-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LN/N3ext27tq/gTlAGkMOayd0h+SqzEH1ql5myzIQyV+gDh42/tIGFqHTmhGswi/ SIPmIGCRwdsx2skMtWB47w== 0000352331-97-000004.txt : 19970327 0000352331-97-000004.hdr.sgml : 19970327 ACCESSION NUMBER: 0000352331-97-000004 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970326 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIBI IMMUNOCHEM RESEARCH INC CENTRAL INDEX KEY: 0000352331 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 810394349 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-11094 FILM NUMBER: 97563147 BUSINESS ADDRESS: STREET 1: 553 OLD CORVALLIS RD CITY: HAMILTON STATE: MT ZIP: 59840 BUSINESS PHONE: 4063636214 MAIL ADDRESS: STREET 1: 553 OLD CORVALLIS ROAD CITY: HAMILTON STATE: MT ZIP: 59840-3131 10-K405 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ____________ to ____________________________ Commission File Number 0-11094 ------- RIBI IMMUNOCHEM RESEARCH, INC. (Exact name of registrant as specified in its charter) Delaware 81-0394349 - -------------------------------- -------------------------------------- (State or Other Jurisdiction (I.R.S. Employer Identification No.) of Incorporation or Organization) 553 Old Corvallis Road, Hamilton, MT 59840-3131 - -------------------------------------------------------------------------------- (Address of principal executive offices and zip code) Registrant's telephone number, including area code (406) 363-6214 -------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value - -------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x . No . --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x --- The aggregate market value of Registrant's voting stock held by non-affiliates of the Registrant was $99,807,710, based upon the last sale price of such stock on March 3, 1997, as reported by the Nasdaq National Market tier of The Nasdaq Stock Market. As of March 3, 1997, Registrant had 20,001,291 shares of common stock, $.001 par value, outstanding. Page 1 of 2 Cover Pages ================================================================================ DOCUMENTS INCORPORATED BY REFERENCE Portions entitled "Election of Directors," "Committees and Meetings," "Principal Stockholders and Management's Stockholdings," "Executive Compensation" and "Directors Compensation" from the Definitive Proxy Statement for the Annual Meeting of Stockholders to be held April 30, 1997 . . . . . . . . . . . Part III Such Definitive Proxy Statement for Annual Meeting of Stockholders to be held April 30, 1997, except for portions thereof which have been specifically incorporated by reference, shall not be deemed "filed" as part of this Annual Report on Form 10-K. Page 2 of 2 Cover Pages TABLE OF CONTENTS PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . 15 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 15 Item 4. Submission of Matters to a Vote of Security Holders . . . 16 Executive Officers of the Registrant. . . . . . . . . . . . . . . . 16 PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . 17 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . 18 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . 19 Item 8. Financial Statements and Supplementary Data . . . . . . . 24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . 42 PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Item 10. Directors and Executive Officers of the Registrant. . . . 42 Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . 42 Item 12. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . . . . . . 42 Item 13. Certain Relationships and Related Transactions. . . . . . 42 PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . 42 Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 PART I ------ Item 1. BUSINESS GENERAL The Company was incorporated on January 9, 1981, under the laws of Delaware and is engaged in the development of biopharmaceutical products that stimulate the immune system to generate a cascade of natural agents and signals to prevent and treat human disease. Ribi immunostimulants can be combined with disease- specific antigens which may direct the immune system to respond to a particular cancer or infectious disease or can be used to modulate the immune response which may prevent conditions such as ischemia-reperfusion injury. The Company is engaged in the research, development, production and marketing of these products, some of which are under investigation by other companies for use as adjuvants. In addition, the Company engages in related activities such as the custom formulation and sale of research products. The Company has an active research and development program for new products and the improvement of its existing products. Also, the Company manufactures all of its clinical products and has developed and continues to develop processes for the commercial-scale production of its compounds. The Company protects its proprietary products and processes through the filing of patent applications and the use of confidentiality agreements. The Company has 21 issued United States patents covering its compounds, processes and certain uses of its products. The expiration dates for United States patents held by the Company range from 2001 to 2011. Patents have also been applied for or issued on a selected basis in foreign countries. The Company is headquartered near Hamilton, Montana, in a modern facility housing approximately 60,000 square feet of laboratory, administrative, marketing, pilot plant and commercial-scale production functions. In addition to the plant and equipment, the Company owns approximately 35 acres allowing for potential future expansion. To date most of the Company's revenues have been from investment income earned on cash balances and investments, product license and contract research fees, and sales of research and animal health products. Products for use as human biopharmaceuticals have not yet been approved for sale. THE COMPANY'S TECHNOLOGY The technology of the Company is based on the potent capacities of certain microbial products to modulate the cytokine (regulatory substances produced by cells) cascade in man and other animals. Slight modifications of these products and/or their physical and biological delivery to the immune system profoundly influence the qualitative and quantitative natures of the subsequent cytokine modulation and the physiological responses. The Company believes that appro- priate delivery of products of this core technology can be used to suppress an unwanted immunological or inflammatory response or to enhance a protective response. The Company believes it has developed a distinct approach to immune modulation. The Company's materials activate macrophages, lymphocytes and other cells relating to the immune system. This activation stimulates an immunological cascade of cytokine production that complements the normal, protective responses that are initiated during infection or injury. Furthermore, this type of stimulation results in an individually tailored response, similar to the manner in which the body would respond to natural stimuli. 1 The concept of using microbial products to provide a general immune modulation as a therapeutic approach dates back to the late 1800s. However, little progress was made in exploiting the therapeutic potentials of these products until the 1980s. First of all, much reliance had been placed on chemotherapeutics, antibiotics and radiation as panaceas for infectious and neoplastic (abnormal tissue growth) diseases. Secondly, there appeared to be unsolvable toxicity problems associated with the microbial immunotherapeutic products. In 1981 the late Dr. Edgar Ribi, a co-founder of the Company, and his colleagues discovered a reproducible process which led to the detoxification of endotoxin, a bacterial cell-wall component and one of the most potent known stimulators of the immune system. By separating and isolating selected portions of bacterial cell walls, Dr. Ribi and his colleagues were able to define chemically the precise structure of the endotoxin molecule which possessed immunomodulatory activities and to attenuate the toxicity of this molecule without destroying its beneficial biological properties. The result was a chemical entity referred to as monophosphoryl lipid A, trademarked by the Company as MPL immunomodulator. In addition to attenuating toxicity of the endotoxin molecule, the Company's scientists have extracted biologically active components from the cell walls of MYCOBACTERIUM BOVIS or PHLEI and have formulated combinations of these components as potential immunomodulatory agents. Knowledge of the structures of MPL and other immunomodulators now makes it possible to prepare these compounds and closely related derivatives by synthetic methods. Comparison of the biological activities of these synthetic derivatives with their structures is allowing a detailed picture of the relationships of structures to activities to be developed. This may lead to the identification of derivatives that may have unique uses as new immunomodulatory products. The core of the Company's product development is the use of MPL immunomodulator by itself or in combination with other immunomodulators and appropriate delivery vehicles to modify selectively the immunological status of an individual. This is accomplished primarily through precise enhancement or suppression of cellular hormones called cytokines. Modulation of the cascade of cytokines, both suppression and enhancement, is an extremely complicated process. The particular roles played by the cytokines, alone and in combination with others, have not yet been defined completely. Furthermore, it is unlikely that it will ever be possible to assess the immune status of a patient to such an extent that treatment with exogenous cytokines can be tailored to the patient's exact needs. Poor distribution of cytokines from the blood stream to desired target tissues also limits their utility as drug products. By studying the structure-function relationships of natural and synthetic immunomodulators, Company scientists hope to discover ways to selectively stimulate and suppress cytokine responses in various tissues naturally. Information from these studies may provide new insights about how the beneficial effects of cytokine modulation can be exploited in the treatment of disease. The Company's products are in various stages of development. Other than certain veterinary vaccine adjuvants and certain laboratory research products which presently generate limited sales revenue, the Company has no commercial products. There is no assurance that the products under development, including MELACINE melanoma theraccine, MPL-C cardioprotectant, or any adjuvants, vaccines or other immunological agents will be commercially successful. While there is evidence that the biological response modifiers produced by the Company and others may provide treatment for certain cancers, infectious or other diseases, the workings of the immune system, particularly in conjunction with biological response 2 modifiers, are not yet fully understood. As a result, the Company's research and development activities, as well as those of its competitors, are based on theories and concepts which may not have been completely proven or defined. The Company has been testing certain of its compounds on humans in the United States pursuant to Investigational New Drug ("IND") applications filed with the United States Food and Drug Administration ("FDA"). To date, preclinical and clinical data indicate product activity, and there have been no significant unexpected, untoward effects associated with the administration of the Company's products. However, considerable additional testing in human subjects is required to demonstrate efficacy and confirm product safety for most of the Company's products. If results are successful, there is no assurance that the Company will receive the necessary governmental approvals for its products, that additional satisfactory collaborative or licensing arrangements will be available to the Company, or that any of the Company's products will be accepted by the medical community. THE COMPANY'S PRODUCTS In the United States, human biopharmaceutical products are regulated by the FDA. The FDA requires every new drug intended for human use to be tested under strictly regulated treatment protocols, all of which require substantial time and cost. (See below, "Government Regulation - FDA Approvals.") The table on the following page summarizes the current status of the Company's product development programs, which are discussed in more detail beginning on page 5. Results which have been reported in Phase I and Phase II trials involving the Company's products do not establish product efficacy, and there can be no assurance that any of the listed products will progress beyond their current state of development or ultimately receive necessary regulatory approval from the FDA or comparable agencies in foreign countries or be accepted by the medical community. 3 Product Proposed Application Status Collaborator/Licensee - ------- -------------------- ------ --------------------- Adjuvants Enhancement of Phase SmithKline Beecham - infectious disease I/II/III exclusive rights for vaccines (herpes herpes; hepatitis A, B simplex and C; influenza A and B; I/II, Lyme disease; malaria; hepatitis B, human papillomavirus; influenza, among others - malaria, co-exclusive rights for strepto- DPT; Haemophilus coccal influenza b; otitis infections, media; polio; AIDS) tuberculosis; among others - nonexclusive rights for AIDS and others Wyeth-Lederle Vaccines and Pediatrics - co-exclusive rights for DPT; Haemophilus in- fluenza b; otitis media; polio; among others Adjuvants Enhancement of Preclinical SmithKline Beecham - allergy vaccines exclusive rights in the European Community, Eastern Europe and Canada - co-exclusive for the rest of the world Adjuvants Enhancement of Preclinical SmithKline Beecham - cancer vaccines nonexclusive rights for cancer vaccines MELACINE Stage IV (advanced) Product Biomira, Inc. (exclusive melanoma malignant melanoma license rights for Canada only) theraccine applications (1) being prepared for North America, Europe and Australia Stage II (early Phase III stage) malignant melanoma (prevention of recurrence after surgery) 4 Product Proposed Application Status Collaborator/Licensee - ------- -------------------- ------ --------------------- MELACINE Stage IV (advanced) Phase III Schering-Plough melanoma malignant melanoma Corporation theraccine collaboration + inter- feron-alfa 2b MPL-C Prevention of Phase II None (1) ischemia-reperfusion injury in coronary artery bypass graft patients DETOX Enhancement of Phase I/II Biomira (exclusive to therapeutic vaccines and pre- specific antigens) (theraccine) for clinical breast, lung, National Cancer Institute gastrointestinal, - collaboration ovarian, uterine, colon and prostrate cancers ____________________ (1) See "Marketing" on page 11
