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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission File Number: 0-19131
MEDIMMUNE, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1555759
State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or organization)
35 West Watkins Mill Road
Gaithersburg, Maryland 20878
(Address of principal executive office)
(Zip Code)
Registrant's telephone number, including area code: (301) 417-0770
Securities Registered pursuant to Section 12(b) of the Act: None
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes: X No:
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [ ].
Aggregate market value of the 54,907,653 shares of voting stock held by
non-affiliates of the registrant based on the closing price on
February 28, 1999 was $3,019,920,915 . Common Stock outstanding as of
February 28, 1999: 55,311,727 shares.
Documents Incorporated by Reference:
Document Part of Form 10-K
Proxy Statement for the Annual Meeting Part III
of Stockholders to be held May 20, 1999.
MEDIMMUNE, INC.
FORM 10-K
TABLE OF CONTENTS
PART I PAGE
Item 1. Business 1
Item 2. Properties 41
Item 3. Legal Proceedings 42
Item 4. Submission of Matters to a Vote of Security Holders 42
PART II
Item 5. Market for MedImmune, Inc.'s Common Stock and Related
Shareholder Matters 42
Item 6. Selected Financial Data 43
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 45
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk 57
Item 8. Financial Statements and Supplementary Data 59
Report of Independent Accountants 90
Report of Management 91
Item 9. Changes in and Disagreements with Accountants on
Accounting Financial Disclosure 92
PART III
Item 10. Directors and Executive Officers of MedImmune, Inc. 93
Item 11. Executive Compensation 93
Item 12. Security Ownership of Certain Beneficial Owners and
Management 93
Item 13. Certain Relationships and Related Transactions 93
PART IV
ITEM 14. Exhibits, Financial Statement Schedule, and
Reports on Form 8-K 94
SIGNATURES 95
Schedule I S-1
Exhibit Index E-1
Exhibits (Attached to this Report on Form 10-K)
CytoGam and RespiGam are registered trademarks and Synagis is a
trademark of the Company.
THE STATEMENTS IN THIS ANNUAL REPORT THAT ARE NOT DESCRIPTIONS OF
HISTORICAL FACTS MAY BE FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS
REFLECT MANAGEMENT'S CURRENT VIEWS, ARE BASED ON CERTAIN ASSUMPTIONS AND
ARE SUBJECT TO RISKS AND UNCERTAINTIES, INCLUDING, BUT NOT LIMITED TO,
THE INFORMATION SET FORTH UNDER THE CAPTION "RISK FACTORS", AS WELL AS
OTHER RISKS DETAILED BELOW. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE CURRENTLY ANTICIPATED AS A RESULT OF THE FOREGOING OR OTHER
FACTORS.
PART I Item 1. Business
MedImmune, Inc. ("the Company"), is a biotechnology company
headquartered in Gaithersburg, Maryland with three products on the
market and a diverse product development portfolio. The Company is
focused on using advances in immunology and other biological sciences to
develop important new products that address significant medical needs in
areas such as infectious diseases, transplantation medicine, autoimmune
diseases and cancer. In 1998, the Company launched Synagis
(palivizumab) in the United States for preventing respiratory syncytial
virus (RSV) in high-risk pediatric patients. Synagis is the first
monoclonal antibody approved for an infectious disease and has become an
important new pediatric product for the prevention of RSV, the leading
cause of pneumonia and bronchiolitis in infants and children. The
Company also markets CytoGam (Cytomegalovirus Immune Globulin
Intravenous (Human), CMV-IGIV) and RespiGam (Respiratory Syncytial Virus
Immune Globulin Intravenous (Human), RSV-IGIV) and has five new product
candidates undergoing clinical trials.
Products on the Market.
Synagis
Synagis is a humanized monoclonal antibody approved for marketing in
June 1998 by the U.S. Food and Drug Administration ("FDA") for the
prevention of serious lower respiratory tract disease caused by
respiratory syncytial virus ("RSV") in pediatric patients at high risk
of RSV disease. Synagis is administered by intramuscular injection at 15
1
mg/kg and is given once per month during anticipated periods of RSV
prevalence in the community. In the Northern Hemisphere, the RSV season
typically commences in October or November and lasts through March or
April.
RSV is the most common cause of lower respiratory infections in infants
and children worldwide. Healthy children and individuals with adequate
immune systems often acquire a benign chest cold when infected with RSV.
In contrast, certain high-risk infants such as premature infants and
children with chronic lung disease ("CLD"; also known as
bronchopulmonary dysplasia, or "BPD") are at increased risk for
acquiring severe RSV disease (pneumonia and bronchiolitis), often
requiring hospitalization. Each year in the United States, more than
90,000 infants are hospitalized with RSV disease. The mortality rate of
hospitalized infants with RSV infection of the lower respiratory tract
is about 2 percent. There are approximately 325,000 infants at high risk
of acquiring severe RSV disease in the United States. In a randomized,
double-blind, placebo-controlled Phase 3 clinical trial known as "IMpact-
RSV" evaluating the ability of Synagis to prevent serious RSV disease in
1,502 high-risk pediatric patients, RSV hospitalizations occurred among
53 of 500 (10.6 percent) patients in the placebo group and 48 of 1002
(4.8 percent) patients in the Synagis group, a 55 percent reduction
(p<0.001). Synagis was safe and generally well-tolerated, and the
proportions of subjects in the placebo and Synagis groups who
experienced any adverse event or any serious adverse event were similar.
In December 1997, the Company formed an exclusive worldwide marketing
alliance with Abbott Laboratories ("Abbott") to commercialize Synagis.
Within the United States, the Ross Products Division of Abbott is co-
promoting Synagis with the Company. The Company records all U.S. sales
and Abbott receives a commission on sales above pre-determined
thresholds. Each company is responsible for its own selling expenses.
Outside the United States, the International Division of Abbott
Laboratories has the exclusive right to distribute Synagis. The Company
manufactures and sells Synagis to Abbott for sales outside the United
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States. Sales to Abbott in 1998 for "named patient" sales of Synagis
outside of the United States were $2.3 million. During 1998, the
Company and Abbott submitted regulatory applications requesting approval
to market Synagis in 25 countries outside the United States: Austria,
Australia, Argentina, Belgium, Brazil, Colombia, Denmark, Finland,
France, Germany, Hungary, Ireland, Italy, Kuwait, Luxembourg,
Netherlands, New Zealand, Norway, Poland, Portugal, Greece, Spain,
Sweden, Switzerland, and the United Kingdom. By year-end 1998, approval
was received in Kuwait. In accordance with the Company's agreement with
Abbott, the Company would receive a $15 million milestone payment from
Abbott if and when marketing approval is received from the centralized
European Agency for the Evaluation of Medicinal Products ("EMEA").
There can be no assurances that the EMEA will approve Synagis for
marketing in time for the 1999 - 2000 RSV season or at all.
The Company has established a manufacturing alliance with German-based
Boehringer Ingelheim Pharma KG ("BI") to supplement its own
manufacturing capacity. In September 1998, the FDA approved the
Company's supplement to its Biologic License Application ("BLA")
allowing the Company to import and sell in the United States product
from the BI facility. Additionally, the Company's Gaithersburg
Manufacturing and Development Facility was approved to produce Synagis.
The Company has completed construction of a manufacturing facility in
Frederick, Maryland ("Frederick Manufacturing Center" or "FMC") and
plans to add this facility as a third production site, subject to FDA
clearance. Production lots of Synagis seeking to validate the
consistency of the manufacturing process are underway at the FMC. The
Company plans to submit to the FDA in 1999 an amendment to its BLA
requesting approval to sell Synagis produced at the FMC. There can be no
assurances that this approval will be received in a timely manner or at
all. The Company will continue to rely upon BI for production of
Synagis for the foreseeable future; there can be no assurances that
Synagis product supply will be properly matched with product demand. BI
produces Synagis in large lot sizes relative to overall product supply;
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there can be no assurances that failure of one or more lots of Synagis
will not adversely impact the Company's supply of product or market
perception. Additionally, because Synagis costs rely on favorable
foreign exchange rates and production yields, there can be no assurances
that Synagis will continue to be economical to purchase from BI.
In 1998, the Company sold $109.8 million of Synagis, $92.8 million of
which occurred in the fourth quarter. In general, the Company expects
most of its Synagis sales to occur in the fourth and first quarters of
the year because of the seasonality of RSV in the United States; limited
sales are expected in the second and third quarters. The Company
expects this seasonality to continue in the foreseeable future.
The Company believes that Synagis was broadly reimbursed by third party
payors during the 1998 - 1999 RSV season. There can be no assurances
that third party payors will not attempt to restrict reimbursement
guidelines of Synagis in future RSV seasons.
In November 1998, the Company began two clinical trials evaluating the
safety of Synagis in 1) children under 2 years of age with congenital
heart disease ("CHD") and 2) children with cystic fibrosis. The Company
expects both trials to be concluded by 2000. In addition, the
Cooperative Antiviral Studies Group ("CASG") at the National Institutes
of Health ("NIH") expects to begin a two-year clinical study evaluating
the administration of Synagis for treating RSV disease in bone marrow
transplant recipients. There can be no assurances that data from these
clinical trials will establish the safety or efficacy of Synagis in
these populations, or that results from these trials will not adversely
affect perceptions of Synagis in the marketplace.
Recent clinical and laboratory observations by the Company and others
have suggested that RSV may be implicated in the development of
childhood asthma. Consistent with this hypothesis, data were presented
in 1998 at the 36th Annual Meeting of the Infectious Diseases Society of
America ("IDSA") in Denver suggesting that children who received the
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Company's first RSV product, RespiGam (see below), scored better in
measurements of asthma-like symptoms than those that did not receive the
drug. While these results do not prove that RSV causes asthma, or that
RSV prevention may prevent asthma, the Company believes a prospective
study is warranted. No assurances can be given that such a prospective
study, if conducted, would prove that RSV causes asthma or that RSV
prophylaxis can prevent childhood asthma.
The Company received a composition of matter patent protecting Synagis
and its cell line through October 20, 2015. Other than the Company's
product RespiGam (see below), the Company is not aware of any competing
products being marketed anywhere in the world for the prevention of RSV
disease. The Company believes that any products being developed, if
successfully commercialized, would require at least four years of
clinical development and regulatory approval prior to reaching the
marketplace. Nevertheless, there can be no assurances that a
competitive product will not be brought to market sooner than expected,
or, if brought to market, would not be superior to Synagis. The Company
is currently working on developing third-generation products and/or
formulations for the prevention of RSV disease to preempt possible
competition in the field.
RespiGam
RespiGam, an intravenous immune globulin enriched in neutralizing
antibodies against RSV, was approved by the FDA for marketing in the
United States in January 1996. RespiGam is indicated for the prevention
of serious RSV disease in children under 24 months of age with BPD or a
history of premature birth (i.e., born at 35 weeks or less gestation).
RespiGam was the first product demonstrated to be safe and effective in
reducing the incidence and duration of RSV hospitalization and the
severity of RSV illness in these high risk infants. While Synagis is
administered by a simple intramuscular injection, RespiGam is
administered by an approximately four hour intravenous infusion.
Because of these and other considerations, the Company believes that
RespiGam will largely be replaced by Synagis in the marketplace.
5
CytoGam
CytoGam is an intravenous immune globulin product enriched in antibodies
against cytomegalovirus ("CMV") and is marketed for prophylaxis against
CMV disease associated with transplantation of kidney, lung, liver,
pancreas, and heart. CMV contributes significantly to morbidity and
mortality in organ transplant recipients. CMV can cause severe pneumonia
and other organ complications related to invasive CMV disease which, if
not successfully treated, can lead to organ failure. CMV has also been
shown to cause increased bacterial and fungal infections, and has been
associated with an increased risk of rejection of the transplanted
organ. There are approximately 20,000 kidney, lung, liver, pancreas,
and heart transplants performed annually in the United States. Clinical
studies have shown a 50 percent reduction in CMV disease in kidney
transplant patients given CytoGam and a 56 percent reduction in serious
CMV disease in liver transplant patients given CytoGam. CytoGam
prophylaxis has also been associated with increased survival in liver
transplant recipients.
CytoGam was initially approved for marketing by the FDA in 1991 for the
attenuation of primary CMV disease in donor-positive/recipient-negative
kidney transplant patients, approximately 2,000 patients annually. The
approved indication was expanded in 1998 to further include lung, liver,
pancreas and heart transplant recipients, approximately 20,000 patients
annually. The Company believes that the expanded indication will not
significantly affect sales in the United States as many physicians have
already been prescribing CytoGam's use in the setting of solid organ
transplantation.
CytoGam was first sold through an exclusive distribution agreement with
Connaught Laboratories. The Company began marketing CytoGam through its
own hospital-based sales force in 1993. Sales of CytoGam have grown at a
compounded annual rate of approximately 53 percent since 1993 to $32.9
million in 1998. Sales outside the United States accounted for $6.3
million of total CytoGam sales in 1998. The Company believes a
significant portion of CytoGam sales in 1998 in the United States was
6
related to the use of CytoGam as a substitute for standard intravenous
immune globulin ("IVIG"). It is unclear when and if the current supply
shortage of IVIG will end and if the continuation of such a shortage
would affect sales of CytoGam. The Company believes the United States
marketplace for CMV drugs in transplantation is competitive and no
assurances can be given that growth in the United States will continue
or that a continued IVIG shortage would increase CytoGam sales.
The Company continues to expand the opportunities for CytoGam outside
the United States. During 1998, CytoGam was approved for marketing in
Poland, Argentina and South Korea. Additionally, product was sold by
distributors in Turkey, Mexico, the Czech Republic, and Canada, and on a
named patient basis in nine other countries. Company's orphan drug
status expired in 1997 and there can be no assurance that additional CMV
intravenous specialty immune globulin products will not be successfully
commercialized by other companies. The Company is aware of one other CMV
immune globulin in development by NABI, Inc.
Products In Development
Human Papillomavirus Vaccine
The Company is developing vaccines for human papillomaviruses ("HPVs"),
the cause of genital warts and cervical cancer. There are over 75
different types of HPVs associated with a variety of clinical disorders
ranging from benign lesions to potentially lethal cancers. Four types of
HPV cause the majority of genital warts and cervical cancer cases: HPV-6
and HPV-11 (genital warts) and HPV-16 and HPV-18 (cervical cancer).
There are currently no vaccines to prevent these common sexually
transmitted diseases that affect 24 to 40 million men and women in the
United States.
The Company's strategy for vaccine development relies on a virus-like
particle ("VLP") technology for producing a structurally identical, non-
infectious form of the virus. Scientists at the Company in
collaboration with a team at Georgetown University first demonstrated
the effectiveness of a VLP vaccine candidate using a dog model for
7
papillomavirus infection.
In 1998, the Company completed a double-blind, randomized, dose-
escalating, adjuvant-controlled Phase 1 clinical trial with its HPV-11
vaccine candidate, MEDI-501, evaluating its safety, tolerance, and
immunogenicity. Sixty-five healthy volunteers received an initial
injection and two booster injections of either alum-adjuvanted vaccine
at various escalating doses or alum alone. Vaccine injections were
believed to be generally well-tolerated. The most common adverse events
within four days after an injection were those commonly seen with alum-
adjuvanted vaccines, including pain at the injection site, headache and
fatigue. HPV antibodies were elevated in all patients after each of the
three injections of MEDI-501 in the dosing regimen. Antibodies that
could neutralize HPV were induced in nearly all volunteers at the higher
doses and 100 percent of the patients receiving all three injections at
the highest dose (n=10) developed elevated levels of antibodies that
could neutralize HPV.
In December 1997, the Company announced a strategic alliance with
SmithKline Beecham ("SB") to develop and commercialize the Company's HPV
vaccines. Under the terms of the agreement, SB receives exclusive
worldwide rights to the Company's HPV vaccine technology and both
companies will collaborate on research and development activities. In
January 1998, the Company received an up-front payment of $15 million
and an equity investment of $5.0 million. Pursuant to the agreement, the
Company also recorded $5.7 million in research funding during 1998, will
continue to receive certain research funding, would receive milestones
if specified development and sales goals are met, and royalties on any
product sales. Total funding and payments to the Company could total
over $85 million.
Under the terms of the agreement, the Company will conduct Phase 1 and
Phase 2 clinical trials, manufacture clinical material for those studies
and receive funding from SB for these activities. SB is responsible for
the final development of the product, as well as regulatory,
8
manufacturing, and marketing activities.
MEDI-507, Anti-CD2 Humanized Monoclonal Antibody
MEDI-507 is a humanized monoclonal antibody being developed by the
Company in collaboration with BioTransplant Incorporated ("Bio
Transplant"). MEDI-507 was derived from a rat monoclonal antibody called
BTI-322. BTI-322 is a registered trademark of BioTransplant. Both MEDI-
507 and BTI-322 bind specifically to the CD2 antigen receptor found on T
cells and natural killer ("NK") cells. Laboratory studies have suggested
that BTI-322 and MEDI-507 primarily inhibit the response of T cells
directed at transplant antigens while subsequently allowing immune cells
to respond normally to other antigens. The selectivity and long lasting
effects of this inhibition suggest that these molecules may have
potential utility in applications in the transplantation field including
treatment or prevention of graft-versus-host disease ("GvHD"), or in
patients with certain autoimmune diseases.
BioTransplant exclusively licensed BTI-322 and MEDI-507 to MedImmune for
evaluation and potential commercialization. MedImmune is responsible for
all activities related to commercialization, and BioTransplant would
receive milestone payments at various stages related to regulatory
approval and royalties if the products are commercialized. BioTransplant
has retained the right to use BTI-322 and/or MEDI-507 in its proprietary
ImmunoCognance(TM) systems, which are designed to reeducate the immune
system to accept foreign tissue: AlloMune(TM) for human-to-human
transplants and XenoMune(TM) for porcine-to-human transplants.
GvHD is a potentially fatal complication of bone marrow or stem cell
transplantation caused when certain white blood cells from the donor
bone marrow attack the tissue of the recipient. Clinical manifestations
include skin rash, severe diarrhea, and liver abnormalities and
jaundice. GvHD is usually treated with a first-line therapy of
corticosteroids. Patients who develop moderate or severe GvHD have over
a 70% chance of death despite diverse treatments. Lack of understanding
of the physiologic mechanism of the disease has been a major impediment
9
to the development of more effective treatments. Both T cells and NK
cells may play a role in development of GvHD. MEDI-507 which
specifically inhibits both types of cells may provide certain advantages
over current therapies. There are approximately 30,000 bone marrow and
stem cell transplants done worldwide each year.
Autoimmune diseases are of major medical importance worldwide and
include common afflictions such as rheumatoid arthritis, multiple
sclerosis, Crohn's disease and psoriasis. The Company believes the
unique immune modulatory properties of MEDI-507 observed in vitro may
have utility in certain autoimmune indications. A Phase 1 trial in
psoriasis is currently ongoing to address that possibility.
BTI-322 has been studied in over 100 patients in the United States and
Europe including a Phase 2 for treatment of steroid-refractory GvHD, and
in a Phase 1/2 for prevention of rejection.
In the Phase 2 clinical trial evaluating BTI-322 for treatment of
steroid-refractory GvHD, the compound was well-tolerated and 55% of the
patients responded positively to treatment, with either a complete
response or a reduction in grade of GvHD. The study was conducted at six
transplantation centers in 20 patients who received allogeneic (non-self
donated) bone marrow or stem cell transplantation, and who experienced
acute GvHD that was unresponsive to corticosteroid treatment. The
primary endpoints in the study were safety and reduction in grade of
GvHD. All 20 patients received a single daily dose of BTI-322 (0.1
mg/kg) for ten consecutive days, in conjunction with a standard
immunosuppression treatment regimen. The grade of GvHD was measured on a
scale of 1 (mild) to 4 (severe) with patients experiencing an overall
reduction in the grade of GvHD from 2.95 to 1.80 (p=0.0005). For the
trial, 11 patients responded positively to treatment, with six patients
experiencing a complete response to treatment and five patients showing
a reduction in the grade of GvHD. In three patients, the grade of GvHD
did not progress to a more severe stage. The grade of GvHD decreased
from 2.82 to 0.73 (p<0.00001) for the 14 patients who responded to the
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BTI-322 therapy. Aside from mild/moderate first dose reactions, patients
tolerated the BTI-322 well. As expected, some of the patients responding
to BTI-322 later experienced a relapse after treatment was completed,
indicating that further studies of extended treatment regimens would be
necessary.
