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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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-17999
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)
(781) 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 November 4, 1999 there were 26,692,336 shares of common stock, par value
$.01 per share, of the registrant outstanding.
Exhibit Index at Page: 16
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IMMUNOGEN, INC.
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
a. Condensed Consolidated Balance Sheets as of
September 30, 1999 and June 30, 1999..................... 3
b. Condensed Consolidated Statements of
Operations for the three months ended
September 30, 1999 and 1998.............................. 4
c. Condensed Consolidated Statements of Stockholders'
Equity for the year ended June 30, 1999 and the
three months ended September 30, 1999................... 5
d. Condensed Consolidated Statements of Cash Flows
for the three months ended September 30, 1999 and 1998... 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 Disclosures about Market Risk 14
PART II. OTHER INFORMATION ......................................... 14
SIGNATURES.......................................................... 15
EXHIBIT INDEX....................................................... 16
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IMMUNOGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, AND JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 1999
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................. $ 5,612,437 $ 4,225,580
Due from related parties.................................. 4,874,532 910,108
Current portion of note receivable........................ - 350,000
Prepaid and other current assets.......................... 74,146 57,915
------------- --------------
Total current assets.................................. 10,561,115 5,543,603
------------- --------------
Property and equipment, net of accumulated depreciation... 1,568,305 1,583,350
Other assets.............................................. 43,700 43,700
------------- -------------
Total assets.......................................... $ 12,173,120 $ 7,170,653
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.......................................... $ 897,620 $ 869,996
Accrued compensation...................................... 199,951 282,390
Other current accrued liabilities......................... 544,383 528,969
Current portion of deferred lease and capital lease
obligations.............................................. 80,683 91,911
------------ -------------
Total current liabilities............................. 1,722,637 1,773,266
------------ -------------
Capital lease obligations................................. 52,789 68,220
------------ -------------
Total liabilities..................................... 1,775,426 1,841,486
------------ -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock; $.01 par value; authorized 5,000,000
as of September 30, 1999 and June 30, 1999:
Convertible preferred stock, Series E, $.01 par value;
issued and outstanding 2,400 as September 30, 1999
and June 30, 1999 (liquidation preference -
stated value)......................................... 24 24
Common stock, $.01 par value; authorized 50,000,000
shares as of September 30, 1999 and June 30, 1999;
issued and outstanding 26,692,336 and 25,668,797
as of September 30, 1999 and June 30, 1999,
respectively........................................... 266,923 256,687
Additional paid-in capital................................ 162,098,951 158,790,821
Accumulated deficit....................................... (151,968,204) (153,718,365)
------------ ------------
Total stockholders' equity............................ 10,397,694 5,329,167
------------ ------------
Total liabilities and stockholders' equity. $ 12,173,120 $ 7,170,653
============ ============
</TABLE>
The accompanying notes are an integral part of the
condended consolidated financial statements.
3
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IMMUNOGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Revenue earned under collaboration agreement.... $ 4,000,000
Development fees................................ 4,800 $ 104,672
Interest........................................ 59,296 71,126
Licensing....................................... 290 528
------------ ------------
Total revenues............................. 4,064,386 176,326
------------ ------------
Expenses:
Research and development........................ 1,831,023 1,425,214
General and administrative...................... 503,066 346,785
Interest........................................ 5,269 1,442
------------ ------------
Total expenses............................. 2,339,358 1,773,441
------------ ------------
Earnings/(loss) from operations.................. 1,725,028 (1,597,115)
------------ ------------
Gain/(loss) on the sale of assets.............. (157) 3,200
Other income................................... - 24,947
------------ ------------
Net earnings/(loss) before minority interest 1,724,871 (1,568,968)
------------ ------------
Minority interest in net loss of consolidated
subsidiary.................................... 25,290 25,290
------------ ------------
Net earnings/(loss).............................. 1,750,161 (1,543,678)
------------ ------------
Non-cash dividends on convertible
preferred stock................................ - (917,583)
------------ ------------
Net earnings/(loss) to common stockholders....... $ 1,750,161 $ (2,461,261)
============ ============
