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FORM 10-K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 0-12104
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IMMUNOMEDICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 61-1009366
(State of Incorporation) (I.R.S. Employer Identification No.)
300 AMERICAN ROAD, MORRIS PLAINS,
NEW JERSEY 07950
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (201) 605-8200
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 requirement 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 the 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. [_]
As of September 23, 1996, 34,880,365 shares of the registrant's common stock
were outstanding, and the aggregate market value of common stock held by non-
affiliates of the registrant, computed by reference to the last reported sale
price for the registrant's common stock on the Nasdaq National Market at that
date was $185,906,081.
Documents Incorporated by Reference: PORTIONS OF THE REGISTRANT'S DEFINITIVE
PROXY STATEMENT TO BE MAILED TO STOCKHOLDERS IN CONNECTION WITH THE ANNUAL
MEETING OF STOCKHOLDERS OF THE REGISTRANT TO BE HELD ON NOVEMBER 6, 1996 (THE
"1996 DEFINITIVE PROXY STATEMENT"), WHICH WILL BE FILED WITH THE COMMISSION
NOT LATER THAN 120 DAYS AFTER THE END OF THE FISCAL YEAR TO WHICH THIS REPORT
RELATES, ARE INCORPORATED BY REFERENCE IN PART III HEREOF.
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PART I
ITEM 1--BUSINESS
INTRODUCTION
Immunomedics, Inc. (the "Company") is a biopharmaceutical company applying
innovative proprietary technology in antibody selection, modification and
chemistry to the development of products for the detection and treatment of
cancers and infectious diseases. Integral to these products are highly
specific monoclonal antibodies designed to deliver radioisotopes,
chemotherapeutic agents or toxins to tumors and sites of infection.
The Company is developing a line of in vivo imaging products for the
detection of various cancers and infectious diseases. In April 1991, the
Company filed a Product License Application, now called a Biologics License
Application ("BLA"), to which a supplement was filed in June 1993, with the
U.S. Food and Drug Administration ("FDA") seeking approval to manufacture and
market, in the United States, the Company's proprietary in vivo colorectal
cancer imaging product, CEA-Scan(R). In April 1996, the Company received a
letter from the FDA indicating that the BLA for CEA-Scan(R) for colorectal
cancer imaging was approvable. On June 28, 1996, the FDA licensed CEA-Scan(R)
for use with standard diagnostic modalities ("SDM") for the detection of
recurrent and/or metastatic colorectal cancer. In February 1992, the Company
filed with the Health Protection Branch ("HPB") to market CEA-Scan(R) in
Canada, and in March 1992, the Company filed with the Committee for
Proprietary Medicinal Products ("CPMP") to market the product in Europe. On
May 22, 1996, CEA-Scan(R) was recommended for European approval in a unanimous
opinion by the CPMP. This constitutes the final regulatory step before
marketing authorization is granted by the European Commission for use of the
product in the 15 countries comprising the European Union. The Company
continues to work diligently with Canadian regulatory authorities and remains
fully committed to the eventual approval of CEA-Scan(R) in Canada. Clinical
trials of CEA-Scan(R) for the detection of lung and breast cancers are
currently in Phase III and Phase II trials, respectively. However, no
assurance can be given as to if or when final regulatory approvals for any of
the products named above (for which final regulatory approval has not yet been
received) will be forthcoming.
With respect to LeukoScan(R), an in vivo infectious disease diagnostic
imaging product, the Company has filed for regulatory approval with the
European Medicines Evaluation Agency ("EMEA"), seeking approval to market the
product in all 15 countries which are members of the European Union. The
application seeks approval for LeukoScan(R) to be used in the detection and
diagnosis of osteomyelitis (bone infection) in long bones and in diabetic foot
ulcer patients. In preparation for filing an application for this product with
the FDA, the Company conducted further analysis of its Phase III clinical data
for the bone infection and diabetic foot ulcer indications and has discussed
with the FDA a filing and clinical trial strategy, which included the
continued enrollment of patients into the Phase III trial for these
indications. The Company is now in the final stages of assembling the
application and believes it will be in a position to file a BLA for
LeukoScan(R) with the FDA before the end of calendar year 1996. Meanwhile,
Phase III trials for infected prosthesis and appendicitis are continuing, and
the Company is examining other applications for the product. As with all
regulatory filings, there can be no assurance that such filing will be
acceptable for review, or ultimately approved, by the FDA or other regulatory
agencies. In addition, the Company has developed two other in vivo cancer
imaging products for the detection and diagnosis of liver and germ cell
cancers (AFP-Scan(TM)), currently in a Phase II clinical trial, and lymphomas
(LymphoScan(TM)), for which a Phase III clinical trial was recently begun (see
"Clinical Trial Programs").
The Company is also applying its expertise in antibody selection,
modification and chemistry to develop therapeutic products for cancer using
monoclonal antibodies labeled with radioisotopes or conjugated with drugs. The
Company has been conducting a multicenter Phase I/II clinical trial for
ImmuRAIT(TM)-LL2, its non-Hodgkin's B-cell lymphoma therapeutic product. This
trial was designed to obtain knowledge about antibody targeting and dosing.
The Company is working towards advancing its humanized antibody program into
Phase I clinical trials and accordingly does not currently plan to advance
ImmuRAIT(TM)-LL2 into Phase III trials with the murine antibody form (see "In
Vivo Therapeutic Products").
1
In December 1994, the Company's interim manufacturing facility in Newark,
New Jersey (the "Newark Facility") was certified by the Department of Health
Medicines Control Agency ("MCA") in the United Kingdom to be in general
compliance with the guidelines of Good Manufacturing Principles ("cGMP"). In
addition, the Newark Facility has been inspected and approved by the FDA as
part of the process of approving the BLA for CEA-Scan(R). The Company has also
recently completed construction of a manufacturing facility at its Morris
Plains headquarters (see "Manufacturing").
In March 1995, the Company entered into a License Agreement with
Mallinckrodt Medical B.V. ("Mallinckrodt Medical"), a leading producer and
distributor of radiopharmaceuticals in Europe and an affiliate of Mallinckrodt
Group Inc. ("Mallinckrodt Group" and with Mallinckrodt Medical, collectively,
"Mallinckrodt"). Mallinckrodt Medical will market, sell and distribute CEA-
Scan(R) throughout Western Europe and in specified Eastern European countries,
subject to receipt of regulatory approval in the specified countries. In April
1996, the Company entered into a Marketing and Distribution Agreement with
Mallinckrodt Group, pursuant to which Mallinckrodt Group will market, sell and
distribute CEA-Scan(R) for use in colorectal cancer diagnostic imaging in the
U.S. on a consignment basis (see "Marketing and Sales").
In August 1995, the Company announced that its license agreement with
Pharmacia, Inc. (which subsequently became Pharmacia & Upjohn Inc.--
"Pharmacia") had been terminated. In June 1996, the Company filed a claim
against Pharmacia before the American Arbitration Association claiming damages
for breach of contract and fiduciary duty in an amount in excess of $60
million plus punitive damages (see "Marketing and Sales").
