<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For Quarter Ended September 30, 1998
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Commission File Number 0-23252
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IGEN International, Inc.
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(Exact name of registrant as specified in its charter)
DELAWARE 94-2852543
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
16020 INDUSTRIAL DRIVE, GAITHERSBURG, MD 20877
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(Address of principal executive offices) (Zip Code)
301-984-8000
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(Registrant's telephone number, including area code)
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 Act of 1934 during the
preceding 12 months, (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 2, 1998
----- -------------------------------
Common Stock, $0.001 par value 15,320,200
<PAGE>
IGEN International, Inc.
Form 10-Q
For the Quarter Ended September 30, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1: FINANCIAL STATEMENTS
Balance Sheets - September 30, 1998 and March 31, 1998 3
Statements of Operations - For the three and six months ended
September 30, 1998 and 1997 4
Statements of Cash Flows - For the six months ended
September 30, 1998 and 1997 5
Notes to Financial Statements 6
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
PART II OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS 15
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
Item 6: EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
</TABLE>
2
<PAGE>
IGEN International, Inc.
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
------------ --------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 882 $ 1,502
Short term investments 13,043 21,620
Accounts receivable, net 2,754 1,552
Inventory 1,439 1,435
Other current assets 930 864
------------ --------
Total current assets 19,048 26,973
------------ --------
EQUIPMENT, FURNITURE, AND IMPROVEMENTS 8,139 7,124
Accumulated depreciation and amortization (4,697) (4,111)
------------ --------
Equipment, furniture, and improvements, net 3,442 3,013
------------ --------
OTHER ASSETS 391 405
------------ --------
TOTAL $ 22,881 $ 30,391
------------ --------
------------ --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 4,836 $ 5,152
Deferred revenue 2,806 4,139
Obligations under capital leases 54 92
------------ --------
Total current liabilities 7,696 9,383
------------ --------
NONCURRENT LIABLITIES:
Obligations under capital leases 313 146
Convertible preferred stock dividend payable 1,513 --
------------ --------
1,826 146
------------ --------
COMMITMENTS AND CONTINGENCIES (See Note 3) -- --
------------ --------
STOCKHOLDERS' EQUITY:
Convertible Preferred Stock, $0.001
par value, 10,000,000
shares authorized, issuable in
Series: Series A, 600,000
shares designated, none issued;
Series B, 25,000 shares
issued and outstanding -
liquidation value of $25,000,000
plus accrued and unpaid dividends 1 1
Common stock: $.001 par value,
50,000,000 shares
authorized: 15,317,135 and
15,261,240 shares issued and
outstanding 15 15
Additional paid-in capital 88,193 89,376
Accumulated deficit (74,850) (68,530)
------------ --------
Total stockholders' equity 13,359 20,862
------------ --------
------------ --------
TOTAL $ 22,881 $ 30,391
------------ --------
------------ --------
</TABLE>
See notes to financial statements.
3
<PAGE>
IGEN International, Inc.
Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
1998 1997 1998 1997
-------- --------- --------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Royalty income $ 1,912 $ 1,127 $ 4,138 $ 1,591
Product sales 1,091 1,005 2,347 2,769
License fees and contract revenue 100 2,150 305 2,545
-------- --------- --------- ----------
Total 3,103 4,282 6,790 6,905
-------- --------- --------- ----------
OPERATING COSTS AND EXPENSES:
Product costs 317 301 618 944
Research and development 3,413 2,703 6,436 5,604
Marketing, general and administrative 3,050 3,530 6,468 6,241
-------- --------- --------- ----------
Total 6,780 6,534 13,522 12,789
-------- --------- --------- ----------
LOSS FROM OPERATIONS (3,677) (2,252) (6,732) (5,884)
INTEREST INCOME (EXPENSE) - net 262 (34) 412 (73)
-------- --------- --------- ----------
NET LOSS $(3,415) $ (2,286) $(6,320) $ (5,957)
-------- --------- --------- ----------
-------- --------- --------- ----------
BASIC AND DILUTED LOSS PER SHARE
(Note 2) $ (0.25) $ (0.15) $ (0.48) $ (0.40)
-------- --------- --------- ----------
-------- --------- --------- ----------
SHARES USED IN COMPUTING LOSS
PER SHARE 15,315 15,107 15,296 15,053
-------- --------- --------- ----------
-------- --------- --------- ----------
</TABLE>
See notes to financial statements.
