UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
|
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE
ACT OF 1934
|
|
|
|
For
the quarterly period ended December 31, 2005
|
|
|
|
OR
|
|
|
|
o
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 0-17999
|
ImmunoGen,
Inc.
|
Massachusetts
|
|
04-2726691
|
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
128
Sidney Street, Cambridge, MA 02139
|
|
(Address
of principal executive offices, including zip code)
|
|
|
|
(617)
995-2500
|
|
(Registrant’s
telephone number, including area
code)
|
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. ýYes oNo
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
|
Large
accelerated filer o
|
Accelerated
filer ý
|
Non-accelerated
filer o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). o
Yes ý No
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
Shares
of common stock, par value $.01 per share 41,147,709 shares outstanding as
of February 6, 2006
IMMUNOGEN,
INC.
TABLE
OF CONTENTS
|
PART
I.
|
|
|
|
|
|
|
|
Item
1.
|
|
|
|
|
|
|
|
a.
|
|
|
|
|
|
|
|
b.
|
|
|
|
|
|
|
|
c.
|
|
|
|
|
|
|
|
d.
|
|
|
|
|
|
|
|
Item
2.
|
|
|
|
|
|
|
|
Item
3.
|
|
|
|
|
|
|
|
Item
4.
|
|
|
|
|
|
|
|
PART
II.
|
|
|
|
|
|
|
|
Item
1.
|
|
|
| |
|
|
|
Item
1A.
|
|
|
|
|
|
|
|
Item
2.
|
|
|
|
|
|
|
|
Item
3.
|
|
|
|
|
|
|
|
Item
4.
|
|
|
|
|
|
|
|
Item
5.
|
|
|
|
|
|
|
|
Item
6.
|
|
|
|
|
|
|
|
|
|
CERTIFICATIONS
|
IMMUNOGEN,
INC.
AS
OF DECEMBER 31, 2005 AND JUNE 30, 2005
(UNAUDITED)
In
thousands, except per share amounts
| |
|
December
31,
2005
|
|
June
30,
2005
|
| |
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
6,688
|
|
$
|
3,423
|
|
Marketable
securities
|
|
|
78,312
|
|
|
87,142
|
|
Accounts
receivable
|
|
|
1,914
|
|
|
1,418
|
|
Unbilled
revenue
|
|
|
4,797
|
|
|
5,035
|
|
Inventory
|
|
|
1,787
|
|
|
1,520
|
|
Prepaid
and other current assets, net
|
|
|
954
|
|
|
1,398
|
|
Total
current assets
|
|
|
94,452
|
|
|
99,936
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
9,737
|
|
|
9,883
|
|
Other
assets
|
|
|
265
|
|
|
313
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
104,454
|
|
$
|
110,132
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
940
|
|
$
|
2,099
|
|
Accrued
compensation
|
|
|
2,019
|
|
|
728
|
|
Other
current accrued liabilities
|
|
|
1,931
|
|
|
1,327
|
|
Current
portion of deferred revenue
|
|
|
6,076
|
|
|
5,072
|
|
Total
current liabilities
|
|
|
10,966
|
|
|
9,226
|
|
|
|
|
|
|
|
|
|
Deferred
revenue, net of current portion
|
|
|
12,988
|
|
|
13,739
|
|
Other
long-term liabilities
|
|
|
365
|
|
|
325
|
|
Total
liabilities
|
|
|
24,319
|
|
|
23,290
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Common
stock, $.01 par value; authorized 75,000; issued and outstanding
44,756
shares and 44,695 shares as of December 31, 2005 and June 30, 2005,
respectively
|
|
|
448
|
|
|
447
|
|
Additional
paid-in capital
|
|
|
319,766
|
|
|
318,300
|
|
Deferred
Compensation
|
|
|
-
|
|
|
(13)
|
|
Treasury
stock
|
|
|
(11,071)
|
|
|
(11,071)
|
|
Accumulated
deficit
|
|
|
(228,935)
|
|
|
(220,727)
|
|
Accumulated
other comprehensive loss
|
|
|
(73)
|
|
|
(94)
|
|
Total
stockholders’ equity
|
|
|
80,135
|
|
|
86,842
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
104,454
|
|
$
|
110,132
|
The
accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
(UNAUDITED)
In
thousands, except per share amounts
| |
|
Three
Months Ended
December
31,
|
|
Six
Months Ended
December
31,
|
|
| |
|
|
|
|
|
| |
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
| |
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
Research
and development support
|
|
$
|
5,231
|
|
$
|
4,376
|
|
$
|
10,917
|
|
$
|
8,975
|
|
|
License
and milestone fees
|
|
|
1,275
|
|
|
1,034
|
|
|
2,536
|
|
|
2,576
|
|
|
Clinical
materials reimbursement
|
|
|
81
|
|
|
3,637
|
|
|
912
|
|
|
6,503
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
6,587
|
|
|
9,047
|
|
|
14,365
|
|
|
18,054
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of clinical materials reimbursed
|
|
|
94
|
|
|
3,042
|
|
|
999
|
|
|
5,536
|
|
|
Research
and development (1)
|
|
|
8,760
|
|
|
6,358
|
|
|
18,252
|
|
|
13,989
|
|
|
General
and administrative (1)
|
|
|
2,332
|
|
|
2,256
|
|
|
5,125
|
|
|
3,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
11,186
|
|
|
11,656
|
|
|
24,376
|
|
|
23,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(4,599
|
)
|
|
(2,609
|
)
|
|
(10,011
|
)
|
|
(5,408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income, net
|
|
|
758
|
|
|
421
|
|
|
1,476
|
|
|
748
|
|
|
Net
realized losses on investments
|
|
|
(22
|
)
|
|
(1
|
)
|
|
(26
|
)
|
|
(4
|
)
|
|
Gain
on sale of assets
|
|
|
1
|
|
|
-
|
|
|
3
|
|
|
-
|
|
|
Other
income
|
|
|
366
|
|
|
-
|
|
|
366
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income tax expense
|
|
|
(3,496
|
)
|
|
(2,189
|
)
|
|
(8,192
|
)
|
|
(4,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
6
|
|
|
20
|
|
|
16
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,502
|
)
|
$
|
(2,209
|
)
|
$
|
(8,208
|
)
|
$
|
(4,680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
|
$
|
(0.09
|
)
|
$
|
(0.05
|
)
|
$
|
(0.20
|
)
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted average common shares outstanding
|
|
|
41,079
|
|
|
40,800
|
|
|
41,072
|
|
|
40,795
|
|
(1) Includes
the following stock compensation expense for the three and six months ended
December 31, 2005 and 2004:
| |
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
| |
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
350
|
|
$
|
-
|
|
$
|
702
|
|
$
|
-
|
|
|
General
and administrative
|
|
|
190
|
|
|
177
|
|
|
544
|
|
|
180
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
540
|
|
$
|
177
|
|
$
|
1,246
|
|
$
|
180
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2005 AND 2004
(UNAUDITED)
In
thousands
| |
|
Six
Months Ended December 31,
|
| |
|
2005
|
|
2004
|
| |
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
loss
|
|
$
|
(8,208
|
)
|
$
|
(4,680)
|
|
Adjustments
to reconcile net loss to net cash used for operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,332
|
|
|
1,019
|
|
Gain
on sale of fixed assets
|
|
|
(3
|
)
|
|
980
|
|
Loss
on sale of marketable securities
|
|
|
26
|
|
|
4
|
|
Inventory
reserve
|
|
|
(215
|
)
|
|
-
|
|
Stock
compensation
|
|
|
1,246
|
|
|
180
|
|
Deferred
rent
|
|
|
8
|
|
|
2
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(496
|
)
|
|
3,781
|
|
Unbilled
revenue
|
|
|
238
|
|
|
(408)
|
|
Inventory
|
|
|
(52
|
)
|
|
1,693
|
|
Prepaid
and other current assets
|
|
|
444
|
|
|
154
|
|
Other
assets
|
|
|
48
|
|
|
19
|
|
Accounts
payable
|
|
|
(1,159
|
)
|
|
(472)
|
|
Accrued
compensation
|
|
|
1,291
|
|
|
1,127
|
|
Other
current accrued liabilities
|
|
|
603
|
|
|
(432)
|
|
Deferred
revenue
|
|
|
254
|
|
|
(3,010)
|
|
Net
cash used in operating activities
|
|
|
(4,643
|
)
|
|
(43)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Proceeds
from maturities or sales of marketable securities
|
|
|
370,736
|
|
|
468,361
|
|
Purchases
of marketable securities
|
|
|
(361,910
|
)
|
|
(467,012)
|
|
Capital
expenditures
|
|
|
(1,187
|
)
|
|
(1,238)
|
|
Proceeds
from sale of fixed assets
|
|
|
3
|
|
|
-
|
|
Net
cash provided by investing activities
|
|
|
7,642
|
|
|
111
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from stock options exercised
|
|
|
266
|
|
|
90
|
|
Net
cash provided by financing activities
|
|
|
266
|
|
|
90
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
|
3,265
|
|
|
158
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning balance
|
|
|
3,423
|
|
|
6,768
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, ending balance
|
|
$
|
6,688
|
|
$
|
6,926
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure:
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
10
|
|
$
|
29
|
The
accompanying notes are an integral part of the consolidated financial
statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2005
A. Summary
of Significant Accounting Policies
Basis
of Presentation
The
accompanying consolidated financial statements at December 31, 2005 and June
30,
2005 and for the three and six months ended December 31, 2005 and 2004 include
the accounts of ImmunoGen, Inc. (the “Company”) and its wholly-owned
subsidiaries, ImmunoGen Securities Corp. and ImmunoGen Europe Limited. Although
the consolidated financial statements are unaudited, they include all of the
adjustments, consisting only of normal recurring adjustments, which management
considers necessary for a fair presentation of the Company’s financial position
in accordance with accounting principles generally accepted in the United States
for interim financial information. Certain information and footnote disclosures
normally included in the Company’s annual financial statements have been
condensed or omitted. The preparation of interim financial statements requires
the use of management’s estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the interim financial statements and the reported
amounts of revenues and expenditures during the reported period. The results
of
the interim periods are not necessarily indicative of the results for the entire
year. Accordingly, the interim 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 June 30,
2005.
Revenue
Recognition
The
Company enters into out-licensing and development agreements with collaborative
partners for the development of monoclonal antibody-based cancer therapeutics.
The Company follows the provisions of the Securities and Exchange Commission’s
Staff Accounting Bulletin No. 104 (SAB No. 104), Revenue
Recognition,
and EITF 00-21 Accounting
for Revenue Arrangements with Multiple Elements
(EITF 00-21). In accordance with SAB No. 104 and EITF 00-21, the Company
recognizes revenue related to research activities as they are performed, as
long
as there is persuasive evidence of an arrangement, the fee is fixed or
determinable, and collection of the related receivable is probable. The terms
of
the Company’s agreements contain multiple elements which typically include
non-refundable license fees, payments based upon the achievement of certain
milestones and royalties on product sales. The Company evaluates such
arrangements to determine if the deliverables are separable into units of
accounting and then applies applicable revenue recognition criteria to each
unit
of accounting.
At
December 31, 2005, the Company had the following three types of collaborative
contracts with the parties identified below:
| |
•
|
License
to a single target antigen (single target
license):
|
Biogen
Idec, Inc.
Boehringer
Ingelheim International GmbH
Centocor, Inc.,
a wholly-owned subsidiary of Johnson & Johnson
Genentech, Inc.
(multiple licenses)
Millennium
Pharmaceuticals, Inc.
| |
•
|
Broad
option agreements to acquire rights to a limited number of targets
over a
specified time period (broad
license):
|
Abgenix, Inc.
Genentech, Inc.
Millennium
Pharmaceuticals, Inc.
| |
•
|
Broad
agreement to discover, develop and commercialize antibody-based
anticancer
products:
|
Sanofi-aventis
Group (sanofi-aventis)
Generally,
all of these collaboration agreements provide that the Company will
(i) manufacture preclinical and clinical materials for its collaborators,
at the collaborator’s request and cost, or, in some cases, cost plus a margin,
(ii) receive payments upon the collaborators’ achievements of certain
milestones and (iii) receive royalty payments, generally until the later of
the last applicable patent expiration or 12 years after product launch. The
Company is required to provide technical training and any process improvements
and know-how to its collaborators during the term of the collaboration
agreements. Practically, once a collaborator receives U. S. Food and Drug
Administration (FDA) approval for any drug and the manufacturing process used
to
produce the drug, the collaborator will not be able to incorporate any process
improvements or know-how into its manufacturing process without additional
testing and review by the FDA. Accordingly, the Company believes that it is
very
unlikely that its collaborators will require the Company’s services subsequent
to FDA approval.
Generally,
upfront payments on single target licenses are deferred over the period of
the
Company’s substantial involvement during development. ImmunoGen employees are
available to assist the Company’s collaborators during the development of their
products. The Company estimates this development phase to begin at the inception
of the collaboration agreement and conclude when the product receives FDA
approval. The Company believes this period of involvement is, on average, six
years. At each reporting period, the Company analyzes individual product facts
and circumstances and reviews the estimated period of its substantial
involvement to determine whether a significant change in its estimates has
occurred and adjusts the deferral period accordingly. In the event that a single
target license were to be terminated, the Company would recognize as revenue
any
portion of the upfront fee that had not previously been recorded as revenue,
but
was classified as deferred revenue at the date of such termination.
The
Company defers upfront payments received from its broad licenses over the period
during which the collaborator may elect to receive a license. These periods
are
specific to each collaboration agreement, but are between seven and
12 years. If a collaborator selects an option to acquire a license under
these agreements, any option fee is deferred and recorded over the life of
the
option, generally 12 to 18 months. If a collaborator exercises an option
and the Company grants a single target license to the collaborator, the Company
defers the license fee and accounts for the fee as it would an upfront payment
on a single target license, as discussed above. In the event that a broad
license agreement were to be terminated, the Company would recognize as revenue
any portion of the upfront fee that had not previously been recorded as revenue,
but was classified as deferred revenue at the date of such
termination.
The
Company’s discovery, development and commercialization agreement with
sanofi-aventis includes an upfront payment of $12.0 million that
sanofi-aventis paid to ImmunoGen in August 2003. The Company deferred the
upfront payment and recognizes it ratably over the period of the Company’s
substantial involvement. The Company estimates this period to be five years,
which includes the term of the collaborative research program of three years
and
two 12-month extensions that sanofi-aventis may exercise. The discovery,
development and commercialization agreement also provides that ImmunoGen will
receive committed funding of $50.7 million over the initial three-year period,
as determined in each of the three research program years. The committed
research funding is based upon resources that ImmunoGen is required to
contribute to the collaboration. The Company records the research funding as
it
is earned based upon its actual resources utilized in the collaboration. In
August 2005, sanofi-aventis exercised the first of the two 12-month extensions.
This extension will provide the Company with an additional $18.2 million in
committed funding over the twelve months beginning September 1,
2006.
At
the conclusion of the second sanofi-aventis research program year on August
31,
2005, a review of research activities during this period was conducted. This
review identified $1.1 million in billable research activities performed under
the program during the fiscal year ended June 30, 2005 which had not been billed
or recorded as revenue. Accordingly, the Company has included this additional
$1.1 million of research and support revenue in the accompanying consolidated
statement of operations for the six months ended December 31, 2005. The Company
does not believe such previously unrecorded revenue was material to the results
of operations or the financial position of the Company for any interim period
of
2005 or for the year ended June 30, 2005.
