UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission file number 0-19612
IMCLONE SYSTEMS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 04-2834797
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
180 VARICK STREET, NEW YORK, NY 10014
(Address of principal executive offices) (Zip Code)
(212) 645-1405
Registrant's telephone number, including area code
Not Applicable
Former name, former address and former fiscal year, if changed since last report
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 ___
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding as of November 12, 1998
----------------------------- -----------------------------------
Common Stock, par value $.001 24,453,647 Shares
<PAGE>
IMCLONE SYSTEMS INCORPORATED
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1998 (unaudited)
and December 31, 1997 1
Unaudited Statements of Operations and
Comprehensive Loss - Three and nine
months ended September 30, 1998 and 1997 2
Unaudited Statements of Cash Flows - Nine
months ended September 30, 1998 and 1997 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 12
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
<PAGE>
Part 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
IMCLONE SYSTEMS INCORPORATED
Balance Sheets
(in thousands, except share data)
September 30, December 31,
Assets 1998 1997
------------- ------------
(unaudited)
Current assets:
Cash and cash equivalents ....................... $ 2,599 $ 2,558
Securities available for sale ................... 44,917 57,052
Prepaid expenses ................................ 214 596
Other current assets ............................ 909 589
--------- ---------
Total current assets ............ 48,639 60,795
--------- ---------
Property and equipment:
Land ............................................ 340 340
Building and building improvements .............. 10,498 8,969
Leasehold improvements .......................... 4,832 4,832
Machinery and equipment ......................... 7,766 6,315
Furniture and fixtures .......................... 629 550
Construction in progress ........................ 31 2,159
--------- ---------
Total cost ...................... 24,096 23,165
Less accumulated depreciation and
amortization ............................... (12,528) (11,294)
--------- ---------
Property and equipment, net ..... 11,568 11,871
--------- ---------
Patent costs, net ................................. 1,112 944
Deferred financing costs, net ..................... 48 55
Other assets ...................................... 1,412 2,115
--------- ---------
$ 62,779 $ 75,780
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ................................ $ 1,302 $ 1,731
Accrued expenses and other ...................... 2,463 1,440
Interest payable ................................ 106 68
Deferred revenue ................................ 358 208
Current portion of long-term liabilities ........ 598 677
--------- ---------
Total current liabilities ....... 4,827 4,124
--------- ---------
Long-term debt .................................... 2,200 2,200
Other long-term liabilities, less
current portion ................................. 1,267 1,118
Preferred stock dividends payable ................. 1,907 112
--------- ---------
Total liabilities ............... 10,201 7,554
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value;
authorized 4,000,000 shares; issued
and outstanding Series A Convertible:
400,000 at September 30, 1998 and
December 31, 1997 (preference in
liquidation $41,907 and $40,112,
respectively) ................................ 400 400
Common stock, $.001 par value; authorized
45,000,000 shares; issued 24,489,933
and 24,265,072 at September 30, 1998 and
December 31, 1997, respectively;
outstanding 24,439,116, and 24,214,255
at September 30, 1998 and December 31, 1997,
respectively ................................. 24 24
Additional paid-in capital ...................... 184,882 185,706
Accumulated deficit ............................. (131,411) (117,464)
Treasury stock, at cost; 50,817 shares
at September 30, 1998
and December 31, 1997 ........................ (492) (492)
Note receivable - officer and stockholder ....... (139) --
Accumulated other comprehensive income (loss):
Unrealized (loss) gain on securities
available for sale ........................ (686) 52
--------- ---------
Total stockholders' equity ...... 52,578 68,226
--------- ---------
$ 62,779 $ 75,780
========= =========
See accompanying notes to financial statements.
