<PAGE> 1
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 March 31, 2000
----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-19612
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IMCLONE SYSTEMS INCORPORATED
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(Exact name of registrant as specified in its charter)
DELAWARE 04-2834797
- ----------------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
180 VARICK STREET, NEW YORK, NY 10014
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(Address of principal executive offices) (Zip Code)
(212) 645-1405
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Registrant's telephone number, including area code
Not Applicable
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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 May 11, 2000
- ------------------------------------------- ---------------------------------
Common Stock, par value $.001 31,263,291 Shares
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IMCLONE SYSTEMS INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2000 (unaudited)
and December 31, 1999 1
Unaudited Consolidated Statements of Operations - Three
months ended March 31, 2000 and 1999 2
Unaudited Consolidated Statements of Cash Flows - Three
months ended March 31, 2000 and 1999 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
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
</TABLE>
<PAGE> 3
IMCLONE SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share and share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
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(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................ $ 20,512 $ 12,016
Securities available for sale ..................................... 322,037 107,352
Prepaid expenses .................................................. 3,498 158
Other current assets .............................................. 10,458 7,599
--------- ---------
Total current assets ....................... 356,505 127,125
--------- ---------
Property and equipment:
Land .............................................................. 1,087 1,087
Building and building improvements ................................ 10,913 10,810
Leasehold improvements ............................................ 4,891 4,891
Machinery and equipment ........................................... 9,177 9,049
Furniture and fixtures ............................................ 1,003 898
Construction in progress .......................................... 9,912 5,209
--------- ---------
Total cost ................................. 36,983 31,944
Less accumulated depreciation and amortization .................. (15,198) (14,729)
--------- ---------
Property and equipment, net ................ 21,785 17,215
--------- ---------
Patent costs, net ...................................................... 983 1,013
Deferred financing costs, net .......................................... 8,008 37
Other assets ........................................................... 309 304
--------- ---------
$ 387,590 $ 145,694
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................... $ 4,921 $ 3,987
Accrued expenses ................................................... 5,032 5,123
Interest payable ................................................... 1,225 45
Fees potentially refundable from corporate partner ................. 24,000 20,000
Current portion of long-term liabilities ........................... 880 906
Preferred stock dividends payable .................................. 448 -
--------- ---------
Total current liabilities .................. 36,506 30,061
--------- ---------
Long-term debt ......................................................... 242,200 2,200
Other long-term liabilities, less current portion ...................... 918 1,135
--------- ---------
Total liabilities .......................... 279,624 33,396
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Commitments and contingencies
Stockholders' equity:
Preferred stock, $1.00 par value; authorized 4,000,000 shares;
issued and outstanding Series A Convertible: 300,000
at March 31, 2000 and December 31, 1999 (preference in
liquidation $30,448 and $30,000, respectively) ................ 300 300
Common stock, $.001 par value; authorized 60,000,000 shares;
issued 31,230,183 and 29,703,090 at March 31, 2000 and
December 31, 1999, respectively; outstanding 31,179,366, and
29,652,273 at March 31, 2000 and December 31, 1999,
respectively .................................................. 31 30
Additional paid-in capital ......................................... 292,968 286,038
Accumulated deficit ................................................ (185,514) (173,457)
Treasury stock, at cost; 50,817 shares at March 31, 2000
and December 31, 1999 ......................................... (492) (492)
Note receivable - officer and stockholder .......................... - (142)
Accumulated other comprehensive income:
Unrealized gain on securities available for sale .............. 673 21
--------- ---------
Total stockholders' equity ................. 107,966 112,298
--------- ---------
$ 387,590 $ 145,694
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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IMCLONE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
2000 1999
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<S> <C> <C>
Revenues:
License fees from third parties ........................ $ 40 $ -
Research and development funding from third
parties and other ................................... 166 629
-------- --------
Total revenues ........................... 206 629
-------- --------
Operating expenses:
Research and development ............................... 11,101 6,354
General and administrative ............................. 3,126 2,002
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Total operating expenses .................. 14,227 8,356
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Operating loss .............................................. (14,021) (7,727)
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Other:
Interest income ........................................ (3,187) (604)
Interest expense ....................................... 1,221 123
Loss on securities available for sale .................. 2 832
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Net interest and other income .............. (1,964) 351
-------- --------
Net loss .................................................... (12,057) (8,078)
Preferred dividends (including assumed incremental yield
attributible to beneficial conversion feature of $254
and $336 for the three months ended March 31, 2000
and 1999, respectively) ................................ 702 928
-------- --------