4
<PAGE>
IGEN International, Inc.
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six months ended
September 30,
----------------------
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,320) $ (5,957)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 586 505
Deferred revenue (1,333) 1,220
Add (deduct) items not affecting cash:
(Increase) decrease in accounts receivable (1,202) 805
(Increase) decrease in inventory (4) 364
(Increase) decrease in other current assets (66) 47
Decrease in other non-current assets 14 20
Increase (decrease) accounts payable and accrued expenses (316) 792
--------- ----------
Net cash used in operating expenses (8,641) (2,204)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for equipment, furniture and improvements (815) (206)
Purchases of short-term investments (12,215) --
Sale of short-term investments 20,792 1,670
--------- ----------
Net cash provided by investing activities 7,762 1,464
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes receivable from sale of common stock, net -- 23
Issuance of common stock - net 330 515
Payments under capital lease obligations (71) (95)
--------- ----------
Net cash provided by financing activities 259 443
--------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (620) (297)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,502 790
--------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 882 $ 493
--------- ----------
--------- ----------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the six months ended September 30, 1998, the Company incurred capital
lease obligations and accrued but unpaid preferred stock dividends of
approximately $200,000 and $972,000, respectively. There were no such
comparable items for the period ended September 30, 1997.
See notes to financial statements.
5
<PAGE>
IGEN International, Inc.
Form 10-Q
For the Quarter Ended September 30, 1998
NOTES TO FINANCIAL STATEMENTS (unaudited)
1. Basis of Presentation and Accounting Policies
The financial statements of IGEN International, Inc. (the "Company") reflect, in
the opinion of management, all adjustments, consisting only of normal and
recurring adjustments, necessary to present fairly the Company's financial
position at September 30, 1998 and the Company's results of operations for the
three and six month periods ended September 30, 1998 and 1997 and cash flows for
the six month periods ended September 30, 1998 and 1997. Interim period results
are unaudited and are not necessarily indicative of results of operations or
cash flows for a full year period. The balance sheet at March 31, 1998 was
derived from audited financial statements at such date.
Pursuant to accounting requirements of the Securities and Exchange Commission
applicable to quarterly reports on Form 10-Q, the accompanying financial
statements and these notes do not include all disclosures required by generally
accepted accounting principles for complete financial statements. Accordingly,
these statements should be read in conjunction with the Company's most recent
annual financial statements included in the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1998.
2. Summary of Significant Accounting Policies
Cash Equivalents and Short-Term Investments - Cash equivalents include cash in
banks, money market funds, securities of the U.S. Treasury and certificates of
deposit with original maturities of three months or less.
Concentration of Credit Risks - The Company has invested its excess cash
generally in securities of the U.S. Treasury, money market funds, certificates
of deposit and corporate bonds. The Company invests its excess cash in
accordance with a policy objective that seeks to ensure both liquidity and
safety of principal. The policy limits investments to certain types of
instruments issued by institutions with strong investments grade credit ratings
and places restrictions on their terms and concentrations by type and issuer.
Inventory - Inventory is recorded at the lower of cost or market using the
first-in, first-out method and consists of the following (in thousands):
<TABLE>
<CAPTION>
September 30, 1998 March 31, 1998
------------------ --------------
<S> <C> <C>
Finished goods $ 887 $ 824
Work in process 179 117
Raw materials 373 494
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Total $1,439 $1,435
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-------- ---------
</TABLE>
6
<PAGE>
IGEN International, Inc.
Form 10-Q
For the Quarter Ended September 30, 1998
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
2. Summary of Significant Accounting Policies (continued)
Equipment, Furniture, and Improvements are carried at cost. Depreciation is
computed over the estimated useful lives of the assets, generally five years,
using accelerated methods.
Revenue Recognition - Product sales revenue is recorded as products are shipped.
Nonrefundable license fees, option fees, and milestone payments in connection
with research and development contracts or commercialization agreements with
corporate partners are recognized when they are earned in accordance with the
applicable performance requirements and contractual terms. Amounts received in
advance of performance under contracts or commercialization agreements are
recorded as deferred revenue until earned. Royalty income is recorded in
conjunction with licensees' reports furnished to the Company.
