UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the period ended December 31, 1999 OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the transition period from_______________to_______________
Commission File Number: 0-12104
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IMMUNOMEDICS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 61-1009366
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
300 American Road, Morris Plains, New Jersey 07950
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(973) 605-8200
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(Registrant's telephone number, including area code)
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.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of February 10, 2000, there were 46,416,746 shares of the registrant's common
stock outstanding.
Page 1 of 19
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IMMUNOMEDICS, INC.
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets - 3
December 31, 1999 and June 30, 1999
Condensed Consolidated Statements of Operations
and Comprehensive Loss - 4
three and six months ended December 31, 1999 and 1998
Condensed Consolidated Statements of Cash Flows - 5
six months ended December 31, 1999 and 1998
Notes to Condensed Consolidated Financial Statements - 6
December 31, 1999
Item 2. Management's Discussion and Analysis of 12
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risks 16
PART II - OTHER INFORMATION
- ---------------------------
Item 2. Changes in Securities and Use of Proceeds 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
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Page 2 of 19
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<TABLE>
<CAPTION>
IMMUNOMEDICS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
December 31, June 30,
1999 1999
------------------ -----------------
<C> <S> <S>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,892,577 $ 3,469,261
Marketable securities 2,165,343 5,952,398
Accounts receivable, net of allowance for
doubtful accounts of $51,398 and $39,398 at
December 31, 1999 and June 30, 1999, respectively 558,607 1,101,820
Inventory 787,286 818,883
Other current assets 461,689 573,420
------------------ -----------------
Total current assets 8,865,502 11,915,782
Property and equipment, net of accumulated
depreciation of $7,278,582 and $6,789,157 at
December 31, 1999 and June 30, 1999, respectively 4,393,088 4,818,139
Other long-term assets 225,000 225,000
------------------ -----------------
$ 13,483,590 $ 16,958,921
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 150,738 $ 143,757
Accounts payable 2,170,940 2,078,562
Other current liabilities 1,474,946 1,870,949
------------------ -----------------
Total current liabilities 3,796,624 4,093,268
------------------ -----------------
Long-term debt 151,314 228,470
Minority interest 182,000 182,000
Commitments and Contingencies
Stockholders' Equity:
Preferred stock; $.01 par value, authorized 10,000,000 shares;
Series F convertible, authorized 2,000 shares;
issued and outstanding 0 and 1,250 shares
at December 31, 1999 and June 30, 1999, respectively
(Liquidation preference aggregating $0 and $12,781,944
at December 31, 1999 and June 30, 1999, respectively) - 13
Common stock; $.01 par value, authorized 70,000,000 shares;
issued and outstanding 46,260,121 and 37,888,090 shares
at December 31, 1999 and June 30, 1999, respectively 462,601 378,881
Capital contributed in excess of par 112,923,655 111,466,439
Accumulated deficit (104,067,254) (99,398,278)
Accumulated other comprehensive income 34,650 8,128
------------------ -----------------
Total stockholders' equity 9,353,652 12,455,183
------------------ -----------------
$ 13,483,590 $ 16,958,921
================== =================
See accompanying notes to condensed consolidated financial statements.
</TABLE>
Page 3 of 19
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<TABLE>
<CAPTION>
IMMUNOMEDICS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
------------- ------------- -------------- -------------
<C> <S> <S> <S> <S>
Revenues:
Product sales $ 905,434 $ 1,578,586 $ 2,059,222 $ 3,245,858
Royalties and license fee 4,133 6,217 5,571 10,604
Research and development 197,690 141,800 324,482 228,422
Interest and other 104,457 379,953 209,481 465,298
------------- ------------- -------------- -------------
1,211,714 2,106,556 2,598,756 3,950,182
------------- ------------- -------------- -------------
Costs and Expenses:
Cost of goods sold 76,162 69,766 137,884 138,428
Research and development 2,036,380 2,515,718 4,091,858 5,136,517
Sales and marketing 708,089 1,698,118 1,589,304 3,273,812
General and administrative 447,016 491,220 952,002 998,294
------------- ------------- -------------- -------------
3,267,647 4,774,822 6,771,048 9,547,051
------------- ------------- -------------- -------------
Net loss (2,055,933) (2,668,266) (4,172,292) (5,596,869)
------------- ------------- -------------- -------------
Preferred stock dividends ( including 5%
additional dividend accretion to repurchase
Series F Preferred Stock of $297,500 and $0 for the
three and the six months ended
December 31, 1999 and 1998, respectively. ) 371,684 31,944 496,684 31,944
------------- ------------- -------------- -------------
Net loss allocable to common shareholders $ (2,427,617) $ (2,700,210) $ (4,668,976) $ (5,628,813)
============= ============= ============== =============
Comprehensive Loss:
Net loss $ (2,055,933) $ (2,668,266) $ (4,172,292) $ (5,596,869)
------------- ------------- -------------- -------------
Other comprehensive income, net of tax:
Foreign currency translation adjustments 13,714 42,507 26,522 (17,026)
Unrealized gain / (loss) on securities
available for sale - - - 15
------------- ------------- -------------- -------------
Other comprehensive income 13,714 42,507 26,522 (17,011)
------------- ------------- -------------- -------------
Comprehensive loss $ (2,042,219) $ (2,625,759) $ (4,145,770) $ (5,613,880)
============= ============= ============== =============
Per Share Data:
Net loss per basic and diluted common share $ (0.06) $ (0.07) $ (0.12) $ (0.15)
============= ============= ============== =============
Weighted average number of common
shares outstanding 41,121,065 37,770,684 39,504,578 37,678,386
============= ============= ============== =============
See accompanying notes to condensed consolidated financial statements.
</TABLE>
Page 4 of 19
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<TABLE>
<CAPTION>
IMMUNOMEDICS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
December 31,
1999 1998
----------------- -----------------
<C> <S> <S>
Cash flows used in operating activities:
Net loss $ (4,172,292) $ (5,596,869)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 489,425 514,513
Changes in operating assets and liabilities 382,916 (915,567)
Other 26,522 (17,026)
----------------- -----------------
Net cash used in operating activities (3,273,429) (6,014,949)
----------------- -----------------
Cash flows from investing activities:
Purchases of marketable securities (7,887,369) (2,959,873)
Proceeds from maturities of marketable securities 11,674,424 14,860
Additions to property and equipment (64,374) (596,532)
----------------- -----------------
Net cash provided by (used in) investing activities 3,722,681 (3,541,545)
----------------- -----------------
Cash flows from financing activities:
Issuance of preferred stock, net - 12,349,800
Issuance of common stock, net 7,216,739 850,000
Purchase of preferred stock, net (5,950,000) -
Preferred stock dividends paid (535,500) -
Exercise of stock options 313,000 -
Deposits - cash collateral - (225,000)
Proceeds from debt - 450,000
Payments of debt (70,175) (21,784)
----------------- -----------------
Net cash provided by investing activities 974,064 13,403,016
----------------- -----------------
Increase in cash and cash equivalents 1,423,316 3,846,522
Cash and cash equivalents at beginning of period 3,469,261 7,568,147
----------------- -----------------
Cash and cash equivalents at end of period $ 4,892,577 $ 11,414,669
================= =================
See accompanying notes to condensed consolidated financial statements.
