<PAGE> 1
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 period ended March 31, 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 0-19117
IMMULOGIC PHARMACEUTICAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3397957
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
610 Lincoln Street, Waltham, MA 02451
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (781) 466-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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
requirement for the past 90 days.
Yes [X] No [ ]
Number of shares of $.01 par value common stock outstanding as of May 3, 1999
20,376,296
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IMMULOGIC PHARMACEUTICAL CORPORATION
INDEX TO FORM 10-Q
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements and Notes
Unaudited, Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998 3
Unaudited, Condensed Consolidated Statements of
Operations Three Months Ended March 31, 1999 and 1998 4
Unaudited, Condensed Consolidated Statements of
Cash Flows Three Months Ended March 31, 1999 and 1998 5
Notes to Unaudited, Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 12
PART II. OTHER INFORMATION
Item 6. Exhibits 12
Reports on Form 8-K 12
SIGNATURES 13
2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
IMMULOGIC PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 25,007 $ 18,856
Short-term investments -- 8,219
Cantab stock (restricted) - short term 6,578 --
Receivable from sale of programs -- 3,000
Prepaid expenses and other current assets 541 351
--------- ---------
Total current assets 32,126 30,426
Property and equipment, net 3,889 4,167
Long-term investments 17,376 21,553
Cantab stock (restricted) - long term 2,250 --
Other assets 49 49
--------- ---------
Total assets $ 55,690 $ 56,195
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 381 $ 185
Deferred rent 485 616
Payroll and severance costs 1,020 288
Security deposit on sublease 545 545
Accrued expenses and other current liabilities 650 528
--------- ---------
Total current liabilities 3,081 2,162
Other long-term liabilities -- 275
--------- ---------
Total liabilities 3,081 2,437
Stockholders' equity:
Preferred stock - $.01 par value;
1,000,000 shares authorized; no shares
issued or outstanding -- --
Common stock - $.01 par value; 40,000,000 shares
authorized; 20,376,296 and 20,367,672 shares
issued and outstanding at March 31, 1999 and
December 31, 1998, respectively 204 204
Additional paid-in capital 185,309 185,298
Unrealized loss on Cantab stock (173) --
Accumulated deficit (132,731) (131,744)
--------- ---------
Total stockholders' equity 52,609 53,758
--------- ---------
Total liabilities and stockholders' equity $ 55,690 $ 56,195
========= =========
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
3
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IMMULOGIC PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
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<S> <C> <C>
Revenues:
Sponsored research revenues $ 740 $ 530
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Total revenues 740 530
Operating expenses:
Research and development 740 1,487
General and administrative 1,546 867
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Total operating expenses 2,286 2,354
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Operating loss (1,546) (1,824)
Interest income 559 703
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Net loss $ (987) $(1,121)
======= =======
Basic and diluted net loss per common share $ (0.05) $ (0.06)
======= =======
Weighted average number of
common shares outstanding 20,375 20,356
======= =======
Comprehensive loss:
Net loss $ (987) $(1,121)
Other comprehensive loss:
Unrealized loss on Cantab stock (173) --
------- -------
Comprehensive loss: $(1,160) $(1,121)
======= =======
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
4
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IMMULOGIC PHARMACEUTICAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
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<S> <C> <C>
Cash flows for operating activities:
Net loss $ (987) $(1,121)
Adjustments used to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 47 284
Leasehold improvement sublease payments 231 --
Reduction of MIT liability (275) --
Shares issued for 401(k) employer match 11 34
Change in assets and liabilities:
Prepaid and other current assets (190) 46
Accounts payable 196 92
Sublease deposit -- 500
Accrued expenses and other current liabilities 723 (1,736)
------- -------
Total adjustments (743) (780)
------- -------
Net cash used in operating activities (244) (1,901)
Cash flows from investing activities:
Purchase of Cantab stock (6,001) --
Purchase of short term investments -- (2,793)
Redemption of short term investments 8,219 12,306
Redemption of long term investments 4,177 96
------- -------
Net cash provided by investing activities 6,395 9,609
Net increase in cash and cash equivalents 6,151 7,708
Cash and cash equivalents, beginning of period 18,856 8,437
------- -------
Cash and cash equivalents, end of period $25,007 $16,145
======= =======
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
5
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IMMULOGIC PHARMACEUTICAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements reflect
all adjustments which are necessary, in the opinion of management, for a fair
presentation of results of the interim periods presented. The statements do not
include all information and footnote disclosures required by generally accepted
accounting principles and therefore should be read in conjunction with the
consolidated financial statements and footnotes included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998. The results of
operations for the interim periods presented are not necessarily indicative of
the results of operations for the full fiscal year.
