the
treatment of patients with secondary progressive MS. The FDA granted priority
review to this NDA. On January 28, 2000, an FDA Advisory Panel unanimously
recommended NOVANTRONE for approval to slow the worsening of neurologic
disability and to reduce the relapse rate in patients with clinically worsening
forms of relapsing-remitting and secondary progressive MS. This FDA Advisory
Panel recommendation, although not binding, will be considered by the FDA in its
final review of our NDA for NOVANTRONE. We cannot be certain when, or if, the
FDA will approve this NDA for NOVANTRONE.
PACLITAXEL. Paclitaxel is a chemotherapeutic agent that is used in
treatment of various cancers. Bristol-Myers Squibb Company, or BMS, currently
markets paclitaxel for treatment of metastatic breast, ovarian, and non-small
cell lung cancers and for AIDS-related Kaposi's sarcoma in the United States
under the trademark TAXOL-REGISTERED TRADEMARK-. BMS's marketing exclusivity for
paclitaxel in the United States under the Drug Price Competition and Patent Term
Restoration Act of 1984 (Waxman-Hatch Legislation) expired December 29, 1997.
We submitted an abbreviated new drug application, or ANDA, to the FDA for
generic paclitaxel injection on August 8, 1997, which was accepted for review by
the FDA on October 7, 1997. Our ANDA contains a certification by Immunex, known
as a "Paragraph IV" certification, that U.S. Patents 5,641,803 and 5,670,537
held by BMS and relating to methods of using TAXOL in the treatment of cancer
patients are invalid and not infringed by the filing of our paclitaxel ANDA. On
January 8, 1998, BMS filed a complaint in the U.S. District Court in Newark, New
Jersey, alleging infringement by Immunex of these two U.S. patents pertaining to
TAXOL. We had anticipated this legal action by BMS, and because of BMS's legal
action, the FDA will withhold approval of our ANDA until the earlier of
June 2000, which is approximately seven and one-half years after the original
approval of TAXOL, or until a court enters a judgment finding the BMS patents
invalid, unenforceable or not infringed.
In June 1998, we announced a collaboration with Baker Norton
Pharmaceuticals, a wholly owned subsidiary of IVAX Corporation, to market
paclitaxel products in the United States, subject to FDA approval. Baker
Norton had filed an ANDA in November 1997 requesting FDA approval of its
generic paclitaxel product. BMS is also suing Baker Norton for infringement
of BMS's patents. Baker Norton agreed to buy our paclitaxel ANDA that was
filed with the FDA, as well as
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our paclitaxel inventory, in exchange for $6.9 million. The FDA
has confirmed that Immunex's ANDA is the first filed with the FDA for a generic
paclitaxel product. Baker Norton, as part of our collaboration, will direct the
defense of both BMS lawsuits, and we will reimburse Baker Norton for a
percentage of its paclitaxel patent litigation expenses relating to these ANDA
applications. If Immunex and Baker Norton prevail in the pending patent
litigation with BMS, and the FDA approves this ANDA, the paclitaxel injection
product that is covered by this ANDA would be entitled to 180 days of shared
market exclusivity with TAXOL prior to the entry of any other generic paclitaxel
products. The FDA is expected to continue its review of this ANDA during the
litigation. However, our new collaboration with Baker Norton may not be
successful, this generic paclitaxel product may not be granted co-exclusivity,
the FDA may not approve our ANDA, and BMS may obtain or enforce additional
patents relating to TAXOL.
If a paclitaxel injection product based on our ANDA is marketed in the
United States, Baker Norton will pay us royalties based on net sales of this
generic paclitaxel injection product. Also, at Baker Norton's request, we will
help them promote this generic paclitaxel injection product using our oncology
sales force. Baker Norton has agreed to pay us additional fees if we engage in
these promotional efforts.
Baker Norton also filed an NDA with the FDA for
PAXENE-Registered Trademark-, its branded form of paclitaxel, for use in the
treatment of Kaposi's sarcoma. Baker Norton appointed us to promote PAXENE in
the United States if the FDA approves that product. We will earn fees based on
all sales of PAXENE in the United States during the time that we promote PAXENE.
RELATIONSHIP WITH AHP AND CYANAMID
1993 MERGER
As a result of the 1993 merger discussed earlier, AHP, through several of
its wholly owned subsidiaries, including Cyanamid, currently owns approximately
54% of our outstanding common stock. In late 1994, AHP purchased all of the
common stock of Cyanamid. Thus, AHP owns Cyanamid's and its affiliate's interest
in our common stock. Before AHP's purchase of Cyanamid, we entered into an
agreement with AHP under which AHP agreed to protect our rights under our
agreements with Cyanamid and be bound by Cyanamid's obligations under these
agreements. AHP or various divisions or affiliates of AHP have assumed some of
the rights and obligations of Cyanamid under the various agreements that we
entered into with Cyanamid at or after the time of the 1993 merger, including
various supply, license and distribution agreements. In the following
discussion, AHP refers to AHP, or its various divisions or affiliates, including
Cyanamid.
Immunex and AHP are parties to numerous agreements that AHP assumed from
Cyanamid or that Immunex entered into directly with AHP. The following
agreements, in particular the Governance Agreement, together with the Product
Rights Agreement, establish the framework for our ongoing relationship with AHP.
GOVERNANCE AGREEMENT
At the same time that we entered into the 1993 merger, we entered into an
Amended and Restated Governance Agreement with Cyanamid. AHP assumed the rights
and obligations of Cyanamid under the Governance Agreement, which includes,
among other matters, agreements relating to the following:
- the corporate governance of Immunex, including the composition of our
Board of Directors;
- rights of AHP 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 right of members of our Board designated by AHP to approve specified
corporate actions;
- the requirement that a supermajority of the members of our Board approve
specified corporate actions; and
- payments to be made by AHP to us in the event that the products acquired
under the 1993 merger did not achieve net sales targets. This provision
expired on December 31, 1997 and AHP made its final payment under this
provision to us in February 1998.
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Under the Governance Agreement, AHP is prohibited from transferring shares
of our common stock except under an underwritten public offering, or as
permitted by the volume and manner of sale limitations of Rule 144 under the
Securities Act of 1933, as amended, or to a wholly owned AHP subsidiary. Also,
except in an underwritten public offering, AHP may not transfer an amount in
excess of 1% of the outstanding shares of our common stock on any given day, nor
may any AHP transfer result in the creation of a 5% shareholder of our common
stock. AHP may, however, transfer all, but not less than all, of its shares of
our common stock, but only if the purchaser has offered to purchase all
outstanding shares of our common stock on the same terms, and we have first been
notified and allowed three months to find an alternative purchaser.
TACE AGREEMENTS
In December 1995, we entered into research and license agreements with AHP
under which we granted AHP exclusive worldwide rights to develop compounds that
inhibit an enzyme known as TACE. TACE is involved in the processing of
cell-bound TNF to provide circulating TNF. There is evidence that inhibiting
this enzyme may be beneficial in treating inflammatory diseases and conditions
such as RA. Under the agreements, AHP will screen compounds using recombinant
TACE provided by Immunex. We will receive license fees, research payments,
commercial development milestone payments and royalties on any compounds that
are commercialized by AHP. In September 1997, in conjunction with the ENBREL
Promotion Agreement with AHP discussed below, the parties 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.
TNFR LICENSE AND DEVELOPMENT AGREEMENT
In July 1996, we entered into a TNFR License and Development Agreement,
or TNFR 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 other pertinent terms. Previously, AHP's rights in ENBREL
outside of the United States and Canada had been stated in a superseded
research and development agreement between Immunex and Cyanamid. Under the
TNFR Agreement, we agreed with AHP to negotiate the terms of a supply
agreement for the commercial supply of ENBREL to AHP outside the United
States and Canada. In November 1998, Immunex and AHP entered into an ENBREL
Supply Agreement with Boehringer Ingelheim Pharma KG, or BI Pharma, for the
commercial supply of ENBREL to Immunex in the United States and Canada, and
to AHP outside of the United States and Canada.
ENBREL PROMOTION AGREEMENT
In September 1997, we entered into an ENBREL Promotion Agreement with AHP,
under which AHP, acting through its Wyeth-Ayerst Laboratories division, acquired
the right to promote ENBREL to all appropriate customer segments in the United
States and Canada for all approved indications other than oncology. We have
reserved the right to promote ENBREL in the United States and Canada for any
approved oncology indications. Under the terms of the ENBREL Promotion
Agreement, AHP may pay Immunex up to $100.0 million in nonrefundable scheduled
payments for the U.S. and Canadian promotion rights to ENBREL. We have already
earned $85.0 million of these scheduled payments, as follows:
- $15.0 million under the ENBREL Promotion Agreement, which was earned in
September 1997;
- $20.0 million when our biologics license application, or BLA, for ENBREL
for advanced RA was accepted for review by the FDA, which was earned in
June 1998;
- $30.0 million upon FDA approval of ENBREL, which was earned in
November 1998;
- $10.0 million upon first achieving $200.0 million in net sales for ENBREL
in the United States and Canada in any rolling 12-month period, which was
earned in August 1999; and
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- $10.0 million upon first achieving $400.0 million in net sales for ENBREL
in the United States and Canada in any rolling 12-month period, which was
earned in February 2000.
AHP may pay us an additional $15.0 million in scheduled payments under the
ENBREL Promotion Agreement if and when an RA-disease modification claim for
ENBREL is obtained from the FDA. We cannot be certain when, or if, we will
receive the $15.0 million final scheduled payment.
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 the parties 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
commercial expenses, meaning marketing expenses and sales force costs, for
ENBREL incurred prior to any commercial launch of ENBREL in the United States
and in Canada, and to pay a declining but still majority percentage of the
commercial expenses incurred during the two years following commercial launch
of ENBREL in the United States and in Canada. Thereafter, we will share such
commercial expenses in the United States and Canada with AHP on an equal
basis.
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
non-oncology 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 required the parties to form an ENBREL
Management Committee, which is composed of an equal number of representatives
from Immunex and from AHP. The ENBREL Management Committee has responsibility
for areas including strategic planning, approval of an annual marketing plan and
product pricing.
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PRODUCT RIGHTS AGREEMENT
In July 1998, we entered into a Product Rights Agreement with AHP under
which we granted AHP an option to obtain exclusive, royalty-bearing worldwide
licenses to a limited number of our products for all clinical 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 Immunex will not market a
covered product or technology by itself in any part of the world where Immunex
has or acquires 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 and TRAIL/Apo2L, but not including LEUKINE, MOBISTA, AVREND, IL-15, and
several other Immunex products.
The Product Rights Agreement provides AHP with a Product Call for up to four
Immunex products over a period discussed below. The Product Rights Agreement
also provides that AHP must exercise a Product Call for an Immunex product
within specified time periods determined by reference to when Immunex formally
accords a product status as an IND-track product and when the first positive
Phase II clinical data for that Immunex product is available, or else AHP will
lose the right to use a Product Call on that Immunex product. Some Immunex
products are excluded from AHP's Product Calls, including ENBREL, NUVANCE,
LEUKINE, MOBISTA, AVREND, IL-15, any product marketed by Immunex as of July 1,
1998, and several other products. In August 1999, Immunex provided notice to AHP
that Immunex had accorded IND-track status to TRAIL/Apo2L, thereby commencing
the time period during which AHP may exercise a Product Call with respect to our
interest in the TRAIL/ Apo2L collaboration with Genentech.
If AHP exercises a Product Call for an Immunex product, AHP and Immunex will
enter into an elected product agreement granting AHP exclusive worldwide rights
(or if less than exclusive worldwide rights are held by us, all of our rights)
to this Immunex 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 this Immunex 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 $25.0 million if we
have given the product IND status, up to $70.0 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 upon the product attaining specified
annual net sales thresholds.
Under the Product Rights Agreement, we have the right to keep ownership to
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 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 an Immunex product, 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 will provide for
Immunex payments to AHP as discussed above, unless AHP has exercised its option
to obtain a replacement Product Call, as discussed below. We may not exercise
our Conversion Rights on both of the first two Product Calls exercised by AHP.
If we exercise a Conversion Right, AHP may within 30 days elect to obtain one
replacement Product Call from Immunex. 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 an
Immunex product, the company that exercised these rights assumes independent
development responsibility for that product, including the payment of all costs
for future product development.
The Product Rights Agreement terminated several prior research and
product-related agreements between Immunex and AHP, except for a right of
first refusal to our products and technologies previously held by AHP under
one of the terminated agreements. As a result of terminating these
agreements, our oncology research payment obligations to AHP were canceled,
and our exclusive rights in the United States and Canada to specified new AHP
oncology products were terminated. Under another terminated agreement, AHP
returned its exclusive ownership rights outside the United States and Canada
to specified new Immunex oncology products in exchange for royalty payments
from Immunex to AHP on future sales of LEUKINE, MOBISTA, and IL-15 outside
the United States and Canada. These products are not currently approved or
sold outside the United States and Canada. The Product Rights Agreement also
terminated an agreement between Immunex and AHP for the development and
commercialization of MOBISTA.
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AHP's rights to exercise Product Calls under the Product Rights Agreement
terminate 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
- upon the later of June 30, 2003 or the date by which AHP has been given 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 that AHP or its affiliates no longer own a majority of our common
stock.
CONVERTIBLE SUBORDINATED NOTE
On May 20, 1999, Immunex issued a seven-year, three percent coupon,
convertible subordinated note to AHP. The principal amount of the note, which
was purchased by AHP in a private placement transaction, totaled
$450.0 million. The note is convertible into our common stock at a price of
$86.84 per share. The conversion price was set at a 30% premium over the average
of the closing prices of our common stock for eight trading days up to and
including May 19, 1999. After three years, we can redeem the note, provided that
our closing common stock price for 20 consecutive trading days exceeds or equals
$104.21 per share. After four years, we can redeem the note at any time if our
closing common stock price for 20 consecutive trading days exceeds or equals the
conversion price. AHP may convert the note into our common stock at any time,
including in response to a notice of redemption by us. For most purposes, the
common stock issuable upon conversion of this note is, at the option of AHP,
included in AHP's ownership of our common stock under the Governance Agreement
and the Product Rights Agreement, regardless of whether the note is converted
and for so long as AHP or its affiliates hold the note. The Immunex per share
prices specified above have been adjusted for Immunex's two-for-one stock split
effected on August 26, 1999.
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 of 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 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, the Wyeth-Ayerst Laboratories division
of AHP currently markets ENBREL to appropriate customer segments in the United
States for the FDA-approved indications for ENBREL. These customer segments
include healthcare providers such as doctors and hospitals, pharmacy benefit
managers and managed care
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organizations. As discussed above under the caption RELATIONSHIP WITH AHP AND
CYANAMID, we also have the right to supplement AHP's detailing of ENBREL in
the United States with our own sales force. Several hundred AHP sales
representatives currently detail ENBREL in the United States. In addition to
AHP's and Immunex's coordinated marketing efforts for ENBREL in the United
States, we have added a group of approximately 30 allied health professionals
to support educational needs of healthcare providers in the United States
relating to ENBREL.
ONCOLOGY AND OTHER PRODUCTS
We market our oncology and other products to healthcare providers in the
United States through a specialty sales force that was recently increased in
size to include approximately 147 sales representatives and sales management.
Currently our sales force conducts details in the United States for our oncology
products LEUKINE and NOVANTRONE. If the FDA approves an MS indication for
NOVANTRONE, we intend that our entire sales force will conduct details for
NOVANTRONE in MS and oncology and for LEUKINE.
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. However, 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. Shipping,
warehousing and data processing services are provided to us on a fee basis by an
outside contractor.
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 various product categories.
The following technological innovations are all important to success in our
business:
- efficacy;
- tolerability;
- patients' ease of use; and
- cost effectiveness.
Our business focuses on unmet medical needs and improving therapies. Our
emphasis on innovation has led to significant research and development
investments.
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.
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Most of the cancer products that we market have established competitors.
Significant competitors in the field of oncology include BMS 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.
LEUKINE
Several companies are marketing or developing products that compete or are
expected to compete with LEUKINE, as listed below. If the FDA were to approve
any of these potentially competing products under development, sales of LEUKINE
could be adversely affected.
- AMGEN. Amgen has been marketing its competing G-CSF product since early
1991 and has achieved a majority share of the market for CSFs in the
United States. 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 Phase III multi-center 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 current indications or are expected to
compete with NOVANTRONE for a potential new MS indication. This new indication
for NOVANTRONE could include clinically worsening forms of relapsing-remitting
and secondary progressive MS. If the FDA were to approve new MS indications for
any of these marketed MS products, our potential sales of NOVANTRONE in MS could
be adversely affected.
- BIOGEN. Biogen is marketing AVONEX-Registered Trademark- (interferon
beta-1a) for relapsing-remitting MS. AVONEX is in Phase III clinical
trials in secondary progressive MS.
- BERLEX LABORATORIES, INC. Berlex is marketing
BETASERON-Registered Trademark- (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-Registered Trademark- (glatiramer acetate for injection) for
relapsing-remitting MS.
- PHARMACIA & UPJOHN, INC. (P&U). P&U has been marketing
IDAMYCIN-Registered Trademark- (idarubicin) for acute myelogenous leukemia
and EMCYT-Registered Trademark- (estramustine) for prostate cancer.
- BEDFORD LABORATORIES. Bedford Laboratories, a division of Ben Venue
Laboratories, Inc., is marketing CERUBIDINE-Registered Trademark-
(daunorubicin) for acute myelogenous leukemia.
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-Registered Trademark-
(infliximab), if any of these other products are approved by the FDA for RA,
sales of ENBREL could be adversely affected.
- JOHNSON & JOHNSON/CENTOCOR INC. In November 1999, Johnson &
Johnson/Centocor received FDA approval for Centocor's anti-inflammatory
agent known as REMICADE for use with methotrexate for the treatment of
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 treatment of Crohn's disease in
August 1998. In October 1999, Johnson & Johnson/Centocor filed an sBLA for
REMICADE with the FDA for the prevention of joint damage in RA patients in
combination with methotrexate. Centocor and Ortho-McNeil
Pharmaceutical, Inc., both Johnson & Johnson affiliates, are co-promoting
REMICADE for RA in the United States. Johnson & Johnson acquired Centocor
in late 1999.
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- 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 AG/KNOLL. BASF and its partner 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 non-biological products for
treatment of some aspects of RA. We do not currently expect such products to
compete with ENBREL in patients with advanced RA, but some of these products may
compete directly with ENBREL in patients with earlier stage RA. ENBREL is not
currently approved by the FDA in patients with earlier stage RA. Due to its
mechanism of action, 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 of
ARAVA-Registered Trademark- (leflunomide) in September 1998 for the
treatment of active RA in adults 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.