Net loss to common stockholders ............................. $(12,759) $ (9,006)
======== ========
Basic and diluted net loss per common share ................. $ (0.43) $ (0.37)
======== ========
Weighted average common shares outstanding .................. 29,968 24,447
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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IMCLONE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net loss .......................................................................... $ (12,057) $ (8,078)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization .................................................. 499 462
Amortization of deferred financing costs ....................................... 140 2
Expense associated with issuance
of options and warrants .................................................... 1,114 417
Loss on securities available for sale .......................................... 2 832
Changes in:
Prepaid expenses ............................................................ (3,340) 11
Other current assets ........................................................ (2,859) (204)
Other assets ................................................................ (5) (119)
Interest payable ............................................................ 1,180 63
Accounts payable ............................................................ 934 257
Accrued expenses ............................................................ (91) (2,377)
Deferred revenue ............................................................ - (75)
Fees potentially refundable from corporate partner .......................... 4,000 -
--------- ---------
Net cash used in operating activities ........................ (10,483) (8,809)
--------- ---------
Cash flows from investing activities:
Acquisitions of property and equipment ......................................... (5,039) (910)
Purchases of securities available for sale ..................................... (291,740) (7,199)
Sales and maturities of securities available for sale .......................... 77,705 13,814
Additions to patents ........................................................... - (67)
--------- ---------
Net cash (used in) provided by investing activities .......... (219,074) 5,638
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants ........................... 6,194 311
Proceeds from issuance of common stock under the employee stock purchase plan .. 68 13
Proceeds from issuance of 5 1/2% convertible subordinated notes ................ 240,000 -
Deferred financing costs ....................................................... (8,111) -
Proceeds from repayment of note receivable by officer - stockholder,
including interest ........................................................ 145 -
Payments of other liabilities .................................................. (243) (199)
--------- ---------
Net cash provided by financing activities .................... 238,053 125
--------- ---------
Net increase (decrease) in cash and cash equivalents ................................. 8,496 (3,046)
Cash and cash equivalents at beginning of period ..................................... 12,016 3,888
--------- ---------
Cash and cash equivalents at end of period ........................................... $ 20,512 $ 842
--------- ---------
Supplemental cash flow information:
Cash paid for interest, including amounts capitalized................................. $ 47,000 $ 51,000
</TABLE>
See accompanying notes to consolidated financial statements.
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IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) BASIS OF PRESENTATION
The consolidated financial statements of ImClone Systems Incorporated ("ImClone"
or the "Company") as of March 31, 2000 and for the three months ended March 31,
2000 and 1999 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, 1999, as filed with the Securities and Exchange
Commission.
Results for the interim periods are not necessarily indicative of results for
the full years.
(2) SEGMENT INFORMATION
The Company is a biopharmaceutical company engaged in the research and
development of novel cancer treatments. The Company is currently pursuing three
research and development programs that it believes show potential for treating
cancer: growth factor inhibitors, cancer vaccines and angiogenesis inhibitors. A
substantial portion of the Company's efforts and resources are devoted to
research and development conducted on its own behalf and through collaborations
with corporate partners and academic research and clinical institutions. The
Company has not derived any commercial revenue from product sales. The Company
is managed and operated as one business. The entire business is comprehensively
managed by a single management team that reports to the Chief Operating Officer.
The Company does not operate separate lines of business or separate business
entities with respect to any of its product candidates. Except for contract
services (see Note 4) and clinical trials conducted by independent investigators
on behalf of the Company, the Company does not conduct any of its operations
outside of the United States. Accordingly, the Company does not prepare discrete
financial information with respect to separate product areas or by location and
does not have separately reportable segments as defined by SFAS No. 131.
(3) FOREIGN CURRENCY TRANSACTIONS
Gains and losses from foreign currency transactions, such as those resulting
from the translation and settlement of receivables and payables denominated in
foreign currencies, are included in the consolidated statement of operations.
The Company does not currently use derivative financial instruments to manage
the risks associated with foreign currency fluctuations. The Company recorded no
gains or losses on foreign currency transactions for the three months ended
March 31, 2000 and recorded losses on foreign currency transactions of
approximately $21,000 for the three months ended March 31, 1999.
(4) CONTRACT SERVICES
The Company signed a definitive agreement in April 1999 with Boehringer
Ingelheim Pharma KG ("BI Pharma") for the further development, production
scale-up and manufacture of the Company's lead therapeutic product candidate,
IMC-C225, for use in human clinical trials. The total cost under the agreement
was DM11,440,000 or $6,283,000 based on the foreign currency rate on the date
of payment. All of the material manufactured under this agreement has been
provided to Merck KGaA for use in clinical trials in Europe and Merck KGaA has
reimbursed the Company an aggregate amount of $4,442,000 during March and April
2000. This reimbursable amount has been accounted for as a reduction of
research and development expense in the fourth quarter of 1999.