Infectious Disease Vaccines - --------------------------- The Company's immunostimulant technology appears to have beneficial application in the creation of vaccines for the prevention of viral and bacterial infections. The Company believes that current emphasis on preventive health care, the recent resurgence of certain previously controlled infectious diseases and the continued emergence of new diseases, such as AIDS and Lyme disease, will lead to greater use of prophylactic vaccines. The immunostimulating characteristics of MPL make it well suited for use as an adjuvant with various specific antigens for the creation of vaccines. Alum, the adjuvant historically used in approved vaccines, is proving to be inadequate for many new vaccine antigens, particularly those created with advanced DNA and subunit technology. The Company has licensed its adjuvants to SmithKline Beecham ("SB") in three separate agreements for use in vaccines for infectious diseases SB is developing. The first agreement, signed in 1991, provides exclusive, worldwide use in defined SB vaccines for a number of primarily adult viral vaccines. The Company receives transfer payments for supplies of adjuvant and will receive royalties upon commercialization. SB is conducting human clinical testing with the Company's adjuvants for vaccines against herpes, hepatitis B, malaria and influenza. During 1996 SB continued to advance the development of several vaccines covered by this agreement including a clinical trial designed to test the efficacy of a novel herpes vaccine in an 800-couple study using a selected consort design. In the trial one partner in a couple has herpes and other does not. Data from this Phase III study may be available in 1997. If the data are favorable, SB could file a license application in 1998. Early in 1997, THE NEW ENGLAND JOURNAL OF MEDICINE published data from SB and Walter Reed Army Institute of Research about a challenge study with an experimental malaria vaccine. The vaccine, which incorporated MPL immunomodulator and another adjuvant, achieved an efficacy rate of 86% against 5 challenge infection by malaria-infected mosquitoes. SB said that a series of further clinical studies, including a limited field trial in West Africa, using the formulation incorporating MPL will be initiated in 1997 to determine duration of immunity and other aspects of the immune mechanisms involved. Malaria, for which no effective vaccine currently exists, causes more than 2 million deaths annually worldwide. The second license agreement with SB was signed in 1992 for a group of bacterial infectious disease vaccines, including some pediatric vaccines. Under this agreement SB is actively evaluating a new generation of combination vaccines containing diphtheria, pertussis, tetanus, HAEMOPHILUS INFLUENZA b (meningitis) and polio antigens and is in early research with several other bacterial vaccines which use the Company's adjuvants. Pursuant to this agreement, the Company granted to SB a co-exclusive, worldwide license to use the Company's adjuvants commercially upon regulatory approval. In addition to an annual license fee, the Company receives transfer payments for supplies of the adjuvants and will be entitled to royalties from SB upon commercial sale of the vaccines. Effective December 31, 1996, the Company entered into a third infectious disease vaccine license agreement granting SB an exclusive license to use the Company's adjuvants in a human papillomavirus ("HPV") (genital warts) vaccine, a co- exclusive license for a tuberculosis vaccine and non-exclusive license to use the Company's adjuvants in the development of additional infectious disease as well as other vaccines. In addition to annual license fees, the Company will receive transfer payments for clinical and commercial quantities of adjuvant and royalties on any commercial sales of vaccines incorporating the Company's adjuvants. In 1995 the Company signed an option agreement with Cantab Pharmaceuticals Research, Lt. covering the use of MPL immumodulator as an adjuvant for inclusion in a therapeutic vaccine against HPV. SB has licensed Cantab's HPV antigen technology and is now developing a vaccine using the Company's adjuvants. Effective in 1993, the Company entered into license and supply agreements with Wyeth-Lederle Vaccines and Pediatrics ("WLV&P"), a business unit of Wyeth-Ayerst Laboratories, which is a division of American Home Products Corporation, for the co-exclusive use of the Company's adjuvants in the development of prophylactic vaccines, including pertussis, HAEMOPHILUS INFLUENZA b and STREPTOCOCCUS PNEUMONIAE and for supply by the Company of commercial quantities of adjuvants. The agreements with WLV&P provide for an annual license fee, transfer payments for supplies of adjuvants and for royalty payments upon commercial sale of vaccines. In 1996 WLV&P informed the Company that the FDA had allowed it to proceed with a Phase I human clinical study of a bacterial vaccine incorporating MPL immunomodulator as an adjuvant, which it initiated in late 1996. The Company's strategy in the area of AIDS vaccines is to grant licenses on a nonexclusive basis. Additional preclinical and clinical data indicating the ability of the Company's adjuvants to stimulate important cellular immune responses to infectious disease vaccines were presented in late 1995. Researchers from the Walter Reed Army Institute of Research presented favorable animal data from an experimental AIDS vaccine incorporating a Company adjuvant. The AIDS vaccine has been formulated and is being tested in primates, which could lead to human clinical testing. 6 Cancer Theraccines - ------------------ A. MELACINE Melanoma Theraccine Melanoma is a cancer of the skin cells that produce the dark pigment melanin. While early stage melanoma is limited to the skin, it spreads to the liver, lungs and other organs in later stages. Prognosis is dire for patients with advanced disease. Median survival for advanced-disease patients is approximately 8 months using currently available chemotherapy. It was estimated that in 1996, melanoma was diagnosed in approximately 38,300 people in the United States, with an estimated 7,300 deaths due to the disease. Over the past 13 years the incidence of malignant melanoma in the United States has risen by 60% and is currently rising at a faster rate than any other cancer. Increased exposure to ultraviolet rays may be an important factor contributing to the increase in new cases of melanoma. The Company is developing MELACINE, a therapeutic vaccine to treat melanoma. MELACINE uses melanoma tumor-associated antigens and DETOX immunostimulant to help the melanoma patient slow or stop the natural progression of the disease. During 1995 the Company began a meta-analysis of published survival data for patients with disseminated melanoma who received various available therapies. The meta-analysis, a recognized statistical method for combining results of several independent studies of a particular subject, reviewed the survival characteristics of nearly 5,400 patients with disseminated melanoma from more than 70 published clinical studies by leading melanoma researchers of various available therapies, including chemotherapy, interferon, interleukin-2, lymphokine-activated killer cells and other melanoma vaccines. The results of this meta-analysis were then compared with the median survival for a similar cohort of patients treated with MELACINE melanoma theraccine. A highly significant difference in median survival was observed with 11 months for evaluable MELACINE patients compared to 7.9 months for the other evaluable therapies included in the meta-analysis. MELACINE seems to also provide an advantage when compared to only those therapies available since 1985, which achieved a composite median survival of 8.5 months. Survival data for late- stage patients treated with MELACINE was determined in 1996 in an analysis of final data collected from the Company's first MELACINE Phase III study, which compared MELACINE therapy with an aggressive, experimental four-drug chemotherapy regimen. This analysis found no statistically significant survival advantage between MELACINE and the four-drug chemotherapy regimen, known also as the Dartmouth Protocol. However, the study found that during the treatment period, patients receiving MELACINE experienced significantly better quality of life compared to patients receiving chemotherapy. The only drugs approved by the FDA for melanoma are dacarbazine ("DTIC"), which has only limited effectiveness, and interferon alfa-2b ("INTRON A", Schering-Plough Corporation), which was only recently approved for post-operative therapy in patients whose tumors can be surgically removed. Based on the information it now has plus the fact that the cost of treatment with MELACINE is expected to be less than most other forms of treatment, the Company intends to submit product license applications for using MELACINE to treat late stage melanoma in North America, Europe and Australia. A second clinical trial, which is sponsored by the National Cancer Institute ("NCI") and being conducted by the Southwest Oncology Group ("SWOG"), is designed to determine the ability of MELACINE to prevent recurrence of melanoma in Stage II (early stage) patients. These patients had their melanoma lesions surgically removed. In this study, MELACINE was given to half of the patients, and they are being compared to the other half of the patients in the study who do not receive treatment but are only observed. Patient accrual in this study 7 was completed in 1996. The patient groups will be followed for two years, with final data analysis to begin in late 1998. In 1995 the FDA allowed the Company to begin a third Phase III clinical trial. This study compares patients with Stage IV (disseminated) melanoma receiving the combined therapy of MELACINE and INTRON A interferon alfa-2B with a control arm of patients receiving only INTRON A. Malcolm S. Mitchell, M.D., at the University of California-San Diego, has been a principal investigator in the development of MELACINE. Dr. Mitchell published results from a pilot study of treatment with MELACINE followed by INTRON A in the first quarter of 1994. He reported that seven patients in the trial who responded to INTRON A had previously had an increase in a certain type of white blood cells as a result of previous immunotherapy with MELACINE. White blood cell response data was not available for the eighth responding patient. Dr. Mitchell suggested there may be synergy between the two drugs as indicated by a 44% overall clinical response rate (tumor regression) and extended survival in the responding melanoma patients in comparison to non-responders. The 44% response rate (8 of 18 patients) was higher than that obtained with either agent alone. In 1992, the Company licensed to Biomira, Inc. ("Biomira") of Edmonton, Alberta, Canada, exclusive Canadian marketing rights to MELACINE. Biomira is responsible for conducting any necessary clinical trials and obtaining regulatory approval in Canada. In addition to license fees, the Company will receive transfer payments for supplies of MELACINE and will be entitled to royalties upon commercial sale of MELACINE in Canada. MELACINE was given Orphan Drug status by the FDA in 1989, which provides seven years of marketing exclusivity from the date of marketing approval. The Company has exclusive marketing rights for MELACINE through an agreement with the University of Southern California where the melanoma tumor associated antigens were developed through the work of Dr. Mitchell. The University is entitled to royalty payments from the Company upon commercial sale of MELACINE theraccine. B. Other Theraccines In addition to MELACINE, the Company has participated in research programs and has established relationships to evaluate therapies that incorporate the Company's immunostimulants with tumor-associated antigens for the treatment of other types of cancers. In 1990, the Company entered into a collaboration with Biomira. Biomira produces synthetic carbohydrate antigens which can be combined with the Company's adjuvants to produce theraccines with potential application against breast, lung, gastrointestinal, ovarian and uterine cancers. Human clinical data have been published which demonstrate that the Company's DETOX B- SE adjuvant plays a key role in generating a significant immune response with Biomira's line of THERATOPE cancer theraccines. Biomira has licensed DETOX B-SE adjuvant from the Company for the clinical development and potential commercialization of THERATOPE theraccines. In 1996 Biomira announced final Phase II clinical data showing that its THERATOPE vaccine for breast cancer provides a median survival benefit of more than 26 months as compared to less than 10 months achieved historically with chemotherapy. Biomira has indicated that it is planning a Phase III study and that it may seek regulatory approval in 1997 based on the Phase II data. During 1995 the Company completed a license and supply agreement with SB covering the use of the Company's adjuvants in cancer theraccines under development by SB. 8 Under the license/supply agreement, the Company has granted SB a non-exclusive, worldwide license to use its adjuvants commercially upon regulatory approval of SB's cancer vaccines. The Company will receive an annual license fee and milestone payments for each SB vaccine incorporating the Company's adjuvants that is submitted for regulatory review and subsequent milestone payments upon regulatory approval of each vaccine incorporating a Company adjuvant. In addition to transfer payments for commercial quantities of adjuvant, the Company will also receive royalties on any commercial sales of approved vaccines incorporating its adjuvants. These cancer vaccines are presently in the early stages of development and testing. Other Vaccines - -------------- The Company added a significant opportunity in 1996 to its vaccine adjuvant franchise with the signing of a license/supply agreement covering the use of its adjuvants in allergy vaccines under development by SmithKline Beecham Pharma, a subsidiary of SB. This agreement provides SB Pharma with the right to use the Company's adjuvants commercially upon regulatory approval of SB Pharma's allergy vaccines. The Company will receive an annual license fee prior to, and minimum annual royalties subsequent to, regulatory approval of any SB Pharma allergy vaccines incorporating a Company adjuvant. The Company will also receive supply payments for clinical and commercial quantities of its adjuvants and royalties on any commercial sales of approved allergy vaccines incorporating the Company's adjuvants. These potential vaccines are presently in the early stages of development. MPL-C Cardioprotectant - ---------------------- Ischemia-reperfusion injury is the damage that can occur in tissue during the oxygen deprivation of ischemia and when blood flow is restored after such events as cardiovascular surgery, angioplasty or organ transplantation. Paradoxically, restoring blood flow to ischemic tissue may induce a complex series of events leading to both reversible and irreversible cardiac tissue damage beyond any damage that may have occurred during the ischemic period. It is believed that a significant factor in reperfusion injury is the generation of "free radical" molecules, which attack and damage cardiac tissue. Such damage may reduce cardiac function, and/or cause cardiac cell death. MPL-C cardioprotectant has potential to be used prophylactically to address ischemia-reperfusion injury which can result from a number of cardiovascular surgical procedures. Each year in the United States more than 400,000 cardiovascular surgeries require stopping the heart, which can result in cardiac injury. More than 350,000 angioplasty procedures, which first reduce and then restore blood flow to the heart, are performed each year in the United States. Surgical procedures requiring cardiopulmonary bypass have been implicated to result in complications such as myocardial stunning and infarction, with clinically significant morbidity and mortality in the acute perioperative and postoperative period. A significant number of these patients are potentially at elevated risk for experiencing adverse long-term effects, including congestive