</TABLE>
Page 5 of 19
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IMMUNOMEDICS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of Immunomedics, Inc. (the "Company"), which incorporate the Company's
wholly-owned subsidiary Immunomedics B.V., have been prepared in
accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, the statements do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. The
balance sheet at June 30, 1999 has been derived from the audited
financial statements at that date. Operating results for the six-month
period ended December 31, 1999 are not necessarily indicative of the
results that may be expected for the fiscal year ending June 30, 2000.
The Company has not yet achieved profitable operations and there is no
assurance that profitable operations, if achieved, could be sustained
on a continuing basis. Further, the Company's future operations are
dependent on, among other things, the success of the Company's
commercialization efforts and market acceptance of the Company's
products.
Since its inception in 1982, the Company's source of funds has been
primarily dependent on private and public offerings of equity
securities, revenues from research and development alliances, and
product sales. The Company believes that its existing working capital
should be sufficient to meet its capital and liquidity requirements
through fiscal 2000 based on reduced spending levels, if necessary.
For further information, refer to the annual financial statements and
footnotes thereto included in the Company's Form 10-K for the fiscal
year ended June 30, 1999.
(2) Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments with original
maturities of three months or less, at the time of purchase, to be cash
equivalents. Included in other current assets at December 31, 1999 and
June 30, 1999 is accrued interest earned on cash equivalents and
marketable securities of $23,800 and $38,600, respectively.
(3) Income Taxes
The Company has never made payments of Federal or State income taxes
and does not anticipate generating book income in fiscal 2000;
therefore, no income taxes have been reflected for the six-month period
ended December 31, 1999.
Page 6 of 19
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IMMUNOMEDICS, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(4) Net Loss Per Share
Basic and diluted net loss allocable to common shareholders is based on
the net loss for the relevant period, adjusted for Preferred Stock
dividends of $199,184 related to a 4% per annum stated value increase
in security (see Note 7), divided by the weighted average number of
shares issued and outstanding during the period. In addition, a
$297,500 premium paid in December 1999 in connection with the
redemption of the Series F Preferred Stock has been included in the net
loss allocable to common shareholders (see Note 7). For the purposes of
the diluted net loss per share calculations, the exercise or conversion
of all potential common shares is not included because their effect
would have been anti-dilutive, due to the net loss recorded for the
periods ended December 31, 1999 and 1998. The Company has certain
securities outstanding at December 31, 1999 that could potentially
dilute basic earnings per share in the future that were not included in
the computation of diluted earnings per share because to do so would
have been anti-dilutive for the periods presented.
(5) Comprehensive Income
Comprehensive income consists of net income (loss) and net unrealized
gains (losses) on securities and certain foreign exchange changes and
is presented in the consolidated statements of operations and
comprehensive loss.
(6) Inventory
Inventory is stated at the lower of average cost (which approximates
first-in, first-out) or market, and includes materials, labor and
manufacturing overhead.
(7) Stockholders' Equity
On December 23, 1997, the Company entered into a Structured Equity Line
Flexible Financing Agreement (the "Equity Line") with an investor (the
"Investor"), pursuant to which, subject to the satisfaction of certain
conditions, the Company could have received up to an aggregate of
$30,000,000 over a 36-month period. The Company terminated the Equity
Line as of December 9, 1998. As of the termination date, the Company
had received a total of $5,350,000 for which the Company issued
1,358,838 shares of common stock. In connection with the Equity Line,
the Company issued to the Investor a four-year warrant to purchase
50,000 shares of the common stock at an exercise price of $7.5375 per
share (180% of closing sales price of common stock at the time of
issuance). In addition, the Company is required to issue to the
Investor an additional four-year warrant to purchase 54,000 shares of
common stock (representing 5,000 shares for each $500,000 of common
stock purchased by the Investor under the Equity Line during calendar
1998). The exercise price of such additional warrant is $7.087 per
share (180% of the weighted average purchase price of the common stock
purchased by the Investor during the year).
Page 7 of 19.
<PAGE>
IMMUNOMEDICS, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
On December 9, 1998, the Company completed a private placement of 1,250
shares of Series F Convertible Preferred Stock (the "Series F Stock")
to several investors and received net proceeds of $12,349,800. Each
share of Series F Stock has an initial stated value of $10,000, which
increases at the rate of 4% per annum. The Series F Stock became
convertible at the option of the investors, in whole or in part, on
June 8, 1999. The number of shares of common stock issuable upon
conversion of each share of Series F Stock was determined by dividing
the stated value of $10,000 plus an accretion of 4% per annum, by the
conversion price then in effect. In accordance with the terms of the
Series F Preferred Stock, the Company was required to recognize an
assumed incremental yield of $127,500 (calculated at the date of
issuance and based on a beneficial conversion feature). Such amount was
amortized as a preferred stock dividend over a six month period
beginning with the date of issuance.
The Company received a waiver, dated October 11, 1999, from the holders
of the Series F Stock either to require redemption or to receive
penalties conditioned upon the Company (a) filing a registration
statement, on or before November 11, 1999, covering at least 200% of
the number of shares of common stock that would have been issuable if
all the Series F Stock were converted as of the date of the filing of
the registration statement and (b) having such registration statement
declared effective on or before December 11, 1999.
The Company filed the registration statement on November 9, 1999 and it
was declared effective on December 6, 1999.
As of December 16, 1999, 655 shares of the Series F Stock had been
converted into 5,772,031 shares of Common Stock. The remaining 595
shares of Series F Stock were repurchased, in accordance with the terms
of the Series F Stock, by the Company on that date from the current
holders at a price equal to 109% of the stated value of $10,000 per
share of Series F Preferred Stock.
On December 16, 1999, the Company issued a warrant covering 75,000
shares of its Common Stock at an exercise price of $6.50 per share. The
warrants were issued to induce a financial advisor to enter into a
financial advisory agreement with the Company. The Company did not
register the warrant under federal law; instead, the Company relied
upon the exemption from registration afforded by Section 4(2) of the
Securities Act of 1933, based upon the fact that there was one acquirer
of the warrant, which investor the Company believes to be an accredited
investor.
On December 14, 1999, the Company completed a private placement of
2,500,000 shares of Common Stock at $3.00 per share to several
investors and received net proceeds of $7,220,000. Substantially all of
the net proceeds were used to redeem the Series F Preferred Stock as
described above.
Page 8 of 19
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IMMUNOMEDICS, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(8) License and Distribution Agreements
On November 24, 1997, the Company entered into a Distribution Agreement
with Eli Lilly Deutschland GmbH ("Lilly") pursuant to which Lilly will
package and distribute LeukoScan within the countries comprising the
European Union and certain other countries subject to receipt of
regulatory approvals. Also, effective April 6, 1998, Lilly began
packaging and distributing CEA-Scan within the countries comprising the
European Union. The Company pays Lilly a service fee based primarily on
the number of units of product packaged and shipped. The parties
contemplate that other future Company products may be handled under
this arrangement when appropriate.
Effective as of April 6, 1998, the Company appointed a subsidiary of
Bergen Brunswig Specialty Corporation as a non-exclusive distributor of
CEA-Scan in the U.S. Such subsidiary (currently Integrated
Commercialization Solutions, Inc. ("ICS")) serves as an agent of the
Company in providing product support services, including customer
service, order management, distribution, invoicing and collection.
