-----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, U9uklb0T+FcyDrBHsH/hsyD8migOKqFVX6DQMpzkxJ9BHuBXc60FrUS5V6YQqkvM 2WSjmcApcqcoUutA7MrwjA== 0001047469-99-019764.txt : 19990513 0001047469-99-019764.hdr.sgml : 19990513 ACCESSION NUMBER: 0001047469-99-019764 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990512 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-Q SEC ACT: SEC FILE NUMBER: 000-12406 FILM NUMBER: 99618827 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-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ 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) Registrant's telephone number, including area code (206) 587-0430 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 par value 81,449,432 - ---------------------------------- -------------------------------- Class Outstanding at May 7, 1999 IMMUNEX CORPORATION QUARTERLY REPORT ON FORM 10-Q MARCH 31, 1999 TABLE OF CONTENTS Page No. -------- PART I. FINANCIAL INFORMATION 3 Item 1. Financial Statements: a) Consolidated Condensed Balance Sheets - 4 March 31, 1999 and December 31, 1998 b) Consolidated Condensed Statements of Operations - 5 for the three-month periods ended March 31, 1999 and March 31, 1998 c) Consolidated Condensed Statements of Cash Flows - 6 for the three-month periods ended March 31, 1999 and March 31, 1998 d) Notes to Consolidated Condensed Financial Statements 7 - 9 Item 2. Management's Discussion and Analysis of Financial 10 - 14 Condition and Results of Operations Item 3. Market Risks 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 2 PART I. FINANCIAL INFORMATION The consolidated condensed financial statements included herein have been prepared by Immunex Corporation without audit, according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated. The statements should be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. The results of operations for the three-month period ended March 31, 1999, are not necessarily indicative of results to be expected for the entire year ending December 31, 1999. 3 Item 1. FINANCIAL STATEMENTS IMMUNEX CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands)
March 31, 1999 December 31, (unaudited) 1998 ----------- ------------ ASSETS Current assets: Cash and cash equivalents $ 47,605 $ 43,600 Marketable securities 96,325 101,245 Accounts receivable, net 46,417 28,939 Inventories 20,735 23,475 Other current assets 4,782 4,726 --------- --------- Total current assets 215,864 201,985 Property, plant and equipment, net 92,100 90,092 Other assets 39,860 33,248 --------- --------- $ 347,824 $ 325,325 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 39,743 $ 39,256 Accounts payable - AHP 21,959 13,950 Accrued compensation and related items 7,077 13,756 Current portion of long-term obligations 3,477 3,477 Other current liabilities 6,881 5,074 --------- --------- Total current liabilities 79,137 75,513 Long-term obligations 2,396 2,349 Shareholders' equity: Common stock, $.01 par value 743,874 725,192 Unrealized gain on investment, net 1,123 1,228 Accumulated deficit (478,706) (478,957) --------- --------- Total shareholders' equity 266,291 247,463 --------- --------- $ 347,824 $ 325,325 ========= =========
See accompanying notes. 4 Item 1. FINANCIAL STATEMENTS (continued) IMMUNEX CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)
Three months Three months ended ended March 31, 1999 March 31, 1998 -------------- -------------- Revenues: Product sales $95,237 $ 38,816 Royalty and contract revenue 2,940 3,050 ------- -------- 98,177 41,866 Operating expenses: Cost of product sales 27,209 7,091 Research and development 28,209 26,906 Selling, general and administrative 44,273 18,437 ------- -------- 99,691 52,434 ------- -------- Operating loss (1,514) (10,568) Other income (expense): Interest income 1,874 1,540 Interest expense (69) (110) Other income, net 80 171 ------- -------- 1,885 1,601 ------- -------- Income (loss) before income taxes 371 (8,967) Provision for income taxes 120 58 ------- -------- Net income (loss) $ 251 $ (9,025) ======= ========= Net income (loss) per common share: Basic $ 0.00 $ (0.11) ======= ======== Diluted $ 0.00 $ (0.11) ======= ======== Number of shares used for per share amounts: Basic 80,700 79,468 ======= ======== Diluted 86,629 79,468 ======= ========
See accompanying notes. 