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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-22769
----------------------------
LEUKOSITE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3173859
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
215 FIRST STREET 02142
CAMBRIDGE, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 621-9350
----------------------------
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
----------- -----------
The number of shares outstanding of each of the registrant's classes of
common stock as of:
DATE CLASS OUTSTANDING SHARES
May 7, 1999 Common stock, $.01 par value 11,970,168
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<PAGE>
LEUKOSITE, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
December 31, 1998 and March 31, 1999 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1998 and
1999 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1998 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures
15
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LEUKOSITE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
--------------------- ---------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,361,339 $ 4,040,637
Marketable securities 15,802,376 20,129,923
Receivable from UCB - 6,000,000
Other current assets 544,779 774,112
------------ ------------
Total current assets 21,708,494 30,944,672
------------ ------------
Property and equipment, net 3,393,873 3,363,901
Marketable Securities 2,168,324 2,552,997
Other assets 231,930 294,398
------------ ------------
Total assets $ 27,502,621 $ 37,155,968
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 4,387,429 $ 4,849,958
Obligation to fund L&I Joint Venture 203,445 486,146
Deferred revenue 2,172,058 1,427,059
Deferred rent 222,907 162,114
Current portion of capital lease obligations 733,848 806,549
------------ ------------
Total current liabilities 7,719,687 7,731,826
------------ ------------
Capital lease obligations, less current portion 1,315,813 1,054,919
------------ ------------
Stockholders' equity:
Preferred stock $.01 par value-
Authorized-5,000,000 shares
Issued and outstanding-935,625 shares at March 31, 1999 - 9,356
Common stock, $.01 par value-
Authorized-25,000,000 shares
Issued and outstanding-11,916,339 shares at December
31, 1998 and 11,968,034 shares at March 31, 1999 119,164 119,682
Additional paid-in capital 65,280,443 80,995,829
Accumulated deficit (46,932,486) (52,755,644)
------------ ------------
Total stockholders' equity 18,467,121 28,369,223
------------ ------------
Total liabilities and stockholders' equity $ 27,502,621 $ 37,155,968
------------ ------------
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</TABLE>
3
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LEUKOSITE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1999
---- ----
<S> <C> <C>
REVENUES:
Corporate collaborations $ 2,083,746 $ 2,630,390
Joint venture 133,455 363,670
Government grants 140,844 244,156
----------- -----------
Total revenue 2,358,045 3,238,216
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OPERATING EXPENSES:
Research and development 4,105,814 6,475,811
General and administrative 632,260 665,506
Acquired in-process research
and development -- 1,588,612
----------- -----------
Total operating expenses 4,738,074 8,729,929
----------- -----------
LOSS FROM OPERATIONS (2,380,029) (5,491,713)
OTHER INCOME (EXPENSE):
Equity in operations of joint venture (1,266,207) (646,372)
Interest income 338,501 358,381
Interest expense ( 39,742) ( 43,454)
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NET LOSS $ (3,347,477) $ (5,823,158)
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NET LOSS PER COMMON SHARE
Basic and diluted $(.34) $(.49)
----------- -----------
----------- -----------
SHARES USED IN COMPUTING NET LOSS PER
COMMON SHARE
Basic and diluted 9,881,358 11,929,619
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</TABLE>
4
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LEUKOSITE, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,347,477) $ (5,823,158)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 253,805 323,897
Equity in operations of joint venture 1,266,207 646,372
Acquired in-process research and development -- 1,588,612
Change in operating assets and liabilities:
Other current assets (163,603) 307,789
Accounts payable and accrued expenses (76,348) (84,650)
Deferred revenue 200,004 (744,999)
Deferred rent (60,793) (60,793)
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Net cash used in operating activities (1,928,205) (3,846,930)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in marketable securities (3,727,206) (1,275,192)
Proceeds from maturities of marketable securities 3,600,000 3,937,358
Investment in joint venture (1,883,348) (363,670)
Purchases of property and equipment (106,901) (189,473)
Cash acquired in CytoMed acquisition -- 564,875
Decrease (increase) in other assets -- (57,468)
----------- ----------
Net cash provided by (used in) investing activities (2,117,455) 2,616,430
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital leases (240,062) (188,193)
Issuance of common stock 45,368 69,641
Exercise of stock options 8,432 28,350
------------ -----------
Net cash used in financing activities (186,262) (90,202)
------------ -----------
NET DECREASE IN CASH AND EQUIVALENTS (4,231,922) (1,320,702)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 10,587,873 5,361,339
------------ -----------
CASH AND EQUIVALENTS, END OF PERIOD $6,355,951 $ 4,040,637
------------ -----------
------------ -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $ 39,742 $ 43,454
------------ -----------
------------ -----------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of CytoMed:
Marketable securities $7,374,386
Accounts receivable 6,355,681
Prepaid expenses 181,441
Property and equipment 104,452
Other assets 5,000
Acquired in-process research and development 1,588,612
Accounts payable and accrued expenses (547,178)
Stock issued (15,627,269)
------------
$ -- $ (564,875)
------------ ------------
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</TABLE>
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Operations and Basis of Presentation
LeukoSite, Inc. (the "Company") was incorporated on May 1, 1992. The Company
is engaged in the development of therapeutics with potential applications in
cancer and inflammatory, autoimmune, and viral diseases.
