-----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, C0Edjs9doO8lWMapyqQdkf6uGMsLoJE34bs9Hx2ytbaOe20CdWK6RLft3JKMlAmf BLxriN+TIEeOjqOsQcKDNA== 0000891092-97-000450.txt : 19971117 0000891092-97-000450.hdr.sgml : 19971117 ACCESSION NUMBER: 0000891092-97-000450 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMCLONE SYSTEMS INC/DE CENTRAL INDEX KEY: 0000765258 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 042834797 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19612 FILM NUMBER: 97719840 BUSINESS ADDRESS: STREET 1: 180 VARICK ST CITY: NEW YORK STATE: NY ZIP: 10014 BUSINESS PHONE: 2126451405 MAIL ADDRESS: STREET 1: 180 VARICK ST CITY: NEW YORK STATE: NY ZIP: 10014 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 [ ] 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 0-19612 IMCLONE SYSTEMS INCORPORATED (Exact name of registrant as specified in its charter) DELAWARE 04-2834797 (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 180 VARICK STREET, NEW YORK, NY 10014 (Address of principal executive offices) (Zip Code) (212) 645-1405 Registrant's telephone number, including area code Not Applicable Former name, former address and former fiscal year, if changed since last report 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 [ ] Applicable only to corporate issuers: Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding as of November 12, 1997 - ----------------------------- ----------------------------------- Common Stock, par value $.001 24,201,830 Shares IMCLONE SYSTEMS INCORPORATED INDEX Page No. -------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets - September 30, 1997 (unaudited) and December 31, 1996 1 Unaudited Statements of Operations - Three and nine months ended September 30, 1997 and 1996 2 Unaudited Statements of Cash Flows - Nine months ended September 30, 1997 and 1996 3 Notes to Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 11 Part 1 - FINANCIAL INFORMATION Item 1 - Financial Statements IMCLONE SYSTEMS INCORPORATED Balance Sheets (in thousands, except share data) September 30, December 31, Assets 1997 1996 ------------ ----------- (unaudited) Current assets: Cash and cash equivalents ........................ $ 1,775 $ 2,734 Securities available for sale .................... 24,506 10,780 Prepaid expenses ................................. 337 122 Other current assets ............................. 1,799 479 --------- --------- Total current assets ............... 28,417 14,115 --------- --------- Property and equipment: Land ............................................. 340 340 Building and building improvements ............... 8,969 8,969 Leasehold improvements ........................... 4,832 4,832 Machinery and equipment .......................... 5,960 5,159 Furniture and fixtures ........................... 536 536 Construction in progress ......................... 1,117 320 --------- --------- Total cost ......................... 21,754 20,156 Less accumulated depreciation and amortization ... (10,812) (9,606) --------- --------- Property and equipment, net ........ 10,942 10,550 --------- --------- Patent costs, net .................................. 1,084 977 Deferred financing costs, net ...................... 58 65 Amount due from officer and stockholder ............ 82 101 Other assets ....................................... 85 77 --------- --------- $ 40,668 $ 25,885 ========= ========= Liabilities and Stockholders' Equity Current liabilities: Accounts payable ................................. $ 1,253 $ 1,059 Accrued expenses and other ....................... 617 1,366 Interest payable ................................. 277 238 Current portion of long-term liabilities ......... 2,967 3,858 --------- --------- Total current liabilities ......... 5,114 6,521 --------- --------- Long-term debt ..................................... 2,200 2,200 Other long-term liabilities, less current portion .. 412 575 --------- --------- Total liabilities ................. 7,726 9,296 --------- --------- Commitments and contingencies Stockholders' equity : Preferred stock, $1.00 par value; authorized 4,000,000 shares; none issued and outstanding .................... -- -- Common stock, $.001 par value; authorized 45,000,000 shares; issued 24,236,772 and 20,248,122 at September 30, 1997 and December 31, 1996, respectively; outstanding 24,185,955 and 20,233,699 at September 30, 1997 and December 31, 1996, respectively ................ 24 20 Additional paid-in capital ......................... 146,118 118,760 Accumulated deficit ................................ (112,698) (101,973) Treasury stock, at cost; 50,817 and 14,423 shares at September 30, 1997 and December 31, 1996, respectively ............ (492) (169) Unrealized loss on securities available for sale ............................. (10) (49) ---------- ---------- Total stockholders' equity ......... 32,942 16,589 ---------- ---------- $ 40,668 $ 25,885 ========== ========== See accompanying notes to financial statements. Page 1 IMCLONE SYSTEMS INCORPORATED Statements of Operations (in thousands, except per share data) (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------- 1997 1996 1997 1996 -------- -------- -------- -------- Revenues: Product development milestone revenues ....................... $ -- $ -- $ 2,500 $ -- Research and development funding from third parties and other ....................................... 