Earnings/(loss) per common share
Basic......................................... $ 0.07 $ (0.10)
============ ============
Diluted....................................... $ 0.05 $ (0.10)
============ ============
Average common shares outstanding
Basic......................................... 25,913,856 25,483,139
============ ============
Diluted....................................... 33,684,371 25,483,139
============ ============
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
4
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IMMUNOGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1999 AND THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL TOTAL
-------------------- ----------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
---------- -------- ------- ------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998............ 25,419,552 $254,195 1,200 $ 12 $152,782,585 $(148,725,822) $ 4,310,970
========== ======== ======= ======= ============ ============= ============
Stock options exercised............ 174,245 1,742 - - 313,545 - 315,287
Issuance of Series E Convertible
Preferred Stock, net of
financing costs................... - - 1,200 12 1,495,193 - 1,495,205
Issuance of Common Stock in
exchange for Series E
Preferred Stock placement
services.......................... 75,000 750 - - (750) - -
Value of Common Stock
purchase warrants issued.......... - - - - 917,583 - 917,583
Compensation for stock
option vesting acceleration
for retired director.............. - - - - 13,275 - 13,275
Value ascribed to ImmunoGen
warrants issued to BioChem,
net of financing costs............ - - - - 3,269,390 - 3,269,390
Non-cash dividends on
convertible preferred stock....... - - - - - (917,583) (917,583)
Net loss for the year ended
June 30, 1999..................... - - - - - (4,074,960) (4,074,960)
---------- -------- ------- -------- ------------ ------------- -----------
Balance at June 30, 1999............ 25,668,797 $256,687 2,400 $ 24 $158,790,821 $(153,718,365) $ 5,329,167
========== ======== ======= ======== ============ ============= ============
Issuance of Common Stock........... 1,023,039 10,231 - - 2,489,769 - 2,500,000
Stock options exercised............ 500 5 - - 651 - 656
Value ascribed to ImmunoGen
warrants issued to BioChem,
net of financing costs............ - - - - 817,710 - 817,710
Net earnings for the three
months ended September 30, 1999... - - - - - 1,750,161 1,750,161
---------- -------- ------- -------- ------------ ------------- -----------
Balance at September 30, 1999........ 26,692,336 $266,923 2,400 $ 24 $162,098,951 $(151,968,204) $ 10,397,694
========== ======== ======= ======== ============ ============= ============
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
5
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IMMUNOGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings/(loss) to common stockholders......... $ 1,750,161 $ (2,461,261)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization..................... 118,921 168,035
Loss (gain) on sale of property and equipment..... 157 (3,200)
Interest earned on note receivable................ - (26,731)
Non-cash dividend on convertible preferred stock.. - 917,583
Minority interest in net loss of consolidated
subsidiary....................................... (25,290) (25,290)
Amortization of deferred lease.................... (13,188) (13,188)
Changes in operating assets and liabilities:
Due from related parties........................ (3,964,424) 45,079
Prepaid and other current assets................ (16,231) (50,293)
Accounts payable................................ 27,624 (103,620)
Accrued compensation............................ (82,439) (76,501)
Other current accrued liabilities............... 15,414 (43,839)
------------ -------------
Net cash used for operating activities........ (2,189,295) (1,673,226)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................ (104,233) -
Payments received on note receivable................ 350,000 -
Proceeds from sale of property and equipment........ 200 3,200
------------ ------------
Net cash provided by investing activities..... 245,967 3,200
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common Stock issuances, net......................... 2,500,656 -
Proceeds from convertible preferred stock, net...... - 1,496,263
Proceeds from issuance of subsidiary convertible
preferred stock, net............................... 843,000 842,867
Principal payments on capital lease obligations..... (13,471) -
------------ ------------
Net cash provided by financing activities..... 3,330,185 2,339,130
------------ ------------
Net change in cash and cash equivalents............... 1,386,857 669,104
------------ ------------
Cash and cash equivalents, beginning balance.......... 4,225,580 1,741,825
------------ ------------
Cash and cash equivalents, ending balance............. $ 5,612,437 $ 2,410,929
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Due from related party for quarterly investment
payment.......................................... $ 843,000 $ 843,000
============ ============
Issuance of Common Stock in exchange for
Series E Preferred Stock placement services...... $ - $ 107,812
============ ============
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
6
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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 anti-cancer and
other pharmaceuticals based on molecular immunology. The Company continues to
research and develop its various products and technologies, and expects no
revenues to be derived from pharmaceutical product sales in the foreseeable
future.