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission and include, in the opinion of
management, all adjustments, consisting of normal, recurring adjustments,
necessary for a fair presentation of interim period results. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes, however, that its disclosures are
adequate to make the information presented not misleading. The results for
the interim periods presented are not necessarily indicative of results to
be expected for the full fiscal year. These condensed financial statements
should be read in conjunction with the audited consolidated financial
statements and notes related thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998 filed with the Securities
and Exchange Commission.
2. Summary of Significant Accounting Policies
(a) Cash Equivalents and Marketable Securities
Cash equivalents are highly liquid investments with original maturities of
less than three months. Marketable securities consist of securities with
original maturities of greater than three months. The Company accounts for
cash equivalents and marketable securities in accordance with SFAS No. 115
"Accounting for Certain Investments in Debt and Equity Securities." In
accordance with SFAS No. 115, the Company has classified its investments as
held-to-maturity. The investments that the Company has the positive intent
and ability to hold to maturity are reported at amortized cost, which
approximates fair market value.
As of March 31, 1999 there were no material unrealized gains or losses on
any investments. Cash and cash equivalents and marketable securities
consisted of the following:
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1999
<S> <C> <C>
Cash and cash equivalents:
Cash $ 3,219,315 $ 2,804,316
Money market funds 1,341,651 435,321
Taxable auction securities 800,373 801,000
------------- ------------
$ 5,361,339 $ 4,040,637
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------------- ------------
Marketable securities, short term:
Corporate bonds and notes (average
maturity of 6 and 5 months respectively) $ 15,802,376 $ 20,129,923
------------- ------------
------------- ------------
Marketable securities, long term:
Corporate bonds and notes (average
maturity of 15.5 and 17 months
respectively) $ 2,168,324 $2,552,997
------------- ------------
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</TABLE>
6
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(b) Net Loss per Common Share
Basic net loss per common share is based on the weighted average number of
common shares outstanding. Diluted net loss per common share is the same as
basic net loss per common share as the inclusion of 1,419,474 shares
issuable upon conversion of the preferred stock and exercise of stock
options and warrants would be antidilutive.
3. ILEX Agreement
In May 1997 the Company and ILEX Oncology, Inc. (ILEX) entered into a
joint venture agreement that established a limited partnership for the
purpose of developing CAMPATH-Registered Trademark-. Under the terms of
the partnership, the Company is required to fund 50% of the partnership's
working capital requirements. The joint venture expires in 2017, but
provides for either partner under certain circumstances to purchase the
other partner's ownership position of the joint venture after October
2000. Should either party fail to fulfill its funding obligations,
control of the joint venture may change.
The Company accounts for its investment in the joint venture under the
equity method of accounting and records its share of the income or loss
in other income (expense). The Company is reimbursed by the joint venture
for certain costs incurred on behalf of the joint venture. The joint
venture has sublicensed the rights to CAMPATH-Registered Trademark- from
the Company. For the three months ended March 31, 1999 the Company's
share of the joint venture's recorded loss was $646,372 and the Company
had a funding liability of $486,146 to the joint venture as of March 31,
1999. The Company charged the joint venture $363,670 for costs incurred
on its behalf for the three months ended March 31, 1999.