A Phase 1/2 trial was completed for the prevention of acute renal
transplant rejection in which BTI-322 was given at the time of organ
transplantation. Results of the trial showed a 58% reduction at two
years post-transplant in the incidence of kidney graft rejection
episodes compared to conventional triple drug therapy alone.
Because of the encouraging results of studies evaluating BTI-322, the
Company moved forward during 1998 to clinically evaluate MEDI-507, the
humanized version of BTI-322. In the MEDI-507 antibody, the rat
components of the BTI-322 are replaced with human components thereby
reducing the likelihood that a recipient will recognize the drug as
foreign and develop an immune reaction. This potential reaction is
especially possible if the antibody is administered chronically in a
patient whose immune system is not severely suppressed, such as in many
patients with autoimmune diseases. The Company has therefore suspended
development of BTI-322 pending the results of studies evaluating MEDI-
507.
During 1998, the Company announced data from the first clinical trial
evaluating MEDI-507. The study was a Phase 1, open-label, dose-
escalating safety trial in renal allograft recipients examining three
dose levels (0.012, 0.06, and 0.12 mg/kg/dose) of MEDI-507. Thirteen
patients were given an initial dose within six hours after kidney
transplant surgery and a second dose 60-72 hours later. Results
indicated that MEDI-507 was generally well-tolerated and no anti-MEDI-
507 antibodies were detected following administration. During the first
30 days of follow up, two patients experienced acute rejection of their
kidneys.
During 1998, the Company concluded a second clinical trial of MEDI-507,
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a Phase 1/2 study evaluating MEDI-507 for the treatment of GvHD in adult
steroid-resistant stem cell transplant ("SCT") or bone marrow transplant
("BMT") patients. In one of the arms of this clinical trial, the MEDI-
507 dosing regimen was extended past the initial 10 days of treatment.
The data from this trial are currently being analyzed and the results
are expected to be presented at a medical conference in 1999.
In December 1998, the Company announced plans to initiate two additional
Phase 1/2 clinical trials to evaluate MEDI-507. Both studies are
expected to be completed in 1999. In the first study, adult steroid-
naive SCT or BMT recipients will receive MEDI-507 or placebo combined
with corticosteroids (methylprednisolone) for initial treatment of acute
GvHD. Because this study would be the first to evaluate MEDI-507 as part
of initial treatment of GvHD, all patients are expected to receive the
standard initial GvHD treatment with corticosteroids. It is anticipated
that this Phase 1/2 trial will include up to 32 patients recruited from
up to 15 centers. At year-end 1998, the trial protocol had been approved
by the FDA, and patient recruitment had begun.
In the second study, MEDI-507 will be assessed in an open-label trial
for its ability to treat GvHD in pediatric SCT or BMT patients.
Currently there are no agents approved for the treatment of GvHD in
children. Up to 20 pediatric patients (age 2-17) are expected to be
recruited from at least ten centers for this Phase 1/2 study. At year-
end 1998, the clinical trial protocol had been submitted for approval to
the FDA and, if approved, the study would commence enrollment following
the entry of initial patients in the adult trial.
The Company believes that data from the current studies evaluating MEDI-
507 may allow the Company in late 1999 to determine an appropriate
clinical strategy for MEDI-507. No assurances can be given that the
current clinical trials will be successful, or if successful, would lead
to a continuation of the program in the indications currently studied or
at all.
In 1998, the Company announced that MEDI-507 received orphan drug
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designation from the Office of Orphan Products Development of the FDA
for MEDI-507 for the treatment of GvHD. The Orphan Drug Act was
established to encourage development of drugs for rare diseases and
conditions affecting a small patient population (generally fewer than
200,000 people). Orphan designation of a product can potentially
provide a company with seven years of market exclusivity if the company
is the first to receive FDA product marketing approval for the orphan
drug in the designated indication. Additionally, this designation
provides a company with tax credits of 50% for qualified clinical
research expenses and the opportunity for clinical research grants. No
assurances can be given that MEDI-507 would be successfully developed
for GvHD treatment or, if successfully developed, would not experience
significant competition from other products for treatment of GvHD.
During 1998, the Company announced issuance of two patents from the
United States Patent and Trademark Office, relating to the MEDI-507 and
BTI-322 programs. The first patent covers composition of matter and the
use of BTI-322 and MEDI-507 to inhibit T cell-mediated immune responses;
the second patent covers the use of any antibody that binds to the
target epitope recognized by the BTI-322 and MEDI-507 antibodies.
While the Company believes these patents protect the Company against
direct imitation of BTI-322 and MEDI-507, there are no assurances that
other products with similar properties will not be developed by other
companies. The Company is aware of several companies developing
products directed at treating GvHD and autoimmune diseases with
monoclonal antibodies.
MEDI-491, B19 Parvovirus Vaccine
The Company is developing a vaccine for B19 parvovirus based on VLP
technology. Discovered in 1975, B19 parvovirus has been linked to a
number of serious conditions including certain types of miscarriages in
pregnant women, life-threatening sudden reduction of red blood cells in
sickle cell anemia patients, chronic anemia in AIDS and chemotherapy
patients, and persistent arthritis in some adults. Recently, it has
been suggested by certain laboratory observations published in medical
13
journals that B19 may be associated with rheumatoid arthritis. There
are no agents available for the prevention of B19 parvovirus infection.
MEDI-491 is a vaccine intended to prevent human B19 parvovirus
infection. MEDI-491 utilizes VLP technology similar to that used for the
Company's HPV vaccine candidates. By producing two natural B19
parvovirus proteins in the correct proportions in an insect cell
recombinant protein production system, the Company and collaborators at
the National Heart, Lung, and Blood Institute("NHLBI") are able to
generate VLPs which resemble the natural B19 parvovirus particles, but
are not infectious.
The Company has completed a Phase 1 clinical trial to evaluate the
safety of MEDI-491 adjuvanted with aluminum hydroxide. MEDI-491 in this
trial appeared generally well-tolerated and measurable antibody
responses were observed.
In 1998, the Company entered into an agreement with Chiron Corporation
("Chiron") to use MF59, Chiron's proprietary vaccine adjuvant, to
improve the antibody response of MEDI-491. Pursuant to the agreement,
the Company would provide payments to Chiron if certain milestones are
achieved and would pay royalties on any commercialized products. MF59
has been evaluated by Chiron in clinical trials involving over 15,000
people. It was shown to enhance the immune response to certain antigens
and was generally safe and well-tolerated. The Company believes MF59 has
the advantage of being one of the most extensively tested
investigational vaccine adjuvants in human clinical trials.
Additionally, the Company has seen significant immune responses to MEDI-
491 when formulated with MF59 in animal studies compared to other
available adjuvants.
MedImmune believes a successful B19 parvovirus vaccine could be used
both to immunize women entering their child-bearing years to protect
them from experiencing B19 parvovirus-induced miscarriages and to
vaccinate children with sickle cell anemia to protect them against
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transient aplastic crisis.
The Company is also investigating further the potential link between B19
parvovirus infection and rheumatoid arthritis. Based on a number of
papers over the past decade implicating B19 parvovirus in rheumatoid
arthritis, authors of a recent paper in the Proceedings of the National
Academy of Sciences titled "Human B19 parvovirus as a causative agent
for rheumatoid arthritis" identified B19 parvovirus in the joint fluid
of 100% rheumatoid arthritis patients with active arthritis. The
Company is collaborating with the National Institutes of Health to
attempt to replicate and expand upon this work. No assurances can be
made that the Company will successfully establish a definitive link
between B19 parvovirus infection and rheumatoid arthritis. The Company
is not aware of any other vaccine candidates by any other company in
development for B19 parvovirus.
Urinary Tract Infection Vaccine
The Company is developing a vaccine candidate for urinary tract
infections ("UTIs"). UTIs are a significant medical problem and one of
the most common disorders prompting medical attention in otherwise
healthy women and children. UTIs, caused by the bacterium Escherichia
coli ("E. coli"), result in 7-8 million physician and hospital visits
per year at a cost of greater than $1 billion. It is estimated that by
age 30, roughly 50% of women have had at least one infection and 2-10%
are affected by recurrent infections. Recent studies have shown that,
on average, women who are 18-40 years old get 1-2 infections over a two
year period. Older adults are also at risk with the incidence as high as
33 out of 100 people. Currently, there are no vaccines to prevent UTIs.
Most infections can be treated with antibiotics; however, recurrence is
common and emerging antibiotic resistant bacteria create an additional
threat. Earlier attempts to use pili, the hair-like protein appendages
on the surface of bacteria, as vaccine targets were not successful in
protecting against a broad range of pathogenic bacteria, including E.
coli, because of the strain-to-strain variation in the major component
15
of the pili.
The identification of specific proteins, or "adhesins", at the end of
pili which facilitate the attachment of E. coli to human tissue,
provided a novel target for vaccine development. The Company's vaccine
strategy is based on blocking these adhesins, preventing the disease-
causing bacteria from binding and accumulating in the bladder. The novel
target of the Company's vaccine candidate is the FimH adhesin. FimH does
not vary widely among the different strains of E. coli which cause UTIs.
The Company believes this is a requisite quality for development of a
broadly effective UTI vaccine.
The Company first demonstrated the feasibility of a FimH-based UTI
vaccine to prevent UTIs in mice. In 1998, the Company completed studies
in monkeys with its UTI vaccine formulated with Chiron's MF59 (see also
B19 Parvovirus vaccine) that further supported its potential to prevent
UTIs. Laboratory tests indicated that the antibodies generated in
animals to the Company's UTI vaccine candidate react against a wide
range of UTI E. coli strains. The Company intends to begin clinical
trials with its E. coli vaccine candidate adjuvanted with MF59 in late
1999.
Lyme Disease Vaccine
The Company is developing a second-generation Lyme disease vaccine
candidate based on a protein known as decorin binding protein ("DbpA"),
found on the organism which causes Lyme disease. In 1998, the Company
announced that it had granted worldwide rights to its Lyme disease
vaccine candidate to Pasteur Merieux Connaught ("PMC"), a wholly owned
subsidiary of Rhone-Poulenc S.A., in exchange for potential milestone
payments and royalties on any future sales.
Lyme disease is the most common arthropod-borne disease in the United
States. Forty-eight states have reported cases of Lyme disease, with an
annual nationwide incidence of approximately 16,000 new cases. Lyme
disease is also reported in Europe, Japan, China and Russia. The disease
16
is caused by a bacterium known as B. burgdorferi and related species,
and is transferred through a tick, primarily of the genus, Ixodes, most
commonly found on the white-footed mouse or deer in the northeastern
U.S. When the tick feeds on a human host, it can transmit bacteria to
the host, thereby beginning a Lyme disease infection. Following a tick
bite, an infected person can often develop a circular rash with a bulls-
eye pattern. Weeks to months later, this rash may be followed by
neurological, cardiac and joint abnormalities, malaise and general flu-
like symptoms. Early treatment with antibiotics is generally most
effective; however, some infections, particularly if diagnosed late,
have proven to be resistant to antibiotic therapy. Difficulties with
early diagnosis as well as the occurrence of serious treatment-resistant
infections emphasize the need for safe and effective vaccines against
Lyme disease.
The first generation Lyme disease vaccine candidate of PMC is based on a
protein known as outer surface protein A ("OspA") found on the organism
which causes Lyme disease. This product has completed a Phase 3
clinical trial. The Company is also aware of another first-generation
vaccine based on OspA developed by SmithKline Beecham which has received
marketing approval from the FDA.
DbpA was discovered in 1993 by Magnus Hook, Ph.D. and Betty Guo at Texas
A&M University's Institute of Biosciences and Technology in Houston,
Texas and exclusively licensed to MedImmune. These scientists found that
a protein expressed by spirochetes which cause Lyme disease, including
Borrelia burgdorferi and related species, could bind to a protein called
"decorin" commonly found in human skin and connective tissue. Hook and
Guo determined the gene sequence encoding the protein in 1995. The
Company and Texas A&M University found that animals immunized with DbpA
can be protected from challenge with the bacterium. These researchers
have also shown the ability of antibodies directed against DbpA to
inhibit growth of B. burgdorferi and related strains, including isolates
not inhibited by antibodies directed against OspA.
To date, DbpA has been tested in animals. The Company does not believe
17
that a vaccine incorporating DbpA will enter clinical trials prior to
year-end 1999. PMC intends to use DbpA as a component in the development
of European, and possibly improved U.S., vaccines for the prevention of
Lyme disease. MedImmune would receive milestone payments and royalties
on sales of any vaccine incorporating DbpA.
Streptococcus pneumoniae Vaccine
The Company is involved in the discovery and screening of new proteins
for development of a Streptococcus pneumoniae vaccine. Streptococcus
pneumoniae is a major cause of pneumonia, middle-ear infections and
meningitis worldwide, especially in the very young or elderly. Pneumonia
causes more than one million deaths per year and is the most common
cause of childhood death in developing countries. In industrialized
countries, pneumococcal pneumonia is a serious problem among the
elderly. Middle-ear infections affect almost every child at least once
during the first two years of life. Vaccination against pneumococcal
infections has become more urgent in recent years due to the emergence
of antibiotic-resistant strains throughout the world.
The Company has established a research collaboration with St. Jude
Children's Research Hospital("St. Jude") to develop products for the
prevention and treatment of Streptococcus pneumoniae infection. The
Company has been granted a worldwide exclusive license from the
Rockefeller University to commercialize product candidates developed
from a novel set of genes discovered by scientists at St. Jude, formerly
at Rockefeller University. In addition, research efforts are underway by
scientists at the Company and St. Jude to identify novel conserved
surface proteins for potential vaccine applications. During 1998, a
number of promising candidate proteins were found and tested. The
Company believes that one or more candidates may be chosen for further
development in 1999.
Other Products
The Company continues to work on small feasibility studies in a number
of other areas. Any of these programs could become more significant to
18
the Company over the next 12 months; however, there can be no
assurances that any of the new programs under review will generate
viable product opportunities. The Company may choose to address new
opportunities for future growth in a number of different ways including,
but not limited to, internal discovery and development of new products,
in-licensing of products and technologies, and/or merger or acquisition
of companies with products and/or technologies. Any of these activities
may require substantial capital investment.
Products and Product Development Programs
The following table summarizes the indications and current status of the
Company's products and product development programs.
Product Indication Status(1)
- ---------------------------------------------------------------
Synagis RSV Prevention of RSV disease Marketed
Monoclonal in pediatric patients at
Antibody (IM) high risk of RSV disease
CytoGam Prophylaxis of cytomegalovirus Marketed
disease associated with
transplantation of kidney,
lung, liver, pancreas and heart
RespiGam Prevention of serious RSV Marketed
RSV Immune disease in infants with
Globulin (IV) prematurity or lung disease
Synagis RSV Treatment of RSV disease in Phase 3 (4)
Monoclonal bone marrow transplant
Antibody recipients
Vitaxin Anti- Treatment of cancer by inhibition Phase 2
Alfa-V-Beta-3 of angiogenesis leiomyosarcoma
Moloclonal patents
Antibody
MEDI-507 Treatment of graft-versus-host Phase 1/2
Monoclonal disease
Antibody
MEDI-501 HPV-11 Prevention of genital warts Phase 1
Vaccine(2) Completed
MEDI-507 Treatment of psoriasis Phase 1
Monoclonal
19
Antibody
MEDI-491 B19 Prevention of B19 parvovirus Phase 1
Parvovirus infection Completed
Vaccine
MEDI-504 HPV-18 Prevention of cervical cancer Clinical
Vaccine(2) Development
MEDI-503 HPV-16 Prevention of cervical cancer Clinical
Vaccine(2) Development
E. coli Vaccine Prevention of urinary tract Pre-clinical
(FimH Adhesin) infections Development
Second-Generation Prevention of Lyme disease Pre-clinical
Lyme Disease Development
Vaccine (3)
S. pneumoniae Prevention and treatment of Research
Vaccine streptococcus pneumoniae
_______________
(1) "Phase 1" and "Phase 2" clinical trials generally involve
administration of a product to a limited number of patients
to evaluate safety, dosage and, to some extent, efficacy.
"Phase 3" clinical trials generally examine the efficacy
and safety of a product in an expanded patient population at
multiple clinical sites.
(2) These products are being co-developed by the Company and
SmithKline Beecham. The Company is entitled to certain
milestone payments and royalties on any sales, if and when
cleared for marketing by the FDA. The specific clinical
status of these products is not disclosed.
(3) This product was out-licensed to Pasteur-Merieux Connaught
("PMC") in 1998. PMC is responsible for clinical
development and commercialization. The Company is entitled
to certain milestone payments and royalties on any sales, if
and when cleared for marketing by the FDA.
(4) This clinical trial is sponsored by the Cooperative
Antiviral Studies Group of the National Institutes of Health
Marketing, Research, Development and Collaborative Agreements
The Company's internal research programs are augmented by collaborative
projects with its scientific partners. As part of its strategy, the
Company has established alliances with pharmaceutical and other
biotechnology companies, academic scientists and government
laboratories. Currently, its principal strategic alliances are the
following:
20
Abbott Laboratories
In December 1997, the Company entered into two agreements with Abbott
Laboratories ("Abbott"). The first agreement calls for Abbott to co-
promote Synagis in the United States in exchange for a percentage of net
sales in excess of annual sales thresholds. Each company is responsible
for its own selling expenses.
The second agreement allows Abbott exclusively to distribute Synagis
outside the United States, if and when licensed for marketing by the
appropriate regulatory authorities. The Company would manufacture and
sell Synagis to Abbott at a price based on end user sales and could
receive additional milestone payments based on meeting certain
milestones and sales thresholds. In July 1998, the Company and Abbott
submitted a Marketing Authorization Application("MAA") to the European
Agency for The Evaluation of Medical Products ("EMEA") for Synagis. The
approval time of an MAA submitted to the EMEA can be 12 to 24 months or
more. As of December 31, 1998, the Company and Abbott had submitted a
total of 25 regulatory applications for approval to market Synagis. No
assurance can be given that the MAA will be approved by the EMEA in time
for the 1999 - 2000 RSV season or at all, or that any other applications
submitted to any other countries for marketing licensure will be
approved in a timely manner or at all.
American Home Products Corporation
The Company's strategic alliance with American Home Products ("AHP")
calls for the two companies to co-develop and co-promote RespiGam. The
agreement provided for AHP to fund a portion of the cost of the
development of RespiGam and to co-promote the product in the United
States. AHP shares in the profits and losses of RespiGam in the U.S.
The alliance provides for the Company to receive royalties on any sales
of AHP's RSV vaccine product, currently in Phase 2 clinical development
and for AHP to receive royalties on all domestic sales of Synagis.
SmithKline Beecham
In December 1997, the Company entered into a strategic alliance with
21
SmithKline Beecham PLC ("SB") to research, develop, manufacture and
commercialize therapeutic and prophylactic HPV vaccines. In exchange
for exclusive worldwide rights to the Company's HPV technology, SB
provided the Company with an up-front payment of $15 million, which was
received and recorded in 1998, future funding and potential
developmental and sales milestones which together could total over $85
million, royalties on any product sales and an equity investment of $5
million. Under the terms of the agreement, the companies will
collaborate on research and development activities. MedImmune will
conduct Phase 1 and Phase 2 clinical trials and manufacture clinical
material for those studies. SB is responsible for the final development
of the product, as well as regulatory, manufacturing, and marketing
activities.