Page 1
<PAGE>
IMCLONE SYSTEMS INCORPORATED
Statements of Operations and Comprehensive Loss
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1998 1997 1998 1997
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Revenues:
Product development milestone revenues ........... $ -- $ -- $ 1,000 $ 2,500
Research and development funding from third
parties and other ............................. 819 742 2,434 1,513
-------- -------- -------- --------
Total revenues ........................ 819 742 3,434 4,013
-------- -------- -------- --------
Operating expenses:
Research and development ......................... 6,423 3,320 15,269 11,972
General and administrative .................... 1,215 1,039 4,174 3,394
-------- -------- -------- --------
Total operating expenses .............. 7,638 4,359 19,443 15,366
-------- -------- -------- --------
Operating loss ..................................... (6,819) (3,617) (16,009) (11,353)
-------- -------- -------- --------
Other:
Interest and other income ........................ (773) (414) (2,382) (1,099)
Interest expense ................................. 120 131 320 471
-------- -------- -------- --------
Net interest and other income ......... (653) (283) (2,062) (628)
-------- -------- -------- --------
Net loss ........................................... (6,166) (3,334) (13,947) (10,725)
Preferred dividends (including assumed
incremental yield of $317 for the three
months ended September 30, 1998 and
$952 the nine months ended
September 30, 1998) .............................. 922 -- 2,747 --
-------- -------- -------- --------
Net loss to common stockholders .................... $ (7,088) $ (3,334) $(16,694) $(10,725)
======== ======== ======== ========
Net loss ........................................... $ (6,166) $ (3,334) $(13,947) $(10,725)
Other comprehensive income (loss):
Unrealized gain on securities
available for sale:
Unrealized holding gain (loss)
arising during the period ............... (910) 20 (704) 37
Less: Reclassification adjustment
for realized gain (loss)
included in net income .................. 32 1 34 (2)
-------- -------- -------- --------
Total other comprehensive income (loss) (942) 19 (738) 39
-------- -------- -------- --------
Comprehensive loss ................................. $ (7,108) $ (3,315) $(14,685) $(10,686)
======== ======== ======== ========
Basic and diluted net loss per common share ........ $ (0.29) $ (0.14) $ (0.69) $ (0.46)
======== ======== ======== ========
Weighted average shares outstanding ................ 24,328 24,123 24,277 23,193
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
Page 2
<PAGE>
IMCLONE SYSTEMS INCORPORATED
Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended
September 30,
----------------------
1998 1997
-------- --------
Cash flows from operating activities:
Net loss .......................................... $(13,947) $(10,725)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization .................. 1,341 1,286
Expense associated with issuance
of options and warrants .................... 416 2,681
(Gain) loss on sale of investments ............. (34) 2
Changes in:
Prepaid expenses ............................ 382 (215)
Other current assets ........................ (320) (1,320)
Due from officer ............................ -- 19
Other assets ................................ (47) (8)
Interest payable ............................ 38 39
Accounts payable ............................ (429) 194
Accrued expenses and other .................. 1,023 (749)
Deferred revenue ............................ 150 --
-------- --------
Net cash used in
operating activities ................ (11,427) (8,796)
-------- --------
Cash flows from investing activities:
Acquisitions of property and equipment ......... (812) (1,570)
Proceeds from sale of equipment ................ -- 280
Purchases of securities available for sale ..... (38,322) (61,318)
Sales of securities available for sale ......... 50,503 47,629
Additions to patents ........................... (248) (180)
-------- --------
Net cash provided by (used in)
investing activities ............... 11,121 (15,159)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock ..... -- 23,154
Proceeds from exercise of stock
options and warrants ......................... 404 1,526
Proceeds from issuance of common stock
under the employee stock purchase plan ....... 12 --
Purchase of treasury stock ..................... -- (323)
Proceeds from equipment and building
improvement financings ....................... 593 --
Payments of other liabilities .................. (662) (1,361)
-------- --------
Net cash provided by
financing activities ............... 347 22,996
-------- --------
Net increase (decrease) in cash and
cash equivalents ............................... 41 (959)
Cash and cash equivalents at beginning of period ..... 2,558 2,734
-------- --------
Cash and cash equivalents at end of period ........... $ 2,599 $ 1,775
======== ========
See accompanying notes to financial statements.
Page 3
<PAGE>
IMCLONE SYSTEMS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) Basis of Presentation
The financial statements of ImClone Systems Incorporated ("ImClone" or the
"Company") as of September 30, 1998 and for the three and nine months ended
September 30, 1998 and 1997 are unaudited. In the opinion of management, these
unaudited financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation. These financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, as filed with the Securities and Exchange
Commission.
Results for the interim periods are not necessarily indicative of results
for the full years.
(2) Financing Agreement
In April, the Company entered into a financing agreement (the "1998
Financing Agreement") with Finova Technology Finance, Inc. ("Finova"). The 1998
Financing Agreement allows the Company to finance the lease of equipment and
make certain building and leasehold improvements to existing facilities
involving amounts aggregating approximately $2,000,000. Each lease has a fair
market value purchase option at the expiration of a 48-month term. As of
September 30, 1998, the Company had entered into eight individual leases under
both the 1998 Financing Agreement and a now expired 1996 financing agreement
with Finova aggregating a total cost of $2,478,000. The Company has $1,267,000
available under the 1998 Financing Agreement.