heart failure. It is well established in animal models that a phenomenon termed "preconditioning" can protect heart tissue from ischemia-reperfusion injury. Short periods of ischemia followed by reperfusion can protect a heart which is subsequently subjected to prolonged ischemia (as in surgical procedures). Most physicians do not consider it desirable to mechanically induce short periods of ischemia in patients prior to a surgical procedure to precondition and protect 9 the heart. The Company has experimental evidence that MPL-C can preserve or enhance concentration of an important energy source in ischemic rabbit heart tissue and reduce degradation of adenosine (an endogenous protective molecule) to various metabolites in a fashion similar to that reported for ischemic preconditioning. Two distinct forms of preconditioning are now recognized: a short-lived form, which occurs within minutes of transient ischemia and lasts one to two hours, and a long-lived form, which reappears a number of hours following dissipation of the initial transient preconditioned state. The Company believes that a longer-lived preconditioning may be induced by the pre- surgical administration of MPL-C and that this form of preconditioning may offer substantial clinical benefit to patients at risk of ischemia-reperfusion injury. Preclinical data suggests that MPL-C may reduce all three manifestations of ischemia-reperfusion injury in open-heart surgery patients: infarction (irreversible damage), myocardial stunning (reversible damage) and arrhythmias (irregular, unstable heartbeats). At the 69th annual American Heart Association Scientific Meeting in November 1996, preclinical data was presented that demonstrated how MPL-C cardioprotectant significantly reduces heart muscle death caused by ischemia and reperfusion injury. The data showed that preventive use of MPL-C reduced cardiac infarct size nearly 75% as compared to controls and helped to establish further the mode of action of MPL-C. The research was done at the Medical College of Wisconsin, Good Samaritan Hospital Heart Institute and the University of Southern California, in collaboration with the Company, and within the Company's laboratories. During 1996 a Phase II(a) safety/activity clinical trial of MPL-C, which was started in 1993, continued in patients undergoing coronary artery bypass graft (CABG) surgery who are at risk of ischemia-reperfusion injury. This study, which is randomized, placebo-controlled and double-blinded, is designed to determine the safety profile and activity of a single dose of MPL-C administered prior to CABG surgery. Various dose levels are being studied to determine a safe, active dose for possible further clinical testing. Based on the results of the Phase II(a) trial, the Company plans to initiate a 225 patient controlled Phase II(b) trial in the first half of 1997 in conjunction with the Cleveland Clinic. This study is designed to determine dose-response relationships and endpoints for MPL-C in a human clinical setting. This study may provide the Company with the data required to design a pivotal study as well as attract a corporate marketing partner to continue the clinical development of MPL-C. Research Products - ----------------- The Company currently produces approximately 20 research products. These products, which include adjuvants, are used in various research projects by industrial, academic and government research laboratories and clinics, as well as by physicians and veterinarians in the development of treatments for a variety of diseases and to study the body's immune responses. The Company also uses some of the research products it produces in its efforts to develop immunotherapeutic agents capable of treating malignant tumors and other diseases. Contract Services - ----------------- The Company, from time to time, engages in contract services, whereby it conducts specialized projects on behalf of others utilizing the expertise of its research and production teams. 10 Sources and Availability of Raw Materials - ----------------------------------------- Materials for producing the Company's pharmaceutical products come from a number of sources. The pharmaceutical products are derived from biological organisms, which are grown and maintained within the Company's facilities. Backup supplies of critical organisms, which are not readily available from other sources, are stored in secure locations outside of the Company's facilities. Chemicals and agents used in the manufacturing process are fairly common and are readily available from several different vendors. COMPETITION The biotechnology and pharmaceutical industries are characterized by rapidly evolving technology and intense competition. The Company's products under development are expected to address a broad range of markets. The Company's competition will be determined in part by the potential indications for which the Company's products are developed and ultimately approved by regulatory authorities. The first pharmaceutical product to reach the market in a therapeutic or preventive area is often at a significant competitive advantage relative to later entrants to the market. Accordingly, the relative speed with which the Company or its corporate partners can develop products, complete the clinical trials and approval processes and supply commercial quantities of the products to the market are expected to be important competitive factors. The Company's competitive position will also depend on, among other things, its ability to attract and retain qualified scientific and other personnel, develop effective proprietary products, develop and implement production and marketing plans, obtain and maintain patent protection and secure adequate capital resources. The Company expects its products, if approved for sale, to compete primarily on the basis of product efficacy, safety, patient convenience, reliability, value and patent position. In addition to potential competition from other biopharmaceutical products, the products presently under development by the Company may compete with nonbiologic drugs and other therapies. The Company's competitors include major pharmaceutical, chemical and specialized biotechnology companies, many of which have financial, technical and marketing resources significantly greater than those of the Company. The Company is aware that research is being conducted by others in areas in which the Company is seeking to establish commercial products. The Company's competitors might offer products which, by reason of price or efficacy, may be superior to any products that may be developed by the Company. There can be no assurance that the discovery and introduction of products by others will not render the Company's current or future products obsolete, or that the Company will otherwise be able to effectively compete with such competitors. MARKETING The Company's revenues were derived from the following sources:
1996 1995 1994 ---------- ---------- ---------- (In Thousands) Sales: Research products $ 502 543 514 Custom adjuvants and research products 1,046 347 396 Veterinary products - 56 88 Other 11 7 10 ------ ------ ------ Total sales 1,559 953 1,008 11 1996 1995 1994 ---------- ---------- ---------- (In Thousands) Investment income, net 1,017 1,216 1,460 Fees from licenses and contracts 2,042 1,848 2,075 Other 5 6 11 ------ ------ ------ Total revenues $ 4,623 4,023 4,554 ====== ====== ====== Export sales $ 1,205 294 351 ====== ====== ======
The Company plans to license its products to marketing partners for all applications. It plans to file for marketing approval for MELACINE in North America, Europe and Australia in 1997 and grant marketing rights to a partner or partners within the United States and certain foreign countries in exchange for license fees, transfer payments, royalties and financial contributions toward the cost of obtaining marketing approval. The Company intends to manufacture MELACINE to supply worldwide demand and transfer finished product to its partner or partners. In the areas of vaccine adjuvants and ischemia-reperfusion injury, if clinical trial data are favorable, the Company intends to grant licenses to marketing partners in exchange for license fees, transfer payments and royalties on commercial sales, or a combination thereof. For vaccine adjuvant applications, the Company would manufacture its products as bulk intermediates for transfer to marketing partners for finishing and distribution. The Company is currently conducting a Phase II(a) dose escalation human clinical trial and plans to begin a Phase II(b) trial with MPL-C in the prevention of heart damage associated with open-heart surgery. These studies are intended to demonstrate safety and provide indications of efficacy. The Company will seek corporate partners to assist in the final stages of development and share the substantial financial risk of final development of MPL-C. In the United States the Company markets its research products through direct mail, scientific journal and trade show advertising and markets them worldwide, generally to nonexclusive distributors. Export sales, consisting mainly of custom adjuvants and research products, were shipped primarily to Europe, Japan and Canada. While the Company has made a decision to manufacture only health care products for humans in its manufacturing facility, it continues to produce a limited amount of veterinary adjuvant in appropriate conditions within its research facility for split manufacturing agreements. Under USDA regulations it is possible for a company that does not have a USDA license to manufacture certain components of veterinary products and ship them to a USDA-licensed animal health company for completion and distribution. Sales from split manufacturing agreements have not been significant for the last three years. There can be no assurance that the Company will be successful in any of its proposed marketing efforts. RESEARCH AND DEVELOPMENT The primary source of new product candidates is internal research, except for the cell lines for the MELACINE melanoma theraccine antigens, which have been licensed from the University of Southern California for a royalty fee from commercial sales of MELACINE. Costs and expenses for research and development activities were $4,993,000 in 1994, $5,530,000 in 1995 and $6,203,000 in 1996. 12 GOVERNMENT REGULATION Regulation by governmental authorities in the United States and other countries is a significant factor in the research, preclinical development, clinical trials, production and marketing of the Company's human biopharmaceutical products. FDA Approvals - ------------- In order to produce and market human biopharmaceuticals, the Company must satisfy mandatory procedures and meet safety and efficacy standards established by the FDA and equivalent foreign regulatory authorities. The process of seeking and obtaining FDA approval for the manufacturing and marketing of a new human biopharmaceutical product may require a number of years and substantial funding. The steps required before a human biopharmaceutical can be produced and marketed include preclinical studies, the filing of an Investigational New Drug ("IND") application, human clinical trials and approval of a Product License Application ("PLA"), and in some cases, approval of an Establishment License Application ("ELA"). Preclinical studies are conducted in the laboratory and in animal model systems to gain preliminary information on a product's activity and to identify major safety problems. The results of these studies are submitted to the FDA as part of the IND application before allowance can be obtained to begin testing in humans. Protocols for the human trials, outlines for production of the materials and statements describing the testing facilities are also included in the IND. The clinical testing program required for a new biopharmaceutical product principally involves three phases. However, in conducting actual clinical trials, the demarcation between phases at times becomes indistinct. Phase I studies are conducted on human volunteers or in healthy patients to determine the maximum tolerated dose and to discover the possible side effects of the substance. Phase II studies are conducted on groups of patients having a specific disease in order to determine the most effective doses and schedules of administration. Phase III involves wide-scale studies that are adequately controlled in order to provide statistically valid data on response rates which can be compared with current therapy, including drugs or biologics. In the United States, data from Phase I, II and III trials are submitted in a PLA to the FDA. The PLA involves considerable data collection, verification and analysis. It also includes the preparation of summaries of the manufacturing and testing processes, preclinical studies and clinical trials. PLA approval by the FDA is necessary before the product may be marketed in the United States. During the PLA review period, in addition to consideration of the safety and efficacy data, the FDA also determines what labeling it will require and permit for marketing of the product. The agency may also require post-marketing testing and surveillance for possible adverse reactions as a condition of its approval. The Company obtained Orphan Drug designation for MELACINE in 1989, and if appropriate may request Orphan Drug designation for other products. Under the Orphan Drug Act, the FDA may grant Orphan Drug status to drugs intended to treat a "rare disease or condition," which is a disease or condition that affects less than 200,000 individuals in the United States or more than 200,000 persons in the United States if there is no reasonable expectation that sales will be sufficient to recover the costs of developing and making available the drug. If a product is designated an Orphan Drug, then the sponsor is entitled to receive certain incentives to undertake the development and marketing of the product, including limited tax credits, where applicable. In addition, the sponsor that obtains the first marketing approval for a designated Orphan Drug for a given indication is eligible to receive marketing exclusivity for a period 13 of seven years. There may be multiple designations of Orphan Drug status for a given drug (or biologic) and indication; however, only the sponsor of the first approved New Drug Application ("NDA") or PLA for a given drug (or biologic) for its use in treating a given rare disease may receive marketing exclusivity. There is no assurance that any additional products of the Company will receive Orphan Drug status. While it may be advantageous to obtain Orphan Drug status of eligible products, there can be no assurance that the precise scope of protection that is currently afforded by Orphan Drug status or the current level of economic benefits and incentives will remain in effect in the future. Governmental Reforms - -------------------- In the past few years health care reform has received considerable attention. While it appears that federal governmental intervention is not imminent at this time, certain reform measures currently being considered by various state governments and certain related market restructuring could adversely affect the pricing of therapeutic or prophylactic products or the amount of reimbursement available. Such events could have an adverse impact on the profitability of companies developing, manufacturing or marketing pharmaceutical products. The Company cannot predict the extent of possible future governmental reforms or the effect such reforms or other measures may have on its business. Other Governmental