BioTransplant, Incorporated
In October 1995, the Company and BioTransplant, Incorporated ("BTI")
formed a strategic alliance for the development of products to treat and
prevent organ transplant rejection. The alliance is based upon the
development of products derived from BTI's anti-CD2 antibody, BTI-322,
the Company's anti-T cell receptor antibody, MEDI-500, and future
generations of products derived from these two molecules (such as MEDI-
507, or humanized BTI-322). Pursuant to the alliance, the Company
received an exclusive worldwide license to develop and commercialize
BTI-322 and any products based on BTI-322, with the exception of the use
of BTI-322 in kits for xenotransplantation or allotransplantation. The
Company has assumed responsibility for clinical testing and
commercialization of any resulting products. BTI may receive milestone
payments which could total up to an additional $11.0 million, as well as
royalties on any sales of BTI-322, MEDI-500, MEDI-507 and future
generations of these products, if any.
Human Genome Sciences, Inc.
In July 1995, the Company entered into a collaborative research and
development relationship with Human Genome Sciences, Inc. ("HGS") to
create antibacterial vaccines and immunotherapeutic products based upon
the genomic sequences of bacteria. The Company and HGS have
collaborative
22
research efforts underway to develop a vaccine for Streptococcus
pneumoniae. Rights to another genomic sequence for vaccine development,
Helicobacter pylori, were out-licensed to Oravax, Inc. and Pasteur
Merieux Connaught in November 1996 for license payments as well as
milestone and royalty obligations. Pursuant to a collaboration and
license agreement between the Company and HGS, the Company will be
solely responsible for the commercialization of any products developed
through the collaboration, and HGS will be entitled to royalties based
upon the extent to which any products jointly developed are covered by
patents or license rights held by HGS.
Massachusetts Health Research Institute and Massachusetts Biologics
Laboratories.
In August 1989 and April 1990, the Company entered into a series of
research, supply and license agreements with Massachusetts Health
Research Institute ("MHRI") and Massachusetts Public Health Biologics
Laboratories, then a division of the Massachusetts Department of Public
Health ("The State Lab"), covering products intended for the prevention
or treatment of CMV and RSV infection and other respiratory virus
infections by immune globulins or monoclonal antibodies. The Company has
agreed to pay royalties on all sales using the licensed technology.
Pursuant to the agreements, the Company paid $17.8 million in 1998,
$13.3 million in 1997,and $11.8 million in 1996 , for royalties, process
development and manufacturing.
Pasteur Merieux Connaught
In December 1998, the Company entered into a license agreement with
Pasteur Merieux Connaught ("PMC"), a subsidiary of Rhone-Poulenc S.A.,
to develop a second generation vaccine for the prevention of Lyme
disease. The first generation vaccine candidate of PMC, OspA, has
completed a Phase 3 clinical trial. In exchange for exclusive worldwide
rights to the Company's DbpA technology, PMC made an up-front payment in
December 1998, and agreed to make additional payments if certain
development and sales milestones are achieved, and agreed to pay
royalties on any product sales. PMC indicated that it intends to use
DbpA for the development of
23
European, and possibly improved U.S., vaccines for the prevention of
Lyme disease.
Other Agreements
The Company has a number of other collaborative and business agreements
with academic institutions and business corporations, including
agreements with 1) Washington University in St. Louis covering
development of pilus-based anti-bacterial vaccines, 2) Georgetown
University, the German Cancer Research Center and the University of
Rochester covering development of vaccines for human papillomaviruses,
3)Chiron Corporation covering supply of MF59, a proprietary vaccine
adjuvant to be used for B19 parvovirus and E.coli development and, 4)
scientists at St. Jude for the discovery and commercialization of
products to treat and prevent Streptococcus pneumoniae. In addition, the
Company has license agreements with third parties for CytoGam, RespiGam,
Synagis and substantially all of its other potential products. Under
such license agreements the Company is obligated to pay royalties on any
sales of these products.
Marketing and Sales
The Company has developed a sales and marketing organization which it
believes is responsive to the increased importance of managed care and
the need of the healthcare industry to provide higher quality care at
lower costs.
The Company's first product, CytoGam, was originally marketed by a third
party as the Company's exclusive distributor. In December 1992, the
Company reacquired marketing rights to CytoGam and in January 1993, the
Company commenced marketing of CytoGam in the United States through its
own sales force (then consisting of 14 people) focused on 250 leading
transplantation hospitals. Sales outside the United States are made
through regional distributors.
The Company now has approximately 100 people devoted to sales and
marketing of the Company's three approved products. Approximately 50
sales and managed care representatives cover approximately 500 hospitals
24
and clinics in the United States, which specialize in transplantation
and/or pediatric/neonatal care, for the promotion of CytoGam and Synagis
or RespiGam, respectively. Each sales representative is responsible for
selling all three products.
The Company has established a collaboration with Abbott, through its
Ross Pediatrics Division, to co-promote Synagis in the U.S. In
addition, Abbott has agreed to serve as the Company's exclusive
distributor for Synagis outside of the U.S., if and when Synagis is
cleared for marketing by the appropriate regulatory authorities. There
can be no assurance that such approvals would be granted, or, if
granted, that approvals would occur in a timely manner.
Manufacturing and Supply
The Company has entered into manufacturing, supply and purchase
agreements in order to provide a supply of human plasma and production
capability for Synagis, CytoGam and RespiGam. CytoGam and RespiGam are
produced from human plasma collected from donors who have been screened
to have high concentrations of antibodies against CMV and RSV,
respectively. Human plasma for CytoGam and RespiGam is converted to an
intermediate raw material (Fraction II+III paste) under supply
agreements with Baxter and V.I. Technologies, Inc.
The State Lab processes the Fraction II+III paste into bulk product. The
Company has an informal arrangement with the State Lab for planned
production of bulk product for CytoGam and RespiGam. The State Lab holds
the sole product and establishment licenses for CytoGam and RespiGam.
The Company also has an agreement with Connaught Laboratories, Inc.
("Connaught") to fill and package CytoGam and RespiGam. If the State
Lab, the suppliers of the Fraction II+III paste, or Connaught is unable
to satisfy the Company's product requirements on a timely basis or is
prevented for any reason from manufacturing its products, the Company
may be unable to secure an alternative supplier or manufacturer without
undue and materially adverse operational disruption and increased cost.
25
In 1997, the Company entered into a manufacturing and supply agreement
with BI to provide supplemental production capability for Synagis, a
humanized monoclonal antibody product. BI is currently the primary
manufacturer of Synagis. BI also fills and packages Synagis produced at
their facility. The BI facility is subject to inspection and approval by
the appropriate regulatory authorities in connection with maintaining
its FDA licensure as well as for obtaining and maintaining approval from
certain ex-U.S. countries. Should BI be unable to supply Synagis to the
Company for any reason, there can be no assurance that the Company would
be able to secure an alternate manufacturer in a timely basis or without
increased cost. If and when the Company's Frederick manufacturing
facility is licensed for production by the FDA, the Company would
continue for the foreseeable future to rely upon BI for production of
additional quantities of Synagis in order to meet expected worldwide
demand for the product. There can be no assurances that BI will be
licensed by the appropriate regulatory authorities to manufacture the
product for sale outside the U.S.
The Company has completed construction of its manufacturing facility in
Frederick, Maryland. The facility, currently undergoing start-up and
validation activities, is a multi-use biologics facility intended to
provide production capability for the manufacture of immune globulins
and by-products from human plasma. In addition, the facility contains a
cell culture production area for the manufacture of recombinant
products, such as Synagis, MEDI-501 and MEDI-507, if and when MEDI-501
and MEDI-507 are cleared for marketing by the FDA. The Company is
currently planning to submit in 1999 an amendment to its BLA for
approval of the facility for production of Synagis. There can be no
assurances that the facility will receive regulatory approval for its
intended purposes. Any resulting sales of product from this facility
would not commence for at least the next 12 months. The Company has no
experience in commercial manufacturing. Accordingly, even if the
necessary approvals were obtained, the Company would encounter new risks
associated with
26
commercial manufacturing, including potential scale-up issues, cost
overruns, product defects and environmental problems. Furthermore, there
can be no assurance that the Company will be able to manufacture
products at a cost that is competitive with third party manufacturing
operations or that the production yields will be comparable or better
than those achieved at third party manufacturing operations.
The Company's pilot plant facility in Gaithersburg, Maryland was
licensed by the FDA for the commercial production of Synagis in June
1998. Due to the small capacity at the facility, only limited
quantities of Synagis are produced at this site. In addition, this site
produces materials for the Company's clinical trials. Materials
currently being used in clinical trials for MEDI-501, MEDI-507, and
MEDI-491 have been produced at the Company's pilot plant.
The Company entered into an agreement with Chiron Corporation ("Chiron")
in 1997, pursuant to which Chiron fills and packages Synagis produced at
the Gaithersburg pilot plant and Frederick manufacturing plant. The
term of the agreement is for three years.
Patents, Licenses and Proprietary Rights
Products currently being developed or considered for development by the
Company are in the area of biotechnology, an area in which there are
extensive patent filings. The Company relies on patent protection
against use of proprietary products and technologies by competitors.
The patent position of biotechnology firms generally is highly uncertain
and involves complex legal and factual questions. To date, no
consistent policy has emerged regarding the breadth of claims allowed in
biotechnology patents. Accordingly, there can be no assurance that
patent applications owned or licensed by the Company will result in
patents being issued or that, if issued, such patents will afford
protection against competitors with similar technology.
The Company believes that there are other patents issued to third
parties and/or patent applications filed by third parties which could
have applicability to each of the Company's products and product
candidates
27
and could adversely affect the Company's freedom to make, have made, use
or sell such products or use certain processes for their manufacture.
The Company is unable to predict whether it will ultimately be necessary
to seek a license from such third parties or, if such a license were
necessary, whether such a license would be available on terms acceptable
to the Company. The necessity for such a license could have a material
adverse effect on the Company's business.
There has been substantial litigation regarding patent and other
intellectual property rights in the biotechnology industry. Litigation
may be necessary to enforce certain intellectual property rights of the
Company. Any such litigation could result in substantial cost to and
diversion of effort by the Company.
Government Regulation
The production and marketing of the Company's products and research and
development activities are subject to regulation for safety and efficacy
by numerous governmental authorities in the United States and other
countries. In the United States, vaccines, biologics, drugs and certain
diagnostic products are subject to FDA review and licensure. The federal
Food, Drug and Cosmetics Act, the Public Health Service Act and other
federal statutes and regulations govern or influence the testing,
manufacture, safety, labeling, storage, record keeping, licensure,
advertising and promotion of such products. No assurances can be given
that any products under development will be licensed for marketing by
the FDA or, if approved, that the product would be successfully
commercialized or maintained in the marketplace. Non-compliance with
applicable requirements could result in fines, recall or seizure of
products, total or partial suspension of production, refusal of the
government to approve product license applications, restrictions on the
Company's ability to enter into supply contracts and criminal
prosecution. The FDA also has the authority to revoke product licenses
and establishment licenses previously granted.
The FDA may designate a drug as an Orphan Drug for a particular use, in
28
which event the developer of the drug may be entitled to a seven year
marketing exclusivity period. CytoGam, RespiGam and MEDI-507 have been
designated as Orphan Drugs for certain indications by the FDA.
Accordingly, RespiGam has market exclusivity for its currently licensed
indication through January 17, 2003. Marketing exclusivity for
CytoGam's originally licensed indication for use in kidney
transplantation expired in 1997. MEDI-507 would have market exclusivity
for seven years from the date of FDA approval if it is the first product
approved by the FDA for treatment of GvHD.
The Company is also subject to regulation by the Occupational Safety and
Health Administration ("OSHA") and the Environmental Protection Agency
("EPA") and to regulation under the Toxic Substances Control Act, the
Resources Conservation and Recovery Act and other regulatory statutes,
and may in the future be subject to other federal, state or local
regulations. OSHA and/or the EPA may promulgate regulations concerning
biotechnology that may affect the Company's research and development
programs. The Company is unable to predict whether any agency will adopt
any regulation which would have a material adverse effect on the
Company's operations. The Company voluntarily attempts to comply with
guidelines of the National Institutes of Health regarding research
involving recombinant DNA molecules. Such guidelines, among other
things, restrict or prohibit certain recombinant DNA experiments and
establish levels of biological and physical containment that must be met
for various types of research.
Sales of pharmaceutical and biopharmaceutical products outside the
United States are subject to foreign regulatory requirements that vary
widely from country to country. Whether or not FDA licensure has been
obtained, licensure of a product by comparable regulatory authorities of
foreign countries must be obtained prior to the commencement of
marketing the product in those countries. The time required to obtain
such licensure may be longer or shorter than that required for FDA
approval, and no
assurances can be given that such approval will be obtained.
29
Competition
The biotechnology and pharmaceutical industries are characterized by
rapidly evolving technology and intense competition. The Company's
competitors include pharmaceutical, chemical and biotechnology
companies, many of which have financial, technical and marketing
resources significantly greater than those of the Company. In addition,
many specialized biotechnology companies have formed collaborations with
large, established companies to support research, development and
commercialization of products that may be competitive with those of the
Company. Academic institutions, governmental agencies and other public
and private research organizations are also conducting research
activities and seeking patent protection and may commercialize products
on their own or through joint ventures.
The Company is aware of certain products manufactured by competitors
that are used for the prevention or treatment of certain diseases the
Company has targeted for product development, including CMV, RSV, Lyme
disease, HPV infections and organ graft rejection. In the prevention of
CMV disease, the Company's CytoGam competes with several other products
including other antiviral drugs, standard immune globulin preparations
and intravenous and oral ganciclovir, marketed by Hoffmann-La Roche Inc.
The Company is aware that a number of physicians have prescribed CytoGam
in combination with ganciclovir for the prevention of CMV disease in
certain patients.
The Company believes that for the prevention of RSV disease, the
Company's second generation RSV product, Synagis, and its first
generation product, RespiGam, which has largely been replaced by
Synagis, do not compete directly with any product; however, the Company
is aware of one product in the U.S., ribivirin, which is indicated for
the treatment of RSV disease. The existence of these products, or other
products or treatments of which the Company is not aware, or products or
treatments that may be developed in the future, may adversely affect the
marketability of products developed by the Company.
30
The Company expects its products to compete primarily on the basis of
product efficacy, safety, patient convenience, reliability, price and
patent position. In addition, the first product to reach the market in a
therapeutic or preventive area is often at a significant competitive
advantage relative to later entrants to the market. The Company's
competitive position will also depend on its ability to attract and
retain qualified scientific and other personnel, develop effective
proprietary products, implement product and marketing plans, obtain
patent protection and secure adequate capital resources.
EXECUTIVE OFFICERS OF THE COMPANY
Officer
Name Age Position Since
- -----------------------------------------------------------------------
Wayne T. Hockmeyer, Ph.D. 54 Chairman and Chief Executive 1988
Officer
Melvin D. Booth 53 President and Chief Operating 1998
Officer
David M. Mott 33 Vice Chairman and Chief 1992
Financial Officer
David P. Wright 51 Executive Vice President- 1990
Sales and Marketing
Franklin H. Top, Jr., 63 Executive Vice President and 1988
M.D. Medical Director
Bogdan Dziurzynski 50 Senior Vice President 1994
Regulatory Affairs and
Quality Assurance
James F. Young, Ph.D. 46 Senior Vice President 1989
Research and Development
Dr. Hockmeyer founded the Company in April 1988 as President and Chief
Executive Officer and was elected to serve on the Board of Directors in
May 1988. He became Chairman of the Board of Directors in May 1993.
31
From 1986 to 1988, Dr. Hockmeyer served as Vice President, Research and
Development, of Praxis Biologics, Inc. ("Praxis"). From 1980 to 1986,
Dr. Hockmeyer served as Chairman, Department of Immunology, Walter Reed
Army Institute of Research. Dr. Hockmeyer is a member of the Maryland
Economic Development Commission, a member of the Board of Directors of
Digene Corporation, serves on the Advisory Board of the University of
Maryland Biotechnology Institute, is a member of Board of Advisors of
the Institute of Human Virology, is a member of the Board of Directors
of the High Technology Council of Maryland, is Chairman of the Maryland
Bioscience Alliance and a member of the University of Maryland
University College Graduate School Advisory Board, Executive Programs.
Dr. Hockmeyer received a Bachelor of Science degree from Purdue
University and a doctorate from the University of Florida.
Mr. Booth joined the Company in October 1998 as President and Chief
Operating Officer and was elected to serve on the Board of Directors in
November 1998. Prior to joining the Company, he was President, Chief
Operating Officer and a member of the Board of Directors of Human Genome
Sciences, Inc. from July 1995 until October 1998. Prior to this time,
Mr. Booth was employed at Syntex Corporation from 1975 to 1995, where he
held a variety of positions, including President of Syntex Laboratories,
Inc. from 1993 to 1995 and Vice President of Syntex Corporation from
1992 to 1995. From 1992 to 1993, he served as the President of Syntex
Pharmaceuticals Pacific. From 1991 to 1992, he served as an area Vice
President of Syntex, Inc. From 1986 to 1991 he served as the President
of Syntex, Inc., Canada. Mr. Booth is a past Chairman of the
Pharmaceutical Manufacturers Association of Canada and currently is a
member of the Board of Directors of Neoprobe Corporation. Mr. Booth
graduated from Northwest Missouri State University and holds a Certified
Public Accountant Certificate.
Mr. Mott joined the Company in April 1992 as Vice President, with
responsibility for business development, strategic planning and investor
relations. In 1994, Mr. Mott assumed additional responsibility for the
medical and regulatory groups, and in 1995 was appointed Executive Vice
32
President and Chief Financial Officer. In November 1995, Mr. Mott was
appointed to the position of President and Chief Operating Officer and
was elected to the Board of Directors. In October 1998, Mr. Mott was
appointed Vice Chairman and Chief Financial Officer. Prior to joining
the Company, he was a Vice President in the Health Care Investment
Banking Group at Smith Barney, Harris Upham & Co., Inc. At Smith Barney,
where he was employed from July 1986 to April 1992, Mr. Mott's
activities included public and private equity and debt financings as
well as merger and acquisition work for biotechnology, healthcare
services, and medical product and device companies. Mr. Mott is a
member of the Board of Directors of Conceptis Technologies. He holds a
Bachelor of Arts degree in economics and government from Dartmouth
College.
Dr. Top joined the Company in June 1988 as Executive Vice President. He
was elected to the Board of Directors in July 1988 and became the
Company's Medical Director in 1990. From 1987 to 1988, Dr. Top served
as Senior Vice President for Clinical and Regulatory Affairs at Praxis.
Prior to 1987, Dr. Top served for 22 years in the U.S. Army Medical
Research and Development Command, where he was appointed Director,
Walter Reed Army Institute of Research in 1983. Dr. Top holds a
doctorate of medicine cum laude and a Bachelor of Science degree in
biochemistry from Yale University.
Mr. Wright, prior to joining the Company in 1990, was President of
Pediatric Pharmaceuticals, Inc. (1989-1990) and Vice President of the
Gastrointestinal Business Group at Smith, Kline and French Laboratories.
Mr. Dziurzynski, prior to joining the Company in 1994, was Vice
President of Regulatory Affairs and Quality Assurance at Immunex
Corporation.
Dr. Young, prior to joining the Company in 1989, was Director,
Department of Molecular Genetics at Smith, Kline and French
Laboratories.
33
EMPLOYEES
As of February 15, 1999, the Company had 438 full time employees. These
include 101 marketing and sales personnel, 45 clinical and regulatory
affairs personnel, 128 manufacturing facility personnel, and 88 research
and development personnel. The Company considers relations with its
employees to be good.
RISK FACTORS
In addition to the other information included in this report, you should
consider the following risk factors. This report contains forward-
looking statements covered by the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking
statements involve risks and uncertainties that may affect our business
and prospects. Our results may differ significantly from the results
discussed in the forward-looking statements as a result of certain
factors which are listed below or discussed elsewhere in this report and
our other filings with the Securities and Exchange Commission.
Product sales may vary: The amount we receive from sales of our products
may vary from period to period for several reasons, including: seasonal
demand for our principal product, general market demand for our
products, which may fluctuate, availability of other competitive
products in the market, availability of third-party reimbursement for
the cost of treatment with our products, effectiveness and safety of our
products, rate of adoption and use of our products for approved
indications and possible additional indications, likelihood and timing
of FDA and other regulatory approvals.
