<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 2
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------- -------------------
Commission file number 0-17999
--------
ImmunoGen, Inc.
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2726691
- ------------------------------- -------------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
333 Providence Highway
Norwood, MA 02062
--------------------------------------------------------------
(Address of principal executive offices, including zip code)
(617) 769-4242
------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
At February 11, 1997 there were 18,390,984 shares of common stock, par
value $.01 per share, of the registrant outstanding.
At February 11, 1997 there were 5,500 shares of convertible preferred
stock, par value $.01 per share, of the registrant outstanding.
<PAGE> 2
IMMUNOGEN, INC.
TABLE OF CONTENTS
-----------------
Page
----
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1996.............................. 3
Consolidated Statements of Operations
for the three months and the six months ended
December 31, 1995 and 1996....................................... 4
Consolidated Statements of Stockholders'
Equity for the year ended June 30, 1996 and for
the six months ended December 31, 1996........................... 5
Consolidated Statements of Cash Flows
for the six months ended December 31, 1995 and 1996.............. 6
Notes to Consolidated Financial Statements....................... 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 10
Signatures.................................................................. 20
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
IMMUNOGEN, INC.
CONSOLIDATED BALANCE SHEETS
As of June 30, 1996 and December 31, 1996
<CAPTION>
June 30, December 31,
------------- -------------
1996 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,796,636 $ 1,828,987
Prepaids and other current assets 163,280 422,299
------------- -------------
Total current assets 2,959,916 2,251,286
------------- -------------
Property and equipment, net of
accumulated depreciation 4,163,416 3,547,561
Note receivable 1,338,929 1,067,633
Other assets 43,700 43,700
------------- -------------
Total assets $ 8,505,961 $ 6,910,180
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 733,446 985,585
Accrued compensation 233,515 250,181
Other accrued liabilities 832,573 763,534
Current portion of capital lease obligations 141,533 109,157
Current portion of deferred lease -- 152,088
------------- -------------
Total current liabilities 1,941,067 2,260,545
------------- -------------
Capital lease obligations 37,068 --
Deferred lease -- 25,355
Convertible debentures 5,750,443 --
Commitments
Stockholders' equity :
Preferred stock; $.01 par value;
authorized 5,000,000 as of
September 30, 1996:
Convertible preferred stock, Series A,
$.01 par value; issued and outstanding
2,500 shares at October 3, 1996
(liquidation preference - stated value
plus accrued but unpaid dividends per
share; excludes interest) -- 25
Convertible preferred stock, Series B,
$.01 par value; issued and outstanding
3,000 shares at October 16, 1996
(liquidation preference - stated -- 30
value plus accrued but unpaid
dividends per share; excludes interest)
Common stock, $.01 par value; authorized
30,000,000 as of June 30, 1996 and
December 31, 1996, respectively;
Issued and outstanding 16,599,855 and
16,963,161 as of June 30, 1996 and
December 31, 1996, respectively 165,999 169,632
Additional paid-in capital 128,525,884 138,322,823
------------- -------------
128,691,883 138,492,510
Accumulated deficit (127,914,500) (133,868,230)
------------- -------------
Total stockholders' equity 777,383 4,624,280
------------- -------------
Total liabilities and stockholders' equity $ 8,505,961 $ 6,910,180
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
<TABLE>
IMMUNOGEN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months and six months ended December 31, 1995 and 1996
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------------------------------------
1995 1996 1995 1996
- ---------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
Revenues:
Development fees $ 86,834 $ 71,076 $ 223,162 $ 153,232
Interest 22,281 15,219 56,614 36,599
Licensing 7,500 929 7,500 6,572
Other 13,929 29,667 27,857 58,704
------------ ------------ ------------ ------------
Total revenues 130,544 116,891 315,133 255,107
------------ ------------ ------------ ------------
Expenses:
Research and development 2,721,238 2,031,389 5,645,838 3,977,622
General and administrative 507,693 548,330 961,264 986,249
Interest 228,166 5,862 592,272 72,724
Loss on disposal of assets 1,652,014 -- 1,652,014 --
------------ ------------ ------------ ------------
Total expenses 5,109,111 2,585,580 8,851,388 5,036,595
------------ ------------ ------------ ------------
Loss before income taxes (4,978,567) (2,468,689) (8,536,255) (4,781,488)
Income tax expense 294 200 747 483
------------ ------------ ------------ ------------
Net loss (4,978,861) (2,468,889) (8,537,002) (4,781,971)
------------ ------------ ------------ ------------
Dividends on convertible preferred stock -- 1,171,759 -- 1,171,759
------------ ------------ ------------ ------------
Net loss to common shareholders $ (4,978,861) $ (3,640,648) $ (8,537,002) $ (5,953,730)
============ ============ ============ ============
Loss per common share $ (0.36) $ (0.21) $ (0.65) (0.35)
============ ============ ============ ============
Shares used in computing loss