On December 21, 1998, the Company received $300,000 in final settlement
of all claims between the Company and Mallinckrodt, Inc. and its
affiliate under the prior distribution agreements, which were
terminated in April 1998. This amount was recognized as other revenue
in fiscal year 1999.
The Company, through its 80% owned subsidiary, IMG Technology, LLC
("IMG"), has formed a joint venture with Coulter Corporation
("Coulter") for the purpose of developing targeted cancer therapeutics.
The joint venture, known as IBC Pharmaceuticals, LLC ("IBC") was
organized as a Delaware limited liability company. On March 5, 1999 the
Company contributed to IBC, on behalf of IMG , certain rights to its
proprietary humanized antibodies against the cancer marker
carcinoembryonic antigen (which had a financial reporting carrying
value of zero), which is used in its CEA-Cide therapeutic, and Coulter
contributed to IBC certain rights to its bispecific targeting
technology called the "Affinity Enhancement System" or AES. The Company
assigned its rights pursuant to the terms of a license agreement with
IBC dated March 5, 1999 in exchange for the grant to IMG of its
interest in IBC ("Immunomedics License Agreement"). Coulter received
its interest in IBC in exchange for its contribution. The license
granted to IBC is a worldwide, royalty free, exclusive license which is
limited to the "IBC Field" with respect to the "Immunomedics Patent
Property" and the "Immunomedics Biotechnology Assets," as those terms
are defined in the Immunomedics License Agreement. Additionally on
March 5, 1999, several investors contributed $3,000,000 to IBC in
exchange for a 7% interest in the venture. IMG's and Coulter's
interests in IBC are 49.55% and 43.45% respectively. Coulter, IMG and
the investors entered into an operating agreement (the "IBC Operating
Agreement") which establishes the rights and obligations of the
respective members. Under the terms of the IBC Operating Agreement,
neither IMG nor Coulter may sell any portion of its interest in IBC
Page 9 of 19
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IMMUNOMEDICS, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
without first providing the other with a right of first refusal with
respect to such sale, provided that after a public offering of IBC
securities, IMG and Coulter will be permitted to sell up to 20% of
their respective interests in IBC free of such right of first refusal.
IMG is a Delaware limited liability company owned 80% by the Company
and 20% by Dr. David Goldenberg, the Chairman of the Board and Chief
Executive Officer of the Company. Dr. Goldenberg received his interest
pursuant to the terms of his employment agreement with the Company.
IMG is intended to be a single purpose entity, its sole asset being
its interest in IBC. Dr. Goldenberg and IMG have entered into an
operating agreement (the "IMG Operating Agreement") which establishes
their relative rights and obligations. In connection with Dr.
Goldenberg's receipt of an interest in IMG, the Company recognized
$182,000 of compensation expense, based on the fair value of
technology transferred, and has reflected his interest as a minority
interest on the consolidated financial statements as of June 30, 1999.
Dr. Goldenberg also serves as Chairman of the Board of IBC.
(9) Debt
On October 28, 1998, the Company entered into an Equipment Financing
Agreement with the New England Capital Corporation, pursuant to which
the Company has received $450,000, at the interest rate of 9.52% per
annum, to be repaid over a 36-month period. The proceeds of such
financing were used to exercise the early purchase options for
equipment previously leased through a master lease agreement. The
financing is secured by various equipment and an irrevocable letter of
credit in the amount of $225,000. The letter of credit is
collateralized by a cash deposit of an equivalent amount which is
included in "Other long- term assets" on the accompanying consolidated
balance sheet. At December 31, 1999, the Company's indebtedness under
this agreement was $302,052. The Company paid $16,342 and $3,571 for
the six months ended December 31, 1999 and 1998, respectively, in
interest under this agreement.
(10) Geographic Segment
The Company manages its operations as one line of business of
researching, developing, manufacturing and marketing biopharmaceutical
products, particularly antibody-based diagnostics and therapeutics for
cancer and infectious diseases, and it currently reports as a single
industry segment. The Company markets and sells its products in the
U.S. and throughout Europe.
The following tables present financial information based on the
geographic location of the facilities of Immunomedics, Inc. as of and
for the three and six-month periods ended December 31, 1999 and 1998:
Page 10 of 19
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IMMUNOMEDICS, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Three Months Ended
December 31, 1999
-----------------
United States Europe Total
------------- -------- ------------
Revenues $ 691,834 $519,880 $ 1,211,714
Net income (loss) (2,131,593) 75,660 (2,055,933)
December 31, 1998
-----------------
United States Europe Total
------------- -------- ------------
Revenues $ 1,432,116 $674,440 $ 2,106,556
Net income (loss) (2,712,152) 43,886 (2,668,266)
Six Months Ended
December 31, 1999
-----------------
United States Europe Total
------------- -------- ------------
Revenues $ 1,399,375 $1,199,381 $ 2,598,756
Net income (loss) (4,414,282) 241,990 (4,172,292)
December 31, 1998
-----------------
United States Europe Total
------------- -------- ------------
Revenues $ 2,580,240 $1,369,942 $ 3,950,182
Net income (loss) (5,791,751) 194,882 (5,596,869)
(11) Reclassification
Certain amounts previously reported have been reclassified to conform
to current year presentation.
Page 11 of 19
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Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Statements made in this Form 10-Q, other than those concerning historical
information, should be considered forward-looking and subject to various risks
and uncertainties. Such forward-looking statements are made based on
management's belief as well as assumptions made by, and information currently
available to, management pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. The Company's actual results may
differ materially from the results anticipated in these forward-looking
statements as a result of a variety of factors, including those identified in
"Business" and elsewhere in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1999.
Since its inception, the Company has been engaged primarily in the research and
development and, more recently, the commercialization of proprietary products
relating to the detection, diagnosis and treatment of cancer and infectious
diseases. The Company has incurred significant operating losses since its
formation in 1982 and has not earned a profit since its inception. These
operating losses and failure to be profitable have been due mainly to the
significant amount of money that the Company has had to spend on research and
development. As of December 31, 1999, the Company had an accumulated deficit of
approximately $104,067,000. The Company expects to continue to experience
operating losses until such time, if at all, that it is able to generate
sufficient revenues from sales of CEA-Scan(R), LeukoScan(R) and its other
potential products.
On June 28, 1996, the U.S. Food and Drug Administration ("FDA") licensed
CEA-Scan for use with other standard diagnostic modalities for the detection of
recurrent and/or metastatic colorectal cancer. On October 4, 1996, the European
Commission granted marketing authorization for use of the product in the 15
countries comprising the European Union for the same indication. On September
16, 1997, the Company received a notice of compliance from the Health Protection
Branch permitting it to market CEA-Scan in Canada for colorectal cancer for
recurrent and metastatic colorectal cancer.
On February 14, 1997, the Company was granted regulatory approval by the
European Commission to market LeukoScan, an in vivo infectious disease
diagnostic imaging product, in all 15 countries which are members of the
European Union, for the detection and diagnosis of osteomyelitis (bone
infection) in long bones and in diabetic foot ulcer patients. On December 19,
1996, the Company filed a Biologics License Application for LeukoScan with the
FDA for the same indication approved in Europe, plus an additional indication
for the diagnosis of acute, atypical appendicitis. As part of the review
process, the Company is in discussions with the FDA to address its comments
regarding the adequacy of the Company's data to support final approval for these
indications. The Company is confident that it can bring these discussions with
the FDA to successful and timely closure. In the meantime, the Company is
continuing to implement its plans for market introduction, and is working
diligently on preparation to bring this new product to the U.S. marketplace.