4. CytoMed
On February 11, 1999 the Company acquired all of the issued and
outstanding capital stock of CytoMed, Inc. ("CytoMed") through the
issuance of 935,625 shares of the Company's Series A Convertible
Preferred Stock, par value $.01 per share, to CytoMed shareholders. The
Series A Convertible Preferred Stock will convert into common stock on a
one-to-one basis upon required approval by the Company's shareholders.
The Company will issue another 631,313 common shares to CytoMed
shareholders upon receipt of a $6,000,000 payment to CytoMed from UCB
Pharma which is required to be paid in October 1999. In addition, CytoMed
shareholders may receive up to $23,000,000 in cash and 84,000 shares of
the Company's common stock upon the achievement of milestones related to
the CytoMed product candidates.
The merger was accounted for as a purchase in accordance with the
requirements of Accounting Principles Board (APB) Opinion No.16, Business
Combinations, and accordingly CytoMed's results of operations are
included in those of the Company beginning on the date of the
acquisition. The total purchase price, including transaction costs, was
approximately $16,100,000. The total purchase price was allocated to the
fair value of the assets acquired and liabilities assumed including an
allocation to in-process research and development of $1,588,612. The
nature of the efforts to develop the purchased in-process technologies
into commercially viable products principally relate to the completion of
all development, testing, and high-volume manufacturing activities that
are necessary to establish that the products can be produced to meet its
design specifications and are proven to be safe and effective for their
respective indications. As of the acquisition date, technological
feasibility of the compounds in development had not been established and
the technologies have no alternative future uses. If these projects are
not successfully developed, the Company will not realize the value
assigned to the in-process research and development.
7
<PAGE>
Total consideration allocated to the fair market value of assets acquired
and liabilities assumed on the purchase date is as follows:
<TABLE>
<S> <C>
Cash and cash equivalents $1,044,875
Marketable securities 7,374,386
Accounts receivable 6,355,681
Prepaid expenses 181,441
Property and equipment 104,452
Other assets 5,000
Acquired in-process research and development 1,588,612
Accounts payable and accrued expenses (547,178)
------------
$ 16,107,269
------------
------------
</TABLE>
The following unaudited pro forma condensed consolidated statement of
operations information has been prepared to give effect to the merger as if
such transaction had occurred at the beginning of the periods presented. In
October 1998 CytoMed sold to UCB assets relating to certain research
programs. CytoMed's historical results of operations included in the
following pro forma information have been adjusted to reflect the revenues
and expenses related to the remaining research programs acquired by the
Company. The historical results of operations have been adjusted to reflect
(i) elimination of the one-time charge to operations for the purchase of
acquired in-process research and development and (ii) reduction of interest
income resulting from use of $480,000 transaction costs at an annual
interest rate of 5.47%.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1998 MARCH 31, 1999
----------------- ------------------
<S> <C> <C>
REVENUES $ 13,584,460 $ 3,238,216
NET LOSS $ ( 7,334,735) $ (4,987,863)
NET LOSS PER COMMON SHARE
Basic and diluted $(1.39) $(.37)
------------ ------------
------------ ------------
SHARES USED IN COMPUTING NET LOSS PER
COMMON SHARE
Basic and diluted 12,462,349 13,496,557
------------ ------------
------------ ------------
</TABLE>
5. Segment Reporting
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. This statement established standards
for the way that public business enterprises report information about
operating segments in annual financial statements and requires that
enterprises report selected information about operating segments in interim
financial reports issued to stockholders. The Company has adopted this
statement for the fiscal year ending December 31, 1998. In accordance with
SFAS No. 131, the Company has one operating segment. Additional disclosure
of revenue information about products and services is, therefore, not
required.
6. Recent Accounting Pronouncements
In February 1998 the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits. The statement is effective for
fiscal years beginning after December 15,1997. During the year ended
December 31, 1998 the Company adopted the
8
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provisions of SFAS No. 132 which establishes accounting and reporting
standards for pension and other postretirement benefit plans.