per share amounts 13,757,414 16,960,993 13,169,662 16,939,002
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
<TABLE>
IMMUNOGEN, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the year ended June 30, 1996 and for
the six months ended December 31, 1996
<CAPTION>
Common Stock
----------------------------------
Additional
Paid-in
Shares Amount Capital
--------- ------- -------------
<S> <C> <C> <C>
Balance at June 30, 1995 12,578,606 $125,786 $118,988,736
---------- -------- ------------
Stock options exercised 168,500 1,685 120,900
Conversion of convertible debentures 3,852,749 38,528 6,722,763
Issuance of common stock warrants -- -- 2,693,485
Net loss -- -- --
---------- -------- ------------
Balance at June 30, 1996 16,599,855 165,999 128,525,884
========== ======== ============
Stock options exercised 11,644 116 27,290
Conversion of convertible debentures
into common stock 351,662 3,517 1,315,217
Exchange of convertible debentures for
series A preferred stock -- -- --
Issuance of series B convertible preferred stock -- -- --
Dividends payable -- -- --
Net loss for the six months ended December 31, 1996 -- -- --
---------- -------- ------------
Balance at December 31, 1996 16,963,161 $169,632 $129,868,391
========== ======== ============
</TABLE>
<TABLE>
<CAPTION>
Preferred Stock
----------------------------
Additional Total
Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------ ------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1995 $ $ $(108,991,363) $ 10,123,159
----- --- ---------- ------------- ------------
Stock options exercised -- -- -- -- 122,585
Conversion of convertible debentures -- -- -- -- 6,761,291
Issuance of common stock warrants -- -- -- -- 2,693,485
Net loss -- -- -- (18,923,137) (18,923,137)
----- --- ---------- ------------- ------------
Balance at June 30, 1996 -- -- -- (127,914,500) 777,383
===== === ========== ============= ============
Stock options exercised -- -- -- -- 27,406
Conversion of convertible debentures
into common stock -- -- -- -- 1,318,734
Exchange of convertible debentures for
series A preferred stock 2,500 25 4,749,586 -- 4,749,611
Issuance of series B convertible preferred stock 3,000 30 3,398,107 -- 3,398,137
Compensation for put right -- -- 306,739 -- 306,739
Dividends payable -- -- -- (1,171,759) (1,171,759)
Net loss for the six months ended December 31, 1996 -- -- -- (4,781,971) (4,781,971)
----- --- ---------- ------------- ------------
Balance at December 31, 1996 5,500 $55 $8,454,432 $(133,868,230) $ 4,624,280
===== === ========== ============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
<TABLE>
IMMUNOGEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended December 31, 1995 and 1996
December 31,
--------------------------
<CAPTION>
1995 1996
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(8,537,002) $(5,953,730)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 1,590,150 817,661
Loss on disposal of facility 1,652,014 --
Other 34,199 --
Loss on sale of property and equipment -- 2,934
Accretion of interest on note receivable -- (58,704)
Dividends payable -- 1,171,759
Amortization of deferred lease -- (38,022)
Changes in operating assets and liabilities:
Other current assets 77,370 70,981
Accounts payable (230,611) 252,139
Accrued compensation 115,838 16,666
Other non-current liabilities (35,659) --
Other accrued liabilities (27,856) (208,020)
----------- -----------
Net cash used for operating activities (5,361,557) (3,926,336)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of property and equipment -- 15,183
Purchase of property and equipment (18,251) (4,458)
----------- -----------
Net cash (used for) provided by
investing activities (18,251) 10,725
----------- -----------
Cash flows from financing activities:
Proceeds from convertible debentures 3,600,000 --
Proceeds from convertible preferred stock -- 2,990,000
Stock issuances, net 7,151 27,406
Principal payments on capital lease obligations (397,173) (69,444)
----------- -----------
Net cash provided by (used for)
financing activities 3,209,978 2,947,962
----------- -----------
Net change in cash and cash equivalents (2,169,830) (967,649)
----------- -----------
Cash and cash equivalents, beginning balance 3,047,236 2,796,636
----------- -----------
Cash and cash equivalents, ending balance $ 877,406 $ 1,828,987
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 592,272 $ 8,582
=========== ===========
Cash paid (refunded) for income taxes $ 5,000 $ 1,197
=========== ===========
Supplemental disclosure of noncash financing activities:
Conversion of convertible debentures including accrued interest $ -- $ 1,318,734
=========== ===========
Converion of convertible debentures to preferred stock $ -- $ 4,437,500
=========== ===========
Deferred lease of leasehold improvements $ -- $ 215,465
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 7
IMMUNOGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. In the opinion of management, the accompanying financial statements include
all adjustments, consisting of only normal recurring accruals, necessary to
present fairly the consolidated financial position, results of operations and
cash flows of ImmunoGen, Inc. (the "Company"), which include those of its
wholly-owned subsidiary, ImmunoGen Securities Corp., and its 72%-owned
subsidiary, Apoptosis Technology, Inc. ("ATI"). The financial disclosures herein
should be read in conjunction with the Company's Annual Report on Form 10-K for
the year ended June 30, 1996.
