<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NO. 0-21905
COULTER PHARMACEUTICAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 94-3219075
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
600 GATEWAY BOULEVARD
SOUTH SAN FRANCISCO, CALIFORNIA 94080
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 650-553-2000
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 [ ]
Number of shares outstanding of the issuer's Common Stock, par value $.001
per share, as of October 31, 1999: 16,853,667.
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<PAGE> 2
COULTER PHARMACEUTICAL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements and Notes................. 3
Consolidated Balance Sheets -- September 30, 1999 and
December 31, 1998........................................... 3
Consolidated Statements of Operations -- for the three
months and nine months ended September 30, 1999 and 1998 and
for the period from inception (February 16, 1995) to
September 30, 1999.......................................... 4
Consolidated Statements of Cash Flows -- for the nine months
ended September 30, 1999 and 1998 and for the period from
inception (February 16, 1995) to September 30, 1999......... 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Item 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 13
Signatures........................................................... 14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED) (NOTE 1)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................... $ 27,150 $ 89,808
Short-term investments.................................... 65,884 49,970
Prepaid expenses and other current assets................. 7,850 3,063
-------- --------
Total current assets.............................. 100,884 142,841
Property and equipment, net................................. 19,084 9,449
Employee loans receivable................................... 1,156 907
Other assets................................................ 210 233
-------- --------
$121,334 $153,430
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,041 $ 4,068
Accrued liabilities....................................... 5,605 6,353
Current portion of equipment financing obligations and
debt facility.......................................... 2,363 1,157
-------- --------
Total current liabilities......................... 11,009 11,578
Non-current portion of equipment financing obligations and
debt facility............................................. 9,714 6,659
Commitments
Stockholders' equity:
Preferred stock, issuable in series, $.001 par value:
20,000,000 shares authorized; none outstanding at
September 30, 1999 and December 31, 1998.............. -- --
Common stock, $.001 par value: 30,000,000 shares
authorized; 16,853,667 shares and 16,704,103 shares
issued and outstanding at September 30, 1999 and
December 31, 1998, respectively....................... 17 17
Additional paid-in capital............................. 183,758 182,390
Accumulated other comprehensive loss................... (151) (32)
Deferred compensation.................................. (258) (565)
Deficit accumulated during the development stage....... (82,755) (46,617)
-------- --------
Total stockholders' equity........................ 100,611 135,193
-------- --------
$121,334 $153,430
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED FOR THE PERIOD
SEPTEMBER 30, SEPTEMBER 30, FROM INCEPTION
------------------- -------------------- (FEBRUARY 16, 1995)
1999 1998 1999 1998 TO SEPTEMBER 30, 1999
-------- ------- -------- -------- ---------------------
<S> <C> <C> <C> <C> <C>
Corporate partner revenues..... $ -- $ -- $ -- $ -- $ 34,250
Operating expenses:
Research and development..... 7,301 7,347 26,617 22,581 92,580
Selling, general and
administrative............ 4,096 2,643 11,474 7,721 33,832
-------- ------- -------- -------- --------
Total operating expenses..... 11,397 9,990 38,091 30,302 126,412
Interest income and other,
net.......................... 60 1,168 1,953 2,867 9,407
-------- ------- -------- -------- --------
Net loss....................... $(11,337) $(8,822) $(36,138) $(27,435) $(82,755)
======== ======= ======== ======== ========
Basic and diluted net loss
per share................. $ (0.68) $ (0.58) $ (2.17) $ (1.96)
======== ======= ======== ========
Shares used in computing basic
and diluted net loss per
share........................ 16,749 15,123 16,663 13,982
======== ======= ======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
NINE MONTHS ENDED FROM INCEPTION
SEPTEMBER 30, (FEBRUARY 16,
--------------------- 1995) TO
1999 1998 SEPTEMBER 30, 1999
--------- -------- ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................ $ (36,138) $(27,435) $ (82,755)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................. 1,610 454 2,633
Amortization of deferred compensation.......... 314 390 2,405
Loss on sale of equipment...................... 38 -- 38
Changes in operating assets and liabilities:
Prepaid expenses and other current assets...... (4,787) (195) (7,850)
Employee loans receivable...................... (249) (71) (1,156)
Other assets................................... 23 (122) (210)
Accounts payable............................... (1,027) 1,895 3,041
Accrued liabilities............................ (748) (1) 5,605
--------- -------- ---------
Net cash used in operating activities..... (40,964) (25,085) (78,249)
--------- -------- ---------
Cash flows from investing activities:
Purchases of short-term investments............... (109,958) (68,231) (264,698)