Page 12 of 19
<PAGE>
CEA-Scan and LeukoScan are the only products which the Company is currently
licensed to market and sell. To date, the Company has received only limited
revenues from the sale of these products. There can be no assurance that these
products will achieve market acceptance or generate significant sales. Unless
the Company receives substantial revenues from these products, future revenues
will be dependent in large part upon its receiving payments from corporate
partners under licensing and research agreements or from government grants.
However, there can be no assurance that the Company will receive such payments
in a timely manner, or at all.
While the Company expects to receive approval from the FDA to market and sell
LeukoScan in the United States, there can be no assurance that such approval
will be received in a timely manner, if at all.
The Company is also engaged in developing other biopharmaceutical products,
which are in various stages of development and clinical testing.
Results of Operations
Revenues for the six-month period ended December 31, 1999 were $2,599,000 as
compared to $3,950,000 for the same period in 1998, representing a decrease of
$1,351,000. Product sales for the six-month period ended December 31, 1999
decreased by $1,187,000 as compared to the same period of 1998, mainly due to
the reorganization of the U.S. and European sales forces, which occurred in
April 1999. Research and development revenue for the six-month period ended
December 31, 1999 increased by $96,000 as compared to the same period of 1998,
primarily due to the higher grant revenue. Interest and other income for the
six-month period ended December 31, 1999 decreased by $256,000. Interest income
increased by $33,000 due to more cash available for investments. Other income
decreased by $289,000 primarily due to the receipt of $300,000 in December 1998,
in final settlement of all claims between the Company and Mallinckrodt, Inc. and
its affiliate under the prior distribution agreements, which were terminated in
April 1998.
Revenues for the three-month period ended December 31, 1999 were $1,212,000 as
compared to $2,107,000 for the same period in 1998, representing a decrease of
$895,000. Product sales for the three-month period ended December 31, 1999
decreased by $673,000 as compared to the same period of 1998, mainly due to
reorganization of the U.S. and European sales forces, which occurred in April
1999. Research and development revenue for the three-month period ended December
31, 1999 increased by $56,000 as compared to same period of 1998, primarily due
to higher grant revenue. Interest and other income for the three-month period
ended December 31, 1999 decreased by $275,000. Interest income increased by
$11,000 due to more cash available for investments. Other income decreased by
$286,000 primarily due to the receipt of $300,000 in December 1998, in final
settlement of all claims between the Company and Mallinckrodt, Inc. and its
affiliate under the prior distribution agreements, which were terminated in
April 1998.
Total operating expenses for the six-month period ended December 31, 1999 were
$6,771,000 as compared to $9,547,000 for the same period in 1998, representing a
decrease of $2,776,000. Research and development costs for the six-month period
ended December 31, 1999 decreased by $1,045,000 as compared to the same period
in 1998, primarily due to the reduced patient enrollment in clinical trials and
continued decrease in the level of expenditures required to obtain validation of
the Company's manufacturing facility and due to the Company's restructuring in
fiscal 1999. Sales and marketing expenses for the six-month period ended
December 31, 1999 decreased by $1,685,000 primarily due to the Company-wide
reorganization/restructuring. General and administrative costs for the six-month
period ended December 31, 1999 decreased by $46,000 as compared to the same
period in 1998, primarily due to reduced legal costs.
Page 13 of 19
<PAGE>
Total operating expenses for the three-month period ended December 31, 1999 were
$3,268,000 as compared to $4,775,000 for the same period in 1998, representing a
decrease of $1,507,000. Research and development costs for the three-month
period ended December 31, 1999 decreased by $479,000 as compared to the same
period in 1998, primarily due to the reduced patient enrollment in clinical
trials and continued decrease in the level of expenditures required to obtain
validation of the Company's manufacturing facility and due to the Company's
restructuring in fiscal 1999. Sales and marketing expenses for the three-month
period ended December 31, 1999 decreased by $990,000, primarily due the
Company-wide reorganization/restructuring. General and administrative costs for
the three-month period ended December 31, 1999 decreased by $44,000 as compared
to the same period in 1998, primarily due to reduced legal costs.
Net loss allocable to common shareholders for the six-month period ended
December 31, 1999 was $4,669,000, or $0.12 per share, as compared to a loss of
$5,629,000, or $0.15 per share, for the same period in 1998. The lower net loss
(by $960,000) in 1999 as compared to 1998 primarily resulted from reduced
expenses partially offset by lower revenues and increased preferred stock
dividends, as discussed above. In addition, the net loss per share for the
six-month period ended December 31, 1999 was positively impacted by the higher
weighted average number of common shares outstanding for this period, as
compared to the same period in 1998. The increase in the weighted average number
of common shares outstanding was primarily due to the conversion of shares
related to the prior year equity financings and the private placement which
occurred in December 1999 (see Note 7 to Unaudited Condensed Consolidated
Financial Statements).
Net loss allocable to common shareholders for the three-month period ended
December 31, 1999 was $2,428,000, or $0.06 per share, as compared to a loss of
$2,700,000, or $0.07 per share, for the same period in 1998. The lower net loss
(by $272,000) in 1999 as compared to 1998 primarily resulted from reduced
expenses offset by lower revenues and increased preferred stock dividends, as
discussed above. In addition, the net loss per share for the three-month period
ended December 31, 1999 was positively impacted by the higher weighted average
number of common shares outstanding for this period, as compared to the same
period in 1998. The increase in the weighted average number of common shares
outstanding was primarily due to the conversion of shares related to the prior
year equity financings and the private placement which occurred in December 1999
(see Note 7 to the Unaudited Condensed Consolidated Financial Statements).
Page 14 of 19
<PAGE>
Liquidity and Capital Resources
At December 31, 1999, the Company had working capital of $5,069,000, which
represents a decrease of $2,754,000 from June 30, 1999. The net decrease in
working capital resulted primarily from the funding of operating expenses.
On October 28, 1998, the Company entered into an Equipment Financing Agreement
with the New England Capital Corporation, pursuant to which the Company has
received $450,000, to be repaid over a 36-month period. The proceeds of such
financing were used to exercise the early purchase options for the equipment
leased through a master lease agreement. The financing is secured by various
used equipment and an irrevocable letter of credit in the amount of $225,000.
The letter of credit is collateralized by a cash deposit of an equivalent amount
(see Note 9 to the Unaudited Condensed Consolidated Financial Statements).
The Company's liquid asset position, measured by its cash, cash equivalents and
marketable securities, was $7,058,000 at December 31, 1999, representing a
decrease of $2,364,000 from June 30, 1999. This decrease was primarily
attributable to the Company's funding of operating expenses. It is anticipated
that absent external financing, working capital and cash, cash equivalents and
marketable securities will decrease during the remainder of fiscal year 2000 as
a result of planned operating and capital expenditures, offset in part by
projected revenues from product sales in the U.S. and Europe. However, there can
be no assurance, as to the amount of revenues, if any, these products will
provide. In April 1999, the Company implemented a cost reduction program which
the Company anticipates saving approximately $3.5 million during the 12 months
ending March 31, 2000. Primarily due to the restructuring, the Company has
recognized savings during the nine months ended December 31, 1999 of
approximately $2,776,000. No assurances can be given that the balance of the
anticipated savings will be recognized during the three months ending March 31,
2000.