Loss Per Share - Effective December 31, 1997, the Company adopted Statement of
Financial Accounting Standard No. 128 "Earnings per Share" ("SFAS 128"). There
was no change in loss per share reported in periods prior to the adoption of
SFAS 128. Loss per share computations at September 30, 1998 and 1997 follow:
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
1998 1997 1998 1997
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average number of common shares
outstanding 15,315 15,107 15,296 15,053
-------- --------- --------- ---------
Net loss $ (3,415) $ (2,286) $ (6,320) $(5,957)
Plus accrued Series B convertible preferred
stock dividend (478) -- (972) --
-------- --------- ---------- --------
Loss attributable to common shareholders $(3,893) $ (2,286) $ (7,292) $(5,957)
-------- --------- ---------- --------
-------- --------- ---------- --------
Loss per share - basic and diluted $ (0.25) $ (0.15) $ (0.48) $ (0.40)
-------- --------- ---------- --------
-------- --------- ---------- --------
</TABLE>
Under SFAS 128, accrued Series B preferred stock dividends increase the net loss
for the purpose of computing loss per share. Generally, dividends are payable
upon conversion, maturity or redemption and the Company may periodically elect
to pay dividends in stock rather than cash. Accrued dividends through September
30, 1998 have been recorded as a long-term liability in the accompanying
financial statements.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, and SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information, both of which are effective for the
Company's fiscal year 1999. SFAS No. 130 requires businesses to disclose
7
<PAGE>
IGEN International, Inc.
Form 10-Q
For the Quarter Ended September 30, 1998
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
comprehensive income (loss) and its components in the financial statements.
During the three and six months ended September 30, 1998 and 1997, the Company's
comprehensive income (loss) approximated its net income (loss) for the period.
SFAS No. 131 redefines how operating segments are determined and requires
disclosure of certain financial and descriptive information about the Company's
operating segments. The Company is continuing to review what operating segments
that it may report on upon adoption of SFAS No. 131.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 is
effective for years beginning after June 15, 1999 and requires the recognition
of all derivatives at fair value as either assets or liabilities in the
statement of financial position. The Company does not believe that adoption of
SFAS No. 133 will have a material impact on its financial position or results of
operations.
3. LITIGATION
BOEHRINGER MANNHEIM
On September 15, 1997, the Company filed a lawsuit in Maryland against
Boehringer Mannheim GmbH, now a subsidiary of Hoffman-LaRoche Ltd. (referred to
herein as Roche-BMG), to which the Company has licensed certain rights to
develop and commercialize diagnostic products based on the Company's ORIGEN
technology. That lawsuit is pending in the Southern Division of the United
States District Court for the District of Maryland. The Company's dispute with
Roche-BMG arises out of a 1992 License and Technology Development Agreement (the
"Agreement"), pursuant to which Roche-BMG developed and launched its "Elecsys"
line of diagnostic products, which is based on ORIGEN technology. The Company
alleges that Roche-BMG has failed to perform certain material obligations under
the Agreement, including development and commercialization of ORIGEN technology
according to the contractual timetable; exploitation of the license to the
extent contemplated by the parties; phase out of certain non-royalty-bearing
product lines; exploitation of ORIGEN technology only within Roche-BMG's
licensed fields; proper treatment of intellectual property rights regarding
ORIGEN technology; maintenance of records essential to the computation of
royalties; and proper computation of royalties. In its lawsuit, the Company
seeks damages as well as injunctive and declaratory relief, including a judicial
determination of its entitlement to terminate the Agreement. The Company has
agreed not to terminate the Agreement unless and until the Court determines its
entitlement to do so. This litigation against Roche-BMG may have a material
adverse effect upon the Company regardless of whether the outcome is favorable
or not.
8
<PAGE>
IGEN International, Inc.
Form 10-Q
For the Quarter Ended September 30, 1998
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
On July 27, 1998, the Maryland court enjoined Roche-BMG from marketing its
Elecsys products in physician's office laboratories, to escrow all revenues from
past sales outside of its licensed field pending the outcome of the litigation,
and to transfer all of its current Elecsys customers that are outside of its
license to IGEN for ongoing supply needs.
HITACHI
In December 1997, IGEN International K.K., a Japanese subsidiary of the Company,
field a lawsuit in Tokyo District Court against Hitachi Ltd. ("Hitachi"). This
lawsuit seeks to enjoin Hitachi from manufacturing, using or selling the Elecsys
2010 immunoassay instrument in Japan. The lawsuit also seeks to enjoin Hitachi
from infringing the subsidiary's license registration, known in Japan as a
"senyo-jisshi-ken," in connection with the development of the Mosys instrument.