Regulations - ------------------------------ In addition to the foregoing, the Company is and will be subject to various regulations relating to the maintenance of safe working conditions, good laboratory and manufacturing practices and the use and disposal of harmful or potentially harmful substances. There can be no assurance that any required approvals will be granted on a timely basis, if at all, or that such approvals, once granted, will not be withdrawn. Furthermore, there is no assurance that additional regulation will not be imposed on the Company's activities or products in the future. PATENTS AND PROPRIETARY PROTECTION The Company has obtained and applied for patents in the United States and several foreign countries. The Company has 21 issued United States patents with expiration dates ranging from 2001 to 2011. There is no assurance that patents applied for by the Company will be obtained, and there can be no assurance that the claims embodied in existing patents to which the Company has rights will not be challenged. The issuance of a patent to the Company or to a licensor of the Company is not conclusive as to validity or as to the enforceable scope of claims therein. The validity and enforceability of a patent can be challenged by a request for re-examination or litigation after its issuance and, if the outcome of such litigation is adverse to the owner of the patent, other parties may be free to use the subject matter covered by the patent. There can be no assurance that additional patents will be obtained by the Company in the United States or in other jurisdictions, or that any patents will provide substantial protection, or be of commercial benefit to the Company. The cost of enforcing the Company's patent rights in lawsuits which the Company may bring against infringers or which may be brought challenging the Company's patents may be high and could interfere with the Company's operations. The patent laws of other countries may differ from those of the United States as to the patentability of the Company's products and processes. Moreover, the degree of protection afforded by foreign patents may be different from that in the United States. On an ongoing basis, the Company 14 reviews its patent portfolio and has abandoned and may in the future abandon patents or patent applications for reasons including limited protection, lack of commercial importance and limited enforceability, among other considerations. Although the Company attempts to protect its products and processes by seeking patent protection when deemed appropriate, it also relies upon trade secrets, proprietary know-how and continuing technological innovation to develop and maintain its competitive position. Product development contracts and relationships between the Company, its consultants and other pharmaceutical companies may provide access to the Company's know-how. The Company requires such parties to execute confidentiality agreements. Insofar as the Company relies on confidentiality arrangements, there can be no assurance that others may not independently develop similar technology or that secrecy will not be breached. All employees are required to sign a confidential information agreement that contains terms assigning patent rights to the Company as well as obligations not to use or disclose any such information during and for a period of two years following termination of their employment. The Company maintains an active trademark protection program in the United States and in those foreign countries where it expects to market its products. RIBIGEN veterinary anticancer agent, MELACINE melanoma theraccine, MPL immunomodulator and the Company's logo are registered trademarks in the United States. RIBIGEN is a registered trademark in several foreign countries. INTRON-A is a registered trademark of Schering-Plough Corporation and THERATOPE is a registered trademark of Biomira, Inc. In this document, registered trademarks are designated with capital letters. EMPLOYEES As of December 31, 1996, the Company had 94 full-time and 4 part-time employees. The Company also uses outside consultants and collaborators to support and complement the activities of its scientific staff. The Company utilizes such persons to aid in specific research and development projects, rather than to act as a general scientific advisory board. Item 2. PROPERTIES The Company's facilities are located near Hamilton, Montana, on a 35-acre complex owned by the Company. The Company's buildings contain approximately 60,000 square feet of laboratory, commercial scale manufacturing, animal production, marketing and administrative facilities. The manufacturing facility has been built to FDA standards for Good Manufacturing Practices. The Company believes that its present facility will meet its manufacturing and other requirements for the foreseeable future. Item 3. LEGAL PROCEEDINGS The Company, the National Institutes of Health and the Bitterroot Valley Sanitary Landfill ("Landfill") were notified by the Montana Department of Health and Environmental Sciences (now the Department of Environmental Quality ["DEQ"]) in March 1991 that they had been identified as potentially responsible parties ("PRPs") for groundwater contamination located at and near the site of the Landfill in Ravalli County, Montana. The DEQ has filed an action against the Landfill, the operator of the Landfill and the Company, seeking reimbursement of costs associated with its oversight activities. The DEQ recently dismissed this action reserving the right to refile. Additionally, in 1993 two landowners in the vicinity of the Landfill filed civil suits seeking unspecified damages for alleged diminished value of land, possible health hazards and loss of domestic water source. In 1996 the court granted a motion for 15 summary judgment dismissing the civil suits. Counsel for one of the plaintiffs filed a motion for reconsideration, which was denied. Counsel has appealed the District Court decision to the State Supreme Court on behalf of both plaintiffs. The Company is preparing a response to the appeal. In addition, Supreme Court rules require the parties to submit to non-binding mediation prior to the matter being heard by the Court. The Company is preparing for the mediation proceeding. As of December 31, 1996, the Company has a reserve of $190,000 primarily to cover billed and potential legal, consulting and DEQ reimbursement costs associated with the Company as a PRP and the civil suits. At least some costs related to the civil suits have been and are expected to continue to be covered by insurance. However, the Company is unable to determine its potential liability with respect to the Landfill at this time. (See Note 7 of Notes to Financial Statements for a more complete discussion of these proceedings. However, the preceding discussion includes information with respect to the dismissal by the DEQ of their action seeking reimbursement and the appeal to the State Supreme Court by the plaintiffs in the civil suits. Both developments occurred subsequent to the date the financial statements, including Note 7, were issued.) Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of stockholders during the fourth quarter of 1996. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the names, ages and positions of all executive officers of the Company. All executive officers are serving a current term of office which continues until the next Annual Meeting of Directors, which is expected to be held on or about April 30, 1997. Name Age Position and Period Served - ---- --- -------------------------- Robert E. Ivy 63 President, Chief Executive Officer and director of the Company since 1987; Chairman of the Board of Directors since 1989; director and Chairman of the Finance Committee of St. Patrick Hospital, Missoula, Montana, since 1991; director of The International Heart Institute of Montana Foundation since 1995. John L. Cantrell, Ph.D. 58 Executive Vice President and director of the Company since 1981. Lonnie L. Bookbinder, Ph.D., 50 Vice President-Director of Corporate M.B.A. Development of the Company since 1994; Vice President, Corporate Development of Nycomed-Salutar, Inc., a multi- national medical company, from 1992 to 1994; Director, IN VIVO Products and Corporate Development of Immunomedics, Inc., an antibody based diagnostic imaging and therapeutic company, from 1990 to 1992. Vern D. Child, C.P.A. 52 Vice President-Finance of the Company since 1988; Treasurer since 1986; Assistant Secretary since 1989. 16 Name Age Position and Period Served - ---- --- -------------------------- Gary T. Elliott, Pharm.D., 40 Vice President-Pharmaceutical Ph.D. Development of the Company since 1994; Director of Pharmaceutical Sciences from 1992 to 1994; Head Immunochemist from 1988 to 1992. Ronald H. Kullick, R.Ph., J.D. 54 Vice President-Legal Counsel and Secretary of the Company since 1989. Charles E. Richardson, Ph.D. 45 Vice President-Pharmaceutical Discovery of the Company since 1994; Director of Production, Engineering and Technical Services from 1989 to 1994. Kenneth B. Von Eschen 48 Vice President-Clinical Regulatory Ph.D. Affairs of the Company since 1994; Director of Clinical and Regulatory Affairs from 1992 to 1994; Manager of Clinical and Regulatory Affairs from 1988 to 1992.
PART II ------- Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market under the Symbol: RIBI. The high and low sales prices shown below were compiled from the monthly Summary of Activity reports provided by The Nasdaq Stock Market. The prices represent interdealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. As of March 3, 1997, the Company had approximately 1,617 stockholders of record.
1996 1995 ---- ---- High Low High Low ---- --- ---- --- First quarter $ 6.88 4.75 4.63 3.38 Second quarter 6.25 4.13 4.75 3.38 Third quarter 4.88 3.50 6.25 3.75 Fourth quarter 4.38 3.13 6.50 3.88
The Company has not declared any cash dividends with respect to its common stock. The Company does not intend to declare or pay any cash dividends on its common stock, and there can be no assurance that the Company will ever declare or pay cash dividends on its common stock. 17 Item 6. SELECTED FINANCIAL DATA The selected financial information below should be read in conjunction with the Company's historical financial statements and notes. Such information may not be indicative of the Company's future financial condition or results of operations.
1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (In Thousands Except per Share Data) Year Ended December 31, - ---------------------- Sales & other revenues $ 1,564 959 1,019 871 1,118 Licenses and contracts 2,042 1,848 2,075 1,307 135 Investment income, net 1,017 1,216 1,460 984 863 Net loss (5,589) (5,317) (3,790) (3,684) (3,603) Net loss per common share (.30) (.28) (.20) (.25) (.27) Dividends per common share - - - - - Average number of shares outstanding 18,890 18,877 18,657 14,658 13,250 Research & development expenses $ 6,203 5,530 4,993 3,730 2,993 December 31, - ----------- Cash, cash equivalents & investments $14,512 19,824 25,967 29,140 17,806 Total assets 28,298 33,911 38,824 35,468 23,368 Long-term debt - - - - - Stockholders' equity 26,847 32,427 37,338 34,557 22,790
18 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Since its inception in 1981, the Company has been engaged primarily in the research and development of immunostimulants for use in preventing and treating human diseases. To date, the Company has received limited revenues from commercial sales and sales of clinical supplies. The Company has incurred net operating losses in each year since its inception and expects to incur additional losses for the next year, and probably longer. At December 31, 1996, the Company's accumulated deficit was approximately $35,636,000. The Company's results of operations can vary significantly from quarter to quarter and depend, among other factors, on costs related to the progress of clinical trials conducted by the Company and, to a lesser extent, on revenues and costs associated with manufacturing. To date, research and development expenses, together with manufacturing costs, have exceeded product and other revenues in all periods. The Company is not able to estimate with certainty the amount of cash and working capital which may be needed for operations. Such requirements typically vary depending upon the results of basic research and clinical trials, the time and expense required for governmental approval of products, and competitive and technical developments, most of which are beyond management's control. There is no assurance that the Company will be able to obtain the necessary funding in sufficient amounts or at the appropriate time for its planned activities. In the event the Company may require additional funding and is not successful in obtaining additional funding, it might not be able to proceed as rapidly as it would like, if at all, with the development and commercialization of its products, which would have a material adverse effect on its future financial condition and results of operations. Pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, several forward-looking statements that involve a number of risks and uncertainties are included within this Management's Discussion and Analysis of Financial Condition and Results of Operations including (i) anticipated limited revenues from operations, (ii) anticipated receipt of milestone and transfer payments from research partners, (iii) expected levels of research and development spending, and (iv) the Company's cash requirements. In addition to the risks and uncertainties discussed with the forward-looking statements, there are a number of other factors that could cause actual results to differ materially from projected results, including but not limited to the following: levels of expenditure on and results of the Company's research and the impact of those results on milestone and transfer payments from partners, research results of other companies using the Company's products, competition from other companies, changes in government regulation, including price controls for newly developed drugs, and risk factors listed from time-to-time in the Company's SEC reports. Forward-looking statements herein are followed by an asterisk ("*"). RESULTS OF OPERATIONS Revenues - -------- To date, the Company has received only limited revenues from commercial sales and sales of clinical supplies. The balance of the Company's revenues has been from 19 contracts and licenses and investment income earned on cash balances and investments. The Company anticipates that its revenues from operations, which decreased from approximately $4,554,000 in 1994 to approximately $4,023,000 in 1995 and increased to approximately $4,623,000 in 1996, will continue to be limited for the next year, and probably longer.* Fees from licenses and contracts decreased from $2,075,000 in 1994 to $1,848,000 in 1995 and increased to $2,042,000 in 1996. In 1994 the Company signed a license agreement with Wyeth-Lederle Vaccines and Pediatrics ("WLV&P"), a business unit of Wyeth-Ayerst Laboratories, which is a division of American Home Products Corporation, for use of the Company's adjuvants in vaccines WLV&P is developing. The agreement was retroactive to 1993 resulting in the recognition of retroactive license fees in 1994. Late in 1995, the Company signed a third license and supply agreement with SmithKline Beecham ("SB"). This agreement is for the nonexclusive use of the Company's adjuvants in cancer vaccines under development by SB. The Company will receive an annual license fee and certain milestone payments, as well as transfer payments for supplies of adjuvant and royalties on commercial sales of approved cancer vaccines incorporating its adjuvants.