We do not expect any of the products we have under development to be
commercially available prior to 2002 and they may never become
commercially available.
Increased work force could result in substantial costs and time delays:
Recent increases in the size of our work force and scope of operations
could be harmful to us. In connection with our increased marketing
34
efforts for Synagis, and in preparation for commencement of
manufacturing in our new Frederick, Maryland facility, we have
substantially increased the size of our work force. This rapid growth
and increased scope of operations present new risks we have not
previously encountered and could result in unanticipated and substantial
costs and time delays which could materially and adversely affect the
Company.
Significant costs could result from our new manufacturing facility: Our
new manufacturing facility could result in significant costs to us. We
completed construction of the facility, located in Frederick, Maryland,
in early 1998. We are currently in the process of validating the
manufacturing process and beginning production. We expect to submit to
the FDA in 1999 an amendment to our Biologics License Application for
approval of the facility for the production of Synagis. We cannot sell
any Synagis or CytoGam manufactured in the facility unless and until the
FDA inspects the facility and approves our application. We cannot
guarantee that our facility will be approved on a timely basis, or at
all. Even if the approval process goes according to our expectations,
we anticipate that sales of product manufactured in the facility will
not begin for at least the next nine to 18 months. Until approval is
received, all costs of operating our manufacturing facility must be
borne by us without being offset by revenue from sales of Synagis or
CytoGam that we manufacture. If approval were substantially delayed, or
we were unable to obtain approval at all, we could be forced to continue
to incur these costs and to seek alternative sources of supply for
Synagis or CytoGam, which could have a material adverse effect on our
business, financial condition or results of operations.
We have limited experience in commercial manufacturing. Even if our
facility were approved for the manufacture of Synagis, we would
encounter many new risks associated with commercial manufacturing, such
as: manufacturing processes appropriate for low-volume production may
not be suitable for higher-volume production; costs of operating and
maintaining the production facility may be in excess of our
expectations; product defects may result; our production process may
35
result in environmental problems; we may not be able to manufacture
products at a cost that is competitive with third party manufacturing
operations. If we were to experience any one or more of these problems,
there could be a material adverse effect on our business, financial
condition or results of operations.
We are dependent on third party manufacturers and suppliers: We are
currently, and for the foreseeable future expect to be, dependent on a
limited number of contract manufacturers for some or all of the
manufacture of our current and future products (if any). We depend on
Boehringer Ingleheim Pharma KG ("BI") to produce virtually all the
Synagis we sell. BI's facility is subject to inspection and approval by
both U.S. and foreign regulatory authorities in order to obtain and
maintain its license to manufacture our products. Should BI be unable
to supply Synagis to us for any reason, there can be no assurance that
we would be able to secure an alternate manufacturer on a timely basis
or without increased cost.
We also depend on the University of Massachusetts, Massachusetts
Biologics Laboratories (the "State Lab") to produce all the CytoGam and
RespiGam we sell. The State Lab holds the sole product and
establishment licenses from the FDA for the manufacture of CytoGam and
RespiGam. Our manufacturing arrangements with the State Lab are
renegotiated annually. We cannot guarantee that any new arrangements
will be on terms favorable to us. In addition, we rely on a limited
number of suppliers to obtain substantially all of the plasma used as
raw material for the production of CytoGam and RespiGam. The State Lab
or these suppliers of raw material could fail to meet our requirements
for the production of CytoGam and RespiGam. If we were unable to obtain
these products on reasonable terms or at all, we could be unable to
secure alternative suppliers or manufacturers without unduly disrupting
our operations. Such a disruption could have a materially adverse
effect on our business, financial condition or results of operations.
We have previously experienced shortages of CytoGam and RespiGam, which
has limited sales of these products without reducing our sales and
36
marketing costs.
We are dependent on strategic alliances: We depend on strategic
alliances with our corporate partners to accomplish many of our goals.
If those corporate partners fail to devote sufficient effort and
attention to achieving those goals, we would be adversely affected.
Patent protection for our products may be inadequate or costly to
enforce: We may not be able to obtain effective patent protection for
products we develop. We are currently developing, or considering
developing, products in the biotechnology industry, an industry in which
there are extensive patent filings. The patent position of
biotechnology firms generally is highly uncertain and involves complex
legal and factual questions. To date, no consistent policy has emerged
regarding the breadth of claims allowed in biotechnology patents.
Accordingly, there can be no assurance that our patent applications will
result in patents being issued or that, if issued, such patents will
afford protection against competitors with similar technology.
Litigation could be necessary from time to time in order to enforce our
intellectual property rights. There has been substantial litigation
regarding patent and other intellectual property rights in the
biotechnology industry. If we were required to litigate, there could be
substantial cost involved and significant diversion of our business
efforts.
We may be required to seek patent licenses from third parties: We
believe that there are patents issued to third parties and/or patent
applications filed by third parties which could apply to each of our
products and product candidates. These patents and/or applications
could limit our ability to manufacture, use or sell our products. In
such a case, we may be required to seek to purchase a patent license in
order to avoid infringing a third party's intellectual property rights.
If such a license were necessary, there can be no assurance that it
would be available on terms acceptable to us or at all, which could have
a material adverse effect on our business, financial condition or
37
results of operations.
Technological developments by our competitors may render our products
obsolete: If our competitors were to develop superior products or
technologies, our products or technologies could be rendered
noncompetitive or obsolete. Biotechnology and pharmaceuticals are
evolving fields in which developments are expected to continue at a
rapid pace. Our success depends upon achieving and maintaining a
competitive position in the development of products and technologies.
Competition from other biotechnology and pharmaceutical companies is
intense. Many of our competitors have substantially greater research
and development capabilities, marketing, financial and managerial
resources and experience in the industry. Were a competitor to develop a
better product or technology, our products or technologies could be
rendered obsolete, decreasing our product sales and resulting in a
material adverse effect on our business, financial condition or results
of operations.
Compliance with government regulations is costly and time-consuming:
Substantially all of our products require costly and time-consuming
regulatory approval by governmental agencies. In particular, human
therapeutic and vaccine products are subject to rigorous preclinical and
clinical testing for safety and efficacy and approval processes by the
FDA in the United States, as well as regulatory authorities in foreign
countries. There can be no assurance that required approvals will be
obtained. If we were unable to obtain these approvals on a timely basis
or at all, our ability to successfully market products directly and
through our collaborators, and to generate revenues from sales or
royalties, would be impaired.
Any approved products are subject to continuing regulation. If we were
to fail to comply with applicable requirements, we could be subject to
fines, recall or seizure of products, total or partial suspension of
production, refusal by the government to approve our product license
applications, restrictions on our ability to enter into supply
38
contracts, and criminal prosecution.
The FDA also has the authority to revoke product licenses and
establishment licenses previously granted to us. Further, the
regulation of recombinant DNA technologies and the regulation of
manufacturing facilities by state, local and other authorities is
subject to change. Any changes to existing regulations would obligate
us to comply, which could entail additional cost, time and risk of non-
compliance.
Product liability claims may result from sales of our products: As a
developer, tester, manufacturer, marketer and seller of health care
products, we are potentially subject to product liability claims. Our
blood products, such as CytoGam and RespiGam, involve heightened risks
of claims, including the risk of claims resulting from the transmission
of blood-borne diseases. Defending a product liability claim could be
costly and divert our focus from business operations. There can be no
assurance that we will be able to maintain our current product liability
insurance at a reasonable cost, or at all. If a claim were successful,
there is no guarantee that the amount of the claim would not exceed the
limit of our insurance coverage. Further, a successful claim could
result in the recall of some or all of our products. Any of these
occurrences could have a material adverse effect on our business,
financial condition or results of operations.
Additionally, blood products like CytoGam and RespiGam are occasionally
recalled from the market because of risks of contamination from
infectious agents or for other reasons. Any such recall of our products
could have a material adverse effect on our business, financial
condition or results of operations.
We depend on key personnel: Our success depends upon the continued
contributions of our executive officers and scientific and technical
personnel. Many key responsibilities have been assigned to a relatively
small number of individuals. The competition for qualified personnel is
intense, and the loss of services or certain key personnel could
39
adversely affect our business. We do not maintain or intend to purchase
"key man" life insurance on any of our personnel.
The price of our common stock could fluctuate significantly over time:
The market price of our common stock has fluctuated significantly over
time, and it is likely that the price will fluctuate in the future.
Investors and analysts have been and will continue to be, interested in
our reported earnings, as well as how we perform compared to their
expectations. Announcements by us or others regarding operating results,
existing and future collaborations, results of clinical trials,
scientific discoveries, commercial products, patents or proprietary
rights or regulatory actions may have a significant effect on the market
price of our common stock. In addition, the stock market has
experienced extreme price and volume fluctuations that have particularly
affected the market price for many high technology companies and that
have often been unrelated to the operating performance of these
companies. These broad market fluctuations may adversely affect the
market price of our common stock.
Changes in foreign currency exchange rates or interest rates could cause
us losses: We have entered into foreign exchange forward contracts which
could result in losses. Because we have contracts for the future
purchase of inventory which are denominated in foreign currencies, there
is a chance that the foreign currency exchange rate could change between
the time those contracts become due and the time when our payments are
actually made, resulting in increases or decreases in the actual cost of
our purchases. To reduce the risk of unpredictable changes in the cost
of our purchases, we enter into forward foreign exchange contracts,
which allow us to purchase, for a fixed price on a specific date in the
future, the amount of foreign currency necessary to pay for our
contractual purchase of inventory. Fluctuations in the anticipated
payment date for the inventory could require us to adjust the date of
the contract, which could result in a change in the foreign currency
exchange rate, which could have a material adverse effect on our
financial condition.
40
A discussion of our accounting policies for financial instruments
and further disclosure relating to financial instruments is included in
the Notes to Financial Statements, located in Part II, Item 8 of this
report.
The success of our products may be limited by government and third-party
payors: The continuing efforts of government and third party payors to
contain or reduce the costs of health care through various means may
negatively affect sales of our products. In some foreign markets,
pricing and profitability of pharmaceutical products is subject to
governmental control. In the United States, there have been, and we
expect there will continue to be, various Federal and state proposals to
implement similar government controls over pricing and profitability.
The adoption by Federal or state governments of any such proposals could
limit the commercial success of our existing or any future products.
Both in the United States and elsewhere, sales of pharmaceutical
products depend on the availability of reimbursement to the consumer
from third party payors, such as government and private insurance plans.
Third party payors are increasingly challenging the prices charged for
products, and are limiting reimbursement levels offered to consumers for
these products. To the extent that third party payors focus their
efforts on our products, sales of our products could be negatively
impacted.
Our business may be harmed by the year 2000 issue: See Part II, Item 7,
under the caption "Year 2000" for a discussion of the risks associated
with Year 2000 readiness.
ITEM 2. PROPERTIES
The Company occupies, under a lease expiring in 2006, a facility in
Gaithersburg, Maryland, that contains approximately 85,000 square feet
of research, development and administrative space. In 1996, the Company
acquired a 27 acre parcel of land in Frederick, Maryland. The Company
41
has completed construction of a 91,000 square foot multi-use biologics
facility on this site to provide for the manufacture of immune globulins
and by-products from human plasma and a cell culture production area for
manufacture of products such as Synagis. The Company also purchased in
December 1998, administrative and warehouse space on approximately a six
acre parcel of land adjacent to the existing Frederick facility. The
structure contains approximately 56,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR MEDIMMUNE, INC.'S COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
The Company's common stock trades on The Nasdaq Stock Market under the
symbol "MEDI". At February 28, 1999, the Company had 327 common
stockholders of record. This figure does not represent the actual
number of beneficial owners of common stock because shares are
generally held in "street name" by securities dealers and others for the
benefit of individual owners who may vote the shares. The number of
beneficial shareholders as of February 28, 1999 was over 15,000.
The following table shows the range of high and low closing prices and
year end closing prices for the common stock for the two most recent
fiscal years, adjusted for the effect of a two-for-one stock split
effective December 31, 1998.
42
1997 1998
---- ----
High Low High Low
---- ---- ---- ----
First Quarter $8 3/4 $6 11/16 $29 1/8 $19 3/8
Second Quarter 9 7/8 5 11/16 32 15/16 22 11/16
Third Quarter 18 5/8 8 1/4 34 7/8 21
Fourth Quarter 21 7/8 15 1/2 50 11/16 25 5/8
Year End Close $21 7/16 $49 11/16
The Company has never declared or paid any dividends on its common stock
and does not anticipate paying any cash dividends in the foreseeable
future. The Company currently intends to retain any earnings to fund
future growth, product development, and operations.
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data)
RESULTS FOR THE YEAR 1998 1997* 1996* 1995* 1994*
----- ----- ----- ---- ----
Product sales $163,440 $65,271 $35,782 $16,173 $12,054
Other 37,268 15,693 5,317 11,263 6,804
------- ------- ------- -------- -------
Total revenues 200,708 80,964 41,099 27,436 18,858
Research and develop-
ment expenses 25,775 40,669 32,192 26,417 21,939
Net earnings/(loss) 56,240 (36,895) (29,544) (22,671) (18,828)
Earning/(Loss) per
Share*
Earnings
Basic 1.06 (0.80) (0.70) (0.71) (0.64)
Diluted 0.91 (0.80) (0.70) (0.71) (0.64)
YEAR END POSITION
Cash and marketable
Securities $134,882 $50,326 $114,765 $38,039 $22,527
Total assets 353,120 170,336 163,971 57,332 44,724
Long term debt 83,195 85,363 70,874 1,984 2,090
Shareholders' equity 209,833 40,536 72,865 43,779 34,194
43
*Note: loss per share data have been restated to give effect for the two-
for-one stock split on December 31, 1998.
Includes deferred income tax benefit of $47,428.
QUARTERLY FINANCIAL DATA (UNAUDITED)
(thousands, except per share amounts)
1998 Quarter Ended
Dec. 31 Sept. 30 June 30 March 31
-------- -------- -------- --------
Net Sales $92,939 $23,840 $24,591 $59,338
Gross profit 66,364 16,937 10,108 37,063
Net income/(loss) 72,655 (11,052) (18,568) 13,205
Earnings/(loss) per share *:
Basic 1.34 (.21) (.35) .25
Diluted 1.13 (.21) (.35) .22
1997 Quarter Ended
Dec. 31 Sept. 30 June 30 March 31
-------- -------- -------- --------
Net Sales $53,757 $10,659 $6,411 $10,138
Gross Profit 33,227 5,401 2,981 4,923
Net income/(loss) 3,294 (13,657) (12,209) (14,322)
Earnings/(loss) per share *:
Basic .07 (.29) (.27) (.33)
Diluted .06 (.29) (.27) (.33)
*Amounts have been restated to give effect for the two-for-one stock
split on December 31, 1998.
Includes deferred income tax benefit of $47,428.
44
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This review contains management's discussion of the Company's
operational results and financial condition and should be read in
conjunction with the accompanying financial statements.
OVERVIEW
MedImmune commenced operations in April 1988 and, through 1990,
revenue was generated solely from research and development agreements
and research grants. In 1991, contract revenues rose substantially and
the Company began selling its first product, CytoGam, to an exclusive
distributor. In December 1992, the Company reacquired the CytoGam
marketing rights from its distributor and launched an expanded marketing
program for this product through its own sales force in January 1993.
On January 18, 1996, the Company's second product, RespiGam, was
licensed for marketing by the U.S. Food and Drug Administration ("FDA")
for the prevention of serious lower respiratory tract infection caused
by RSV in children under 24 months of age with BPD or a history of pre-
maturity.
On June 18, 1998, the Company's second generation RSV drug,
Synagis, was approved for marketing by the FDA and the Company's
Gaithersburg pilot plant facility was licensed for production of
Synagis. Synagis is approved in the U.S. for the prevention of serious
lower respiratory tract disease caused by RSV in pediatric patients at
high risk for RSV disease. Because of the seasonal nature of RSV,
limited sales, if any, are expected during the second and third quarters
of any calendar year, causing results to vary significantly from quarter
to quarter.
On November 11, 1998, the Company's Board of Directors authorized a
two-for-one stock split effected in the form of a 100% stock dividend
payable December 31, 1998. Accordingly, all share and per share amounts
have been restated to reflect this stock split.
RESULTS OF OPERATIONS
1998 Compared to 1997
45
Product sales increased 150% for the year ended December 31, 1998
over the year ended December 31, 1997 due primarily to demand for
Synagis, launched in 1998. Sales of Synagis generally will be expected
to occur each year in proximity to the RSV season, from September
through March. Synagis sales, commenced in September 1998 and were
$109.8 million for the year. Of those sales, $2.3 million were sales to
Abbott International, the Company's exclusive distributor outside the
U.S., for "named patient" sales of Synagis. As of December 31, 1998.
The Company and Abbott International have filed international
registrations in 25 countries for approval of Synagis. There can be no
assurance that approval by the appropriate regulatory authorities will
be granted. RespiGam sales decreased 56% to $19.8 million in 1998 from
$45.0 million in 1997. RespiGam sales in 1998 primarily reflect sales
for the end of the 1997/1998 season, as most customers had switched to
Synagis for the beginning of the 1998/1999 season. Net sales for
RespiGam in 1998 include an adjustment of $12.5 million recorded in the
fourth quarter reflecting actual and expected product returns as a
result of the shift in demand from RespiGam to Synagis. The Company
estimates that there will be limited usage of RespiGam over the
remainder of the 1998/1999 RSV season and that usage in the 1999/2000
RSV season will be limited. Sales of CytoGam increased 62% to $32.9
million in 1998 from $20.3 million in 1997. Domestic units sold
increased by 41% and international units sold increased by 264%.
CytoGam is sold at a lower selling price to international distributors
than domestic units. The increase in domestic units sold reflects both
an increase in the core business for CytoGam and substitution occurring
as a result of the worldwide shortage of standard intravenous immune
globulin ("IVIG") products. The duration of this shortage and continued
impact, if any, on CytoGam sales cannot be determined at this time. The
Company also received in December 1998, FDA approval for the use of
CytoGam in kidney, lung, liver, pancreas and heart transplants. The
Company does not expect the approval to significantly affect future
sales in the U.S. as many physicians have already been prescribing
CytoGam's use in the settings of solid organ transplantation. The
increase in international CytoGam sales reflects a greater focus on this
46
market as well as the effects of the worldwide shortage of IVIG
products. The level of future product sales will be dependent on several
factors, including, but not limited to, the timing and extent of future
regulatory approvals of the Company's products and product candidates,
availability of finished product inventory, approval and
commercialization of competitive products and the degree of acceptance
of the Company's products in the marketplace.
Other revenue increased 137% to $37.3 million in 1998 from $15.7
million in 1997. Revenues in 1998 include a $15.0 million milestone
payment from Abbott Laboratories ("Abbott") received upon FDA approval
of Synagis, and $20.9 million of funding from SmithKline Beecham ("SB")
in connection with the HPV vaccine development collaboration, including
a $15.0 million milestone payment that was due upon signing of the
agreement. Other revenues in 1997 consist primarily of a $15.0 million
payment made by Abbott in connection with the signing of the
international distribution agreement. The Company would also become
entitled to receive an additional $15.0 million from Abbott if marketing
approval for Synagis is obtained in Europe. The level of contract
revenues in future periods will depend primarily upon the extent to
which the Company enters into other collaborative contractual
arrangements, if any, and the extent to which the Company achieves
certain milestones provided for in its existing agreements.
Cost of sales of $70.2 million was recorded in 1998 versus $34.4 million
in 1997, an increase of 104%. Factors impacting 1998 cost of sales
include a charge of $11.2 million related to the writedown of RespiGam
inventory and by-product inventory, offset by credits for the reversal
of previously recorded RespiGam royalties expected to be due to
Massachusetts Health Research Institute ("MHRI"). Excluding the RespiGam
inventory writedown and the royalty adjustments from cost of sales and
excluding the RespiGam returns from product sales, gross margins
improved to 65% in 1998 from 49% in 1997, reflecting the change in
product mix towards Synagis, which has a lower cost than CytoGam and
RespiGam. The Company's products are primarily manufactured by third
parties and future per-unit cost of sales could increase if the Company
is unable to negotiate favorable pricing. The Company has completed
47
construction of its own manufacturing facility intended for the
production of some portion of two of its approved products as well as
potentially for other product candidates if approved for marketing.