When
milestone fees are specifically tied to a separate earnings process, revenue
is
recognized when the milestone is achieved. In addition, when appropriate, the
Company recognizes revenue from certain research payments based upon the level
of research services performed during the period of the research contract.
Deferred revenue represents amounts received under collaborative agreements
and
not yet earned pursuant to these policies. Where the Company has no continuing
involvement, the Company will record non-refundable license fees as revenue
upon
receipt and will record milestone revenue upon achievement of the milestone
by
the collaborative partner.
The
Company may produce preclinical and clinical materials for its collaborators.
The Company is reimbursed for its fully burdened cost to produce clinical
materials, and in some cases, cost plus a profit margin. The Company recognizes
revenue on preclinical
and clinical materials when it has shipped the materials, the materials have
passed all quality testing required for collaborator acceptance and title has
transferred to the collaborator.
The
Company also produces research material for potential collaborators under
material transfer agreements. Additionally, research activities are
performed, including developing antibody-specific conjugation processes on
behalf of the Company’s collaborators and potential collaborators during the
early evaluation and preclinical testing stages of drug development. Generally,
the Company is reimbursed for its fully burdened cost of producing these
materials or providing these services. The Company records the amounts received
for the materials produced or services performed as a component of Research
and
Development Support.
Marketable
Securities
The
Company invests in marketable securities of highly rated financial institutions
and investment-grade debt instruments and limits the amount of credit exposure
with any one entity. The Company has classified its marketable securities as
“available-for-sale” and, accordingly, carries such securities at aggregate fair
value. Unrealized gains and losses, if any, are reported as other comprehensive
income (loss) in stockholders’ equity. The amortized cost of debt securities in
this category is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in interest income.
Realized gains and losses on available-for-sale securities are included in
interest income and expense. The cost of securities sold is based on the
specific identification method. Interest and dividends are included in interest
income.
Unbilled
Revenue
The
majority of the Company’s Unbilled Revenue at December 31, 2005 represents
(i) committed research funding earned based on actual resources utilized
under the Company’s discovery, development and commercialization agreement with
sanofi-aventis; (ii) reimbursable expenses incurred under the Company’s
discovery, development and commercialization agreement with sanofi-aventis
that
the Company has not yet invoiced; and (iii) research funding earned based
on actual resources utilized under the Company’s development and license
agreements with certain other collaboration partners.
Inventory
Inventory
costs primarily relate to clinical trial materials being manufactured for sale
to the Company's collaborators. Inventory is stated at the lower of cost or
market as determined on a first-in, first-out (FIFO) basis.
Inventory
at December 31, 2005 and June 30, 2005 is summarized below (in
thousands):
| |
|
December
31,
2005
|
|
June
30,
2005
|
| |
|
|
|
|
|
Raw
materials
|
|
$
|
304
|
|
$
|
797
|
|
Work
in process
|
|
|
1,483
|
|
|
723
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,787
|
|
$
|
1,520
|
Inventory
cost is stated net of a valuation allowance of $3.5 million and $3.7 million
as
of December 31 and June 30, 2005, respectively. The valuation allowance
represents the cost of DM1, DM4 and ansamitocin P3 that the Company considers
to
be in excess of a 12-month supply based on current collaborator firm fixed
orders and projections.
DM1
and DM4 are cell-killing agents used in all Tumor-Activated Prodrug (TAP)
product candidates currently in preclinical and clinical testing, and are the
subject of the Company’s collaborations. DM1 and DM4 (collectively referred to
as DMx) are both manufactured from a precursor, ansamitocin P3.
The
actual amount of ansamitocin P3 and DMx that will be produced in future periods
under certain current and other future potential agreements is highly uncertain.
As such, the amount of ansamitocin P3 and/or DMx produced could be more than
is
required to
support the development of the Company’s and its collaborators’ products. Such
excess product, as determined under the Company’s inventory reserve policy,
would be charged to research and development expense.
The
Company produces preclinical and clinical materials for its collaborators either
in anticipation of or in support of clinical trials, or for process development
and analytical purposes. Under the terms of supply agreements with three of
its
collaborators, the Company generally receives rolling six month firm-fixed
orders for conjugate that the Company is required to manufacture, and rolling
12-month manufacturing projections for the quantity of conjugate the
collaborator expects to need in any given 12-month period. The amount of
clinical material produced is directly related to the number of on-going
clinical trials for which the Company is producing clinical material for itself
and its collaborators, the speed of enrollment in those trials and the dosage
schedule of each clinical trial. Because these elements can vary significantly
over the course of a trial, significant differences between our collaborators’
actual manufacturing orders and their projections could result in our actual
12-month usage of DMx and ansamitocin P3 varying significantly from our
estimated usage at an earlier reporting period. To the extent that a
collaborator has provided the Company with a firm fixed order, the collaborator
is contractually required to reimburse the Company the full cost of the
conjugate, and any margin thereon, even if the collaborator subsequently cancels
the manufacturing run.
The
Company accounts for the DMx and ansamitocin P3 inventory as
follows:
a) That
portion of the DMx and/or ansamitocin P3 that the Company intends to use in
the
production of its own products is expensed as incurred;
b) To
the extent that the Company has collaborator projections for up to
12 months or firm fixed orders, the Company capitalizes the value of DMx
and ansamitocin P3 that will be used in the production of conjugate subject
to
these firm fixed orders and/or projections;
c) The
Company considers more than a 12-month supply of ansamitocin P3 and/or DMx
that
is not supported by collaborators' firm fixed orders or projections to be
excess. The Company establishes a reserve to reduce to zero the value of any
such excess ansamitocin P3 or DMx inventory with a corresponding charge to
research and development expense; and
d) The
Company also considers any other external factors and information of which
it
becomes aware and assesses the impact of such factors or information on the
net
realizable value of the DMx and ansamitocin P3 inventory at each reporting
period.
At
December 31, 2005, the Company's on-hand supply of DMx and ansamitocin P3
(including $2.4 million of DMx and $1.8 million of ansamitocin P3)
represented more than a 12-month supply based upon current collaborator firm
fixed orders and projections. In the year ended June 30, 2005, the Company
recorded as research and development expense $2.3 million of ansamitocin P3
and
DMx that the Company identified as excess based upon the Company's inventory
policy as described above. No additional amounts were recorded during the six
months ended December 31, 2005 related to excess inventory. However, in the
six
months ended December 31, 2005, the Company recorded $153,000 to write down
certain batches of ansamitocin P3 and DMx and certain work in process amounts
to
their net realizable value. Any changes to the Company's collaborators'
projections could result in significant changes in the Company's estimate of
the
net realizable value of DMx and ansamitocin P3 inventory. Reductions in
collaborators' projections could indicate that the Company has additional excess
DMx and/or ansamitocin P3 inventory and the Company would then evaluate the
need
to record further valuation allowances, included as charges to research and
development expense.
Computation
of Net Loss Per Common Share
Basic
net loss per common share is calculated based upon the weighted average number
of common shares outstanding during the period. Diluted net loss per common
share incorporates the dilutive effect of stock options and warrants. The total
number of options and warrants convertible into ImmunoGen common stock and
the
resulting ImmunoGen common stock equivalents, as calculated in accordance with
the treasury-stock accounting method, are included in the following table (in
thousands):
| |
|
Three
Months Ended
December
31,
|
|
Six
Months Ended
December
31,
|
| |
|
2005
|
|
2004
|
|
2005
|
|
2004
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
and warrants convertible into Common Stock
|
|
|
5,714
|
|
|
5,737
|
|
|
5,714
|
|
|
5,737
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Equivalents
|
|
|
1,566
|
|
|
1,904
|
|
|
1,721
|
|
|
1,696
|
ImmunoGen
common stock equivalents have not been included in the calculations of dilutive
net loss per common share calculations for the three and six months ended
December 31, 2005 and 2004 because their effect is anti-dilutive due to the
Company’s net loss position.
Comprehensive
Loss
The
Company presents comprehensive income (loss) in accordance with Statement of
Financial Accounting Standards (SFAS) No. 130, “Reporting Comprehensive
Income.” For the three and six months ended December 31, 2005, total
comprehensive loss equaled $3.5 million and $8.2 million, respectively. For
the three and six months ended December 31, 2004, total comprehensive loss
equaled $2.3 million and $4.8 million, respectively. Comprehensive loss was
comprised entirely of the Company’s net loss and the change in its unrealized
gains and losses on its available-for-sale marketable securities for all periods
presented.
Stock-Based
Compensation
As
of December 31, 2005, the Company has one share-based compensation plan,
the
ImmunoGen, Inc. Restated Stock Option Plan. The compensation cost that has
been
incurred during the three and six months ended December 31, 2005 under this
plan
is $603,000 and $1.2 million, respectively.
The
Company’s Restated Stock Option Plan as amended, or the Plan, which is
shareholder-approved, permits the grant of share options to its employees,
consultants and directors for up to 8.550 million shares of common stock.
Option
awards are generally granted with an exercise price equal to the market price
of
the Company’s stock at the date of grant. Options vest at various periods of up
to four years and may be exercised within ten years of the date of
grant.
Effective
July 1, 2005, the Company adopted the fair value recognition provisions of
Financial Accounting Standards Board (FASB) Statement 123(R), Share-Based
Payment,
using the modified-prospective-transition method. Under that transition method,
compensation cost recognized for the first six months of 2006 includes: (a)
compensation cost for all share-based payments granted, but not yet vested
as of
July 1, 2005, based on the grant-date fair value estimated in accordance
with
the original provisions of Statement 123, and (b) compensation cost for all
share-based payments granted subsequent to July 1, 2005, based on the grant-date
fair value estimated in accordance with the provisions of Statement
123(R). Such amounts have been reduced by the Company’s estimate of
forfeitures of all unvested awards. Prior to July 1, 2005, the Company accounted
for its stock-based compensation plans under the recognition and measurement
provisions of Accounting Principles Board Opinion No. 25, “Accounting for
Stock Issued to Employees” (APB 25), and related interpretations for all awards
granted to employees. Under APB 25, when the exercise price of options granted
to employees under these plans equals the market price of the common stock
on
the date of grant, no compensation expense is recorded. When the exercise
price of options granted to employees under these plans is less than the
market
price of the common stock on the date of grant, compensation expense is
recognized over the vesting period. Results for prior periods have not been
restated. For stock options granted to non-employees, the Company recognizes
compensation expense in accordance with the requirements of Statement of
Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock Based
Compensation” (SFAS 123). SFAS 123 requires that companies recognize
compensation expense based on the estimated fair value of options granted
to
non-employees over their vesting period, which is generally the period during
which services are rendered by such non-employees.
As
a result of adopting Statement 123(R) on July 1, 2005, the Company’s net loss
for the three and six months ended December 31, 2005 is $603,000 and $1.2
million greater, respectively, than if it had continued to account for
share-based compensation under APB 25. Basic and diluted net loss per share
for
the three and six months ended December 31, 2005 would have been $(0.07)
and
$(0.17), respectively, had the Company not adopted Statement 123(R), compared
to
basic and diluted net loss per share of $(0.09) and $(0.20), respectively,
as
reported.
The
following table illustrates the effect on net loss and net loss per share
if the
Company had applied the fair value recognition provisions of Statement 123(R)
to
options granted under the Company’s stock option plans in all periods presented.
For purposes of this
pro-forma disclosure, the value of the options is estimated using a
Black-Scholes option-pricing model and amortized to expense over the
options’ vesting periods. (in thousands, except per share
data)
| |
|
Three
Months Ended
December
31,
|
|
Six
Months Ended
December
31,
|
| |
|
2005
|
|
2004
|
|
2005
|
|
2004
|
| |
|
|
|
|
|
|
|
|
|
Net
loss, as reported
|
|
$
|
(3,502)
|
|
$
|
(2,209)
|
|
$
|
(8,208)
|
|
$
|
(4,680)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Add:
Total stock-based compensation expense determined under the intrinsic
value method for all employee awards
|
|
|
-
|
|
|
58
|
|
|
-
|
|
|
61
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deduct:
Total stock-based compensation expense determined under the fair
value
method for all employee awards
|
|
|
-
|
|
|
(749)
|
|
|
-
|
|
|
(1,483)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma net loss
|
|
$
|
(3,502)
|
|
$
|
(2,900)
|
|
$
|
(8,208)
|
|
$
|
(6,102)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share, as reported
|
|
$
|
(0.09)
|
|
$
|
(0.05)
|
|
$
|
(0.20)
|
|
$
|
(0.11)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share, pro forma
|
|
$
|
(0.09)
|
|
$
|
(0.07)
|
|
$
|
(0.20)
|
|
$
|
(0.15)
|
The
fair value of each stock option is estimated on the date of grant using the
Black-Scholes option-pricing model that uses the assumptions noted in the
following table. Expected volatility is based exclusively on historical
volatility data of the Company’s stock. The expected term of stock options
granted is based exclusively on historical data and represents the period of
time that stock options granted are expected to be outstanding. The expected
term represents one group as the Company does not expect substantially different
exercise or post-vesting termination behavior amongst its employee population.
The risk-free rate of the stock options is based on the U.S. Treasury yield
curve in effect at the time of grant.
| |
|
Three
Months Ended
December
31,
|
|
Six
Months Ended
December
31,
|
| |
|
2005
|
|
2004
|
|
2005
|
|
2004
|
| |
|
|
|
|
|
|
|
|
|
Dividend
|
|
|
None
|
|
|
None
|
|
|
None
|
|
|
None
|
|
Volatility
|
|
|
87.21%
|
|
|
93.13
%
|
|
|
87.21%
|
|
|
93.13%
|
|
Risk-free
interest rate
|
|
|
4.40
%
|
|
|
3.07%
|
|
|
4.09%
|
|
|
3.28%
|
|
Expected
life (years)
|
|
|
5.88
|
|
|
5.5
|
|
|
5.88
|
|
|
5.5
|
Using
the Black-Scholes option-pricing model, the weighted average grant date fair
values of options granted during the three months ended December 31, 2005 and
2004 were $4.17 and $5.51, respectively, and $4.72 and $4.14 for options granted
during the six months ended December 31, 2005 and 2004,
respectively.
A
summary of option activity under the Plan as of December 31, 2005, and changes
during the six month period then ended is presented below (in thousands,
except
weighted average data):
| |
|
Number
of Stock Options
|
|
Weighted-average
Exercise
Price
|
|
Weighted-average
remaining
life
in years
|
|
Aggregate
Intrinsic Value
|
| |
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2005
|
|
|
5,862
|
|
$
|
6.73
|
|
|
|
|
|
|
| Granted |
|
|
88
|
|
$ |
6.38
|
|
|
|
|
|
|
| Exercised |
|
|
(61)
|
|
$ |
4.35
|
|
|
|
|
|
|
| Forfeited/Cancelled |
|
|
(176)
|
|
$ |
12.04
|
|
|
|
|
|
|
| Outstanding
at December 31, 2005 |
|
|
5,713
|
|
$ |
6.65
|
|
|
5.56
|
|
$ |
7,093
|
| Exercisable
at December 31, 2005 |
|
|
4,199
|
|
$ |
7.00
|
|
|
3.80
|
|
$ |
6,867
|
A
summary of the status of the Company’s nonvested shares as of December 31, 2005
is presented below (in thousands, except weighted average data):
| |
|
|
|
Weighted-average
grant date fair value
|
| |
|
|
|
| |
|
Shares
|
|
| |
|
|
|
|
|
Nonvested
at June 30, 2005
|
|
|
1,612
|
|
$
|
4.43
|
|
Granted
|
|
|
88
|
|
$
|
4.72
|
|
Vested
|
|
|
(59)
|
|
$
|
5.46
|
|
Forfeited
|
|
|
(127)
|
|
$
|
5.02
|
|
Nonvested
at December 31, 2005
|
|
|
1,514
|
|
$
|
4.28
|
As
of December 31, 2005, the estimated fair value of unvested employee awards
was
$5.0 million net of estimated forfeitures. The weighted average remaining
vesting period for these awards is approximately 2.1 years.
