-----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, D8k6jhAx1163mf4NrZJC2w+0J3IEvjNUGg1vwnR7m98aEDCYX2d9HeFFIcWoix7m EP0XVR+ihi9lbx5jVVxk6Q== 0000891092-99-000287.txt : 19990518 0000891092-99-000287.hdr.sgml : 19990518 ACCESSION NUMBER: 0000891092-99-000287 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 99627920 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 March 31, 1999 ----------------- [ ] 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 of (IRS Employer Identification No.) 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 May 13, 1999 ----------------------------- ------------------------------ Common Stock, par value $.001 25,308,961 Shares IMCLONE SYSTEMS INCORPORATED INDEX Page No. -------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - March 31, 1999 (unaudited) and December 31, 1998 1 Unaudited Consolidated Statements of Operations - Three months ended March 31, 1999 and 1998 2 Unaudited Consolidated Statements of Cash Flows - Three months ended March 31, 1999 and 1998 3 Notes to Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 Part 1 - FINANCIAL INFORMATION Item 1 - Financial Statements IMCLONE SYSTEMS INCORPORATED Consolidated Balance Sheets (in thousands, except per share and share data)
March 31 December Assets 1999 1998 ------------------- ----------------- (unaudited) Current assets: Cash and cash equivalents ........................................ $ 842 $ 3,888 Securities available for sale .................................... 36,424 42,851 Prepaid expenses ................................................. 459 470 Other current assets ............................................. 1,400 1,196 --------------- -------------- Total current assets ...................... 39,125 48,405 --------------- -------------- Property and equipment: Land.............................................................. 340 340 Building and building improvements................................ 10,525 10,519 Leasehold improvements ........................................... 4,878 4,846 Machinery and equipment .......................................... 8,162 7,834 Furniture and fixtures ........................................... 640 640 Construction in progress ......................................... 659 115 --------------- -------------- Total cost ................................. 25,204 24,294 Less accumulated depreciation and amortization.................... (13,309) (12,877) --------------- -------------- Property and equipment, net ............... 11,895 1,417 --------------- -------------- Patent costs, net ..................................................... 897 860 Deferred financing costs, net ......................................... 44 46 Other assets .......................................................... 1,468 1,524 --------------- -------------- $ 53,429 $ 62,252 =============== ============== Liabilities and Stockholders' Equity Current liabilities: Accounts payable .................................................. $ 1,366 $ 1,109 Accrued expenses and other ........................................ 2,470 4,847 Interest payable .................................................. 108 45 Deferred revenue .................................................. -- 75 Fee potentially refundable from corporate partner ................. 4,000 4,000 Current portion of long-term liabilities .......................... 749 744 Preferred stock dividends payable ................................. 3,104 2,512 --------------- -------------- Total current labilities .................. 11,797 13,332 --------------- -------------- Long-term debt ........................................................ 2,200 2,200 Other long-term liabilities, less current portion ..................... 1,342 1,546 --------------- -------------- Total liabilities ......................... 15,339 17,078 --------------- -------------- Commitments and contingencies Stockholders' equity : Preferred stock, $1.00 par value; authorized 4,000,000 shares; issued and outstanding Series A Convertible: 400,000 at March 31, 1999 and December 31, 1998 (preference in liquidation, including accrued dividends, $43,104 and $42,512, respectively).. 400 400 Common stock, $.001 par value; authorized 45,000,000 shares; issued 24,669,072 and 24,567,312 at March 31, 1999 and December 31, 1998, respectively; outstanding 24,618,255, and 24,516,495 at March 31, 1999 and December 31, 1998, respectively .................................................... 25 25 Additional paid-in capital ........................................ 185,005 184,853 Accumulated deficit ............................................... (146,924) (138,846) Treasury stock, at cost; 50,817 shares at March 31, 1999 and December 31, 1988 .......................................... (492) (492) Note receivable - officer and stockholder ......................... (145) (142) Accumulated other comprehensive income (loss): Unrealized (loss) gain on securities available for sale, net ....................................................... 221 (624) --------------- -------------- Total stockholders' equity ................ 38,090 45,174 --------------- -------------- $ 53,429 $ 62,252 =============== ==============
See accompanying notes to consolidated financial statements. Page 1 IMCLONE SYSTEMS INCORPORATED Consolidated Statements of Operations (in thousands, except per share data) (unaudited)