Maturities of short-term investments.............. 84,551 59,180 181,942
Sales of short-term investments................... 9,374 5,073 16,717
Purchases of property and equipment............... (11,288) (4,828) (21,757)
Proceeds from sale of equipment................... 5 -- 5
--------- -------- ---------
Net cash used in investing activities..... (27,316) (8,806) (87,791)
--------- -------- ---------
Cash flows from financing activities:
Payments of equipment financing obligations and
debt facility.................................. (739) (564) (2,042)
Borrowings under equipment financing obligations
and debt facility.............................. 5,000 420 14,120
Proceeds from issuance of convertible preferred
stock, net..................................... -- -- 28,355
Proceeds from issuance of common stock, net....... 1,361 62,916 152,757
--------- -------- ---------
Net cash provided by financing
activities.............................. 5,622 62,772 193,190
--------- -------- ---------
Net increase (decrease) in cash and cash
equivalents....................................... (62,658) 28,881 27,150
Cash and cash equivalents at beginning of period.... 89,808 20,451 --
--------- -------- ---------
Cash and cash equivalents at end of period.......... $ 27,150 $ 49,332 $ 27,150
========= ======== =========
Supplemental Schedule of Cash Flow Information:
Interest Paid..................................... $ 538 $ 242 $ 1,206
Schedule of non-cash investing and financing
activities:
Net exercise of warrants to purchase common
stock.......................................... $ -- $ -- $ 965
Acquisition of equipment pursuant to supplemental
lease obligation............................... $ -- $ -- $ 78
Deferred compensation related to grant of certain
stock options.................................. $ 7 $ 156 $ 2,663
</TABLE>
See accompanying notes.
5
<PAGE> 6
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The information at September 30, 1999, for the three- and nine-month
periods ended September 30, 1999 and 1998 and for the period from inception
(February 16, 1995) to September 30, 1999 is unaudited but includes all
adjustments (consisting only of normal recurring adjustments) which, in the
opinion of management, are necessary to state fairly the financial information
set forth therein in accordance with generally accepted accounting principles.
The September 30, 1999 interim results are not necessarily indicative of results
to be expected for the full fiscal year. These financial statements should be
read in conjunction with the audited financial statements for the fiscal year
ended December 31, 1998 included in the Company's annual report to security
holders furnished to the Securities and Exchange Commission pursuant to Rule
14a-3(b) in connection with the Company's 1999 Annual Meeting of Stockholders.
The consolidated balance sheet at December 31, 1998 has been derived from
audited consolidated financial statements at that date but does not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements.
2. INVESTMENTS
Management determines the appropriate classification of debt securities at
the time of purchase and re-evaluates such designation as of each balance sheet
date. The Company's debt securities are classified as available-for-sale and are
carried at estimated fair value in cash equivalents and short-term investments.
Unrealized gains and losses are reported as accumulated other comprehensive
income/(loss), net in stockholders' equity. The amortized cost of debt
securities in this category is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in interest
income. Realized gains and losses on available-for-sale securities are included
in interest income and expense. The cost of securities sold is based on the
specific identification method. Interest and dividends on securities classified
as available-for-sale are included in interest income. The Company's cash
equivalents and short-term investments as of December 31, 1998 and September 30,
1999 are as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1998
Money market funds.......................... $ 1,719 $-- $ -- $ 1,719
Commercial paper............................ 100,897 -- (8) 100,889
Corporate bonds............................. 17,624 4 (29) 17,599
Certificate of deposits..................... 13,924 1 -- 13,925
--------- --- ---- ---------
Total............................. 134,164 5 (37) 134,132
Less amounts classified as cash
equivalents............................... (84,170) -- 8 (84,162)
--------- --- ---- ---------
Total short-term investments................ $ 49,994 $ 5 $(29) $ 49,970
========= === ==== =========
</TABLE>
6
<PAGE> 7
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
September 30, 1999
Money market funds............................ $ 7,464 $-- $ -- $ 7,464
Commercial paper.............................. 24,387 -- (4) 24,383
Corporate bonds............................... 23,578 -- (123) 23,455
Government bonds.............................. 17,918 -- (26) 17,892
Certificate of deposits....................... 19,591 -- -- 19,591
-------- --- ----- --------
Total............................... 92,938 -- (153) 92,785
Less amounts classified as cash equivalents... (26,903) -- 2 (26,901)
-------- --- ----- --------
Total short-term investments.................. $ 66,035 $-- $(151) $ 65,884
======== === ===== ========
</TABLE>
Realized gains or losses on the sale of available-for-sale securities were
not material for the three- and nine-month periods ended September 30, 1999 and
1998 and for the period from inception (February 16, 1995) to September 30,
1999.