The Company has been unprofitable since inception and expects to incur net
losses over the next several years, assuming it is able to raise sufficient
working capital to continue operations. The Company's cash resources at December
31, 1996 were $1.8 million. Subsequent to December 31, 1996, an additional $3.0
million was received pursuant to a private placement of convertible preferred
stock. An additional $6.0 million is available to the Company under this
agreement over the period ending December 31, 1997, if certain conditions are
met. The Company continues actively to seek additional capital by pursuing one
or more financing transactions and/or strategic partnering arrangements. While
the Company remains hopeful that it will be able to consummate an additional
financing transaction in the near term, no assurance can be given that such
financing will be available to the Company on acceptable terms, if at all. If
the Company is unable to obtain financing on acceptable terms in order to
maintain operations, it could be forced to curtail further or discontinue
operations.
B. In October 1996, the Company's $2.5 million debenture issued in June 1996 was
converted into 2,500 shares of the Company's Series A Convertible Preferred
Stock, with a stated value of $1,000 per share (the "Series A Stock"). Holders
of the Series A Stock are entitled to receive, when and as declared by the Board
of Directors, cumulative dividends at a rate per share equal to 9% per annum in
cash or, at the Company's option, in shares of the Company's Common Stock in
arrears on the conversion date. The 2,500 shares of Series A Stock are
convertible into the same number of shares of Common Stock as the $2.5 million
debenture. Each share of Series A Stock is convertible into a number of shares
of Common Stock determined by dividing the $1,000 stated value per share by the
lesser of (i) 85% of the average of the closing bid prices for the Common Stock
for the five consecutive trading days prior to the conversion date, and (ii)
$2.50 (subject to certain adjustments).
C. On November 12, 1996 the shareholders of the Company approved the issuance of
12,000 shares of the Company's Convertible Preferred Stock (the "Preferred
Stock") and related common stock purchase warrants (the "Warrants") pursuant to
a financing agreement entered into in October 1996 (the "October 1996 Financing
Agreement"), with the effect that, upon conversion of shares of Preferred Stock
and exercise of Warrants, the holders of the Preferred Stock could own in excess
of 20% of the number of shares of the Company's Common Stock outstanding on the
date of issuance of the Preferred Stock.
7
<PAGE> 8
D. The Company sold 3,000 shares of its Series B Convertible Preferred Stock
(the "Series B Stock") for $3.0 million in October 1996 and 3,000 shares of its
Series C Convertible Preferred Stock (the "Series C Stock") for $3.0 million in
January 1997 to an institutional investor pursuant to the October 1996 Financing
Agreement. Pursuant to this agreement, the Company has the right to require the
investor to purchase up to $12.0 million of convertible preferred stock from the
Company in a series of private placements. The Company may require the investor
to make additional investments of up to $3.0 million during each of the quarters
commencing on April 1, 1997 and July 1, 1997, respectively. If the aggregate
investment as of September 30, 1997 is less than $12.0 million, the Company may
require the investor to make an additional investment of up to $3.0 million in
the quarter commencing on October 1, 1997 in an amount which would bring the
total investment to $12.0 million.