5 Item 1. FINANCIAL STATEMENTS (continued) IMMUNEX CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Three months Three months ended ended March 31, 1999 March 31, 1998 -------------- -------------- Operating Activities: Net income (loss) $ 251 $ (9,025) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 4,690 4,259 Deferred income tax provision 110 -- License fee received as common stock (990) -- Cash flow impact of changes to: Accounts receivable (17,478) 389 Inventories 999 1,186 Accounts payable, accrued liabilities and other current liabilities 5,365 (1,373) Other current assets (56) (908) --------- --------- Net cash used in operating activities (7,109) (5,472) --------- --------- Investing Activities: Purchases of property, plant and equipment (5,394) (3,151) Purchases of marketable securities (10,400) (49,543) Proceeds from sales and maturities of marketable securities 14,828 11,054 Acquisition of product rights, net (6,500) (5,000) Other (148) 285 -------- -------- Net cash used in investing activities (7,614) (46,355) -------- --------- Financing Activities: Proceeds from the issuance of common stock to AHP 13,688 -- Proceeds from exercise of stock options 4,993 1,152 Guaranty payment received from AHP -- 60,032 Other 47 (68) -------- --------- Net cash provided by financing activities 18,728 61,116 -------- -------- Net increase in cash and cash equivalents 4,005 9,289 Cash and cash equivalents, beginning of period 43,600 66,176 -------- -------- Cash and cash equivalents, end of period $ 47,605 $ 75,465 ======== ========
See accompanying notes. 6 IMMUNEX CORPORATION Notes to Consolidated Condensed Financial Statements (unaudited) NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION Immunex Corporation (which may be referred to as IMMUNEX, WE, US or OUR) 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 United States (U.S.) Food and Drug Administration (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. The U.S. is our current market for pharmaceutical products. Our sales to clinics and hospitals are primarily through wholesalers and specialty distributors. The condensed consolidated financial statements are prepared in conformity with generally accepted accounting principles. In preparing the financial statements, management must make some estimates and assumptions that may affect reported amounts and disclosures. American Home Products Corporation (AHP), holds a majority interest in Immunex, totaling approximately 54%. All references to AHP include AHP and its various affiliates, divisions and subsidiaries. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVENTORIES Inventories are stated at the lower of cost, using a weighted-average method, or market. The components of inventories are as follows (in thousands):
March 31, December 31, 1999 1998 --------- ------------ Raw materials $ 1,360 $ 807 Work in process 14,831 17,953 Finished goods 4,544 4,715 ------- ------- Totals $20,735 $23,475 ======= =======
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 lower. Goodwill is being amortized evenly over a 10 year period. Intangible product rights and other intangible assets are amortized evenly over their estimated useful lives, ranging from five to 15 years. 7 IMMUNEX CORPORATION Notes to Consolidated Condensed Financial Statements (continued) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED REVENUES Product sales are recognized when product is shipped. We perform ongoing credit evaluations of our wholesalers, specialty distributors and our end customers, if appropriate, and we do not require collateral. 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 Revenues received under royalty, licensing and contract manufacturing agreements are recognized based on the terms of the underlying contractual agreements. NOTE 3. REPORTING COMPREHENSIVE INCOME 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. During the first quarter of 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. For quarterly reporting purposes, the following table sets forth the components of comprehensive income (loss), (in thousands):
Three months Three months ended ended March 31, 1999 March 31, 1998 -------------- -------------- Net income (loss) $ 251 $ (9,025) Unrealized loss on investments (105) (2,095) ------ --------- Comprehensive income (loss) $ 146 $(11,120) ===== =========
NOTE 4. EARNINGS PER COMMON 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 by dividing net income or net loss by the weighted average common shares outstanding plus the dilutive effect of outstanding stock options. If we report a net loss, diluted earnings per share will be the same as basic earnings per share because the effect of outstanding stock options being added to weighted average shares outstanding would reduce the loss per share. Accordingly, outstanding stock options are not included in the calculation during net loss periods. 8 IMMUNEX CORPORATION Notes to Consolidated Condensed Financial Statements (unaudited) NOTE 4. EARNINGS PER COMMON SHARE, CONTINUED The components of calculating net income (loss) per share is set forth in the following table (in thousands, except per share data):
Three months Three months ended ended March 31, 1999 March 31, 1998 -------------- -------------- Net income (loss) $ 251 $ (9,025) ======== ======== Weighted average common shares outstanding, basic 80,700 79,468 Net effect of dilutive stock Options 5,929 -- ------- ------- Weighted average common shares outstanding, diluted 86,629 79,468 ======= ======= Net income (loss) per common share, basic $ 0.00 $ (0.11) ======= ======== Net income (loss) per common share, diluted $ 0.00 $ (0.11) ======= ========