(3) Commitments
The Company has an agreement in principle for the supplemental further
development, production scale-up and manufacture of its lead therapeutic product
candidate, C225, for use in human clinical trials. Services pursuant to this
agreement commenced in April 1998. The total project cost is DM8,490,000, or
currently approximately $5,100,000. As of September 30, 1998, the Company has
recorded a $1,875,000 liability for services provided to date under this
agreement which amount is classified on the balance sheet in accrued expenses
and other.
(4) Related Party Transactions
In January 1998, the Company accepted a promissory note totaling
approximately $131,000 from its President and CEO in connection with the
exercise of a warrant to purchase 87,305 shares of the Company's common stock,
$.001 par value (the "Common Stock"). The note is due no later than two years
from issuance and is full recourse. Interest is payable on the first anniversary
date of the promissory note and on the stated maturity or any accelerated
maturity at the annual rate of 8.5%. At September 30, 1998, the total amount due
the Company, including interest, is approximately $139,000 and is classified in
the stockholders' equity section of the balance sheet as a note receivable from
officer and stockholder.
In October 1998, the Company accepted an unsecured promissory note
totaling $100,000 from its Executive Vice President and COO. The note is payable
on demand including interest at the annual rate of 8.25% for the period that the
loan is outstanding. It is expected that payment of the note in full will be
made in November 1998.
(5) Earnings Per Share
Basic and diluted Earnings Per Share ("EPS") are computed based on the
weighted average number of shares outstanding. Potentially dilutive securities,
including convertible preferred stock, options and warrants, have not been
included in the diluted EPS computation because they are anti-dilutive.
Page 4
<PAGE>
(6) Comprehensive Income (Loss)
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which
establishes standards for reporting and display of comprehensive income and its
components. In accordance with SFAS 130, the Company has displayed the
components of "Other comprehensive income (loss)" and "Comprehensive income
(loss)" in the accompanying Financial Statements. All prior-period data have
been reclassified to conform with the provisions of SFAS 130.
(7) Employee Stock Purchase Plan
In April 1998, the Company's board of directors adopted the ImClone
Systems Incorporated 1998 Employee Stock Purchase Plan (the "ESPP"), subject to
shareholder approval which was received in May 1998. The ESPP allows eligible
employees to purchase shares of the Company's Common Stock through payroll
deductions at the end of quarterly purchase periods. To be eligible, an
individual must be employed for a period of not less than six months, he or she
is required to work more than 20 hours per week for at least 5 months per
calendar year and he or she may not own greater than 5% of the Company's Common
Stock. Pursuant to the ESPP, the Company has reserved 500,000 shares of Common
Stock for issuance. On the first day of each quarterly purchase period, each
eligible employee participating in such quarterly purchase period will be
granted an option to purchase a number of shares of Common Stock determined by
dividing such employee's contributions accumulated prior to the last day of the
quarterly period by the purchase price. The purchase price is equal to 85% of
the market price per share on the last day of each quarterly purchase period. An
employee may purchase stock from the accumulation of payroll deductions of up to
a maximum of 15% of his or her compensation, limited to $25,000 per year. As of
September 30, 1998, participating employees have purchased 1,594 shares of
Common Stock at an aggregate purchase price of $11,856. No compensation expense
has been recorded in connection with the ESPP.
(8) Reclassification
Certain amounts previously reported have been reclassified to conform to
the current year presentation.