To date, the Company has not generated revenues from product sales and
expects to incur significant losses for the foreseeable future. It is
anticipated that the Company's existing capital resources will enable current
and planned operations to be maintained through at least the end of fiscal year
2000. However, if the Company is unable to achieve subsequent milestones under
its collaborative agreement (see Note B), the Company may be required to pursue
additional strategic partners, secure alternative funding arrangements and/or be
required to defer or limit some or all of its planned research and development
projects.
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, 1999 and June 30, 1999 and for the three-month period ended September 30,
1999 and 1998 include the accounts of the Company and its subsidiaries,
ImmunoGen Securities Corp. and Apoptosis Technology, Inc. ("ATI"). Although the
condensed consolidated financial statements are unaudited, they 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 fiscal
year ended June 30, 2000. 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, 1999.
COMPUTATION OF LOSS PER COMMON SHARE
Basic and diluted earnings/(loss) 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 securities. As of September 30, 1999 and 1998, the total
number of stock options, warrants and other securities convertible into
ImmunoGen Common Stock equaled 17,140,122 and 15,942,789, respectively.
Components of calculating net earnings/(loss) per share are set forth in the
following table:
7
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net earnings/(loss) to common shareholders...... $ 1,750,161 $(2,461,261)
=========== ===========
Weighted average common shares outstanding,
basic........................................ 25,913,856 25,483,139
Net effect of dilutive instruments:
Convertible preferred stock................ 6,797,845 7,444,245
Options.................................... 771,600 372,911
Warrants................................... 201,070 -
----------- -----------
Weighted average common shares outstanding, 33,684,371 33,300,295 *
diluted.......................................
Earnings/(loss) per common share, basic......... $ 0.07 $ (0.10)
=========== ===========
Earnings/(loss) per common share, dilutive...... $ 0.05 $ (0.10)
=========== ===========
</TABLE>
* The dilutive effects of common stock equivalents were not included in the
September 30, 1998 calculation, as their effect was antidilutive.
B. AGREEMENTS
In February 1999, the Company entered into an exclusive license agreement with
SmithKline Beecham plc, London and SmithKline Beecham, Philadelphia
(collectively, "SB") to develop and commercialize ImmunoGen's lead tumor
activated prodrug, huC242-DM1/SB-408075 (the "SB Agreement"). In preclinical
studies, huC242-DM1/SB-408075 has been shown to be effective against colorectal,
pancreatic and non-small cell lung cancers. Under the terms of the agreement,
the Company could receive up to a total of $41.5 million, subject to the
achievement by the Company of certain non-refundable development milestones. The
Company is also entitled to receive royalty payments on future product sales, if
and when they commence.
Under a separate Stock Purchase Agreement, ImmunoGen was also granted the
right to sell up to $5.0 million of ImmunoGen Common Stock to SB in two separate
transactions, subject to certain conditions (the "put options"). On September 1,
1999, the Company exercised the first of these two put options and issued
1,023,039 shares of Common Stock to SB for $2.5 million.
The SB Agreement is expected to provide the Company with sufficient cash
funding to carry out its responsibilities in developing huC242-DM1/SB-408075. To
that end, the Company will be responsible for the product's initial assessment
in humans, which is expected to begin before the end of calendar year 1999. All
costs subsequent to the initial assessment will be the responsibility of SB. The
SB Agreement is also expected to provide enough additional funding to support
further development of the Company's other current and planned research and
development efforts. As of September 30, 1999, the Company had recognized three
milestones totaling $7.0 million in collaboration revenue. Pursuant to the SB
Agreement, these payments represented non-refundable, unrestricted milestone
payments where no future obligation to perform exists. Of the $7.0 million
collaboration revenue recorded to date, $3.0 million had been received and $4.0
million remained outstanding and included in the asset titled "Due from related
parties" on the September 30, 1999 balance sheet. In October 1999, the remaining
$4.0 million balance was received in full.
8
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C. MINORITY INTEREST
In July 1997, ATI entered into a collaboration agreement with BioChem Pharma
Inc. ("BioChem"), a large Canadian biopharmaceutical company. The BioChem
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 BioChem 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 quarterly private placements, through March 2000. Proceeds are to be used
exclusively to support the research and development activities of the
collaboration. The BioChem agreement also establishes certain restrictions on
the transferability of assets between ATI and the Company. As of September 30,
1999, BioChem had invested $9,439,000; of which $8,596,000 had been received and
$843,000 remained outstanding and included within the asset entitled "Due from
related parties" on the September 30, 1999 condensed consolidated balance sheet.
