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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
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.
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(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
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(Address of principal executive offices, including zip code)
(781) 769-4242
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(Registrant's telephone number, including area code)
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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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
At November 12, 1998 there were 25,494,552 shares of common stock, par
value $.01 per share, of the registrant outstanding.
Exhibit Index at Page: 15
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IMMUNOGEN, INC.
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
a. Condensed Consolidated Balance Sheets as of
September 30, 1998 and June 30, 1998................. 3
b. Condensed Consolidated Statements of Operations
for the three months ended September 30, 1998
and 1997............................................. 4
c. Condensed Consolidated Statement of
Stockholders' Equity for the three months ended
September 30, 1998 and the year ended
June 30, 1998........................................ 5
d. Condensed Consolidated Statements of Cash Flows
for the three months ended September 30, 1998
and 1997............................................. 6
e. Notes to Condensed Consolidated Financial
Statements........................................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 10
Item 3. Quantitative and Qualitative Disclosure about
Market Risk.............................................. 15
PART II. OTHER INFORMATION................................................. 15
SIGNATURES................................................................. 16
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
IMMUNOGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND JUNE 30, 1998
(Unaudited)
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SEPTEMBER 30, JUNE 30,
1998 1998
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ASSETS
Cash and cash equivalents $ 2,410,929 $ 1,741,825
Due from related party 870,394 915,473
Current portion of note receivable 1,259,369 960,000
Prepaids and other current assets 101,653 51,360
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Total current assets 4,642,345 3,668,658
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Property and equipment, net of accumulated depreciation 1,723,661 1,891,696
Note receivable - 272,638
Other assets 43,700 43,700
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TOTAL ASSETS $ 6,409,706 $ 5,876,692
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 595,798 $ 699,418
Accrued compensation 148,625 225,126
Other accrued liabilities 509,407 553,246
Current portion of deferred lease 52,756 52,756
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Total current liabilities 1,306,586 1,530,546
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Deferred lease 21,988 35,176
Stockholders' equity:
Preferred stock; $.01 par value; authorized
5,000,000 shares as of September 30, 1998
and June 30, 1998
Convertible preferred stock, Series E, $.01
par value; issued and outstanding 2,400 and
1,200 shares as of September 30, 1998 and
June 30, 1998, respectively (liquidation
preference-stated value) 24 12
Common stock; $.01 par value; authorized
50,000,000 shares as of as of September 30, 1998
and June 30, 1998; issued and outstanding
25,494,552 and 25,419,552 shares as of
September 30, 1998 and June 30, 1998, respectively 254,945 254,195
Additional paid-in capital 156,013,246 152,782,585
Accumulated deficit (151,187,083) (148,725,822)
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Total stockholders' equity 5,081,132 4,310,970
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,409,706 $ 5,876,692
============= =============
The accompanying notes are an integral part of the condensed consolidated financial
statements.
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<TABLE>
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IMMUNOGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1998 1997
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REVENUES:
Development fees $ 104,672 $ 77,000
Interest 71,126 45,872
Licensing 528 597
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Total revenues 176,326 123,469
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EXPENSES:
Research and development 1,425,214 1,552,543
General and administrative 344,417 379,270
Other 1,442 1,555
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Total expenses 1,771,073 1,933,368
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LOSS FROM OPERATIONS (1,594,747) (1,809,899)
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Gain on sale of assets 3,200 -
Other income 24,947 -
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LOSS BEFORE INCOME TAXES AND MINORITY INTEREST (1,566,600) (1,809,899)
Income tax expense 2,368 606
------------ ------------
NET LOSS BEFORE MINORITY INTEREST (1,568,968) (1,810,505)
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Minority interest in net loss of
consolidated subsidiary (25,290) (27,605)
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NET LOSS (1,543,678) (1,782,900)
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Non-cash dividends on convertible preferred stock 917,583 11,549
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NET LOSS TO COMMON STOCKHOLDERS $ (2,461,261) $ (1,794,449)
============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.10) $ (0.08)
============ ============
SHARES USED IN COMPUTING BASIC AND DILUTED
LOSS PER SHARE AMOUNTS 25,483,139 22,533,758
============ ============
The accompanying notes are an integral part of the condensed consolidated financial
statements.