This facility is subject to inspection and approval by the FDA and any
resulting sales of product from this facility would not commence for at
least the next 9 to 18 months.
Research and development expenses decreased to $25.8 million in 1998
from $40.7 million in 1997, or 37%, reflecting primarily $14.5 million
of expenses in 1997 for conducting the Company's 1,502 patient Phase 3
Synagis clinical trial. No large Phase 3 trials were conducted in 1998.
The level of research and development spending in future periods will
fluctuate depending on the extent of clinical trial spending and the
level of investment in new or existing programs. The Company expects
higher clinical trial expenses in 1999, as it continues to move new
product candidates into the clinic, and continues testing of products
already in clinical trials.
Selling, general and administrative expenses increased 95% to $62.0
million in 1998 from $31.7 million in 1997. A significant portion of
the increase in expenses in 1998 reflects payments expected to be due to
the Ross Products Division of Abbott for co-promotion of Synagis and
approximately $9.3 million of marketing expenses for the launch of
Synagis. Additionally, 1998 SG&A reflects increased spending over 1997
for increased distribution costs resulting from Synagis sales as well as
for added headcount and facilities needed to handle growth in the
Company's operations. Selling, general, and administrative expenses in
1999 will be significantly impacted by the level of Synagis sales, due
to the nature of the threshold-based co-promotion agreement with Abbott.
Other operating expenses were $36.5 million in 1998 versus $11.5
million in 1997, an increase of 216%. This increase is primarily a
result of 1)increased wages and supply costs as the Frederick
manufacturing facility increased staffing levels in 1998, 2)increased
consulting costs for plant validation and start-up activities, and 3)a
$10.3 million charge for the buydown of certain Synagis royalty
48
obligations prior to FDA approval in June 1998. Other operating
expenses are expected to continue to be significant in 1999 and into
2000 as the Company continues start-up and validation activities at the
Frederick plant.
Interest income increased to $6.7 million for 1998 from $4.0
million in 1997 reflecting higher cash balances available for
investment, including the proceeds from the Company's private placement
of stock in January 1998 resulting in net proceeds of $66.3 million,
offset by a decrease in interest rates which lowered the overall
portfolio yield.
Interest expense of $4.0 million was recorded in 1998 versus $3.5
million in 1997, reflecting primarily interest on the Company's
convertible debt (net of amounts capitalized) and interest on equipment
financing beginning in June 1997. Interest expense in 1998 and 1997 is
net of $2.9 million and $2.2 million, respectively, of interest
capitalized for the manufacturing facility and the pilot plant
expansion. The Company's convertible debt is callable in July 1999. If
the convertible debt is called or converted, interest expense is
expected to decrease substantially in the second half of 1999.
The Company recorded an overall net income tax benefit of $47.4
million in 1998 as a result of a reversal of the Company's valuation
allowance against its deferred tax assets. The Company believes that it
is now more likely than not that such benefit will ultimately be
utilized.
The 1998 net income of $56.2 million compared to a 1997 net loss of
$36.9 million. Basic earnings per share in 1998 were $1.06 on 53.1
million shares. Diluted earnings per share were $0.91 on 63.4 million
shares. Basic and diluted loss per share was $0.80 in 1997 on 46.3
million shares. The Company does not believe inflation had a material
effect on its financial statements.
These results were consistent with the Company's objectives for the
year and with the continued development of its immunotherapeutic and
vaccine products. The factors that affected 1998 results may continue
to affect near-term future financial results.
49
1997 Compared to 1996
Product sales increased 82% for the year ended December 31, 1997,
over the year ended December 31, 1996, due to increased demand for
RespiGam in the first half of the product's second full season of sales,
as well as a 10% increase in CytoGam sales. RespiGam sales were $45.0
million in 1997 versus $17.3 million in 1996, a 159% increase,
reflecting an increase in vials sold. Supply constraints limited 1996
sales. CytoGam product sales increased to $20.3 million from $18.4
million in 1996 due primarily to a 4% increase in units sold, and two
price increases that took effect in mid-1996 and mid-1997. In 1996
CytoGam product sales were reduced by a $0.7 million reserve for trade
receivables due from a pharmaceutical wholesaler that filed Chapter 11
bankruptcy in August 1996; $0.1 million was recovered against this loss
in 1997 as a result of a sale of the receivables to a third party.
Other revenues increased to $15.7 million in 1997 from $5.3 million
in 1996. Other revenues in 1997 reflect primarily fees paid by Abbott
Laboratories for the right to distribute Synagis outside the U.S. Other
revenues in 1996 reflect the completion of milestone and research
funding payments under the Company's strategic alliance with AHP,
formerly American Cyanamid Company. Under the terms of the alliance, the
Company and AHP share in the profits or losses of RespiGam;
reimbursements or payments under this arrangement are deducted from or
added to operating expenses and are included in selling, general and
administrative expenses.
Cost of sales increased 75% to $34.4 million in 1997 from $19.7
million in 1996, due to a 68% increase in vials sold. Gross margins in
1997 improved to 47% versus 45% in 1996, reflecting the increased sales
of RespiGam in the product mix, which has a lower royalty rate than
CytoGam. 1997 margins were adversely impacted by a charge for an
estimate of additional royalties due to MHRI as part of a possible
settlement of an ongoing inquiry by the Inspector General of the
Commonwealth of Massachusetts. The charges were reversed in 1998 as the
matter was substantially resolved without financial impact to the
Company.
50
Research, development and clinical costs of $40.7 million were
incurred in 1997 compared to $32.2 million in 1996, an increase of 26%.
Expenditures in 1997 and 1996 include approximately $14.5 million and
$10 million, respectively, for the clinical studies performed for
Synagis, including a 1,502-patient Phase 3 clinical trial that began in
the fourth quarter of 1996 and was substantially completed by the end of
the 1997 second quarter. 1997 expenses also include $1.3 million in
license fees relating to Synagis and MEDI-507, a monoclonal antibody
that inhibits T cell responses.
Selling, general and administrative expenses increased to $31.7
million in 1997 from $22.2 million in 1996. The increase in 1997
reflects primarily AHP's share of RespiGam's profits, which resulted in
a charge of $3.0 million to selling expenses as calculated under the
terms of the strategic alliance. This compared to $4.3 million in
reimbursement from AHP in 1996 for its share of RespiGam product line
loss, as calculated under the terms of the strategic alliance. Other
selling and marketing expenses increased by $1.7 million, reflecting
increased commission and product distribution costs resulting from the
increased product sales. This was offset by a $1.1 million decrease in
sales detailing costs to AHP as a result of the Company's decision to
not use AHP's sales force to detail RespiGam in the 1997/1998 RSV
season. General and administrative expenses increased by $0.6 million
reflecting increased headcount, legal and other costs.
Expenses in 1997 include $11.5 million of other operating expenses,
which include the costs of start-up of the Frederick manufacturing
facility and scale-up of production of Synagis at the Gaithersburg pilot
plant and at a third-party manufacturer, Boehringer Ingelheim Pharma KG
("BI") in Biberach, Germany.
Interest income decreased to $4.0 million in 1997 compared to $5.7
million in 1996. The decrease reflects lower cash balances available
for investment, partially offset by an increase in interest rates that
increased the overall portfolio yield.
Interest expense increased to $3.5 million in 1997 from $2.3
million in 1996, reflecting primarily interest on the convertible
subordinated notes of the Company issued in July 1996 (net of amounts
51
capitalized) and interest on equipment financing, primarily in the
second half of 1997. Interest expense in 1997 and 1996 is net of $2.2
and $0.3 million, respectively, of interest capitalized for the
manufacturing facility and the pilot plant expansion.
The 1997 net loss of $36.9 million, or $0.80 basic and diluted per
common share, compared to a 1996 net loss of $29.5 million, or $0.70
basic and diluted per common share. Shares used in computing basic and
diluted loss per share were 46.3 million and 42.0 million, respectively,
in 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash and marketable securities were $134.9 million at 1998 year end
compared to $50.3 million at 1997 year end. Working capital was $158.4
million at 1998 year end versus $56.6 million at 1997 year end.
Net cash provided by 1998 operating activities was $12.7 million
compared to $47.7 million used in 1997. The cash inflow from operations
in 1998 reflected the net income of $56.2 million adjusted for non-cash
items and working capital changes. The non-cash items consisted
primarily of the reversal of the valuation allowance for the deferred
tax asset, offset by trade accounts receivable allowances, primarily the
allowance for RespiGam product returns, and the RespiGam and by-product
inventory reserves. The working capital changes consisted of: 1)a $33.6
million increase in trade accounts receivable reflecting the high volume
of Synagis product sales in November and December; 2) an $8.7 million
increase in royalties payable due to the level of Synagis sales; and 3)a
$5.2 million increase in accounts payable and accrued expenses
reflecting primarily amounts expected to be due to Abbott for Synagis co-
promotion.
The cash outflow from operations in 1997 reflected the net loss of
$36.9 million adjusted for depreciation and amortization and working
capital changes. Working capital changes included: 1) a $25.2 million
increase in inventory reflecting build-up of CytoGam and RespiGam to
support increased sales; 2) an $8.1 million increase in trade
receivables as a result of the increased fourth quarter sales, primarily
52
RespiGam; and 3) a $17.4 million increase in accounts payable and
accrued expenses reflecting primarily accruals for plasma inventories,
contract manufacturing activities, amounts due to AHP for its share of
RespiGam product line profit and increased sales commission accruals.
Most of the working capital increase in 1997 resulted from growth in
accounts receivable, reflecting an 117% increase in product sales in the
fourth quarter 1997 versus the fourth quarter 1996, and growth in
inventory in anticipation of increased first quarter 1998 sales compared
to first quarter 1997. Inventory growth was also impacted by an
increase in plasma collections in 1997 as more plasmapheresis centers
were added to increase the volume of collections.
Cash flows from financing activities were $81.2 million in 1998
compared to $20.9 million in 1997. In January 1998, the Company
completed a private placement of 3.4 million shares of common stock
resulting in net proceeds to the Company of $66.3 million. In addition,
in January 1998, SmithKline Beecham purchased 166,820 shares of common
stock for net proceeds of $5.0 million in connection with the
collaborative agreement signed in December 1997 related to HPV
development. In 1998 and 1997, the Company drew down $0.6 million and
$14.4 million respectively of $15.0 million of available equipment
financing. Also in 1997, the Company received the remaining $2.8 million
of financing available from the state and local governments to fund the
construction of the manufacturing plant.
Capital expenditures in 1998 were $10.1 million compared to $36.7
million in 1997 excluding capitalized interest of $2.9 million and $2.2
million, respectively. Expenditures in 1998 consist primarily of $3.2
million for the purchase of warehouse and administrative space in
Frederick, Maryland, administrative expansion at the Gaithersburg
headquarters and manufacturing, laboratory and office equipment. The
1997 expenditures include $33.2 million (excluding capitalized interest)
for the construction, equipment and validation of the Company's
manufacturing facility and the completion of its pilot plant expansion
at the Gaithersburg headquarters. Additional 1997 expenditures were for
laboratory and office equipment.
Capital expenditures in 1999 are expected to approximate $15.0
53
million, due mostly to expansion at the Frederick manufacturing facility
to provide additional capacity for Synagis and the Company's other cell
culture product candidates. Construction of the manufacturing facility
is completed and start-up activities will be on-going in 1999. There
can be no assurance that appropriate regulatory approvals will be
obtained to enable the use of the facility for production of the
Company's products or product candidates. Any resulting sales of
product from this facility would not commence for at least the next 9 to
18 months, subject to regulatory approvals.
The Company is obligated in 1999 to provide $8.8 million in
funding for various clinical trials, research and development and
license agreements with certain institutions. The Company's existing
funds, together with funds contemplated to be generated from product
sales and investment income, are expected to provide sufficient
liquidity to meet the anticipated needs of the business for the
foreseeable future, absent the occurrence of any unforeseen events.
In February 1999, the Company formed an alliance with Ixsys, Inc.
("Ixsys") to develop four monoclonal antibodies. The first of these
products, Vitaxin, was developed by Ixsys using its proprietary Directed
Evolution technology and is currently being tested in a Phase 2 trial
for cancer treatment by inhibition of angiogenesis. The Company will
provide three additional target antibodies to be optimized by Ixsys.
Under the terms of the alliance, Ixsys will use its Directed Evolution
protein engineering technology to optimize antibodies identified by the
Company. The Company will be responsible for clinical development,
manufacturing, and commercialization of any resulting products.
Concurrent with the signing of the agreements, the Company made a $6.4
million equity investment in Ixsys. The company is also obligated to
fund certain research to be performed by Ixsys and would make future
milestone and royalty payments on sales, if any, of any resulting
products.
Year 2000
54
The Company has established a Year 2000 Project Team comprised of
representatives from key functional areas to complete a review of its
internal and external systems for Year 2000 readiness. The Year 2000
issue is expected to affect the systems of the Company and various
entities with which the Company interacts, including the Company's
marketing partners, suppliers and various vendors. The Year 2000
Project is designed to address three major areas: (1) information
technology systems, (2) hardware, equipment and instrumentation,
including embedded systems, and (3) third party relationships. The
Company's plan involves inventorying, assessing and prioritizing those
items which have Year 2000 implications; remediating (repairing,
replacing or upgrading) non-compliant items; testing items with major
exposure to ensure compliance; and developing contingency plans to
minimize potential business interruption. The inventory, assessment and
prioritization phases of the project are substantially complete.
With regard to the Company's information technology systems, hardware,
equipment and instrumentation, the Company has identified mission
critical and non-critical items and is in the process of updating and/or
replacing items that are non-compliant. The Company believes that it
should be able to substantially complete implementation of critical
aspects of its Year 2000 plan prior to the commencement of the year
2000. Because the Company has relied primarily on off-the-shelf
software for its information technology needs and because much of the
hardware, equipment and instrumentation is currently compliant, the
Company does not anticipate that the costs for internal remediation
efforts will be significant. The Company does not separately track the
internal costs of its Year 2000 compliance efforts and therefore these
costs are unknown. As of December 31, 1998, the Company estimates that
it has spent no more than $50,000 replacing, upgrading or repairing the
systems and/or equipment that are non-compliant and expects the cost to
complete these efforts should not exceed $300,000. The Company presently
anticipates that its remediation efforts will be substantially complete
by June 1, 1999. Testing of certain business critical items is expected
to be completed by the third quarter 1999.
55
In addition to the risks associated with the Company's own computer
systems and equipment, the Company has relationships with, and is in
varying degrees dependent upon, a large number of third parties that
provide information, goods and services to the Company. These include,
but are not limited to, third party manufacturers, suppliers, customers,
and distributors. The Company has identified those third parties with
which the Company has material relationships to assess their Year 2000
readiness. The Company has distributed surveys and/or contacted these
parties to aid in this assessment. For mission critical functions, the
Company intends to visit third parties to assess their Year 2000
readiness. The Company may also be affected by the failure of other
third parties to be Year 2000 compliant even if they do not do business
directly with the Company. For example, the failure of state, federal
and private payors or reimbursers to be Year 2000 compliant and thus
unable to make timely, proper or complete payments to sellers and users
of the Company's products, could have a material adverse effect on the
Company. The Government Accounting Office has stated that the Health
Care Financing Administration, the principal federal reimburser for the
Company's marketed products, may not become fully year 2000 compliant on
a timely basis.
The Company does not currently have a Year 2000 contingency plan
established. The Company expects by mid-1999 to have finalized a
contingency plan which will address the most likely worst case Year 2000
scenario. The Company believes that its most likely worst case scenario
would be delays in product shipments due to a complete or partial
manufacturing shutdown. To mitigate this risk, the Company plans, among
other things, to stock extra inventory.
With regard to the Company's Year 2000 readiness plan, there can be no
assurances: 1) that the Company will be able to identify all aspects
of its business that are subject to Year 2000 problems, including issues
of its customers or suppliers, 2) that the Company's software vendors,
third parties and others will be correct in their assertions that they
56
are Year 2000 ready, 3) that the Company's estimate of the cost of Year
2000 readiness will prove ultimately to be accurate, 4) that the Company
will be able to successfully address its Year 2000 issues and that this
could result in interruptions in, or failures of, certain normal
business activities or operations that may have a material adverse
effect on the Company's business, results of operations and financial
condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's risk-management activities
includes "forward-looking statements" that involve risks and
uncertainties. Actual results could differ materially from those
projected in the forward-looking statements.
The Company did not have significant exposure to changing interest rates
on invested cash at December 31, 1998. The Company invests primarily in
money market funds, investment grade commercial paper and short-term
notes. The interest rates on these securities are primarily fixed, the
maturities are relatively short and the Company generally holds the
securities until maturity.
The Company has issued debt in the form of Notes in the amount of $85.9
million at December 31, 1998, which bear interest at fixed rates. The
Company does not have significant exposure to changing interest rates
related to the Notes because the interest rate on these notes is fixed.
The Company's contract for the purchase of Synagis from BI is
denominated in German Marks. In an effort to reduce the impact of
fluctuations in the rate of exchange between the U.S. Dollar and the
German Mark on the cost of the Company's purchases of Synagis, the
Company periodically enters into foreign exchange forward contracts.
These contracts permit the Company to purchase German Marks, in an
amount the Company believes will be sufficient to fund its inventory
purchase obligations, at a fixed exchange rate. Each contract
57
terminates on the day the Company expects to make payment for a shipment
of Synagis. The Company does not enter into foreign exchange forward
contracts for speculative or trading purposes.
The table below provides information about the Company's foreign
exchange forward contracts. The anticipated purchase amount is the
amount, in German Marks ("DM"), that the Company is contractually
obligated to pay BI. The contract amount is the sum of all of the
Company's forward contracts during the period indicated. The forward
contract exchange rate is the rate at which the Company has agreed to
purchase German Marks upon termination of the contract.
1999
----
Anticipated purchase amount (DM 000's) 54,789
Related foreign currency forward
Contracts:
Contract Amount (DM 000's) 56,692
Average forward contract exchange
Rate for German marks per U.S.
Dollar 1.66
58
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BALANCE SHEETS
(in thousands, except share data)
December 31, December 31,
1998 1997
---------- ----------
ASSETS
Cash and cash equivalents $37,959 $29,984
Marketable securities 96,923 20,342
Trade receivables, net 31,682 15,236
Contract receivables, net 3,155 3,064
Inventory, net 19,760 28,857
Deferred tax assets 22,595 --
Other current assets 4,292 2,740
---------- ----------
Total Current Assets 216,366 100,223
Property and equipment, net 74,822 65,254
Deferred tax assets, net 54,923 --
Other assets 7,009 4,859
---------- ----------
Total Assets $353,120 $170,336
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, trade $4,052 $4,535
Accrued expenses 33,397 27,682
Accrued interest 2,580 2,583
Product royalties payable 14,948 6,227
Other current liabilities 2,993 2,633
---------- ----------
Total Current Liabilities 57,970 43,660
Long-term debt 83,195 85,363
Other liabilities 2,122 777
---------- ----------
Total Liabilities 143,287 129,800
---------- ----------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred Stock, $.01 par value; -- --
Authorized 5,524,525 shares; none
59
Issued or outstanding
Common Stock, $.01 par value;
Authorized 120,000,000 shares;
Issued and outstanding 54,654,842
And 24,444,745 at
December 31, 1998 and 1997,
respectively 547 244
Paid-in capital 289,318 176,564
Accumulated deficit (80,032) (136,272)
---------- ----------
Total Shareholders' Equity 209,833 40,536
---------- ----------
Total Liabilities and $353,120 $170,336
Shareholders' Equity ========== ==========
The accompanying notes are an integral part of these financial
statements.