NOTE B - NET LOSS PER SHARE
Basic net loss per share is the same as diluted net loss per common share for
the three months ended March 31, 1999 and 1998, respectively. Certain securities
were not included in the computation of the Company's diluted earnings per share
for the three months ended March 31, 1999 and 1998, respectively, because they
would have an anti-dilutive effect due to the Company's net loss for each
period. As of March 31, 1999 and 1998, these securities included 997,875 stock
options and 1,953,051 stock options, respectively.
NOTE C - CANTAB STOCK
The Company sold certain assets related to its drugs of addiction vaccine
programs for the treatment of nicotine and cocaine addiction to Cantab
Pharmaceuticals plc (Cantab). In exchange for these assets and cash totaling
$6,000,000, the Company received 2,566,845 new Cantab Ordinary Shares of 2p
each, which are represented by 855,615 American Depository Receipts ("ADR's").
The sale of these shares is restricted as to 25% increments (213,904 ADR's) and
are available for sale on each of August 2, 1999, November 2, 1999, February 2,
2000 and May 2, 2000. In accordance with FAS 115 ("Accounting For Certain
Investments in Debt and Equity Securities"), at March 31, 1999, the Company
recorded the ADR's available for sale within one year at the current market
price on March 31, 1999 of $10.25 for a total value of $6,577,538 (641,711 ADR's
@ $10.25). The remaining 25% of the ADR's available for sale on May 2, 2000 were
valued at the original purchase price on February 2, 1999 of $10.519 per share
for a total value of $2,250,056 (213,904 ADR's @ $10.519) as they are restricted
as to sale for longer than one year from the balance sheet date. At April 23,
1999 the closing price of the Cantab ADR's was $10.25 with a one-year range of
closing prices from a low of $8.00 to a high of $14.125.
NOTE D - LIQUIDATION OF THE COMPANY
On March 23 1999, the Board of Directors approved a plan to liquidate and
dissolve the Company. Implementation of this plan will require the approval of
the stockholders of the Company, which approval the Company intends to seek at
its 1999 Annual Meeting of Stockholders. The Board anticipates that, as part of
the liquidation, the Company will return to its stockholders the sum of $36.7
million ($1.80 per share, based on 20,376,296 shares of Common Stock currently
outstanding), plus the proceeds from the value realized from the disposition of
shares of Cantab held by the Company, plus the value, if any, to be realized
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from the disposition of the 610 Lincoln Street lease, plus any residual cash
held by the Company at the end of the liquidation period. Currently, the
Company's business activities consist primarily of certain research and
development activities on behalf of Cantab. The Company is reimbursed in full by
Cantab for these research and development activities.
The consolidated financial statements of the Company as of March 31, 1999 and
December 31, 1998, respectively, were prepared under generally accepted
accounting policies for a going concern entity and do not reflect changes in the
carrying amounts of assets and liabilities which may be affected should the
shareholders approve a plan of liquidation of the Company's assets. Amounts that
may be affected include those related to the lease and sublease of the Company's
Waltham, MA facility and amounts related to the carrying value of property,
plant and equipment of the Company as well as possible adjustments of amounts
related to other assets and liabilities of the Company including additional
costs for severance, any future realization of royalties and the value upon the
sale of Cantab stock.