Holders of the Series B Stock and Series C Stock are entitled to receive, when
and as declared by the Board of Directors, cumulative dividends at a rate per
share equal to an annual rate of 9% of the stated value in cash, or at the
Company's option, shares of Common Stock, in arrears on the conversion date.
Each share of Series B Stock is convertible into a number of shares of the
Company's Common Stock determined by dividing the $1,000 stated value per share
by the lesser of (i) $3.60 (the average closing bid price of the Company's
Common Stock on the NASDAQ National Market for the five consecutive trading days
prior to the October 16, 1996 original issuance date of the Preferred Stock),
and (ii) 85% of the average closing bid price for the Common Stock for the five
consecutive trading days prior to the conversion date. Each share of Series C
Stock is convertible into a number of shares of the Company's Common Stock
determined by dividing the $1,000 stated value per share by the lesser of (i)
$2.61 (the average closing bid price of the Company's Common Stock on the NASDAQ
National Market for the five consecutive trading days prior to the January 24,
1997 original issuance date of the Series C Preferred Stock), and (ii) the
Applicable Percentage (defined below) of the average closing bid price of the
Company's Common Stock for the five consecutive trading days prior to the
conversion date (subject to certain adjustments). The Applicable Percentage will
be (i) 100%, if the conversion date is on or before March 4, 1997, (ii) 90%, if
the conversion date is after March 4, 1997 but on or before April 13, 1997, and
(iii) 85%, if the conversion date is after April 13, 1997.
As of January 27, 1997, 1,950 shares of the Series B Stock plus accrued
dividends thereon had been converted into 927,167 shares of the Company's Common
Stock.
Pursuant to the October 1996 Financing Agreement, the Company has issued
warrants to the investor to purchase 187,500 shares of the Company's Common
Stock. Warrants to purchase 62,500 shares of the Company's Common Stock were
also issued to a third party pursuant to an arrangement between the investor and
that party. These warrants have an exercise price of $5.49 and expire in October
2001. Additionally, because conversion of the Series B Stock into shares of the
Company's Common Stock did not occur until after the eightieth day following
issuance of the Series B Stock, warrants to acquire an additional 250,000 shares
of the Company's Common
8
<PAGE> 9
Stock were issued to the investor in January 1997 with an exercise price of
$3.68 per share and an expiration date in January 2002. Similarly, if conversion
of the preferred stock issued in any subsequent investment, including the Series
C Stock, occurs after the eightieth day following its respective issue date,
warrants to purchase a number of shares of the Company's Common Stock equal to
50% of the number of shares issuable upon conversion of such preferred stock
will also be issued, with an exercise price equal to 150% of the closing sale
price of the Common Stock on the date of issuance of the warrants.
E. In September 1995, the Company subleased approximately 82% of one of its
Cambridge, Massachusetts facilities for a term which initially was to expire in
February 1998. In July 1996, the Company signed an amendment to this sublease
agreement, increasing the subleased space from 82% to 100% of the facility and
extending the term of the sublease to February 1999 with options to further
extend the sublease term to February 2000. This amendment became effective in
late September 1996. In connection with the amendment, the sublessor agreed to
fund certain construction costs at the Company's Norwood, Massachusetts
facility, totaling approximately $215,500. At December 31, 1996, this amount is
reflected in the Company's consolidated balance sheets as a Deferred Lease and
is being credited against rental expenses over the remaining term of the current
sublease period.
F. In March 1997, the Securities and Exchange Commission issued a new
interpretation for the accounting for convertible preferred stock and
convertible debt instruments issued with provisions providing for
conversion into common stock at a discount from the market price of the
common stock.
The new interpretation provides that assured incremental yield embedded in the
conversion terms' discount from fair market value should be accounted for as an
additional interest expense in the case of convertible debt and as a dividend
to preferred shareholders in the case of convertible preferred stock. In
addition, in May 1997, the Company valued warrants in connection with the
October 1996 issuance of preferred stock, using an established valuation model
derived principally from the published market value of the underlying common
stock of the Company and charged that value as a dividend to preferred
shareholders. Accordingly, the Company has restated its financial statements
for the quarter ended December 31, 1996.