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<TABLE>
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IMMUNOGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND THE YEAR ENDED JUNE 30, 1998
(Unaudited)
COMMON STOCK PREFERRED STOCK
---------------------------------- -----------------------------
ADDITIONAL ADDITIONAL TOTAL
PAID-IN PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL SHARES AMOUNT CAPITAL DEFICIT EQUITY
---------- -------- ------------ ------ ------ ------------ -------------- -------------
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BALANCE AT JUNE 30, 1997 21,779,767 $217,797 $139,260,550 2,800 $ 28 $ 5,492,988 $(140,509,406) $ 4,461,957
========== ======== ============ ====== ==== =========== ============= ===========
Stock options exercised 114,302 1,143 101,728 - - - - 102,871
Issuance of Common Stock
in exchange for shares
of subsidiary 475,425 4,754 867,176 - - - - 871,930
Conversion of Series A
Convertible Preferred
Stock into Common Stock 1,347,491 13,475 2,209,764 (1,100) (11) (2,089,817) - 133,411
Conversion of Series C
Convertible Preferred
Stock into Common Stock 701,180 7,012 1,126,815 (700) (7) (1,101,334) - 32,486
Conversion of Series D
Convertible Preferred
Stock into Common Stock 1,001,387 10,014 1,303,287 (1,000) (10) (1,287,092) - 26,199
Issuance of Series E
Convertible Preferred
Stock, net of financing
costs - - - 1,200 12 1,448,376 - 1,448,388
Value of Common Stock
purchase warrants issued - - 580,056 - - - - 580,056
Value ascribed to ImmunoGen
warrants issued to BioChem,
net of financing costs - - 4,870,088 - - - - 4,870,088
Non-cash dividends on
convertible preferred stock - - - - - - (605,479) (605,479)
Net loss for the year ended
June 30, 1998 - - - - - - (7,610,937) (7,610,937)
---------- -------- ------------ ------ ---- ----------- ------------- -----------
BALANCE AT JUNE 30, 1998 25,419,552 $254,195 $150,319,464 1,200 $ 12 $ 2,463,121 $(148,725,822) $ 4,310,970
========== ======== ============ ====== ==== =========== ============= ===========
Issuance of Series E
Convertible Preferred Stock,
net of financing costs - - - 1,200 12 1,496,251 - 1,496,263
Issuance of Common Stock in
exchange for Series E
Preferred Stock placement
services 75,000 750 107,062 - - (107,812) - -
Value of Common Stock
purchase warrants issued - - 917,583 - - - - 917,583
Value ascribed to ImmunoGen
warrants issued to BioChem,
net of financing costs - - 817,577 - - - - 817,577
Non-cash dividends on
convertible preferred stock - - - - - - (917,583) (917,583)
Net loss for the three months
ended September 30, 1998 - - - - - - (1,543,678) (1,543,678)
---------- -------- ------------ ------ ---- ----------- ------------- -----------
BALANCE AT SEPTEMBER 30, 1998 25,494,552 $254,945 $152,161,686 2,400 $ 24 $ 3,851,560 $(151,187,083) $ 5,081,132
========== ======== ============ ====== ==== =========== ============= ===========
The accompanying notes are an integral part of the condensed consolidated financial statements.