Statements of Operations
(in thousands, except per share data)
For the year ended December 31,
---------------------------------
1998 1997 1996
-------- -------- --------
REVENUES
Product sales $163,440 $65,271 $35,782
Other revenue 37,268 15,693 5,317
-------- -------- --------
Total revenues 200,708 80,964 41,099
-------- -------- --------
COSTS AND EXPENSES
Cost of sales 70,236 34,433 19,678
Research and development 25,775 40,669 32,192
Selling, administrative
And general 62,008 31,735 22,165
Other operating expenses 36,495 11,543 --
-------- -------- --------
Total expenses 194,514 118,380 74,035
-------- -------- --------
Operating income (loss) 6,194 (37,416) (32,936)
Interest income 6,659 4,004 5,655
60
Interest expense (4,041) (3,483) (2,263)
-------- -------- --------
Income (loss) before income taxes 8,812 (36,895) (29,544)
Deferred income tax benefit 47,428 -- --
-------- -------- --------
Net earnings (loss) $56,240 ($36,895) ($29,544)
======== ======== ========
Basic earnings (loss) per share $1.06 ($0.80) ($0.70)
======== ======== ========
Shares Used in calculation of basic
Earnings(loss) per share 53,130 46,264 42,038
======== ======== ========
Diluted earnings (loss) per share $0.91 ($0.80) ($0.70)
======== ======== ========
Shares used in calculation of
diluted earnings (loss) per share 63,401 46,264 42,038
======== ======== ========
The accompanying notes are an integral part of these financial
statements.
61
Statements of Cash Flows
(in thousands)
For the year ended December 31,
--------------------------------
1998 1997 1996
-------- -------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $56,240 $(36,895) $(29,544)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used
in) operating activities:
Deferred taxes (47,428) -- --
Depreciation and amortization 3,455 2,749 1,843
Capitalized interest (2,901) (2,188) (273)
Amortization of (discount) premium on
Marketable securities (785) 937 447
Allowance for trade accounts
Receivable 17,153 984 1,839
Provision for inventory reserve 9,672 (8) (409)
Amortization of debt issuance costs 358 330 155
Other 67 325 96
Increase(decrease) in cash due to
Changes in assets and liabilities:
Trade receivables (33,599) (8,097) (7,275)
Contract receivables (91) (1,144) (954)
Inventory (3,078) (25,235) 376
Other assets (1,551) (990) (641)
Accounts payable and accrued expenses 5,232 17,351 5,595
Product royalties payable 8,721 3,668 783
Accrued interest (3) 526 2,057
Other liabilities 1,229 (4) 119
-------- -------- --------
Net cash provided by (used in)
operating activities 12,691 (47,691) (25,786)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in securities available
for sale (158,591) -- (131,908)
Maturities of securities available
for sale 82,795 80,857 53,199
Capital expenditures (10,122) (36,728) (22,402)
-------- -------- --------
Net cash (used in) provided by
62
investing activities (85,918) 44,129 (101,111)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 82,965 4,566 58,630
Proceeds from issuance of long-term debt 613 17,187 69,000
Deferred costs from debt
issuance (6) (306) (2,172)
Repayments on long-term debt (2,370) (530) (97)
--------- -------- --------
Net cash provided by
financing activities 81,202 20,917 125,361
--------- -------- --------
Net increase (decrease) in cash and cash
Equivalents 7,975 17,355 (1,536)
Cash and cash equivalents at beginning
Of year 29,984 12,629 14,165
-------- -------- --------
Cash and cash equivalents at end of
Year $37,959 $29,984 $12,629
========= ======== ========
The accompanying notes are an integral part of these financial statements.
63
Statements of Shareholders' Equity
(in thousands, except share data)
Common Stock,
$.01 par
--------------- Paid-in Accum
Shares Amount Capital Deficit Total
--------- ------ ------- --------- -------
Balance,
December 31, 1995 17,706,137 $177 $113,435 $(69,833) $43,779
Common stock options
exercised 288,484 3 700 -- 703
Sale of common stock,
February 1996 public
offering, net of under
writing commissions
and expenses of $4,173 3,450,000 34 57,893 -- 57,927
Conversion of Series A
Convertible Preferred
Stock 392,142 4 (4) -- --
Net loss -- -- -- (29,544) (29,544)
-------- ------ -------- -------- -------
Balance,
December 31, 1996 21,836,763 218 172,024 (99,377) 72,865
Common stock options
exercised 614,629 6 4,560 -- 4,566
Conversion of Series A
Convertible Preferred
Stock 1,993,353 20 (20) -- --
Net loss -- -- -- (36,895) (36,895)
-------- ----- -------- -------- --------
Balance,
December 31, 1997 24,444,745 244 176,564 (136,272) 40,536
Common stock options
exercised 1,099,266 12 11,729 -- 11,741
Private placement of
Common stock, January
1998, net of
underwriting
commissions and
expenses of $74 1,700,000 17 66,209 -- 66,226
Private placement of
common stock, January
1998 83,410 1 4,999 5,000
Tax benefit associated
with the exercise of
64
stock options -- -- 30,090 -- 30,090
Two-for-one stock split 27,327,421 273 (273) -- --
Net earnings -- -- -- 56,240 56,240
---------- ----- -------- --------- --------
Balance,
December 31, 1998 $54,654,842 $547 $289,318 $(80,032)$209,833
========== ===== ======== ========== ========
The accompanying notes are an integral part of these financial statements.
65
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
2. ORGANIZATION
MedImmune, Inc. ("the Company"), a Delaware corporation, is a
biotechnology company headquartered in Gaithersburg, Maryland with three
products on the market and a diverse product development portfolio. The
Company is focused on using advances in immunology and other biological
sciences to develop important new products that address significant
medical needs in areas such as infectious diseases, transplantation
medicine, autoimmune diseases and cancer.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies applied in the preparation of
these financial statements are as follows:
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with
an original maturity of three months or less to be cash equivalents.
Marketable Securities
Marketable securities include investments with original maturities
of greater than three months having a remaining maturity of less than 24
months. The Company's securities are held for an unspecified period of
time and may be sold to meet liquidity needs. The securities included
as marketable securities are considered available-for-sale as defined by
Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Amortized cost of marketable securities approximates market; therefore,
no adjustment has been made to shareholders' equity as a result of
changes in market value to these securities. Interest income is accrued
as earned.
66
Concentration of Credit Risk
The Company has invested its excess cash generally in securities
of the U.S. Treasury, U.S. government agencies, corporate debt
securities, commercial paper and money market funds with strong credit
ratings and deposits with a major bank. The Company has not experienced
any significant losses on its investments. The Company sells its
products primarily to a limited number of pharmaceutical wholesalers and
distributors without requiring collateral. The Company periodically
assesses the financial strength of these customers and establishes
allowances for anticipated losses when necessary.
Inventory
Inventory is stated at the lower of cost or market. Cost is
determined using a weighted-average approach that approximates the first-
in, first-out method. Where the Company has a firm contract for their
puchase, by-products that result from production of the Company's
principal products are accounted for as a reduction of the cost of the
principal products.
Product Sales
Product sales are recognized upon shipment of the product to
customers. Product sales are recorded net of reserves for estimated
chargebacks, returns, discounts, and Medicaid rebates. The Company
maintains reserves at a level that management believes is sufficient to
cover estimated future requirements. Allowances for discounts, returns,
bad debts, chargebacks and Medicaid rebates, which are netted against
accounts receivable, totaled $20,189 and $3,037 at December 31, 1998 and
1997, respectively. Product royalty expense is recognized concurrently
with the recognition of product revenue. Royalty expense, included in
cost of sales, was $19,921, $8,504 and $4,282 for the years ended
December 31, 1998, 1997 and 1996, respectively.
67
Contract Revenues
Contract revenues are recognized over the fixed term of the
contract or, where appropriate, as the related expenses are incurred.
Non-refundable fees or milestone payments in connection with research
and development or commercialization agreements are recognized when they
are earned in accordance with the applicable performance requirements
and contractual terms. Payments received that are related to future
performance are deferred and recorded as revenues as they are earned
over specified future performance periods.
Co-promotion Expense
In connection with the agreement the Company signed with Abbott
Laboratories to co-promote Synagis in the United States, the Company is
required to pay to Abbott an increasing percentage of net domestic sales
based on reaching certain sales thresholds over the annual contract
year, which runs from July to June and coincides with the annual
respiratory syncytial virus ("RSV") season, which occurs primarily in
the fourth and first quarters (See Note 13). The Company estimates its
net sales and resulting co-promotion expense for the entire contract
year to determine a proportionate percentage of expense to apply across
all Synagis sales during the season.
Property and Equipment
Property and equipment are stated at cost. Interest cost incurred
during the period of construction of plant and equipment and prior to
FDA licensure is capitalized. Depreciation and amortization is computed
using the straight-line method based upon the following estimated useful
lives:
Years
-----
Building and improvements 30
Manufacturing, laboratory, and facility equipment 5-15
Office furniture, computers and equipment 3-7
Amortization of leasehold improvements is computed on the straight-line
method based on the shorter of the estimated useful life of the
68
improvement or the term of the lease. Upon the disposition of assets,
the costs and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in the statements of
operations. Repairs and maintenance costs are expensed as incurred and
were $1,849, $1,002, and $537 for the years ended December 31, 1998,
1997 and 1996, respectively.
Long-Lived Assets
The Company evaluates the recoverability of the carrying value of
property and equipment and intangible assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed Of." The Company considers historical performance
and anticipated future results in its evaluation of the potential
impairment. Accordingly, when the indicators of impairment are present,
the Company evaluates the carrying value of these assets in relation to
the operating performance of the business and future undiscounted cash
flows expected to result from the use of these assets. Impairment
losses are recognized when the sum of the expected future cash flows are
less than the assets' carrying value. To date, the Company has recorded
no impairment losses.
Forward Exchange Contracts
The Company is obligated to make certain payments to a foreign
supplier in its local currency. To hedge the effect of fluctuating
foreign currencies in its financial statements, the Company may enter
into foreign forward exchange contracts. Gains or losses associated
with the forward contracts are computed as the difference between the
foreign currency contract amount at the spot rate on the balance sheet
date and the forward rate on the contract date. Unrealized gains or
losses are deferred until the obligation date and are then offset
against the gains or losses on the foreign currency transaction. See
Note 14 for information regarding the fair value of the Company's
foreign forward exchange contracts.
Fair Value of Financial Instruments
69
The carrying amount of financial instruments, including cash and
cash equivalents, trade accounts and contracts receivable, other current
assets, accounts payable, and accrued expenses, approximate fair value
as of December 31, 1998 and 1997 due to the short maturities of these
instruments. See Note 8 for information regarding the fair value of the
Company's long-term debt and notes payable and Note 14 for information
regarding the fair value of the Company's foreign forward exchange
contracts.
Income Taxes
Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year end based
on enacted tax laws and statutory tax rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets
to the amount expected to be realized. Income tax expense is the tax
payable for the period and the change during the period in deferred tax
assets and liabilities.
Earnings (Loss) Per Share
Basic earnings/loss per share is computed by dividing the net
earnings/loss available to common shareholders by the weighted average
number of common shares outstanding during the period. Diluted earnings
per share is computed by dividing net earnings available to common
shareholders by the weighted average number of common shares outstanding
after giving effect to all dilutive potential common shares that were
outstanding during the period. Potential common shares are not included
in the computation of diluted earnings per share if they are
antidilutive.
Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive Income"
on December 31, 1998. Under SFAS No. 130 the Company is required to
display comprehensive income and its components as part of the financial
statements. Comprehensive income is comprised of net earnings (loss)
and other comprehensive income, which includes certain changes in equity
that are excluded from net income. SFAS No. 130 requires unrealized
70
holding gains and losses on available-for-sale securities to be included
in other comprehensive income. For the years ended December 31, 1998,
1997 and 1996, comprehensive income was equal to net earnings (loss).
New Accounting Standard
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 requires companies
to recognize all derivatives as either assets or liabilities, with the
instruments measured at fair value. The accounting for changes in fair
value, gains or losses depends on the intended use of the derivative and
its resulting designation. The statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The Company
will adopt SFAS No. 133 by January 1, 2000. Because of the Company's
minimal use of derivatives, management does not anticipate that the
adoption of SFAS No. 133 will have a material effect on the earnings or
financial position of the Company.
Stock Split
On November 11, 1998, the Company's Board of Directors authorized a
two-for-one stock split effected in the form of a 100% stock dividend
payable December 31, 1998 to shareholders of record on December 15,
1998. This resulted in the issuance of 27,327,421 additional shares of
common stock. All share, per share and weighted average share amounts
have been restated to reflect this stock split.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the
financial statement date and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
71
3. SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", at December 31, 1998. SFAS No. 131
establishes annual and interim reporting standards for an enterprise's
operating segments and related disclosures about its products, services,
geographic areas and major customers. Under SFAS No. 131, the Company's
operations are considered one operating segment as only aggregate profit
and loss information is reported to the chief operating decision makers
of the Company.
The Company sells its products primarily to a limited number of
pharmaceutical wholesalers and distributors. Customers individually
accounting for at least ten percent of the Company's product sales over
the past three years are as follows:
1998 1997 1996
---- ---- ----
Company A 23% 19% 19%
Company B 20% 27% 26%
Company C 18% 20% 24%
Company D 12% 15% 17%
------ ------ ------
Total % of product sales 73% 81% 86%
==== ==== ====
The Company relies on a limited number of distributor agents to
sell CytoGam internationally and has a contractual agreement with Abbott
for international distribution of Synagis. The breakdown of product
sales by geographic region is as follows:
1998 1997 1996
---- ---- ----
United States $ 153,607 $ 63,032 $ 35,495
All other 9,833 2,239 287
------ ------ ------
Total product sales $ 163,440 $ 65,271 $ 35,782
====== ====== ======
Other revenue of $37,268, $15,693 and $5,317 in 1998, 1997 and 1996,
respectively, consists mainly of United States licensing and milestone
72
revenues and corporate funding.
4. INVENTORY
Inventory at December 31, is comprised of the following:
1998 1997
------ ------
Raw materials $ 9,794 $14,503
Work in process 9,188 12,990
Finished goods 5,727 3,810
------ ------
24,709 31,303
Less non current (4,949) (2,446)
------ ------
$19,760 $28,857
========= =========
The Company has purchased plasma and other raw materials for use in
production in the Company's Frederick manufacturing facility, which is
subject to FDA licensure and approval. Due to the uncertainty
surrounding the likelihood and timing of FDA approval, this inventory
has been classified as noncurrent in the accompanying balance sheet.
As a result of the June 1998 FDA approval of the Company's second
generation RSV product, Synagis, and the market acceptance of Synagis,
the Company reserved approximately $9.2 million against its RespiGam
inventory, as minimal product sales are expected to result from this
inventory in the foreseeable future. The remaining RespiGam plasma
inventory of $2.9 million has been written down to the value the Company
expects to recover upon sale to third parties.
Finished goods at December 31, 1998 and 1997 include approximately
$1.6 million and $0.8 million, respectively, of by-products that result
from the production of the Company's principal products at one of its
contract manufacturers and are held for resale. As of December 31,
1998, minimal sales of these by-products have occurred. The December
73
31, 1998 and 1997 balances are net of reserves of $1.6 million and $0.8
million, respectively.
5. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost at December 31, is comprised
of the following:
1998 1997
----- -----
Land $ 2,147 $ 1,521
Buildings and building improvements 7,085 -
Leasehold improvements 12,736 11,042
Laboratory, manufacturing and facilities 10,841 9,355
equipment
Office furniture, computers, and equipment 5,739 4,377
Construction in progress 48,067 49,040
------- -------
86,615 75,335
Less accumulated depreciation and
Amortization (11,793) (10,081)
------- -------
$74,822 $65,254
======= =======
Construction in progress includes costs incurred in connection with
the design and construction of the Company's manufacturing facility and
includes capitalized interest costs of $5,324 and $2,423 at December 31,
1998 and 1997, respectively.
Buildings includes the purchase in December 1998 of a new facility
in Frederick, Maryland. This facility will provide additional warehouse
and administrative space. Buildings also includes costs associated with
the portions of the Company's manufacturing facility placed in service
74
during 1998. Construction of the manufacturing facility is complete and
validation and start-up activities are ongoing. The Company will
continue to capitalize costs, primarily capitalized interest related to
the facility until placed in service. The portions of the facility that
are subject to inspection and approval by the FDA will be placed in
service and depreciation will commence upon receipt of such approval.
6. ACCRUED EXPENSES
Accrued expenses at December 31, is comprised of the following:
1998 1997
------- -------
Accrued contracts $ 1,492 $14,959
Accrued manufacturing 6,607 8,792
Accrued sales and marketing 22,337 2,299
Accrued other 2,961 1,632
------- -------
$33,397 $27,682
======= =======
7. FACILITIES LEASES
The Company entered into a 15-year lease beginning in November
1991, as amended, for administrative and laboratory facilities in
Gaithersburg, Maryland. Under the lease, the Company is obligated to
pay a basic monthly rent which will increase 3% each lease year and in
1998 totaled $1,158. The lease also requires the Company to pay for
utilities and its proportionate share of taxes, assessments, insurance
and maintenance costs. Rent expense for the years ended December 31,
1998, 1997 and 1996 was $1,454, $1,328, and $1,113, respectively.
The Company's future minimum lease payments under the facility
operating lease are as follows:
75
Year ending December 31,
--------------------------
1999 1,236
2000 1,274
2001 1,312
2002 1,352
2003 1,392
Thereafter 4,315
--------
$ 10,881
========
8. LONG-TERM DEBT
Long-term debt at December 31, is comprised of the following:
1998 1997
----- -----
7% convertible subordinated notes, due
2003 $60,000 $60,000
Notes payable to Transamerica Business
Credit Corporation due through 2004,
interest 9.95%-10.6% 12,868 13,975
7.53% note due to Maryland Industrial
Development Finance Authority, due 2007 4,744 5,000
4% notes due to Maryland Department of
Business and Economic Development, due
2016 6,538 6,800
Notes payable to landlord, due through
2006, interest 11.5%-13% 1,742 1,874
------- -------
85,892 87,649
Less current portion included in other
current liabilities (2,697) (2,286)
------- -------
76
$83,195 $85,363
======= =======
The convertible subordinated notes were issued in July 1996 and are
convertible at the option of the holders into 6,097,560 shares of the
Company's common stock at a conversion price of $9.84 per share, subject
to adjustments in certain events. The notes are redeemable by the
Company after July 7, 1999 with 30 days notice at a declining premium
until the due date, plus accrued interest. The notes are subordinated
to all senior debts of the Company including the state and local loans,
the Transamerica loans, and the loans from the landlord. The Company may
be required to redeem the notes at amounts up to 105% of the principal
amount in the event of a change in control of the Company.
Principal and interest payments on the state and local notes began
in 1998. Pursuant to the terms of the agreements, the Company is
required to meet certain financial and non-financial covenants including
maintaining minimum cash balances and net worth ratios. The Company
maintains a $400 compensating balance related to the notes, which is
included in other assets. The notes are collateralized by the land,
buildings and building fixtures of the manufacturing facility. The
agreements include a provision for early retirement of the notes by the
Company.
Loans from Transamerica Business Credit Corporation issued in 1997
and 1998 are collateralized by manufacturing, laboratory, and office
equipment of the Company. The agreements include a provision for early
retirement of the loans by the Company.
Subsequent to December 31, 1998, the Company paid the remaining
principal balance on the landlord loans.
Maturities of long-term debt for the next five years are as
follows: 1999, $2,697; 2000, $2,961; 2001, $3,254; 2002, $3,576; and
2003, $64,644. Interest paid was $6,352, $4,817 and $304, for the years
ended December 31, 1998, 1997 and 1996, respectively.
The fair value of the Company's long-term debt at December 31,
1998, based on quoted market prices or discounted cash flows based on
77
currently available borrowing rates, was $330,000 compared to its
carrying value of $85,892.