NOTE 5. STOCK SPLIT In March 1999, the Company effected a two-for-one common stock split in the form of a stock dividend. Accordingly, all prior share and per share amounts in the condensed consolidated financial statements and footnotes have been retroactively adjusted to reflect these events. 9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION INTRODUCTION Our disclosure and analysis in this report contain some 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 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. Factors that we think could cause our actual results to differ materially from expected and historical results include, but are not limited to, those discussed in the "Risk Factors" section described in our latest Annual Report on Form 10-K filed with the Securities and Exchange Commission. RESULTS OF OPERATIONS OVERVIEW For the three months ended March 31, 1999, we generated net income of $0.3 million, compared to a net loss of $9.0 million for the comparable 1998 period. The improvement in operating results is due primarily to U.S. sales of ENBREL-Registered Trademark- (etanercept) which we began selling in November 1998 following U.S. FDA approval oF ENBREL for treatment of advanced rheumatoid arthritis. ENBREL is being promoted by AHP in the U.S. through its Wyeth-Ayerst sales and marketing organization. AHP shares in the gross profits from U.S. sales of ENBREL and both companies share the selling, marketing, distribution and other costs to support sales of ENBREL. If current sales trends for ENBREL continue throughout the remainder of the current year, we expect to be profitable for 1999. 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) REVENUES
Three months ended March 31, (in millions) 1999 1998 ------------------ ENBREL $59.7 $ -- LEUKINE-Registered Trademark- (sargramostim, GM-CSF) 16.0 15.1 NOVANTRONE-Registered Trademark- (mitoxantrone) 10.8 13.4 Other product sales 8.7 10.3 ----- ----- Total product sales 95.2 38.8 Royalty and contract revenue 3.0 3.1 ----- ----- Total revenue $98.2 $41.9 ===== =====
Product sales increased to $95.2 million from $38.8 million for the three months ended March 31, 1999 and 1998, respectively. The improvement is due to sales of ENBREL, which was launched in the U.S. in November 1998. Sales of ENBREL totaled $59.7 million during the first quarter of 1999. In addition, sales of LEUKINE increased to $16.0 million compared to $15.1 million during the prior year period. These sales increases were partially offset by lower sales of NOVANTRONE and our other products during the first three months of 1999. Sales levels of NOVANTRONE declined from prior period levels beginning in the fourth quarter of 1998. Sales of NOVANTRONE totaled $10.8 million and $9.4 million during the first quarter of 1999 and the fourth quarter of 1998, respectively, compared to $13.4 million for the first quarter of 1998. Royalty and contract revenue totaled $3.0 million and $3.1 million for the three-month periods ended March 31, 1999 and 1998, respectively. Revenue recognized during both periods presented is due largely to recurring amounts recognized under existing royalty and license agreements. Royalty and contract revenue is expected to fluctuate significantly depending on the achievement of milestones under existing agreements and new business opportunities that may be identified. Under the ENBREL Promotion Agreement entered into with AHP in September 1997, we will earn a one-time payment of $10.0 million if net sales of ENBREL in North America exceed $200.0 million in any 12 consecutive months. If current sales trends for ENBREL continue throughout the remainder of the current year, we expect to earn this payment during 1999. OPERATING EXPENSES Cost of product sales was 28.6% and 18.3% of product sales for the quarters ended March 31, 1999 and 1998, respectively. The increase in the cost of product sales percentage during the current year period is due to the following: - Launch of ENBREL in November 1998 (ENBREL, like LEUKINE, is a biologic. Biologics generally have 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 other products. Cost of product sales as a percentage of product sales is expected to increase in the future if sales of ENBREL continue to grow. 11 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Research and development expense increased to $28.2 million from $26.9 million for the three months ended March 31, 1999 and 1998, respectively. The increase is due primarily to the following: - Increased costs for development of NUVANCE-TM- (IL-4 receptor) and MOBIST-TM- (Flt-3 ligand), two of our product candidates, and - Increased spending on discovery research. These expense increases were partially offset by the cessation of expenses incurred under an oncology discovery research agreement with AHP that was terminated effective July 1, 1998. Expenses incurred under this agreement totaled $4.1 million during the first quarter of 1998. In addition, spending on development of ENBREL has decreased from prior year levels. However, this continues to be our largest area of research and development expenditure as we are pursuing indications for ENBREL in disease modification in early rheumatoid arthritis patients and for treatment of chronic heart failure. Selling, general and administrative expense increased to $44.3 million from $18.4 million for the three-month periods ended March 31, 1999 and 1998, respectively. The increase is due primarily to expenses associated with the launch, selling and marketing of ENBREL during the first quarter of 1999. 