Immunomedics, Inc. was incorporated in Delaware in 1982. The Company's
principal offices are located at 300 American Road, Morris Plains, New Jersey
07950. The Company's telephone number is (201) 605-8200. The Company has also
formed a subsidiary, Immunomedics, B.V., with offices located in Petten, The
Netherlands, to manage the Company's sales and marketing efforts and
coordinate clinical trials in Europe.
CLINICAL TRIAL PROGRAMS
In Vivo Imaging Products
The Company's in vivo imaging products utilize radioimmunodetection.
Radioimmunodetection involves injecting a patient with a radioisotope linked
(conjugated) to an antibody. An antibody is a protein that can recognize and
selectively attach itself to a specific substance called an antigen. Such
antigens are present on tumor cells, white blood cells which accumulate at the
sites of infections, and other disease entities. By attaching a radioisotope
to a disease-targeting antibody, the radioisotope may be delivered to a
disease site for imaging. A gamma camera (standard nuclear medicine equipment
used for imaging) is then used to display radioisotope concentrations
revealing the presence, location and approximate size of the site of disease.
The Company's in vivo imaging products utilize only one of the upper arms of
the antibody, the Fab' fragment. The Company uses its proprietary chemistry to
produce the Fab' fragment of a mouse-derived antibody capable of direct and
virtually instant attachment or "labeling" with technetium-99m. Technetium-99m
is the radioisotope most frequently used in nuclear medicine because of its
high quality imaging capabilities, short half-life, widespread availability
and low cost. The use of a fragment of the antibody, rather than the whole,
minimizes the human body's immune response to the injection of mouse-derived
antibodies. This benefit is enhanced by the low Fab' dosage used in the
Company's imaging products. An additional advantage of using technetium-99m
and an antibody fragment is that imaging is enhanced in the liver, the first
site of distant metastasis for many cancers. Intact antibodies and certain
other imaging radioisotopes accumulate in the liver, potentially interfering
with adequate imaging of tumors in this organ.
The Company's in vivo imaging products, contained in single vials, can be
easily prepared by nuclear medicine technicians without assistance from a
radiochemist or nuclear pharmacist. Once the technetium-99m is added to the
vial, the product is ready for injection in approximately five minutes.
2
On June 28, 1996, the FDA licensed CEA-Scan(R) for the detection of
colorectal cancer in conjunction with SDM. A license application for CEA-
Scan(R) was filed with the Canadian HPB in February 1992 and with the European
Community CPMP in March 1992 (see "Introduction"). Immunomedics also has five
proposed in vivo imaging products in various stages of clinical testing and
regulatory review, three for cancer imaging, one for imaging infectious
diseases, and one for the specific imaging of Pneumocystis carinii pneumonia
("PCP").
The antibody in CEA-Scan(R) is directed at carcinoembryonic antigen ("CEA"),
which is abundant at the site of virtually all cancers of the colon or rectum
(both primary tumors and metastases). CEA is also associated with many other
cancers, and the Company estimates that three quarters of all human cancer
patients have elevated CEA levels at some of their tumor sites. As part of
receiving FDA approval for CEA-Scan(R), the Company has agreed to conduct
Phase IV clinical studies to evaluate the product following readministration.
The Company also is performing Phase III clinical trials, using CEA-Scan(R),
for imaging lung cancer. In addition, Phase II clinical trials for breast
cancer imaging are nearing completion.
LeukoScan(R) is a monoclonal antibody fragment which seeks out and binds to
granulocytes (white blood cells) associated with a potentially wide range of
infectious diseases. Phase III clinical trials have been completed for
LeukoScan(R), and in August 1995, the Company filed for European regulatory
approval to market the product for detecting and diagnosing osteomyelitis
(bone infection) in long bones and in diabetic foot ulcer patients. In
addition, Phase III clinical trials are continuing for the use of LeukoScan(R)
in the detection of infected prosthetic joints and in appendicitis (see
"Introduction").
Two other imaging products are being studied pursuant to Investigational New
Drug applications ("IND") submitted to the FDA. The Company also has ongoing
clinical trials in Europe for these agents:
-- LymphoScan(TM), employing an antibody capable of targeting an antigen on
non-Hodgkin's B-cell lymphoma (Phase III clinical trial is underway).
-- AFP-Scan(TM), employing an antibody capable of targeting alpha-
fetoprotein, a marker on liver cancer and germ cell tumors of the
ovaries and testes (Phase II clinical trial is underway).
PCP-Scan(TM) has been studied for the imaging and diagnosis of Pneumocystis
carinii pneumonia ("PCP") in a pilot clinical trial in collaboration with the
Center for Molecular Medicine and Immunology ("CMMI"), a not-for-profit cancer
research center (see "Relationship with the Center for Molecular Medicine and
Immunology"). This trial has shown that specific antibodies against a
pathogenic organism, such as Pneumocystis, can target the disease site.
Further studies to evaluate this potential product are planned. PCP is a
serious opportunistic infection of immunosuppressed patients, such as organ
transplant patients and certain patients with cancer or Acquired Immune
Deficiency Syndrome ("AIDS").
In managing and allocating resources related to its clinical trial program,
the Company's top priorities are the commencement of commercial shipments of
CEA-Scan(R) in the U.S. and approval and launch of CEA-Scan(R) in Europe, as
well as the BLA filing for LeukoScan(R). It is the Company's intention,
however, to increase resources allocated to its diagnostic imaging clinical
trial program.
In Vivo Therapeutic Products
The Company is applying its expertise in antibody selection, modification
and chemistry to the area of therapy, using monoclonal antibodies labeled with
therapeutic radioisotopes or conjugated with drugs. The Company is engaged in
developing products for treating cancer which primarily use a technique called
radioimmunotherapy. The principal advantage of this technique may be its
ability to deliver radioactive therapeutic agents to tumor sites more
selectively while minimizing debilitating side effects. The Company has been
conducting a multicenter Phase I/II clinical trial for ImmuRAIT(TM)-LL2, its
non-Hodgkin's B-cell lymphoma proposed therapeutic product, for the past four
years. This product consists of a monoclonal antibody, highly specific in
targeting B-cell lymphomas, labeled with the radioisotope iodine-131. In this
Phase I/II clinical trial of ImmuRAIT(TM)-LL2, several patients, all of whom
were late-stage and were unresponsive to other therapies, experienced varying
degrees of tumor regression. Reversible bone marrow toxicity has also been
observed. By conducting this trial, the Company has increased its knowledge of
antibody targeting and dosage. The Company
3
is working towards advancing its humanized antibody program into Phase I
clinical trials; therefore it does not currently plan to advance ImmuRAIT(TM)-
LL2 into Phase III trials with the murine antibody form. The Company is
currently conducting, in collaboration with CMMI, research on murine and
humanized forms of targeting antibodies, alternative radioisotopes and new
conjugation methods (see "Research Programs").
RESEARCH PROGRAMS
The Company incurred approximately $12,504,000, $12,492,000, and $14,698,000
in total research and development expense during fiscal years 1996, 1995 and
1994, respectively.