9. SHAREHOLDERS' EQUITY
In connection with the closing of the Company's initial public
offering in 1991, the holders of the Series A Convertible Preferred
Stock warrants agreed that if such warrants were exercised, the holders
thereof would simultaneously exercise their right to convert the Series
A Convertible Preferred Stock received upon exercise of the warrants
into 5,049,050 shares of common stock. Pursuant to an amendment to the
warrant agreement in which the holders could elect a cashless exercise
of the warrants for a reduced number of common shares based on a
calculation of the fair market value of the common stock on the exercise
date, 2,108,652 and 415,873 of the Series A Convertible Preferred Stock
warrants were exercised and converted through a cashless exercise into
3,986,706 and 784,284 shares of common stock in 1997 and 1996,
respectively. As of December 31, 1997, all warrants were exercised and
converted.
In July 1997, the Company's Board of Directors adopted a
Stockholder Rights Plan. Pursuant to the terms of the Plan, common
stock purchase Rights were distributed as a dividend at the rate of one
Right for each share of common stock of the Company held by stockholders
of record as of the close of business on July 21, 1997. The Rights will
be exercisable only if a person or group acquires beneficial ownership
of 20 percent or more of the Company's common stock or commences a
tender or exchange offer upon consummation of which such a person or
group would beneficially own 20 percent or more of the Company's stock.
The Rights will expire on July 9, 2007.
In January 1998, the Company closed the private placement of 3.4
million new shares of common stock to institutional investors for net
proceeds of $66.3 million, and sold 166,820 shares of common stock to
SmithKline Beecham for net proceeds of $5.0 million.
10. EARNINGS PER SHARE
The following is a reconciliation of the numerator and denominator
78
of the diluted EPS computation for the year ended December 31, 1998.
1998
------
Numerator:
Net earnings $56,240
Interest on 7% convertible notes, net of
amounts capitalized and related taxes 1,468
-------
Numerator for diluted EPS $57,708
=======
Denominator:
Weighted average shares outstanding 53,130
Effect of dilutive securities:
Stock options 4,173
7% convertible notes 6,098
-------
Denominator for diluted EPS 63,401
=======
Options to purchase 830,600 shares of common stock with prices ranging
from $29.75 to $48.50 per share were outstanding during 1998, but were
not included in the computation of diluted earnings per share. The
exercise prices for these options were greater than the average market
price of the common stock for 1998, and therefore would be antidilutive.
No reconciliation of the numerator and denominator is necessary for 1997
or 1996, as losses were reported and inclusion of potential common
shares would be antidilutive.
11. COMMON STOCK OPTIONS
In April 1991 and as subsequently amended, the Board of Directors
adopted the 1991 Plan, under which 11,000,000 shares of common stock
were reserved for issuance upon exercise of options granted to
employees, consultants and advisors of the Company. In May 1993, a Non-
Employee Directors Stock Option Plan was approved by the shareholders
under which 500,000 shares of common stock were reserved for issuance
upon exercise of options granted to non-employee directors. The 1991
Plan provides for the grant of incentive and nonqualified stock options
and the Non-Employee Directors Plan provides for the grant of
79
nonqualified stock options. The maximum term of each option granted is
10 years. The option prices under the 1991 Plan and the Non-Employee
Directors Plan are equal to the closing market price on the day prior to
the date of grant. Options normally vest on the anniversary date of the
grant over a three to five year period.
The Company has reserved a total of 9,043,670 shares of common
stock for issuance under these plans as of December 31, 1998. Related
stock option activity, is as follows:
Options Granted
Prior to
Establishment of Non-Employee
the 1991 Plan 1991 Plan Directors Plan
------------------ ------------------ -----------------
Wtd. Wtd. Wtd.
Avg. Avg. Avg.
Exercise Exercise Exercise
Price Price Price
Per Per Per
Shares Share Shares Share Shares Share
Balance,
Dec. 31, 1995 1,580,330 $ 1.55 4,585,492 $ 5.63 140,000 $5.38
Granted - - 1,628,800 8.51 30,000 8.50
Exercised (465,608) .32 (111,360) 4.98 - -
Canceled (4,000) 25.50 (218,814) 6.54 - -
-------- --------- -------
Balance,
Dec. 31,1996 1,110,722 1.98 5,884,118 6.41 170,000 5.93
Granted - - 1,593,300 8.93 40,000 9.32
Exercised (334,718) 1.46 (869,540) 4.48 (25,000) 7.27
Canceled - - (220,206) 8.38 - -
-------- -------- -------
Balance,
Dec. 31, 1997 776,004 2.20 6,387,672 7.21 185,000 12.96
Granted - - 2,410,600 27.30 40,000 31.19
Exercised (466,800) 2.08 (1,731,732) 6.22 - -
Canceled (4,000) 8.94 (118,524) 10.97 - -
-------- -------- --------
Balance,
Dec. 31, 1998 305,204 $2.29 6,948,016 $14.35 225,000 $10.87
======== ========= =======
80
Additional information related to the plans as of December 31, 1998
is as follows:
Options Outstanding Options Exercisable
---------------------- --------------------
Wtd Avg
Range of remaining Wtd Avg Wtd Avg
exercise Options contractual Exercise Options Exercise
prices outstanding life (yrs) Price Exercisable Price
$0.01- $7.00 2,271,356 5.3 $4.76 1,557,008 $4.81
$7.01-$13.50 2,444,802 7.7 $8.09 717,408 $8.18
$13.51-$20.00 310,262 5.2 $16.92 206,135 $17.17
$20.01-$48.50 2,451,800 9.3 $27.34 9,200 $27.98
----------- ----------
$0.01-$48.50 7,478,220 7.4 $13.76 2,489,751 $6.89
495,284 236,525
========== ==========
There were 1,315,450 and 250,000 shares available for future option
grants at December 31, 1998 under the 1991 Plan and the Non-Employee
Directors Plan, respectively.
The Company has adopted the disclosure only provisions of SFAS No.
123 as they pertain to financial statement recognition of compensation
expense attributable to option grants. As such, no compensation cost has
been recognized for the Company's option plans. If the Company had
elected to recognize compensation cost for the 1991 Plan and the Non-
Employee Directors Plan consistent with SFAS No. 123, the Company's net
income and earnings/(loss) per share on a pro forma basis would be:
1998 1997 1996
------- ------- -------
Net earnings/(loss) - as reported $56,240 ($36,895) ($29,544)
Net earnings/(loss) - pro forma $49,128 ($45,208) ($36,556)
Basic earnings/(loss) per share-as reported $ 1.06 $ (.80) $ (.70)
-pro forma $ .92 $ (.98) $ (.87)
Diluted earnings/(loss) per share-as reported $ .91 $ (.80) $ (.70)
81
-pro forma $ .80 $ (.98) $ (.87)
The pro forma expense related to the stock options is recognized
over the vesting period, generally five years. The fair value of each
option grant was estimated using the Black-Scholes option pricing model
with the following weighted average assumptions for each year:
1998 1997 1996
----- ----- -----
Risk-free interest rate 5.28% 6.21% 6.09%
Expected life of options - years 7 7 7
Expected stock price volatility 75% 75% 75%
Expected dividend yield N/A N/A N/A
The weighted average fair value of options granted during 1998, 1997 and
1996 was $19.82, $12.94, and $12.63, respectively.
12. INCOME TAXES
The components of the provision (benefit) for income taxes are as
follows:
Year ended December 31, 1998 1997 1996
---- ---- ----
Current:
Federal $ -- $ -- $ --
State -- -- --
______ ______ ______
Total current benefit -- -- --
Deferred:
Federal (47,428) -- --
State -- -- --
______ ______ ______
Total deferred benefit (47,428) -- --
______ ______ ______
$(47,428) $ -- $ --
====== ====== ======
82
Deferred income taxes reflect the net tax effects of the temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets
at December 31, are as follows:
1998 1997
------ ------
Net operating loss carryforwards $58,887 $61,225
General business credit 4,718 3,191
Accrued expenses not currently 7,960 2,484
deductible
Accounts receivable allowances 11,257 1,376
and reserves
Other 4,545 1,375
------- -------
87,367 69,651
Valuation allowance (9,849) (69,651)
------- -------
Net deferred taxes $77,518 $ --
======== ========
The provision (benefit) for income taxes varies from the income
taxes provided based on the federal statutory rate (34%) as follows:
Year ended December 31, 1998 1997 1996
------ ------ ------
Tax at U.S. federal statutory rate $ 2,996 $(12,544) $(10,045)
State taxes, net of federal benefit 405 (1,697) (1,359)
Change in valuation allowance (59,802) 22,150 13,394
Research and development credits (1,527) (1,172) (627)
Other 10,500 (6,737) (1,363)
83
______ ______ ______
$(47,428) $ -- $ --
====== ====== ======
At December 31, 1998 the Company had net operating loss carryforwards
for federal tax reporting purposes of approximately $153 million
expiring from 2003 to 2013. The net operating loss includes the tax
benefit related to the exercise of stock options, which benefit was
recorded to paid-in capital. The utilization of net operating losses
will be limited to approximately $37 million per year under Internal
Revenue Code Section 382. The Company also has federal research and
development credit carryforwards of approximately $4.7 million at
December 31, 1998 expiring through 2013.
Based on its 1998 pre-tax profit and its estimates of future
taxable income, the Company believes that it is more likely than not
that certain of its deferred tax assets (comprised mostly of federal net
operating loss carryforwards and research and development credits) will
be realized, and has therefore recorded a tax benefit of its deferred
tax assets arising from federal income taxes as of December 31, 1998.
Because management is uncertain of the utilization of the net operating
losses in the states in which they were generated, a full valuation
allowance remains for these assets at December 31, 1998.
13. COLLABORATIVE ARRANGEMENTS
Abbott Laboratories
In December 1997, the Company signed two agreements with Abbott
Laboratories ("Abbott"). The first agreement calls for Abbott to co-
promote Synagis in the U.S. The second agreement allows Abbott to
exclusively distribute Synagis outside the U.S., if and when cleared for
marketing by the appropriate regulatory authorities. Under the terms of
the U.S. co-promotion agreement, Abbott will receive a percentage of net
U.S. sales based on defined annual sales thresholds. Expenses
associated with the co-promotion agreement are included in selling,
84
general and administrative expenses on the accompanying statements of
operations. The Company received a $15 million milestone payment as
part of this agreement in 1998, which is included in other revenue.
Each company is responsible for its own selling expenses. Under the
terms of the distribution agreement, the Company will manufacture and
sell Synagis to Abbott at a price based on end-user sales. The Company
received a $15 million milestone payment as part of this agreement in
1997, which is included in other revenue. The Company could receive up
to an additional $30 million based on the achievement of certain
milestones, including European marketing clearance of Synagis.
SmithKline Beecham
In December 1997, the Company and SmithKline Beecham ("SB") entered
into a strategic alliance to develop and commercialize human
papillomavirus (HPV) vaccines for prevention of cervical cancer and
genital warts. In exchange for exclusive worldwide rights to the
Company's HPV technology, SB agreed to provide the Company with an up-
front payment, future funding and potential developmental and sales
milestones which together could total over $85 million, as well as
royalties on any product sales. Under the terms of the agreement, the
companies will collaborate on research and development activities.
MedImmune will conduct Phase 1 and Phase 2 clinical trials and
manufacture clinical material for those studies. SB is responsible for
the final development of the product, as well as regulatory,
manufacturing, and marketing activities. In January 1998, the Company
received a $15 million payment from SB and completed the sale of 166,820
shares of common stock to SB resulting in net proceeds to the Company of
$5.0 million. Additionally $5.7 million of research funding associated
with the agreement has been included in other revenues for the year
ended December 31, 1998.
American Home Products
On November 8, 1993, the Company signed definitive agreements with
American Cyanamid Company to form an alliance in the United States for
the development and marketing of three generations of products to
prevent and treat respiratory syncytial virus (RSV) and for the
85
marketing of a new anti-infective product, ZOSYN, developed by American
Cyanamid. The parties agreed to co-promote and share profits or losses
on the Company's RSV product, RespiGam, which was licensed for marketing
by the United States Food and Drug Administration (FDA) on January 18,
1996. In 1994, AHP acquired American Cyanamid. In 1995 , the Company
and AHP agreed to amend certain terms of their agreements entered into
concurrently with the formation of their 1993 alliance. Pursuant to
these amendments, AHP's funding obligations and co-promotion rights with
respect to the second generation RSV monoclonal product developed by the
Company were terminated, the Company returned its right to co-promote
ZOSYN to AHP and AHP received a right to receive a royalty on any sales
of the RSV monoclonal product. In addition, the Company's right to co-
fund and to co-promote an RSV vaccine being developed by AHP was
converted into the right to receive royalties on any sales of the
vaccine. Revenue of $4.8 million in 1996 associated with these
agreements is included as other revenue in the accompanying statements
of operations. Additionally, $0.9 million of expense, $3.0 million of
expense and $4.3 million of reimbursement for co-promotion activity has
been added to and netted against selling, general and administrative
expense for the years ended December 31, 1998, 1997 and 1996,
respectively.
Zosyn is a registered trademark of American Home Products
BioTransplant Incorporated
In October 1995, the Company and BioTransplant, Incorporated
("BTI") formed a strategic alliance for the development of products to
treat and prevent organ transplant rejection. The alliance is based
upon the development of products derived from BTI's anti-CD2 antibody
BTI-322, the Company's anti-T cell receptor antibody MEDI-500 and future
generations of products derived from these two molecules, including, but
not limited to, MEDI-507. Pursuant to the alliance, the Company
received an exclusive worldwide license to develop and commercialize BTI-
322 and any products based on BTI-322, with the exception of the use of
BTI-322 in kits for xenotransplantation or allotransplantation. The
86
Company has paid BTI $4.5 million in license fees and research support
through December 31, 1997. No payments were made in 1998. The Company
has assumed responsibility for clinical testing and commercialization of
any resulting products. BTI may receive milestone payments that could
total up to an additional $11.0 million, as well as royalties on any
sales of BTI-322, MEDI-500, MEDI-507 and future generations of these
products, if any.
Other Agreements
The Company has entered into research, development and license
agreements with various federal and academic laboratories and other
institutions to further develop its products and technology and to
perform clinical trials. Under these agreements, the Company is
obligated to provide funding of approximately $8.8 million and $0.5
million in 1999 and 2000, respectively. The Company has also agreed to
make milestone payments in the aggregate amount of $11.2 million on the
occurrence of certain events such as the granting by the FDA of a
license for product marketing in the U.S. for some of the product
candidates covered by these agreements. In exchange for the licensing
rights for commercial development of proprietary technology, the Company
has agreed to pay royalties on sales using such licensed technologies.
14. FORWARD EXCHANGE CONTRACTS
Beginning in 1997, the Company entered into foreign forward
exchange contracts to hedge against foreign exchange rate fluctuations
that may occur on the Company's foreign currency denominated
obligations. As of December 31, 1998 the Company had outstanding forward
Deutsche mark contracts in the amount of $34.1 million, all expiring
within one year. Fair value of the outstanding contracts at December
31, 1998 was $34.0 million, resulting in an unrealized loss of $0.1
million. Unrealized gains and losses on foreign forward exchange
contracts that are designated and effective as hedges are deferred and
recognized in the same period that the hedged obligation is recognized.
The notional principal amounts for off-balance sheet instruments provide
87
one measure of the transaction volume outstanding as of year end, and
does not represent the amount of the Company's exposure to credit or
market loss. The Company's exposure to market risk will vary over time
as a function of currency rates.
15. COMMITMENTS AND CONTINGENCIES
Manufacturing, Supply and Purchase Agreements
The Company has entered into manufacturing, supply and purchase
agreements in order to provide production capability for CytoGam and
RespiGam, and to provide a supply of human plasma for production of both
products. No assurances can be given that an adequate supply of plasma
will be available from the Company's suppliers. Human plasma for
CytoGam and RespiGam is converted to an intermediate raw material
(Fraction II+III paste) under two supply agreements with two vendors.
This intermediate material is then supplied to the manufacturer of the
bulk product, the State Lab. Pursuant to the agreements with the State
Lab, the Company paid $12.9 million in 1998, $10.2 million in 1997, and
$9.7 million in 1996 for production and process development. The
Company has an informal arrangement with the State Lab for planned
production of CytoGam through June 1999 for $8.0 million, subject to
production level adjustments. Currently, no production of RespiGam is
planned for the foreseeable future due to existing inventories and the
market acceptance of Synagis. If the State Lab, which holds the sole
product and establishment licenses from the FDA for the manufacture of
CytoGam and RespiGam, is unable to satisfy the Company's requirements
for CytoGam on a timely basis or is prevented for any reason from
manufacturing CytoGam, the Company may be unable to secure an
alternative manufacturer without undue and materially adverse
operational disruption and increased cost. The Company also has an
agreement with Connaught Laboratories to fill and package CytoGam
through 2000.
In December 1997, the Company entered into an agreement with
Boehringer Ingelheim Pharma KG ("BI"), to provide supplemental
88
manufacturing of the Company's second generation RSV product, Synagis.
The Company paid $16.0 million in 1998 and $2.2 million in 1997 related
to production and scale-up of production as part of this agreement. The
Company has firm commitments with BI for planned production through 2001
for approximately 59.1 million Deutsche marks. Should the manufacturer
be unable to supply Synagis to the Company for any reason, there can be
no assurances that the Company will be able to secure an alternate
manufacturer in a timely basis or without increased cost.
16. OTHER OPERATING EXPENSES
Other operating expenses in 1998 include the costs of start-up of
the Frederick manufacturing facility and scale-up of production of
Synagis at the Gaithersburg pilot plant and at a third-party
manufacturer, BI, prior to the licensure of Synagis by the FDA.
Expenses in 1998 also include $10.3 million for the buydown of certain
Synagis royalty obligations prior to FDA approval in June 1998. The
Company expects to incur significant start-up and scale-up costs
throughout 1999, primarily for ongoing start-up activities at the
Frederick manufacturing facility.
17. PENSION PLAN
The Company has a defined contribution 401(k) pension plan
available to all full-time employees. Employee contributions are
voluntary and are determined on an individual basis subject to the
maximum allowable under federal tax regulations. Participants are always
fully vested in their contributions. The Company began employer
contributions as of April 1, 1997. During 1998 and 1997, the Company
contributed $222 and $122 respectively, in cash to the plan.
18. SUBSEQUENT EVENT - COLLABORATIVE ARRANGEMENT
In February 1999, the Company entered into an alliance with Ixsys,
Inc. ("Ixsys"), to develop four monoclonal antibodies. The first of
89
these products, Vitaxin, is currently being tested in a Phase 2 trial
for cancer treatment by inhibition of angiogensis. The Company will
provide three additional target antibodies to be optimized by Ixsys.
The Company would be responsible for clinical development,
manufacturing, and commercialization of any resulting products.
Concurrent with the signing of the agreements, the Company made a $6.4
million equity investment in Ixsys. The Company is obligated to provide
research funding of $0.5 million in 1999. Ixsys may receive milestone
payments that could total up to $35.0 million, as well as royalties on
any sales, if any, of the products and future generation of such
products, included in the agreement. Milestone payments due under the
agreement, at the Company's option, may be made in the form of a
purchase of the common stock of Ixsys, subject to certain terms and
limitations.
Report of Independent Accountants
To the Board of Directors and Shareholders of MedImmune, Inc.
In our opinion, the financial statements listed in the index appearing
under Item 14(a)(1) and (2) present fairly, in all material respects,
the financial position of MedImmune, Inc. at December 31, 1998 and 1997,
and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements
are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
90
that our audits provide a reasonable basis for the opinion expressed
above.
/s/PRICEWATERHOUSECOOPERS LLP
McLean, Virginia
January 25, 1999, except for Note 18 which is as of February 24, 1999
Report of Management
The management of the Company is responsible for the preparation of
the financial statements and related financial information included in
this annual report. The statements were prepared in conformity with
generally accepted accounting principles, and accordingly, include
amounts that are based on informed estimates and judgments.
Management maintains a system of internal controls to provide
reasonable assurance that assets are safeguarded and that transactions
are properly authorized and accurately recorded. The concept of
reasonable assurance is based on the recognition that there are inherent
limitations in all systems of internal accounting control and that the
costs of such systems should not exceed the benefits expected to be
derived. The Company continually reviews and modifies these systems,
where appropriate, to maintain such assurance. The system of internal
controls includes careful selection, training and development of
operating and financial personnel, well-defined organizational
responsibilities and communication of Company policies and procedures
throughout the organization.