Page 5
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis by management is provided to
identify certain significant factors which affected the Company's financial
position and operating results during the periods included in the accompanying
financial statements.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998 and 1997
Revenues
Revenues for the nine-months ended September 30, 1998 and 1997 were
$3,434,000 and $4,013,000, respectively, a decrease of $579,000, or 14%. The
decrease in revenues for the nine-months ended September 30, 1998 was primarily
attributable to a decrease in milestone revenue which can vary widely from
period to period depending upon the timing of the achievement of various
research and development milestones for products under development. Revenues for
the nine-months ended September 30, 1998 consisted of (i) $225,000 in research
support from the Company's partnership with the Wyeth/Lederle Vaccine and
Pediatrics Division of American Home Products Corporation ("American Home") in
infectious diseases, (ii) $1,000,000 in milestone revenue and $1,875,000 in
research and support payments from the Company's research and license agreement
with Merck KGaA ("Merck") with respect to the Company's BEC2 product candidate,
(iii) $236,000 in royalty revenue from the Company's strategic alliance with
Abbott Laboratories ("Abbott") in diagnostics, and (iv) $98,000 from a Phase I
Small Business Innovation Research grant from the National Cancer Institute for
a program in cancer-related angiogenesis. Revenues for the nine-months ended
September 30, 1997 consisted of (i) $225,000 in research support from the
Company's partnership with American Home, (ii) $1,500,000 in milestone revenue
and $1,042,000 in research and support payments from the Company's research and
license agreement with Merck, and (iii) $1,000,000 in milestone revenue and
$246,000 in royalty revenue from the Company's strategic alliance with Abbott.
Operating: Research and Development Expenses
Total operating expenses for the nine-months ended September 30, 1998 and
1997 were $19,443,000 and $15,366,000, respectively, an increase of $4,077,000,
or 27%. Research and development expenses for the nine-months ended September
30, 1998 and 1997 were $15,269,000 and $11,972,000, respectively, an increase of
$3,297,000 or 28%. Such amounts for the nine-months ended September 30, 1998 and
1997 represented 79% and 78%, respectively, of total operating expenses. The
increase in research and development expenses for the nine-months ended
September 30, 1998 was partially attributable to the costs associated with an
agreement in principle for the contract manufacturing of clinical grade C225,
the Company's lead therapeutic product candidate, to support ongoing and future
human clinical trials. Additionally, the increase in research and development
expenses is due to expenditures associated with additional staffing in the area
of discovery research, the initiation of new supported research programs with
academic institutions, the establishment of corporate in-licensing arrangements,
and expenditures in the functional areas of product development, manufacturing,
clinical and regulatory affairs associated with C225. This increase was
partially offset by the one-time $2,233,000 non-cash compensation expense
recorded for the nine-months ended September 30, 1997 in connection with the
extension of the term of an officer's warrant to purchase 397,000 shares of
Common Stock.
Page 6
<PAGE>
General and Administrative Expenses
General and administrative expenses include administrative personnel
costs, costs incurred in connection with pursuing arrangements with corporate
partners and technology licensors, and expenses associated with applying for
patent protection for the Company's technology and products. Such expenses for
the nine-months ended September 30, 1998 and 1997 were $4,174,000 and
$3,394,000, respectively, an increase of $780,000, or 23%. The increase in
general and administrative expenses primarily reflected (i) additional support
staffing for the expanding research, clinical, development and manufacturing
efforts of the Company, particularly with respect to C225, and (ii) expenses
associated with the pursuit of strategic corporate alliances and other corporate
development expenses. The Company expects general and administrative expenses to
increase in future periods to support planned increases in research, clinical,
development and manufacturing efforts of the Company.
Interest and Other Income and Interest Expense
Interest and other income was $2,382,000 for the nine-months ended
September 30, 1998 compared to $1,099,000 for the nine-months ended September
30, 1997, an increase of $1,283,000, or 117%. The increase was primarily
attributable to the increased interest income earned from higher cash balances
in the Company's investment portfolio resulting from a private placement of
Series A Convertible Preferred Stock (the "Series A Preferred Shares" or "Series
A Preferred Stock") completed in December 1997. Interest expense was $320,000
and $471,000 for the nine-months ended September 30, 1998 and 1997,
respectively, a decrease of $151,000 or 32%. Interest expense for both periods
primarily included interest on an outstanding Industrial Development Revenue
Bond issued in 1990 (the "1990 IDA Bond") with a principal amount of $2,200,000,
interest recorded on capital lease obligations, and interest recorded on a
liability to Pharmacia and UpJohn Inc. ("Pharmacia"), for the reacquisition of
the worldwide rights to a recombinant mutein form of Interleukin-6 as well as
clinical material manufactured and supplied by Pharmacia to the Company. The
decrease was primarily attributable to the December 1997 repayment of an IDA
Bond issued in 1986 (the "1986 IDA Bond") with a principal amount of $2,113,000
and the February 1998 repayment of the remaining liability to Pharmacia.