- MONSANTO COMPANY. Monsanto received FDA approval of
CELEBREX-Registered Trademark- (celecoxib) in December 1998 for relief of
the signs and symptoms of osteoarthritis and adult 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., the pharmaceutical
business unit of Monsanto, and Pfizer Inc. COX-2 inhibitors are a new
class of drugs for arthritis and pain that are generally as effective as
current initial RA therapy with non-steroidal anti-inflammatory drugs, or
NSAIDs.
- MERCK. Merck received FDA approval of VIOXX-Registered Trademark-
(rofecoxib) in May 1999 for relief of the signs and symptoms of
osteoarthritis, for the management of acute pain in adults, and for the
treatment of primary dysmenorrhea. VIOXX is a COX-2 inhibitor, and is
priced significantly less than ENBREL.
GENERIC ONCOLOGY 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 such products. Manufacturers of generic
products compete aggressively, primarily on the basis of price. We currently
face aggressive generic competition from numerous suppliers on 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
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
sole-source suppliers. No serious shortages or delays in obtaining raw materials
were encountered in 1999.
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 filled and finished by third parties. All finished
dosage forms for our non-biological oncology products are manufactured by AHP
subsidiaries or sourced by AHP from third-party manufacturers. Bulk active raw
materials for our non-biological oncology products are either manufactured by
AHP subsidiaries or sourced by AHP from third-party manufacturers. Aminocaproic
acid for AMICAR is sourced through an unaffiliated third-party vendor and
manufactured by a sole-source supplier.
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We presently do not have our own fill and finish capabilities for producing
and labeling final drug products from bulk drug substances or bulk proteins. We
rely upon unaffiliated third parties and AHP for the fill and finish of all drug
products we market.
In November 1998, Immunex and AHP entered into a long-term ENBREL Supply
Agreement with BI Pharma to manufacture commercial quantities of ENBREL. Unless
and until such time as AHP's Rhode Island manufacturing facility is approved by
the FDA to manufacture ENBREL, our sales of ENBREL are entirely dependent on BI
Pharma's manufacture of the product. Immunex and AHP have made significant
purchase commitments to BI Pharma under the ENBREL Supply Agreement to
manufacture commercial inventory of ENBREL.
Under the ENBREL 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 ENBREL Supply Agreement
contains provisions for increasing or decreasing BI Pharma's reserved production
capacity for ENBREL, subject to lead-times and other related terms. On account
of the long lead-time required for ordering raw materials for ENBREL and for the
scheduling of BI Pharma's facilities, we are required to submit a rolling
three-year forecast for the manufacture of 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.
BI Pharma's pricing of ENBREL is dependent on specified production
assumptions that the parties have made relating to the production efficiency of
manufacturing ENBREL. Under the ENBREL Supply Agreement, the pricing for ENBREL
is also subject to volume discounts depending on the amount of ENBREL ordered
during each calendar year. Immunex and AHP will be responsible for substantial
payments to BI Pharma if Immunex and AHP fail to utilize a specified percentage
of the production capacity that BI Pharma has reserved for ENBREL each calendar
year, or if the ENBREL Supply Agreement is terminated prematurely under
specified conditions.
In September 1999, a wholly owned subsidiary of AHP completed the purchase
of a large-scale biopharmaceutical manufacturing facility in Rhode Island.
Immunex and AHP are working closely together to expedite a retrofit to the Rhode
Island facility to accommodate the commercial production of ENBREL bulk drug
substance. Assuming that the Rhode Island facility is approved by the FDA to
manufacture ENBREL, BI Pharma would continue to manufacture ENBREL under the
terms of the ENBREL Supply Agreement.
The market demand for ENBREL in the United States is still growing and
cannot be predicted with certainty. The market demand for ENBREL outside the
United States and Canada, where AHP holds rights to ENBREL, also cannot be
predicted with certainty. The EMEA approved ENBREL in the European Union in
February 2000. Immunex and AHP are actively working with BI Pharma to ensure
that we are able to utilize as much of BI Pharma's available production capacity
as possible for ENBREL, and at the same time we are working closely with AHP to
expedite the preparation of AHP's Rhode Island manufacturing facility to produce
additional commercial quantities of ENBREL. In the event that demand for ENBREL
were to exceed BI Pharma's production capacity and any shortfall was not
supplied by the Rhode Island facility, sales of ENBREL could be constrained.
GOVERNMENT REGULATION
The manufacturing and marketing of pharmaceutical products in the United
States requires the approval of the FDA under the Food, Drug and Cosmetic Act.
Similar approvals by comparable agencies are required in foreign countries. The
FDA has established mandatory procedures and safety standards that apply to the
clinical testing, manufacture and marketing of pharmaceutical and biotechnology
products. Obtaining FDA approval for a new therapeutic product may take several
years and involve expenditure of substantial resources.
Data from human clinical trials are submitted to the FDA in a new drug
application, or NDA, for drugs or a biologics license application, or 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 human clinical trials for new indications or uses for approved
products are submitted to the FDA in a supplemental NDA for drugs and in a
supplemental BLA for biologics. Data regarding manufacturing and bioequivalence
of generic drug products are submitted to the FDA in an abbreviated NDA, or
ANDA, and to the CHPB in an abbreviated NDS. Preparing any of these regulatory
submissions involves considerable data collection, verification and analysis.
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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
Immunex. 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 thereunder will provide
competitive advantage to Immunex 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 our patents, as well as the possibility of patents being granted to others,
we cannot be certain that the patents 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 Immunex's 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 our
patents will afford protection against competitors with similar inventions, nor
can we be certain that our 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 such
licenses are denied or are not available on commercially reasonable terms,
successfully prevail in the event that litigation is commenced by patent owners
to interfere with the development or commercialization of our products.
We intend to pursue protection of all forms of intellectual property,
including, but not limited to, patents, trade secrets, Orphan Drug exclusivity,
and benefits of the Waxman-Hatch Legislation, for all significant inventions,
discoveries and developments in our various areas of research.
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PATENTS ON BIOLOGICAL PRODUCTS
LEUKINE (SARGRAMOSTIM, GM-CSF). 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 U.S. Patent and Trademark
Office, or USPTO, 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, non-exclusive license to the RCT
GM-CSF patent.
ENBREL (ETANERCEPT, TNFR:FC). 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. BASF was issued a U.S. patent based on its TBP
disclosure with claim limitations that exclude TNFR:Fc. This BASF U.S. patent is
currently involved in an interference proceeding. BASF was issued a patent in
Europe which is currently being opposed by Inter-Lab Ltd., an Israeli company
that is an affiliate of Ares-Serono International S.A., a Swiss company. The
outcome of this European opposition is uncertain, but Immunex believes that
Inter-Lab has strong arguments that could force the BASF claims to be amended so
that they contain claim limitations that exclude TNFR:Fc. In January 1999,
Immunex entered into a settlement agreement with Ares-Serono International S.A
and its affiliate Inter-Lab Ltd. (collectively, Serono),under which Immunex and
Serono agreed to settle potential disputes concerning patents and patent
applications filed by Yeda and controlled by Serono that relate to TBPs.
Pursuant to the settlement, Serono has agreed not to assert any of the foregoing
patent rights against the manufacture, use or sale of ENBREL in any territory in
consideration of the payment by Immunex to Serono of fees and royalties for a
specified term in respect of the net sales of ENBREL sold or manufactured in
designated countries where Yeda's patent rights have been filed.
Hoffmann-La Roche and Amgen, through Synergen Inc., also filed patent
applications directed to p80 TNFR DNAs after the date we filed our patent
application. No patents covering full-length TNFR or the intact extracellular
domain of TNFR have been issued to Roche. In January 1998, the EPO granted a
patent to Amgen claiming DNA and amino acid sequences encoding a variant of
p80 TNFR disclosed in the Synergen application that differs from that
disclosed in 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 Synergen'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 BASF or Amgen
were able to validly assert TNFR patents to cover TNFR:Fc, Immunex's or AHP's
commercialization of ENBREL could be impeded in any territories in which such
patents were in force. 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. ZymoGenetics, Inc.
and Genentech have been issued U.S. patents having claims directed to
specified fusion proteins comprising immunoglobulin constant region domains
and specified processes for making such 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. In May 1999, Immunex entered into a
royalty-bearing co-exclusive worldwide license agreement under these
Genentech patents, and under this agreement we made an up-front payment to
Genentech, a portion of which was reimbursed to us by AHP under the ENBREL
Promotion Agreement. 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 Immunex. Roche has been granted a
patent containing these claims in Japan. We believe that an interference may
be declared in the United States involving the Aventis, Massachusetts General
Hospital and Roche patents and patent applications. In September 1999, we
entered into a royalty bearing co-exclusive worldwide license agreement with
Roche under these Roche patents and patent applications.
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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, it remains uncertain whether any of
these patents will be asserted against activities relating to ENBREL, and, if
so, the outcome of any litigation or licensing negotiations.
MOBISTA (FLT3L). 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 (IL-4R). We have been granted a total of five U.S. patents relating
to IL-4R proteins and DNAs, methods for inhibiting IL-4R mediated immune or
inflammatory responses, and antibodies immunoreactive with IL-4R. IL-4R patents
have also been granted to us in Europe and other foreign countries. We have
additional U.S. and foreign patent applications pending relating to IL-4R.
AVREND (CD40L). 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. We have also received a U.S. patent relating to
the use of soluble CD40L to treat neoplastic diseases. 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 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. We have licensed our TACE technology to
AHP and are working together to develop and test small molecule TACE inhibitors.
PATENTS ON NON-BIOLOGICAL ONCOLOGY PRODUCTS
NOVANTRONE (MITOXANTRONE FOR INJECTION CONCENTRATE). NOVANTRONE is a
proprietary product that is covered by several U.S. patents. The patent covering
the mitoxantrone compound in the United States expired in August 1997. However,
a separate U.S. patent covering pharmaceutical formulations containing
mitoxantrone does not expire until July 2000. A U.S. patent covering methods of
using mitoxantrone to treat leukemia and solid tumors does not expire until
April 2006, and another U.S. patent covering methods of using mitoxantrone to
treat neuroimmunologic diseases, including MS, does not expire until June 2005.
METHOTREXATE SODIUM INJECTABLE, LEUCOVORIN CALCIUM AND AMICAR (AMINOCAPROIC
ACID). Neither methotrexate sodium injectable, leucovorin calcium or AMICAR are
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 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 and Roche 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 our trademarks used in our business.
PROPERTIES
Our principal place of business is located in two adjacent buildings in the
1200 block of Western Avenue in Seattle, Washington. These buildings, comprising
a total of 174,400 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 terms for one of the buildings extends through August 2000, and in
2000 the lease on the other building will be extended to 2005, and both
buildings will have two five-year renewal options. In addition to our primary
facility, we lease a total of approximately 190,700 square feet of additional
office and research space in several other buildings located in downtown Seattle
and approximately 13,000 square feet of office space in Bothell, Washington. The
total current rent payments for the foregoing facilities were approximately
$5.2 million in 1999 and are forecast to be approximately $8.1 million in 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, such facilities lack sufficient
capacity to produce commercial quantities of ENBREL. In 1999, we began
construction of a new process development facility at our site in Bothell, and
anticipate completion of this facility by the end of 2000. This new process
development facility is expected to accelerate development of our manufacturing
processes.
We are currently exploring several alternatives in order to meet our
long-term facility needs. We own approximately 20 acres of undeveloped land
adjacent to our manufacturing and development center in Bothell, Washington and
29 acres of land in Seattle, Washington, known as Terminal 88. At the end of
1999, we began the process of assembling a team of consultants to program and
begin preliminary design of the Terminal 88 site for a consolidated headquarters
and research facility. A conceptual budget will be developed based on
preliminary design and a decision as to whether or not to move forward with this
consolidated facility is expected to be made in mid-2000.
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 are covered by a collective bargaining agreement. As of
December 31, 1999, we employed a total of 1,170 people in our operations, of
whom 252 have various types of doctoral degrees. The employee count for three
of our key functions is as follows:
- research and development--506;
- manufacturing--218; and
- sales and marketing--208.
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.
Our ability to maintain our competitive position will depend, in part, upon
our continued ability to attract and keep qualified scientific and managerial
people, and our other key employees. Competition for these people is intense,
and there can be no assurance that we will be able to attract and keep these
people.
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RISKS
OUR FUTURE OPERATING RESULTS ARE UNCERTAIN AND LIKELY TO FLUCTUATE.
Until 1998, we had a history of operating losses. Although we have been
profitable for the past two years, future operating performance is never
certain. Our accumulated deficit at December 31, 1999 was $435.9 million. We
anticipate that our operating and capital expenditures will increase
significantly in 2000 and in future years due primarily to:
- spending to support the marketing and sales of ENBREL;
- working capital requirements for sales of ENBREL;
- growth in research and development expenses as we progress with the
development of our clinical and preclinical product candidates;
- increased purchases of capital equipment including the continued
construction of a new process development facility in 2000;
- possible development of Terminal 88 in Seattle, Washington into our new
corporate offices and research facilities; and
- investment in additional manufacturing capacity.
Our ability to generate sufficient cash flow 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 also decide to raise money through various financing transactions or
partner with other companies to license our technology or share the development
of our products.
Our accumulated cash reserves and cash generated from operations are
dependent on sales of ENBREL and our other products and technologies. We may not
successfully develop and commercialize these products and technologies. Further,
our assumptions regarding the levels of revenue and expenses for these products
and technologies may be inaccurate.
WE DEPEND ON SALES OF ENBREL FOR A SIGNIFICANT AMOUNT OF OUR REVENUES.
We are substantially dependent upon the revenue generated by a single
product, ENBREL. For the year ended December 31, 1999, sales of ENBREL
accounted for 71% of our total product sales. We expect product revenues
generated by ENBREL to continue to account for a majority of our product
revenues. As a result, factors adversely affecting the demand for ENBREL,
such as competition, development of new products for the treatment of RA, or
supply constraints, could materially adversely affect our operating results.
OUR PRECLINICAL AND CLINICAL TESTING COULD BE UNSUCCESSFUL OR EXPENSIVE, WHICH
COULD ADVERSELY AFFECT OUR OPERATING RESULTS.
Before obtaining regulatory approvals for the sale of any of our new
products, we must subject these products to extensive preclinical and clinical
testing to demonstrate their safety and effectiveness for humans. Results of
initial preclinical and clinical testing are not necessarily indicative of
results to be obtained from later preclinical and clinical testing. Furthermore,
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 regulatory approval. Other companies in the biotechnology
industry have suffered significant setbacks in advanced clinical trials, even
after achieving promising results in earlier trials.
The rate of completion of clinical trials depends, in part, on the
enrollment of patients. Enrollment of patients depends on factors such as the
size of the patient population, the proximity of patients to clinical sites, the
eligibility criteria for the study and the existence of competitive clinical
trials. Any delay in planned patient enrollment in our current or future
clinical trials may result in increased costs, program delays or both.
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WE MAY NOT COMMERCIALIZE OUR EXISTING PRODUCTS OR DEVELOP NEW PRODUCTS
SUCCESSFULLY.
Our long-term profitability depends on the successful commercialization of
our existing products, especially ENBREL, and on the development and
commercialization of products currently under development. We may not develop
these products successfully or receive regulatory approval. Furthermore, even if
these products are developed and approved, we or our contract manufacturers may
fail to manufacture these products or our currently marketed products in
quantities necessary for commercialization, or these products may not receive
market acceptance.
GOVERNMENTAL REGULATORY AGENCIES MAY NOT APPROVE OUR PRODUCTS.
Since our products are pharmaceutical products, the FDA and similar
governmental agencies in foreign countries impose substantial requirements on
our products before they permit us to manufacture, market and sell them to the
public. To meet these requirements, we must spend substantial resources on
costly and time-consuming procedures, such as lengthy and detailed laboratory
tests and clinical trials. It typically takes years to meet these requirements
for a product and the length of time involved depends on the type, complexity
and novelty of the product. We cannot predict when we might submit product
applications or submissions for FDA or other regulatory review for our products
under development.
The FDA or other governmental agencies may approve, if at all, only some
uses of our products or may subject our products to additional testing and
surveillance programs. In addition, the FDA or other governmental agencies may
withdraw or limit their approval for noncompliance with regulatory standards or
the occurrence of unforeseen problems following initial marketing.
Governmental regulation may cause us to delay marketing new products for
a considerable period of time or spend more resources to meet additional
requirements, and may ultimately provide an advantage to our competitors. The
FDA or other governmental agencies 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.
In addition, if another company that is developing a product similar to one
of our products suffers adverse clinical results, this could have a negative
impact on the regulatory process and the timing of any potential regulatory
approval of our product. If we fail to obtain regulatory approval for one of
our products, or even if approval is delayed or withdrawn after initial
marketing, our marketing of this and our other products, as well as our
liquidity and capital resources, could be adversely affected.
OUR CUSTOMERS MAY NOT GET REIMBURSED FROM THIRD PARTIES, WHICH COULD ADVERSELY
AFFECT OUR SALES.
Our ability to sell our products depends substantially on government
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. To date, we have been able to obtain
sufficient reimbursement for most of our oncology products for our customers,
but we may not be able to obtain similar levels of reimbursement for our
customers for ENBREL or for our future products. Since Medicare presently will
not reimburse for drugs that are self-administered, we have assumed that
Medicare will not cover prescriptions for ENBREL. However, we are pursuing
several legislative strategies intended to result in Medicare coverage for
prescriptions for ENBREL, although we cannot be sure that any of these
strategies will prove successful. Government authorities or third parties or
both may decrease the amount of reimbursement that our customers currently
receive for some products or that we anticipate our customers will receive for
future products. Finally, low reimbursement amounts may reduce the demand for,
or the price of, our products, which could adversely affect our business.
OUR SELLING PRACTICES FOR ONCOLOGY PRODUCTS REIMBURSED BY MEDICARE OR MEDICAID
MAY BE CHALLENGED IN COURT.
In the United States, pharmaceutical companies frequently grant discounts
from list price to physicians and suppliers who purchase the product. Discounts
on multiple-source, or generic, drugs 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.
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We have received notice from the federal Department of Justice calling for
us to produce documents in connection with an investigation under the Civil
False Claims Act of the pricing of two of our multiple-source products,
leucovorin calcium and methotrexate sodium injectable, for sale and eventual
reimbursement by Medicare or state Medicaid programs. Both 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 will take as a result of its
investigation. Although we believe that our pricing practices are lawful, the
federal government 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.