A
summary of option activity for shares vested during the six month periods
ended
December 31, 2005 and 2004 is presented below (in thousands):
| |
|
Six
months ended
December
31,
|
| |
|
2005
|
|
2004
|
| |
|
|
|
|
|
Total
fair value of shares vested
|
|
$ |
320
|
|
$ |
305
|
|
Total
intrinsic value of options exercised
|
|
$ |
130
|
|
$ |
186
|
|
Cash
received for exercise of stock options
|
|
$ |
266
|
|
$ |
90
|
Reclassifications
Prior
period amounts have been adjusted to conform to the current year presentation.
Segment
Information
During
the three and six months ended December 31, 2005, the Company continued to
operate in one reportable business segment under the management approach of
SFAS
No. 131, “Disclosures about Segments of an Enterprise and Related
Information,” which is the business of discovery of monoclonal antibody-based
cancer therapeutics.
Revenues
from sanofi-aventis accounted for approximately 79% and 54% of revenues for
the
three months ended December 31, 2005 and 2004, respectively, and 79% and 57%
for
the six months ended December 31, 2005 and 2004, respectively. Revenues from
Boehringer Ingelheim accounted for approximately 0% and 23% of revenues for
the
three months ended December 31, 2005 and 2004, respectively, and 0% and 20%
for
the six months ended December 31, 2005 and 2004, respectively. Revenues
from Millennium Pharmaceuticals accounted for 3% and 16% of revenues for the
three months ended December 31, 2005 and 2004, respectively, and 2% and 14%
for
the six months ended December 31, 2005 and 2004, respectively. There were no
other significant customers of the Company in the three and six months ended
December 31, 2005 and 2004.
B. Agreements
sanofi-aventis
In
August 2005, sanofi-aventis exercised the first of its two options to extend
the
term of the research collaboration with the Company for another year, and
committed to pay the Company a minimum of $18.2 million in research support
over
the twelve months beginning September 1, 2006. This funding is in addition
to
the $50.7 million in research support already committed for the three-year
period ending August 31, 2006.
Genentech, Inc.
In
May 2000, the Company executed two separate licensing agreements with
Genentech. The first agreement grants an exclusive license to Genentech for
ImmunoGen's maytansinoid technology for use with antibodies, such as trastuzumab
(Herceptin®), that target the HER2 cell surface receptor. The second agreement
executed in May 2000 provides Genentech with broad access to ImmunoGen's
TAP technology for use with Genentech's other proprietary antibodies. This
multi-year agreement provides Genentech with a license to utilize ImmunoGen's
TAP platform in its antibody product research efforts and an option to obtain
product licenses for a limited number of antigen targets over the agreement's
five-year term. The multi-year agreement included a provision that allowed
Genentech to renew the agreement for one additional three-year term by payment
of a $2.0 million access fee. On April 27, 2005, Genentech renewed the
agreement and paid the $2.0 million technology access fee to ImmunoGen to renew
this agreement.
On
April 27, 2005, July 22, 2005 and December 12, 2005, Genentech licensed
exclusive rights to use ImmunoGen’s maytansinoid TAP technology with its
therapeutic antibodies to an undisclosed target. Under the terms defined in
the
May 2000 technology access agreement, for each of these three licenses ImmunoGen
received a $1.0 million license fee, and is entitled to receive milestone
payments that total $38 million, assuming all benchmarks are met; ImmunoGen
also is entitled to receive royalties on the sales of any resulting products.
Genentech is responsible for the development, manufacturing, and marketing
of
any products resulting from the licenses.
On
January 27, 2006, Genentech notified the Company that the trastuzumab-DM1
Investigational New Drug (IND) application submitted by Genentech to the FDA
had
become effective. Under the terms of the May 2000 exclusive license agreement
for the HER2 target, this event triggers a $2.0 million milestone payment to
the
Company.
Millennium
Pharmaceuticals, Inc.
On
January 25, 2006, Millennium Pharmaceuticals, Inc. notified the Company that,
as
part of its ongoing portfolio management process and based on the evaluation
of
recent clinical data in the context of other opportunities in its pipeline,
Millennium had decided not to continue the development of its MLN2704 compound.
MLN2704 consists of a Millennium antibody to the Prostate-Specific Membrane
Antigen (PSMA) and ImmunoGen’s DM1 and was in development by Millennium under a
2002 license that gave Millennium exclusive rights to use ImmunoGen’s
maytansinoid TAP technology with antibodies targeting PSMA. Millennium retains
its right to use ImmunoGen’s maytansinoid TAP technology with antibodies
targeting PSMA. As a result, the Company anticipates that Millennium
Pharmaceuticals, Inc. will have no demand for conjugate material in the near
future. However, the Company does not anticipate that this reduction in demand
will result in any further write-down of DM1 or P3 inventory.
The
Company has agreements with other companies with respect to its compounds,
as
described elsewhere in this Quarterly Report and in its Annual Report on
Form 10-K.
C. Capital
Stock
During
the three and six months ended December 31, 2005, the Company recaptured
approximately $52,800 and $15,800 of previously recorded compensation expense,
respectively, related to stock units outstanding under the Company’s 2001
Non-Employee Director Stock Plan (a stock appreciation right plan). No stock
units have been issued under the 2001 Plan subsequent to June 30,
2004.
Under
the Company’s 2004 Non-Employee Director Compensation and Deferred Share Unit
Plan (a stock appreciation right plan), approved in June 2004, the Company
issued 13,817 deferred share units during the six months ended December 31,
2005. The Company recaptured approximately $8,300 of previously recorded
compensation expense and recorded $47,500 in compensation expense related to
deferred share units outstanding under the 2004 Plan during the three and six
months ended December 31, 2005, respectively. The
Company recorded approximately $32,100 and $44,900 in compensation expense
related to the issuance of 10,169 stock units for director services rendered
during the three and six months ended December 31, 2004.
The
value of stock units and deferred share units, discussed above, will fluctuate
from period to period as the market value of the Company’s common stock
increases or decreases at each reporting period.
During
the six months ended December 31, 2005, holders of options issued under the
Company’s Restated Stock Option Plan exercised their rights to acquire an
aggregate of 61,138 shares of common stock at prices ranging from $1.94 to
$6.27
per share. The total proceeds to the Company from these option exercises
were approximately $266,000.
OVERVIEW
Since
the Company’s inception, we have been principally engaged in the development of
antibody-based cancer therapeutics and novel treatments in the field of
oncology. We believe that the combination of our expertise in antibodies and
oncology has resulted in the development of both proprietary product candidates
and technologies. Our lead, proprietary, Tumor-Activated Prodrug, or TAP,
technology combines extremely potent, small molecule cytotoxic agents with
monoclonal antibodies that recognize and bind specifically to cancer cells.
Our
TAP technology is designed to increase the potency of tumor-targeting antibodies
and kill cancer cells with only modest damage to healthy tissue. The cytotoxic
agents we use in our TAP compounds currently involved in clinical testing are
the maytansinoid DM1 and DM4 molecules, chemical derivatives of a naturally
occurring substance called maytansine. We also use our expertise in antibodies
and cancer to develop other types of therapeutics, such as naked antibody
anticancer products.
We
have entered into collaborative agreements that enable companies to use our
TAP
technology to develop commercial product candidates containing their antibodies.
We have also used our proprietary TAP technology in conjunction with our
in-house antibody expertise to develop our own anticancer product
candidates. Under the terms of our collaborative agreements, we are
entitled to upfront fees, milestone payments, and royalties on any commercial
product sales. In July 2003, we announced a discovery, development and
commercialization collaboration with Aventis Pharmaceuticals, Inc. (now the
sanofi-aventis Group). Under the terms of this agreement,
sanofi-aventis gained commercialization rights to three of the most advanced
product candidates in our preclinical pipeline and the commercialization rights
to certain new product candidates developed during the research program portion
of the collaboration. This collaboration allows us to access sanofi-aventis’
clinical development and commercialization capabilities. Under the terms of
the
sanofi-aventis agreement, we also are entitled to receive committed research
funding of approximately $50.7 million during the three-year research
program. In August 2005, sanofi-aventis exercised its contractual right to
extend the term of its research program with the Company and committed to fund
us $18.2 million in research support over the twelve months beginning September
1, 2006. This funding is in addition to the research support already committed
for the three years ending August 31, 2006. Should sanofi-aventis elect to
exercise its contractual right to extend the term of the research program for
the second additional 12-month period, we will receive additional research
funding.
We
are reimbursed our fully burdened cost to manufacture preclinical and clinical
materials and, under certain collaborative agreements, the reimbursement
includes a profit margin. Currently, our collaborative partners include
Abgenix, Inc., Biogen Idec, Boehringer Ingelheim International GmbH,
Centocor, Inc., Genentech, Inc., Millennium
Pharmaceuticals, Inc., and the sanofi-aventis Group. We expect that
substantially all of our revenue for the foreseeable future will result from
payments under our collaborative arrangements.
On
January 27, 2006, Genentech notified us that the trastuzumab-DM1 Investigational
New Drug (IND) application submitted by Genentech to the FDA had become
effective. Under the terms of the May 2000 exclusive license agreement for
antibodies to HER2, this event triggers a $2.0 million milestone
payment.
On
January 25, 2006, Millennium Pharmaceuticals, Inc. notified us that, as part
of
its ongoing portfolio management process and based on the evaluation of recent
clinical data in the context of other opportunities in its pipeline, Millennium
had decided not to continue the development of its MLN2704 compound. MLN2704
consists of a Millennium antibody to the Prostate-Specific Membrane Antigen
(PSMA) and ImmunoGen’s DM1 and was in development by Millennium under a 2002
license that gave Millennium exclusive rights to use ImmunoGen’s maytansinoid
TAP technology with antibodies targeting PSMA. Millennium retains its right
to
use ImmunoGen’s maytansinoid TAP technology with antibodies targeting PSMA. As a
result, we anticipate that Millennium Pharmaceuticals, Inc. will have no demand
for conjugate material in the near future. However, we do not anticipate that
this reduction in demand will result in any further write-down of DM1 or P3
inventory.
In
August 2003, Vernalis completed its acquisition of British Biotech. In
connection with this acquisition, the merged company, called Vernalis plc,
announced that it intended to review its merged product candidate portfolio,
including its collaboration with ImmunoGen on huN901-DM1. After discussion
with
Vernalis, in January 2004, we announced that we would take over further
development of the product candidate, including the advancement of huN901-DM1
into our own clinical trial. Pursuant to the terms of the termination agreement
executed on January 7, 2004, Vernalis retained responsibility for the
conduct and expense of the study it initiated in the United States (Study 001)
until June 30, 2004, and the study it had started in the United Kingdom (Study
002) through completion. We took over responsibility for Study 001 on July
1,
2004 and, in September 2005, we announced our initiation of a clinical trial
of
huN901-DM1 in multiple myeloma (Study 003). On December 15, 2005, we executed
an
amendment to the January 7, 2004 Termination Agreement with Vernalis (“the
Amendment”). Under the terms of the Amendment, ImmunoGen assumed responsibility
as of December 15, 2005, at its own expense, to complete Study 002. Under the
Amendment, Vernalis paid ImmunoGen $365,000 in consideration of the expected
cost of the obligations assumed by ImmunoGen with the Amendment. This
$365,000 has been recognized as other income in the accompanying Consolidated
Statements of Operations for the three and six months ended December 31, 2005.
On
January 8, 2004, we announced that we intended to advance cantuzumab
mertansine into human testing to assess the clinical utility of the compound
in
certain indications. In October 2004, we decided to move forward huC242-DM4
instead of cantuzumab mertansine (huC242-DM1). We initiated a Phase I clinical
trial with huC242-DM4 in June 2005.
Based
upon the results of our clinical trials, if and when they are completed, we
will
evaluate whether to continue clinical development of huN901-DM1 and huC242-DM4,
and, if so, whether we will seek a collaborative partner or partners to continue
the clinical development and commercialization of either or both of these
compounds.
To
date, we have not generated revenues from commercial product sales and we expect
to incur significant operating losses over the foreseeable future. We do not
anticipate that we will have a commercially approved product within the
foreseeable future. Research and development expenses are expected to increase
significantly in the near term as we continue our development efforts -
including expanded clinical trials. As of December 31, 2005, we had
approximately $85.0 million in cash and marketable securities. We anticipate
that our current capital resources and future collaboration payments, including
the committed research funding due us under the sanofi-aventis collaboration
over the remainder of the research program, will enable us to meet our
operational expenses and capital expenditures for at least the next three to
four fiscal years.
We
anticipate that the increase in total cash expenditures will be partially offset
by collaboration-derived proceeds including milestone payments and the committed
research funding to which we are entitled pursuant to the sanofi-aventis
collaboration. Accordingly, period-to-period operational results may fluctuate
dramatically based upon the timing of receipt of the proceeds. We believe that
our established collaborative agreements, while subject to specified milestone
achievements, will provide funding to assist us in meeting obligations under
our
collaborative agreements while also assisting in providing funding for the
development of internal product candidates and technologies. However, we can
give no assurances that such collaborative agreement funding will, in fact,
be
realized. Should we or our partners not meet some or all of the terms and
conditions of our various collaboration agreements, we may be required to pursue
additional strategic partners, secure alternative financing arrangements, and/or
defer or limit some or all of our research, development and/or clinical
projects.
Critical
Accounting Policies
We
prepare our consolidated financial statements in accordance with accounting
principles generally accepted in the United States. The preparation of
these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosure of contingent assets and liabilities. On an on-going
basis, we evaluate our estimates, including those related to our collaborative
agreements and inventory. We base our estimates on historical experience
and various other assumptions that we believe to be reasonable under the
circumstances. Actual results may differ from these
estimates.
We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our consolidated financial
statements.
Revenue
Recognition
We
estimate the period of our significant involvement during development for each
of our collaborative agreements. We recognize any upfront fees received from
our
collaborators ratably over this estimated period of significant
involvement. We generally believe our period of significant involvement
occurs between the date we sign a collaboration agreement and projected FDA
approval of our collaborators’ product that is the subject of the collaboration
agreement. We estimate that this time period is generally six years. The
actual period of our involvement could differ significantly based upon the
results of our collaborators’ preclinical and clinical trials, competitive
products that are introduced into the market and the general uncertainties
surrounding drug development. Any difference between our estimated period
of involvement during development and our actual period of involvement could
have a material effect upon our results of operations.
We
recognize the $12.0 million upfront fee we received from sanofi-aventis ratably
over our estimated period of significant involvement of five years. This
estimated period includes the initial three-year term of the collaborative
research program, the one 12-month extension sanofi-aventis exercised on August
2005, and one remaining 12-month extension that sanofi-aventis may exercise.
In
the event our period of involvement is less than we estimated, the remaining
deferred balance of the upfront fee will be recognized over this shorter
period.