In December 1999, the Company entered into a development and manufacturing
services agreement with Lonza Biologics PLC ("Lonza"). Under the agreement,
Lonza is engaging in process development and scale-up for the manufacture of
IMC-C225. These steps are being taken to assure that its process will produce
bulk material that conforms with the Company's reference material. Under our
arrangements with Lonza, Lonza will manufacture six 5,000 liter production runs
under cGMP conditions of material that may be used for clinical and/or
commercial supply. The Company also has agreed in principle with Lonza to the
material terms of a three-year commercial supply agreement for which the
definitive agreement is being completed. As of March 31, 2000, the Company has
incurred approximately $159,000 for services provided under this
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agreement.
The Company is building a new manufacturing facility adjacent to its current
manufacturing facility in New Jersey. This new facility will contain three
10,000 liter fermentors and will be dedicated to the commercial production of
IMC-C225. The 80,000 square foot fully equipped facility will cost approximately
$45 million and will be built on land purchased in December 1999 for $700,000.
The Company has incurred approximately $7,607,000 in engineering,
pre-construction and construction costs associated with the new manufacturing
facility through March 31, 2000. The costs incurred to date associated with the
construction of the facility have been paid from the Company's cash reserves.
(5) 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. The note was due no
later than two years from issuance and was full recourse. Interest was 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 1/2%. In March 2000, the
note, including all interest, was paid in full.
(6) LONG-TERM DEBT
Long term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
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<S> <C> <C>
5 1/2% Convertible Subordinated Notes due March 1, 2005 .. $240,000,000 $ -
Industrial Development Revenue Bond with an annual interest
rate of 11 1/4%, due May 1, 2004 ....................... 2,200,000 2,200,000
------------ ------------
$242,200,000 $ 2,200,000
============ ============
</TABLE>
In February 2000, the Company completed a private placement of $240,000,000 in
convertible subordinated notes due March 1, 2005. The Company received net
proceeds from this offering of approximately $231,900,000, after deducting costs
associated with the offering. The notes bear interest at an annual rate of 5
1/2% payable semi-annually on September 1 and March 1 of each year, beginning
September 1, 2000. The holders may convert all or a portion of the notes into
common stock at any time on or before March 1, 2005 at a conversion price of
$110.18 per share, subject to adjustment if certain events affecting the common
stock of the Company occur. The notes are subordinated to all existing and
future senior indebtedness. The Company may redeem some or all of the notes at
any time prior to March 6, 2003, at a redemption price of 100% of the principal
amount plus accrued and unpaid interest to the redemption date if (1) the
closing price of the common stock has exceeded 150% of the conversion price for
at least 20 trading days in any consecutive 30-trading day period and (2) if
the redemption occurs before March 1, 2002, the shelf registration statement
covering resales of the notes and the common stock is effective and expected to
remain effective and available for use for the 30 days following the redemption
date. If the notes are redeemed under these circumstances, the Company will
make an additional payment of $152.54 per $1,000 aggregate principal amount of
notes, minus the amount of all interest paid on such principal amount since
February 29, 2000 to the date the redemption notice is mailed. On or after
March 6, 2003, the Company may redeem some or all of the notes at specified
redemption prices, plus accrued and unpaid interest to the day preceding the
redemption date. Noteholders may require the Company to redeem all notes at
100% of the principal amount plus accrued interest in the event of a
"fundamental change" as defined in the note indenture. The Company is required
to file with the Securities and Exchange Commission a shelf registration
statement covering resales of the notes and the common stock.
In January and February 2000, the Company entered into financing arrangements
with Finova Technology Finance, Inc. ("Finova") and Transamerica Business Credit
Corporation ("Transamerica") under which it may obtain at its option up to an
aggregate of $25,000,000 for its utilization primarily in connection with the
build-out of its new commercial manufacturing facility. The funds may be
obtained through multiple leases of equipment and building improvements for not
less than specified minimum amounts. Each lease contains a balloon purchase
option at the end of a 48-month term. During the first quarter of 2000 the
Company paid $100,000 in application fees associated with these agreements,
which may be applied against future principal and interest payments.
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(7) NET LOSS PER COMMON SHARE
Basic and diluted loss per common share is computed based on the net loss for
the relevant period, adjusted for cumulative Series A Convertible Preferred
Stock dividends and the assumed incremental yield attributable to the
beneficial conversion feature in the preferred stock, divided by the weighted
average number of shares outstanding during the period. Potentially dilutive
securities, including convertible preferred stock, convertible debt, options
and warrants, have not been included in the diluted loss per common share
computation because they are anti-dilutive.