Net Losses
The Company had net losses to common stockholders of $16,694,000 or $0.69
per share for the nine-months ended September 30, 1998 compared with $10,725,000
or $0.46 per share for the nine-months ended September 30, 1997. The increase in
the net losses and per share net loss to common stockholders was due primarily
to the accrued dividends to preferred stockholders and to the factors mentioned
in the preceding paragraphs.
Three Months Ended September 30, 1998 and 1997
Revenues
Revenues for the three-months ended September 30, 1998 and 1997 were
$819,000 and $742,000, respectively, an increase of $77,000, or 10%. The
increase in revenues for the three-months ended September 30, 1998 was primarily
attributable to increased royalty revenue from the Company's strategic alliance
with Abbott. Revenues for the three-months ended September 30, 1998 consisted of
(i) $75,000 in research support from the Company's partnership with American
Home, (ii) $625,000 in research and support payments from the Company's research
and license agreement with Merck, and (iii) $119,000 in royalty revenue from the
Company's strategic alliance with Abbott. Revenues for the three-months ended
September 30, 1997 consisted of (i) $75,000 in research support from the
Company's partnership with American Home, (ii) $625,000 in research and support
payments from the Company's research and license agreement with Merck, and (iii)
$42,000 in royalty revenue from the Company's strategic alliance with Abbott.
Page 7
<PAGE>
Operating: Research and Development
Total operating expenses for the three-months ended September 30, 1998 and
1997 were $7,638,000 and $4,359,000, respectively, an increase of $3,279,000 or
75%. Research and development expenses for the three-months ended September 30,
1998 and 1997 were $6,423,000 and $3,320,000, respectively, an increase of
$3,103,000 or 93%. Such amounts for the three-months ended September 30, 1998
and 1997 represented 84% and 76%, respectively, of total operating expenses. The
increase in research and development expenses for the three-months ended
September 30, 1998 was primarily attributable to the costs associated with an
agreement in principle for the contract manufacturing of clinical grade C225,
the Company's lead therapeutic product candidate, to support ongoing and future
human clinical trials. Additionally, the increase in research and development
expenses is due to expenditures associated with additional staffing in the area
of discovery research, the initiation of new supported research programs with
academic institutions, the establishment of corporate in-licensing arrangements,
and expenditures in the functional areas of product development, manufacturing,
clinical and regulatory affairs associated with C225.
General and Administrative
General and administrative expenses include administrative personnel
costs, costs incurred in connection with pursuing arrangements with corporate
partners and technology licensors, and expenses associated with applying for
patent protection for the Company's technology and products. Such expenses for
the three-months ended September 30, 1998 and 1997 were $1,215,000 and
$1,039,000, respectively, an increase of $176,000 or 17%. The increase in
general and administrative expenses primarily reflected (i) additional support
staffing for the expanding research, clinical, development and manufacturing
efforts of the Company, particularly with respect to C225 and (ii) expenses
associated with the pursuit of strategic corporate alliances and other corporate
development expenses. The Company expects general and administrative expenses to
increase in future periods to support planned increases in research, clinical,
development and manufacturing efforts of the Company.
Interest and Other Income/Expense
Interest and other income was $773,000 for the three-months ended
September 30, 1998 compared to $414,000 for the three-months ended September 30,
1997, an increase of $359,000, or 87%. The increase was primarily attributable
to the increased interest income earned from higher cash balances in the
Company's investment portfolio resulting from a private placement of Series A
Preferred Stock completed in December 1997. Interest expense was $120,000 and
$131,000 for the three-months ended September 30, 1998 and 1997, respectively, a
decrease of $11,000 or 8%. Interest and other expense for both periods primarily
included interest on the 1990 IDA Bond with an aggregate principal amount of
$2,200,000 and interest recorded on capital lease obligations. The decrease was
primarily attributable to the December 1997 repayment of the 1986 IDA Bond with
a principal amount of $2,113,000.
Net Losses
The Company had net losses to common stockholders of $7,088,000 or $0.29
per share for the three-months ended September 30, 1998 compared with $3,334,000
or $0.14 per share for the three-months ended September 30, 1997. The increase
in the net losses and per share net loss to common stockholders was due
primarily to the accrued dividends to preferred stockholders and to the factors
mentioned in the preceding paragraphs.