Inventory
We
review our estimates of the net realizable value of our inventory at each
reporting period. Our estimate of the net realizable value of our inventory
is subject to judgment and estimation. The actual net realizable value of
our inventory could vary significantly from our estimates and could have a
material effect on our financial condition and results of operations in any
reporting period. We consider quantities of DM1 and DM4, collectively
referred to as DMx, and ansamitocin P3 in excess of 12 months’ projected usage
that is not supported by collaborators’ firm fixed orders and projections to be
excess. We fully reserve any such material identified as excess with a
corresponding charge to research and development expense. Our estimate of 12
months’ usage of DMx and ansamitocin P3 material inventory is based upon our
collaborators’ estimates of their future clinical material requirements. Our
collaborators’ estimates of their clinical material requirements are based upon
expectations of their clinical trials, including the timing, size, dosing
schedule and maximum tolerated dose of each clinical trial. Our
collaborators’ actual requirements for clinical materials may vary significantly
from their projections. Significant differences between our collaborators’
actual manufacturing orders and their projections could result in our actual
12-months usage of DMx and ansamitocin P3 varying significantly from our
estimated usage at an earlier reporting period. During the six months ended
December 31, 2005, we recorded $153,000 to write down certain P3 and DMx batches
and certain work in process amounts to their net realizable value.
Stock
Based Compensation
Effective
July 1, 2005, we adopted the fair value recognition provisions of Financial
Accounting Standards Board (FASB) Statement 123(R), Share-Based
Payment,
using the modified-prospective-transition method. Under that transition method,
compensation cost recognized for the first six months of 2006 includes: (a)
compensation cost for all share-based payments granted, but not yet vested
as of
July 1, 2005, based on the grant-date fair value estimated in accordance with
the original provisions of Statement 123, and (b) compensation cost for all
share-based payments granted subsequent to July 1, 2005, based on the grant-date
fair value estimated in accordance with the provisions of Statement 123(R).
Such amounts are reduced by our estimate of forfeitures of all
unvested awards.
Prior
to July 1, 2005, we accounted for our stock-based compensation plans under
the
recognition and measurement provisions of Accounting Principles Board Opinion
No. 25, “Accounting for Stock Issued to Employees” (APB 25), and related
interpretations for all awards granted to employees. Under APB 25, when the
exercise price of options granted to employees under these plans equals the
market price of the common stock on the date of grant, no compensation expense
is recorded. When the exercise price of options granted to employees under
these plans is less than the market price of the common stock on the date of
grant, compensation expense is recognized over the vesting period. For
stock options granted to non-employees, we recognize compensation expense in
accordance with the requirements of Statement of Financial Accounting Standards
(SFAS) No. 123, “Accounting for Stock Based Compensation” (SFAS
123). SFAS 123 requires that companies recognize compensation expense based
on the estimated fair value of options granted to non-employees over their
vesting period, which is generally the period during which services are rendered
by such non-employees.
As
a result of adopting Statement 123(R) on July 1, 2005, our net loss for the
six
months ended December 31, 2005 is $1.2 million greater than if we had continued
to account for share-based compensation under APB 25. Basic and diluted net
loss
per share for the six months ended December 31, 2005 would have been $(0.17)
had
we not adopted Statement 123(R), compared to basic and diluted net loss per
share of $(0.20), as reported. We estimated the fair value of share-based
payments to employees using the Black-Scholes model and related assumptions,
consistent with our fair value estimates made under SFAS 123.
As
of December 31, 2005, the estimated fair value of unvested employee awards
was
$5.0 million net of estimated forfeitures. The weighted average remaining
vesting period for these awards is approximately 2.1 years. However, the amount
of stock compensation expensed recognized in any future period cannot be
predicted at this time because it will depend on levels of share-based payments
granted in the future. The adoption of SFAS 123(R) did not require any
cumulative adjustments to our financial statements.
RESULTS
OF OPERATIONS
Comparison
of Three Months ended December 31, 2005 and 2004
Revenues
Our
total revenues for the three months ended December 31, 2005 were $6.6 million
compared with $9.0 million for the three months ended December 31, 2004. The
$2.5 million decrease in revenues in the quarter ended December 31, 2005
compared to the same period in the prior year is primarily attributable to
lower
clinical materials reimbursement, partially offset by higher research and development
support, and to a lesser extent, license and milestone
fees.
Research
and development support revenue was $5.2 million and $4.4 million in the three
months ended December 31, 2005 and 2004, respectively. These amounts
primarily represent committed research funding earned based on actual resources
utilized under our discovery, development and commercialization agreement with
sanofi-aventis. During the three months ended December 31, 2005 and 2004, this
revenue also includes amounts earned for actual resources utilized under our
development and license agreements with certain of our other collaborative
partners. Also included in research and development support revenue are
fees
related to process development and research work performed by the Company on
behalf of collaborators, as well as samples of research-grade material shipped
to collaborators.
Fees for this material and service represent the fully burdened reimbursement
of
costs incurred in producing research-grade materials and developing
antibody-specific conjugation processes on behalf of our collaborators and
potential collaborators during the early evaluation and preclinical testing
stages of drug development. The fees that we earn associated with this material
and service are directly related to the number of our collaborators and
potential collaborators, the stage of development of our collaborators’ products
and the resources our collaborators allocate to the development effort. As
such, the amount of these fees may vary widely from quarter to quarter and
year
to year.
Revenues
from license and milestone fees increased $241,000 to $1.3 million in the three
months ended December 31, 2005 compared to $1.0 million in the three months
ended December 31, 2004. Total revenue from license and milestone fees
recognized from each of our collaborative partners in the three-month periods
ended December 31, 2005 and 2004 is included in the following
table:
| |
|
Three
Months Ended
December
31,
|
| |
|
2005
|
|
2004
|
| |
|
(in
thousands)
|
| |
|
|
|
|
|
Collaborative
Partner:
|
|
|
|
|
|
|
|
Abgenix
|
|
$
|
100
|
|
$
|
121
|
|
sanofi-aventis
|
|
|
600
|
|
|
600
|
|
Biogen
Idec
|
|
|
12
|
|
|
-
|
|
Boehringer
Ingelheim
|
|
|
-
|
|
|
42
|
|
Centocor
|
|
|
42
|
|
|
-
|
|
Genentech
|
|
|
410
|
|
|
161
|
|
Millennium
|
|
|
111
|
|
|
110
|
| |
|
|
|
|
|
|
|
Total
|
|
$
|
1,275
|
|
$
|
1,034
|
Deferred
revenue of $19.1 million as of December 31, 2005 primarily represents payments
received from our collaborators pursuant to our license and supply agreements
which we have yet to earn pursuant to our revenue recognition
policy.
Clinical
materials reimbursement decreased $3.6 million to $81,000 in the three months
ended December 31, 2005, compared to $3.6 million in the three months ended
December 31, 2004. This decrease is primarily the result of a reduction in
demand for clinical material by our collaboration partners. During the three
months ended December 31, 2005, we shipped preclinical materials in support
of
the development efforts of our collaborators. During the same period in 2004,
we
shipped clinical materials in support of bivatuzumab
mertansine and MLN2704 clinical trials as well as preclinical materials in
support of the development efforts of other collaborators. The
cost of clinical materials reimbursed for the three months ended December 31,
2005 and 2004 was $94,000 and $3.0 million, respectively. Included in the cost
of clinical materials reimbursed for the three months ended December 31, 2005
is
$26,000 of expense to write down certain work in process amounts to their net
realizable value. Under
certain collaborative agreements, we are reimbursed for our fully burdened
cost
to produce clinical materials plus a profit margin. The amount of
clinical materials reimbursement we earn, and the related cost of clinical
materials reimbursed, is directly related to (i) the number of on-going
clinical trials our collaborators have underway, the speed of enrollment in
those trials, the dosage schedule of each clinical trial and the time period,
if
any, during which patients in the trial receive clinical benefit from the
clinical materials, and (ii) our production of clinical grade material on
behalf of our collaborators, either in anticipation of clinical trials, or
for
research, development and analytical purposes. As such, the amount of clinical
materials reimbursement and the related cost of clinical materials reimbursed
may vary significantly from quarter to quarter and year to year.
Research
and Development Expenses
We
report research and development expense net of certain reimbursements we receive
from our collaborators. Our net research and development expenses relate to
(i) research to identify and evaluate new targets and to develop and
evaluate new antibodies and cytotoxic drugs, (ii) preclinical testing of
our own and, in certain instances, our collaborators’ product candidates, and
the cost of our own clinical trials, (iii) development related to clinical
and commercial manufacturing processes and (iv) manufacturing operations.
Our research and development efforts have been primarily focused in the
following areas:
• Our
activities pursuant to our discovery, development and commercialization
agreement with sanofi-aventis;
• Our
contributions to the preclinical and clinical development of huN901-DM1 and
huC242-DM4;
• Process
development related to clinical production of the huN901 antibody and huN901-DM1
conjugate;
• Process
development related to clinical production of the huC242 antibody and huC242-DM4
conjugate;
• Process
improvements related to the production of DM1, DM4 and strain development of
their precursor, ansamitocin P3;
• Operation
and maintenance of our conjugate manufacturing plant;
• Process
improvements to our TAP technology;
• Identification
and evaluation of potential antigen targets;
• Evaluation
of internally-developed and in-licensed antibodies; and
• Development
and evaluation of additional cytotoxic agents.
DM1
and DM4 are the cytotoxic agents that we currently use in the
manufacture of our two TAP product candidates in clinical testing. We have
also investigated the viability of other maytansinoid effector molecules, which,
collectively with DM1 and DM4, we refer to as DMx. In order to make commercial
manufacture of DMx conjugates viable, we have devoted substantial resources
to
improving the strain of the microorganism that produces ansamitocin P3, the
precursor to DMx, to enhance manufacturing yields. We also continue to devote
considerable resources to improve other DMx manufacturing
processes.
On
January 8, 2004, we announced that pursuant to the terms and conditions of
a termination agreement between us and Vernalis, Vernalis relinquished its
rights to develop and commercialize huN901-DM1. As a result, we regained the
rights to develop and commercialize huN901-DM1. Under the terms of our January
7, 2004 Termination Agreement with Vernalis, we assumed responsibility of one
of
the studies underway with the compound, Study 001, on July 1, 2004. Since
then, we have expanded this study due to the occurrence of objective activity
among the initial patients enrolled and have expanded the number of clinical
centers participating in this study to expedite patient enrollment.
Additionally, we initiated a Phase I clinical trial with huN901-DM1 in
CD56-positive multiple myeloma (Study 003) in September, 2005. On December
15,
2005, we and Vernalis executed an amendment to the January 7, 2004 Termination
Agreement (“the Amendment”). Under the terms of the Amendment, we assumed
responsibility as of December 15, 2005, at our own expense, to complete the
huN901-DM1 clinical study (Study 002) that had been initiated in the United
Kingdom. Vernalis paid us approximately $365,000 in consideration of the
expected cost of the obligations assumed by us under the Amendment. Such
consideration is included in Other Income/Expense in the accompanying
Consolidated Statements of Operations for the three and six months ended
December 2005. We intend to evaluate whether to out license all or part of
the
development and commercial rights to this compound as we move through the
clinical trial process.
In
January 2004, we announced that we planned to advance cantuzumab
mertansine, or an improved version of the compound, into a clinical trial that
we would manage. In October 2004, we decided to move forward in developing
a modified version of cantuzumab mertansine which we call huC242-DM4. Patient
dosing was initiated for the Phase I study of huC242-DM4 in June 2005. We
intend to evaluate whether to out license all or part of the development and
commercial rights to this compound as we move through the clinical trial process
for this compound.
In
2003, we licensed our then three most advanced product candidates in our
preclinical portfolio to sanofi-aventis in 2003 under the terms of our
discovery, development and commercialization collaboration. These three product
candidates are an anti-CD33 TAP compound for acute myeloid leukemia (AVE9633),
an anti-IGF-1R antibody (AVE1642), and an anti-CD19 TAP compound for certain
B-cell malignancies (SAR3419). In December 2004, sanofi-aventis filed an
Investigational New Drug Application (IND) for AVE9633. Clinical testing of
this
compound was initiated in March 2005.
The
anti-IGF-1R antibody is a naked antibody directed against a target found on
various solid tumors, including certain breast, lung and prostate cancers.
At
December 31, 2005, pursuant to our collaboration research program with
sanofi-aventis, we continued to perform preclinical experiments to evaluate
candidate antibodies and have identified a lead antibody product candidate
and
several alternate product candidates. The third potential product candidate
is
directed at certain anti-CD19 B-cell malignancies, including non-Hodgkin’s
lymphoma, and is in preclinical development.
During
the term of our research collaboration with sanofi-aventis, we are required
to
propose for inclusion in the collaborative research program certain antibodies
or antibody targets that we believe will have utility in oncology, with the
exception of those antibodies or antibody targets that are the subject of our
preexisting or future collaboration and license agreements. Sanofi-aventis
then
has the right to either include in or exclude from the collaborative research
program these proposed antibodies and antibody targets. If sanofi-aventis elects
to exclude any antibodies or antibody targets, we may elect to develop the
products for our own pipeline. Furthermore, sanofi-aventis may only include
a
certain number of antibody targets in the research program at any one time.
Sanofi-aventis must therefore exclude any proposed antibody or antibody target
in excess of this number. Over the original, three-year term of the research
program and recently agreed-upon one-year extension, we will receive a minimum
of $68.9 million of committed research funding and will devote a
significant amount of our internal research and development resources to
advancing the research program. Under the terms of the agreement, we may advance
any TAP or antibody products that sanofi-aventis has elected not to either
initially include or later advance in the research program.
The
potential product candidates that have been or that may eventually be excluded
from the sanofi-aventis collaboration are in an early stage of discovery
research and we are unable to accurately estimate which potential products,
if
any, will eventually move into our internal preclinical research program. We
are
unable to reliably estimate the costs to develop these products as a result
of
the uncertainties related to discovery research efforts as well as preclinical
and clinical testing. Our decision to move a product candidate into the clinical
development phase is predicated upon the results of preclinical tests. We cannot
accurately predict which, if any, of the discovery research stage product
candidates will advance from preclinical testing and move into our internal
clinical development program. The clinical trial and regulatory approval
processes for our product candidates that have advanced or we intend to advance
to clinical testing are lengthy, expensive and uncertain in both timing and
outcome. As a result, the pace and timing of the clinical development of our
product candidates is highly uncertain and may not ever result in approved
products. Completion dates and development costs will vary significantly for
each product candidate and are difficult to predict. A variety of factors,
many
of which are outside our control, could cause or contribute to the prevention
or
delay of the successful completion of our clinical trials, or delay or failure
to obtain necessary regulatory approvals. The costs to take a product
through clinical trials are dependent upon, among other things, the clinical
indications, the timing, size and dosing schedule of each clinical trial, the
number of patients enrolled in each trial, and the speed at which patients
are
enrolled and treated. Product candidates may be found ineffective or cause
harmful side effects during clinical trials, may take longer to progress through
clinical trials than anticipated, may fail to receive necessary regulatory
approvals or may prove impracticable to manufacture in commercial quantities
at
reasonable cost or with acceptable quality.