Three Months Ended March 31, ------------------------------------ 1999 1998 ---------------- ---------------- Revenues: Product development milestone revenues .......................... $ -- $ 1,000 Research and development funding from third parties and other .......................................... 629 850 ------------- ------------ Total revenues .................................... 629 1,850 ------------- ------------ Operating expenses: Research and development ........................................ 6,354 4,171 General and administrative ...................................... 2,002 1,413 ------------- ------------ Total operating expenses ........................... 8,356 5,584 ------------- ------------ Operating loss ....................................................... (7,727) (3,734) ------------- ------------ Other: Interest income ................................................. (604) (830) Interest expense ................................................ 123 90 Loss (gain) on securities available for sale .................... 832 (1) ------------- ------------ Net interest and other (income) loss ............... 351 (741) ------------- ------------ Net loss ............................................................. (8,078) (2,993) Preferred dividends (including assumed incremental yield attributable to beneficial conversion feature of $336 and $266 for the three months ended March 31, 1999 and 1998, respectively) ............................................ 928 858 ------------- ------------ Net loss to common stockholders ...................................... $ (9,006) $ (3,851) ============= ============ Basic and diluted net loss per common share .......................... $ (0.37) $ (0.16) ============= ============ Weighted average shares outstanding .................................. 24,447 24,228 ============= ============
See accompanying notes to consolidated financial statements. Page 2
IMCLONE SYSTEMS INCORPORATED Consolidated Statements of Cash Flows (in thousands) (unaudited) Three Months Ended March 31, ------------------------------------ 1999 1998 ---------------- ---------------- Cash flows from operating activities: Net loss ................................................................................. $ (8,078) $ (2,993) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ........................................................... 464 440 Expense associated with issuance of options and warrants................................................................. 417 80 Loss (gain) on securities available for sale ............................................ 832 (1) Changes in: Prepaid expenses ................................................................... 11 90 Other current assets ............................................................... (204) (90) Other assets ....................................................................... (119) Interest payable ................................................................... 63 36 Accounts payable ................................................................... 257 (470) Accrued expenses and other ......................................................... (2,377) (725) Deferred revenue ................................................................... (75) 150 --------------- -------------- Net cash used in operating activities .............................. (8,809) (3,483) --------------- -------------- Cash flows from investing activities: Acquisitions of property and equipment ............................................. (910) (428) Purchases of securities available for sale ......................................... (7,199) (23,461) Sales and maturities of securities available for sale .............................. 13,814 28,947 Additions to patents ............................................................... (67) (24) --------------- -------------- Net cash provided by investing activities ......................... 5,638 5,034 --------------- -------------- Cash flows from financing activities: Proceeds from exercise of stock options and warrants ............................... 311 37 Proceeds from issuance of common stock under the employee stock purchase plan ...... 13 Payments of other liabilities ...................................................... (199) (392) --------------- -------------- Net cash provided by (used in) financing activities ................ 125 (355) --------------- -------------- Net (decrease) increase in cash and cash equivalents ....................................... (3,046) 1,196 Cash and cash equivalents at beginning of period ........................................... 3,888 2,558 --------------- -------------- Cash and cash equivalents at end of period ................................................. $ 842 $ 3,754 --------------- --------------