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 of ENBREL. Selling, general and administrative expenses in 1999 include our share of these expenses and the amount of the gross profits shared with AHP from sales of ENBREL during the first quarter of 1999. In addition to expenses incurred under the ENBREL Promotion Agreement, selling, general and administrative expense increased due to the following: - Product liability insurance for ENBREL, - Expenses associated with information systems, and - Spending on selling activities related to our oncology products. OTHER INCOME (EXPENSE) Interest income increased to $1.9 million for the three months ended March 31, 1999, compared to $1.5 million for the comparable period in 1998. The improvement reflects an increase in funds available for investment purposes and the interest earned on these funds. PROVISION FOR INCOME TAXES The provision for income taxes was $0.1 million for the quarters ended March 31, 1999 and 1998. The provision for income taxes during 1999 is primarily for federal income taxes. This tax provision is a non-cash transaction because we will utilize our net operating tax loss carryforwards to satisfy the federal tax liability. To the extent that our income subject to tax is offset by pre-merger net operating tax loss carryforwards, accounting rules require that we report a tax provision with the offset to the goodwill account until the goodwill balance is zero. After the goodwill balance reaches zero, the remaining net operating loss carryforwards will be used to offset tax expense and then recorded to equity. The tax provision recorded during the first quarter of 1998 consisted only of our tax obligation in the states in which we sell our products. 12 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) LIQUIDITY AND CAPITAL RESOURCES Cash, cash equivalents and marketable securities totaled $143.9 million and $144.8 million at March 31, 1999 and December 31, 1998, respectively. These amounts are held in a variety of interest-bearing instruments including government and corporate obligations and money market accounts. Operating activities used cash of $7.1 million during the first three months of 1999. The use of cash is due primarily to increased working capital requirements associated with the launch and sale of ENBREL. Accounts receivable increased significantly due to sales of ENBREL. This was partially offset by increased accounts payable due to AHP for amounts owed under the ENBREL Promotion Agreement. Cash used in investing activities totaled $7.6 million for the first quarter of 1999. In the first three months of 1999, expenditures for capital equipment totaled $5.4 million, primarily for purchases of computer hardware and software and purchases of lab equipment. Additionally, in January 1999, we entered into an agreement to settle certain patent issues related to ENBREL. As a result of the agreement, we paid an initial license fee of $11.0 million, of which $4.5 million was reimbursed by AHP. Our share of the payment was capitalized as a cost of acquired product rights and is being amortized to cost of products sold over the estimated life of ENBREL. A subsequent milestone fee of $5.0 million will also be paid if ENBREL is approved in Europe, of which $2.5 million will be reimbursed by AHP. In addition, we are paying royalties under this and other agreements on net sales of ENBREL. Financing activities provided cash of $18.7 million for the three-month period ended March 31, 1999. 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. 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 $13.7 million from the issuance of 257,092 shares of our common stock to AHP during the first quarter of 1999. An additional $5.0 million was received from the exercise of employee stock options during the same period. YEAR 2000 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 could result in a system failure or miscalculations with respect to current programs. We have established a Year 2000 Committee with representatives from all of the functional areas at Immunex. The Year 2000 Committee has initiated a comprehensive review of our computer systems and software applications (INFORMATION TECHNOLOGY) and equipment that utilize date sensitive computer chips (EMBEDDED CHIPS). Embedded Chips are utilized in our security systems and certain manufacturing, laboratory and office equipment. Based on this review, we have determined that certain software, hardware and equipment will have to be modified or replaced so that they will properly utilize dates beyond December 31, 1999. Furthermore, we have initiated contact with key third-party suppliers, service providers, distributors, wholesalers and other entities with which we have a business relationship (BUSINESS PARTNERS) to determine their compliance with Year 2000 requirements. We anticipate that required modifications and replacements of our critical systems and applications will be completed prior to the year 2000. However, if such modifications are not completed in a timely manner, or if there were a similar such failure on the part of our Business Partners, there could be a material adverse impact on our operations. 