The
lengthy process of securing FDA approvals for new drugs requires the expenditure
of substantial resources. Any failure by us to obtain, or any delay in
obtaining, regulatory approvals would materially adversely affect our product
development efforts and our business overall. Accordingly, we cannot currently
estimate, with any degree of certainty, the amount of time or money that we
will
be required to expend in the future on our product candidates prior to their
regulatory approval, if such approval is ever granted. As a result of these
uncertainties surrounding the timing and outcome of our clinical trials, we
are
currently unable to estimate when, if ever, our product candidates that have
advanced into clinical testing will generate revenues and cash
flows.
Research
and development expense for the three months ended December 31, 2005 increased
$2.4 million to $8.8 million, from $6.4 million for the three months ended
December 31, 2004, due to the reasons set forth below. The number of research
and development personnel increased to 146 at December 31, 2005 compared to
133
at December 31 2004. Research and development salaries and related expenses
increased by $851,000 to $4.4 million in the three months ended December 31,
2005 compared to $3.6 million in the three months ended December 31, 2004.
Included in salaries and related expenses for the three months ended December
31, 2005 is $603,000 of stock compensation costs incurred with the adoption
of
SFAS 123(R) on July 1, 2005. Contract service expense increased $864,000
substantially due to increased antibody purchases incurred during the three
months ended December 31, 2005 as compared to the same period ended December
31,
2004. Facilities expense, including depreciation, also increased $292,000,
from
$1.4 million to $1.7 million for the three months ended December 31, 2005
compared to the same period for the prior year. This increase was due to capital
additions, an increase in salaries and related expense due to additional
headcount, and an increase in administrative expenses primarily resulting from
the addition of the 64 Sidney Street office in November 2004. We expect future
research and development expenses to increase as we continue development of
our
and our collaborators’ product candidates and technologies.
We
do not track our research and development costs by project. Rather, we manage
our research and development expenses within each of the categories listed
in
the following table and described in more detail below, since we use our
research and development resources across multiple research and development
projects.
| |
|
Three
Months Ended
December
31,
|
| |
|
2005
|
|
2004
|
| |
|
(in
thousands)
|
| |
|
|
|
|
|
Research
|
|
$
|
3,480
|
|
$
|
3,323
|
|
Preclinical
and Clinical Testing
|
|
|
1,902
|
|
|
1,321
|
|
Process
and Product Development
|
|
|
1,223
|
|
|
1,036
|
|
Manufacturing
Operations
|
|
|
2,155
|
|
|
678
|
|
|
|
|
|
|
|
|
|
Total
Research and Development Expense
|
|
$
|
8,760
|
|
$
|
6,358
|
Research:
Research
includes expenses associated with activities to identify and evaluate new
targets and to develop and evaluate new antibodies and cytotoxic agents for
our
products and in support of our collaborators. Such expenses primarily include
personnel, fees to in-license certain technology, facilities, and lab supplies.
Research expenses for the three months ended December 31, 2005 increased
$157,000 to $3.5 million from $3.3 million for the three months ended December
31, 2005. The increase in research expenses was primarily the result of an
increase in salaries and related expense and an increase in facilities expense,
partially offset by lower contract service expense. The increase in salaries
and
related expense was the result of an increase in personnel to support the
sanofi-aventis collaboration and our own internal projects, along with
compensation costs incurred with the adoption of SFAS 123(R) as of July 1,
2005.
Preclinical
and Clinical Testing:
Preclinical
and clinical testing includes expenses related to preclinical testing of our
own
and, in certain instances, our collaborators’ product candidates, and the cost
of our own clinical trials. Such expenses include personnel, patient enrollment
at our clinical testing sites, consultant fees, contract services, and facility
expenses. Preclinical and clinical testing expenses for the three months ended
December 31, 2005 increased $582,000 to $1.9 million compared to $1.3 million
for the three months ended December 31, 2004. This increase is primarily due
to
an increase in salaries and related expense, facilities expense, and contract
service expense. The increase in salaries and related expense is the result
of
an increase in personnel to support our own as well as our collaborators’
preclinical and clinical activities, along with compensation costs incurred
with
the adoption of SFAS 123(R) as of July 1, 2005. Contract service expense
increased due to expanding clinical trial activity, partially offset by lower
costs associated with hu-C242 preclinical studies.
Process
and Product Development:
Process
and product development expenses include
costs for development of clinical and commercial manufacturing processes. Such
expenses include the costs of personnel, contract services and facility
expenses. For the three months ended December 31, 2005, total development
expenses increased $186,000 to $1.2 million compared to $1.0 million for the
three months ended December 31, 2004. Salaries and related expenses increased
due to an increase in personnel, along with compensation costs incurred related
to option grants accounted for under SFAS 123(R). This increase was partially
offset by a decrease in contract service expenses, primarily due to a decrease
in ansamitocin P3 development expense incurred during the three months ended
December 31, 2005, as compared to the same period in the prior year.
Manufacturing
Operations:
Manufacturing operations expense includes costs to manufacture preclinical
and
clinical materials for our own product candidates and cost to support the
operation and maintenance of our conjugate manufacturing plant. Such expenses
include personnel, raw materials for our preclinical and clinical trials,
manufacturing supplies, and facilities expense. Manufacturing costs related
to
the production of material for our collaborators are recorded as “Cost of
Clinical Material Reimbursed” in our Statement of Operations. For the three
months ended December 31, 2005, manufacturing operations expense increased
$1.5
million to $2.2 million compared to $678,000 in the same period last year.
The
increase in expense is primarily the result of (i) an increase in salaries
and
related expenses, (ii) lower overhead utilization from the manufacture of
clinical materials on behalf of our collaborators, (iii) increase in contract
service expense and (iv) an increase in administrative expenses. These increases
were partially offset by a decrease in disposable costs resulting from a
decrease in volume, as well as bulk purchases made during the three month period
ended December 31, 2004.
During
the three months ended December 31, 2005 and December 31, 2004, we did not
record any expense related to ansamitocin P3 and DMx that we had identified
as
excess based upon our inventory policy. Reserve requirements for excess
quantities of ansamitocin P3 and DMx are principally based on our collaborators’
forecasted demand compared to our inventory position. Due to the lead times
required to secure material and the changing requirements of our collaborators,
expenses to provide for excess quantities have fluctuated from period to period
and we expect that these period fluctuations will continue in the future. (See
“Inventory” within our Critical Accounting Policies for further discussion of
our inventory reserve policy).
General
and Administrative Expenses
General
and administrative expenses for the three months ended December 31, 2005
increased $76,000 to $2.3 million, as compared to the three months ended
December 31, 2004. This increase is primarily due to an increase in
salaries and related expense, partially offset by a credit related to directors’
fees. A component of directors’ fees is either an expense or credit related to
the value of deferred share units issued to non-employee members of our Board
of
Directors. The value of deferred share units will fluctuate from period to
period as the market value of the Company’s common stock increases or decreases
at each reporting period. Salaries and related expenses increased due to an
increase in personnel, along with compensation costs incurred with the adoption
of SFAS 123(R) as of July 1, 2005.
Interest
Income
Interest
income for the three months ended December 31, 2005 increased $337,000 to
$758,000 from $421,000 for the three months ended December 31, 2004. The
difference is due to higher rates of return resulting from improved market
conditions.
Net
Realized Losses on Investments
Net
realized losses on investments were $22,000 and $1,000 for the three months
ended December 31, 2005 and 2004, respectively. The difference is attributable
to market conditions and the timing of investment sales.
Other
Income
During
the three months ended December 31, 2005, we recorded as other income $365,000
for consideration of the expected cost of the obligations assumed by us
resulting from the Amendment to the January 7, 2004 Termination Agreement
executed by us and Vernalis. Under the terms of the Amendment, we assumed
responsibility as of December 15, 2005, at our own expense, to complete the
Study 002 for huN901-DM1.
Comparison
of Six Months ended December 31, 2005 and 2004
Revenues
Our
total revenues for the six months ended December 31, 2005 were $14.4 million
compared with $18.1 million for the six months ended December 31, 2004. The
$3.7 million decrease in revenues in the six months ended December 31, 2005
compared to the same period in the prior year is primarily attributable to
a
decrease in clinical materials reimbursement revenue, partially
offset by higher research and development support.
Research
and development
support revenue was $10.9 million and $9.0 million in the six months ended
December 31, 2005 and 2004, respectively. These amounts primarily represent
committed research funding earned based on actual resources utilized under
our
discovery, development and commercialization agreement with sanofi-aventis.
During the six months ended December 31, 2005, this revenue also includes
amounts earned for actual resources utilized under our development and license
agreements with Biogen Idec and Centocor. The sanofi-aventis agreement
provides that we will receive a minimum of $50.7 million of committed research
funding during a three-year research program, as determined in each of the
three
research program years. At the conclusion of the second sanofi-aventis research
program year on August 31, 2005, a review of research activities during this
period was conducted. This review identified $1.1 million in billable activities
performed under the program during the fiscal year ended June 30, 2005 which
had
not been billed or recorded as revenue. Accordingly, we have included this
additional $1.1 million of research and support revenue in the accompanying
consolidated statement of operations for the six months ended December 31,
2005.
Also included in research and development support revenue are fees
related to process development and research work performed by the Company on
behalf of collaborators, as well as samples of research-grade material shipped
to collaborators.
To date, our development fees represent the
fully
burdened reimbursement of costs incurred in producing research-grade materials
and developing antibody-specific conjugation processes on behalf of our
collaborators and potential collaborators during the early evaluation and
preclinical testing stages of drug development. The amount of development fees
we earn is directly related to the number of our collaborators and potential
collaborators, the stage of development of our collaborators’ products and the
resources our collaborators allocate to the development effort. As such,
the amount of development fees may vary widely from quarter to quarter and
year
to year.
Revenues
from license and milestone fees for the six months ended December 31, 2005
decreased $40,000 to $2.5 million in the six month period ended December 31,
2005 compared to $2.6 million in the six month period ended December 31,
2004. Included
in license and milestone fees for the six months ended December 31, 2004, was
$500,000 of milestone revenue earned under the sanofi-aventis
collaboration.
Total
revenue from license and milestone fees recognized from each of our
collaborative partners in the six month periods ended December 31, 2005 and
2004
is included in the following table:
| |
|
Six
months ended
December
31,
|
| |
|
2005
|
|
2004
|
| |
|
(in
thousands)
|
|
Collaborative
Partner:
|
|
|
|
|
|
|
|
Abgenix
|
|
$
|
200
|
|
$
|
250
|
|
sanofi-aventis
|
|
|
1,200
|
|
|
1,700
|
|
Biogen
Idec
|
|
|
24
|
|
|
-
|
|
Boehringer
Ingelheim
|
|
|
-
|
|
|
83
|
|
Centocor
|
|
|
83
|
|
|
-
|
|
Genentech
|
|
|
808
|
|
|
321
|
|
Millennium
|
|
|
221
|
|
|
221
|
| |
|
|
|
|
|
|
|
Total
|
|
$
|
2,536
|
|
$
|
2,576
|
Clinical
materials reimbursement decreased $5.6 million to $912,000 in the six months
ended December 31, 2005, compared to $6.5 million in the six months ended
December 31, 2004. This decrease is primarily the result of a reduction in
demand for clinical material by our collaborative partners. During the six
months ended December 31, 2005, we
shipped clinical materials in support of the AVE9633 trial and in the
anticipation of the clinical trials to be conducted by our partners,
as
well as preclinical materials in support of the development efforts of our
collaborators. During
the same period in 2004, we
shipped clinical materials in support of the bivatuzumab mertansine, MLN2704
and
AVE9633 clinical trials being conducted by partners, as well as preclinical
materials in support of the development efforts of our collaborators. The cost
of clinical materials reimbursed for the six months ended December 31, 2005
and
2004 was $999,000 and $5.5 million, respectively. Included in the cost of
clinical materials reimbursed for the six months ended December 31, 2005 is
$153,000 of expense to write down certain batches of ansamitocin P3 and DMx
and
certain work in process amounts to their net realizable value. Under certain
collaborative agreements, we are reimbursed for our fully burdened cost to
produce clinical materials plus a profit margin. The amount of clinical
materials reimbursement we earn, and the related cost of clinical materials
reimbursed, is directly related to (i) the number of on-going clinical
trials our collaborators have underway, the speed of enrollment in those trials,
the dosage schedule of each clinical trial and the time period, if any, during
which patients in the trial receive clinical benefit from the clinical
materials, and (ii) our production of clinical grade material on behalf of
our collaborators, either in anticipation of clinical trials, or for research,
development and analytical purposes. As such, the amount of clinical materials
reimbursement and the related cost of clinical materials reimbursed may vary
significantly from quarter to quarter and year to year.
Research
and Development Expenses
Research
and development expenses for the six months ended December 31, 2005 increased
$4.3 million to $18.3 million from $14.0 million for the six months ended
December 31, 2004. The number of research and development personnel
increased to 146 at December 31, 2005 compared to 133 at December 31, 2004.
Research
and development salaries and related expenses increased by $1.9 million to
$8.8
million in the six months ended December 31, 2005 compared to $6.9 million
in
the six months ended December 31, 2004. Included in salaries and related
expenses for the six months ended December 31, 2005 is $1.2 million of stock
compensation costs incurred with the adoption of SFAS 123(R) on July 1, 2005.
Overhead utilization from the manufacture of clinical materials on behalf of
our
collaborators decreased $1.0 million in the six months ended December 31, 2005
as compared to the same period ended December 31, 2004. Contract service expense
increased $1.4 million due primarily to increased antibody costs. Facility
expense for the six months ended December 31, 2005, including depreciation
increased $656,000 to $3.3 million from $2.7 million for the six months ended
December 31, 2004, due to the addition of capital equipment, an increase in
salaries and related expense due to an increase in headcount, and an increase
in
administrative expenses.
We
do not
track our research and development costs by project. Rather, we manage our
research and development expenses within
each of the categories listed in the following table and described in more
detail below, since we use our research and development resources across
multiple research and development projects.
| |
|
Six
Months Ended
December
31,
|
| |
|
2005
|
|
2004
|
| |
|
(in
thousands)
|
| |
|
|
|
|
|
Research
|
|
$
|
6,989
|
|
$
|
5,900
|
|
Preclinical
and Clinical Testing
|
|
|
3,592
|
|
|
2,460
|
|
Process
and Product Development
|
|
|
2,592
|
|
|
2,373
|
|
Manufacturing
Operations
|
|
|
5,078
|
|
|
3,257
|
| |
|
|
|
|
|
|
|
Total
Research and Development Expense
|
|
$
|
18,251
|
|
$
|
13,990
|
Research:
Research
includes expenses associated with activities to identify and evaluate new
targets and to develop and evaluate new antibodies and cytotoxic agents for
our
products and in support of our collaborators. Such expenses primarily include
personnel, fees to in-license certain technology, facilities and lab supplies.
For the six months ended December 31, 2005, research expenses increased $1.1
million to $7.0 million, compared to $5.9 million in the six months ended
December 31, 2004. The increase in research expenses for the period was
primarily the result of increases in salaries and related expenses and
facilities expense. The
increase in salaries and related expense was the result of an increase in
personnel to support the sanofi-aventis collaboration and our own internal
projects, along with compensation costs incurred with the adoption of SFAS
123(R) as of July 1, 2005.