Page 8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company's principal sources of liquidity
consisted of cash and cash equivalents and short-term securities available for
sale of approximately $47,516,000. The Company has financed its operations since
inception primarily through the public and private sales of equity securities,
the sale of three issues of IDA bonds (collectively, the "IDA Bonds") through
the New York City Industrial Development Agency (the "NYIDA"), license fees and
contract research and development fees and royalties received under agreements
with collaborative partners and interest earned on these funds. Since inception,
public and private sales of equity securities in financing transactions have
raised approximately $163,799,000 in net proceeds. The sale of the IDA Bonds in
each of 1985, 1986 and 1990 raised an aggregate of $6,313,000, the proceeds of
which have been used for the acquisition, construction and installation of the
Company's research and development facility in New York City, and of which
$2,200,000 is currently outstanding. Since inception, the Company has earned
approximately $32,096,000 from license fees, contract research and development
fees and royalties from collaborative partners, including approximately
$3,434,000 earned during the nine-months ended September 30, 1998. Since
inception the Company has earned approximately $7,796,000 in interest income,
including approximately $2,349,000 earned during the nine-months ended September
30, 1998.
In October 1997, the Company entered into a Collaborative Research and
License Agreement with CombiChem, Inc. ("CombiChem") to discover and develop
novel small molecules against selected targets for the treatment of cancer.
Concurrent with the execution of the Collaborative Research and License
Agreement, the Company entered into a Stock Purchase Agreement pursuant to which
the Company purchased 312,500 shares of common stock of CombiChem, as adjusted,
for aggregate consideration of $2,000,000. The investment has been classified as
a long-term asset. During the nine months ended September 30, 1998 the Company
recorded an unrealized loss of $750,000 on this investment due to a reduction in
the market value of the stock. The Company deems this reduction in market value
to be temporary.
The Company has obligations under various capital leases for certain
laboratory, office and computer equipment and also certain building improvements
primarily under a December 1996 financing agreement (the "1996 Financing
Agreement") and an April 1998 financing agreement (the "1998 Financing
Agreement") with Finova Technology Finance, Inc. ("Finova"). The 1996 Financing
Agreement allowed the Company to finance the lease of equipment and make certain
building and leasehold improvements to existing facilities involving amounts
aggregating approximately $2,500,000. Each lease has a fair market value
purchase option at the expiration of a 42-month term. Pursuant to the 1996
Financing Agreement, the Company issued to Finova a warrant expiring December
31, 1999 to purchase 23,220 shares of Common Stock at an exercise price of $9.69
per share. The Company recorded a non-cash debt discount of approximately
$125,000 in connection with this financing, which discount is being amortized
over the 42-month term of the first lease. The 1996 Financing Agreement with
Finova expired in December 1997 and the Company did not utilize the full
$2,500,000 under the agreement. In April 1998, the Company entered into the 1998
Financing Agreement with Finova aggregating approximately $2,000,000. The terms
of the 1998 Financing Agreement are substantially similar to the now expired
1996 Financing Agreement except that each lease has a 48-month term. As of
September 30, 1998, the Company had entered into eight individual leases under
both the 1996 Financing Agreement and the 1998 Financing Agreement aggregating a
total cost of $2,478,000 and had $1,267,000 available under the 1998 Financing
Agreement.
The Company has expended and will continue to expend in the future
substantial funds to continue the research and development of its products,
conduct pre-clinical and clinical trials, establish clinical-scale and
commercial-scale manufacturing in its own facilities or in the facilities of
others, and market its products. The Company has entered into preliminary
discussions with several major pharmaceutical companies regarding various
alternatives concerning the funding of research and development for certain of
its products. No assurance can be given that the Company will be successful in
consummating any such alternatives. These discussions have included potential
significant strategic alliances for the development and commercialization of the
Company's lead product candidate, C225. Such strategic alliances could include
up-front license fees plus milestone fees and revenue sharing. There can be no
assurance that the Company will be successful in achieving such alliances, nor
can the Company predict the amount of funds which might be available to it if it
entered into such alliances or the time at which such funds would be made
available or the other terms of any such alliances.
In January 1998, the Company completed the construction and commissioning
of a new 1,750 square foot process development center at its Somerville, New
Jersey facility at a cost of approximately $1,650,000. The Company has also
taken steps to complete a formal design concept for large scale manufacturing at
this facility. If the Company adapts this facility to large-scale manufacturing
or does so at another location, it will incur substantial additional costs. The
lease on the Company's New York City facility expires in March 1999, however,
the Company currently expects to be able to extend the lease and retrofit the
facility to better suit its needs, although there is no assurance that it will
be able to do so.