742 75 1,513 225 -------- -------- -------- -------- Total revenues .................................. 742 75 4,013 225 -------- -------- -------- -------- Operating expenses: Research and development .................................. 3,320 2,683 11,972 7,601 General and administrative ................................ 1,039 1,031 3,394 2,618 -------- -------- -------- -------- Total operating expenses ........................ 4,359 3,714 15,366 10,219 -------- -------- -------- -------- Operating loss ................................................. (3,617) (3,639) (11,353) (9,994) -------- -------- -------- -------- Other (income) expense: Interest and other income ................................. (414) (241) (1,099) (695) Interest and other expense ................................ 131 144 471 691 -------- -------- -------- -------- Net interest and other income .................. (283) (97) (628) (4) -------- -------- -------- -------- Net loss before extraordinary item ............................. (3,334) (3,542) (10,725) (9,990) Extraordinary loss on extinguishment of debt ................... -- -- -- 1,267 -------- -------- -------- -------- Net loss ....................................................... $ (3,334) $ (3,542) $(10,725) $(11,257) ======== ======== ======== ======== Net loss per common share: Loss before extraordinary loss on extinguishment of debt ...................................... $ (0.14) $ (0.18) $ (0.46) $ (0.52) Extraordinary loss on extinguishment of debt ................. -- -- -- 0.07 -------- -------- -------- -------- Net loss per common share ...................... $ (0.14) $ (0.18) $ (0.46) $ (0.59) ======== ======== ======== ======== Weighted average shares outstanding ............................ 24,123 19,925 23,193 19,131 ======== ======== ======== ========
See accompanying notes to financial statements. Page 2 IMCLONE SYSTEMS INCORPORATED Statements of Cash Flows (in thousands) (unaudited) Nine Months Ended September 30, --------------------- 1997 1996 --------- --------- Cash flows from operating activities: Net loss .............................................. $(10,725) $(11,257) Adjustments to reconcile net loss to net cash used in operating activities: Extraordinary loss on extinguishment of debt ......... -- 1,267 Depreciation and amortization ........................ 1,286 1,348 Discounted interest amortization ..................... -- 156 Expense associated with issuance of options and warrants ............................ 2,681 -- Loss on sale of investments .......................... 2 -- Changes in: Prepaid expenses ................................... (215) (54) Other current assets ............................... (1,320) (273) Due from officer ................................... 19 17 Other assets ....................................... (8) -- Interest payable ................................... 39 17 Accounts payable ................................... 194 (595) Accrued expenses and other ......................... (749) (161) -------- -------- Net cash used in operating activities .......... (8,796) (9,535) -------- -------- Cash flows from investing activities: Acquisitions of property and equipment ............. (1,570) (450) Proceeds from sale of equipment .................... 280 -- Purchases of securities available for sale ......... (61,318) (27,628) Sales of securities available for sale ............. 47,629 13,987 Additions to patents ............................... (180) (104) -------- -------- Net cash used in investing activities .......... (15,159) (14,195) -------- -------- Cash flows from financing activities: Net proceeds from issuance of common stock ......... 23,154 13,560 Proceeds from exercise of stock options and warrants 1,526 1,991 Purchase of treasury stock ......................... (323) (19) Payments of other liabilities ...................... (1,361) (209) -------- -------- Net cash provided by financing activities ...... 22,996 15,323 -------- -------- Net decrease in cash and cash equivalents ............... (959) (8,407) Cash and cash equivalents at beginning of period ........ 2,734 10,207 ======== ======== Cash and cash equivalents at end of period .............. $ 1,775 $ 1,800 ======== ======== See accompanying notes to financial statements. Page 3 IMCLONE SYSTEMS INCORPORATED NOTES TO FINANCIAL STATEMENTS (unaudited) (1) Basis of Presentation The financial statements of ImClone Systems Incorporated ("ImClone" or the "Company") as of September 30, 1997 and for the three and nine months ended September 30, 1997 and 1996 are unaudited. In the opinion of management, these unaudited financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996, as filed with the Securities and Exchange Commission (the "Commission"). Results for the interim periods are not necessarily indicative of results for the full years. (2) Related Party Transactions As of September 30, 1997, a promissory note (the "new promissory note") in the original principal amount of $110,000 given to the Company by its President and CEO totaled $82,000. The new promissory note replaces an original promissory note (the "original promissory note") which