(8) COMPREHENSIVE INCOME (LOSS)
The following table reconciles net loss to comprehensive loss:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net loss ................................................. $(12,057,000) $ (8,078,000)
Other comprehensive income (loss):
Unrealized holding gain arising during the period .... 650,000 13,000
Less: Reclassification adjustment for realized loss
included in net loss ........................... (2,000) (832,000)
------------ ------------
Total other comprehensive income ................ 652,000 845,000
------------ ------------
Total comprehensive loss ................................. $(11,405,000) $ (7,233,000)
============ ============
</TABLE>
(9) COLLABORATIVE AGREEMENTS
The Company has a development and license agreement with Merck KGaA with respect
to IMC-C225, its lead interventional therapeutic product for the treatment of
cancer. In exchange for certain marketing and development rights, the Company
can receive up to $60,000,000 in milestone payments ($30,000,000 of which is
equity based) assuming the achievement of certain milestones and a $30,000,000
secured line of credit or guaranty for the build-out of a manufacturing facility
for the commercial production of IMC-C225. This agreement may be terminated by
Merck KGaA in various instances, including (i) at its discretion on any date on
which a milestone is achieved (in which case no milestone payment will be made),
(ii) for a one-year period after first commercial sale of IMC-C225 in Merck
KGaA's territory, upon Merck KGaA's reasonable determination that the product is
economically unfeasible (in which case Merck KGaA is entitled to receive back
50% of the cash-based milestone payments then paid to date, but only out of
revenues received, if any, based upon a royalty rate applied to the gross profit
from IMC-C225 sales or IMC-C225 license fees in the United States and Canada),
or (iii) in the event the Company does not obtain certain collateral license
agreements in which case Merck KGaA also is entitled to a return of all cash
amounts with respect to milestone payments to date, plus liquidated damages of
$500,000. In April 1999, the parties agreed on the production concept for the
manufacturing facility and are currently working toward securing Merck KGaA's
guaranty of the Company's obligations under a $30,000,000 credit facility
relating to the construction of the manufacturing facility. In the event of
termination of the agreement, the Company will be required to use its best
reasonable efforts to cause the release of Merck KGaA as guarantor. As of March
31, 2000, the Company has received $24,000,000 in milestone payments. These
payments have been recorded as fees potentially refundable from corporate
partner and revenue recognition of such amounts will commence upon the Company
obtaining the defined collateral license agreements.
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(10) REVENUE RECOGNITION
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB 101"). SAB 101 summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements, including the recognition of non-refundable fees received upon
entering into arrangements. The Company is in the process of evaluating this
SAB and the effect it may have on its financial statements and current revenue
recognition policies. The Company must adopt SAB 101, as amended, in the
second quarter of 2000 with an effective date of January 1, 2000 and the
recognition of the cumulative effect adjustment, if any, calculated as of
January 1, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis by our management is provided to identify
certain significant factors which affected our financial position and operating
results during the periods included in the accompanying financial statements.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 and 1999
REVENUES.
Revenues for the three months ended March 31, 2000 and 1999 were $206,000 and
$629,000, respectively, a decrease of $423,000, or 67%. Revenues for the three
months ended March 31, 2000 included $166,000 in royalty revenue from our
strategic alliance with Abbott Laboratories ("Abbott") in diagnostics. Revenues
for the three months ended March 31, 1999 primarily consisted of (i) $75,000 in
research support from our partnership with American Home Products Corporation
("American Home") in infectious disease vaccines, (ii) $425,000 in research and
support payments from our research and license agreement with Merck KGaA for our
principal cancer vaccine product candidate, BEC2, and (iii) $124,000 in royalty
revenue from our strategic alliance with Abbott in diagnostics. The decrease in
revenues for the three months ended March 31, 2000 was primarily attributable to
the decrease in research and support revenue as a result of the completion of
all research and support payments due from our research and license agreement
with Merck KGaA for BEC2.
OPERATING EXPENSES; RESEARCH AND DEVELOPMENT.
Total operating expenses for the three months ended March 31, 2000 and 1999 were
$14,227,000 and $8,356,000, respectively, an increase of $5,871,000, or 70%.
Research and development expenses for the three months ended March 31, 2000 and
1999 were $11,101,000 and $6,354,000, respectively, an increase of $4,747,000 or
75%. Such amounts for the three months ended March 31, 2000 and 1999 represented
78% and 76%, respectively, of total operating expenses. Research and development
expenses for the three months ended March 31, 2000 and 1999 have been offset by
$824,000 and $516,000, respectively, for clinical trial costs that are
reimbursable by Merck KGaA. The increase in research and development expenses
for the three months ended March 31, 2000 was primarily attributable to (i) the
costs associated with two pivotal Phase III clinical trials of IMC-C225 in
treating head and neck cancer, one in combination with radiation and one in
combination with cisplatin, (ii) the costs associated with two additional Phase
II clinical trials of IMC-C225, one in refractory head and neck cancer in
combination with cisplatin and one in refractory colorectal cancer in
combination with irinotecan, (iii) expenditures in the functional areas of
product development, manufacturing, clinical and regulatory affairs associated
with IMC-C225, (iv) non-cash expenses recognized in connection with the issuance
of options granted to scientific consultants and collaborators and (v)
expenditures associated with additional staffing in the area of discovery
research. We expect research and development costs to increase in future periods
as we continue to expand our efforts in product development and clinical trials.