See accompanying notes to consolidated financial statements. Page 3 IMCLONE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (1) Basis of Presentation The consolidated financial statements of ImClone Systems Incorporated ("ImClone" or the "Company") as of March 31, 1999 and for the three months ended March 31, 1999 and 1998 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 audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998, as filed with the Securities and Exchange Commission. Results for the interim periods are not necessarily indicative of results for the full years. (2) Commitments The Company agreed in principle in April 1998 and in April 1999 signed a definitive agreement with Boehringer Ingelheim Pharma KG for the further development, production scale-up and manufacture of the Company's lead therapeutic product candidate, C225, for use in human clinical trials. Services pursuant to this agreement commenced in April 1998. The total project cost is DM8,950,000, or at March 31, 1999 approximately $4,926,000. As of March 31, 1999, the Company has incurred approximately DM3,720,000 for services provided under this agreement. Additional material which could be provided under this agreement would cost up to an additional DM5,790,000, or at March 31, 1999, approximately $3,187,000. (3) Related Party Transactions In January 1998, the Company accepted a promissory note totaling approximately $131,000 from its President and CEO in connection with the exercise of a warrant to purchase 87,305 shares of the Company's common stock, $.001 par value (the "Common Stock"). The note is due no later than two years from issuance and is full recourse. Interest is payable on the first anniversary date of the promissory note and on the stated maturity or any accelerated maturity at the annual rate of 8.5%. At March 31, 1999, the total amount due the Company, including interest, is approximately $145,000 and is classified in the stockholders' equity section of the balance sheet as a note receivable from officer and stockholder. In October 1998, the Company accepted an unsecured promissory note totaling $100,000 from its Executive Vice President and COO. The note is payable on demand including interest at the annual rate of 8.25% for the period that the loan is outstanding. At March 31, 1999, the total amount due the Company, including interest, was approximately $104,000 and is included as a component of other current assets. In April 1999, the note, including all interest, was paid in full. In January 1999, the Company accepted an unsecured promissory note totaling $60,000 from its Vice President, Product and Process Development. The note is payable upon the earlier of on demand or July 28, 1999 and bears interest at an annual rate of 8.75% for the period that the loan is outstanding. The loan was made in connection with the acceptance of employment and the corresponding relocation of the officer. At March 31, 1999, the total amount due the Company, including interest, was approximately $61,000 and is included as a component of other current assets. Page 4 (4) Earnings Per Share Basic and diluted Earnings Per Share ("EPS") are computed based on the net loss for the relevant period, adjusted for cumulative Series A Convertible Preferred Stock dividends and the assumed incremental yield attributable to the beneficial conversion feature in the preferred stock, divided by the weighted average number of shares outstanding during the period. Potentially dilutive securities, including convertible preferred stock, options and warrants, have not been included in the diluted EPS computation because they are anti-dilutive. (5) Comprehensive Income (Loss) The following table reconciles net loss to comprehensive loss: Three Months Ended March 31, ---------------------------- 1999 1998 ------------ ------------ Net loss $(8,078,000) $(2,993,000) Other comprehensive income (loss): Unrealized holding gain arising during the period ..................................... 13,000 70,000 Less: Reclassification adjustment for realized gain (loss) included in net loss ....... (832,000) 1,000 ------------ ----------- Total other comprehensive income ....... 845,000 69,000 ------------ ----------- Total comprehensive loss........................ $ (7,233,000) $ (2,924,000) ============ ============ (6) Loss on Securities Available for Sale In October 1997, the Company entered into a Collaborative Research and License Agreement with CombiChem Inc. ("CombiChem"). Concurrent with this agreement, the Company entered into a Stock Purchase Agreement pursuant to which the Company purchased 312,500 shares of common stock of CombiChem, as adjusted, for a total purchase price of $2,000,000. The investment has been classified as available for sale and a long-term asset. The market value of the investment in CombiChem has declined substantially from the date of original investment to March 31, 1999. As of March 31, 1999, the Company has deemed this decline in market value to be other than temporary. Accordingly, the cost basis in the investment in CombiChem has been adjusted and a loss on securities available for sale of $828,000 was recorded. These securities have not been sold by the Company. The Company will continue to monitor its cost investment in CombiChem. (7) Reclassification Certain amounts previously reported have been reclassified to conform to the current year's presentation. (8) Collaborative Agreements The Company has a development and license agreement with Merck KGaA ("Merck") with respect to its lead interventional therapeutic product for the treatment of cancer, C225. In exchange for certain marketing and co-development rights, the Company can receive up to $60,000,000 in milestone payments ($30,000,000 of which are equity based) assuming the achievement of certain milestones and a $30,000,000 secured line of credit or guaranty for the build-out of a manufacturing facility for the commercial production of C225. The agreement provides that in addition to other reasons, it may be terminated by either party if the Company and Merck fail to agree on a production concept for the manufacturing facility or if Merck fails