Page 9
<PAGE>
The 1990 IDA Bond in the outstanding principal amount of $2,200,000
becomes due in 2004. If the lease on the Company's New York City facility is
terminated, the 1990 IDA Bond provides that it will become due and payable in
full 60 days prior to such termination. The Company will incur interest on the
1990 IDA Bond aggregating approximately $250,000 during 1998. The Company has
granted the NYIDA a security interest in substantially all facility equipment
located in the New York facility to secure the obligations of the Company to the
NYIDA under the 1990 IDA Bond.
The holders of the Series A Preferred Shares are entitled to receive
cumulative dividends at an annual rate of $6.00 per share. Dividends accrue as
of the issuance date of the Series A Preferred Shares and are payable on the
outstanding Series A Preferred Shares in cash on December 31 of each year
beginning December 31, 1999 or at the time of conversion or redemption of the
Series A Preferred Shares on which the dividend is to be paid, whichever is
sooner. Accrued dividends were $1,907,000 at September 30, 1998.
Total capital expenditures made during the nine-months ended September 30,
1998 were $951,000. Of such expenditures, $139,000 have been reimbursed in
accordance with the terms of the 1998 Financing Agreement with Finova. Of the
total capital expenditures made during the nine-months ended September 30, 1998,
$589,000 related to improving and equipping the Company's manufacturing facility
in New Jersey. The balance of capital additions was for equipment and
computer-related purchases for the corporate office and research laboratories in
New York.
The Company anticipates that its existing capital resources should enable
it to maintain its current and planned operations through September 2000. The
Company's research and support payments from corporate partners have defined
expiration dates during 1999. Under these existing corporate partnerships, the
Company expects to receive final research and support payments of approximately
$1,458,000 which will be recognized during the remainder of 1998 through the
third quarter of 1999. Additionally, certain milestone payments are subject to
attaining research and development milestones, many of which have not yet been
achieved. There can be no assurance that the Company will achieve these
milestones. The Company's future working capital and capital requirements will
depend upon numerous factors, including, but not limited to, the progress of the
Company's research and development programs, pre-clinical testing and clinical
trials, the Company's corporate partners fulfilling their obligations to the
Company, the timing and cost of seeking and obtaining regulatory approvals, the
timing and cost of manufacturing scale-up and effective commercialization
activities and arrangements, the level of resources that the Company devotes to
the development of marketing and sales capabilities, the costs involved in
filing, prosecuting and enforcing patent claims, technological advances, the
status of competitors and the ability of the Company to maintain existing and
establish new collaborative arrangements with other companies to provide funding
to the Company to support these activities. In order to fund its capital needs
after the end of the year 2000, the Company will require significant levels of
additional capital and intends to raise the capital through additional
arrangements with corporate partners, equity or debt financings or from other
sources. There is no assurance the Company will be successful in consummating
any such arrangements. If adequate funds are not available, the Company may be
required to significantly curtail its planned operations.
Uncertainties associated with the length and expense of pre-clinical and
clinical testing of any of the Company's product candidates could greatly
increase the cost of development of such products and affect the timing of any
anticipated revenues from product sales, and failure by the Company to obtain
regulatory approval for any product will preclude its commercialization. In
addition, the failure by the Company to obtain patent protection for its
products may make certain of its products commercially unattractive.
Page 10
<PAGE>
At December 31, 1997, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $115,000,000 which expire at
various dates from 2000 through 2012. At December 31, 1997 the Company had
research credit carryforwards of approximately $2,303,000 which expire at
various dates between years 2001 and 2012. Pursuant to Section 382 of the
Internal Revenue Code of 1986, as amended, the annual utilization of a company's
net operating loss and research credit carryforwards may be limited if the
Company experiences a change in ownership of more than 50 percentage points
within a three-year period. Since 1986, the Company experienced two ownership
changes. Accordingly, the Company's net operating loss carryforwards available
to offset future federal taxable income arising before such ownership changes
are limited to $5,159,000 annually. Similarly, the Company is restricted in
using its research credit carryforwards arising before such ownership changes to
offset future federal income tax expense. There can be no assurance that the
Company will ever generate income which would enable it to utilize these net
operating loss carryforwards.