At December 31, 1996, compliance with this new ruling, together with the value
of warrants to be issued to the preferred shareholders, resulted in non-cash
dividends to preferred shareholders of approximately $1,059,850, and accounted
for a $.06 per share increase in the Company's loss per share.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since inception, ImmunoGen has been primarily engaged in research and
development of immunoconjugate products which the Company believes have
significant commercial potential as human therapeutics. The major sources of the
Company's working capital have been the proceeds of equity and convertible debt
financings, license fees and income earned on investment of those funds. The
Company expects no revenues to be derived from product sales for the foreseeable
future.
Since December 1994, the Company has aggressively pursued a cost cutting
and control program, beginning with a restructuring plan which included halting
operations at two of its facilities, reducing or eliminating certain areas of
research and focusing its clinical efforts on its lead products. In addition,
the Company assigned the facility and equipment leases related to two facilities
in Canton and Cambridge, Massachusetts to other biotechnology companies, and
pursues an overall strategy of minimizing costs.
The Company has been unprofitable since inception and expects to incur net
losses over the next several years. The Company's cash resources at December 31,
1996 were approximately $1.8 million, and the Company received an additional
$3.0 million in January 1997 pursuant to a private placement of convertible
preferred stock issued pursuant to a financing agreement entered into in October
1996 (the "October 1996 Financing Agreement"). An additional $6.0 million is
available to the Company under this agreement over a period ending December 31,
1997, if certain conditions are met. The Company continues actively to seek
additional capital by pursuing one or more financing transactions and/or
strategic partnering arrangements.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1995 and 1996
The Company's revenues decreased approximately 10% from approximately
$131,000 for the three months ended December 31, 1995 to approximately $117,000
for the three months ended December 31, 1996. Interest income totalled
approximately $22,000, or 17% of revenues, for the three months ended December
31, 1995, decreasing approximately 32% to approximately $15,000, or 13% of
revenues, for the three months ended December 31, 1996, reflecting the decrease
in cash balances available for investment in the 1996 period. Revenues for the
three months ended December 31, 1995 and 1996 include approximately $87,000 and
$71,000, respectively, of development revenue, which represents revenue earned
under the Small Business
10
<PAGE> 11
Innovation Research Program of the U.S. National Science Foundation. Other
income for the three months ended December 31, 1995 represents a gain on the
sale of assets which were sold and leased back subject to a capital lease
agreement entered into in fiscal 1994 which had been deferred and recorded as
other income through December 1995. Other income for the three months ended
December 31, 1996 represents accretion of interest on a note receivable related
to the assignment of the Company's leases on its Canton facility and equipment.
The Company's total expenses decreased approximately 49% from approximately
$5.1 million for the three months ended December 31, 1995 to approximately $2.6
million in the same period in 1996, primarily as a result of the Company's cost
reduction efforts as described above (see "Overview").
Research and development costs constituted the primary component of the
Company's total ongoing expenses (79% in each of the three month periods ended
December 31, 1995 and 1996), decreasing from approximately $2.7 million for the
three months ended December 31, 1995 to approximately $2.0 million for the three
months ended December 31, 1996. This 25% decrease is principally the result of
the savings associated with the Company's restructuring and other cost reduction
efforts begun in fiscal 1995.
General and administrative expenses increased approximately 8% from
approximately $508,000 for the three months ended December 31, 1995 to
approximately $548,000 for the three months ended December 31, 1996. This
increase represents costs associated with the Company's financing efforts.
Interest expense decreased from approximately $228,000 for the three months
ended December 31, 1995 to approximately $6,000 for the three months ended
December 31, 1996. The fiscal 1996 costs are primarily due to the interest costs
associated with two of the Company's debenture financings entered into in the
first quarter of fiscal 1996, and both periods include interest costs on the
remaining principal balances of the Company's capital lease agreements. In
October 1996, the Company converted a $2.5 million convertible debenture issued
in June 1996 into 2,500 shares of the Company's Series A Convertible Preferred
Stock (the "Series A Stock"). Also in October 1996, the Company issued 3,000
shares of its Series B Convertible Preferred Stock (the "Series B Stock")
pursuant to the October 1996 Financing Agreement. See "Liquidity and Capital
Resources" for descriptions of both series. Holders of both series of stock are
entitled to receive cumulative dividends at a rate per share equal to 9% per
annum in arrears on the conversion date. The Securities and Exchange Commission
Staff issued an interpretation in March 1997 relating to the accounting for
convertible preferred stock and convertible debt instruments issued with
provisions providing for conversion into common stock at a discount from the
market price of the common stock. In addition, in May 1997, the Company valued
warrants in connection with the October 1996 issuance of preferred stock, using
an established valuation model derived principally from the published market
value of the underlying common stock of the Company and charged that value as a
dividend to preferred shareholders. Accordingly, the Company has restated its
financial statements for the quarter ended December 31, 1996. This
interpretation, together with the value of these warrants, resulted in
additional, non-cash dividends to preferred shareholders of $1,059,850. The 100%
increase in dividends on convertible preferred stock represents all dividends
accumulated on both series of convertible preferred stock through December 31,
1996.
