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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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: 0-19311
IDEC PHARMACEUTICALS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 33-0112644
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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3030 CALLAN ROAD, SAN DIEGO, CALIFORNIA 92121
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(858) 431-8500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.0005 PAR VALUE
(TITLE OF CLASS)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of January 31, 2000, the aggregate market value of the voting stock held
by non-affiliates of the Registrant was approximately $5,112,936,000. (Based
upon the "closing" price as reported by The Nasdaq Stock Market on January 31,
2000). This number is provided only for the purposes of this report and does not
represent an admission by either the Registrant or any such person as to the
status of such person.
As of January 31, 2000, the Registrant had 42,851,387 shares of its common
stock, $.0005 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Stockholders to be held on May 17, 2000 are incorporated by reference into Part
III.
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IDEC PHARMACEUTICALS CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 29
Item 3. Legal Proceedings........................................... 29
Item 4. Submission of Matters to a Vote of Stockholders............. 29
PART II
Market for Registrant's Common Equity and Related
Item 5. Stockholder Matters......................................... 30
Item 6. Selected Financial Data..................................... 31
Management's Discussion and Analysis of Financial Condition
Item 7. and Results of Operations................................... 32
Quantitative and Qualitative Disclosures About Market
Item 7A. Risk........................................................ 37
Item 8. Consolidated Financial Statements and Supplementary Data.... 39
Changes in and Disagreements with Accountants on Accounting
Item 9. and Financial Disclosure.................................... 57
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 57
Item 11. Executive Compensation...................................... 59
Security Ownership of Certain Beneficial Owners and
Item 12. Management.................................................. 59
Item 13. Certain Relationships and Related Transactions.............. 59
PART IV
Exhibits, Financial Statement Schedules, and Reports on Form
Item 14. 8-K......................................................... 60
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PART I
ITEM 1. BUSINESS.
OVERVIEW
IDEC Pharmaceuticals Corporation ("we", "our", or "us") is a
biopharmaceutical company engaged primarily in the research, development and
commercialization of targeted therapies for the treatment of cancer and
autoimmune and inflammatory diseases. Our first commercial product, Rituxan(R),
and our most advanced product candidate, ZEVALIN(TM) (ibritumomab tiuxetan,
formerly IDEC-Y2B8), are for use in the treatment of certain B-cell
non-Hodgkin's lymphomas ("NHL"). B-cell NHLs currently afflict approximately
275,000 patients in the United States. We are also developing products for the
treatment of various autoimmune diseases (such as psoriasis, rheumatoid
arthritis and lupus).
In November 1997, Rituxan became the first monoclonal antibody approved by
the U.S. Food and Drug Administration ("FDA") for a cancer therapy indication.
Rituxan, marketed in the U.S. pursuant to a copromotion arrangement between
Genentech, Inc. ("Genentech") and us, achieved U.S. net sales of $262.7 million
in 1999, a 73% increase over U.S. net sales of $152.1 million in 1998. F.
Hoffmann-La Roche Ltd. ("Roche") sells Rituxan (under the trade name MabThera)
outside the United States, except in Japan where Zenyaku Kogyo Co. Ltd.
("Zenyaku") has the rights for product development, marketing and sales.
Under our copromotion arrangement with Genentech we share responsibility
with Genentech for selling and continued development of Rituxan in the United
States. Continued development of Rituxan includes conducting supportive research
on Rituxan and post approval clinical studies and obtaining potential approval
of Rituxan for additional indications. Genentech provides support functions for
the commercialization of Rituxan including marketing, customer service, order
entry, distribution, shipping and billing and, as of September 1999, Genentech
is responsible for all manufacturing responsibilities for Rituxan.
Delivered intravenously as a treatment for relapsed or refractory low-grade
or follicular, CD20-positive B-cell NHL, Rituxan possesses a favorable side
effect profile. Treatment with Rituxan is given as four weekly intravenous
infusions over a twenty-two day period as compared to chemotherapy, which is
typically given in repeated cycles for up to four to eight months. Thus, Rituxan
offers the possibility of increased quality of life during the treatment of
cancer, while maintaining a response rate that compares favorably with
conventional treatments. In its pivotal Phase III clinical trial involving 166
evaluable patients, Rituxan, administered as a single agent achieved a partial
(at least 50% tumor shrinkage) or complete response to therapy in forty-eight
percent (48%) of patients on an intent-to-treat basis (80 of 166 patients).
Eighty-seven percent of evaluable patients demonstrated at least a quantifiable
shrinkage in tumor size. For the 80 patients achieving a partial or complete
response, the median time of regrowth of the tumor was 11.6 months from the
onset of response, and we believe 16 of the 80 patients are experiencing ongoing
remissions. Because of its favorable safety profile, we believe that Rituxan is
a strong candidate for combination therapy, and we are currently researching its
possible uses in this role.
BACKGROUND INFORMATION
In order to better analyze our business and prospects, it is helpful to
understand the field in which we operate, including the general manner in which
our products and product candidates interact with people's bodies and, in
particular, with the diseases that our products and product candidates are
designed to target. Each of the following subsections provides background
information which is important to gaining an understanding of our products and
product candidates:
Antibodies and the Immune System. The immune system is composed of
specialized cells, including B cells and T cells, that function in the
recognition, destruction and elimination of disease-causing foreign substances
and of virally infected or malignant cells. The role of these specialized cells
is determined by receptors on the cell surface which govern the interaction of
the cell with foreign substances and with the rest of the immune system.
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For example, each differentiated B cell of the immune system has a
different antibody anchored to its surface that serves as a receptor to
recognize foreign substances. This antibody then triggers the production of
additional antibodies which, as free-floating molecules, bind to and eliminate
these foreign substances. Each foreign substance is individually identifiable by
structures on its surface known as antigens, which serve as binding sites for
the specific antibodies. T cells play more diverse roles, including the
identification and destruction of virally infected or malignant cells.
A variety of technologies have been developed to produce antibodies as
therapeutic agents. These include hybridoma technology and molecular biology
techniques such as gene cloning and expression, which can now be applied to the
generation, selection and production of hybrid monoclonal antibody varieties
known as chimeric and humanized antibodies, as well as strictly human
antibodies. Chimeric antibodies are constructed from portions of non-human
species (typically mouse) antibodies and human antibodies. In these
applications, the portion of the antibody responsible for antigen binding (the
"variable region") is taken from a non-human antibody and the remainder of the
antibody (the "constant region") is taken from a human antibody. Compared to
mouse-derived ("murine") monoclonal antibodies, chimeric antibodies generally
exhibit lower immunogenicity (the tendency to trigger an often adverse immune
response such as a human anti-mouse antibody, or "HAMA" response), are cleared
more slowly from the body, and function more naturally in the human immune
system. Humanized antibodies can be constructed by grafting several small pieces
of a murine antibody's variable region onto a constant region framework provided
by a human antibody. This process, known as "CDR grafting," reduces the amount
of foreign materials in the antibody, rendering it closer to a human antibody.
However, the construction of humanized antibodies by CDR grafting requires
complex computer modeling, and the properties of the resulting antibody are not
completely predictable and may, in fact, still trigger a HAMA response.
B-cell Non-Hodgkin's Lymphomas. As with other cell types in the body, B
cells and T cells may become malignant and grow as immune system tumors, such as
B-cell NHLs. B-cell NHLs are cancers of the immune system which currently
afflict approximately 275,000 patients in the United States. Treatment
alternatives for B-cell NHL patients include chemotherapy, radiation therapy,
and more recently, Rituxan. Rituxan is approved for use in relapsed or
refractory, low grade or follicular, CD20 positive, B-cell NHL. B-cell NHLs are
diverse with respect to prognosis and treatment, and are generally classified
into one of three groups (low, intermediate or high grade) based on histology
and clinical features. These three groups are further subdivided by the
International Working Formulation ("IWF") into subclasses A through J: low grade
(A, B and C); intermediate grade (D, E, F and G); and high grade (H, I and J).
Low grade or follicular B-cell NHL is comprised of IWF subclasses A through D.
We estimate that approximately half of the 275,000 patients afflicted with
B-cell NHL in the United States have low grade or follicular disease. Of such
patients afflicted with low grade or follicular B-cell NHL in the United States,
approximately 20,000 will have been diagnosed during the past 12 months.
Patients with low grade lymphomas have a fairly long life expectancy from the
time of diagnosis (median survival 6.6 years), despite the fact that low grade
NHLs are almost always incurable. Intermediate grade and high grade lymphomas
are more rapidly growing forms of these cancers, which in some cases can be
cured with early, aggressive chemotherapy. New diagnoses of NHLs in the United
States are estimated to be 55,000 in 2000. In approximately 90% of the cases in
the United States, non-Hodgkin's lymphomas are of B-cell origin, the remainder
are of T-cell origin.
Owing to the fluid nature of the immune system, B-cell lymphomas are
usually widely disseminated and characterized by multiple tumors at various
sites throughout the body at first presentation. Treatment courses with
chemotherapy or radiation therapy often result in a limited number of remissions
for patients with B-cell lymphomas. The majority of patients in remission will
relapse and ultimately die either from their cancer or from complications of
standard therapy. Fewer patients achieve additional remissions following relapse
and those remissions are generally of shorter duration as the tumors become
increasingly resistant to subsequent courses of chemotherapy. Therapeutic
product development efforts for these cancers have focused on both improving
treatment results and minimizing the toxicities associated with standard
treatment regimens. Immunotherapies with low toxicity and demonstrated efficacy,
such as Rituxan, might be expected to reduce treatment and hospitalization costs
associated with side effects or opportunistic infections, which can result from
the use of chemotherapy and radiation therapy.
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Autoimmune and Inflammatory Diseases. Psoriasis, inflammatory bowel disease
("IBD"), asthma, allergic rhinitis, rheumatoid arthritis ("RA"), systemic lupus
erythematosus ("SLE") and multiple sclerosis ("MS") are autoimmune and
inflammatory diseases that require ongoing therapy and afflict many millions of
patients in the United States. Autoimmune disease occurs when the patient's
immune system goes awry, initiating a cascade of events which results in an
attack by the patient's immune system against otherwise healthy tissue and often
includes inflammation of the involved tissue. Autoimmune diseases are typically
treated with products such as steroids and nonsteroidal anti-inflammatory agents
and with other therapies, all of which are limited for several reasons,
including their lack of specificity and ineffectiveness when used chronically.
Furthermore, steroids suppress the immune system and make the patient
susceptible to infections while nonsteroidal, anti-inflammatory agents have
limited efficacy and have been implicated in the formation of gastro-intestinal
ulcerations.
Regulation of Immune System Cells. Monoclonal antibodies may be used to
bind to specific subsets of human immune system cells and may act to deplete, to
suppress or to up-regulate the activity of the targeted cells. Indeed, the high
specificity of monoclonal antibodies enables them to selectively act against
different types of B cells or T cells. Depletion of diseased immune cells or
suppression of disease-causing immune activities may be possible by using
antibodies that attach to specific antigens on the surface of target immune
system cells. In particular, the individual B and T cells of the immune system
express a broad variety of surface antigens (cell surface markers). Such
antigens not only differentiate one cell type from another, but also
differentiate individual cells from other cells with specificity for different
antigens. Monoclonal antibodies may also be used to bind to molecules, such as
cytokines, in the plasma which serve as soluble mediators of immune system cell
activity. By neutralizing these molecules, monoclonal antibodies may be used to
alter immune cell activity and/or migration, for example, in inflammatory
conditions.
TECHNOLOGY
We are developing products for the management of immune system cancers and
autoimmune and inflammatory diseases. Our antibody products bind to specific
subsets of human immune system cells, or to soluble mediators of immune cell
activity, and act to deplete or to alter the activity of these cells. The
products are administered intravenously and target cells or soluble mediators
located in easily accessible compartments of the body, specifically the blood,
the lymphatic fluid and the synovial fluid. For treatment of B-cell NHLs, our
products target a cell surface marker known as CD20 which is present only on B
cells but not on B-cell precursors. These products act to reduce total B-cell
levels, including both malignant and normal B cells. The depletion of normal B
cells observed in clinical experience to date has been only temporary, with
regeneration occurring within months from the unaffected B-cell precursors. We
believe that our lead product, Rituxan provides therapeutic alternatives to
complement the treatment of certain B-cell NHLs. We also believe that our
radioimmunotherapeutic agent, ZEVALIN, if successfully developed and approved
for marketing, may provide an additional alternative for the treatment of
certain B-cell NHLs.
Due to their specificity and affinity for cell surface receptors,
monoclonal antibodies are an attractive means by which to treat autoimmune
diseases. Attachment of monoclonal antibodies to specific cell surface receptors
can be used to suppress aberrant and unwanted immune activity. Historically,
however, the use of monoclonal antibodies as an ongoing therapy has been limited
by the body's rejection of the murine components of the antibodies. Murine
monoclonal antibodies, which are structurally different from human antibodies,
tend to trigger adverse immune reactions when used as therapies. These reactions
include a HAMA response in which the patient's immune system produces antibodies
against the therapeutic antibody, thus limiting its effectiveness.
We have developed the following proprietary technology for use with and in
the development of our products:
PRIMATIZED(R) Antibody Technology. We have developed a proprietary
PRIMATIZED antibody technology designed to avoid HAMA responses and other
immunogenicity problems by developing monoclonal antibodies from primate rather
than mouse B cells. These antibodies are characterized by their strong
similarity to human antibodies and by the absence of mouse components. In 1998,
we received an
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issued U.S. patent covering our PRIMATIZED antibodies. Underlying this
proprietary technology is our discovery that macaque monkeys produce antibodies
that are structurally indistinguishable from human antibodies in their variable
(antigen-binding) regions. Further, we found that the macaque monkey can be
immunized to make antibodies that react with human, but not with macaque,
antigens. Genetic engineering techniques are then used to isolate the portions
of the macaque antibody gene that encode the variable region from a macaque B
cell. This genetic material is combined with constant region genetic material
from a human B cell and inserted into a host cell line which then expresses the
desired antibody specific to the given antigen. The result is a part-human,
part-macaque PRIMATIZED antibody which appears structurally to be so similar to
human antibodies that it may be accepted by the patient's immune system as
"self." This development allows the possibility of therapeutic intervention in
chronic diseases or other conditions that are not amenable to treatment with
antibodies containing mouse components. We are currently using our PRIMATIZED
technology for the development of our IDEC-151, IDEC-152 and IDEC-114 product
candidates described below.
PROVAX(TM) Antigen Formulation. We have also discovered a proprietary
antigen formulation, PROVAX, which has shown the ability to induce cellular
immunity, manifested by cytotoxic T lymphocytes, in animals immunized with
protein antigens. Cellular immunity is a counterpart to antibody-based immunity
and is responsible for the direct destruction of virally infected and malignant
cells. PROVAX is a combination of defined chemical entities and may provide a
practical means for the development of effective immunotherapies that act
through the induction of both antibody and cell-mediated immunity. We believe
such immunotherapies may be useful for the treatment of certain cancers and
viral diseases. Preliminary studies also indicate that PROVAX can be safely
administered by injection to human subjects. We intend to make PROVAX available
through licenses and collaborations to interested partners for development of
immunotherapeutic vaccines.
Proprietary Vector Technologies. We have developed methods of engineering
mammalian cell cultures using proprietary gene expression technologies ("vector
technologies") that rapidly and reproducibly select for stable cells, producing
high levels of desired proteins. These technologies allow the efficient
production of proteins at yields that may be significantly higher, and costs
that may be significantly lower, than current, competing cell culture
manufacturing methods. We have successfully applied one of these technologies to
the commercial scale production of Rituxan.
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OUR PRODUCT AND PRODUCT CANDIDATES
Rituxan, our first product approved for marketing in the United States, and
our primary products under development address immune system disorders, such as
lymphomas and autoimmune and inflammatory diseases, such as SLE and psoriasis.
In addition, we have discovered certain other product candidates through the
application of our technology platform. The products either commercialized or in
preclinical and clinical development by our partners and us include the
following.
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INDICATION STATUS(1) DEVELOPMENT/MARKETING(2)
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Immune System Cancer Products:
Rituxan............................ Certain B-cell NHL U.S.: Approved Genentech (U.S.
European Union: copromotion)
Approved Roche (worldwide except
Japan: Approval U.S. and Japan) Zenyaku
pending (Japan)
ZEVALIN............................ Certain B-cell NHL Phase III Schering AG (worldwide
(radioimmunotherapy) except U.S.)
Autoimmune and Inflammatory
Products:
PRIMATIZED Anti-CD4 (IDEC-151)
(Clenoliximab)................... Rheumatoid Arthritis Phase II No current partner
Humanized Anti-gp39 (IDEC-131)..... Various autoimmune Phase II Eisai (Europe and Asia)
diseases, initially
SLE
PRIMATIZED Anti-B7 (IDEC-114)...... Various autoimmune Phase I/II Mitsubishi (Asia)
diseases, initially
psoriasis
PRIMATIZED Anti-CD23
(IDEC-152)....................... Various allergic Phase I Seikagaku (Europe and
conditions, Asia)
initially allergic
asthma
Humanized and PRIMATIZED
Anti-MIF......................... Various inflammatory Discovery No current partner
conditions
Other Products:
PROVAX (antigen formulation)....... Cancer therapeutic Preclinical No current partner
vaccines development
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(1) As used in this Form 10-K, "Discovery" means that the research phase is
ongoing and a lead compound has not yet been selected. "Lead compound
selected" means agents have been identified that meet preselected criteria
in assays for activity and potency. "Preclinical development" means lead
compound undergoing testing required prior to submission of an
Investigational New Drug Application. "Phase I" means initial human studies
designed to establish the safety, dose tolerance and pharmacokinetics of a
compound. "Pilot" means a Phase I/II study is currently being designed for
this indication, however, prior clinical activities have been conducted in
other indications" "Phase I/II" means initial human studies designed to
establish the safety, dose tolerance and pharmacokinetics of a compound and
which may be designed to show preliminary activity of a compound in patients
with the targeted disease. "Phase II" means human studies designed to
establish safety, optimal dosage and preliminary activity of a compound.
"Phase III" means human studies designed to lead to accumulation of data
sufficient to support a marketing license application such as a Biologics
Licensing Application, including data relating to efficacy.
(2) We have retained exclusive marketing rights in the United States for all of
our products except Rituxan.
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IMMUNE SYSTEM CANCER PRODUCTS
Our objective with respect to treating B-cell NHLs is to use our anti-CD20
antibodies to target, bind to and selectively eliminate both the patient's
normal and malignant B cells. The following is a brief description of each of
our products in this area:
Rituxan. Rituxan is a genetically engineered, chimeric murine/human
monoclonal antibody designed to harness the patient's own immune mechanisms to
destroy tumor cells. In November, 1997, Rituxan was approved in the United
States for treatment of certain B-cell NHLs and we market Rituxan in the United
States with Genentech pursuant to a copromotion arrangement. Roche sells Rituxan
outside the United States under the trade name MabThera, except in Japan where
Zenyaku has the rights for product development, marketing and sales.
Laboratory studies performed by us have shown that the antibody attaches to
the CD20 antigen on B cells and activates a group of proteins known as
"complement," leading to normal and malignant B-cell destruction. Additionally,
the antibody, when bound to the CD20 antigen, recruits macrophages and natural
killer cells to attack the B cells. Through these and other mechanisms, the
antibody utilizes the body's immune defenses to lyse (rupture) and deplete B
cells. B cells have the capacity to regenerate from early precursor cells that
do not express the CD20 antigen. The depletion of normal B cells observed in
clinical experience to date has been only temporary, with normal B-cell
regeneration typically occurring within six to nine months. The capacity of a
tumor to regrow after treatment with Rituxan will depend on the number of
malignant B cells, or malignant B-cell precursors (if the malignancy first
appeared within a precursor cell), remaining after treatment.
Rituxan was the first monoclonal antibody approved in the United States for
a cancer therapy indication. Rituxan is unique in the treatment of B-cell NHLs
due to its specificity for the antigen CD20, which is expressed only on normal
and malignant B cells, but not on other tissues of the body, and its mechanism
of action as compared to conventional lymphoma therapies, including experimental
radioimmunotherapies. These properties of Rituxan allow its use in patients
where chemotherapy is either poorly tolerated or ineffective in inducing disease
remissions. Rituxan is easily administered as outpatient therapy by personnel
trained in the use of chemotherapies. A standard course of Rituxan therapy
consists of four intravenous infusions given on days 1, 8, 15 and 22, whereas
chemotherapy is given typically in repeating cycles for up to four to eight
months. In October 1999, we filed a supplemental Biologics Licensing Application
("BLA") relating to the use of Rituxan in expanded dosing, including
retreatment, times eight dosing and bulky disease for the treatment of B-cell
NHL.
Rituxan is indicated for single agent use in relapsed or refractory, low
grade or follicular, CD20-positive, B-cell NHLs, which comprise approximately
half of the prevalence of B-cell NHLs in the United States. Ongoing or completed
Phase II studies suggest that Rituxan may also be useful in combination with
chemotherapy in low grade or follicular B-cell NHLs, and as a single agent, or
in combination with various chemotherapies, in the treatment of other forms of
B-cell NHLs. In relapsed or chemotherapy refractory B-cell NHLs, which to date
have proven to be incurable, Rituxan provides a means to induce remissions of
disease in some patients without subjecting the patient to the toxicity and
duration of therapy that are typical of chemotherapy regimens. In certain newly
diagnosed B-cell NHLs that are curable with early aggressive chemotherapy, we
believe that the addition of Rituxan to combination regimens may improve the
overall cure rate. Demonstration of improved cure rate (i.e. long-term disease
remissions) is being sought through ongoing, randomized controlled trials. In
Phase III clinical trials, Rituxan, given as a single agent to patients with
relapsed or refractory, low grade or follicular, CD20-positive, B-cell NHL,
achieved partial or complete responses to therapy in 48% of patients on an
intent-to-treat basis (80 of 166 patients). Of the 80 responding patients (tumor
shrinkage greater than 50% verified over at least two independent observations
28 days apart), 10 were complete responses (6%), and 70 were partial responses
(42%). The median duration of response (time from first determination of
response to tumor regrowth) in the 80 responders was 11.6 months, despite the
short duration (22 days) of the full course of therapy. We believe that 16 of
the 80 responders (approximately 24%) are experiencing ongoing remissions
lasting from one-and-a-half to three years. Retrospective analysis of patient
subgroups in the Phase III Rituxan trial showed responses in patients with poor
prognostic features, who generally respond poorly to chemotherapy regimes, such
as age greater than 60,
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extranodal disease, prior relapse from autologous bone marrow transplant, or
relapse or failure of anthracycline containing regimens.
There are standard response criteria for solid tumor cancers, chronic
lymphocytic leukemia, Hodgkin's disease and acute myelogenous leukemia, but
currently none for B-cell NHL. As a result, clinical response rates in B-cell
NHL may vary depending on which criteria is being applied. For example, one of
the requirements for scoring a complete response in the Rituxan pivotal trial
was that all measurable lesions must have shrunk to less than 1x1cm. Using this
conservative criterion, a 6% complete response rate ("CR") was reported.
However, as presented at the American Society of Hematology meeting in December
1998, complete response rates for the Rituxan pivotal trial increased
significantly when analyzed according to alternative minimums for lesion
shrinkage, i.e.: 18% CR and 28% CR when analyzed using 1.5x1.5cm and 2.0x2.0cm,
respectively. Until uniform criteria is adopted for all B-cell NHL trials,
complete response rates will vary widely depending on the measures being
utilized.
The following figure shows the percentage change in tumor size in all 166
patients entered into the Phase III trial of Rituxan in relapsed or refractory,
low grade or follicular CD20-positive, B-cell NHL.
MAXIMUM PERCENTAGE CHANGE IN TUMOR SIZE AMONG ALL TREATED PATIENTS(1)
[GRAPH]
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(1) Tumor shrinkage measured radiographically for the 166 patients by sum of
products of lesion perpendicular diameters. Data represents the greatest
shrinkage achieved by each patient during the observation period. Subsequent
tumor growth may have occurred and data for three patients are unavailable.
(2) Includes two patients with increase in lesion size greater than 100%.
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In December 1999, we announced updated information on the results of a
Phase II Rituxan re-treatment study presented at the American Society of
Hematology Conference ("ASH"). This Phase II study in patients with low-grade or
follicular, CD20-positive, B-cell NHL was conducted to determine the safety and
efficacy of Rituxan in patients who had relapsed or were refractory to prior
chemotherapy, but had responded previously to Rituxan. From the analyses of the
study, patients who responded to one regimen of Rituxan may be re-treated with
additional courses of Rituxan without impairment of bone marrow function
(myelosuppression) or development of an immune response (antibodies) to CD20
antibody therapy -- a response called human anti-chimeric antibody (HACA). Of 60
patients treated, 57 were considered evaluable for efficacy. The overall
response rate was 40%, with 7 out of 57 (13%) being complete responders and 16
out of 57 (29%) being partial responders. Median time to progression and
duration of response have not been reached after more than 15 months of
follow-up. While the overall safety profile seen with re-treatment was similar
to what was reported for the initial treatment with Rituxan (primarily
infusion-related events that usually occurred within a few hours of the first
infusion) other events that occurred less frequently included: leukopenia,
nausea, transient bronchospasm, and mild hypotension. These results supported
the supplemental BLA filed in October 1999, which requested a label expansion to
include re-treatment with Rituxan for B-cell NHL patients.
Also in December 1999, we announced updated information on the results of a
Phase II study assessing the safety and effectiveness of Rituxan used in
combination with cyclophosphamide, doxorubicin, vincristine and prednisone
(collectively known as "CHOP") chemotherapy in low-grade or follicular B-cell
NHL. The overall response rate in the Phase II study was 100 percent in 35
evaluable patients with 22 patients (63%) achieving complete responses and 13
patients (37%) achieving partial responses. The median duration of response was
45.9+ months with progression free survival not reached after a median
observation time of 47.4+ months. Twenty-four patients (63%) are still in
remission beyond 36+ months and up to 65.3+ months. Attending physicians
attributed 75% of toxicity associated with this combined treatment to the CHOP
chemotherapy. The most frequently experienced adverse events were neutropenia,
dehydration, alopecia, nausea and fever. Rituxan was associated with fever and
chills.
Results of a Phase II clinical trial evaluating the combination of Rituxan
plus CHOP in intermediate and high-grade B-cell NHL were also announced in
December 1999. The overall response rate in the 33 evaluable patients was 97%
with 20 patients (61%) achieving complete responses and 12 patients (36%)
achieving partial responses. At a median follow-up of 24 months, the median
duration of response has not been reached at 18+ months with 27 evaluable
patients with no evidence of progressive disease.
While these Phase II trials were conducted in a relatively small number of
patients, it appears that adding Rituxan to CHOP chemotherapy may have the
potential to provide durable remissions for patients with NHL. As a result, a
Phase III randomized, open-label clinical trial, sponsored by us and Genentech,
began in January 2000 to evaluate the safety and efficacy of Rituxan plus CHOP
versus CHOP alone in previously untreated CD20-positive intermediate- or
high-grade NHL patients. The clinical trial will include approximately 420
patients at various sites in the United States and Canada.
These CHOP/Rituxan Phase II clinical trials also served as the basis for
the commencement of a large, randomized controlled cooperative Phase III trial
by the National Cancer Institute ("NCI"), the Eastern Cooperative Oncology
Group, the Cancer and Leukemia Group B, and the Southwest Oncology Group. This
trial will examine whether the addition of Rituxan to the CHOP regime will
improve cure rates (long-term remission) in elderly (age greater than 60 years)
intermediate- and high-grade B-cell NHL patients.
The most common adverse events associated with Rituxan, based on our
clinical trial experience, are infusion-related, consisting mainly of mild to
moderate flu-like symptoms (e.g., fever, chills, rigors) that occur in the
majority of patients during the first infusion. Other events which occur with
less frequency include nausea, rashes, fatigue and headaches. More serious
events include hypotension, wheezing, sensation of tongue or throat swelling and
recurrence of cardiac events in patients with a history of angina or arrhythmia.
These symptoms were usually limited in duration to the period of infusion and
decrease with subsequent infusions. These adverse events are generally more mild
and of a shorter duration than the adverse events associated with chemotherapy.
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In the fourth quarter of 1998 we, along with Genentech and Roche, notified
doctors of the occurrence in certain patients of severe infusion-related adverse
events that were associated with eight fatalities out of approximately 14,000
patients treated worldwide since Rituxan was launched. In 1999, in consultation
with the FDA, the warning section of the package insert for Rituxan was updated
to include information on infusion-related reactions and cardiovascular events.
In an effort to identify expanded applications for Rituxan, we, in
conjunction with Genentech and Roche, have authorized over 120 Rituxan
post-marketing study concepts to date, at least two of which will be large Phase
III clinical trials. Several of these trials will explore the use of Rituxan in
a variety of investigational B-cell NHL clinical settings including: (i)
combination therapy with widely used chemotherapy regimens for both low-grade
and intermediate/high-grade disease; (ii) single agent therapy in newly
diagnosed, previously untreated low-grade disease; (iii) integration into
autologous bone marrow transplant regimens both as an in vivo purging agent
prior to bone marrow harvest and post-transplant as consolidation therapy; and
(iv) treatment of AIDS-related B-cell NHLs. Additionally, clinical trials have
been initiated in other B-cell malignancies and pre-malignant conditions such as
CLL, multiple myeloma and lymphoproliferative disorders associated with solid
organ transplant therapies.