to provide the Company with the credit facility or guaranty by April 15, 1999. In April 1999, the parties agreed on the production concept for the manufacturing facility and are currently working towards securing the credit facility or guaranty. Page 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis by our management is provided to identify certain significant factors which affected our financial position and operating results during the periods included in the accompanying financial statements. RESULTS OF OPERATIONS Three Months Ended March 31, 1999 and 1998 Revenues. Revenues for the three months ended March 31, 1999 and 1998 were $629,000 and $1,850,000, respectively, a decrease of $1,221,000, or 66%. Revenues for the three months ended March 31, 1999 primarily consisted of (i) $75,000 in research support from our partnership with American Home Products Corporation ("American Home") in infectious disease vaccines, (ii) $425,000 in research and support payments from our research and license agreement with Merck KGaA, Darmstadt, Germany ("Merck") for BEC2, and (iii) $124,000 in royalty revenue from our strategic alliance with Abbott Laboratories ("Abbott") in diagnostics. Revenues for the three months ended March 31, 1998 consisted of (i) $75,000 in research support from our partnership with American Home in infectious disease vaccines, (ii) $1,000,000 in milestone revenue and $625,000 in research and support payments from our research and license agreement with Merck for BEC2 (iii) $52,000 in royalty revenue from our strategic alliance with Abbott in diagnostics and (iv) $98,000 from a Phase I Small Business Innovation Research grant from the National Cancer Institute for a program in cancer-related angiogenesis. The decrease in revenues for the three months ended March 31, 1999 was primarily attributable to a decrease in milestone revenue which can vary widely from period to period depending upon the timing of the achievement of various research and development milestones for products under development. Operating; Research and Development Expenses. Total operating expenses for the three months ended March 31, 1999 and 1998 were $8,356,000 and $5,584,000, respectively, an increase of $2,772,000, or 50%. Research and development expenses for the three months ended March 31, 1999 and 1998 were $6,354,000 and $4,171,000, respectively, an increase of $2,183,000 or 52%. Such amounts for the three months ended March 31, 1999 and 1998 represented 76% and 75%, respectively, of total operating expenses. The increase in research and development expenses for the three months ended March 31, 1999 was primarily attributable to (i) the costs associated with an agreement for the supplemental further development and manufacture of clinical grade C225 to support ongoing and future human clinical trials, (ii) the costs associated with the initiation of Phase III clinical studies of C225, (iii) expenditures in the functional areas of product development, manufacturing, clinical and regulatory affairs associated with C225 and (iv) expenditures associated with additional staffing in the area of discovery research. General and Administrative Expenses. 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 our technology and products. Such expenses for the three months ended March 31, 1999 and 1998 were $2,002,000 and $1,413,000, respectively, an increase of $589,000, or 42%. The increase in general and administrative expenses primarily reflected (i) additional support staffing for the expanding research, development, clinical manufacturing and pre-marketing efforts of the Company, particularly with respect to C225 and (ii) expenses associated with the pursuit of strategic corporate alliances and other corporate development expenses. We expect general and administrative expenses to increase in future periods to support our planned increases in research, development, clinical and manufacturing efforts. Page 6 Interest and Other Income and Interest Expense. Interest income was $604,000 for the three months ended March 31, 1999 compared to $830,000 for the three months ended March 31, 1998, a decrease of $226,000, or 27%. The decrease was primarily attributable to the decrease in our investment portfolio as a result of funding our operations. Interest expense was $123,000 and $90,000 for the three months ended March 31, 1999 and 1998, respectively, an increase of $33,000 or 37%. Interest expense for both periods primarily included (i) interest on an outstanding Industrial Development Revenue Bond issued in 1990 (the "1990 IDA Bond") with a principal amount of $2,200,000 and (ii) interest recorded on various capital lease obligations under a December 1996 Financing Agreement (the "1996 Financing Agreement") and an April 1998 Financing Agreement (the "1998 Financing Agreement") with Finova Technology Finance, Inc. ("Finova"). The increase was primarily attributable to entering into additional capital leases. We recorded losses on securities available for sale for the three months ended March 31, 1999 in the amount of $832,000 as compared to gains of $1,000 for the three months ended March 31, 1998. The loss for the three months ended March 31, 1999 is primarily attributable to the $828,000 write-down of our investment in CombiChem Inc. ("CombiChem") as a result of other than temporary impairment. See "Liquidity and Capital Resources". Net Losses. We had net losses to common stockholders of $9,006,000 or $0.37 per share for the three months ended March 31, 1999 compared with $3,851,000 or $0.16 per share for the three months ended March 31, 1998. The increase in the net losses and per share net loss to common stockholders was due primarily to the factors noted above and the Series A Preferred Stock dividends. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1999, our principal sources of liquidity consisted of cash and cash equivalents and short-term securities available for sale of approximately $37,266,000. We have financed our operations since inception primarily through: o the proceeds from the public and private sales of our equity securities. o license fees. o contract research and development fees. o royalties received under agreements with collaborative partners. o interest earned on these funds. o the sale of three issues of Industrial Development Revenue Bonds (the "IDA Bonds") through the New York Industrial Development Agency (the "NYIDA"). Since inception: o public and private sales of equity securities in financing transactions have raised approximately $163,799,000 in net proceeds. o we have earned approximately $33,484,000 from license fees, contract research and development fees and royalties from collaborative partners, including approximately $629,000 earned during the three months ended March 31, 1999. o we have earned approximately $9,067,000 in interest income, including approximately $604,000 earned during the three months ended March 31,1999. o the sale of the IDA Bonds in each of 1985, 1986 and 1990 raised an aggregate of $6,313,000, the proceeds of which have been used for the acquisition, construction and installation of our research and development facility in New York City, and of which $2,200,000 is currently outstanding. We agreed in principle in April 1998 and in April 1999 signed a definitive agreement with Boehringer Ingelheim Pharma KG for the further development, production scale-up and manufacture of our lead therapeutic product candidate, C225, for use in human clinical trials. Services pursuant to this agreement commenced in April 1998. The total project cost is DM8,950,000, or at March 31, 1999 approximately $4,926,000. As of March 31, 1999, we have incurred approximately DM3,720,000 for services provided under this agreement. Additional material which could be provided under this agreement would cost up to an additional DM5,790,000, or at March 31, 1999, approximately $3,187,000. Page 7 In October 1997, we entered into a Collaborative Research and License Agreement with CombiChem to discover and develop novel small molecules against selected targets for the treatment of cancer. At the same time as we entered into this agreement, we entered into a Stock Purchase Agreement pursuant to which we purchased 312,500 shares of common stock of CombiChem, as adjusted, for a total purchase price of $2,000,000. The investment has been classified as a long-term asset. The market value of our investment in CombiChem has declined substantially from the date of our investment to March 31, 1999. As of March 31, 1999, we have deemed this decline in market value to be other than temporary. Accordingly, we have adjusted our cost basis in the investment and recorded a loss on securities available for sale of $828,000. These securities have not been sold by the Company. The Company will continue to monitor its cost investment in CombiChem. We have obligations under various capital leases for certain laboratory, office and computer equipment and also certain building improvements primarily under the 1996 Financing Agreement and the 1998 Financing Agreement with Finova. The 1996 Financing Agreement allowed us to finance the lease of equipment and make certain building and leasehold improvements to existing facilities involving amounts totaling approximately $2,500,000. Each lease has a fair market value purchase option at the expiration of a 42-month term. Pursuant to the 1996 Financing Agreement, we issued to Finova a warrant expiring December 31, 1999 to purchase 23,220 shares of our common stock at an exercise price of $9.69 per share. We recorded a non-cash debt discount of approximately $125,000 in connection with this financing, which discount is being amortized over the 42-month term of the first lease. The 1996 Financing Agreement with Finova expired in December 1997 and we utilized only $1,745,000 of the full $2,500,000 under the agreement. In April 1998, we entered into the 1998 Financing Agreement with Finova totaling approximately $2,000,000. The terms of the 1998 Financing Agreement are substantially similar to the now expired 1996 Financing Agreement except that each lease has a 48-month term. As of March 31, 1999, we had entered into ten individual leases under both the 1996 Financing Agreement and the 1998 Financing Agreement aggregating a total cost of $3,069,000 and had $676,000 available under the 1998 Financing Agreement. The 1998 Financing Agreement was scheduled to terminate on March 31, 1999 and the term has been extended for an additional 60 day period. We have spent and will continue to spend in the future substantial funds to continue the research and development of our products, conduct pre-clinical and clinical trials, establish clinical-scale and commercial-scale manufacturing in our own facilities or in the facilities of others, and market our products. We have entered into preliminary discussions with several major pharmaceutical companies regarding various alternatives concerning the