WE HAVE A LIMITED MANUFACTURING CAPABILITY.
Currently, we do not own sufficient large-scale manufacturing capacity to
manufacture commercial quantities of ENBREL or all of our mammalian cell-based
protein products under development. Accordingly, in 1998, Immunex and AHP
entered into a long-term ENBREL Supply Agreement with BI Pharma to manufacture
commercial inventory of ENBREL. Unless and until AHP's Rhode Island
manufacturing facility is approved by the FDA to manufacture ENBREL, BI Pharma
will be our sole supplier of ENBREL. Therefore, AHP has chosen to invest
substantial sums to purchase and retrofit its Rhode Island facility to
accommodate the commercial production of ENBREL bulk drug substance. Immunex may
also have to invest substantial sums to purchase or construct facilities
sufficient to meet long-term manufacturing requirements for ENBREL and our other
products, or to assist BI Pharma to increase its manufacturing capacity for
ENBREL.
IF THIRD-PARTY MANUFACTURERS OR SUPPLIERS FAIL TO PERFORM, WE WILL BE UNABLE TO
MEET DEMAND FOR SOME OF OUR PRODUCTS.
AHP either manufactures through its subsidiaries or sources through
third-party manufacturers all finished dosage forms and bulk active raw
materials for our non-biological oncology products, including NOVANTRONE. AHP is
dependent on a single supplier for all of the essential raw material for AMICAR.
Substantially all the raw materials used to manufacture our recombinant protein
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 sole-source suppliers. BI Pharma is
currently our sole supplier of ENBREL. We rely upon unaffiliated third parties
and AHP for the fill and finish of all drug products we market. If AHP
subsidiaries or third-party manufacturers or suppliers, including BI Pharma,
were to cease or interrupt production or otherwise fail to supply such materials
or products to us or AHP, we would be unable to obtain these materials or
products for an indeterminate period of time, which could materially adversely
affect demand for these products as well as our operating results.
The market demand for ENBREL in the United States is still growing and
cannot be predicted with certainty. The market demand for ENBREL outside the
United States and Canada, where AHP holds rights to ENBREL, also cannot be
predicted with certainty. The EMEA approved ENBREL in the European Union in
February 2000. Immunex and AHP are actively working with BI Pharma to ensure
that we are able to utilize as much of BI Pharma's available production capacity
as possible for ENBREL, and at the same time we are working closely with AHP to
expedite the preparation of AHP's Rhode Island manufacturing facility to produce
additional commercial quantities of ENBREL. Unless and until AHP's Rhode Island
manufacturing facility is approved by the FDA to manufacture ENBREL, we will be
entirely dependent on BI Pharma for manufacturing our commercial inventory of
ENBREL. In the event that demand for ENBREL were to exceed BI Pharma's
production capacity and any shortfall was not supplied by the Rhode Island
facility, sales of ENBREL could be constrained.
WE MAY BE UNABLE TO PROTECT AND ENFORCE OUR PATENTS AND PROPRIETARY RIGHTS.
Given the length of time and expense associated with bringing new products
through development and the governmental approval process to the marketplace,
the biotechnology and pharmaceutical industries rely on patent and trade secret
protection for significant new technologies, products and processes. We, like
other biotechnology and pharmaceutical firms, apply for, prosecute and maintain
patents for our products and technologies. The enforceability of patents issued
to biotechnology and pharmaceutical firms, however, often is highly uncertain.
The legal considerations surrounding the validity of patents in our field are in
a state of transition. In the future, the historical legal standards surrounding
questions of the validity of patents may not be applied and the current defenses
applicable to issued patents may not protect our patents. In addition, the
degree and range of protection a patent affords is uncertain. Finally, we may be
unsuccessful in obtaining patents and in avoiding infringements of patents
granted to others.
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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.
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. These confidentiality agreements also contain
provisions requiring disclosure and assignment of proprietary rights to ideas,
developments, discoveries and inventions conceived during employment. 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. Moreover, other people or entities may independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to our 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 any 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. We also could discover that the development, manufacture or sale of
products requiring such licenses is simply not possible. In addition, we could
incur substantial costs in defending any patent litigation brought against us or
in asserting our patent rights, including those licensed to us by others, in a
suit against another party. Our 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.
IF WE ARE UNABLE TO COMPETE SUCCESSFULLY IN OUR FIELD, AND TO DEVELOP NEW
PRODUCTS IN RESPONSE TO RAPID TECHNOLOGICAL DEVELOPMENTS, OUR BUSINESS WILL BE
ADVERSELY AFFECTED.
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.
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 have been
consolidating, which has increased their resources and concentrated valuable
intellectual property assets. Our competitors may develop products that are more
effective or less costly than any of our current or future products. Our
competitors also may produce and market their products more successfully then we
do. These competitors may develop technologies and products that are more
effective than any we develop or that render our technology and products
obsolete or noncompetitive.
WE MAY BE REQUIRED TO DEFEND LAWSUITS OR PAY DAMAGES FOR PRODUCT LIABILITY
CLAIMS.
Product liability is a major risk in the testing and marketing of
biotechnology and pharmaceutical products. We face substantial product liability
exposure in human clinical trials and for products that receive regulatory
approval for commercial sale. We currently maintain product liability insurance
coverage, which our management believes to be adequate, based on our product
portfolio, sales volumes and claims experience to date and we intend to continue
such coverage. In the future, insurers may not offer us product liability
insurance, may raise the price of such insurance or may limit the coverage of
such insurance. In addition, we may not be able to maintain such insurance in
the future on acceptable terms and such insurance may not provide us with
adequate coverage against potential liabilities either for clinical trials or
commercial sales. Successful product liability claims in excess of our insurance
limits may adversely affect our business.
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. We are
subject to federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of these materials and some types of
waste products. Although we believe that our safety
30
<PAGE>
procedures for the handling and disposal of such materials comply with
regulatory standards, we cannot eliminate the risk of accidental
contamination or injury from these materials.
In the event of such an accident, we could be held liable for any damages
that result and any such liability could exceed our resources. We may be
required to incur significant costs to comply with environmental laws and
regulations in the future. Current or future environmental laws or regulations
may materially adversely affect our operations, business or assets.
OUR STOCK PRICE IS VOLATILE.
Our common stock price, like that of other biotechnology companies, is
volatile. Our common stock price may fluctuate due to factors such as:
- 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;
- intellectual property and legal developments;
- changes in reimbursement policies or medical practices;
- mergers or strategic alliances in the biotechnology and pharmaceuticals
industries;
- a sale of our common stock by AHP; or
- broader industry and market trends unrelated to our performance.
FUTURE INVESTMENTS IN BUSINESSES, PRODUCTS OR TECHNOLOGIES COULD BE DIFFICULT
AND DISRUPTIVE.
We may acquire or make investments in other businesses, products or
technologies that will complement our existing business. From time to time we
have had discussions and negotiations with companies regarding our acquiring or
investing in such companies' businesses, products or technologies, and we
regularly engage in such discussions and negotiations in the ordinary course of
our business. 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;
- potential disruption of our ongoing business;
- diversion of resources;
- possible inability of management to maintain uniform standards, controls,
procedures and policies;
- possible difficulty of managing our growth and information systems;
- risks of entering markets in which we have little or no prior experience;
and
- potential impairment of relationships with employees or customers.
Our management has limited prior experience in assimilating acquired
organizations. 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 have an adverse effect on our business and operating
results.
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<PAGE>
In addition, future acquisitions could result in potentially dilutive
issuances of equity securities, use of cash or the incurring of debt and the
assumption of contingent liabilities, any of which could have an uncertain
effect on our business and operating results or the price of our common stock.
INCREASED REGULATORY FOCUS ON FINANCIAL REPORTING.
In 1998, the Securities and Exchange Commission, or SEC, initiated a plan
intended to improve the credibility and transparency of the financial reporting
process of publicly traded companies. Among other things, the SEC has issued
guidance on accounting topics including materiality, restructuring charges,
acquisition accounting and most recently, revenue recognition. As a result of
the increased focus, restatement of financial results by publicly traded
companies has become more common. We regularly review the guidance published by
the SEC with regards to our accounting practices. Although we do not believe the
guidance will affect our reported financial results, we will continue to
evaluate the impact as the guidance evolves.
REMEDIATION OF YEAR 2000 COMPLIANCE PROBLEMS COULD BE EXPENSIVE.
Since January 1, 2000, we have experienced no disruptions in our business
operations as a result of year 2000 compliance problems. Although we have
experienced no year 2000 compliance problems to date, some year 2000 compliance
problems may not surface until several months after January 1, 2000. We are
continuing to monitor our information technology, embedded chips and business
partners for year 2000 compliance problems and will implement any upgrades or
modifications that are necessary to address year 2000 compliance problems that
may arise in the future. Any problems that do arise and that cannot be
identified and corrected successfully and completely could interrupt and
adversely affect our business. In addition, although we do not expect that the
cost to fix any year 2000 problems that may be identified will be material, the
costs of upgrading or replacing any non-compliant systems or equipment could
exceed our expectations and adversely affect our operating results.
ITEM 2. PROPERTIES
See the disclosure under the caption PROPERTIES, in Item 1.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our shareholders during the fourth
quarter of our fiscal year ended December 31, 1999.
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<PAGE>
PART II
ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Our common stock is traded on The Nasdaq Stock Market under the symbol IMNX.
The following table sets forth for each period indicated the high and low
sales prices for our common stock as quoted on The Nasdaq Stock Market. Share
prices shown are adjusted for our two-for-one stock splits effected on
March 25, 1999 and August 26, 1999, but are not adjusted to reflect the
three-for-one stock split which will be effective for our shareholders on
March 20, 2000.
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1st Quarter................................ $ 45.88 $29.11 $18.84 $11.78
2nd Quarter................................ 71.16 33.13 18.41 14.38
3rd Quarter................................ 69.97 43.38 18.38 12.00
4th Quarter................................ 116.00 42.00 31.56 11.97
</TABLE>
There were approximately 1,277 holders of record of our common stock as of
February 25, 2000, which does not include the number of shareholders whose
shares are held of record by a broker or clearing agency, but does include such
a broker or clearing agency as a holder of record.
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.
In connection with one of our stock option plans, we have issued shares of
Immunex common stock upon exercise of employee stock options. Additionally, we
issued shares under our employee stock purchase plan through which eligible
employees may purchase a limited number of shares of our common stock at 85% of
the market value at specified plan-defined dates. Under the terms of the
Governance Agreement with AHP, AHP has the right to purchase additional shares
of our common stock in order to maintain its percentage ownership interest in
Immunex following the issuance of Immunex common stock. Immunex issued 1,166,242
shares of common stock to AHP for $40,777,000 in 1999 and issued 445,132 shares
of common stock to AHP for $6,877,000 in 1998, after adjusting for the two
two-for-one stock splits that occurred during 1999. We believe that the sales of
these securities to AHP were exempt from registration under the Securities Act
of 1933, as amended, under Section 4(2) thereof.
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table shows selected financial data for the fiscal years 1995 to
1999.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues.................................. $541,718 $243,450 $185,297 $151,198 $156,616
Net income (loss)......................... 44,324 986 (15,772) (53,632) (11,300)
Net income (loss) per common share,
basic................................... 0.27 0.01 (0.10) (.34) (0.07)
Net income (loss) per common share,
diluted................................. 0.25 0.01 (0.10) (.34) (0.07)
Total Assets.............................. 941,241 325,325 227,333 177,787 174,037
Long-term obligations, including current
portion................................. 452,404 5,826 9,093 12,071 5,324
Shareholders' equity...................... 355,330 247,463 176,156 137,710 136,643
</TABLE>
The computation of diluted earnings per share does not reflect the issuance
of shares upon conversion of the $450.0 million, 3% coupon convertible
subordinated note issued to AHP in 1999 because the inclusion would have been
anti-dilutive.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
In 1999, we generated net income of $44.3 million, compared to net income of
$1.0 million in 1998 and a net loss of $15.8 million in 1997. The improvement in
operating results during the years presented was due largely to sales of
ENBREL-Registered Trademark- (etanercept), which was approved in November 1998
by the U.S. Food and Drug Administration, or FDA, for treatment of advanced
rheumatoid arthritis. Our operating results also reflect increased costs,
primarily related to manufacturing, selling and marketing expenses for ENBREL.
In addition, we have increased spending on products in our development pipeline
and increased the level of investment in discovery research.
REVENUES (in millions)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
ENBREL.............................................. $366.9 $ 12.7 $ --
LEUKINE-Registered Trademark- (sagramostim,
GM-CSF)........................................... 69.1 63.8 52.7
NOVANTRONE-Registered Trademark- (mitoxantrone)..... 44.5 48.8 51.6
Other product sales................................. 38.8 44.6 45.4
------ ------ ------
Total product sales............................. 519.3 169.9 149.7
Royalty and contract revenue........................ 22.4 73.5 35.6
------ ------ ------
Total revenue................................... $541.7 $243.4 $185.3
====== ====== ======
</TABLE>
On November 2, 1998, the FDA approved ENBREL for treatment of advanced
rheumatoid arthritis. On May 28, 1999, the FDA approved ENBREL for the treatment
of moderately to severely active juvenile rheumatoid arthritis. We commenced
selling ENBREL in the United States on November 4, 1998. Sales of ENBREL totaled
$366.9 million for 1999 and $12.7 million for 1998. Under an ENBREL Promotion
Agreement entered into in September 1997 with American Home Products
Corporation, or AHP, ENBREL is being promoted in the United States through the
sales and marketing organization of Wyeth-Ayerst Laboratories, or Wyeth-Ayerst,
a division of AHP. AHP shares in the gross profits from U.S. sales of ENBREL and
both AHP and Immunex share selling, marketing and distribution costs of ENBREL
in the United States.
Demand for LEUKINE continued to grow in 1999, reflecting increased
acceptance of the product. Unit volume of LEUKINE began to increase in 1997
following the launch of a liquid formulation of the product, which was
previously only available 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 have 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.
Sales of NOVANTRONE remained essentially flat during 1999, following a
decline in sales levels in the fourth quarter of 1998. We have filed a New Drug
Application, or NDA, with the FDA to approve NOVANTRONE for treatment of
secondary progressive multiple sclerosis, an advanced stage of multiple
sclerosis.
Sales of THIOPLEX decreased to $17.7 million in 1999 compared to $24.9
million in 1998 and $22.4 million in 1997. In addition to other indications,
THIOPLEX is used as a treatment regimen for bone marrow transplant therapy.
Sales of THIOPLEX have declined since the release of findings indicating that
bone marrow transplants were no more effective than standard outpatient
chemotherapy in the treatment of breast cancer. Demand for THIOPLEX declined
throughout the year, and is expected to continue to decline in 2000.
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 other
products, as a whole, declined slightly during 1998. Also, in late 1997, we sold
the marketing rights to our non-biological 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.
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<PAGE>
Royalty and contract revenue totaled $22.4 million in 1999, compared to
$73.5 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
due primarily 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 non-recurring contract revenues of approximately $10.0 million related to
the sale of the U.S. rights to paclitaxel injection, a generic form of
TAXOL-REGISTERED TRADEMARK-, and to the settlement of claims related to
paclitaxel injection in Canada. Royalty and contract revenue in 1997 includes
$15.0 million earned from AHP under the ENBREL Promotion Agreement and other
one-time revenues of approximately $7.0 million.
OPERATING EXPENSES
Cost of product sales, as a percentage of product sales, was 30.7% in 1999
compared to 19.6% in 1998 and 16.4% in 1997. The increase in the cost of product
sales percentage in 1999 was due to:
- increased sales of ENBREL (which, like LEUKINE, is a biologic and
generally has a higher manufacturing cost than traditional pharmaceutical
products and, in the case of our biologic products, are subject to
multiple royalty obligations); and
- unfavorable change in the mix of our other product sales.
The unfavorable change in product mix in 1999 and 1998 reverses a more
favorable trend in 1997 when increased sales of our products had resulted in
an overall decrease in the cost of product sales percentage.
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-TM- (IL-4R) and other receptor
product candidates, research and development expense increased by $16.7 million
in 1999 versus 1998. The increase in research and development costs was due
primarily to the development of:
- NUVANCE for treatment of asthma;
- ENBREL for treatment of chronic heart failure and rheumatoid arthritis;
- the TRAIL/Apo2 ligand molecule for treatment of cancer, in collaboration
with Genentech, Inc.;
- NOVANTRONE for treatment of multiple sclerosis; and
- AVREND-TM- (CD40 ligand) to treat renal cell cancer.
In addition, we have increased costs for staffing and expanded laboratory space.
The increase in research and development expense in 1998, as compared to
1997, was due primarily to increased spending to develop ENBREL. In addition,
spending to develop NUVANCE and MOBISTA-TM- (Flt3 ligand) 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 due primarily to expenses associated with selling and
marketing of ENBREL. Under the terms of the ENBREL Promotion Agreement, AHP
assumed a majority of these expenses and will share 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 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 anticipated approval of NOVANTRONE in a new multiple
sclerosis indication;
- higher product liability insurance premiums due to higher average limits;
and
- expenses associated with new information systems.
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<PAGE>
The increase in selling, general and administrative expense in 1998, as
compared to 1997, was due primarily to spending on pre-launch activities and on
launch related selling and marketing activities for ENBREL. The increase also
reflects costs from:
- increased staffing levels;
- expenses associated with new information systems; and
- expanded office space.
OTHER INCOME (EXPENSE)
Interest income increased to $26.2 million in 1999, compared to
$6.8 million in 1998 and $3.8 million in 1997. In May 1999, we issued a
$450.0 million, seven-year, 3%, convertible subordinated note to AHP. The
proceeds from the note, 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 earned on those funds.
Interest income in 1999 was partially offset by an increase in interest expense
incurred on the convertible note. The increase in interest income in 1998, as
compared to 1997, reflects an increase in funds available for investment
purposes due to improved operating results and the interest 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 is primarily for federal income taxes. The tax provisions for 1999 and
1998 are non-cash transactions because we are using our net operating loss, or
NOL, carryforwards. The benefit from utilizing our NOL carryforwards was to
reduce the recorded value of goodwill and intangible product rights and, in
part, to offset tax expense in 1999. At December 31, 1999, our NOL carryforwards
totaled approximately $286.7 million. Not all of these NOL carryforwards will be
available to offset 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 $709.8 million at
December 31, 1999 and $144.8 million at December 31, 1998. In May 1999, we
received $450.0 million in proceeds from the issuance of a convertible
subordinated note to AHP. We maintain our cash reserves in a variety of
interest-bearing instruments, including government and corporate obligations and
money market accounts.