ZEVALIN. Due to the sensitivity of B-cell tumors to radiation, radiation
therapy has historically played, and continues to play, an important role in the
management of B-cell lymphomas. Radiation therapy currently consists of external
beam radiation focused on certain areas of the body with tumor burden. We are
developing an antibody product that is intended to deliver targeted
immunotherapy by means of injectable radiation to target sites expressing the
CD20 antigen, such as lymphatic B-cell tumors. In clinical testing, the isotope
indium-111 was used to image the patient's tumor and to ensure that normal
organs are not exposed to undue radiation from the subsequently administered
therapeutic product, which uses the isotope yttrium-90. The low-energy gamma
particle emitted by indium is detectable outside the body, thereby allowing the
physician to determine the localization of the antibody in the tumor. The
companion yttrium-90 isotope provides targeted radiation therapy by emitting a
high-energy beta particle that is absorbed by surrounding tissue, leading to
tumor destruction. Our objective with ZEVALIN is to provide safer, more
effective radiation therapy than is possible with external beam radiation or
with other isotopes and to provide this radiation therapy in an outpatient
setting.
Other radioisotopes, such as iodine-131, emit both beta and gamma radiation
and at certain therapeutic doses require that the patient be hospitalized and
isolated in a lead-shielded room for several days. In contrast, the beta
particle emitted by yttrium-90 is absorbed by tissue immediately adjacent to the
antibody and is concentrated at the antibody target. We believe that this short
penetrating radiation will permit the use of the product in outpatient therapy,
and have conducted our clinical trials in the outpatient setting.
We have completed patient accrual for two multi-center, pivotal Phase III
studies of ZEVALIN in the treatment of low-grade and/or follicular NHL, which
will be the basis for a BLA that we anticipate submitting during the fourth
quarter of 2000. Also, within this time frame, we are preparing to submit with
our isotope supplier a New Drug Application ("NDA") for yttrium-90 from a new
and larger site that has the capacity to support global commercialization of
ZEVALIN.
Phase III interim results for these two studies were presented at ASH in
December 1999. The first trial compares ZEVALIN, plus Rituxan, to Rituxan alone
in patients with relapsed or refractory, low-grade, follicular or transformed
CD20-positive, B-cell NHL. The prospectively defined 90-patient interim analysis
showed an overall response rate of 80% for the ZEVALIN group compared to an
overall response rate of 44% for the Rituxan group. A treatment course for
ZEVALIN includes a Rituxan infusion (250 mg/m2) on day one, followed by
infusions of Rituxan (250 mg/m2) and ZEVALIN (at a standard radiation dose of
0.4 mCi/kg of patient body weight) on day eight. Patients in the Rituxan arm
received four infusions of Rituxan (at the indicated dose of 375 mg/m2) once a
week over 22 days. Of the evaluable patients 21% in the ZEVALIN group achieved a
complete response to therapy and 59% achieved a partial response. ZEVALIN
associated toxicity was primarily hematologic, transient and reversible. Six
percent of patients in the ZEVALIN arm of the study experienced Grade 4
thrombocytopenia (platelet count below 10,000/mm3) and 25 percent experienced
Grade 4 neutropenia (neutrophil count below 500/mm3). However, patients
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recovered in a median of 12 and 14 days, respectively. The overall safety
profile for treatment with Rituxan in the study was consistent with the Rituxan
pivotal trial safety results.
The second pivotal study is evaluating the safety and efficacy of ZEVALIN
in follicular NHL patients who are refractory to Rituxan, i.e., who did not
achieve a response or had a time to progression of less than six months with the
most recent course of Rituxan. The interim overall response rate was 46% with
all responders achieving a partial response. Eighty percent of these patients
had sizable tumors (greater than 5cm in single diameter) and 76% were
chemotherapy-resistant. The dosimetry results obtained in the second Phase III
trial concluded that the ZEVALIN biodistribution and estimated radiation
absorbed dose to normal body organs were not affected by prior treatment with
Rituxan.
We expect that Rituxan and ZEVALIN, if approved, will become complementary
products for the management of B-cell NHLs. Because most B-cell NHLs are treated
today in community-based group practices, Rituxan fits nicely into the community
practice, as no special equipment or extensive training is required for its
administration or for management of treatment-related side effects. Rituxan has
shown activity even in patients refractory to chemotherapy and is indicated for
this use, so that it may provide a viable option for the community-based
oncologist prior to referral of the patient to the major medical center for
treatment with more aggressive therapies, potentially including ZEVALIN. By
contrast, all radioimmunotherapies will be administered by the nuclear medicine
specialists or radiation oncologists at the major medical or cancer centers that
are equipped for the handling, administration and disposal of radioisotopes.
Also, the nuclear medicine department, but not the community-based practice, has
the specialized equipment and governmental licenses that are required for use of
radioisotopes. We believe that referral patterns will develop for treatment of
B-cell NHL patients with radioimmunotherapies at major medical centers after the
community-based oncologist has exhausted all other options, such as Rituxan or
chemotherapy, for the management of his or her patients. This trend will be
further reinforced by the observation made by us, and by others working in the
field, of the substantial clinical activity of radioimmunotherapies in patients
with late-stage disease that has become refractory to chemotherapies. We are
committed to the development and commercialization of ZEVALIN as a complementary
product to Rituxan that might be used throughout the course of a patient's
disease, providing an alternative for both the patient and the healthcare
professional to conventional chemotherapies.
9-Aminocamptothecin. In July 1999, we announced that we terminated our
development of 9-aminocamptothecin ("9-AC"), following a Phase II clinical
trial. We concluded that 9-AC would not yield the desired benefits to
solid-tumor cancer patients. We originally acquired 9-AC from Pharmacia & Upjohn
S.p.A. ("Pharmacia & Upjohn") in 1997 who developed it under collaboration with
the NCI. We have returned all product rights for 9-AC to the NCI.
AUTOIMMUNE AND INFLAMMATORY PRODUCTS
We are developing new antibodies using humanized antibody technology and
our own proprietary class of antibodies, termed PRIMATIZED antibodies, that are
of part-human, part-macaque monkey, origin. These antibodies are structurally
similar to, and potentially indistinguishable by a patient's immune system from,
human antibodies. PRIMATIZED antibodies may provide therapeutic intervention for
diseases or conditions not amenable to chronic treatment with mouse-derived
antibodies. Our objective with our PRIMATIZED antibodies is to provide therapies
that can be used to control autoimmune diseases characterized by overactive
immune functions. We have entered into research and development collaborations
with Eisai Co. Ltd. ("Eisai"), Mitsubishi-Tokyo Pharmaceuticals, Inc., formerly
Mitsubishi Chemical Corporation ("Mitsubishi") and Seikagaku Corporation
("Seikagaku"), all of which target distinct, cell surface antigens. See
"-- Strategic Alliances."
PRIMATIZED Anti-CD4 (IDEC-151). In March 1998, we, along with SmithKline
Beecham, p.l.c. ('SmithKline Beecham') announced the selection of IDEC-151 as
our lead PRIMATIZED anti-CD4 antibody for the treatment of RA. In a Phase I
portion of a Phase I/II study of 32 patients with moderate to severe RA, the
results of which were announced in late November 1997, IDEC-151 displayed no CD4
depletion and no infusion-related adverse events. Based upon the clinical
profile of IDEC-151 shown in the
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Phase II portion of this study, as well as the current competitive landscape for
new products in RA, SmithKline Beecham decided to discontinue the development of
IDEC-151 for RA. In February 2000, we amended and restated our agreement with
SmithKline Beecham which resulted in all anti-CD4 program rights, including
IDEC-151, being returned to us. We will receive no further funding from
SmithKline Beecham under the restated agreement. As part of the restated
agreement, SmithKline Beecham has the option to negotiate commercialization and
copromotion rights with us for the first compound based on our PRIMATIZED
anti-CD4 antibodies to complete a Phase II study. If we do not commercialize and
copromote the compound with SmithKline Beecham, we will pay SmithKline Beecham
royalties on sales by us, our affiliates and licensees on any products emerging
from the rights returned to us under the restated agreement.
Humanized Anti-gp39 (IDEC-131). In December 1995, we entered into a
research and development collaborative agreement with Eisai. The collaboration
focuses on developing humanized and PRIMATIZED antibodies against the gp39
antigen. This antigen, also referred to as the CD40 ligand, is an essential
immune system trigger for B-cell activation and antibody production. Potential
target indications include transplantation and antibody-mediated autoimmune
diseases such as idiopathic thrombocytopenic purpura ("ITP") and SLE. The
development of our humanized anti-gp39 monoclonal antibody, IDEC-131, is based
on technology that we licensed from Dartmouth College, where researchers have
shown that the binding of gp39 to its CD40 receptor on B cells is essential for
proper immune system function. These researchers generated anti-gp39 antibodies
that blocked this T-cell and B-cell interaction and halted disease progression
in a variety of animal models of disease characterized by abnormal or unwanted
immune response. Moreover, when researchers ended the animals' anti-gp39
treatments, the animals' antibody-producing capacity returned to normal levels,
but their disease remained suppressed. Treatment with the anti-gp39 antibodies
appeared to have reset the animals' immune systems and restored a normal immune
response. Under the collaborative agreement, we have agreed to develop with
Eisai a humanized anti-gp39 antibody and launch additional efforts to develop a
second generation, PRIMATIZED anti-gp39 antibody. This effort has resulted in
the identification of the humanized anti-gp39 antibody lead candidate, IDEC-131,
which underwent preclinical testing, process development and manufacturing of
clinical trial material in early 1997. We successfully completed a Phase I
clinical trial in SLE with IDEC-131 in early 1999, which demonstrated an overall
favorable safety profile. Based upon the favorable Phase I clinical results of
our IDEC-131 humanized anti-gp39 antibody, we discontinued in 1999, the
development of our PRIMATIZED anti-gp39 antibody. In the first quarter of 2000,
we completed a Phase II clinical trial with IDEC-131 to access the antibody's
safety and clinical efficacy in patients with SLE. Results of the study will be
presented in a scientific meeting later in the year and will determine if we
continue to investigate SLE or pursue alternative autoimmune indications.
PRIMATIZED Anti-B7 (IDEC-114). In November 1993, we entered into a research
and development collaboration with Mitsubishi that focuses on the development of
PRIMATIZED antibodies directed at a B7.1 antigen. This B7.1 antigen appears on
the surface of antigen-presenting cells and is involved in the interaction of
these cells with T cells in triggering a cascade of immune system responses.
Antibodies directed at the B7.1 antigens may block this cascade and, therefore,
may be useful in preventing unwanted immune responses in certain inflammatory
and chronic autoimmune conditions such as psoriasis, arthritis and MS.
Mitsubishi has actively shared in the development process, generating animal
models and participating in research with us. In July 1999, we announced
completion of patient enrollment for a Phase I clinical trial with IDEC-114 to
evaluate the safety, tolerability and pharmacokinetics of a single dose of the
investigational agent in 24 patients with psoriasis. Analysis of the Phase I
data showed a favorable safety profile with preliminary findings of clinical
activity in patients with moderate to severe psoriasis. IDEC-114 as a single
dose demonstrated an overall favorable safety profile and there were no serious
adverse events. The majority of adverse events were mild, such as short-lived
flu-like symptoms, headache and chills. In October 1999, we initiated a Phase
I/II clinical trial with IDEC-114 to assess the safety, tolerability,
pharmacokinetics and potential clinical activity of multiple doses in patients
with psoriasis.
PRIMATIZED Anti-CD23 (IDEC-152). In December 1994, we entered into a
collaboration with Seikagaku aimed at the development of PRIMATIZED anti-CD23
antibodies for the potential treatment of allergic rhinitis, asthma and other
allergic conditions. Antibodies against the CD23 receptor on certain white
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blood cells inhibit the production of immune system molecules called
immunoglobulin class E, or IgE, which are known to trigger allergic conditions.
At the same time, anti-CD23 antibodies do not affect the production of the
immunoglobulins (the patient's own antibodies) responsible for granting
protective immunity to infectious agents. Thus, PRIMATIZED anti-CD23 antibodies
may provide a unique new approach to treating chronic illnesses such as allergic
rhinitis and asthma. This effort has resulted in the identification of a
PRIMATIZED antibody lead candidate, IDEC-152, which underwent preclinical
testing, process development and manufacturing of clinical material during 1999.
We filed an IND for IDEC-152 in October 1999 and began a Phase I clinical trial
in allergic asthma in February 2000. The Phase I trial with IDEC-152 will
evaluate its safety, tolerability and pharmacokinetics.
Humanized and PRIMATIZED Anti-MIF. Macrophage migration inhibitory factor
("MIF") is the body's natural counter-regulatory cytokine which serves to
override the anti-inflammatory activities of natural and administered steroids.
Inhibition of MIF may represent a novel approach to the management of a variety
of acute and chronic inflammatory diseases, including steroid-resistant
rheumatoid arthritis and asthma. In September 1997, we licensed from Cytokine
Pharmasciences, Inc., formally known as Cytokine Networks, Inc. ("CPI"), a
privately held bio-pharmaceutical company, development rights to CPI's anti-MIF
antibody technology. Under the terms of the licensing and development agreement,
we became the exclusive licensee of CPI's rights to the anti-MIF antibody
technology for therapeutic and diagnostic applications.
STRATEGIC ALLIANCES
We have entered into strategic partnering arrangements for many of our
product development programs. Through these strategic partners, we are funding a
significant portion of our product development costs and are capitalizing on the
production, development, regulatory, marketing and sales capabilities of our
partners. Unless otherwise indicated, the amounts shown below as potential
payments include license fees, research and development fees and product
development milestone payments. In addition, our strategic partners will pay
royalties on product sales, or in the case of Genentech, will in addition share
copromotion profits in the United States once products are commercialized. Our
entitlement to such payments depends on achieving product development objectives
related to development, clinical trials results, regulatory approvals and other
factors. These arrangements include:
Genentech, Inc. In March 1995, we entered into a collaborative agreement
with Genentech for the clinical development and commercialization of our
anti-CD20 monoclonal antibody, Rituxan, for the treatment of B-cell NHLs.
Concurrent with the collaborative agreement, we also entered into an expression
technology license agreement with Genentech for a proprietary gene expression
technology developed by us and a preferred stock purchase agreement providing
for certain equity investments that have been made by Genentech in us. In
November 1995, we entered into a joint development, supply and license agreement
with Zenyaku and Genentech, pursuant to which Zenyaku received exclusive rights
to develop, market and sell Rituxan, and we receive royalties on sales of
Rituxan in Japan. In addition, we are copromoting Rituxan with Genentech in the
United States. Genentech retained commercialization rights throughout the rest
of the world, except in Japan. Genentech has granted Roche exclusive marketing
rights outside of the United States, and Roche has elected to market Rituximab
under the trade name MabThera. We receive royalties on sales outside the United
States. Our collaborative agreement with Genentech provides two independent
mechanisms by which either party may purchase or sell its rights in the
copromotion territory from or to the other party. Upon the occurrence of certain
events that constitute a change of control in us, Genentech may elect to present
an offer to us to purchase our copromotion rights. We must then accept
Genentech's offer or purchase Genentech's copromotion rights for an amount
scaled (using the profit sharing ratio between the parties) to Genentech's
offer. Under a second mechanism, after a specified period of commercial sales
and (i) upon a certain number of years of declining copromotion profits or (ii)
if Genentech files for U.S. regulatory approval on a competitive product during
a limited period of time, either party may offer to purchase the other party's
copromotion rights. The offeree may either accept the offer price or purchase
the offeror's copromotion rights at the offer price scaled to the offeror's
share of copromotion profits.
SmithKline Beecham, p.1.c. In October 1992, we entered into an exclusive,
worldwide collaborative research and license agreement with SmithKline Beecham
related to the development and commercialization
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of compounds based on our PRIMATIZED anti-CD4 antibodies. In February 2000, we
amended and restated our agreement with SmithKline Beecham which resulted in all
anti-CD4 program rights, including IDEC-151, being returned to us. We will
receive no further funding from SmithKline Beecham under the restated agreement.
As part of the restated agreement, SmithKline Beecham has the option to
negotiate commercialization and copromotion rights with us for the first
compound based on our PRIMATIZED anti-CD4 antibodies to complete a Phase II
study. If we do not commercialize and copromote the compound with SmithKline
Beecham, we will pay SmithKline Beecham royalties on sales by us, our affiliates
and licensees on any products emerging from the rights returned to us under the
restated agreement.
Eisai Co., Ltd. In December 1995, we entered into a collaborative
development agreement and a license agreement with Eisai aimed at the
development and commercialization of humanized and PRIMATIZED anti-gp39
antibodies. Under the terms of these agreements, Eisai may provide up to $37.5
million in milestone payments and support for research and development, subject
to the attainment of certain product development objectives and satisfaction of
other criteria to be agreed upon between the parties, of which $28.9 million has
been recognized through December 31, 1999. Eisai will receive exclusive rights
in Asia and Europe to develop and market resulting products emerging from the
collaboration, with us receiving royalties on eventual product sales by Eisai.
At any time, Eisai may terminate the development agreement by giving us 60 days'
written notice based on a reasonable determination that the products do not
justify continued development or marketing.
Mitsubishi-Tokyo Pharmaceuticals, Inc. In November 1993, we entered into a
three-year collaborative agreement and an ongoing license agreement with
Mitsubishi for the development of a PRIMATIZED anti-B7 antibody. Under the terms
of the agreement, we may receive payments totaling $12.2 million to fund
research of the PRIMATIZED anti-B7 antibody, subject to the attainment of
certain product development objectives, of which $9.2 million has been
recognized through December 31, 1999. Under the license agreement, we have
granted Mitsubishi an exclusive license in Asia to make, use and sell PRIMATIZED
anti-B7 antibody products. We will receive royalties on sales by Mitsubishi of
the developed products.
Seikagaku Corporation. In December 1994, we entered into a collaborative
development agreement and a license agreement with Seikagaku aimed at the
development and commercialization of therapeutic products based on our
PRIMATIZED anti-CD23 antibodies. Under the terms of these agreements, Seikagaku
may provide up to $26.0 million in milestone payments and support for research
and development, subject to the attainment of certain product development
objectives, of which $18.0 million has been recognized through December 31,
1999. Under the license agreement, Seikagaku has received exclusive rights in
Europe and Asia to all products emerging from the collaboration. We will receive
royalties on eventual product sales by Seikagaku. At any time, Seikagaku may
terminate the license agreement by giving us 60 days' written notice based on a
reasonable determination that the products do not justify continued development
or marketing.
Schering Aktiengesellschaft. In June 1999, we entered into a collaboration
and license agreement and a supply agreement with Schering Aktiengesellschaft
("Schering AG") aimed at the development and commercialization of our
radioimmunotherapy drug ZEVALIN. Under the terms of the agreement, Schering AG
may provide up to $47.5 million in product development milestone payments and
support for research and development, subject to the attainment of certain
product development objectives, of which $19.0 million has been recognized
through December 31, 1999. Schering AG received exclusive marketing and
distribution rights to ZEVALIN outside the United States, and we will receive
royalties on eventual product sales by Schering AG. Under the terms of a
separate supply agreement we are obligated to meet Schering AG's clinical and
commercial requirements for ZEVALIN. Schering AG may terminate these agreements
for any reason.
MANUFACTURING STRATEGY
From our inception, we have focused on establishing and maintaining a
leadership position in cell culture techniques for antibody manufacturing. Cell
culture provides a method for manufacturing of clinical and commercial grade
protein products by reproducible techniques at various scales, up to many
kilograms of antibody. Our manufacturing facility is based on the suspension
culture of mammalian cells in stainless steel vessels. Suspension culture
fermentation provides greater flexibility and more rapid production of the large
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amounts of antibodies required for pivotal trials than the bench-scale systems
that we previously utilized. Our manufacturing facility has been approved by the
FDA only for the commercial manufacture of Rituxan and currently may not be used
for the commercial manufacture of other products. See "Forward-Looking
Information and Risk Factors That May Affect Future Results -- Failure to Obtain
Product Approvals or Comply with Government Regulations Could Adversely Affect
Our Business."
In September 1999, we transferred all manufacturing activities for bulk
Rituxan to Genentech. Since the transfer of bulk Rituxan manufacturing to
Genentech, we have begun using our available manufacturing capacity for
production of specification-setting lots and potential commercial inventory of
the ZEVALIN antibody. We intend to use our remaining manufacturing capacity for
production of clinical material and potentially some third-party contract
manufacturing. We will manufacture our own commercial requirements of the
antibody for ZEVALIN upon the receipt of approval, if any, from the FDA to
manufacture and market the antibody. ZEVALIN has multiple components that
require successful coordination among several third-party contract manufacturers
and suppliers. We have no fill/finish experience or capacity and we do not have
manufacturing experience in the field of chelates or radioisotopes and,
therefore, we will be dependent on outside contractors and suppliers to meet
these needs. We are currently negotiating with commercial contractors to meet
our long-term manufacturing demands for the fill/finish of ZEVALIN bulk product.
See "Forward-looking Information and Risk Factors That May Affect Future
Results -- We Have Limited Manufacturing Experience and We Rely Heavily on
Contract Manufacturers, -- We Rely Heavily on Certain Suppliers, and -- Failure
to Obtain Product Approvals or Comply with Government Regulations Could
Adversely Affect Our Business."
We are dependent upon Genentech to meet all long-term manufacturing demands
for Rituxan. We are considering the addition of another manufacturing facility
to meet our long-term requirements for additional products under development.
We have made our vector technology platform available for licensing to a
small number of other biopharmaceutical and pharmaceutical companies. This
technology has been licensed to Genentech, Chugai Pharmaceutical Co., Ltd.,
Boehringer Ingelheim GmbH ("Boehringer") and Kirin Brewery Co. Ltd.
Pharmaceuticals Division ("Kirin").
SALES AND MARKETING STRATEGY
During 2000, we will continue to depend on the successful marketing and
sales of Rituxan for much of our anticipated revenue. Rituxan is marketed and
sold in the United States pursuant to a copromotion agreement with Genentech,
which currently has a sales and marketing staff of approximately 100
professionals that is also promoting one other new biologic application in
oncology. To fulfill our duties under the copromotion agreement, we have a
marketing staff and a sales organization of 39 professionals with experience
primarily in the oncology therapeutic category, and who are currently dedicated
exclusively to the commercialization of Rituxan. We rely heavily on Genentech to
supply marketing support services including customer service, order entry,
shipping, billing, customer reimbursement assistance, managed-care sales
support, medical information and sales training.
Outside North America, we have adopted a strategy to pursue collaborative
arrangements with established pharmaceutical companies for marketing,
distribution and sale of our products. See "Forward-looking Information and Risk
Factors That May Affect Future Results -- We Have Limited Sales and Marketing
Experience, and -- We May be Unable to Adequately Protect or Enforce Our
Intellectual Property Rights or Secure Rights to Third-Party Patents."
PATENTS AND PROPRIETARY TECHNOLOGY
The biopharmaceutical field is characterized by a large number of patent
filings. A substantial number of patents have already been issued to other
biotechnology and biopharmaceutical companies. Particularly in the monoclonal
antibody and recombinant deoxyribonucleic acid ("DNA") fields, competitors may
have filed applications for or have been issued patents and may obtain
additional patents and proprietary rights relating to products or processes
competitive with or similar to those of ours. Moreover, United States and
foreign
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country patent laws are distinct and the interpretations thereunder unique to
each country. Thus, patentability, validity and infringement issues for the same
technology or inventions may be resolved differently in different jurisdictions.
There can be no assurance that patents do not exist in the United States or in
foreign countries or that patents will not be issued that would have an adverse
effect on our ability to market our products. Accordingly, we expect that
commercializing our products may require licensing and/or cross-licensing of
patents with other companies or institutions in the field. There can be no
assurance that the licenses, which might be required for our processes or
products, would be available on commercially acceptable terms, if at all. The
ability to license any such patents and the likelihood of successfully
contesting the scope, validity or enforceability of such patents are uncertain
and the costs associated therewith may be significant. If we are required to
acquire rights to valid and enforceable patents but cannot do so at a reasonable
cost, our ability to manufacture or market our products would be materially
adversely affected.
We are the assignee of 26 issued U.S. patents, several patent applications
and numerous corresponding foreign patents and patent applications. Certain
other patents and/or applications owned by third-parties have been exclusively
licensed, as in the case of anti-CD40L core technology licensed from Dartmouth
College, or non-exclusively licensed by us. We have filed trademark applications
in the United States, Canada and in certain international markets for the
trademarks "PRIMATIZED," "PROVAX," "Rituxan," "ZEVALIN" and "IDEC
Pharmaceuticals." "PRIMATIZED," "Rituxan" and "IDEC Pharmaceuticals" are
registered as trademarks in the United States.
We have three issued U.S. patents, a similar number of U.S. patent
applications and numerous corresponding foreign counterparts directed to
anti-CD20 antibody technology, including Rituxan, and the radioimmunoconjugate,
ZEVALIN. Our radioimmunoconjugate products include a chelating agent covered by
a U.S. patent that is non-exclusively sublicensed to us. We have been granted a
patent covering Rituxan by the European Patent Office. Genentech, our
collaborative partner for Rituxan, has secured an exclusive license to three
U.S. patents and counterpart U.S. and foreign patent applications assigned to
Xoma Corporation ("Xoma"), that relate to chimeric antibodies against the CD20
antigen. Genentech has granted to us a non-exclusive sublicense to make, have
made, use and sell certain products, including Rituxan, under such patents and
patent applications. We, along with Genentech, share the cost of any royalties
due to Xoma in the Genentech/IDEC Pharmaceuticals copromotion territory.
We have also filed for worldwide patent protection on our PRIMATIZED
antibody technology. We have received five U.S. patents claiming various aspects
of the PRIMATIZED antibody technology. These patents generically cover our
PRIMATIZED antibody technology as well as PRIMATIZED antibodies to specific
antigen targets.
PROVAX, our antigen formulation, is the subject of five issued U.S.
patents, pending U.S. applications and several pending foreign counterparts. In
addition, U.S. and foreign patent applications have been filed on aspects of our
proprietary high-yield gene expression technology, including our impaired
selectable marker vector technology. At this point, we have been granted three
U.S. patents claiming the high-yield gene expression technology in general and
methods of making antibodies using such technology. We have also received a U.S.
patent directed to homologous recombination vector technology and have foreign
counterparts pending.
Our licensor, Dartmouth University, has received seven patents with claims
that relate to our anti-CD40L antibody (IDEC-131) technology. Numerous
applications relevant to our anti-CD40L antibody program, which are either
licensed from Dartmouth University or assigned to us, are pending in the U.S.
Patent and Trademark Office ("PTO") and foreign patent offices.
We are aware of several third-party patents and patent applications (to the
extent they issue as patents) that, if successfully asserted against us, may
materially affect our ability to make, use, offer to sell, sell and import our
products. See "Forward-looking Information and Risk Factors That May Affect
Future Results -- We May be Unable to Adequately Protect or Enforce Our
Intellectual Property Rights or Secure Rights to Third-Party Patents."
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We also rely upon unpatented trade secrets, and no assurance can be given
that others will not independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade secrets or
disclose such technology, or that we can meaningfully protect such rights. We
require our employees, consultants, outside scientific collaborators and
sponsored researchers and other advisers to execute confidentiality agreements
upon the commencement of employment or consulting relationships with us. These
agreements provide that all confidential information developed or made known to
the individual during the course of the individual's relationship with us is to
be kept confidential and not disclosed to third-parties except in specific
circumstances. In the case of our employees, the agreement provides that all
inventions conceived by such employees shall be our exclusive property. There
can be no assurance, however, that these agreements will provide meaningful
protection or adequate remedies for our trade secrets in the event of
unauthorized use or disclosure of such information.
REGULATION OF PRODUCTS BY THE FDA
The testing, manufacturing, labeling, advertising, promotion, export and
marketing, among other things, of our product and proposed products are subject
to extensive regulation by governmental authorities in the United States and
other countries. In the United States, pharmaceutical products are regulated by
the FDA under the Federal Food, Drug, and Cosmetic Act and other laws,
including, in the case of biologics, the Public Health Service Act. At the
present time we believe that our products will be regulated by the FDA as
biologics. Biologics require the submission of a BLA and approval by the FDA
prior to being marketed in the United States. Yttrium-90, the radioisotope bound
to ZEVALIN will require the submission of an NDA by our isotope supplier. The
regulatory approval process for an NDA is similar to the approval process for a
BLA. Manufacturers of biologics and drugs may also be subject to state
regulation.
The steps required before a product may be approved for marketing in the
United States generally include (i) preclinical laboratory tests and animal
tests, (ii) the submission to the FDA of an IND for human clinical testing,
which must become effective before human clinical trials may commence, (iii)
adequate and well-controlled human clinical trials to establish the safety and
efficacy of the product, (iv) the submission to the FDA of a BLA or NDA, (v) FDA
review of the BLA or NDA, and (vi) satisfactory completion of an FDA inspection
of the manufacturing facility or facilities at which the product is made to
assess compliance with current Good Manufacturing Practices ("cGMP"). The
testing and approval process requires substantial time, effort, and financial
resources and there can be no assurance that any approval will be granted on a
timely basis, if at all.
Preclinical tests include laboratory evaluation of the product, as well as
animal studies to assess the potential safety and efficacy of the product. The
results of the preclinical tests, together with manufacturing information and
analytical data, are submitted to the FDA as part of an IND, which must become
effective before human clinical trials may be commenced. The IND will
automatically become effective 30 days after receipt by the FDA, unless the FDA
before that time raises concerns or questions about the conduct of the trials as
outlined in the IND. In such a case, the IND sponsor and the FDA must resolve
any outstanding concerns before clinical trials can proceed. There can be no
assurance that submission of an IND will result in FDA authorization to commence
clinical trials.