The loss on sale of assets in the three months ended December 31, 1995
represents a net loss on the Company's equipment lease at its Canton,
Massachusetts facility recognized in connection with the assignment of that
facility and related equipment lease to another biotechnology company.
11
<PAGE> 12
Six Months Ended December 31, 1995 and 1996
The Company's revenues decreased 19% from approximately $315,000 for the
six months ended December 31, 1995 to approximately $255,000 for the six months
ended December 31, 1996. The major component of revenues in both years is
development revenue earned under the Small Business Innovation Research Program
of the U.S. National Science Foundation. This decrease in revenue was primarily
caused by a decrease in interest income of approximately 35% from approximately
$57,000 for the six months ended December 31, 1995 to approximately $37,000 for
the six months ended December 31, 1996. This decrease is attributable to the
decline in cash balances available for investment between these two periods. As
in the three months ended December 31, 1995 and 1996, other income for the six
months ended December 31, 1995 represents a gain on sale of assets sold and
leased back subject to a capital lease agreement, and other income for the six
months ended December 31, 1996 represents accretion of interest on a note
receivable related to the assignment of the Company's leases on its Canton
facility and equipment.
Total expenses decreased approximately 43% from approximately $8.9 million
for the six months ended December 31, 1995 to approximately $5.0 million for the
six months ended December 31, 1996. Significant components of this decrease
include a charge in the six months ended December 31, 1995 for disposal of the
Canton facility and equipment amounting to approximately $1.7 million, as well
as a charge of approximately $600,000 of interest, financing and warrant costs
charged to interest in connection with the Company's debenture financings.
For the six months ended December 31, 1995 and 1996, research and
development costs constituted the primary component of the Company's total
ongoing expenses (78% and 79%, respectively), decreasing 30% from approximately
$5.6 million for the 1995 period to approximately $4.0 million for the 1996
period. As in the three months ended December 31, 1996, this decrease is
principally the result of the savings associated with the Company's
restructuring and other cost reduction efforts begun in fiscal 1995.
General and administrative expenses increased approximately 3% from the six
months ended December 31, 1995 to the same period in fiscal 1996 and was
approximately $1.0 million in both periods. This small increase is attributable
to the Company's ongoing financing efforts.
Interest expense decreased approximately 89% from approximately $600,000
for the six months ended December 31, 1995 to approximately $70,000 for the six
months ended December 31, 1996. As in three months ended December 31, 1996, the
costs in the earlier period are primarily due to interest, financing costs and
warrant costs charged to interest on the Company's debenture financings, and
both periods include interest costs on the remaining principal balances of the
Company's capital lease agreements. Additionally, in October 1996, the Company
converted a $2.5 million convertible debenture issued in June 1996 into 2,500
shares of the Company's Series A Stock. Also in October 1996, the Company issued
3,000 shares of its Series
12
<PAGE> 13
B Stock. See "Liquidity and Capital Resources" for descriptions of both series.
Holders of both series of stock are entitled to receive cumulative dividends at
a rate per share equal to 9% per annum in arrears on the conversion date. The
Securities and Exchange Commission Staff issued an interpretation in March 1997
relating to the accounting for convertible preferred stock and convertible debt
instruments issued with provisions providing for conversion into common stock at
a discount from the market price of the common stock. In addition, in May 1997,
the Company valued warrants in connection with the October 1996 issuance of
preferred stock, using an established valuation model derived principally from
the published market value of the underlying common stock of the Company and
charged that value as a dividend to preferred shareholders. Accordingly, the
Company has restated its financial statements for the quarter ended December 31,
1996. This interpretation, together with the value of these warrants to be
issued to the preferred shareholders, resulted in additional, non-cash dividends
to preferred shareholders of $1,059,850. The 100% increase in dividends on
convertible preferred stock represents dividends on both series of convertible
preferred stock for the six months ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since July 1, 1994 the Company has financed its operating deficit of