* Additionally, late in 1995 Cantab Pharmaceuticals Research, Ltd. signed a one-year option agreement for a co-exclusive worldwide license to use MPL immunostimulant commercially upon regulatory approval of Cantab's vaccine being developed for treating and preventing genital warts. In 1996 increased revenues from the agreements signed in late 1995 more than offset revenue from a research contract with SB, which expired at the end of 1995. In 1996 the Company signed a fourth license agreement with SB for use of its adjuvants in allergy vaccines, and in January 1997 a fifth agreement was signed granting SB use of the Company's adjuvants in various vaccines being developed by SB. This most recent agreement, which is effective as of December 31, 1996, grants SB an exclusive license to use the Company's adjuvants in a human papillomavirus vaccine, a co-exclusive license for a tuberculosis vaccine and a non-exclusive license to use the Company's adjuvants in the development of additional infectious disease as well as other vaccines. In addition to annual license fees, the Company will receive transfer payments for clinical and commercial quantities of adjuvant and royalties on any commercial sales of vaccines incorporating the Company's adjuvant.* Investment income decreased from $1,460,000 in 1994 to $1,216,000 in 1995 and decreased to $1,017,000 in 1996. The year-to-year reduction in investment income has been due substantially to reductions in the amount of invested funds during the periods. The average interest rate in the investment portfolio increased from approximately 5.35% at December 31, 1994 to 5.59% at December 31, 1995 and 6.03% at December 31, 1996. Additionally, in 1995 the Company sold investments in certain debt mutual funds for proceeds of $3,592,000, on which it realized an investment loss of $71,000. Approximately $3,033,000 of the proceeds were reinvested in debt securities with the intention of increasing future yield and reducing interest rate risk. Purchases and Production - ------------------------ Purchases and production costs increased from $751,000 in 1994 to $775,000 in 1995 and to $988,000 in 1996. Such costs were proportionately lower in 1996 than in 1994 and 1995 compared to sales. The Company completed an expansion of its manufacturing plant in 1994 and has been involved in the scale-up and refinement of some of its manufacturing processes, which resulted in additional costs in 1994 and 1995. Certain plant testing and validation efforts were incurred in 1996 and have continued into early 1997, as the Company prepares to file applications to market its MELACINE therapeutic melanoma vaccine. 20 Research and Development - ------------------------ The Company incurred research and development expenses of approximately $4,993,000, $5,530,000, and $6,203,000 in 1994, 1995 and 1996, respectively. The year-to-year increase principally reflects the increasing costs of expanding preclinical and clinical programs for the Company's products under development. These expenses consisted primarily of salaries, contract consulting costs and laboratory supplies. Labor costs decreased from approximately 49% of total research and development costs in 1994 to 47% in 1995 and 43% in 1996. Supply costs have ranged from 21% to 23% of total research and development expenses throughout three-year period. Contract consulting costs increased from approximately 17% of total research and development expenses in 1994 to 22% in 1995 and 27% in 1996. The year-to-year increase in expense can be attributed to increased clinical, preclinical and, in 1996, product licensing activities. The Company expects research and development expenses to be significantly higher in 1997 as it plans to open a controlled trial testing the efficacy of MPL-C cardioprotectant in preventing reperfusion injury in high-risk cardiac patients.* It also plans to file product license applications in North America, Australia and Europe for MELACINE melanoma theraccine and to accelerate patient accrual in its Phase III clinical trial testing MELACINE administered in conjunction with interferon alfa-2b to treat patients with late-stage melanoma.* Increased research and development expenses are dependent, among other things, on the Company's ability to attract study centers and patients to its clinical trials, the results experienced in the trials and the acceptance of regulatory filings by various regulatory agencies. Selling, General and Administrative - ----------------------------------- This category of expense remained relatively flat at approximately $3,035,000 and $3,021,000 in 1995 and 1996, respectively, after increasing from $2,600,000 in 1994. During this three-year period, labor costs increased from $1,300,000 in 1994 to $1,636,000 in 1995 and decreased to $1,591,000 in 1996. In 1995 depreciation and amortization increased by $347,000 when compared to the previous year, and expenses related to the Bitterroot Valley Sanitary Landfill ("Landfill") increased by $99,000, net of insurance reimbursements. Offsetting these increases were decreases in advertising of research products and an increase in administrative and depreciation costs allocated to manufacturing, reflecting the start-up of the new plant in 1995. The Company allocates part of its administrative and depreciation costs to the cost of manufacturing products for sale and for use in clinical trials. Such costs allocated in each year 1994, 1995 and 1996 were $286,000, $638,000 and $808,000, respectively. Net Loss - -------- The Company's net loss increased from $3,790,000 in 1994 to $5,317,000 in 1995 and to $5,589,000 in 1996. Its net loss per share over the same period was $.20 per share in 1994, $.28 per share in 1995 and $.30 per share in 1996. Inflation has not had a material impact on the results of operations of the Company. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations primarily from the issuance and sale of equity securities, limited sales of products, interest earned on investments and payments under contract research and license agreements. The financing sources have, to date, enabled the Company to maintain adequate liquidity. Cash, cash 21 equivalents and investments totaled approximately $14,512,000 at December 31, 1996, as compared to approximately $19,824,000 at December 31, 1995. The principal uses of cash during 1996 were approximately $4,693,000 for operations and approximately $924,000 for plant and equipment. The Company used approximately 13% less cash in operations in 1996 than in 1995, reflecting on a cash basis increased revenues, which more than offset higher research and product development expenses. Increased cash basis revenues represent cash collected in January 1996 under license and option agreements, which were signed and effective in December 1995. Cash requirements for operating activities in 1997 are expected to increase significantly over 1996 levels.* While revenues are expected to increase in 1997, expenses are expected to continue to outpace revenue as the Company expands its work in clinical and regulatory areas. Projected cash requirements are dependent upon the Company receiving the revenues that are anticipated and conducting the research, particularly the clinical trials, that is projected. It is possible that sales could be lower, because customers may not order as much material as expected. It is also possible that patient accrual within planned clinical trials will be slower than anticipated or the results of the trials or other research will not be as expected. The Company did not raise significant amounts of cash outside of operations during 1995 or 1996. In 1994 the Company's primary sources of cash were approximately $6,302,000 from the exercise of outstanding warrants and stock options and $578,000 from collections on notes receivable accepted in a 1992 private placement of common stock and warrants. At December 31, 1996, the Company had warrants and options outstanding to acquire shares and warrants which were issued in private placements in 1991 and 1992 at exercise prices ranging from $3.00 to $8.25 per share. All such warrants expire in 1997 if not exercised. In January 1997 the Company decided to extend the expiration date of the warrants and options, which expire in April 1997, to July 31, 1997 and reduce the exercise price of the options from $8.25 to $6.00 per share. The change was made to preserve for the Company the opportunity to raise additional capital at a very economical cost if the warrants are exercised. If exercised, the warrants and options in total could provide up to an additional $5,679,000 to the Company.* See Note 5 of Notes to Financial Statements. During 1994 the Company constructed and equipped an expansion of its manufacturing plant with a total cost of approximately $6,652,000, of which approximately $715,000 was paid in 1995. The Company believes that this expansion enables it to meet anticipated manufacturing and other facility requirements for the foreseeable future.* The Company will require substantial additional funds to continue its research and development programs and to commercialize its products under development. Future capital requirements will depend upon a number of factors, including the rate of expenditure on and the progress of the Company's research and development programs, the time and cost to obtain regulatory approvals, and demand for products based on the Company's technology. In January 1997, effective December 31, 1996, the Company issued approximately 1,103,000 common shares to SB for $4,000,000 pursuant to a private placement agreement. With this additional cash, the Company believes that its available cash, cash equivalents and investments together with funds from licensing agreements and product sales should be sufficient to meet its capital requirements through 1999.* See Note 7 of Notes to Financial Statements and Item 3, Legal Proceedings, on page 15 of this Annual Report on Form 10-K for discussions of contingencies related to the Company's identification as a PRP for groundwater contamination 22 at and near the Bitterroot Valley Sanitary Landfill and the Company being a named defendant in two civil suits brought by landowners in the vicinity of the Landfill. 23 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page ---- Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . . . 25 Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . . . . . 26 Statements of Operations for the years ended December 31, 1996, 1995, and 1994 . . . . . . . . . . . . . . . . . . . . . 27 Statements of Stockholders' Equity for the years ended December 31, 1996, 1995, and 1994 . . . . . . . . . . . . . . . . . . 28 Statements of Cash Flows for the years ended December 31, 1996, 1995, and 1994 . . . . . . . . . . . . . . . . . . . . . 29 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 30 24 RIBI IMMUNOCHEM RESEARCH, INC. INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Ribi ImmunoChem Research, Inc.: We have audited the accompanying balance sheets of Ribi ImmunoChem Research, Inc. as of December 31, 1996 and 1995 and the related statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ribi ImmunoChem Research, Inc. at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Billings, Montana January 20, 1997 25 RIBI IMMUNOCHEM RESEARCH, INC. BALANCE SHEETS (In Thousands Except Share Data)
December 31, ---------------------- 1996 1995 -------- -------- Assets - ------ Current assets: Cash and cash equivalents $ 432 284 Available-for-sale investment securities and accrued interest 14,080 5,079 Held-to-maturity investment securities and accrued interest - 6,574 Accounts receivable 52 725 Inventories 1,268 983 Other current assets 273 250 -------- -------- Total current assets 16,105 13,895 Held-to-maturity investment securities - 7,887 Property, plant and equipment, net 11,601 11,580 Other assets, net 592 549 -------- -------- Total assets $ 28,298 33,911 ======== ======== Liabilities and Stockholders' Equity - ------------------------------------ Current liabilities: Accounts payable $ 318 253 Accrued liabilities 570 601 Deferred revenue 563 630 -------- -------- Total current liabilities 1,451 1,484 -------- -------- Commitments and contingencies Stockholders' equity: Preferred stock, $.10 par; 10,000,000 authorized shares; none issued and outstanding - - Common stock, $.001 par; 30,000,000 authorized shares; 18,891,443 and 18,888,243 issued and outstanding in 1996 and 1995, respectively 19 19 Additional paid-in capital 62,492 62,460 Unrealized investment holding losses (28) (5) Accumulated deficit (35,636) (30,047) -------- -------- Total stockholders' equity 26,847 32,427 -------- -------- Total liabilities and stockholders' equity $ 28,298 33,911 ======== ========
See accompanying notes to financial statements. 26 RIBI IMMUNOCHEM RESEARCH, INC. STATEMENTS OF OPERATIONS (In Thousands Except per Share Data)
Years Ended December 31, -------------------------------- 1996 1995 1994 -------- -------- -------- Revenues: Sales $ 1,559 953 1,008 Contracts and licenses 2,042 1,848 2,075 Investment income, net 1,017 1,216 1,460 Other, net 5 6 11 -------- -------- -------- 4,623 4,023 4,554 Cost and expenses: Purchases and production 988 775 751 Research and development 6,203 5,530 4,993 Selling, general and administrative 3,021 3,035 2,600 -------- -------- -------- 10,212 9,340 8,344 -------- -------- -------- Net loss $ (5,589) (5,317) (3,790) ======== ======== ======== Net loss per common share $ (.30) (.28) (.20) ======== ======== ======== Average number of shares outstanding 18,890 18,877 18,657 ======== ======== ========
See accompanying notes to financial statements. 27 RIBI IMMUNOCHEM RESEARCH, INC. STATEMENTS OF STOCKHOLDERS' EQUITY (In Thousands Except Share Data)
Notes Receiv- Unreal- Common Addi- able - ized Total Stock tional Common Holding Accumu- Stock- (Par Paid-in Stock, Gains lated holders' (Value) Capital Net (Losses) Deficit Equity ----- ------- ------- ------ ------- ------ Balance at December 31, 1993 $ 17 56,053 (578) 5 (20,940) 34,557 Issuance of 1,200 shares under stock grant program - 9 - - - 9 Issuance of 139,700 shares upon exercise of options - 483 - - - 483 Issuance of 1,899,668 shares upon exercise of warrants 2 5,817 - - - 5,819 Compensation relating to stock options - 14 - - - 14 Collections and interest on notes receivable - common stock, net - - 578 - - 578 Unrealized loss on investment securities, net and other - 1 - (333) - (332) Net loss - - - - (3,790) (3,790) ----- ------ ----- ----- ------ ------ Balance at December 31, 1994 19 62,377 - (328) (24,730) 37,338 Issuance of 3,000 shares under stock grant program - 12 - - - 12 Issuance of 14,050 shares upon exercise of options - 40 - - - 40 Compensation relating to stock options - 31 - - - 31 Unrealized gain on investment securities, net - - - 323 - 323 Net loss - - - - (5,317) (5,317) ----- ------ ----- ----- ------ ------ Balance at December 31, 1995 19 62,460 - (5) (30,047) 32,427 Issuance of 1,400 shares under stock grant program - 6 - - - 6 Issuance of 1,800 shares upon exercise of options - 6 - - - 6 Compensation relating to stock options - 20 - - - 20 Unrealized loss on investment securities, net - - - (23) - (23) Net loss - - - - (5,589) (5,589) ----- ------ ----- ----- ------ ------ Balance at December 31, 1996 $ 19 62,492 - (28) (35,636) 26,847 ===== ====== ===== ===== ====== ======
See accompanying notes to financial statements. 28 RIBI IMMUNOCHEM RESEARCH, INC. STATEMENTS OF CASH FLOWS (In Thousands)