was due upon the earlier of on demand by the Company or April 30, 1997, bore interest at the rate of 8% compounded quarterly and covered miscellaneous cash advances made to the President and CEO through the date of its issuance in March 1995. The new promissory note was payable as to $15,000 no later than May 15, 1997 and as to the remainder upon the earlier of on demand by the Company or December 31, 1997 and bears interest at the rate of 5% compounded quarterly. The new promissory note covers the remaining balance of the original promissory note, interest thereon and additional miscellaneous cash advances made since the date of the original promissory note totaling $15,000. As of November 12, 1997 the aggregate amount of the new promissory note, including interest totaled approximately $79,000. (3) Net Loss Per Share Net loss per share is computed based on the weighted average number of shares outstanding. Common stock equivalents are not included in the computation of average shares outstanding because they are anti-dilutive. (4) Reclassification Certain amounts previously reported have been reclassified to conform to current year presentation. (5) Subsequent Event In October 1997, the Company entered into a Collaborative Research and License Agreement with CombiChem, Inc. ("CombiChem"), a private company, to discover and develop novel small molecules against selected targets for the treatment of cancer. The companies will utilize CombiChem's Discovery Engine(TM) and Universal Informer Library(TM) to generate small molecules for screening in ImClone's assays for identification of lead candidates. ImClone will provide CombiChem with research funding for two years, milestone payments and royalties on marketed products, if any. ImClone will have exclusive worldwide rights to develop and market products resulting from the collaboration, if any. Concurrently with the execution of the Collaborative Research and License Agreement, the Company entered into a Stock Purchase Agreement pursuant to which the Company purchased 1,000,000 shares of the common stock of CombiChem for aggregate consideration of $2,000,000. This purchase will be recorded by the Company at the lower of cost or net realizable value. Subsequent to the purchase of these shares of common stock, CombiChem effected a 4 for 1 reverse split of its common stock. Page 4 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis by management is provided to identify certain significant factors which affected the Company's financial position and operating results during the period included in the accompanying financial statements. Results of Operations Nine Months Ended September 30, 1997 and 1996 Revenues Revenues for the nine-month periods ended September 30, 1997 and September 30, 1996 were $4,013,000 and $225,000, respectively. Revenues in both periods included research and development support fees of $225,000 from the Company's corporate partnership with the Wyeth/Lederle Vaccine division of American Home Products Corporation ("American Home") in infectious disease vaccines. Revenues for the nine-month period ended September 30, 1997 also included milestone revenue of $1,500,000 and contract research support of $1,042,000 from the Company's research and license agreement with Merck KGaA ("Merck") in cancer vaccines. Additionally, the nine-month period ended September 30, 1997 included milestone revenue of $1,000,000 and royalty fees of $246,000 from the Company's strategic alliance with Abbott Laboratories ("Abbott") in diagnostics. Operating: Research and Development Total operating expenses for the nine-month periods ended September 30, 1997 and September 30, 1996 were $15,366,000 and $10,219,000, respectively. Research and development expenses for the nine-month periods ended September 30, 1997 and September 30, 1996 were $11,972,000 and $7,601,000, respectively. Such amounts for the nine-month periods ended September 30, 1997 and September 30, 1996 represented 78% and 74%, respectively, of total operating expenses. The $4,371,000 or 58% increase in research and development expenses for the nine-month period ended September 30, 1997 was primarily attributable to a one-time $2,233,000 non-cash compensation expense recorded in connection with the extension of the term of an officer's warrant to purchase 397,000 shares of the Company's common stock, $.001 par value (the "Common Stock"). The increase is also attributable to costs associated with additional staffing, contract manufacturing and testing, and expenditures in the functional areas of product development, manufacturing and clinical and regulatory affairs to support its lead therapeutic product candidate, C225 for human clinical trials as well as travel-related expenses to pursue strategic partnerships for C225 (and other product candidates). The remaining increase reflects growth in the area of discovery research for future product candidates. General and Administrative General and administrative expenses include administrative personnel costs, costs incurred in connection with pursuing arrangements with corporate partners and technology licensors, and expenses associated with applying for patent protection for the Company's technology and products. Such expenses for the nine-month periods ended