In June 1998 the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement is effective for the year
ended December 31, 2000. SFAS No. 133 establishes accounting and reporting
disclosure standards for derivative instruments including certain
derivative instruments embedded in other contracts (collectively referred
to as derivatives) and for hedging activities. The Company does not expect
adoption of this statement to have a material impact on its consolidated
financial position or results of operations.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations and this Quarterly Report on Form 10-Q contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities and Exchange Act of 1934,
including but not limited, (i) statements about the adequacy of the Company's
capital resources, interest income and revenues from its collaboration
agreements to fund its operating expenses and capital requirements into early
2001, (ii) statements about the amount of capital expenditures that the Company
expects to incur in 1999 and (iii) certain statements identified or qualified by
words such as "anticipate," "plan," "believe," "estimate," "expect" and similar
expressions. Investors are cautioned that forward-looking statements are
inherently uncertain and that the Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed under the caption "Risk Factors" in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
OVERVIEW
The Company is a leader in the discovery and development of therapeutics based
upon the biology of leukocytes. Therapeutics developed using its technology may
be used to treat cancer and inflammatory, autoimmune and viral diseases. The
Company has been funded to date primarily through proceeds from the sale of
equity securities and funding from collaboration agreements. To date, the
Company has not received any revenue from the sale of products. The Company has
experienced operating losses since its inception and expects that the activities
required to develop and commercialize its products will result in further
operating losses for the next several years. As of March 31, 1999, the Company
had an accumulated deficit of approximately $52.8 million.
In 1994, 1995 and 1996, the Company signed agreements with Warner-Lambert for
the discovery and development of drugs that are intended to antagonize the
MCP-1, IL-8 and CCR5 and CXCR4 receptors found on certain classes of
leukocytes. In December 1998 the Company and Warner-Lambert signed an
agreement related to the A4B7 and AEB7 integrin targets implicated in asthma
and inflammatory bowel disease. In July 1996 the Company signed an agreement
with Roche Bioscience for the discovery and development of monoclonal
antibodies and small molecule antagonists to the CCR3 receptor found on a
certain class of leukocytes. In April 1997 the Company signed an agreement
with Kyowa for the discovery and development of small molecule antagonists to
the CXCR3 and CCR1 receptors found on certain classes of leukocytes. In May
1997 the Company entered into a joint venture with ILEX for the development
of CAMPATH-Registered Trademark- for the treatment of chronic lymphocyctic
leukemia. In October 1997 the Company, Warner-Lambert and Kyowa agreed to
jointly pursue research and development of antagonists that target MCP-1,
IL-8, CCR1 and CXCR3. In December 1997 the Company entered into a
collaboration agreement with Genentech for the development of a monoclonal
antibody intended as therapy for inflammatory bowel disease. In August 1998
the Company entered into a collaboration agreement with MorphoSys AG for the
discovery of therapeutic monoclonal antibodies for inflammatory and
autoimmune disorders. On February 11, 1999 the Company acquired all of the
issued and outstanding capital stock of CytoMed for approximately $16.1
million.
10
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 as Compared with Three Months Ended March 31,
1998.
Revenues were $3,238,000 for 1999 compared to $2,358,000 for 1998. The
increase of approximately $880,000 was primarily due to greater research
funding from Warner-Lambert. To a lesser extent the increase was due to
billings to L&I Partners, L.P. for the reimbursement of expenses incurred by
the Company on behalf of the joint venture to develop CAMPATH-Registered
Trademark-, and government grant funding.
Research and development expenses were $6,476,000 for 1999 compared to
$4,106,000 for 1998. The increase of approximately $2,370,000 was primarily due
to the external costs associated with the manufacture of clinical trial material
and ongoing clinical trials for the Company's LDP-02 program, development of
LDP-977, and increased costs associated with the Company's drug discovery
programs.
General and administrative expenses were $666,000 for 1999 compared to $632,000
for 1997. The increase of approximately $34,000 was primarily due to an increase
in expenses associated with outside services as a result of operating as a
public company and business development and increased staffing to support the
growth of the Company.
Acquired in-process research and development was recorded in the amount of
$1,589,000 in connection with the CytoMed acquisition.