Years Ended December 31, -------------------------------- 1996 1995 1994 -------- -------- -------- Cash flows from operating activities: Net loss $ (5,589) (5,317) (3,790) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 935 817 470 Common stock grants 6 12 9 Compensation relating to stock options 20 31 14 Discount accretion (426) (485) (449) Abandoned patents and asset sales 18 8 (2) Changes in operating assets and liabilities: Accounts receivable 673 (584) (73) Accrued interest 11 25 21 Inventories (285) (305) 193 Other current assets (23) 40 (51) Accounts payable 65 (122) 174 Accrued liabilities (31) 22 103 Deferred revenue (67) 442 (45) -------- -------- -------- Net cash used by operating activities (4,693) (5,416) (3,426) -------- -------- -------- Cash flows from investing activities: Capital expenditures (924) (1,475) (6,626) Payments for other assets (93) (78) (100) Proceeds from sale of assets - 3 3 Proceeds from maturities of held-to-maturity securities 3,121 7,239 12,977 Proceeds from maturities and sales of available-for-sale securities 4,784 3,663 - Purchases of available-for-sale securities (1,956) (327) (408) Purchases of held-to-maturity securities (97) (4,079) (10,308) -------- -------- -------- Net cash provided (used) by investing activities 4,835 4,946 (4,462) -------- -------- -------- Cash flows from financing activities: Collections and interest on notes receivable - common stock, net - - 578 Proceeds from exercise of warrants - - 5,819 Proceeds from exercise of options 6 40 483 Other - - 1 -------- -------- -------- Net cash provided by financing activities 6 40 6,881 -------- -------- -------- Increase (decrease) in cash and cash equivalents 148 (430) (1,007) Cash and cash equivalents at beginning of year 284 714 1,721 -------- -------- -------- Cash and cash equivalents at end of year $ 432 284 714 ======== ======== ========
See accompanying notes to financial statements. 29 RIBI IMMUNOCHEM RESEARCH, INC. NOTES TO FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies OPERATIONS. Ribi ImmunoChem Research, Inc. (the "Company") was incorporated on January 9, 1981, and is principally engaged in the development of biopharmaceutical products that stimulate the immune system to generate a cascade of natural agents and signals to prevent and treat human disease. The Company also engages in related activities such as the custom formulation and sale of research products and contract research. REVENUE RECOGNITION. Revenues from the sale of research products are recognized when products are shipped to customers. Revenues from contract research are recognized as related expenses are incurred. Nonrefundable license fees received in connection with product license agreements are deferred and recognized over the term of the contract. CASH AND CASH EQUIVALENTS. In the statement of cash flows, the Company considers all highly liquid debt instruments with a maturity on the date of acquisition of three months or less to be cash equivalents. INVESTMENT SECURITIES. Investment securities consist of marketable debt securities and mutual funds that have invested in marketable debt securities. Securities, which the Company expects to hold to maturity ("held-to-maturity"), are stated at cost and adjusted for amortization of premium and accretion of discount to the earlier of the call date or maturity using the interest method. All other securities ("available-for- sale") are recorded at fair value. Fair values of investment securities are based on quoted market prices. On June 30, 1996, the Company reclassified all of its held-to-maturity investment securities as available-for-sale and reported them as current assets. The change resulted in a reduction of $49,000 to the unrealized investment losses reported in the stockholders' equity section of the balance sheet on June 30, 1996. Previously, the Company's investment securities, which it had both the intent and ability to hold until maturity, were classified as held-to-maturity. Additionally, both held- to-maturity investment securities maturing after twelve months and available-for-sale investment securities were previously classified as noncurrent assets. The change was made to reflect the Company's belief that all investments are available to support current operations and to report on a more consistent basis with other companies in the industry. Any gains and losses from the sale of investment securities are computed under the specific identification method. Unrealized holding gains and losses, net of related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of stock- holders' equity until realized. Unrealized losses, if any, for all investment securities that are other than temporary are charged against earnings. INVENTORIES. Inventories are stated at the lower of cost or market on a specific identification basis. Cost is based on the actual costs associated with producing the inventories, which include direct labor and materials, quality control and manufacturing overhead. 30 RIBI IMMUNOCHEM RESEARCH, INC. NOTES TO FINANCIAL STATEMENTS - continued PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at cost and depreciated on a straight-line basis over estimated useful lives of 25 to 30 years for buildings and 3 to 12 years for equipment, furniture and fixtures. Maintenance and repairs are charged to expense as incurred. Significant betterments are capitalized. NET LOSS PER COMMON SHARE. Net loss per common share is based on the weighted average number of shares outstanding. Common share equivalents are not included in loss per share calculations as the effect is anti- dilutive. PATENTS AND OTHER ASSETS. Other assets consist principally of the costs of patents filed, deferred patent application costs and patent maintenance costs. Such costs are amortized on a straight-line basis over the estimated remaining useful lives of the patented technology ranging from 3 to 20 years. Unsuccessful patent application costs are expensed when the patent is denied or abandoned. INCOME TAXES. Deferred tax assets and liabilities are recognized for the estimated future consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. The current and noncurrent portions of these deferred tax assets and liabilities are classified in the balance sheet based on the respective classification of the assets and liabilities which give rise to such deferred income taxes. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in tax expense in the period that includes the enactment date. STOCK-BASED EMPLOYEE COMPENSATION. From time-to-time the Company grants to its employees stock and/or options to purchase stock. In the case of stock grants, compensation expense is recognized by the Company at the time of the grant in the amount of the market value of the stock on the grant date. Compensation expense for the grant of stock options is recognized only when the market value of the underlying stock exceeds the exercise price of the stock option on the grant date. Any such compensation expense is charged to expense over the term that the options become exercisable. FAIR VALUE OF CERTAIN FINANCIAL INSTRUMENTS. The carrying amounts for cash, cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value because of the short duration of those instruments. ESTIMATES. Management of the Company has made certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. RECLASSIFICATION. Certain reclassifications have been made to the prior year financial statements to conform to the 1996 presentation of investments. 31 RIBI IMMUNOCHEM RESEARCH, INC. NOTES TO FINANCIAL STATEMENTS - continued (2) Investment Securities The following is a summary of the Company's investment securities as of December 31, 1996 and 1995:
Fair Amortized Market Unrealized Unrealized December 31, 1996 Cost Value Gains Losses ----------------- --------- --------- ---------- ---------- (In Thousands) Available-for-sale: Mutual funds investing primarily in short to intermediate term securities of the U.S. Government and its agencies $ 4,945 4,849 - 96 Securities of the U.S. Government and its agencies 5,596 5,634 38 - Corporate mid-term notes 2,894 2,925 33 2 Insured certificates of deposit 561 560 - 1 --------- --------- ---------- ---------- 13,996 13,968 71 99 Accrued interest 112 112 - - --------- --------- ---------- ---------- $ 14,108 14,080 71 99 ========= ========= ========== ========== December 31, 1995 ----------------- Available-for-sale: Mutual funds investing primarily in short to intermediate term securities of the U.S. Government and its agencies $ 5,084 5,079 30 35 --------- --------- ---------- ---------- Held-to-maturity: Securities of the U.S. Government and its agencies 8,150 8,140 13 23 Corporate mid-term notes 5,898 6,037 152 13 Insured certificates of deposit 290 289 - 1 --------- --------- ---------- ---------- 14,338 14,466 165 37 Accrued interest 123 123 - - --------- --------- ---------- ---------- 19,545 19,668 195 72 Recorded unrealized losses (5) ========= ========== ========== --------- $ 19,540 =========
Substantially all debt securities at December 31, 1996 mature within two years. During 1996 the Company received $425,000 from sales of available-for-sale securities. Gains and offsetting losses realized on the sales each totaled approximately $3,000. During 1995 the Company received $3,592,000 from sales of available-for-sale securities. Losses totaling $71,000 were realized on the sales. Approximately $3,033,000 of the proceeds in 1995 were reinvested in debt securities with the intention of increasing future yield and reducing interest rate risk. 32 RIBI IMMUNOCHEM RESEARCH, INC. NOTES TO FINANCIAL STATEMENTS - continued (3) Inventories Inventories are as follows:
December 31, --------------------------- 1996 1995 ---------- ---------- (In Thousands) Raw materials $ 96 99 Work in process 1,092 780 Finished goods 80 104 ---------- ---------- $ 1,268 983 ========== ==========
(4) Property, Plant and Equipment Property, plant and equipment consists of the following:
December 31, --------------------------- 1996 1995 ---------- ---------- (In Thousands) Buildings $ 9,604 9,427 Equipment, furniture and fixtures 6,519 5,779 ---------- ---------- 16,123 15,206 Less accumulated depreciation 4,711 3,835 ---------- ---------- 11,412 11,371 Construction in progress - 20 Land 189 189 ---------- ---------- $ 11,601 11,580 ========== ==========
(5) Stockholders' Equity The following table sets forth activity relative to warrants and options to acquire shares of common stock which were issued in common stock offerings in 1991 and 1992. All such warrants and options expire in 1997.
Year issued 1991 1992 Total ---------------------- ----------------- ------- Exercise price $ 3.00 3.60 4.00 6.00 8.25 ====== ====== ====== ====== ====== (In Thousands) Total common shares 2,300 200 467 708 93 3,768 Exercised: 1991 (100) - (200) - - (300) 1992 (209) - (267) - - (476) 1993 - - - - - - 1994 (1,700) (200) - - - (1,900) 1995 - - - - - - 1996 - - - - - - ------ ------ ------ ------- ------- ------- Unexercised 291 - - 708 93 1,092 ====== ====== ====== ======= ======= =======
33 RIBI IMMUNOCHEM RESEARCH, INC. NOTES TO FINANCIAL STATEMENTS - continued In January 1995 the Company reduced the exercise price from $11.55 to $6.00 per share and extended the expiration date from 1995 to 1997 on the warrants to purchase 708,000 common shares. In January 1997 the Company extended the expiration date on the warrants to purchase 708,000 common shares from April 1, 1997, to July 31, 1997. Additionally, the exercise price was reduced from $8.25 to $6.00 per share and the expiration date extended from April 1, 1997, to July 31, 1997, on options to purchase 93,000 common shares. The Company may call the warrants if its common stock trades at a price of $8.00 or more per share for a period of 20 consecutive trading days. The changes were made to preserve for the Company the opportunity to raise additional capital at a very economical cost if the warrants are exercised. (6) Stock Compensation Plans The Company has a stock grant program under which common stock may be issued to key employees, consultants and other persons providing services deemed important to the Company. The program requires the employee to assign to the Company all know-how, patents and proprietary information developed while employed by, or developed as a result of employment with the Company and to agree not to engage in any activity which could be considered to be in competition with the Company's proposed business while employed by the Company. If the employee violates any one of these conditions, the shares issued pursuant to the program shall revert to the Company. Non-employees receiving grants are not subject to the conditions imposed on employees receiving grants. Additionally, the Company grants 100 shares of stock to each employee who is not an officer of the Company after their completion of one year of employment. Such 100 share grants are not subject to the forfeiture conditions described above. The following table sets forth the activity in the stock grant program for the years ended December 31, 1996, 1995 and 1994:
Years Ended December 31, ------------------------------ 1996 1995 1994 ---- ---- ---- Shares available at beginning of year 29,368 32,368 33,568 Shares granted 1,400 3,000 1,200 ------ ------ ------ Shares available at end of year 27,968 29,368 32,368 ====== ====== ====== Weighted average grant date fair value $ 4.57 4.03 6.94 ====== ====== ======