September 30, 1997 and September 30, 1996 were $3,394,000 and $2,618,000, respectively, an increase of $776,000 or 30%. The increase in general and administrative expenses primarily reflects (i) $279,000 in non-cash compensation expense recorded in connection with an option grant to an officer of the Company and (ii) additional support staffing for the expanding research, clinical, development and manufacturing efforts of the Company, particularly with C225. The Company expects general and administrative expenses to increase in future periods to support planned increases in research and development. Page 5 Interest and Other Income/Expense Interest and other income was $1,099,000 for the nine-month period ended September 30, 1997 compared to $695,000 for the nine-month period ended September 30, 1996, an increase of $404,000 or 58%. The increase was primarily attributable to the increased interest income earned from higher cash balances in the Company's investment portfolio resulting from the proceeds received from a public stock offering completed in March 1997. Interest and other expense was $471,000 and $691,000 for the nine-month periods ended September 30, 1997 and September 30, 1996, respectively, a decrease of $220,000 or 32%. Interest and other expense for both periods primarily included interest on two outstanding Industrial Development Revenue Bonds with an aggregate principal amount of $4,313,000 and interest recorded on the liability to Pharmacia and UpJohn Inc. ("Pharmacia"), for the reacquisition of the worldwide rights to Interleukin-6 mutein ("IL-6m") as well as clinical material manufactured and supplied by Pharmacia to the Company. The decrease was primarily attributable to the May 1996 exchange of debt for Company Common Stock with the Oracle Group and a Company Director. Net Losses The Company had net losses of $10,725,000 or $0.46 per share for the nine-month period ended September 30, 1997, compared with $11,257,000 or $0.59 per share for the nine-month period ended September 30, 1996. The decrease in the net loss for the nine-month period ended September 30, 1997 is due primarily to the fact that the net loss for the nine-month period ended September 30, 1996 included a $1,267,000 or $0.07 per share extraordinary loss on early extinguishment of debt. This extraordinary loss resulted from the issuance of Common Stock in lieu of cash repayment of a $2,500,000 loan due the Oracle Group and a $180,000 long-term note owed to a Company Director. The decrease in net loss per share is due primarily to the increased number of shares of Common Stock outstanding as a result of the March 1997 public offering. Three Months Ended September 30, 1997 and 1996 Revenues Revenues for the three-month periods ended September 30, 1997 and September 30, 1996 were $742,000 and $75,000, respectively. Revenues in both periods included research and development support fees of $75,000 from the Company's corporate partnership with American Home in infectious disease vaccines. Revenues for the three-month period ended September 30, 1997 also included contract research support of $625,000 from the Company's research and license agreement with Merck in cancer vaccines. Additionally, the three-month period ended September 30, 1997 included royalty fees of $42,000 from the Company's strategic alliance with Abbott in diagnostics. Operating: Research and Development Total operating expenses for the three-month periods ended September 30, 1997 and September 30, 1996 were $4,359,000 and $3,714,000, respectively. Research and development expenses for the three-month periods ended September 30, 1997 and September 30, 1996 were $3,320,000 and $2,683,000, respectively. Such amounts for the three-month periods ended September 30, 1997 and September 30, 1996 represented 76% and 72%, respectively, of total operating expenses. The $637,000 or 24% increase in research and development expenses for the three-month period ended September 30, 1997 was primarily attributable to costs associated with additional staffing, contract manufacturing and testing, and expenditures in the functional areas of product development, manufacturing and clinical and regulatory affairs to support C225 for human clinical trials as well as travel-related expenses to pursue strategic partnerships for C225 (and other product candidates). The remaining increase reflects growth in the area of discovery research for future product candidates. Page 6 General and Administrative General and administrative expenses include administrative personnel costs, costs incurred in connection with pursuing arrangements with corporate partners and technology licensors, and expenses associated with applying for patent protection for the Company's technology and products. Such expenses for the three-month periods ended September 30, 1997 and September 30, 1996 were $1,039,000 and $1,031,000, respectively. The Company expects general and administrative expenses to increase in future periods to support planned increases in research and development. Interest and Other Income/Expense Interest and other income was $414,000 for the three-month period ended September 30, 1997 compared to $241,000 for the three-month period ended September 30, 1996, an increase of $173,000 or 72%. The increase was