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GENERAL AND ADMINISTRATIVE EXPENSES.
General and administrative expenses include administrative personnel costs,
costs to develop our internal marketing and sales capabilities, costs incurred
in connection with pursuing arrangements with corporate partners and technology
licensors, and expenses associated with applying for patent protection for our
technology and products. Such expenses for the three months ended March 31, 2000
and 1999 were $3,126,000 and $2,002,000, respectively, an increase of 1,124,000,
or 56%. The increase in general and administrative expenses primarily reflected
(i) costs associated with the marketing efforts of the Company and (ii)
additional support staffing for the expanding research, development, clinical
and manufacturing efforts of the Company, particularly with respect to IMC-C225.
We expect general and administrative expenses to increase in future periods to
support our planned increases in research, development, clinical and
manufacturing efforts.
INTEREST AND OTHER INCOME AND INTEREST EXPENSE.
Interest income was $3,187,000 for the three months ended March 31, 2000
compared with $604,000 for the three months ended March 31, 1999, an increase of
$2,583,000. The increase was primarily attributable to the increase in our
investment portfolio as a result of our November 1999 public stock offering and
our February 2000 private placement of 5 1/2% convertible subordinated notes.
Interest expense was $1,221,000 and $123,000 for the three months ended March
31, 2000 and 1999, respectively, an increase of $1,098,000. Interest expense for
both periods primarily included (i) interest on the outstanding 1990 IDA Bond
with a principal amount of $2,200,000 and (ii) interest recorded on various
capital lease obligations under a December 1996 Financing Agreement (the "1996
Financing Agreement") and an April 1998 Financing Agreement (the "1998 Financing
Agreement") with Finova. Interest expense for the three months ended March 31,
2000 was offset by capitalizing interest costs during the construction period of
the Company's new manufacturing facility in the amount of $154,000. The
increase in interest expense is attributable to interest on the outstanding
convertible subordinated notes. Losses on securities available for sale for the
three months ended March 31, 2000 and 1999 were $2,000 and $832,000,
respectively. The loss for the three months ended March 31, 1999 is primarily
attributable to the $828,000 write-down of our investment in CombiChem Inc. as
a result of an other than temporary impairment.
NET LOSSES.
We had net losses to common stockholders of $12,759,000 or $0.43 per share for
the three months ended March 31, 2000 compared with $9,006,000 or $0.37 per
share for the three months ended March 31, 1999. The increase in the net losses
and per share net loss to common stockholders was due primarily to the factors
noted above.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, our principal sources of liquidity consisted of cash
and cash equivalents and short-term securities available for sale of
approximately $342.5 million. From inception through March 31, 2000 we have
financed our operations through the following means:
- Public and private sales of equity securities and convertible
notes in financing transactions have raised approximately
$489.8 million in net proceeds
- We have earned approximately $35.2 million from license fees,
contract research and development fees and royalties from
collaborative partners. Additionally, we have received $24.0
million in potentially refundable fees from our IMC-C225
development and license agreement with Merck KGaA. And, as of
March 31, 2000, Merck KGaA has confirmed that we have achieved
milestones, with respect to which we are entitled to receive
an additional $2.0 million in payments. The amounts from Merck
KGaA with respect to IMC-C225 have yet to be recognized as
revenue because they are refundable under certain
circumstances
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- We have earned approximately $14.5 million in interest income
- The sale of the IDA Bonds in each of 1985, 1986 and 1990
raised an aggregate of $6.3 million, the proceeds of which
have been used for the acquisition, construction and
installation of our research and development facility in New
York City, and of which $2.2 million is outstanding
We may from time to time consider a number of strategic alternatives
designed to increase shareholder value, including joint ventures, acquisitions
and other forms of alliances as well as the sale of all or part of the company.
The 1990 IDA Bond in the outstanding principal amount of $2,200,000
becomes due in 2004. We will incur annual interest on the 1990 IDA Bond
aggregating approximately $250,000. In order to secure our obligations to the
NYIDA under the 1990 IDA Bond, we have granted the NYIDA a security interest in
facility equipment purchased with the bond proceeds.
In February 2000, we completed a private placement of $240,000,000 in
convertible subordinated notes due March 1, 2005. We received net proceeds from
this offering of approximately $231,900,000, after deducting expenses associated
with the offering. The notes bear interest at 5.5% payable semi-annually on
September 1 and March 1 of each year, beginning September 1, 2000. A holder may
convert all or a portion of a note into common stock at any time on or before
March 1, 2005 at a conversion price of $110.18 per share, subject to adjustment
if certain events affecting our common stock occur. We may redeem some or all of
the notes prior to March 6, 2003 if specified common stock price thresholds are
met. On or after March 6, 2003, we may redeem some or all of the notes at
specified redemption prices.