Preclinical
and Clinical Testing:
Preclinical
and clinical testing includes expenses related to preclinical testing of our
own
and, in certain instances, our collaborators’ product candidates, and the cost
of our own clinical trials. Such expenses include personnel, patient enrollment
at our clinical testing sites, consultant fees, contract services, and facility
expenses. For the six months ended December 31, 2005, preclinical and clinical
testing expenses increased $1.1 million to $3.6 million, compared to $2.5
million in the six months ended December 31, 2004. This increase in preclinical
and clinical testing expense is substantially due to increases in salaries
and
related expense, facilities expense, and contract service expense. The increase
in salaries and related expense is the result of an increase in personnel to
support
our own as well as our collaborators’ preclinical and clinical activities, along
with compensation costs incurred with the adoption of SFAS 123(R) as of July
1,
2005. The increase in contract service expense in the six months ended December
31, 2005 is a result of expanding clinical trial activity, partially offset
by
lower costs associated with hu-C242-DM4 preclinical studies.
Process
and Product Development:
Process
and product development expenses include costs for development of clinical
and
commercial manufacturing processes. Such expenses include the costs of
personnel, contract services and facility expenses. For the six months ended
December 31, 2005, total development expenses increased $219,000 to $2.6
million, compared to $2.4 million for the six months ended December 21, 2004.
Salaries
and related expenses increased due to an increase in personnel, along with
compensation costs incurred related to option grants accounted for under SFAS
123(R). This increase was partially offset by a decrease in contract service
expenses, primarily due to a decrease in ansamitocin P3 development expense
incurred during the three months ended December 31, 2005, as compared to the
same period in the prior year.
Manufacturing
Operations:
Manufacturing operations expense includes costs to manufacture preclinical
and
clinical materials for our own product candidates and cost to support the
operations and maintenance of our conjugate manufacturing plant. Such expenses
include personnel, raw materials for our own preclinical and clinical trials,
manufacturing supplies, and facilities expense. A portion of these costs are
recorded as “Costs of Clinical Materials Reimbursed” in our Statement of
Operations. For the six months ended December 31, 2005, manufacturing operations
expense increased $1.8 million to $5.1 million, compared to $3.3 million for
the
six months ended December 31, 2004. The increase in expense for the current
six
month period compared to the same period in the prior year was primarily the
result of lower
overhead utilization from the manufacture of clinical materials on behalf of
our
collaborators,
as well
as increases in (i) salaries and related expenses, (ii) administrative expenses,
(iii) contract services, and (iv) facilities expense. These increases were
partially offset by a decrease in disposable costs and expenses to reserve
for
excess quantities of ansamitocin P3 and DMx in accordance with our inventory
reserve policy.
During
the six months
ended December 31, 2004, we
recorded research and development expenses of $980,000 of ansamitocin P3 and
DMx
that we had identified as excess based upon our inventory policy, and $82,000
to
write down certain batches of ansamitocin P3 and DMx and certain work in process
amounts to their net realizable value. During the same period in the current
year, we recorded only
$153,000 in similar expenses. Reserve
requirements for excess quantities of P3 and DMx are principally determined
based on our collaborators’ forecasted demand compared to our inventory
position. Due to the lead times required to secure material and the changing
requirements of our collaborators, expenses to provide for excess quantities
have fluctuated from period to period and we expect that these period
fluctuations will continue in the future. (See “Inventory” within our Critical
Accounting Policies for further discussion of our inventory reserve
policy).
General
and Administrative Expenses
General
and administrative expenses for the six months ended December 31, 2005 increased
$1.2 million to $5.1 million from $3.9 million for the six months ended December
31, 2004. This
increase is primarily due to an increase in salaries and related expense,
expanded patent filings, and lower overhead utilization from the manufacture
of
clinical materials on behalf of our collaborators. Salaries and related expenses
increased due to an increase in personnel, along with compensation costs
incurred with the adoption of SFAS 123(R) as of July 1, 2005.
Interest
Income
Interest
income for the six months ended December 31, 2005 increased $728,000 to $1.5
million from $748,000 for the six months ended December 31, 2004. The difference
is due to higher rates of return resulting from improved market
conditions.
Net
Realized Losses on Investments
Net
realized losses on investments were $26,000 and $4,000 for the six months ended
December 31, 2005 and 2004, respectively. The difference is attributable to
market conditions and the timing of investment sales.
Other
Income
During
the six months ended December 31, 2005, we recorded as other income $365,000
for
consideration of the expected cost of the obligations assumed by us
resulting from the Amendment to the January 7, 2004 Termination Agreement
executed by us and Vernalis. Under the terms of the Amendment, we assumed
responsibility as of December 15, 2005, at our own expense, to complete the
Study 002 for huN901-DM1.
LIQUIDITY
AND CAPITAL RESOURCES
We
require cash to fund our operating expenses, including the conduct of our
clinical programs, and to make capital expenditures. Historically, we have
funded our cash requirements primarily through equity financings in public
markets and payments from our collaborators, including equity investments,
license fees, milestone payments and research funding. As of December 31,
2005, we had approximately $85.0 million in cash and marketable
securities. Net cash used for operations during the six months ended
December 31, 2005 was $4.6 million, compared to net cash used for operations
of
$43,000 during the six months ended December 31, 2004. Cash used in operations
is primarily to fund the net loss. The increased use of funds during the six
months ended December 31, 2005 is principally due to the increased net loss
for
the period compared to the same period last year.
Net
cash provided by investing activities during the six months ended December
31,
2005 was $7.6 million compared to net cash provided by investing activities
of
$111,000 during the six months ended December 31, 2004. Cash flows from
investing activities in the six months ended December 31, 2005 and 2004
primarily reflects the proceeds of sales and maturities of marketable
securities, purchases of marketable securities and capital expenditures. The
variance primarily relates to an increase in the sale and maturities of
marketable securities. Capital
expenditures were $1.2 million for both six month periods ended December 31,
2005 and 2004.
Net
cash provided by financing activities was $266,000 for the six month period
ended December 31, 2005 compared to net cash provided by financing activities
of
$90,000 for the six months ended December 31, 2004. For the six months
ended December 31, 2005, net cash provided by financing activities reflects
the
proceeds to us from the exercise of 61,138 stock options under the our Restated
Stock Option Plan, at prices ranging from $1.94 to $6.27 per share. For the
six months ended December 31, 2004, net cash provided by financing activities
reflects the proceeds to us from the exercise of 38,505 stock options at prices
ranging from $0.84 to $3.95 per share.
We
anticipate that our
current capital resources and future collaborator payments, including committed
research funding that we expect to receive from sanofi-aventis pursuant to
the
terms of our collaboration agreement, will enable us to meet our operational
expenses and capital expenditures for at least the next three to four fiscal
years. We believe that our existing capital resources in addition
to our established collaborative agreements will provide funding sufficient
to
allow us to meet our obligations under all collaborative agreements while also
allowing us to develop product candidates and technologies not covered by
collaborative agreements. However, we cannot provide assurance that such
collaborative agreement funding will, in fact, be received. Should we not meet
some or all of the terms and conditions of our various collaboration agreements,
we may be required to pursue additional strategic partners, secure alternative
financing arrangements, and/or defer or limit some or all of our research,
development and/or clinical projects.
We
maintain an investment portfolio in accordance with our Investment Policy.
The
primary objectives of our Investment Policy are to preserve principal, maintain
proper liquidity to meet operating needs and maximize yields. Although our
investments are subject to credit risk, our Investment Policy specifies credit
quality standards for our investments and limits the amount of credit exposure
from any single issue, issuer or type of investment. Our investments are also
subject to interest rate risk and will decrease in value if market interest
rates increase. However, due to the conservative nature of our investments
and
relatively short duration, interest rate risk is mitigated. We do not own
derivative financial instruments in our investment portfolio.
Accordingly,
we do not believe that there is any material market risk exposure with respect
to derivative or other financial instruments that would require disclosure
under
this item.
ITEM
4. Controls
and Procedures
(a) Evaluation
of Disclosure Controls and Procedures
As
of the end of the period covered by this report, the Company’s principal
executive officer and principal financial officer evaluated the effectiveness
of
the Company’s disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and have concluded, based on such
evaluation, that the design and operation of the Company’s disclosure controls
and procedures were adequate and effective to ensure that material information
relating to the Company, including its consolidated subsidiaries, was made
known
to them by others within those entities, particularly during the period in
which
this Quarterly Report on Form 10-Q was being prepared.
(b) Changes
in Internal Controls
There
were no changes, identified in connection with the evaluation described above,
in the Company’s internal controls over financial reporting or in other factors
that could significantly affect those controls that have materially affected
or
are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
ITEM
1. Legal
Proceedings.
None.
ITEM
1A. Risk
Factors.
Risk
Factors
THE
RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE THOSE THAT WE CURRENTLY BELIEVE
MAY MATERIALLY AFFECT OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES THAT
WE ARE UNAWARE OF OR THAT WE CURRENTLY DEEM IMMATERIAL ALSO MAY BECOME
IMPORTANT FACTORS THAT AFFECT OUR COMPANY.
If
our TAP technology does not produce safe, effective and commercially viable
products, our business will be severely harmed.
Our
TAP technology is a novel approach to the treatment of cancer. None of our
TAP
product candidates has obtained regulatory approval and all of them are in
early
stages of development. Our most advanced TAP product candidates are only in
the
Phase I or Phase I/II stage of clinical trials. Our TAP product candidates
may
not prove to be safe, effective or commercially viable treatments for cancer
and
our TAP technology may not result in any meaningful benefits to our current
or
potential collaborative partners. Furthermore, we are aware of only one
antibody-drug conjugate that has obtained FDA approval and is based on
technology similar to our TAP technology. If our TAP technology fails to
generate product candidates that are safe, effective and commercially viable
treatments for cancer, and fails to obtain FDA approval, our business is likely
to be severely harmed.
Clinical
trials for our product candidates will be lengthy and expensive and their
outcome is uncertain.
Before
obtaining regulatory approval for the commercial sale of any product candidates,
we and our collaborative partners must demonstrate through preclinical testing
and clinical trials that our product candidates are safe and effective for
use
in humans. Conducting clinical trials is a time-consuming, expensive and
uncertain process and may take years to complete. Our most advanced product
candidates are only in the Phase I or Phase I/II stage of clinical trials.
Historically, the results from preclinical testing and early clinical
trials often have not been predictive of results obtained in later clinical
trials. Frequently, drugs that have shown promising results in preclinical
or
early clinical trials subsequently fail to establish sufficient safety and
efficacy data necessary to obtain regulatory approval. At any time during the
clinical trials, we, our collaborative partners, or the FDA might delay or
halt
any clinical trials for our product candidates for various reasons,
including:
• ineffectiveness
of the product candidate;
• discovery
of unacceptable toxicities or side effects;
• development
of disease resistance or other physiological factors;
• insufficient
drug supply;
• delays
in patient enrollment; or
• other
reasons that are internal to the businesses of our collaborative partners,
which
reasons they may not share with us.
The
results of clinical trials may fail to demonstrate the safety or effectiveness
of our product candidates to the extent necessary to obtain regulatory approval
or that commercialization of our product candidates is worthwhile. Any failure
or substantial delay in successfully completing clinical trials and obtaining
regulatory approval for our product candidates could severely harm our
business.
If
our collaborative partners fail to perform their obligations under our
agreements, or determine not to continue with clinical trials for particular
product candidates, our ability to develop and market potential products could
be severely limited.
Our
strategy for the development and commercialization of our product candidates
depends, in large part, upon the formation of collaborative arrangements.
Collaborations may allow us to:
• generate
cash flow and revenue;
• offset
some of the costs associated with our internal research and development,
preclinical testing, clinical trials and manufacturing;
• seek
and obtain regulatory approvals faster than we could on our own;
• successfully
commercialize existing and future product candidates;
• develop
antibodies for additional product candidates, and discover additional cell
surface markers for antibody development; and
• secure
access to targets which, due to intellectual property restrictions, would
otherwise be unavailable to our technology.
If
we fail to secure or maintain successful collaborative arrangements, our
development and marketing activities may be delayed or scaled back. In
addition, we may be unable to negotiate other collaborative arrangements or,
if
necessary, modify our existing arrangements on acceptable terms. We have entered
into collaborations with Abgenix, Biogen Idec, Boehringer Ingelheim, Centocor,
Genentech, Millennium and sanofi-aventis. We cannot control the amount and
timing of resources our partners may devote to our products. Our partners may
separately pursue competing products, therapeutic approaches or technologies
to
develop treatments for the diseases targeted by us or our collaborative efforts,
or may decide for reasons not known to us to discontinue development of products
under our agreements with them. For example, in February 2005, Boehringer
Ingelheim discontinued development of bivatuzumab mertansine. Under our 2001
agreement with them, Boehringer Ingelheim retained its right to use ImmunoGen’s
DM1 TAP technology and has exercised its right to create an anticancer compound
to a different antigen target. In addition, in January 2006, Millennium
announced that it had decided not to continue development of its MLN2704
compound. Even if our partners continue their contributions to the collaborative
arrangements, they may nevertheless determine not to actively pursue the
development or commercialization of any resulting products. Also, our partners
may fail to perform their obligations under the collaborative agreements or
may
be slow in performing their obligations. Our partners can terminate our
collaborative agreements under certain conditions. The decision to advance
a
product that is covered by a collaborative agreement through clinical trials
and
ultimately to commercialization is in the sole discretion of our collaborative
partners. If any collaborative partner were to terminate or breach our
agreements, or fail to complete its obligations to us in a timely manner, our
anticipated revenue from the agreement and from the development and
commercialization of our products could be severely limited. If we are not
able
to establish additional collaborations or any or all of our existing
collaborations are terminated and we are not able to enter into alternative
collaborations on acceptable terms, our continued development, manufacture
and
commercialization of our product candidates could be delayed or scaled back
as
we may not have the funds or capability to continue these activities. If
our collaborators fail to successfully develop and commercialize TAP compounds,
our business will be severely harmed.
We
depend on a small number of collaborators for a substantial portion of our
revenue. The loss of, or a material reduction in activity by, any one of these
collaborators could result in a substantial decline in our
revenue.
We
have and will continue to have collaborations with a limited number of
companies. As a result, our financial performance depends on the efforts and
overall success of these companies. The failure of any one of our collaborative
partners to perform its obligations under its agreement with us, including
making any royalty, milestone or other payments to us, could have a material
adverse effect on our financial condition. Further, any material reduction
by
any one of our collaborative partners in its level of commitment of resources,
funding, personnel, and interest in continued development under its agreement
with us could have a material adverse effect on our financial condition. Also,
if consolidation trends in the healthcare industry continue, the number of
our
potential collaborators could decrease, which could have an adverse impact
on
our development efforts. If a present or future collaborator of ours were to
be
involved in a business combination, their continued pursuit and emphasis on
our
product development program could be delayed, diminished or terminated.
For example, in February 2005, Boehringer Ingelheim discontinued development
of
bivatuzumab mertansine. Under our 2001 agreement with them, Boehringer Ingelheim
retained its right to use ImmunoGen’s DM1 TAP technology and has exercised its
right to create an anticancer compound to a different antigen target. In
addition, in January 2006, Millennium announced that it had decided not to
continue development of its MLN2704 compound.
If
our collaborators’ requirements for clinical materials to be manufactured by us
are significantly lower than we have estimated, our financial results and
condition could be significantly harmed.
