-----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, LmtBkzc7jUqapuftNWcgy5tJcaoqW5y6Snh1F8pkMSYa5TCY0faJpuZUms9uT6OJ gZe5lzSHP9BKq1m/cK9WcQ== 0000912057-00-010203.txt : 20000308 0000912057-00-010203.hdr.sgml : 20000308 ACCESSION NUMBER: 0000912057-00-010203 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000307 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMMUNEX CORP /DE/ CENTRAL INDEX KEY: 0000719529 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 510346580 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-12406 FILM NUMBER: 562664 BUSINESS ADDRESS: STREET 1: 51 UNIVERSITY ST CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: 2065870430 MAIL ADDRESS: STREET 1: 51 UNIVERSITY STREET CITY: SEATLE STATE: WA ZIP: 98101 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 1999 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-12406 ------------------------ IMMUNEX CORPORATION (Exact name of registrant as specified in its charter) WASHINGTON 51-0346580 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization)
51 UNIVERSITY STREET, SEATTLE, WA 98101 (Address of principal executive offices) (206) 587-0430 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE ------------------------ 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 amendments to this Form 10-K. / / The approximate aggregate market value of the voting stock held by nonaffiliates of the registrant as of February 25, 2000 was: $15,526,735,910. Common stock outstanding at February 25, 2000: 166,112,429 shares. DOCUMENTS INCORPORATED BY REFERENCE: (1) Portions of the Company's definitive Proxy Statement for the annual meeting of shareholders to be held on April 25, 2000, are incorporated by reference in Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- PART I ITEM 1. BUSINESS......................................................... 1 General.......................................................... 1 Marketed Products................................................ 2 ANTI-INFLAMMATORY........................................... 2 ONCOLOGY.................................................... 3 Research and Product Development................................. 4 NEW INDICATIONS FOR MARKETED PRODUCTS....................... 4 INVESTIGATIONAL PRODUCTS IN HUMAN CLINICAL TRIALS........... 5 PRECLINICAL RESEARCH AND DEVELOPMENT PIPELINE............... 5 CYTOKINE PRODUCTS........................................... 6 ADDITIONAL CYTOKINES AND OTHER NEW MOLECULES................ 8 RECEPTOR PRODUCTS........................................... 9 RESEARCH COLLABORATIONS..................................... 12 NON-BIOLOGICAL ONCOLOGY PRODUCTS............................ 13 Relationship with AHP and Cyanamid............................... 14 1993 MERGER................................................. 14 GOVERNANCE AGREEMENT........................................ 14 TACE AGREEMENTS............................................. 15 TNFR LICENSE AND DEVELOPMENT AGREEMENT...................... 15 ENBREL PROMOTION AGREEMENT.................................. 15 PRODUCT RIGHTS AGREEMENT.................................... 17 Convertible Subordinated Note.................................... 18 Marketing and Distribution....................................... 18 ENBREL...................................................... 18 ONCOLOGY AND OTHER PRODUCTS................................. 19 DISTRIBUTION................................................ 19 Competition...................................................... 19 LEUKINE..................................................... 20 NOVANTRONE.................................................. 20 ENBREL...................................................... 20 GENERIC ONCOLOGY PRODUCTS................................... 21 Raw Materials and Supply......................................... 21 Government Regulation............................................ 22 Patents, Licenses and Trademarks................................. 23 PATENTS ON BIOLOGICAL PRODUCTS.............................. 24 PATENTS ON NON-BIOLOGICAL ONCOLOGY PRODUCTS................. 25 PATENT AND TECHNOLOGY LICENSES.............................. 25 TRADEMARKS.................................................. 26 Properties....................................................... 26 Personnel........................................................ 26 Risks............................................................ 27 ITEM 2. PROPERTIES....................................................... 32 ITEM 3. LEGAL PROCEEDINGS................................................ 32 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 32
ii
PAGE ---- PART II ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS......................................... 33 ITEM 6. SELECTED FINANCIAL DATA.......................................... 33 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................... 34 Results of Operations............................................ 34 Overview.................................................... 34 Revenues.................................................... 34 Operating Expenses.......................................... 35 Other Income (Expense)...................................... 36 Provision for Income Taxes.................................. 36 Liquidity and Capital Resources.................................. 36 Outlook.......................................................... 37 Year 2000........................................................ 38 Market Risk...................................................... 38 ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK...... 39 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................... 39 Consolidated Balance Sheets...................................... 40 Consolidated Statements of Operations............................ 41 Consolidated Statements of Shareholders' Equity.................. 42 Consolidated Statements of Cash Flows............................ 43 Notes to Consolidated Financial Statements....................... 44 Note 1. Organization and Basis of Presentation.............. 44 Note 2. Summary of Significant Accounting Policies.......... 44 Note 3. Investments......................................... 46 Note 4. Property, Plant and Equipment....................... 47 Note 5. Long-term Obligations............................... 47 Note 6. Shareholders' Equity................................ 48 Note 7. Income Taxes........................................ 50 Note 8. Employee Benefits................................... 52 Note 9. Transactions with AHP............................... 52 Note 10. Commitments and Contingencies...................... 54 Note 11. Concentrations of Risk............................. 55 Note 12. Net Income per Common Share........................ 56 Note 13. Subsequent Events.................................. 56 Note 14. Quarterly Financial Results (unaudited)............ 57 Report of Ernst & Young LLP, Independent Auditors........... 58 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........................................ 59 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............. 59 ITEM 11. EXECUTIVE COMPENSATION.......................................... 59 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................. 59 ITEM 13. RELATIONSHIPS AND RELATED TRANSACTIONS.......................... 59 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................................................... 60
iii PART I ITEM 1. BUSINESS Our disclosure and analysis in this report and in our 1999 Annual Report to shareholders contain forward-looking statements. Forward-looking statements provide our current expectations or forecasts of future events. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this report, in the 1999 Annual Report and in any other public statements we make may turn out to be wrong. Inaccurate assumptions we might make and known or unknown risks and uncertainties can affect our forward-looking statements. Consequently, no forward-looking statement can be guaranteed and our actual results may differ materially. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Annual Reports on Form 10-K. Also note that we provide a cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our business under the caption RISKS of this report. These are risks that we think could cause our actual results to differ materially from expected and historical results. Other risks besides those listed in this report could also adversely affect us. GENERAL Immunex Corporation is a biopharmaceutical company that discovers, develops, manufactures and markets innovative therapeutic products for the treatment of human diseases, including cancer, infectious diseases and immunological disorders such as rheumatoid arthritis. Immunex was founded in 1981. We are a leader in the scientific exploration of the human immune system. Our products improve quality of life and help people enjoy longer, healthier and more productive lives. Our products are currently marketed in the United States and are available by prescription only. Our research focus has produced a pipeline of potential products that targets some of the most serious medical challenges people face, including cancer, multiple sclerosis, heart disease and asthma. American Home Products Corporation, or AHP, through several of its wholly owned subsidiaries, owns approximately 54% of the outstanding common stock of Immunex. AHP is one of the world's largest research-based pharmaceutical and healthcare products companies. Our home page on the Internet is at www.immunex.com. Information contained on our Web site does not constitute part of this report. Our business is regulated primarily by the U.S. Food and Drug Administration, or FDA. As we discuss under the caption GOVERNMENT REGULATION, the FDA regulates the products we sell, our manufacturing processes and our promotion and advertising. 1 MARKETED PRODUCTS Almost all of our product revenues come from products in two major therapeutic classes: anti-inflammatory and oncology. Our marketed products in the United States can be grouped as follows:
ANTI-INFLAMMATORY ONCOLOGY - ----------------- -------- ENBREL-REGISTERED TRADEMARK- LEUKINE-REGISTERED TRADEMARK- (etanercept) (sargramostim, GM-CSF) NOVANTRONE-REGISTERED TRADEMARK- (mitoxantrone for injection concentrate) THIOPLEX-REGISTERED TRADEMARK- (thiotepa for injection) AMICAR-REGISTERED TRADEMARK- (aminocaproic acid) Methotrexate sodium injectable Leucovorin calcium
We own rights to ENBREL in the United States and Canada, and AHP owns rights to ENBREL in all other countries. We own worldwide rights to LEUKINE and U.S. rights to the other marketed products listed above. A summary of our marketed products is provided below. ANTI-INFLAMMATORY ENBREL. ENBREL, our newest product, was approved by the FDA on November 2, 1998, and launched in the United States on November 4, 1998. ENBREL is our brand name, or trademark, for etanercept. ENBREL was the first in a new class of drugs, known as biologic response modifiers, for the treatment of rheumatoid arthritis, also referred to as RA. ENBREL represents a new approach to RA management and the first breakthrough treatment in many years for people with RA. ENBREL is a recombinant protein, which means that it is man-made by genetic engineering. ENBREL is based on a naturally occurring protein normally produced in the body. RA is a serious autoimmune disorder that causes the body's immune system to attack the lining of the joints and can lead to joint deformity or destruction, organ damage, disability and premature death. The FDA has approved ENBREL for the following indications or uses: - reduction of signs and symptoms of moderately to severely active RA in patients who have had an inadequate response to one or more disease-modifying, antirheumatic drugs, or DMARDs; - in combination with methotrexate in patients who do not respond adequately to methotrexate alone; and - for the treatment of moderately to severely active polyarticular-course juvenile rheumatoid arthritis, or JRA, in patients who have had an inadequate response to one or more DMARDs. ENBREL is sold in a powder formulation and is administered to patients as a subcutaneous injection, which means that it is injected under the skin. AHP and Immunex are marketing ENBREL in the United States under the ENBREL Promotion Agreement, which we discuss below under the caption RELATIONSHIP WITH AHP AND CYANAMID. ENBREL acts by supplementing the body's natural process of regulating levels of tumor necrosis factor, or TNF, a protein known to be pivotal to the RA disease process. In clinical trials, ENBREL has been shown to reduce pain and duration of morning stiffness and improve swollen and tender joints, enabling patients to better participate in daily activities. ENBREL acts by binding to and neutralizing TNF. TNF is one of the dominant cytokines or proteins that play an important role in the cascade of reactions that cause the inflammatory process of RA. ENBREL inhibits the binding of TNF molecules to cell surface TNF receptors, or TNFR. The binding of ENBREL to TNF renders the bound TNF biologically inactive, resulting in significant reduction in inflammatory activity. 2 ONCOLOGY LEUKINE. Immunex discovered and developed LEUKINE as our first marketed product. We launched LEUKINE in the United States in 1991. LEUKINE is our trademark for sargramostim. LEUKINE is sometimes referred to as granulocyte-macrophage colony stimulating factor, or GM-CSF. LEUKINE is a recombinant form of a protein, called a cytokine, that is almost identical to a protein normally produced in the body. This cytokine helps to increase the number and improve the function of specific types of white blood cells. These white blood cells, which are made in the bone marrow, help prevent infections. LEUKINE is only available in the United States and is marketed by our specialty sales force. While LEUKINE is available in both multi-dose liquid and powder formulations, most of our sales are of the multi-dose liquid formulation. The FDA has approved LEUKINE for the following indications: - facilitating allogeneic and autologous bone marrow transplant therapies currently used for treatment of acute leukemia, lymphoma, and Hodgkin's disease and in rescuing patients whose bone marrow transplant grafts have failed; - accelerating neutrophil recovery and reducing mortality in treatment of patients with acute myelogenous leukemia; and - for use in peripheral blood progenitor cell mobilization and post-transplantation support. NOVANTRONE. NOVANTRONE is our trademark for mitoxantrone for injection concentrate. NOVANTRONE is a compound similar to doxorubicin and idarubicin, but with a molecular change that results in less damage to the heart. NOVANTRONE is sold in a concentrated liquid form for injection. The FDA has approved NOVANTRONE for the following indications: - initial therapy of acute nonlymphocytic leukemia; and - in combination with steroids, for treatment of patients with pain related to hormone refractory prostate cancer. When used in combination with steroids, therapy with NOVANTRONE has been shown to significantly reduce pain and improve quality of life in patients with hormone refractory prostate cancer. In 1997, the FDA authorized us to supplement the approved labeling for NOVANTRONE to cite clinical results showing its potential, in combination with corticosteroids, to reduce levels of prostate-specific antigen, also known as PSA. PSA is an important indicator used by many physicians and patients to monitor prostate cancer. On January 28, 2000, the FDA Peripheral and Central Nervous System Drugs Advisory Panel unanimously recommended NOVANTRONE for approval to slow the worsening of neurologic disability and to reduce the relapse rate in patients with clinically worsening forms of relapsing-remitting and secondary progressive multiple sclerosis. This FDA Advisory Panel recommendation, although not binding, will be considered by the FDA in its final review of our new drug application, or NDA, for NOVANTRONE. THIOPLEX. THIOPLEX is our trademark for a powder formulation of thiotepa for injection. Thiotepa is a cytotoxic agent, which means that it kills cells. THIOPLEX is approved for the palliative treatment of a wide variety of tumor types, which means that it alleviates symptoms without curing the underlying disease. The FDA has approved THIOPLEX for a number of oncology indications. We have been selling and distributing THIOPLEX in the United States since FDA approval of a supplemental NDA in December 1994. AMICAR. AMICAR is our trademark for aminocaproic acid. AMICAR is used to decrease bleeding in specific surgical procedures and other medical situations. We sell syrup, tablet and powder injectable formulations of AMICAR. AMICAR has generic competition from another company. METHOTREXATE SODIUM INJECTABLE. Methotrexate sodium injectable is an antimetabolite, a substance that replaces a particular metabolite, that is used in the treatment of a number of neoplastic, or tumor, diseases. Patients with breast cancer, non-Hodgkin's lymphoma and lung cancer benefit from this product. Methotrexate sodium injectable has significant generic competition. We distribute this product in the United States under a distribution agreement with American Cyanamid Company, or Cyanamid, which is a wholly owned subsidiary of AHP. 3 LEUCOVORIN CALCIUM. Leucovorin calcium is used in methotrexate rescue therapy and in modulation of 5-fluorouracil drug therapy in advanced colorectal cancer. We sell both tablet and powder formulations of leucovorin calcium. Leucovorin calcium has significant generic competition. RESEARCH AND PRODUCT DEVELOPMENT Since Immunex was founded in 1981, we have focused our scientific efforts on understanding the biology of the immune system. Our goal is to understand the complex interactions between cells of the immune system and other tissues that can trigger the underproduction or overabundance of key immune system components, leading to serious human diseases. From this research focus we have created a portfolio of proprietary molecules and other technology that has produced a number of promising biological therapeutic candidates. We spent $126.7 million in 1999, $120.0 million in 1998 and $109.3 million in 1997 on research and development. These amounts include expenses related to third-party research collaborations and the acquisition of third-party product rights. NEW INDICATIONS FOR MARKETED PRODUCTS We recognize that an efficient way to generate increased revenue is by adding new indications to a product that is already on the market. We have increased our focus on development activities to find potential new indications for our existing drugs. Our goal is to build pharmaceutical franchises and expand the commercial usefulness and revenue-producing ability of our key products. We are studying several of our key marketed products in the indications and research areas listed below.
MARKETED PRODUCT INDICATION/RESEARCH AREA DEVELOPMENT STATUS - ---------------- ------------------------ ------------------ - - ENBREL Disease modification of active Supplemental biologics license RA application, or sBLA, filed with FDA in July 1999 Chronic heart failure Phase II/III Psoriatic Arthritis Phase III Psoriasis Phase I/II - - LEUKINE Immune stimulation/ Phase II/III immunomodulation for malignant melanoma Mucositis Phase II/III Venous stasis ulcers Phase II Anti-tumor adjuvancy; vaccine Phase II adjuvancy - - NOVANTRONE Secondary progressive multiple NDA filed with FDA in June 1999; sclerosis, or MS broader MS indication recommended by FDA Advisory Panel in January 2000
4 INVESTIGATIONAL PRODUCTS IN HUMAN CLINICAL TRIALS We are studying the following proprietary investigational biotechnology products in the indications and research areas listed below. We own worldwide rights to each of these products, subject to a right of first refusal held by AHP for NUVANCE-TM- (Interleukin-4 receptor, or IL-4R) under a Product Rights Agreement. We are not obligated to accept any AHP offer for NUVANCE under its right of first refusal. Details about the Product Rights Agreement are provided below under the caption RELATIONSHIP WITH AHP AND CYANAMID.
PRODUCT INDICATION/RESEARCH AREA DEVELOPMENT STATUS - ------- ------------------------ ------------------ - - NUVANCE (IL-4R), a soluble Asthma Phase II receptor that binds to and neutralizes a cytokine known as Interleukin-4, or IL-4 - - MOBISTA-TM- (Flt3 ligand, or Anti-cancer (prostate, non- Phase II Flt3L) (formerly Mobist), a Hodgkin's lymphoma, malignant cytokine that induces the melanoma) proliferation of blood progenitor cells and specialized immune cells (dendritic cells and natural killer cells) Peripheral blood stem cell Phase II mobilization and transplantation, dendritic cell growth and mobilization - - AVREND-TM- (CD40 ligand, or Metastatic renal cell carcinoma Phase II CD40L), an immune system molecule that plays a primary role in various immune processes and directly arrests the growth of some types of tumors Epithelial solid tumors Phase I
PRECLINICAL RESEARCH AND DEVELOPMENT PIPELINE Innovation by our research and development operations is very important to the success of our business. Our goal is to discover, develop and bring to market innovative products that address major unmet healthcare needs. This goal has been supported by our substantial research and development investments. To get the most value from our molecular portfolio, we are focusing first on those product candidates with the largest market potential. Our most promising preclinical candidates are listed below.
MOLECULE INDICATION/RESEARCH AREA STATUS - -------- ------------------------ ------ - - TNF related apoptosis Anti-cancer Pre-investigational new inducing ligand, or drug application, or IND; TRAIL/Apo2 ligand collaboration with (Apo2L) Genentech, Inc. - - Interleukin-1 receptor Anti-inflammatory, Pre-IND development Type II (IL-1R TYPE II) osteoporosis, stroke, myeloma 5 - - Interleukin-15 (IL-15) Chemo/radiotherapy-induced Late preclinical mucositis - - TNF-alpha converting Inflammation, RA Late preclinical; licensed enzyme (TACE) antagonist to AHP - - ORK/Tek Anti-angiogenesis Late preclinical - - Soluble CD39 Stroke, cardiovascular Late preclinical - - Receptor activator of Osteoporosis Late preclinical nuclear factor Kappa B (RANK) - - 4-1BB agonist Anti-cancer Early preclinical - - Therapeutic monoclonal Anti-inflammatory, anti- Early preclinical antibodies cancer, asthma
CYTOKINE PRODUCTS Our biotechnology products are recombinant analogs of cytokines and cytokine receptors. Cytokines are protein messengers that coordinate the functions of immune cells, which are white blood cells, and other types of cells and tissues. Immune cells include the following: - granulocytes, which are scavenger cells specialized for uptake and disposal of foreign particles or infectious agents; - B-cells, which produce antibodies to "flag" foreign particles or diseased cells for destruction; - helper T-cells, which control and coordinate the function of other immune cells; - macrophages and dendritic cells, which take up and process protein antigens for presentation to T-cells and B-cells; and - natural killer cells, which directly kill tumor cells or some types of virally infected cells. We have developed recombinant cytokine products capable of expanding and activating these immune cell populations, all of which must interact to provide a normal immune response. We have also cloned and expressed genes encoding cytokine receptors. Using genetic engineering techniques, we have produced soluble versions of cytokine receptors, including fusions of soluble receptors with fragments of human antibodies, that have been shown to be capable of suppressing cytokine-induced responses by specifically binding to and inactivating their target cytokines. We have also cloned and expressed genes coding for a number of different enzymes that are involved in secretion of cytokines, intracellular signalling proteins involved in immune responses, extracellular interactions, and viral proteins that interact with human immune proteins. These enzymes, signalling proteins, and viral proteins are being investigated as targets for small molecule drug discovery, antibody development or as protein therapeutics. 6 LEUKINE (SARGRAMOSTIM, GM-CSF). A number of clinical trials are underway to investigate whether LEUKINE could be approved for additional uses. These investigational uses include malignant melanoma, mucositis, venous stasis ulcers, anti-tumor adjuvancy and vaccine adjuvancy, and are described below. We are not actively working to secure FDA approval to add a chemotherapy-induced neutropenia indication to the label for LEUKINE. - MALIGNANT MELANOMA. In 1997, we announced positive results of an open-label Phase II clinical trial of LEUKINE as an adjuvant therapy following surgery to remove tumors in patients with advanced melanoma who were at high risk for relapse or death. This trial demonstrated that using LEUKINE as a therapy following surgery increased the one-year survival rate of patients with advanced stages of malignant melanoma when compared to matched historical control patients. We are supporting a controlled Phase III trial of LEUKINE in this patient population with a cooperative oncology group. - MUCOSITIS. Data from pilot clinical trials have indicated that LEUKINE may ameliorate chemo/ radiotherapy induced oral mucositis. We are supporting a controlled Phase III clinical trial of this potential indication with a cooperative radiation-oncology group. - VENOUS STASIS ULCERS. We are conducting a clinical development program to study LEUKINE in the healing of venous stasis ulcers. Pilot Phase I clinical trials were encouraging and a multi-center Phase II clinical trial is underway to determine dose and overall efficacy. If the Phase II clinical trial results are positive, the data could potentially support a Phase III clinical trial in this indication. - ANTI-TUMOR ADJUVANCY. In addition to the clinical trial of LEUKINE in malignant melanoma mentioned above, we are also supporting clinical trials conducted by an oncology group to study the potential of LEUKINE as an immune adjuvant therapy in breast cancer. - VACCINE ADJUVANCY. Various third parties are conducting clinical trials to investigate the potential of LEUKINE as a vaccine adjuvant. We have also conducted a clinical development program to study LEUKINE as a potential adjunctive therapy for patients with acquired immune deficiency syndrome, or AIDS. In 1998, results of a Phase II randomized, placebo-controlled, blinded clinical trial indicated that patients who received LEUKINE in addition to either RETROVIR-Registered Trademark- (zidovudine) or in combination with another nucleoside analog, experienced reductions in viral load and increases in CD4+ cell counts. Viral load is an important marker used by physicians and patients to monitor the progression of the human immunodeficiency virus, or HIV, disease. CD4+ cells, which help fight infections, are progressively depleted by HIV disease. In this clinical trial, the most frequently reported adverse event was anemia, occurring at a similar rate in both the LEUKINE and placebo groups. RETROVIR is a trademark of Glaxo Wellcome Inc. Results of an earlier small Phase I clinical trial reported in 1998 showed that LEUKINE was generally well tolerated and may have contributed to reductions in viral load and increases in CD4+ cell counts in a number of patients that received LEUKINE in combination with stable protease inhibitor regimens. In addition to the clinical trials for LEUKINE discussed above, in 1999 we completed a Phase III clinical trial studying the impact of LEUKINE on the incidence of opportunistic infections, survival, viral load, and CD4+ cell counts. Results of this Phase III clinical trial, which involved late-stage AIDS patients with CD4+ cell counts of less than 100, showed that while we did not meet our primary endpoints, we may have met some of our secondary endpoints. When we presented these Phase III clinical data to the FDA, the FDA concluded that these data did not support a regulatory filing for LEUKINE in this indication because the proposed efficacy claims for LEUKINE in HIV were based upon retrospectively defined endpoints, meaning that the endpoints of the clinical trials were defined after the clinical data was unblinded and analyzed. We are currently evaluating our development strategy for LEUKINE in HIV, which may include finding a strategic alliance partner for continued development. MOBISTA (FLT3L). We have cloned cDNAs encoding Flt3L, which is a ligand for the Flt3 receptor. Flt3L binds to a receptor located on primitive hematopoietic cells, and has been shown to be capable of mobilizing peripheral blood progenitor cells alone, and in combination with other cytokines such as LEUKINE or granulocyte-colony stimulating factor (G-CSF). MOBISTA is our trademark for Flt3L. In 1997, we completed Phase I safety trials of MOBISTA. The trials, which were conducted in healthy volunteers, showed that both single and multiple doses of MOBISTA could be safely administered. The multiple-dose trial also showed that MOBISTA increased the number of circulating peripheral blood progenitor cells. Phase II clinical trials of MOBISTA to mobilize peripheral blood progenitor cells for transplant, in conjunction with either LEUKINE or G-CSF, were completed in 1999 in patients with breast cancer or non-Hodgkin's lymphoma/ovarian cancer. 7 MOBISTA may also be useful as an anti-tumor agent or vaccine adjuvant, as a result of its capacity to generate dendritic cells. In 1999, we completed Phase II clinical trials of MOBISTA as an anti-tumor agent in patients with prostate cancer or non-Hodgkin's lymphoma, and in patients with malignant melanoma. No significant anti-tumor responses were observed in these Phase II clinical trials. Clinical trials of MOBISTA conducted to date have demonstrated that MOBISTA was generally well tolerated and provided sustained increases in dendritic cell populations and effectively mobilizes CD34+ cells. We are evaluating the best approach to using these characteristics of MOBISTA to facilitate immunotherapy of cancer or infectious diseases. AVREND (CD40L). We have cloned cDNAs encoding a ligand known as CD40L for the cell surface receptor CD40. CD40L is a protein primarily expressed on the surface of activated CD4+ T-cells. Its receptor, CD40, is expressed on B-cells, antigen presenting cells such as dendritic cells, macrophages and on some other normal and tumor cells. AVREND is our trademark for CD40L. Engagement of CD40 on antigen presenting cells by AVREND plays a key role in activating the immune system. Pre-clinical research has shown that AVREND can stop tumor growth and actually kill many tumor cell types. AVREND does this in two ways. The first way is by direct binding to its CD40 partner present on many tumor cell types generating a signal for the tumor cell to either stop growing or self destruct, also known as apoptosis. The second way is by stimulating specific immune responses to the tumor. In addition, in 1998 we reported preclinical data that showed that mice treated with a combination of MOBISTA and AVREND demonstrated a higher rate of tumor rejection than either molecule alone. Thus, it may be possible to develop combination cytokine therapies involving the use of MOBISTA and AVREND. We expect to carry out toxicology studies of this combination in 2000. AVREND also appears to be a required signal in the development of an antibody-based immune response and is required for the generation of cytotoxic T-cells. Thus, AVREND may also be useful as a vaccine adjuvant. In 1999, we completed a Phase I trial of AVREND in patients with B-cell non-Hodgkin's lymphoma and solid tumors. The results allowed us to move forward into a Phase II clinical trial in the most common form of kidney cancer, metastatic renal cell carcinoma. The results of this Phase II clinical trial are expected in early 2000. An additional Phase II clinical trial of AVREND in a separate solid tumor type is planned for 2000. ADDITIONAL CYTOKINES AND OTHER NEW MOLECULES Our scientists have cloned genes encoding several additional cytokines and other new molecules that are now being characterized in preclinical studies. - TRAIL/APO2L. In May 1999, we entered into a worldwide collaboration with Genentech to co-develop and market TRAIL/Apo2L. TRAIL/Apo2L appears in animal models to suppress tumor growth and causes remission of tumors, by a direct and specific mechanism known as apoptosis, or programmed cell death. TRAIL/Apo2L binds to at least four distinct receptors found on many tumor cells and signals these cells to destroy themselves through apoptosis. In preclinical research, TRAIL/Apo2L has been shown to cause a wide variety of tumor cells to undergo apoptosis while sparing normal cells. - IL-15. We have cloned and expressed cDNAs encoding a cytokine known as IL-15, a growth factor that shares some biological activities with Interleukin-2. In preclinical studies, IL-15 has been shown to protect intestinal epithelial cells in the mucosa from the harmful effects of chemotherapy or radiation. Other potential uses of IL-15 that have been suggested by preclinical studies include use as a treatment for HIV infection or as a treatment for muscle atrophy. We are currently evaluating our development strategy for IL-15, which may include licensing IL-15 rights to a collaborator or strategic alliance partner for continued development. - ORK/TEK. We cloned the human receptor tyrosine kinase called ORK and received a patent on the DNA encoding ORK in 1995. ORK is the receptor for the angiopoietins which stimulate the process of blood vessel development. We have constructed a soluble ORK molecule, which has been shown to prevent tumor angiogenesis, or new blood vessel development. This molecule has also been shown to retard tumor growth in experimental models of cancer. Tek is another name for ORK. - SOLUBLE CD39. CD39 is an enzyme that degrades adenosine diphosphate, or ADP. ADP is released by activated platelets and recruits additional platelets to form a clot. We have developed a soluble CD39, which retains the ability to degrade ADP. Soluble CD39 may have potential as a novel anti-thrombotic. We are developing soluble CD39 initially for stroke, since platelets have been shown to preferentially accumulate in the part of the brain subjected to stroke. 