In December 1999, we entered into a development and manufacturing
services agreement with Lonza. Under the agreement, Lonza is engaging in process
development and scale-up for the manufacture of IMC-C225. These steps are being
taken to assure that its process will produce bulk material that conforms with
the Company's reference material. Under our arrangements with Lonza, Lonza will
manufacture six 5,000 liter production runs under cGMP conditions of material
that may be used for clinical and/or commercial supply. The Company also has
agreed in principle with Lonza to the material terms of a three-year commercial
supply agreement for which the definitive agreement is being completed. As of
March 31, 2000, the Company has incurred approximately $159,000 for services
provided under this agreement.
We have obligations under various capital leases for certain
laboratory, office and computer equipment and also certain building improvements
primarily under the 1996 Financing Agreement and the 1998 Financing Agreement
with Finova. The 1996 Financing Agreement allowed us to finance the lease of
equipment and make certain building and leasehold improvements to existing
facilities involving amounts totaling 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, we issued to Finova a warrant expiring December
31, 1999 to purchase 23,220 shares of our common stock at an exercise price of
$9.69 per share. We 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. We utilized only $1,745,000 of the full $2,500,000
under the agreement. In April 1998, we entered into the 1998 Financing Agreement
with Finova totaling approximately $2,000,000. The terms of the 1998 Financing
Agreement are substantially similar to the expired 1996 Financing Agreement
except that each lease has a 48-month term. We have entered into twelve
individual leases under both the 1996 Financing Agreement and the 1998 Financing
Agreement aggregating a total cost of $3,695,000. The 1998 Financing Agreement
expired in May 1999. In January and February 2000, we entered into financing
arrangements with Finova and Transamerica under which we may obtain at our
option up to an aggregate of $25,000,000 for our utilization primarily in
connection with the build-out of our new commercial manufacturing facility. The
funds may be obtained through multiple leases of equipment and building
improvements for not less than specified minimum amounts. Each lease contains a
balloon purchase option at the end of a 48-month term. The Company has paid
$100,000 in application fees associated with these agreements, which may be
applied against future principal and interest payments.
We rent our New York facility under an operating lease that expires in
December 2004. We are in the process of renovating the facility to better suit
our needs. The renovation is expected to cost approximately $2,000,000 and is
substantially complete.
Page 9
<PAGE> 12
Under our agreement with Merck KGaA for IMC-C225, we developed, in
consultation with Merck KGaA, a production concept for a new manufacturing
facility for the commercial production of IMC-C225. Merck KGaA is to provide us,
if we so choose, subject to certain conditions, with a guaranty under a $30
million credit facility for the build-out of this facility. We have determined
to erect this facility adjacent to our current manufacturing facility in New
Jersey, which supplies IMC-C225 to support our clinical trials. We broke ground
on the facility in January 2000 and estimate that the total cost will be
approximately $45 million. We are currently in the process of negotiating the
terms of the loan agreement and guaranty. We expect to fund the remaining cost
of this facility through a combination of cash on hand, proceeds from our
February 2000 private placement of convertible notes and equipment financing
transactions.
Total capital expenditures made during the three months ended March 31,
2000 were $5,039,000. Of the total capital expenditures made during the three
months ended March 31, 2000, $591,000 related to the purchase of equipment for
and costs associated with the retrofit of our corporate office and research
laboratories in New York and other capital expenditures relating to the New York
facility. We incurred $4,290,000 related to engineering, pre-construction and
construction costs associated with the build-out of the commercial manufacturing
facility to be erected adjacent to our current manufacturing facility in New
Jersey. The remaining $158,000 is related to improving and equipping our
existing manufacturing facility.
In 1998, we hired a Vice President of Marketing and Sales and have
recently hired directors of marketing, field sales and sales operations, each
with experience in the commercial launch of a monoclonal antibody cancer
therapeutic, to develop our internal marketing and sales capabilities. We are
preparing for the marketing and sale of IMC-C225 in the U.S. and Canada, and in
that regard, we plan to hire regional sales managers and approximately 40
sales people prior to the commencement of IMC-C225 sales.
The holders of the Series A Convertible Preferred Stock (the "series A
preferred stock") 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 stock and are payable on the outstanding series A preferred stock 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 stock on which the dividend
is to be paid, whichever is sooner. Accrued dividends were approximately
$448,000 at March 31, 2000.