To date, the Company has not generated positive cash flow from operations.
Accordingly, it has relied primarily upon external financing to supply necessary
cash flow. The Company believes that its existing working capital should be
sufficient to meet its capital and liquidity requirements through fiscal year
2000 based on reduced spending levels, if necessary. However, the Company's
working capital and working capital requirements are affected by numerous
factors and there is no assurance that such factors will not have a negative
impact on the Company's liquidity. Principal among these are the success of its
product commercialization and selling products, the technological advantages and
pricing of the Company's products, and access to capital markets that can
provide the Company with the resources when necessary to fund its strategic
priorities. Without a significant increase in product revenues or other infusion
of capital, the Company will be required to significantly reduce its operating
expenses, including the amount of resources devoted to marketing and sales,
product development and clinical trials, which could have a significant and
adverse effect on the Company. The Company believes that it will require
additional financial resources by the beginning of fiscal year 2001 in order for
it to continue its projected levels of research and development and clinical
trials of its proposed products and regulatory filings for new indications of
existing products. There can be no assurance that any additional financing will
be available to the Company at all or on terms it finds acceptable or that the
terms of any equity financing will not cause substantial dilution to existing
stockholders.
The Company will seek to supplement its financial resources from time to time as
market conditions permit through additional financing and/or through
collaborative marketing and distribution agreements. The Company continues to
evaluate various programs to raise additional capital and to seek additional
revenues from the licensing of its proprietary technology. At the present time,
the Company is unable to determine whether any of these future activities will
be successful and, if so, the terms and timing of any definitive agreements.
On December 14, 1999, the Company completed a private placement of 2,500,000
shares of Common Stock at $3.00 per share to several investors and received net
proceeds of $7,220,000. Substantially all of the net proceeds were used to
redeem the Series F Preferred Stock as described below.
Page 15 of 19
<PAGE>
Liquidity and Capital Resources (Continued)
On December 9, 1998, the Company completed a private placement of 1,250 shares
of Series F Convertible Preferred Stock (the "Series F Stock") to several
investors and received net proceeds of $12,349,800. Each share of Series F Stock
has an initial stated value of $10,000, which increases at the rate of 4% per
annum. The Series F Stock became convertible at the option of the investors, in
whole or in part, on June 8, 1999. The number of shares of common stock issuable
upon conversion of each share of Series F Stock was determined by dividing the
stated value of $10,000 plus an accretion of 4% per annum, by the conversion
price then in effect. In accordance with the terms of the Series F Preferred
Stock, the Company was required to recognize an assumed incremental yield of
$127,500 (calculated at the date of issuance and based on a beneficial
conversion feature). Such amount was amortized as a preferred stock dividend
over a six month period beginning with the date of issuance.
The Company was required to file a registration statement, on or before November
11, 1999, covering at least 200% of the number of shares of common stock that
would have been issuable if all the Series F Stock were converted as of the date
of the filing of the registration statement and (b) having such registration
statement declared effective on or before December 11, 1999.
The Company filed the registration statement on November 9, 1999 and it was
declared effective on December 6, 1999.
As of December 16, 1999, 655 shares of the Series F Stock had been converted
into 5,772,031 shares of Common Stock. The remaining 595 shares of Series F
Stock were repurchased, in accordance with the terms of the Series F Stock, by
the Company on that date from the current holders at a price equal to 109% of
the stated value of $10,000 per share of Series F Preferred Stock.
On December 23, 1997, the Company entered into a Structured Equity Line Flexible
Financing Agreement (the "Equity Line") with an investor (the "Investor"),
pursuant to which, subject to the satisfaction of certain conditions, the
Company could have received up to an aggregate of $30,000,000 over a 36-month
period. The Company terminated the Equity Line as of December 9, 1998. As of the
termination date, the Company had received a total of $5,350,000 for which the
Company issued 1,358,838 shares of common stock.
Impact of Year 2000
The Company achieved year 2000 compliance without disruption to its operations
and has not encountered any unforeseen year 2000 problems to date. The Company
estimates that it incurred approximately $196,000 of costs related to year 2000
compliance issues. It is conceivable that the Company may encounter year 2000
problems with supplier and/or revenue sources which could adversely affect the
Company's financial condition, results of operations or cash flow, although the
Company knows of no such instances to date. The Company cannot accurately
predict the occurrence and/or outcome of any such problems in the future, nor
can the dollar amount of such problems be estimated.
Page 16 of 19
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risks
See Item 7A of the 1999 Form 10-K.
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds.
On December 14, 1999, the Company completed a private placement of 2,500,000
shares of its Common Stock at $3.00 per share to several investors and received
gross proceeds of $7,500,000 and net proceeds of $7,220,000. A total of $262,500
was paid to the Company's placement agent. Substantially all of the net proceeds
were used to redeem the Series F Preferred Stock as described below. The Company
did not register the shares under federal law; instead, the Company relied upon
the exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, based upon the fact that there were a small number of investors, each
of whom the Company understands were accredited investors and each of whom made
certain investment representations to the Company.
On December 16, 1999, the Company issued a warrant covering 75,000 shares of its
Common Stock at an exercise price of $6.50 per share. The warrants were issued
to induce a financial advisor to enter into a financial advisory agreement with
the Company. The Company did not register the warrant under federal law;
instead, the Company relied upon the exemption from registration afforded by
Section 4(2) of the Securities Act of 1933, based upon the fact that there was
one acquirer of the warrant, which investor the Company believes to be an
accredited investor.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's annual meeting of stockholders was held on December 1, 1999. At
that meeting, David M. Goldenberg, Marvin E. Jaffe, Richard R. Pivirotto and
Richard Williams were elected as directors and the stockholders ratified the
selection of KPMG LLP as the Company's independent auditors for the fiscal year
ending June 30, 2000.
The following number of shares were voted with respect to the matters considered
at the annual meeting:
BROKER
FOR AGAINST ABSTENTION NON-VOTE
--- ------- ---------- --------
Election of directors:
David M. Goldenberg 35,862,663 1,120,863 0 0
Marvin E. Jaffe 35,873,513 1,120,013 0 0
Richard R. Pivirotto 35,873,613 1,119,913 0 0
Richard Williams 35,873,613 1,119,913 0 0
Selection of auditors 36,135,283 718,453 139,790 0
Page 17 of 19
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 - Common Stock Purchase Agreement, dated as of December
14, 1999, by and among the Company and the investors
named therein, as amended by a side letter dated
January 7, 2000, is incorporated by reference to
Exhibit 4.2 to the Company's registration statement on
Form S-3 (No. 333-94415)
10.2 - Warrant, dated as of December 16, 1999, issued by the
Company, is incorporated by reference to Exhibit 4.3 to
the Company's registration statement on Form S-3 (No.
333- 94415)
27 Financial Data Schedule
99 Risk Factors
(b) Reports on Form 8-K during the quarter ended December
31, 1999:
A Current Report on Form 8-K was filed by the Company
on November 26, 1999 to report (under Item 5) that
the Company had entered into an agreement with
respect to the conversion and redemption of certain
shares of its Series F Stock.
Page 18 of 19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IMMUNOMEDICS, INC.