8 - RANK. Stimulation of the receptor named RANK results in development of osteoclasts which resorb bone. We are evaluating the potential of a soluble RANK receptor as an inhibitor of osteoclast development for osteoporosis and other conditions of bone resorption. - 4-1BB AGONIST. Recombinant 4-1BBL and agonistic anti-4-1BB antibodies are stimulators of anti-tumor immune responses via their effects on T-cells. We produced these molecules and tested them in IN VIVO tumor models in 1999. Combination studies of 4-1BB agonist with MOBISTA in tumor models suggest that these two cytokines have synergistic effects when used together. RECEPTOR PRODUCTS Cytokines act upon their target cells by binding to specific cell surface receptors. The binding of a cytokine to its receptor triggers a complex series of events within a responsive cell that transmits the cytokine's signal to that cell. This signal can stimulate cell division or production of antibodies, enzymes or other cytokines. In this way, circulating cytokines can control and coordinate the function of cells located throughout the body. Using genetic engineering techniques, our scientists have produced soluble versions of cytokine receptors. A soluble cytokine receptor retains the ability to bind to a specific cytokine, but lacks that portion of the natural receptor that is attached to a cell. This property enables the soluble cytokine receptor to circulate in the body after administration, where it can bind to and inactivate cytokines. By preventing interaction of the cytokines with immune cells, the soluble cytokine receptor neutralizes the development of an autoimmune or inflammatory response. With our success in obtaining FDA approval of ENBREL, we believe that soluble cytokine receptors can be effective as therapeutics to counteract autoimmune or inflammatory diseases. We have developed a comprehensive array of cytokine receptor technologies. As a result of our cytokine receptor research efforts, we have obtained proprietary rights relating to ENBREL, NUVANCE, Interleukin-1 receptor Type I (IL-1R TYPE I), IL-1R Type II, Interleukin-7 receptor (IL-7R), G-CSF receptor (G-CSFR), IL-15 receptor, Interleukin-17 receptor, TRAIL/Apo2L receptors, ORK receptor and RANK receptor. We are conducting additional clinical trials of ENBREL, a TNF receptor fusion protein, as a treatment for other diseases discussed below, including chronic heart failure, or CHF. We are also conducting clinical trials of NUVANCE as a therapy for asthma. We have decided to proceed with the development of a natural soluble form of IL-1R Type II as a potential treatment for inflammation, osteoporosis or other Interleukin-1, or IL-1, related diseases. We have also commenced a licensing program under our cytokine receptor patents to enable other companies to use our patented cytokine receptors in drug screening. Under this program, we granted a license to use G-CSFR for drug screening to one company in 1997, to a second company in 1998 and to a third company in 2000. We are continuing license discussions with other companies also interested in using G-CSFR or our IL-1R receptors in drug screening. ENBREL. TNF is a cytokine produced by activated T-cells and macrophages in the course of severe immune reactions. TNF has been implicated in the pathogenesis of RA, CHF, psoriatic arthritis, psoriasis, amyloidosis, myelodysplastic syndrome, multiple myeloma, Crohn's disease, Wegeners granulomatosis, gastric and duodenal ulcers, chronic prostatitis/pelvic pain syndrome, ovarian cancer, and numerous other clinical conditions. We have produced a soluble TNF receptor fusion protein, or TNFR:Fc, that combines two p80 TNF-binding domains derived from TNF receptor with a fragment of a human antibody molecule. Our trademark for TNFR:Fc, generically known as etanercept, is ENBREL. ENBREL exhibits a long serum half-life and has been shown to be capable of rapidly lowering serum TNF levels. We have successfully developed ENBREL as a therapeutic breakthrough for RA based on TNF inhibition. The FDA approved ENBREL for the treatment of advanced RA in November 1998. In 1999, we continued to collect long-term safety and efficacy data on ENBREL. Some RA patients have received ENBREL for over three years, and these data indicate that the response to ENBREL was sustained over time, and that there were no significant differences in rate or type of adverse event when patients continued to receive ENBREL over time. In May 1999, we announced an update to the prescribing information for ENBREL to advise doctors not to start the drug in patients who have an active infection, and for doctors to exercise caution when considering the use of ENBREL in patients with a history of recurring infections or with underlying conditions that may predispose patients to infections. The long-term effects of treatment with ENBREL on the development or course of serious infection, malignancy and autoimmune disease are unknown. 9 In 1998, we completed a clinical trial of ENBREL in patients with juvenile rheumatoid arthritis, or JRA, which began in 1997. JRA is an immune system disease that strikes before age 16. The results were consistent with results reported from clinical trials of ENBREL in patients with adult RA. The results of the clinical trial indicated that children and teenagers suffering from JRA experienced less pain and swelling in their joints and decreased incidence of disease activity when using ENBREL, compared with patients on placebo. On November 25, 1998, we filed an sBLA with the FDA for ENBREL to treat children and teenagers age 4-17 with moderately to severely active polyarticular-course JRA. On May 28, 1999, ENBREL was approved by the FDA for the treatment of moderately to severely active polyarticular-course JRA in patients who have had an inadequate response to one or more DMARDs. In November 1998, Immunex filed a new drug submission, or NDS, for ENBREL for the treatment of active RA with the Canadian Health Protection Bureau, or CHPB. We cannot be certain when, or if, the CHPB will approve this NDS. In February 2000, the European Medicines Evaluation Agency, or EMEA, approved ENBREL for the treatment of active RA in adults when the response to DMARDs, including methotrexate, has been inadequate. The EMEA also approved ENBREL in the treatment of polyarticular-course juvenile chronic arthritis. AHP owns rights to ENBREL outside the United States and Canada. We do not receive either royalties or a share of gross profits from sales of ENBREL outside the United States and Canada. ENBREL is the subject of a regulatory filing and clinical trials intended to result in additional FDA-approved indications. This filing and these clinical trials are described below. These investigational uses currently include disease modification of active RA, CHF, psoriatic arthritis and psoriasis. In addition, a number of clinical trials are underway or will be conducted with third party investigators in 2000 to investigate the use of ENBREL in multiple other disease settings. - DISEASE MODIFICATION OF ACTIVE RA. In May 1999, we announced the results of a large Phase III randomized, placebo-controlled, blinded clinical trial of ENBREL in earlier-stage methotrexate-naive RA patients. This Phase III clinical trial documented the ability of ENBREL to halt joint erosion resulting from RA in 75% of patients with early, active RA disease over a year of treatment. In July 1999, we filed an sBLA for ENBREL with the FDA for a new indication of prevention of structural damage in patients with active RA. A decision by the FDA on this sBLA is expected in 2000. We cannot be certain when, or if, the FDA will approve this sBLA. - CHF. In November 1997, results were announced of a small Phase I clinical trial of ENBREL in patients with CHF. The results indicated that a single dose of ENBREL reduced circulating levels of TNF and improved several clinical parameters. Based upon the results of a Phase I randomized, placebo-controlled, blinded, multiple-dose clinical trial of ENBREL in patients with CHF that were announced in March 1998, Immunex and AHP, our collaborator in the development of ENBREL, in 1999 commenced two large Phase II/III randomized, placebo-controlled, blinded clinical trials of ENBREL in patients with CHF. We are conducting one of these Phase II/III clinical trials in the United States, and AHP is conducting the other Phase II/III clinical trial in Europe and Australia. Accrual of patients in the U.S. clinical trial is projected to be completed in 2000. CHF is one form of heart disease that results when the heart is damaged from diseases such as high blood pressure, a heart attack, poor blood supply to the heart, a defective heart valve, atherosclerosis, rheumatic fever or heart muscle disease. The failing heart keeps working, but becomes inefficient, resulting in fluid retention, shortness of breath, fatigue and exercise intolerance. The condition often progresses and becomes irreversible. Research has shown that TNF is present in increased amounts in damaged heart tissue. TNF exerts its effects by interacting with specific TNF receptors that are on the surface of cells. When TNF binds with TNF receptors, it sets off a chain of events within the cell that may lead to further damage to the heart. ENBREL works by binding to TNF and preventing it from interacting with cell surface receptors that are on the cells in the heart and circulatory system. - PSORIATIC ARTHRITIS. In August 1999, we announced that results of a three-month 60-patient double-blind clinical trial indicated that psoriatic arthritis patients treated with ENBREL experienced improvement in the signs and symptoms of their disease and an increase in their functional ability and improved skin scores compared to patients who were treated with placebo. Psoriatic arthritis is a form of arthritis that occurs in patients with psoriasis, which is a form of skin disease. There are no FDA-approved treatments for this condition. Based on the results of this clinical trial, in the first half of 2000 we plan to begin enrolling patients in our six-month multi-center, Phase III randomized, placebo-controlled, blinded clinical trial of ENBREL in psoriatic arthritis. 10 - PSORIASIS. All of the patients in the foregoing psoriatic arthritis clinical trial for ENBREL will also exhibit psoriasis. Psoriasis is a skin disorder that most commonly appears as inflamed swollen skin lesions that can become extremely painful and disfiguring, and this disorder occurs in many patients that do not have psoriatic arthritis. We will be collecting data in our psoriatic arthritis clinical trial that will enable us to evaluate several secondary endpoints related to the safety and efficacy of ENBREL in the treatment of patients with psoriasis. If the results of our psoriatic arthritis clinical trial are positive for the psoriasis secondary endpoints, we would anticipate beginning a Phase II/III clinical trial of ENBREL in patients with psoriasis. NUVANCE (IL-4R). NUVANCE, which is our trademark for soluble IL-4R, is a recombinant human version of a naturally occurring protein, and represents a novel investigational approach to treating asthma. NUVANCE acts by binding to IL-4, which is a cytokine, or immune system protein, that is present in asthmatic lungs and that promotes production of specific types of antibodies, including the IgE antibody involved in allergic and asthmatic reactions. IL-4 mediates important functions in diseases such as asthma by facilitating production of numerous other cytokines which promote the pathology of the disease. The binding of NUVANCE to IL-4 renders the bound IL-4 biologically inactive, which may reduce the IL-4 driven signs and symptoms of asthma. Increased levels of IL-4 appear to be related to increased severity of asthma that results in breathing difficulty. Based on the results of our clinical trials with NUVANCE, we believe that NUVANCE may be effective in the treatment of asthma, and we intend to devote significant resources to developing NUVANCE for this disease. In February 1997, we announced the results of a Phase I clinical trial of NUVANCE in mild asthmatic patients. This dose-escalating trial, which involved a single dose of NUVANCE by inhalation of a nebulized, water-based formulation, showed that the product was generally well tolerated at the doses tested. During the course of the trial, patients reported reduced use of steroids and a decrease in asthma symptoms. In 1997, we repeated this Phase I trial of NUVANCE in moderate asthmatic patients, adding a placebo-control group, and similar results were obtained in 1998. We continued our clinical development of NUVANCE in Phase I/II clinical trials in moderate asthmatics. In early 1999, we completed a Phase I/II repeat dose randomized, placebo-controlled, blinded clinical trial to evaluate primarily the safety of nebulized NUVANCE in adult patients with moderate asthma. Efficacy parameters were also evaluated in this clinical trial. Based on the results of this first multi-dose clinical trial of NUVANCE, we decided to expedite the clinical development of NUVANCE. In this Phase I/II clinical trial, NUVANCE was generally well-tolerated for up to 12 weeks of once weekly treatment, and there were no serious adverse events related to the drug. The first Phase II randomized, placebo-controlled, blinded clinical trial of NUVANCE started in the second quarter of 1999 and will evaluate the safety and efficacy of NUVANCE for the long-term control of asthma. In this multi-center Phase II clinical trial, we are delivering NUVANCE as an aerosol by using a third-party collaborator's proprietary pulmonary drug delivery system, which means that the drug is delivered by inhalation into the lungs. The Phase II clinical trial results are expected to be available in the first half of 2000. In 1999, we also completed a Phase I safety and pharmacokinetic study of intravenous, subcutaneous and nebulized NUVANCE. In addition to the third-party collaborator whose proprietary pulmonary drug delivery system is being used in our Phase II clinical trial for NUVANCE, we are evaluating several other delivery device options for NUVANCE. Clinical development of NUVANCE could be delayed if unanticipated delays or problems arise in connection with design, manufacture, quality, regulatory or intellectual property issues associated with the delivery device(s) selected for NUVANCE. IL-1R TYPE II. IL-1 alpha and IL-1 beta bind to cell surface receptors of two types: Type I and Type II. Overproduction or inappropriate production of IL-1 has been implicated in the development of autoimmune, inflammatory and allergic diseases such as diabetes, asthma, systemic lupus erythematosus and inflammatory bowel disease, and also in the development of osteoporosis, RA, septic shock, stroke and periodontal disease. We have produced genetically engineered soluble IL-1 receptors of two types, designated Type I and Type II, and have conducted clinical trials of IL-1R Type I. Recent studies indicate that IL-1R Type II is superior to IL-1R Type I as an antagonist of IL-1, and we are currently focused on preclinical testing of IL-1R Type II. Based upon these data, we believe that IL-1R Type II may be of therapeutic value in the treatment of a number of inflammatory diseases such as those mentioned above, either alone or in combination with ENBREL. In 1999, we began process scale-up to produce IL-1R Type II for future toxicology studies. In 2000, we intend to produce IL-1R Type II for toxicology studies and to carry out pharmacokinetic and efficacy studies of IL-1R Type II in a primate model of arthritis. 11 RESEARCH COLLABORATIONS The biotechnology industry is moving rapidly to discover and develop novel therapeutics, in part by utilizing the rapidly accumulating knowledge concerning the human genome. Several biotechnology companies have accumulated significant genetic information from large-scale genomic DNA sequencing. Much of these data have already been incorporated into patent applications by these companies, and these companies will be incorporating more of these data into future patent applications. We currently do not know the impact that this patent application activity will have on our future gene discovery efforts. We have entered into a number of important research collaborations, using varied technology platforms, in an effort to gain a competitive edge in our continuing efforts to identify new drug candidates. TRAIL/APO2L WITH GENENTECH. In May 1999, we entered into a worldwide collaboration with Genentech to co-develop and market TRAIL/Apo2L. Each company had previously conducted extensive preclinical testing of different forms of TRAIL/Apo2L. The companies have formed a joint steering committee and project team which has selected Genentech's lead molecule for development, and which will manage the development process, and allocate clinical, manufacturing and marketing responsibilities to each company. Immunex and Genentech each have filed patent applications covering TRAIL/Apo2L and its uses, and Immunex was awarded a patent covering the TRAIL gene in June 1998. Under the terms of the collaboration agreement, the companies will share all development and commercialization costs. If TRAIL/Apo2L is successful in future clinical trials and receives regulatory approval, both companies have the right to co-promote TRAIL/Apo2L worldwide, and will share profits from the worldwide sales of the product. DIGITAL GENE TECHNOLOGIES. In December 1997, we announced a genomics research collaboration with Digital Gene Technologies, Inc., or DGT, using DGT's patented total gene expression analysis, or TOGA-TM-, platform to discover novel approaches to the diagnosis and treatment of inflammatory diseases of the gastrointestinal, or GI, system, including inflammatory bowel disease. TOGA is a method of identifying and determining the concentration of nearly all of the genes active in a sample cell or tissue. This program significantly enhances our discovery research programs in the field of GI biology. TOGA allows us to link our biological models to an important new technology that may provide us with new molecules to develop as therapeutics or as targets for small molecule discovery. For exclusivity in the field of GI inflammation, we have paid an up-front fee to DGT, with additional fees due over the course of the five-year agreement. In addition, we will pay DGT for assay processing and identification of new molecules. For each molecule successfully developed in the United States and Europe, we have agreed to pay DGT clinical milestone payments, plus a royalty on worldwide sales of that molecule. Through this research collaboration, during 1998, we obtained experimentation licenses on six new molecules and, during 1999, we obtained experimentation licenses on 84 new molecules. MEDAREX. In January 1999, we entered into a licensing agreement with Medarex, Inc. involving Medarex's HuMAb-Mouse-TM- technology. Under this agreement, we obtained the rights to use the HuMAb-Mouse technology for an unlimited number of targets for up to 10 years. We will pay Medarex technology access fees, and may also pay Medarex research payments, license fees and milestone payments, as well as royalties on commercial sales. The HuMAb-Mouse technology is a transgenic mouse system that creates high affinity, fully-human antibodies instead of mouse antibodies. Using standard, well proven laboratory techniques, scientists can produce these antibodies in a matter of months. We expect the incorporation of the HuMAb-Mouse technology into our broad drug discovery program to significantly enhance our continuing efforts to identify new drug candidates. The ability to generate human antibodies against our proprietary antigens will permit us to develop potential therapeutics without the risks associated with non-human antibodies. GENESIS. Since 1994, we have collaborated with Genesis Research and Development Corporation Limited, a New Zealand company. Genesis has sequenced cDNA libraries for specialized cell types to create a proprietary DNA database for Immunex. In addition, Genesis expresses and purifies novel proteins for biological experimentation at Genesis and Immunex, and provides molecular biology services for us. We are currently testing several genes identified by Genesis. 12 NON-BIOLOGICAL ONCOLOGY PRODUCTS BACKGROUND. As a result of the merger in 1993 of the predecessor to the current Immunex Corporation and Lederle Oncology Corporation, a subsidiary of Cyanamid created for the purpose of merging Cyanamid's Lederle Laboratories oncology business in the United States and Canada with our biopharmaceutical business, we acquired intellectual property rights, including marketing rights, in the United States and Canada relating to several non-biological oncology products. Of these products, the following are currently marketed in the United States: NOVANTRONE (mitoxantrone for injection concentrate), THIOPLEX (thiotepa for injection), AMICAR (aminocaproic acid), methotrexate sodium injectable and leucovorin calcium. The rights that we acquired as a result of the 1993 merger include patents, know-how, trademarks, clinical and other supporting data, as well as registrations and approvals from the FDA. Cyanamid also transferred to us its oncology marketing and sales force in the United States, but did not transfer to us any manufacturing facilities, research assets, other tangible assets or other personnel. We entered into various supply, license and distribution agreements with Cyanamid and its subsidiaries at the time of the 1993 merger relating to these products. NOVANTRONE. In addition to its current FDA-approved indications discussed above, NOVANTRONE is the subject of an NDA filed with the FDA for an additional FDA-approved indication for secondary progressive MS. MS is a chronic, debilitating disease of the central nervous system. The symptoms of MS result when a breakdown occurs in the myelin sheath, the fatty substance that insulates the nerve fibers of the brain and spinal cord. This demyelination process causes patches of scar tissue, or sclerosis, which interfere with the nerve's ability to transport messages from the brain to body parts. This condition can result in a variety of symptoms that range from numbness in the limbs to complete paralysis. NOVANTRONE has been tested in two European clinical trials in patients with MS. In 1997, it was reported that data from the smaller European Phase II clinical trial was positive. In 1998, we reported that in preliminary results of the second European trial, which was a larger Phase III clinical trial, NOVANTRONE had a statistically significant impact on relapse rate and disability progression in patients with secondary progressive MS. Magnetic resonance imaging data were also reported that supported these clinical findings. In this Phase III clinical trial, NOVANTRONE was administered by short, intravenous infusion once every three months, and treatment with NOVANTRONE resulted in generally manageable side effects that were primarily mild to moderate. Additional follow-up data presented in 1999 indicated that one year after treatment was stopped, patients treated with NOVANTRONE continued to experience a reduction in their number of attacks, and a delay in their disability progression. Other treatments currently approved for MS require a subcutaneous or intramuscular self-injection on a daily or weekly basis. In June 1999, we filed an NDA with the FDA to expand the use of NOVANTRONE for the treatment of patients with secondary progressive MS. The FDA granted priority review to this NDA. On January 28, 2000, an FDA Advisory Panel unanimously recommended NOVANTRONE for approval to slow the worsening of neurologic disability and to reduce the relapse rate in patients with clinically worsening forms of relapsing-remitting and secondary progressive MS. This FDA Advisory Panel recommendation, although not binding, will be considered by the FDA in its final review of our NDA for NOVANTRONE. We cannot be certain when, or if, the FDA will approve this NDA for NOVANTRONE. PACLITAXEL. Paclitaxel is a chemotherapeutic agent that is used in treatment of various cancers. Bristol-Myers Squibb Company, or BMS, currently markets paclitaxel for treatment of metastatic breast, ovarian, and non-small cell lung cancers and for AIDS-related Kaposi's sarcoma in the United States under the trademark TAXOL-REGISTERED TRADEMARK-. BMS's marketing exclusivity for paclitaxel in the United States under the Drug Price Competition and Patent Term Restoration Act of 1984 (Waxman-Hatch Legislation) expired December 29, 1997. We submitted an abbreviated new drug application, or ANDA, to the FDA for generic paclitaxel injection on August 8, 1997, which was accepted for review by the FDA on October 7, 1997. Our ANDA contains a certification by Immunex, known as a "Paragraph IV" certification, that U.S. Patents 5,641,803 and 5,670,537 held by BMS and relating to methods of using TAXOL in the treatment of cancer patients are invalid and not infringed by the filing of our paclitaxel ANDA. On January 8, 1998, BMS filed a complaint in the U.S. District Court in Newark, New Jersey, alleging infringement by Immunex of these two U.S. patents pertaining to TAXOL. We had anticipated this legal action by BMS, and because of BMS's legal action, the FDA will withhold approval of our ANDA until the earlier of June 2000, which is approximately seven and one-half years after the original approval of TAXOL, or until a court enters a judgment finding the BMS patents invalid, unenforceable or not infringed. In June 1998, we announced a collaboration with Baker Norton Pharmaceuticals, a wholly owned subsidiary of IVAX Corporation, to market paclitaxel products in the United States, subject to FDA approval. Baker Norton had filed an ANDA in November 1997 requesting FDA approval of its generic paclitaxel product. BMS is also suing Baker Norton for infringement of BMS's patents. Baker Norton agreed to buy our paclitaxel ANDA that was filed with the FDA, as well as 13 our paclitaxel inventory, in exchange for $6.9 million. The FDA has confirmed that Immunex's ANDA is the first filed with the FDA for a generic paclitaxel product. Baker Norton, as part of our collaboration, will direct the defense of both BMS lawsuits, and we will reimburse Baker Norton for a percentage of its paclitaxel patent litigation expenses relating to these ANDA applications. If Immunex and Baker Norton prevail in the pending patent litigation with BMS, and the FDA approves this ANDA, the paclitaxel injection product that is covered by this ANDA would be entitled to 180 days of shared market exclusivity with TAXOL prior to the entry of any other generic paclitaxel products. The FDA is expected to continue its review of this ANDA during the litigation. However, our new collaboration with Baker Norton may not be successful, this generic paclitaxel product may not be granted co-exclusivity, the FDA may not approve our ANDA, and BMS may obtain or enforce additional patents relating to TAXOL. If a paclitaxel injection product based on our ANDA is marketed in the United States, Baker Norton will pay us royalties based on net sales of this generic paclitaxel injection product. Also, at Baker Norton's request, we will help them promote this generic paclitaxel injection product using our oncology sales force. Baker Norton has agreed to pay us additional fees if we engage in these promotional efforts. Baker Norton also filed an NDA with the FDA for PAXENE-Registered Trademark-, its branded form of paclitaxel, for use in the treatment of Kaposi's sarcoma. Baker Norton appointed us to promote PAXENE in the United States if the FDA approves that product. We will earn fees based on all sales of PAXENE in the United States during the time that we promote PAXENE. RELATIONSHIP WITH AHP AND CYANAMID 1993 MERGER As a result of the 1993 merger discussed earlier, AHP, through several of its wholly owned subsidiaries, including Cyanamid, currently owns approximately 54% of our outstanding common stock. In late 1994, AHP purchased all of the common stock of Cyanamid. Thus, AHP owns Cyanamid's and its affiliate's interest in our common stock. Before AHP's purchase of Cyanamid, we entered into an agreement with AHP under which AHP agreed to protect our rights under our agreements with Cyanamid and be bound by Cyanamid's obligations under these agreements. AHP or various divisions or affiliates of AHP have assumed some of the rights and obligations of Cyanamid under the various agreements that we entered into with Cyanamid at or after the time of the 1993 merger, including various supply, license and distribution agreements. In the following discussion, AHP refers to AHP, or its various divisions or affiliates, including Cyanamid. Immunex and AHP are parties to numerous agreements that AHP assumed from Cyanamid or that Immunex entered into directly with AHP. The following agreements, in particular the Governance Agreement, together with the Product Rights Agreement, establish the framework for our ongoing relationship with AHP. GOVERNANCE AGREEMENT At the same time that we entered into the 1993 merger, we entered into an Amended and Restated Governance Agreement with Cyanamid. AHP assumed the rights and obligations of Cyanamid under the Governance Agreement, which includes, among other matters, agreements relating to the following: - the corporate governance of Immunex, including the composition of our Board of Directors; - rights of AHP to purchase additional shares of our common stock from us if specified events occur; - future purchases and sales of our common stock by AHP; - the right of members of our Board designated by AHP to approve specified corporate actions; - the requirement that a supermajority of the members of our Board approve specified corporate actions; and - payments to be made by AHP to us in the event that the products acquired under the 1993 merger did not achieve net sales targets. This provision expired on December 31, 1997 and AHP made its final payment under this provision to us in February 1998. 14 Under the Governance Agreement, AHP is prohibited from transferring shares of our common stock except under an underwritten public offering, or as permitted by the volume and manner of sale limitations of Rule 144 under the Securities Act of 1933, as amended, or to a wholly owned AHP subsidiary. Also, except in an underwritten public offering, AHP may not transfer an amount in excess of 1% of the outstanding shares of our common stock on any given day, nor may any AHP transfer result in the creation of a 5% shareholder of our common stock. AHP may, however, transfer all, but not less than all, of its shares of our common stock, but only if the purchaser has offered to purchase all outstanding shares of our common stock on the same terms, and we have first been notified and allowed three months to find an alternative purchaser. TACE AGREEMENTS In December 1995, we entered into research and license agreements with AHP under which we granted AHP exclusive worldwide rights to develop compounds that inhibit an enzyme known as TACE. TACE is involved in the processing of cell-bound TNF to provide circulating TNF. There is evidence that inhibiting this enzyme may be beneficial in treating inflammatory diseases and conditions such as RA. Under the agreements, AHP will screen compounds using recombinant TACE provided by Immunex. We will receive license fees, research payments, commercial development milestone payments and royalties on any compounds that are commercialized by AHP. In September 1997, in conjunction with the ENBREL Promotion Agreement with AHP discussed below, the parties amended one of the TACE agreements to substantially increase the royalty payable by AHP to us on the first TACE molecule approved by the FDA, if any. TNFR LICENSE AND DEVELOPMENT AGREEMENT In July 1996, we entered into a TNFR License and Development Agreement, or TNFR Agreement, with AHP under which we retained marketing rights to ENBREL in the United States and Canada, and AHP retained marketing rights to ENBREL outside of the United States and Canada. The TNFR Agreement also addresses joint project management, cost sharing for development activities related to ENBREL, manufacturing responsibilities, intellectual property protection and other pertinent terms. Previously, AHP's rights in ENBREL outside of the United States and Canada had been stated in a superseded research and development agreement between Immunex and Cyanamid. Under the TNFR Agreement, we agreed with AHP to negotiate the terms of a supply agreement for the commercial supply of ENBREL to AHP outside the United States and Canada. In November 1998, Immunex and AHP entered into an ENBREL Supply Agreement with Boehringer Ingelheim Pharma KG, or BI Pharma, for the commercial supply of ENBREL to Immunex in the United States and Canada, and to AHP outside of the United States and Canada. ENBREL PROMOTION AGREEMENT In September 1997, we entered into an ENBREL Promotion Agreement with AHP, under which AHP, acting through its Wyeth-Ayerst Laboratories division, acquired the right to promote ENBREL to all appropriate customer segments in the United States and Canada for all approved indications other than oncology. We have reserved the right to promote ENBREL in the United States and Canada for any approved oncology indications. Under the terms of the ENBREL Promotion Agreement, AHP may pay Immunex up to $100.0 million in nonrefundable scheduled payments for the U.S. and Canadian promotion rights to ENBREL. We have already earned $85.0 million of these scheduled payments, as follows: - $15.0 million under the ENBREL Promotion Agreement, which was earned in September 1997; - $20.0 million when our biologics license application, or BLA, for ENBREL for advanced RA was accepted for review by the FDA, which was earned in June 1998; - $30.0 million upon FDA approval of ENBREL, which was earned in November 1998; - $10.0 million upon first achieving $200.0 million in net sales for ENBREL in the United States and Canada in any rolling 12-month period, which was earned in August 1999; and 15 - $10.0 million upon first achieving $400.0 million in net sales for ENBREL in the United States and Canada in any rolling 12-month period, which was earned in February 2000. AHP may pay us an additional $15.0 million in scheduled payments under the ENBREL Promotion Agreement if and when an RA-disease modification claim for ENBREL is obtained from the FDA. We cannot be certain when, or if, we will receive the $15.0 million final scheduled payment. Under the ENBREL Promotion Agreement, AHP has agreed to reimburse us for more than a majority of the clinical and regulatory expenses we incur in connection with the filing and approval of any new indications for ENBREL in the United States and Canada, excluding oncology and RA indications. AHP's reimbursement of these clinical and regulatory expenses under the ENBREL Promotion Agreement is in addition to the existing cost-sharing arrangement between the parties for development costs related to ENBREL as provided in the TNFR Agreement. The additional AHP reimbursement for clinical and regulatory expenses under the ENBREL Promotion Agreement, a portion of which is payable upon regulatory filing of any new indication and the remainder of which is payable upon regulatory approval of any new indication, if any, applies for that part of the U.S. and Canadian clinical and regulatory expenses for ENBREL for which we are otherwise financially responsible under the cost sharing provisions in the TNFR Agreement. AHP has also agreed to reimburse us under the ENBREL Promotion Agreement for less than a majority of specified patent expenses related to ENBREL, including any up-front license fees and milestones, as well as patent litigation and interference expenses. In addition, AHP has agreed to pay substantially more than a majority of the commercial expenses, meaning marketing expenses and sales force costs, for ENBREL incurred prior to any commercial launch of ENBREL in the United States and in Canada, and to pay a declining but still majority percentage of the commercial expenses incurred during the two years following commercial launch of ENBREL in the United States and in Canada. Thereafter, we will share such commercial expenses in the United States and Canada with AHP on an equal basis. Under the ENBREL Promotion Agreement, we may elect at any time to supplement AHP's detailing and promotion of ENBREL in the United States with our own sales force to detail ENBREL for any approved indications promoted by AHP. Detailing means visiting and communicating with physicians by sales representatives to increase physician prescribing preferences for the detailed product. We have the same right in Canada if ENBREL is approved there. We pay the majority of our sales force costs for two years beginning on the date our sales force began detailing ENBREL, and we will share our sales force costs with AHP on an equal basis thereafter. We record any and all product sales of ENBREL in the United States and Canada under the ENBREL Promotion Agreement. We pay AHP a percentage of any and all annual gross profits of ENBREL in the United States and Canada attributable to all indications for ENBREL, other than oncology indications, on a scale that increases as gross profits increase. We retain a majority percentage of these non-oncology gross profits in the United States and Canada on an annual basis. We are entitled to keep all of the gross profits attributable to any future U.S. or Canadian oncology indications for ENBREL. Also, we will pay AHP specified residual royalties on a declining scale based on any and all net sales of ENBREL in the United States and Canada in the three years following the expiration or termination of AHP's detailing and promotion of ENBREL. If AHP sells or distributes a biologic product in the United States and Canada that is directly competitive with ENBREL, as defined in the ENBREL Promotion Agreement, and subject to several exclusions, AHP will give us prior written notice and, upon our request, we will attempt in good faith to either establish mutually acceptable terms with AHP under which we will co-promote this competitive biologic product or establish other terms for a commercial relationship with AHP, or negotiate an adjustment to the gross profits allocated to AHP under the ENBREL Promotion Agreement. If we are unable to establish acceptable terms with AHP within 90 days of our request, we may at our option reacquire from AHP all marketing rights to ENBREL in the United States and Canada and terminate the ENBREL Promotion Agreement, subject to our payment of substantial amounts to AHP over a defined period. If AHP obtains a biologic product that is directly competitive with ENBREL through the acquisition of another company and we reacquire the marketing rights to ENBREL in the United States and Canada, AHP's primary field sales force that had detailed ENBREL in the relevant territory within the United States and Canada for a specified period may not sell, detail or otherwise distribute the competitive biologic product for a specified period in the United States and Canada. The ENBREL Promotion Agreement required the parties to form an ENBREL Management Committee, which is composed of an equal number of representatives from Immunex and from AHP. The ENBREL Management Committee has responsibility for areas including strategic planning, approval of an annual marketing plan and product pricing. 