The selection of the Company's independent accountants,
PricewaterhouseCoopers LLP, has been approved by the Board of Directors
and ratified by the shareholders. The Audit Committee of the Board of
Directors, composed solely of outside directors, meets periodically with
the Company's independent accountants and management to review the
financial statements and related information and to confirm that they
are properly discharging their responsibilities. In addition, the
independent accountants and the Company's legal counsel meet with the
91
Audit Committee, without the presence of management, to discuss their
findings and their observations on other relevant matters.
Recommendations made by PricewaterhouseCoopers LLP are considered and
appropriate action is taken to respond to these recommendations.
/s/Wayne T. Hockmeyer, Ph.D. /s/David M. Mott
Chairman and Chief Executive Vice Chairman and Chief
Officer Financial Officer
/s/Lawrence C. Hoff
Chairman of the Audit Committee
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
92
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF MEDIMMUNE, INC.
Information with respect to directors is included in the Company's
Proxy Statement to be filed pursuant to Regulation 14A (the "Proxy
Statement") under the caption "Election of Directors," and such
information is incorporated herein by reference. Set forth in Part I,
Item 1, are the names and ages (as of February 6, 1999), the positions
and offices held by, and a brief account of the business experience
during the past five years of each executive officer.
All directors hold office until the next annual meeting of
shareholders and until their successors are elected and qualified.
Officers are elected to serve, subject to the discretion of the Board of
Directors, until their successors are appointed.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" and the information
set forth under the caption "Election of Directors-Director
Compensation" included in the Proxy Statement are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The common stock information in the section entitled "Principal
Shareholders" of the Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Transactions" of the Proxy Statement
is incorporated herein by reference.
PART IV
93
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
The following documents or the portions thereof indicated are filed
as a part of this report.
a) Documents filed as part of the Report
1. Financial Statements and Supplemental Data
a. Balance Sheets at December 31, 1998 and 1997
b. Statements of Operations for the years ended
December 31, 1998, 1997 and 1996
c. Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
d. Statements of Shareholders' Equity for the years
ended December 31, 1998, 1997 and 1996
e. Notes to Financial Statements
f. Report of Independent Accountant
g. Report of Management
2. Supplemental Financial Statement Schedule
Schedule I - Valuation and Qualifying Accounts Page S-1
b) Reports on Form 8-K
Date Filed Event Reported
10/9/98 BioTransplant and MedImmune Announce Issuance of
Second U.S. Patent Covering Medi-507 and BTI-322
Antibodies
10/23/98 MedImmune Revenues Increase Nearly Four-Fold in
First Three Quarters of 1998
11/13/98 MedImmune's Board of Directors Authorizes Two-For-
One Stock Split
11/13/98 MedImmune Announces Issuance of U.S. Patent for
Synagis
12/3/98 MedImmune and Pasteur Merieux Connaught Enter
Agreement to Develop Second Generation Vaccine
for Lyme Disease
94
12/10/98 MedImmune Reports CytoGam Receives FDA Approval
for Expanded Indication
12/16/98 MedImmune and Biotransplant Announce Initiation
of Two New Clinical Studies and Orphan Drug
Designation of MEDI-507
12/23/98 MedImmune Announces Synagis Publication
Pediatric Data Presented in the December Edition
of the Journal of Infectious Diseases
C) ITEM 601 EXHIBITS
Those exhibits required to be filed by Item 601 of Regulation S-K are
listed in the Exhibit Index immediately preceding the exhibits filed
herewith and such listing is incorporated by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MEDIMMUNE, INC.
/s/ Wayne T. Hockmeyer
Date: March 23, 1999 By: Wayne T. Hockmeyer
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ Wayne T. Hockmeyer
Date: March 23, 1999 Wayne T. Hockmeyer
Chairman and
Chief Executive Officer
(Principal executive officer)
/s/ David M. Mott
Date: March 23, 1999 David M. Mott
Vice Chairman and Chief
Financial Officer (Principal
financial and accounting officer)
95
/s/ M. James Barrett
Date: March 23, 1999 M. James Barrett, Director
Date: March 23, 1999 /s/ Melvin D. Booth
Melvin D. Booth, Director
/s/ James H. Cavanaugh
Date: March 23, 1999 James H. Cavanaugh, Director
/s/ Barbara Hackman Franklin
Date: March 23, 1999 Barbara Hackman Franklin,
Director
/s/ Lawrence C. Hoff
Date: March 23, 1999 Lawrence C. Hoff, Director
/s/ Gordon S. Macklin
Date: March 23, 1999 Gordon S. Macklin , Director
/s/ Franklin H. Top, Jr.
Date: March 23, 1999 Franklin H. Top, Jr., Director
96
Schedule I
MedImmune, Inc.
Valuation and Qualifying Accounts
(in thousands)
Balance
at Balance
beginning at end
of of
Description period Additions Deductions period
- -------------------------- --------- ---------- ---------- -------
For the year ended
December 31, 1998
Trade and Contract
Receivables Allowance $3,294 $36,689 ($11,085) $28,898
Trade Receivables Bad
Debt Reserve 104 402 (238) 268
Inventory Reserve -- 12,374 (2,702) 9,672
------ ------ ------- ------
$3,398 $49,465 ($14,025) $38,838
====== ====== ====== ======
For the year ended
December 31, 1997
Trade and Contract
Receivables Allowance $1,425 $4,036 ($2,167) $3,294
Trade Receivables Bad
Debt Reserve 745 -- (641) 104
Inventory Reserve 8 -- (8) --
------ ------ ------- ------
$2,178 $4,036 ($2,816) $3,398
====== ====== ======= ======
For the year ended
December 31, 1996
Trade and Contract
Receivables Allowance $309 $2,136 ($1,020) $1,425
Trade Receivables Bad
Debt Reserve 21 724 -- 745
Inventory Reserve 417 249 (658) 8
------ ------ ------ ------
$747 $3,109 ($1,678) $2,178
====== ====== ====== ======
S-1
c) Item 601 Exhibits
3.1(4) Restated Certificate of Incorporation, dated May 14, 1991
3.2(3) By-Laws, as amended
4.1 (19) Amended and Restated Rights Agreement, dated as of October
31, 1998, between MedImmune, Inc., and American Stock
Transfer and Trust Company, as Rights Agent
10.1(1)(3) License Agreement dated November 15, 1990 between the
Company and Merck & Co., Inc. ("Merck")
10.1(3) Plasma Supply Agreement dated May 31, 1990 between the
Company and Plasma Alliance, Inc.
10.2(3) Termination Agreement dated June 29, 1990 between the
Company and Pediatric Pharmaceuticals, Inc. ("PPI") (formerly
MedImmune, Inc.)
10.3(3) RSV Research Agreement dated August 1, 1989 between the
Company, PPI and the Massachusetts Health Research Institute, Inc.
("MHRI")
10.4(3) RSV License Agreement dated August 1, 1989 between the
Company, PPI and MHRI
10.5(3) RSV Supply Agreement dated August 1, 1989 between the
Company, PPI, MHRI and the Massachusetts Public Health Biologic
Laboratory ("MPHBL")
10.6(3) CMV License Agreement dated April 23, 1990 between the
Company and MHRI
10.7(3) First Amendment to CMV License Agreement dated May 3,
1991 between the Company and MHRI
10.8(3) CMV Research Agreement dated April 23, 1990 between the
Company, MHRI and MPHBL
10.9(3) License Agreement dated November 8, 1989 between the
Company, PPI, and the Henry M. Jackson Foundation for the
Advancement of Military Medicine ("HMJ")
10.11(1)(3) License Agreement dated November 15, 1990 between Company
and Merek & Co., Inc.
10.10(3) Research Agreement dated November 8, 1989 between the
Company, PPI and HMJ
10.11(1)(3) Research and License Agreement dated April 1, 1990 between
the Company and New York University
10.12(1)(3) Research and License Agreement dated January 2, 1991 between
the Company and the University of Pittsburgh
10.13(3) Patent License Agreement between the Company and the
National Institutes of Health regarding parvovirus
10.14(3) License Agreement dated September 1, 1988 between the
Company and Albany Medical College of Union College
10.15(3) License Agreement dated July 5, 1989 between the Company,
Albert Einstein College of Medicine of Yeshiva University, The
Whitehead Institute and Stanford University
10.16(3) License Agreement dated July 1, 1989 between the Company
and the National Technical Information Service ("NTIS")
10.17(3) License Agreement dated September 1, 1989 between the
Company and NTIS
10.18(5) Form of Stock Option Agreement, as amended
E-1
10.19(3) Convertible Preferred Stock and Warrant Purchase Agreement
between HCV, Everest Trust and the Company dated January 12, 1990
with form of Warrant
10.20(3) Restated Stockholders' Agreement dated May 15, 1991
10.21(3) Lease Agreement between Clopper Road Associates and the
Company dated February 14, 1991
10.22(7) 1991 Stock Option Plan
10.23(3) Sublease between the Company and Pharmavene, Inc.
10.24(4) Agreement between New England Deaconess Hospital
Corporation and the Company, dated as of August 1, 1991
10.25(1)(4) Research Collaboration Agreement between Merck and the
Company effective as of November 27, 1991
10.26(1)(4) Co-promotion Agreement between Merck and the Company
effective as of November 27, 1991
10.27(1)(4) License Agreement between Merck and the Company effective
as of November 27, 1991
10.28(1)(5) Letter Agreement between Merck and the Company, dated
January 26, 1993
10.29(1)(5) Termination, Purchase and Royalty Agreement between CLI
and the Company, dated December 24, 1992
10.29.1(1)(12) Amendment to Termination, Purchase and Royalty
Agreement between Connaught Technology Corporation and MedImmune,
Inc. dated December 31, 1995
10.30(1)(5) Research and License Agreement between Cell Genesys, Inc.
and the Company, dated April 29, 1992
10.31(a)(5) Unredacted pages 2-5 of Exhibit 10.31
10.31(5) Form of 1993 Non-Employee Director Stock Option Plan
10.32(1)(8) Sponsored Research and License Agreement between
Georgetown University and the Company dated February 25, 1993
10.33(1)(8) License Agreement between Roche Diagnostic Systems, Inc.
and the Company dated March 8, 1993
10.34(1)(8) Pip/Tazo Co-Promotion Agreement between American Cyanamid
Company and the Company dated November 8, 1993
10.34.1(12) Agreement dated October 26, 1995 between American
Cyanamid Company and the Company
10.35(1)(8) RSVIG Co-Development and Co-Promotion Agreement between
American Cyanamid Company and the Company dated November 8, 1993
10.35.1(12) Agreement dated October 26, 1995 between American
Cyanamid Company and the Company
10.36(1)(8) RSV MAB Co-Development and Co-Promotion Agreement between
American Cyanamid Company and the Company dated November 8, 1993
10.36.1(12) Agreement dated October 26, 1995 between American
Cyanamid Company and the Company
10.37(1)(8) RSV Vaccine Co-Development and Co-Promotion Agreement
between American Cyanamid Company and the Company dated November 8,
1993
10.37.1(12) Agreement dated October 26, 1995 between American
Cyanamid Company and the Company
E-2
10.38(1)(10) Fraction II + III Paste Supply Agreement between Baxter
Healthcare Corporation and the Company dated September 1, 1994
10.39(11) Employment Agreement between David P. Wright and the
Company dated January 2, 1995
10.40(11) Employment Agreement between Bogdan Dziurzynski and the
Company dated February 1, 1995
10.41(11) Employment Agreement between Wayne T. Hockmeyer and the
Company dated February 1, 1995
10.42(11) Employment Agreement between David M. Mott and the Company
dated February 1, 1995
10.43(11) Employment Agreement between Franklin H. Top, Jr. and the
Company dated February 1, 1995
10.44(11) Employment Agreement between James F. Young and the Company
dated February 1, 1995
10.45(1)(11) License Agreement between Symbicom AB and the Company
dated May 20, 1994
10.46(1)(11) License Agreement between the University of Kentucky
Research Foundation and the Company effective June 10, 1994
10.47(1)(11) Research and Development Agreement between the University of
Kentucky Research Foundation and the Company effective June 10,
1994
10.48(1)(11) Research and License Agreement between Washington
University and the Company effective July 1, 1994
10.49(1)(11) Research and License Agreement between Washington
University and the Company effective March 1, 1995
10.50(1)(9) License Agreement between Baxter Healthcare Corporation
and MedImmune, Inc. effective June 2, 1995
10.51(1)(9) Stock Purchase Agreement between Baxter Healthcare
Corporation and MedImmune, Inc. dated June 22, 1995
10.52(2)(10) Alliance Agreement between BioTransplant, Inc. and
MedImmune, Inc. dated October 2, 1995
10.53(12) Stock Purchase Agreement dated October 25, 1995 between
MedImmune, Inc. And American Home Products
10.54(2)(12) Collaboration and License Agreement dated as of July 27,
1995 between MedImmune, Inc. And Human Genome Sciences, Inc.
10.55(12) Stipulation of Settlement in reference to MedImmune, Inc.
Securities Litigation, Civil Action No. PJM93-3980
10.56(2)(13) Plasma Supply Agreement dated effective as of February 8,
1996, by and between DCI Management Group, Inc. and MedImmune, Inc.
10.58(2)(13) License and Research Support Agreement dated as of April
16, 1996, between The Rockefeller University and MedImmune, Inc.
10.59(14) First Amendment of Lease Between Clopper Road Associates
and MedImmune, Inc. dated June 8, 1993.
10.60(14) Second Amendment of Lease Between Clopper Road Associates
and MedImmune, Inc. dated June 30, 1993.
E-3
10.61(14) Third Amendment of Lease between Clopper Road Associates
and MedImmune, Inc. effective as of January 1, 1995.
10.62(14) Fourth Amendment of Lease between Clopper Road Associates
and MedImmune, Inc. dated October 3, 1996.
10.63(14) Fifth Amendment of Lease between Clopper Road Associates
and MedImmune, Inc. dated October 3, 1996.
10.64(1)(14) Engineering, Procurement, Construction and Validation
Services Agreement between MedImmune, Inc. and Fluor Daniel, Inc.
effective as of July 31, 1996.
10.65(2)(14) Research and License Agreement between OraVax Merieux Co.
and MedImmune, Inc. effective as of November 1, 1996.
10.66 (15) Employment Agreement between Wayne T. Hockmeyer and
MedImmune, Inc. effective April 1, 1997.
10.67 (15) Employment Agreement between David M. Mott and MedImmune,
Inc. effective April 1, 1997.
10.68 (15) Employment Agreement between Franklin H. Top and
MedImmune, Inc. effective April 1, 1997.
10.69 (15) Employment Agreement between David P. Wright and
MedImmune, Inc. effective April 1, 1997.
10.70 (15) Employment Agreement between James F. Young and
MedImmune, Inc. effective April 1, 1997.
10.71 (15) Employment Agreement between Bogdan Dziurzynski and
MedImmune, Inc. effective April 1, 1997.
10.72 (16) Master Loan & Security Agreement, dated June 16, 1997
by and between Transamerica and MedImmune, Inc.
10.73 (1)(16) Patent License Agreement, (MEDI-493) dated July 17, 1997
by and between Protein Design Labs and MedImmune, Inc.
10.74 (1) Patent License Agreement, (MEDI-507) dated July 17, 1997 by
and between Protein Design Labs and MedImmune, Inc.
10.75 (17) Sixth Amendment of Lease between ARE-QRS Corp. and
MedImmune, Inc. dated September 10, 1997.
10.76(1)(17) Co-Promotion Agreement between Abbott Laboratories and
MedImmune, Inc. dated November 26, 1997
10.77(1)(17) Contract Research and Development Agreement between
MedImmune, Inc. and Dr. Karl Thomae GmbH dated November 27, 1997.
10.78(1)(17) Manufacturing Agreement between MedImmune, Inc. and Dr.
Karl Thomae GmbH dated November 27, 1997.
10.79(1)(17) Distribution Agreement between MedImmune, Inc. and Abbott
International, Ltd. dated November 26, 1997.
10.80(1)(17) License Agreement between Loyola University of Chicago
and MedImmune, Inc. dated December 3, 1997.
10.81(1)(17) Research Collaboration and License Agreement between
SmithKline Beecham and MedImmune, Inc. dated December 10, 1997.
10.82 (18) Termination of MEDI-SB Letter Agreement of October 10, 1996
10.83 (18) Second Amendment between MedImmune, Inc. and Lonza
Biologics PLC of 228 Bath Road, Slough, Berkshire SL1 4DY England
E-4
10.84 Employment Agreement between Wayne T. Hockmeyer and
MedImmune, Inc. effective November 1, 1998.
10.85 Employment Agreement between Melvin Booth and MedImmune,
Inc. effective November 1, 1998.
10.86 Employment Agreement between David M. Mott and MedImmune,
Inc. effective November 1, 1998.
10.87 Employment Agreement between Franklin H. Top and MedImmune,
Inc. effective November 1, 1998.
10.88 Employment Agreement between David P. Wright and MedImmune,
Inc. effective November 1, 1998.
10.89 Employment Agreement between James F. Young and MedImmune,
Inc. effective November 1, 1998.
10.90 Employment Agreement between Bogdan Dziurzynski and
MedImmune, Inc. effective November 1, 1998.
10.91 (2) License Agreement between Connaught Laboratories, Inc.
and MedImmune, Inc. effective November 20, 1998.
10.92 (2) Termination of Purchase and Royalty Agreement Second
Amendment between Connaught Technology Corporation and MedImmune,
Inc. effective September 30, 1998.
10.93 Purchase Contract Agreement between Aid Association and
MedImmune, Inc. effective November 25, 1998.
10.94 Seventh Amendment of Lease between ARE-QRS CORP. and
MedImmune, Inc. effective August 1, 1998.
23.1 Consent of Independent Accountants
______________
(1) Confidential treatment has been granted by the SEC. The copy
filed as an exhibit omits the information subject to the
confidentiality grant.
(2) Confidential treatment has been requested. The copy filed as
an exhibit omits the information subject to the
confidentiality request.
(3) Incorporated by reference to exhibit filed in connection
with the Company's Registration Statement No. 33-39579.
(4) Incorporated by reference to exhibit filed in connection
with the Company's Registration Statement No. 33-43816.
(5) Incorporated by reference to exhibit filed in connection
with the Company's Annual Report on Form 10-K for the year ended
December 31, 1992.
(6) Incorporated by reference to exhibit filed in connection
with the Company's Annual Report on Form 10-K for the year ended
December 31, 1991.
(7) Incorporated by reference to exhibit filed in connection
with the Company's Registration Statement No. 33-46165.
(8) Incorporated by reference to exhibit filed in connection
with the Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
(9) Incorporated by reference to exhibit filed in connection with the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995.
E-5
(10) Incorporated by reference to exhibit filed in connection
September 30, 1995.
(11) Incorporated by reference to exhibit filed with the
Company's Annual Report on Form 10-K for December 31, 1994.
(12) Incorporated by reference to exhibit filed with the
Company's Annual Report on Form 10-K for December 31, 1995.
(13) Incorporated by reference to exhibit filed with the
Company's Quarterly Report on Form 10-Q for the Quarter ended June
30, 1996.
(14) Incorporated by reference to exhibit filed with the
Company's Annual Report on Form 10-K for December 31, 1996.
(15) Incorporated by reference to exhibit filed with the
Company's Quarterly Report on Form 10-Q for the Quarter ended March
31, 1997.
(16) Incorporated by reference to exhibit filed with the
Company's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1997.
(17) Incorporated by reference to exhibit filed with the
Company's annual Report on Form 10-K for December 31, 1997.
(18) Incorporated by reference to exhibit filed with the Company's
Quarterly Report on Form 10-Q for the Quarter ended June 30, 1998.
(19) Incorporated by reference to Exhibit 99.2 filed with the
Company's Registration Statement on Form 8A/A, filed with
the Securities and Exchange Commission on December 1, 1998.
E-6