------------------
(Registrant)
DATE: February 14, 2000 /s/ David M. Goldenberg
------------------------
David M. Goldenberg
Chairman and
Chief Executive Officer
(Principal Executive
Officer)
DATE: February 14, 2000 /s/ Shailesh R. Asher
----------------------
Shailesh R. Asher
Controller and Acting
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 19 of 19
<PAGE>
Exhibit 99
RISK FACTORS
Certain statements in this Quarterly Report on Form 10-Q and certain
statements made by the Company in other published documents (including, without
limitation, press releases) are forward-looking in nature and, as such,
constitute "forward-looking statements" under the Private Securities Litigation
Reform Act of 1995. These forward-looking statements include, but are not
limited to, statements about the Company's plans, objectives, expectations and
intentions and other statements contained in this Quarterly Report on Form 10-Q
or elsewhere that are not historical facts. When used in this Quarterly Report
on Form 10-Q or elsewhere, the words "expects," "anticipates," "intends,"
"plans," "believes," "seeks" and "estimates" and similar expressions are
generally intended to identify forward-looking statements. Because these
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements. In other words, our
performance might be quite different from what the forward-looking statements
imply. The following factors, as well as those discussed below in this "Risk
Factors" section, could cause our performance to differ from the implied
results:
* inherent uncertainties accompanying the marketing of CEA-Scan and
LeukoScan.
* inherent uncertainties involving new product development and
marketing.
* inability to obtain capital for continued product development and
commercialization.
* actions of regulatory authorities concerning product approval.
* actions of government and private organizations concerning
reimbursement of medical expenses.
* impact of competitive products and pricing.
* results of clinical trials.
* loss of key employees.
* changes in general economic and business conditions.
* changes in industry trends.
We have no obligation to release publicly the result of any revisions to any of
our "forward-looking statements" to reflect events or circumstances that occur
after the date of this Quarterly Report or to reflect the occurrence of other
unanticipated events.
Page 1 of 10
<PAGE>
We Have a History of Operating Losses and May Never Become Profitable
We have had significant operating losses since our formation in 1982 and have
not earned a profit since our inception. These operating losses and failure to
be profitable have been due mainly to the significant amount of money that we
have had to spend on research and development. As of December 31, 1999, we had
an accumulated deficit of approximately $104.1 million. We expect to continue to
experience operating losses until such time, if at all, that we are able to
generate sufficient revenues from sales of CEA-Scan(R), LeukoScan(R) and/or our
other potential products.
We May Not Be Able to Successfully Develop a Market for Our Approved Products
CEA-Scan and LeukoScan are the only products which we are licensed to market and
sell. To date, we have received only limited revenues from the sale of these
products. We cannot assure investors that these products or any of our proposed
products will achieve market acceptance or generate significant sales.
We May Not Receive Approval to Sell LeukoScan in the United States in a Timely
Manner
We have not yet received approval from the FDA to market and sell LeukoScan in
the United States and cannot assure investors as to when, if ever, that we will
obtain approval. In addition, the FDA could impose conditions on its approval,
which could significantly affect the commercial viability of the product or
could require us to undertake significant additional studies or otherwise expend
additional significant funds. If we do not receive approval to market and sell
LeukoScan in the United States in the near future or if the FDA imposes
significant conditions or restrictions, our business and operations could be
significantly and adversely affected.
We May Not Be Able to Bring to Market the Products We Are Currently Developing
or Sustain their Sales After Approval
Before any of our products that we are currently developing can be marketed and
sold, we must undertake substantial research and development. All new products
face a high degree of uncertainty, including the following:
* We may not receive regulatory approval to perform human clinical trials for
the products we currently have planned or we may be unable to successfully
complete our ongoing clinical trials.
* The results from preclinical studies and clinical trials may not be
indicative of results that will be obtained in later-stage testing.
* We may be unable to timely recruit a sufficient number of patients for our
clinical trials. Delays in planned patient enrollment may result in
increased costs and delays.
* We may be unable to obtain approval from the FDA and comparable foreign
authorities because we are unable to demonstrate that the product is safe
and effective for the intended use, or obtaining regulatory approval may
take significantly more time and cost significantly more money than we
currently anticipate.
Page 2 of 10
<PAGE>
* We may discover that the product has undesirable or unintended side effects
or other characteristics that make it impossible or impracticable for us to
continue development or which may limit the product's commercial use.
* We do not expect that any new product which is currently in research and
development will be commercially available for at least several years.
* We may be unable to produce the product in commercial quantities at
reasonable cost.
* We may be unable to successfully market the product or to find an
appropriate corporate partner, if necessary, to assist us in the marketing
of the product.
* The product may not gain satisfactory market acceptance.
* The product may be superseded by another product commercialized for the
same indication or may infringe patents issued to others, which would
prevent us from marketing and selling the product.
* After approval, the product may be recalled or withdrawn at any time as a
result of regulatory issues, including those concerning safety and
efficacy.
If we are unable to continue to develop products that we can successfully
market, our business, financial condition and results of operations will be
significantly and adversely affected.
If We Do Not Obtain Additional Capital, We May Be Required to Curtail Our
Operations
Without a significant increase in product revenues or other infusion of capital
during our current fiscal year which ends June 30, 2000, we will be required to
significantly reduce our operating expenses, including the amount of resources
devoted to marketing and sales, product development and clinical trials, which
could have a significant and adverse effect on us. We cannot assure investors
that any additional financing will be available to us at all or on terms we find
acceptable or that the terms of any financing will not cause substantial
dilution to our existing stockholders.
Our Limited Marketing and Sales Experience and Capability Could Impact Our
Ability to Successfully Sell Our Current Products
We are relying, in substantial part, on our own limited sales and marketing
organization to market CEA-Scan and LeukoScan. We cannot assure investors that
we can successfully maintain and continue to build our sales force. If we are
unable to continue to build and maintain our sales force, our financial
condition and operating results may be significantly and adversely affected.
We May Have to Rely on Partners to Help Us Market and Sell Our Products Under
Development
The marketing and sale of our proposed products may be dependent upon our
entering into arrangements with corporate partners. We cannot assure investors
that we will be successful in forming these relationships or that these
relationships, even if formed, will be successful.
Page 3 of 10
<PAGE>
We Could Be Temporarily Unable to Sell Our Products If Our Agreements with our
Distributors Were Terminated
We currently do not have the resources to internally develop and maintain the
operating procedures required by the FDA and comparable foreign regulatory
authorities to oversee distribution of our products. As a result, we have
entered into arrangements with third parties to perform this function for the
foreseeable future. If these agreements are terminated, we will be required to
enter into arrangements with other government approved third parties in order to
be able to distribute our products. We will be unable to continue to distribute
our products until an acceptable alternative is identified. If we were even only
temporarily unable to distribute our products, our business could be
significantly and adversely effected.
We Could Be Temporarily Unable to Sell Our Products If Our Agreement with our
End Stage Manufacturer Was Terminated
We rely on a single third party to perform certain end-stage portions of the
manufacturing process for CEA-Scan and LeukoScan which we are unable or do not
have the resources to perform. If this third party were to become unavailable,
we would be unable to complete the manufacturing process until we entered into
an agreement with another qualified entity. We cannot assure that we will be
able to negotiate an agreement with another entity on terms we consider
acceptable, if at all. Even if we were able to do so, any substantial delay in
our ability to manufacture our products could significantly and adversely affect
our operations.