Clinical trials involve the administration of the investigational product
to healthy volunteers or patients under the supervision of qualified principal
investigators. Further, each clinical study must be reviewed and approved by an
independent Institutional Review Board.
Clinical trials typically are conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug into human
subjects, the drug is usually tested for safety (adverse effects), dosage
tolerance, absorption, metabolism, distribution, excretion and pharmacodynamics.
Phase II usually involves studies in a limited patient population to (i)
evaluate preliminarily the efficacy of the drug for specific, targeted
indications, (ii) determine dosage tolerance and optimal dosage and (iii)
identify possible adverse effects and safety risks. Phase III trials generally
further evaluate clinical efficacy and test further for safety within an
expanded patient population.
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In the case of products for severe or life-threatening diseases, the
initial human testing is sometimes done in patients rather than in healthy
volunteers. Since these patients are already afflicted with the target disease,
it is possible that such studies may provide preliminary evidence of efficacy
traditionally obtained in Phase II trials. These trials are frequently referred
to as "Phase I/II" trials. There can be no assurance that Phase I, Phase II or
Phase III testing will be completed successfully within any specific time
period, if at all, with respect to any of our product candidates. Furthermore,
the FDA may suspend clinical trials at any time on various grounds, including a
finding that the subjects or patients are being exposed to an unacceptable
health risk.
The results of the preclinical studies and clinical studies, together with
other detailed information, including information on the manufacture and
composition of the product, are submitted to the FDA in the form of a BLA or NDA
requesting approval to market the product. Before approving a BLA or NDA, the
FDA will inspect the facilities at which the product is manufactured, and will
not approve the product unless cGMP compliance is satisfactory. The FDA may deny
a BLA or NDA if applicable regulatory criteria are not satisfied, require
additional testing or information, and/or require postmarketing testing and
surveillance to monitor the safety or efficacy of a product. There can be no
assurance that FDA approval of any BLA or NDA submitted by us will be granted on
a timely basis, if at all. Also, if regulatory approval of a product is granted,
such approval may entail limitations on the indicated uses for which it may be
marketed.
Both before and after approval is obtained, violations of regulatory
requirements, including the preclinical and clinical testing process, the BLA or
NDA review process, or thereafter (including after approval) may result in
various adverse consequences, including the FDA's delay in approving or refusal
to approve a product, withdrawal of an approved product from the market, and/or
the imposition of criminal penalties against the manufacturer and/or BLA or NDA
holder. For example, BLA and NDA holders are required to report certain adverse
reactions to the FDA, and to comply with certain requirements concerning
advertising and promotional labeling for their products. Also, quality control
and manufacturing procedures must continue to conform to cGMP regulations after
approval, and the FDA periodically inspects manufacturing facilities to assess
compliance with cGMP. Accordingly, manufacturers must continue to expend time,
monies and effort in the area of production and quality control to maintain cGMP
compliance. In addition, discovery of problems may result in restrictions on a
product, manufacturer or BLA or NDA holder, including withdrawal of the product
from the market. Also, new government requirements may be established that could
delay or prevent regulatory approval of our products under development.
We will also be subject to a variety of foreign regulations governing
clinical trials and sales of our products. Whether or not FDA approval has been
obtained, approval of a product by the comparable regulatory authorities of
foreign countries must be obtained prior to the commencement of marketing the
product in those countries. The approval process varies from country to country
and the time may be longer or shorter than that required for FDA approval. At
least initially, we intend, to the extent possible, to rely on foreign licensees
to obtain regulatory approval for marketing our products in foreign countries.
Orphan Drug Designation. Under the Orphan Drug Act, the FDA may grant
orphan drug designation to drugs intended to treat a "rare disease or
condition," which generally is a disease or condition that affects fewer than
200,000 individuals in the United States. Orphan drug designation must be
requested before submitting a BLA or NDA. After the FDA grants orphan drug
designation, the generic identity of the therapeutic agent and its potential
orphan use are publicly disclosed by the FDA. Orphan drug designation does not
convey any advantage in, or shorten the duration of, the regulatory review and
approval process. If a product which has an orphan drug designation subsequently
receives the first FDA approval for the indication for which it has such
designation, the product is entitled to orphan exclusivity, i.e., the FDA may
not approve any other applications to market the same drug for the same
indication for a period of seven years, except in certain very limited
circumstances.
In 1994, we obtained orphan drug designation for Rituxan and ZEVALIN from
the FDA to treat certain B-cell NHLs. In connection with its approval by the
FDA, Rituxan has received orphan drug exclusivity in the United States. However,
there can be no assurance that ZEVALIN will receive orphan drug exclusivity for
the B-cell NHL indication, and it is possible that our competitors could obtain
approval, and attendant orphan
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drug exclusivity, for products similar to ZEVALIN for the B-cell NHL indication,
thus precluding us from marketing ZEVALIN for that indication in the United
States for some time. In addition, even if we do obtain orphan drug exclusivity
for any of our compounds for B-cell NHL, there can be no assurance that
competitors will not receive approval of other different drugs or biologics for
B-cell NHLs. Although obtaining FDA approval to market a product with orphan
drug exclusivity can be advantageous, there can be no assurance that the scope
of protection or the level of marketing exclusivity that is currently afforded
by orphan drug designation will remain in effect in the future.
FORWARD-LOOKING INFORMATION AND RISK FACTORS
THAT MAY AFFECT FUTURE RESULTS
This Form 10-K contains forward-looking statements based on our current
expectations. You should be aware that such statements are projections or
estimates as to future events, and actual results may differ materially.
In addition to the other information in this Form 10-K, you should
carefully consider the following risk factors which could affect our actual
future results and have a material and adverse effect on our business, financial
condition and results of operations. The risks and uncertainties described below
are not the only ones facing us, and additional risks and uncertainties may also
impair our business operations.
OUR REVENUES RELY SIGNIFICANTLY ON RITUXAN SALES
Our revenues currently depend largely upon continued U.S. sales of a single
commercialized product, Rituxan. We cannot be certain that Rituxan will continue
to be accepted in the United States or in any foreign markets. A number of
factors may affect the rate and level of market acceptance of Rituxan,
including:
- the perception by physicians and other members of the health care
community of its safety and efficacy or that of competing products, if
any;
- the effectiveness of our and Genentech's sales and marketing efforts in
the United States and the effectiveness of Roche's sales and marketing
efforts outside the United States;
- unfavorable publicity concerning Rituxan or comparable drugs;
- its price relative to other drugs or competing treatments;
- the availability of third-party reimbursement; and
- regulatory developments related to the manufacture or continued use of
Rituxan.
We incurred annual operating losses from our inception in 1985 through
fiscal 1997. Given our current reliance upon Rituxan as the principal source of
our revenue, any material adverse developments with respect to the
commercialization of Rituxan may cause us to incur losses in the future.
OUR OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS
Our quarterly revenues, expenses and operating results have fluctuated in
the past and are likely to fluctuate significantly in the future. Fluctuation
may result from a variety of factors, including:
- our achievement of product development objectives and milestones;
- demand and pricing for our commercialized products, such as Rituxan;
- our ability to utilize excess manufacturing capacity by obtaining
contract manufacturing relationships;
- timing and nature of contract manufacturing and contract research and
development payments and receipts;
- hospital and pharmacy buying decisions;
- clinical trial enrollment and expenses;
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- physician acceptance of our products;
- government or private healthcare reimbursement policies;
- our manufacturing performance and capacity and that of our partners;
- the amount and timing of sales orders of Rituxan by Genentech for
customers in the United States and by Roche for customers outside the
United States;
- rate and success of product approvals;
- timing of FDA approval, if any, of competitive products and the rate of
market penetration of competing products;
- collaboration obligations and copromotion payments we make or receive;
- foreign currency exchange rates; and
- overall economic conditions.
Our operating results during any one quarter do not necessarily suggest
those of future quarters. These results fluctuate periodically because our
revenues are driven by certain events such as achievement of product development
milestone events and the applicable profit-sharing allocation between us and
Genentech, based upon our copromotion arrangement.
VOLATILITY OF OUR STOCK PRICE
The market prices for our common stock and for securities of other
companies engaged primarily in biotechnology and pharmaceutical development,
manufacture and distribution are highly volatile. For example, the market price
of our common stock fluctuated between $19 13/16 per share and $151 5/8 per
share during the twelve months ended January 31, 2000. The market price of our
common stock will likely continue to fluctuate due to a variety of factors,
including:
- material public announcements;
- the announcement and timing of new product introductions by us or others;
- technical innovations or product development by us or our competitors;
- regulatory approvals or regulatory issues;
- developments relating to patents, proprietary rights and orphan drug
status;
- actual or potential clinical results with respect to our products under
development or those of our competitors;
- political developments or proposed legislation in the pharmaceutical or
healthcare industry;
- economic and other external factors, disaster or crisis;
- hedge and/or arbitrage activities by holders of our 20-year zero coupon
subordinated convertible notes ("Notes");
- period-to-period fluctuations in our financial results;
- market trends relating to or affecting stock prices throughout our
industry, whether or not related to results or news regarding us or our
competitors.
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WE FACE UNCERTAIN RESULTS OF CLINICAL TRIALS OF OUR POTENTIAL PRODUCTS
Our future success depends in large part upon the results of clinical
trials designed to assess the safety and efficacy of our potential products. The
completion rate of these clinical trials depends significantly upon the rate of
patient enrollment. Factors that affect patient enrollment include:
- size of patient population for the targeted disease;
- eligibility criteria;
- proximity of eligible patients to clinical sites;
- clinical trial protocols; and
- the existence of competing protocols (including competitive financial
incentives for patients and clinicians) and existing approved drugs
(including Rituxan).
Our inability to enroll patients on a timely basis could result in
increased expenses and product development delays, which could have a material
adverse effect on our business, results of operations and financial condition.
Even if a trial is fully enrolled, significant uncertainties remain as to
whether it will prove successful. For example, in July 1999 we announced that we
terminated our development of 9-AC following a Phase II clinical trial. We
concluded that 9-AC would not yield the desired benefit to solid-tumor cancer
patients.
In addition, the length of time necessary to complete clinical trials and
submit an application for marketing and manufacturing approvals varies
significantly and may be difficult to predict. Failure to comply with extensive
FDA regulations may result in delay, suspension or cancellation of a trial
and/or the FDA's refusal to accept test results. The FDA may also suspend our
clinical trials at any time if it concludes that the participants are being
exposed to unacceptable risks. Consequently, we cannot ensure that Phase I,
Phase II, Phase III or Phase IV (post-marketing) testing will be completed
timely or successfully, if at all, with respect to any of our potential or
existing products. Furthermore, success in preclinical and early clinical trials
does not ensure that later phase or large scale trials will be successful. We
cannot be certain that patients enrolled in our clinical trials will respond to
our products, that any product will be safe and effective or that data derived
from the trials will be suitable for submission to the FDA or satisfactorily
support a BLA or NDA.
WE MAY BE UNABLE TO DEVELOP AND COMMERCIALIZE NEW PRODUCTS
Our future results of operations will depend to a large extent upon our
ability to successfully commercialize new products in a timely manner. As a
result, we must continue to develop, test and manufacture new products and then
must meet regulatory standards and obtain regulatory approvals. Our products
currently in development may not receive the regulatory approvals necessary for
marketing in a timely manner, if at all. Additionally, the development and
commercialization process is time-consuming and costly, and we cannot be certain
that any of our products, if and when developed and approved, will be
successfully commercialized. Delays or unanticipated costs in any part of the
process or our inability to obtain regulatory approval for our products or to
maintain manufacturing facilities in compliance with all applicable regulatory
requirements could adversely affect our results of operations.
WE HAVE LIMITED MANUFACTURING EXPERIENCE AND RELY HEAVILY ON CONTRACT
MANUFACTURERS
We rely heavily upon third-party manufacturers to manufacture significant
portions of our products and product candidates. Our manufacturing capacity is
limited. Our manufacturing experience to date has been limited to the production
of preclinical and clinical quantities of product candidates and to
approximately three years of commercial production of bulk Rituxan. We have no
fill/finish experience or capacity and we do not have experience manufacturing
in the field of chelates or radioisotopes and therefore, we rely entirely upon
third parties for the manufacture of these products and components.
Consequently, we cannot ensure that either our manufacturing facilities or our
ability to sustain ongoing production of our products will be able to meet our
expectations. Nor can we be certain that we will be able to enter into
satisfactory agreements with third-party manufacturers. Our failure to enter
into agreements with such manufacturers on reasonable terms, if at all, or poor
manufacturing performance on our part or that of our third-party manufacturers
could have a material and adverse effect on our business, financial condition
and results of operations.
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In September 1999 we transferred all manufacturing of bulk Rituxan to
Genentech. We rely upon Genentech for all Rituxan manufacturing to meet
worldwide requirements. We cannot ensure that Genentech will manufacture and
fill/finish Rituxan in sufficient quantities and on a timely and cost-effective
basis or that Genentech will obtain and maintain all required manufacturing
approvals. Genentech's failure to manufacture and fill/finish Rituxan or obtain
and maintain required manufacturing approvals could materially and adversely
affect our business, results of operations and financial condition.
Since the completion in September 1999 of our obligation to manufacture
bulk Rituxan, we have commenced conversion of our manufacturing facility to a
multi-product facility, where we will initially manufacture ZEVALIN and other
clinical antibodies. We cannot be certain that this conversion will be
successful or that our manufacturing performance will meet our expectations. We
cannot be certain that we will receive all necessary regulatory approvals, or,
even if our conversion is successful and such approvals are received, that the
conversion will be completed within our budgeted time and expense estimations.
Our failure to successfully convert the manufacturing facility in a timely
manner could have an adverse effect on our product development efforts, our
ability to timely file our product license applications and our ability to
timely produce commercial supplies of the ZEVALIN antibody, if approved, and
could cause us to incur significant unabsorbed overhead costs. To the extent we
cannot produce our own biologics, we will need to rely on third-party
manufacturers, of which there are only a limited number capable of manufacturing
biologics as contract suppliers. We cannot be certain that we could reach
agreement on reasonable terms, if at all, with those manufacturers.
ZEVALIN (ibritumomab tiuxetan, formally IDEC-Y2B8) has multiple components
that require successful coordination among several third-party contract
manufacturers and suppliers. We are currently negotiating with commercial
contractors to meet our long-term manufacturing demands for fill/finish of
ZEVALIN bulk product. We cannot be certain that we will reach agreement on
reasonable terms, if at all, with our contract manufacturers or that the
integration of our contract manufacturers and suppliers can be successfully
coordinated.
WE RELY HEAVILY ON CERTAIN SUPPLIERS
Some materials used in our products and potential products, including
Rituxan and ZEVALIN, are currently available only from sole or limited number of
suppliers. In addition, the suppliers of some materials for our products must be
approved by the FDA and/or by other governmental agencies. For example, we
recently identified a new commercial supplier of the radioisotope used with our
ZEVALIN product. Prior to the commercialization of ZEVALIN, the supplier will be
required to obtain NDA approval. Although we have initiated a program for
identifying alternative suppliers for certain materials, any interruption or
delay in our supply of materials, or delays in obtaining applicable governmental
approvals or any loss of a sole source supplier, including any interruption or
loss related to the supply or supplier of our radioisotope for ZEVALIN, could
have a material adverse effect on our business, financial condition and results
of operations.
OUR INDUSTRY IS INTENSELY COMPETITIVE
The biotechnology industry is intensely competitive and we cannot be
certain that we will be able to produce or acquire rights to new products with
commercial potential. We compete with biotechnology and pharmaceutical companies
that have been established longer than we have, have a greater number of
products on the market, have greater financial and other resources and have
other technological or competitive advantages. We also compete in the
development of technologies and processes and in acquiring personnel and
technology from academic institutions, government agencies, and other private
and public research organizations. We cannot be certain that one or more of our
competitors will not receive patent protection that dominates, blocks or
adversely affects our product development or business; will benefit from
significantly greater sales and marketing capabilities; or will not develop
products that are accepted more widely than ours. We are aware that a competitor
is preparing to file a BLA for a radiolabeled murine antibody product for the
treatment of non-Hodgkin's lymphomas, which may compete with Rituxan and
ZEVALIN, if approved. We are also aware of other potentially competitive
biologic therapies for non-Hodgkin's lymphomas in development.
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WE HAVE LIMITED SALES AND MARKETING EXPERIENCE
We have limited experience with commercial sales and marketing, based
entirely upon our launch and subsequent sales of Rituxan. Outside the United
States, our strategy is to pursue and to rely solely upon collaborations with
established pharmaceutical companies for marketing, distribution and sale of our
products. We currently have no plans to directly market outside the United
States. Since we currently rely upon copromotion partners in the United States
and rely exclusively on third parties outside the United States, we cannot be
certain that our products will be marketed and distributed in accordance with
our expectations or that our market research or sales forecasts will be
accurate. We also cannot be certain that we will ever be able to develop our own
sales and marketing capabilities to an extent that we would not need to rely on
third-party efforts, or that we will be able to maintain satisfactory
arrangements with the third parties on whom we rely.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS OR SECURE RIGHTS TO THIRD-PARTY PATENTS
Our ability and the abilities of our partners to obtain and maintain patent
and other protection for our products will affect our success. We are assigned
or have rights to or have exclusive access to a number of U.S. and foreign
patents, patents pending and patent applications. However, we cannot be certain
that such patent applications will be approved, or that any of our patent rights
will be upheld in a court of law if challenged. The patent positions of
pharmaceutical and biotechnology companies can be highly uncertain and involve
complex legal and factual questions. We cannot be certain that our patent rights
will provide competitive advantages for our products or will not be challenged,
infringed upon or circumvented by our competitors.
Because of the large number of patent filings in the biopharmaceutical
field, our competitors may have filed applications or been issued patents and
may obtain additional patents and proprietary rights relating to products or
processes competitive with or similar to ours. We cannot be certain that U.S. or
foreign patents do not exist or will not issue that would materially and
adversely affect our ability to commercialize our products and product
candidates.
In addition to patents, we rely on trade secrets and proprietary know-how
that we seek to protect, in part, through confidentiality agreements with our
partners, employees and consultants. It is possible that such parties will
breach our agreements or that courts may not enforce the agreements, leaving us
without adequate remedies. We also cannot be certain that our trade secrets will
not become known or be independently developed or patented by our competitors.
In September 1999, an interference to determine priority of inventorship
was declared in the United States Patent and Trademark Office between Dartmouth
University's patent application (which patent application has been exclusively
licensed to us) and Columbia University's patent (which patent we believe has
been exclusively licensed to Biogen) relating to anti-CD40L antibodies. We are
aware that oppositions have been filed to a granted Japanese Immunex patent
relating to anti-CD40L antibodies. We are also aware that oppositions have been
filed in the European Patent Office to granted European applications that have
been licensed to us. Each of these applications contain claims relating to the
use of anti-CD40L antibodies as a therapeutic. Also, we are aware of an
opposition that was recently filed to a granted European patent application
which names us as the applicant and which relates to PROVAX and therapeutic use
thereof. If the outcome of the interference or any of the oppositions is
adverse, in whole or in part, it could result in the scope of some or all of the
granted claims being limited, some or all of the granted claims being lost,
and/or the granted patent application(s) not proceeding to a patent.
We are aware of several third-party patents and patent applications (to the
extent they issue as patents) that, if successfully asserted against us, may
materially affect our ability to make, use, offer to sell, sell and import our
products. These third-party patents and, patent applications may include,
without limitation:
- three U.S. patents assigned to Glaxo Wellcome and foreign counterparts
relating to therapeutic uses of CHO-glycosylated antibodies;
- two U.S. patents assigned to Glaxo Wellcome and foreign counterparts
relating to chelator-stabilized antibody preparations;
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- two U.S. patents assigned to Glaxo Wellcome and foreign counterparts
thereof directed to methods of growing CHO cells in media that is free
from components obtained directly from an animal source;
- a U.S. patent assigned to Coulter Pharmaceutical, Inc. and the Regents of
the University of Michigan that relates to compositions comprising
radiolabeled antibodies directed to CD20 antigen which are administered
at nonmyelosuppressive doses;
- U.S. patent and patent applications and foreign counterparts filed by
Bristol-Myers Company that relate to ligands to a B7 antigen;
- a U.S. patent assigned to Columbia University and a Japanese patent
assigned to Immunex, which we believe have been exclusively licensed to
Biogen, related to monoclonal antibodies to the 5C8 antigen found on T
cells. We believe the 5C8 antigen is associated with CD40L, the target
for our anti-CD40L antibodies expressed on the surface of activated T
cells; and
- a number of issued U.S. and foreign patents that relate to various
aspects of radioimmunotherapy of cancer and to methods of treating
patients with anti-CD4 antibodies.
The owners, or licensees of the owners, of these patents and patent
applications (to the extent they issue as patents) may assert that one or more
of our products infringe one or more claims of such patents. Such owners or
licensees of foreign counterparts to these patents and any other foreign patents
may assert that one or more of our products infringe one or more claims of such
patents. Specifically, if legal action is commenced against us or our partners
to enforce any of these patents and patent applications (to the extent they
issue as patents) and the plaintiff in such action prevails, we could be
prevented from practicing the subject matter claimed in such patents or patent
applications.
We are aware that on May 28, 1999, Glaxo Wellcome filed a patent
infringement lawsuit against Genentech in the U.S. District Court in Delaware.
According to Genentech's Form 10-K for the year ended December 31, 1999, that
suit asserts that Genentech infringes four U.S. patents owned by Glaxo Wellcome.
Two of the patents relate to the use of specific kinds of monoclonal antibodies
for the treatment of human disease, including cancer. The other two patents
asserted against Genentech relate to preparations of specific kinds of
monoclonal antibodies which are made more stable and the methods by which such
preparations are made. Genentech believes that the suit relates to the
manufacture, use and sale of Rituxan and their product Herceptin. The judge has
scheduled the trial of this suit to begin January 29, 2001. On or about January
10, 2000 Glaxo Wellcome filed a request with the court to add additional patent
infringement claims to the suit under Glaxo Wellcome's U.S. Patent No.
5,633,162. Genentech has opposed that request. Based upon the nature of the
claims made and the information available to Genentech, Genentech reports that
it believes that the outcome of this action is not likely to have a material
adverse effect on their financial position, results of operations or cash flows,
but that if an unfavorable ruling were to occur in any quarterly period, there
exists the possibility of a material impact on Genentech's net income of that
period. If the suit relates to the manufacture, use and sale of Rituxan, and
depending on the suit's outcome, there exists the possibility of a material
impact on our corresponding period copromotion profit related to Rituxan and a
material adverse effect on our business, financial condition and results of
operations.
If our intellectual property rights are challenged, we may be required or
may desire to obtain licenses to patents and other intellectual property held by
third parties to develop, manufacture and market our products. However, we
cannot be certain that we will be able to obtain these licenses on commercially
reasonable terms, if at all, or that any licensed patents or intellectual
property will be valid or enforceable. In addition, the scope of intellectual
property protection is subject to scrutiny and change by courts and other
governmental bodies. Litigation and other proceedings concerning patents and
proprietary technologies can be protracted, expensive and distracting to
management and companies may sue competitors as a way of delaying the
introduction of competitors' products. Any litigation, including any
interference proceeding to determine priority of inventions, oppositions to
patents in foreign countries or litigation against our partners, may be costly
and time-consuming and could have a material adverse effect on our business,
financial condition and results of operations.
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WE MAY BE UNABLE TO MAINTAIN THIRD-PARTY RESEARCH AND DEVELOPMENT RELATIONSHIPS
Funding of research and development efforts depends largely upon various
arrangements with strategic partners and others who provide us with funding and
who perform research and development with respect to our products. Such
strategic partners may generally terminate their arrangement with us at any
time. These parties may develop products that compete with ours, and we cannot
be certain that they will perform their contractual obligations or that any
revenues will be derived from such arrangements. If one or more of our strategic
partners fail to achieve certain product development objectives, such failure
could have a material adverse effect on our ability to fund related programs and
develop products.
FAILURE TO OBTAIN PRODUCT APPROVALS OR COMPLY WITH GOVERNMENT REGULATIONS COULD
ADVERSELY AFFECT OUR BUSINESS
As pharmaceutical manufacturers, we as well as our partners, contract
manufacturers and suppliers are subject to extensive, complex, costly and
evolving governmental rules, regulations and restrictions administered by the
FDA, by other federal and state agencies, and by governmental authorities in
other countries. In the United States, our products cannot be marketed until
after they are approved by the FDA. Obtaining an FDA approval involves the
submission, among other information, of the results of preclinical and clinical
studies on the product, and requires substantial time, effort and financial
resources. Rituxan is our only product that has received FDA approval, and we
cannot be certain that ZEVALIN or any of our product candidates will be approved
either in the United States or in other countries in a timely fashion, if at
all. Both before and after approval, we, as well as our partners, contract
manufacturers and suppliers, are subject to numerous FDA requirements covering,
among other things, research and development, testing, manufacturing, quality
control, labeling and promotion of drugs, and to government inspection at all
times. Among the conditions for NDA or BLA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
on an ongoing basis with Good Manufacturing Practices, or GMP. Before approval
of a NDA or BLA, the FDA will perform a prelicensing inspection of the facility
to determine its compliance with GMP and other rules and regulations. After the
establishment is licensed for the manufacture of any product, manufacturers are
subject to periodic inspections by the FDA. Failure to meet or comply with any
rules, regulations or restrictions of the FDA or other agencies could result in
fines, unanticipated expenditures, product delays, non-approval or recall,
interruption of production and even criminal prosecution. Although we have
instituted internal compliance programs and continue to address compliance
issues raised from time-to-time by the FDA, we cannot be certain that we will
meet regulatory agency standards or that any lack of compliance will not have a
material adverse effect on our business, financial condition or results of
operations.
OUR BUSINESS EXPOSES US TO PRODUCT LIABILITY CLAIMS
Our design, testing, development, manufacture and marketing of products
involves an inherent risk of exposure to product liability claims and related
adverse publicity. Insurance coverage is expensive and difficult to obtain, and
we may be unable to obtain coverage in the future on acceptable terms, if at
all. Although we currently maintain product liability insurance for our products
in the amounts we believe to be commercially reasonable, we cannot be certain
that the coverage limits of our insurance policies or those of our strategic
partners will be adequate. If we are unable to obtain sufficient insurance at an
acceptable cost or if a claim is brought against us, whether fully covered by
insurance or not, our business, results of operations and financial condition
could be materially adversely affected.
WE MAY BE UNABLE TO RAISE ADDITIONAL CAPITAL OR TO REPURCHASE THE ZERO COUPON
SUBORDINATED CONVERTIBLE NOTES
We expend and will likely continue to expend substantial funds to complete
the research, development, manufacturing and marketing of our potential future
products. Consequently, we may seek to raise capital through collaborative
arrangements, strategic alliances, and/or equity and debt financings or from
other sources. We may be unable to raise additional capital on commercially
acceptable terms, if at all, and if we raise capital through equity financing
then existing stockholders may have their ownership interests diluted. If
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<PAGE> 27
we are unable to generate adequate funds from operations or from additional
sources, then our business, results of operations and financial condition may be
materially and adversely affected.
If we undergo certain events constituting a change of control prior to
February 16, 2004, we will be obligated to repurchase all outstanding Notes at
the option of the holder. However, it is possible that we will not have
sufficient funds at that time, will not be able to raise sufficient funds, or
that restrictions in our indebtedness will not allow such repurchases. In
addition, certain major corporate events that would increase our indebtedness,
such as leveraged recapitalizations, would not constitute a change of control
under the Indenture entered into in connection with the offering of the Notes.
FUTURE TRANSACTIONS MAY ADVERSELY AFFECT OUR BUSINESS OR THE MARKET PRICE OF
SECURITIES
We regularly review potential transactions related to technologies,
products or product rights and businesses complementary to our business. Such
transactions could include mergers, acquisitions, strategic alliances,
off-balance sheet financings, licensing agreements or copromotion agreements. We
may choose to enter into one or more of such transactions at any time, which may
cause substantial fluctuations to the market price of securities that we have
issued. Moreover, depending upon the nature of any transaction, we may
experience a charge to earnings, which could also have a material adverse impact
upon the market price of securities that we have issued.
WE RELY UPON CERTAIN KEY PERSONNEL
Our success will depend, to a great extent, upon the experience, abilities
and continued services of our executive officers and key scientific personnel.
We do not carry key-man life insurance on any of our officers or personnel. If
we lose the services of any of these officers or key scientific personnel, we
could suffer a material adverse effect on our business, financial condition and
results of operations. Our success also will depend upon our ability to attract
and retain other highly qualified scientific, managerial, sales and
manufacturing personnel and our ability to develop and maintain relationships
with qualified clinical researchers. Competition for such personnel and
relationships is intense and we compete with numerous pharmaceutical and
biotechnology companies as well as with universities and non-profit research
organizations. We cannot be certain that we will be able to continue to attract
and retain qualified personnel or develop and maintain relationships with
clinical researchers.
WE ARE SUBJECT TO UNCERTAINTIES REGARDING HEALTH CARE REIMBURSEMENT AND REFORM
Our ability to commercialize products depends in part on the extent to
which patients are reimbursed by governmental agencies, private health insurers
and other organizations, such as health maintenance organizations, for the cost
of such products and related treatments. Our business, results of operations and
financial condition could be materially adversely affected if health care payers
and providers implement cost-containment measures and governmental agencies
implement healthcare reform.