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IMMUNOGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,461,261) $(1,794,449)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization 168,035 326,463
Gain on sale of property and equipment (3,200) -
Accretion of interest on note receivable (26,731) (26,885)
Non-cash dividend on convertible preferred stock 917,583 11,549
Minority interest in net loss of consolidated subsidiary (25,290) (27,605)
Amortization of deferred lease (13,188) (17,145)
Changes in operating assets and liabilities:
Due from related party 45,079 -
Prepaids and other current assets (50,293) 298,421
Accounts payable (103,620) (22,627)
Accrued compensation (76,501) (103,408)
Other accrued liabilities (43,839) (115,263)
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Net cash used for operating activities (1,673,226) (1,470,949)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 3,200 -
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Net cash provided by investing activities 3,200 -
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible preferred stock, net 1,496,263 -
Proceeds from issuance of subsidiary convertible
preferred stock, net 842,867 1,746,548
Principal payments on capital lease obligations - (37,068)
----------- -----------
Net cash provided by financing activities 2,339,130 1,709,480
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 669,104 238,531
----------- -----------
CASH AND CASH EQUIVALENTS, BEGINNING BALANCE 1,741,825 1,669,050
----------- -----------
CASH AND CASH EQUIVALENTS, ENDING BALANCE $ 2,410,929 $ 1,907,581
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SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Conversion of Series A Preferred Stock to Common Stock $ - $ 949,921
=========== ===========
Conversion of Series C Preferred Stock to Common Stock $ - $ 1,101,341
=========== ===========
Issuance of Common Stock in exchange for Series E
Preferred Stock placement services $ 107,812 $ -
=========== ===========
Due from related party for quarterly investment payment $ 843,000 $ 843,000
=========== ===========
Minority interest $ 25,290 $ 808,500
=========== ===========
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
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IMMUNOGEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
ImmunoGen, Inc. ("ImmunoGen" or the "Company") was incorporated in
Massachusetts in 1981 to develop, produce and market commercial cancer and other
pharmaceuticals based on molecular immunology. The Company continues research
and development of its various products and technologies, and expects no
revenues to be derived from pharmaceutical product sales in the foreseeable
future.
The Company has been unprofitable since inception and expects to incur net
losses over the next several years. The Company's cash resources at
September 30, 1998 were approximately $2.4 million. In October 1998, an
additional $1.1 million was received, as follows: $260,000 was received by the
Company as payment on the note receivable from the assignee of one of the
Company's facilities and $855,000 was received by Apoptosis Technology, Inc.
("ATI"), the Company's majority owned subsidiary, from its collaborator BioChem
Pharma Inc., a Canadian biopharmaceutical company ("BioChem"), with respect to
BioChem's quarterly investment of $843,000 plus certain reimbursable expenses.
The Company anticipates that its existing capital resources, which includes
the $1.1 million received in October 1998, as noted above, will enable the
Company to maintain its current and planned operations through February 1999.
Because of its continuing losses from operations, the Company will be required
to obtain additional capital in the short term to satisfy its ongoing capital
needs and to continue its operations. Although management continues to pursue
additional funding arrangements and/or strategic partners, no assurances can be
given that such financing will be available to the Company. If the Company is
unable to obtain financing on acceptable terms, it could be forced to further
curtail or discontinue its operations. The financial statements do not include
any adjustments that might result from the discontinuance of operations.
The Company is subject to risks common to companies in the biotechnology
industry including, but not limited to, the development by the Company or its
competitors of new technological innovations, dependence on key personnel,
protection of proprietary technology, manufacturing and marketing limitations,
collaboration arrangements, third party reimbursements, the need to obtain
additional funding, and compliance with governmental regulations.
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements at
September 30, 1998 and June 30, 1998 and for the three months ended
September 30, 1998 and 1997 include the accounts of the Company and its
subsidiaries, ImmunoGen Securities Corp. and ATI. The condensed
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consolidated financial statements are unaudited, but include all of the
adjustments, consisting only of normal recurring adjustments, which management
considers necessary for a fair presentation of the Company's financial position
in accordance with generally accepted accounting principles for interim
financial information. Certain information and footnote disclosures normally
included in the Company's annual financial statements have been condensed or
omitted. The preparation of interim financial statements requires the use of
management's estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the interim financial statements and the reported amounts of
revenues and expenditures during the reported period. The Company has been
unprofitable since inception and expects to incur a net loss for the year ended
June 30, 1999. The results of the interim periods are not necessarily indicative
of the results for the entire year. Accordingly, the interim 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 June 30, 1998.