NOTE E - MIT LICENSE AGREEMENT
In May 1987, the Company entered into an agreement with the Massachusetts
Institute of Technology (MIT) under which the Company was granted a worldwide,
exclusive license under certain patent applications. The Company provided MIT
with notice of its intention to terminate this license, and the termination will
be effective July 27, 1999. As a result of the termination, the liability to MIT
was reduced by $275,000 during the first quarter of 1999 reducing the total
amount due under the agreement to $50,000 which was paid in April 1999. No
further amounts will be due under this agreement.
7
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
On February 5, 1999, the Company announced that its Board of Directors had
decided to conclude the business activities of the Company as soon as
practicable. On March 23, 1999, the Board of Directors approved a plan to
liquidate and dissolve the Company. Implementation of this plan will require the
approval of the stockholders of the Company, which approval the Company intends
to seek at its 1999 Annual Meeting of Stockholders. Currently, the Company's
business activities consist primarily of certain research and development
activities on behalf of Cantab. The Company is reimbursed in full by Cantab for
these research and development activities.
The Board anticipates that, as part of the liquidation, the Company will return
to its stockholders the sum of $36.7 million ($1.80 per share) based on
20,376,296 shares of Common Stock currently outstanding, plus the proceeds from
the value realized from the disposition of the Cantab shares held by the
Company, plus the value, if any, to be realized from the disposition of the 610
Lincoln Street lease, plus any residual cash held by the Company at the end of
the liquidation period.
ImmuLogic is a Delaware corporation and Delaware law requires that the Company
stay in existence as a non-operating entity for three years from the date the
Company files a certificate of dissolution in Delaware. During the dissolution
period, the Company will attempt to convert its remaining assets to cash as
expeditiously as possible. The Company will, as soon as possible, sell its
shares of the stock of Cantab, subject to the contractual limitations in place
with respect to the disposition by the Company of such shares. The Company is
currently unable to estimate with any certainty the amount of proceeds that it
will realize upon the sale of the Cantab shares or any other assets of the
Company, or the amounts of retained cash that will have to be used to satisfy
contingent liabilities. Therefore, the Company cannot at this time predict the
amount of any future distributions to be made to the Company's stockholders.
The Company also will attempt to monetize the potential royalty streams from its
agreements with Cantab, Sankyo Co. Ltd ("Sankyo"), and Heska Corporation
("Heska"). Since these are potential revenues several years in the future, the
Company does not anticipate that these will result in significant additional
distributions for stockholders.
RESULTS OF OPERATIONS
REVENUES
Revenues for the first quarter of 1999 were $740,000 compared to $530,000 for
the first quarter of 1998. During the first quarter of 1999, revenues were
entirely generated from research and development services performed for Cantab.
During the first quarter of 1998, revenues consisted of research funding from
Schering AG, Germany ("Schering") related to a joint development and
collaboration agreement for the Company's multiple sclerosis program and
sponsored research revenues from the National Institute of Health ("NIH") for a
grant related to the research and development of the Company's cocaine vaccine
which was sold to Cantab.
OPERATING EXPENSES
For the quarter ended March 31, 1999, the Company's research and development
expenses decreased $747,000 or 50.2% to $740,000 from $1,487,000 for the same
period in 1998. The decrease in research and development expenses is due
primarily to the Company's downsizing which occurred during 1998. Specifically,
reduced headcount and facility related expenses contributed to the savings.
Currently, the Company's business activities consist primarily of certain
research and development activities on behalf of
8
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Cantab. The Company is reimbursed in full by Cantab for these research and
development activities.
General and administrative expenses were $1,546,000 and $867,000 for the
quarters ended March 31, 1999 and 1998, respectively, representing an increase
of $679,000 or 78.3%. The increase was primarily due to severance totaling
$1,006,000 which was incurred in the first quarter of 1999 relating to the
termination or resignation of 15 employees, including the President and Chief
Executive Officer of the Company. Offsetting these increases in expenses were
reduced headcount and facility related expenses as a result of the downsizing
which occurred during 1998 and a reduction in the amount due to MIT of $275,000
resulting from the termination of the Company's license with MIT.