The outstanding $843,000 balance was subsequently received in October 1999. 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, 1999, 8,590 shares of ATI
preferred stock were issued or issuable to BioChem, representing a 12.7%
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, 1999 and 1998 by $25,290 in each
period. Based upon an independent appraisal, approximately 3% of the $8,596,000
invested to date, or approximately $258,000, has been allocated to the minority
interest in ATI, with the remainder, or approximately $8,338,000, allocated to
the Company's equity. Under the BioChem agreement, the initial three-year
research term will expire in July 2000. However, the agreement may be extended
beyond the initial three-year term, at BioChem's discretion, 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 the 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
$5.6 million in cash and cash equivalents as of September 30, 1999, $1.6 million
represents cash and cash equivalents restricted to fund ATI's research and
administrative expenditures.
As part of the BioChem agreement, 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 limit 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 ImmunoGen'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 ImmunoGen 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, ImmunoGen expects that BioChem will use its shares of ATI preferred
stock, in lieu of cash, to exercise the warrants.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Since inception, ImmunoGen has been principally engaged in the research and
development of immunoconjugate products which the Company believes have
significant commercial potential as human therapeutics. The Company's 97%-owned
subsidiary, Apoptosis Technology, Inc. ("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.
In February 1999, the Company entered into an exclusive license agreement with
SmithKline Beecham plc, London and SmithKline Beecham, Philadelphia
(collectively, "SB") to develop and commercialize ImmunoGen's lead tumor
activated prodrug ("TAP"), huC242-DM1/SB-408075, for the treatment of colorectal
and pancreatic cancers (the "SB Agreement"). In preclinical studies,
huC242-DM1/SB-408075 has also been shown to be effective against non-small cell
lung cancer. In September 1999, the Company's Investigational New Drug
application ("IND") to begin human testing of huC242-DM1/SB-408075 became
effective, and enrollment of patients into a Phase I clinical trial is expected
to begin before the end of calendar 1999. The Company also continues to develop
its TAP for the treatment of small-cell lung cancer, huN901-DM1, and to pursue
additional antibodies to be used to develop TAP's effective against other
cancers. In July 1997, ATI began a three-year research and development
collaboration with BioChem Pharma Inc. ("BioChem"), a large Canadian
biopharmaceutical company. At BioChem's option, this collaboration may be
extended beyond its initial three-year term.
To date, the Company has not generated revenues from product sales and expects
to incur significant losses for the foreseeable future. The Company anticipates
that its existing capital resources will enable the Company to maintain its
current and planned operations through at least fiscal year 2000. Further, the
Company believes that the SB Agreement, while subject to the achievement by the
Company of certain milestones, is expected to provide sufficient cash-based
milestone payments to allow current and planned operations to continue beyond
fiscal year 2000. However, no assurances can be given that such milestones will
in fact be realized. If the Company is unable to meet some or all of the terms
and conditions in the SB Agreement, it may be required to pursue additional
strategic partners, secure alternative financing arrangements, and/or be
required to defer or limit some or all of its planned research and development
projects.
RESULTS OF OPERATIONS
Revenues
The Company's total revenues for the three months ended September 30, 1999
("1999") were $4.1 million, compared with $176,000 for the three months ended
September 30, 1998 ("1998"). The significant increase in revenues from 1998 to
1999 is primarily attributable to the $4.0 million milestone payment recognized
as collaboration revenue under the SB Agreement. No collaboration revenue was
earned during 1998. The $4.0 million milestone payment was recorded upon
receiving notice from the FDA that the Company's IND application to begin human
clinical trials of huC242-DM1/SB-408075 was accepted. Milestones earned under
the SB Agreement represent one-time, non-refundable, unrestricted payments
recognized upon predetermined scientific and/or regulatory achievements.
Additional collaboration revenues of approximately $34.5 million will be earned
if the Company achieves the scientific and regulatory milestones as defined
within the SB Agreement. Therefore, historically-recognized collaboration
revenues should not be used as indicators of the timing or extent of future
milestone payments.
10
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Interest income was $59,000 in 1999 compared to $71,000 in 1998. Interest
earned in the three-month period ended September 30, 1999 primarily resulted
from earnings on invested cash balances. Interest earned during the three-month
period ended September 30, 1998 included earnings on invested cash balances as
well as interest earned on a note receivable from an assignee of one of the
Company's facilities. The decrease in total interest income from 1999 to 1998
resulted from the final payment on the note receivable made on July 1, 1999.