COMPUTATION OF LOSS PER COMMON SHARE
Basic and diluted earnings per share is calculated based upon the weighted
average number of common shares outstanding during the period. Diluted earnings
per share incorporates the dilutive effect of stock options, warrants and other
convertible equities. Common equivalent shares have not been included in the per
share calculations because the effect of outstanding stock options, warrants and
convertible preferred stock totaling 12,451,485 and 7,387,166 shares as of
September 30, 1998 and 1997, respectively, is antidilutive.
B. MINORITY INTEREST
In July 1997, ATI entered into a collaboration agreement with BioChem. The
agreement grants BioChem an exclusive worldwide license to ATI's proprietary
screens based on two families of proteins involved in apoptosis, for use in
identifying leads for anti-cancer drug development.
Under the agreement, BioChem will invest a total of $11,125,000 in
non-voting, non-dividend-bearing convertible preferred stock of ATI in a series
of private placements over a three-year research term. Proceeds are to be used
exclusively to support the research and development activities of the
collaboration. The agreement also establishes certain restrictions on the
transferability of assets between ATI and the Company. As of September 30, 1998,
BioChem had invested $6,067,000, of which $5,224,000 had been received and
$843,000 remained outstanding and included within the due from related party on
the condensed consolidated balance sheet. As previously noted, the outstanding
$843,000 payment was received in October 1998. The remaining $5,058,000 balance
of the investment will be paid in equal quarterly installments of $843,000
through July 2001. The preferred stock issued to BioChem is convertible into ATI
common stock at any time after three years from the first date of issuance, at a
conversion price equal to the then current market price of the ATI common stock,
but in any event at a price that will result in BioChem acquiring at least 15%
of the then outstanding ATI common stock. Through September 30, 1998, 6,067
shares of ATI preferred stock were issued or issuable to BioChem, representing
an 8.2% minority interest (on an if converted and fully-diluted basis) in the
net equity of ATI. This minority interest portion of ATI's loss reduced
ImmunoGen's net loss for the quarters ended September 30, 1998 and 1997 by
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$25,290 and $27,605, respectively. Based upon an independent appraisal,
approximately 3% of the $6,067,000 invested to date, or approximately $182,000
has been allocated to minority interest in ATI, with the remainder, or
approximately $5,885,000, allocated to the Company's equity. The research
agreement may be extended beyond the initial three-year term, on terms
substantially similar to those for the original term. BioChem will also make
milestone payments up to $15.0 million for each product over the course of its
development. In addition, if and when product sales commence, ATI will receive
royalties on any future worldwide sales of products resulting from the
collaboration. BioChem's obligation to provide additional financing to ATI each
quarter is subject to satisfaction of special conditions, including a condition
that ATI maintain sufficient cash and other resources to allow it to continue
its planned operations (other than performance of its obligations under the
research agreement) for a minimum period of time. Of the Company's total $2.4
million in cash and cash equivalents as of September 30, 1998, $1.5 million
represents cash and cash equivalents restricted to fund ATI research and
administrative expenditures.
Under the terms of the collaboration agreement, ATI incurs certain fees
reimbursable by BioChem. At September 30, 1998, total outstanding fees equaled
$27,394 and were reflected on the Company's condensed consolidated balance sheet
as due from related party.
As part of the collaboration agreement with ATI, BioChem also receives
warrants to purchase shares of ImmunoGen Common Stock equal to the amount
invested in ATI during the three-year research term. These warrants will be
exercisable for a number of shares of ImmunoGen Common Stock determined by
dividing the amount of BioChem's investment in ATI by the market price of
ImmunoGen Common Stock on the exercise date, subject to certain limitations
imposed by the Nasdaq Stock Market rules which limits the sale or issuance by an
issuer of certain securities at a price less than the greater of book or market
value. Consequently, BioChem's ability to convert all of its ImmunoGen warrants
into ImmunoGen Common Stock is limited to a total of 20% of the number of shares
of the Company's Common Stock outstanding on the date of the initial transaction
to the extent that the conversion price would be less than the market price of
the Common Stock on that date, unless stockholder approval for such conversion
is obtained, if required, or unless the Company has obtained a waiver of that
requirement. The exercise price is payable in cash or shares of ATI's preferred
stock, at BioChem's option. The warrants are expected to be exercised only in
the event that the shares of ATI common stock do not become publicly traded. In
such event, the Company expects that BioChem will use its shares of ATI
preferred stock, in lieu of cash, to exercise the warrants.