Hitachi is the sole manufacturer for Roche-BMG of the Elecsys 2010 immunoassay
instrument. Roche-BMG sells the Elecsys 2010 worldwide to central hospital
laboratories and clinical reference laboratories. The Company's Japanese
subsidiary alleges that both the Elecsys 2010 and the Mosys are based on ORIGEN
technology. The Company's ORIGEN technology is licensed to its Japanese
subsidiary and to Eisai K.K. pursuant to a "senyo-jisshi-ken." The Company's
Japanese subsidiary further alleges that Hitachi's manufacture and sale of the
Elecsys 2010 and development of the Mosys violate the "senyo-jisshi-ken."
Hitachi alleges that its manufacture and sale of clinical diagnostic instruments
in Japan are under a license from Roche-BMG and that Roche-BMG has an exclusive,
worldwide license from the Company. Hitachi further alleges that it is not
developing the Mosys. The lawsuit requests injunctive relief against Hitachi
and destruction of the Elecsys 2010 and Mosys instruments in Hitachi's
possession.
9
<PAGE>
IGEN International, Inc.
Form 10-Q
For the Quarter Ended September 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results Of Operations
Overview
The Company devotes substantially all of its resources to the research and
development of its proprietary technologies, primarily the ORIGEN-Registered
Trademark- technology, for clinical diagnostic and life science research
products. Historically, the Company's sources of revenue have consisted
primarily of license or research payments pursuant to licensing or collaborative
research agreements. The Company has entered into arrangements with corporate
collaborators that provide for the development and marketing of certain
ORIGEN-based systems. These agreements provide fees and royalties payable to
the Company in exchange for licenses to produce and sell products. Beginning in
the fourth quarter of fiscal 1997, the Company's revenues from license fees and
contract research were substantially replaced by royalties based on corporate
licensees' product sales. In the near term, the Company may selectively pursue
additional strategic alliances, although over time, it expects an increasing
amount of its revenues to be derived from sales of its products and royalties
from corporate collaborations.
In addition to historical information, this document contains forward-looking
statements within the meaning of the "safe-harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Reference is made in particular to
statements regarding the Company's expectations with respect to the level of
anticipated royalty and revenue growth in the future, the outcome of litigation,
the Company's plans and objectives for future operations, assumptions underlying
such plans and objectives, the Company's plans with regard to the Year 2000
issues and other forward-looking statements. In addition, forward-looking
statements generally can be identified by the use of forward-looking terminology
such as "may", "will", "expect", "intend", "estimate", "anticipate", "believe"
or "continue" or the negative thereof or variations thereon or similar
terminology. Such statements are based on management's current expectations and
are subject to a number of factors, risks and uncertainties which could cause
actual results to differ materially from those described in the forward-looking
statements. In particular, careful consideration should be given to the
cautionary statements in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and to the risks and uncertainties detailed
in the Company's Annual Report on Form 10-K for the year ended March 31, 1998
previously filed with the Securities and Exchange Commission. The Company
disclaims any intent or obligation to update these forward-looking statements.
Results of Operations
The Quarter and Six Months in Review
The Company reported a net loss of $3.4 million ($0.25) per share on revenue of
$3.1 million for its second quarter ended September 30, 1998. This compares
with a net loss of $2.3 million ($0.15 per share) on revenue of $4.3 million
during the same period last year. For the six months ended September 30, 1998,
the Company reported a net loss of $6.3 million ($0.48 per share) on revenue of
$6.8 million as compared to a net loss of $6 million ($0.40 per share) on
revenue of $6.9 million for the same prior year period.
10
<PAGE>
IGEN International, Inc.
Form 10-Q
For the Quarter Ended September 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results Of Operations (continued)
During the prior year's quarter ended September 30, 1997, the Company
recorded as revenue, a $2 million non-recurring license fee from Eisai Co.,
Ltd., a Japanese licensee. During the current quarter and first six months
of fiscal 1999, revenue excluding this non-recurring license fee increased by
approximately 36% and 38%, respectively, over the corresponding prior year
periods. This increase is attributable to higher royalties on sales of
product by corporate collaborators, particularly Roche Diagnostics (referred
to herein as Roche-BMG).