At September 30, 1999 the contractual maturities of short term investments
were as follows (in thousands):
<TABLE>
<CAPTION>
ESTIMATED FAIR
AMORTIZED COST VALUE
-------------- --------------
<S> <C> <C>
Due in one year or less.................................. $18,462 $18,411
Due after one year....................................... 47,573 47,473
------- -------
$66,035 $65,884
======= =======
</TABLE>
3. NET LOSS PER SHARE
Basic earnings per share is computed by dividing income or loss applicable
to common stockholders by the weighted-average number of common shares
outstanding for the period net of certain common shares outstanding which are
subject to continued vesting and the Company's right of repurchase. Basic
earnings per share excludes any dilutive effects of options.
Diluted net loss per share has not been presented separately for any period
as, given the Company's net loss position, the result would be anti-dilutive.
Options to purchase approximately 3,444,000 shares of common stock at a
weighted average price of $18.08 per share have been excluded from the
calculation of net loss per share because the effect of inclusion would be
anti-dilutive.
4. COLLABORATIVE DEVELOPMENT AND COMMERCIALIZATION AGREEMENT
In December 1998, the Company and SmithKline Beecham Corporation ("SB")
entered into a collaborative agreement for the development and commercialization
of Bexxar(TM), which is in late-stage development for the treatment of
non-Hodgkin's lymphoma. Under the terms of the agreement, Coulter may receive
milestone payments, shared profits, if any, and royalties. The agreement also
provides for the sharing of certain costs related to clinical development,
manufacturing development, and sales and marketing costs. For the three- and
nine-month periods ended September 30, 1999, the Company has recorded
approximately $5.1 million and $6.8 million, respectively of shared manufacture
development costs from SB as reductions to
7
<PAGE> 8
COULTER PHARMACEUTICAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
research and development expense. The Company and SB will prepare a joint profit
and loss statement to account for the sharing of sales, cost of goods sold, and
costs related to selling, marketing, distribution and certain other
Bexxar-related activities. At September 30, 1999, the Company has a net
receivable from SB of approximately $7.1 million classified as other current
assets. In November 1999, the Company received payment from SB of approximately
$4.3 million.
The agreement provided for an upfront, non-refundable license fee of $34.25
million and the purchase of $7.25 million of the Company's common stock. The
license fee was recognized as corporate partner revenues in fiscal year 1998. In
addition, the agreement provides for a $15.0 million credit line. The Company
may receive additional payments based upon completion of certain milestones.
Future development expenses for Bexxar will generally be shared by both
companies, with the Company retaining responsibility for funding certain
predetermined development costs. In addition, the companies will jointly explore
the potential of other indications for the product. If approved, the Company and
SB will jointly market Bexxar in the United States and share profits and losses
equally. Outside the United States, excluding Japan, the Company has granted SB
exclusive marketing and distribution rights in return for product royalties. SB
also may have access to second generation anti-CD20 compounds.
5. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". For the nine
months ended September 30, 1999 and 1998 total comprehensive loss amounted to
$36.3 million and $27.4 million, respectively. For the three months ended
September 30, 1999 and 1998 total comprehensive loss amounted to $11.3 million
and $8.8 million, respectively.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. Actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed below and in the Annual Report on Form
10-K for the year ended December 31, 1998, filed on March 29, 1999.
OVERVIEW
Coulter Pharmaceutical is engaged in the development of novel drugs and
therapies for the treatment of cancer and autoimmune diseases. The Company
currently is developing therapeutics based upon two drug discovery programs:
therapeutic antibodies and targeted oncologics. Within these broad drug
discovery programs, the Company currently is concentrating on two distinct
platform technologies: therapeutic antibodies including conjugated antibody
technology and targeted oncologics based on tumor activated peptide pro-drug
technology.
The Company's most advanced product candidate, Bexxar(TM)(tositumomab,
iodine I 131 tositumomab) consists of a monoclonal antibody conjugated with a
radioisotope. In December 1998, the Company announced a joint collaboration
agreement with SmithKline Beecham ("SB") granting SB joint marketing rights in
the United States and exclusive commercial rights internationally, except Japan,
in return for a non-refundable license fee of $34.3 million, potential product
royalties, development milestone payments and other shared development payments.