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 due primarily to the improvement in 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, as compared to 1997, can be attributed to an improvement in 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 grow in 2000, primarily
from increased operating income. However, the extent of any improvement will be
significantly affected by changes in our working capital requirements. Under an
ENBREL Supply Agreement we entered into in November 1998 with AHP and Boehringer
Ingelheim Pharma KG, or BI Pharma, our contract manufacturer of ENBREL, we have
made commitments to purchase inventory totaling at least $218.0 million over the
next two years. A portion of this inventory will be purchased by AHP from BI
Pharma. Our commitment could increase if BI Pharma provides additional
quantities of ENBREL. In addition to inventory of ENBREL, 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.
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<PAGE>
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 for investing activities was due to increased purchases of marketable
securities of $460.1 million, offset by $107.8 million in proceeds from the
sales and maturities of marketable 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 a new process development facility that is
expected to be completed by the end of 2000 at a total cost of approximately
$45.0 million. We also leased additional laboratory and office space during 1999
and incurred costs to build out the new space. Other capital expenditures
include computer hardware and software, lab and manufacturing equipment. We also
incurred costs totaling $15.5 million related to patent licenses.
We expect capital expenditures to increase significantly in 2000. We
estimate costs to complete the process development facility will be
approximately $35.0 million. In addition, we are investing in additional
manufacturing capacity for ENBREL and our other product candidates. The timing
and extent of these expenditures in 2000 is uncertain, but could be significant.
In order to meet the anticipated increased supply demands for LEUKINE, we are
planning to transfer production of LEUKINE to our full-scale microbial
manufacturing facility. The move will result in capital expenditures for
replacement and upgrade of manufacturing equipment. We are currently in the
design phase of a project to relocate our corporate offices and research
facilities to a new corporate campus. In the fourth quarter of 1999, our Board
of Directors approved expenditures of up to $6.2 million for initial development
of the corporate campus. We also expect to continue to increase spending for
computer software and hardware and lab equipment.
The increase in net cash used in investing activities in 1998, as compared
to 1997, was due to increased purchases of marketable securities, purchases of
property, plant and equipment and a payment made under a GM-CSF patent
interference settlement.
Net cash provided by financing activities totaled $507.6 million in 1999,
$70.5 million in 1998 and $56.0 million 1997. The majority of the increase in
1999 can be attributed to the $450.0 million in proceeds from the seven-year,
3%, convertible subordinated note issued to AHP. We expect to use the proceeds
from this note for:
- new product development;
- financing strategic acquisitions of products, product candidates,
technologies or other businesses;
- financing expansion for constructing new manufacturing, research and
office facilities; and
- funding other working capital requirements.
In addition, under the terms of a Governance Agreement with AHP, AHP can
purchase additional shares of our common stock in order to maintain its
percentage ownership interest in Immunex. 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 $40.8 million from the issuance of 1,166,242 shares of
our common stock to AHP during 1999. We received an additional $21.3 million
from sales of common stock to our employees under an employee stock option plan
and the employee stock purchase plan.
The increase in cash provided by financing activities for 1998, as compared
to 1997, was primarily due to the final revenue shortfall obligation payment
from AHP totaling $60.0 million. In 1998, we also received an additional
$6.8 million from the exercise of employee stock options and $6.9 million from
the issuance of 445,132 shares of our common stock to AHP.
OUTLOOK
We expect growth in sales of ENBREL to be the primary driver of our
operating results in 2000. We expect sales levels of ENBREL to continue to grow
in the near-term and are seeking a label expansion for ENBREL for the treatment
of early stage rheumatoid arthritis. A decision by the FDA on this submission is
expected in 2000. Under the ENBREL Promotion Agreement with AHP, ENBREL is being
promoted in the United States by the sales and marketing organization of
Wyeth-Ayerst. AHP shares in the gross profits from U.S. sales and potential
Canadian sales of ENBREL. Payments to AHP will increase with any corresponding
increase in sales of ENBREL. In addition, both companies share the selling,
marketing and distribution costs of ENBREL in the United States. AHP will
continue to assume a majority of these marketing and selling costs in 2000.
However, our share of these expenses will be higher in 2000 than in 1999. As a
result, although total spending under the ENBREL Promotion Agreement will
decrease moderately from the launch year for ENBREL, our total share of these
expenses in 2000 is expected to approximate our spending incurred during 1999.
In November 2000, the beginning of the third year following the U.S. launch of
ENBREL, Immunex and AHP will share these costs equally in the U.S.
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On January 28, 2000, an advisory panel to the FDA unanimously recommended
NOVANTRONE for approval for treatment of clinically worsening forms of
relapsing-remitting and secondary progressive multiple sclerosis. We have
prepared for a potential launch of NOVANTRONE for this possible indication,
including hiring additional sales representatives.
A portion of our revenues will continue to be derived from existing
license, royalty and other such agreements. Under the ENBREL Promotion
Agreement, we earned $10.0 million in February 2000 when net sales of ENBREL
exceeded $400.0 million during the preceding 12-month period. We will earn
$15.0 million if and when a rheumatoid arthritis disease modification claim
for ENBREL is obtained from the FDA. In the future, we may enter into
additional agreements to license marketing or technology rights. The timing
of such agreements, if any, and the revenue recognized from those agreements
cannot be predicted.
We expect to increase research and development spending in 2000 to develop
our product pipeline. We are currently conducting a large scale Phase II/III
clinical trial of ENBREL for treatment of chronic heart failure and we expect to
initiate a Phase III clinical trial of ENBREL in psoriatic arthritis. In
addition to these two indications, we are pursuing several other indications for
ENBREL. In 1999, we initiated a Phase II clinical trial of NUVANCE in moderate
to severe asthma patients. We expect to obtain the results of this clinical
trial in the first half of 2000 and to launch a pivotal Phase III clinical trial
if the results are positive. We also expect spending under our collaboration
with Genentech, Inc. to jointly develop the TRAIL/Apo2 ligand molecule to
increase.
Selling, general and administrative expense in 2000 will be primarily
determined by the profit share due AHP on net sales of ENBREL in the United
States. In addition, if we receive FDA approval to market NOVANTRONE in a
multiple sclerosis indication, spending in 2000 will include costs of selling to
a new physician audience. We also expect increased sales and marketing
administration costs for ENBREL and continued moderate growth in infrastructure
and support costs.
The provision for income taxes in 2000 will consist only of our tax
obligation in the states in which we sell our products. Our federal income tax
expense will be offset by NOL carryforwards.
YEAR 2000
We have experienced no disruption to our operations as a result of the "Year
2000" issue. The "Year 2000" issue is the result of computer programs being
unable to differentiate between the year 1900 and the year 2000 because they
were written using two digits rather than four to define the applicable year.
This programming flaw could result in a system failure or miscalculations with
respect to current programs. We established a Year 2000 Committee with
representatives from all of the functional areas at Immunex to engage in a
comprehensive review of our computer systems and software applications and
equipment that utilize date sensitive computer chips. Based on this review, we
determined that some of our software, hardware and equipment had to be modified
or replaced so that they would properly utilize dates beyond December 31, 1999.
These replacements and modifications were completed by September 30, 1999.
Furthermore, we contacted key business partners, including third-party
suppliers, service providers, distributors, wholesalers and other entities with
whom we have a business relationship, or Business Partners, to determine their
compliance with year 2000 requirements. All mission critical facilities,
equipment, and systems were monitored by an on-site team on December 31, 1999
with no reported disruptions.
As of December 31, 1999, we had completed all phases of our year 2000
project including contingency planning for critical aspects of our operations.
Although we have experienced no year 2000 compliance problems to date, some
problems may not surface until several months after January 1, 2000.
Accordingly, we are continuing to monitor our operations and our Business
Partners for year 2000 compliance problems. Were any such problems to arise that
we were unable to identify and correct in a timely manner, our operations could
be adversely affected. In addition, although we do not expect that the cost to
fix any year 2000 problems that may be identified would be material, the costs
of upgrading or replacing any non-compliant systems or equipment could exceed
our expectations and adversely affect our operating results.
Our total cost for the year 2000 project was approximately $6.5 million,
comprised of $1.2 million of expense and $5.3 million of capital. These amounts
do not include any internal costs. All of these amounts were incurred as of
December 31, 1999.
MARKET RISK
We have financial instruments that are subject to interest rate risk
including both debt instruments and investment instruments. We invest our cash
reserves in marketable securities consisting primarily of U.S. government and
corporate obligations. If market interest rates changed relatively by as much as
10%, the net effect on our operating results would not be material.
38
<PAGE>
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
See MARKET RISK, above, under Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE IN
FORM 10-K
---------
<S> <C>
Consolidated Balance Sheets at December 31, 1999 and
1998...................................................... 40
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... 41
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999, 1998 and 1997.............. 42
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... 43
Notes to Consolidated Financial Statements for the years
ended December 31, 1999, 1998 and 1997.................... 44-57
Report of Ernst & Young LLP, Independent Auditors........... 58
</TABLE>
39
<PAGE>
IMMUNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 260,770 $ 43,600
Short term investments.................................... 449,066 101,245
Accounts receivable--trade, net........................... 47,469 21,570
Accounts receivable--AHP.................................. 3,558 967
Accounts receivable--other................................ 10,754 6,402
Inventories............................................... 13,125 23,475
Prepaid expenses and other current assets................. 6,439 4,726
--------- ---------
Total current assets.................................... 791,181 201,985
Property, plant and equipment, net.......................... 110,445 90,092
Other assets:
Property held for future development...................... 6,049 6,129
Investments............................................... 10,704 3,837
Intangible product rights and other, net.................. 22,862 15,935
Goodwill, net............................................. -- 7,347
--------- ---------
Total assets............................................ $ 941,241 $ 325,325
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 71,832 $ 39,256
Accounts payable--AHP..................................... 37,088 13,950
Accrued compensation and related items.................... 20,001 13,756
Current portion of long-term obligations.................. 1,578 3,477
Interest payable--AHP..................................... 2,250 --
Other current liabilities................................. 2,336 5,074
--------- ---------
Total current liabilities............................... 135,085 75,513
Convertible subordinated note--AHP.......................... 450,000 --
Other long term obligations................................. 826 2,349
Commitments and contingencies (Note 10)
Shareholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized, none outstanding............................ -- --
Common stock, $.01 par value, 400,000,000 shares
authorized, 164,673,125 and 160,594,044 outstanding at
December 31, 1999 and 1998, respectively................ 788,468 726,416
Unrealized gain on investments, net....................... 2,719 1,228
Accumulated deficit....................................... (435,857) (480,181)
--------- ---------
Total shareholders' equity.............................. 355,330 247,463
--------- ---------
Total liabilities and shareholders' equity.............. $ 941,241 $ 325,325
========= =========
</TABLE>
See accompanying notes.
40
<PAGE>
IMMUNEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Product sales............................................. $519,287 $169,907 $149,672
Royalty and contract revenue.............................. 22,431 73,543 35,625
-------- -------- --------
541,718 243,450 185,297
Operating expenses:
Cost of product sales..................................... 159,269 33,285 24,552
Research and development.................................. 126,682 119,954 109,312
Selling, general and administrative....................... 216,714 93,777 71,275
-------- -------- --------
502,665 247,016 205,139
-------- -------- --------
Operating income (loss)..................................... 39,053 (3,566) (19,842)
Other income (expense):
Interest income........................................... 26,150 6,793 3,790
Interest expense.......................................... (8,656) (425) (596)
Other income, net......................................... 277 384 1,088
-------- -------- --------
17,771 6,752 4,282
-------- -------- --------
Income (loss) before income taxes........................... 56,824 3,186 (15,560)
Provision for income taxes.................................. 12,500 2,200 212
-------- -------- --------
Net income (loss)........................................... $ 44,324 $ 986 $(15,772)
======== ======== ========
Net income (loss) per common share
Basic..................................................... $ 0.27 $ 0.01 $ (0.10)
======== ======== ========
Diluted................................................... $ 0.25 $ 0.01 $ (0.10)
======== ======== ========
Number of shares used for per share amounts
Basic..................................................... 163,130 159,500 158,548
======== ======== ========
Diluted................................................... 176,658 167,560 158,548
======== ======== ========
</TABLE>
See accompanying notes.
41
<PAGE>
IMMUNEX CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTY
PAYMENT ACCUMULATED
COMMON STOCK RECEIVABLE OTHER TOTAL
------------------- FROM COMPREHENSIVE ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT AHP INCOME DEFICIT EQUITY
-------- -------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996........ 158,358 $649,699 $(56,000) $ 9,406 $(465,395) $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..................... 350 1,698 -- -- -- 1,698
Common stock issued to AHP...... 113 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........ 158,821 712,709 (60,032) 4,646 (481,167) 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..................... 1,328 6,830 -- -- -- 6,830
Common stock issued to AHP...... 445 6,877 -- -- -- 6,877
Guaranty payment received from
AHP........................... -- -- 60,032 -- -- 60,032
------- -------- -------- ------- --------- --------
Balance, December 31, 1998........ 160,594 726,416 -- 1,228 (480,181) 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..................... 2,913 21,275 -- -- -- 21,275
Common stock issued to AHP...... 1,166 40,777 -- -- -- 40,777
------- -------- -------- ------- --------- --------
Balance, December 31, 1999........ 164,673 $788,468 $ -- $ 2,719 $(435,857) $355,330
======= ======== ======== ======= ========= ========
</TABLE>
See accompanying notes.
42
<PAGE>
IMMUNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Operating activities:
Net income (loss)......................................... $ 44,324 $ 986 $(15,772)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 20,081 18,119 16,930
Deferred income tax provision........................... 12,051 1,900 --
License fee received in the form of common stock........ (990) -- --
Cash flow impact of changes to:
Accounts receivable................................... (32,842) (10,708) (90)
Inventories........................................... 11,296 (6,493) (138)
Prepaid expenses and other current assets............. (1,713) (947) 55
Accounts payable, accrued compensation and other
current liabilities................................. 60,525 20,371 14,078
--------- --------- --------
Net cash provided by operating activities........... 112,732 23,228 15,063
Investing activities:
Purchases of property, plant and equipment................ (35,563) (29,389) (7,409)
Proceeds from sales and maturities of short term
investments............................................. 107,843 40,169 13,804
Purchases of short term investments....................... (460,050) (121,745) (33,158)
Acquisition of rights to marketed products, net........... (15,500) (5,000) --
Other..................................................... 78 (312) (1,985)
--------- --------- --------
Net cash used in investing activities............... (403,192) (116,277) (28,748)
Financing activities:
Proceeds from common stock issued to employees............ 21,275 6,877 1,280
Proceeds from common stock issued to AHP.................. 40,777 6,831 1,698
Proceeds from convertible subordinated note--AHP, net..... 449,000 -- --
Payment under settlement obligation....................... (2,558) (2,391) (2,235)
Guaranty payment received from AHP........................ -- 60,032 56,000
Other..................................................... (864) (876) (743)
--------- --------- --------
Net cash provided by financing activities........... 507,630 70,473 56,000
--------- --------- --------
Net increase (decrease) in cash and cash equivalents........ 217,170 (22,576) 42,315
Cash and cash equivalents, beginning of period.............. 43,600 66,176 23,861
--------- --------- --------
Cash and cash equivalents, end of period.................... $ 260,770 $ 43,600 $ 66,176
========= ========= ========
</TABLE>
See accompanying notes.
43
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Immunex Corporation is a biopharmaceutical company that discovers, develops,
manufactures and markets innovative therapeutic products for the treatment of
human diseases, including cancer, infectious diseases and immunological
disorders such as rheumatoid arthritis.
We operate in a highly regulated and competitive environment. Our business
is regulated primarily by the U.S. Food and Drug Administration, or FDA. The FDA
regulates the products we sell, our manufacturing processes and our promotional
activities. Obtaining approval for a new therapeutic product is never certain,
may take several years and is very costly. Competition in researching,
developing and marketing pharmaceutical products is intense. Any of the
technologies covering our existing products or products under development could
become obsolete or diminished in value by discoveries and developments of other
organizations.
Our market for pharmaceutical products is primarily the U.S. Our sales are
primarily through wholesalers and specialty distributors. Approximately 68% of
our product sales are made through three of these wholesalers and specialty
distributors.
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, American Home
Products Corporation, or 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 Immunex. 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 consolidated financial statements are prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management must make estimates and assumptions that affect reported amounts and
disclosures.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include our accounts and 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, 1999 and 1998 consisted primarily of U.S.
government and corporate debt obligations.
INVENTORIES
Inventories are stated at the lower of cost, using a weighted-average
method, or market. The components of inventories at December 31 are as follows
(in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Raw materials............................................. $ 1,387 $ 807
Work in process........................................... 5,310 17,953
Finished goods............................................ 6,428 4,715
------- -------
Total inventories......................................... $13,125 $23,475
======= =======
</TABLE>
44
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 life, or
the term of the lease, whichever is shorter.
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. These investments are
accounted for as securities available-for-sale and 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 $12,098,000 at December 31, 1999 and $11,319,000 at
December 31, 1998. In connection with the pretax income reported in 1999 and
1998, we recorded a tax provision and reduced our goodwill by $6,568,000 in 1999
and $1,900,000 in 1998 (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 $9,998,000 at December 31, 1999 and $7,069,000 at
December 31, 1998. 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 has been reduced to zero.
REVENUES
Product sales are recognized when product is shipped. Product sales 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, which are netted against accounts receivable,
totaled $21,824,000 at December 31, 1999 and $11,627,000 at December 31, 1998.
Reserves for chargebacks, Medicaid rebates and administrative fees are included
in accounts payable and totaled $21,970,000 at December 31, 1999 and $12,610,000
at December 31, 1998.
Revenues received under royalty, licensing and other contractual agreements
are recognized based upon performance under the terms of the underlying
agreements. In 1999, we received common stock initially valued at $990,000 in
lieu of cash as compensation under a licensing agreement.
ADVERTISING COSTS
The costs of advertising are expensed as incurred. We incurred approximately
$2,843,000 in advertising costs 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 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.
45
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
For comparison purposes, prior year amounts in the consolidated financial
statements have been reclassified to conform to current year presentations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD
In June 1998, the FASB issued Statement No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. We expect to adopt the new Statement
effective January 1, 2001. The Statement will require us to recognize all
derivatives on the balance sheet at fair value. We are in the process of
analyzing the impact of this standard, however, we do not anticipate that the
adoption of this statement will have a significant effect on our results of
operations or financial position.