Antibody Engineering
A major obstacle in the field of monoclonal antibody therapy has been the
patient's immune response to mouse-derived antibodies, making repeated use of
such products impracticable. The Company is currently researching whether this
response may be avoided by clinically altering the dose, antibody form, and
schedule of administration. However, this may be only a partial solution to
the problem and, consequently, the Company is actively investigating methods
to engineer the mouse antibody molecule in such a way that it retains the
desirable targeting features to cancer cells, while minimizing the amount of
mouse-derived protein present. The Company has made significant progress in
humanizing certain mouse antibodies (i.e., replacing certain components of a
mouse antibody with human antibody components). Moreover, using the techniques
of molecular biology, the Company's scientists have re-engineered the
humanized antibodies with improved characteristics, such as favorable
pharmacokinetic properties and increased radionuclide and drug loading
capacities.
During fiscal years 1996, 1995 and 1994, the Company, in collaboration with
CMMI, demonstrated successful targeting in patients with the Company's
humanized monoclonal antibodies (hMN-14 and hLL2) against the CEA cancer
marker and non-Hodgkin's B-cell lymphoma, respectively, as compared to the
murine counterparts (MN-14 and LL2). The anticancer humanized antibodies are
about 95% human and have shown very good uptake in the patients' tumors. In
August 1995, data were presented from a pilot clinical trial which
demonstrated that the low immunogenicity and high cancer-binding capability of
these antibodies allowed repeated administration to increase the amount of
therapeutic radiation delivered directly to the sites of disease. As many as
three injections were given without evoking an immune response to the
antibody. Accordingly, the Company is proceeding with clinical testing at
therapeutic doses.
Alternative Radioisotopes
The Company is using iodine-131 to label its anti-lymphoma antibody (LL2)
currently in a phase I/II clinical trial against non-Hodgkin's lymphoma.
Investigators at several institutions have found that this disease responds
well to radioimmunotherapy using iodine-131 labeled anti-lymphoma antibodies.
However, one potential drawback of an iodine-131-labeled LL2 antibody is the
finding that LL2, as a rapidly internalizing antibody, is readily metabolized
with the iodine-131-bound metabolite and is quickly excreted from the target
cell. This means that full advantage is not taken of the eight-day half-life
of the iodine-131 radionuclide. In contrast, yttrium-90 from administered
yttrium-90 labeled LL2 has been shown to be retained inside lymphoma cells for
long periods after antibody metabolism. For this reason, and also for reasons
of greater efficacy against larger tumors and the potential for out-patient
use due to lack of any associated gamma-ray emissions, the Company's
scientists are developing yttrium-90-LL2 as a second-generation product (see
"Government Grants").
New Conjugation Methods
During fiscal year 1996, the Company made additional progress in the
development of new methods for the construction of immunoconjugates, including
the discovery of novel carbohydrate components on the variable region of the
lymphoma targeting antibody, LL2, which facilitates the creation of more
efficient immunoconjugates, and which appears to be appropriate for use with
antibody fragments. These carbohydrate
4
components are relatively distant from the antigen binding site, representing
novel conjugation sites which would not interfere with the immunoreactivity of
the antibody. This is significant because, to date, efforts to directly link
antibodies and drugs have been limited by a resulting loss of the antibody's
ability to bind to the cancer site. This work supports the Company's
hypothesis that by using antibody engineering techniques, this carbohydrate
component can be "grafted" on the corresponding regions of different
antibodies and used as a conjugation site for the attachment of drugs or
radioisotopes, with no adverse effects on immunoreactivity. Furthermore, the
Company's scientists have been able to engineer this carbohydrate addition
site on antibody fragments. The Company believes that this has the advantage
of greater tumor penetration and less human immune response, potentially
leading to the creation of fragment-based cancer therapeutics as a central
part of the Company's future product development efforts. In August 1995, a
patent was issued to the Company relating to the use of one of these sites for
conjugation. There can be no assurance, however, that these developments will
lead to products that are successful for treating cancers.
Other Antibody-Directed Therapy Approaches
The Company is continuing work on selective coupling of therapeutic site-
specific agents onto engineered carbohydrate residues on antibody fragments.
The proprietary antibody constructs offer the advantage of loading multiple
therapeutic moieties onto antibody fragments at a particular site and in a
manner which is known not to interfere with antigen binding. The Company is
also investigating "pre-targeting", whereby an antibody is administered first
and then followed by a separate radionuclide administration. Secondary
recognition groups are attached, one to the targeting antibody and the other
to the radionuclide, such that the radionuclide is localized to the antibody
pre-targeted to the tumor site. Using such methods in preclinical animal tumor
models, target-to-blood uptake ratios of radionuclide have been improved by
orders of magnitude compared to the antibody radiolabeled in the conventional
manner. The advantage of markedly increased target-to-blood ratios is somewhat
offset by the greater complexity involved in multiple administration and
timing of reagents. Accordingly, there can be no assurance at the present time
that this "pre-targeting" approach will offer a practical alternative for
radioimmunotherapy.
Peptides
During fiscal year 1996, the Company successfully developed proprietary
methods for technetium-99m radiolabeling of peptides up to clinical-scale
levels using single vial kits. These new automated synthetic methods will be
generally applicable to the preparation of radioconjugates of other diverse
chelate-peptides. This will enable rapid evaluation of different peptide-
receptor systems directly with peptide analogs labeled with technetium-99m,
the optimum imaging radionuclide. In related work, the Company has used
similar novel synthetic methods to prepare chelate-peptide conjugates which
can be radiolabeled with indium-111 and yttrium-90.
Government Grants
In September 1996, the Company was awarded a Phase II Small Business
Innovation Research ("SBIR") grant from the National Cancer Institute ("NCI")
of the National Institutes of Health ("NIH"), totaling $750,000 and payable
over two years. These funds will support development of a yttrium-90
radiolabeled humanized LL2 antibody for clinical radioimmunotherapy of
radiosensitive non-Hodgkin's lymphoma. The work aims to identify the optimal
form of the radioimmunoconjugate and advance this product through a Phase I/II
trial. The Company has also applied for two $100,000 SBIR Phase I grants, each
of which is concerned with therapy applications using the Company's
antibodies. The first application covers the identification of an optimal drug
conjugate anti-PCP antibody to be used for treatment of AIDS patients
suffering from this type of infection. The second application covers the
development of radioiodinated antibodies, prepared using novel chemistries,
from which the iodine-131 is retained for extended periods inside tumor cells,
like yttrium-90, for enhanced iodine-131 radioimmunotherapy. Each of the
applications has received recommendation for funding in the NCI peer review
process. However, there can be no assurance as to if or when either grant will
be received.
5
RELATIONSHIP WITH THE CENTER FOR MOLECULAR MEDICINE AND IMMUNOLOGY
The Company's product development has involved, to varying degrees, CMMI, a
specialized cancer research center, for the performance of certain basic
research and patient evaluations. CMMI is a not-for-profit corporation funded
primarily by grants from the NCI. CMMI is currently located adjacent to the
Company's Newark Facility, but will be moving in the near future to improved
facilities in Belleville, New Jersey. Dr. David Goldenberg, Chairman of the
Board and Chief Executive Officer of the Company, was the founder of, and is
currently President and a member of the Board of Trustees of CMMI. Dr.
Goldenberg devotes substantially more of his time working for CMMI than for
the Company. Certain consultants to the Company have employment relationships
with CMMI, and Drs. Carl Pinsky and Hans Hansen, Executive Officers of the
Company, are adjunct members of CMMI. Despite these relationships, CMMI is
independent of the Company, and CMMI's management and fiscal operations are
the responsibility of CMMI's Board of Trustees.