In 1992, the Company entered into a License and Technology Development Agreement
with Roche-BMG. Pursuant to the Agreement, Roche-BMG launched its Elecsys
product line in 1996, which is based on the Company's ORIGEN technology. The
Company is involved in litigation with Roche-BMG arising out of this Agreement.
One of the disputes at issue in the litigation relates to the computation of
royalties to which the Company is entitled under the Agreement. The Company has
recorded cumulative royalty income from this Agreement of $8.9 million, of which
$1.8 million and $3.7 million, respectively, was recognized during the quarter
and six months ended September 30, 1998.
Product costs in the first six months of fiscal 1999 decreased to 26% from
34% in the corresponding prior year period. This decrease is attributable to
discontinued sales to Organon Teknika whose license arrangement with the
Company provided for product sales at a transfer price equal to the Company's
fully burdened manufacturing cost, with no gross margin on such sales.
Research and development expenses increased to $3.4 million for the three
months ended September 30, 1998 from $2.7 million while increasing to $6.4
million from $5.6 million for the six months ended September 30, 1998, when
compared with the same prior year period. These increases can be attributed
to higher development costs from increased staffing. Sales, marketing and
administrative expenses decreased to $3.1 million in the current quarter from
$3.5 million in the comparable prior year quarter. This decrease is
attributable to lower expenses related to consultants and professional fees.
Professional fees for the current quarter were approximately $200,000 lower
due primarily to the Company's initiation of litigation against Roche-BMG in
the prior year comparable quarter. While legal costs for the quarter ended
September 30, 1998 were lower than certain prior quarters, such fees are
likely to increase in future periods.
Interest income increased to $262,000 and $412,000 for the quarter and six
months ended September 30, 1998 compared to net interest expense of $34,000 and
$73,000, respectively, in the corresponding prior year periods. This change was
due to an increase in interest income from a higher balance of short term
investments coupled with a decrease in interest expense on the interest bearing
royalty advance from Roche-BMG which was extinguished during the current
quarter.
Results of operations over the next several years is likely to fluctuate
substantially from quarter to quarter as a result of differences in the timing
of revenues earned under license and product development agreements, and
associated product development expenses.
11
<PAGE>
IGEN International, Inc.
Form 10-Q
For the Quarter Ended September 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results Of Operations (continued)
Year 2000 Issue
The Company is addressing the concern of certain computer programs and
hardware being unable to distinguish between the year 1900 and the year 2000
(commonly referred to as the "Y2K" issue). The Company is continuing to
review its business and its systems needs including analysis of Y2K issues.
The Company's overall goal is to be Y2K compliant meaning that its critical
systems, devices, products, embedded technologies, applications and business
relationships have been, and will continue to be, evaluated and are expected
to be suitable for continued use into the year 2000, with contingency plans
in place. The Company is installing certain new information systems primarily
motivated by business needs to expand, automate and more fully integrate
financial systems with manufacturing and distribution systems, rather than to
specifically address Y2K issues. The Company does not believe that its plan
will be modified significantly, in either cost or timing in order to address
Y2K issues. The installation of new hardware and software is expected to be
Y2K compliant and functional during mid-1999 without causing any material
disruptions, malfunctions or failures to its business.
Contingency plans will be prepared so that the Company's critical business
processes can be expected to continue to function on January 1, 2000 and
beyond, including systems and their components. The Company anticipates
maintaining functionality of the current system as the core to its
contingency plan. The current system can be upgraded to be certified as Y2K
compliant at nominal cost with readily available software that requires no
modification.
The Company will continue to evaluate the additional needs for its
contingency plan as it moves forward, including the possibility of
significant suppliers or collaborators not being Y2K compliant in a timely
manner. The Company is currently in the process of assessing whether its
suppliers and collaborators have any Y2K issues. There can be no assurance
that the Company's suppliers and collaborators are, or will be, Y2K compliant
or that a failure of such timely Y2K compliance would not have a material
adverse effect on the Company. The total cost to the Company of these Y2K
compliance activities has not been, and is not anticipated to be, material to
its financial position or results of operations in any given year.
Due to the general uncertainty inherent in the Y2K concern, resulting
primarily from the uncertainty of the Y2K readiness of third-party suppliers
and customers, the Company is unable to determine at this time whether the
consequences of Y2K failures will have a material impact on the Company's
results of operations, liquidity or financial condition. The Company believes
that, with the implementation of new business systems as scheduled, the
possibility of significant interruptions of normal operations should be
reduced.