Results of the joint marketing of Bexxar are accounted for on a joint profit and
loss statement. In June 1999, the Company announced that it had submitted a
Biologics License Application ("BLA") to the United States Food and Drug
Administration ("FDA") to seek initial approval of Bexxar for the treatment of
low-grade and transformed low-grade non-Hodgkin's lymphoma in patients who have
relapsed after, or are refractory to, chemotherapy. The Company announced in
July 1999 that Bexxar has been assigned priority review status by the FDA.
Priority review status indicates that the license application for Bexxar will be
reviewed and action taken by the agency within six months from the BLA filing
date provided that the BLA is subsequently accepted. In August 1999, the Company
announced that the FDA had requested modifications to the BLA. The Company is
currently working with the FDA to address its requests prior to re-submitting
the BLA. While seeking expedited review and marketing approval for Bexxar, the
Company and SB intend to simultaneously pursue clinical trials to expand the
potential use of Bexxar to other indications.
To date, the Company has devoted substantially all of its resources to
research and development programs, as well as selling, general and
administrative activities needed to support product development and potential
product sales. No revenues have been generated from product sales, and product
revenues resulting from the Company's research and development efforts, if any,
will not occur until commercial availability of such product. The Company has a
limited history of operations and has experienced significant operating losses
to date. The Company may continue to incur significant additional operating
losses in future periods and expects cumulative losses to increase substantially
if anticipated product sales do not offset the projected costs associated with
expanded research and development efforts, preclinical studies and clinical
trials and development of manufacturing, marketing and sales capabilities. The
Company expects that losses will fluctuate from quarter to quarter and that such
fluctuations may be substantial. There can be no assurance that the Company will
successfully develop, manufacture and commercialize its products or ever achieve
or sustain product revenues or profitability. As of September 30, 1999, the
Company's accumulated deficit was approximately $82.8 million.
RESULTS OF OPERATIONS
Operating Costs and Expenses
Research and development expenses, net of Bexxar shared manufacture
development cost from SB, were $7.3 million for the three-month period ended
September 30, 1999 and $26.6 million for the nine-month period ended September
30, 1999. Research and development expenses were $7.3 million and $22.6 million
for the same periods in 1998. The Company's research and development expenses
increased for the three- and
9
<PAGE> 10
nine-month periods ended September 30, 1999 primarily due to higher personnel
and facilities costs. These increases were totally offset for the three month
period and partially offset for the nine month period ended September 30, 1999
by obligations of SB for reimbursement to the Company of approximately $5.1
million and $6.8 million, respectively of certain costs related to manufacture
development of Bexxar. The Company expects its research and development expenses
to grow during the remainder of 1999, reflecting anticipated increased costs
related to additions to staffing, preclinical studies, clinical trials and
manufacturing.
Selling, general and administrative expenses were $4.1 million for the
quarter ended September 30, 1999, compared to $2.6 million for the same period
in 1998. For the nine months ended September 30, 1999, selling, general and
administrative expenses were $11.5 million compared to $7.7 million for the same
period in 1998. The increases in both 1999 periods were incurred to support the
Company's facilities and staffing expansion, sales and marketing efforts,
increased pre-commercialization activities, increased corporate development
activities and related legal and patent activities. The Company expects its
selling, general and administrative expenses to continue to increase during the
remainder of 1999 in continued support of these activities.
Interest Income and Other, Net
Interest income and other, net was $60,000 for the quarter ended September
30, 1999, compared to $1.2 million for the same period in 1998. For the nine
months ended September 30, 1999, interest income and other, net was $2.0 million
compared to $2.9 million for the same period in 1998. The decreases in both 1999
periods were due to the recognition of approximately $1.8 million of other
expenses representing the Company's share of the joint loss related to the
marketing of Bexxar with SB, partially offset by the higher average cash, cash
equivalents and short-term investment balances. Interest expense is not material
for any period presented.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception through September 30, 1999, the Company has financed
its operations primarily through private placements and public offerings of
equity securities totaling $180.8 million. Cash, cash equivalents and short-term
investments totaled $93.0 million at September 30, 1999.