OUR BUSINESS INVOLVES ENVIRONMENTAL RISKS
Our business and the business of several of our strategic partners,
including Genentech, involves the controlled use of hazardous materials,
chemicals, biologics and radioactive compounds. Biologics manufacture is
extremely susceptible to product loss due to microbial or viral contamination,
material equipment failure, or vendor or operator error. Although we believe
that our safety procedures for handling and disposing of such materials complies
with state and federal standards, there will always be the risk of accidental
contamination or injury. In addition, certain microbial or viral contamination
may cause the closure of the respective manufacturing facility for an extended
period of time. By law, radioactive materials may only be disposed of at state
approved facilities. We currently store our radioactive materials on-site
because the approval of a disposal site in California for all California-based
companies has been delayed indefinitely. If and when a disposal site is
approved, we may incur substantial costs related to the disposal of such
material. If liable for an accident, or if we suffer an extended facility
shutdown, we could incur significant costs, damages and penalties that could
have a material adverse effect on our business, financial condition and results
of operations.
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<PAGE> 28
THE ZERO COUPON SUBORDINATED CONVERTIBLE NOTES LEVERAGE US CONSIDERABLY
As a result of issuing the Notes in February 1999, we raised approximately
$112.7 million, net of underwriting commissions and expenses of $3.9 million, by
incurring indebtedness of $345.0 million at maturity in 2019. As a result of
this indebtedness, our principal and interest obligations increased
substantially. The degree to which we are leveraged could materially adversely
affect our ability to obtain future financing and could make us more vulnerable
to industry downturns and competitive pressures. Our ability to meet our debt
obligations will be dependent upon our future performance, which will be subject
to financial, business and other factors affecting our operations, many of which
are beyond our control. The holders of the Notes may require us to purchase the
Notes on February 16, 2004, 2009, 2014 at a price equal to the issue price plus
accrued original issue discount to the date of purchase. We have the option to
repay the Notes plus accrued original issue discount in cash, our common stock
or a combination thereof. We have the right to redeem the Notes on or after
February 16, 2004.
In addition, in the event of our insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding up or upon our default in payment with
respect to any indebtedness or an event of default with respect to such
indebtedness resulting in the acceleration thereof, our assets will be available
to pay the amounts due on the Notes only after all our senior indebtedness has
been paid in full. Moreover, holders of common stock would only receive the
assets remaining after payment of all indebtedness and preferred stock, if any.
WE HAVE ADOPTED SEVERAL ANTITAKEOVER MEASURES AND THE ZERO COUPON SUBORDINATED
CONVERTIBLE NOTES MAY HAVE FURTHER ANTITAKEOVER EFFECT
We have taken a number of actions that could have the effect of
discouraging a takeover attempt that might be beneficial to stockholders who
wish to receive a premium for their shares from a potential bidder. For example,
we reincorporated into Delaware, which subjects us to Section 203 of the
Delaware General Corporation Law, providing that we may not enter into a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in the manner
prescribed in the code section. In addition, we have adopted a Stockholder
Rights Plan that would cause substantial dilution to a person who attempts to
acquire us on terms not approved by our Board of Directors. In addition, our
Board of Directors has the authority to issue, without vote or action of
stockholders, up to 8,000,000 shares of preferred stock and to fix the price,
rights, preferences and privileges of those shares. Any such preferred stock
could contain dividend rights, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences or other rights superior
to the rights of holders of common stock. The Board of Directors has no present
intention of issuing any additional shares of preferred stock (217,514 shares of
non-voting convertible preferred stock convertible into 2,781,586 shares of
common stock, were outstanding as of December 31, 1999), but reserves the right
to do so in the future. In addition, our copromotion arrangement with Genentech
provides Genentech with the option to buy the rights to Rituxan in the event
that we undergo a change of control, which may limit our attractiveness to
potential acquirors.
We are required by the terms of the Notes, as of 35 business days after a
change in control occurring on or before February 16, 2004, to purchase any Note
at the option of its holder and at a price equal to the issue price plus accrued
original issue discount to the date of repurchase. This feature of the Notes may
have an antitakeover effect.
FAILURE TO ADEQUATELY ADDRESS THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT OUR
BUSINESS.
We have assessed and continue to assess the potential impact of the
situation commonly referred to as the Year 2000 Issue. The Year 2000 Issue
concerns the inability of many information technology based systems and software
products to properly recognize and process date sensitive information. This
could cause system or equipment shutdowns, failures or miscalculations resulting
in inaccuracies in data exchange, computer output or disruptions of operations.
As a result, information technology based systems and/or software used by many
companies may need to be modified and upgraded.
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<PAGE> 29
We have an ongoing Year 2000 Program and have appointed a Year 2000 Program
Manager and a Year 2000 Task Force. We have completed an inventory and review of
information technology based system hardware, operating systems (including
manufacturing and laboratory control systems) and application software in order
to identify potential Year 2000 problems and we have completed implementing
planned upgrades and testing our systems. We have corrected identified
noncompliant items. As of March 30, 2000, we have not experienced any
significant Year 2000 related problems.
We rely upon Genentech to provide for all Year 2000-related reviews,
upgrades and contingency plans relating to the manufacture, distribution and
sale of Rituxan. Genentech, reported in its Annual Report on Form 10-K for its
year-ended December 31, 1999 that they have not experienced any significant Year
2000 related problems.
The financial impact of future Year 2000 remediation activities that become
necessary, if any, cannot be precisely known at this time, but it is not
expected to be material.
RESEARCH AND DEVELOPMENT
Our research and development group at January 31, 2000, totals 162
employees, of whom 36 have Ph.D. or M.D. degrees. Research and development
expenses were $43.3 million, $31.5 million and $32.4 million in 1999, 1998 and
1997, respectively, of which approximately 75%, 53% and 63%, respectively, was
sponsored by us and the remainder of which was funded pursuant to product
development collaborations arrangements. See "-- Strategic Alliances."
OUR EMPLOYEES
As of January 31, 2000, we employed 407 persons of which 128 employees were
in manufacturing. In addition, we retained approximately 114 independent
contractors. None of our employees are represented by a labor union or bound by
a collective bargaining agreement. Management believes that its overall
relations with its employees are good.
ITEM 2. PROPERTIES.
We currently lease approximately 203,000 square feet of administrative,
laboratory, manufacturing and warehouse space at four locations in San Diego,
California. Our primary research facilities and manufacturing plant are located
at 11011 Torreyana Road in San Diego, California. This facility is leased
pursuant to a 15-year operating lease that commenced in 1993. We have the option
to extend the term of this lease for two consecutive periods of five years each.
In August 1996, we entered into a 7-year operating lease for additional
administrative and warehouse space at 3030 Callan Road in San Diego, California
which was amended in October 1999 to include adjacent space for our primary
principal executive offices now located at 3030 Callan Road in San Diego,
California, and to extend the term from 7 years to 13 years and 8 months. We
have the option to extend the term of this lease for two consecutive periods of
five years each. In June 1999 we entered into a 10-year operating lease for an
additional research and development facility that is expected to commence in
July 2000. We have the option to extend the term of this lease for two
consecutive periods of five years each.
ITEM 3. LEGAL PROCEEDINGS.
(a) We are not a party to any material legal proceedings.
(b) No material legal proceedings were terminated in the fourth quarter of
1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 1, 1999, we held a Special Meeting of Stockholders to vote upon
a proposed amendment and restatement of our Amended and Restated Certificate of
Incorporation to increase the number of shares of authorized common stock from
50,000,000 shares to 200,000,000 shares, to halve the par value of the common
stock from $0.001 per share to $0.0005 per share and to effect a two-for-one
split of our common stock. This proposal received 15,493,754 affirmative votes
(for the amendment), 2,511,452 negative votes (against the amendment) and 15,496
votes abstained. The proposal did not receive any broker nonvotes.
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<PAGE> 30
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information
Our common stock trades on The Nasdaq Stock Market under the symbol "IDPH."
The following table sets forth the high and low sales price for our common stock
as reported by The Nasdaq Stock Market for the years ended December 31, 1999 and
1998.
<TABLE>
<CAPTION>
COMMON STOCK
PRICE
-----------------
HIGH LOW
---- ---
<S> <C> <C>
Year ended December 31, 1999
First Quarter............................................... $27 9/16 $19 13/16
Second Quarter.............................................. 39 5/8 21 1/4
Third Quarter............................................... 72 3/4 37
Fourth Quarter.............................................. 105 42 3/4
Year ended December 31, 1998
First Quarter............................................... $23 11/16 $16 3/8
Second Quarter.............................................. 22 3/4 11 5/16
Third Quarter............................................... 14 15/16 8 5/8
Fourth Quarter.............................................. 24 3/32 9 1/8
</TABLE>
(b) Holders
As of January 31, 2000 there were approximately 335 stockholders of record
of our common stock.
(c) Dividends
We have not paid cash dividends since our inception. We currently intend to
retain all earnings, if any, for use in the expansion of our business and
therefore do not anticipate paying any dividends in the foreseeable future.
(d) Recent sales of unregistered securities. None
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<PAGE> 31
ITEM 6. SELECTED FINANCIAL DATA.
The following tables set forth certain financial data with respect to our
corporation. The selected financial data should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in this
Form 10-K.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1999 1998 1997 1996 1995
-------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Revenues from unconsolidated joint
business................................. $ 93,197 $53,813 $ 9,266 $ -- $ --
Contract revenues........................... 10,806 14,846 11,840 15,759 12,136
License fees................................ 14,000 18,300 23,500 14,250 11,500
-------- ------- -------- ------- --------
118,003 86,959 44,606 30,009 23,636
-------- ------- -------- ------- --------
Operating costs and expenses:
Manufacturing costs......................... 14,277 19,602 18,875 -- --
Research and development.................... 42,831 31,485 32,407 28,147 22,488
Selling, general and administrative......... 19,478 16,968 11,320 7,298 6,112
Acquired technology rights.................. -- -- -- -- 11,437
-------- ------- -------- ------- --------
76,586 68,055 62,602 35,445 40,037
-------- ------- -------- ------- --------
Income (loss) from operations................. 41,417 18,904 (17,996) (5,436) (16,401)
-------- ------- -------- ------- --------
Interest income (expense), net................ 4,189 2,996 2,572 481 (891)
-------- ------- -------- ------- --------
Income (loss) before taxes.................... 45,606 21,900 (15,424) (4,955) (17,292)
Income tax provision.......................... (2,449) (422) (114) -- --
-------- ------- -------- ------- --------
Net income (loss)............................. 43,157 21,478 (15,538) (4,955) (17,292)
Convertible preferred stock dividends......... -- -- -- (696) --
-------- ------- -------- ------- --------
Net income (loss) applicable to common
stock....................................... $ 43,157 $21,478 $(15,538) $(5,651) $(17,292)
-------- ------- -------- ------- --------
Earnings (loss) per share(1):
Basic....................................... $ 1.04 $ 0.54 $ (0.41) $ (0.17) $ (0.59)
Diluted..................................... $ 0.86 $ 0.46 $ (0.41) $ (0.17) $ (0.59)
Shares used in calculation of earnings (loss)
per share:
Basic....................................... 41,382 39,676 37,478 33,146 29,300
Diluted..................................... 50,429 46,754 37,478 33,146 29,300
</TABLE>
- ---------------
(1) Earnings (loss) per share for years ended December 31, 1998, 1997, 1996 and
1995 have been restated to reflect a two-for-one stock split effected in
December 1999.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Cash, cash equivalents and securities
available-for-sale........................ $246,286 $ 73,502 $ 69,657 $ 78,727 $ 24,760
Total assets................................ 307,074 125,273 106,013 113,029 47,626
Notes payable, less current portion......... 122,910 2,095 3,886 5,015 6,598
Accumulated deficit......................... (34,718) (77,875) (99,353) (83,815) (78,860)
Total stockholders' equity.................. $159,978 $106,428 $ 80,679 $ 92,614 $ 31,169
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with our
consolidated financial statements and related notes appearing elsewhere in this
Form 10-K.
OVERVIEW
We are primarily engaged in the commercialization, research and development
of targeted therapies for the treatment of cancer and autoimmune diseases. In
November 1997, we received approval from the FDA to market our first product,
Rituxan, in the United States, and in June 1998, Roche, our European marketing
partner was granted marketing authorization for Rituximab in all European Union
countries. In September 1999, Zenyaku filed a BLA for Rituxan with the Tokyo
Government and the Ministry of Health and Welfare. Rituxan is the trade name in
the United States and Japan for the compound Rituximab. Outside the United
States and Japan, Rituximab is marketed as MabThera (Rituximab, Rituxan and
MabThera are collectively referred to as Rituxan, except where otherwise
indicated). Rituxan is being copromoted in the United States under a joint
business arrangement with Genentech, where we received a share of the pretax
copromotion profits. Under the joint business arrangement we share
responsibility with Genentech for selling and continued development of Rituxan
in the United States. Continued development of Rituxan includes conducting
supportive research on Rituxan and post approval clinical studies and obtaining
potential approval of Rituxan for additional indications. Genentech provides
support functions for the commercialization of Rituxan in the United States
including marketing, customer service, order entry, distribution, shipping and
billing and, as of September 1999, Genentech is responsible for all
manufacturing responsibilities for Rituxan. Under the terms of separate
agreements with Genentech, commercialization of Rituxan outside the United
States is the responsibility of Roche, except in Japan where Zenyaku will be
responsible for product development, marketing and sales. We receive royalties
on Rituxan sales outside the United States.
Our revenues include revenues from unconsolidated joint business, contract
revenues and license fees. Until the commercialization of Rituxan, a substantial
portion of our revenues had been derived from contract revenues and license
fees. However, since the commercialization of Rituxan in November 1997, our
revenues have depended primarily upon the sale of Rituxan.
Revenues from unconsolidated joint business consist of our share of the
pretax copromotion profits generated from our joint business arrangement with
Genentech, revenue from bulk Rituxan sales to Genentech, reimbursement from
Genentech of our sales force and development expenses and royalty income from
Roche on sales of Rituximab outside the United States. Revenue from bulk Rituxan
sales is recognized when bulk Rituxan is accepted by Genentech. We record our
royalty income from Roche with a one-quarter lag. Under the joint business
arrangement, all U.S. sales of Rituxan and associated costs and expenses are
recognized by Genentech, and we record our share of the pretax copromotion
profits on a quarterly basis, as defined in our collaborative agreement with
Genentech. Pretax copromotion profits under the joint business arrangement are
derived by taking U.S. net sales of Rituxan to third-party customers less cost
of sales, third-party royalty expenses, distribution, selling and marketing
expenses and joint development expenses incurred by Genentech and us. Our
profit-sharing formula with Genentech has two tiers; we earn a higher percentage
of the pretax copromotion profit at the upper tier once a fixed pretax
copromotion profit level is met. The profit-sharing formula resets to the lower
tier on an annual basis, at the beginning of each year. We began recording our
profit share at the upper tier during the second quarter of 1999 as compared to
the third quarter in 1998.
Contract revenues include nonrefundable research and development funding
under collaborative agreements with our strategic partners and other funding
under contractual arrangements with other parties. Contract research and
development funding generally compensates us for discovery, preclinical and
clinical expenses related to our collaborative development programs for certain
of our products and is recognized at the time research and development
activities are performed under the terms of the collaborative agreements.
License fees include nonrefundable fees from product development milestone
payments, the sale of license rights to our proprietary gene expression
technology and nonrefundable fees from the sale of product rights under
collaborative development and license agreements with our strategic partners.
Included in license fees are nonrefundable product development milestone
payments which are recognized upon the achievement
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of product development milestone objectives as stipulated in agreements with our
strategic partners. Product development milestone objectives vary in each of our
agreements. The achievement of product development milestone objectives that may
lead to the recognition of license fees may include, but are not limited to: the
achievement of preclinical research and development objectives; the initiation
of various phases of clinical trials; the filing of an IND, BLA or NDA; the
filing of drug license applications in foreign territories; and obtaining United
States and/or foreign regulatory product approvals.
Contract revenues and license fees may vary from period to period and are
in part dependent upon achievement of certain research and development
objectives or the consummation of new corporate alliances. The magnitude and
timing of contract revenues and license fees may influence our achievement and
level of profitability.
The cost of bulk Rituxan sold to Genentech is recorded as manufacturing
costs in our consolidated statements of operations. Under our agreement with
Genentech, the sales price of bulk Rituxan sold to Genentech is capped at a
price that is less than our cost to manufacture bulk Rituxan. In September 1999
we transferred all manufacturing responsibilities for bulk Rituxan to Genentech.
Since the transfer of bulk Rituxan manufacturing to Genentech in September 1999,
we have begun using our remaining manufacturing capacity for production of
specification-setting lots and potential commercial inventory of the ZEVALIN
antibody, and anticipate using our available manufacturing capacity for
production of clinical material and potentially some third-party contract
manufacturing.
We have incurred increasing annual operating expenses and, with the
commercialization of Rituxan and preparation for potential commercialization of
ZEVALIN, we expect such trends to continue. Since our inception in 1985, through
1998, we incurred annual operating losses. Our ongoing profitability will be
dependent upon the continued commercial success of Rituxan, product development,
revenues from the achievement of product development objectives and licensing
transactions. As of December 31, 1999, we had an accumulated deficit of $34.7
million.
RESULTS OF OPERATIONS
Revenues from Unconsolidated Joint Business: Revenues from unconsolidated
joint business in 1999 totaled $93.2 million compared to $53.8 million in 1998
and $9.3 million in 1997. Revenues from unconsolidated joint business in 1999
and 1998 reflect full year financial results from the commercialization of
Rituxan through our collaboration with Genentech. Included in these revenues is
our share of the pretax copromotion profits generated from our joint business
arrangement with Genentech, revenue from bulk Rituxan sales to Genentech,
reimbursement from Genentech of our sales force and development expenses and
royalty income from Roche on sales of Rituximab outside the United States.
Revenues from unconsolidated joint business for the years ended December 31,
1999, 1998 and 1997, consist of the following (table in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Copromotion profit (loss)................................. $67,595 $30,579 $(4,350)
Bulk Rituxan sales........................................ 12,776 15,043 10,631
Reimbursement of selling and development expenses......... 8,273 6,949 2,985
Royalty income on sales of Rituximab outside the U.S...... 4,553 1,242 --
------- ------- -------
$93,197 $53,813 $ 9,266
------- ------- -------
</TABLE>
We expect decreased revenues from bulk Rituxan sales to Genentech in
subsequent periods due to the transfer of all manufacturing responsibilities for
bulk Rituxan to Genentech, as discussed above, and as the final lots of bulk
Rituxan manufactured by us during the third quarter of 1999 are accepted by
Genentech. The sale of bulk Rituxan for the year ended December 31, 1999
resulted in $12.8 million of revenues, which offset a majority of manufacturing
costs in 1999. Going forward, our decision to transfer all manufacturing
responsibilities to Genentech will result in the loss of revenues to offset our
manufacturing costs. The loss of bulk Rituxan revenues may be offset by the
potential financial and development timeline benefits of manufacturing ZEVALIN
and other clinical antibodies in our manufacturing facility. Under our agreement
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with Genentech, our pretax copromotion profit-sharing formula has two tiers. We
will earn a higher percentage of the pretax copromotion profits at the upper
tier once a fixed copromotion profit level is met. The profit-sharing formula
resets to the lower tier on an annual basis, at the beginning of each year. We
began recording our annual copromotion profits using the upper tier in the
second quarter of 1999 as compared to the third quarter in 1998. Revenues from
unconsolidated joint business in 1997 consist of bulk Rituxan sales to Genentech
and reimbursement from Genentech for our Rituxan sales force and development
expenses, offset by our share of the joint business operating loss. During 1997,
the joint business recorded an operating loss due to significant shared expenses
related to the product launch of Rituxan in the United Sates in December 1997.
Rituxan net sales to third-party customers in the United States by
Genentech in 1999 amounted to $262.7 million compared to $152.1 million in 1998.
This increase was primarily due to increased market penetration in treatments of
B-cell non-Hodgkin's lymphoma and a six percent increase in the wholesale price
of Rituxan which was effected on October 5, 1998.
In addition to U.S. sales of Rituxan, Genentech recorded in 1999 and 1998
$16.7 million and $10.5 million, respectively, of ex-U.S. sales of Rituximab
that were shipped to its partner Roche. Our royalty revenue on sales of
Rituximab outside the U.S. is based on Roche's end-user sales and is recorded
with a one-quarter lag. In 1999 we recognized $4.6 million in royalties from
Roche's end-users sales compared to $1.2 million in 1998.
Contract Revenues: Contract revenues totaled $10.8 million in 1999 compared
to $14.8 million in 1998 and $11.8 million in 1997. The decrease in contract
revenues in 1999 resulted primarily from decreased funding under collaborative
agreements with Eisai, Seikagaku and SmithKline Beecham, offset by increased
funding under a collaboration and license agreement with Schering AG. The
increase in contract revenues in 1998 resulted primarily from increased funding
under collaborative agreements with Eisai that was offset in part by decreased
research and development funding from Genentech and Seikagaku.
License Fees: License fees totaled $14.0 million in 1999 compared to $18.3
million in 1998 and $23.5 million in 1997. License fees in 1999 consist
primarily of a $13.0 million up-front licensing fee from Shering AG for the
development and commercialization of ZEVALIN outside the United States. License
fees in 1998 consisted of a $10.0 million product development milestone payment
from Genentech for European approval of Rituxan, a $6.3 million license fee from
Kirin for the license of our proprietary gene expression technology and a
product development milestone payment for the IND allowance of IDEC-114, an
investigational PRIMATIZED anti-B7 monoclonal antibody for the treatment of
psoriasis, under our collaboration with Mitsubishi. License fees in 1997 are
primarily due to a $15.0 million product development milestone payment received
from Genentech upon FDA approval of Rituxan and a $5.0 million license fee from
Boehringer for the license of our proprietary gene expression technology. We
continue to pursue other collaborative and license arrangements, however, no
assurance can be given that any such arrangements will be realized.
Manufacturing Costs: Manufacturing costs totaled $14.3 million in 1999
compared to $19.6 million in 1998 and $18.9 million in 1997. Manufacturing costs
for 1999, 1998 and 1997 relate to production of bulk Rituxan sold to Genentech.
Manufacturing costs are recognized when Genentech accepts bulk Rituxan
inventory. The decrease in manufacturing costs for 1999 is due to the completion
in September 1999 of our obligation to manufacture bulk Rituxan under our
agreement with Genentech. In September 1999 we transferred all manufacturing
responsibilities for bulk Rituxan to Genentech which will result in decreased
manufacturing costs in subsequent periods as the final lots of bulk Rituxan
manufactured by us during the third quarter of 1999 are accepted by Genentech.
Since the transfer of bulk Rituxan to Genentech, certain of our manufacturing
efforts have been associated with clinical development and such manufacturing
expenses will now be recorded as research and development expenses.
Manufacturing costs in 1997 includes costs of approximately $2.0 million
incurred for the start-up of our manufacturing facility.
Research and Development: Research and development expenses totaled $42.8
million in 1999 compared to $31.5 million in 1998 and $32.4 million in 1997. The
increase in research and development expense in 1999 is primarily due to
increased personnel expenses and ZEVALIN-related clinical trials, process
development and manufacturing scale-up expenses, offset in part by decreased
contract manufacturing by
34
<PAGE> 35
third-parties and other outside service expenses. The decrease in research and
development expenses in 1998 is due to a $3.0 million up-front licensing fee to
Pharmacia & Upjohn for exclusive rights to 9-AC in 1997 partially offset by
higher personnel and clinical trial expenses incurred during 1998. We expect to
continue incurring substantial additional research and development expenses in
the future, due to completion of our primary development program for ZEVALIN and
preparation of our ZEVELIN BLA package; the expansion or addition of research
and development programs; technology in-licensing; regulatory-related expenses;
preclinical and clinical testing of our various products under development; and
production scale-up and manufacturing of products used in clinical trials.
Selling, General and Administrative: Selling, general and administrative
expenses totaled $19.5 million in 1999 compared to $17.0 million in 1998 and
$11.3 million in 1997. Selling, general and administrative expenses increased in
1999 and 1998 due to increased sales and marketing expenses resulting from the
commercialization of Rituxan. Selling, general and administrative expenses are
expected to increase in the foreseeable future to support sales and
administration, our preparation for the potential commercialization of ZEVALIN,
expanded manufacturing capacity, expanded clinical trials, research and
development and the potential expansion of our sales and marketing organization.
Interest Income/Expense: Interest income totaled $10.2 million in 1999
compared to $3.6 million in 1998 and $3.5 million in 1997. The increase in
interest income in 1999 is primarily due to higher average balances in cash,
cash equivalents and securities available-for-sale resulting from the completion
of a Notes offering in February 1999, see "Liquidity and Capital Resources,"
cash provided by operations and cash provided from the issuance of common stock
issued under employee stock option and purchase plans.
Interest expense totaled $6.1 million in 1999 compared to $0.6 million in
1998 and $0.9 million in 1997. The increase in interest expense in 1999 is
primarily due to noncash interest charges relating to the Notes offering in
February 1999. The decrease in interest expense in 1998 is due to the repayment
of notes payable. Interest expense is expected to increase in the future due to
interest charges from the Notes.
Income Tax Provision: Our effective tax rate in 1999 was approximately five
percent compared to two percent in 1998. Our effective tax rate for 1999
resulted from the utilization of net operating loss carryforwards and our
effective tax rate for 1998 was the result of an alternative minimum tax system
that only allows the utilization of net operating loss carryforwards to offset
90% of taxable income. At December 31, 1999, we had a valuation allowance equal
to our deferred tax assets of $57.5 million since we have not established a
pattern of profitable operations for income tax reporting purposes. Our net
operating loss carryforwards available to offset future taxable income at
December 31, 1999 were approximately $87.0 million for federal income tax
purposes and begin to expire in 2006. The utilization of our net operating loss
carryforwards and tax credits may be subject to an annual limitation under the
Internal Revenue Code due to a cumulative change of ownership in us of more than
fifty percent in prior years. However, we anticipate this annual limitation to
only result in a slight deferral in the utilization of our net operating loss
carryforwards and tax credits. The income tax provision for the year ended
December 31, 1997 consisted of state franchise tax.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operating and capital expenditures since inception
principally through the sale of equity securities, commercialization of Rituxan,
license fees, contract revenues, lease financing transactions, debt and interest
income. We expect to finance our current and planned operating requirements
principally through cash on hand, funds from our joint business arrangement with
Genentech and with funds from existing collaborative agreements and contracts
which we believe will be sufficient to meet our near-term operating
requirements. Existing collaborative research agreements and contracts, however,
could be canceled by the contracting parties. In addition, we may, from time to
time seek additional funding through a combination of new collaborative
agreements, strategic alliances and additional equity and debt financings or
from other sources. There can be no assurance that additional funds will be
obtained through these sources on acceptable terms, if at all. Should we not
enter into any such arrangements, we anticipate our cash, cash equivalents and
securities available-for-sale, together with the existing agreements and
contracts and cash generated from our joint business arrangement with Genentech,
will be sufficient to finance our currently
35
<PAGE> 36
anticipated needs for operating and capital expenditures for the foreseeable
future. If adequate funds are not available from the joint business arrangement,
operations or additional sources of financing, our business could be materially
and adversely affected.
Our working capital and capital requirements will depend upon numerous
factors, including: the continued commercial success of Rituxan; the progress of
our preclinical and clinical testing; fluctuating or increasing manufacturing
requirements and research and development programs; timing and expense of
obtaining regulatory approvals; levels of resources that we devote to the
development of manufacturing, sales and marketing capabilities; technological
advances; status of competitors; and our ability to establish collaborative
arrangements with other organizations.
Until required for operations we invest our cash reserves in bank deposits,
certificates of deposit, commercial paper, corporate notes, United States
government instruments and other readily marketable debt instruments in
accordance with our investment policy.
At December 31, 1999, we had $246.3 million in cash, cash equivalents and
securities available-for-sale compared to $73.5 million at December 31, 1998.
Sources of cash, cash equivalents and securities available-for-sale during the
year ended December 31, 1999, included $112.7 from the Notes offering discussed
below, $52.5 million from operations and $14.2 million from the issuance of
common stock under employee stock option and purchase plans. Uses of cash, cash
equivalents and securities available-for-sale during the year ended December 31,
1999, included $4.3 million used to purchase capital equipment and $1.7 million
used to pay notes payable.
In February 1999, we raised through the sale of Notes approximately $112.7
million, net of underwriting commissions and expenses of $3.9 million. The Notes
were priced with a yield to maturity of 5.5 percent annually. Upon maturity, the
Notes will have an aggregate principal face value of $345.0 million. Each $1,000
aggregate principal face value Note is convertible at the holders' option at any
time through maturity into 13.468 shares of our common stock at an initial
conversion price of $25.09. We are required under the terms of the Notes, as of
35 business days after a change in control occurring on or before February 16,
2004, to purchase any Note at the option of its holder at a price equal to the
issue price plus accrued original issue discount to the date of purchase.
Additionally, the holders of the Notes may require us to purchase the Notes on
February 16, 2004, 2009 or 2014 at a price equal to the issue price plus accrued
original issue discount to the date of purchase with us having the option to
repay the Notes plus accrued original issue discount in cash, our common stock
or a combination thereof. We have the right to redeem the Notes on or after
February 16, 2004.