16 PRODUCT RIGHTS AGREEMENT In July 1998, we entered into a Product Rights Agreement with AHP under which we granted AHP an option to obtain exclusive, royalty-bearing worldwide licenses to a limited number of our products for all clinical indications. This option is referred to as a Product Call. Under the Product Rights Agreement, AHP also owns a right of first refusal to our covered products and technologies that may only be exercised if our Board decides that Immunex will not market a covered product or technology by itself in any part of the world where Immunex has or acquires marketing rights. AHP's right of first refusal, which is subject to specified negotiation periods and establishment of mutually acceptable terms, applies to our covered products and technologies in all fields, including NUVANCE and TRAIL/Apo2L, but not including LEUKINE, MOBISTA, AVREND, IL-15, and several other Immunex products. The Product Rights Agreement provides AHP with a Product Call for up to four Immunex products over a period discussed below. The Product Rights Agreement also provides that AHP must exercise a Product Call for an Immunex product within specified time periods determined by reference to when Immunex formally accords a product status as an IND-track product and when the first positive Phase II clinical data for that Immunex product is available, or else AHP will lose the right to use a Product Call on that Immunex product. Some Immunex products are excluded from AHP's Product Calls, including ENBREL, NUVANCE, LEUKINE, MOBISTA, AVREND, IL-15, any product marketed by Immunex as of July 1, 1998, and several other products. In August 1999, Immunex provided notice to AHP that Immunex had accorded IND-track status to TRAIL/Apo2L, thereby commencing the time period during which AHP may exercise a Product Call with respect to our interest in the TRAIL/ Apo2L collaboration with Genentech. If AHP exercises a Product Call for an Immunex product, AHP and Immunex will enter into an elected product agreement granting AHP exclusive worldwide rights (or if less than exclusive worldwide rights are held by us, all of our rights) to this Immunex product for all indications. Under the elected product agreement, AHP will pay us an initial fee, milestone payments and royalties on any future worldwide net sales of this Immunex product after regulatory approvals. The initial fee, milestone payments and royalties are determined by the development stage of the product when AHP exercises the Product Call. In total, the initial fees and milestone payments range from $25.0 million if we have given the product IND status, up to $70.0 million if we have given notice to AHP that data from the first positive Phase II clinical trial results are available for the product. The royalties AHP pays to us increase based on the development stage of the product and based upon the product attaining specified annual net sales thresholds. Under the Product Rights Agreement, we have the right to keep ownership to up to two of our products for which AHP has exercised Product Calls, referred to as a Conversion Right, in exchange for our commitment to pay milestone payments and royalties to AHP and, in the case of the second Conversion Right only, an initial fee. Our milestone payments to AHP are fixed at one-half the amount AHP would otherwise pay us for a Product Call, and our royalties payable to AHP are always fixed at the lowest of the four levels of royalties that AHP would otherwise pay us after exercising a Product Call. If we exercise one of our Conversion Rights for an Immunex product, which must be exercised within 30 days after AHP exercises one of its Product Calls, we will enter into a converted product agreement with AHP for the product that will provide for Immunex payments to AHP as discussed above, unless AHP has exercised its option to obtain a replacement Product Call, as discussed below. We may not exercise our Conversion Rights on both of the first two Product Calls exercised by AHP. If we exercise a Conversion Right, AHP may within 30 days elect to obtain one replacement Product Call from Immunex. If AHP makes this election, AHP waives its right to receive any applicable initial fee, milestone payments and royalties from us on this converted product. If either party exercises its rights under the Product Rights Agreement and acquires or retains rights to an Immunex product, the company that exercised these rights assumes independent development responsibility for that product, including the payment of all costs for future product development. The Product Rights Agreement terminated several prior research and product-related agreements between Immunex and AHP, except for a right of first refusal to our products and technologies previously held by AHP under one of the terminated agreements. As a result of terminating these agreements, our oncology research payment obligations to AHP were canceled, and our exclusive rights in the United States and Canada to specified new AHP oncology products were terminated. Under another terminated agreement, AHP returned its exclusive ownership rights outside the United States and Canada to specified new Immunex oncology products in exchange for royalty payments from Immunex to AHP on future sales of LEUKINE, MOBISTA, and IL-15 outside the United States and Canada. These products are not currently approved or sold outside the United States and Canada. The Product Rights Agreement also terminated an agreement between Immunex and AHP for the development and commercialization of MOBISTA. 17 AHP's rights to exercise Product Calls under the Product Rights Agreement terminate upon the first to occur of the following events: - AHP has exercised Product Calls and entered into elected product agreements for four of our products, subject to our two Conversion Rights and AHP's replacement Product Call; - June 30, 2008, with an additional year if we exercise both of our Conversion Rights; or - upon the later of June 30, 2003 or the date by which AHP has been given a total of eight opportunities to exercise a Product Call, except that this number increases to nine opportunities in specified circumstances. AHP's right of first refusal to our covered products and technologies terminates upon the later of - June 30, 2003 or - the date that AHP or its affiliates no longer own a majority of our common stock. CONVERTIBLE SUBORDINATED NOTE On May 20, 1999, Immunex issued a seven-year, three percent coupon, convertible subordinated note to AHP. The principal amount of the note, which was purchased by AHP in a private placement transaction, totaled $450.0 million. The note is convertible into our common stock at a price of $86.84 per share. The conversion price was set at a 30% premium over the average of the closing prices of our common stock for eight trading days up to and including May 19, 1999. After three years, we can redeem the note, provided that our closing common stock price for 20 consecutive trading days exceeds or equals $104.21 per share. After four years, we can redeem the note at any time if our closing common stock price for 20 consecutive trading days exceeds or equals the conversion price. AHP may convert the note into our common stock at any time, including in response to a notice of redemption by us. For most purposes, the common stock issuable upon conversion of this note is, at the option of AHP, included in AHP's ownership of our common stock under the Governance Agreement and the Product Rights Agreement, regardless of whether the note is converted and for so long as AHP or its affiliates hold the note. The Immunex per share prices specified above have been adjusted for Immunex's two-for-one stock split effected on August 26, 1999. MARKETING AND DISTRIBUTION Through our marketing and professional services organization, we explain the approved uses and advantages of our products to medical professionals in the United States. We work to gain access to managed care organization formularies, which are lists of recommended or approved medicines and other products compiled by pharmacists and physicians, by demonstrating the qualities and treatment benefits of our products. AHP's marketing organization, working together with us, performs similar activities for ENBREL. Marketing of prescription pharmaceuticals depends to a degree on complex decisions about the scope of clinical trials made years before product approval. All drugs must complete clinical trials required by regulatory authorities to show they are safe and effective for treating one or more particular medical problems. A manufacturer may choose, however, to undertake additional studies to demonstrate additional advantages of a product, such as a better tolerability profile or greater cost effectiveness than existing therapies. Those studies can be costly, the results are uncertain, and they can take years to complete. Balancing these considerations makes it difficult to decide whether and when to undertake additional studies. When these studies are successful, they can have a major impact on approved claims and marketing strategies. ENBREL Under the ENBREL Promotion Agreement, the Wyeth-Ayerst Laboratories division of AHP currently markets ENBREL to appropriate customer segments in the United States for the FDA-approved indications for ENBREL. These customer segments include healthcare providers such as doctors and hospitals, pharmacy benefit managers and managed care 18 organizations. As discussed above under the caption RELATIONSHIP WITH AHP AND CYANAMID, we also have the right to supplement AHP's detailing of ENBREL in the United States with our own sales force. Several hundred AHP sales representatives currently detail ENBREL in the United States. In addition to AHP's and Immunex's coordinated marketing efforts for ENBREL in the United States, we have added a group of approximately 30 allied health professionals to support educational needs of healthcare providers in the United States relating to ENBREL. ONCOLOGY AND OTHER PRODUCTS We market our oncology and other products to healthcare providers in the United States through a specialty sales force that was recently increased in size to include approximately 147 sales representatives and sales management. Currently our sales force conducts details in the United States for our oncology products LEUKINE and NOVANTRONE. If the FDA approves an MS indication for NOVANTRONE, we intend that our entire sales force will conduct details for NOVANTRONE in MS and oncology and for LEUKINE. DISTRIBUTION We distribute our products through pharmaceutical wholesalers and specialty distributors, as well as to end users such as oncology clinics, physicians' offices, hospitals and pharmacies. However, for ENBREL, rather than stocking inventory of product at wholesalers, we drop-ship wholesaler orders for ENBREL directly to pharmacies for end users. We receive and process product orders through a centralized customer service and sales support group. Shipping, warehousing and data processing services are provided to us on a fee basis by an outside contractor. COMPETITION Competition in researching, developing, manufacturing and marketing biopharmaceuticals and other oncology products is intense. We are marketing a group of cancer products and simultaneously developing an extensive portfolio of cytokines, cytokine receptors and other immunological therapeutic products. In addition, we are collaborating with AHP to market ENBREL in the United States and Canada. There are other companies, including established pharmaceutical and biotechnology companies, that are researching, developing and marketing products, based on related or competing technologies, that will compete with products being developed by us. The principal means of competition vary among various product categories. The following technological innovations are all important to success in our business: - efficacy; - tolerability; - patients' ease of use; and - cost effectiveness. Our business focuses on unmet medical needs and improving therapies. Our emphasis on innovation has led to significant research and development investments. We compete with other pharmaceutical firms in performing research and clinical testing, acquiring patents, developing efficient manufacturing processes, securing regulatory approvals and marketing the resulting products to physicians. We believe that our strategic focus on immunology has resulted in expertise that can be applied to reduce development times, create innovative and cost-saving research techniques, optimize product quality, and discover new products and applications. We possess manufacturing facilities to produce recombinant protein products using microbial or mammalian cell culture technologies. Professional services, clinical, legal, regulatory affairs, marketing and sales staffs have been developed to enhance our scientific resources. We possess a specialty sales force and offer comprehensive professional services, including continuing medical educational programs, publications, literature searches and treatment information. These professional services are important because, historically, new anti-cancer drugs provide incremental treatment advances, but few outright cures. Therefore, physicians rely heavily on peer-reviewed clinical data in making treatment decisions. 19 Most of the cancer products that we market have established competitors. Significant competitors in the field of oncology include BMS and Amgen Inc. These competitors, in some cases, have substantially greater capital resources, greater marketing experience, and larger research and development staffs and manufacturing facilities than we do. LEUKINE Several companies are marketing or developing products that compete or are expected to compete with LEUKINE, as listed below. If the FDA were to approve any of these potentially competing products under development, sales of LEUKINE could be adversely affected. - AMGEN. Amgen has been marketing its competing G-CSF product since early 1991 and has achieved a majority share of the market for CSFs in the United States. Amgen is also developing a sustained duration G-CSF molecule, SD/01, which entered Phase III clinical trials in 1999 in breast cancer patients. - CANGENE CORPORATION. Cangene is developing a STREPTOMYCES-derived GM-CSF product. Cangene commenced a Phase III multi-center clinical trial in the United States with its GM-CSF product in early 1998 for the mobilization of peripheral blood stem cells in patients with breast cancer. In January 2000, Cangene announced that this clinical trial has been closed due to slow patient accrual. Cangene has commenced a Phase III clinical trial with its GM-CSF product in Canada for chemotherapy-induced neutropenia. NOVANTRONE A number of companies, including those listed below, are marketing products that compete with NOVANTRONE for its current indications or are expected to compete with NOVANTRONE for a potential new MS indication. This new indication for NOVANTRONE could include clinically worsening forms of relapsing-remitting and secondary progressive MS. If the FDA were to approve new MS indications for any of these marketed MS products, our potential sales of NOVANTRONE in MS could be adversely affected. - BIOGEN. Biogen is marketing AVONEX-Registered Trademark- (interferon beta-1a) for relapsing-remitting MS. AVONEX is in Phase III clinical trials in secondary progressive MS. - BERLEX LABORATORIES, INC. Berlex is marketing BETASERON-Registered Trademark- (interferon beta-1b) for relapsing- remitting MS. Berlex filed for FDA approval of an expanded indication for BETASERON for secondary progressive MS in June 1998. - TEVA PHARMACEUTICALS INDUSTRIES LIMITED. Teva is marketing COPAXONE-Registered Trademark- (glatiramer acetate for injection) for relapsing-remitting MS. - PHARMACIA & UPJOHN, INC. (P&U). P&U has been marketing IDAMYCIN-Registered Trademark- (idarubicin) for acute myelogenous leukemia and EMCYT-Registered Trademark- (estramustine) for prostate cancer. - BEDFORD LABORATORIES. Bedford Laboratories, a division of Ben Venue Laboratories, Inc., is marketing CERUBIDINE-Registered Trademark- (daunorubicin) for acute myelogenous leukemia. ENBREL A number of companies, including those listed below, are marketing or developing biological products that compete or are expected to compete with ENBREL. In addition to the currently marketed REMICADE-Registered Trademark- (infliximab), if any of these other products are approved by the FDA for RA, sales of ENBREL could be adversely affected. - JOHNSON & JOHNSON/CENTOCOR INC. In November 1999, Johnson & Johnson/Centocor received FDA approval for Centocor's anti-inflammatory agent known as REMICADE for use with methotrexate for the treatment of patients with RA who have had inadequate response to methotrexate alone. REMICADE is a chimeric part-mouse, part-human monoclonal antibody. The FDA had previously approved REMICADE for treatment of Crohn's disease in August 1998. In October 1999, Johnson & Johnson/Centocor filed an sBLA for REMICADE with the FDA for the prevention of joint damage in RA patients in combination with methotrexate. Centocor and Ortho-McNeil Pharmaceutical, Inc., both Johnson & Johnson affiliates, are co-promoting REMICADE for RA in the United States. Johnson & Johnson acquired Centocor in late 1999. 20 - AMGEN. Amgen is developing an IL-1ra (receptor antagonist) for RA, and has submitted a BLA to the FDA based on data from two large Phase II clinical trials. Il-1ra requires a high dose in a daily injection when used in combination with other drugs, such as methotrexate. Amgen is also developing sTNF-R1, a TNF modulator which just completed a Phase I clinical trial. - BASF AG/KNOLL. BASF and its partner Knoll Pharmaceuticals Company Inc., are developing D2E7 as a fully humanized monoclonal antibody that binds to TNF. D2E7 is in a Phase III clinical trial for RA. Other companies, as listed below, have developed non-biological products for treatment of some aspects of RA. We do not currently expect such products to compete with ENBREL in patients with advanced RA, but some of these products may compete directly with ENBREL in patients with earlier stage RA. ENBREL is not currently approved by the FDA in patients with earlier stage RA. Due to its mechanism of action, we believe that ENBREL may be effective in combination with some of these products in development, as well as with some existing DMARDs for RA. This belief is based on preclinical studies and clinical results demonstrating that RA patients treated with ENBREL in combination with the DMARD methotrexate experienced a statistically significant decrease in disease activity and an increase in their functional ability when compared to methotrexate alone. - HOECHST MARION ROUSSEL. Hoechst Marion Roussel received FDA approval of ARAVA-Registered Trademark- (leflunomide) in September 1998 for the treatment of active RA in adults to reduce signs and symptoms and to retard structural damage as evidenced by x-ray erosions and joint space narrowing. ARAVA is an oral treatment for RA, has side effects similar to methotrexate, and is priced significantly less than ENBREL. - MONSANTO COMPANY. Monsanto received FDA approval of CELEBREX-Registered Trademark- (celecoxib) in December 1998 for relief of the signs and symptoms of osteoarthritis and adult RA. CELEBREX is a COX-2 inhibitor, and is priced significantly less than ENBREL. CELEBREX is an oral treatment and is co-promoted by G.D. Searle & Co., the pharmaceutical business unit of Monsanto, and Pfizer Inc. COX-2 inhibitors are a new class of drugs for arthritis and pain that are generally as effective as current initial RA therapy with non-steroidal anti-inflammatory drugs, or NSAIDs. - MERCK. Merck received FDA approval of VIOXX-Registered Trademark- (rofecoxib) in May 1999 for relief of the signs and symptoms of osteoarthritis, for the management of acute pain in adults, and for the treatment of primary dysmenorrhea. VIOXX is a COX-2 inhibitor, and is priced significantly less than ENBREL. GENERIC ONCOLOGY PRODUCTS Competition in the sale of generic pharmaceutical products is intense due to the entry of multiple sources for each product after expiration of patents and exclusivity grants previously covering such products. Manufacturers of generic products compete aggressively, primarily on the basis of price. We currently face aggressive generic competition from numerous suppliers on methotrexate injectable and leucovorin calcium, and from at least one supplier of aminocaproic acid. This competition results in lower prices and lower sales. RAW MATERIALS AND SUPPLY Along with our third-party manufacturers, we purchase raw materials essential to our business in the ordinary course of business from numerous suppliers. Substantially all the raw materials used to manufacture our recombinant protein products and other products are available from multiple sources. However, two of the raw materials used in the production of ENBREL and our other recombinant protein products, other than LEUKINE, are manufactured by sole-source suppliers. No serious shortages or delays in obtaining raw materials were encountered in 1999. All finished dosage forms of ENBREL are manufactured by BI Pharma and packaged by a third-party contract packager. We manufacture all LEUKINE bulk drug substance, which is then filled and finished by third parties. All finished dosage forms for our non-biological oncology products are manufactured by AHP subsidiaries or sourced by AHP from third-party manufacturers. Bulk active raw materials for our non-biological oncology products are either manufactured by AHP subsidiaries or sourced by AHP from third-party manufacturers. Aminocaproic acid for AMICAR is sourced through an unaffiliated third-party vendor and manufactured by a sole-source supplier. 21 We presently do not have our own fill and finish capabilities for producing and labeling final drug products from bulk drug substances or bulk proteins. We rely upon unaffiliated third parties and AHP for the fill and finish of all drug products we market. In November 1998, Immunex and AHP entered into a long-term ENBREL Supply Agreement with BI Pharma to manufacture commercial quantities of ENBREL. Unless and until such time as AHP's Rhode Island manufacturing facility is approved by the FDA to manufacture ENBREL, our sales of ENBREL are entirely dependent on BI Pharma's manufacture of the product. Immunex and AHP have made significant purchase commitments to BI Pharma under the ENBREL Supply Agreement to manufacture commercial inventory of ENBREL. Under the ENBREL Supply Agreement, BI Pharma has reserved a specified level of production capacity for ENBREL, and our purchase commitments for ENBREL are manufactured from that reserved production capacity. The ENBREL Supply Agreement contains provisions for increasing or decreasing BI Pharma's reserved production capacity for ENBREL, subject to lead-times and other related terms. On account of the long lead-time required for ordering raw materials for ENBREL and for the scheduling of BI Pharma's facilities, we are required to submit a rolling three-year forecast for the manufacture of the bulk drug for ENBREL, and a rolling forecast for a shorter period for the number of finished vials of ENBREL to be manufactured from the bulk drug. A significant portion of each of the above forecasts becomes a purchase commitment when issued to BI Pharma. BI Pharma's pricing of ENBREL is dependent on specified production assumptions that the parties have made relating to the production efficiency of manufacturing ENBREL. Under the ENBREL Supply Agreement, the pricing for ENBREL is also subject to volume discounts depending on the amount of ENBREL ordered during each calendar year. Immunex and AHP will be responsible for substantial payments to BI Pharma if Immunex and AHP fail to utilize a specified percentage of the production capacity that BI Pharma has reserved for ENBREL each calendar year, or if the ENBREL Supply Agreement is terminated prematurely under specified conditions. In September 1999, a wholly owned subsidiary of AHP completed the purchase of a large-scale biopharmaceutical manufacturing facility in Rhode Island. Immunex and AHP are working closely together to expedite a retrofit to the Rhode Island facility to accommodate the commercial production of ENBREL bulk drug substance. Assuming that the Rhode Island facility is approved by the FDA to manufacture ENBREL, BI Pharma would continue to manufacture ENBREL under the terms of the ENBREL Supply Agreement. The market demand for ENBREL in the United States is still growing and cannot be predicted with certainty. The market demand for ENBREL outside the United States and Canada, where AHP holds rights to ENBREL, also cannot be predicted with certainty. The EMEA approved ENBREL in the European Union in February 2000. Immunex and AHP are actively working with BI Pharma to ensure that we are able to utilize as much of BI Pharma's available production capacity as possible for ENBREL, and at the same time we are working closely with AHP to expedite the preparation of AHP's Rhode Island manufacturing facility to produce additional commercial quantities of ENBREL. In the event that demand for ENBREL were to exceed BI Pharma's production capacity and any shortfall was not supplied by the Rhode Island facility, sales of ENBREL could be constrained. GOVERNMENT REGULATION The manufacturing and marketing of pharmaceutical products in the United States requires the approval of the FDA under the Food, Drug and Cosmetic Act. Similar approvals by comparable agencies are required in foreign countries. The FDA has established mandatory procedures and safety standards that apply to the clinical testing, manufacture and marketing of pharmaceutical and biotechnology products. Obtaining FDA approval for a new therapeutic product may take several years and involve expenditure of substantial resources. Data from human clinical trials are submitted to the FDA in a new drug application, or NDA, for drugs or a biologics license application, or BLA, for biologics. For products to be marketed in Canada, these submissions are made to the Canadian Health Protection Bureau, or CHPB, in a new drug submission, or NDS. Data from human clinical trials for new indications or uses for approved products are submitted to the FDA in a supplemental NDA for drugs and in a supplemental BLA for biologics. Data regarding manufacturing and bioequivalence of generic drug products are submitted to the FDA in an abbreviated NDA, or ANDA, and to the CHPB in an abbreviated NDS. Preparing any of these regulatory submissions involves considerable data collection, verification and analysis. 22 The federal government regulates recombinant DNA research activity through National Institutes of Health, or NIH, guidelines for research involving recombinant DNA molecules. We comply with the NIH guidelines which, among other things, restrict or prohibit some types of recombinant DNA experiments and establish levels of biological and physical containment of recombinant DNA molecules that must be met for various types of research. Many other laws regulate our operations, including among others, the Occupational Safety and Health Act, the Environmental Protection Act, the Nuclear Energy and Radiation Control Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation, and Liability Act, Title III of the Superfund Amendments and Reauthorization Act (Community Right-to-Know and Emergency Response Act), national restrictions on technology transfer, federal regulations on the protection of human subjects in clinical studies, the protection of animal welfare in preclinical studies, import, export and customs regulations and other present or possible future local, state or federal regulation. From time to time Congressional Committees and federal agencies have indicated an interest in implementing further regulation of biotechnology and its applications. PATENTS, LICENSES AND TRADEMARKS Patents, trade secrets and other proprietary rights are very important to Immunex. We have obtained U.S. and foreign patents and have filed applications for additional U.S. and foreign patents covering numerous aspects of our technology. We cannot be certain that any of our pending or future applications will result in issued patents or that the rights granted thereunder will provide competitive advantage to Immunex or our licensees. We also rely on trade secrets, unpatented proprietary know-how and continuing technological innovation to develop and maintain our competitive position. We cannot be certain that others will not acquire or independently develop the same or similar technology, or that our issued patents will not be circumvented, invalidated or rendered obsolete by new technology. Due to unresolved issues regarding the scope of protection provided by some of our patents, as well as the possibility of patents being granted to others, we cannot be certain that the patents owned by or licensed to us and our licensees will provide substantial protection or commercial benefit. The rapid rate of development and the intense research efforts throughout the world in biotechnology, the significant time lag between the filing of a patent application and its review by appropriate authorities and the lack of sufficient legal precedents concerning the validity and enforceability of some types of biotechnology patent claims make it difficult to predict accurately the breadth or degree of protection that patents will afford Immunex's or our licensees' biotechnology products or their underlying technology. It is also difficult to predict whether valid patents will be granted based on biotechnology patent applications or, if they are granted, to predict the nature and scope of the claims of these patents or the extent to which they may be enforceable. Under U.S. law, although a patent has a statutory presumption of validity, the issuance of a patent is not conclusive as to validity or as to the enforceable scope of its claims. Accordingly, we cannot be certain that our patents will afford protection against competitors with similar inventions, nor can we be certain that our patents will not be infringed or designed around by others or that others will not obtain patents that we would need to license or design around. It is our policy to respect the valid patent rights of others. We have obtained patent licenses from various parties covering technologies relating to our products. However, we may need to acquire additional licenses or, if such licenses are denied or are not available on commercially reasonable terms, successfully prevail in the event that litigation is commenced by patent owners to interfere with the development or commercialization of our products. We intend to pursue protection of all forms of intellectual property, including, but not limited to, patents, trade secrets, Orphan Drug exclusivity, and benefits of the Waxman-Hatch Legislation, for all significant inventions, discoveries and developments in our various areas of research. 23 PATENTS ON BIOLOGICAL PRODUCTS LEUKINE (SARGRAMOSTIM, GM-CSF). We have been issued three U.S. patents covering an altered, or analog, form of GM-CSF (sargramostim), that we market under the LEUKINE trademark. From July 1990 to January 1998, a GM-CSF interference proceeding had been pending in the U.S. Patent and Trademark Office, or USPTO, directed to human GM-CSF DNAs. Novartis AG prevailed in the interference and has subsequently received several patents relating to GM-CSF. As part of the resolution of the interference, Novartis agreed not to assert its GM-CSF patent rights against us in exchange for royalties on any sales of LEUKINE in the United States and Canada. Research Corporation Technologies, Inc., or RCT, has also received a U.S. patent relating to GM-CSF. We have received a royalty-bearing, non-exclusive license to the RCT GM-CSF patent. ENBREL (ETANERCEPT, TNFR:FC). ENBREL is a fusion protein consisting of a dimer of two subunits, each comprising a TNF receptor domain derived from a TNF receptor known as "p80," fused to a segment derived from a human antibody molecule known as an "Fc domain." We believe that we were the first to isolate a recombinant DNA encoding p80 TNFR and also the first to express the protein using recombinant DNA technology. We have been issued U.S. patents covering p80 TNFR, DNAs encoding p80 TNFR, and methods of using TNFR:Fc, including for the treatment of RA. We were granted a European patent in December 1995 covering p80 TNFR DNAs, proteins and related technology. Two other companies, however, BASF and Yeda Research & Development Company, Ltd., filed patent applications disclosing partial amino acid sequence information of specified TNF-binding proteins, or TBPs, shortly prior to the time we filed our patent applications, claiming the full-length p80 TNFR DNAs and proteins corresponding in part to the TBPs disclosed by BASF and Yeda. BASF was issued a U.S. patent based on its TBP disclosure with claim limitations that exclude TNFR:Fc. This BASF U.S. patent is currently involved in an interference proceeding. BASF was issued a patent in Europe which is currently being opposed by Inter-Lab Ltd., an Israeli company that is an affiliate of Ares-Serono International S.A., a Swiss company. The outcome of this European opposition is uncertain, but Immunex believes that Inter-Lab has strong arguments that could force the BASF claims to be amended so that they contain claim limitations that exclude TNFR:Fc. In January 1999, Immunex entered into a settlement agreement with Ares-Serono International S.A and its affiliate Inter-Lab Ltd. (collectively, Serono),under which Immunex and Serono agreed to settle potential disputes concerning patents and patent applications filed by Yeda and controlled by Serono that relate to TBPs. Pursuant to the settlement, Serono has agreed not to assert any of the foregoing patent rights against the manufacture, use or sale of ENBREL in any territory in consideration of the payment by Immunex to Serono of fees and royalties for a specified term in respect of the net sales of ENBREL sold or manufactured in designated countries where Yeda's patent rights have been filed. Hoffmann-La Roche and Amgen, through Synergen Inc., also filed patent applications directed to p80 TNFR DNAs after the date we filed our patent application. No patents covering full-length TNFR or the intact extracellular domain of TNFR have been issued to Roche. In January 1998, the EPO granted a patent to Amgen claiming DNA and amino acid sequences encoding a variant of p80 TNFR disclosed in the Synergen application that differs from that disclosed in our granted patents covering p80 TNFR. We have filed an opposition to this Amgen patent. Since an application giving rise to our patents covering TNFR and disclosing the relevant DNA sequence was filed earlier than Synergen's first application disclosing the relevant DNA sequence, we believe that the Amgen patent cannot be legally asserted to cover TNFR:Fc, which includes the sequences patented by us. If BASF or Amgen were able to validly assert TNFR patents to cover TNFR:Fc, Immunex's or AHP's commercialization of ENBREL could be impeded in any territories in which such patents were in force. We have also been granted a royalty-bearing worldwide exclusive license under patent rights jointly owned by Aventis SA (through its predecessor Hoechst AG) and Massachusetts General Hospital claiming cytokine receptor-Fc fusion proteins, including TNFR:Fc. ZymoGenetics, Inc. and Genentech have been issued U.S. patents having claims directed to specified fusion proteins comprising immunoglobulin constant region domains and specified processes for making such proteins, and have also filed corresponding European applications that have not yet been granted. Due to limitations in the claims of the ZymoGenetics patent, we believe that it cannot be asserted to cover ENBREL. In May 1999, Immunex entered into a royalty-bearing co-exclusive worldwide license agreement under these Genentech patents, and under this agreement we made an up-front payment to Genentech, a portion of which was reimbursed to us by AHP under the ENBREL Promotion Agreement. Roche has filed patent applications with claims covering TNFR:Fc fusions, which were filed after the Aventis and Massachusetts General Hospital patent applications licensed to Immunex. Roche has been granted a patent containing these claims in Japan. We believe that an interference may be declared in the United States involving the Aventis, Massachusetts General Hospital and Roche patents and patent applications. In September 1999, we entered into a royalty bearing co-exclusive worldwide license agreement with Roche under these Roche patents and patent applications. 