We
procure certain components of finished conjugate including ansamitocin P3,
DM1,
DM4, and linker on behalf of our collaborators. In order to meet our
commitments to our collaborators, we are required to enter into agreements
with
third parties to produce these components well in advance of our production
of
clinical materials on behalf of our collaborators. If our collaborators do
not require as much clinical material as we have contracted to produce, we
may
not be able to recover our investment in these components and we may suffer
significant losses. For example, in February 2005, Boehringer Ingelheim
discontinued development of bivatuzumab mertansine and in January 2006,
Millennium discontinued development of MLN2704. In periods subsequent to
discontinuation of development, we have or expect to have reduced demand for
conjugated material. Specifically, the discontinuation of bivatuzumab
mertansine contributed to the decrease in clinical materials reimbursement
in the current fiscal period.
In
addition, we operate a conjugate manufacturing facility. A significant
portion of the cost of operating this facility, including the cost of
manufacturing personnel, is charged to the cost of producing clinical materials
on behalf of our collaborators. If we produce fewer batches of clinical
materials for our collaborators, less of the cost of operating the conjugate
manufacturing facility will be charged to our collaborators and our financial
condition could be significantly harmed.
We
have a history of operating losses and expect to incur significant additional
operating losses.
We
have generated operating losses since our inception. As of December 31, 2005,
we
had an accumulated deficit of $228.9 million. For the six months ended
December 31, 2005, and the fiscal years ended June 30, 2005, 2004 and 2003,
we
generated losses of $8.2 million, $11.0 million, $5.9 million and $20.0 million,
respectively. We may never be profitable. We expect to incur substantial
additional operating expenses over the next several years as our research,
development, preclinical testing, clinical studies and collaborator support
activities increase. We intend to continue to invest significantly in our
product candidates. Further, we expect to invest significant resources
supporting our existing collaborators as they work to develop, test and
commercialize TAP and other antibody compounds, and we or our collaborators
may
encounter technological or regulatory difficulties as part of this development
and commercialization process that we cannot overcome or remedy. We may
also incur substantial marketing and other costs in the future if we decide
to
establish marketing and sales capabilities to commercialize our product
candidates. None of our product candidates has generated any commercial revenue
and our only revenues to date have been primarily from upfront and milestone
payments, research and development support and clinical materials reimbursement
from our collaborative partners. We do not expect to generate revenues from
the
commercial sale of our product candidates in the foreseeable future, and we
may
never generate revenues from the commercial sale of products. Even if we do
successfully develop products that can be marketed and sold commercially, we
will need to generate significant revenues from those products to achieve and
maintain profitability. Even if we do become profitable, we may not be able
to
sustain or increase profitability on a quarterly or annual basis.
We
and our collaborative partners are subject to extensive government regulations
and we and our collaborative partners may not be able to obtain necessary
regulatory approvals.
We
or our collaborative partners may not receive the regulatory approvals necessary
to commercialize our product candidates, which could cause our business to
be
severely harmed. Our product candidates are subject to extensive and rigorous
government regulation. The FDA regulates, among other things, the development,
testing, manufacture, safety, record-keeping, labeling, storage, approval,
advertising, promotion, sale and distribution of pharmaceutical products. If
our
potential products are marketed abroad, they will also be subject to extensive
regulation by foreign governments. None of our product candidates has been
approved for sale in the United States or any foreign market. The regulatory
review and approval process, which includes preclinical studies and clinical
trials of each product candidate, is lengthy, complex, expensive and uncertain.
Securing FDA approval requires the submission of extensive preclinical and
clinical data and supporting information to the FDA for each indication to
establish the product candidate’s safety and efficacy. Data obtained from
preclinical and clinical trials are susceptible to varying interpretation,
which
may delay, limit or prevent regulatory approval. The approval process may take
many years to complete and may involve ongoing requirements for post-marketing
studies. In light of the limited regulatory history of monoclonal antibody-based
therapeutics, regulatory approvals for our products may not be obtained without
lengthy delays, if at all. Any FDA or other regulatory approvals of our product
candidates, once obtained, may be withdrawn. The effect of government regulation
may be to:
• delay
marketing of potential products for a considerable period of time;
• limit
the indicated uses for which potential products may be
marketed;
• impose
costly requirements on our activities; and
• provide
competitive advantage to other pharmaceutical and biotechnology
companies.
We
may encounter delays or rejections in the regulatory approval process because
of
additional government regulation from future legislation or administrative
action or changes in FDA policy during the period of product development,
clinical trials and FDA regulatory review. Failure to comply with applicable
FDA
or other applicable regulatory requirements may result in criminal prosecution,
civil penalties, recall or seizure of products, total or partial suspension
of
production or injunction, as well as other regulatory action against our product
candidates or us. Outside the United States, our ability to market a product
is
contingent upon receiving clearances from the appropriate regulatory
authorities. This foreign regulatory approval process includes similar risks
to
those associated with the FDA approval process. In addition, we are, or may
become, subject to various federal, state and local laws, regulations and
recommendations relating to safe working conditions, laboratory and
manufacturing practices, the experimental use of animals and the use and
disposal of hazardous substances, including radioactive compounds and infectious
disease agents, used in connection with our research work. If we fail to comply
with the laws and regulations pertaining to our business, we may be subject
to
sanctions, including the temporary or permanent suspension of operations,
product recalls, marketing restrictions and civil and criminal
penalties.
Our
product candidates will remain subject to ongoing regulatory review even if
they
receive marketing approval. If we fail to comply with continuing regulations,
we
could lose these approvals and the sale of our products could be
suspended.
Even
if we receive regulatory approval to market a particular product candidate,
the
approval could be conditioned on us conducting additional costly post-approval
studies or could limit the indicated uses included in our labeling. Moreover,
the product may later cause adverse effects that limit or prevent its widespread
use, force us to withdraw it from the market or impede or delay our ability
to
obtain regulatory approvals in additional countries. In addition, the
manufacturer of the product and its facilities will continue to be subject
to
FDA review and periodic inspections to ensure adherence to applicable
regulations. After receiving marketing approval, the manufacturing, labeling,
packaging, adverse event reporting, storage, advertising, promotion and record
keeping related to the product will remain subject to extensive regulatory
requirements. We may be slow to adapt, or we may never adapt, to changes in
existing regulatory requirements or adoption of new regulatory
requirements.
If
we fail to comply with the regulatory requirements of the FDA and other
applicable U.S. and foreign regulatory authorities or previously unknown
problems with our products, manufacturers or manufacturing processes are
discovered, we could be subject to administrative or judicially imposed
sanctions, including:
• restrictions
on the products, manufacturers or manufacturing processes;
• warning
letters;
• civil
or criminal penalties;
• fines;
• injunctions;
• product
seizures or detentions;
• import
bans;
• voluntary
or mandatory product recalls and publicity requirements;
• suspension
or withdrawal of regulatory approvals;
• total
or partial suspension of production; and
• refusal
to approve pending applications for marketing approval of new drugs or
supplements to approved applications.
We
rely on single source suppliers to manufacture the primary component for our
cell-killing agents, DM1 and DM4. Any problems experienced by either supplier
could negatively affect our operations.
We
rely on third-party suppliers for some of the materials used in the
manufacturing of TAP product candidates and cytotoxic agents. Our cell-killing
agents include DM1 and DM4 (collectively DMx). DM1 and DM4 are used in our
TAP
product candidates in preclinical and clinical testing and are the subject
of
most of our collaborations. One of the primary components required to
manufacture DM1 and DM4 is their precursor, ansamitocin P3. Currently, only
one
vendor manufactures and is able to supply us with this material. Any problems
experienced by this vendor could result in a delay or interruption in the supply
of ansamitocin P3 to us until this vendor cures the problem or until we locate
an alternative source of supply. Any delay or interruption in our supply of
ansamitocin P3 would likely lead to a delay or interruption in our manufacturing
operations and preclinical and clinical trials of our product candidates, which
could negatively affect our business. We also have an agreement with only
one vendor to convert ansamitocin P3 to DMx. Any problems experienced by this
vendor could result in a delay or interruption in the supply of DMx to
us
until
this vendor cures the problem or until we locate an alternative source of
supply. Any delay or interruption in our supply of DMx could lead to a delay
or
interruption in our manufacturing operations and preclinical and clinical trials
of our product candidates or our collaborators’ product candidates, which could
negatively affect our business. We are currently in negotiations with a
potential additional supplier of these materials. We cannot assume that we
would
be able to reach agreement with this supplier on acceptable terms, or at
all.
Unfavorable
pricing regulations, third-party reimbursement practices or healthcare reform
initiatives applicable to our product candidates could limit our potential
product revenue.
The
regulations governing drug pricing and reimbursement vary widely from country
to
country. Some countries require approval of the sale price of a drug before
it
can be marketed and, in many of these countries, the pricing review period
begins only after approval is granted. In some countries, prescription
pharmaceutical pricing remains subject to continuing governmental control even
after initial approval is granted. Although we monitor these regulations, our
product candidates are currently in the development stage and we will not be
able to assess the impact of price regulations for at least several years.
As a
result, we may obtain regulatory approval for a product in a particular country,
but then be subject to price regulations that delay the commercial launch of
the
product and may negatively impact the revenues we are able to derive from sales
in that country.
Successful
commercialization of our products will also depend in part on the extent to
which coverage and adequate payment for our products will be available from
government health administration authorities, private health insurers and other
third-party payors. If we succeed in bringing a product candidate to the market,
it may not be considered cost-effective and reimbursement to the patient may
not
be available or sufficient to allow us to sell it at a satisfactory price.
Because our product candidates are in the development stage, we are unable
at
this time to determine their cost-effectiveness. We may need to conduct
expensive studies in order to demonstrate cost-effectiveness. Moreover,
third-party payors frequently require that drug companies provide them with
predetermined discounts from list prices and are increasingly challenging the
prices charged for medical products. Because our product candidates are in
the
development stage, we do not know the level of reimbursement, if any, we will
receive for any products that we are able to successfully develop. If the
reimbursement for any of our product candidates is inadequate in light of our
development and other costs, our ability to achieve profitability could be
affected.
We
believe that the efforts of governments and third-party payors to contain or
reduce the cost of healthcare will continue to affect the business and financial
condition of pharmaceutical and biopharmaceutical companies. A number of
legislative and regulatory proposals to change the healthcare system in the
United States and other major healthcare markets have been proposed and adopted
in recent years. For example, the U.S. Congress enacted a limited prescription
drug benefit for Medicare recipients as part of the Medicare Prescription Drug,
Improvement and Modernization Act of 2003. While the program established by
this
statute may increase demand for any products that we are able to successfully
develop, if we participate in this program, our prices will be negotiated with
drug procurement organizations for Medicare beneficiaries and are likely to
be
lower than prices we might otherwise obtain. Non-Medicare third-party drug
procurement organizations may also base the price they are willing to pay on
the
rate paid by drug procurement organizations for Medicare beneficiaries. In
addition, ongoing initiatives in the United States have and will continue to
increase pressure on drug pricing. The announcement or adoption of any such
initiative could have an adverse effect on potential revenues from any product
candidate that we may successfully develop.
We
may be unable to establish the manufacturing capabilities necessary to develop
and commercialize our potential products.
Currently,
we only have one in-house conjugate manufacturing facility for the manufacture
of conjugated compounds necessary for preclinical and clinical testing. We
do
not have sufficient manufacturing capacity to manufacture all of our product
candidates in quantities necessary for commercial sale. In addition, our
manufacturing capacity may be insufficient to complete all clinical trials
contemplated by us or our collaborators over time. We intend to rely in part
on
third-party contract manufacturers to produce sufficiently large quantities
of
drug materials that are and will be needed for clinical trials and
commercialization of our potential products. Third-party manufacturers may
not
be able to meet our needs with respect to timing, quantity or quality of
materials. If we are unable to contract for a sufficient supply of needed
materials on acceptable terms, or if we should encounter delays or difficulties
in our relationships with manufacturers, our clinical trials may be delayed,
thereby delaying the submission of product candidates for regulatory approval
and the market introduction and subsequent commercialization of our potential
products. Any such delays may lower our revenues and potential
profitability.
We
may develop our manufacturing capacity in part by expanding our current
facilities or building new facilities. Either of these activities would require
substantial additional funds and we would need to hire and train significant
numbers of employees to staff these facilities. We may not be able to develop
manufacturing facilities that are sufficient to produce drug materials for
clinical trials or commercial use. We and any third-party manufacturers that
we
may use must continually adhere to current Good Manufacturing Practices
regulations enforced by the FDA through its facilities inspection program.
If
our facilities or the facilities of third-party manufacturers cannot pass a
pre-approval plant inspection, the FDA will not grant approval to our product
candidates. In complying
with
these regulations and foreign regulatory requirements, we and any of our
third-party manufacturers will be obligated to expend time, money and effort
on
production, record-keeping and quality control to assure that our potential
products meet applicable specifications and other requirements. If we or any
third-party manufacturer with whom we may contract fail to maintain regulatory
compliance, we or the third party may be subject to fines and/or manufacturing
operations may be suspended.
We
have only one in-house conjugate manufacturing facility and any prolonged and
significant disruption at that facility could impair our ability to manufacture
products for clinical testing.
Currently,
we are contractually obligated to manufacture Phase I and non-pivotal Phase
II
clinical products for certain of our collaborators. We manufacture this
material in a conjugate manufacturing facility. We only have one such
manufacturing facility in which we can manufacture clinical products. Our
current manufacturing facility contains highly specialized equipment and
utilizes complicated production processes developed over a number of years
that
would be difficult, time-consuming and costly to duplicate. Any prolonged
disruption in the operations of our manufacturing facility would have a
significant negative impact on our ability to manufacture products for clinical
testing on our own and would cause us to seek additional third-party
manufacturing contracts, thereby increasing our development costs. Even though
we carry manufacturing interruption insurance policies, we may suffer losses
as
a result of business interruptions that exceed the coverage available under
our
insurance policies. Certain events, such as natural disasters, fire, political
disturbances, sabotage or business accidents, which could impact our current
or
future facilities, could have a significant negative impact on our operations
by
disrupting our product development efforts until such time as we are able to
repair our facility or put in place third-party contract manufacturers to assume
this manufacturing role.
Any
inability to license from third parties their proprietary technologies or
processes which we use in connection with the development and manufacture of
our
product candidates may impair our business.
Other
companies, universities and research institutions have or may obtain patents
that could limit our ability to use, manufacture, market or sell our product
candidates or impair our competitive position. As a result, we would have to
obtain licenses from other parties before we could continue using,
manufacturing, marketing or selling our potential products. Any necessary
licenses may not be available on commercially acceptable terms, if at all.
If we
do not obtain required licenses, we may not be able to market our potential
products at all or we may encounter significant delays in product development
while we redesign products or methods that could infringe on the patents held
by
others.
We
may be unable to establish sales and marketing capabilities necessary to
successfully commercialize our potential products.
We
currently have no direct sales or marketing capabilities. We anticipate relying
on third parties to market and sell most of our primary product candidates.
If
we decide to market our potential products through a direct sales force, we
would need to either hire a sales force with expertise in pharmaceutical sales
or contract with a third party to provide a sales force to meet our needs.
We
may be unable to establish marketing, sales and distribution capabilities
necessary to commercialize and gain market acceptance for our potential products
and be competitive. In addition, co-promotion or other marketing arrangements
with third parties to commercialize potential products could significantly
limit
the revenues we derive from these potential products, and these third parties
may fail to commercialize our potential products successfully.
If
our product candidates or those of our collaborators’ do not gain market
acceptance, our business will suffer.