Research and Development Expenses
Research and development expenses, which constituted the principal component
of the Company's total operational expenditures (78%, and 80% in the quarters
ended September 30, 1999 and 1998, respectively), were $1.8 million in 1999
compared to $1.4 million in 1998. The $406,000, or 29%, increase from 1998 to
1999 was primarily due to costs associated with the development and
manufacturing of huC242-DM1/SB-408075 components, as well as the further
development of huN901-DM1. Total 1999 increases were offset by significant
reductions in depreciation and, to a lesser extent, reduced scientific staffing
levels. Future research and development expenses are expected to significantly
increase as the Company anticipates beginning Phase 1 clinical trials of
huC242-DM1/SB-408075 in the last quarter of calendar year 1999. Similarly,
additional preclinical development costs associated with the Company's
huN901-DM1 product candidate are also expected to increase future research and
development spending.
General and Administrative Expenses
General and administrative expenses were $503,000 in 1999 compared to
$347,000 in 1998. The approximate $156,000, or 45%, increase was primarily due
to increased non-scientific staffing levels and increased expenditures
associated with investor relations and business development. Future general and
administrative expenses are also expected to increase in support of the
continued development of the Company's product candidates and technologies.
Minority Interest
ATI operating losses of $25,290 in each of the three-month periods ended
September 30, 1999 and 1998 were allocated to ATI's minority stockholder within
the Company's condensed consolidated financial statements.
Non-cash Dividends
Non-cash dividends were approximately $918,000 in the first quarter ended
September 30, 1998. No non-cash dividends were recognized in the first quarter
of fiscal 2000. The $918,000 non-cash dividends recognized in the first quarter
of fiscal 1999 represented the fair value, using the Black-Scholes option
pricing model, of warrants to purchase 1.4 million shares of ImmunoGen Common
Stock issued in connection with the sale of the Company's Series E Convertible
Preferred Stock.
LIQUIDITY AND CAPITAL RESOURCES
Since July 1, 1999, the Company has financed the net cash used in operating
activities from various sources. These sources include revenues earned under
collaborative agreements, issues of equity securities, amounts received from the
assignment of facilities and equipment, income earned on invested assets and, to
a lesser extent, proceeds from the exercise of stock options and SBIR grant
support. Substantially all cash used in operations for the quarter ended
September 30, 1999 (the "quarter") was used in support of the Company's various
research and development expenditures. In addition to funding $2.23 million in
quarterly operational expenses (exclusive of non-cash depreciation, amortization
and minority interest charges), operating cash of approximately $40,000 was used
to reduce certain accrued liabilities.
11
<PAGE> 12
Capital purchases were $104,000 for the quarter and primarily consisted of the
final phase of the Company's information system upgrade. Although the Company
anticipates further research equipment acquisitions, significant cash-based
expenditures on property and equipment through the remainder of fiscal 2000 are
not expected.
On September 1, 1999, the Company exercised a $2.5 million put option
available to it under the SB Agreement. In exchange for the $2.5 million
received, 1,023,039 shares of the Company's Common Stock were issued to SB.
From July 1, 1999 to September 30, 1999, an aggregate of $843,000 was received
from BioChem with respect to the June 30, 1999 quarterly investment. As
previously described, in October 1999, another $843,000 payment was received as
payment of the September 1999 quarterly investment.
The Company anticipates that its existing capital resources, which include the
subsequently received $4.0 million IND milestone payment and the $843,000
September 30, 1999 BioChem investment, will enable the Company to maintain its
current and planned operations through at least the end of fiscal year 2000.
Moreover, the Company believes that the SB Agreement, while subject to the
achievement of future development milestones, will not only provide sufficient
equity and milestone payments to carry out its responsibilities in developing
huC242-DM1/SB-408075, but also provide enough additional funding to support the
Company's other current and planned research and development expenditures beyond
fiscal year 2000. Finally, the Company is also actively seeking a partner to
support aggressive clinical development and commercialization of the huN901-DM1,
the Company's product candidate for small-cell lung cancer. However, no
assurances can be given that such third-party relationships will be made
available to the Company or that future milestone payments under the SB
agreement will in fact be realized. If the Company is unable to achieve some or
all of the SB Agreement milestones and/or not consummate additional third-party
relationships, it may be required to seek alternative financing arrangements
and/or defer or limit some or all of its planned research and development
projects.