In 1996 the Company's stockholders approved the 1996 Stock Option Plan ("Plan"). Under the Plan all full- or part-time employees are eligible to receive incentive stock options and nonqualified stock options and certain directors and consultants are eligible to receive nonqualified stock options. Any option granted under the Plan may include a stock appreciation right (SAR) to surrender to the Company all, or a portion, of the option in exchange for cash or stock, the sum of which is equal to the value of the excess of fair market value of the common stock over the option price. The Plan provides for awarding options for a maximum of 900,000 shares with an exercise price not less than fair market value at the date of grant, except for options awarded to certain directors. Options are nontransferable and expire if not 34 RIBI IMMUNOCHEM RESEARCH, INC. NOTES TO FINANCIAL STATEMENTS - continued exercised within ten years from the date of the grant. Options can be exercised in cumulative installments over a vesting schedule set by the Company's Board of Directors. Through December 31, 1996, all options granted from the Plan to employees can be exercised in cumulative installments of 20% per year beginning on the date of the grant. Vesting of discounted stock options issued to certain directors is discussed below. The Company also has a stock option plan that was approved by stockholders in 1986 (the "1986 Plan"). The 1986 Plan expired in 1996 and no new options can be granted under it. However, options already granted (1,359,000 shares, net of forfeited options) can be exercised for a period of ten years from the date of grant. The terms of the 1986 Plan were very similar to the ones described for the 1996 Plan. All options granted under the 1986 Plan, except for discounted stock options issued to certain directors, as discussed below, can be exercised in cumulative installments of 20% per year beginning on the date of the grant. Both stock option plans provide for the issuance of nonqualified stock options with an exercise price which is 20% below the market price of the Company's common stock on the grant date. The discounted stock options may be awarded to directors who are not employees of the Company who elect to receive the discounted stock options rather than cash for all or a portion of their director fees. The directors are required to make the voluntary election at least six months prior to the beginning of each calendar year. The number of options to be granted is determined by dividing the amount of the foregone cash compensation by the amount of the per share price discount on the grant date. Such options are granted at the end of each calendar quarter and are fully vested on the grant date. The options, which expire if not exercised within ten years from the grant date, are exercisable after a six month period following the grant date. During 1996 the Company's Board of Directors adopted the 1996 Directors' Stock Option Plan (the "Directors' Plan") for directors who are not employees of the Company, subject to stockholder approval. Stockholder approval will be requested at the 1997 Annual Stockholders' Meeting. The Directors' Plan provides for the award of nonqualified options to purchase a maximum of 210,000 shares of common stock. Each director who is not an employee was awarded options to purchase 30,000 shares on the later of the date the Directors' Plan was adopted or on the date they first became a director. In addition, immediately following each annual meeting of the Company's stockholders, each director who is not an employee who continues as an outside director after the meeting will be awarded options to purchase 500 common shares. The exercise price of the options is the market price on the date of the award. The options vest and can be exercised at the rate of 50% on the date of award and 25% on each anniversary of the award date. The options expire if not exercised within ten years of the award date. During 1996, options to purchase 150,000 shares were awarded under the Directors' Plan with an exercise price of $4.00 per share. None of the options have been exercised. The following table sets forth the activity in the 1986 and 1996 Stock Option Plans and the 1996 Directors' Stock Option Plan for the years ended December 31, 1994, 1995 and 1996. There were no SAR's outstanding under the plans during the three-year period ended December 31, 1996. 35 RIBI IMMUNOCHEM RESEARCH, INC. NOTES TO FINANCIAL STATEMENTS - continued
Options for Employees Discounted Options and Directors for Directors -------------------- -------------------- Average Average Total Common Exercise Common Exercise Common Shares Price Shares Price Shares ------ ----------- ------ ----------- ------ Shares under option: Outstanding at December 31, 1993 1,023,675 $ 5.66 14,928 $ 5.09 1,038,603 Granted 104,500 7.49 23,748 4.46 128,248 Exercised (119,700) 3.54 - - (119,700) Canceled (28,900) 6.69 - - (28,900) --------- ------- --------- Outstanding at December 31, 1994 979,575 6.08 38,676 4.71 1,018,251 Granted 96,000 3.92 19,720 3.65 115,720 Exercised (14,050) 2.81 - - (14,050) Canceled (115,475) 6.20 - - (115,475) --------- ------- --------- Outstanding at December 31, 1995 946,050 5.90 58,396 4.35 1,004,446 Granted 432,779 5.26 9,568 3.34 442,347 Exercised (1,800) 3.19 - - (1,800) Canceled (33,100) 6.24 (7,694) 4.42 (40,794) --------- ------- --------- Outstanding at December 31, 1996 1,343,929 5.44 60,270 4.18 1,404,199 ========= ======= ========= Options exercisable at: December 31, 1994 484,475 $ 5.80 24,345 $ 5.50 508,820 December 31, 1995 591,700 5.90 51,378 4.32 643,078 December 31, 1996 864,506 5.71 53,369 4.31 917,875 Ranges of exercise prices and average months (mo) to expiration of: Options outstanding at December 31, 1996 $1.50 (46 mo) 2,000 $ 1.50 - $ - 2,000 $3.00-$4.90 (97 mo) 527,650 3.96 51,636 3.80 579,286 $5.75-$7.50 (78 mo) 731,029 6.22 8,634 6.49 739,663 $8.00-$8.63 (82 mo) 83,250 8.11 - - 83,250 --------- ------- --------- 1,343,929 60,270 1,404,199 ========= ======= ========= Options exercisable at December 31, 1996 $1.50 (46 mo) 2,000 $ 1.50 - $ - 2,000 $3.00-$4.90 (82 mo) 244,050 3.80 44,735 3.89 288,785 $5.75-$7.50 (73 mo) 559,406 6.30 8,634 6.49 568,040 $8.00-$8.63 (81 mo) 59,050 8.12 - - 59,050 --------- ------- --------- 864,506 53,369 917,875 ========= ======= =========
36 RIBI IMMUNOCHEM RESEARCH, INC. NOTES TO FINANCIAL STATEMENTS - continued The Company has entered into a Stock Option Agreement with its Chief Executive Officer, President and Chairman ("CEO"). Pursuant to the 1987 agreement, and later agreements, the CEO was granted options to purchase 228,000 shares of common stock at prices ranging from $2.63 to $3.00 per share. All of the CEO's options under this agreement expire if not exercised by June 30, 1997. During 1994, the CEO exercised options to purchase 20,000 shares at a price of $3.00 per share. The CEO did not exercise any options in 1995 or 1996. At December 31, 1996, there are options outstanding to purchase 50,000 shares at $3.00 per share, all of which are exercisable. Additionally, the CEO has been granted options to purchase stock under the Company's stock option plans described above. In October 1995 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 ("Standard"). The Standard, which is effective for reporting periods beginning after December 15, 1995, recommends procedures to account for stock based compensation plans. The Standard also allows companies the option to continue accounting for plans based on Accounting Principles Board Opinion No. 25 and related interpretations provided that they make certain additional disclosures. The additional disclosures include pro forma net income and earnings per share based upon the provisions of the Standard. Accordingly, the Company has elected to continue to apply Accounting Principles Board Opinion No. 25 in accounting for its employee stock based compensation plans. As a result, no compensation expense has been recognized relative to its employees where the exercise price of the option equaled or exceeded the stock's market value on the grant date. Compensation relative to directors who receive discounted stock options rather than cash for directors' fees totaled $8,000, $18,000 and $27,000 in 1996, 1995 and 1994, respectively. Compensation recognized from the grant of stock totaled $6,000, $12,000 and $8,000 in 1996, 1995 and 1994, respectively. If compensation cost for the stock option plans would have been determined for employees and directors, other than directors receiving discounted options, consistent with the Standard, the Company's net loss and net loss per common share would have been increased to the pro forma amounts indicated below:
1996 1995 ---- ---- Net loss (In Thousands) As reported $ 5,589 5,317 Pro forma 6,018 5,365 Net loss per common share As reported $ (.30) (.28) Pro forma (.32) (.28)
The pro forma amounts include the fair value of stock options first vesting in the reporting year from options granted after December 15, 1994, as required by the Standard. During this phase-in period, the pro forma amounts are not likely to be representative of the effects on reported net loss and net loss per share for future years because options vest over several years and additional awards generally are made each year. The fair value has been determined using the Black-Scholes formula, which requires the Company to make several assumptions, some of which are listed below: 37 RIBI IMMUNOCHEM RESEARCH, INC. NOTES TO FINANCIAL STATEMENTS - continued
Options Granted In ------------------ 1996 1995 ---- ---- Average risk-free interest rate (%) 6.2 7.1 Average expected life (years) 6.5 6.5 Average annualized expected volatility .573 .573 Expected dividends None None
(7) Commitments and Contingencies The Company has an employment agreement with its Chief Executive Officer, President and Chairman, which currently provides for an annual salary of $258,000. The agreement requires the payment of the salary, adjustable annually, through June 30, 1998, unless there is termination for "cause." The Company carries $10 million in product liability insurance for its products which are being used in clinical trials and is self-insured for product liability coverage for research products and veterinary products being marketed. In addition, the Company has agreed to indemnify its directors and officers for liabilities incurred as a result of their positions with the Company. The Company, the National Institutes of Health ("NIH") and the Bitterroot Valley Sanitary Landfill ("Landfill") were notified by the Montana Department of Health and Environmental Sciences (now known as the Department of Environmental Quality ["DEQ"]) in March 1991 that they had been identified as potentially responsible parties ("PRPs") and as such are jointly and severally liable for groundwater contamination located at and near the site of the Landfill in Ravalli County, Montana. The Company's involvement arises out of waste materials which it deposited at the Landfill from 1982 to 1985 which the Landfill had permits to receive. The NIH voluntarily initiated and completed work pursuant to an interim remediation plan approved by the DEQ to remove and decontaminate the believed source of the contamination and treat the aquifers which tests have shown contain contaminants. Although decontamination of the soil at and around the Landfill has been completed, treatment of the groundwater in the proximity of the disposal site continues utilizing carbon filtering and air sparging, and it is anticipated such treatment will continue through 1997 and possibly longer. The DEQ conducted a "Risk Assessment" and issued a "Draft Final Feasibility Study" in October 1994 that discussed possible final remediation alternatives. In August 1995, the DEQ announced that it had approved a second interim action in the vicinity of the Landfill being voluntarily conducted by the NIH and which involves installing individual replacement and new wells to provide both an alternate water supply for the affected residents and to develop additional information on the site hydrogeology. Information collected from these wells through a multi-year monitoring program will be used by the DEQ to evaluate the effectiveness of the remediation efforts to date. The current plan calls for the wells to be installed in three phases: Phase I includes occupied properties with the highest remaining contamination levels; Phase II includes occupied properties with lesser degrees of contamination; and Phase III consists largely of vacant properties. Preliminary studies completed in 1994 estimated the cost of the wells to be approximately $1,400,000. The first Phase was completed in the spring of 1996. The DEQ could require the PRPs to implement further remediation should these wells not provide 38 RIBI IMMUNOCHEM RESEARCH, INC. NOTES TO FINANCIAL STATEMENTS - continued sufficient quality or quantity of water. The NIH, which has taken the lead and incurred substantially all of the remediation costs, has represented publicly that it would continue to work with the DEQ toward an acceptable final remediation plan. In 1993, the NIH stated that as of that time, it had incurred costs and anticipated future interim remediation costs which could total $2 million or more. The DEQ has filed an action against the Landfill, the operator of the Landfill and the Company seeking reimbursement of costs in the amount of $199,000 associated with its oversight activities. The Company has filed a response to the action. Because of these uncertainties, including the uncertainty of the cost of further remediation and whether the NIH will seek and obtain partial reimbursement from the other PRPs, it is not possible at this time to determine the potential liability of the Company as a PRP. Two landowners in the vicinity of the Landfill have filed civil suits seeking unspecified damages for alleged diminished value of land, possible health hazards and loss of domestic water source. The suits name the PRPs and the DEQ, as well as unknown individuals and corporations which may be discovered to have contributed to the injuries alleged. The Company filed answers to these suits denying any liability and in a motion for summary judgment, denied the injuries alleged. On October 11, 1996, the court granted the summary judgment and dismissed the plaintiffs' claims. A motion was filed on behalf of one of the plaintiffs to vacate the order or alternatively, to direct the entry of a final judgment as to all claims against the defendants. The court denied the plaintiffs' motion to vacate the order. Counsel for the plaintiff has indicated the intent to appeal the summary judgment order. This plaintiff has extended an offer to settle the matter for which the motion for reconsideration was filed. The Company and the other defendants are evaluating the offer. It is not possible at this time, to predict whether additional civil suits will be filed, the outcome of the pending suits or the potential financial impact on the Company or the probability of adverse decisions. As of December 31, 1996, the Company has a reserve of approximately $190,000 primarily to cover billed and potential legal, consulting, settlement and DEQ reimbursement costs associated with the Company as a PRP and the civil suits. Some of the costs incurred in the defense of the civil suits, including the action by the DEQ seeking reimbursement of costs, have been paid by insurance and at least some of the future costs are expected to be paid by insurance. None of the expected future insurance reimbursements have been included in the reserve. During 1994 the Company received $125,000 in insurance proceeds from one insurance company, which was in rehabilitation, in a one-time settlement of any claims associated with the Landfill issues. Net costs charged (credited) to operations during 1996, 1995 and 1994 were $13,000, $64,000 and $(35,000), respectively. (8) Income Taxes The net operating loss carryforwards and tax credits available to reduce future Federal taxable income or related taxes and the year of expiration are approxi- mately as follows: 39 RIBI IMMUNOCHEM RESEARCH, INC. NOTES TO FINANCIAL STATEMENTS - continued
Net Research and Operating Investment Development Expires December 31, Loss Credit Credit - -------------------- ---------- ---------- ---------- (In Thousands) 1996 $ 181 26 5 1997 314 4 14 1998 254 7 31 1999 328 3 50 2000 529 9 58 2001 251 - 76 2002 821 - 82 2003 2,272 - 128 2004 2,751 - 106 2005 2,606 - 115 2006 3,595 - 154 2007 4,488 - 198 2008 4,238 - 243 2009 4,574 - 343 2010 5,469 - 163 2011 5,631 - 188 ------ ------ ------ $ 38,302 49 1,954 ====== ====== ======
The tax effects of temporary differences that give rise to federal and state deferred tax assets and liabilities consist of the following:
December 31, ------------------------------- 1996 1995 ---------- ------------ (In Thousands) Gross deferred tax assets: Net operating loss carryforwards $ 15,781 13,579 General business credit carryforwards 2,004 1,815 Loss contingency reserve 79 79 Employee benefits 89 79 Other 29 21 ----------- ----------- 17,982 15,573 Valuation allowance (17,521) (15,172) ----------- ----------- 461 401 ----------- ----------- Gross deferred tax liabilities: Depreciation 355 262 Inventories 106 139 ----------- ----------- 461 401 ----------- ----------- $ - - =========== ===========