Equity in Operations of Joint Venture was a loss of $646,000 for 1999
compared to $1,266,000 for 1998. The decrease of approximately $620,000 was
primarily to due to the substantial completion in the second quarter of 1998
of the manufacture of clinical trial material for the Company's pivotal
clinical study of CAMPATH-Registered Trademark-. Joint venture expenses
primarily relate to data analysis and activities related to regulatory
submissions. In April 1999 the Company and ILEX met with U.S. Food and Drug
Administration (FDA) for a pre-BLA meeting on the clinical development of
CAMPATH-Registered Trademark-. The Company and ILEX plan to file a Biologics
License Application (BLA) with the FDA in mid-1999.
Interest income (expense), net was $315,000 for 1999 compared to $299,000 for
1998. The increase of $16,000 was primarily due to the Company's higher cash and
cash equivalents balance and investments in marketable securities provided by a
private placement in July 1998 and the CytoMed acquisition in February 1999.
Net Loss was $5,823,000 for 1999 compared to $3,347,000 for 1998. The increase
of approximately $2,661,000 was primarily due to the one-time charge for the
purchase of acquired in-process research and development due to the CytoMed
acquisition, the manufacture of clinical trial material and clinical research
for the Company's LDP-02 program, development of LDP-977, and greater
research and development expenses related to the Company's drug discovery
programs. Higher overall expenses were offset in part by increased research
funding from Warner-Lambert.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company's operations have been funded primarily through
proceeds from the sale of equity securities, which have raised approximately
$64.6 million, and to a lesser extent license fees and sponsored research, which
have generated approximately $22.3 million, and capital lease obligations, which
have generated approximately $5.1 million. The Company has used cash to fund
operating losses of approximately $52.1 million, the investment of approximately
$3.2 million in equipment and leasehold improvements and the repayment of
approximately $3.5 million of capital lease obligations. The Company had no
significant commitments as of March 31, 1999 for capital
11
<PAGE>
expenditures. At March 31, 1999 the Company had on hand cash, cash equivalents
and marketable securities of approximately $26.7 million.
At March 31, 1999 other current assets were approximately $6.8 million. Included
in other current assets is a current receivable of $6 million due to CytoMed
from UCB Pharma which is required to be paid in October 1999.
The Company has entered into sponsored research and consulting agreements with
certain hospitals, academic institutions and consultants, requiring periodic
payments by the Company. Aggregate minimum funding obligations under these
agreements, which include certain cancellation provisions, total approximately
$1.9 million, of which approximately $1.5 million will be paid in 1999. The
Company also has a commitment to the Therapeutic Antibody Centre at the
University of Oxford in England to provide funding of $1.0 million in
semi-annual installments through the year 1999.
In May 1997 the Company and ILEX entered into a joint venture whereby the
parties formed a limited partnership to develop CAMPATH-Registered Trademark-
for the treatment of chronic lymphocytic leukemia and other diseases. The
Company and ILEX are required to make contributions each time the joint
venture requires working capital. The Company and ILEX will generally share
equally in profits from the sales of CAMPATH-Registered Trademark- and in
research, development, and clinical expenses. The capital requirements of the
joint venture consist of clinical development expenses.
On February 11, 1999 the Company acquired all of the issued and outstanding
capital stock of CytoMed. The total purchase price was approximately $16.1
million and the net assets acquired were approximately $14.5 million of which
approximately $8.5 million was cash and $6 million was a receivable from UCB
Pharma expected to be paid in October 1999.
The Company believes that its existing capital resources, interest income and
revenue from the collaboration agreements will be sufficient to fund its planned
operating expenses and capital requirements into 2001. However, there can be no
assurance that such funds will be sufficient to meet the Company's operating
expenses and capital requirements during such period. The Company's actual cash
requirements may vary materially from those now planned and will depend upon
numerous factors, including the results of the Company's research and
development and collaboration programs, the timing and results of preclinical
and clinical trials, the timing and costs of obtaining regulatory approvals, the
progress of the milestone and royalty producing activities of the Company's
collaborative partners, the level of resources that the Company commits to the
development of manufacturing, marketing, and sales capabilities, the cost of
filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights, the ability of the Company to maintain existing
and establish new collaboration agreements with other companies, the
technological advances and activities of competitors and other factors.
The Company expects to incur substantial additional expenses, including expenses
related to ongoing research and development activities, expenditures for
preclinical and clinical trials and the expansion of its laboratory and
administrative activities. Therefore, the Company will need to raise substantial
additional capital. The Company intends to seek such additional funding through
public or private financing or collaboration or other arrangements with
collaborative partners. There can be no assurance, however, that additional
financing will be available from any sources or, if available, will be available
on acceptable terms.