Other Items
The Company has completed a review of its business systems including its
research and development, product development, manufacturing, financial,
communication and administrative operations. Based on such review, systems
critical to its business which have been identified as non-year 2000 compliant
are either being replaced or corrected through programming modifications. The
Company expects to have identified and replaced or corrected all non-compliant
systems by the end of the first quarter of 1999. This includes the purchase of
third party software and required hardware to support such software. The Company
estimates the cost of its Year 2000 efforts to be approximately $300,000, of
which approximately $162,000 has been incurred to date. All costs of the Year
2000 project will be funded from the Company's cash reserves. The total cost
estimate is based on management's current assessment and is subject to change.
In addition to the review of internal systems, the Company has begun to
make inquiries about Year 2000 readiness to vendors, corporate partners,
academic collaborators, contract manufacturers, clinical study sites, service
suppliers, communications providers and banks whose system failures or
non-compliant products could have a significant impact on its operations. There
can be no assurance that the systems or products of such parties will be timely
converted. The Company cannot accurately predict the occurrence or the outcome
of any such problems, nor can the dollar amount of any such problems be
estimated.
The failure to identify and remedy Year 2000 problems could disrupt
important operations such as discovery research, product development,
manufacturing and ongoing clinical trials. Such disruptions could affect the
development and ultimate marketing of potential products as well as put the
Company at a competitive disadvantage relative to companies that have corrected
such problems. The Company has not yet developed contingency plans to address
these potential problems with internal systems and with the third parties
mentioned earlier. The Company intends to develop preliminary plans during the
next several months, which may need to be refined as more information becomes
available.
Page 11
<PAGE>
Certain Factors Affecting Forward-Looking Statements--Safe Harbor Statement
Those statements contained herein that do not relate to historical
information are forward-looking statements. There can be no assurance that the
future results covered by such forward-looking statements will be achieved.
Actual results may differ materially due to the risks and uncertainties inherent
in the Company's business, including without limitation, the risks and
uncertainties associated with completing pre-clinical and clinical trials of the
Company's compounds that demonstrate such compounds' safety and effectiveness;
obtaining additional financing to support the Company's operations; obtaining
and maintaining regulatory approval for such compounds and complying with other
governmental regulations applicable to the Company's business; obtaining the raw
materials necessary in the development of such compounds; consummating
collaborative arrangements with corporate partners for product development;
achieving milestones under collaborative arrangements with corporate partners;
developing the capacity and ability to manufacture, as well as market and sell
the Company's products, either directly or with collaborative partners;
developing market demand for and acceptance of such products; competing
effectively with other pharmaceutical and biotechnological products; obtaining
adequate reimbursement from third party payors; attracting and retaining key
personnel; protecting proprietary rights; failing to remedy Year 2000 problems
by the Company or the failure by those entities associated with the Company; and
those other factors set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview and Risk Factors," in
the Company's most recent Annual Report on Form 10-K.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II - OTHER INFORMATION
Item 2. - Changes in Securities and Use of Proceeds
(a) Not applicable.
(b) Not applicable.
(c) In July 1998, the Company issued 3,000 shares of unregistered Common
Stock to its Vice President, Business Development and General
Counsel upon exercise of outstanding warrants for aggregate
consideration of $4,500. Such issuance was consummated as a private
sale pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
(d) Not applicable.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
Page 12
<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.
IMCLONE SYSTEMS INCORPORATED
(Registrant)
Date: November 13, 1998 By /s/ Samuel D. Waksal
-------------------------------------
Samuel D. Waksal
President and Chief Executive Officer
Date: November 13, 1998 By /s/ Carl S. Goldfischer
-------------------------------------
Carl S. Goldfischer
Vice President, Finance and Chief
Financial Officer
Page 13
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<ARTICLE> 5
<LEGEND>
Information taken from the September 30, 1998 Form 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,599
<SECURITIES> 44,917
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 48,639
<PP&E> 24,096
<DEPRECIATION> (12,528)
<TOTAL-ASSETS> 62,779
<CURRENT-LIABILITIES> 4,827
<BONDS> 2,200
0
400
<COMMON> 24
<OTHER-SE> 52,154
<TOTAL-LIABILITY-AND-EQUITY> 62,779
<SALES> 0
<TOTAL-REVENUES> 819
<CGS> 0
<TOTAL-COSTS> 7,638
<OTHER-EXPENSES> (773)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 120
<INCOME-PRETAX> 6,166
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,166
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,166
<EPS-PRIMARY> (0.29)
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