CMMI performs pilot and pre-clinical trials in product areas of importance
to the Company. In addition, CMMI conducts basic research and patient
evaluations in a number of areas of potential interest to the Company, the
results of which are made available to the Company pursuant to a collaborative
research and license agreement.
In July 1995, the Company amended its license agreement with CMMI to assist
CMMI in complying with Internal Revenue Service criteria for its then recently
completed tax-exempt financing. Under the terms of the amended license
agreement, the Company has the right of first negotiation to obtain exclusive,
worldwide licenses from CMMI to manufacture and market potential products and
technology covered by the license agreement under terms representing fair
market price, to be negotiated in good faith at the time the license is
obtained. To date, no products have been licensed from CMMI.
The amended license agreement terminates on December 31, 1999, with the
Company having the right to seek good faith negotiation to extend the
agreement for an additional five-year period. The Company retains licensing
rights to inventions made during the term of the agreement for a period of
five years from the time of disclosure. The Company is in the process of
evaluating what additional amendments to the license agreement may be
necessary to satisfy Federal laws and rules, including NIH guidelines.
The potential for conflicts of interest exists in the relationship between
the Company and CMMI, and the provisions of the agreement between the Company
and CMMI have been designed to prevent such conflicts from occurring. The
Company and CMMI have agreed that neither will have any right, title or
interest in or to the research grants, contracts or other agreements obtained
by the other. The decision as to whether a potential product has reached the
stage of development such that it must be offered by CMMI to the Company is
made by the Board of Trustees of CMMI, and Dr. Goldenberg has agreed not to
participate in the determination of any such issue. The decision by the
Company as to whether or not to exercise its right of first negotiation or
release any potential product offered by CMMI is determined by a majority vote
of the Board of Directors of the Company (or a subcommittee thereof), and Dr.
Goldenberg also has agreed not to participate in the determination of any
such issue.
The Company has reimbursed CMMI for expenses incurred on behalf of the
Company, including amounts incurred pursuant to research contracts, in the
amount of approximately $64,000, $57,000, and $548,000 during fiscal years
1996, 1995 and 1994, respectively. The Company also provides CMMI with
laboratory materials and supplies in connection with research conducted in
areas of potential interest to the Company at no cost to CMMI.
During fiscal years 1996, 1995 and 1994, the Board of Directors of the
Company authorized grants to CMMI of $200,000, $300,000, and $200,000,
respectively, to support research and clinical work being performed at CMMI,
such grants to be expended in a manner deemed appropriate by the Board of
Trustees of CMMI.
6
BUSINESS RISKS
The Company's products are in various stages of development and face a high
degree of technological, regulatory and competitive risk. In addition, the
Company's products must be approved for marketing by the FDA and other
regulatory agencies (with the exception of CEA-Scan(R), which has been
licensed by the FDA for limited use), and no assurance can be given as to if
or when such approvals will be forthcoming. Product discovery and product
development activities are capital intensive. At least until CEA-Scan(R) is
successfully commercialized, future revenues will be dependent in large part
upon the Company entering into new arrangements with collaborative partners
and upon public and private financings. In addition, the Company does not
presently have a sales and marketing component. However, the Company has
entered into agreements with Mallinckrodt for the distribution of CEA-Scan(R)
in the U.S. and Europe (see "Marketing and Sales"). To date, the Company has
not manufactured or sold significant commercial quantities of its products,
and no assurance can be given that its manufacturing costs will be
economically viable or that it can develop an effective sales and marketing
strategy to promote any marketed product. The risks discussed herein reflect
the Company's immediate stage of development. Inherent in this stage is a
range of additional risks, including the Company's history of losses and the
need for and uncertainty of future financing. The Company also faces numerous
risks stemming from the nature of the biopharmaceutical industry, including,
among others, the risk of competition, the risk of regulatory change,
including potential changes in health care coverage, and uncertainties
associated with obtaining and enforcing patents and proprietary technology.
MARKETING AND SALES
In Vivo Products
The Company's marketing strategy includes forming corporate alliances with
nuclear medicine pharmaceutical companies for the sale and distribution of its
proposed in vivo imaging and therapeutic products. A partner's established
marketing, sales and distribution networks will minimize the Company's need to
expend funds to develop these areas of expertise and increase the likelihood
that the Company will maximize market penetration of its proposed products.
However, the financial return to the Company, in the event the product is a
commercial success, may not be as great had the Company marketed, sold and
distributed the proposed products on its own.
Pursuant to its 1991 agreement with Pharmacia, the Company granted to
Pharmacia an exclusive license to market and sell CEA-Scan(R), AFP-Scan(TM)
and LymphoScan(TM) products for certain specified indications in the United
States and Canada. In June 1994, the Company and Pharmacia, in the context of
discussions directed towards restructuring their relationship, agreed to
release Pharmacia from certain obligations, whereby the Company regained the
marketing and selling rights and assumed financial responsibility for all
future clinical, marketing and selling activities for LymphoScan(TM) and AFP-
Scan(TM). On August 2, 1995, the Company announced that its agreement with
Pharmacia was terminated, and that the Company had regained the North American
marketing and selling rights for CEA-Scan(R) from Pharmacia. Subsequent to
termination of the Agreement, the Company and Pharmacia were unable to agree
on the amount of a final payment by Pharmacia to the Company to satisfy
Pharmacia's remaining obligations. In June 1996, the Company filed a claim
against Pharmacia before the American Arbitration Association claiming damages
for breach of contract and fiduciary duty in the amount of $60 million plus
punitive damages. However, no assurance can be given as to the amount, if any,
that the Company may receive with respect to this claim.
In March 1995, the Company entered into a License Agreement with
Mallinckrodt Medical, pursuant to which Mallinckrodt Medical will market, sell
and distribute CEA-Scan(R) throughout Western Europe and in specified Eastern
European countries, subject to receipt of regulatory approval in the specified
countries. The Company will manufacture CEA-Scan(R), for which Mallinckrodt
Medical will pay the Company a pre-determined royalty per vial or a pre-
determined percentage of the net selling price.
In April 1996, the Company entered into a Marketing and Distribution
Agreement with Mallinckrodt Group, pursuant to which Mallinckrodt Group will
market, sell and distribute CEA-Scan(R) for use in colorectal cancer
diagnostic imaging in the U.S. on a consignment basis, and will commit
financial resources to this effort. The
7
Company will retain manufacturing and co-promotional rights, will pay
Mallinckrodt Group a pre-determined amount or percentage of the net selling
price, and will potentially commit additional financial resources to
promotional activities.
The Company's intent, possibly in collaboration with another corporate
partner, is to combine LymphoScan(TM) with the Company's proposed lymphoma
therapy product as companion detection/therapy clinical applications to focus
on disease management for lymphoma patients.
In Vitro Products
Through June 1994, the Company marketed and sold in vitro diagnostic
products under the name "ImmuSTRIP(R)". These products are used by clinical
laboratories in the detection of circulating immune complexes associated with
autoimmune diseases, such as rheumatoid arthritis and systemic lupus
erythematosus. In June 1994, the Company assigned, to an independent third
party, all of the Company's manufacturing and marketing rights associated with
its in vitro diagnostic products, excluding those rights relating to the
Company's HAMA in vitro diagnostic product. In exchange for assigning these
rights, the Company will receive royalty payments through June 2003 on annual
sales derived from such products. In fiscal year 1996, the Company recorded
royalty income of $131,000 on sales of these products by the licensee.