The negative cash flow from operations results primarily from the Company's
net operating losses and is expected to continue and to accelerate in future
periods. The Company expects to incur substantial and increasing research and
development expenses, including expenses related to additions to personnel,
preclinical studies, clinical trials, and manufacturing. In addition, the
Company expects to incur increasing selling, general and administrative expenses
in support of its commercialization efforts. The Company may need to raise
substantial additional capital to fund its operations. The Company may seek such
additional funding through public or private equity or debt financings from time
to time, as market conditions permit. There can be no assurance that additional
financing will be available on acceptable terms, if at all. If adequate funds
are not available, the Company may be required to delay, reduce the scope of, or
eliminate one or more of its research and development programs or obtain funds
through arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies, product candidates
or products that the Company would otherwise seek to develop or commercialize.
Net cash used in operations was $41.0 million for the nine months ended
September 30, 1999, compared to $25.1 million for the same period in 1998. This
$15.9 million increase is primarily the result of the increased net loss for the
1999 period and an increase in other current assets which relates to receivables
from activities under the SB collaboration agreement partially offset by a
decrease in accounts payable. Net cash used in investing activities was $27.3
million for the nine months ended September 30, 1999 compared to $8.8 million
for the same period in 1998. This use of cash in the 1999 period primarily
resulted from an increased purchases of short-term investments, partially offset
by an increase in maturities. Property and equipment purchases of $11.3 million
for the nine months ended September 30, 1999 were in support of the Company's
facilities expansion and staffing growth. Net cash provided by financing
activities decreased to $5.6 million for the nine months ended September 30,
1999 from $62.8 million for the same period in 1998 primarily resulting
10
<PAGE> 11
from lower proceeds from issuance of common stock. In the 1998 period, the
Company received approximately $62.1 million through the issuance of 2,645,000
shares of common stock to the public.
The Company expects that its existing capital resources, including the net
proceeds of its public offerings and interest thereon, will be adequate to
satisfy the requirements of its current and planned operations through the first
quarter of 2001. The Company has entered into a long-term lease obligation for
office and laboratory space that will require material commitments for capital
expenditures. The Company's future capital requirements will depend on a number
of factors, including: the scope and results of preclinical studies and clinical
trials; continued progress of the Company's research and development of
potential products; the cost, timing and outcome of regulatory approvals; the
expenses of establishing a sales and marketing force; the timing and cost of
establishment or procurement of requisite production, radiolabeling and other
capacities; the cost involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims; the need to acquire licenses to new
technology; the status of competitive products; the availability of other
financing and the ability to achieve profitability.
YEAR 2000 READINESS
The Company uses and relies on a wide variety of information technologies,
computer systems and scientific equipment containing computer related
components. Some of the Company's older computer software programs and equipment
use two digit fields rather than four digit fields to define the applicable year
(i.e., "98" in the computer code refers to the year "1998"). As a result,
time-sensitive functions of those software programs and equipment may
misinterpret dates after January 1, 2000, to refer to the twentieth century
rather than the twenty-first century (i.e., "02" could be interpreted as "1902"
rather than "2002"). This could cause system or equipment shutdowns, failures or
miscalculations resulting in inaccuracies in computer output or disruptions of
operations, including, among other things, inaccurate processing of financial
information and/or temporary inability to process transactions or engage in
other normal business activities.
The Company has developed a strategy to address the potential exposures
related to the impact on its computer systems for the Year 2000 and beyond. An
inventory of key financial, informational and operational systems has been
completed. Detailed plans for testing key computer systems and equipment to
ensure they are Year 2000 compliant have been developed by a cross functional
team and will address problems identified, as required, by December 31, 1999.
The Company believes that with these plans and completed tests, the Year 2000
issue will not pose significant operational problems for its computer systems
and equipment. However, if modifications and conversions are not made, or are
not completed in a timely fashion, the Year 2000 issue could have a material
impact on the operations of the Company, the precise degree of which cannot be
known at this time. The Company has completed external verification of its key
computer systems and has not identified any need for specific contingency plans
to deal with major Year 2000 failures. The Company does not expect the resources
required to be devoted to Year 2000 compliance to cause significant delay in
other projects.
In addition to risks associated with the Company's own computer systems and
equipment, the Company has relationships with, and is to varying degrees
dependent upon, a large number of third parties that provide information, goods
and services to the Company. These include financial institutions, suppliers,
vendors, research partners and governmental entities. The Company has obtained
information from, and conducted interviews with, key suppliers to determine
their Year 2000 readiness. If a significant number of these third parties
experience failures in their computer systems or equipment due to Year 2000
non-compliance, it could affect the Company's ability to process transactions,
develop, manufacture and distribute products, or engage in similar normal
business activities. While some of these risks are outside the control of the
Company, the Company has instituted programs, including internal records review
and use of external questionnaires, to identify key third parties, assess their
level of Year 2000 compliance, update contracts and address any non-compliance
issues.