YEAR 2000 ISSUES
The Company has completed all upgrades necessary to ensure that its
information systems, facilities and research and development equipment
containing date-sensitive hardware and software are Year 2000 compliant. The
Company has also sent questionnaires to its currently engaged third-party
suppliers, vendors, administrators and custodians, inquiring of their progress
in identifying and addressing their respective Year 2000 problems. To date, the
Company has received responses from all surveyed vendors and, based upon
information contained in those responses, the Company believes that Year 2000
issues have been or will be addressed by the Company's critical vendors by the
end of calendar year 1999. Should a vendor not be able to overcome its
respective Year 2000 system issues, the Company believes that appropriate,
alternative vendors are readily available. Though not considered likely, the
failure of a major supplier or vendor with Year 2000 problems to convert its
systems on a timely basis could potentially have a material adverse effect on
the Company's business, financial condition and results of operations.
To date, Year 2000 remediation expenses have not been material, and the
Company does not anticipate that it will incur any significant future
expenditures in relation to Year 2000 issues. All implemented Year 2000
remediations were recorded in accordance with the Company's capitalization
policy or otherwise expensed as incurred.
12
<PAGE> 13
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 described in the forward-looking statements. The Company cautions
investors that there can be no assurance 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 uncertainties associated with preclinical studies
and 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 key materials necessary for production of the products
and technologies; the potential development by 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; the lack of assurance regarding patent and other protection for the
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 treatments 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;
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, 1999 as filed with the Securities and Exchange Commission.
13
<PAGE> 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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.
On February 1, 1999 the Company entered into a Stock Purchase Agreement
with SB (the "Stock Purchase Agreement"). On September 1, 1999, the
Company exercised the first of two put options available to it, subject to
certain conditions, and received $2.5 million upon the issuance of
1,023,039 shares of the Company's $0.01 par value Common Stock. Total
shares issued were determined in accordance with the Stock Purchase
Agreement. Proceeds are to be used to fund working capital. The shares
were issued in accordance with Regulation D of the Securities Exchange Act
of 1933.
In July 1997, the Company's majority-owned subsidiary, Apoptosis
Technology, Inc. ("ATI"), entered into a collaboration with a
biopharmaceutical company. As part of the agreement, the collaborator
receives warrants to purchase shares of ImmunoGen Common Stock equal to
the amount invested in ATI by the collaborator during a three-year
research term. These warrants will be exercisable at any time on or after
July 31, 2000, until and including July 31, 2002, into a number of shares
of ImmunoGen Common Stock determined by dividing the amount invested in
ATI by the market price of the ImmunoGen Common Stock on the exercise
date, subject to certain limitations. On September 30, 1999 the quarterly
investment of $843,000 was made in ATI and warrants corresponding to those
amounts were issued on October 6, 1999 in connection with such
investments. All warrants were issued in accordance with Regulation D of
the Securities Exchange Act of 1933.
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
10.1 Form of Warrant Certificate issued by the Registrant to BioChem
Pharma Inc. (previously filed as exhibit 10.5 to, and incorporated
herein by reference from, the Registrant's Registration Statement
on Form 10-Q, as amended by form 10-Q/A, for the quarter ended
September 30, 1997)
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
14
<PAGE> 15
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 4, 1999 By: /s/ Mitchel Sayare
-----------------------------
Mitchel Sayare
President and Chief Executive
Officer
(principal executive officer)
Date: November 4, 1999 By: /s/ Kathleen A. Carroll
-----------------------------
Kathleen A. Carroll
Vice President,
Finance and Administration
(principal financial officer)
15
<PAGE> 16
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUN-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,612,437
<SECURITIES> 0
<RECEIVABLES> 4,874,532
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,561,115
<PP&E> 11,062,629
<DEPRECIATION> (9,490,101)
<TOTAL-ASSETS> 12,173,120
<CURRENT-LIABILITIES> 1,722,637
<BONDS> 0
0
24
<COMMON> 266,923
<OTHER-SE> 162,098,951
<TOTAL-LIABILITY-AND-EQUITY> 12,173,120
<SALES> 0
<TOTAL-REVENUES> 4,064,386
<CGS> 0
<TOTAL-COSTS> 2,334,089
<OTHER-EXPENSES> 157
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,269
<INCOME-PRETAX> 1,750,161
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,750,161
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,750,161
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.05
</TABLE>