We believe that our existing cash and cash equivalents and securities
available for sale and amounts expected to be available under our credit
facilities should enable us to maintain our current and planned operations
through at least 2002. We are also entitled to reimbursement for certain
research and development expenditures and to certain milestone payments,
including $6 million in cash-based milestone payments and $30 million in
equity-based milestone payments from our IMC-C225 development and license
agreement with Merck KGaA, which are to be paid subject to our attaining
research and development milestones, certain of which have recently been
attained, and certain other conditions. There can be no assurance that we will
achieve the unachieved milestones. Additionally, the termination of the
agreement due to our failure to obtain the necessary collateral license
agreements would require us to return all milestone payments made to date, plus
$500,000 in liquidated damages. Our future working capital and capital
requirements will depend upon numerous factors, including, but not limited to:
- progress of our research and development programs,
pre-clinical testing and clinical trials
- our corporate partners' fulfilling their obligations to us
- timing and cost of seeking and obtaining regulatory approvals
- timing and cost of manufacturing scale-up and effective
commercialization activities and arrangements
- level of resources that we devote to the development of
marketing and sales capabilities
- costs involved in filing, prosecuting and enforcing patent
claims
- technological advances
Page 10
<PAGE> 13
- status of competitors
- our ability to maintain existing and establish new
collaborative arrangements with other companies to provide
funding to support these activities
- costs of establishing both clinical scale and commercial scale
manufacturing capacity in our facility and those of others
In order to fund our capital needs after 2002, we will require
significant levels of additional capital and we intend to raise the capital
through additional arrangements with corporate partners, equity or debt
financings, or from other sources including the proceeds of product sales, if
any. There is no assurance that we will be successful in consummating any such
arrangements. If adequate funds are not available, we may be required to
significantly curtail our planned operations.
At December 31, 1999, we had net operating loss carryforwards for
United States federal income tax purposes of approximately $151 million, which
expire at various dates from 2000 through 2019. At December 31, 1999 we had
research credit carryforwards of approximately $7.7 million, which expire at
various dates from 2009 through 2019. Under Section 382 of the Internal Revenue
Code of 1986, as amended, a corporation's ability to use net operating loss and
research credit carryforwards may be limited if the corporation experiences a
change in ownership of more than 50 percentage points within a three-year
period. Since 1986, we have experienced at least two such ownership changes. As
a result, we are only permitted to use in any one year approximately $5.2
million of our available net operating loss carryforwards that relate to periods
before these ownership changes. Similarly, we are limited in using our research
credit carryforwards. It has not been determined whether the November 1999
public stock offering and the February 2000 private placement of convertible
subordinated notes will result in additional ownership changes that would
further limit the use of our net operating losses and research credit
carryforwards.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements ("SAB 101"). SAB 101 summarizes certain of the staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements, including the recognition of non-refundable fees received
upon entering into arrangements. We are in the process of evaluating this SAB
and the effect it may have on our financial statements and current revenue
recognition policies. We must adopt SAB 101, as amended, in the second quarter
of 2000 with an effective date of January 1, 2000 and the recognition of the
cumulative effect adjustment, if any, calculated as of January 1, 2000.
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; obtaining and protecting proprietary rights; 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
Registration Statement on Form 10-K.
Page 11
<PAGE> 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our holdings of financial instruments comprise a mix of securities which may
include U.S. corporate debt, foreign corporate debt, U.S. government debt,
foreign government/agency guaranteed debt and commercial paper. All such
instruments are classified as securities available for sale. Generally, we do
not invest in portfolio equity securities or commodities or use financial
derivatives for trading purposes. Our debt security portfolio represents funds
held temporarily pending use in our business and operations. We manage these
funds accordingly. We seek reasonable assuredness of the safety of principal and
market liquidity by investing in investment grade fixed income securities while
at the same time seeking to achieve a favorable rate of return. Our market risk
exposure consists principally of exposure to changes in interest rates. Our
holdings are also exposed to the risks of changes in the credit quality of
issuers. We invest in securities which have a range of maturity dates.
Typically, those with a short-term maturity are fixed-rate, highly liquid debt
instruments and those with longer-term maturities are highly liquid debt
instruments with periodic interest rate adjustments. We also have certain
foreign exchange currency risk. See footnote 3 of the financial statements. The
table below presents the principal amounts and related weighted average interest
rates by year of maturity for our investment portfolio as of March 31, 2000:
<TABLE>
<CAPTION>
2005 AND
2000 2001 2002 2003 2004 THEREAFTER TOTAL
------------ ------------ ---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate $ 15,913,000 $ 6,889,000 $1,448,000 - $ 40,022,000 $131,583,000 $195,855,000
Average
Interest Rate 5.05% 6.41% 8.00% - 6.60% 6.64% 6.50%
Variable Rate - - - - $ 15,315,000(1) $110,194,000(1) $125,509,000
Average
Interest Rate - - - - 6.27% 6.35% 6.34%
------------ ------------ ---------- ---------- ------------ ------------ ------------
$ 15,913,000 $ 6,889,000 $1,448,000 - $ 55,337,000 $241,777,000 $321,364,000
============ ============ ========== ========== ============ ============ ============
<CAPTION>
FAIR VALUE
------------
<S> <C>
Fixed Rate $190,418,000
Average
Interest Rate -
Variable Rate $131,619,000
Average
Interest Rate -
------------
$322,037,000
============
</TABLE>
(1) These holdings consist of U.S. corporate and foreign corporate floating rate
notes. Interest on the securities are adjusted at fixed dates using prevailing
interest rates. These holdings are highly liquid. We consider the potential for
loss of principal to be minimal.