The Company has developed and has been distributing for research purposes
two in vitro diagnostic products to detect levels of human anti-mouse
antibodies ("HAMA") produced in patients as an immune response when injected
with monoclonal antibodies derived from mouse cells. One product is designed
to detect response to intact mouse antibodies, and one to detect response to
mouse antibody fragments. In August 1993, the Company filed a Pre-Market
Application ("PMA") with the FDA seeking approval to market its ImmuSTRIP(R)
HAMA-IgG product. Although the Company believes that it can answer the FDA
questions posed with regard to this submission, it has not yet decided whether
it is in its strategic interest to continue to pursue approval of this product
because of its detracting from other product opportunities.
MANUFACTURING
The Company has to date manufactured all monoclonal antibody products used
in its clinical trial programs and currently manufactures CEA-Scan(R) for
commercial use. The Company currently performs antibody processing and
purification of its clinical products at its Newark Facility (see
"Properties"). The Company has agreed to manufacture and supply all of
Mallinckrodt's requirements for CEA-Scan(R), subject to certain conditions and
limitations, and will receive transfer fees in consideration therefor (see
"Marketing and Sales"). The Company has entered into a manufacturing agreement
with Pharmacia, pursuant to which Pharmacia will perform certain end-stage
portions of the manufacturing process. Under the terms of such agreement, the
Company will pay according to an established price structure for these
services. The Company is presently negotiating with a second entity to perform
similar end-stage manufacturing.
The Newark Facility has been approved by both the FDA and European
regulatory authorities for the manufacture of CEA-Scan(R). The Company has
scaled-up to commercial levels its antibody purification and fragmentation
manufacturing processes. The Company believes the Newark Facility is in
compliance with the regulations established by the FDA for good laboratory and
manufacturing practices.
The Company has completed construction of a 7,500 square-foot commercial-
scale antibody manufacturing facility at its headquarters in Morris Plains,
New Jersey, which also houses the Company's regulatory, medical, research and
development, finance, marketing and executive offices (see "Properties"). The
new manufacturing facility consists of four independent antibody manufacturing
suites, several support areas, and a quality control ("QC") laboratory.
Validation of the new facility has recently begun, whereby the Company intends
to adopt a new, more efficient manufacturing process. However, there can be no
assurance if or when this facility will be approved by the regulatory
authorities to meet the manufacturing needs of the Company in a timely manner.
8
The Company's proposed monoclonal antibody products are currently derived
from ascites fluid produced in mice, and the Company has entered into an
agreement with a third-party supplier for the production of ascites fluid.
Although CEA-Scan(R) has been approved in the U.S. and recommended for
approval in Europe, regulatory authorities, particularly in Europe, have
expressed concerns about the use of ascites for the production of monoclonal
antibodies. The Company believes that its current quality control procedures
ensure the purity of the ascites used in its products, but there can be no
assurance that the regulatory authorities will agree that these procedures
will be adequate for future products. The Company's effort to convert to cell
culture production for certain monoclonal antibodies is progressing. Products
manufactured by cell culture involve a substantial change in process which
will require FDA approval, as well as additional manufacturing equipment and
resources.
PATENTS AND PROPRIETARY RIGHTS
The Company actively pursues a policy of seeking patent protection, both in
the United States and abroad, for its proprietary technology. The Company has
a diverse patent portfolio, currently consisting of 30 issued United States
patents and 143 issued foreign patents, with 49 United States patent
applications pending, of which one has been allowed, and 116 foreign patent
applications pending, of which 10 have been allowed. Included in the foregoing
are eight United States patents and their foreign counterparts, to which the
Company has exclusive rights pursuant to a license granted by Dr. Goldenberg.
The Company also has certain rights with respect to patents and patent
applications owned by CMMI, by virtue of a license agreement between the
Company and CMMI. That license agreement is currently under review to assure
compliance with NIH guidelines and to assure compliance with certain tax
provisions relating to CMMI's tax-exempt status (see "Relationship With The
Center For Molecular Medicine and Immunology"). In addition, one of the
Company's in vitro diagnostic products and the related antibody are covered by
a U.S. patent and foreign counterparts that are owned by the Company and
included in the totals above.
The Company owns or has licensed patents which contain broad claims covering
significant aspects of current radioimmunodetection technology for tumor
imaging with radiolabeled antibodies and antibody fragments. These United
States issued patents expire beginning in 1999, subject to extension under
certain circumstances. The Company's patents also contain broad claims
relating to tumor therapy with radiolabeled antibodies and antibody fragments.
These patents contain claims covering the Company's potential in vivo cancer
imaging and therapeutic products currently under development.
One of the Company's basic U.S. patent applications for direct radiolabeling
of antibody fragments was involved in an interference with two issued patents
owned by RhoMed. The parties were able to reach a settlement of the
interference which resulted in limitation of the claims of the RhoMed patents
and termination of the interference with a decision affirming the Company's
right to a patent for its labeling methodology. The U.S. Patent & Trademark
Office issued a patent in May 1996 covering claims successfully defended in
the interference.
In January 1996, the Company was issued a U.S. patent covering several pre-
targeting methods for detecting and treating cancerous, infectious and
cardiovascular lesions. The patented methods use a polymeric carrier molecule
at one or more stages of the pre-targeting sequence for amplification, which
greatly increases the number of targets at the lesion for attachment of a drug
or radioisotope.
In April 1996, the Company was issued three patents in Japan covering
imaging and therapy technologies as well as most of its products. The first
patent covers radiolabeled antibodies and fragments against a variety of
cancer-associated substances used to treat diverse cancer types, where the
cancer-associated substances are present either on or within the cancer cell.
The second patent covers the use of anti-antibodies to reduce the therapeutic
antibody's deposition in normal tissues to enhance the specific targeting of
cancers or sites of infection. The third patent covers the Company's method of
directly labeling a protein or antibody with the imaging isotope, technetium-
99m, or the therapeutic isotopes, rhenium-186 and rhenium-188.
In May 1996, the Company was issued a U.S. patent covering methods for
labeling proteins particularly monovalent antibody fragments, with technetium
and rhenium isotopes. This was the Company's third U.S. patent covering
technetium labeling technology, and the fifth to cover CEA-Scan(R).
9
In June 1996, two additional U.S. patents were issued to the Company. The
first patent covers new methods of detecting and/or treating certain disease
conditions such as cancers, infectious diseases and cardiovascular conditions.
The second patent covers a pre-targeting method involving a three-or four-step
procedure that is intended to increase the binding of antibodies to cancers or
other diseased tissues, as well as to increase the deposition of the detection
or therapeutic agents in lesions.
In August 1996, the Company was issued a U.S. patent covering new conjugates
useful in cancer or infectious disease therapy. These conjugates involve
diverse drugs or toxins bound to a targeting substance, such as an antibody,
which binds to a cancer or to an infectious organism. In a series of 16
claims, the patent covers the treatment of various forms of cancer, toxoplasma
and mycoplasma, as well as viruses, bacteria and fungi.