In September 1997, we entered into a development and license agreement with
Cytokine Pharmasciences, Inc., formally known as Cytokine Networks, Inc.,
("CPI"). Under the terms of the development and license agreement with CPI, we
may make payments to CPI totaling up to $10.5 million, subject to attainment of
certain product development milestone objectives, of which $3.0 million has been
paid through December 31, 1999.
In July 1999, we announced that we terminated our development of 9-AC,
following a Phase II clinical trial. We concluded that 9-AC would not yield the
desired benefits to solid-tumor cancer patients. We originally acquired 9-AC
from Pharmacia & Upjohn who developed it under collaboration with the NCI. We
have returned all product rights for 9-AC to the NCI.
In October 1992, we entered into a collaborative research and license
agreement with SmithKline Beecham related to the development and
commercialization of compounds based on our PRIMATIZED anti-CD4 antibodies. In
February 2000, we amended and restated our agreement with SmithKline Beecham
which resulted in all anti-CD4 program rights, including IDEC-151, being
returned to us. We will receive no further funding from SmithKline Beecham under
the restated agreement. As part of the restated agreement, SmithKline Beecham
has the option to negotiate commercialization and copromotion rights with us for
the first compound based on our PRIMATIZED anti-CD4 antibodies to complete a
Phase II study. If we do not commercialize and copromote the compound with
SmithKline Beecham, we will pay SmithKline Beecham
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<PAGE> 37
royalties on sales by us, our affiliates and licensees on products emerging from
the rights returned to us under the restated agreement.
Additionally, we had future minimum lease payment obligations under our
operating leases of $58.5 million as of December 31, 1999.
NEW ACCOUNTING STANDARD AND ACCOUNTING BULLETIN
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB No. 101"). SAB No. 101 summarizes certain of the SEC's staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. SAB No. 101 provides that specific facts and circumstances
may result in nonrefundable fees received under our collaborative agreements not
being recognized as revenue upon payment but instead recognized as revenue over
future periods, which could extend beyond the initial contractual period. There
are many unanswered questions related to the application of SAB No. 101 to
biotechnology companies, including ours. Some of these questions have been
forwarded to the Financial Accounting Standards Board's Emerging Issues Task
Force for consideration. We are presently evaluating the impact, if any, that
SAB No. 101 will have on our reported results.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("Statement No. 133"). Statement No. 133, as amended by
statement of Financial Accounting Standards No. 137, requires companies to
recognize all derivatives as either assets or liabilities with the instruments
measured at fair value and is effective on January 1, 2001. The accounting for
changes in fair value gains and losses depends on the intended use of the
derivative and its resulting designation. We do not believe the adoption of
Statement No. 133 will have a material impact on our consolidated financial
statements.
YEAR 2000 COMPLIANCE
Our computer systems and equipment successfully transitioned to the Year
2000 with no significant issues. We continue to keep our Year 2000 project
management in place to monitor latent problems that could surface at key dates
or events in the future. It is not anticipated that there will be any
significant problems related to these events. All costs associated with the Year
2000 remediation efforts were expensed or capitalized in accordance with
appropriate accounting policies.
We continue to rely upon Genentech to provide for all future Year
2000-related remediation activities relating to the manufacture and sale of
Rituxan. Genentech reported in its Annual Report on Form 10-K for its year ended
December 31, 1999 that they have not experienced any significant Year 2000
related issues.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to a variety of risks, including changes in interest rates
affecting the return on our investments and the cost of our debt.
At December 31, 1999, we maintained a portion of our cash and cash
equivalents in financial instruments with original maturities of three months or
less. We also maintained a short-term investment portfolio containing financial
instruments in which the majority have original maturities of greater than three
months but less than twelve months. These financial instruments, principally
comprised of corporate obligations and to a lesser extent foreign and U.S.
government obligations, are subject to interest rate risk and will decline in
value if interest rates increase. A hypothetical ten percent change in interest
rates during the year ended December 31, 1999, would have resulted in
approximately a $1.0 million change in pretax income. We have not used
derivative financial instruments in our investment portfolio.
Our long-term debt totaled $124.4 million at December 31, 1999 and was
comprised principally of the Notes. Our long-term debt obligations bear interest
at a weighed average interest rate of 5.57%. Due to the
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<PAGE> 38
fixed rate nature of the Notes, an immediate ten percent change in interest
rates would not have a material effect on our financial condition or results of
operations.
Underlying market risk exists related to an increase in our stock price or
an increase in interest rates which may make conversion of the Notes to common
stock beneficial to the Notes holder. Conversion of the Notes would have a
dilutive effect on our earnings per share and book value per common share.
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<PAGE> 39
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Revenues:
Revenues from unconsolidated joint business............... $ 93,197 $53,813 $ 9,266
Contract revenues......................................... 10,806 14,846 11,840
License fees.............................................. 14,000 18,300 23,500
-------- ------- --------
Total revenues (including related party revenues
of $93,337, $64,014 and $27,373 in 1999, 1998
and 1997, respectively)......................... 118,003 86,959 44,606
-------- ------- --------
Operating costs and expenses:
Manufacturing costs....................................... 14,277 19,602 18,875
Research and development.................................. 42,831 31,485 32,407
Selling, general and administrative....................... 19,478 16,968 11,320
-------- ------- --------
Total operating costs and expenses................ 76,586 68,055 62,602
-------- ------- --------
Income (loss) from operations............................... 41,417 18,904 (17,996)
Interest income............................................. 10,247 3,626 3,489
Interest expense............................................ (6,058) (630) (917)
-------- ------- --------
Income (loss) before taxes.................................. 45,606 21,900 (15,424)
Income tax provision........................................ (2,449) (422) (114)
-------- ------- --------
Net income (loss)........................................... $ 43,157 $21,478 $(15,538)
-------- ------- --------
Earnings (loss) per share:
Basic..................................................... $ 1.04 $ 0.54 $ (0.41)
Diluted................................................... $ 0.86 $ 0.46 $ (0.41)
Shares used in calculation of earnings (loss) per share:
Basic..................................................... 41,382 39,676 37,478
Diluted................................................... 50,429 46,754 37,478
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 40
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 61,404 $ 26,929
Securities available-for-sale............................. 184,882 46,573
Contract revenue receivables, net......................... 1,310 2,345
Due from related parties, net............................. 23,654 17,473
Inventories............................................... 2,400 5,346
Prepaid expenses and other current assets................. 4,869 2,361
-------- --------
Total current assets.............................. 278,519 101,027
Property and equipment, net................................. 20,822 20,897
Investment and other assets................................. 7,733 3,349
-------- --------
$307,074 $125,273
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable.......................... $ 1,513 $ 1,910
Accounts payable.......................................... 1,269 1,989
Accrued expenses.......................................... 12,834 10,238
Deferred revenue.......................................... -- 346
-------- --------
Total current liabilities......................... 15,616 14,483
-------- --------
Notes payable, less current portion......................... 122,910 2,095
Deferred taxes and other long-term liabilities.............. 8,570 2,267
Commitments
Stockholders' equity:
Convertible preferred stock, $.001 par value, 8,000 shares
authorized; 218 shares and 228 shares issued and
outstanding at December 31, 1999 and 1998,
respectively; $17,853 and $18,350 liquidation value at
December 31, 1999 and 1998, respectively............... -- --
Common stock, $.0005 par value, 200,000 shares authorized;
42,672 shares and 40,242 shares issued and outstanding
at December 31, 1999 and 1998, respectively............ 21 20
Additional paid-in capital................................ 195,218 184,282
Accumulated other comprehensive income -- net unrealized
gains (losses) on securities available-for-sale........ (543) 1
Accumulated deficit....................................... (34,718) (77,875)
-------- --------
Total stockholders' equity........................ 159,978 106,428
-------- --------
$307,074 $125,273
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 41
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER TOTAL
---------------- ---------------- PAID-IN COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (LOSS) DEFICIT EQUITY
------ ------ ------ ------ ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996...................... 330 $-- 36,118 $18 $176,448 $ (37) $(83,815) $ 92,614
Comprehensive loss:
Net loss.................. -- -- -- -- -- -- (15,538) (15,538)
Unrealized gains on
securities
available-for-sale...... -- -- -- -- -- 94 -- 94
--------
Comprehensive loss.......... (15,444)
--------
Issuance of common stock
under stock option and
employee stock purchase
plans..................... -- -- 1,340 1 3,508 -- -- 3,509
Issuance of common stock
from exercise of stock
warrants.................. -- -- 210 -- -- -- -- --
Issuance of common stock
from conversion of series
A-1 and B convertible
preferred stock........... (85) -- 1,044 -- -- -- -- --
--- --- ------ --- -------- ----- -------- --------
Balance at December 31,
1997...................... 245 -- 38,712 19 179,956 57 (99,353) 80,679
Comprehensive income:
Net income................ -- -- -- -- -- -- 21,478 21,478
Unrealized losses on
securities
available-for-sale...... -- -- -- -- -- (56) -- (56)
--------
Comprehensive income........ 21,422
--------
Issuance of common stock
under stock option and
employee stock purchase
plans, net................ -- -- 1,130 1 4,326 -- -- 4,327
Issuance of common stock
from exercise of stock
warrants.................. -- -- 50 -- -- -- -- --
Issuance of common stock
from conversion of series
A-1 convertible preferred
stock..................... (17) -- 350 -- -- -- -- --
--- --- ------ --- -------- ----- -------- --------
Balance at December 31,
1998...................... 228 -- 40,242 20 184,282 1 (77,875) 106,428
Comprehensive income:
Net income................ -- -- -- -- -- -- 43,157 43,157
Unrealized losses on
securities
available-for-sale...... -- -- -- -- -- (544) -- (544)
--------
Comprehensive income........ 42,613
--------
Issuance of common stock
under stock option and
employee stock purchase
plans, net................ -- -- 2,230 1 14,308 -- -- 14,309
Issuance of common stock
from conversion of series
A-1 convertible preferred
stock..................... (10) -- 200 -- -- -- -- --
Tax benefit from stock
options and stock purchase
plans..................... -- -- -- -- (3,372) -- -- (3,372)
--- --- ------ --- -------- ----- -------- --------
Balance at December 31,
1999...................... 218 $-- 42,672 $21 $195,218 $(543) $(34,718) $159,978
=== === ====== === ======== ===== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 42
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 43,157 $ 21,478 $(15,538)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................ 4,366 4,276 4,010
Noncash interest expense and other noncash
expenses........................................... 2,520 -- (131)
Losses on sales of securities available-for-sale..... -- -- (12)
Deferred taxes and other long-term liabilities....... 6,303 251 503
Change in assets and liabilities:
Contract revenue receivables, net.................. 1,035 1,626 (336)
Due from related parties, net...................... (6,181) (17,473) 732
Inventories........................................ 2,946 (1,212) 250
Prepaid expenses and other assets.................. (3,172) (908) 2,296
Accounts payable and accrued expenses.............. 1,876 4,219 (1,049)
Due to related party, net.......................... -- (870) (130)
Deferred revenue................................... (346) (6,300) 6,646
--------- -------- --------
Net cash provided by (used in) operating
activities.................................... 52,504 5,087 (2,759)
--------- -------- --------
Cash flows from investing activities:
Purchase of securities available-for-sale............... (235,914) (60,858) (39,538)
Sales and maturities of securities available-for-sale... 97,061 49,039 58,224
Purchase of property and equipment...................... (4,291) (1,724) (5,875)
Investment in Cytokine Pharmasciences, Inc.............. -- -- (3,000)
--------- -------- --------
Net cash provided by (used in) investing
activities.................................... (143,144) (13,543) 9,811
--------- -------- --------
Cash flows from financing activities:
Proceeds from notes payable, net of issuance costs of
$3,890 in 1999....................................... 112,668 -- 3,003
Payments on notes payable............................... (1,749) (3,789) (4,054)
Proceeds from issuance of common stock, net............. 14,196 4,327 3,509
--------- -------- --------
Net cash provided by financing activities....... 125,115 538 2,458
--------- -------- --------
Net increase (decrease) in cash and cash equivalents...... 34,475 (7,918) 9,510
Cash and cash equivalents, beginning of year.............. 26,929 34,847 25,337
--------- -------- --------
Cash and cash equivalents, end of year.................... $ 61,404 $ 26,929 $ 34,847
--------- -------- --------
Supplemental disclosures of cash flow information --
Cash paid during the year for:
Interest........................................... $ 279 $ 651 $ 952
Income taxes....................................... $ 435 $ 401 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 43
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business: We are primarily engaged in the commercialization and research
and development of targeted therapies for the treatment of cancer and autoimmune
diseases.
Principles of Consolidation: The consolidated financial statements include
our financial statements and our wholly owned subsidiary IDEC Seiyaku. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Cash and Cash Equivalents: For the purposes of financial statement
presentation, we consider all highly liquid investments in debt securities with
original maturities of three months or less to be cash equivalents.
Securities Available-for-Sale and Investment: Securities available-for-sale
are carried at fair value, with unrealized gains and losses, net of tax,
reported as accumulated other comprehensive income -- net unrealized gains
(losses) on securities available-for-sale in the accompanying consolidated
balance sheets. The cost of securities sold is based on the specific
identification method. As part of our strategic alliance efforts, we also have
an investment in equity securities of another biotechnology company. This equity
investment is carried at cost and equaled $3,000,000 at December 31, 1999. Our
policy to evaluate any impairment in the value of this investment is discussed
in Note 1 "Long-Lived Assets." We believe that there have been no events that
would indicate that the carrying amount of this investment may be impaired.
Inventories: Inventories are stated at the lower of cost or market. Cost is
determined in a manner which approximates the first-in, first-out (FIFO) method.
Under our collaborative agreement with Genentech, the sales price of bulk
Rituxan sold to Genentech (see Note 7) is capped at a price that is currently
less than our cost to manufacture bulk Rituxan and as such, finished goods
inventory is written down to its net realizable value. Such write-downs are
recorded in current periods as manufacturing costs. Inventories at December 31,
1999 and 1998 consist of the following (table in thousands):
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Raw materials.............................................. $1,005 $2,273
Work in process............................................ -- 273
Finished goods............................................. 1,395 2,800
------ ------
$2,400 $5,346
====== ======
</TABLE>
Property and Equipment: Property and equipment are stated at cost.
Depreciation of property and equipment is calculated using the straight-line
method over the estimated useful lives of the assets, generally ranging from
three to seven years. Amortization of leasehold improvements is calculated using
the straight-line method over the shorter of the lease term or the estimated
useful lives of the assets.
Fair Value of Financial Instruments: The carrying amount of cash and cash
equivalents, securities available-for-sale, contract revenue receivables, due
from related parties, net, accounts payable and accrued expenses are considered
to be representative of their respective fair values because of the short-term
nature of those financial instruments. The fair values of our notes payable
approximate carrying values based upon the current rates and terms offered to us
for similar notes.
Long-Lived Assets: In accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("Statement No. 121"), we evaluate
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. In
forming our analysis we consider the following three grouping levels of cash
flows: i) assets used in research and development; ii) assets used in
manufacturing; and iii) our investment in a private biotechnology company. We
also account for long-lived assets that are held for
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<PAGE> 44
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
disposal at the lower of cost or fair value. Fair value is determined through
analysis of undiscounted cash flows or obtained from independent third parties.
Revenues from Unconsolidated Joint Business: Revenues from unconsolidated
joint business consist of our share of the pretax copromotion profits generated
from our joint business arrangement with Genentech, revenue from bulk Rituxan
sales to Genentech, reimbursement from Genentech of our sales force and
development expenses and royalty income from Roche on sales of Rituximab outside
the United States. Revenue from bulk Rituxan sales is recognized when bulk
Rituxan is accepted by Genentech. Upon acceptance of bulk Rituxan by Genentech
the right of return no longer exists and there are no further performance
obligations related to bulk Rituxan. We record our royalty income from Roche
with a one-quarter lag. Rituxan is the trade name in the United States for the
compound Rituximab. Outside the United States, Rituximab is marketed as MabThera
(Rituximab, Rituxan and MabThera are collectively referred to as Rituxan, except
where otherwise indicated). Under the joint business arrangement, we share
responsibility with Genentech for selling and continued development of Rituxan
in the United States. Continued development of Rituxan includes supportive
research on Rituxan, post approval clinical studies and obtaining potential
approval of Rituxan for additional indications. Genentech provides the support
functions for the commercialization of Rituxan in the United States including
marketing, customer service, order entry, distribution, shipping and billing and
as of September 1999, all manufacturing responsibilities for Rituxan. Under the
joint business arrangement, all U.S. sales of Rituxan and associated costs and
expenses are recognized by Genentech and we record our share of the pretax
copromotion profits on a quarterly basis, as defined in our collaborative
agreement with Genentech (see Note 8). Pretax copromotion profits under the
joint business arrangement are derived by taking U.S. net sales of Rituxan to
third party customers less cost of sales, third-party royalty expenses,
distribution, selling and marketing expenses and joint development expenses
incurred by Genentech and us. Our profit-sharing formula with Genentech has two
tiers; we earn a higher percentage of the pretax copromotion profits at the
upper tier once a fixed pretax copromotion profit level is met. The
profit-sharing formula resets to the lower tier on an annual basis, at the
beginning of each year. We began recording our profit share at the higher
percentage during the second quarter of 1999 as compared to the third quarter in
1998.
Contract Revenues: Contract revenues consist of nonrefundable research and
development funding under collaborative agreements with our strategic partners
and other funding under contractual arrangements with other parties. Contract
research and development funding generally compensates us for discovery,
preclinical and clinical expenses related to the collaborative development
programs for certain of our products and product candidates and is recognized at
the time research and development activities are performed under the terms of
the collaborative agreements. Contract revenues earned under the collaborative
agreements are nonrefundable even should the research and development efforts
performed by us not eventually result in a commercial product. Contract revenues
earned in excess of contract payments received are classified as contract
revenue receivables, and contract research and development funding received in
excess of amounts earned are classified as deferred revenue. Contract revenue
receivables at December 31, 1999 and 1998 are net of an allowance of $292,000
and $775,000, respectively.
License Fees: License fees consist of nonrefundable fees from product
development milestone payments, the sale of license rights to our proprietary
gene expression technology and nonrefundable fees from the sale of product
rights under collaborative development and license agreements with our strategic
partners. Included in license fees are nonrefundable product development
milestone payments which are recognized upon the achievement of product
development milestone objectives as stipulated in agreements with our strategic
partners. Product development milestone objectives vary in each of our
agreements. The achievement of product development milestone objectives that may
lead to the recognition of license fees may include but are not limited to: the
achievement of preclinical research and development objectives; the initiation
of various phases of clinical trials; the filing of an IND, BLA or NDA; the
filing of drug license applications in foreign territories; and obtaining United
States and/or foreign regulatory product approvals. Revenues from product
44
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IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
development milestone payments are recognized when the results or objectives
stipulated in the agreement have been achieved. License fees recognized are
nonrefundable even should the achievement of the product development objective
by us not eventually result in a commercial product.
Manufacturing Costs: Manufacturing costs consist of manufacturing costs
related to the production of bulk Rituxan sold to Genentech.
Research and Development: All research and development expenses, including
purchased research and development, are expensed in the year incurred.
Stock-Based Compensation: Our stock option and purchase plans are accounted
for under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB Opinion No. 25"), and we make pro forma footnote
disclosures of our operating results as if we had adopted the fair value method
under Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" ("Statement No. 123").
Income Taxes: Income taxes are accounted for under the asset and liability
method where deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis and net operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Earnings (Loss) Per Share: Earnings (loss) per share are calculated in
accordance with Statement of Financial Accounting Standards No. 128 "Earnings
per Share." Basic earnings (loss) per share excludes the dilutive effects of
options, warrants and other convertible securities compared to diluted earnings
per share which reflects the potential dilution of options, warrants and other
convertible securities that could share in our earnings. Calculations of basic
and diluted earnings (loss) per share use the weighted average number of shares
outstanding during the year. Diluted earnings per share for the year ended
December 31, 1999 includes the dilutive effect of 9,047,000 shares of common
stock from options and convertible preferred stock and excludes 4,114,000 shares
of common stock from the assumed conversion of our Notes because their effect
was antidilutive. Diluted earnings per share for the year ended December 31,
1998 includes the dilutive effect of 7,078,000 shares of common stock from
options, warrants and convertible preferred stock and excludes 2,434,000 shares
of common stock from options because the options' exercise price was greater
than the average market price of our common stock for the year ended December
31, 1998. Options, warrants and convertible preferred stock totaling 8,362,000
shares were excluded from the calculations of diluted loss per share for the
year ended December 31, 1997, as their effect was antidilutive. All share and
earnings (loss) per share amounts have been restated to reflect our two-for-one
stock split effected in December 1999.
Use of Estimates: Our management has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting periods to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from these estimates.
Segment Information: Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("Statement No. 131"), establishes reporting standards for a company's operating
segments and related disclosures about its products, services, geographic areas
and major customers. An operating segment is defined as a component of an
enterprise that engages in business activities from which it may earn revenues
and incur expenses, and about which separate financial information is regularly
evaluated by the chief operating decision maker in deciding how to allocate
resources. We operate in one reportable segment.
45
<PAGE> 46
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The geographic classification of our revenues for the years ended December
31, 1999, 1998 and 1997 are as follows (table in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
United States................................ $ 89,242 $64,778 $28,763
Japan........................................ $ 5,068 $20,225 $10,050
Europe....................................... $ 23,693 $ 1,956 $ 5,793
-------- ------- -------
$118,003 $86,959 $44,606
======== ======= =======
</TABLE>
Approximately 79 percent of our total revenues in 1999, 74 percent in 1998
and 61 percent in 1997 are derived from our collaboration and unconsolidated
joint business arrangement with Genentech (see Note 8).
NOTE 2: SECURITIES AVAILABLE-FOR-SALE
Securities available-for-sale at December 31, 1999 and 1998 consist of the
following (tables in thousands):
<TABLE>
<CAPTION>
1999
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COSTS GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Certificate of deposits.......................... $ 25,182 $ 2 $ (41) $ 25,143
Corporate debt securities........................ 99,540 1 (252) 99,289
Commercial paper................................. 5,765 1 -- 5,766
Foreign debt securities.......................... 5,011 3 (7) 5,007
U.S. government and state agencies............... 49,927 -- (250) 49,677
-------- --- ----- --------
$185,425 $ 7 $(550) $184,882
======== === ===== ========
</TABLE>
<TABLE>
<CAPTION>
1998
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COSTS GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Corporate debt securities......................... $34,531 $32 $(41) $34,522
Foreign debt securities........................... 6,892 10 (4) 6,898
U.S. government agencies.......................... 5,149 5 (1) 5,153
------- --- ---- -------
$46,572 $47 $(46) $46,573
======= === ==== =======
</TABLE>
The amortized cost and estimated fair value of securities
available-for-sale at December 31, 1999, by contractual maturity are shown below
(table in thousands):
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
Due in one year or less..................................... $154,922 $154,537
Due after one year through two years........................ 30,503 30,345
-------- --------
$185,425 $184,882
======== ========
</TABLE>
46
<PAGE> 47
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 and 1998 consist of the
following (table in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Furniture and fixtures...................................... $ 1,443 $ 1,431
Machinery and equipment..................................... 17,605 14,423
Leasehold improvements...................................... 18,939 18,939
Construction in progress.................................... 3,452 2,647
-------- --------
41,439 37,440
Accumulated depreciation and amortization................... (20,617) (16,543)
-------- --------
$ 20,822 $ 20,897
======== ========
</TABLE>
NOTE 4: ACCRUED EXPENSES
Accrued expenses at December 31, 1999 and 1998 are as follows (table in
thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Accrued compensation........................................ $ 4,124 $ 3,469
Accrued clinical studies.................................... 1,824 1,784
Accrued other............................................... 6,886 4,985
------- -------
Total accrued expenses...................................... $12,834 $10,238
======= =======
</TABLE>
NOTE 5: NOTES PAYABLE
Notes payable at December 31, 1999 and 1998, consist of the following
(table in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Zero coupon subordinated convertible notes at 5.5%, $345,000
due at maturity in 2019................................... $122,167 $ --
17.53% note, due in monthly installments maturing in 1999,
secured by equipment, lease deed of trust, and a patent
and trademark collateral assignment....................... -- 441
8.95% to 10.62% capital lease obligations, due in monthly
installments, maturing in 2000 and 2001................... 884 1,462
8.94% note, due in monthly installments, maturing in 2001,
secured by equipment................................... 1,372 2,102
-------- -------
Total debt.................................................. 124,423 4,005
Current maturities.......................................... (1,513) (1,910)
-------- -------
Notes payable............................................... $122,910 $ 2,095
======== =======
</TABLE>
Machinery and equipment recorded under capital leases at December 31, 1999
and 1998 was $586,000 and $1,029,000, net of accumulated depreciation of
$2,191,000 and $1,799,000, respectively.
In February 1999, we raised approximately $112,668,000, net of underwriting
commissions and expenses of $3,890,000, through the sale of Notes. Upon
maturity, the Notes will have an aggregate principal face value of $345,000,000.
The Notes were priced with a yield to maturity of 5.5 percent annually. Each
$1,000 aggregate principal face value Note is convertible at the holders' option
at any time through maturity into 13.468 shares of our common stock at an
initial conversion price of $25.09. We are required under the terms of the
Notes, as of 35 business days after a change in control occurring on or before
February 16, 2004, to purchase any Note at the option of its holder at a price
equal to the issue price plus accrued original issue
47
<PAGE> 48
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
discount to the date of purchase. Additionally, the holders of the Notes may
require us to purchase the Notes on February 16, 2004, 2009 or 2014 at a price
equal to the issue price plus the accrued original issue discount to the date of
purchase, with us having the option to repay the Notes plus the accrued original
issue discount in cash, our common stock or a combination thereof. We have the
option to redeem the Notes any time on or after February 16, 2004.
The aggregate maturities of notes payable for each of the five years and
thereafter subsequent to December 31, 1999, are as follows: 2000, $1,513,000;
2001, $743,000; 2005 and thereafter $345,000,000.
NOTE 6: 401(K) EMPLOYEE SAVINGS PLAN
We have a qualified 401(k) Employee Savings Plan ("401(k) Plan"), available
to substantially all employees over the age of 21. We may make discretionary
contributions to the 401(k) Plan, which fully vest after four years of service
by the employee. Discretionary contributions for the years ended December 31,
1999 and 1998 totaled $473,000 and $410,000, respectively. There were no
discretionary contributions for the year ended December 31, 1997.
NOTE 7: RESEARCH AND DEVELOPMENT
In June 1999, we entered into a collaboration and license agreement and a
supply agreement with Schering AG aimed at the development and commercialization
of our radioimmunotherapy drug ZEVALIN. Under the terms of the agreement,
Schering AG may provide up to $47,500,000 in product development milestone
payments and support for research and development. Schering AG will receive
exclusive marketing and distribution rights to ZEVALIN outside the United
States, and we will receive royalties on eventual product sales by Schering AG.
Under the terms of a separate supply agreement we are obligated to meet Schering
AG's clinical and commercial requirements for ZEVALIN. Schering AG may terminate
these agreements for any reason. Included in contract revenues for 1999 is
$6,000,000 earned under the collaboration and license agreement to fund product
development, which approximates the research and development expenses incurred
under the program for the same period. Included in license fees for the year
ended December 31, 1999 is $13,000,000 earned under the collaboration and
license agreement for the license of product rights to ZEVALIN outside the
United States.
In December 1995, we entered into a collaborative development agreement and
a license agreement with Eisai aimed at the development and commercialization of
humanized and PRIMATIZED anti-gp39 antibodies. Under the terms of these
agreements, Eisai may provide up to $37,500,000 in product development milestone
payments and support for research and development. Eisai will receive exclusive
rights in Asia and Europe to develop and market resulting products emerging from
the collaboration, and we will receive royalties on eventual product sales by
Eisai. Eisai may terminate these agreements based on a reasonable determination
that the products do not justify continued product development or marketing.
Included in contract revenues for 1999, 1998 and 1997 is $4,068,000, $9,019,000
and $2,750,000, respectively, to fund product development, which approximates
the research and development expenses incurred under the program for the
respective periods. Included in license fees for the year ended December 31,
1997 is $2,000,000 earned under these agreements for the attainment of product
development objectives.
In December 1994, we entered into a collaborative development agreement and
a license agreement with Seikagaku aimed at the development and
commercialization of a PRIMATIZED anti-CD23 antibody. Under the terms of these
agreements, Seikagaku may provide up to $26,000,000 in product development
milestone payments and support for research and development. We will share with
Seikagaku co-exclusive, worldwide rights to all products emerging from the
collaboration, and we will receive royalties on eventual product sales by
Seikagaku. Seikagaku may terminate these agreements based on a reasonable
determination that the products do not justify continued product development or
marketing. Included in contract revenues for 1998 and 1997 is $2,500,000 and
$3,500,000, respectively, to fund product development, which approximates the
48
<PAGE> 49
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
research and development expenses incurred under the program. Included in
license fees for the years ended December 31, 1999 and 1997 is $1,000,000 and
$1,500,000, respectively, earned under these agreements for the attainment of
product development objectives.
In November 1993, we entered into a collaborative development agreement and
a license agreement with Mitsubishi for the development of a PRIMATIZED anti-B7
antibody. Under the terms of the collaboration, Mitsubishi may provide up to
$12,185,000 in product development milestone payments and support for research
and development. We retained certain marketing rights and will receive royalties
on sales of any products commercialized by Mitsubishi emerging from the
collaboration. Mitsubishi may terminate the license agreement if certain
development objectives are not attained. The development agreement with
Mitsubishi expired on December 31, 1996. Included in license fees for the year
ended December 31, 1998 is $2,000,000 earned under the license agreement for the
attainment of product development objectives.