Liquidity and Capital Resources
The Company has financed its operations through placements of preferred and
common stock, aggregating approximately $85 million through September 30, 1998.
In addition, the Company has received funds from collaborative research and
licensing agreements, royalty payments and sales of its ORIGEN line of products.
As of September 30, 1998, the Company had $13.9 million in cash, cash
equivalents and short term investments. Working capital was $11.4 million at
September 30, 1998.
Net cash used in operating activities was $8.6 million for the six months ended
September 30, 1998, as compared to $2.2 million for the corresponding prior year
period. This increase in net cash used was due primarily to recognition in the
current year of previously deferred revenue. In addition, the Company has
recorded royalty income of $3.7 million and a receivable of approximately $1.8
million from Roche-BMG at September 30, 1998.
The Company used approximately $800,000 and $200,000 of net cash for investing
activities related to the acquisition of computer system components, laboratory
equipment, furniture and leasehold improvements during the six months ended
September 30, 1998 and 1997, respectively. During the current fiscal year, the
Company financed approximately $200,000 of additional capital expenditures
through long-term third-party financing. The Company believes material
commitments for capital expenditures may be required in a variety of areas, such
as product development programs. The Company has not, at this time, made
commitments for any such capital expenditures or secured additional sources to
fund such commitments.
12
<PAGE>
IGEN International, Inc.
Form 10-Q
For the Quarter Ended September 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results Of Operations (continued)
The Company has no reason to believe that the existence of the Roche-BMG
litigation is having a material adverse affect on Roche-BMG's sales pursuant to
the Agreement or that a negative result for the Company in the Roche-BMG
litigation would have a material adverse affect on Roche-BMG's sales, although
there can be no assurance that the litigation or its outcome would not have such
an effect. On July 27, 1998, the Maryland court enjoined Roche-BMG from
marketing its Elecsys products in physician's office laboratories, to escrow all
revenues from past sales outside of its licensed field pending the outcome of
the litigation, and to transfer all of its current Elecsys customers that are
outside of its license to IGEN for ongoing supply needs. As it now stands,
Roche-BMG has the right to continue to market its Elecsys products to central
hospital laboratories and clinical reference laboratories during the terms of
the Agreement unless and until the Company is determined to have the right to
terminate the Agreement and then determines to terminate the Agreement. If the
Company elects to terminate the Agreement, it would have a material adverse
effect on the Company's royalty revenue from license sales unless and until the
Company entered into a strategic partnership with another company that is able
to develop and commercialize diagnostic instruments for central hospital
laboratories and clinical reference laboratories. There can be no assurance, if
the Company decided to terminate the Agreement, that the Company would be able
to enter into such a strategic partnership on terms favorable to the Company.
The Company does not expect that failure to prevail in the Hitachi litigation by
itself would have a material adverse effect on the Company's revenue or sales,
since Hitachi would continue to manufacture Roche-BMG instruments and the
Company would continue to earn royalties in connection therewith. There can be
no assurance that the Hitachi litigation will not have a material adverse effect
on the Company's intellectual property, regardless of whether the outcome of the
litigation is favorable or not. Success by the Company in the Hitachi
litigation could have a material adverse effect on the Company's royalty
revenues from sales of Elecsys products to the extent that Roche-BMG's sales of
Elecsys (or Mosys) instruments are hindered because it needs to find a new
manufacturer for its instruments.
The Company has incurred and expects to incur substantial additional research
and development expenses, manufacturing costs and marketing and distribution
expenses and costs related to the Roche-BMG litigation in the future. It is the
Company's intention to selectively seek additional collaborative or license
agreement with suitable corporate collaborators, although there can be no
assurance the Company will be able to enter into such agreements or that amounts
received under such agreements will reduce substantially the Company's funding
requirements. Additional equity or debt financing may be obtained, but there
can be no assurance that these funds will be available on favorable terms, if at
all.
13
<PAGE>
IGEN International, Inc.
Form 10-Q
For the Quarter Ended September 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results Of Operations (continued)
The Company's future capital requirements depend on many factors, including
continued scientific progress in its diagnostics programs, the magnitude of
these programs, the time and costs involved in obtaining regulatory approvals,
the costs involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, changes in its existing license and other
agreements, the ability of the Company to establish development arrangements,
the cost of manufacturing scale-up and effective commercialization activities
and arrangements.
14
<PAGE>
IGEN International, Inc.