funding of research and development for certain of our products. No assurance can be given that we will be successful in consummating any such alternatives. Such strategic alliances could include up-front license fees plus milestone fees and revenue sharing. There can be no assurance that we will be successful in achieving such alliances, nor can we predict the amount of funds which might be available to us if we entered into such alliances or the time at which such funds would be made available or the other terms of any such alliances. In January 1998, we completed the construction and commissioning of a new 1,750 square foot process development center at our Somerville, New Jersey facility at a cost of approximately $1,650,000. Under our agreement with Merck for C225, we have developed, in consultation with Merck, a production concept for a new manufacturing facility. Merck is providing us, subject to certain terms, with a $30 million secured line of credit or guaranty for the build-out of this facility. We have determined to erect this facility adjacent to our current manufacturing facility in New Jersey. We rent our New York City facility under a lease which was scheduled to expire in March 1999. We renewed the entire lease for a term commencing as of January 1, 1999 through December 2004 and have begun to retrofit the facility to better suit our needs at an expected cost of approximately $1,800,000. The 1990 IDA Bond in the outstanding principal amount of $2,200,000 becomes due in 2004. We will incur annual interest on the 1990 IDA Bond aggregating approximately $250,000. We have granted the NYIDA a security interest in substantially all facility equipment located in the New York facility to secure our obligations to the NYIDA under the 1990 IDA Bond. The holders of the 400,000 shares of Series A Convertible Preferred Stock (the "Series A Preferred Stock" or "Series A Preferred Shares") are entitled to receive cumulative dividends at an annual rate of $6.00 per share. Dividends accrue as of the issuance date of the Series A Preferred Shares and are payable on the outstanding Series A Preferred Shares in cash on December 31 of each year beginning December 31, Page 8 1999 or at the time of conversion or redemption of the Series A Preferred Shares on which the dividend is to be paid, whichever is sooner. Accrued dividends were $3,104,000 at March 31, 1999. Additionally, we have recognized an incremental yield on the conversion discount of 1,655,000 at March 31, 1999. Total capital expenditures made during the three months ended March 31, 1999 were $910,000. Of such expenditures, $663,000 related to the purchase of equipment for and costs associated with the retrofit of our corporate office and research laboratories in New York. The balance of capital additions was related to improving and equipping our manufacturing facility in New Jersey. We expect to submit a portion of these expenditures for reimbursement under the 1998 Financing Agreement with Finova in May 1999. We expect that our existing capital resources should enable us to maintain our current and planned operations through March 2001. Certain of our research and support payments from corporate partners have defined expiration dates during 1999. Under these existing corporate partnerships, we expect to receive final research and support payments of approximately $258,000 which will be recognized through the third quarter of 1999. Additionally, certain milestone payments are subject to attaining research and development milestones, many of which have not yet been achieved. There can be no assurance that we will achieve these milestones. Our future working capital and capital requirements will depend upon numerous factors, including, but not limited to: o progress of our research and development programs, pre-clinical testing and clinical trials. o our corporate partners fulfilling their obligations to us. o timing and cost of seeking and obtaining regulatory approvals. o timing and cost of manufacturing scale-up and effective commercialization activities and arrangements. o level of resources that we devote to the development of marketing and sales capabilities. o costs involved in filing, prosecuting and enforcing patent claims. o technological advances. o status of competitors. o our ability to maintain existing and establish new collaborative arrangements with other companies to provide funding to us to support these activities. o costs of establishing both clinical scale and commercial scale manufacturing capacity in our facility and those of others. In order to fund our capital needs after March 2001, we will require significant levels of additional capital and we intend to raise the capital through additional arrangements with corporate partners, equity or debt financings or from other sources including the proceeds of product sales, if any. There is no assurance that we will be successful in consummating any such arrangements. If adequate funds are not available, we may be required to significantly curtail our planned operations. Uncertainties associated with the length and expense of pre-clinical and clinical testing of any of our product candidates could greatly increase the cost of development of such products and affect the timing of any anticipated revenues from product sales. Our failure to obtain regulatory approval for any product will preclude its commercialization. In addition, our failure to obtain patent protection for our products may make certain of our products commercially unattractive. At December 31, 1998, we had net operating loss carryforwards for federal income tax purposes of approximately $129,485,000 which expire at various dates from 2000 through 2018. At December 31, 1998 we had research credit carryforwards of approximately $3,642,000 which expire at various dates between years 2009 and 2018. Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, the annual utilization of a company's net operating loss and research credit carryforwards may be limited if the company experiences a change in ownership of more than 50 percentage points within a three-year period. Since 1986, we experienced two such ownership changes. Accordingly, our net operating loss carryforwards available to offset future federal taxable income arising before such ownership changes are limited to $5,159,000 annually. Similarly, we are restricted in using our research credit carryforwards arising before such ownership changes to offset future federal income tax expense. Year 2000 The "Year 2000 problem" involves mainly the inability of certain computer programs and microprocessing devices to differentiate between the year 1900 and the year 2000 because two-digit rather than four-digit Page 9 fields were used to identify the year. There are a variety of related "date" problems, including the use by older programs and devices of algorithms that will fail to correctly identify the year 2000 and certain other years in the twenty-first century as leap years. A Year 2000 problem could cause a computer system or microprocessor that is date sensitive to malfunction, resulting in system failures. Such failures could cause disruptions of our operations, including, without limitation, the systems in place at our Branchburg clinical-scale manufacturing facility, computers, communication devices and laboratory instrumentation and systems which use dated information in our research and development and scientific testing or, possibly, in our pre-clinical or clinical trials. To deal with the Year 2000 problem we have developed a year 2000 program that has three main phases: (i) review of information technology ("IT") and non-IT systems for the purposes of assessing the potential impact of Year 2000 on our business and identifying non-Year 2000 compliant systems; (ii) remediation and development of contingency plans; and (iii) testing. These phases are not necessarily sequential. We have a Year 2000 team to coordinate and carry out the various phases and Reporting Responsible Persons in each critical area, including computer hardware, software, other hardware, laboratory equipment, collaborators and process/clinical development. While we believe that our program is and will be adequate to address Year 2000 problems, there can be no assurance that our operations will not be adversely affected. While we have devoted significant resources to dealing with the Year 2000 problem, our efforts to date have not caused the deferral of any other significant IT projects. We have completed phase one with regard to our own systems. We reviewed the potential impact of the "Y2K" bug on our research and development, product development, manufacturing, financial, communication and administrative operations. We determined which systems are critical to our business. We also determined which systems were non-year 2000 compliant. As for the second phase, we are in the process of remediating through corrective programming modifications or system replacement all mission critical systems that we identified as non-compliant. We estimate that this process is 80% complete and that it will be finished by June 30, 1999. In addition, for systems that we have identified as non-mission critical, we also intend to either correct them through programming changes or replace them with compliant software and any necessary hardware or, possibly, simply discontinue using the system. We have already developed testing protocols and have begun testing for all mission-critical systems and have completed approximately 60% of the testing we currently anticipate. We expect to have completed testing of all mission critical systems no later than June 30, 1999. We are also in the process of testing other systems, and expect to have completed that process no later than June 30, 1999. The Company estimates the cost of its Year 2000 program to be approximately $350,000, of which approximately $280,000 has been spent through March 31, 1999. This includes the purchase of third-party software and required hardware to run such software as well as the cost of modifying software. This estimate is management's good faith estimate based on a variety of contingency assessments and is subject to change. Such expenditures will be funded from the Company's internal resources. In addition to the review of internal systems, we have identified and begun to make inquiries of our critical suppliers, corporate partners, manufacturers, clinical study sites, service suppliers, communications providers, lessor utilities, and banks whose system failures or non-compliant products could have an adverse impact on our operations. We expect to complete the identification and assessment process for such entities prior to June 30, 1999. While we are not currently aware of any material Year 2000 problems involving such entities that are likely to adversely affect us, there can be no assurance that there will not be such problems or that, if discovered, they