13 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Our plan to resolve the Year 2000 issues is organized into three functional areas: Information Technology, Embedded Chips and Business Partners. For each functional area, there are three phases: - Phase I: Assessment - Phase II: Testing and Remediation - Phase III: Implementation and Contingency Planning Assessment activities for each functional area are complete. Testing and remediation is well underway and has been completed for many systems. As a result of this process, certain software applications have been identified that are not Year 2000 compliant and replacement of those software applications is in process. We have initiated the process of developing contingency plans for certain critical systems. These contingency plans involve, among other actions, adjusting production schedules, increasing inventories, and developing manual workarounds. The Company is interviewing its Business Partners to assess Year 2000 readiness. Progress of our Business Partners to become Year 2000 compliant will be monitored and remediation and contingency planning will be made as needed. The estimated completion dates of each phase of the three functional areas are as follows:
Information Technology Embedded Chips Business Partners ---------------------- -------------- ----------------- Phase I Complete Complete Complete Phase II 1999 Second Quarter 1999 Second Quarter 1999 Second Quarter Phase III 1999 Third Quarter 1999 Third Quarter 1999 Third Quarter
We are utilizing both internal and external resources to identify, correct and test our computer systems, equipment and other applications for Year 2000 compliance. Our total cost for the Year 2000 project is estimated at approximately $6.3 million ($1.6 million of expense and $4.7 million capital). Through March 31, 1999, we have incurred approximately $2.3 million ($0.7 million of expense and $1.6 million capital). These amounts do not include any internal costs. We plan on utilizing our existing cash reserves to fund our Year 2000 compliance program. We have not identified our most reasonably likely worst case scenario with respect to possible losses in connection with Year 2000 related problems. We plan on completing this analysis in mid-1999. The Year 2000 disclosures discussed above are based on numerous expectations which are subject to uncertainties. Certain risk factors which could have a material adverse effect on the Company's results of operations and financial condition include but are not limited to: failure to identify critical systems which will experience failures, errors in the remediation efforts, unexpected failures by key Business Partners, inability to obtain new replacements for non-compliant systems or equipment, failures by governmental agencies causing delays in approval of new products or sales of approved products, general economic downturn relating to Year 2000 failures in the U.S. and in other countries, failures in global banking systems and capital markets, or extended failures by public and private utility companies or common carriers supplying services to the Company. 14 Item 3. MARKET RISKS We invest our cash reserves in marketable securities consisting primarily of U.S. government and corporate obligations. Our marketable securities are subject to interest rate risk. If market interest rates increase by 10%, the effect on our operating results would not be material. In addition, we own common stock in two biotechnology companies with a cost of $4.0 million. 15 PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The description of legal proceedings is incorporated by reference to Item 3 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. Item 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibit 27 Financial Data Schedule b) Reports on Form 8-K None 16 SIGNATURES Pursuant to requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IMMUNEX CORPORATION Date: /s/ Edward V. Fritzky --------------------- Edward V. Fritzky Chairman and Chief Executive Officer (Principal Executive Officer) Date: /s/ David A. Mann ---------------------- David A. Mann Vice President, Finance and Interim Chief Financial Officer (Principal Financial and Accounting Officer) 17 EX-27 2 EX-27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998, AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 47,605 96,325 37,515 923 20,735 215,864 161,431 69,330 347,824 79,137 0 0 0 743,874 (477,583) 347,824 95,237 98,177 27,209 99,691 0 115 69 371 120 251 0 0 0 251 0.00 0.00
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