primarily attributable to the increased interest income earned from higher cash balances in the Company's investment portfolio resulting from the proceeds received from a public stock offering completed in March 1997. Interest and other expense for the three-month period ended September 30, 1997 remained relatively constant at $131,000 compared to $144,000 for the three-month period ended September 30, 1996. Interest and other expense for both periods primarily included interest on two outstanding Industrial Development Revenue Bonds with an aggregate principal amount of $4,313,000 and interest recorded on the liability to Pharmacia, for the reacquisition of the worldwide rights to IL-6m as well as clinical material manufactured and supplied by Pharmacia to the Company. Net Losses The Company had net losses of $3,334,000 or $0.14 per share for the three-month period ended September 30, 1997, compared with $3,542,000 or $0.18 per share for the three-month period ended September 30, 1996. The decrease in the net loss for the three-month period ended September 30, 1997 is due primarily to the increase in contract research support revenue received by the Company, offset in part by the increase in research and development expenses. The decrease in the net loss per share is due primarily to the increased number of shares of Common Stock outstanding as a result of the March 1997 public stock offering. Liquidity and Capital Resources The Company's cash and cash equivalents and securities available for sale totaled $22,731,000 at November 12, 1997; on September 30, 1997 such balances totaled $26,281,000. In May 1996, the Company extended its collaboration with Merck for the development of a therapeutic cancer vaccine, BEC2, for use in small-cell carcinoma and in malignant melanoma. The collaboration continues a research and license agreement between the two companies signed in December 1990. Under the terms of the modified agreement, the Company could receive up to $11,700,000 in license fees, research and development support and milestone payments in addition to moneys previously received under the original agreement. Of such $11,700,000, as of September 30, 1997, the Company had earned $1,500,000 in milestone payments, and research and support payments of $1,042,000 which represents the first two of eight quarterly research and support payments totaling $4,700,000. In return, Merck will receive marketing rights to BEC2 for all therapeutic indications outside North America. Formerly the rights of Merck were confined to Europe, Australia and New Zealand. Merck will also share in the development costs for the United States and Europe and will pay all development costs in other territories. The Company will be entitled to royalties based upon product sales outside of North America, if any. In December 1996, the Company signed an agreement with Finova Technology Finance, Inc. to finance the lease of laboratory and computer-related equipment and make certain building and leasehold improvements to facilities involving payments aggregating approximately $2,500,000. At October 31, 1997, the Company had $1,258,000 available under this agreement. Page 7 In December 1996, the Company and Abbott modified their 1992 diagnostic strategic alliance to provide for an exclusive sublicensing agreement with Chiron Diagnostics ("Chiron") for the Company's patented DNA signal amplification technology, AMPLIPROBE. Under the terms of the agreement, all sales of Chiron branched DNA diagnostic probe technology in countries covered by Company patents will be subject to a royalty to Abbott to be passed through to the Company. Royalties on all Chiron sales of AMPLIPROBE are paid on a quarterly basis by Abbott and recognized upon receipt by the Company. In May 1997, a European patent was issued for the Company's proprietary Repair Chain Reaction ("RCR") DNA probe technology which was licensed to Abbott under the 1992 strategic alliance discussed in the preceding paragraph. The issuance of the patent entitled the Company to receive two milestone payments totaling $1,000,000 and royalty payments on sales in covered European countries for products using the Company's RCR technology. Abbott will be entitled to deduct from royalties otherwise due, 25% of such royalties due for a two-year period and 50% thereafter until a total of $500,000 has been deducted. In June 1997 the Company received $1,000,000 in milestone payments and as of September 30, 1997 had received a total of $117,000 in royalty fees. The Company has expended and will continue to expend in the future substantial funds to continue the research and development of its products, conduct pre-clinical and clinical trials, establish clinical-scale and commercial-scale manufacturing in its own facilities or in the facilities of others, and market its products. In October 1997, the Company entered into a Collaborative Research and License Agreement with CombiChem, a private company, to discover and develop novel small molecules against selected targets for the treatment of cancer. The companies will utilize CombiChem's Discovery Engine and Universal Informer Library to generate small molecules for screening in ImClone's assays for identification of lead candidates. ImClone will provide CombiChem with