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 1999 and
1998, there were no material realized gains or losses. Immunex's investment
guidelines state that the maximum average life of any one security shall be five
years with the maximum weighted average life of the investment portfolio being
three years. At December 31, 1999, all of Immunex's investments met these
guidelines. 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, 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)
======== ======== ====== =======
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)
======== ======== ====== =======
<CAPTION>
1999 1998
-------- ---------
Classification in the balance sheet:
<S> <C> <C> <C> <C>
Cash and cash equivalents....................... $230,653 $ 9,940
Short term investments.......................... 449,066 101,245
Investments..................................... 10,704 3,837
-------- --------
$690,423 $115,022
======== ========
</TABLE>
46
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
1999 1998
-------- --------
<S> <C> <C>
Land.................................................... $ 17,874 $ 17,851
Buildings and improvements.............................. 59,793 50,097
Equipment............................................... 84,267 64,727
Leasehold improvements.................................. 28,650 23,469
-------- --------
190,584 156,144
Less accumulated depreciation and amortization.......... (80,139) (66,052)
-------- --------
Property, plant and equipment, net...................... $110,445 $ 90,092
======== ========
</TABLE>
NOTE 5. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
3% subordinated convertible note to AHP due through 2006.... $450,000 $ --
Deferred state sales tax on manufacturing facility due
through 2000.............................................. 1,031 1,889
Deferred portion of litigation settlement obligation due
through 2000.............................................. 519 3,077
Other....................................................... 854 860
-------- -------
452,404 5,826
Less current portion........................................ (1,578) (3,477)
-------- -------
$450,826 $ 2,349
======== =======
</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 Immunex common stock at a price of
$86.84 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
$104.21 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 common stock of Immunex at any time and,
accordingly, we have reserved 5,181,944 shares at December 31, 1999 for
potential issuance upon the conversion.
During 1999, interest paid on the note totaled $6,038,000. Based upon the
Immunex common stock price of $109.50 per share at December 31, 1999, the fair
value of the note was approximately $567,423,000.
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 1999, 1998 or 1997 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 $963,000 at December 31, 1999 and $1,700,000 at December 31,
1998.
47
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. SHAREHOLDERS' EQUITY
STOCK OPTIONS
We may grant stock options, both incentive and non-qualified, to any
employee, including officers, under the 1993 stock option plan and the 1999
stock option plan. There are 24,901,068 and 12,000,000 shares of common stock
reserved for the 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 400,000 shares of common stock
reserved for 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 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.
Immunex has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and has 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>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income (loss)--as reported................. $44,324 $ 986 $(15,772)
Net income (loss)--pro forma................... 7,003 (11,413) (20,643)
Net income (loss) per common share,
basic--as reported........................... $ 0.27 $ 0.01 $ (0.10)
Net income (loss) per common share,
basic--pro forma............................. $ 0.04 $ (0.07) $ (0.13)
Net income (loss) per common share,
diluted--as reported......................... $ 0.25 $ 0.01 $ (0.10)
Net income (loss) per common share,
diluted--pro forma........................... $ 0.04 $ (0.07) $ (0.13)
</TABLE>
The estimated fair value of options granted in 1999, 1998 and 1997 was
calculated using the Black-Scholes option pricing model with the following
weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Estimated weighted average fair
value............................. $24.50 $8.84 $3.86
Expected life in years.............. 6 6 6
Risk-free interest rate............. 5.1% - 6.5% 4.6% - 5.7% 6.0% - 6.6%
Volatility.......................... 74% 52% 45%
Dividend yield...................... -- -- --
</TABLE>
48
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. SHAREHOLDERS' EQUITY (CONTINUED)
Information with respect to Immunex's 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 December 31, 1996... 8,290,256 $ 2.94 - 7.88 $ 4.71
Granted.......................................... 4,910,600 6.06 - 19.19 7.69
Exercised........................................ (350,300) 2.94 - 7.88 4.86
Canceled......................................... (440,444) 3.06 - 10.44 5.41
---------- --------------- ------
Options outstanding balance at December 31, 1997... 12,410,112 $ 2.94 - 19.19 $ 5.84
Options exercisable.............................. 3,126,980 5.46
Granted.......................................... 5,575,000 15.56 - 17.66 15.77
Exercised........................................ (1,327,820) 2.94 - 10.44 5.14
Canceled......................................... (715,996) 3.06 - 19.19 11.72
---------- --------------- ------
Options outstanding balance at December 31, 1998... 15,941,296 $ 2.94 - 19.19 $ 9.11
Options exercisable.............................. 4,405,516 5.66
Granted.......................................... 5,920,900 34.44 - 58.56 35.61
Exercised........................................ (2,890,069) 2.94 - 19.19 6.94
Canceled......................................... (445,834) 2.94 - 58.56 17.90
---------- --------------- ------
Options outstanding balance at December 31, 1999... 18,526,293 $ 2.94 - 58.56 $17.70
========== =============== ======
Options exercisable.............................. 4,490,779 7.14
Shares available for future grants at December 31,
1999............................................. 14,202,882
==========
</TABLE>
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>
$ 2.94 - 3.97 3,627,145 6 years $ 3.88 1,952,705 $ 3.84
4.38 - 6.06 3,176,924 7 years 5.97 1,120,184 5.79
6.81 - 10.44 795,110 5 years 8.09 587,510 7.86
15.56 - 15.56 4,078,794 8 years 15.56 618,490 15.56
16.72 - 19.19 1,059,410 8 years 17.77 211,890 18.19
34.44 - 58.56 5,788,910 9 years 35.61 -- --
- -------------- ---------- ------ --------- ------
$ 2.94 - 58.56 18,526,293 $17.70 4,490,779 $ 7.14
============== ========== ====== ========= ======
</TABLE>
49
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. SHAREHOLDERS' EQUITY (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
In April 1999, the Company introduced an Employee Stock Purchase Plan under
which 1,000,000 shares of common stock have been reserved for issuance. Eligible
employees may purchase a limited number of shares of the Company's stock at 85%
of the market value at plan-defined dates. During 1999, employees purchased
22,009 shares at a cost of $1,179,000 under this plan.
At December 31, 1999, we have reserved shares of common stock for future
issuances as follows:
<TABLE>
<S> <C>
Outstanding stock options................................... 18,526,293
Stock options available for future grant.................... 14,202,882
Employee stock purchase plan................................ 977,991
Conversion of convertible subordinated notes to AHP......... 5,181,944
----------
38,889,110
==========
</TABLE>
STOCK SPLIT
Immunex declared two stock splits in 1999. The two-for-one stock splits,
effected in the form of 100% stock dividends, were approved by the Board of
Directors on February 23, 1999 and July 27, 1999. The record dates of the stock
splits were March 11, 1999, and August 12, 1999, respectively. Stockholders were
entitled to receive the additional shares on March 25, 1999 and August 26, 1999,
respectively. 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 splits have been restated to
reflect the two-for-one stock splits.
NOTE 7. INCOME TAXES
Significant components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current taxes
Federal........................................... $ -- $ -- $ --
State............................................. 449 300 132
------- ------ ----
$ 449 $ 300 $132
Deferred taxes
Federal (non-cash accounting entry)............... $12,051 $1,900 $ --
State............................................. -- -- --
------- ------ ----
$12,500 $2,200 $132
======= ====== ====
</TABLE>
During 1999 and 1998, 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 $12,051,000 in 1999 and $1,900,000 in 1998. This tax expense
will not result in a cash outlay. We paid income taxes totaling $383,000 for
1999, $275,000 for 1998 and $132,000 for 1997.
50
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. INCOME TAXES (CONTINUED)
Reconciliation of the U.S. federal statutory tax rate to Immunex's effective
tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
U.S. federal statutory tax rate....................... 35.0% 35.0% (35.0)%
Non-deductible amortization of goodwill............... 0.5 17.4 4.6
Increase in valuation reserve......................... -- -- 29.7
State taxes (net of federal tax benefit).............. 0.8 6.1 1.4
Other................................................. 0.9 10.6 0.7
Utilization of NOL carryforwards...................... (15.1) -- --
----- ---- -----
Effective tax rate.................................. 22.1% 69.1% 1.4%
===== ==== =====
</TABLE>
Significant components of tax assets and liabilities at December 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................... $ 100,330 $ 88,194
Research and experimentation credits................ 20,443 16,814
In-process research and development................. 3,547 3,901
Accounts receivable allowances...................... 7,638 4,070
Accrued liabilities................................. 9,670 1,885
Other............................................... 1,627 912
--------- ---------
Total deferred tax assets......................... 143,255 115,776
Valuation allowance for deferred tax assets......... (139,720) (109,526)
--------- ---------
Net deferred tax assets........................... 3,535 6,250
Deferred tax liabilities:
Tax over book depreciation.......................... 1,251 1,515
Purchase accounting adjustments..................... -- 2,157
Other............................................... 2,284 2,578
--------- ---------
Total deferred tax liabilities.................... 3,535 6,250
--------- ---------
$ -- $ --
========= =========
</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
$139,720,000 and $109,526,000 has been recorded for financial reporting purposes
at December 31, 1999 and 1998. This represents an increase in the reserve of
approximately $30,194,000 during 1999 and $8,472,000 during 1998.
51
<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 $2,860,000 in 1999, $2,164,000 in 1998 and
$1,900,000 in 1997.
NOTE 9. TRANSACTIONS WITH AHP
On June 1, 1993, the predecessor to the current Immunex 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. Immunex distributes a portion of the gross profits to AHP from
U.S. sales of ENBREL and reimburses 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, Immunex and AHP will
share these costs equally in the United States. Our obligation for such
expenses, including AHP's share of gross profits from ENBREL, totaled
$120,276,000 in 1999 and $14,800,000 in 1998. In addition, under the ENBREL
Promotion Agreement, we earned revenues of $10,000,000 in 1999, $50,000,000 in
1998 and $15,000,000 in 1997.
Under subsequent agreements, we recorded $3,864,000 in revenue for supplying
ENBREL to AHP outside the United States and Canada. AHP reimburses us for third
party royalties incurred on the revenue they earn from such sales, which totaled
$621,000 during 1999. In addition, we recognized $1,310,000 of contract revenue
during 1999 for performing activities related to ENBREL and the process of
manufacturing ENBREL on behalf of AHP.
52
<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 $1,600,000 in 1999, $4,000,000 in 1998 and
$6,000,000 in 1997. 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, Immunex 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
$23,986,000 in 1999, $22,092,000 in 1998 and $19,256,000 in 1997.
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 $8,258,000 in 1998 and
$16,240,000 in 1997, 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 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
non-biological oncology products outside the United States and Canada. We earned
royalties under the agreement totaling $2,504,000 in 1999, $2,687,000 in 1998
and $2,972,000 in 1997.
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
1999 or 1998.
Under the terms of a subsequent agreement, Immunex and AHP agreed to
collaborate in the development of paclitaxel injection, a generic form of
TAXOL-REGISTERED TRADEMARK-, 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
Immunex and AHP are parties to a supply agreement and a toll manufacturing
agreement under which AHP manufactures and supplies the reasonable commercial
requirements of oncology products at a price equal to 125% of AHP's or its
subsidiaries' manufacturing costs. Immunex and AHP also have a methotrexate
distributorship agreement under which AHP agreed to supply methotrexate to us at
established prices which are adjusted annually. We purchased inventory totaling
$8,154,000 in 1999 and $6,172,000 in 1998 from AHP and its subsidiaries under
these agreements. In addition, AHP billed us $377,000 in 1999, $458,000 in 1998
and $988,000 in 1997, for other expenses under these agreements.
53
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. TRANSACTIONS WITH AHP (CONTINUED)
DISTRIBUTION
We have agreed to supply the commercial requirements of our products to
Wyeth-Ayerst Laboratories Puerto Rico, Inc., a wholly owned subsidiary of AHP.
Net revenue recognized under this agreement totaled $2,361,000 in 1999, $758,000
in 1998 and $580,000 in 1997.
We were party to a distributorship agreement with Wyeth-Ayerst Canada, Inc,
a wholly owned subsidiary of AHP, under which Wyeth-Ayerst Canada distributed
non-biological 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, Immunex 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.
OPTION TO PURCHASE ADDITIONAL COMMON STOCK OF IMMUNEX
Immunex 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
Immunex common stock to the extent necessary to maintain AHP's percentage
ownership interest in Immunex 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
1,166,242 shares for $40,777,000 in 1999, 445,132 shares for $6,877,000 in 1998
and 112,892 shares for $1,280,000 in 1997.
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>
YEAR ENDED DECEMBER 31, OPERATING 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>
Rental expense on operating leases was $5,183,000 in 1999, $4,000,000 in
1998 and $3,339,000 in 1997.
54
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 Immunex 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 $59,326,000 in 1999, $12,997,000 in 1998
and $8,139,000 in 1997. 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>
Immunex is 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 Immunex 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.
55
<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>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income (loss)............................. $ 44,324 $ 986 $(15,772)
======== ======== ========
Weighted average common shares outstanding,
basic....................................... 163,130 159,500 158,548
Net effect of dilutive stock options.......... 13,528 8,060 --
-------- -------- --------
Weighted average common shares outstanding,
diluted..................................... 176,658 167,560 158,548
======== ======== ========
Net income (loss) per common share, basic..... $ 0.27 $ 0.01 $ (0.10)
======== ======== ========
Net income (loss) per common share, diluted... $ 0.25 $ 0.01 $ (0.10)
======== ======== ========
</TABLE>
The 5,181,944 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 EVENTS
On February 17, 2000, our Board of Directors approved a three-for-one stock
split of our common stock in the form of a 200% stock dividend, to be effected
on March 20, 2000. 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 not been restated to
reflect the three-for-one stock split.
56
<PAGE>
IMMUNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Our consolidated operating results for each quarter of 1999 and 1998 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
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(1) 3,895
Cost of sales................................ 27,209 39,678 42,111 50,271
Research and development expenses............ 28,209 30,264 31,070 37,139
Selling, general and administrative
expenses................................... 44,273 52,937 56,936 62,568
Operating income (loss)...................... (1,514) 5,595 22,305 12,667
Net income................................... $ 251 $ 6,861 $ 20,996 $ 16,216
Net income per common share:
Basic...................................... $ 0.00 $ 0.04 $ 0.13 $ 0.10
Diluted.................................... $ 0.00 $ 0.04 $ 0.12 $ 0.09
Year ended December 31, 1998:
Product sales................................ $ 38,816 $ 39,961 $ 40,125 $ 51,005
Royalty and contract revenue................. 3,050 24,194(2) 9,051 37,248(4)
Cost of sales................................ 7,090 7,691 7,242 11,262
Research and development expenses............ 26,906 36,910(3) 26,894 29,244
Selling, general and administrative
expenses................................... 18,437 20,780 21,593 32,967
Operating income (loss)...................... (10,567) (1,226) (6,553) 14,780
Net income (loss)............................ $ (9,024) $ 195 $ (4,925) $ 14,740
Net income (loss) per common share:
Basic...................................... $ (0.06) $ 0.00 $ (0.03) $ 0.09
Diluted.................................... $ (0.06) $ 0.00 $ (0.03) $ 0.09
</TABLE>
- ------------------------
(1) Includes $10.0 million earned under the ENBREL Promotion Agreement when
sales of ENBREL exceeded $200.0 million.
(2) Includes $20.0 million earned under the ENBREL Promotion Agreement when the
BLA for ENBREL was accepted for review by the FDA.
(3) Includes $10.0 million paid to acquire the rights outside the United States
and Canada to receptor product candidates including NUVANCE.
(4) Includes $30.0 million earned under the ENBREL Promotion Agreement when
ENBREL was approved by the FDA.
57
<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, 1999 and 1998, 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. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with 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, 1999 and 1998, and the consolidated
results of its operations and its cash flows for the each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG L.L.P.
Seattle, Washington
January 21, 2000, except for Note 13
as to which the date is February 17, 2000
58
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from the
sections labeled "Election of Directors" and "Executive Officers" in Immunex's
definitive Proxy Statement for the annual meeting of shareholders to be held on
April 25, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
section labeled "Executive Compensation" in Immunex's definitive Proxy Statement
for the annual meeting of shareholders to be held on April 25, 2000.
ITEM 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
sections labeled "Principal Shareholders" and "Security Ownership of Management"
in Immunex's definitive Proxy Statement for the annual meeting of shareholders
to be held on April 25, 2000.
ITEM 13. RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
section labeled "Relationship with American Home Products Corporation and
American Cyanamid Company" in Immunex's definitive Proxy Statement for the
annual meeting of shareholders to be held on April 25, 2000.
59
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
1. FINANCIAL STATEMENTS. The following consolidated financial statements
are included in Part II, Item 8:
<TABLE>
<CAPTION>
PAGE IN
FORM 10-K
---------
<S> <C>
Consolidated Balance Sheets at December 31, 1999, and
1998...................................................... 40
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... 41
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999, 1998 and 1997.............. 42
Consolidated Statements of Cash Flows for the years December
31, 1999, 1998 and 1997................................... 43
Notes to Consolidated Financial Statements for the years
ended December 31, 1999, 1998 and 1997.................... 44 - 57
Report of Ernst & Young LLP, Independent Auditors........... 58
</TABLE>
2. FINANCIAL STATEMENT SCHEDULE. The following schedule supporting the
foregoing consolidated financial statements for the years ended
December 31, 1999, 1998 and 1997 is filed as part of this Form 10-K:
<TABLE>
<CAPTION>
PAGE IN
FORM 10-K
---------
<S> <C>
II--Valuation and Qualifying Accounts....................... 66
</TABLE>
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the
consolidated financial statements or notes thereto.
60
<PAGE>
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <S> <C>
2.1 Amended and Restated Agreement and Plan of Merger, dated as
of December 15, 1992, among Immunex, American Cyanamid
Company, Lederle Parenterals, Inc. and Lederle Oncology
Corporation. (Exhibit 2.1)................................ (B)
3.1 Restated Articles of Incorporation of Immunex Corporation,
as filed with the Secretary of State of Washington on
February 22, 2000......................................... 67 - 70
3.2 Amended and Restated Bylaws. (Exhibit 3.4).................. (B)
4.1 Note Purchase Agreement dated as of May 20, 1999 between
Immunex Corporation and American Home Products
Corporation. (Exhibit 4.1)................................ (L)
10.1 Real Estate Purchase and Sale Agreement by and between
Cornerstone-Columbia Development Company (CCDC) and
Immunex dated November 12, 1986; Master Lease, dated as
of August 20, 1981 between OTR, an Ohio General
Partnership, and CCDC; Assignment of Master Lease between
CCDC and Immunex dated December 17, 1986; Consent to
Assignment of Master Lease from OTR to CCDC, Immunex and
Weyerhaeuser Real Estate Company, dated December 8, 1986.