The total cost of the Year 2000 systems assessments and conversions is
funded through operating cash flows, and the Company is expensing these costs.
The financial impact of making the required systems changes and ensuring that
key third-parties are Year 2000 compliant is not known precisely at this time,
but it is
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currently expected to be less than $200,000. The cost incurred to date is less
than $100,000. The actual financial impact could, however, exceed this estimate.
These costs are not expected to be material to the Company's financial position,
results of operations or cash flows.
BUSINESS RISKS
Except for the historical information contained herein, the matters
discussed in this filing are forward-looking statements that involve risks and
uncertainties, including uncertainties related to product development,
uncertainties related to the need for regulatory and other government approvals,
dependence on proprietary technology, uncertainty of market acceptance of Bexxar
or the Company's other product candidates and other risks, including those
detailed in the Company's other filings with the Securities and Exchange
Commission. In particular, see "Risk Factors," referenced in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, filed on March
29, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the financial position of the Company is
routinely subjected to a variety of risks, including market risk associated with
interest rate movements and currency rate movements on non-United States dollar
denominated assets and liabilities. The Company regularly assesses these risks
and has established policies and business practices to protect against the
adverse effects of these and other potential exposures. As a result, the Company
does not anticipate material losses in these areas.
Interest Rates -- The Company's interest income is sensitive to changes in
the general level of interest rates, primarily United States interest rates. In
this regard, changes in United States interest rates affect the interest earned
on the Company's cash equivalents and short-term investments. Based on the
Company's overall interest rate exposure at September 30, 1999, a near-term
change in interest rates, based on historical movements, would not materially
affect the fair value of interest rate sensitive instruments.
Foreign Currency Exchange Rates -- The Company has certain liabilities
which are denominated in several European currencies. As a result, the Company's
financial results could be significantly affected by factors such as changes in
foreign currency exchange rates or economic conditions in the foreign markets in
which the Company's suppliers are located. To mitigate this risk, the Company
may enter into foreign currency forward contracts as is deemed necessary by
management. Based on the Company's overall currency rate exposure at September
30, 1999, a near-term change in currency rates, based on historical currency
rate movements, would not materially affect the value of foreign currency
sensitive liabilities.
The Company invests cash which is not currently being used for operational
purposes in accordance with its investment policy. This policy allows for the
purchase of low risk securities issued by the government agencies and very
highly rated banks and corporations subject to certain concentration limits. The
maturities of these securities are maintained at less than two years. The
following table presents the amounts and related weighted average interest rates
by year of maturity for the Company's investment portfolio and long term debt
obligations at September 30, 1999.
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER TOTAL
------- ------ ------ ----- ----- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Equivalent Investments:
Fixed Rate.......................... $26,901 -- -- -- -- -- $26,901
Average Interest Rate............. 4.6% -- -- -- -- -- --
Short Term Investments:
Fixed Rate........................ 14,232 37,106 14,546 -- -- -- 65,884
Average Interest Rate............. 4.9% 5.2% 5.8% -- -- -- --
Long-term debt, including current
portion:
Variable Rate..................... 238 1,429 1,429 1,429 5,475 -- 10,000
Average Interest Rate............. 9.0% 9.0% 9.0% 9.0% 9.0% -- --
</TABLE>
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
There were no reports on Form 8-K during the quarter ended September 30,
1999.
13
<PAGE> 14
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.
COULTER PHARMACEUTICAL, INC.
Date: November 12, 1999 /s/ MICHAEL F. BIGHAM
--------------------------------------
Michael F. Bigham
President and Chief Executive Officer
Date: November 12, 1999 /s/ WILLIAM G. HARRIS
--------------------------------------
William G. Harris
Vice President and Chief Financial
Officer
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 27,150
<SECURITIES> 65,884
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 100,884
<PP&E> 21,661
<DEPRECIATION> 2,577
<TOTAL-ASSETS> 121,334
<CURRENT-LIABILITIES> 11,009
<BONDS> 9,714
0
0
<COMMON> 17
<OTHER-SE> 100,594
<TOTAL-LIABILITY-AND-EQUITY> 121,334
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 38,091
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 538
<INCOME-PRETAX> (36,138)
<INCOME-TAX> 0
<INCOME-CONTINUING> (36,138)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (36,138)
<EPS-BASIC> (2.17)
<EPS-DILUTED> (2.17)
</TABLE>