24 In general, with respect to any of the patents discussed above, it is our intention to mount a vigorous defense should any patent be asserted against activities relating to ENBREL, or, in appropriate cases, to take a license under appropriate terms. At this time, however, it remains uncertain whether any of these patents will be asserted against activities relating to ENBREL, and, if so, the outcome of any litigation or licensing negotiations. MOBISTA (FLT3L). In 1996, we were granted a U.S. patent covering Flt3L DNA. In 1998, we were granted a U.S. patent covering methods of using Flt3L. We are currently seeking other U.S. and foreign patents for Flt3L proteins, DNAs and various methods of using Flt3L. NUVANCE (IL-4R). We have been granted a total of five U.S. patents relating to IL-4R proteins and DNAs, methods for inhibiting IL-4R mediated immune or inflammatory responses, and antibodies immunoreactive with IL-4R. IL-4R patents have also been granted to us in Europe and other foreign countries. We have additional U.S. and foreign patent applications pending relating to IL-4R. AVREND (CD40L). In 1998, we were granted a U.S. patent for soluble fusion proteins that include soluble portions of CD40L and methods of making them. In 1999, we were granted a U.S. patent for recombinant soluble CD40L polypeptides and pharmaceutical compositions. We have also received a U.S. patent relating to the use of soluble CD40L to treat neoplastic diseases. We have additional U.S. and foreign patent applications pending relating to CD40L. TRAIL. In 1998, we were granted a U.S. patent covering the DNA encoding TRAIL. This is believed to be the first U.S. patent granted for this molecule. We have additional U.S. and foreign patent applications pending relating to TRAIL. IL-1R TYPE II. In 1998, we were granted a U.S. patent covering methods of using soluble IL-1R Type II to regulate an IL-1 mediated immune or inflammatory response in a mammal. Previously we have received two U.S. patents covering the DNA and the protein for IL-1R Type II. We have additional U.S. and foreign patent applications pending relating to IL-1R Type II. TACE. In 1998, we were granted a U.S. DNA and protein patent on TACE, which includes claims to methods of using TACE to discover TACE inhibitors. This is believed to be the first patent issued for this molecule. In January 2000, we were granted a U.S. patent that includes additional claims to methods of using TACE to discover TACE inhibitors. We have additional U.S. and foreign patent applications pending relating to TACE. We have licensed our TACE technology to AHP and are working together to develop and test small molecule TACE inhibitors. PATENTS ON NON-BIOLOGICAL ONCOLOGY PRODUCTS NOVANTRONE (MITOXANTRONE FOR INJECTION CONCENTRATE). NOVANTRONE is a proprietary product that is covered by several U.S. patents. The patent covering the mitoxantrone compound in the United States expired in August 1997. However, a separate U.S. patent covering pharmaceutical formulations containing mitoxantrone does not expire until July 2000. A U.S. patent covering methods of using mitoxantrone to treat leukemia and solid tumors does not expire until April 2006, and another U.S. patent covering methods of using mitoxantrone to treat neuroimmunologic diseases, including MS, does not expire until June 2005. METHOTREXATE SODIUM INJECTABLE, LEUCOVORIN CALCIUM AND AMICAR (AMINOCAPROIC ACID). Neither methotrexate sodium injectable, leucovorin calcium or AMICAR are the subject of any material patent protection. PATENT AND TECHNOLOGY LICENSES Under our royalty-bearing patent and technology license agreements, we are obligated to pay royalties on sales of products produced using the licensed technologies. We pay royalties to university licensors of specific yeast and mammalian-cell expression technologies employed in making LEUKINE and some other products. We are also obligated to pay royalties to Aventis, Novartis and RCT on sales of LEUKINE, and to Aventis, Massachusetts General Hospital, Serono, Genentech and Roche on sales of ENBREL. From time to time we may elect to enter into other royalty-bearing license agreements with licensors of patents with claims related to our products or technologies. We cannot be sure, however, that patent license negotiations with any licensors can be successfully completed, or that the total royalties payable under any agreements resulting from license negotiations will not have a material adverse effect on our business. 25 TRADEMARKS We own all of our trademarks used in our business. PROPERTIES Our principal place of business is located in two adjacent buildings in the 1200 block of Western Avenue in Seattle, Washington. These buildings, comprising a total of 174,400 square feet, house our primary laboratory and office facilities, as well as a 10,000 square foot fermentation and pharmaceutical manufacturing facility that has been licensed by the FDA to produce LEUKINE. The current lease terms for one of the buildings extends through August 2000, and in 2000 the lease on the other building will be extended to 2005, and both buildings will have two five-year renewal options. In addition to our primary facility, we lease a total of approximately 190,700 square feet of additional office and research space in several other buildings located in downtown Seattle and approximately 13,000 square feet of office space in Bothell, Washington. The total current rent payments for the foregoing facilities were approximately $5.2 million in 1999 and are forecast to be approximately $8.1 million in 2000. We own a manufacturing and development center in Bothell, Washington that includes a large-scale microbial manufacturing facility and a separate mammalian cell-based protein manufacturing facility. These facilities were used to produce ENBREL for our clinical trials in 1997; however, such facilities lack sufficient capacity to produce commercial quantities of ENBREL. In 1999, we began construction of a new process development facility at our site in Bothell, and anticipate completion of this facility by the end of 2000. This new process development facility is expected to accelerate development of our manufacturing processes. We are currently exploring several alternatives in order to meet our long-term facility needs. We own approximately 20 acres of undeveloped land adjacent to our manufacturing and development center in Bothell, Washington and 29 acres of land in Seattle, Washington, known as Terminal 88. At the end of 1999, we began the process of assembling a team of consultants to program and begin preliminary design of the Terminal 88 site for a consolidated headquarters and research facility. A conceptual budget will be developed based on preliminary design and a decision as to whether or not to move forward with this consolidated facility is expected to be made in mid-2000. PERSONNEL In our innovation-intensive business, our employees are vital to our success. We believe we have good relationships with our employees, and none of our employees are covered by a collective bargaining agreement. As of December 31, 1999, we employed a total of 1,170 people in our operations, of whom 252 have various types of doctoral degrees. The employee count for three of our key functions is as follows: - research and development--506; - manufacturing--218; and - sales and marketing--208. Each of our employees has entered into a confidentiality agreement that contains terms requiring disclosure of ideas, developments, discoveries or inventions conceived during employment, and assignment to us of all proprietary rights to these matters. Our ability to maintain our competitive position will depend, in part, upon our continued ability to attract and keep qualified scientific and managerial people, and our other key employees. Competition for these people is intense, and there can be no assurance that we will be able to attract and keep these people. 26 RISKS OUR FUTURE OPERATING RESULTS ARE UNCERTAIN AND LIKELY TO FLUCTUATE. Until 1998, we had a history of operating losses. Although we have been profitable for the past two years, future operating performance is never certain. Our accumulated deficit at December 31, 1999 was $435.9 million. We anticipate that our operating and capital expenditures will increase significantly in 2000 and in future years due primarily to: - spending to support the marketing and sales of ENBREL; - working capital requirements for sales of ENBREL; - growth in research and development expenses as we progress with the development of our clinical and preclinical product candidates; - increased purchases of capital equipment including the continued construction of a new process development facility in 2000; - possible development of Terminal 88 in Seattle, Washington into our new corporate offices and research facilities; and - investment in additional manufacturing capacity. Our ability to generate sufficient cash flow to fund these operating and capital expenditures depends on our ability to improve operating performance. This in turn depends, among other things, on increasing sales of our existing products, especially ENBREL, and successfully completing product development efforts and obtaining timely regulatory approvals of our lead clinical products. We may also decide to raise money through various financing transactions or partner with other companies to license our technology or share the development of our products. Our accumulated cash reserves and cash generated from operations are dependent on sales of ENBREL and our other products and technologies. We may not successfully develop and commercialize these products and technologies. Further, our assumptions regarding the levels of revenue and expenses for these products and technologies may be inaccurate. WE DEPEND ON SALES OF ENBREL FOR A SIGNIFICANT AMOUNT OF OUR REVENUES. We are substantially dependent upon the revenue generated by a single product, ENBREL. For the year ended December 31, 1999, sales of ENBREL accounted for 71% of our total product sales. We expect product revenues generated by ENBREL to continue to account for a majority of our product revenues. As a result, factors adversely affecting the demand for ENBREL, such as competition, development of new products for the treatment of RA, or supply constraints, could materially adversely affect our operating results. OUR PRECLINICAL AND CLINICAL TESTING COULD BE UNSUCCESSFUL OR EXPENSIVE, WHICH COULD ADVERSELY AFFECT OUR OPERATING RESULTS. Before obtaining regulatory approvals for the sale of any of our new products, we must subject these products to extensive preclinical and clinical testing to demonstrate their safety and effectiveness for humans. Results of initial preclinical and clinical testing are not necessarily indicative of results to be obtained from later preclinical and clinical testing. Furthermore, we may not complete our clinical trials of products under development and the results of the trials may fail to demonstrate the safety and effectiveness of new products to the extent necessary to obtain regulatory approvals, which could delay or prevent regulatory approval. Other companies in the biotechnology industry have suffered significant setbacks in advanced clinical trials, even after achieving promising results in earlier trials. The rate of completion of clinical trials depends, in part, on the enrollment of patients. Enrollment of patients depends on factors such as the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the study and the existence of competitive clinical trials. Any delay in planned patient enrollment in our current or future clinical trials may result in increased costs, program delays or both. 27 WE MAY NOT COMMERCIALIZE OUR EXISTING PRODUCTS OR DEVELOP NEW PRODUCTS SUCCESSFULLY. Our long-term profitability depends on the successful commercialization of our existing products, especially ENBREL, and on the development and commercialization of products currently under development. We may not develop these products successfully or receive regulatory approval. Furthermore, even if these products are developed and approved, we or our contract manufacturers may fail to manufacture these products or our currently marketed products in quantities necessary for commercialization, or these products may not receive market acceptance. GOVERNMENTAL REGULATORY AGENCIES MAY NOT APPROVE OUR PRODUCTS. Since our products are pharmaceutical products, the FDA and similar governmental agencies in foreign countries impose substantial requirements on our products before they permit us to manufacture, market and sell them to the public. To meet these requirements, we must spend substantial resources on costly and time-consuming procedures, such as lengthy and detailed laboratory tests and clinical trials. It typically takes years to meet these requirements for a product and the length of time involved depends on the type, complexity and novelty of the product. We cannot predict when we might submit product applications or submissions for FDA or other regulatory review for our products under development. The FDA or other governmental agencies may approve, if at all, only some uses of our products or may subject our products to additional testing and surveillance programs. In addition, the FDA or other governmental agencies may withdraw or limit their approval for noncompliance with regulatory standards or the occurrence of unforeseen problems following initial marketing. Governmental regulation may cause us to delay marketing new products for a considerable period of time or spend more resources to meet additional requirements, and may ultimately provide an advantage to our competitors. The FDA or other governmental agencies may not approve on a timely basis, if at all, some or all of our future products or may not approve some or all of our applications for additional indications for our previously approved products. In addition, if another company that is developing a product similar to one of our products suffers adverse clinical results, this could have a negative impact on the regulatory process and the timing of any potential regulatory approval of our product. If we fail to obtain regulatory approval for one of our products, or even if approval is delayed or withdrawn after initial marketing, our marketing of this and our other products, as well as our liquidity and capital resources, could be adversely affected. OUR CUSTOMERS MAY NOT GET REIMBURSED FROM THIRD PARTIES, WHICH COULD ADVERSELY AFFECT OUR SALES. Our ability to sell our products depends substantially on government authorities, private health insurers and other organizations, such as health maintenance organizations, reimbursing most of the costs of our products and related treatments to our customers. To date, we have been able to obtain sufficient reimbursement for most of our oncology products for our customers, but we may not be able to obtain similar levels of reimbursement for our customers for ENBREL or for our future products. Since Medicare presently will not reimburse for drugs that are self-administered, we have assumed that Medicare will not cover prescriptions for ENBREL. However, we are pursuing several legislative strategies intended to result in Medicare coverage for prescriptions for ENBREL, although we cannot be sure that any of these strategies will prove successful. Government authorities or third parties or both may decrease the amount of reimbursement that our customers currently receive for some products or that we anticipate our customers will receive for future products. Finally, low reimbursement amounts may reduce the demand for, or the price of, our products, which could adversely affect our business. OUR SELLING PRACTICES FOR ONCOLOGY PRODUCTS REIMBURSED BY MEDICARE OR MEDICAID MAY BE CHALLENGED IN COURT. In the United States, pharmaceutical companies frequently grant discounts from list price to physicians and suppliers who purchase the product. Discounts on multiple-source, or generic, drugs may be substantial. Government reports have noted that government programs that reimburse medical providers for drugs on the basis of the average wholesale price or wholesale acquisition cost, such as Medicare and Medicaid in many states, may provide significant margins to providers who are able to obtain large discounts from pharmaceutical companies. 28 We have received notice from the federal Department of Justice calling for us to produce documents in connection with an investigation under the Civil False Claims Act of the pricing of two of our multiple-source products, leucovorin calcium and methotrexate sodium injectable, for sale and eventual reimbursement by Medicare or state Medicaid programs. Both products are regularly sold at substantial discounts from list price. We have consistently required in our contracts of sale that the purchasers appropriately disclose to governmental agencies the discounts that we give to them. We do not know what action, if any, the federal government will take as a result of its investigation. Although we believe that our pricing practices are lawful, the federal government could seek substantial money damages or changes in the manner in which we price our products. If changes are mandated, they could adversely affect the sales of those products. WE HAVE A LIMITED MANUFACTURING CAPABILITY. Currently, we do not own sufficient large-scale manufacturing capacity to manufacture commercial quantities of ENBREL or all of our mammalian cell-based protein products under development. Accordingly, in 1998, Immunex and AHP entered into a long-term ENBREL Supply Agreement with BI Pharma to manufacture commercial inventory of ENBREL. Unless and until AHP's Rhode Island manufacturing facility is approved by the FDA to manufacture ENBREL, BI Pharma will be our sole supplier of ENBREL. Therefore, AHP has chosen to invest substantial sums to purchase and retrofit its Rhode Island facility to accommodate the commercial production of ENBREL bulk drug substance. Immunex may also have to invest substantial sums to purchase or construct facilities sufficient to meet long-term manufacturing requirements for ENBREL and our other products, or to assist BI Pharma to increase its manufacturing capacity for ENBREL. IF THIRD-PARTY MANUFACTURERS OR SUPPLIERS FAIL TO PERFORM, WE WILL BE UNABLE TO MEET DEMAND FOR SOME OF OUR PRODUCTS. AHP either manufactures through its subsidiaries or sources through third-party manufacturers all finished dosage forms and bulk active raw materials for our non-biological oncology products, including NOVANTRONE. AHP is dependent on a single supplier for all of the essential raw material for AMICAR. Substantially all the raw materials used to manufacture our recombinant protein products are available from multiple sources. However, two of the raw materials used in the production of ENBREL and our other recombinant protein products, other than LEUKINE, are manufactured by sole-source suppliers. BI Pharma is currently our sole supplier of ENBREL. We rely upon unaffiliated third parties and AHP for the fill and finish of all drug products we market. If AHP subsidiaries or third-party manufacturers or suppliers, including BI Pharma, were to cease or interrupt production or otherwise fail to supply such materials or products to us or AHP, we would be unable to obtain these materials or products for an indeterminate period of time, which could materially adversely affect demand for these products as well as our operating results. The market demand for ENBREL in the United States is still growing and cannot be predicted with certainty. The market demand for ENBREL outside the United States and Canada, where AHP holds rights to ENBREL, also cannot be predicted with certainty. The EMEA approved ENBREL in the European Union in February 2000. Immunex and AHP are actively working with BI Pharma to ensure that we are able to utilize as much of BI Pharma's available production capacity as possible for ENBREL, and at the same time we are working closely with AHP to expedite the preparation of AHP's Rhode Island manufacturing facility to produce additional commercial quantities of ENBREL. Unless and until AHP's Rhode Island manufacturing facility is approved by the FDA to manufacture ENBREL, we will be entirely dependent on BI Pharma for manufacturing our commercial inventory of ENBREL. In the event that demand for ENBREL were to exceed BI Pharma's production capacity and any shortfall was not supplied by the Rhode Island facility, sales of ENBREL could be constrained. WE MAY BE UNABLE TO PROTECT AND ENFORCE OUR PATENTS AND PROPRIETARY RIGHTS. Given the length of time and expense associated with bringing new products through development and the governmental approval process to the marketplace, the biotechnology and pharmaceutical industries rely on patent and trade secret protection for significant new technologies, products and processes. We, like other biotechnology and pharmaceutical firms, apply for, prosecute and maintain patents for our products and technologies. The enforceability of patents issued to biotechnology and pharmaceutical firms, however, often is highly uncertain. The legal considerations surrounding the validity of patents in our field are in a state of transition. In the future, the historical legal standards surrounding questions of the validity of patents may not be applied and the current defenses applicable to issued patents may not protect our patents. In addition, the degree and range of protection a patent affords is uncertain. Finally, we may be unsuccessful in obtaining patents and in avoiding infringements of patents granted to others. 29 While we pursue patent protection for products and processes where appropriate, we also rely on trade secrets, know-how and continuing technological advancement to develop and maintain our competitive position. Our policy is to have each employee enter into a confidentiality agreement that contains provisions prohibiting the disclosure of confidential information to anyone outside Immunex. These confidentiality agreements also contain provisions requiring disclosure and assignment of proprietary rights to ideas, developments, discoveries and inventions conceived during employment. Research and development contracts and relationships with our scientific consultants provide access to aspects of our know-how that are protected generally under confidentiality agreements with the parties involved. These confidentiality agreements may not be honored and we may be unable to protect our rights to our unpatented trade secrets. Moreover, other people or entities may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets. We may be required to obtain licenses to patents or other proprietary rights from third parties to develop and commercialize our products. Licenses required under any patents or proprietary rights may not be made available on terms acceptable to us, if at all. If we do not obtain the required licenses, we could encounter delays in product development while we attempt to redesign products or methods. We also could discover that the development, manufacture or sale of products requiring such licenses is simply not possible. In addition, we could incur substantial costs in defending any patent litigation brought against us or in asserting our patent rights, including those licensed to us by others, in a suit against another party. Our competitors have obtained or are seeking patents which, if issued or granted, may have a material adverse effect on our ability to successfully commercialize ENBREL. IF WE ARE UNABLE TO COMPETE SUCCESSFULLY IN OUR FIELD, AND TO DEVELOP NEW PRODUCTS IN RESPONSE TO RAPID TECHNOLOGICAL DEVELOPMENTS, OUR BUSINESS WILL BE ADVERSELY AFFECTED. We are engaged in fields characterized by extensive research efforts and rapid technological development. New drug discoveries and developments in the fields of genomics, rational drug design and other drug discovery technologies are accelerating. Many companies and institutions, both public and private, are developing synthetic pharmaceuticals and biotechnological products for human therapeutic application, including the applications we have targeted. A number of our competitors have substantially more capital, research and development, regulatory, manufacturing, marketing, human and other resources and experience than we have. Furthermore, large pharmaceutical companies have been consolidating, which has increased their resources and concentrated valuable intellectual property assets. Our competitors may develop products that are more effective or less costly than any of our current or future products. Our competitors also may produce and market their products more successfully then we do. These competitors may develop technologies and products that are more effective than any we develop or that render our technology and products obsolete or noncompetitive. WE MAY BE REQUIRED TO DEFEND LAWSUITS OR PAY DAMAGES FOR PRODUCT LIABILITY CLAIMS. Product liability is a major risk in the testing and marketing of biotechnology and pharmaceutical products. We face substantial product liability exposure in human clinical trials and for products that receive regulatory approval for commercial sale. We currently maintain product liability insurance coverage, which our management believes to be adequate, based on our product portfolio, sales volumes and claims experience to date and we intend to continue such coverage. In the future, insurers may not offer us product liability insurance, may raise the price of such insurance or may limit the coverage of such insurance. In addition, we may not be able to maintain such insurance in the future on acceptable terms and such insurance may not provide us with adequate coverage against potential liabilities either for clinical trials or commercial sales. Successful product liability claims in excess of our insurance limits may adversely affect our business. WE MAY BE REQUIRED TO PAY DAMAGES FOR ENVIRONMENTAL ACCIDENTS AND TO INCUR SIGNIFICANT COSTS FOR ENVIRONMENTAL COMPLIANCE. Our research and development activities involve the controlled use of hazardous materials, chemicals, viruses and radioactive compounds. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these materials and some types of waste products. Although we believe that our safety 30 procedures for the handling and disposal of such materials comply with regulatory standards, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of such an accident, we could be held liable for any damages that result and any such liability could exceed our resources. We may be required to incur significant costs to comply with environmental laws and regulations in the future. Current or future environmental laws or regulations may materially adversely affect our operations, business or assets. OUR STOCK PRICE IS VOLATILE. Our common stock price, like that of other biotechnology companies, is volatile. Our common stock price may fluctuate due to factors such as: - actual or anticipated fluctuations in our quarterly and annual results; - clinical trial results and other product-development announcements by us or our competitors; - regulatory announcements, proceedings or changes; - announcements in the scientific and research community; - intellectual property and legal developments; - changes in reimbursement policies or medical practices; - mergers or strategic alliances in the biotechnology and pharmaceuticals industries; - a sale of our common stock by AHP; or - broader industry and market trends unrelated to our performance. FUTURE INVESTMENTS IN BUSINESSES, PRODUCTS OR TECHNOLOGIES COULD BE DIFFICULT AND DISRUPTIVE. We may acquire or make investments in other businesses, products or technologies that will complement our existing business. From time to time we have had discussions and negotiations with companies regarding our acquiring or investing in such companies' businesses, products or technologies, and we regularly engage in such discussions and negotiations in the ordinary course of our business. These acquisitions or investments will likely involve some or all of the following risks: - difficulty of assimilating the acquired operations and personnel, products or technologies; - potential disruption of our ongoing business; - diversion of resources; - possible inability of management to maintain uniform standards, controls, procedures and policies; - possible difficulty of managing our growth and information systems; - risks of entering markets in which we have little or no prior experience; and - potential impairment of relationships with employees or customers. Our management has limited prior experience in assimilating acquired organizations. We may be unable to successfully integrate any businesses, products, technologies or personnel that might be acquired in the future, and our failure to do so could have an adverse effect on our business and operating results. 31 In addition, future acquisitions could result in potentially dilutive issuances of equity securities, use of cash or the incurring of debt and the assumption of contingent liabilities, any of which could have an uncertain effect on our business and operating results or the price of our common stock. INCREASED REGULATORY FOCUS ON FINANCIAL REPORTING. In 1998, the Securities and Exchange Commission, or SEC, initiated a plan intended to improve the credibility and transparency of the financial reporting process of publicly traded companies. Among other things, the SEC has issued guidance on accounting topics including materiality, restructuring charges, acquisition accounting and most recently, revenue recognition. As a result of the increased focus, restatement of financial results by publicly traded companies has become more common. We regularly review the guidance published by the SEC with regards to our accounting practices. Although we do not believe the guidance will affect our reported financial results, we will continue to evaluate the impact as the guidance evolves. REMEDIATION OF YEAR 2000 COMPLIANCE PROBLEMS COULD BE EXPENSIVE. Since January 1, 2000, we have experienced no disruptions in our business operations as a result of year 2000 compliance problems. Although we have experienced no year 2000 compliance problems to date, some year 2000 compliance problems may not surface until several months after January 1, 2000. We are continuing to monitor our information technology, embedded chips and business partners for year 2000 compliance problems and will implement any upgrades or modifications that are necessary to address year 2000 compliance problems that may arise in the future. Any problems that do arise and that cannot be identified and corrected successfully and completely could interrupt and adversely affect our business. In addition, although we do not expect that the cost to fix any year 2000 problems that may be identified will be material, the costs of upgrading or replacing any non-compliant systems or equipment could exceed our expectations and adversely affect our operating results. ITEM 2. PROPERTIES See the disclosure under the caption PROPERTIES, in Item 1. ITEM 3. LEGAL PROCEEDINGS We are not a party to any material litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of our shareholders during the fourth quarter of our fiscal year ended December 31, 1999. 32 PART II ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Our common stock is traded on The Nasdaq Stock Market under the symbol IMNX. The following table sets forth for each period indicated the high and low sales prices for our common stock as quoted on The Nasdaq Stock Market. Share prices shown are adjusted for our two-for-one stock splits effected on March 25, 1999 and August 26, 1999, but are not adjusted to reflect the three-for-one stock split which will be effective for our shareholders on March 20, 2000.
1999 1998 ------------------- ------------------- HIGH LOW HIGH LOW -------- -------- -------- -------- 1st Quarter................................ $ 45.88 $29.11 $18.84 $11.78 2nd Quarter................................ 71.16 33.13 18.41 14.38 3rd Quarter................................ 69.97 43.38 18.38 12.00 4th Quarter................................ 116.00 42.00 31.56 11.97
There were approximately 1,277 holders of record of our common stock as of February 25, 2000, which does not include the number of shareholders whose shares are held of record by a broker or clearing agency, but does include such a broker or clearing agency as a holder of record. We have not paid any cash dividends since our inception. We currently do not intend to pay any cash dividends in the foreseeable future, but intend to retain all earnings, if any, for use in our business operations. In connection with one of our stock option plans, we have issued shares of Immunex common stock upon exercise of employee stock options. Additionally, we issued shares under our employee stock purchase plan through which eligible employees may purchase a limited number of shares of our common stock at 85% of the market value at specified plan-defined dates. Under the terms of the Governance Agreement with AHP, AHP has the right to purchase additional shares of our common stock in order to maintain its percentage ownership interest in Immunex following the issuance of Immunex common stock. Immunex issued 1,166,242 shares of common stock to AHP for $40,777,000 in 1999 and issued 445,132 shares of common stock to AHP for $6,877,000 in 1998, after adjusting for the two two-for-one stock splits that occurred during 1999. We believe that the sales of these securities to AHP were exempt from registration under the Securities Act of 1933, as amended, under Section 4(2) thereof. ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The following table shows selected financial data for the fiscal years 1995 to 1999.