(Exhibit 10.22)........................................... (A)
10.2 Amendment to Master Lease dated May 1, 1994, between Immunex
and Watumull Enterprises, LTD. (Exhibit 10.2)............. (D)
10.3 Amended and Restated Lease Agreement dated December 21,
1994, between Immunex and the Central Life Assurance
Company. (Exhibit 10.3)................................... (D)
10.4 Real Estate Purchase and Sales Agreement between Immunex and
the Port of Seattle dated as of July 18, 1994. (Exhibit
10.17).................................................... (F)
10.5 Fourth Amendment to Real Estate Purchase and Sale Agreement
between Immunex and the Port of Seattle dated as of
December 1, 1997. (Exhibit 10.23)......................... (H)
10.6 Amended and Restated Governance Agreement, dated as of
December 15, 1992, among Immunex, American Cyanamid
Company and Lederle Oncology Corporation. (Exhibit 2.2)... (B)
10.7 Amendment No. 1 to the Amended and Restated Governance
Agreement among Immunex, American Home Products
Corporation and American Cyanamid Company dated May 20,
1999...................................................... 71 - 73
10.8 United States Royalty-Bearing Trademark License Agreement
between Immunex and American Cyanamid Company dated as of
June 1, 1993. (Exhibit 10.5).............................. (C)
*10.9 Toll Manufacturing Agreement between Immunex Carolina
Corporation, a wholly owned subsidiary of Immunex, and
Lederle Parenterals, Inc. dated as of June 1, 1993.
(Exhibit 10.6)............................................ (C)
*10.10 Supply Agreement between Immunex and American Cyanamid
Company dated as of June 1, 1993. (Exhibit 10.7).......... (C)
10.11 Agreement between Immunex and American Home Products
Corporation dated as of September 23, 1994. (Exhibit
10.24).................................................... (D)
10.12 TNFR License and Development Agreement between Immunex and
the Wyeth-Ayerst Laboratories division of American Home
Products Corporation dated as of July 1, 1996. (Exhibit
10.2)..................................................... (E)
*10.13 ENBREL Promotion Agreement between Immunex and American Home
Products Corporation dated as of September 25, 1997.
(Exhibit 10.1)............................................ (G)
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <S> <C>
*10.14 Product Rights Agreement among Immunex, American Home
Products Corporation and American Cyanamid Company dated
as of July 1, 1998. (Exhibit 10.1)........................ (I)
10.15 Amendment No. 1 to the Product Rights Agreement among
Immunex, American Home Products Corporation and American
Cynamid Company dated May 20, 1999........................ 74
*10.16 ENBREL Supply Agreement among Immunex, American Home
Products Corporation and Boehringer Ingelheim Pharma KG
dated as of November 5, 1998. (Exhibit 10.18)............. (J)
10.17 Immunex Corporation 1993 Stock Option Plan as Amended and
Restated on February 13, 1997. (Exhibit 10.23)............ (F)
10.18 Immunex Corporation Stock Option Plan for Nonemployee
Directors as Amended and Restated on February 23, 1999.
(Exhibit 10.14)........................................... (J)
10.19 Immunex Corporation 1999 Employee Stock Purchase Plan.
(Exhibit 99.2)............................................ (K)
10.20 Immunex Corporation 1999 Stock Option Plan, as Amended and
Restated on July 27, 1999................................. 75 - 84
21.1 Subsidiaries of the Registrant.............................. 85
23.1 Consent of Ernst & Young LLP, Independent Auditors.......... 86
24.1 Power of Attorney........................................... 87
27.1 Financial Data Schedule..................................... 88
</TABLE>
- ------------------------
* Confidential treatment granted as to certain portions.
(A) Incorporated by reference to designated exhibit included with Immunex's
Annual Report on Form 10-K for the fiscal year ended December 31, 1986.
(B) Incorporated by reference to designated exhibit included in the Registration
Statement on Form S-4 (SEC File No. 33-60254) filed by Lederle Oncology
Corporation March 18, 1993.
(C) Incorporated by reference to designated exhibit included with Immunex's
Current Report on Form 8-K dated June 4, 1993.
(D) Incorporated by reference to designated exhibit included with Immunex's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
(E) Incorporated by reference to designated exhibit included with Immunex's
Current Report on Form 8-K dated July 1, 1996.
(F) Incorporated by reference to designated exhibit included with Immunex's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
(G) Incorporated by reference to designated exhibit included with Immunex's
Current Report on Form 8-K dated September 25, 1997.
(H) Incorporated by reference to designated exhibit included with Immunex's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997.
(I) Incorporated by reference to designated exhibit included with Immunex's
Annual Report on Form 8-K dated July 1, 1998.
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<PAGE>
(J) Incorporated by reference to designated exhibit included with Immunex's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
(K) Incorporated by reference to designated exhibit included with Immunex's
Registration Statement on Form S-8 (SEC File No. 33-77341) dated April 29,
1999.
(L) Incorporated by reference to designated exhibit included with Immunex's
Current Report on Form 8-K dated May 28, 1999.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the fourth quarter of 1999.
63
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this Annual Report to be signed on its
behalf by the undersigned, hereunto duly authorized.
<TABLE>
<S> <C> <C>
IMMUNEX CORPORATION
REGISTRANT
By: /s/ David A. Mann February 29, 2000
-------------------------------------------
David A. Mann
Senior Vice President,
Chief Financial Officer and Treasurer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
/s/ Edward V. Fritzky February 29, 2000
-------------------------------------------
Edward V. Fritzky
Chief Executive Officer, President, Chairman of the
Board and Director
(Principal Executive Officer)
/s/ Peggy V. Phillips February 29, 2000
-------------------------------------------
Peggy V. Phillips
Executive Vice President and Chief Operating Officer
/s/ Douglas E. Williams February 29, 2000
-------------------------------------------
Douglas E. Williams
Executive Vice President and Chief Technology Officer
/s/ David A. Mann February 29, 2000
-------------------------------------------
David A. Mann
Senior Vice President, Chief Financial Officer and
Treasurer
(Principal Financial and Accounting Officer)
Kirby L. Cramer* February 29, 2000
-------------------------------------------
Kirby L. Cramer
Director
Robert I. Levy* February 29, 2000
-------------------------------------------
Robert I. Levy
Director
John E. Lyons* February 29, 2000
-------------------------------------------
John E. Lyons
Director
Joseph M. Mahady* February 29, 2000
-------------------------------------------
Joseph M. Mahady
Director
Edith W. Martin* February 29, 2000
-------------------------------------------
Edith W. Martin
Director
</TABLE>
64
<PAGE>
<TABLE>
<S> <C> <C>
*By: /s/ David A. Mann February 29, 2000
-------------------------------------------
David A. Mann
Attorney-in-Fact
</TABLE>
65
<PAGE>
SCHEDULE II
IMMUNEX CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS CHARGED TO BALANCE AT
BEGINNING OF PERIOD PRODUCT SALES DEDUCTIONS END OF PERIOD
------------------- -------------------- ---------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Reserve for discounts, returns and
bad debts....................... $ 7,181 $11,649 $10,177 $ 8,653
======= ======= ======= =======
Reserve for chargebacks, Medicaid
rebates and administrative
fees............................ $ 7,580 $47,769 $45,634 $ 9,715
======= ======= ======= =======
Year ended December 31, 1998:
Reserve for discounts, returns and
bad debts....................... $ 8,653 $12,147 $ 9,173 $11,627
======= ======= ======= =======
Reserve for chargebacks, Medicaid
rebates and administrative
fees............................ $ 9,715 $54,794 $51,899 $12,610
======= ======= ======= =======
Year ended December 31, 1999:
Reserve for discounts, returns and
bad debts....................... $11,627 $26,622 $16,425 $21,824
======= ======= ======= =======
Reserve for chargebacks, Medicaid
rebates and administrative
fees............................ $12,610 $49,702 $40,342 $21,970
======= ======= ======= =======
</TABLE>
66
<PAGE>
Exhibit 3.1
RESTATED ARTICLES OF INCORPORATION
OF
IMMUNEX CORPORATION
Pursuant to RCW 23B.10.070, the following constitutes Restated Articles of
Incorporation of the undersigned, a Washington corporation.
ARTICLE 1. NAME
The name of this corporation is Immunex Corporation.
ARTICLE 2. SHARES
2.1 Authorized Capital
The total number of shares which the corporation is authorized to issue is
1,230,000,000, consisting of 1,200,000,000 shares of Common Stock having a par
value of $.01 per share and 30,000,000 shares of Preferred Stock having a par
value of $.01 per share. The Common Stock is subject to the rights and
preferences of the Preferred Stock as hereinafter set forth.
2.2 Issuance of Preferred Stock in Series
The Preferred Stock may be issued from time to time in one or more series in any
manner permitted by law and the provisions of these Articles of Incorporation of
the corporation, as determined from time to time by the Board of Directors and
stated in the resolution or resolutions providing for the issuance thereof,
prior to the issuance of any shares thereof. The Board of Directors shall have
the authority to fix and determine and to amend, subject to the provisions
hereof, the designation, preferences, limitations and relative rights of the
shares of any series that is wholly unissued or to be established. Unless
otherwise specifically provided in the resolution establishing any series, the
Board of Directors shall further have the authority, after the issuance of
shares of a series whose number it has designated, to amend the resolution
establishing such series to decrease the number of shares of that series, but
not below the number of shares of such series then outstanding.
2.3 Dividends
The holders of shares of the Preferred Stock shall be entitled to receive
dividends, out of the funds of the corporation legally available therefor, at
the rate and at the time or times, whether cumulative or noncumulative, as may
be provided by the Board of Directors in designating a particular series of
Preferred Stock. If such dividends on the Preferred Stock shall be cumulative,
then if dividends shall not have been paid, the deficiency shall be fully paid
or the dividends declared and set apart for payment at such rate, but without
interest on cumulative dividends, before any dividends on the Common Stock shall
be paid or declared and set apart for payment. The holders of the Preferred
Stock shall not be entitled to receive any dividends thereon other than the
dividends referred to in this section.
2.4 Redemption
The Preferred Stock may be redeemable at such price, in such amount, and at such
time or times as may be provided by the Board of Directors in designating a
particular series of Preferred Stock. In any event, such Preferred Stock may be
repurchased by the corporation to the extent legally permissible.
2.5 Liquidation
In the event of any liquidation, dissolution, or winding up of the affairs of
the corporation, whether voluntary or involuntary, then, before any distribution
shall be made to the holders of the Common Stock, the holders of the Preferred
Stock at the time outstanding shall be entitled to be paid the preferential
amount or amounts per share as may be provided by the Board of Directors in
designating a particular series of Preferred Stock and dividends accrued thereon
to the date of such payment. The holders of the Preferred Stock shall not be
entitled to receive any distributive amounts upon the liquidation, dissolution,
or winding up of the affairs of the corporation other than the distributive
amounts referred to in this section, unless otherwise provided by the Board of
Directors in designating a particular series of Preferred Stock.
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<PAGE>
2.6 Conversion
Shares of Preferred Stock may be convertible into Common Stock of the
corporation upon such terms and conditions, at such rate and subject to such
adjustments as may be provided by the Board of Directors in designating a
particular series of Preferred Stock.
2.7 Voting Rights
Holders of Preferred Stock shall have such voting rights as may be provided by
the Board of Directors in designating a particular series of Preferred Stock.
ARTICLE 3. REGISTERED OFFICE AND AGENT
The name of the initial registered agent of this corporation and the address of
its initial registered office are as follows:
Scott G. Hallquist
51 University Street
Seattle, WA 98101
ARTICLE 4. PREEMPTIVE RIGHTS
No preemptive rights shall exist with respect to shares of stock or securities
convertible into shares of stock of this corporation.
ARTICLE 5. CUMULATIVE VOTING
The right to cumulate votes in the election of Directors shall not exist with
respect to shares of stock of this corporation.
ARTICLE 6. DIRECTORS
6.1 Number and Term of Directors
The number of Directors of this corporation shall be determined in the manner
provided by the Bylaws and may be increased or decreased from time to time in
the manner provided therein, PROVIDED, HOWEVER, that the number of directors
shall not be reduced so as to shorten the term of any director at the time in
office. Directors need not be shareholders. Unless a director dies, resigns, or
is removed, he shall hold office until the next annual meeting of shareholders
or until his successor is elected and qualified, whichever is later.
6.2 Removal of Directors
Subject to the terms of the Amended and Restated Governance Agreement, dated as
of December 15, 1992, among Immunex Corporation, Lederle Oncology Corporation
and American Cyanamid Company ("Cyanamid"), as it may be amended or restated
from time to time (the "Governance Agreement"), one or more members of the Board
of Directors (including the entire Board) may be removed, with or without cause,
by the written consent of the holders of record of a majority of the outstanding
shares of stock entitled to vote generally in the election of directors, voting
together as a single class (the "Voting Stock").
6.3 Vacancies
Any vacancy occurring on the Board of Directors may be filled, subject to the
terms of the Governance Agreement, by the affirmative vote of a majority of the
remaining directors, though less than a quorum. A director elected to fill a
vacancy shall be elected for the unexpired term of his or her predecessor in
office. Any directorship to be filled by reason of an increase in the number of
directors may be filled by the Board, subject to the Governance Agreement, for a
term of office continuing only until the next election of directors by the
shareholders.
ARTICLE 7. BYLAWS
All of the powers of this corporation, insofar as the same may be lawfully
vested by these Articles of Incorporation in the Board of Directors, are hereby
conferred upon the Board of Directors of this corporation. In furtherance and
not in limitation of that power, the Board of Directors, subject to the
Governance Agreement, shall have the power to adopt, amend or repeal the Bylaws
of this corporation, subject to the power of the shareholders to amend or repeal
such Bylaws. The shareholders shall also have the power to amend or repeal the
Bylaws of this corporation and to adopt new Bylaws. No action may be taken or
effected by written consent of shareholders in lieu of a meeting.
68
<PAGE>
ARTICLE 8. SPECIAL SHAREHOLDER MEETINGS
Special meetings of the shareholders of the corporation for any purpose or
purposes may be called at any time by the Board of Directors, the Chairman of
the Board of Directors, or the President of the corporation. Further, a special
meeting of the shareholders shall be held if the holders of not less than 40% of
all the votes entitled to be cast on any
issue proposed to be considered at such special meeting have dated, signed and
delivered to the Secretary one or more written demands for such meeting,
describing the purpose or purposes for which it is to be held.
ARTICLE 9. MERGERS, SHARE EXCHANGES, AND OTHER TRANSACTIONS
Subject to the Governance Agreement, a merger, share exchange, sale of
substantially all of the corporation's assets, or dissolution must be approved
by the affirmative vote of a majority of the corporation's outstanding shares
entitled to vote, or if separate voting by voting groups is required then by not
less than a majority of all the votes entitled to be cast by that voting group.
ARTICLE 10. AMENDMENTS TO ARTICLES OF INCORPORATION
Subject to the Governance Agreement and except as otherwise provided herein,
this corporation reserves the right to amend or repeal by the affirmative vote
of the holders of a majority of the outstanding Voting Stock, any of the
provisions contained in these Articles of Incorporation in any manner now or
hereafter permitted by law, and the rights of the shareholders of this
corporation are granted subject to this reservation.
ARTICLE 11. LIMITATION OF DIRECTOR LIABILITY
To the full extent that the Washington Business Corporation Act (the "Act"), as
it exists on the date hereof or may hereafter be amended, permits the limitation
or elimination of the liability of Directors, a Director of this corporation
shall not be liable to this corporation or its shareholders for monetary damages
for conduct as a Director. Any amendments to or repeal of this Article 11 shall
not adversely affect any right or protection of a Director of this corporation
for or with respect to any acts or omissions of such Director occurring prior to
such amendment or repeal. Notwithstanding any other provisions of law, these
Articles of Incorporation (except as hereinafter provided) or the Bylaws of this
corporation, the affirmative vote of the holders of not less than 80% of the
Voting Stock shall be required to alter, amend or repeal, or to adopt any
provisions inconsistent with, this Article 11 or any provision hereof.
ARTICLE 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
This corporation shall indemnify its Directors and Officers to the full extent
not prohibited by applicable law now or hereafter in force against liability
arising out of a proceeding to which such individual was made a party because
the individual is or was a Director or an Officer. However, such indemnity shall
not apply on account of:
(a) acts or omissions of a Director or Officer finally adjudged to be
intentional misconduct or a knowing violation of law;
(b) conduct of a Director or Officer finally adjudged to be in violation
of Section 23B.08.310 of the Act relating to distributions by this
corporation; or
(c) any transaction with respect to which it was finally adjudged that
such Director or Officer personally received a benefit in money,
property, or services to which the Director or Officer was not legally
entitled.
Subject to the foregoing, it is specifically intended that proceedings covered
by indemnification shall include proceedings brought by this corporation
(including derivative actions), proceedings by government entities and
governmental officials or other third party actions.
ARTICLE 13. RESOLUTION OF CONFLICTING TERMS
Notwithstanding any other provision of these Articles of Incorporation, any
conflict between (a) any action taken by this corporation or the Board of
Directors, or any provision of these Articles of Incorporation or the Bylaws of
this
69
<PAGE>
corporation, as each may be amended and/or restated from time to time, on the
one hand, and (b) the terms of the Governance Agreement on the other, shall be
resolved in favor of the terms of the Governance Agreement unless otherwise
agreed to in writing by Cyanamid. Any amendment or repeal of this Article 13
shall require the affirmative vote of the holders of more than 70% of the Common
Stock on a fully diluted basis.
ARTICLE 14. ELECTION TO NOT BE COVERED BY STATUTE
This corporation elects not to be covered by the provisions of Section
23B.17.020 of the Act.
ARTICLE 15. INCORPORATOR
The name and address of the incorporator are as follows:
Stephen M. Graham
1201 Third Avenue, 40th Floor
Seattle, Washington 98101-3099
Dated: February 18, 2000.