Pursuant to a License Agreement between the Company and Dr. Goldenberg,
certain patent applications owned by Dr. Goldenberg were licensed to the
Company at the time of the Company's formation in exchange for a royalty in
the amount of 0.5% of the first $20,000,000 of annual net sales of all
products covered by any of such patents and 0.25% of annual net sales of such
products in excess of $20,000,000. Dr. Goldenberg's Amended and Restated
Employment Agreement with the Company dated November 1, 1993 (the "Employment
Agreement") extends the ownership rights of the Company, with an obligation to
diligently pursue all ideas, discoveries, developments and products, into the
entire medical field, which, at any time during his past or continuing
employment by the Company (but not when performing services for CMMI), Dr.
Goldenberg has made or conceived or hereafter makes or conceives, or the
making or conception of which he has materially contributed to or hereafter
contributes to, all as defined in the Employment Agreement (collectively
"Goldenberg Discoveries").
Further, pursuant to the Employment Agreement, Dr. Goldenberg will receive
incentive compensation of 0.5% on the first $75,000,000 of all defined Annual
Net Revenue of the Company and 0.25% on all such Annual Net Revenue in excess
thereof (collectively "Revenue Incentive Compensation"). Annual Net Revenue
includes the proceeds of certain dispositions of assets or interests therein
(other than defined Undeveloped Assets), including defined Royalties, certain
equivalents thereof and, to the extent approved by the Board, non-royalty
license fees. Revenue Incentive Compensation will be paid with respect to the
period of Dr. Goldenberg's employment, and two years thereafter, unless he
unilaterally terminates his employment without cause or he is terminated by
the Company for cause. With respect to the period that Dr. Goldenberg is
entitled to receive Revenue Incentive Compensation on any given products, it
will be in lieu of any other percentage compensation based on sales or revenue
due him with respect to such products under this Agreement or the existing
License Agreement between the Company and Dr. Goldenberg. With respect to any
periods that Dr. Goldenberg is not receiving such Revenue Incentive
Compensation for any products covered by patented Goldenberg Discoveries or by
certain defined Prior Inventions of Dr. Goldenberg, he will receive 0.5% on
cumulative annual net sales of, royalties on, certain equivalents thereof,
and, to the extent approved by the Board, other consideration received by the
Company for such products, up to a cumulative annual aggregate of $75,000,000
and 0.25% on any cumulative Annual Net Revenue in excess of $75,000,000
(collectively "Incentive Payments"). A $100,000 annual minimum payment will be
paid in the aggregate against all Revenue Incentive Compensation and Incentive
Payments ("Annual Minimum Payment").
Dr. Goldenberg will also receive a percent, not less than 20%, to be
determined by the Board of Directors of the Company, of net consideration
(including license fees) which the Company receives for any disposition, by
sale, license or otherwise (discussions directed to which commence during the
term of his employment plus two years) of any defined Undeveloped Assets of
the Company which are not budgeted as part of the Company's strategic plan.
Dr. Goldenberg will not be entitled to any incentive compensation with
respect to any products, technologies or businesses acquired from third
parties for a total consideration in excess of $5,000,000, unless the Company
had made a material contribution to the invention or development of such
products, technologies or businesses prior to the time of acquisition. Except
as affected by a defined Change in Control or otherwise approved by the Board
of Directors of the Company, Dr. Goldenberg will also not be entitled to any
Revenue Incentive Compensation or Incentive Payments other than the Annual
Minimum Payment with respect to any time during the period of his employment
(plus two years, unless employment is terminated by mutual agreement or by Dr.
10
Goldenberg's death or permanent disability) that he is not the direct or
beneficial owner of shares of the Company's voting stock with an aggregate
market value of at least twenty times his defined annual cash compensation.
Pursuant to a License Agreement dated July 7, 1983, the Company must pay to
Dr. F. James Primus, a co-inventor with Dr. Goldenberg of certain monoclonal
antibodies and immunoassays which are the subject matter of a U.S. patent and
foreign counterparts thereof that are owned jointly by Drs. Primus and
Goldenberg, a royalty in the amount of 0.25% of the first $20,000,000 of
annual net sales of certain products utilizing a CEA-specific antibody (e.g.,
CEA-Scan(R)), and 0.125% of annual net sales of such products in excess of
$20,000,000.
The Company has entered into patent license agreements with non-affiliated
companies, pursuant to which the Company granted to the licensee, for an
initial non-refundable fee plus royalties, a non-exclusive license under the
Company's patents to manufacture and sell certain cancer imaging products. To
date, no royalties have been received under these licenses. In addition, the
Company has sought to enter into patent license agreements with companies
which may be developing or marketing products which could infringe on one or
more of the patents which the Company owns or has licensed. In certain
situations, such companies have declined to enter into license agreements with
the Company and have raised questions as to the scope and validity of certain
of the Company's patents. Discussions are continuing with these companies and
the Company intends to vigorously protect and enforce its patent rights.
Although there can be no assurances as to the outcome of any patent disputes,
the Company believes that its patents are valid and will be upheld if
challenged.
The Company also relies in part on trade secrets, unpatented know-how and
continuing technological advancements to maintain its competitive position. It
is the practice of the Company to enter into confidentiality agreements with
employees, consultants and corporate sponsors. There can be no assurance,
however, that these measures will prevent the unauthorized disclosure or use
of the Company's trade secrets and know-how.
The mark "IMMUNOMEDICS" is registered in the United States and 21 foreign
countries, and the Company's logo also is registered in the United States and
in several foreign countries. The mark "IMMUSTRIP" is registered in the United
States and Canada. The mark "CEA-SCAN" is registered in the United States and
6 foreign countries, applications are pending in 5 foreign countries and an
application for a European Community Trademark is pending. The mark
"LEUKOSCAN" is registered in the United States and 8 foreign countries,
applications are pending in 4 foreign countries and an application for a
European Community Trademark is pending. An application for the mark
"LYMPHOSCAN" is pending in the United States, the mark is registered in 7
foreign countries, applications are pending in 5 foreign countries and an
application for a European Community Trademark is pending. In addition, the
Company has applied for registration in the United States for 4 other
trademarks for use on products now in development or testing, and for
corresponding foreign and/or European Community Trademarks for certain of
those marks.
GOVERNMENT REGULATION
The manufacture and marketing of pharmaceutical or biological products
requires approval of the FDA and comparable agencies in foreign countries and,
to a lesser extent, state regulatory authorities. In the United States, the
regulatory approval process for antibody-based products, which are considered
"biologics" under FDA regulations, is similar to that for any new drug for
human use. The FDA has established mandatory procedures and safety standards
which apply to the clinical testing, manufacturing and marketing of
pharmaceutical products. Noncompliance with applicable requirements can result
in fines, recalls or seizure of products, total or partial suspension of
production, refusal of the FDA to approve Biologics License Applications or to
allow the Company to enter into supply contracts, and criminal prosecution.
The FDA also has the authority to revoke previously granted product licenses
and establishment licenses.