In October 1992, we entered into a collaborative research and license
agreement with SmithKline Beecham related to the development and
commercialization of compounds based on our PRIMATIZED anti-CD4 antibodies. In
February 2000, we amended and restated our agreement with SmithKline Beecham
which resulted in all anti-CD4 program rights, including IDEC-151, being
returned to us. We will receive no further funding from SmithKline Beecham under
the restated agreement. As part of the restated agreement, SmithKline Beecham
has the option to negotiate commercialization and copromotion rights with us for
the first compound based on our PRIMATIZED anti-CD4 antibodies to complete a
Phase II study. If we do not commercialize and copromote the compound with
SmithKline Beecham, we will pay SmithKline Beecham royalties on sales by us, our
affiliates and licensees on any products emerging from the rights returned to us
under the restated agreement. Included in contract revenues for 1999, 1998 and
1997 is $256,000, $1,701,000 and $867,000, respectively, to fund product
development, which approximates the research and development expenses incurred
under the program for the respective periods.
We performed research under certain other contracts and, accordingly,
realized revenues and recognized expenses in the accompanying consolidated
statements of operations.
NOTE 8: RELATED PARTY ARRANGEMENTS
In March 1995, we entered into a collaborative agreement for the clinical
development and commercialization of our anti-CD20 monoclonal antibody, Rituxan,
for the treatment of certain B-cell non-Hodgkin's lymphomas with Genentech.
Concurrent with the collaborative agreement we also entered into an expression
technology license agreement with Genentech for a proprietary gene expression
technology developed by us and a preferred stock purchase agreement providing
for certain equity investments in us by Genentech (see Note 9). Under the terms
of these agreements, we have received payments totaling $58,500,000 for the
attainment of product development objectives, product license rights and equity
investments in us. Additionally, we may be reimbursed by Genentech for certain
other development and regulatory approval expenses under the terms of the
collaborative agreement. Genentech may terminate this agreement for any reason,
which would result in a loss of Genentech's Rituxan product rights. Included in
contract revenues for 1999, 1998 and 1997 is $140,000, $201,000 and $2,389,000,
respectively, to fund specific product development, which approximates the
research and development expenses incurred under the program. Included in
license fees earned under these agreements for the years ended December 31, 1998
and 1997, is $10,000,000 and $15,000,000, respectively, for the attainment of
product development objectives.
In addition, we are copromoting Rituxan in the United States with Genentech
under a joint business arrangement with us receiving a share of the pretax
copromotion profits. Under our collaborative agreement with Genentech, the sales
price of bulk Rituxan sold to Genentech is capped at a price that is currently
less than our cost to manufacture bulk Rituxan. In September 1999, we
transferred all manufacturing responsibilities for bulk Rituxan to Genentech.
Included in inventories at December 31, 1999, is $1,978,000 of bulk Rituxan
inventory that is expected to be sold to Genentech. Revenues from unconsolidated
joint business, as
49
<PAGE> 50
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
described in Note 1, for the years ended December 31, 1999, 1998 and 1997,
consist of the following (table in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Copromotion profit (loss)............................. $67,595 $30,579 $(4,350)
Bulk Rituxan sales.................................... 12,776 15,043 10,631
Reimbursement of selling and development expenses..... 8,273 6,949 2,985
Royalty income on sales of Rituximab outside the
U.S................................................. 4,553 1,242 --
------- ------- -------
$93,197 $53,813 $ 9,266
------- ------- -------
</TABLE>
Due from related parties, net at December 31, 1999 and 1998 consist of the
following (table in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Due from Genentech, copromotion profits..................... $17,869 $11,839
Due from Genentech, bulk Rituxan sales...................... 3,291 4,074
Due from Genentech, selling and development expenses........ 2,467 1,530
Due from Roche.............................................. 27 30
------- -------
Total due from related parties, net............... $23,654 $17,473
------- -------
</TABLE>
Under the terms of separate agreements with Genentech, commercialization of
Rituxan outside the United States will be the responsibility of Roche, except in
Japan where Zenyaku will be responsible for product development, marketing and
sales. We will receive royalties on sales outside the United States.
Additionally, we will receive royalties on sales of Genentech products
manufactured using our proprietary gene expression system.
NOTE 9: STOCKHOLDERS' EQUITY
Convertible Preferred Stock: In March 1995, we issued 2,000,000 shares of
our common stock and 69,375 shares of our ten percent Series B Nonvoting
Cumulative Convertible Preferred Stock ("Series B Preferred Stock") for the
repurchase of all Merrill Lynch/Morgan Stanley, L.P. ("ML/MS") rights in our
lymphoma products. In March 1997, the Series B Preferred Stock and accrued
dividends were converted into 734,000 shares of the our common stock.
Additionally, we issued 22,993 shares of our Series A-3 Nonvoting
Convertible Preferred Stock ("Series A-3 Preferred Stock") in March 1996,
100,000 shares of our Series A-6 Nonvoting Convertible Preferred Stock ("Series
A-6 Preferred Stock") in May 1996, 100,000 shares of our Series A-1 Nonvoting
Convertible Preferred Stock ("Series A-1 Preferred Stock") in April 1995, and
37,521 shares of our Series A-2 Nonvoting Convertible Preferred Stock ("Series
A-2 Preferred Stock") in August 1995, to Genentech pursuant to the terms of a
preferred stock purchase agreement. The preferred stock purchase agreement was
entered into concurrently with a collaboration agreement as described in Note 8.
The Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series A-3 Preferred
Stock and Series A-6 Preferred Stock have a liquidation preference per share of
$50, $67, $217 and $75, respectively, net of issuance costs. Each share of
Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series A-3 Preferred
Stock is convertible at any time into twenty shares of our common stock and each
share of Series A-6 Preferred Stock is convertible at any time into
approximately 4.32 shares of our common stock. In August 1999, January 1998 and
December 1997, 10,000 shares, 17,000 shares and 16,000 shares of Series A-1
Preferred Stock were converted into 200,000 shares, 350,000 shares and 310,000
shares, respectively, of our common stock.
Common Stock: In December 1999, our stockholders approved an increase in
the number of authorized common shares from 50,000,000 shares to 200,000,000
shares, to halve the par value of our common stock
50
<PAGE> 51
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
from $0.001 per share to $0.0005 per share and to effect a two-for-one split of
our common stock. Our stock began trading on a split-adjusted basis on December
21, 1999.
Stockholder Rights Agreement: In July 1997, our Board of Directors declared
a dividend of one preferred stock purchase right ("Right") for each outstanding
share of our common stock. Each Right represents the right to purchase one
one-thousandth of a share of series X junior participating preferred stock at an
exercise price of $200, subject to adjustment, and will be exercisable only if a
person or group acquires 15 percent or more of our common stock or announces a
tender offer for 15 percent or more of our common stock. If a person acquires 15
percent or more of our common stock all Rightsholders, except the acquiring
person, will be entitled to buy shares of our common stock at a discount. Each
series X junior participating preferred stock will be entitled to an aggregate
dividend of 1,000 times the dividend declared per common stock. The Board of
Directors may terminate the Stockholder Rights Agreement at any time or redeem
the Rights at $.001 per Right, prior to the time a person acquires more than 15
percent of our common stock. The Rights will expire in July 2007.
Stock Option Plans: We have two active stock option plans.
The 1988 Employee Stock Option Plan (the "Option Plan") was approved by the
stockholders in 1988 and has been subsequently amended. Under the Option Plan,
options for the purchase of our common stock may be granted to key employees
(including officers), directors and outside consultants. Options may be
designated as incentive stock options or as nonqualified stock options and
generally vest over four years, except under a provision of the Option Plan
which allows accelerated vesting due to change in control events. Options under
the Option Plan, which have a term of up to ten years, are exercisable at a
price per share not less than the fair market value (85 percent of fair market
value for nonqualified options) on the date of grant. The aggregate number of
shares authorized for issuance under the Option Plan as of December 31, 1999 was
14,270,000 shares.
In September 1993, we adopted the 1993 Non-Employee Directors Stock Option
Plan (the "Directors Plan"), which was approved by the stockholders in May 1994
and was subsequently amended. As of December 31, 1999, a total of 740,000 shares
of common stock were reserved for issuance to individuals who serve as
non-employee members of our Board of Directors. Options under the Directors
Plan, which have a term of up to ten years, are exercisable at a price per share
not less than the fair market value on the date of grant.
51
<PAGE> 52
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the status of our two active stock option plans as of December
31, 1999, 1998 and 1997 and changes during the years ended on those dates is
presented in the following table (table in thousands, except per share amounts):
<TABLE>
<CAPTION>
DIRECTORS PLAN OPTION PLAN
-------------------------- --------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ ---------------- ------ ----------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1996........... 210 $ 4.23 7,084 $ 4.93
Granted.................................... 166 13.71 1,630 13.14
Exercised.................................. (30) 4.52 (1,066) 2.13
Cancelled.................................. (10) 11.25 (86) 9.37
--- ------ ------ ------
Outstanding at December 31, 1997........... 336 8.66 7,562 7.05
Granted.................................... 60 16.94 1,568 18.09
Exercised.................................. (44) 2.19 (968) 3.14
Cancelled.................................. -- -- (168) 12.88
--- ------ ------ ------
Outstanding at December 31, 1998........... 352 10.88 7,994 9.56
Granted.................................... 115 31.11 1,812 29.02
Exercised.................................. (64) 9.55 (2,010) 6.21
Cancelled.................................. (10) 23.37 (145) 18.74
--- ------ ------ ------
Outstanding at December 31, 1999........... 393 $16.70 7,651 $14.74
=== ====== ====== ======
</TABLE>
The following table summarizes combined information about the Directors
Plan and the Option Plan options outstanding as of December 31, 1999 (table in
thousands, except year and per share amounts):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE -------------------------------
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.75 - $ 4.25 1,510 4.40 $1.55 1,510 $ 1.55
6.19 - 10.06 1,663 6.16 9.86 1,563 9.90
10.25 - 15.75 1,827 7.52 13.00 1,055 12.62
16.75 - 23.81 2,205 8.48 21.17 720 20.03
27.50 - 63.94 839 9.45 35.93 35 48.78
</TABLE>
Employee Stock Purchase Plan: In May 1993, the stockholders adopted our
Employee Stock Purchase Plan (the "Purchase Plan"), which was subsequently
amended. As of December 31, 1999 a total of 1,390,000 shares of common stock
were reserved for issuance under the Purchase Plan. Under the terms of the
Purchase Plan, employees can choose to have up to ten percent of their annual
compensation withheld to purchase shares of common stock. The purchase price of
the common stock is at 85 percent of the lower of the fair market value of the
common stock at the enrollment or purchase date. During 1999, 1998 and 1997,
165,000 shares, 136,000 shares and 244,000 shares, respectively, were issued
under the Purchase Plan.
Pro Forma Information: We have retained the approach under APB Opinion No.
25 and related interpretations in accounting for our stock option and purchase
plans. Accordingly, no compensation expense has been recognized for our Option
Plan, Directors Plan and Purchase Plan. Had compensation expense for our stock
option and purchase plans been determined consistent with Statement No. 123,
earnings per share applicable to common stock would have been decreased and our
loss per share applicable to common stock
52
<PAGE> 53
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
would have been increased to the pro forma amounts indicated below (table in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- --------
<S> <C> <C> <C> <C>
Net income (loss) applicable to common stock As reported..... $43,157 $21,478 $(15,538)
Pro forma....... 23,582 8,511 (23,746)
Earnings (loss) per common share, as reported.. Basic........... $ 1.04 $ 0.54 $ (0.41)
Diluted......... 0.86 0.46 (0.41)
Earnings (loss) per common share, pro forma Basic........... $ 0.57 $ 0.21 $ (0.63)
Diluted......... 0.47 0.18 (0.63)
</TABLE>
Pro forma net income (loss) applicable to common stock reflects only stock
option and purchase rights granted since January 1, 1995. Therefore, the full
impact of calculating compensation expense for stock options and stock purchase
rights under Statement No. 123 is not reflected in the pro forma net income
(loss) amounts presented above since compensation expense is reflected over the
stock option vesting and stock purchase subscription periods and compensation
expense for stock options and stock purchase rights granted prior to January 1,
1995 are not considered. The fair value of each option and purchase right grant
is estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions in 1999, 1998 and 1997:
<TABLE>
<CAPTION>
OPTION GRANT PURCHASE RIGHT
------------------------- --------------------------------------
1999 1998 1997 1999 1998 1997
------ ------ ----- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dividend yield............... 0% 0% 0% 0% 0% 0%
Expected volatility.......... 79.9% 53.7% 61.4% 79.9% 53.7% 61.4%
Risk-free interest rate...... 6.8% 4.7% 6.3% 6.8% 4.7% 5.5% - 6.0%
Expected term in years....... 6.0 6.3 5.7 0.3 - 1.5 0.3 - 1.0 0.3 - 2.0
Per share fair value......... $21.15 $10.38 $8.05 $10.45 $4.16 $5.25
</TABLE>
Stock Warrants: In December 1994 and August 1995, concurrent with the
completion of a debt financing, we issued warrants for the purchase of 588,000
shares and 92,000 shares, respectively, of common stock. In 1998 and 1997,
60,000 warrants and 228,000 warrants, respectively, were exchanged for 50,000
shares and 210,000 shares, respectively, of our common stock.
NOTE 10: INCOME TAXES
The income tax provision for the years ended December 31, 1999 and 1998
includes the following (table in thousands):
<TABLE>
<CAPTION>
1999 1998
------ ----
<S> <C> <C>
Current............................................. $ 152 $422
Deferred............................................ 2,297 --
------ ----
$2,449 $422
====== ====
</TABLE>
53
<PAGE> 54
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation between our effective tax rate and the U.S statutory rate
for the years ended December 31, 1999 and 1998 follows:
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Tax at U.S. statutory rate................................. 35.0% 35.0%
Adjustment of deferred items............................... (30.0)% (33.1)%
----- -----
5.0% 1.9%
===== =====
</TABLE>
The tax benefits generated under our employee stock option and purchase
plans decreased the current tax expense by $3,372,000 in 1999. Such benefits
were recorded as a charge to additional paid-in capital.
The following table summarizes the tax effects of temporary differences
that give rise to significant portions of the deferred tax assets and
liabilities at December 31, 1999 and 1998 (table in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Accrued expenses.......................................... $ 1,782 $ 1,295
Property and equipment, principally due to difference in
depreciation........................................... 1,825 1,563
Deferred rent expense..................................... 922 925
Inventories............................................... 448 805
Capitalized state research and experimentation costs...... 2,287 2,625
Acquired technology rights................................ 4,058 4,556
Research and experimentation credit....................... 12,600 8,993
Net operating loss carryforwards.......................... 31,152 25,806
Other tax assets.......................................... 2,438 996
-------- --------
Total gross deferred tax assets................... 57,512 47,564
Valuation allowance......................................... (57,512) (47,564)
Deferred tax liability...................................... (5,620) --
-------- --------
Deferred tax liability...................................... $ (5,620) $ --
======== ========
</TABLE>
In 1999 and 1997, we recognized an increase in the valuation allowance of
$9,948,000 and $9,291,000, respectively. In 1998 we recognized a decrease in the
valuation allowance of $173,000. At December 31, 1999 and 1998 we had a
valuation allowance equal to our deferred tax assets since we have not
established a pattern of profitable operations for income tax reporting
purposes.
As of December 31, 1999, we had net operating loss and research and
experimentation tax credit carryforwards for Federal income tax purposes of
approximately $87,000,000 and $10,000,000, respectively, which expire beginning
in 2006 and 2001, respectively. Net operating loss carryforwards and research
and experimentation tax credit carryforwards as of December 31, 1999 for state
income tax purposes are approximately $10,000,000 and $4,000,000, respectively,
which expire beginning in 2003. The utilization of our net operating losses and
tax credits may be subject to an annual limitation under the Internal Revenue
Code, due to a cumulative change of ownership in us of more than fifty percent
in prior years. However, we anticipate this annual limitation to only result in
a slight deferral in the utilization of our net operating losses and tax
credits.
54
<PAGE> 55
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11: COMMITMENTS
Lease Commitments: We lease various real property under operating leases
with original terms ranging from 10 to 15 years. We have the option to extend
the terms of these leases for two consecutive periods of five years each. In
addition to the monthly lease payments, the lease agreements provide for us to
pay all operating expenses associated with the facilities. The lease agreements
provide for scheduled rental increases; accordingly lease expense is recognized
on a straight-line basis over the term of the leases.
Future minimum lease payments under all operating leases as of December 31,
1999, are as follows (table in thousands):
<TABLE>
<S> <C>
2000....................................................... $ 4,489
2001....................................................... 5,868
2002....................................................... 6,069
2003....................................................... 6,126
2004....................................................... 5,898
2005 and thereafter........................................ 30,014
-------
Total minimum lease payments............................... $58,464
=======
</TABLE>
Lease expense under all operating leases totaled $3,683,000, $3,565,000 and
$3,677,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
License Agreements: In September 1997, we entered into a development and
license agreement with CPI for the development of inflammatory and autoimmune
disease products based upon CPI's anti-MIF antibody technology. Concurrent with
the development and license agreement with CPI, we entered into a stock purchase
agreement providing for an equity investment in CPI by us. Under the terms of
these agreements, we may make payments totaling up to $10,500,000, subject to
the attainment of certain product development objectives. Additionally, we will
pay CPI royalties on sales by us on any products emerging from the
collaboration. In 1997, we made a $3,000,000 preferred equity investment in CPI.
In connection with our research and development efforts, we have entered
into various other license agreements which provide us with rights to develop,
produce and market products using certain know-how, technology and patent rights
maintained by the parties. Terms of the various license agreements require us to
pay royalties on future sales, if any, of specified products using the resulting
technology. Third-party royalty liabilities resulting from sales of Rituxan are
being paid by Genentech and recorded under the joint business arrangement as
described under "Revenues from Unconsolidated Joint Business" in Notes 1 and 8.
As of December 31, 1999, such other royalties, other than annual minimum royalty
payments, have not commenced on the aforementioned license agreements.
55
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
IDEC Pharmaceuticals Corporation:
We have audited the accompanying consolidated balance sheets of IDEC
Pharmaceuticals Corporation and subsidiary as of December 31, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
IDEC Pharmaceuticals Corporation and subsidiary as of December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1999, in conformity with
generally accepted accounting principles.
KPMG LLP
San Diego, California
February 1, 2000
56
<PAGE> 57
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain information about our executive officers as of January 31, 2000 is
set forth below:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
William H. Rastetter, Ph.D........ 51 Chairman, President and Chief Executive Officer
William R. Rohn................... 56 Chief Operating Officer
Antonio J. Grillo-Lopez, M.D...... 60 Chief Medical Officer
Nabil Hanna, Ph.D................. 56 Chief Scientific Officer
Wolfgang Berthold, Ph.D........... 52 Senior Vice President, Biopharmaceutical Science
John Geigert, Ph.D................ 52 Vice President, Quality
Connie L. Matsui.................. 46 Vice President, Planning and Resource Development
Phillip M. Schneider.............. 43 Vice President and Chief Financial Officer
Kenneth J. Woolcott............... 41 Vice President, Secretary, General Counsel and Licensing
Executive
</TABLE>
Dr. Rastetter was appointed our Chairman of the Board of Directors on May
22, 1996. He has served as our President and Chief Executive Officer since
December 1986 and Chief Financial Officer from 1988 to 1993. Dr. Rastetter has
served as a Director of the Company since 1986. From 1984 to 1986, he was
Director of Corporate Ventures at Genentech. From 1982 to 1984, Dr. Rastetter
served in a scientific capacity at Genentech, directing the Biocatalysis and
Chemical Sciences groups. From 1975 to 1982, he held various faculty positions
at the Massachusetts Institute of Technology. Dr. Rastetter is also a director
of Spiros Development Corporation II, Inc., Argonaut Technologies, Inc. and
Illumina, Inc. Dr. Rastetter received his Ph.D. in chemistry from Harvard
University in 1975.
Mr. Rohn joined us in August 1993 as Senior Vice President, Commercial and
Corporate Development. Mr. Rohn was appointed Senior Vice President, Commercial
Operations in April 1996 and was promoted to Chief Operating Officer in May
1998. Prior to joining us, Mr. Rohn was employed by Adria Laboratories
("Adria"), from 1984 until August 1993, most recently as Senior Vice President
of Sales and Marketing with responsibilities for strategic and commercial
partnerships as well as all sales and marketing functions in the United States.
Prior to Adria, Mr. Rohn held marketing and sales management positions at Abbott
Laboratories, Warren-Teed Pharmaceuticals, Miles Laboratories and Mead Johnson
Laboratories. Mr. Rohn is also a director of Pharmacyclics, Inc. Mr. Rohn
received a B.A. in Marketing from Michigan State University.
Dr. Grillo-Lopez joined us as Vice President, Medical and Regulatory
Affairs in November 1992 from Du Pont Merck Pharmaceutical Company ("Du Pont
Merck"). Dr. Grillo-Lopez was promoted to Senior Vice President, Medical and
Regulatory Affairs in January 1996 and Chief Medical Officer in May 1998. He was
employed by Du Pont Merck from 1987 to 1992, where he most recently was
Executive Medical Director for International Clinical Research and Development
and previously held various clinical and medical director positions at Du Pont
Merck. From 1980 to 1987, Dr. Grillo-Lopez was a Vice President in charge of
clinical therapeutics and Director of Clinical Oncology Research at Warner
Lambert Company's Parke Davis Pharmaceutical Research Division. He trained as a
hematologist and oncologist at the University of Puerto Rico School of Medicine,
San Juan, where he received his M.D. and subsequently held faculty appointments.
He has been an adjunct associate professor in the Department of Medicine
(Hematology and Medical Oncology) at the University of Michigan Medical School,
was a founder of the Puerto Rico Society of Hematology and the Latin American
Society of Hematology, and is a fellow of the International Society of
Hematology and the Royal Society of Medicine (London).
57
<PAGE> 58
Dr. Hanna joined us in February 1990 as Vice President, Research and
Preclinical Development. In August 1993, Dr. Hanna was promoted to Senior Vice
President, Research and Preclinical Development and in May 1998 he was promoted
to Chief Scientific Officer. From 1981 to 1990, Dr. Hanna served as Associate
Director and then Director of the Department of Immunology at SmithKline Beecham
focusing on autoimmune and chronic inflammatory diseases. From 1978 to 1981, he
was a research scientist at the NCI-Frederick Cancer Research Center, where he
studied the role of immune system cells in host defenses against cancer. From
1973 to 1978, Dr. Hanna was a lecturer in the Department of Immunology at the
Hebrew University Medical School in Israel, where he received his Ph.D. in
Immunology. Pursuant to our agreement with CPI, Dr. Hanna is a director of CPI.
Dr. Berthold joined us in February 2000 as Senior Vice President,
Biopharmaceutical Science. He previously served from 1995 to 2000 as Vice
President Biopharmaceuticals at Hoffmann-La Roche Inc. and also served as
International Advisor for all Roche pharmaceutical biotechnology projects in
development. Previously, Dr. Berthold served as head of the Biotech Process
Development Group for pharmaceutical biologics at Thomae/Boehringer Ingelheim
from 1979 to 1995, which operates one of the world's largest biopharmaceutical
manufacturing plants. Dr. Berthold received his Ph.D. in biochemistry from
University of London, England.
Dr. Geigert joined us in May 1996 as Vice President, Quality. He previously
served from 1991 to May 1996 as Vice President, Quality Control at Immunex
Corporation, a biotechnology company. From 1973 to 1991, he was employed by
Cetus Corporation where he served most recently as Director of Quality Control
and Product Evaluation. Dr. Geigert holds a B.S. degree in Chemistry from
Washington State University and a Ph.D. in Organic Chemistry/Analytical
Chemistry from Colorado State University.
Ms. Matsui joined us in November 1992 as Senior Director, Planning and
Resource Development with primary responsibility for strategic planning and
human resources. In December 1994, Ms. Matsui was promoted to Vice President,
Planning and Resource Development. Ms. Matsui's current responsibilities include
investor relations, corporate communications, human resources, project
management and strategic planning. As a consultant during 1992, Ms. Matsui
assisted in the planning and implementation of our unification from sites in
Northern and Southern California to its present site in San Diego. From 1977 to
1991, she served in a variety of marketing and general management positions at
Wells Fargo Bank including Vice President and Manager responsible for Consumer
Retirement Programs and Vice President and Manager in charge of company-wide
Employee Relations and Communications. Ms. Matsui received her B.A. and M.B.A.
from Stanford University.
Mr. Schneider joined us in February 1987 as Director, Finance and
Administration and served as Senior Director, Finance and Administration from
1990 to 1991. In November 1991, he became Vice President, Finance and
Administration and in February 1996 he was appointed Vice President and Chief
Financial Officer. From 1984 to 1987, Mr. Schneider served as the Manager of
Financial Reporting and as a Senior Analyst for Syntex Laboratories. He received
a B.S. in biochemistry from University of California, Davis, received his M.B.A.
at the University of Southern California and earned his C.P.A. qualifications
while working for KPMG LLP.
Mr. Woolcott joined us in March 1989 as Intellectual Property Counsel. In
1990, he became Intellectual Property and Licensing Counsel. Mr. Woolcott was
promoted to Deputy General Counsel in 1991 and General Counsel in 1992. In 1993,
Mr. Woolcott was appointed Secretary of the Company. In 1994, he was promoted to
Vice President, Secretary, General Counsel & Licensing Executive. From 1985 to
1987, he served as Patent Counsel and Associate Counsel at Hybritech, Inc. From
1987 to 1989, he was engaged in the private practice of law in Seattle,
Washington. Mr. Woolcott received a B.S. in Biochemistry from Pacific Lutheran
University and his J.D. from George Washington University.
The information required by this item in regards to the identification of
Directors is hereby incorporated by reference to the information contained under
the caption "Election of Directors" in our Proxy Statement for our Annual
Meeting of Stockholders to be held on May 17, 2000.
58
<PAGE> 59
The information required by Section 16(a) is hereby incorporated by
reference to the information contained under the caption "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" in our Proxy Statement for
our Annual Meeting of Stockholders to be held on May 17, 2000.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is hereby incorporated by reference
to the information contained under the caption "Executive Compensation and
Related Information" in the Proxy Statement for our Annual Meeting of
Stockholders to be held on May 17, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is hereby incorporated by reference
to the information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement for our Annual Meeting
of Stockholders to be held on May 17, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is hereby incorporated by reference
to the information contained under the caption "Certain Relationships and
Related Transactions" in the Proxy Statement for our Annual Meeting of
Stockholders to be held on May 17, 2000.
59
<PAGE> 60
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
a. 1) Consolidated Financial Statements:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets -- December 31, 1999 and 1998... *
Consolidated Statements of Operations -- Years ended
December 31, 1999, 1998 and 1997.......................... *
Consolidated Statements of Stockholders' Equity -- Years
ended December 31, 1999, 1998 and 1997.................... *
Consolidated Statements of Cash Flows -- Years ended
December 31, 1999, 1998 and 1997.......................... *
Notes to Consolidated Financial Statements.................. *
Independent Auditors' Report................................ *
</TABLE>
- ---------------
* These items are in Item 8 to this Form 10-K.
2) Financial Statement Schedules:
<TABLE>
<CAPTION>
SCHEDULE NUMBER DESCRIPTION
--------------- -----------
<C> <S>
II Valuation and qualifying accounts
</TABLE>
All other financial statements schedules are omitted because they are not
required or are not applicable, or because the required information is included
in the financial statements or notes thereto. Reference is made to Exhibit 23.1.
3) Exhibits:
The following exhibits are referenced or included in this Form 10-K.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1.1(19) Purchase Agreement for $300,000,000 Liquid Yield Option
Notes(TM) due 2019 (Zero Coupon -- Subordinated) dated as of
February 9, 1999 between the Registrant and Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
2.1(1) Agreement and Plan of Merger dated as of April 5, 1997
between the Registrant and IDEC California.
3.1(20) Amended and Restated Certificate of Incorporation of the
Registrant.
3.2(1) Bylaws of the Registrant.
4.1 Reference is made to Exhibit 3.1.
4.2 Reference is made to Exhibit 3.2.
4.3(2) 1992 Amended and Restated Registration Rights Agreement of
IDEC California.
4.4(1) Specimen Common Stock Certificate of the Registrant.
4.5 Reference is made to Exhibit 10.46.
4.6(7) 1995 Registration Rights Agreement of the Registrant.
4.8(18) Preferred Share Purchase Rights.
4.9(19) First Amendment to the Preferred Share Purchase Rights
Agreement, dated July 22, 1997.
4.10(19) Indenture dated as of February 16, 1999 between the
Registrant and Chase Manhattan Bank and Trust Company,
National Association.
4.11 Reference is made to Exhibit 1.1
4.12(10) Form of Registered Liquid Yield Option(TM) Note due 2019).
</TABLE>
60
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.1(13) 1988 Stock Option Plan of the Registrant, as amended and
restated through May 20, 1999.
10.2(13) Form of Notice of Grant.
10.3(13) Form of Option Agreement.
10.4(12) Letter Agreement between the Registrant and Genentech, Inc.,
dated May 21, 1996.
10.5(2) 401(k) Plan of the Registrant.
10.6(2) Form of acceleration of vesting letter agreement between the
Registrant and certain officers.