Even
if clinical trials demonstrate the safety and efficacy of our product candidates
and the necessary regulatory approvals are obtained, our product candidates
may
not gain market acceptance among physicians, patients, healthcare payors and
the
medical community. The degree of market acceptance of any product candidates
that we develop will depend on a number of factors, including:
• the
degree of clinical efficacy and safety;
• cost-effectiveness
of our product candidates;
• their
advantage over alternative treatment methods;
• reimbursement
policies of government and third-party payors; and
• the
quality of our or our collaborative partners’ marketing and distribution
capabilities for our product candidates.
Physicians
will not recommend therapies using any of our future products until such time
as
clinical data or other factors demonstrate the safety and efficacy of those
products as compared to conventional drug and other treatments. Even if the
clinical safety and efficacy of therapies using our products is established,
physicians may elect not to recommend the therapies for any number of other
reasons, including whether the mode of administration of our products is
effective for certain conditions, and whether the physicians are already using
competing products that satisfy their treatment objectives. Physicians,
patients, third-party payors and the medical community may not accept and use
any product candidates that we, or our collaborative partners, develop. If
our
products do not achieve significant market acceptance, we will not be able
to
recover the significant investment we have made in developing such products
and
our business would be severely harmed.
We
may be unable to compete successfully.
The
markets in which we compete are well established and intensely competitive.
We
may be unable to compete successfully against our current and future
competitors. Our failure to compete successfully may result in pricing
reductions, reduced gross margins and failure to achieve market acceptance
for
our potential products. Our competitors include pharmaceutical companies,
biotechnology companies, chemical companies, academic and research institutions
and government agencies. Many of these organizations have substantially more
experience and more capital, research and development, regulatory,
manufacturing, sales, marketing, human and other resources than we do. As a
result, they may:
• develop
products that are safer or more effective than our product
candidates;
• obtain
FDA and other regulatory approvals or reach the market with their products
more
rapidly than we can, reducing the potential sales of our product
candidates;
• devote
greater resources to market or sell their products;
• adapt
more quickly to new technologies and scientific advances;
• initiate
or withstand substantial price competition more successfully than we
can;
• have
greater success in recruiting skilled scientific workers from the limited pool
of available talent;
• more
effectively negotiate third-party licensing and collaboration arrangements;
and
• take
advantage of acquisition or other opportunities more readily than we
can.
A
number of pharmaceutical and biotechnology companies are currently developing
products targeting the same types of cancer that we target, and some of our
competitors’ products have entered clinical trials or already are commercially
available. In addition, our product candidates, if approved and commercialized,
will compete against well-established, existing, therapeutic products that
are
currently
reimbursed by government health administration authorities, private health
insurers and health maintenance organizations. We face and will continue to
face
intense competition from other companies for collaborative arrangements with
pharmaceutical and biotechnology companies, for relationships with academic
and
research institutions, and for licenses to proprietary technology. In addition,
we anticipate that we will face increased competition in the future as new
companies enter our markets and as scientific developments surrounding
antibody-based therapeutics for cancer continue to accelerate. While we will
seek to expand our technological capabilities to remain competitive, research
and development by others may render our technology or product candidates
obsolete or noncompetitive or result in treatments or cures superior to any
therapy developed by us.
If
we are unable to protect our intellectual property rights adequately, the value
of our technology and our product candidates could be
diminished.
Our
success depends in part on obtaining, maintaining and enforcing our patents
and
other proprietary rights and our ability to avoid infringing the proprietary
rights of others. Patent law relating to the scope of claims in the
biotechnology field in which we operate is still evolving, is surrounded by
a
great deal of uncertainty and involves complex legal, scientific and factual
questions. To date, no consistent policy has emerged regarding the breadth
of
claims allowed in biotechnology patents. Accordingly, our pending patent
applications may not result in issued patents. Although we own several patents,
the issuance of a patent is not conclusive as to its validity or enforceability.
Through litigation, a third party may challenge the validity or enforceability
of a patent after its issuance.
Also,
patents and applications owned or licensed by us may become the subject of
interference proceedings in the United States Patent and Trademark Office to
determine priority of invention that could result in substantial cost to us.
An
adverse decision in an interference proceeding may result in our loss of rights
under a patent or patent application. It is unclear how much protection,
if any, will be given to our patents if we attempt to enforce them and they
are
challenged in court or in other proceedings. A competitor may successfully
challenge our patents or a challenge could result in limitations of the patents’
coverage. In addition, the cost of litigation
or
interference proceedings to uphold the validity of patents can be substantial.
If we are unsuccessful in these proceedings, third parties may be able to use
our patented technology without paying us licensing fees or royalties. Moreover,
competitors may infringe our patents or successfully avoid them through design
innovation. To prevent infringement or unauthorized use, we may need to file
infringement claims, which are expensive and time-consuming. In an infringement
proceeding a court may decide that a patent of ours is not valid. Even if the
validity of our patents were upheld, a court may refuse to stop the other party
from using the technology at issue on the ground that its activities are not
covered by our patents. Policing unauthorized use of our intellectual property
is difficult, and we may not be able to prevent misappropriation of our
proprietary rights, particularly in countries where the laws may not protect
such rights as fully as in the United States.
In
addition to our patent rights, we also rely on unpatented technology, trade
secrets, know-how and confidential information. Third parties may independently
develop substantially equivalent information and techniques or otherwise gain
access to or disclose our technology. We may not be able to effectively protect
our rights in unpatented technology, trade secrets, know-how and confidential
information. We require each of our employees, consultants and corporate
partners to execute a confidentiality agreement at the commencement of an
employment, consulting or collaborative relationship with us. However, these
agreements may not provide effective protection of our information or, in the
event of unauthorized use or disclosure, they may not provide adequate
remedies.
If
we are forced to litigate or undertake other proceedings in order to enforce
our
intellectual property rights, we may be subject to substantial costs and
liability or be prohibited from commercializing our potential
products.
Patent
litigation is very common in the biotechnology and pharmaceutical industries.
Third parties may assert patent or other intellectual property infringement
claims against us with respect to our technologies, products or other matters.
Any claims that might be brought against us relating to infringement of patents
may cause us to incur significant expenses and, if successfully asserted against
us, may cause us to pay substantial damages and limit our ability to use the
intellectual property subject to these claims. Even if we were to prevail,
any
litigation would be costly and time-consuming and could divert the attention
of
our management and key personnel from our business operations. Furthermore,
as a
result of a patent infringement suit, we may be forced to stop or delay
developing, manufacturing or selling potential products that incorporate the
challenged intellectual property unless we enter into royalty or license
agreements. There may be third-party patents, patent applications and other
intellectual property relevant to our potential products that may block or
compete with our products or processes. In addition, we sometimes undertake
research and development with respect to potential products even when we are
aware of third-party patents that may be relevant to our potential products,
on
the basis that such patents may be challenged or licensed by us. If our
subsequent challenge to such patents were not to prevail, we may not be able
to
commercialize our potential products after having already incurred significant
expenditures unless we are able to license the intellectual property on
commercially reasonable terms. We may not be able to obtain royalty or license
agreements on terms acceptable to us, if at all. Even if we were able to obtain
licenses to such technology, some licenses may be non-exclusive, thereby giving
our competitors access to the same technologies licensed to us. Ultimately,
we
may be unable to commercialize some of our potential products or may have to
cease some of our business operations, which could severely harm our
business.
We
use hazardous materials in our business, and any claims relating to improper
handling, storage or disposal of these materials could harm our
business.
Our
research and development activities involve the controlled use of hazardous
materials, chemicals, biological materials and radioactive compounds. We are
subject to federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of these materials and certain
waste
products. Although we believe that our safety procedures for handling and
disposing of these materials comply with the standards prescribed by applicable
laws and regulations, we cannot completely eliminate the risk of accidental
contamination or injury from these materials. In the event of such an accident,
we could be held liable for any resulting damages, and any liability could
exceed our resources. We may be required to incur significant costs to comply
with these laws in the future. Failure to comply with these laws could result
in
fines and the revocation of permits, which could prevent us from conducting
our
business.
We
face product liability risks and may not be able to obtain adequate
insurance.
The
use of our product candidates during testing or after approval entails an
inherent risk of adverse effects, which could expose us to product liability
claims. Regardless of their merit or eventual outcome, product liability claims
may result in:
• decreased
demand for our product;
• injury
to our reputation and significant media attention;
• withdrawal
of clinical trial volunteers;
• costs
of litigation;
• distraction
of management; and
• substantial
monetary awards to plaintiffs.
We
may not have sufficient resources to satisfy any liability resulting from these
claims. We currently have $5.0 million of product liability insurance for
products which are in clinical testing. This coverage may not be adequate in
scope to protect us in the event of a successful product liability claim.
Further, we may not be able to maintain our current insurance or obtain general
product liability insurance on reasonable terms and at an acceptable cost if
we
or our collaborative partners begin commercial production of our proposed
product candidates. This insurance, even if we can obtain and maintain it,
may
not be sufficient to provide us with adequate coverage against potential
liabilities.
We
depend on our key personnel and we must continue to attract and retain key
employees and consultants.
We
depend on our key scientific and management personnel. Our ability to pursue
the
development of our current and future product candidates depends largely on
retaining the services of our existing personnel and hiring additional qualified
scientific personnel to perform research and development. We will also need
to
hire personnel with expertise in clinical testing, government regulation,
manufacturing, marketing and finance. Attracting and retaining qualified
personnel will be critical to our success. We may not be able to attract and
retain personnel on acceptable terms given the competition for such personnel
among biotechnology, pharmaceutical and healthcare companies, universities
and
non-profit research institutions. Failure to retain our existing key management
and scientific personnel or to attract additional highly qualified personnel
could delay the development of our product candidates and harm our
business.
If
we are unable to obtain additional funding when needed, we may have to delay
or
scale back some of our programs or grant rights to third parties to develop
and
market our products.
We
will continue to expend substantial resources developing new and existing
product candidates, including costs associated with research and development,
acquiring new technologies, conducting preclinical and clinical trials,
obtaining regulatory approvals and manufacturing products as well as providing
certain support to our collaborators in the development of their products.
We
believe that our current working capital and future payments, if any, from
our
collaboration arrangements, including committed research funding that we expect
to receive from sanofi-aventis pursuant to the terms of our collaboration
agreement, will be sufficient to meet our current and projected operating and
capital requirements for at least the next three to four years. However,
we may need additional financing sooner due to a number of factors
including:
• if
either we or any of our collaborators incur higher than expected costs or
experience slower than expected progress in developing product candidates
and
obtaining regulatory approvals;
• lower
revenues than expected under our collaboration agreements; or
• acquisition
of technologies and other business opportunities that require financial
commitments.
Additional
funding may not be available to us on favorable terms, or at all. We may raise
additional funds through public or private financings, collaborative
arrangements or other arrangements. Debt financing, if available, may involve
covenants that could restrict our business activities. If we are unable to
raise
additional funds through equity or debt financing when needed, we may be
required to delay, scale back or eliminate expenditures for some of our
development programs or grant rights to develop and market product candidates
that we would otherwise prefer to internally develop and market. If we are
required to grant such rights, the ultimate value of these product candidates
to
us may be reduced.
Fluctuations
in our quarterly revenue and operating results may cause our stock price to
decline.
Our
operating results have fluctuated in the past and are likely to continue to
do
so in the future. Our revenue is unpredictable and may fluctuate due to the
timing of non-recurring licensing fees, decisions of our collaborative partners
with respect to our agreements with them, reimbursement for manufacturing
services, the achievement of milestones and our receipt of the related milestone
payments under new and existing licensing and collaboration agreements. Revenue
historically recognized under our prior collaboration agreements may not be
an
indicator of revenue from any future collaborations. In addition, our expenses
are unpredictable and may fluctuate from quarter-to-quarter due to the timing
of
expenses, which may include obligations to manufacture or supply product or
payments owed by us under licensing or collaboration agreements. It is possible
that our quarterly operating results will not meet the expectations of
securities analysts or investors, causing the market price of our common stock
to decline. We believe that quarter-to-quarter comparisons of our operating
results are not a good indicator of our future performance and should not be
relied upon to predict the future performance of our stock price.
We
do not intend to pay cash dividends on our common stock.
We
have not paid cash dividends since our inception and do not intend to pay cash
dividends in the foreseeable future. Therefore, shareholders will have to rely
on appreciation in our stock price, if any, in order to achieve a gain on an
investment.
None.
ITEM
3. Defaults
Upon Senior Securities.
None.
ITEM
4. Submission
of Matters to a Vote of Security Holders.
The
2005 Annual Meeting of Shareholders of the Company was held at 10:00 a.m.,
Boston time, on Tuesday, November 8, 2005. At the Annual Meeting, seven members
were elected to the Board of Directors.
Subsequent
to the shareholder vote the following directors’ terms of office continued after
the Annual Meeting: Mitchel Sayare, the Chairman of the Board, Walter A.
Blättler, David W. Carter, Stuart F. Feiner, Nicole Onetto, Mark Skaletsky, and
Joseph J. Villafranca.
|
DIRECTOR
|
|
FOR
|
|
WITHHELD
|
|
Mitchel
Sayare, Ph.D.
|
|
35,146,146
|
|
314,024
|
|
Walter
A. Blättler, Ph.D.
|
|
35,162,680
|
|
297,490
|
|
David
W. Carter
|
|
35,046,130
|
|
414,040
|
|
Stuart
F. Feiner
|
|
34,784,560
|
|
675,610
|
|
Nicole
Onetto, MD
|
|
35,216,553
|
|
243,617
|
|
Mark
Skaletsky
|
|
35,007,720
|
|
452,450
|
|
Joseph
J. Villafranca, Ph.D.
|
|
35,216,703
|
|
243,467
|
ITEM
5. Other
Information.
(a) Not
applicable.
(b)
Among
other changes to the By-laws, as reported in the Current Report on Form 8-K
filed on November 2, 2005, the Governance and Nominating Committee of the Board
of Directors of the Company recommended, and the Board of Directors approved,
certain changes to the Company’s By-laws. A summary of the changes to the
By-laws, which has had an effect on the way security holders may recommend
nominees to the registrant’s board of directors approved by the Directors is set
forth below.
| |
·
|
Added
a new section entitled “Notice of Stockholder Business and Nominations.”
This change requires stockholders who intend to propose business
to be
acted upon at a stockholder meeting to provide advance notice of
their
proposals, or director nominations, to the Company. Section
1.11.
|
| |
·
|
Deleted
a provision which would permit any stockholder holding 10% or more
of the
Company’s common stock to present matters to be considered for action at
an annual meeting, due to the addition of Section 1.11 noted above.
Section 1.2.
|
| |
·
|
Added
a provision including details as to the conduct of stockholder meetings.
Section 1.1.
|
(a) Exhibits
3.3 By-Laws,
as amended *
31.1 Certification
of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification
of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act
of
2002.
32. Certifications
of Chief Executive Officer and Principal Financial Officer under Section 906
of
the Sarbanes-Oxley Act of 2002.
*
Previously filed with the Commission as an exhibit to, and incorporated herein
by reference from, the Registrant's report on Form 8-K dated November 4,
2005.
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
|
ImmunoGen, Inc.
|
|
|
|
|
|
Date:
February 9, 2006
|
By:
|
/s/
Mitchel Sayare
|
|
|
|
Mitchel
Sayare
|
|
|
|
President
and Chief Executive Officer
(principal
executive officer)
|
|
|
|
|
|
Date:
February 9, 2006
|
By:
|
/s/
Daniel M. Junius
|
|
|
|
Daniel
M. Junius
|
|
|
|
Senior
Vice President and Chief Financial Officer
(principal
financial officer)
|