INTEREST INCOME
Interest income for the first quarter of 1999 was $559,000 compared to $703,000
for the first quarter of 1997, a decrease of $144,000 or 20.5%. The decrease in
interest income for the quarter resulted primarily from a lower available
investment balance as compared to the prior year and a slightly decreased rate
of return on funds invested.
NET LOSS
The Company reported a net loss of $987,000 ($(0.05) per share) for the first
quarter of 1999 compared to a net loss of $1,121,000 ($(0.06) per share) for the
first quarter of 1998, a decrease of $134,000 or 12.0%. The decrease in net loss
for the period was primarily due to the Company's downsizing which occurred
during 1997 and 1998 offset in part by severance incurred during the first
quarter of 1999 and lower interest income for the quarter as compared to the
same quarter in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and investments were $42,383,000 at March 31, 1999
compared to $48,628,000 at December 31, 1998. In addition, the Company's
investment in Cantab stock was valued at $8,828,000 at March 31, 1999. Net cash
used in operations for the three months ended March 31, 1999 was $244,000 as
compared to net cash used in operations of $1,901,000 in the comparable 1998
period. The decrease of $1,657,000 was due primarily to savings resulting from
the Company's downsizing which occurred during 1998.
The Company has funded its operations to date primarily through the sale of
equity securities, sponsored research revenues, license payments, and earnings
on invested capital.
The Board of Directors has determined, subject to shareholder approval, to
conclude the Company's business activities as soon as practicable and to
liquidate and dissolve the Company. Therefore, the Company does not anticipate
requiring any further funds and believes that the funds it has on hand will be
sufficient to finance its activities during such period of time as is required
to conclude its business activities and liquidate the Company.
YEAR 2000
Certain companies may face problems if the computer processors and software upon
which they directly or indirectly rely are unable to process date values
correctly upon the turn of the millennium ("Year 2000"). Such a system failure
and corruption of data of the Company or its customers or suppliers could
disrupt the Company's operations, including, among other things, a temporary
inability to process transactions or engage in other business activities or to
receive information or service from suppliers.
The Company presently believes that its computer systems, software and other
equipment will be Year 2000 compliant by the end of the second quarter of 1999.
The Company has initiated communications with third
9
<PAGE> 10
party suppliers and requested that they represent that their products and
services will be Year 2000 compliant and that they have a program to test for
compliance. Costs incurred to date related to Year 2000 have not been material
and future costs are not expected to be material.
Because the Company currently anticipates that it will achieve Year 2000
compliance, it has not formulated a contingency plan. However, should the
Company determine that there is significant risk that it may be unable to adhere
to its compliance timetable, it will assess reasonably likely scenarios
resulting from noncompliance and establish a contingency plan to address such
scenarios.
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," expects," intends" and
similar expressions are intended to identify forward-looking statements. There
are a number of important factors that could affect the future activities of the
Company, including, without limitation, the factors set forth below and those
set forth under the heading "Future Results" and elsewhere in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, as filed with
the Securities and Exchange Commission, and the information contained in this
Quarterly Report on Form 10-Q should be read in light of such factors.
The Company's plan to conclude the business activities of the Company and
distribute the Company's assets to its stockholders is dependent upon the
approval of such plan by the Company's stockholders. In addition, the success of
this plan depends in large part upon the Company's ability to retain the
services of certain of its current executives or to attract qualified
replacements for them. The Company expects that the retention and attraction of
qualified personnel will be difficult because the Company will be in
liquidation.
The Company cannot assure that it will be able to satisfy the requirements for
continued listing of its common stock on the Nasdaq National Market. The rules
of the Nasdaq Stock Market require that companies listed on the Nasdaq National
Market satisfy certain requirements for listing, including that a listed company
continue to have an operating business. If the Company completes its plans to
conclude its business activities, it will no longer have an operating business.
If Nasdaq delists the Company's common stock from the Nasdaq National Market,
the ability of stockholders to buy and sell shares may be materially impaired.