research funding for two years, milestone payments and royalties on marketed products, if any. ImClone will have exclusive worldwide rights to develop and market products resulting from the collaboration, if any. Concurrently with the execution of the Collaborative Research and License Agreement, the Company entered into a Stock Purchase Agreement pursuant to which the Company purchased 1,000,000 shares of the common stock of CombiChem for aggregate consideration of $2,000,000. This purchase will be recorded by the Company at the lower of cost or net realizable value. Subsequent to the purchase of these shares of common stock, CombiChem effected a 4 for 1 reverse split of its common stock. In July 1993, the Company entered into a termination agreement with Erbamont, Inc., now a subsidiary of Pharmacia, to acquire the worldwide rights to IL-6m, a blood cell growth factor, which had been licensed to Pharmacia pursuant to a development and licensing agreement. At March 31, 1996, the Company's remaining obligations in connection with the return of such rights and certain obligations to pay for IL-6m material manufactured and supplied by Pharmacia, totaled $2,400,000. In addition, the Company is required to pay Pharmacia $2,700,000 in royalties on eventual sales of IL-6m, if any. In March 1996, the Company entered into a Repayment Agreement with Pharmacia (the "Repayment Agreement") pursuant to which it agreed to pay the $2,400,000 over 24 months commencing in March 1996, with only interest payable during the first six months. At November 4, 1997 the remaining obligation to Pharmacia totaled $428,000, including interest. In connection with the Repayment Agreement, the Company signed a Confession of Judgment, which can be filed by Pharmacia with an appropriate court in the case of default by the Company. Pursuant to a Security Agreement entered into with Pharmacia, the Company pledged its interests in patents related to IL-6m and to heparanase to secure its obligations under the Repayment Agreement. The Company's future working capital and capital requirements will depend upon numerous factors, including, but not limited to, the progress of the Company's research and development programs, pre-clinical testing and clinical trials, the Company's corporate partners fulfilling their obligations to the Company, the timing and cost of seeking regulatory approvals, the level of resources that the Company devotes to the development of manufacturing, marketing and sales capabilities, technological advances, the status of competitors and the ability of the Company to maintain existing and establish new collaborative arrangements with other companies to provide funding to the Company to support these activities. Page 8 The Company expects to incur substantial funding requirements for the expansion of operations, including (i) the expansion of the clinical trials of C225 and the related manufacturing program to support these trials and (ii) in an effort to develop new product candidates, the expansion of research and development activities including among other things, increased staffing, the acquisition of equipment, and the consummation of new outside research agreements. In addition, the entire $428,000 of outstanding debt to Pharmacia is payable ratably throughout the period ending February 1998, and $2,113,000 of the Industrial Development Revenue Bonds (the "1986 Bonds") issued by the New York Industrial Development Agency ("NYIDA") becomes due in December 1997. The Company is currently negotiating the possible extension of the due date for the 1986 Bonds for an additional one year period. Additionally, $2,200,000 of the Industrial Development Bonds issued by NYIDA in 1990 scheduled to become due in 2004 shall become due upon the termination of the lease (the "Lease") for the Company's New York facility. The Lease is scheduled to expire in March 1999 and the Company is currently in discussions regarding its extension and considering other alternatives. Assuming the extension of the Lease, the Company expects that its capital resources, including the ongoing research support of its corporate partners will be sufficient to fund its operations for approximately the next eighteen months. However, the receipt of certain of such ongoing research support is subject to attaining research and development milestones, certain of which have not yet been achieved. No assurance can be given that there will be no change in projected research support (including research and development milestones) or expenses that would lead to the Company's capital being consumed at a faster rate than currently expected, or that the 1986 Bonds or the Lease will be extended. Upon exhaustion of its capital resources, the Company will require significant levels of additional capital and intends to raise the necessary capital through additional arrangements with corporate partners, equity or debt financings or from other sources. There is no assurance that the Company will be successful in consummating any such arrangements. The Company has entered into preliminary discussions with several major pharmaceutical companies concerning the funding of research and development for certain of its products in research. No assurance can be given that the Company will be successful