approximately $41.3 million from various sources, including issuances in fiscal
1996 of convertible debentures and in fiscal 1997 of convertible preferred
stock, proceeds from the assignment of leases in fiscal year 1996 and from the
exercise of stock options. Since July 1, 1994 the Company has earned
approximately $0.6 million of interest income. At December 31, 1996
approximately $1.8 million of cash and cash equivalents remained available, and
an additional $3.0 million was received in January 1997 pursuant to the October
1996 Financing Agreement.
In October 1996, the Company's $2.5 million debenture issued in June 1996
was converted into 2,500 shares of the Company's Series A Stock, with a stated
value of $1,000 per share. Holders of the Series A Stock are entitled to
receive, when and as declared by the Board of Directors, cumulative dividends at
a rate per share equal to 9% per annum in cash or, at the Company's option, in
shares of the Company's Common Stock, in arrears on the conversion date. The
2,500 shares of Series A Stock are convertible into the same number of shares of
Common Stock as the $2.5 million debenture. Each share of Series A Stock is
convertible into a number of shares of Common Stock determined by dividing the
$1,000 stated value per share plus accrued dividends by the lesser of (i) 85% of
the average of the closing bid prices for the Common Stock for the five
consecutive trading days prior to the conversion date, and (ii) $2.50 (subject
to certain adjustments).
The Company sold 3,000 shares of its Series B Convertible Preferred Stock
(the "Series B Stock") for $3.0 million in October 1996 and 3,000 shares of its
Series C Convertible Preferred Stock (the "Series C Stock") for $3.0 million in
January 1997 to an institutional investor as part of an agreement which grants
the Company the right to require the investor to purchase up to $12.0 million of
convertible preferred stock from the Company in a series of private placements.
If certain conditions are met, the Company may require the investor to make
additional investments of up to $3.0 million during each of the quarters
commencing on April 1, 1997 and July 1, 1997, respectively, and, if the
aggregate investment as of September 30, 1997 is less than $12.0 million, the
Company may require the investor to make an additional investment of up to $3.0
million in the quarter commencing on October 1, 1997 in an amount which would
bring the total investment to $12.0 million.
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Holders of the Series B Stock and Series C Stock are entitled to receive,
when and as declared by the Board of Directors, cumulative dividends at a rate
per share equal to an annual rate of 9% of the stated value in cash, or at the
Company's option, shares of Common Stock, in arrears on the conversion date.
Each share of the Series B Stock is convertible into a number of shares of the
Company's Common Stock determined by dividing the $1,000 stated value per share
by the lesser of (i) $3.60 (the average closing bid price of the Company's
Common Stock on the NASDAQ National Market for the five consecutive trading days
prior to the October 16, 1996 original issuance date of the Series B Stock), and
(ii) 85% of the average closing bid price of the Company's Common Stock for the
five consecutive trading days prior to the conversion date (subject to certain
adjustments). Each share of Series C Stock is convertible into a number of
shares of the Company's Common Stock determined by dividing the $1,000 stated
value per share by the lesser of (i) $2.61 (the average closing bid price of the
Company's Common Stock on the NASDAQ National Market for the five consecutive
trading days prior to the January 24, 1997 original issue date of the Series C
Stock), and (ii) the Applicable Percentage (defined below) of the average
closing bid price of the Company's Common Stock for the five consecutive trading
days prior to the conversion date (subject to certain adjustments). The
Applicable Percentage will be (i) 100%, if the conversion date is on or before
March 4, 1997, (ii) 90%, if the conversion date is after March 4, 1997 but on or
before April 13, 1997, and (iii) 85%, if the conversion date is after April 13,
1997. At the Company's option, accrued dividends payable on shares of Series B
Stock or Series C Stock being converted may be paid in Common Stock in lieu of
cash.
As of January 27, 1997, 1,950 shares of the Series B Stock plus accrued
dividends thereon had been converted into 927,167 shares of the Company's Common
Stock.