C. CAPITAL STOCK
In July 1998, the Company received $1.5 million from the sale of 1,200
shares of its Series E Convertible Preferred Stock ("Series E Stock"). The sale
represents the final installment under a December 1997 agreement, as amended, to
sell $3.0 million of non-voting, non-dividend-bearing Series E Stock to an
institutional investor. Proceeds are to be used to fund working capital.
Consistent with prior issuances under the December 1997 agreement, the Series E
Stock will be convertible into Common Stock at the end of a two-year holding
period at $1.0625 per share. In connection with the issuance, the investor
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also received warrants to purchase 1,411,764 shares of Common Stock. These
warrants, which become exercisable at the end of a two-year holding period,
subject to certain provisions, are exercisable at $2.125 per share and expire in
2005. The value of these warrants, approximately $918,000, was determined at the
time of their issuance and accounted for as non-cash dividends on convertible
preferred stock. Additionally, in connection with the sale of the Series E
Stock, 75,000 shares of Common Stock were issued as a finder's fee to a third
party. The total value of the 75,000 shares of Common Stock issued, $107,812,
was determined using the closing price of the Common Stock on the date of
issuance and accounted for as a reduction in additional paid-in capital.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
OVERVIEW
Since inception, the Company has been primarily engaged in the research and
development of immunoconjugate products which the Company believes have
significant commercial potential as human therapeutics. ATI focuses its efforts
on the discovery and development of anti-cancer and anti-viral therapeutics
based upon regulation of programmed cell death, or apoptosis. Since July 1,
1997, the Company's primary sources of working capital have been the proceeds
from convertible equity financing, federally-sponsored development grants and
income earned on invested assets. Moreover, in July 1997, ATI began a three-year
research and development collaboration with BioChem. This collaboration has
provided and will continue to provide significant funding for ATI's operations.
The collaboration also provides for significant milestone and royalty payments
for any developed products. Such funding for ATI's operations will initially
continue through July 2001.
To date, the Company has not generated revenues from product sales and
expects to incur significant operating losses for the foreseeable future. The
Company anticipates that its existing capital resources, which include $1.1
million received in October 1998 (see Liquidity and Capital Resources), will
allow it to continue its current and planned operations through February 1999.
Consequently, the Company will be required to obtain additional capital and/or
establish collaborative funding agreements in the short term to satisfy its
ongoing capital needs and to continue its operations beyond February 1999. The
Company is actively engaged in discussions with third parties regarding
potential financing and/or strategic partnering arrangements involving an equity
investment or other funding of the Company by such third parties. However, there
can be no assurance that these discussions will result in completed
transactions. If the Company is unable to obtain financing on acceptable terms
in the future or is unable to obtain funds through collaborative partnerships,
it could be forced to further scale back or discontinue its operations.
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RESULTS OF OPERATIONS
Three Months ended September 30, 1998 and 1997
The Company continues to effectively manage its operational expenditures
while actively pursuing additional funding sources. Net loss from operations
totaled $1.6 million for the first quarter of fiscal 1999, representing a 13%
decrease from the $1.8 million net loss from operations for the first quarter of
fiscal 1998.
Total revenues for the first quarter of fiscal 1999 were $176,000, an
increase of $53,000, or 43%, from the same period in fiscal 1998. The revenue
for the three months ended September 30, 1998 consisted of $105,000 in Small
Business Innovation Research Program ("SBIR") federal grant income and $71,000
in interest income. The Company's revenue for the three months ended September
30, 1997 was comprised of $77,000 in SBIR grant revenue and $46,000 in interest
income. In both periods, total revenue was primarily derived from development
fees received, on a cost reimbursement basis, under the SBIR program. The
increase in SBIR revenue resulted from additional reimbursable expenditures
incurred through the three month period ended September 30, 1998 as compared to
the three months ended September 30, 1997. Interest income in both periods
includes interest earned on cash balances available for investment, and to a
lesser extent, interest earned on a note receivable from an assignee of one of
the Company's facilities. The increase in total interest income from the first
quarter of fiscal 1998 to the same period in fiscal 1999 is directly
attributable to increases in the average daily invested cash.