Our 5 1/2% convertible subordinated notes in the principal amount of
$240,000,000 due March 1, 2005 and other long-term debt have fixed interest
rates and the fair value of these instruments is affected by changes in market
interest rates. The subordinate notes are convertible into the Company's
common stock at a conversion price of $110.18 per share. The fair value of this
instrument is subject to changes in interest rates and the price of the
Company's common stock.
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2000, we issued an aggregate of
600,850 shares of unregistered common stock to holders of warrants upon exercise
of such warrants for a total purchase price of $1,389,219, which were
consummated as private sales under Section 4(2) of the Securities Act of 1933,
as amended (the "Securities Act").
On February 29, 2000, we completed a private placement of $240,000,000
aggregate principal amount of 5 1/2% convertible subordinated notes due March 1,
2005. We received net proceeds from this offering of approximately $231,900,000,
after deducting costs associated with the offering. The notes bear interest at
an annual rate of 5 1/2% payable semi-annually on September 1 and March 1 of
each year, beginning September 1, 2000. The holders may convert all or any
portion of a note, in multiples of $1,000, into common stock at any time on or
before March 1, 2005 at a conversion price of $110.18 per share, subject to
adjustment if certain events affecting the common stock occur. In lieu of
fractional shares, we will pay a cash adjustment based on the closing price of
the common stock on the last business day prior to the conversion. The notes
are subordinated to all existing and future senior indebtedness. We may redeem
some or all of the notes at any time prior to March 6, 2003, at a redemption
price of 100% of the principal amount plus accrued and unpaid interest to the
redemption date if (1) the closing price of the common stock has exceeded 150%
of the conversion price for at least 20 trading days in any consecutive
30-trading day period and (2) if the redemption occurs before March 1, 2002,
the shelf registration statement, to be filed, covering resales of the notes
and the common stock is effective and expected to remain effective and
available for use for the 30 days following the redemption date. We shall mail
the notice for redemption within five trading days of the consecutive 30-trading
day period. If the notes are redeemed under these circumstances, we will make an
additional payment of $152.54 per $1,000 aggregate principal amount of notes,
minus the amount of all interest paid on such principal amount since February
29, 2000 to the date the notice was mailed. On or after March 6, 2003, we may
redeem some or all of the notes at specified redemption prices, plus accrued
and unpaid interest to the day preceding the redemption date. The holders have
the right, upon the occurrence of certain specified events constituting a
fundamental change, to require us to redeem all or any part of such holder's
notes at a price equal to 100% of the principal amount of the notes being
redeemed, together with accrued interest to, but excluding, the date of
redemption. We are required to file with the Securities and Exchange Commission
a shelf registration statement covering resales of the notes and the common
stock.
Morgan Stanley & Co. Incorporated and Merrill Lynch & Co., who acted as
the initial purchasers for the convertible notes, received an aggregate fee of
$7,800,000. The notes were issued pursuant to safe-harbor exemptions
from the registration requirements of the Securities Act, solely to qualified
institutional buyers and to a limited number of institutional "accredited
investors" pursuant to Rule 144A and Regulation D of the Securities Act.
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> 15
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: May 12, 2000 By /s/ Samuel D. Waksal
-------------------------------------
Samuel D. Waksal
President and Chief Executive Officer
Date: May 12, 2000 By /s/ Carl S. Goldfischer
-------------------------------------
Carl S. Goldfischer
Vice President, Finance and Chief
Financial Officer
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 20,512
<SECURITIES> 322,037
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 356,505
<PP&E> 36,983
<DEPRECIATION> (15,198)
<TOTAL-ASSETS> 387,590
<CURRENT-LIABILITIES> 36,506
<BONDS> 2,200
0
300
<COMMON> 31
<OTHER-SE> 107,635
<TOTAL-LIABILITY-AND-EQUITY> 53,594
<SALES> 0
<TOTAL-REVENUES> 206
<CGS> 0
<TOTAL-COSTS> 14,227
<OTHER-EXPENSES> (3,185)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,221
<INCOME-PRETAX> (12,759)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,759)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,759)
<EPS-BASIC> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