1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Revenues.................................. $541,718 $243,450 $185,297 $151,198 $156,616 Net income (loss)......................... 44,324 986 (15,772) (53,632) (11,300) Net income (loss) per common share, basic................................... 0.27 0.01 (0.10) (.34) (0.07) Net income (loss) per common share, diluted................................. 0.25 0.01 (0.10) (.34) (0.07) Total Assets.............................. 941,241 325,325 227,333 177,787 174,037 Long-term obligations, including current portion................................. 452,404 5,826 9,093 12,071 5,324 Shareholders' equity...................... 355,330 247,463 176,156 137,710 136,643
The computation of diluted earnings per share does not reflect the issuance of shares upon conversion of the $450.0 million, 3% coupon convertible subordinated note issued to AHP in 1999 because the inclusion would have been anti-dilutive. 33 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS OVERVIEW In 1999, we generated net income of $44.3 million, compared to net income of $1.0 million in 1998 and a net loss of $15.8 million in 1997. The improvement in operating results during the years presented was due largely to sales of ENBREL-Registered Trademark- (etanercept), which was approved in November 1998 by the U.S. Food and Drug Administration, or FDA, for treatment of advanced rheumatoid arthritis. Our operating results also reflect increased costs, primarily related to manufacturing, selling and marketing expenses for ENBREL. In addition, we have increased spending on products in our development pipeline and increased the level of investment in discovery research. REVENUES (in millions)
1999 1998 1997 -------- -------- -------- ENBREL.............................................. $366.9 $ 12.7 $ -- LEUKINE-Registered Trademark- (sagramostim, GM-CSF)........................................... 69.1 63.8 52.7 NOVANTRONE-Registered Trademark- (mitoxantrone)..... 44.5 48.8 51.6 Other product sales................................. 38.8 44.6 45.4 ------ ------ ------ Total product sales............................. 519.3 169.9 149.7 Royalty and contract revenue........................ 22.4 73.5 35.6 ------ ------ ------ Total revenue................................... $541.7 $243.4 $185.3 ====== ====== ======
On November 2, 1998, the FDA approved ENBREL for treatment of advanced rheumatoid arthritis. On May 28, 1999, the FDA approved ENBREL for the treatment of moderately to severely active juvenile rheumatoid arthritis. We commenced selling ENBREL in the United States on November 4, 1998. Sales of ENBREL totaled $366.9 million for 1999 and $12.7 million for 1998. Under an ENBREL Promotion Agreement entered into in September 1997 with American Home Products Corporation, or AHP, ENBREL is being promoted in the United States through the sales and marketing organization of Wyeth-Ayerst Laboratories, or Wyeth-Ayerst, a division of AHP. AHP shares in the gross profits from U.S. sales of ENBREL and both AHP and Immunex share selling, marketing and distribution costs of ENBREL in the United States. Demand for LEUKINE continued to grow in 1999, reflecting increased acceptance of the product. Unit volume of LEUKINE began to increase in 1997 following the launch of a liquid formulation of the product, which was previously only available in a powdered formulation that required reconstitution prior to administration. The improved convenience of the liquid formulation combined with the success of our sales programs have contributed to the addition of several large customers for LEUKINE. Sales of LEUKINE have also benefited from overall growth in the market for colony stimulating factors. Sales of NOVANTRONE remained essentially flat during 1999, following a decline in sales levels in the fourth quarter of 1998. We have filed a New Drug Application, or NDA, with the FDA to approve NOVANTRONE for treatment of secondary progressive multiple sclerosis, an advanced stage of multiple sclerosis. Sales of THIOPLEX decreased to $17.7 million in 1999 compared to $24.9 million in 1998 and $22.4 million in 1997. In addition to other indications, THIOPLEX is used as a treatment regimen for bone marrow transplant therapy. Sales of THIOPLEX have declined since the release of findings indicating that bone marrow transplants were no more effective than standard outpatient chemotherapy in the treatment of breast cancer. Demand for THIOPLEX declined throughout the year, and is expected to continue to decline in 2000. Sales growth in 1998, as compared to 1997, was due to the U.S. launch of ENBREL in November 1998 and increased demand for LEUKINE. Sales of our other products, as a whole, declined slightly during 1998. Also, in late 1997, we sold the marketing rights to our non-biological products in Canada to a wholly owned subsidiary of AHP. Accordingly, we earned no revenue from sales of those products in Canada in 1999 and 1998. 34 Royalty and contract revenue totaled $22.4 million in 1999, compared to $73.5 million in 1998 and $35.6 million in 1997. In August 1999, we earned a one-time payment of $10.0 million from AHP under the ENBREL Promotion Agreement when net sales of ENBREL exceeded $200.0 million for the preceding 12-month period. The remaining royalty and contract revenue recognized during 1999 was due primarily to recurring amounts recognized under existing royalty and license agreements. In 1998, we earned $50.0 million from AHP under the ENBREL Promotion Agreement. Of the $50.0 million, we earned the first $20.0 million when the Biologics License Application, or BLA, for ENBREL was accepted for review by the FDA and the other $30.0 million was earned when the FDA approved ENBREL. We also earned non-recurring contract revenues of approximately $10.0 million related to the sale of the U.S. rights to paclitaxel injection, a generic form of TAXOL-REGISTERED TRADEMARK-, and to the settlement of claims related to paclitaxel injection in Canada. Royalty and contract revenue in 1997 includes $15.0 million earned from AHP under the ENBREL Promotion Agreement and other one-time revenues of approximately $7.0 million. OPERATING EXPENSES Cost of product sales, as a percentage of product sales, was 30.7% in 1999 compared to 19.6% in 1998 and 16.4% in 1997. The increase in the cost of product sales percentage in 1999 was due to: - increased sales of ENBREL (which, like LEUKINE, is a biologic and generally has a higher manufacturing cost than traditional pharmaceutical products and, in the case of our biologic products, are subject to multiple royalty obligations); and - unfavorable change in the mix of our other product sales. The unfavorable change in product mix in 1999 and 1998 reverses a more favorable trend in 1997 when increased sales of our products had resulted in an overall decrease in the cost of product sales percentage. Research and development expense increased to $126.7 million in 1999, compared to $120.0 million in 1998 and $109.3 million in 1997. Spending on research and development activities has increased in recent years, reflecting both an increased investment in discovery research and increased development costs. Excluding $10.0 million of expense incurred in 1998 to acquire the rights outside the United States and Canada to NUVANCE-TM- (IL-4R) and other receptor product candidates, research and development expense increased by $16.7 million in 1999 versus 1998. The increase in research and development costs was due primarily to the development of: - NUVANCE for treatment of asthma; - ENBREL for treatment of chronic heart failure and rheumatoid arthritis; - the TRAIL/Apo2 ligand molecule for treatment of cancer, in collaboration with Genentech, Inc.; - NOVANTRONE for treatment of multiple sclerosis; and - AVREND-TM- (CD40 ligand) to treat renal cell cancer. In addition, we have increased costs for staffing and expanded laboratory space. The increase in research and development expense in 1998, as compared to 1997, was due primarily to increased spending to develop ENBREL. In addition, spending to develop NUVANCE and MOBISTA-TM- (Flt3 ligand) increased during 1998 due in part to expanded clinical trials for these product candidates and also to increased costs of manufacturing the product requirements for these clinical trials. The above increases were partially offset in 1998 by decreased clinical expenses for LEUKINE and decreased manufacturing costs for AVREND. Selling, general and administrative expense increased to $216.7 million in 1999, compared to $93.8 million in 1998 and $71.3 million in 1997. The increase in 1999 expense was due primarily to expenses associated with selling and marketing of ENBREL. Under the terms of the ENBREL Promotion Agreement, AHP assumed a majority of these expenses and will share in the gross profits from U.S. sales and potential Canadian sales of ENBREL. Our share of costs incurred under the ENBREL Promotion Agreement, including the obligation to AHP for its share of gross profits from U.S. sales of ENBREL, totaled $120.3 million in 1999 and $14.8 million in 1998. The increase also reflects the cost of: - increased staffing levels and other infrastructure costs; - preparing for anticipated approval of NOVANTRONE in a new multiple sclerosis indication; - higher product liability insurance premiums due to higher average limits; and - expenses associated with new information systems. 35 The increase in selling, general and administrative expense in 1998, as compared to 1997, was due primarily to spending on pre-launch activities and on launch related selling and marketing activities for ENBREL. The increase also reflects costs from: - increased staffing levels; - expenses associated with new information systems; and - expanded office space. OTHER INCOME (EXPENSE) Interest income increased to $26.2 million in 1999, compared to $6.8 million in 1998 and $3.8 million in 1997. In May 1999, we issued a $450.0 million, seven-year, 3%, convertible subordinated note to AHP. The proceeds from the note, combined with improved operating cash flow and sales of common stock to AHP and our employees resulted in a significant increase in funds available for investment purposes and the interest earned on those funds. Interest income in 1999 was partially offset by an increase in interest expense incurred on the convertible note. The increase in interest income in 1998, as compared to 1997, reflects an increase in funds available for investment purposes due to improved operating results and the interest earned on those funds. PROVISION FOR INCOME TAXES The provision for income taxes totaled $12.5 million in 1999, $2.2 million in 1998 and $0.2 million in 1997. The provision for income taxes in both 1999 and 1998 is primarily for federal income taxes. The tax provisions for 1999 and 1998 are non-cash transactions because we are using our net operating loss, or NOL, carryforwards. The benefit from utilizing our NOL carryforwards was to reduce the recorded value of goodwill and intangible product rights and, in part, to offset tax expense in 1999. At December 31, 1999, our NOL carryforwards totaled approximately $286.7 million. Not all of these NOL carryforwards will be available to offset tax provisions. The provision for income taxes in 1997 consists only of our tax obligation in the states in which we sell our products. LIQUIDITY AND CAPITAL RESOURCES Cash, cash equivalents and short term investments totaled $709.8 million at December 31, 1999 and $144.8 million at December 31, 1998. In May 1999, we received $450.0 million in proceeds from the issuance of a convertible subordinated note to AHP. We maintain our cash reserves in a variety of interest-bearing instruments, including government and corporate obligations and money market accounts. Operating activities provided cash of $112.7 million in 1999, compared to $23.2 million in 1998 and $15.1 million in 1997. The increase in operating cash flow in 1999 was due primarily to the improvement in operating results, and, to a lesser extent, favorable changes in working capital. Working capital changes reflect an increase in accounts receivable from sales of ENBREL, which was more than offset by increases in accounts payable and payables to AHP under the ENBREL Promotion Agreement, and decreased inventory levels. The improvement in 1998, as compared to 1997, can be attributed to an improvement in operating results and a favorable change in working capital requirements primarily due to the U.S. launch of ENBREL in November 1998. We expect our operating cash flows to continue to grow in 2000, primarily from increased operating income. However, the extent of any improvement will be significantly affected by changes in our working capital requirements. Under an ENBREL Supply Agreement we entered into in November 1998 with AHP and Boehringer Ingelheim Pharma KG, or BI Pharma, our contract manufacturer of ENBREL, we have made commitments to purchase inventory totaling at least $218.0 million over the next two years. A portion of this inventory will be purchased by AHP from BI Pharma. Our commitment could increase if BI Pharma provides additional quantities of ENBREL. In addition to inventory of ENBREL, our accounts receivable will continue to be directly affected by U.S. sales of ENBREL and accounts payable will continue to be affected by costs incurred under the ENBREL Promotion Agreement. Accordingly, operating cash flows are highly dependent on sales and inventory levels of ENBREL. 36 Cash used in investing activities increased to $403.2 million in 1999, compared to $116.3 million in 1998 and $28.7 million in 1997. The majority of cash used for investing activities was due to increased purchases of marketable securities of $460.1 million, offset by $107.8 million in proceeds from the sales and maturities of marketable securities. In addition, expenditures for capital equipment increased to $35.6 million in 1999 from $29.4 million in 1998. In 1999, we began construction of a new process development facility that is expected to be completed by the end of 2000 at a total cost of approximately $45.0 million. We also leased additional laboratory and office space during 1999 and incurred costs to build out the new space. Other capital expenditures include computer hardware and software, lab and manufacturing equipment. We also incurred costs totaling $15.5 million related to patent licenses. We expect capital expenditures to increase significantly in 2000. We estimate costs to complete the process development facility will be approximately $35.0 million. In addition, we are investing in additional manufacturing capacity for ENBREL and our other product candidates. The timing and extent of these expenditures in 2000 is uncertain, but could be significant. In order to meet the anticipated increased supply demands for LEUKINE, we are planning to transfer production of LEUKINE to our full-scale microbial manufacturing facility. The move will result in capital expenditures for replacement and upgrade of manufacturing equipment. We are currently in the design phase of a project to relocate our corporate offices and research facilities to a new corporate campus. In the fourth quarter of 1999, our Board of Directors approved expenditures of up to $6.2 million for initial development of the corporate campus. We also expect to continue to increase spending for computer software and hardware and lab equipment. The increase in net cash used in investing activities in 1998, as compared to 1997, was due to increased purchases of marketable securities, purchases of property, plant and equipment and a payment made under a GM-CSF patent interference settlement. Net cash provided by financing activities totaled $507.6 million in 1999, $70.5 million in 1998 and $56.0 million 1997. The majority of the increase in 1999 can be attributed to the $450.0 million in proceeds from the seven-year, 3%, convertible subordinated note issued to AHP. We expect to use the proceeds from this note for: - new product development; - financing strategic acquisitions of products, product candidates, technologies or other businesses; - financing expansion for constructing new manufacturing, research and office facilities; and - funding other working capital requirements. In addition, under the terms of a Governance Agreement with AHP, AHP can purchase additional shares of our common stock in order to maintain its percentage ownership interest in Immunex. The purchase price is equal to the fair market value of the shares, as determined in accordance with the Governance Agreement, on the date of AHP's purchase. Under the terms of the Governance Agreement, we received $40.8 million from the issuance of 1,166,242 shares of our common stock to AHP during 1999. We received an additional $21.3 million from sales of common stock to our employees under an employee stock option plan and the employee stock purchase plan. The increase in cash provided by financing activities for 1998, as compared to 1997, was primarily due to the final revenue shortfall obligation payment from AHP totaling $60.0 million. In 1998, we also received an additional $6.8 million from the exercise of employee stock options and $6.9 million from the issuance of 445,132 shares of our common stock to AHP. OUTLOOK We expect growth in sales of ENBREL to be the primary driver of our operating results in 2000. We expect sales levels of ENBREL to continue to grow in the near-term and are seeking a label expansion for ENBREL for the treatment of early stage rheumatoid arthritis. A decision by the FDA on this submission is expected in 2000. Under the ENBREL Promotion Agreement with AHP, ENBREL is being promoted in the United States by the sales and marketing organization of Wyeth-Ayerst. AHP shares in the gross profits from U.S. sales and potential Canadian sales of ENBREL. Payments to AHP will increase with any corresponding increase in sales of ENBREL. In addition, both companies share the selling, marketing and distribution costs of ENBREL in the United States. AHP will continue to assume a majority of these marketing and selling costs in 2000. However, our share of these expenses will be higher in 2000 than in 1999. As a result, although total spending under the ENBREL Promotion Agreement will decrease moderately from the launch year for ENBREL, our total share of these expenses in 2000 is expected to approximate our spending incurred during 1999. In November 2000, the beginning of the third year following the U.S. launch of ENBREL, Immunex and AHP will share these costs equally in the U.S. 37 On January 28, 2000, an advisory panel to the FDA unanimously recommended NOVANTRONE for approval for treatment of clinically worsening forms of relapsing-remitting and secondary progressive multiple sclerosis. We have prepared for a potential launch of NOVANTRONE for this possible indication, including hiring additional sales representatives. A portion of our revenues will continue to be derived from existing license, royalty and other such agreements. Under the ENBREL Promotion Agreement, we earned $10.0 million in February 2000 when net sales of ENBREL exceeded $400.0 million during the preceding 12-month period. We will earn $15.0 million if and when a rheumatoid arthritis disease modification claim for ENBREL is obtained from the FDA. In the future, we may enter into additional agreements to license marketing or technology rights. The timing of such agreements, if any, and the revenue recognized from those agreements cannot be predicted. We expect to increase research and development spending in 2000 to develop our product pipeline. We are currently conducting a large scale Phase II/III clinical trial of ENBREL for treatment of chronic heart failure and we expect to initiate a Phase III clinical trial of ENBREL in psoriatic arthritis. In addition to these two indications, we are pursuing several other indications for ENBREL. In 1999, we initiated a Phase II clinical trial of NUVANCE in moderate to severe asthma patients. We expect to obtain the results of this clinical trial in the first half of 2000 and to launch a pivotal Phase III clinical trial if the results are positive. We also expect spending under our collaboration with Genentech, Inc. to jointly develop the TRAIL/Apo2 ligand molecule to increase. Selling, general and administrative expense in 2000 will be primarily determined by the profit share due AHP on net sales of ENBREL in the United States. In addition, if we receive FDA approval to market NOVANTRONE in a multiple sclerosis indication, spending in 2000 will include costs of selling to a new physician audience. We also expect increased sales and marketing administration costs for ENBREL and continued moderate growth in infrastructure and support costs. The provision for income taxes in 2000 will consist only of our tax obligation in the states in which we sell our products. Our federal income tax expense will be offset by NOL carryforwards. YEAR 2000 We have experienced no disruption to our operations as a result of the "Year 2000" issue. The "Year 2000" issue is the result of computer programs being unable to differentiate between the year 1900 and the year 2000 because they were written using two digits rather than four to define the applicable year. This programming flaw could result in a system failure or miscalculations with respect to current programs. We established a Year 2000 Committee with representatives from all of the functional areas at Immunex to engage in a comprehensive review of our computer systems and software applications and equipment that utilize date sensitive computer chips. Based on this review, we determined that some of our software, hardware and equipment had to be modified or replaced so that they would properly utilize dates beyond December 31, 1999. These replacements and modifications were completed by September 30, 1999. Furthermore, we contacted key business partners, including third-party suppliers, service providers, distributors, wholesalers and other entities with whom we have a business relationship, or Business Partners, to determine their compliance with year 2000 requirements. All mission critical facilities, equipment, and systems were monitored by an on-site team on December 31, 1999 with no reported disruptions. As of December 31, 1999, we had completed all phases of our year 2000 project including contingency planning for critical aspects of our operations. Although we have experienced no year 2000 compliance problems to date, some problems may not surface until several months after January 1, 2000. Accordingly, we are continuing to monitor our operations and our Business Partners for year 2000 compliance problems. Were any such problems to arise that we were unable to identify and correct in a timely manner, our operations could be adversely affected. In addition, although we do not expect that the cost to fix any year 2000 problems that may be identified would be material, the costs of upgrading or replacing any non-compliant systems or equipment could exceed our expectations and adversely affect our operating results. Our total cost for the year 2000 project was approximately $6.5 million, comprised of $1.2 million of expense and $5.3 million of capital. These amounts do not include any internal costs. All of these amounts were incurred as of December 31, 1999. MARKET RISK We have financial instruments that are subject to interest rate risk including both debt instruments and investment instruments. We invest our cash reserves in marketable securities consisting primarily of U.S. government and corporate obligations. If market interest rates changed relatively by as much as 10%, the net effect on our operating results would not be material. 38 ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK See MARKET RISK, above, under Item 7. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE IN FORM 10-K --------- Consolidated Balance Sheets at December 31, 1999 and 1998...................................................... 40 Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997.......................... 41 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997.............. 42 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997.......................... 43 Notes to Consolidated Financial Statements for the years ended December 31, 1999, 1998 and 1997.................... 44-57 Report of Ernst & Young LLP, Independent Auditors........... 58
39 IMMUNEX CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, --------------------- 1999 1998 --------- --------- ASSETS Current assets: Cash and cash equivalents................................. $ 260,770 $ 43,600 Short term investments.................................... 449,066 101,245 Accounts receivable--trade, net........................... 47,469 21,570 Accounts receivable--AHP.................................. 3,558 967 Accounts receivable--other................................ 10,754 6,402 Inventories............................................... 13,125 23,475 Prepaid expenses and other current assets................. 6,439 4,726 --------- --------- Total current assets.................................... 791,181 201,985 Property, plant and equipment, net.......................... 110,445 90,092 Other assets: Property held for future development...................... 6,049 6,129 Investments............................................... 10,704 3,837 Intangible product rights and other, net.................. 22,862 15,935 Goodwill, net............................................. -- 7,347 --------- --------- Total assets............................................ $ 941,241 $ 325,325 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 71,832 $ 39,256 Accounts payable--AHP..................................... 37,088 13,950 Accrued compensation and related items.................... 20,001 13,756 Current portion of long-term obligations.................. 1,578 3,477 Interest payable--AHP..................................... 2,250 -- Other current liabilities................................. 2,336 5,074 --------- --------- Total current liabilities............................... 135,085 75,513 Convertible subordinated note--AHP.......................... 450,000 -- Other long term obligations................................. 826 2,349 Commitments and contingencies (Note 10) Shareholders' equity: Preferred stock, $.01 par value, 10,000,000 shares authorized, none outstanding............................ -- -- Common stock, $.01 par value, 400,000,000 shares authorized, 164,673,125 and 160,594,044 outstanding at December 31, 1999 and 1998, respectively................ 788,468 726,416 Unrealized gain on investments, net....................... 2,719 1,228 Accumulated deficit....................................... (435,857) (480,181) --------- --------- Total shareholders' equity.............................. 355,330 247,463 --------- --------- Total liabilities and shareholders' equity.............. $ 941,241 $ 325,325 ========= =========
See accompanying notes. 40 IMMUNEX CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Revenues: Product sales............................................. $519,287 $169,907 $149,672 Royalty and contract revenue.............................. 22,431 73,543 35,625 -------- -------- -------- 541,718 243,450 185,297 Operating expenses: Cost of product sales..................................... 159,269 33,285 24,552 Research and development.................................. 126,682 119,954 109,312 Selling, general and administrative....................... 216,714 93,777 71,275 -------- -------- -------- 502,665 247,016 205,139 -------- -------- -------- Operating income (loss)..................................... 39,053 (3,566) (19,842) Other income (expense): Interest income........................................... 26,150 6,793 3,790 Interest expense.......................................... (8,656) (425) (596) Other income, net......................................... 277 384 1,088 -------- -------- -------- 17,771 6,752 4,282 -------- -------- -------- Income (loss) before income taxes........................... 56,824 3,186 (15,560) Provision for income taxes.................................. 12,500 2,200 212 -------- -------- -------- Net income (loss)........................................... $ 44,324 $ 986 $(15,772) ======== ======== ======== Net income (loss) per common share Basic..................................................... $ 0.27 $ 0.01 $ (0.10) ======== ======== ======== Diluted................................................... $ 0.25 $ 0.01 $ (0.10) ======== ======== ======== Number of shares used for per share amounts Basic..................................................... 163,130 159,500 158,548 ======== ======== ======== Diluted................................................... 176,658 167,560 158,548 ======== ======== ========
See accompanying notes. 41 IMMUNEX CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
GUARANTY PAYMENT ACCUMULATED COMMON STOCK RECEIVABLE OTHER TOTAL ------------------- FROM COMPREHENSIVE ACCUMULATED SHAREHOLDERS' SHARES AMOUNT AHP INCOME DEFICIT EQUITY -------- -------- ---------- ------------- ----------- ------------- Balance, December 31, 1996........ 158,358 $649,699 $(56,000) $ 9,406 $(465,395) $137,710 Net loss for the year ended December 31, 1997............. -- -- -- -- (15,772) (15,772) Unrealized loss on investments, net........................... -- -- -- (4,760) -- (4,760) -------- Comprehensive loss................ (20,532) Common stock issued to employees..................... 350 1,698 -- -- -- 1,698 Common stock issued to AHP...... 113 1,280 -- -- -- 1,280 Guaranty payment received from AHP........................... -- -- 56,000 -- -- 56,000 Guaranty payment receivable from AHP........................... -- 60,032 (60,032) -- -- -- ------- -------- -------- ------- --------- -------- Balance, December 31, 1997........ 158,821 712,709 (60,032) 4,646 (481,167) 176,156 Net income for the year ended December 31, 1998............. -- -- -- -- 986 986 Unrealized loss on investments, net........................... -- -- -- (3,418) -- (3,418) -------- Comprehensive loss................ (2,432) Common stock issued to employees..................... 1,328 6,830 -- -- -- 6,830 Common stock issued to AHP...... 445 6,877 -- -- -- 6,877 Guaranty payment received from AHP........................... -- -- 60,032 -- -- 60,032 ------- -------- -------- ------- --------- -------- Balance, December 31, 1998........ 160,594 726,416 -- 1,228 (480,181) 247,463 Net income for the year ended December 31, 1999............. -- -- -- -- 44,324 44,324 Unrealized gain on investments, net........................... -- -- -- 1,491 -- 1,491 -------- Comprehensive income.............. 45,815 Common stock issued to employees..................... 2,913 21,275 -- -- -- 21,275 Common stock issued to AHP...... 1,166 40,777 -- -- -- 40,777 ------- -------- -------- ------- --------- -------- Balance, December 31, 1999........ 164,673 $788,468 $ -- $ 2,719 $(435,857) $355,330 ======= ======== ======== ======= ========= ========
See accompanying notes. 42 IMMUNEX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 --------- --------- -------- Operating activities: Net income (loss)......................................... $ 44,324 $ 986 $(15,772) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 20,081 18,119 16,930 Deferred income tax provision........................... 12,051 1,900 -- License fee received in the form of common stock........ (990) -- -- Cash flow impact of changes to: Accounts receivable................................... (32,842) (10,708) (90) Inventories........................................... 11,296 (6,493) (138) Prepaid expenses and other current assets............. (1,713) (947) 55 Accounts payable, accrued compensation and other current liabilities................................. 60,525 20,371 14,078 --------- --------- -------- Net cash provided by operating activities........... 112,732 23,228 15,063 Investing activities: Purchases of property, plant and equipment................ (35,563) (29,389) (7,409) Proceeds from sales and maturities of short term investments............................................. 107,843 40,169 13,804 Purchases of short term investments....................... (460,050) (121,745) (33,158) Acquisition of rights to marketed products, net........... (15,500) (5,000) -- Other..................................................... 78 (312) (1,985) --------- --------- -------- Net cash used in investing activities............... (403,192) (116,277) (28,748) Financing activities: Proceeds from common stock issued to employees............ 21,275 6,877 1,280 Proceeds from common stock issued to AHP.................. 40,777 6,831 1,698 Proceeds from convertible subordinated note--AHP, net..... 449,000 -- -- Payment under settlement obligation....................... (2,558) (2,391) (2,235) Guaranty payment received from AHP........................ -- 60,032 56,000 Other..................................................... (864) (876) (743) --------- --------- -------- Net cash provided by financing activities........... 507,630 70,473 56,000 --------- --------- -------- Net increase (decrease) in cash and cash equivalents........ 217,170 (22,576) 42,315 Cash and cash equivalents, beginning of period.............. 43,600 66,176 23,861 --------- --------- -------- Cash and cash equivalents, end of period.................... $ 260,770 $ 43,600 $ 66,176 ========= ========= ========
See accompanying notes. 43 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION Immunex Corporation is a biopharmaceutical company that discovers, develops, manufactures and markets innovative therapeutic products for the treatment of human diseases, including cancer, infectious diseases and immunological disorders such as rheumatoid arthritis. We operate in a highly regulated and competitive environment. Our business is regulated primarily by the U.S. Food and Drug Administration, or FDA. The FDA regulates the products we sell, our manufacturing processes and our promotional activities. Obtaining approval for a new therapeutic product is never certain, may take several years and is very costly. Competition in researching, developing and marketing pharmaceutical products is intense. Any of the technologies covering our existing products or products under development could become obsolete or diminished in value by discoveries and developments of other organizations. Our market for pharmaceutical products is primarily the U.S. Our sales are primarily through wholesalers and specialty distributors. Approximately 68% of our product sales are made through three of these wholesalers and specialty distributors. On June 1, 1993, the predecessor to the current Immunex Corporation merged with a subsidiary of American Cyanamid Company, or Cyanamid. Cyanamid received the number of shares equal to 53.5% of our common stock and dilutive securities outstanding immediately following the merger. In late 1994, American Home Products Corporation, or AHP, acquired all of Cyanamid's outstanding shares of common stock. AHP and certain of its subsidiaries and affiliates assumed the rights and obligations of Cyanamid. As a result, AHP now holds a majority interest in Immunex. We have also entered into additional agreements with AHP (see Note 9). All references to AHP include AHP and its various affiliates, divisions and subsidiaries, including Cyanamid. The consolidated financial statements are prepared in conformity with generally accepted accounting principles. In preparing the financial statements, management must make estimates and assumptions that affect reported amounts and disclosures. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include our accounts and our wholly owned subsidiary, Immunex Manufacturing Corporation. All significant intercompany accounts and transactions have been eliminated in consolidation. CASH EQUIVALENTS Cash equivalents include items almost as liquid as cash, such as demand deposits or debt securities with maturity periods of 90 days or less when purchased. Our cash equivalents are carried at fair market value. SHORT TERM INVESTMENTS Short term investments consist of securities available-for-sale, which are stated at fair value with the unrealized gains and losses included as a component of shareholders' equity on the balance sheet. Cost of securities is calculated using the specific-identification method. Securities available-for-sale at December 31, 1999 and 1998 consisted primarily of U.S. government and corporate debt obligations. INVENTORIES Inventories are stated at the lower of cost, using a weighted-average method, or market. The components of inventories at December 31 are as follows (in thousands):