Form 10-Q
For the Quarter Ended September 30, 1998
PART II OTHER INFORMATION
Item 1: Legal Proceedings
The information required under this item is incorporated herein by
reference to Part I, Item 1 - Notes to Financial Statements.
Item 4: Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Shareholders of IGEN International, Inc.
was held on September 23, 1998.
(b) Richard J. Massey was elected to the Board of Directors
at the Annual Meeting. The directors of the Company
whose term of office as directors continued after the
meeting are Samuel J. Wohlstadter, Edward B. Lurier,
William O'Neill and Robert Salsmans.
(c) The matters voted upon at the meeting and the voting of
shareholders with respect thereto are as follows:
The election of Richard J. Massey to the Board of Directors to
hold office for a three-year term and until his successor is
elected and has qualified, or until such director's earlier
death, resignation or removal. The voting results, with
approximately 14.5 million (95%) of the shares voting, was as
follows:
For: 14,334,506
Withheld: 165,585
Abstain: 0
The voting results to approve an increase in the number of IGEN
International, Inc.'s common stock reserved for the IGEN
International, Inc. 1994 Stock Option Plan by 750,000 shares was
as follows:
For: 13,768,106
Against: 691,602
Abstain: 40,383
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
11.1 Statements regarding computation of per share earnings for the
three and six months ended September 30, 1998 and 1997.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
15
<PAGE>
IGEN International, Inc.
Form 10-Q
For the Quarter Ended September 30, 1998
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.
IGEN International, Inc.
Date: November 13, 1998 /S/GEORGE V. MIGAUSKY
------------------- ------------------------------------------
George V. Migausky
Vice President of Finance and Chief Financial
Officer (On behalf of the Registrant and as
Principal Financial Officer)
16
<PAGE>
IGEN International, Inc.
Form 10-Q
For the Quarter Ended September 30, 1998
EXHIBIT INDEX
Exhibit Number Description Page
- --------------- --------------------- ----
11.1 Computation of per share data 13
17
<PAGE>
IGEN International, Inc.
Form 10-Q
For the Quarter Ended September 30, 1998
EXHIBIT 11.1
Statement Re: Computation of Net Income Per Share
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted average number of common shares outstanding 15,315 15,107 15,296 15,053
-------- -------- -------- --------
Net loss $ (3,415) $(2,286) $(6,320) $(5,957)
Plus accrued Series B convertible preferred stock
dividend (478) -- (972) --
-------- -------- -------- --------
Loss attributable to common shareholders $ (3,893) $(2,286) $(7,292) $(5,957)
-------- -------- -------- --------
-------- -------- -------- --------
Loss per share - basic and diluted $ (0.25) $ (0.15) $ (0.48) $ (0.40)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
18
<PAGE>
IGEN International, Inc.
Form 10-Q
For the Quarter Ended September 30, 1998
EXHIBIT 11.1
Statement Re: Computation of Net Income Per Share
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted average number of common shares outstanding 15,315 15,107 15,296 15,053
-------- -------- -------- --------
Net loss $ (3,415) $(2,286) $(6,320) $(5,957)
Plus accrued Series B convertible preferred stock
dividend (478) -- (972) --
-------- -------- -------- --------
Loss attributable to common shareholders $ (3,893) $(2,286) $(7,292) $(5,957)
-------- -------- -------- --------
-------- -------- -------- --------
Loss per share - basic and diluted $ (0.25) $ (0.15) $ (0.48) $ (0.40)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 882
<SECURITIES> 13,043
<RECEIVABLES> 2,786
<ALLOWANCES> 32
<INVENTORY> 1,439
<CURRENT-ASSETS> 19,048
<PP&E> 8,139
<DEPRECIATION> 4,697
<TOTAL-ASSETS> 22,881
<CURRENT-LIABILITIES> 7,696
<BONDS> 0
0
1
<COMMON> 15
<OTHER-SE> 13,343
<TOTAL-LIABILITY-AND-EQUITY> 22,881
<SALES> 2,347
<TOTAL-REVENUES> 6,790
<CGS> 618
<TOTAL-COSTS> 13,522
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (412)<F1>
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,320)
<EPS-PRIMARY> (0.477)<F2>
<EPS-DILUTED> (0.477)<F2>
<FN>
<F1>Represents interest income, net of interest expense.
<F2>Includes $972 of convertible preferred stock dividends payable.
</FN>
</TABLE>