in pursuing any such alternatives. In addition, the Company may seek to enter into a significant strategic partnership with a pharmaceutical company for the development of its lead product candidate, C225. Such a strategic alliance could include an up-front equity investment and technology access fees plus milestone fees and revenue sharing. There can be no assurance that the Company will be successful in achieving such an alliance, nor can the Company predict the amount of funds which might be available to it if it entered into such an alliance or the time at which such funds would be made available. The Company has outfitted and purchased equipment for its Somerville, New Jersey facility to create a clinical-scale production facility that complies with current Good Manufacturing Practices regulations. To be successful, the Company's products must be manufactured in commercial quantities in compliance with regulatory requirements and at acceptable costs. Although the Company has developed products in the laboratory and in some cases has produced sufficient quantities of materials for pre-clinical animal trials and early stage clinical trials, production in late stage clinical or commercial quantities may create technical challenges for the Company. If it commercializes its products, the Company may adapt this facility for use as its commercial-scale manufacturing facility. However, the Company has limited experience in clinical-scale manufacturing and no experience in commercial-scale manufacturing, and no assurance can be given that the Company will be able to make the transition to late stage clinical or commercial production. The timing and any additional costs of adapting the facility for commercial manufacturing will depend on several factors, including the progress of products through clinical trials, and are not yet determinable. Total capital expenditures made during the nine months ended September 30, 1997 were $1,598,000, of which $1,182,000 related to the expansion of the production capacity and pilot plant capability of the Company's manufacturing facility in New Jersey and $416,000 reflected equipment and computer-related purchases for the corporate office and research laboratories in New York. Page 9 Certain Factors Affecting Forward-Looking Statements--Safe Harbor Statement Except for the historical information contained herein, this Management's Discussion and Analysis of Financial Condition and Results of Operations and other portions of this report contain forward-looking statements that involve certain risks and uncertainties. The Company's actual operations, performance and results could differ materially from those reflected in, or anticipated by, these forward-looking statements. In evaluating the Company and its operations, performance and results, investors should consider, among other things, the scientific and business risks and uncertainties of new product development in the biotechnology field, the risk of rapid and significant technological change, the risk of development by one or more competitors of products which compete with the Company's proposed products and the risks and uncertainties discussed in the Company's public filings with the Commission, including the Company's most recent Annual Report on Form 10-K under the captions "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Recently Issued Accounting Standards In February 1997, the Financial Accounting Standards Board issued Statement of Financial Standards No. 128 (SFAS 128), "Earnings Per Share". SFAS 128 establishes standards for computing and presenting earnings per share. In accordance with the effective date of SFAS 128, the Company will adopt SFAS 128 as of December 31, 1997. This statement is not expected to have a material impact on the Company's financial statements. Page 10 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits (numbered in accordance with Item 601 of Regulation S-K) Exhibit No. Description ----------- ----------- 10.76* Collaborative Research and License Agreement between the Company and CombiChem, Inc. dated October 10 1997. 27.1 Financial Data Schedule (b) Reports on Form 8-K: None. * This Exhibit is incorporated herein by reference to Exhibit 10.22 of Amendment No. 1 to the CombiChem, Inc. Registration Statement on Form S-1 (File No. 333-37981). Certain confidential portions of this Exhibit are omitted by redacting a portion of the text (the "Mark"). It has been filed separately with the Secretary of the Commission without the Mark pursuant to an Application Requesting Confidential Treatment. Page 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IMCLONE SYSTEMS INCORPORATED (Registrant) Date: November 13, 1997 By /s/ Samuel D. Waksal -------------------------- Samuel D. Waksal President and Chief Executive Officer Date: November 13, 1997 By /s/ Carl S. Goldfischer -------------------------- Carl S. Goldfischer Vice President , Finance and Chief Financial Officer Page 12 EX-27 2 FDS --
5 Information taken from the September 30, 1997 Form 10-Q. 1,000 3-MOS DEC-31-1997 JUL-01-1997 SEP-30-1997 1,775 24,506 0 0 0 28,417 21,754 (10,812) 40,668 3,001 4,313 0 0 24 32,918 40,668 0 742 0 4,359 0 0 131 (3,334) 0 (3,334) 0 0 0 (3,334) (0.14) 0
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