1999 1998 -------- -------- Raw materials............................................. $ 1,387 $ 807 Work in process........................................... 5,310 17,953 Finished goods............................................ 6,428 4,715 ------- ------- Total inventories......................................... $13,125 $23,475 ======= =======
44 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DEPRECIATION AND AMORTIZATION The cost of buildings and equipment is depreciated evenly over the estimated useful lives of the assets, which range from three to 31.5 years. Leasehold improvements are amortized evenly over either their estimated useful life, or the term of the lease, whichever is shorter. PROPERTY HELD FOR FUTURE DEVELOPMENT We own some property intended for the possible future expansion of our manufacturing facilities. This property has been recorded at cost. INVESTMENTS We own common stock in two biotechnology companies. These investments are accounted for as securities available-for-sale and recorded at fair value on the balance sheet (see Note 3). GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill was being amortized evenly over a 10-year period. Accumulated amortization totaled $12,098,000 at December 31, 1999 and $11,319,000 at December 31, 1998. In connection with the pretax income reported in 1999 and 1998, we recorded a tax provision and reduced our goodwill by $6,568,000 in 1999 and $1,900,000 in 1998 (see Note 7). As of December 31, 1999, the net goodwill balance had been reduced to zero. Intangible product rights and other intangible assets are amortized evenly over their estimated useful lives, ranging from five to 15 years. Accumulated amortization totaled $9,998,000 at December 31, 1999 and $7,069,000 at December 31, 1998. In connection with the pretax income reported in 1999, we recorded a tax provision and reduced the intangible product rights acquired from the merger with Cyanamid by $5,483,000 (see Note 7). As of December 31, 1999, the net Cyanamid intangible product rights balance has been reduced to zero. REVENUES Product sales are recognized when product is shipped. Product sales are recorded net of reserves for estimated chargebacks, returns, discounts, Medicaid rebates and administrative fees. We maintain reserves at a level that we believe is sufficient to cover estimated future requirements. Allowances for discounts, returns and bad debts, which are netted against accounts receivable, totaled $21,824,000 at December 31, 1999 and $11,627,000 at December 31, 1998. Reserves for chargebacks, Medicaid rebates and administrative fees are included in accounts payable and totaled $21,970,000 at December 31, 1999 and $12,610,000 at December 31, 1998. Revenues received under royalty, licensing and other contractual agreements are recognized based upon performance under the terms of the underlying agreements. In 1999, we received common stock initially valued at $990,000 in lieu of cash as compensation under a licensing agreement. ADVERTISING COSTS The costs of advertising are expensed as incurred. We incurred approximately $2,843,000 in advertising costs in 1999. For both 1998 and 1997 there were no material advertising expenses. NET INCOME (LOSS) PER COMMON SHARE Basic and diluted earnings per share are calculated in accordance with FASB Statement No. 128, EARNINGS PER SHARE. Basic earnings per share is calculated by dividing net income or net loss by the weighted average number of common shares outstanding. Diluted earnings per share is calculated using the weighted average number of common shares outstanding plus the dilutive effect of outstanding stock options using the "treasury stock" method, and, if dilutive, the effect of the AHP convertible note using the "if-converted" method. 45 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RECLASSIFICATIONS For comparison purposes, prior year amounts in the consolidated financial statements have been reclassified to conform to current year presentations. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARD In June 1998, the FASB issued Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. We expect to adopt the new Statement effective January 1, 2001. The Statement will require us to recognize all derivatives on the balance sheet at fair value. We are in the process of analyzing the impact of this standard, however, we do not anticipate that the adoption of this statement will have a significant effect on our results of operations or financial position. NOTE 3. INVESTMENTS Our investments are considered available-for-sale and are stated at fair value on the balance sheet with the unrealized gains and losses included as a component of shareholders' equity as comprehensive income. For both 1999 and 1998, there were no material realized gains or losses. Immunex's investment guidelines state that the maximum average life of any one security shall be five years with the maximum weighted average life of the investment portfolio being three years. At December 31, 1999, all of Immunex's investments met these guidelines. Information about our investments follows (in thousands):
GROSS GROSS FAIR AMORTIZED UNREALIZED UNREALIZED VALUE COST GAINS LOSSES -------- --------- ---------- ---------- YEAR ENDED DECEMBER 31, 1999 Type of security: Commercial paper................................ $ 84,329 $ 84,258 $ 71 $ -- Corporate debt securities....................... 274,457 277,012 2 (2,557) U.S. government and agency obligations.......... 320,933 322,403 16 (1,486) Corporate equity securities..................... 10,704 4,031 7,943 (1,270) -------- -------- ------ ------- $690,423 $687,704 $8,032 $(5,313) ======== ======== ====== ======= YEAR ENDED DECEMBER 31, 1998 Type of security: Commercial paper................................ $ 4,178 $ 4,194 $ -- $ (16) Corporate debt securities....................... 52,547 52,351 252 (56) U.S. government and agency obligations.......... 54,460 54,208 299 (47) Corporate equity securities..................... 3,837 3,041 796 -- -------- -------- ------ ------- $115,022 $113,794 $1,347 $ (119) ======== ======== ====== ======= 1999 1998 -------- --------- Classification in the balance sheet: Cash and cash equivalents....................... $230,653 $ 9,940 Short term investments.......................... 449,066 101,245 Investments..................................... 10,704 3,837 -------- -------- $690,423 $115,022 ======== ========
46 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4. PROPERTY, PLANT AND EQUIPMENT The major categories of property, plant and equipment, at historical cost, consist of the following (in thousands):
1999 1998 -------- -------- Land.................................................... $ 17,874 $ 17,851 Buildings and improvements.............................. 59,793 50,097 Equipment............................................... 84,267 64,727 Leasehold improvements.................................. 28,650 23,469 -------- -------- 190,584 156,144 Less accumulated depreciation and amortization.......... (80,139) (66,052) -------- -------- Property, plant and equipment, net...................... $110,445 $ 90,092 ======== ========
NOTE 5. LONG-TERM OBLIGATIONS Long-term obligations consist of the following (in thousands):
1999 1998 -------- -------- 3% subordinated convertible note to AHP due through 2006.... $450,000 $ -- Deferred state sales tax on manufacturing facility due through 2000.............................................. 1,031 1,889 Deferred portion of litigation settlement obligation due through 2000.............................................. 519 3,077 Other....................................................... 854 860 -------- ------- 452,404 5,826 Less current portion........................................ (1,578) (3,477) -------- ------- $450,826 $ 2,349 ======== =======
AHP CONVERTIBLE SUBORDINATED NOTE In May 1999, we issued a seven-year, 3% coupon, convertible subordinated note to AHP. The principal amount of the note, purchased in a private placement, totaled $450.0 million, resulting in related debt issuance costs of $1.0 million. The note is convertible into Immunex common stock at a price of $86.84 per share. After three years, we can redeem the note, provided that the closing price of our common stock for 20 consecutive days exceeds or equals $104.21 per share. After four years, we can redeem the note at any time if the closing price of our common stock for 20 days exceeds or equals the conversion price. AHP may convert the note into common stock of Immunex at any time and, accordingly, we have reserved 5,181,944 shares at December 31, 1999 for potential issuance upon the conversion. During 1999, interest paid on the note totaled $6,038,000. Based upon the Immunex common stock price of $109.50 per share at December 31, 1999, the fair value of the note was approximately $567,423,000. OTHER OBLIGATIONS In November 1996, we settled a litigation. In accordance with the terms of the settlement, a payment was made at the time of the settlement, to be followed by four successive annual payments. The deferred payments have been discounted using a rate of 7%. We had no interest bearing debt in 1999, 1998 or 1997 other than the AHP convertible note. With the exception of deferred state sales tax and the AHP convertible note, the balance sheet carrying value for all of our financial instruments approximates fair value. The fair value of the deferred state sales tax obligation was calculated by discounting future cash flows using our current estimated incremental borrowing rate. The fair value of deferred state sales tax was calculated as $963,000 at December 31, 1999 and $1,700,000 at December 31, 1998. 47 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6. SHAREHOLDERS' EQUITY STOCK OPTIONS We may grant stock options, both incentive and non-qualified, to any employee, including officers, under the 1993 stock option plan and the 1999 stock option plan. There are 24,901,068 and 12,000,000 shares of common stock reserved for the 1993 stock option plan and 1999 stock option plan, respectively. Options are granted by a committee of our Board of Directors. Under both plans, options are not granted with exercise prices less than the fair market value of our common stock at the date of grant. Each outstanding option has a term of 10 years from the date of grant and becomes exercisable at a rate of 20% per year beginning one year from the date of grant. We also have a stock option plan with 400,000 shares of common stock reserved for nonemployee directors that provides each independent director an initial grant of an option to purchase 10,000 shares of common stock and an annual grant of 5,000 shares thereafter. The annual grant is subject to proportionate adjustment for any stock split that occurs within 90 days before the annual grant. Each option is granted with an exercise price equal to fair market value of our common stock at the date of grant. Each outstanding option has a term of 10 years from the date of grant and becomes exercisable at a rate of 20% per year beginning one year from the date of grant. Immunex has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Stock options are granted with an exercise price equal to the fair market value of the stock on the date of grant and, accordingly, we do not record compensation expense for stock option grants. The pro-forma disclosures, assuming that the fair value of option grants were recorded as compensation, for each of the years presented is not likely to be representative of the effects in future years because it does not take into consideration pro-forma amortization of compensation expense related to grants made prior to 1995. The following table summarizes results as if we had recorded compensation expense for the option grants (in thousands, except per share amounts):
1999 1998 1997 -------- -------- -------- Net income (loss)--as reported................. $44,324 $ 986 $(15,772) Net income (loss)--pro forma................... 7,003 (11,413) (20,643) Net income (loss) per common share, basic--as reported........................... $ 0.27 $ 0.01 $ (0.10) Net income (loss) per common share, basic--pro forma............................. $ 0.04 $ (0.07) $ (0.13) Net income (loss) per common share, diluted--as reported......................... $ 0.25 $ 0.01 $ (0.10) Net income (loss) per common share, diluted--pro forma........................... $ 0.04 $ (0.07) $ (0.13)
The estimated fair value of options granted in 1999, 1998 and 1997 was calculated using the Black-Scholes option pricing model with the following weighted average assumptions:
1999 1998 1997 ----------- ----------- ----------- Estimated weighted average fair value............................. $24.50 $8.84 $3.86 Expected life in years.............. 6 6 6 Risk-free interest rate............. 5.1% - 6.5% 4.6% - 5.7% 6.0% - 6.6% Volatility.......................... 74% 52% 45% Dividend yield...................... -- -- --
48 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6. SHAREHOLDERS' EQUITY (CONTINUED) Information with respect to Immunex's stock option plans is as follows:
WEIGHTED SHARES SUBJECT EXERCISE AVERAGE TO OPTION PRICE RANGE EXERCISE PRICE -------------- --------------- -------------- Options outstanding balance at December 31, 1996... 8,290,256 $ 2.94 - 7.88 $ 4.71 Granted.......................................... 4,910,600 6.06 - 19.19 7.69 Exercised........................................ (350,300) 2.94 - 7.88 4.86 Canceled......................................... (440,444) 3.06 - 10.44 5.41 ---------- --------------- ------ Options outstanding balance at December 31, 1997... 12,410,112 $ 2.94 - 19.19 $ 5.84 Options exercisable.............................. 3,126,980 5.46 Granted.......................................... 5,575,000 15.56 - 17.66 15.77 Exercised........................................ (1,327,820) 2.94 - 10.44 5.14 Canceled......................................... (715,996) 3.06 - 19.19 11.72 ---------- --------------- ------ Options outstanding balance at December 31, 1998... 15,941,296 $ 2.94 - 19.19 $ 9.11 Options exercisable.............................. 4,405,516 5.66 Granted.......................................... 5,920,900 34.44 - 58.56 35.61 Exercised........................................ (2,890,069) 2.94 - 19.19 6.94 Canceled......................................... (445,834) 2.94 - 58.56 17.90 ---------- --------------- ------ Options outstanding balance at December 31, 1999... 18,526,293 $ 2.94 - 58.56 $17.70 ========== =============== ====== Options exercisable.............................. 4,490,779 7.14 Shares available for future grants at December 31, 1999............................................. 14,202,882 ==========
The following table summarizes information about stock options outstanding at December 31, 1999:
OUTSTANDING EXERCISABLE ---------------------------------------------- -------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED RANGE OF REMAINING AVERAGE AVERAGE EXERCISE PRICES OPTIONS CONTRACTUAL LIFE EXERCISE PRICE OPTIONS EXERCISE PRICE - --------------- ---------- ---------------- -------------- --------- -------------- $ 2.94 - 3.97 3,627,145 6 years $ 3.88 1,952,705 $ 3.84 4.38 - 6.06 3,176,924 7 years 5.97 1,120,184 5.79 6.81 - 10.44 795,110 5 years 8.09 587,510 7.86 15.56 - 15.56 4,078,794 8 years 15.56 618,490 15.56 16.72 - 19.19 1,059,410 8 years 17.77 211,890 18.19 34.44 - 58.56 5,788,910 9 years 35.61 -- -- - -------------- ---------- ------ --------- ------ $ 2.94 - 58.56 18,526,293 $17.70 4,490,779 $ 7.14 ============== ========== ====== ========= ======
49 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6. SHAREHOLDERS' EQUITY (CONTINUED) EMPLOYEE STOCK PURCHASE PLAN In April 1999, the Company introduced an Employee Stock Purchase Plan under which 1,000,000 shares of common stock have been reserved for issuance. Eligible employees may purchase a limited number of shares of the Company's stock at 85% of the market value at plan-defined dates. During 1999, employees purchased 22,009 shares at a cost of $1,179,000 under this plan. At December 31, 1999, we have reserved shares of common stock for future issuances as follows: Outstanding stock options................................... 18,526,293 Stock options available for future grant.................... 14,202,882 Employee stock purchase plan................................ 977,991 Conversion of convertible subordinated notes to AHP......... 5,181,944 ---------- 38,889,110 ==========
STOCK SPLIT Immunex declared two stock splits in 1999. The two-for-one stock splits, effected in the form of 100% stock dividends, were approved by the Board of Directors on February 23, 1999 and July 27, 1999. The record dates of the stock splits were March 11, 1999, and August 12, 1999, respectively. Stockholders were entitled to receive the additional shares on March 25, 1999 and August 26, 1999, respectively. All references to accumulated deficit, common stock, average number of common shares outstanding and per share amounts in the financial statements prior to the record date of the stock splits have been restated to reflect the two-for-one stock splits. NOTE 7. INCOME TAXES Significant components of the provision for income taxes are as follows (in thousands):
1999 1998 1997 -------- -------- -------- Current taxes Federal........................................... $ -- $ -- $ -- State............................................. 449 300 132 ------- ------ ---- $ 449 $ 300 $132 Deferred taxes Federal (non-cash accounting entry)............... $12,051 $1,900 $ -- State............................................. -- -- -- ------- ------ ---- $12,500 $2,200 $132 ======= ====== ====
During 1999 and 1998, we generated taxable income for financial reporting purposes. Our taxable income, for financial reporting purposes, was offset by utilizing net operating loss, or NOL, carryforwards that originated prior to the 1993 Cyanamid merger. A portion of the benefit from utilizing these NOLs has been recorded as a tax expense and as a reduction of goodwill and intangible product rights of $12,051,000 in 1999 and $1,900,000 in 1998. This tax expense will not result in a cash outlay. We paid income taxes totaling $383,000 for 1999, $275,000 for 1998 and $132,000 for 1997. 50 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7. INCOME TAXES (CONTINUED) Reconciliation of the U.S. federal statutory tax rate to Immunex's effective tax rate is as follows:
1999 1998 1997 -------- -------- -------- U.S. federal statutory tax rate....................... 35.0% 35.0% (35.0)% Non-deductible amortization of goodwill............... 0.5 17.4 4.6 Increase in valuation reserve......................... -- -- 29.7 State taxes (net of federal tax benefit).............. 0.8 6.1 1.4 Other................................................. 0.9 10.6 0.7 Utilization of NOL carryforwards...................... (15.1) -- -- ----- ---- ----- Effective tax rate.................................. 22.1% 69.1% 1.4% ===== ==== =====
Significant components of tax assets and liabilities at December 31 (in thousands):
1999 1998 --------- --------- Deferred tax assets: Net operating loss carryforwards.................... $ 100,330 $ 88,194 Research and experimentation credits................ 20,443 16,814 In-process research and development................. 3,547 3,901 Accounts receivable allowances...................... 7,638 4,070 Accrued liabilities................................. 9,670 1,885 Other............................................... 1,627 912 --------- --------- Total deferred tax assets......................... 143,255 115,776 Valuation allowance for deferred tax assets......... (139,720) (109,526) --------- --------- Net deferred tax assets........................... 3,535 6,250 Deferred tax liabilities: Tax over book depreciation.......................... 1,251 1,515 Purchase accounting adjustments..................... -- 2,157 Other............................................... 2,284 2,578 --------- --------- Total deferred tax liabilities.................... 3,535 6,250 --------- --------- $ -- $ -- ========= =========
Our deferred tax assets consist primarily of the benefit resulting from unused NOL carryforwards and research and experimentation credit carryforwards. The amounts of these carryforwards are approximately $286,658,000 and $20,443,000 at December 31, 1999. The carryforwards expire from 2000 through 2019. During 1999, $58,342,000 of NOL carryforwards were used for financial reporting purposes to reduce the recorded value of goodwill and intangible products rights and to offset tax expense. An additional $98,300,000 of NOL carryforwards were generated due to stock option deductions for tax purposes. In 1999, approximately $5,300,000 of NOL carryforwards and $420,000 of research and experimental credits expired. Our ability to generate sufficient future taxable income for tax purposes in order to realize the benefits of our net deferred tax assets is uncertain primarily as a result of future stock option deductions. Therefore, a reserve of $139,720,000 and $109,526,000 has been recorded for financial reporting purposes at December 31, 1999 and 1998. This represents an increase in the reserve of approximately $30,194,000 during 1999 and $8,472,000 during 1998. 51 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7. INCOME TAXES (CONTINUED) To the extent we are able to generate taxable income in the future, NOL carryforwards will be utilized in the following order (in thousands): - - NOL to be utilized to offset future tax expense.......... $152,535 - - NOL to be utilized to increase paid-in capital for the unrecorded tax benefit of stock options................. 134,123 -------- Total NOL carryforward.................................. $286,658 ========
NOTE 8. EMPLOYEE BENEFITS As a retirement plan, we offer a defined contribution plan covering regularly scheduled full-time, part-time and temporary employees. The plan is a salary deferral arrangement pursuant to Internal Revenue Code section 401(k) and is subject to the provisions of the Employee Retirement Income Security Act of 1974. We match 100% of the first 2% of an employee's deferred salary and 50% of the next 4% of an employee's deferred salary. Employees with five or more years of service receive a match of 100% of the first 2% of deferred salary and 75% of the next 4% of deferred salary. We recorded compensation expense resulting from matching contributions to the plan of $2,860,000 in 1999, $2,164,000 in 1998 and $1,900,000 in 1997. NOTE 9. TRANSACTIONS WITH AHP On June 1, 1993, the predecessor to the current Immunex Corporation merged with a subsidiary of Cyanamid. In late 1994, all of the outstanding shares of common stock of Cyanamid were acquired by AHP. AHP and certain of its subsidiaries and affiliates have assumed the rights and obligations of Cyanamid under various agreements entered into at the time of the merger or thereafter. In addition, we have entered into additional agreements with AHP. Significant transactions under these agreements are discussed in the paragraphs below. ENBREL PROMOTION AGREEMENT In 1997, we entered into an ENBREL Promotion Agreement with AHP. Under the terms of the ENBREL Promotion Agreement, ENBREL is being promoted in the United States by the sales and marketing organization of Wyeth-Ayerst Laboratories, a division of AHP. Immunex distributes a portion of the gross profits to AHP from U.S. sales of ENBREL and reimburses AHP for a portion of the selling, marketing, distribution and other costs incurred in the United States for sales of ENBREL. Under the ENBREL Promotion Agreement, AHP paid a majority of these expenses prior to the launch of ENBREL and pays a declining, but still majority percentage of these expenses during the two years following launch. At the beginning of the third year following launch of ENBREL, Immunex and AHP will share these costs equally in the United States. Our obligation for such expenses, including AHP's share of gross profits from ENBREL, totaled $120,276,000 in 1999 and $14,800,000 in 1998. In addition, under the ENBREL Promotion Agreement, we earned revenues of $10,000,000 in 1999, $50,000,000 in 1998 and $15,000,000 in 1997. Under subsequent agreements, we recorded $3,864,000 in revenue for supplying ENBREL to AHP outside the United States and Canada. AHP reimburses us for third party royalties incurred on the revenue they earn from such sales, which totaled $621,000 during 1999. In addition, we recognized $1,310,000 of contract revenue during 1999 for performing activities related to ENBREL and the process of manufacturing ENBREL on behalf of AHP. 52 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9. TRANSACTIONS WITH AHP (CONTINUED) TACE AGREEMENTS In December 1995, we licensed exclusive worldwide rights to tumor necrosis factor alpha converting enzyme, or TACE, technology to AHP. We recognized revenue under these agreements of $1,600,000 in 1999, $4,000,000 in 1998 and $6,000,000 in 1997. The TACE agreements also include additional milestone payments and royalties on future product sales. Under the agreements, AHP will be responsible for developing inhibitors of TACE. RESEARCH AND DEVELOPMENT Under a license and development agreement for ENBREL, Immunex and AHP agreed to share equally the development costs of ENBREL in the United States, Canada and Europe. AHP's share of the development costs under this agreement totaled $23,986,000 in 1999, $22,092,000 in 1998 and $19,256,000 in 1997. In July 1998, we ended our oncology collaboration with AHP by terminating a research agreement and other agreements and entered into a new Products Rights Agreement. As a result of the termination of the research agreement, our funding requirements of AHP's oncology discovery research program ceased effective July 1, 1998. Under the superseded agreement we paid $8,258,000 in 1998 and $16,240,000 in 1997, to support AHP's oncology research programs. Under the terms of the Product Rights Agreement, AHP may acquire exclusive worldwide rights to up to four of our future product candidates. If AHP exercises any of these rights, we would be eligible for payments and royalties on future sales of these products. However, we may elect to retain the worldwide rights to up to two of these products. In this case, AHP would be eligible for payments and royalties on future sales of these products. ONCOLOGY PRODUCT LICENSE AGREEMENTS AHP and its sublicensees have a royalty-bearing license to sell our existing non-biological oncology products outside the United States and Canada. We earned royalties under the agreement totaling $2,504,000 in 1999, $2,687,000 in 1998 and $2,972,000 in 1997. As a result of the Product Rights Agreement, territorial rights that each party had to the other party's cancer product candidates were terminated. Under the terms of the superseded agreements, AHP was entitled to a royalty-bearing license outside the United States and Canada to any products resulting from our oncology research and development activities. AHP reimbursed us for costs related to manufacturing and process development. We recognized revenue under the superseded agreement of $1,246,000 in 1997. No related revenue was earned in 1999 or 1998. Under the terms of a subsequent agreement, Immunex and AHP agreed to collaborate in the development of paclitaxel injection, a generic form of TAXOL-REGISTERED TRADEMARK-, an oncology product marketed by Bristol-Myers Squibb Company. We incurred costs under the agreement of $3,243,000 in 1997. In June 1998, we sold our U.S. rights to paclitaxel injection to a third party, and accordingly are no longer incurring such development expenses. SUPPLY AND MANUFACTURING Immunex and AHP are parties to a supply agreement and a toll manufacturing agreement under which AHP manufactures and supplies the reasonable commercial requirements of oncology products at a price equal to 125% of AHP's or its subsidiaries' manufacturing costs. Immunex and AHP also have a methotrexate distributorship agreement under which AHP agreed to supply methotrexate to us at established prices which are adjusted annually. We purchased inventory totaling $8,154,000 in 1999 and $6,172,000 in 1998 from AHP and its subsidiaries under these agreements. In addition, AHP billed us $377,000 in 1999, $458,000 in 1998 and $988,000 in 1997, for other expenses under these agreements. 53 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9. TRANSACTIONS WITH AHP (CONTINUED) DISTRIBUTION We have agreed to supply the commercial requirements of our products to Wyeth-Ayerst Laboratories Puerto Rico, Inc., a wholly owned subsidiary of AHP. Net revenue recognized under this agreement totaled $2,361,000 in 1999, $758,000 in 1998 and $580,000 in 1997. We were party to a distributorship agreement with Wyeth-Ayerst Canada, Inc, a wholly owned subsidiary of AHP, under which Wyeth-Ayerst Canada distributed non-biological oncology products in Canada. We supplied these oncology products to Wyeth-Ayerst Canada at established prices, which were subject to annual adjustment. In 1997, sales to Wyeth-Ayerst Canada totaled $2,010,000. In December 1997, we sold all of our rights to these oncology products in Canada to AHP for $4,000,000. CONVERTIBLE SUBORDINATED NOTE During 1999, Immunex issued a seven-year, 3% coupon, $450.0 million convertible subordinated note to AHP (See Note 5). Interest incurred on the note totaled $8,288,000 during 1999. OPTION TO PURCHASE ADDITIONAL COMMON STOCK OF IMMUNEX Immunex and AHP are parties to a 1993 Governance Agreement under which AHP has the option to purchase from us on a quarterly basis, additional shares of Immunex common stock to the extent necessary to maintain AHP's percentage ownership interest in Immunex as of the immediately preceding quarter. The per share purchase price of these shares is equal to the fair market value of the shares, as determined in accordance with the Governance Agreement, on the date of AHP's purchase. AHP's exercise of this option has resulted in purchases of 1,166,242 shares for $40,777,000 in 1999, 445,132 shares for $6,877,000 in 1998 and 112,892 shares for $1,280,000 in 1997. NOTE 10. COMMITMENTS AND CONTINGENCIES We lease office and laboratory facilities under noncancelable operating leases that expire through December 2009. These leases provide us with options to renew the leases at fair market rentals through August 2015. A summary of minimum future rental commitments under noncancelable operating leases at December 31, 1999 follows (in thousands):
YEAR ENDED DECEMBER 31, OPERATING LEASES - ----------------------- ---------------- 2000.................................................... $ 7,901 2001.................................................... 8,307 2002.................................................... 8,164 2003.................................................... 7,290 2004.................................................... 6,557 Thereafter.............................................. 4,956 ------- Total minimum lease payments............................ $43,175 =======
Rental expense on operating leases was $5,183,000 in 1999, $4,000,000 in 1998 and $3,339,000 in 1997. 54 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10. COMMITMENTS AND CONTINGENCIES (CONTINUED) We are utilizing a contract manufacturer for the production of ENBREL. At December 31, 1999, we had made commitments to purchase inventory totaling at least $218,000,000 over the next two years. A portion of this inventory will be purchased by AHP from the contract manufacturer. Various license agreements exist that require Immunex to pay royalties based on a percentage of sales of products manufactured using licensed technology or sold under license. Royalty costs incurred under these agreements are included in cost of product sales and totaled $59,326,000 in 1999, $12,997,000 in 1998 and $8,139,000 in 1997. These agreements contain minimum annual royalty provisions as follows (in thousands):
MINIMUM ANNUAL YEAR ENDED DECEMBER 31, ROYALTY PAYMENT - ----------------------- --------------- 2000.................................................... $8,130 2001.................................................... 7,880 2002.................................................... 7,425 2003.................................................... 130 Per year thereafter..................................... 130
Immunex is party to routine litigation incident to our business. We believe the ultimate resolution of these matters will not have a material adverse impact on our future financial position and results of operations. NOTE 11. CONCENTRATIONS OF RISK Financial instruments that potentially subject Immunex to significant concentrations of credit risk consist principally of short-term investments and trade accounts receivable. We maintain cash, cash equivalents, and short term investments with various financial institutions. These financial institutions are located throughout the country and our policy is designed to limit exposure to any one institution. Our investments are managed by outside investment advisers who perform periodic evaluations of the relative credit standings of those financial institutions that are considered in our investment strategy. The trade accounts receivable balance represents our most significant concentration of credit risk. We perform ongoing credit evaluations of our customers, if appropriate, and we do not require collateral on accounts receivable. At December 31, 1999, our accounts receivable balance from our three largest wholesalers and specialty distributors totaled $50.3 million. If any of these companies became insolvent or were otherwise unable to meet their obligations to us, the loss would likely exceed our reserve for bad debt. Sales of ENBREL accounted for 71% of total product sales for the year ended December 31, 1999. Currently, all finished dosage forms of ENBREL are manufactured for us by a single contract manufacturer. If this source of supply were disrupted, sales of ENBREL could be adversely affected. 55 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12. NET INCOME PER COMMON SHARE The following table presents the calculation of basic and diluted net income per common share as required under SFAS 128 (in thousands, except per-share amounts):