Our Internal Manufacturing Capability May Limit What We Can Sell
If demand for our approved product increases significantly, we cannot assure
investors that we will continue to have the capacity to manufacture commercial
quantities successfully. In addition, if any of our other products are approved
for marketing and sale, we cannot assure investors that we will continue to have
the capacity and expertise to manufacture commercial quantities of multiple
products successfully or with acceptable profit margins. If we were even only
temporarily unable to manufacture sufficient quantities of our products to meet
demand, our business could be significantly and adversely effected.
We May Be Unable to Continue to Use Mouse Fluids for Future Products Which
Could Require Us to Make Expensive and Time Consuming Changes to Our
Products in Development
CEA-Scan and certain of our other imaging agents are derived from ascites fluid
produced in mice. Regulatory authorities, particularly in Europe, have expressed
concerns about the use of mice fluid for the production of monoclonal
antibodies. We cannot assure investors that regulatory authorities will agree
that our quality control procedures will be adequate for future products. While
we are continuing our development efforts to produce certain of our monoclonal
antibodies using cell culture methods, this process constitutes a substantial
production change, which will require additional manufacturing equipment and new
regulatory approval. We cannot assure investors that we will have the resources
to acquire the additional manufacturing equipment and resources or that we will
receive the required regulatory approval on a timely basis, if at all. We also
have contracted with a third party for the development and production of certain
humanized antibodies, but we cannot assure that these efforts will be
successful.
Page 4 of 10
<PAGE>
Our Product Development Is Dependent Upon Our Continued Relationship with The
Center for Molecular Medicine and Immunology
The Center for Molecular Medicine and Immunology, a not-for-profit cancer
research center, performs pilot and pre-clinical trials in product areas of
importance to us. CMMI also conducts basic research and patient evaluations in a
number of areas of potential interest to us. If CMMI were no longer to provide
these services, we would have to make alternative arrangements with third
parties which could significantly delay and increase expenses associated with
pre-clinical testing and initial clinical trials.
Certain Potential Conflicts of Interest Exist with The Center for Molecular
Medicine and Immunology Which Could Affect Our Operations
Dr. David M. Goldenberg, our Chairman and Chief Executive Officer, is the
founder, President and a member of the Board of Trustees of CMMI. Dr. Goldenberg
devotes more of his time working for CMMI than for us. In addition, other key
personnel currently have responsibilities both to CMMI and us. As a result, the
potential for conflict of interest exists and disputes could arise over the
allocation of research projects and ownership of intellectual property rights.
We May Not Be Able to Obtain Government Regulatory Approval in a Timely Manner
to Market and Sell Our Products
Regulation by governmental authorities in the United States and foreign
countries is a significant factor in the manufacture and marketing of our
presently marketed and proposed products as well as our research and development
activities. All of our proposed products will require regulatory approval by
governmental agencies prior to commercialization and our products must undergo
rigorous preclinical and clinical testing and other premarket approval
procedures by the FDA and comparable foreign authorities. In addition, since
certain of our potential products involve the application of new technologies,
regulatory approvals may take longer than for products produced using more
conventional methods. Once we begin clinical trials for a new diagnostic or
therapeutic product, it may take five to ten years or more to receive the
required regulatory approval to commercialize that product and begin to market
it to the public. Various federal and, in some cases, state statutes and
regulations also govern or influence the manufacturing, safety, labeling,
storage, record keeping and marketing of these products. The lengthy process of
seeking these approvals, and the subsequent compliance with applicable statutes
and regulations, will require us to expend substantial resources. If we fail to
obtain or are otherwise substantially delayed in obtaining, regulatory
approvals, our business and operations could be significantly and adversely
affected.
In responding to a new drug application, or a biologic license application,
government regulators may grant marketing approvals, request additional
information or further research, or deny the application if they determine that
the application does not satisfy its regulatory approval criteria. Approvals may
not be granted on a timely basis, if at all, or if granted may not cover all the
clinical indications for which we are seeking approval or may contain
significant limitations in the form of warnings, precautions or
contraindications with respect to conditions of use. Even after approval, we may
be required to recall or withdraw a product as a result of subsequently
discovered safety or efficacy concerns.
Page 5 of 10
<PAGE>
Our Business Involves the Use of Hazardous Materials
In addition to laws and regulations enforced by the FDA, we are also subject to
regulation under various other foreign, federal, state or local laws and
regulations. Our research and development involve the controlled use of
hazardous materials, chemicals, viruses and various radioactive compounds. The
risk of accidental contamination or injury from these materials cannot be
completely eliminated. If an accident occurs, we could be held liable for any
damages that result and any liability could exceed our resources.
We Must Maintain Our Manufacturing Facilities in Accordance With Government
Regulatory Requirements
Our facilities are subject to inspection by the FDA and comparable foreign
authorities. A separate license is sometimes required for commercial manufacture
of any product. Failure to maintain these licenses or to meet the regulatory
inspection criteria would result in disruption to our manufacturing processes
and could have a significant and adverse effect on our business and operations.
We Have Agreed to Certain Covenants in our 1999 Financing Which Place
Restrictions on the Operation of our Business
In connection with the Company's December 1999 financing, the Company agreed to
certain covenants, including covenants that will apply until such time as the
investors in that offering and their affiliates beneficially own less than 5% of
our common stock. Among other things, the Company agreed that without the prior
consent of the investors, the Company may not sell its business to anyone that
is an affiliate of the Company, unless the sale is for consideration at least
equal to (a) the fair market value in the event of a sale of assets (as
determined in good faith by the Company's board of directors) or (b) the then
current market price in the event of a sale of stock. As of January 31, 2000,
such investors in the aggregate beneficially owned 5.4% of the Company's
outstanding common stock.
Changes to Health Care Reimbursement Could Adversely Affect Our Operations
Our ability to successfully commercialize our products will depend in part on
the extent to which reimbursement for the cost of our products and related
treatment will be available from government health administration authorities,
private health insurers and other organizations. These third-party payers are
increasingly challenging the price of medical products and services. Several
proposals have been made that may lead to a government-directed national health
care system. Adoption of this type of system could further limit reimbursement
for medical products, and we cannot assure investors that adequate third-party
coverage will be available to enable us to maintain price levels sufficient to
realize an appropriate return on our investment in product development. In
addition, we also cannot assure investors that the U.S. government or foreign
governments will not implement a system of price controls. Any system might
significantly and adversely affect our ability to market our products
profitably.
Page 6 of 10
<PAGE>
The Loss of Key Employees Could Adversely Affect our Operations
As a small biotechnology company, we are heavily dependent upon the talents of
Dr. Goldenberg and certain key scientific personnel. If Dr. Goldenberg or any of
our other key personnel leave our employ, our operations could be significantly
and adversely affected. In addition, from time to time we have a need to expand
our management and scientific personnel. Competition for qualified personnel in
the biotechnology and pharmaceutical industries is intense and we cannot assure
investors that we will be successful in our recruitment efforts. If we are
unable to retain or, when needed, attract additional qualified personnel, our
operations also could be significantly and adversely affected.