12
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YEAR 2000 ISSUES
The Company is reviewing its information systems to assess what steps are
required to achieve full Year 2000 compliance. The Company relies upon
microprocessor-based personal computers and commercially available applications
software. The Company is currently discussing Year 2000 readiness with its
supply and service vendors. The Company intends to continue to assess its
exposure to Year 2000 noncompliance on the part of any of its vendors and there
can be no assurance that their systems will be Year 2000 compliant. The Company
does not anticipate that it will incur material expenses to make its internal
computer software and operating systems Year 2000 compliant. The Company
believes that the Year 2000 issue will not pose significant problems for the
Company's systems. The Company currently does not have any contingency plan in
the event Year 2000 compliance cannot be achieved in a timely manner.
ITEM 3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company owns financial instruments that are sensitive to market risks as
part of its investment portfolio. The investment portfolio is used to preserve
the Company's capital until it is required to fund operations, including the
Company's research and development activities. All of these market-risk
sensitive instruments are classified as held-to-maturity and are not held for
trading purposes. The Company does not own derivative financial instruments in
its investment portfolio. The investment portfolio contains instruments that are
subject to the risk of a decline in interest rates.
Interest Rate Risk-The Company's investment portfolio includes investment grade
debt instruments. These bonds are subject to interest rate risk, and could
decline in value if interest rates fluctuate. Due to the short duration and
conservative nature of these instruments, the Company does not believe that it
has a material exposure to interest rate risk.
13
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PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) On February 11, 1999, the Company acquired CytoMed, Inc. (by
merger). The Company issued (or is obligated to issue) an
aggregate of 935,625 shares of the Company's Series A
Convertible Preferred Stock to certain of the former
shareholders of CytoMed, Inc. for an aggregate price of
approximately $16.1 million, as the initial consideration for
such acquisition. The issuance and sale of the shares of Series
A Convertible Preferred Stock was made in reliance upon Rule
506 of Regulation D promulgated under the Securities Act of
1933 as amended (the "Securities Act") and upon Section 4(2) of
the Securities Act. The Series A Convertible Preferred Stock is
convertible into shares of the Company's Common Stock on a
one-for-one basis only upon approval by the pre-acquisition
shareholders of the Company (which is being sought at the
Company's 1999 Annual Meeting).
(d) The Company's Registration Statement on Form S-1
(Reg. No. 333-30213) in connection with the Company's
initial public offering of Common Stock was declared
effective by the Securities and Exchange Commission
(the "SEC") on August 14, 1997. Such Registration
Statement (the "IPO Registration Statement") provided
for the registration under the Securities Act of
2,875,000 shares of the Company's Common Stock
(including underwriters overallotment).
The aggregate initial public offering price for all
2,875,000 shares of Common Stock registered under the
Securities Act pursuant to the IPO Registration
Statement was $ 17,250,000. The net proceeds to the
Company from such issuance and distribution, after
deducting the aggregate amount of expenses (including
underwriting discounts and commissions) paid by the
Company in connection therewith, were $15,297,000.
Of such net proceeds, an aggregate of $15,297,000 has been
spent through March 31, 1999 for the following uses and in the
following amounts per use: $7,012,000 for the clinical
development of CAMPATH-Registered Trademark- through the
Company's joint venture with ILEX; $8,285,000 for working
capital. All amounts spent by the Company for such uses, other
than payment of salaries to directors and officers of the
Company, consisted of direct payments to persons or entities,
none of which was a director or officer of the Company, holder
of 10 percent or more of any class of equity securities of the
Company or other affiliate of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Forms 8-K.
The Company filed a Report on Form 8-K on
January 5, 1999 relating to the CytoMed
acquisition.
The Company filed a Report on Form 8-K on
February 26, 1999 relating to the CytoMed
acquisition.
.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
LeukoSite, Inc.
(Registrant)
Dated: May 12, 1999
/s/ Augustine Lawlor
--------------------
Augustine Lawlor
Vice President, Corporate Development
and Chief Financial Officer
(principal finance and accounting officer)
15
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