IMMUNEX CORPORATION
/s/ Barry G. Pea
---------------------------------------------
NAME: BARRY G. PEA
TITLE: VICE PRESIDENT, DEPUTY GENERAL
COUNSEL AND ASSISTANT SECRETARY
70
<PAGE>
Exhibit 10.7
AMENDMENT NO. 1
TO THE AMENDED AND RESTATED
GOVERNANCE AGREEMENT
This Amendment No. 1 ("Amendment No. 1") is made this 20th day of May, 1999
(the "Amendment Effective Date") by and between AMERICAN CYANAMID COMPANY, a
corporation organized and existing under the laws of the State of Maine
("CYANAMID") and a wholly-owned subsidiary of AMERICAN HOME PRODUCTS
CORPORATION, a corporation organized and existing under the laws of the State of
Delaware and having its principal office at Five Giralda Farms, Madison, New
Jersey 07940 ("AHPC") and IMMUNEX CORPORATION, a corporation organized and
existing under the laws of the State of Washington and having its principal
office at 51 University Street, Seattle, Washington 98101 ("IMMUNEX"), and
amends the Amended and Restated Governance Agreement dated as of December 15,
1992, among American Cyanamid Company, Immunex Corporation and Lederle Oncology
Corporation (the "Governance Agreement").
WHEREAS, AHPC and IMMUNEX have entered into a certain Note Purchase
Agreement dated as of the date hereof, pursuant to which IMMUNEX has issued, and
AHPC has purchased, a 3% Convertible Subordinated Note due 2006 in the principal
amount of $450 million ("Note"), which Note is convertible, in whole or in part,
into common stock of IMMUNEX at a specified price per share, subject to
adjustment in certain circumstances;
WHEREAS, AHPC and IMMUNEX have agreed that the shares that are subject to
issuance to AHPC upon conversion of the Note may be included in the calculation
of AHPC's and CYANAMID's ownership of Immunex common stock for certain purposes
under the Governance Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, each intending to be legally
bound, hereby agree as follows:
1. All initially capitalized terms used herein and not defined shall have
the meanings set forth in the Governance Agreement.
2. Article II of the Governance Agreement shall be amended to add the
following new provision, Section 2.03, as follows:
2.03 COMMON STOCK ISSUABLE UPON CONVERSION OF NOTE. The Common Stock
issuable upon conversion of the Note issued by the Company and
purchased by American Home Products Corporation ("AHPC") pursuant to
the Note Purchase Agreement dated as of May 20, 1999 shall, at the
option of Cyanamid, regardless of whether the Note is converted by
AHPC so long as AHPC or its Affiliates hold the Note, be included in
(i) "Cyanamid's Interest" for purposes of Article IV; (ii) Cyanamid's
"Pro Rata Share" for purposes of Section 2.01; (iii) Cyanamid's "Owned
Shares" for purposes of Section 2.02 (and shall be deemed to be issued
and outstanding as of the Quarterly Date immediately preceding the
effective date of the Note Purchase Agreement) ; and (iv) "Registrable
Securities" for purposes of Article VI.
3. Article V of the Governance Agreement shall be amended to add the
following new provision, Section 5.01(h), as follows:
(h) The Note issued by the Company and purchased by AHPC pursuant to
the Note Purchase Agreement dated as of May 20, 1999 shall not be
deemed to be an interest in New Shares for purposes of Section 5.01(c)
hereof and AHPC shall have the right to transfer such Note in
accordance with the terms of the Note Purchase Agreement.
Notwithstanding the foregoing, however, the Common Stock issuable upon
conversion of such Note shall, when and if issued, be deemed to be New
Shares for purposes of this Article V.
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<PAGE>
4. The first clause of Section 6.03(d) shall be deleted in its entirety
and replaced as follows:
(d) The Company shall not be obligated to effect more than three
registrations pursuant to this Section 6.03;
5. Except as otherwise set forth in this Amendment No. 1, all other
terms and provisions of the Governance Agreement shall remain in full
force and effect.
6. This Amendment No. 1 may be executed in counterparts, each of which
shall be deemed an original and all of which shall constitute together
one and the same instrument.
72
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 as of
the day and year first above written.
IMMUNEX CORPORATION AMERICAN HOME PRODUCTS CORPORATION
By: /s/ Edward V. Fritzky By: /s/ Gerald A. Jibilian
Name: Edward V. Fritzky Name: Gerald A Jibilian
Title: Chairman and Chief Executive Officer Title: Vice President
73
<PAGE>
Exhibit 10.15
AMENDMENT NO. 1 TO THE
PRODUCT RIGHTS AGREEMENT
This Amendment No. 1 ("Amendment No. 1") is made this 20th day of May, 1999
(the "Amendment Effective Date") by and between AMERICAN HOME PRODUCTS
CORPORATION, a corporation organized and existing under the laws of the State of
Delaware and having its principal office at Five Giralda Farms, Madison New
Jersey 07940 ("AHPC") and IMMUNEX CORPORATION, a corporation organized and
existing under the laws of the State of Washington and having its principal
office at 51 University Street, Seattle, Washington 98101 ("IMMUNEX"), and
amends the Product Rights Agreement effective as of July 1, 1998, by and among
AHPC, IMMUNEX and American Cyanamid Company ("Product Rights Agreement")
WHEREAS, AHPC and IMMUNEX have entered into a certain Note Purchase
Agreement as of the date hereof, pursuant to which IMMUNEX has issued, and AHPC
has purchased, a 3% Convertible Subordinated Note due 2006 in the principal
amount of $450 million ("Note"), which Note is convertible, in whole or in part,
into common stock of IMMUNEX at a specified price per share, subject to
adjustment in certain circumstances;
WHEREAS, AHPC and IMMUNEX have agreed that the shares that are subject to
issuance to AHPC upon conversion of the Note may be included in the calculation
of AHPC's ownership of Immunex common stock for certain purposes;
NOW THEREFORE, in consideration of the mutual covenants contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, each intending to be legally
bound, hereby agree as follows:
1. All initially capitalized terms used herein and not defined shall have
the meanings set forth in the Product Rights Agreement.
2. Section 8.5 of the Product Rights Agreement shall be amended to add
the following sentence:
For purposes of this Section 8.5, any shares of common stock issuable
upon conversion of the Note issued by the Company and purchased by AHP
pursuant to the Note Purchase Agreement dated as of May 20, 1999
shall, at the option of AHP, be included in any determination of
whether AHP is a majority shareholder of Immunex.
3. Except as otherwise set forth in this Amendment No. 1, all other terms
and provisions of the Product Rights Agreement shall remain in full
force and effect.
4. This Amendment No. 1 may be executed in counterparts, each of which
shall be deemed an original and all of which shall constitute together
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 as of
the day and year first above written.
IMMUNEX CORPORATION AMERICAN HOME PRODUCTS CORPORATION
By: /s/ Edward V. Fritzky By: /s/ Gerald A. Jibilian
Name: Edward V. Fritzky Name: Gerald A. Jibilian
Title: Chairman and Chief Executive Officer Title: Vice President
74
<PAGE>
Exhibit 10.20
IMMUNEX CORPORATION
1999 STOCK OPTION PLAN
AS AMENDED AND RESTATED ON JULY 27, 1999
SECTION 1. PURPOSE
The purpose of the Immunex Corporation 1999 Stock Option Plan (the "Plan")
is to enhance the long-term shareholder value of Immunex Corporation, a
Washington corporation (the "Company"), by offering opportunities to selected
employees, officers and directors to participate in the Company's growth and
success, and to encourage them to remain in the service of the Company and its
Related Corporations (as defined in Section 2) and to acquire and maintain stock
ownership in the Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
"BOARD" means the Board of Directors of the Company.
"CAUSE" means dishonesty, fraud, misconduct, unauthorized use or disclosure of
confidential information or trade secrets, or conviction or confession of a
crime punishable by law (except minor violations), in each case as determined by
the Plan Administrator, and its determination shall be conclusive and binding.
"CODE" means the Internal Revenue Code of 1986, as amended from time to time.
"COMMON STOCK" means the common stock, par value $.01 per share, of the Company.
"DISABILITY," unless otherwise defined by the Plan Administrator, means a mental
or physical impairment of the Optionee that is expected to result in death or
that has lasted or is expected to last for a continuous period of 12 months or
more and that causes the Optionee to be unable, in the opinion of the Company
and one independent physician selected by the Company, to perform his or her
duties for the Company or a Related Corporation and to be engaged in any
substantial gainful activity.
"EFFECTIVE DATE" means the date on which the Plan is adopted by the Board, so
long as it is approved by the Company's shareholders at any time within 12
months of such adoption.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE STOCK" has the meaning set forth in Section 11.3.
"FAIR MARKET VALUE" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the closing per share sales prices for the Common Stock as reported by
the Nasdaq National Market for a single trading day or (b) if the Common Stock
is listed on the New York Stock Exchange or the American Stock Exchange, the
closing per share sales prices for the Common Stock as such price is officially
quoted in the composite tape of transactions on such exchange for a single
trading day. If there is no such reported price for the Common Stock for the
date in question, then such price on the last preceding date for which such
price exists shall be determinative of Fair Market Value.
"GOVERNANCE AGREEMENT" means the Amended and Restated Governance Agreement among
American Cyanamid Company, Lederle Oncology Corporation and Immunex Corporation
dated as of December 15, 1992.
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"GRANT DATE" means the date on which the Plan Administrator completes the
corporate action relating to the grant of an Option and all conditions precedent
to the grant have been satisfied, provided that conditions to the exercisability
or vesting of Options shall not defer the Grant Date.
"INCENTIVE STOCK OPTION" means an Option to purchase Common Stock granted under
Section 7 with the intention that it qualify as an "incentive stock option" as
that term is defined in Section 422 of the Code.
"NONQUALIFIED STOCK OPTION" means an Option to purchase Common Stock granted
under Section 7 other than an Incentive Stock Option. "OPTION" means the right
to purchase Common Stock granted under Section 7.
"OPTIONEE" means (a) the person to whom an Option is granted; (b) for an
Optionee who has died, the personal representative of the Optionee's estate, the
person(s) to whom the Optionee's rights under the Option have passed by will or
by the applicable laws of descent and distribution, or the beneficiary
designated in accordance with Section 10; or (c) the person(s) to whom an Option
has been transferred in accordance with Section 10.
"OPTION TERM" has the meaning set forth in Section 7.3.
"PARENT," except as provided in Section 8.3 in connection with Incentive Stock
Options, means any entity, whether now or hereafter existing, that directly or
indirectly controls the Company.
"PLAN ADMINISTRATOR" means the Board or any committee or committees designated
by the Board or any person to whom the Board has delegated authority to
administer the Plan under Section 3.1.
"RELATED CORPORATION" means any Parent or Subsidiary of the Company.
"RETIREMENT" means retirement as of the individual's normal retirement date
under the Company's 401(k) Plan or other similar successor plan applicable to
salaried employees, unless otherwise defined by the Plan Administrator from time
to time for purposes of the Plan.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SUBSIDIARY," except as provided in Section 8.3 in connection with Incentive
Stock Options, means any entity that is directly or indirectly controlled by the
Company.
"TERMINATION DATE" has the meaning set forth in Section 7.6.
SECTION 3. ADMINISTRATION
3.1 Plan Administrator
The Plan shall be administered by the Board and/or the Stock Option Plan
Administration Committee or a committee or committees (which term includes
subcommittees) appointed by, and consisting of two or more members of, the Board
(a "Plan Administrator"). If and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, the Board shall consider in
selecting the members of any committee acting as Plan Administrator, with
respect to any persons subject or likely to become subject to Section 16 of the
Exchange Act, the provisions regarding (a) "outside directors" as contemplated
by Section 162(m) of the Code and (b) "nonemployee directors" as contemplated by
Rule 16b-3 under the Exchange Act. The Board may delegate the responsibility for
administering the Plan with respect to designated classes of eligible persons to
different committees consisting of two or more members of the Board, subject to
such limitations as the Board deems appropriate. Committee members shall serve
for such term as the Board may determine, subject to removal by the Board at any
time. To the extent consistent with applicable law, the Board may authorize a
senior executive officer of the Company to grant Options to specified eligible
persons, within the limits specifically prescribed by the Board.
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All delegations of authority by the Board pursuant to this Section 3.1 shall be
subject to the procedural requirements of Section 4.03 of the Governance
Agreement.
3.2 Administration and Interpretation by Plan Administrator
Except for the terms and conditions explicitly set forth in the Plan, the Plan
Administrator shall have exclusive authority, in its discretion, to determine
all matters relating to Options under the Plan, including the selection of
individuals to be granted Options, the type of Options, the number of shares of
Common Stock subject to an Option, all terms, conditions, restrictions and
limitations, if any, of an Option and the terms of any instrument that evidences
the Option. The Plan Administrator shall also have exclusive authority to
interpret the Plan and may from time to time adopt, and change, rules and
regulations of general application for the Plan's administration. The Plan
Administrator's interpretation of the Plan and its rules and regulations, and
all actions taken and determinations made by the Plan Administrator pursuant to
the Plan, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's officers as it so determines.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 Authorized Number of Shares
Subject to adjustment from time to time as provided in Section 11.1, a maximum
of 6,000,000 shares of Common Stock shall be available for issuance under the
Plan. Shares issued under the Plan shall be drawn from authorized and unissued
shares or shares now held or subsequently acquired by the Company.
4.2 Limitations
Subject to adjustment from time to time as provided in Section 11.1,
not more than 200,000 shares of Common Stock may be made subject to Options
under the Plan to any individual in the aggregate in any one fiscal year of the
Company, except that the Company may make additional one-time grants of up to
200,000 shares to newly hired individuals, such limitation to be applied in a
manner consistent with the requirements of, and only to the extent required for
compliance with, the exclusion from the limitation on deductibility of
compensation under Section 162(m) of the Code.
4.3 Reuse of Shares
Any shares of Common Stock that have been made subject to an Option that cease
to be subject to the Option (other than by reason of exercise of the Option to
the extent it is exercised for shares) shall again be available for issuance in
connection with future grants of Options under the Plan; provided, however, that
for purposes of Section 4.2, any such shares shall be counted in accordance with
the requirements of Section 162(m) of the Code.
SECTION 5. ELIGIBILITY
Options may be granted under the Plan to those officers, directors and employees
of the Company and its Related Corporations as the Plan Administrator from time
to time selects.
SECTION 6. ACQUIRED COMPANY OPTIONS
Notwithstanding anything in the Plan to the contrary, the Plan Administrator may
grant Options under the Plan in substitution for awards issued under other
plans, or assume under the Plan awards issued under other plans, if the other
plans are or were plans of other acquired entities ("Acquired Entities") (or the
parent of the Acquired Entity) and the new Option is substituted, or the old
option is assumed, by reason of a merger, consolidation, acquisition of property
or of stock, reorganization or liquidation (the "Acquisition Transaction"). In
the event that a written agreement pursuant to which the Acquisition Transaction
is completed is approved by the Board and said agreement sets forth the terms
and conditions of the substitution for or assumption of outstanding options of
the Acquired Entity, said terms and conditions shall be deemed to be the action
of the Plan Administrator without any further action by the Plan Administrator,
except as may be required for compliance with Rule 16b-3 under the Exchange Act,
and the persons holding such awards shall be deemed to be Optionees.
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SECTION 7. TERMS AND CONDITIONS OF OPTIONS
7.1 Grant of Options
The Plan Administrator is authorized under the Plan, in its sole discretion, to
issue Options as Incentive Stock Options or as Nonqualified Stock Options, which
shall be appropriately designated.
7.2 Option Exercise Price
The exercise price for shares purchased under an Option shall be as determined
by the Plan Administrator, but shall not be less than 100% of the Fair Market
Value of the Common Stock on the Grant Date with respect to Incentive Stock
Options and not less than 85% of the Fair Market Value of the Common Stock on
the Grant Date with respect to Nonqualified Stock Options. For Incentive Stock
Options granted to a more than 10% shareholder, the Option exercise price shall
be as specified in Section 8.2.
7.3 Term of Options
The term of each Option (the "Option Term") shall be as established by the Plan
Administrator or, if not so established, shall be 10 years from the Grant Date.
For Incentive Stock Options, the maximum Option Term shall be as specified in
Sections 8.2 and 8.4.
7.4 Exercise of Options
The Plan Administrator shall establish and set forth in each instrument that
evidences an Option the time at which, or the installments in which, the Option
shall vest and become exercisable, which provisions may be waived or modified by
the Plan Administrator at any time. If not so established in the instrument
evidencing the Option, the Option shall vest and become exercisable according to
the following schedule, which may be waived or modified by the Plan
Administrator at any time:
<TABLE>
<CAPTION>
PERIOD OF OPTIONEE'S CONTINUOUS EMPLOYMENT OR
SERVICE WITH THE COMPANY OR ITS RELATED
CORPORATIONS FROM THE OPTION PERCENT OF TOTAL OPTION
GRANT DATE THAT IS VESTED AND EXERCISABLE
---------------------------------------------- -------------------------------
<S> <C>
After one year 20%
After two years 40%
After three years 60%
After four years 80%
After five years 100%
</TABLE>
The Plan Administrator may adjust the vesting schedule of an Option held by an
Optionee who works less than "full-time" as that term is defined by the Plan
Administrator. To the extent that the right to purchase shares has accrued
thereunder, an Option may be exercised from time to time by delivery to the
Company of a stock option exercise agreement or notice, in a form and in
accordance with procedures established by the Plan Administrator, setting forth
the number of shares with respect to which the Option is being exercised, the
restrictions imposed on the shares purchased under such exercise agreement, if
any, and such representations and agreements as may be required by the Company,
accompanied by payment in full as described in Section 7.5. An Option may not be
exercised as to less than a reasonable number of shares at any one time, as
determined by the Plan Administrator.
7.5 Payment of Exercise Price
The exercise price for shares purchased under an Option shall be paid in full to
the Company by delivery of consideration equal to the product of the Option
exercise price and the number of shares purchased. Such consideration must be
paid in cash or by check or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or at
any time before it is exercised, in any combination of
(a) cash or check;
(b) tendering (either actually or, if and so long as the Common Stock is
registered under Section 12(b) or 12(g) of the Exchange Act, by attestation)
shares of Common Stock already owned by the Optionee for at least six months (or
any shorter period necessary to avoid a charge to the Company's earnings for
financial reporting purposes) having a Fair Market Value on the day prior to the
exercise date equal to the aggregate Option exercise price;
(c) if and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, delivery of an exercise notice, together with
irrevocable instructions, to a brokerage firm designated by the Company to
deliver promptly to the Company the aggregate amount of sale or loan proceeds to
pay the Option
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exercise price and any withholding tax obligations that may arise in connection
with the exercise and the Company to deliver the certificates for such purchased
shares directly to such brokerage firm, all in accordance with the regulations
of the Federal Reserve Board; or
(d) such other consideration as the Plan Administrator may permit. In addition,
to assist an Optionee (including an Optionee who is an officer or a director of
the Company) in acquiring shares of Common Stock pursuant to an Option granted
under the Plan, the Plan Administrator, in its sole discretion, may authorize,
either at the Grant Date or at any time before the acquisition of Common Stock
pursuant to the Option, (i) the payment by the Optionee of a full-recourse
promissory note, (ii) the payment by the Optionee of the purchase price, if any,
of the Common Stock in installments, or (iii) the guarantee by the Company of a
loan obtained by the Optionee from a third party. Subject to the foregoing, the
Plan Administrator shall in its sole discretion specify the terms of any loans,
installment payments or loan guarantees, including the interest rate and terms
of and security for repayment.