10.7(2)+ License Agreement with Coulter Immunology, dated May 16,
1991.
10.8(3) Lease Agreement between the Registrant and Torrey Sorrento,
Inc., dated July 9, 1992.
10.9(3)+ Collaborative Research and License Agreement between the
Registrant and SmithKline Beecham p.l.c., dated October 12,
1992.
10.10(3) Investment Agreement between the Registrant and S.R. One,
Limited, dated October 16, 1992.
10.11(13) 1995 Employee Stock Purchase Plan, as amended and restated
through May 20, 1999.
10.12(4)+ Collaborative Development Agreement between the Registrant
and Mitsubishi -- Tokyo Pharmaceuticals, Inc., formerly
Mitsubishi Chemical Corporation, dated November 11, 1993.
10.13(4) Employment Agreement between the Registrant and Dr. Antonio
Grillo-Lopez dated September 25, 1992.
10.14(17) 1993 Non-Employee Directors Stock Option Plan, as amended
and restated through February 20, 1998.
10.15(6)+ Collaborative Development Agreement between the Registrant
and Seikagaku Corporation dated December 27, 1994.
10.16(6)+ License Agreement between the Registrant and Seikagaku
Corporation dated December 27, 1994.
10.27(6) 1994 Registration Rights Agreement.
10.28(6) Investment Agreement between the Registrant, SmithKline
Beecham p.l.c. and SmithKline Beecham Corporation, dated
December 28, 1994.
10.29(7) Master Definitions Agreement between the Registrant and
Genentech. Inc.
10.30(7)+ Collaboration Agreement between the Registrant and
Genentech. Inc., dated March 16, 1995.
10.31(7)+ Expression Technology Agreement between the Registrant and
Genentech. Inc., dated March 16, 1995.
10.32(7) Preferred Stock Purchase Agreement between the Registrant
and Genentech. Inc., dated March 16, 1995.
10.33(7) Option Agreement between the Registrant and Genentech, Inc.,
dated March 16, 1995.
10.34(7) Preferred and Common Stock Purchase Agreement between the
Registrant and ML/MS Associates, L.P., dated March 16, 1995.
10.35(9)* Amendment Agreement between the Registrant and SmithKline
Beecham p.l.c., dated January 20, 1993.
</TABLE>
61
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.36(9)* Modification of the Amendment Agreement between the
Registrant and SmithKline Beecham p.l.c., dated June 14,
1993.
10.37(8) Special Stock Issuance Plan.
10.40(15)+ Collaborative Development Agreement between the Registrant
and Eisai Co., Ltd. dated December 11, 1995.
10.41(15)+ License Agreement between the Registrant and Eisai Co., Ltd.
dated December 11, 1995.
10.42(15)+ License Agreement between the Registrant, Genentech, Inc.
and Zenyaku Kogyo Co., Ltd. dated November 30, 1995.
10.43(15)+ Development Agreement between the Registrant, Genentech,
Inc. and Zenyaku Kogyo Co., Ltd. dated November 30, 1995.
10.44(15)+ Supply Agreement between the Registrant and Zenyaku Kogyo
Co., Ltd. dated November 30, 1995.
10.45(15)+ Termination Agreement between the Registrant and Zenyaku
Kogyo Co., Ltd. dated November 30, 1995.
10.46(15)+ Amendment to the Development Agreement between the
Registrant, Genentech, Inc. and Zenyaku Kogyo Co., Ltd.
dated November 30, 1995.
10.47(15) Amendment to Collaboration Agreement between the Registrant
and Genentech, Inc. dated November 30, 1995.
10.48(11)+ License Agreement between the Registrant and Chugai
Pharmaceutical Co., Ltd., dated March 31, 1996.
10.49(14) Lease Agreement between the Registrant and All Spectrum
Services, Inc., dated August 13, 1996.
10.50(1) Form of Indemnification Agreement for Officers and
Directors.
10.51(16)+ 9-AC Asset Transfer Agreement between the Registrant,
Pharmacia & Upjohn S.p.A. and Pharmacia & Upjohn Company,
dated February 10, 1997.
10.52(19) Purchase Agreement for $300,000,000 Liquid Yield Option(TM)
Notes due 2019 (Zero Coupon -- Subordinated) dated as of
February 9, 1999 between the Registrant and Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
10.53(19) Indenture dated as of February 16, 1999 between the
Registrant and Chase Manhattan Bank and Trust Company,
National Association.
10.54(21)+ Collaboration & License Agreement between the Company and
Schering Aktiengesellschaft dated June 9, 1999.
10.55(21) IDEC Pharmaceuticals Corporation's Deferred Compensation
Plan, dated January 1, 1999.
10.58* Amended and Restated Collaborative Research and License
agreement between IDEC Pharmaceuticals Corporation and
SmithKline Beecham p.l.c., dated February 29, 2000
12.1 Computation of Ratio of Earnings to Fixed Charges.
22.1(2) Subsidiary of the Company.
23.0 Independent Auditors' Report on Schedule and Consent
23.1 Financial Statement Schedule
27.1 Financial Data Schedule
</TABLE>
62
<PAGE> 63
- ---------------
* Confidential Treatment requested as to certain portions of this agreement.
+ Confidential Treatment has been granted with respect to portions of this
agreement.
(1) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form 8-B filed on June 2, 1997.
(2) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-1, File No. 33-40756.
(3) Incorporated by reference to exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992.
(4) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-1, File No. 33-76080.
(5) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-8, File No. 33-93794.
(6) Incorporated by reference to exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
(7) Incorporated by reference to exhibit filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995.
(8) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-8, File No. 33-90738.
(9) Incorporated by reference to exhibit filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995.
(10) Incorporated by reference to exhibit 4.4, to the Company's Registration
Statement on Form S-3, File No. 333-85339.
(11) Incorporated by reference to exhibit filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996.
(12) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form 8-K, dated May 21, 1996.
(13) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-8, File No. 333-81625.
(14) Incorporated by reference to exhibit filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996.
(15) Incorporated by reference to exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995.
(16) Incorporated by reference to exhibit filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997.
(17) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form S-8, File No. 333-62817.
(18) Incorporated by reference to exhibit filed with the Registrant's
Registration Statement on Form 8-A, dated August 1, 1997.
(19) Incorporated by reference to exhibit filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.
(20) Incorporated by reference to exhibit filed with the Registrant's Proxy
Statement filed on November 4, 1999.
(21) Incorporated by reference to exhibit filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999.
b. No reports on Form 8-K were filed during the fourth quarter of 1999.
63
<PAGE> 64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
IDEC PHARMACEUTICALS CORPORATION
Date: March 30, 2000 By: /s/ WILLIAM H. RASTETTER
------------------------------------
William H. Rastetter, Ph.D.,
Chairman,
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below does hereby constitute and appoint William H. Rastetter and Phillip M.
Schneider, or either of them, as his true and lawful attorneys-in-fact and
agents, with full power of substitution, for him and his name, place and stead,
in any and all capacities, to sign the Registration Statement filed herewith and
any and all amendments to said Registration Statement (including post-effective
amendments and registration statements filed pursuant to Rule 462 and
otherwise), and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming that all said attorneys-in-fact
and agents, or their substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements the securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
---- -------- ----
<S> <C> <C>
/s/ WILLIAM H. RASTETTER Chairman, President and Chief March 30, 2000
- -------------------------------------------------------- Executive Officer (Principal
William H. Rastetter, Ph.D. Executive Officer)
/s/ PHILLIP M. SCHNEIDER Vice President and Chief March 30, 2000
- -------------------------------------------------------- Financial Officer (Principal
Phillip M. Schneider Financial and Accounting
Officer)
/s/ CHARLES C. EDWARDS, M.D. Director March 30, 2000
- --------------------------------------------------------
Charles C. Edwards, M.D.
/s/ ALAN B. GLASSBERG Director March 30, 2000
- --------------------------------------------------------
Alan B. Glassberg, M.D.
/s/ KAZUHIRO HASHIMOTO Director March 30, 2000
- --------------------------------------------------------
Kazuhiro Hashimoto
</TABLE>
64
<PAGE> 65
<TABLE>
<CAPTION>
NAME CAPACITY DATE
---- -------- ----
<S> <C> <C>
/s/ FRANKLIN P. JOHNSON Director March 30, 2000
- --------------------------------------------------------
Franklin P. Johnson, Jr.
/s/ ROBERT W. PANGIA Director March 30, 2000
- --------------------------------------------------------
Robert W. Pangia
/s/ BRUCE R. ROSS Director March 30, 2000
- --------------------------------------------------------
Bruce R. Ross
/s/ THE HONORABLE LYNN SCHENK Director March 30, 2000
- --------------------------------------------------------
The Honorable Lynn Schenk
/s/ WILLIAM D. YOUNG Director March 30, 2000
- --------------------------------------------------------
William D. Young
</TABLE>
65
<PAGE> 1
EXHIBIT 10.58
*_______* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been filed
separately with the Secretary of Commission in the Company's Application
Requesting Confidential Treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.
AMENDED AND RESTATED COLLABORATIVE RESEARCH
AND LICENSE AGREEMENT
BETWEEN
IDEC PHARMACEUTICALS CORPORATION
AND
SMITHKLINE BEECHAM P.L.C.
<PAGE> 2
AMENDED AND RESTATED COLLABORATIVE RESEARCH
AND LICENSE AGREEMENT
IDEC PHARMACEUTICALS CORPORATION---SMITHKLINE BEECHAM P.L.C.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
1. DEFINITIONS.............................................................................4
2. LICENSE GRANT...........................................................................7
3. SUPPLY OF COMPOUND AND RELATED KNOW-HOW AND STUDIES.....................................7
4. DEVELOPMENT AND COMMERCIALIZATION RIGHTS................................................9
5. ROYALTIES..............................................................................10
6. TERM, TERMINATION AND RIGHTS ON TERMINATION............................................11
7. EXCHANGE OF INFORMATION AND CONFIDENTIALITY............................................12
8. PATENT PROSECUTION.....................................................................12
9. PATENT LITIGATION......................................................................13
10. STATEMENTS AND REMITTANCES; AUDIT......................................................15
11. WARRANTIES, REPRESENTATIONS, INSURANCE AND INDEMNIFICATIONS............................15
12. FORCE MAJEURE..........................................................................17
13. GOVERNING LAW..........................................................................18
14. ARBITRATION............................................................................18
15. SEPARABILITY...........................................................................18
16. ENTIRE AGREEMENT.......................................................................18
17. NOTICES................................................................................18
18. RECORDATION............................................................................19
19. ASSIGNMENT.............................................................................19
20. EXECUTION IN COUNTERPARTS..............................................................19
</TABLE>
2
<PAGE> 3
AMENDED AND RESTATED COLLABORATIVE
RESEARCH AND LICENSE AGREEMENT
THIS AMENDED AND RESTATED COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
(hereinafter the "AGREEMENT"), made as of the 29th day of February, 2000,
between SmithKline Beecham p.l.c., a company organized under English law and
having its registered office at New Horizons Court, Brentford, Middlesex TW8
9EP, England (hereinafter "SB") and IDEC Pharmaceuticals Corporation, a company
organized under the laws of the State of Delaware and having its principal
executive offices at 3020 Callan Road, San Diego, California 92121 (hereinafter
"IDEC").
WITNESSETH THAT:
WHEREAS, SB AND IDEC entered into a Collaborative Research and License
AGREEMENT dated October 12, 1992 as amended by: (i) an extension of Negotiation
Period executed January 15, 1993 by SB; (ii) an Amendment Agreement dated
January 20, 1993; (iii) an Amendment Agreement to the January 20, 1993 Amendment
Agreement dated January 27, 1993; (iv) an Amendment Agreement to the January 20,
1993 Amendment Agreement dated June 14, 1993; (v) a letter dated August 9, 1993;
(vi) an Amendment Agreement dated May 26, 1994; and (vii) an Amendment Agreement
dated February 1, 2000 (the "February 2000 Amendment")(collectively, the
"Original Agreement");
WHEREAS, pursuant to the Original Agreement, IDEC granted SB worldwide
licenses under certain patents, patent applications and know-how relating to
products directed against the CD4+ cell function and the use of such products
for the palliation, treatment and/or prophylaxis of disease states which are
caused or exacerbated by cells expressing the CD4+ determinant;
WHEREAS, pursuant to the February 2000 Amendment, the parties have
terminated (i) their collaboration for the development and commercialization of
products and (ii) all licenses granted to SB under the Original Agreement with
full reversion to IDEC of all IDEC's interest and rights in patent rights and
know-how subject to such licenses;
WHEREAS, also pursuant to the February 2000 Amendment, SB granted to
IDEC worldwide licenses under any and all patents, patent applications and
know-how owned or controlled by SB covering the making, use, importation, offer
or sale of COMPOUND (as defined in the Original Agreement) other than patents,
patent applications and know-how related to SB proprietary manufacturing or
formulation information, and SB further agreed to provide certain limited
technical assistance to IDEC in connection therewith;
WHEREAS, SB and IDEC desire to restate their respective rights and
obligations as currently set forth in the Original Agreement, as amended, and to
replace the Original Agreement with this AGREEMENT;
3
<PAGE> 4
NOW, THEREFORE, in consideration of the covenants and obligations
expressed herein, and intending to be legally bound, and otherwise to be bound
by proper and reasonable conduct, the parties agree as follows:
1. DEFINITIONS
1.1 "AFFILIATES" shall mean any corporation, firm, partnership or other
entity, whether de jure or de facto, which directly or indirectly owns, is owned
by or is under common ownership with a party to this AGREEMENT to the extent of
at least fifty percent (50%) of the equity (or such lesser percentage which is
the maximum allowed to be owned by a foreign corporation in a particular
jurisdiction) having the power to vote on or direct the affairs of the entity
and any person, firm, partnership, corporation or other entity actually
controlled by, controlling or under common control with a party to this
AGREEMENT.
1.2 "AT IDEC's EXPENSE" shall mean that IDEC shall pay all reasonable
FTE COSTS, materials, supplies and out-of-pocket expenses incurred by SB, its
agents, contractors and consultants, in executing SB's obligations to IDEC under
this AGREEMENT, including all costs and expenses incurred by SB for stability
testing and regulatory activities commenced by SB under Section 3 after February
2, 2000.
1.3 "CLENOLIXIMAB" shall mean the form of COMPOUND developed by SB and
IDEC pursuant to the Original Agreement.
1.4 "COMMERCIAL SALE" shall mean the first sale of COMPOUND to a THIRD
PARTY purchaser in an IDEC COUNTRY after receipt of all regulatory approvals
necessary to sell COMPOUND. Such approval in Europe shall include any requisite
pricing and reimbursement approvals in conjunction with the Marketing
Authorization Application for COMPOUND in at least one (1) MAJOR EUROPEAN
COUNTRY.
1.5 "COMPOUND" shall mean any composition of matter, the intellectual
property rights to which are owned in whole or in part by IDEC or licensed to
IDEC under Section 2, which is directed against the CD4+ determinant, such as,
but not limited to, the human/Old World monkey chimeric antibodies known as
CE9.1 and G4PE50 (CLENOLIXIMAB), which selectively binds to and/or regulates the
functions of CD4+ cells and/or the immune system.
1.6 "DEVELOPMENT" shall mean preclinical and clinical research on a
COMPOUND conducted primarily with the intent, and for the purpose, of generating
data for submission to a regulatory authority in any of the GEOGRAPHIES in
support of an application for governmental approval required for commercializing
COMPOUND for any indication.
1.7 "EFFECTIVE DATE" shall mean the date as of which this AGREEMENT is
effective and shall be the date of this AGREEMENT first written above.
1.8 "EUROPE" shall mean all countries that are Member States of the
European Union as of the EFFECTIVE DATE.
1.9 "FDA" shall mean the United States Food and Drug Administration.
4
<PAGE> 5
1.10 "FTE COSTS" shall apply to either (i) an SB employee who is a
full-time equivalent professional employee of SB, other than a clerical,
administrative assistant, or secretarial employee or (ii) an SB employee who
does not fit within the scope of Section 1.10(i). SB employees within the scope
of Section 1.10(i) shall be chargeable to IDEC at an hourly rate based on an FTE
rate of *_________________ * per annum. SB employees within the scope of Section
1.10(ii) shall be chargeable to IDEC at an hourly rate based on an FTE rate of
*___________________* per annum.
1.11 "GEOGRAPHY(IES)" shall mean, depending on context, the U.S.A.,
EUROPE, and/or the R.O.W.
1.12 "IND" shall mean an Investigational New Drug Application filed with
the FDA.
1.13 "IDEC" shall mean IDEC Pharmaceuticals Corporation, its AFFILIATES,
successors and permitted assigns.
1.14 "IDEC COUNTRY(IES)" shall mean those countries of the world for
which SB has no rights to develop and commercialize COMPOUND pursuant to
Sections 4.3 and 4.4 of this AGREEMENT.
1.15 "IDEC NET SALES" shall mean the gross receipts from sales of
COMPOUND in the IDEC COUNTRY(IES) by IDEC, its AFFILIATES and its licensees to
THIRD PARTIES, less deductions for: (i) transportation charges, including
insurance; (ii) sales and excise taxes and duties paid or allowed by a selling
party and any other governmental charges imposed upon the production,
importation, use or sale of such COMPOUND; (iii) normal and customary trade,
quantity and cash discounts allowed and actually taken; and (iv) allowances or
credits to customers on account of rejection or return of COMPOUND, subject to
the royalty provisions under this AGREEMENT. Sales between or among IDEC and its
AFFILIATES and its or their sublicensees shall be excluded from the computation
of IDEC NET SALES except where such AFFILIATES or sublicensees are end users,
but IDEC NET SALES shall include the subsequent final sales to THIRD PARTIES by
such AFFILIATES or sublicensees.
1.16 "MAJOR EUROPEAN COUNTRY(IES)" shall mean the United Kingdom,
France, Germany, Italy or Spain.
1.17 "NDA" shall mean a New Drug Application in accordance with the
requirements of the FDA.
1.18 "OPT IN" shall mean SB's exclusive, nontransferable (other than as
provided in Section 19) option to negotiate, for a period of *_____________*
right with IDEC to co-develop and co-commercialize COMPOUND with IDEC in the
*_________________,* as provided in Sections 4.2 and 4.3.
1.19 "R.O.W." shall mean all the countries of the world except for the
U.S.A. and EUROPE.
1.20 "SB" shall mean SmithKline Beecham p.l.c., its AFFILIATES,
successors and permitted assigns.
*_______* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been filed
separately with the Secretary of Commission in the Company's Application
Requesting Confidential Treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.
5
<PAGE> 6
1.21 "SB KNOW-HOW" shall mean all information and know-how which relates
to COMPOUND and shall include, without limitation, all chemical,
pharmacological, toxicological, clinical, and assay information, and any other
information relating to COMPOUND and useful or required for the DEVELOPMENT and
commercialization of COMPOUND for any indication, which is known by SB as of the
EFFECTIVE DATE, to the extent that SB is free to disclose such as provided by
this AGREEMENT. "SB KNOW-HOW" shall not include *_______*
1.22 "SB PATENTS" shall mean all patents and patent applications which
are owned by SB, or which SB otherwise has the right to grant licenses as of the
EFFECTIVE DATE, which generically or specifically claim COMPOUND, a process for
manufacturing COMPOUND, an intermediate used in such process, a method to
formulate or deliver COMPOUND or a use of COMPOUND. Included within the
definition of SB PATENTS are any continuations, continuations-in-part,
divisions, patents of addition, reissues, renewals or extensions thereof. The
current list of patent applications and patents encompassed within SB PATENTS,
if any, is set forth in APPENDIX A attached hereto and incorporated herein.
1.23 "STUDY *_________*" shall mean the clinical study whose protocol is
described in Exhibit I to this AGREEMENT, attached hereto and incorporated
herein.
1.24 "THIRD PARTY(IES)" shall mean any party other than SB, IDEC or
their respective AFFILIATES.
1.25 "THIRD PARTY KNOW-HOW" shall mean all information and know-how
which relates to COMPOUND and shall include, without limitation, all chemical,
pharmacological, toxicological, clinical, assay, control and manufacturing data
and any other information and shall include, without limitation, all chemical,
pharmacological, clinical, assay, control and manufacturing data and any other
information and reagents relating to COMPOUND and useful or required for the
DEVELOPMENT and commercialization of COMPOUND for any indication owned by a
THIRD PARTY which is controlled by SB or which SB otherwise has the right to
disclose or grant licenses as of the EFFECTIVE DATE.
1.26 "THIRD PARTY PATENTS" shall mean all patents and patent
applications which are owned by a THIRD PARTY but controlled by SB or which SB
otherwise has the right to grant licenses as of the EFFECTIVE DATE, which
generically or specifically claim COMPOUND. Included within the definition of
THIRD PARTY PATENTS are any continuations, continuations-in-part, divisions,
patents of addition, reissues, renewals or extensions thereof. The current list
of patent applications and patents encompassed within THIRD PARTY PATENTS (if
any) is set forth in APPENDIX A attached hereto and incorporated herein.
1.27 "U.S.A." shall mean the United States of America, and its
territories and possessions.
*_______* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been filed
separately with the Secretary of Commission in the Company's Application
Requesting Confidential Treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.
6
<PAGE> 7
2. LICENSE GRANT
2.1 SB hereby grants to IDEC an exclusive license, with the right to
grant sublicenses under SB PATENTS and SB KNOW-HOW to make, have made, use,
import, offer for sale, and sell COMPOUND in any country or territory of the
world; provided that such license shall not extend to the
*_____________________________________,* except as otherwise provided in this
AGREEMENT and subject to SB's obligations to *______________________* as
provided in this AGREEMENT. It is agreed and understood that SB retains its
interests and rights in such SB PATENTS and SB KNOW-HOW for all other purposes,
including, without limitation, the right to grant similar licenses under such SB
PATENTS and SB KNOW-HOW to THIRD PARTIES, but only to the extent that such SB
PATENTS and SB KNOW-HOW cover the making, use, import, offer of sale, or sale of
anything other than COMPOUND in any country of the world.
2.2 SB hereby grants to IDEC an exclusive license, with the right to
grant sublicenses under THIRD PARTY PATENTS and THIRD PARTY KNOW-HOW to make,
have made, use, import, offer for sale, and sell COMPOUND in any country or
territory in the world; provided that such license shall not extend to the use
of *__________________________,* except as otherwise provided in this AGREEMENT.
It is agreed and understood that SB retains its interests and rights in such
THIRD PARTY PATENTS and THIRD PARTY KNOW-HOW for all other purposes, including,
without limitation, the right to grant similar licenses under such THIRD PARTY
PATENTS and THIRD PARTY KNOW-HOW to THIRD PARTIES, but only to the extent that
such THIRD PARTY PATENTS and THIRD PARTY KNOW-HOW cover the making, use, import,
offer of sale, or sale of anything other than COMPOUND in any country of the
world. SB shall not take any action to terminate any licenses under THIRD PARTY
PATENTS and THIRD PARTY KNOW-HOW without IDEC's prior written consent.
2.3 Upon IDEC's request and for no additional consideration to SB, SB
shall grant IDEC a sublicense for the making, importing, use and/or sale of
COMPOUND in any country or territory in the world under SB's non-exclusive
license rights to make, have made, use, import, offer for sale or sell COMPOUND
as provided *_____________________________* In addition, within five (5) days
after *_______________________*
3. SUPPLY OF COMPOUND AND RELATED KNOW-HOW AND STUDIES
3.1 If not already done, SB will:
(a) transfer those components of SB's current IND related to the
manufacture of CLENOLIXIMAB as soon as practicable after the EFFECTIVE DATE to a
Drug Master File ("DMF"), AT IDEC's EXPENSE;
(b) provide IDEC with the right to cross-reference the DMF;
provided, however, IDEC may not access such DMF;
(c) make available to IDEC, upon request and within a reasonable
time period, a list of pre-clinical and clinical reports not related to COMPOUND
manufacture, but including any pre-clinical and clinical comparability reports,
that have been or will be submitted to SB's IND for CLENOLIXIMAB. Within thirty
(30) days after receipt of such list, IDEC will
*_______* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been filed
separately with the Secretary of Commission in the Company's Application
Requesting Confidential Treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.
7
<PAGE> 8
identify to SB, in writing, those reports which they require from SB to submit
to IDEC's IND for COMPOUND. AT IDEC's EXPENSE, SB will provide IDEC a copy of
the indicated reports. Such reports will be provided to IDEC in electronic form
to the extent available; otherwise they will be provided to IDEC in written
form. In the event that SB closes its IND for CLENOLIXIMAB, SB will give IDEC
prior notification thereof.
3.2 At IDEC's request, SB will provide IDEC with a copy of any existing
clinical databases related to COMPOUND that IDEC reasonably requires to support
its NDA for COMPOUND, AT IDEC's EXPENSE. Such databases will be provided to IDEC
in electronic form to the extent available, otherwise they will be provided to
IDEC in written form. Such delivery will take place as soon as practicable.
3.3 The following shall be applicable to SB's obligation to supply
CLENOLIXIMAB and reagents to IDEC or its designate under this AGREEMENT:
(a) If not already done, before *__________,* SB will initiate
stability testing on existing batches of CLENOLIXIMAB to obtain approximately
*________* vials of CLENOLIXIMAB *____________________* At such time as when the
testing has been completed and *__________________________,* SB shall ship the
vials to IDEC or its designate, and the vials shall become the property of IDEC
as soon as such supplies are in the charge of IDEC's designated carrier. IDEC
shall bear all of SB's costs related to the storage and stability testing of
such supplies *________________*
(b) For each product lot shipped to IDEC, SB will provide IDEC with
the following:
(i) Batch Documentation for each product lot;
(ii) Certificates of Analysis for each product lot;
(iii) Certificate of Compliance for each product lot; and
(iv) Stability reports for each product lot.
Each Certificate of Compliance will read: "SB certifies that the
referenced product lot was produced in compliance to applicable cGMPs with
respect to its materials, processes, procedures and analyses. The method of
manufacture and quality assurance/quality control of the drug substance and drug
product are consistent with that described in the filed DMF. SB certifies that
the reference product lot is not adulterated within the meaning of the Federal
Food, Drug, and Cosmetic Act. SB further certifies that the referenced product
lot is safe, potent and pure from a manufacturing perspective."
(c) SB warrants and represents that all such supplies of
CLENOLIXIMAB meet specifications as set forth in Section 3.3(b), and have been
kept under GMP and will continue to be kept under GMP by SB until such supplies
are in the charge of IDEC's designated carrier. IDEC shall select the carrier
for shipping of all such supplies and IDEC shall bear all costs associated with
the shipping of such supplies to IDEC. SB warrants and represents that stability
work will be conducted on such existing supplies of CLENOLIXIMAB in accordance
with FDA regulations.
*_______* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been filed
separately with the Secretary of Commission in the Company's Application
Requesting Confidential Treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.
8
<PAGE> 9
(d) At the same time that SB is shipping the supplies outlined in
Section 3.3(a), SB shall ship, at IDEC'S EXPENSE, the reagents/standards and
test procedures necessary to enable IDEC to carry out further stability testing
on such supplies and to perform the identity test after labeling.
(e) SB's DMF will cover manufacture of bulk drug substance as well
as unlabeled product lots shipped to IDEC.
3.4 IDEC acknowledges that, due to the period of time which has elapsed
since SB conducted clinical trials with COMPOUND and last manufactured COMPOUND,
the knowledge of SB with respect to preclinical and clinical information,
clinical trial databases/programming information, and manufacturing process
information, and all other information or data related to COMPOUND is not
current and, in some cases, key personnel have either left SB or moved to
different roles within SB and may not be available. IDEC further acknowledges
that all COMPOUND, information and assistance provided to IDEC under this
AGREEMENT *_______________________________________* Subject to the foregoing, SB
will attempt to provide a reasonable response to IDEC's reasonable inquires
related to the information transferred to IDEC pursuant to this AGREEMENT within
a reasonable time frame, and shall attempt to respond to FDA directly for
chemistry, manufacturing and controls ("CMC") questions, if any, asked by the
FDA, AT IDEC's EXPENSE, but only to the extent that SB has the available
resources and expertise to do so. SB shall be under no obligation to provide
substantive resources or maintain appropriate expertise for this effort or to
assist IDEC in the development of COMPOUND in any way. Notwithstanding the
foregoing, SB shall perform its obligations under this Section 3 with the same
effort that it would apply to its own compound with similar regulatory
requirements and market potential.
3.5 SB will have no obligation to provide IDEC with *________________*
3.6 *____________________________*
3.7 SB disclaims any and all implied warranties that COMPOUND provided
to IDEC under this AGREEMENT has been tested or will meet applicable
specifications except as otherwise expressly stated in this AGREEMENT. SB
disclaims any and all implied warranties that the information SB provided to
IDEC under this AGREEMENT is necessary or appropriate for FDA or other
regulatory or governmental agency review of COMPOUND except as otherwise
expressly stated in this AGREEMENT. Finally, with respect to COMPOUND,
information, and assistance provided to IDEC under this AGREEMENT, SB disclaims
any warranties or representations, either express or implied, whether in fact or
in law, including without limitation implied warranties of merchantability or
fitness for a particular purpose or noninfringement, except as otherwise
expressly stated in this AGREEMENT.
3.8 In consideration of execution of this AGREEMENT and the payment by
SB to IDEC of the amount of *_______________________* by March 3, 2000, SB's
obligations under Paragraph 13.01 of the Original Agreement shall be deemed
fulfilled.