Generally, there is a substantial period of time between technological
conception of a proposed product and its availability for commercial sale. The
period between technological conception and filing of a Biologics License
Application with the FDA is usually five to ten years for in vivo products and
a minimum of two to three years for in vitro diagnostic products. The period
between the date of submission to the FDA and the date of approval has
averaged two to four years for in vivo products, although the approval process
may take longer, as was the case with CEA-Scan(R). The amount of time taken
for this approval process is a function of a number of variables, including
the quality of the submission and studies presented, the potential
contribution that the
11
compound will make in improving the diagnosis and/or treatment of the disease
in question and the workload at the FDA. There can be no assurance that any
new product will successfully proceed through this approval process or that it
will be approved in any specific period of time. Depending upon marketing and
distribution plans and arrangements for a particular product, the Company may
require additional time before a proposed in vivo product is available for
commercial sale.
The steps required before biological products can be produced and marketed
usually include preclinical non-human studies, the filing of an IND
application, human clinical trials and the filing and approval of a BLA. In
addition to obtaining FDA approval for each product, the FDA must also approve
any production facilities for the product.
Pre-clinical studies are conducted in the laboratory and in animal model
systems to gain preliminary information on the drug's effectiveness and to
identify major safety problems. The results of these studies are submitted to
the FDA as part of the IND application before approval can be obtained for the
commencement of testing in humans. The human clinical testing program required
for a new biologic or pharmaceutical product involves several phases. The
initial clinical evaluation, Phase I, consists of administering the product
and testing for safe and tolerable dosages while noting the effectiveness of
the product at the various dose levels. Typically, for cancer agents, testing
is done with a small group of patients with widespread cancers that have been
unresponsive to other forms of therapy. Phase II involves a study to evaluate
the effectiveness of the product for a particular indication and to refine
optimal dosage and schedule of administration and identify possible side
effects and risks in a larger patient group. When a product is determined to
be effective in Phase II trials, it is then evaluated in Phase III clinical
trials. Phase III trials consist of additional testing for effectiveness and
safety with a further expanded patient group, usually at multiple test sites.
A therapeutic cancer product must be compared to standard treatments, if such
treatments exist, to determine its relative effectiveness in
randomized trials.
Human clinical trials of in vivo monoclonal antibody products may combine
Phase I and Phase II trials. In selected cases, a more traditional Phase II
study may be performed to examine the effectiveness of a single product in one
or a limited number of configurations or dose schedules in a single tumor
type.
When Phase III studies are complete, the results of the preclinical and
clinical studies, along with manufacturing information, are submitted to the
FDA in the form of a BLA. The BLA involves considerable data collection,
verification and analysis, as well as the preparation of summaries of the
production and testing processes, pre-clinical studies and clinical trials.
The BLA is submitted to the FDA for product marketing approval. The FDA must
approve the BLA and manufacturing facilities before the product may be
marketed. The FDA may also require post-marketing testing, including extensive
Phase IV studies, and surveillance to monitor the effects of the product in
general use. Product approvals may be withdrawn if compliance with regulatory
standards is not maintained or if problems occur following initial marketing.
In addition, the FDA may in some circumstances impose restrictions on the use
of the drug that may limit its market potential, and also make it difficult
and expensive to administer.
The Company seeks to have its proposed products, when applicable, designated
as "Orphan Drugs" under the Orphan Drug Act of 1983. The Orphan Drug Act
generally provides incentives to manufacturers to develop and market products
to treat relatively rare diseases, i.e., diseases affecting fewer than 200,000
persons in the United States. The Company has received Orphan Drug designation
for, among others, AFP-Scan(TM), LymphoScan(TM) and ImmuRAIT(TM)-LL2, the
Company's liver and germ cell imaging, lymphoma imaging and lymphoma
therapeutic products, respectively, and for CEA-Scan(R) for the diagnosis of
medullary thyroid cancer. A drug that receives Orphan Drug designation and is
the first product to receive FDA marketing approval for its product claim is
entitled to a seven-year exclusive marketing period in the United States for
that product's claim. However, a drug that is considered by the FDA to be
different from a particular Orphan Drug is not barred from sale in the United
States during this seven-year exclusive marketing period.
Manufacture of a biological product must be in a facility approved by the
FDA for such product. The manufacture, holding and distribution of both
biological and nonbiological drugs must be in compliance with Good
Manufacturing Practices ("GMP"). Manufacturers must continue to expend time,
money and effort in the
12
area of production and quality control to ensure full technical compliance
with those requirements. The labeling, advertising and promotion of drug or
biological product must be in compliance with FDA regulatory requirements.
Failure to comply with applicable requirements relating to manufacture,
distribution or promotion can lead to FDA demands that production and shipment
cease, and, in some cases, that products be recalled, or to enforcement
actions that can include seizures, injunctions and criminal prosecution. Such
failures, or new information reflecting on the safety and effectiveness of the
drug that comes to light after approval, can also lead to FDA withdrawal of
approval to market the product.
The drug approval process is similar in other countries and is also
regulated by specific agencies in each geographic area. Approval by the FDA
does not ensure approval in other countries. Generally, however, products
which are approved by the FDA in the U.S. will ultimately gain marketing
approval in other countries, but may require considerable amounts of time.
The Company's ability to successfully commercialize its products may depend,
in part, on the extent to which reimbursement for the cost of such products
and related treatment will be available from government health administration
authorities, private health insurers and other organizations. Such third-party
payers are increasingly challenging the price of medical products and
services. Several proposals have been made that may lead to a government-
directed national health care system. Adoption of such a system could further
limit reimbursement for medical products, and there can be no assurance that
adequate third-party coverage will be available to enable the Company to
maintain price levels sufficient to realize an appropriate return on its
investment in product development. In addition, there can be no assurance that
the U.S. government will not implement a system of price controls. Any such
system might adversely affect the ability of the Company to market its
products profitably.
The Company's present and future business is also subject to regulation
under state and Federal law regarding work place safety, laboratory practices,
the use and handling of radioisotopes, environmental protection and hazardous
substance control and to other present and possible future local, federal and
foreign regulations. The Company believes its operations comply, in all
material respects, with applicable environmental laws and regulations, and the
Company is continuing its efforts to ensure its full compliance with such laws
and regulations.
COMPETITION
The biotechnology industry is highly competitive, particularly in the area
of cancer diagnostic, imaging and therapeutic products. The Company is likely
to encounter significant competition with respect to its current products or
products under development. A number of companies which are engaged in the
biotechnology field, and in particular the development of cancer diagnostic
and therapeutic products, have financial, technical and marketing resources
significantly greater than those of the Company. Some companies with
established positions in the pharmaceutical industry may be better equipped
than the Company to develop, refine and market products based on technologies
applied to the diagnosis and treatment of cancers and infectious diseases. The
Company's ability to compete in the future will depend, in part, on its
ability to foster an environment in which multi-disciplinary teams work
together to develop low-cost, well-defined processes and bring cost-beneficial
products successfully through clinical testing and regulatory approval. A
significant amount of research and antibody-based technology are also carried
out at universities and other non-profit research organizations, which are
becoming increasingly aware of the commercial value of their findings and are
becoming more active in seeking patent and other proprietary rights, as well
as licensing revenues.
The Company is pursuing an area of product development in which there is the
potential for extensive technological innovation in relatively short periods
of time. The Company's competitors may succeed in developing products that are
safer or more effective than those of the Company's current or potential
products. Rapid technological change or developments by others may result in
the Company's present products and potential products becoming obsolete or
non-competitive.