Any future payments which the Company may receive under its agreements with
Heska, Sankyo and Cantab and, therefore, any future value which may be returned
to the Company's stockholders with respect to those agreements, are dependent
upon the successful development and commercialization and in large part,
commercialization of the products licensed or sold to such companies, as the
case may be. The respective ability of Heska, Sankyo and Cantab to develop and
commercialize their products is subject to all of the risks and uncertainties
inherent in the biotechnology industry, including those associated with the
early stage of development of such products, government regulation, competition,
patents and proprietary rights, manufacturing and marketing, additional
financing requirements and access to capital, product liability and third-party
reimbursement. There can be no assurance that any of these products will be
successfully developed or commercialized.
The Company sold certain assets related to its drugs of addiction vaccine
programs for the treatment of nicotine and cocaine addiction to Cantab. In
exchange for these assets and cash totaling $6,000,000, the Company received
2,566,845 new Cantab Ordinary Shares of 2p each, which are represented by
855,615 American Depository Receipts ("ADR's"). In addition, ImmuLogic is
entitled to receive additional
10
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payments if Cantab achieves certain milestones in its cocaine and nicotine
clinical development. These payments may at the option of Cantab be paid in
ADR's. The ADR's held by the Company are subject to certain contractual
limitations with respect to disposition of the shares. In addition, the ADR's
currently held by the Company and which may be issued to the Company are subject
to extreme price and volume fluctuations. Accordingly, neither the cash value
which the Company receives upon disposition of such shares or the cash value to
be distributed to the stockholders with respect thereto can be determined.
The Company has announced that it intends to distribute to its stockholders the
sum of $36.7 million plus proceeds from the liquidation of the Cantab ADR's plus
the value, if any, to be realized from the disposition of its lease plus any
residual cash held by the Company at the end of the liquidation period. Amounts
expected to be distributed to the stockholders of the Company will be offset by
amounts required to be paid by the Company in satisfaction of liabilities or
claims that may arise. Accordingly, the total amount to be distributed to the
stockholders cannot be determined.
11
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
ImmuLogic maintains an investment portfolio the primary objectives of which are
to preserve principal, maintain proper liquidity to meet operating needs and
maximize yields. The Company's investment policy specifies credit quality
standards for the Company's investments and limits the amount of credit exposure
to any single issue, issuer or type of investment. The Company does not believe
that it has any material exposure to market risk with respect to derivative or
other financial instruments which would require disclosure under this item.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit:
Exhibit
Number Exhibit
------ -------
27 Financial Data Schedule
(b) Reports on Form 8-K: Current Report on Form 8-K dated February 2,
1999 reporting a distribution of assets
pursuant to Item 2 of Form 8-K.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMMULOGIC PHARMACEUTICAL CORPORATION
------------------------------------
(Registrant)
Date: 5/11/99 /s/ J. Richard Crowley
------------------------------------
J. Richard Crowley
President, Secretary and Treasurer
(Principal Financial and Accounting
Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM IMMULOGIC
PHARMACEUTICAL CORPORATION FINANCIAL STATEMENTS FILED IN Q1 1999 QUARTERLY
REPORT ON FORM 10-Q CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q MARCH
31, 1999
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 25,007
<SECURITIES> 26,204<F1>
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 32,126
<PP&E> 10,896
<DEPRECIATION> (7,007)
<TOTAL-ASSETS> 55,690
<CURRENT-LIABILITIES> 3,081
<BONDS> 0
0
0
<COMMON> 204
<OTHER-SE> 52,405
<TOTAL-LIABILITY-AND-EQUITY> 55,690
<SALES> 0
<TOTAL-REVENUES> 740
<CGS> 0
<TOTAL-COSTS> 740
<OTHER-EXPENSES> 1,546
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (987)
<INCOME-TAX> 0
<INCOME-CONTINUING> (987)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (987)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
<FN>
<F1>MARKETABLE SECURITIES INCLUDES 19,626 IN LONG TERM INVESTMENTS.
</FN>
</TABLE>