Research and development expenses decreased 8% to $1.4 million for the
three months ended September 30, 1998 from $1.6 for the three months ended
September 30, 1997. The decrease represents calendar year 1997 staffing
reductions prompted by the Company's decision to refocus its efforts on the
development of its huC242-DM1 and huN901-DM1 tumor-activated prodrugs. The
decrease was offset by increases related to preclinical testing of huC242-DM1.
Future research and development costs are expected to increase consistent with
the Company's plan to submit an Investigational New Drug application ("IND") to
the United States Food and Drug administration ("FDA") for huC242-DM1 as early
as the second quarter of calendar year 1999.
General and administration expenses decreased 9% to $344,000 for the three
months ended September 30, 1998 from $379,000 for the three months ended
September 30, 1997. The decrease is related to financing costs associated with
the BioChem collaboration incurred in the quarter ended September 30, 1997.
General and administration costs necessary to support normal operational
expenses as well as additional needs are expected to increase in fiscal 1999.
Other non-operating income for the three months ended September 30, 1998
includes $3,200 of gain on the sale of equipment and $25,000 in prior period
insurance rate settlement gains. No such gains were recorded by the Company
during the three month period ended September 30, 1997. Additionally, ATI losses
of $25,000 and $28,000 for the quarters ended September 30, 1998 and 1997,
respectively, were allocated to ATI's minority stockholder.
In connection with the July 1998 sale of 1,200 shares of Series E Stock,
1,411,764 warrants to purchase Common Stock were issued to an institutional
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investor. The value of the warrants, approximately $918,000, or ($0.04) per
common share, was determined at the time of their issuance and accounted for as
a non-cash dividend on convertible preferred stock. Non-cash dividends accrued
in the period ended September 30, 1997 represent dividends earned on the then
outstanding convertible preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
Since July 1, 1997, the Company has financed its cumulative operating
deficit of approximately $7.6 million, exclusive of non-cash charges, from
various sources, including issuances of convertible equity securities, SBIR
grant support, amounts received from the assignment of facilities and equipment,
income earned on invested assets and, to a lesser extent, proceeds from
exercised stock options.
In October 1998, subsequent to the balance sheet date, the Company received
an additional $1.1 million, as follows: $260,000 was received as payment on the
note receivable from the assignee of one of the Company's facilities and
$855,000 was received by ATI from its collaborator BioChem with respect to
BioChem's quarterly investment of $843,000 plus certain reimbursable expenses.
Substantially all cash expended for operations for the three months ended
September 30, 1998 was used in supporting the various research and development
activities of the Company. In addition to funding the net loss of $1.4 million
for the three months ended September 30, 1998, exclusive of the non-cash
dividends, depreciation and amortization charges, operating cash of
approximately $224,000 was used to relieve the aging of accounts payable and
other accrued liabilities.
No cash was expended on capital purchases for the three-month period ended
September 30, 1998, nor does the Company anticipate significant expenditures on
property and equipment in fiscal 1999.
In July 1998, the Company sold 1,200 shares of Series E Stock for an
aggregate of $1.5 million. Proceeds are to be used to fund working capital. The
sale represents the final installment under a December 1997 agreement, as
amended, to sell $3.0 million in Series E Stock to an institutional investor.
Under the terms of the agreement, upon issuance of the 1,200 shares of Series E
Stock, the institutional investor also received warrants to purchase 1,411,764
shares of Common Stock. These warrants expire in 2005 and are exercisable after
a two-year holding period, subject to certain provisions, at $2.125 per share.
Also in connection with the final phase of the Series E Stock sale, 75,000
shares of Common Stock were issued to a third party as a finder's fee.