4. DEVELOPMENT AND COMMERCIALIZATION RIGHTS
4.1 Subject to Section 4.2, IDEC will have full scientific and
management authority and control in connection with the DEVELOPMENT of COMPOUND
under IDEC's IND;
*_______* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been filed
separately with the Secretary of Commission in the Company's Application
Requesting Confidential Treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.
9
<PAGE> 10
provided that it is understood that IDEC's initial efforts at such continued
DEVELOPMENT shall be directed *___________________________* IDEC shall also have
full responsibility for the attainment and maintenance of regulatory approvals
and price registrations for COMPOUND in all GEOGRAPHIES in the world.
Notwithstanding the foregoing, the parties acknowledge that IDEC shall
have no obligation to continue DEVELOPMENT of COMPOUND. Subject to this Section
and Section 4.2, IDEC shall have the sole authority and control over DEVELOPMENT
and commercialization of COMPOUND in whatever form, including without
limitation, preclinical and clinical research, submissions of applications to
regulatory authorities in pursuit of approvals in a country for making,
importing, distributing and selling a product and the development and
implementation of marketing plans for COMPOUND.
4.2 At such time as *___________________________* SB shall have the OPT
IN and shall notify IDEC of its intent to exercise the OPT IN in writing no
later than thirty (30) days following SB's receipt of the headline data.
4.3 In the event that SB exercises the OPT IN, SB will have the
exclusive right to negotiate (for a period of *________________* following
SB's notice to IDEC of its exercise of the OPT IN) a mutually acceptable
agreement with IDEC related to such co-development/co-commercialization of
COMPOUND (a "Co-Development/Co-Commercialization Agreement") in the elected
GEOGRAPHIES. The Co-Development/Co-Commercialization Agreement may provide that
for each GEOGRAPHY, *_____________________* Notwithstanding the foregoing, SB
will have no obligation to exercise the OPT IN *_______________*
4.4 In the event that SB exercises the OPT IN for *_________________,*
but SB and IDEC are unable to reach mutually acceptable terms during the
*___________* period for the elected GEOGRAPHY(IES), *)________________*
4.5 *_____________________*
5. ROYALTIES
5.1 In consideration of the license grant to IDEC under Section 2, IDEC
shall pay SB the following royalties:
(a) if commercial supply of COMPOUND utilizes SB's proprietary cell
line expressing COMPOUND, then in consideration for such use of the cell line
together with SB's provision of the information, supplies and assistance to IDEC
under Section 3 of this AGREEMENT, IDEC shall pay SB the following royalties:
(i) *____________* of annual IDEC NET SALES up to and including
*___________________*
(ii) *___________* of annual IDEC NET SALES greater than
*_____________________*
*_______* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been filed
separately with the Secretary of Commission in the Company's Application
Requesting Confidential Treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.
10
<PAGE> 11
(b) if commercial supply of COMPOUND does not utilize SB's
proprietary cell line expressing COMPOUND, then IDEC shall pay SB
*_______________* of annual IDEC NET SALES.
5.2 IDEC's royalty obligations for COMPOUND under Section 5.1 shall
commence in each IDEC COUNTRY upon the COMMERCIAL SALE of COMPOUND in such
country and shall expire: (a) in the U.S.A., *__________________ * (b) in
EUROPE, upon the expiration of *__________________* and (c) in the R.O.W., upon
the expiration of *_______________ * Expiration of IDEC's royalty obligations
and payment obligations related to COMPOUND under this provision shall not
preclude IDEC from continuing to market COMPOUND and to use SB PATENTS, SB
KNOW-HOW, THIRD PARTY PATENTS, THIRD PARTY KNOW-HOW and other sublicensed rights
in the relevant GEOGRAPHY without further royalty payments or any other payments
to SB.
6. TERM, TERMINATION AND RIGHTS ON TERMINATION
6.1 Unless otherwise terminated, this AGREEMENT shall expire
*___________________* Expiration of this AGREEMENT under this provision shall
not preclude IDEC from continuing to market any COMPOUND and to use SB PATENTS,
SB KNOW-HOW, THIRD PARTY PATENTS and THIRD PARTY KNOW-HOW and other sublicensed
rights anywhere in the world without further royalty payments.
6.2 If SB materially fails or neglects to perform its respective
obligations set forth in this AGREEMENT and if such default is not corrected
within sixty (60) days after receiving written notice from IDEC with respect to
such default, IDEC shall have the right to terminate SB's rights under Sections
4 and 5 by giving written notice to SB. If IDEC materially fails or neglects to
perform its respective obligations set forth in this AGREEMENT and if such
default is not corrected within sixty (60) days after receiving written notice
from SB with respect to such default, SB shall have the right to terminate
IDEC's rights under Sections 2 and 3 by giving written notice to IDEC.
6.3 Either party may terminate this AGREEMENT if, at any time, the other
party shall file in any court or agency pursuant to any statute or regulation of
any state or country, a petition in bankruptcy or insolvency or for
reorganization or for an arrangement or for the appointment of a receiver or
trustee of the party or of its assets, or if the other party proposes a written
AGREEMENT of composition or extension of its debts, or if the other party shall
be served with an involuntary petition against it, filed in any insolvency
proceeding, and such petition shall not be dismissed within sixty (60) days
after the filing thereof, or if the other party shall propose or be a party to
any dissolution or liquidation, or if the other party shall make an assignment
for the benefit of creditors. Notwithstanding the bankruptcy of SB, IDEC shall
be entitled to retain the licenses granted herein, and subject to performance by
IDEC of its preexisting obligations under this AGREEMENT.
6.4 Termination of this AGREEMENT shall terminate all outstanding
obligations and rights between the parties arising from this AGREEMENT, except
those described in Sections 2, 5, 7, 8, 9, 10, 11, 13, 14, 15, 16, 17, 18 and 19
and any existing rights of one party against the other party for a breach by
that party.
*_______* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been filed
separately with the Secretary of Commission in the Company's Application
Requesting Confidential Treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.
11
<PAGE> 12
6.5 All rights to terminate, and rights upon termination, provided for
either party in this AGREEMENT are in addition to other remedies in law or
equity which may be available to either party.
7. EXCHANGE OF INFORMATION AND CONFIDENTIALITY
7.1 During the term of this AGREEMENT, SB shall promptly disclose to
IDEC and/or supply IDEC with SB KNOW-HOW and THIRD PARTY KNOW-HOW which SB owns
or controls as of the EFFECTIVE DATE; provided SB shall not be under any
obligation to disclose any SB proprietary manufacturing or formulation
information for the making, use or sale of COMPOUND except as otherwise provided
in this AGREEMENT.
7.2 Neither party, during the term of this AGREEMENT and for a period of
five (5) years after the date of termination of this AGREEMENT, shall disclose
or reveal to THIRD PARTIES any confidential information received from the other
party or otherwise developed by either party in the performance of activities in
furtherance of this AGREEMENT or the Original Agreement which relates
substantially to a COMPOUND. This confidentiality obligation shall not apply to
such information which is or becomes a matter of public knowledge, or came or
comes into the possession of the receiving party independently of this
AGREEMENT, or is disclosed to the receiving party by a THIRD PARTY having the
right to do so, or is subsequently and independently developed by employees of
the receiving party or AFFILIATES thereof who had no knowledge of the
confidential information disclosed. The parties shall take reasonable measures
to ensure that no unauthorized use or disclosure is made by others to whom
access to such information is granted. Notwithstanding the foregoing, IDEC shall
be entitled to use, reveal and disclose with and to THIRD PARTIES any
confidential information received from SB which relates to a COMPOUND whether
received pursuant to the AGREEMENT or the Original Agreement without first
obtaining the written consent of SB.
7.3 No public announcement or other disclosure to THIRD PARTIES
concerning the existence of or terms of this AGREEMENT shall be made, either
directly or indirectly, by either party to this AGREEMENT, except as may be
legally required or as may be required for recording purposes, without first
obtaining the written approval of the other party and AGREEMENT upon the nature
and text of such announcement or disclosure; provided that such approval shall
not be unreasonably withheld. The party desiring to make any such public
announcement or other disclosure shall use reasonable efforts to inform the
other party of the proposed announcement or disclosure in reasonably sufficient
time prior to public release, and shall use reasonable efforts to provide the
other party with a written copy thereof, in order to allow such other party to
comment upon such announcement or disclosure.
7.4 Nothing in this AGREEMENT shall be construed as preventing or in any
way inhibiting IDEC or SB from complying with statutory and regulatory
requirements governing the manufacture, use and sale or other distribution of
COMPOUND in any country in the world in any manner it reasonably deems
appropriate, including, for example, by disclosing to regulatory authorities
confidential or other information received from the other or THIRD PARTIES.
8. PATENT PROSECUTION
8.1 SB shall disclose to IDEC the complete texts of all SB PATENTS and
THIRD PARTY PATENTS (if any) filed by SB prior to the EFFECTIVE DATE which
relate to
12
<PAGE> 13
COMPOUND as well as all information received concerning the institution or
possible institution of any interference, opposition, re-examination, reissue,
revocation, nullification or any official proceeding involving such patents
anywhere in the world.
8.2 SB shall prepare, file, prosecute, maintain, extend and defend
patent applications and issued patents included in the licenses granted pursuant
to Section 2 so as to protect the commercial interests of the parties in
COMPOUND in the U.S., Europe and such other countries where patent applications
and issued patents exist as of the EFFECTIVE DATE. SB shall not abandon any such
patent applications in any country without IDEC's written consent. SB shall
promptly advise IDEC of the grant, lapse, revocation, surrender, invalidation,
or abandonment of any patents subject to Section 2 anywhere in the world.
Notwithstanding the foregoing, IDEC shall have the right to assume
responsibility for the preparation, filing, prosecution, maintenance and defense
of any a patent or patent application or any part thereof in any country for
which SB has the right to prosecute and maintain; provided that the claims of
such patents covers COMPOUND. IDEC acknowledges that all right, title and
interest in and to the SB PATENTS in and to the SB PATENTS are and shall remain
in SB, subject to the express license rights granted to IDEC under Section 2 of
this AGREEMENT.
9. PATENT LITIGATION
9.1 In the event of the institution of any suit by a THIRD PARTY against
IDEC, SB and/or its sublicensees for patent infringement involving an SB PATENT
or THIRD PARTY PATENT subject to Section 2 anywhere in the world, the party sued
shall promptly notify the other party in writing. IDEC shall have the right but
not the obligation to defend such suit at its own expense. IDEC and SB shall
assist one another and cooperate in any such litigation at the other's request
without expense to the requesting party.
9.2 In the event that IDEC or SB becomes aware of actual or threatened
infringement of an SB PATENT or THIRD PARTY PATENT subject to Section 2 anywhere
in the world, that party shall promptly notify the other party in writing. IDEC
shall have the first right but not the obligation to bring, at its own expense,
an infringement action or file any other appropriate action or claim directly
related to infringement of a patent or patent application subject to Section 2
wherein such infringement relates to COMPOUND, against any THIRD PARTY and to
use SB's name in connection therewith. If IDEC does not commence a particular
infringement action within ninety (90) days after it received such written
notice, SB, after notifying IDEC in writing, shall be entitled to bring such
infringement action or any other appropriate action or claim at its own expense.
The party conducting such action shall have full control over its conduct. In
any event, IDEC and SB shall assist one another and cooperate in any such
litigation at the other's request without expense to the requesting party.
9.3 IDEC and SB shall recover their respective actual out-of-pocket
expenses, or equitable proportions thereof, associated with any litigation or
settlement thereof from any recovery made by any party. Any excess amount shall
be shared between SB and IDEC, with each party receiving an amount proportional
to the amount spent by such party on such litigation or settlement thereof
relative to the total amount spent by both parties on such litigation or
settlement thereof.
9.4 The parties shall keep one another informed of the status of and of
their respective activities regarding any litigation or settlement thereof
concerning COMPOUND.
13
<PAGE> 14
9.5 SB shall authorize IDEC to act as SB's agent for the purpose of
making any application for any extensions of the term of SB PATENTS or THIRD
PARTY PATENTS of which SB is entitled to act as such an agent in any country in
the world in which such extensions are or become available, and shall provide
reasonable assistance therefor to IDEC, AT IDEC'S EXPENSE.
14
<PAGE> 15
10. STATEMENTS AND REMITTANCES; AUDIT
10.1 IDEC shall pay all invoices received from SB within thirty (30)
days of receipt of such invoices.
10.2 IDEC shall keep and require its AFFILIATES and sublicensees to keep
complete and accurate records of IDEC NET SALES. SB shall have the right, at
SB's expense, through a certified public accountant or like person reasonably
acceptable to IDEC, to examine such records during regular business hours during
the term of this AGREEMENT and for six (6) months after the later of its
termination or the last COMMERCIAL SALE of COMPOUND; provided, however, that
such examination shall not take place more often than once a year and shall not
cover such records for more than the preceding two (2) years; and provided
further that such accountant shall report to SB only as to the accuracy of the
IDEC NET SALES calculations, royalty statements and payments by IDEC to SB under
this AGREEMENT.
10.3 Within sixty (60) days after the close of each calendar quarter
commencing with the first calendar quarter in which the COMMERCIAL SALE of a
COMPOUND occurs, IDEC shall deliver to SB a true accounting of IDEC NET SALES of
COMPOUND during such quarter and shall at the same time pay all royalties due to
SB under Section 5.1. Such accounting shall show IDEC NET SALES on a
country-by-country and COMPOUND-by-COMPOUND basis. Any tax paid or required to
be withheld by IDEC on account of royalties payable to SB under this AGREEMENT
shall be deducted from the amount of royalties otherwise due. IDEC shall secure
and send to SB written proof of any such taxes withheld and paid by IDEC or its
sublicensees for the benefit of SB in a form sufficient to satisfy the United
States Internal Revenue Service.
10.4 All royalties due under this AGREEMENT shall be payable in U.S.
dollars. If governmental regulations in a country prevent remittances from IDEC
to SB in U.S. dollars with respect to IDEC NET SALES made in that country, SB
shall receive such royalty payment for IDEC NET SALES in that country in local
currency.
10.5 Monetary conversions from the currency of a foreign country, in
which COMPOUND is sold, into United States currency shall be made at the average
daily rates of exchange for the year from January 1 to the end of such calendar
quarter, from such country's currency into U.S. Dollars as reported in the Wall
Street Journal or other source agreeable to both parties, and shall be converted
at such average year-to-date rate at the end of such quarter.
11. WARRANTIES, REPRESENTATIONS, INSURANCE AND INDEMNIFICATIONS
11.1 As of the EFFECTIVE DATE, SB warrants that, to the best of its
belief and knowledge, it owns the entire right and title to the extent of its
ownership interests in SB PATENTS and SB KNOW-HOW, or has the right to grant the
licenses outlined in Section 2.
11.2 SB represents and warrants to IDEC that it has disclosed to IDEC:
(a) any information that SB obtained or develops in any country of
the world regarding the utility or safety of COMPOUND (including CLENOLIXIMAB)
and any
15
<PAGE> 16
confirmed information of serious or unexpected reactions or side effects related
to the utilization or medical administration of COMPOUND. "Serious" as used in
this Section refers to experience which results in death, permanent or
substantial disability, in-patient hospitalization, prolongation of existing
in-patient hospitalization; or is a congenital anomaly, cancer, the result of an
overdose or life threatening. "Unexpected" as used in this Section refers to (i)
conditions or developments encountered during preclinical or clinical studies
which could be material to the successful continuance of development of
COMPOUND; (ii) conditions or developments not encountered during clinical
studies of COMPOUND, and (iii) conditions or developments occurring with greater
frequency, severity, or specificity than shown by information previously
submitted to governmental agencies or encountered during clinical studies of
COMPOUND.
(b) any information it has received regarding any threatened or
pending action by any regulatory agency in any country of the world which may
affect the safety or efficacy claims of COMPOUND or the continued marketing of
COMPOUND.
11.3 Prior to or upon the first administration of COMPOUND to a human by
or on behalf of IDEC, and for a period of five (5) years after the expiration of
this AGREEMENT or its earlier termination, IDEC shall obtain and/or maintain,
respectively, at its sole cost and expense, product liability insurance in
amounts, respectively, which are reasonable and customary in the U.S.
pharmaceutical industry for companies of comparable size and activities.
*___________________________* Such product liability insurance shall insure
against all liability, including liability for personal injury, physical injury
and property damage. IDEC shall provide written proof of the existence of such
insurance to SB.
11.4 IDEC shall indemnify and hold harmless SB, its officers, directors,
shareholders, employees, successors and assigns from any loss, damage, or
liability (including reasonable attorneys' fees) resulting from any claim,
complaint, suit, proceeding or cause of action against any of them alleging
physical or other injury, including death, brought by or on behalf of a THIRD
PARTY due to physical injury or death arising out of the administration,
utilization and/or ingestion of COMPOUND manufactured, sold or otherwise
provided to the THIRD PARTY by IDEC (or its permitted sublicensee), except to
the extent such damages, claims, costs, losses, liabilities or expenses are
directly and proximately caused by SB's negligent or wrongful actions and
provided:
(a) IDEC shall not be obligated under this Section 11.5 if it is
shown by evidence acceptable in a court of law having jurisdiction over the
subject matter and meeting the appropriate degree of proof for such action, that
the injury was the result of the negligence or willful misconduct of any
employee or agent of SB;
(b) IDEC shall have no obligation under this Section 11.5 unless SB
(i) gives IDEC prompt written notice of any claim or lawsuit or other action for
which it seeks to be indemnified under this AGREEMENT; (ii) IDEC is granted full
authority and control over the defense, including settlement, against such claim
or lawsuit or other action; and (iii) SB cooperates fully with IDEC and its
agents in defense of the claims or lawsuit or other action; and
(c) The parties shall have an equal right to participate in the
defense of any such claim, complaint, suit, proceeding or cause of action
referred to in this Section utilizing attorneys of its choice; provided,
however, that IDEC shall have full authority and control to handle any such
claim, complaint, suit, proceeding or cause of action, including any settlement
*_______* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been filed
separately with the Secretary of Commission in the Company's Application
Requesting Confidential Treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.
16
<PAGE> 17
or other disposition thereof, for which either SB or IDEC seek indemnification
under this Section.
11.5 IDEC shall defend, indemnify and hold harmless SB and its officers,
directors, shareholders, employees, successors and assigns from and against any
and all damages, claims, costs, losses, liabilities or expenses (including
reasonable attorneys' fees) arising out of, or resulting from or in connection
with IDEC's activities under this AGREEMENT or the Original Agreement except
such damages, claims, costs, losses, liabilities or expenses which are directly
and proximately caused by SB's negligent or wrongful actions. SB shall have the
right to participate in the defense of any such claim, complaint, suit,
proceeding or cause of action referred to in this Section utilizing attorneys of
its choice; provided, however, that IDEC shall have full authority and control
to handle any such claim, complaint, suit, proceeding or cause of action,
including any settlement or other disposition thereof, for which SB seeks
indemnification under this Section.
11.6 SB shall defend, indemnify and hold harmless IDEC and its officers,
directors, shareholders, employees, successors and assigns from and against any
and all damages, claims, costs, losses liabilities or expenses (including
reasonable attorneys' fees) arising out of, or resulting from or in connection
with SB's activities under this AGREEMENT or the Original Agreement, except such
damages, claims, costs, losses, liabilities or expenses which are directly and
proximately caused by IDEC's negligent or wrongful actions. IDEC shall have the
right to participate in the defense of any such claim, complaint, suit,
proceeding or cause of action referred to in this Section utilizing attorneys of
its choice; provided, however, that SB shall have full authority and control to
handle any such claim, complaint, suit, proceeding or cause of action, including
any settlement or other disposition thereof, for which IDEC seeks
indemnification under this Section.
12. FORCE MAJEURE
12.1 If the performance of any part of this AGREEMENT by either party,
or of any obligation under this AGREEMENT, is prevented, restricted, interfered
with or delayed by reason of any cause beyond the reasonable control of the
party liable to perform, unless conclusive evidence to the contrary is provided,
the party so affected shall, upon giving written notice to the other party, be
excused from such performance to the extent of such prevention, restriction,
interference or delay; provided that the affected party shall use its reasonable
best efforts to avoid or remove such causes of non-performance and shall
continue performance with the utmost dispatch whenever such causes are removed.
When such circumstances arise, the parties shall discuss what, if any,
modification of the terms of this AGREEMENT may be required in order to arrive
at an equitable solution.
17
<PAGE> 18
13. GOVERNING LAW
13.1 This AGREEMENT shall be deemed to have been made in the state of
California and its form, execution, validity, construction and effect shall be
determined in accordance with the laws of the state of California, U.S.A.
14. ARBITRATION
14.1 Any dispute, controversy or claim (except as to any issue relating
to intellectual property owned in whole or in part by SB) arising out of or
relating to this AGREEMENT, or the, breach, termination, or invalidity thereof,
shall be settled by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, except as modified by this
Section 14. The number of arbitrators shall be three (3). The arbitration
decision shall be binding and not be appealable to any court in any
jurisdiction. The prevailing party may enter such decision in any court having
competent jurisdiction. The arbitration proceeding shall be conducted in the
English language in San Diego, California, unless the parties agree in writing
to conduct the arbitration in another location.
15. SEPARABILITY
15.1 In the event any portion of this AGREEMENT shall be held illegal,
void or ineffective, the remaining portions hereof shall remain in full force
and effect.
15.2 If any of the terms or provisions of this AGREEMENT are in conflict
with any applicable statute or rule of law, then such terms or provisions shall
be deemed inoperative to the extent that they may conflict therewith and shall
be deemed to be modified to conform with such statute or rule of law.
15.3 In the event that the terms and conditions of this AGREEMENT are
materially altered as a result of Sections 15.1 or 15.2, the parties will
renegotiate the terms and conditions of this AGREEMENT to resolve any
inequities.
16. ENTIRE AGREEMENT
16.1 This AGREEMENT, entered into as of the EFFECTIVE DATE, constitutes
the entire AGREEMENT between the parties relating to the subject matter hereof
and supersedes all previous writings and understandings. No terms or provisions
of this AGREEMENT shall be varied or modified by any prior or subsequent
statement, conduct or act of either of the parties, except that the parties may
amend this AGREEMENT by written instruments specifically referring to and
executed in the same manner as this AGREEMENT.
17. NOTICES
17.1 Any notice required or permitted under this AGREEMENT shall be sent
by certified mail or overnight courier service, postage pre-paid to the
following addresses of the parties:
18
<PAGE> 19
IDEC PHARMACEUTICALS CORPORATION
3020 Callan Road
San Diego, California 92121 U.S.A.
Attention: Corporate Secretary
SMITHKLINE BEECHAM p.l.c.
New Horizons Court
Brentford, Middlesex TW8 9EP, England
Attention: Senior Vice President, Worldwide Business Development
Copy to:
SMITHKLINE BEECHAM CORPORATION
Corporate Legal Department
One Franklin Plaza
200 North 16th Street
FP 2225
Philadelphia, PA 19102
Attention: General Counsel - U.S.
17.2 Any notice required or permitted to be given concerning this
AGREEMENT be effective upon receipt by the party to whom it is addressed.
18. RECORDATION
18.1 IDEC shall have the right, at any time during the term of this
AGREEMENT, to record, register, or otherwise notify this AGREEMENT in any patent
office or other appropriate facility anywhere in the world, and SB shall provide
reasonable assistance to IDEC in effecting such recording.
19. ASSIGNMENT
19.1 This AGREEMENT and the licenses herein granted shall be binding
upon and inure to the benefit of the successors in interest of the respective
parties. Neither this AGREEMENT nor any interest hereunder shall be assignable
by either party without the written consent of the other; provided, however,
that either party may assign this AGREEMENT or any patent owned by it to any
AFFILIATE or to any corporation with which it may merge or consolidate, or to
which it may transfer all or substantially all of its assets to which this
AGREEMENT relates, without obtaining the consent of the other party.
20. EXECUTION IN COUNTERPARTS
20.1 This AGREEMENT may be executed in any number of counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
19
<PAGE> 20
IN WITNESS WHEREOF, the parties, through their authorized officers, have
executed this AGREEMENT as of the date first written above.
SMITHKLINE BEECHAM P.L.C.
By:_________________________________
Name:_______________________________
Title:______________________________
IDEC PHARMACEUTICALS CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
20
<PAGE> 21
AMENDED AND RESTATED COLLABORATIVE RESEARCH
AND LICENSE AGREEMENT
IDEC PHARMACEUTICALS CORPORATION--SMITHKLINE BEECHAM P.L.C.
APPENDIX A
*
*
*_______* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been filed
separately with the Secretary of Commission in the Company's Application
Requesting Confidential Treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.
21
<PAGE> 22
AMENDED AND RESTATED COLLABORATIVE RESEARCH
AND LICENSE AGREEMENT
IDEC PHARMACEUTICALS CORPORATION--SMITHKLINE BEECHAM P.L.C.
EXHIBIT I
*
*
*_______* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been filed
separately with the Secretary of Commission in the Company's Application
Requesting Confidential Treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.
22
<PAGE> 23
AMENDED AND RESTATED COLLABORATIVE RESEARCH
AND LICENSE AGREEMENT
IDEC PHARMACEUTICALS CORPORATION--SMITHKLINE BEECHAM P.L.C.
EXHIBIT II
*
*
*_______* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been filed
separately with the Secretary of Commission in the Company's Application
Requesting Confidential Treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.
23
<PAGE> 1
EXHIBIT 12.1
IDEC PHARMACEUTICALS CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (1)
(in thousands, except ratios)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1998 1999 1997
------- ------- -------
<S> <C> <C> <C>
Income (loss) before taxes 21,900 45,606 (15,424)
Fixed charges:
Interest expense and amortization of
original issue discount on all indebtedness 630 6,058 917
Preferred stock dividends - - 696
Interest included in rent expense 600 632 557
------- ------- -------
Total fixed charges 1,230 6,690 2,170
Income (loss) before taxes and fixed
charges 23,130 52,296 (13,254)
======= ======= =======
Ratio of earnings to fixed charges 18.8 7.82 n/a
</TABLE>
(1) The ratio of earnings to fixed charges was computed by dividing earnings
(income before taxes, adjusted for fixed charges) by fixed charges for the
periods indicated. Fixed charges include (i) interest expense and amortization
of original issue discount on all indebtedness, (ii) preferred stock dividends
and (iii) a reasonable approximation of the interest factor deemed to be
included in rental expense. Earnings were not sufficient to cover fixed charges
for the year ended December 31, 1997.
<PAGE> 1
Exhibit 23.0
INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT
The Board of Directors
IDEC Pharmaceuticals Corporation:
The audits referred to in our report dated February 1, 2000, included the
related consolidated financial statement schedule as of December 31, 1999, and
for each of the years in the three-year period ended December 31, 1999, included
in the 1999 Annual Report on Form 10-K. This consolidated financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this consolidated financial statement schedule based
on our audits. In our opinion, such consolidated financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
We consent to incorporation by reference in registration statements (Nos.
333-81625 and 33-62817) on Forms S-8 and in the registration statement (No.
333-85339) on Form S-3 of IDEC Pharmaceuticals Corporation of our
report dated February 1, 2000, relating to the consolidated balance sheets of
IDEC Pharmaceuticals Corporation and subsidiary as of December 31, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1999, and the related schedule, which report appears in the 1999
Annual Report on Form 10-K of IDEC Pharmaceuticals Corporation.
KPMG LLP
San Diego, California
March 28, 2000
<PAGE> 1
Exhibit 23.1
SCHEDULE II
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Years Ended December 31, 1999, 19987 and 1997
<TABLE>
<CAPTION>
Additions
-----------------------
Balance Charged to Charged to Balance
beginning costs and other at End
Description of year expenses accounts Deductions of Year
- ----------- --------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Inventory reserve 1,854 725 (1,997) 582
Allowance for contract revenue
receivables $ 775 $ 240 $-- $ (723) $ 292
------- ------ ------ ------- -------
$ 2,629 $ 965 $ $(2,720) $ 874
======= ====== ====== ======= =======
Year ended December 31, 1998
Inventory reserve $ 2,082 $3,402 $-- $(3,630) $ 1,854
Allowance for contract revenue
receivables 51 724 -- -- 775
------- ------ ------ ------- -------
$ 2,133 $4,126 $-- $(3,630) $ 2,629
======= ====== ====== ======= =======
Year ended December 31, 1997
Inventory reserve $-- $2,082 $-- $-- $ 2,082
Allowance for contract revenue
receivables 1,681 -- -- (1,630) 51
------- ------ ------ ------- -------
$ 1,681 $2,082 $-- $(1,630) $ 2,133
======= ====== ====== ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS CONTAINED
IN ITEM 8 OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIALS STATEMENTS AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 61,404
<SECURITIES> 184,882
<RECEIVABLES> 1,310
<ALLOWANCES> 292
<INVENTORY> 2,400
<CURRENT-ASSETS> 278,519
<PP&E> 41,439
<DEPRECIATION> 20,617
<TOTAL-ASSETS> 307,074
<CURRENT-LIABILITIES> 15,616
<BONDS> 0
0
0
<COMMON> 21
<OTHER-SE> 159,957
<TOTAL-LIABILITY-AND-EQUITY> 307,074
<SALES> 0
<TOTAL-REVENUES> 118,003
<CGS> 0
<TOTAL-COSTS> 57,108
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,058
<INCOME-PRETAX> 45,606
<INCOME-TAX> 2,449
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,157
<EPS-BASIC> 1.04
<EPS-DILUTED> 0.86
</TABLE>