The Company has provided a valuation allowance for deferred tax assets which management believes are not currently assured of being realized. The ultimate realization of deferred tax assets is dependent upon the existence of, or generation of, taxable income in the periods in which those temporary differences are deductible. The net increase in the valuation allowance for the years ended December 31, 1996, 1995, and 1994 was $2,349,000, $2,380,000 and $2,178,000, respectively. Additionally, 40 RIBI IMMUNOCHEM RESEARCH, INC. NOTES TO FINANCIAL STATEMENTS - continued when subsequently recognized, approximately $849,000 of the valuation allowance will be credited to additional paid-in capital. (9) International Sales and Major Customers The Company markets its research products worldwide, generally to nonexclusive distributors. During 1996, 1995 and 1994, export sales were 77%, 31% and 35% of total sales, respectively. Export sales were primarily to Europe, Japan and Canada. In early January 1997, effective December 31, 1996, the Company entered into another license agreement with SmithKline Beecham ("SB"). The Company now has a total of five license agreements with SB for use of the Company's adjuvants in various vaccines being developed by SB. SB is developing vaccines, which include the Company's adjuvants, for indications in infectious diseases, cancer and allergies. The agreements generally provide for payment to the Company of license fees and supply payments, as well as royalties upon commercialization of SB's vaccines. The agreements grant SB exclusive rights to the Company's adjuvants for use in vaccines for some diseases and co-exclusive or non- exclusive rights for others. In 1992 the Company entered into a one-year research and collaboration agreement with SB pursuant to which the Company performed research for SB related to certain adjuvants and vaccines. The research was funded by SB and the agreement was renewed for the years 1994 and 1995. The Company also sells adjuvants and research products to SB. Revenues from all transactions with SB were 48% of total revenue in 1996, 31% in 1995 and 26% in 1994. As of December 31, 1996, S.R. One Limited, a subsidiary of SB, held 750,608 shares, or 4% of the Company's common stock. Early in 1997, effective December 31, 1996, SB purchased 1,103,448 additional shares from the Company for $4,000,000 bringing its total ownership to 9.3% of the Company's outstanding common stock. SB has the right to make an additional equity investment of up to $2,000,000 at any time through January 1, 1999. Also, with the stock purchase SB acquired warrants to purchase 500,000 shares of stock at $5.00 per share. The warrants expire if not exercised by January 1, 2000. The Company has granted Wyeth-Lederle Vaccines and Pediatrics ("WLV&P") (a business unit of Wyeth-Ayerst Laboratories, which is a division of American Home Products Corporation) a worldwide co-exclusive license to use the Company's adjuvants commercially upon regulatory approval of certain vaccines being developed by WLV&P. In addition to an annual license fee, the Company will receive transfer payments for supplies of adjuvant and will be entitled to royalties upon commercial sale of vaccines. Revenues received from WLV&P were 17% of the Company's total revenue in 1996, 19% in 1995 and 25% in 1994. (10) Employee Benefits The Company provides an employee savings plan under Section 401(k) of the Internal Revenue Code. This plan covers substantially all full-time employees. The Company matches 30% of employee contributions of up to 6% of compensation. The amount charged against income in 1996, 1995 and 1994 was $58,000, $52,000 and $44,000, respectively. Additionally, the Company provides other employee benefits including health insurance for employees who are actively employed. Charges against income for health insurance were approximately $168,000, $198,000 and $147,000 in 1996, 1995 and 1994, respectively. 41 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company has not changed independent auditors and has not had any disagreements with its independent auditors. PART III -------- Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Item 11. EXECUTIVE COMPENSATION Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company has filed with the Securities and Exchange Commission a Definitive Proxy Statement for the Company's Annual Meeting of Stockholders to be held on April 30, 1997. The information required by Items 10, 11, 12 and 13 of this Annual Report on Form 10-K is set forth in such Definitive Proxy Statement in the sections entitled "Election of Directors," "Committees and Meetings," "Principal Stockholders and Management's Stockholdings," "Executive Compensa- tion" and "Directors Compensation" on pages 1 through 11. Those portions of such Definitive Proxy Statement containing such information are incorporated herein by this reference. Information regarding the Company's executive officers is set forth in Part I of this Annual Report on Form 10-K under the heading "Executive Officers of the Registrant." PART IV ------- Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following financial statements of Ribi ImmunoChem Research, Inc., are filed with this Report on Form 10-K under Item 8 of Part II on pages 24 through 41: Independent Auditors' Report Balance Sheets as of December 31, 1996 and 1995 Statements of Operations for the years ended December 31, 1996, 1995 and 1994 Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 Notes to Financial Statements 2. Financial Statement Schedules All schedules have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. 42 3. Exhibits The following exhibits are filed as part of this report:
Exhibit No. Description and Incorporation by Reference - ----------- ------------------------------------------ 3.1 Restated Certificate of Incorporation. This certificate was filed June 22, 1992, as Exhibit 4.1 to Registrant's registration statement on Form S-3, Registration No. 33-48713. Said Exhibit 4.1 is incorporated herein by this reference. 3.2 Amended Bylaws of the Company. These Bylaws were filed on March 13, 1989, as Exhibit 3.2 to Registrant's annual report on Form 10-K dated December 31, 1988, File No. 0-11094. Said Exhibit 3.2 is incorporated herein by this reference. *10.1 Employment Agreement with Mr. Robert E. Ivy dated July 1, 1987. This agreement was filed on July 10, 1987, as Exhibit 10.1 to Registrant's report on Form 8-K dated June 30, 1987, File No. 0- 11094. Said Exhibit 10.1 is incorporated herein by this reference. *10.2 Stock Option Agreement with Mr. Robert E. Ivy dated July 1, 1987. This agreement was filed on July 10, 1987, as Exhibit 10.2 to Registrant's report on Form 8-K dated June 30, 1987, File No. 0-11094. Said Exhibit 10.2 is incorporated herein by this reference. *10.3 Amendment dated November 1, 1988, to the Stock Option Agreement with Mr. Robert E. Ivy dated July 1, 1987. This agreement was filed on March 13, 1989, as Exhibit 10.3 to Registrant's report on Form 10-K dated December 31, 1988, File No. 0-11094. Said Exhibit 10.3 is incorporated herein by this reference. *10.4 Amendment dated January 30, 1989, to the Employment Agreement with Mr. Robert E. Ivy dated July 1, 1987. This agreement was filed on March 13, 1989, as Exhibit 10.4 to Registrant's report on Form 10-K dated December 31, 1988, File No. 0-11094. Said Exhibit 10.4 is incorporated herein by this reference. *10.5 Second amendment dated March 5, 1990, to the Stock Option Agreement with Mr. Robert E. Ivy dated July 1, 1987. This agreement was filed on May 4, 1990, as Exhibit 10.1 to Registrant's report on Form 10-Q dated March 31, 1990, File No. 0-11094. Said Exhibit 10.1 is incorporated herein by this reference. *10.6 Third amendment dated April 25, 1991, to the Stock Option Agreement with Mr. Robert E. Ivy dated July 1, 1987. This agreement was filed on August 9, 1991, as Exhibit 10.3 to Registrant's report on Form 10-Q dated June 30, 1991, File No. 0-11094. Said Exhibit 10.3 is incorporated herein by this reference. *10.7 1986 Stock Option Plan (as amended and restated effective April 29, 1992). This plan was filed on August 5, 1992, as Exhibit 10.2 to Registrant's report on Form 10-Q dated June 30, 1992, File No. 0-11094. Said Exhibit 10.2 is incorporated herein by this reference. 43 Exhibit No. Description and Incorporation by Reference - Continued - ----------- ------------------------------------------ *10.8 1996 Stock Option Plan adopted by stockholders on April 24, 1996. This plan was filed on March 18, 1996, as Appendix A to Registrant's definitive proxy statement for the Annual Stockholders' Meeting held on April 24, 1996, File No. 0-11094. Said Appendix A is incorporated herein by this reference. *10.9 1996 Directors' Stock Option Plan adopted by the Board of Directors on July 24, 1996. Stockholder approval will be requested at the Annual Meeting of Stockholders which will be held on April 30, 1997. This plan was filed on March 19, 1997, as Appendix A to Registrant's definitive proxy statement for such Annual Meeting of Stockholders, File No. 0-11094. Said Appendix A is incorporated herein by this reference. **24 Consent of independent auditors. ***27 Financial Data Schedule. *Management contract or compensatory plan or arrangement **Filed herewith ***Filed only electronically
(b) Reports on Form 8-K There were no reports on Form 8-K filed by Registrant during the fourth quarter of the fiscal year ended December 31, 1996. 44 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RIBI IMMUNOCHEM RESEARCH, INC. Date: March 26, 1997 By: /s/ Robert E. Ivy ---------------------- ----------------------------------------- Robert E. Ivy, Chief Executive Officer, President and Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: March 26, 1997 By: /s/ Robert E. Ivy ---------------------- ----------------------------------------- Robert E. Ivy, Chief Executive Officer, President and Chairman of the Board (principal executive officer) Date: March 26, 1997 By: /s/ Vern D. Child ---------------------- ----------------------------------------- Vern D. Child, Vice President Finance and Treasurer (principal financial and accounting officer) Date: March 26, 1997 By: /s/ John L. Cantrell ---------------------- ----------------------------------------- John L. Cantrell, Executive Vice President and Director Date: March 26, 1997 By: /s/ Philipp Gerhardt ---------------------- ----------------------------------------- Philipp Gerhardt, Director Date: March 26, 1997 By: /s/ Paul Goddard ---------------------- ----------------------------------------- Paul Goddard, Director Date: March 26, 1997 By: /s/ Mark I. Greene ---------------------- ----------------------------------------- Mark I. Greene, Director Date: March 26, 1997 By: /s/ Thomas N. McGowen, Jr. ---------------------- ----------------------------------------- Thomas N. McGowen, Jr., Director Date: March 26, 1997 By: /s/ Frederick B. Tossberg ---------------------- ----------------------------------------- Frederick B. Tossberg, Director 45 RIBI IMMUNOCHEM RESEARCH, INC. EXHIBIT INDEX
Exhibit No. Description and Incorporation by Reference Page - ---------- ------------------------------------------ ---- 3.1 Restated Certificate of Incorporation. This certificate was filed June 22, 1992, as Exhibit 4.1 to Registrant's registration statement on Form S-3, Registration No. 33- 48713. Said Exhibit 4.1 is incorporated herein by this reference. 3.2 Amended Bylaws of the Company. These Bylaws were filed on March 13, 1989, as Exhibit 3.2 to Registrant's annual report on Form 10-K dated December 31, 1988, File No. 0- 11094. Said Exhibit 3.2 is incorporated herein by this reference. *10.1 Employment Agreement with Mr. Robert E. Ivy dated July 1, 1987. This agreement was filed on July 10, 1987, as Exhibit 10.1 to Registrant's report on Form 8-K dated June 30, 1987, File No. 0-11094. Said Exhibit 10.1 is incorporated herein by this reference. *10.2 Stock Option Agreement with Mr. Robert E. Ivy dated July 1, 1987. This agreement was filed on July 10, 1987, as Exhibit 10.2 to Registrant's report on Form 8-K dated June 30, 1987, File No. 0-11094. Said Exhibit 10.2 is incorporated herein by this reference. *10.3 Amendment dated November 1, 1988, to the Stock Option Agreement with Mr. Robert E. Ivy dated July 1, 1987. This agreement was filed on March 13, 1989, as Exhibit 10.3 to Registrant's report on Form 10-K dated December 31, 1988, File No. 0-11094. Said Exhibit 10.3 is incorporated herein by this reference. *10.4 Amendment dated January 30, 1989, to the Employment Agree- ment with Mr. Robert E. Ivy dated July 1, 1987. This agreement was filed on March 13, 1989, as Exhibit 10.4 to Registrant's report on Form 10-K dated December 31, 1988, File No. 0-11094. Said Exhibit 10.4 is incorporated herein by this reference. *10.5 Second amendment dated March 5, 1990, to the Stock Option Agreement with Mr. Robert E. Ivy dated July 1, 1987. This agreement was filed on May 4, 1990, as Exhibit 10.1 to Regis- trant's report on Form 10-Q dated March 31, 1990, File No. 0- 11094. Said Exhibit 10.1 is incorporated herein by this reference. *10.6 Third amendment dated April 25, 1991, to the Stock Option Agreement with Mr. Robert E. Ivy dated July 1, 1987. This agreement was filed on August 9, 1991, as Exhibit 10.3 to Registrant's report on Form 10-Q dated June 30, 1991, File No. 0-11094. Said Exhibit 10.3 is incorporated herein by this reference. 46 RIBI IMMUNOCHEM RESEARCH, INC. EXHIBIT INDEX Exhibit No. Description and Incorporation by Reference - Continued Page - ---------- ------------------------------------------ ---- *10.7 1986 Stock Option Plan (as amended and restated effective April 29, 1992). This plan was filed on August 5, 1992, as Exhibit 10.2 to Registrant's report on Form 10-Q dated June 30, 1992, File No. 0-11094. Said Exhibit 10.2 is incorporated herein by this reference. *10.8 1996 Stock Option Plan adopted by stockholders on April 24, 1996. This plan was filed on March 18, 1996, as Appendix A to Registrant's definitive proxy statement for the Annual Stockholders' Meeting held on April 24, 1996, File No. 0-11094. Said Appendix A is incorporated herein by this reference. *10.9 1996 Directors' Stock Option Plan adopted by the Board of Directors on July 24, 1996. Stockholder approval will be requested at the Annual Meeting of Stockholders which will be held on April 30, 1997. This plan was filed on March 19, 1997, as Appendix A to Registrant's definitive proxy statement for such Annual Meeting of Stockholders, File No. 0-11094. Said Appendix A is incorporated herein by this reference. **24 Consent of independent auditors. 48 ***27 Financial Data Schedule. *Management contract or compensatory plan or arrangement **Filed herewith ***Filed only electronically
47 Exhibit 24 KPMG Peat Marwick LLP 1000 First Interstate Center 401 N. 31st Street P.O. Box 7108 Billings, MT 59103 Accountants' Consent The Board of Directors Ribi ImmunoChem Research, Inc.: We consent to incorporation by reference in the registration statements No. 33- 6513, No. 333-18341 and No. 33-73478 filed on Form S-8 and registration statements No. 33-44391, No. 33-48713 and No. 33-69984 filed on Form S-3 of Ribi ImmunoChem Research, Inc. of our report dated January 20, 1997, relating to the balance sheets of Ribi ImmunoChem Research, Inc. as of December 31, 1996 and 1995, and the related statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996, which report appears in the December 31, 1996 annual report on Form 10-K of Ribi ImmunoChem Research, Inc. KPMG Peat Marwick LLP Billings, Montana March 24, 1997 48 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S BALANCED SHEETS AT DECEMBER 31, 1996 AND 1995, AND STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000352331 RIBI IMMUNOCHEM RESEARCH, INC. 1,000 YEAR DEC-31-1996 JAN-1-1996 DEC-31-1996 432 14,080 52 0 1,268 16,105 16,312 4,711 28,298 1,451 0 0 0 19 26,828 28,298 1,559 4,623 988 988 6,203 0 0 (5,589) 0 (5,589) 0 0 0 (5,589) (0.30) (0.30)
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