Also in July 1998, $843,000 was received from BioChem for the fiscal 1998
fourth-quarter installment investment. As previously described, in October 1998,
another $843,000 payment was received with respect to the September 1998
quarterly installment investment.
As projected future expenditures are expected to exceed revenues for the
foreseeable future, the Company will be required to obtain additional capital in
the short term. Although management continues to pursue additional funding
12
<PAGE> 13
arrangements and/or strategic partners, no assurances can be given that such
financing will in fact be available to the Company. If the Company is unable to
complete financing arrangements on acceptable terms, it could be required to
further scale back or discontinue its planned operations. The accompanying
financial statements do not include any adjustments that may result from the
outcome of this uncertainty.
YEAR 2000 ISSUES
Many computer systems were not designed to handle any dates beyond the year
1999 and, therefore computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional; this is the so-called
"Year 2000" problem. The Company does not believe that it has material exposure
with respect to its own internal Year 2000 issues. However, the failure by the
Company to convert systems on a timely basis, or a conversion by the Company
that is incompatible with other information systems, could have a material
effect on its business, financial condition and results of operations. The
Company is in the process of sending questionnaires to its currently engaged
third-party suppliers, vendors, administrators and custodians, inquiring of
their progress in identifying and addressing Year 2000 problems. This vendor
review is anticipated to be completed by the end of calendar year 1998. Though
not considered likely, the failure of a major supplier, vendor, administrator
or custodian with Year 2000 problems to convert its systems on a timely basis,
or a conversion that is incompatible with the Company's information systems,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company, in conjunction with its information systems consultant,
has performed an initial evaluation of the impact of the Year 2000 issues on
the Company's information systems and has determined that the Company will be
required to modify or replace certain accounting and administration software
applications such that dates beyond June 30, 1999, the beginning of the
Company's fiscal year 2000, will be appropriately recognized. The Company has
been assured by its third party software adviser that commercially-produced,
compliant software applications are readily available. The Company estimates
that expenditures related to the Year 2000 evaluation and remediation will not
be material and all remediations are planned to be completed before the end of
fiscal year 1999. All such Year 2000 expenditures will be recorded in
accordance with the Company's capitalization policy or otherwise expensed as
incurred.
CERTAIN FACTS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
This report contains 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
described in the forward-looking statements. The Company cautions investors that
there can be no assurances that actual results or business conditions will not
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 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 uncertainties associated with preclinical studies and clinical trials; the
early stage of the Company's initial product development and lack of product
13
<PAGE> 14
revenues; the Company's lack of commercial sales, distribution and marketing
capabilities; reliance on suppliers of antibodies necessary for production of
the products and technologies; the potential development of competitors of
competing products and technologies; the Company's dependence on existing and
potential collaborative partners, and the lack of assurance that the Company
will receive any funding under such relationships to develop and maintain
strategic alliances; 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 care reform; the risk of product liability claims;
potential Year 2000 problems and economic conditions, both generally and those
specifically related to the biotechnology industry. As a result, the Company's
future development efforts involve a high degree of risk. For further
information, refer to the more specific risks and uncertainties discussed
throughout the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1998 as filed with the Securities and Exchange Commission.
14
<PAGE> 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any material legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
In connection with the July 13, 1998 sale of 1,200 shares of the Company's
Series E Stock, the Company issued warrants to purchase 1,411,764 shares of its
Common Stock. These warrants, which become exercisable at the end of a two-year
holding period, subject to certain provisions, are exercisable at $2.125 per
share and expire in 2005. The warrants referred to above were issued in a
private placement pursuant to Section 4(2) of the Securities Act of 1993, as
amended, and Regulation D promulgated thereunder. Proceeds received from the
sale of the Series E Stock will be used to fund working capital.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
IMMUNOGEN, INC.
Date: November 12, 1998 By: /s/ Mitchel Sayare
-----------------------------
Mitchel Sayare
President and Chief Executive
Officer
(principal executive officer)
Date: November 12, 1998 By: /s/ Kathleen A. Carroll
-----------------------------
Kathleen A. Carroll
Vice President,
Finance and Administration
(principal financial officer)
16
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