will be timely remediated. We are in the process of developing contingency plans to deal with possible disruptions of important operations such as discovery research, product development, manufacturing and ongoing clinical trials. Such disruptions could affect the development and ultimate marketing of potential products as well as put us at a competitive disadvantage relative to companies that have corrected such problems. These contingency plans may need to be refined as more information becomes available. Page 10 Certain Factors Affecting Forward-Looking Statements--Safe Harbor Statement Those statements contained herein that do not relate to historical information are forward-looking statements. There can be no assurance that the future results covered by such forward-looking statements will be achieved. Actual results may differ materially due to the risks and uncertainties inherent in the Company's business, including without limitation, the risks and uncertainties associated with completing pre-clinical and clinical trials of the Company's compounds that demonstrate such compounds' safety and effectiveness; obtaining additional financing to support the Company's operations; obtaining and maintaining regulatory approval for such compounds and complying with other governmental regulations applicable to the Company's business; obtaining the raw materials necessary in the development of such compounds; consummating collaborative arrangements with corporate partners for product development; achieving milestones under collaborative arrangements with corporate partners; developing the capacity and ability to manufacture, as well as market and sell the Company's products, either directly or with collaborative partners; developing market demand for and acceptance of such products; competing effectively with other pharmaceutical and biotechnological products; obtaining adequate reimbursement from third party payors; attracting and retaining key personnel; protecting proprietary rights; failing to remedy Year 2000 problems by the Company or the failure by those entities associated with the Company; and those other factors set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview and Risk Factors," in the Company's most recent Annual Report on Form 10-K. Item 3. Quantitative and Qualitative Disclosures About Market Risk Our holdings of financial instruments are comprised of U.S. corporate debt, foreign corporate debt, U.S. government debt, foreign government/agency guaranteed debt and commercial paper. All such instruments are classified as securities available for sale. Generally, we do not invest in portfolio equity securities or commodities or use financial derivatives for trading purposes. Our debt security portfolio represents funds held temporarily pending use in our business and operations. We manage these funds accordingly. We seek reasonable assuredness of the safety of principal and market liquidity by investing in rated fixed income securities while at the same time seeking to achieve a favorable rate of return. Our market risk exposure consists principally of exposure to changes in interest rates. Our holdings are also exposed to the risks of changes in the credit quality of issuers. We typically invest in the shorter-end of the maturity spectrum and highly liquid investments. We also have certain foreign exchange currency risk, see footnote 2. We do not consider it necessary to implement a currency hedging program since we do not generally enter into contracts denominated in foreign currencies. The table below presents the principal amounts and related weighted average interest rates by year of maturity for our investment portfolio:
2004 and 1999 2000 2001 2002 2003 Thereafter Total Fair Value ------------ ------------ ---------- ------- ----- ------------- ------------ ------------ Fixed Rate $2,000,000 $3,162,000 -- -- -- -- $5,162,000 $5,196,000 Average Interest Rate 5.38% 5.09% -- -- -- -- 5.20% -- Variable Rate -- $3,995,000 $2,133,000 -- -- $24,913,000(1) $31,041,000 $31,228,000 Average Interest Rate -- 5.25% 5.18% -- -- 5.17% 5.18% -- ------------- ---------- ---------- ---- ---- ------------- ------------ ------------ $2,000,000 $7,157,000 $2,133,000 -- -- $24,913,000(1) $36,203,000 $36,424,000 ============= ========== ========== ==== ==== ============== ============ ============
(1) These holdings consist of U.S. corporate and foreign corporate floating rate notes. Interest rates on the securities are adjusted at fixed dates using prevailing interest rates. These holdings are highly liquid and we consider the potential for loss of principal to be minimal. Page 11 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 ----------- ----------- 27.1 Financial Data Schedule (b) Reports on Form 8-K None. Page 12 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: May 13, 1999 By /s/ Samuel D. Waksal ------------------------------------- Samuel D. Waksal President and Chief Executive Officer Date: May 13, 1999 By /s/ Carl S. Goldfischer ------------------------------------- Carl S. Goldfischer Vice President, Finance and Chief Financial Officer Page 13 ImClone Systems Incorporated SEC Condensed Financial Information EX-27 2 FDS --
5 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 842 36,424 0 0 0 39,125 25,204 (13,309) 53,429 11,797 2,200 0 400 25 37,665 53,429 0 629 0 8,356 228 0 123 (8,078) 0 (8,078) 0 0 0 (8,078) (0.37) (0.37)
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