7.6 Post-Termination Exercises
The Plan Administrator shall establish and set forth in each instrument that
evidences an Option whether the Option shall continue to be exercisable, and the
terms and conditions of such exercise, if an Optionee ceases to be employed by,
or to provide services to, the Company or its Related Corporations, which
provisions may be waived or modified by the Plan Administrator at any time. If
not so established in the instrument evidencing the Option, the Option shall be
exercisable according to the following terms and conditions, which may be waived
or modified by the Plan Administrator at any time:
(a) Any portion of an Option that is not vested and exercisable on the date of
termination of the Optionee's employment or service relationship (the
"Termination Date") shall expire on such date, unless the Plan Administrator
determines otherwise.
(b) Any portion of an Option that is vested and exercisable on the Termination
Date shall expire upon the earliest to occur of:
(i) the last day of the Option Term;
(ii) if the Optionee's Termination Date occurs for reasons other than
Cause, Disability, death or Retirement, the three-month anniversary of such
Termination Date; and
(iii) if the Optionee's Termination Date occurs by reason of Disability,
death or Retirement, the one-year anniversary of such Termination Date.
Notwithstanding the foregoing, if the Optionee dies after the Termination Date
while the Option is otherwise exercisable, the Option shall expire upon the
earlier to occur of (y) the last day of the Option Term and (z) the first
anniversary of the date of death.
Also notwithstanding the foregoing, in case of termination of the Optionee's
employment or service relationship for Cause, the Option shall automatically
expire upon first notification to the Optionee of such termination, unless the
Plan Administrator determines otherwise. If an Optionee's employment or service
relationship with the Company is suspended pending an investigation of whether
the Optionee shall be terminated for Cause, all the Optionee's rights under any
Option likewise shall be suspended during the period of investigation. An
Optionee's transfer of employment or service relationship between or among the
Company and its Related Corporations, or a change in status from an employee to
a consultant that is evidenced by a written agreement between an Optionee and
the Company or a Related Corporation, shall not be considered a termination of
employment or service relationship for purposes of this Section 7. Employment or
service relationship shall be deemed to continue while the Optionee is on a bona
fide leave of absence, if such leave was approved by the Company or a Related
Corporation in writing and if continued crediting of service for purposes of
this Section 7 is expressly required by the terms of such leave or by applicable
law (as determined by the Company). The effect of a Company-approved leave of
absence on the terms and conditions of an Option shall be determined by the Plan
Administrator, in its sole discretion.
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock Options shall
be subject to the following additional terms and conditions:
8.1 Dollar Limitation
To the extent the aggregate Fair Market Value (determined as of the Grant Date)
of Common Stock with respect to which Incentive Stock Options are exercisable
for the first time during any calendar year (under the Plan and all other stock
option plans of the Company) exceeds $100,000, such portion in excess of
$100,000 shall be treated as a Nonqualified Stock Option. In the event the
Optionee holds two or more such Options that become exercisable for
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the first time in the same calendar year, such limitation shall be applied on
the basis of the order in which such Options are granted.
8.2 More Than 10% Shareholders
If an individual owns more than 10% of the total voting power of all classes of
the Company's stock, then the exercise price per share of an Incentive Stock
Option shall not be less than 110% of the Fair Market Value of the Common Stock
on the Grant Date and the Option Term shall not exceed five years. The
determination of more than 10% ownership shall be made in accordance with
Section 422 of the Code.
8.3 Eligible Employees
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary
corporation" shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.
8.4 Term
Except as provided in Section 8.2, the Option Term shall not exceed 10 years.
8.5 Exercisability
An Option designated as an Incentive Stock Option shall cease to qualify for
favorable tax treatment as an Incentive Stock Option to the extent it is
exercised (if permitted by the terms of the Option) (a) more than three months
after the Termination Date for reasons other than death or Disability, (b) more
than one year after the Termination Date by reason of Disability, or (c) after
the Optionee has been on leave of absence for more than 90 days, unless the
Optionee's reemployment rights are guaranteed by statute or contract. For
purposes of this Section 8.5, Disability shall mean "disability" as that term is
defined for purposes of Section 422 of the Code.
8.6 Taxation of Incentive Stock Options
In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Code, the Optionee must hold the shares issued upon the
exercise of an Incentive Stock Option for two years after the Grant Date and one
year from the date of exercise. An Optionee may be subject to the alternative
minimum tax at the time of exercise of an Incentive Stock Option. The Optionee
shall give the Company prompt notice of any disposition of shares acquired by
the exercise of an Incentive Stock Option prior to the expiration of such
holding periods.
8.7 Promissory Notes
The amount of any promissory note delivered pursuant to Section 7.5 in
connection with an Incentive Stock Option shall bear interest at a rate
specified by the Plan Administrator, but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.
SECTION 9. WITHHOLDING
The Company may require the Optionee to pay to the Company the amount of any
withholding taxes that the Company is required to withhold with respect to the
grant, vesting or exercise of any Option. Subject to the Plan and applicable
law, the Plan Administrator may, in its sole discretion, permit the Optionee to
satisfy withholding obligations, in whole or in part, by paying cash, by
electing to have the Company withhold shares of Common Stock or by transferring
shares of Common Stock to the Company, in such amounts as are equivalent to the
Fair Market Value of the withholding obligation. The Company shall have the
right to withhold from any Option or any shares of Common Stock issuable
pursuant to an Option or from any cash amounts otherwise due or to become due
from the Company to the Optionee an amount equal to such taxes. The Company may
also deduct from any Option any other amounts due from the Optionee to the
Company or a Related Corporation.
SECTION 10. ASSIGNABILITY
Options granted under the Plan and any interest therein may not be assigned,
pledged or transferred by the Optionee and may not be made subject to attachment
or similar proceedings otherwise than by will or by the applicable laws of
descent and distribution, and, during the Optionee's lifetime, such Options may
be exercised only by the Optionee. Notwithstanding the foregoing, and to the
extent permitted by Section 422 of the Code, the Plan Administrator, in its sole
discretion, may permit such assignment, transfer and exercisability and may
permit an Optionee to designate a beneficiary who may exercise the Option or
receive compensation under the Option after the Optionee's death; provided,
however, that any Option so assigned or transferred shall be subject to all the
same terms and conditions contained in the instrument evidencing the Option.
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SECTION 11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
11.1 Adjustment of Shares
The aggregate number and class of shares for which Options may be granted under
the Plan, the number and class of shares covered by each outstanding Option and
the exercise price per share thereof (but not the total price), shall all be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a split-up or consolidation of shares or
any like capital adjustment, or the payment of any stock dividend (not including
the stock dividend approved by the Board on February 23, 1999).
11.2 Cash, Stock or Other Property for Stock
Except as provided in Section 11.3, upon a merger (other than a merger of the
Company in which the holders of Common Stock immediately prior to the merger
have the same proportionate ownership of Common Stock in the surviving
corporation immediately after the merger), consolidation, acquisition of
property or stock, separation, reorganization (other than a mere reincorporation
or the creation of a holding company) or liquidation of the Company, as a result
of which the shareholders of the Company receive cash, stock or other property
in exchange for or in connection with their shares of Common Stock, any Option
granted hereunder shall terminate, but the Optionee shall have the right
immediately prior to any such merger, consolidation, acquisition of property or
stock, liquidation or reorganization to exercise such Option in whole or in part
whether or not the vesting requirements set forth in the Option agreement have
been satisfied.
11.3 Conversion of Options on Stock for Stock Exchange
If the shareholders of the Company receive capital stock of another
corporation ("Exchange Stock") in exchange for their shares of Common Stock in
any transaction involving a merger (other than a merger of the Company in which
the holders of Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, liquidation
or reorganization (other than a mere reincorporation or the creation of a
holding company), the Company and the corporation issuing the Exchange Stock, in
their sole discretion, may determine that all Options granted hereunder shall be
converted into options to purchase shares of Exchange Stock instead of
terminating in accordance with the provisions of Section 11.2. The amount and
price of converted options shall be determined by adjusting the amount and price
of the Options granted hereunder in the same proportion as used for determining
the number of shares of Exchange Stock the holders of the Common Stock receive
in such merger, consolidation, acquisition of property or stock, liquidation or
reorganization. Unless accelerated by the Board, the vesting schedule set forth
in the Option agreement shall continue to apply to the options granted for the
Exchange Stock.
11.4 Fractional Shares
In the event of any adjustment in the number of shares covered by any Option,
any fractional shares resulting from such adjustment shall be disregarded and
each such Option shall cover only the number of full shares resulting from such
adjustment.
11.5 Determination of Board to Be Final
All Section 11 adjustments shall be made by the Plan Administrator, and its
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive. Unless an Optionee agrees otherwise, any
change or adjustment to an Incentive Stock Option shall be made in such a manner
so as not to constitute a "modification" as defined in Section 424(h) of the
Code and so as not to cause his or her Incentive Stock Option issued hereunder
to fail to continue to qualify as an "incentive stock option" as defined in
Section 422(b) of the Code.
11.6 Limitations
The grant of Options shall in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
SECTION 12. AMENDMENT AND TERMINATION OF PLAN
12.1 Amendment of Plan
The Plan may be amended only by the Board in such respects as it shall deem
advisable; provided, however, that to the extent required for compliance with
Section 422 of the Code or any applicable law or regulation, shareholder
approval shall be required for any amendment that would (a) increase the total
number of shares available for
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issuance under the Plan, (b) modify the class of persons eligible to receive
Options, or (c) otherwise require shareholder approval under any applicable law
or regulation. Any amendment made to the Plan that would constitute a
"modification" to Incentive Stock Options outstanding on the date of such
amendment shall not, without the consent of the Optionee, be applicable to such
outstanding Incentive Stock Options but shall have prospective effect only.
12.2 Termination of Plan
The Board may suspend or terminate the Plan at any time. The Plan shall have no
fixed expiration date; provided, however, that no Incentive Stock Options may be
granted more than 10 years after the later of (a) the Plan's adoption by the
Board and (b) the adoption by the Board of any amendment to the Plan that
constitutes the adoption of a new plan for purposes of Section 422 of the Code.
12.3 Consent of Optionee
The amendment or termination of the Plan or the amendment of an outstanding
Option shall not, without the Optionee's consent, impair or diminish any rights
or obligations under any Option theretofore granted to the Optionee under the
Plan. Except as otherwise provided in the Plan, no outstanding Option shall be
terminated without the consent of the Optionee. Any change or adjustment to an
outstanding Incentive Stock Option shall not, without the consent of the
Optionee, be made in a manner so as to constitute a "modification" that would
cause such Incentive Stock Option to fail to continue to qualify as an Incentive
Stock Option.
SECTION 13. GENERAL
13.1 Evidence of Options
Options granted under the Plan shall be evidenced by a written instrument that
shall contain such terms, conditions, limitations and restrictions as the Plan
Administrator shall deem advisable and that are not inconsistent with the Plan.
13.2 No Individual Rights
Nothing in the Plan or any Option granted under the Plan shall be deemed to
constitute an employment contract or confer or be deemed to confer on any
Optionee any right to continue in the employ of, or to continue any other
relationship with, the Company or any Related Corporation or limit in any way
the right of the Company or any Related Corporation of the Company to terminate
an Optionee's employment or other relationship at any time, with or without
Cause.
13.3 Registration
Notwithstanding any other provision of the Plan, the Company shall have no
obligation to issue or deliver any shares of Common Stock under the Plan or make
any other distribution of benefits under the Plan unless such issuance, delivery
or distribution would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act), and the applicable
requirements of any securities exchange or similar entity. The Company shall be
under no obligation to any Optionee to register for offering or resale or to
qualify for exemption under the Securities Act, or to register or qualify under
state securities laws, any shares of Common Stock, security or interest in a
security paid or issued under, or created by, the Plan, or to continue in effect
any such registrations or qualifications if made. The Company may issue
certificates for shares with such legends and subject to such restrictions on
transfer and stop-transfer instructions as counsel for the Company deems
necessary or desirable for compliance by the Company with federal and state
securities laws. To the extent that the Plan or any instrument evidencing an
Option provides for issuance of stock certificates to reflect the issuance of
shares of Common Stock, the issuance may be effected on a noncertificated basis,
to the extent not prohibited by applicable law or the applicable rules of any
stock exchange.
13.4 No Rights as a Shareholder
No Option shall entitle the Optionee to any cash dividend, voting or other right
of a shareholder unless and until the date of issuance under the Plan of the
shares that are the subject of such Option.
13.5 Compliance With Laws and Regulations
Notwithstanding anything in the Plan to the contrary, the Plan Administrator, in
its sole discretion, may bifurcate the Plan so as to restrict, limit or
condition the use of any provision of the Plan to Optionees who are officers or
directors subject to Section 16 of the Exchange Act without so restricting,
limiting or conditioning the Plan with respect to other Optionees. Additionally,
in interpreting and applying the provisions of the Plan, any Option granted as
an Incentive Stock Option pursuant to the Plan shall, to the extent permitted by
law, be construed as an "incentive stock option" within the meaning of Section
422 of the Code.
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13.6 Optionees in Foreign Countries
The Plan Administrator shall have the authority to adopt such modifications,
procedures and subplans as may be necessary or desirable to comply with
provisions of the laws of foreign countries in which the Company or its Related
Corporations may operate to assure the viability of the benefits from Options
granted to Optionees employed in such countries and to meet the objectives of
the Plan.
13.7 No Trust or Fund
The Plan is intended to constitute an "unfunded" plan. Nothing contained herein
shall require the Company to segregate any monies or other property, or shares
of Common Stock, or to create any trusts, or to make any special deposits for
any immediate or deferred amounts payable to any Optionee, and no Optionee shall
have any rights that are greater than those of a general unsecured creditor of
the Company.
13.8 Severability
If any provision of the Plan or any Option is determined to be invalid, illegal
or unenforceable in any jurisdiction, or as to any person, or would disqualify
the Plan or any Option under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Option, such provision shall be stricken as to such jurisdiction,
person or Option, and the remainder of the Plan and any such Option shall remain
in full force and effect.
13.9 Choice of Law
The Plan and all determinations made and actions taken pursuant hereto, to the
extent not otherwise governed by the laws of the United States, shall be
governed by the laws of the State of Washington without giving effect to
principles of conflicts of laws.
SECTION 14. EFFECTIVE DATE
The Effective Date is the date on which the Plan is adopted by the Board, so
long as it is approved by the Company's shareholders at any time within 12
months of such adoption.
ADOPTED BY THE BOARD ON FEBRUARY 23, 1999 AND APPROVED BY THE COMPANY'S
SHAREHOLDERS ON APRIL 29, 1999.
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SUMMARY PAGE
<TABLE>
<CAPTION>
SECTION/EFFECT OF DATE OF SHAREHOLDER
DATE OF BOARD ACTION ACTION AMENDMENT APPROVAL
<S> <C> <C> <C>
February 23, 1999 Initial Plan Adoption April 29, 1999
July 27, 1999 Plan Amendment 9; Revised to prevent excess Not required
stock tax withholding
</TABLE>
84
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARIES:
Immunex Manufacturing Corporation
Incorporated in the State of Washington
51 University Street
Seattle, WA 98101
85
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-59061, 33-78694 and 33-77341) pertaining to the Immunex
Corporation 1993 Stock Option Plan as Amended and Restated on February 13, 1997,
the Immunex Corporation Stock Option Plan for Nonemployee Directors Amended and
Restated on February 23, 1999, the Immunex Corporation 1999 Stock Option Plan as
Amended and Restated on July 27, 1999 and the Immunex Corporation 1999 Employee
Stock Purchase Plan of our report dated January 21, 2000 (except for Note 13 as
to which the date is February 17, 2000), with respect to the consolidated
financial statements and schedule of Immunex Corporation included in its Annual
Report (Form 10-K) for the year ended December 31, 1999.
/s/ ERNST & YOUNG L.L.P.
Seattle, Washington
March 7, 2000
86
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENT that the individuals whose signatures appear
below, in their capacities as officers and directors of Immunex Corporation,
hereby constitute and appoint David A. Mann their true and lawful
attorney-in-fact, with full power of substitution, to sign on behalf of the
undersigned Immunex's Annual Report on Form 10-K for the 1999 fiscal year
pursuant to Section 13 of the Securities and Exchange Act of 1934 and to file
the same, with exhibits thereto and any other documents in connection therewith,
with the Securities and Exchange Commission. Each of the undersigned does hereby
ratify and confirm all that such attorney-in-fact may do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Kirby L. Cramer
- ----------------------------------- Director FEBRUARY 17, 2000
(Kirby L. Cramer)
/s/ Robert I. Levy
- ----------------------------------- Director FEBRUARY 17, 2000
(Robert I. Levy)
/s/ John E. Lyons
- ----------------------------------- Director FEBRUARY 17, 2000
(John E. Lyons)
/s/ Joseph M. Mahady
- ----------------------------------- Director FEBRUARY 24, 2000
(Joseph M. Mahady)
/s/ Edith W. Martin
- ----------------------------------- Director FEBRUARY 17, 2000
(Edith W. Martin)
</TABLE>
87
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 260,770
<SECURITIES> 449,066
<RECEIVABLES> 47,469
<ALLOWANCES> 778
<INVENTORY> 13,125
<CURRENT-ASSETS> 791,181
<PP&E> 190,584
<DEPRECIATION> 80,139
<TOTAL-ASSETS> 941,241
<CURRENT-LIABILITIES> 135,085
<BONDS> 450,000
0
0
<COMMON> 788,468
<OTHER-SE> (433,138)
<TOTAL-LIABILITY-AND-EQUITY> 941,241
<SALES> 519,287
<TOTAL-REVENUES> 541,718
<CGS> 159,269
<TOTAL-COSTS> 502,665
<OTHER-EXPENSES> 277
<LOSS-PROVISION> 616
<INTEREST-EXPENSE> 8,656
<INCOME-PRETAX> 56,824
<INCOME-TAX> 12,500
<INCOME-CONTINUING> 44,324
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,324
<EPS-BASIC> 0.27
<EPS-DILUTED> 0.25
</TABLE>