YEAR ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 -------- -------- -------- Net income (loss)............................. $ 44,324 $ 986 $(15,772) ======== ======== ======== Weighted average common shares outstanding, basic....................................... 163,130 159,500 158,548 Net effect of dilutive stock options.......... 13,528 8,060 -- -------- -------- -------- Weighted average common shares outstanding, diluted..................................... 176,658 167,560 158,548 ======== ======== ======== Net income (loss) per common share, basic..... $ 0.27 $ 0.01 $ (0.10) ======== ======== ======== Net income (loss) per common share, diluted... $ 0.25 $ 0.01 $ (0.10) ======== ======== ========
The 5,181,944 shares issuable upon the conversion of the AHP convertible subordinated note are not included in the calculation of diluted earnings per share because the effect, including the effect on adjusted net income, would be anti-dilutive. NOTE 13. SUBSEQUENT EVENTS On February 17, 2000, our Board of Directors approved a three-for-one stock split of our common stock in the form of a 200% stock dividend, to be effected on March 20, 2000. References to accumulated deficit, common stock, average number of common shares outstanding and per share amounts in the financial statements prior to the record date of the stock split have not been restated to reflect the three-for-one stock split. 56 IMMUNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14. QUARTERLY FINANCIAL RESULTS (UNAUDITED) Our consolidated operating results for each quarter of 1999 and 1998 are summarized as follows (in thousands):
THREE MONTHS ENDED --------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- -------- ------------ ----------- Year ended December 31, 1999: Product sales................................ $ 95,237 $125,854 $139,446 $158,750 Royalty and contract revenue................. 2,940 2,620 12,976(1) 3,895 Cost of sales................................ 27,209 39,678 42,111 50,271 Research and development expenses............ 28,209 30,264 31,070 37,139 Selling, general and administrative expenses................................... 44,273 52,937 56,936 62,568 Operating income (loss)...................... (1,514) 5,595 22,305 12,667 Net income................................... $ 251 $ 6,861 $ 20,996 $ 16,216 Net income per common share: Basic...................................... $ 0.00 $ 0.04 $ 0.13 $ 0.10 Diluted.................................... $ 0.00 $ 0.04 $ 0.12 $ 0.09 Year ended December 31, 1998: Product sales................................ $ 38,816 $ 39,961 $ 40,125 $ 51,005 Royalty and contract revenue................. 3,050 24,194(2) 9,051 37,248(4) Cost of sales................................ 7,090 7,691 7,242 11,262 Research and development expenses............ 26,906 36,910(3) 26,894 29,244 Selling, general and administrative expenses................................... 18,437 20,780 21,593 32,967 Operating income (loss)...................... (10,567) (1,226) (6,553) 14,780 Net income (loss)............................ $ (9,024) $ 195 $ (4,925) $ 14,740 Net income (loss) per common share: Basic...................................... $ (0.06) $ 0.00 $ (0.03) $ 0.09 Diluted.................................... $ (0.06) $ 0.00 $ (0.03) $ 0.09
- ------------------------ (1) Includes $10.0 million earned under the ENBREL Promotion Agreement when sales of ENBREL exceeded $200.0 million. (2) Includes $20.0 million earned under the ENBREL Promotion Agreement when the BLA for ENBREL was accepted for review by the FDA. (3) Includes $10.0 million paid to acquire the rights outside the United States and Canada to receptor product candidates including NUVANCE. (4) Includes $30.0 million earned under the ENBREL Promotion Agreement when ENBREL was approved by the FDA. 57 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Shareholders and Board of Directors Immunex Corporation We have audited the accompanying consolidated balance sheets of Immunex Corporation as of December 31, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Immunex Corporation as of December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for the each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG L.L.P. Seattle, Washington January 21, 2000, except for Note 13 as to which the date is February 17, 2000 58 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated by reference from the sections labeled "Election of Directors" and "Executive Officers" in Immunex's definitive Proxy Statement for the annual meeting of shareholders to be held on April 25, 2000. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference from the section labeled "Executive Compensation" in Immunex's definitive Proxy Statement for the annual meeting of shareholders to be held on April 25, 2000. ITEM 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference from the sections labeled "Principal Shareholders" and "Security Ownership of Management" in Immunex's definitive Proxy Statement for the annual meeting of shareholders to be held on April 25, 2000. ITEM 13. RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference from the section labeled "Relationship with American Home Products Corporation and American Cyanamid Company" in Immunex's definitive Proxy Statement for the annual meeting of shareholders to be held on April 25, 2000. 59 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Form 10-K: 1. FINANCIAL STATEMENTS. The following consolidated financial statements are included in Part II, Item 8:
PAGE IN FORM 10-K --------- Consolidated Balance Sheets at December 31, 1999, and 1998...................................................... 40 Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997.......................... 41 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997.............. 42 Consolidated Statements of Cash Flows for the years December 31, 1999, 1998 and 1997................................... 43 Notes to Consolidated Financial Statements for the years ended December 31, 1999, 1998 and 1997.................... 44 - 57 Report of Ernst & Young LLP, Independent Auditors........... 58
2. FINANCIAL STATEMENT SCHEDULE. The following schedule supporting the foregoing consolidated financial statements for the years ended December 31, 1999, 1998 and 1997 is filed as part of this Form 10-K:
PAGE IN FORM 10-K --------- II--Valuation and Qualifying Accounts....................... 66
All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. 60 3. EXHIBITS
EXHIBIT NUMBER DESCRIPTION --------------------- ----------- 2.1 Amended and Restated Agreement and Plan of Merger, dated as of December 15, 1992, among Immunex, American Cyanamid Company, Lederle Parenterals, Inc. and Lederle Oncology Corporation. (Exhibit 2.1)................................ (B) 3.1 Restated Articles of Incorporation of Immunex Corporation, as filed with the Secretary of State of Washington on February 22, 2000......................................... 67 - 70 3.2 Amended and Restated Bylaws. (Exhibit 3.4).................. (B) 4.1 Note Purchase Agreement dated as of May 20, 1999 between Immunex Corporation and American Home Products Corporation. (Exhibit 4.1)................................ (L) 10.1 Real Estate Purchase and Sale Agreement by and between Cornerstone-Columbia Development Company (CCDC) and Immunex dated November 12, 1986; Master Lease, dated as of August 20, 1981 between OTR, an Ohio General Partnership, and CCDC; Assignment of Master Lease between CCDC and Immunex dated December 17, 1986; Consent to Assignment of Master Lease from OTR to CCDC, Immunex and Weyerhaeuser Real Estate Company, dated December 8, 1986. (Exhibit 10.22)........................................... (A) 10.2 Amendment to Master Lease dated May 1, 1994, between Immunex and Watumull Enterprises, LTD. (Exhibit 10.2)............. (D) 10.3 Amended and Restated Lease Agreement dated December 21, 1994, between Immunex and the Central Life Assurance Company. (Exhibit 10.3)................................... (D) 10.4 Real Estate Purchase and Sales Agreement between Immunex and the Port of Seattle dated as of July 18, 1994. (Exhibit 10.17).................................................... (F) 10.5 Fourth Amendment to Real Estate Purchase and Sale Agreement between Immunex and the Port of Seattle dated as of December 1, 1997. (Exhibit 10.23)......................... (H) 10.6 Amended and Restated Governance Agreement, dated as of December 15, 1992, among Immunex, American Cyanamid Company and Lederle Oncology Corporation. (Exhibit 2.2)... (B) 10.7 Amendment No. 1 to the Amended and Restated Governance Agreement among Immunex, American Home Products Corporation and American Cyanamid Company dated May 20, 1999...................................................... 71 - 73 10.8 United States Royalty-Bearing Trademark License Agreement between Immunex and American Cyanamid Company dated as of June 1, 1993. (Exhibit 10.5).............................. (C) *10.9 Toll Manufacturing Agreement between Immunex Carolina Corporation, a wholly owned subsidiary of Immunex, and Lederle Parenterals, Inc. dated as of June 1, 1993. (Exhibit 10.6)............................................ (C) *10.10 Supply Agreement between Immunex and American Cyanamid Company dated as of June 1, 1993. (Exhibit 10.7).......... (C) 10.11 Agreement between Immunex and American Home Products Corporation dated as of September 23, 1994. (Exhibit 10.24).................................................... (D) 10.12 TNFR License and Development Agreement between Immunex and the Wyeth-Ayerst Laboratories division of American Home Products Corporation dated as of July 1, 1996. (Exhibit 10.2)..................................................... (E) *10.13 ENBREL Promotion Agreement between Immunex and American Home Products Corporation dated as of September 25, 1997. (Exhibit 10.1)............................................ (G)
61
EXHIBIT NUMBER DESCRIPTION --------------------- ----------- *10.14 Product Rights Agreement among Immunex, American Home Products Corporation and American Cyanamid Company dated as of July 1, 1998. (Exhibit 10.1)........................ (I) 10.15 Amendment No. 1 to the Product Rights Agreement among Immunex, American Home Products Corporation and American Cynamid Company dated May 20, 1999........................ 74 *10.16 ENBREL Supply Agreement among Immunex, American Home Products Corporation and Boehringer Ingelheim Pharma KG dated as of November 5, 1998. (Exhibit 10.18)............. (J) 10.17 Immunex Corporation 1993 Stock Option Plan as Amended and Restated on February 13, 1997. (Exhibit 10.23)............ (F) 10.18 Immunex Corporation Stock Option Plan for Nonemployee Directors as Amended and Restated on February 23, 1999. (Exhibit 10.14)........................................... (J) 10.19 Immunex Corporation 1999 Employee Stock Purchase Plan. (Exhibit 99.2)............................................ (K) 10.20 Immunex Corporation 1999 Stock Option Plan, as Amended and Restated on July 27, 1999................................. 75 - 84 21.1 Subsidiaries of the Registrant.............................. 85 23.1 Consent of Ernst & Young LLP, Independent Auditors.......... 86 24.1 Power of Attorney........................................... 87 27.1 Financial Data Schedule..................................... 88
- ------------------------ * Confidential treatment granted as to certain portions. (A) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 1986. (B) Incorporated by reference to designated exhibit included in the Registration Statement on Form S-4 (SEC File No. 33-60254) filed by Lederle Oncology Corporation March 18, 1993. (C) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K dated June 4, 1993. (D) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. (E) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K dated July 1, 1996. (F) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. (G) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K dated September 25, 1997. (H) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. (I) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 8-K dated July 1, 1998. 62 (J) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. (K) Incorporated by reference to designated exhibit included with Immunex's Registration Statement on Form S-8 (SEC File No. 33-77341) dated April 29, 1999. (L) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K dated May 28, 1999. (b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the fourth quarter of 1999. 63 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, hereunto duly authorized. IMMUNEX CORPORATION REGISTRANT By: /s/ David A. Mann February 29, 2000 ------------------------------------------- David A. Mann Senior Vice President, Chief Financial Officer and Treasurer
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: /s/ Edward V. Fritzky February 29, 2000 ------------------------------------------- Edward V. Fritzky Chief Executive Officer, President, Chairman of the Board and Director (Principal Executive Officer) /s/ Peggy V. Phillips February 29, 2000 ------------------------------------------- Peggy V. Phillips Executive Vice President and Chief Operating Officer /s/ Douglas E. Williams February 29, 2000 ------------------------------------------- Douglas E. Williams Executive Vice President and Chief Technology Officer /s/ David A. Mann February 29, 2000 ------------------------------------------- David A. Mann Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Kirby L. Cramer* February 29, 2000 ------------------------------------------- Kirby L. Cramer Director Robert I. Levy* February 29, 2000 ------------------------------------------- Robert I. Levy Director John E. Lyons* February 29, 2000 ------------------------------------------- John E. Lyons Director Joseph M. Mahady* February 29, 2000 ------------------------------------------- Joseph M. Mahady Director Edith W. Martin* February 29, 2000 ------------------------------------------- Edith W. Martin Director
64 *By: /s/ David A. Mann February 29, 2000 ------------------------------------------- David A. Mann Attorney-in-Fact
65 SCHEDULE II IMMUNEX CORPORATION VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
BALANCE AT ADDITIONS CHARGED TO BALANCE AT BEGINNING OF PERIOD PRODUCT SALES DEDUCTIONS END OF PERIOD ------------------- -------------------- ---------- ------------- Year ended December 31, 1997: Reserve for discounts, returns and bad debts....................... $ 7,181 $11,649 $10,177 $ 8,653 ======= ======= ======= ======= Reserve for chargebacks, Medicaid rebates and administrative fees............................ $ 7,580 $47,769 $45,634 $ 9,715 ======= ======= ======= ======= Year ended December 31, 1998: Reserve for discounts, returns and bad debts....................... $ 8,653 $12,147 $ 9,173 $11,627 ======= ======= ======= ======= Reserve for chargebacks, Medicaid rebates and administrative fees............................ $ 9,715 $54,794 $51,899 $12,610 ======= ======= ======= ======= Year ended December 31, 1999: Reserve for discounts, returns and bad debts....................... $11,627 $26,622 $16,425 $21,824 ======= ======= ======= ======= Reserve for chargebacks, Medicaid rebates and administrative fees............................ $12,610 $49,702 $40,342 $21,970 ======= ======= ======= =======
66 EX-3.1 2 EXHIBIT 3.1 Exhibit 3.1 RESTATED ARTICLES OF INCORPORATION OF IMMUNEX CORPORATION Pursuant to RCW 23B.10.070, the following constitutes Restated Articles of Incorporation of the undersigned, a Washington corporation. ARTICLE 1. NAME The name of this corporation is Immunex Corporation. ARTICLE 2. SHARES 2.1 Authorized Capital The total number of shares which the corporation is authorized to issue is 1,230,000,000, consisting of 1,200,000,000 shares of Common Stock having a par value of $.01 per share and 30,000,000 shares of Preferred Stock having a par value of $.01 per share. The Common Stock is subject to the rights and preferences of the Preferred Stock as hereinafter set forth. 2.2 Issuance of Preferred Stock in Series The Preferred Stock may be issued from time to time in one or more series in any manner permitted by law and the provisions of these Articles of Incorporation of the corporation, as determined from time to time by the Board of Directors and stated in the resolution or resolutions providing for the issuance thereof, prior to the issuance of any shares thereof. The Board of Directors shall have the authority to fix and determine and to amend, subject to the provisions hereof, the designation, preferences, limitations and relative rights of the shares of any series that is wholly unissued or to be established. Unless otherwise specifically provided in the resolution establishing any series, the Board of Directors shall further have the authority, after the issuance of shares of a series whose number it has designated, to amend the resolution establishing such series to decrease the number of shares of that series, but not below the number of shares of such series then outstanding. 2.3 Dividends The holders of shares of the Preferred Stock shall be entitled to receive dividends, out of the funds of the corporation legally available therefor, at the rate and at the time or times, whether cumulative or noncumulative, as may be provided by the Board of Directors in designating a particular series of Preferred Stock. If such dividends on the Preferred Stock shall be cumulative, then if dividends shall not have been paid, the deficiency shall be fully paid or the dividends declared and set apart for payment at such rate, but without interest on cumulative dividends, before any dividends on the Common Stock shall be paid or declared and set apart for payment. The holders of the Preferred Stock shall not be entitled to receive any dividends thereon other than the dividends referred to in this section. 2.4 Redemption The Preferred Stock may be redeemable at such price, in such amount, and at such time or times as may be provided by the Board of Directors in designating a particular series of Preferred Stock. In any event, such Preferred Stock may be repurchased by the corporation to the extent legally permissible. 2.5 Liquidation In the event of any liquidation, dissolution, or winding up of the affairs of the corporation, whether voluntary or involuntary, then, before any distribution shall be made to the holders of the Common Stock, the holders of the Preferred Stock at the time outstanding shall be entitled to be paid the preferential amount or amounts per share as may be provided by the Board of Directors in designating a particular series of Preferred Stock and dividends accrued thereon to the date of such payment. The holders of the Preferred Stock shall not be entitled to receive any distributive amounts upon the liquidation, dissolution, or winding up of the affairs of the corporation other than the distributive amounts referred to in this section, unless otherwise provided by the Board of Directors in designating a particular series of Preferred Stock. 67 2.6 Conversion Shares of Preferred Stock may be convertible into Common Stock of the corporation upon such terms and conditions, at such rate and subject to such adjustments as may be provided by the Board of Directors in designating a particular series of Preferred Stock. 2.7 Voting Rights Holders of Preferred Stock shall have such voting rights as may be provided by the Board of Directors in designating a particular series of Preferred Stock. ARTICLE 3. REGISTERED OFFICE AND AGENT The name of the initial registered agent of this corporation and the address of its initial registered office are as follows: Scott G. Hallquist 51 University Street Seattle, WA 98101 ARTICLE 4. PREEMPTIVE RIGHTS No preemptive rights shall exist with respect to shares of stock or securities convertible into shares of stock of this corporation. ARTICLE 5. CUMULATIVE VOTING The right to cumulate votes in the election of Directors shall not exist with respect to shares of stock of this corporation. ARTICLE 6. DIRECTORS 6.1 Number and Term of Directors The number of Directors of this corporation shall be determined in the manner provided by the Bylaws and may be increased or decreased from time to time in the manner provided therein, PROVIDED, HOWEVER, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office. Directors need not be shareholders. Unless a director dies, resigns, or is removed, he shall hold office until the next annual meeting of shareholders or until his successor is elected and qualified, whichever is later. 6.2 Removal of Directors Subject to the terms of the Amended and Restated Governance Agreement, dated as of December 15, 1992, among Immunex Corporation, Lederle Oncology Corporation and American Cyanamid Company ("Cyanamid"), as it may be amended or restated from time to time (the "Governance Agreement"), one or more members of the Board of Directors (including the entire Board) may be removed, with or without cause, by the written consent of the holders of record of a majority of the outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class (the "Voting Stock"). 6.3 Vacancies Any vacancy occurring on the Board of Directors may be filled, subject to the terms of the Governance Agreement, by the affirmative vote of a majority of the remaining directors, though less than a quorum. A director elected to fill a vacancy shall be elected for the unexpired term of his or her predecessor in office. Any directorship to be filled by reason of an increase in the number of directors may be filled by the Board, subject to the Governance Agreement, for a term of office continuing only until the next election of directors by the shareholders. ARTICLE 7. BYLAWS All of the powers of this corporation, insofar as the same may be lawfully vested by these Articles of Incorporation in the Board of Directors, are hereby conferred upon the Board of Directors of this corporation. In furtherance and not in limitation of that power, the Board of Directors, subject to the Governance Agreement, shall have the power to adopt, amend or repeal the Bylaws of this corporation, subject to the power of the shareholders to amend or repeal such Bylaws. The shareholders shall also have the power to amend or repeal the Bylaws of this corporation and to adopt new Bylaws. No action may be taken or effected by written consent of shareholders in lieu of a meeting. 68 ARTICLE 8. SPECIAL SHAREHOLDER MEETINGS Special meetings of the shareholders of the corporation for any purpose or purposes may be called at any time by the Board of Directors, the Chairman of the Board of Directors, or the President of the corporation. Further, a special meeting of the shareholders shall be held if the holders of not less than 40% of all the votes entitled to be cast on any issue proposed to be considered at such special meeting have dated, signed and delivered to the Secretary one or more written demands for such meeting, describing the purpose or purposes for which it is to be held. ARTICLE 9. MERGERS, SHARE EXCHANGES, AND OTHER TRANSACTIONS Subject to the Governance Agreement, a merger, share exchange, sale of substantially all of the corporation's assets, or dissolution must be approved by the affirmative vote of a majority of the corporation's outstanding shares entitled to vote, or if separate voting by voting groups is required then by not less than a majority of all the votes entitled to be cast by that voting group. ARTICLE 10. AMENDMENTS TO ARTICLES OF INCORPORATION Subject to the Governance Agreement and except as otherwise provided herein, this corporation reserves the right to amend or repeal by the affirmative vote of the holders of a majority of the outstanding Voting Stock, any of the provisions contained in these Articles of Incorporation in any manner now or hereafter permitted by law, and the rights of the shareholders of this corporation are granted subject to this reservation. ARTICLE 11. LIMITATION OF DIRECTOR LIABILITY To the full extent that the Washington Business Corporation Act (the "Act"), as it exists on the date hereof or may hereafter be amended, permits the limitation or elimination of the liability of Directors, a Director of this corporation shall not be liable to this corporation or its shareholders for monetary damages for conduct as a Director. Any amendments to or repeal of this Article 11 shall not adversely affect any right or protection of a Director of this corporation for or with respect to any acts or omissions of such Director occurring prior to such amendment or repeal. Notwithstanding any other provisions of law, these Articles of Incorporation (except as hereinafter provided) or the Bylaws of this corporation, the affirmative vote of the holders of not less than 80% of the Voting Stock shall be required to alter, amend or repeal, or to adopt any provisions inconsistent with, this Article 11 or any provision hereof. ARTICLE 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS This corporation shall indemnify its Directors and Officers to the full extent not prohibited by applicable law now or hereafter in force against liability arising out of a proceeding to which such individual was made a party because the individual is or was a Director or an Officer. However, such indemnity shall not apply on account of: (a) acts or omissions of a Director or Officer finally adjudged to be intentional misconduct or a knowing violation of law; (b) conduct of a Director or Officer finally adjudged to be in violation of Section 23B.08.310 of the Act relating to distributions by this corporation; or (c) any transaction with respect to which it was finally adjudged that such Director or Officer personally received a benefit in money, property, or services to which the Director or Officer was not legally entitled. Subject to the foregoing, it is specifically intended that proceedings covered by indemnification shall include proceedings brought by this corporation (including derivative actions), proceedings by government entities and governmental officials or other third party actions. ARTICLE 13. RESOLUTION OF CONFLICTING TERMS Notwithstanding any other provision of these Articles of Incorporation, any conflict between (a) any action taken by this corporation or the Board of Directors, or any provision of these Articles of Incorporation or the Bylaws of this 69 corporation, as each may be amended and/or restated from time to time, on the one hand, and (b) the terms of the Governance Agreement on the other, shall be resolved in favor of the terms of the Governance Agreement unless otherwise agreed to in writing by Cyanamid. Any amendment or repeal of this Article 13 shall require the affirmative vote of the holders of more than 70% of the Common Stock on a fully diluted basis. ARTICLE 14. ELECTION TO NOT BE COVERED BY STATUTE This corporation elects not to be covered by the provisions of Section 23B.17.020 of the Act. ARTICLE 15. INCORPORATOR The name and address of the incorporator are as follows: Stephen M. Graham 1201 Third Avenue, 40th Floor Seattle, Washington 98101-3099 Dated: February 18, 2000. IMMUNEX CORPORATION /s/ Barry G. Pea --------------------------------------------- NAME: BARRY G. PEA TITLE: VICE PRESIDENT, DEPUTY GENERAL COUNSEL AND ASSISTANT SECRETARY 70 EX-10.7 3 EXHIBIT 10.7 Exhibit 10.7 AMENDMENT NO. 1 TO THE AMENDED AND RESTATED GOVERNANCE AGREEMENT This Amendment No. 1 ("Amendment No. 1") is made this 20th day of May, 1999 (the "Amendment Effective Date") by and between AMERICAN CYANAMID COMPANY, a corporation organized and existing under the laws of the State of Maine ("CYANAMID") and a wholly-owned subsidiary of AMERICAN HOME PRODUCTS CORPORATION, a corporation organized and existing under the laws of the State of Delaware and having its principal office at Five Giralda Farms, Madison, New Jersey 07940 ("AHPC") and IMMUNEX CORPORATION, a corporation organized and existing under the laws of the State of Washington and having its principal office at 51 University Street, Seattle, Washington 98101 ("IMMUNEX"), and amends the Amended and Restated Governance Agreement dated as of December 15, 1992, among American Cyanamid Company, Immunex Corporation and Lederle Oncology Corporation (the "Governance Agreement"). WHEREAS, AHPC and IMMUNEX have entered into a certain Note Purchase Agreement dated as of the date hereof, pursuant to which IMMUNEX has issued, and AHPC has purchased, a 3% Convertible Subordinated Note due 2006 in the principal amount of $450 million ("Note"), which Note is convertible, in whole or in part, into common stock of IMMUNEX at a specified price per share, subject to adjustment in certain circumstances; WHEREAS, AHPC and IMMUNEX have agreed that the shares that are subject to issuance to AHPC upon conversion of the Note may be included in the calculation of AHPC's and CYANAMID's ownership of Immunex common stock for certain purposes under the Governance Agreement; NOW THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, each intending to be legally bound, hereby agree as follows: 1. All initially capitalized terms used herein and not defined shall have the meanings set forth in the Governance Agreement. 2. Article II of the Governance Agreement shall be amended to add the following new provision, Section 2.03, as follows: 2.03 COMMON STOCK ISSUABLE UPON CONVERSION OF NOTE. The Common Stock issuable upon conversion of the Note issued by the Company and purchased by American Home Products Corporation ("AHPC") pursuant to the Note Purchase Agreement dated as of May 20, 1999 shall, at the option of Cyanamid, regardless of whether the Note is converted by AHPC so long as AHPC or its Affiliates hold the Note, be included in (i) "Cyanamid's Interest" for purposes of Article IV; (ii) Cyanamid's "Pro Rata Share" for purposes of Section 2.01; (iii) Cyanamid's "Owned Shares" for purposes of Section 2.02 (and shall be deemed to be issued and outstanding as of the Quarterly Date immediately preceding the effective date of the Note Purchase Agreement) ; and (iv) "Registrable Securities" for purposes of Article VI. 3. Article V of the Governance Agreement shall be amended to add the following new provision, Section 5.01(h), as follows: (h) The Note issued by the Company and purchased by AHPC pursuant to the Note Purchase Agreement dated as of May 20, 1999 shall not be deemed to be an interest in New Shares for purposes of Section 5.01(c) hereof and AHPC shall have the right to transfer such Note in accordance with the terms of the Note Purchase Agreement. Notwithstanding the foregoing, however, the Common Stock issuable upon conversion of such Note shall, when and if issued, be deemed to be New Shares for purposes of this Article V. 71 4. The first clause of Section 6.03(d) shall be deleted in its entirety and replaced as follows: (d) The Company shall not be obligated to effect more than three registrations pursuant to this Section 6.03; 5. Except as otherwise set forth in this Amendment No. 1, all other terms and provisions of the Governance Agreement shall remain in full force and effect. 6. This Amendment No. 1 may be executed in counterparts, each of which shall be deemed an original and all of which shall constitute together one and the same instrument. 72 IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 as of the day and year first above written. IMMUNEX CORPORATION AMERICAN HOME PRODUCTS CORPORATION By: /s/ Edward V. Fritzky By: /s/ Gerald A. Jibilian Name: Edward V. Fritzky Name: Gerald A Jibilian Title: Chairman and Chief Executive Officer Title: Vice President 73 EX-10.15 4 EXHIBIT 10.15 Exhibit 10.15 AMENDMENT NO. 1 TO THE PRODUCT RIGHTS AGREEMENT This Amendment No. 1 ("Amendment No. 1") is made this 20th day of May, 1999 (the "Amendment Effective Date") by and between AMERICAN HOME PRODUCTS CORPORATION, a corporation organized and existing under the laws of the State of Delaware and having its principal office at Five Giralda Farms, Madison New Jersey 07940 ("AHPC") and IMMUNEX CORPORATION, a corporation organized and existing under the laws of the State of Washington and having its principal office at 51 University Street, Seattle, Washington 98101 ("IMMUNEX"), and amends the Product Rights Agreement effective as of July 1, 1998, by and among AHPC, IMMUNEX and American Cyanamid Company ("Product Rights Agreement") WHEREAS, AHPC and IMMUNEX have entered into a certain Note Purchase Agreement as of the date hereof, pursuant to which IMMUNEX has issued, and AHPC has purchased, a 3% Convertible Subordinated Note due 2006 in the principal amount of $450 million ("Note"), which Note is convertible, in whole or in part, into common stock of IMMUNEX at a specified price per share, subject to adjustment in certain circumstances; WHEREAS, AHPC and IMMUNEX have agreed that the shares that are subject to issuance to AHPC upon conversion of the Note may be included in the calculation of AHPC's ownership of Immunex common stock for certain purposes; NOW THEREFORE, in consideration of the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, each intending to be legally bound, hereby agree as follows: 1. All initially capitalized terms used herein and not defined shall have the meanings set forth in the Product Rights Agreement. 2. Section 8.5 of the Product Rights Agreement shall be amended to add the following sentence: For purposes of this Section 8.5, any shares of common stock issuable upon conversion of the Note issued by the Company and purchased by AHP pursuant to the Note Purchase Agreement dated as of May 20, 1999 shall, at the option of AHP, be included in any determination of whether AHP is a majority shareholder of Immunex. 3. Except as otherwise set forth in this Amendment No. 1, all other terms and provisions of the Product Rights Agreement shall remain in full force and effect. 4. This Amendment No. 1 may be executed in counterparts, each of which shall be deemed an original and all of which shall constitute together one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 as of the day and year first above written. IMMUNEX CORPORATION AMERICAN HOME PRODUCTS CORPORATION By: /s/ Edward V. Fritzky By: /s/ Gerald A. Jibilian Name: Edward V. Fritzky Name: Gerald A. Jibilian Title: Chairman and Chief Executive Officer Title: Vice President 74 EX-10.20 5 EXHIBIT 10.20 Exhibit 10.20 IMMUNEX CORPORATION 1999 STOCK OPTION PLAN AS AMENDED AND RESTATED ON JULY 27, 1999 SECTION 1. PURPOSE The purpose of the Immunex Corporation 1999 Stock Option Plan (the "Plan") is to enhance the long-term shareholder value of Immunex Corporation, a Washington corporation (the "Company"), by offering opportunities to selected employees, officers and directors to participate in the Company's growth and success, and to encourage them to remain in the service of the Company and its Related Corporations (as defined in Section 2) and to acquire and maintain stock ownership in the Company. SECTION 2. DEFINITIONS For purposes of the Plan, the following terms shall be defined as set forth below: "BOARD" means the Board of Directors of the Company. "CAUSE" means dishonesty, fraud, misconduct, unauthorized use or disclosure of confidential information or trade secrets, or conviction or confession of a crime punishable by law (except minor violations), in each case as determined by the Plan Administrator, and its determination shall be conclusive and binding. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "COMMON STOCK" means the common stock, par value $.01 per share, of the Company. "DISABILITY," unless otherwise defined by the Plan Administrator, means a mental or physical impairment of the Optionee that is expected to result in death or that has lasted or is expected to last for a continuous period of 12 months or more and that causes the Optionee to be unable, in the opinion of the Company and one independent physician selected by the Company, to perform his or her duties for the Company or a Related Corporation and to be engaged in any substantial gainful activity. "EFFECTIVE DATE" means the date on which the Plan is adopted by the Board, so long as it is approved by the Company's shareholders at any time within 12 months of such adoption. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCHANGE STOCK" has the meaning set forth in Section 11.3. "FAIR MARKET VALUE" shall be as established in good faith by the Plan Administrator or (a) if the Common Stock is listed on the Nasdaq National Market, the closing per share sales prices for the Common Stock as reported by the Nasdaq National Market for a single trading day or (b) if the Common Stock is listed on the New York Stock Exchange or the American Stock Exchange, the closing per share sales prices for the Common Stock as such price is officially quoted in the composite tape of transactions on such exchange for a single trading day. If there is no such reported price for the Common Stock for the date in question, then such price on the last preceding date for which such price exists shall be determinative of Fair Market Value. "GOVERNANCE AGREEMENT" means the Amended and Restated Governance Agreement among American Cyanamid Company, Lederle Oncology Corporation and Immunex Corporation dated as of December 15, 1992. 75 "GRANT DATE" means the date on which the Plan Administrator completes the corporate action relating to the grant of an Option and all conditions precedent to the grant have been satisfied, provided that conditions to the exercisability or vesting of Options shall not defer the Grant Date. "INCENTIVE STOCK OPTION" means an Option to purchase Common Stock granted under Section 7 with the intention that it qualify as an "incentive stock option" as that term is defined in Section 422 of the Code. "NONQUALIFIED STOCK OPTION" means an Option to purchase Common Stock granted under Section 7 other than an Incentive Stock Option. "OPTION" means the right to purchase Common Stock granted under Section 7. "OPTIONEE" means (a) the person to whom an Option is granted; (b) for an Optionee who has died, the personal representative of the Optionee's estate, the person(s) to whom the Optionee's rights under the Option have passed by will or by the applicable laws of descent and distribution, or the beneficiary designated in accordance with Section 10; or (c) the person(s) to whom an Option has been transferred in accordance with Section 10. "OPTION TERM" has the meaning set forth in Section 7.3. "PARENT," except as provided in Section 8.3 in connection with Incentive Stock Options, means any entity, whether now or hereafter existing, that directly or indirectly controls the Company. "PLAN ADMINISTRATOR" means the Board or any committee or committees designated by the Board or any person to whom the Board has delegated authority to administer the Plan under Section 3.1. "RELATED CORPORATION" means any Parent or Subsidiary of the Company. "RETIREMENT" means retirement as of the individual's normal retirement date under the Company's 401(k) Plan or other similar successor plan applicable to salaried employees, unless otherwise defined by the Plan Administrator from time to time for purposes of the Plan. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SUBSIDIARY," except as provided in Section 8.3 in connection with Incentive Stock Options, means any entity that is directly or indirectly controlled by the Company. "TERMINATION DATE" has the meaning set forth in Section 7.6. SECTION 3. ADMINISTRATION 3.1 Plan Administrator The Plan shall be administered by the Board and/or the Stock Option Plan Administration Committee or a committee or committees (which term includes subcommittees) appointed by, and consisting of two or more members of, the Board (a "Plan Administrator"). If and so long as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, the Board shall consider in selecting the members of any committee acting as Plan Administrator, with respect to any persons subject or likely to become subject to Section 16 of the Exchange Act, the provisions regarding (a) "outside directors" as contemplated by Section 162(m) of the Code and (b) "nonemployee directors" as contemplated by Rule 16b-3 under the Exchange Act. The Board may delegate the responsibility for administering the Plan with respect to designated classes of eligible persons to different committees consisting of two or more members of the Board, subject to such limitations as the Board deems appropriate. Committee members shall serve for such term as the Board may determine, subject to removal by the Board at any time. To the extent consistent with applicable law, the Board may authorize a senior executive officer of the Company to grant Options to specified eligible persons, within the limits specifically prescribed by the Board. 76 All delegations of authority by the Board pursuant to this Section 3.1 shall be subject to the procedural requirements of Section 4.03 of the Governance Agreement. 3.2 Administration and Interpretation by Plan Administrator Except for the terms and conditions explicitly set forth in the Plan, the Plan Administrator shall have exclusive authority, in its discretion, to determine all matters relating to Options under the Plan, including the selection of individuals to be granted Options, the type of Options, the number of shares of Common Stock subject to an Option, all terms, conditions, restrictions and limitations, if any, of an Option and the terms of any instrument that evidences the Option. The Plan Administrator shall also have exclusive authority to interpret the Plan and may from time to time adopt, and change, rules and regulations of general application for the Plan's administration. The Plan Administrator's interpretation of the Plan and its rules and regulations, and all actions taken and determinations made by the Plan Administrator pursuant to the Plan, shall be conclusive and binding on all parties involved or affected. The Plan Administrator may delegate administrative duties to such of the Company's officers as it so determines. SECTION 4. STOCK SUBJECT TO THE PLAN 4.1 Authorized Number of Shares Subject to adjustment from time to time as provided in Section 11.1, a maximum of 6,000,000 shares of Common Stock shall be available for issuance under the Plan. Shares issued under the Plan shall be drawn from authorized and unissued shares or shares now held or subsequently acquired by the Company. 4.2 Limitations Subject to adjustment from time to time as provided in Section 11.1, not more than 200,000 shares of Common Stock may be made subject to Options under the Plan to any individual in the aggregate in any one fiscal year of the Company, except that the Company may make additional one-time grants of up to 200,000 shares to newly hired individuals, such limitation to be applied in a manner consistent with the requirements of, and only to the extent required for compliance with, the exclusion from the limitation on deductibility of compensation under Section 162(m) of the Code. 4.3 Reuse of Shares Any shares of Common Stock that have been made subject to an Option that cease to be subject to the Option (other than by reason of exercise of the Option to the extent it is exercised for shares) shall again be available for issuance in connection with future grants of Options under the Plan; provided, however, that for purposes of Section 4.2, any such shares shall be counted in accordance with the requirements of Section 162(m) of the Code. SECTION 5. ELIGIBILITY Options may be granted under the Plan to those officers, directors and employees of the Company and its Related Corporations as the Plan Administrator from time to time selects. SECTION 6. ACQUIRED COMPANY OPTIONS Notwithstanding anything in the Plan to the contrary, the Plan Administrator may grant Options under the Plan in substitution for awards issued under other plans, or assume under the Plan awards issued under other plans, if the other plans are or were plans of other acquired entities ("Acquired Entities") (or the parent of the Acquired Entity) and the new Option is substituted, or the old option is assumed, by reason of a merger, consolidation, acquisition of property or of stock, reorganization or liquidation (the "Acquisition Transaction"). In the event that a written agreement pursuant to which the Acquisition Transaction is completed is approved by the Board and said agreement sets forth the terms and conditions of the substitution for or assumption of outstanding options of the Acquired Entity, said terms and conditions shall be deemed to be the action of the Plan Administrator without any further action by the Plan Administrator, except as may be required for compliance with Rule 16b-3 under the Exchange Act, and the persons holding such awards shall be deemed to be Optionees. 77 SECTION 7. TERMS AND CONDITIONS OF OPTIONS 7.1 Grant of Options The Plan Administrator is authorized under the Plan, in its sole discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock Options, which shall be appropriately designated. 7.2 Option Exercise Price The exercise price for shares purchased under an Option shall be as determined by the Plan Administrator, but shall not be less than 100% of the Fair Market Value of the Common Stock on the Grant Date with respect to Incentive Stock Options and not less than 85% of the Fair Market Value of the Common Stock on the Grant Date with respect to Nonqualified Stock Options. For Incentive Stock Options granted to a more than 10% shareholder, the Option exercise price shall be as specified in Section 8.2. 7.3 Term of Options The term of each Option (the "Option Term") shall be as established by the Plan Administrator or, if not so established, shall be 10 years from the Grant Date. For Incentive Stock Options, the maximum Option Term shall be as specified in Sections 8.2 and 8.4. 7.4 Exercise of Options The Plan Administrator shall establish and set forth in each instrument that evidences an Option the time at which, or the installments in which, the Option shall vest and become exercisable, which provisions may be waived or modified by the Plan Administrator at any time. If not so established in the instrument evidencing the Option, the Option shall vest and become exercisable according to the following schedule, which may be waived or modified by the Plan Administrator at any time:
PERIOD OF OPTIONEE'S CONTINUOUS EMPLOYMENT OR SERVICE WITH THE COMPANY OR ITS RELATED CORPORATIONS FROM THE OPTION PERCENT OF TOTAL OPTION GRANT DATE THAT IS VESTED AND EXERCISABLE ---------------------------------------------- ------------------------------- After one year 20% After two years 40% After three years 60% After four years 80% After five years 100%
The Plan Administrator may adjust the vesting schedule of an Option held by an Optionee who works less than "full-time" as that term is defined by the Plan Administrator. To the extent that the right to purchase shares has accrued thereunder, an Option may be exercised from time to time by delivery to the Company of a stock option exercise agreement or notice, in a form and in accordance with procedures established by the Plan Administrator, setting forth the number of shares with respect to which the Option is being exercised, the restrictions imposed on the shares purchased under such exercise agreement, if any, and such representations and agreements as may be required by the Company, accompanied by payment in full as described in Section 7.5. An Option may not be exercised as to less than a reasonable number of shares at any one time, as determined by the Plan Administrator. 7.5 Payment of Exercise Price The exercise price for shares purchased under an Option shall be paid in full to the Company by delivery of consideration equal to the product of the Option exercise price and the number of shares purchased. Such consideration must be paid in cash or by check or, unless the Plan Administrator in its sole discretion determines otherwise, either at the time the Option is granted or at any time before it is exercised, in any combination of (a) cash or check; (b) tendering (either actually or, if and so long as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, by attestation) shares of Common Stock already owned by the Optionee for at least six months (or any shorter period necessary to avoid a charge to the Company's earnings for financial reporting purposes) having a Fair Market Value on the day prior to the exercise date equal to the aggregate Option exercise price; (c) if and so long as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, delivery of an exercise notice, together with irrevocable instructions, to a brokerage firm designated by the Company to deliver promptly to the Company the aggregate amount of sale or loan proceeds to pay the Option 78 exercise price and any withholding tax obligations that may arise in connection with the exercise and the Company to deliver the certificates for such purchased shares directly to such brokerage firm, all in accordance with the regulations of the Federal Reserve Board; or (d) such other consideration as the Plan Administrator may permit. In addition, to assist an Optionee (including an Optionee who is an officer or a director of the Company) in acquiring shares of Common Stock pursuant to an Option granted under the Plan, the Plan Administrator, in its sole discretion, may authorize, either at the Grant Date or at any time before the acquisition of Common Stock pursuant to the Option, (i) the payment by the Optionee of a full-recourse promissory note, (ii) the payment by the Optionee of the purchase price, if any, of the Common Stock in installments, or (iii) the guarantee by the Company of a loan obtained by the Optionee from a third party. Subject to the foregoing, the Plan Administrator shall in its sole discretion specify the terms of any loans, installment payments or loan guarantees, including the interest rate and terms of and security for repayment. 7.6 Post-Termination Exercises The Plan Administrator shall establish and set forth in each instrument that evidences an Option whether the Option shall continue to be exercisable, and the terms and conditions of such exercise, if an Optionee ceases to be employed by, or to provide services to, the Company or its Related Corporations, which provisions may be waived or modified by the Plan Administrator at any time. If not so established in the instrument evidencing the Option, the Option shall be exercisable according to the following terms and conditions, which may be waived or modified by the Plan Administrator at any time: (a) Any portion of an Option that is not vested and exercisable on the date of termination of the Optionee's employment or service relationship (the "Termination Date") shall expire on such date, unless the Plan Administrator determines otherwise. (b) Any portion of an Option that is vested and exercisable on the Termination Date shall expire upon the earliest to occur of: (i) the last day of the Option Term; (ii) if the Optionee's Termination Date occurs for reasons other than Cause, Disability, death or Retirement, the three-month anniversary of such Termination Date; and (iii) if the Optionee's Termination Date occurs by reason of Disability, death or Retirement, the one-year anniversary of such Termination Date. Notwithstanding the foregoing, if the Optionee dies after the Termination Date while the Option is otherwise exercisable, the Option shall expire upon the earlier to occur of (y) the last day of the Option Term and (z) the first anniversary of the date of death. Also notwithstanding the foregoing, in case of termination of the Optionee's employment or service relationship for Cause, the Option shall automatically expire upon first notification to the Optionee of such termination, unless the Plan Administrator determines otherwise. If an Optionee's employment or service relationship with the Company is suspended pending an investigation of whether the Optionee shall be terminated for Cause, all the Optionee's rights under any Option likewise shall be suspended during the period of investigation. An Optionee's transfer of employment or service relationship between or among the Company and its Related Corporations, or a change in status from an employee to a consultant that is evidenced by a written agreement between an Optionee and the Company or a Related Corporation, shall not be considered a termination of employment or service relationship for purposes of this Section 7. Employment or service relationship shall be deemed to continue while the Optionee is on a bona fide leave of absence, if such leave was approved by the Company or a Related Corporation in writing and if continued crediting of service for purposes of this Section 7 is expressly required by the terms of such leave or by applicable law (as determined by the Company). The effect of a Company-approved leave of absence on the terms and conditions of an Option shall be determined by the Plan Administrator, in its sole discretion. SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS To the extent required by Section 422 of the Code, Incentive Stock Options shall be subject to the following additional terms and conditions: 8.1 Dollar Limitation To the extent the aggregate Fair Market Value (determined as of the Grant Date) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time during any calendar year (under the Plan and all other stock option plans of the Company) exceeds $100,000, such portion in excess of $100,000 shall be treated as a Nonqualified Stock Option. In the event the Optionee holds two or more such Options that become exercisable for 79 the first time in the same calendar year, such limitation shall be applied on the basis of the order in which such Options are granted. 8.2 More Than 10% Shareholders If an individual owns more than 10% of the total voting power of all classes of the Company's stock, then the exercise price per share of an Incentive Stock Option shall not be less than 110% of the Fair Market Value of the Common Stock on the Grant Date and the Option Term shall not exceed five years. The determination of more than 10% ownership shall be made in accordance with Section 422 of the Code. 8.3 Eligible Employees Individuals who are not employees of the Company or one of its parent corporations or subsidiary corporations may not be granted Incentive Stock Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary corporation" shall have the meanings attributed to those terms for purposes of Section 422 of the Code. 8.4 Term Except as provided in Section 8.2, the Option Term shall not exceed 10 years. 8.5 Exercisability An Option designated as an Incentive Stock Option shall cease to qualify for favorable tax treatment as an Incentive Stock Option to the extent it is exercised (if permitted by the terms of the Option) (a) more than three months after the Termination Date for reasons other than death or Disability, (b) more than one year after the Termination Date by reason of Disability, or (c) after the Optionee has been on leave of absence for more than 90 days, unless the Optionee's reemployment rights are guaranteed by statute or contract. For purposes of this Section 8.5, Disability shall mean "disability" as that term is defined for purposes of Section 422 of the Code. 8.6 Taxation of Incentive Stock Options In order to obtain certain tax benefits afforded to Incentive Stock Options under Section 422 of the Code, the Optionee must hold the shares issued upon the exercise of an Incentive Stock Option for two years after the Grant Date and one year from the date of exercise. An Optionee may be subject to the alternative minimum tax at the time of exercise of an Incentive Stock Option. The Optionee shall give the Company prompt notice of any disposition of shares acquired by the exercise of an Incentive Stock Option prior to the expiration of such holding periods. 8.7 Promissory Notes The amount of any promissory note delivered pursuant to Section 7.5 in connection with an Incentive Stock Option shall bear interest at a rate specified by the Plan Administrator, but in no case less than the rate required to avoid imputation of interest (taking into account any exceptions to the imputed interest rules) for federal income tax purposes. SECTION 9. WITHHOLDING The Company may require the Optionee to pay to the Company the amount of any withholding taxes that the Company is required to withhold with respect to the grant, vesting or exercise of any Option. Subject to the Plan and applicable law, the Plan Administrator may, in its sole discretion, permit the Optionee to satisfy withholding obligations, in whole or in part, by paying cash, by electing to have the Company withhold shares of Common Stock or by transferring shares of Common Stock to the Company, in such amounts as are equivalent to the Fair Market Value of the withholding obligation. The Company shall have the right to withhold from any Option or any shares of Common Stock issuable pursuant to an Option or from any cash amounts otherwise due or to become due from the Company to the Optionee an amount equal to such taxes. The Company may also deduct from any Option any other amounts due from the Optionee to the Company or a Related Corporation. SECTION 10. ASSIGNABILITY Options granted under the Plan and any interest therein may not be assigned, pledged or transferred by the Optionee and may not be made subject to attachment or similar proceedings otherwise than by will or by the applicable laws of descent and distribution, and, during the Optionee's lifetime, such Options may be exercised only by the Optionee. Notwithstanding the foregoing, and to the extent permitted by Section 422 of the Code, the Plan Administrator, in its sole discretion, may permit such assignment, transfer and exercisability and may permit an Optionee to designate a beneficiary who may exercise the Option or receive compensation under the Option after the Optionee's death; provided, however, that any Option so assigned or transferred shall be subject to all the same terms and conditions contained in the instrument evidencing the Option. 80 SECTION 11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION 11.1 Adjustment of Shares The aggregate number and class of shares for which Options may be granted under the Plan, the number and class of shares covered by each outstanding Option and the exercise price per share thereof (but not the total price), shall all be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a split-up or consolidation of shares or any like capital adjustment, or the payment of any stock dividend (not including the stock dividend approved by the Board on February 23, 1999). 11.2 Cash, Stock or Other Property for Stock Except as provided in Section 11.3, upon a merger (other than a merger of the Company in which the holders of Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock in the surviving corporation immediately after the merger), consolidation, acquisition of property or stock, separation, reorganization (other than a mere reincorporation or the creation of a holding company) or liquidation of the Company, as a result of which the shareholders of the Company receive cash, stock or other property in exchange for or in connection with their shares of Common Stock, any Option granted hereunder shall terminate, but the Optionee shall have the right immediately prior to any such merger, consolidation, acquisition of property or stock, liquidation or reorganization to exercise such Option in whole or in part whether or not the vesting requirements set forth in the Option agreement have been satisfied. 11.3 Conversion of Options on Stock for Stock Exchange If the shareholders of the Company receive capital stock of another corporation ("Exchange Stock") in exchange for their shares of Common Stock in any transaction involving a merger (other than a merger of the Company in which the holders of Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock in the surviving corporation immediately after the merger), consolidation, acquisition of property or stock, liquidation or reorganization (other than a mere reincorporation or the creation of a holding company), the Company and the corporation issuing the Exchange Stock, in their sole discretion, may determine that all Options granted hereunder shall be converted into options to purchase shares of Exchange Stock instead of terminating in accordance with the provisions of Section 11.2. The amount and price of converted options shall be determined by adjusting the amount and price of the Options granted hereunder in the same proportion as used for determining the number of shares of Exchange Stock the holders of the Common Stock receive in such merger, consolidation, acquisition of property or stock, liquidation or reorganization. Unless accelerated by the Board, the vesting schedule set forth in the Option agreement shall continue to apply to the options granted for the Exchange Stock. 11.4 Fractional Shares In the event of any adjustment in the number of shares covered by any Option, any fractional shares resulting from such adjustment shall be disregarded and each such Option shall cover only the number of full shares resulting from such adjustment. 11.5 Determination of Board to Be Final All Section 11 adjustments shall be made by the Plan Administrator, and its determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. Unless an Optionee agrees otherwise, any change or adjustment to an Incentive Stock Option shall be made in such a manner so as not to constitute a "modification" as defined in Section 424(h) of the Code and so as not to cause his or her Incentive Stock Option issued hereunder to fail to continue to qualify as an "incentive stock option" as defined in Section 422(b) of the Code. 11.6 Limitations The grant of Options shall in no way affect the Company's right to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. SECTION 12. AMENDMENT AND TERMINATION OF PLAN 12.1 Amendment of Plan The Plan may be amended only by the Board in such respects as it shall deem advisable; provided, however, that to the extent required for compliance with Section 422 of the Code or any applicable law or regulation, shareholder approval shall be required for any amendment that would (a) increase the total number of shares available for 81 issuance under the Plan, (b) modify the class of persons eligible to receive Options, or (c) otherwise require shareholder approval under any applicable law or regulation. Any amendment made to the Plan that would constitute a "modification" to Incentive Stock Options outstanding on the date of such amendment shall not, without the consent of the Optionee, be applicable to such outstanding Incentive Stock Options but shall have prospective effect only. 12.2 Termination of Plan The Board may suspend or terminate the Plan at any time. The Plan shall have no fixed expiration date; provided, however, that no Incentive Stock Options may be granted more than 10 years after the later of (a) the Plan's adoption by the Board and (b) the adoption by the Board of any amendment to the Plan that constitutes the adoption of a new plan for purposes of Section 422 of the Code. 12.3 Consent of Optionee The amendment or termination of the Plan or the amendment of an outstanding Option shall not, without the Optionee's consent, impair or diminish any rights or obligations under any Option theretofore granted to the Optionee under the Plan. Except as otherwise provided in the Plan, no outstanding Option shall be terminated without the consent of the Optionee. Any change or adjustment to an outstanding Incentive Stock Option shall not, without the consent of the Optionee, be made in a manner so as to constitute a "modification" that would cause such Incentive Stock Option to fail to continue to qualify as an Incentive Stock Option. SECTION 13. GENERAL 13.1 Evidence of Options Options granted under the Plan shall be evidenced by a written instrument that shall contain such terms, conditions, limitations and restrictions as the Plan Administrator shall deem advisable and that are not inconsistent with the Plan. 13.2 No Individual Rights Nothing in the Plan or any Option granted under the Plan shall be deemed to constitute an employment contract or confer or be deemed to confer on any Optionee any right to continue in the employ of, or to continue any other relationship with, the Company or any Related Corporation or limit in any way the right of the Company or any Related Corporation of the Company to terminate an Optionee's employment or other relationship at any time, with or without Cause. 13.3 Registration Notwithstanding any other provision of the Plan, the Company shall have no obligation to issue or deliver any shares of Common Stock under the Plan or make any other distribution of benefits under the Plan unless such issuance, delivery or distribution would comply with all applicable laws (including, without limitation, the requirements of the Securities Act), and the applicable requirements of any securities exchange or similar entity. The Company shall be under no obligation to any Optionee to register for offering or resale or to qualify for exemption under the Securities Act, or to register or qualify under state securities laws, any shares of Common Stock, security or interest in a security paid or issued under, or created by, the Plan, or to continue in effect any such registrations or qualifications if made. The Company may issue certificates for shares with such legends and subject to such restrictions on transfer and stop-transfer instructions as counsel for the Company deems necessary or desirable for compliance by the Company with federal and state securities laws. To the extent that the Plan or any instrument evidencing an Option provides for issuance of stock certificates to reflect the issuance of shares of Common Stock, the issuance may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the applicable rules of any stock exchange. 13.4 No Rights as a Shareholder No Option shall entitle the Optionee to any cash dividend, voting or other right of a shareholder unless and until the date of issuance under the Plan of the shares that are the subject of such Option. 13.5 Compliance With Laws and Regulations Notwithstanding anything in the Plan to the contrary, the Plan Administrator, in its sole discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan to Optionees who are officers or directors subject to Section 16 of the Exchange Act without so restricting, limiting or conditioning the Plan with respect to other Optionees. Additionally, in interpreting and applying the provisions of the Plan, any Option granted as an Incentive Stock Option pursuant to the Plan shall, to the extent permitted by law, be construed as an "incentive stock option" within the meaning of Section 422 of the Code. 82 13.6 Optionees in Foreign Countries The Plan Administrator shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with provisions of the laws of foreign countries in which the Company or its Related Corporations may operate to assure the viability of the benefits from Options granted to Optionees employed in such countries and to meet the objectives of the Plan. 13.7 No Trust or Fund The Plan is intended to constitute an "unfunded" plan. Nothing contained herein shall require the Company to segregate any monies or other property, or shares of Common Stock, or to create any trusts, or to make any special deposits for any immediate or deferred amounts payable to any Optionee, and no Optionee shall have any rights that are greater than those of a general unsecured creditor of the Company. 13.8 Severability If any provision of the Plan or any Option is determined to be invalid, illegal or unenforceable in any jurisdiction, or as to any person, or would disqualify the Plan or any Option under any law deemed applicable by the Plan Administrator, such provision shall be construed or deemed amended to conform to applicable laws, or, if it cannot be so construed or deemed amended without, in the Plan Administrator's determination, materially altering the intent of the Plan or the Option, such provision shall be stricken as to such jurisdiction, person or Option, and the remainder of the Plan and any such Option shall remain in full force and effect. 13.9 Choice of Law The Plan and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Washington without giving effect to principles of conflicts of laws. SECTION 14. EFFECTIVE DATE The Effective Date is the date on which the Plan is adopted by the Board, so long as it is approved by the Company's shareholders at any time within 12 months of such adoption. ADOPTED BY THE BOARD ON FEBRUARY 23, 1999 AND APPROVED BY THE COMPANY'S SHAREHOLDERS ON APRIL 29, 1999. 83 PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS SUMMARY PAGE
SECTION/EFFECT OF DATE OF SHAREHOLDER DATE OF BOARD ACTION ACTION AMENDMENT APPROVAL February 23, 1999 Initial Plan Adoption April 29, 1999 July 27, 1999 Plan Amendment 9; Revised to prevent excess Not required stock tax withholding
84 EX-21.1 6 EXHIBIT 21.1 Exhibit 21.1 SUBSIDIARIES OF THE REGISTRANT SUBSIDIARIES: Immunex Manufacturing Corporation Incorporated in the State of Washington 51 University Street Seattle, WA 98101 85 EX-23.1 7 EXHIBIT 23.1 Exhibit 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 33-59061, 33-78694 and 33-77341) pertaining to the Immunex Corporation 1993 Stock Option Plan as Amended and Restated on February 13, 1997, the Immunex Corporation Stock Option Plan for Nonemployee Directors Amended and Restated on February 23, 1999, the Immunex Corporation 1999 Stock Option Plan as Amended and Restated on July 27, 1999 and the Immunex Corporation 1999 Employee Stock Purchase Plan of our report dated January 21, 2000 (except for Note 13 as to which the date is February 17, 2000), with respect to the consolidated financial statements and schedule of Immunex Corporation included in its Annual Report (Form 10-K) for the year ended December 31, 1999. /s/ ERNST & YOUNG L.L.P. Seattle, Washington March 7, 2000 86 EX-24.1 8 EXHIBIT 24.1 Exhibit 24.1 POWER OF ATTORNEY KNOW ALL BY THESE PRESENT that the individuals whose signatures appear below, in their capacities as officers and directors of Immunex Corporation, hereby constitute and appoint David A. Mann their true and lawful attorney-in-fact, with full power of substitution, to sign on behalf of the undersigned Immunex's Annual Report on Form 10-K for the 1999 fiscal year pursuant to Section 13 of the Securities and Exchange Act of 1934 and to file the same, with exhibits thereto and any other documents in connection therewith, with the Securities and Exchange Commission. Each of the undersigned does hereby ratify and confirm all that such attorney-in-fact may do or cause to be done by virtue hereof.
Signature Title Date - --------- ----- ---- /s/ Kirby L. Cramer - ----------------------------------- Director FEBRUARY 17, 2000 (Kirby L. Cramer) /s/ Robert I. Levy - ----------------------------------- Director FEBRUARY 17, 2000 (Robert I. Levy) /s/ John E. Lyons - ----------------------------------- Director FEBRUARY 17, 2000 (John E. Lyons) /s/ Joseph M. Mahady - ----------------------------------- Director FEBRUARY 24, 2000 (Joseph M. Mahady) /s/ Edith W. Martin - ----------------------------------- Director FEBRUARY 17, 2000 (Edith W. Martin)
87 EX-27.1 9 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 260,770 449,066 47,469 778 13,125 791,181 190,584 80,139 941,241 135,085 450,000 0 0 788,468 (433,138) 941,241 519,287 541,718 159,269 502,665 277 616 8,656 56,824 12,500 44,324 0 0 0 44,324 0.27 0.25
-----END PRIVACY-ENHANCED MESSAGE-----