In connection with the October 1996 Financing Agreement, the Company has
issued warrants to the investor to purchase 187,500 shares of the Company's
Common Stock. Warrants to purchase 62,500 shares of the Company's Common Stock
were also issued to a third party pursuant to an arrangement between the
investor and that party. The warrants have an exercise price of $5.49 and
expire in October 2001. Additionally, because conversion of the Series B Stock
into shares of the Company's Common Stock occurred after the eightieth day
following issuance of the Series B Stock, warrants to acquire an additional
250,000 shares of the Company's Common Stock were issued to the investor with
an exercise price of $3.68 per share and an expiration date in January 2002.
Similarly, if conversion of the preferred stock issued in any subsequent
investment, including the Series C Stock, occurs after the eightieth day
following its respective issue date, warrants to purchase a number of shares of
the Company's Common Stock equal to 50% of the number of shares issuable upon
conversion of such preferred stock will also be issued, with an exercise price
equal to 150% of the closing sale price of the Common Stock on the date of
issuance of the warrants.
In the period since July 1, 1994 approximately $0.7 million was expended on
property and equipment. Of this amount, approximately $0.2 million was
reimbursed to the Company by a sublessee as part of an amendment to a sublease
agreement which became effective in fiscal 1997. No significant amounts are
expected to be expended on property and equipment throughout the remainder of
fiscal 1997.
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ImmunoGen was committed under its agreements with ATI to provide ATI with
$3.0 million in research and development services and $2.0 million in cash
equity contributions over a three-year period. At June 30, 1995 these
obligations had been fulfilled by the Company. ImmunoGen has also agreed to
obtain or furnish an additional $3.0 million in equity for ATI on such terms and
conditions as may be mutually agreed to by ATI and the providers of such equity.
As of December 31, 1996 amounts owed by ATI to ImmunoGen approximated $12.0
million. The Company intends to convert a majority of this amount into equity of
ATI, thereby satisfying the agreement to provide an additional $3.0 million in
equity.
The Company anticipates that its capital resources existing at December 31,
1996 plus the additional $3.0 million received from its January 1997 sale of
Series C Stock will enable it to maintain its current and planned operations
through approximately June 1997. Receipt of the remaining $6.0 million available
to the Company under the October 1996 Financing Agreement would enable the
Company to extend its operations through approximately February 1998. However,
because the Company must satisfy certain conditions, including maintaining
certain price and volume levels in trading of its Common Stock, there can be no
assurance that the Company will receive any or all of the remaining $6.0 million
available under this financing arrangement. Because of its continuing losses
from operations and working capital deficit, the Company will be required to
obtain additional capital to satisfy its ongoing capital needs and to continue
its operations. Although management continues to pursue additional funding
arrangements, no assurance can be given that such financing will in fact be
available on acceptable terms to the Company, if at all. If the Company is
unable to obtain financing on acceptable terms in order to maintain operations,
it could be forced to curtail further or discontinue its operations.
CERTAIN FACTS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
This report contains certain forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995. Such statements
are based on management's current expectations and are subject to a number of
factors and uncertainties which could cause actual results to differ materially
from those projected or suggested in such forward-looking statements as a result
of various factors, including, but not limited to, the following: the
uncertainties associated with clinical trials; the early stage of the Company's
initial product development and lack of product revenues; the Company's history
of operating losses and accumulated deficit; the Company's limited financial
resources and uncertainty as to the availability of additional capital to fund
its development on acceptable terms, if at all; the Company's lack of commercial
manufacturing experience and commercial sales, distribution and marketing
capabilities; reliance on suppliers of ricin and antibodies necessary for
production of the products and technologies; the potential development by
competitors of competing products and technologies; the Company's dependence on
potential collaborative partners, and the lack of assurance that the Company
will receive any funding under such relationships to develop and maintain
strategic alliances; the lack of assurance regarding patent and other protection
for the
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Company's proprietary technology; governmental regulation of the Company's
activities, facilities, products and personnel; the dependence on key personnel;
uncertainties as to the extent of reimbursement for the costs of the Company's
potential products and related treatment by government and private health
insurers and other organizations; the potential adverse impact of
government-directed health care reform; the risk of product liability claims;
and general economic conditions. As a result, the Company's future development
efforts involve a high degree of risk.
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SIGNATURES
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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.
IMMUNOGEN, INC.
Date: June 4, 1997 By: /s/ Mitchel Sayare
--------------------
Mitchel Sayare
Chief Executive Officer
(principal executive officer)
Date: June 4, 1997 By: /s/ Kathleen A. Carroll
-----------------------
Kathleen A. Carroll
Vice President, Finance and
Administration
(principal financial officer)
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