We Face Substantial Competition in the Biotechnology Field and May Not Be Able
to Successfully Compete
The biotechnology industry is highly competitive, particularly in the area of
cancer diagnostic and therapeutic products. We are likely to encounter
significant competition with respect to our existing products as well as our
products currently under development. A number of companies, including IDEC
Pharmaceuticals, Genentech, SmithKline Beecham, Nycomed Amersham, and Coulter
Pharmaceutical, are engaged in the biotechnology field, and in particular the
development of cancer diagnostic and therapeutic products. Many of these
companies have significantly greater financial, technical and marketing
resources than us. In addition, many of these companies may have more
established positions in the pharmaceutical industry and may be better equipped
than us to develop, refine and market their products.
We also expect to face increasing competition from universities and other
non-profit research organizations. These institutions carry out a significant
amount of research and development in the field of antibody-based technology.
These institutions are becoming increasingly more aware of the commercial value
of their findings and more active in seeking patent and other proprietary
rights, as well as licensing revenues.
Our Products May Be Rendered Obsolete By Rapid Technological Change
We are pursuing an area of product development in which there is the potential
for extensive technological innovations in relatively short periods of time. We
cannot assure investors that our competitors will not succeed in developing
products that are safer or more effective than our products. Rapid technological
change or developments by others may result in our current products as well as
those in development becoming noncompetitive or obsolete.
If We Are Unable to Protect Our Intellectual Property Rights, We Could Lose Our
Competitive Advantage
Our commercial success is highly dependent upon patents and other proprietary
rights that we own or license. We cannot assure investors that our key patents
will not be invalidated or will provide us protection that has commercial
significance. Litigation may be necessary to protect our patent positions, which
could be costly and time consuming. If any of our key patents that we own or
license are invalidated, our business may be significantly and adversely
affected. In addition, other companies may independently develop similar trade
secrets or know-how or obtain access to our trade secrets, know-how or
proprietary technology, which could significantly and adversely affect our
business.
Page 7 of 10
<PAGE>
Our Products May Infringe Third Party Intellectual Property Rights
Other companies may have filed applications for, or have been issued, patents
and obtained other proprietary rights to technology which may be potentially
useful to us. Since we do not have the resources to maintain a staff whose
primary function is to investigate the level of protection afforded to third
parties on devices and components which we use in our products, it is possible
that a third party could successfully claim that our products infringe on their
intellectual property rights. If this were to occur, we may be subject to
substantial damages, and we may not be able to obtain appropriate licenses at a
cost we could afford and we may not have the ability to timely redesign our
products. If we are required to pay damages or are unable to obtain these
rights, our business could be significantly and adversely affected. Even if we
are successful in defeating any alleged infringement claims, litigation could
result in a substantial diversion of managerial time and resources, which could
be better and more fruitfully utilized on other activities.
Our Operations Could Suffer If We Are Unsuccessful in Our Pending Infringement
Claims Concerning Our CEA Antibodies
We are involved in certain litigation with F. Hoffmann-LaRoche and its
affiliates concerning the validity of our European patents covering the antibody
we use in our CEA-Scan cancer imaging product and our CEA-Cide(TM) cancer
therapy product, as well as the use of highly specific anti-CEA antibodies for a
number of other uses. We have claimed that they have infringed our patent and
they have counterclaimed seeking to nullify the patents that were issued. If we
receive an unfavorable outcome in any of these matters, our business could be
significantly and adversely affected.
Product Liability Claims in Excess of the Amount of Our Insurance Would
Adversely Affect Our Financial Condition
The clinical testing, marketing and manufacturing of our products necessarily
involve the risk of product liability. While we currently have product liability
insurance, we cannot assure that we will be able to obtain insurance in the
future at an acceptable cost, if at all. If we cannot maintain our existing or
comparable liability insurance, our ability to test clinically and market our
products may be significantly impaired. Moreover, the amount and scope of our
insurance coverage or indemnification arrangements with any distributor or other
third party upon which we rely may be inadequate to protect us in the event of a
successful product liability claim. Any claim in excess of the amount of any
insurance we then had could significantly and adversely affect our financial
condition and operating results.
Our Principal Stockholder Can Influence Most Matters Requiring Approval By Our
Stockholders
As of February 10, 2000, Dr. Goldenberg, our Chairman and Chief Executive
Officer, controlled the right to vote over approximately 26.7% of our common
stock. As a result of this voting power, Dr. Goldenberg may have the ability to
determine the election of all of our directors, direct our policies and control
the outcome of substantially all matters which may be put to a vote of our
stockholders.
Page 8 of 10
<PAGE>
Resales of Shares Held By Our Directors and Executive Officers May Lower the
Market Price of Our Common Stock
As of February 10, 2000, we had a total of 46,416,746 shares of common stock
outstanding, 7,130,272 of which were held by our directors and executive
officers. These shares may only be resold in limited quantities and only within
the limitations imposed by Rule 144 under the Securities Act. The mere prospect
that these shares may be publicly resold could lower the market price for our
common stock.
Our Stock Price Has Been Volatile
We believe that a variety of factors have caused the market price of our common
stock to fluctuate substantially, and that it will continue to fluctuate in the
future. These factors include:
* actual or anticipated fluctuations in our operating results;
* the status of our products in development;
* new products or technical innovations by us or by our existing or potential
competitors;
* the formation or termination of our corporate alliances and distribution
arrangements;
* prolonged periods of regulatory review of new products or new uses for
existing products;
* determinations regarding our patent applications and those of others;
* trading strategies occurring in the market place with respect to our common
stock; and
* general market conditions and other factors unrelated to us or outside our
control.
Potential Loss of Our Nasdaq Listing Could Make it More Difficult to Sell our
Shares and Affect Our Liquidity
If the bid price of our common stock were to fall below $1.00 per share, if we
were to have less than $4,000,000 in net tangible assets (total assets less
total liabilities and goodwill), or if the value of our common stock held by our
stockholders (other than our directors and executive officers) were to be less
than $5,000,000, our common stock could be delisted from The Nasdaq Stock
Market. If our common stock were delisted from Nasdaq, trading if any, would
thereafter be conducted in the over-the-counter market. This would make it more
difficult for an investor to dispose of, or to obtain accurate quotations for,
our common stock. Additionally, it may become more difficult for us to raise
funds through the sale of our securities.
Page 9 of 10
<PAGE>
Stockholders Could Be Adversely Affected By Our Anti-Takeover Provisions
Our board of directors has the authority, without any further vote by our
stockholders, to issue up to 10,000,000 shares of preferred stock in one or more
series and to determine the designations, powers, preferences and relative,
participating, optional or other rights thereof, including the dividend rate,
whether dividends are cumulative, conversion rights, voting rights, rights and
terms of redemption, redemption price and liquidation preference. Issuance of
preferred stock could have the effect of delaying, deterring or preventing a
change in control of our company, or could impose various procedural and other
requirements that could make it more difficult for holders of our common stock
to effect certain corporate actions, including the ability to replace incumbent
directors and to accomplish transactions opposed by the incumbent board of
directors. The rights of the holders of our common stock would be subject to,
and may be adversely affected by, the rights of the holders of any preferred
stock that may be issued in the future.
Stockholders Should Not Expect That We Will Pay Dividends
We have never paid any dividends on our common stock. For the foreseeable
future, we expect to retain earnings, if any, to finance the expansion and
development of our business. Any future payment of dividends will be within the
discretion of our Board of Directors and will depend upon a variety of factors,
including our earnings, capital requirements, and operating and financial
condition.
Page 10 of 10
<PAGE>
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