The Company believes that the technological attributes of its current and
proposed diagnostic imaging products, including the ease of use (e.g., single
vial, rapid imaging), employment of technetium-99m (the most
13
widely available radioisotope) and its use of an antibody fragment (better
liver imaging, decreased HAMA response) will enable the Company to compete
effectively in the marketplace.
EMPLOYEES
As of September 23, 1996, the Company employed 92 persons on a full-time
basis, 26 of whom are engaged in research and development, 23 of whom are
engaged in clinical research and regulatory affairs, 27 of whom are engaged in
operations and manufacturing, and 16 of whom are engaged in finance,
administration and marketing. Of these employees, 23 hold M.D., Ph.D. or other
advanced degrees. The Company believes that it has been successful in
attracting skilled and experienced scientific personnel; however, competition
for such personnel is intensifying. The Company's employees are not covered by
a collective bargaining agreement, and the Company believes that its
relationship with its employees is excellent.
ITEM 2--PROPERTIES
The Company's headquarters is located at 300 American Road, Morris Plains,
New Jersey where it leases approximately 60,000 square feet. The Company has a
seven-year lease expiring in May 1999, plus two renewal periods for a total of
15 years, at a base annual rental of $410,000 through May 1997, $471,000
through May 1998 and $448,000 through May 1999. The lease provides for an
option to purchase the facility, subject to certain terms and conditions as
specified in the lease. The Company's regulatory, medical, research and
development laboratories, finance, marketing and executive offices are
currently located in this facility, occupying approximately 40,000 square
feet. The Company has recently completed the construction and equipping of a
7,500 square-foot commercial-scale manufacturing facility at its Morris Plains
headquarters, which consists of four independent antibody manufacturing
suites, several support areas, and a QC laboratory (see "Manufacturing").
The Company also leases approximately 12,000 square feet to house its Newark
Facility as well as office and laboratory space on the campus of The
University of Medicine and Dentistry of New Jersey ("UMDNJ") at 5 Bruce
Street, Newark, New Jersey at a base annual rental of approximately $93,000.
In August 1995, the Company exercised its right to extend this lease through
March 1, 1997. Upon or before expiration of the lease, the Company intends to
relocate personnel and equipment from the Newark Facility to its Morris Plains
headquarters.
ITEM 3--LEGAL PROCEEDINGS
The Company is involved in various claims and litigation arising in the
normal course of business. Management believes that the outcome of such claims
and litigation will not have a material adverse effect on the Company's
financial position and results of operations.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of securities holders during the fourth
quarter of fiscal year 1996.
----------------
EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive Officers of the Company and their positions with the Company
are as follows:
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
David M. Goldenberg.............................. 58 Chairman of the Board, CEO
and Director
Hans J. Hansen................................... 63 Vice President
Research and Development
Carl M. Pinsky................................... 58 Vice President
Medical Affairs
Donald H. Marks.................................. 47 Vice President
Clinical Research
14
Each of the Executive Officers was elected as such by the Board of Directors
of the Company and holds his office at the discretion of the Board of
Directors or until his earlier death or resignation, except that Dr.
Goldenberg holds his office pursuant to an employment agreement (See
"Executive Compensation").
Dr. David M. Goldenberg founded the Company in July 1982 and, since that
time, has been Chairman of the Board of the Company. Dr. Goldenberg has served
as Chief Executive Officer since February 1994. He has also served as Chief
Executive Officer of the Company from July 1982 through July 1992 and as
Treasurer of the Company since July 1996. Dr. Goldenberg was Professor of
Pathology at the University of Kentucky Medical Center from 1973 until 1983
and Director of such University's Division of Experimental Pathology from 1976
until 1983. From 1975 to 1980 he also served as Executive Director of the
Ephraim McDowell Community Cancer Network, Inc., and from 1978 to 1980 he was
President of the Ephraim McDowell Cancer Research Foundation, Inc., both in
Lexington, Kentucky. Dr. Goldenberg is a graduate of the University of Chicago
College and Division of Biological Sciences (S.B.), the University of
Erlangen-Nuremberg (Germany) Faculty of Natural Sciences (Sc.D.), and the
University of Heidelberg (Germany) School of Medicine (M.D.). He has written
or co-authored more than 900 journal articles, book chapters and abstracts on
cancer research, detection and treatment, and has researched and written
extensively in the area of radioimmunodetection using radiolabeled antibodies.
In addition to his position with the Company, Dr. Goldenberg is President of
CMMI, an independent non-profit research center, and its clinical unit, the
Garden State Cancer Center. He also holds the position of Adjunct Professor of
Microbiology and Immunology with the New York Medical College in Valhalla, New
York. In 1985 and again in 1992, Dr. Goldenberg received an "Outstanding
Investigator grant" award from the National Cancer Institute ("NCI") for his
work in radioimmunodetection, and in 1986 he received the New Jersey Pride
Award in Science and Technology. Dr. Goldenberg was honored as the ninth Herz
Lecturer of the Tel Aviv University Faculty of Life Sciences. In addition, he
received the 1991 Mayneord 3M Award and Lectureship of the British Institute
of Radiology for his contributions to the development of radiolabeled
monoclonal antibodies used in the imaging and treatment of cancer. Dr.
Goldenberg was also named the co-recipient of the 1994 Abbott Award by the
International Society for Oncodevelopmental Biology and Medicine.
Dr. Hans J. Hansen has been Vice President, Research and Development since
March 1987. Prior to joining the Company in 1985 as Director of Cell Biology,
he was for three years the Director of Product Development at Ortho Diagnostic
Systems, Inc., a subsidiary of Johnson & Johnson Corporation, where he
developed monoclonal antibodies for the diagnosis of leukemia and other
cancers. From 1969 to 1982, Dr. Hansen was with Hoffmann-La Roche in a variety
of positions, becoming Director of the Department of Immunology in 1982. While
at Hoffmann-La Roche, he developed the first in vitro diagnostic CEA
immunoassay and had a major role in establishing its clinical importance in
the diagnosis and management of cancer. Dr. Hansen has spent 37 years
conducting clinical and basic research in the fields of cancer and autoimmune
disease. His work has resulted in the issuance of eight United States patents
and over 90 publications relating to cancer and autoimmune diseases.
Dr. Carl M. Pinsky has been Vice President, Medical Affairs since May 1989.
From August 1988 through May 1989, Dr. Pinsky was the Vice President, Medical
Affairs of IMRE Corp., a pharmaceutical company. From 1985 through 1988, Dr.
Pinsky was a Branch Chief and Chief Medical Officer at the Biological Response
Modifiers Program ("BRMP") of the National Cancer Institute of the National
Institutes of Health, where he directed a $25 million program of grants and
contracts covering both basic science and clinical trials involving biological
response modifiers. At the BRMP, Dr. Pinsky directed the formulation of the
initial plan for NCI's extramural development of monoclonal antibodies.
Following his formal training at the University of Pennsylvania (A.B.),
Jefferson Medical College (M.D.) and the University of Kentucky Medical School
(Intern/Resident), Dr. Pinsky has 30 years of diversified experience in basic
and clinical cancer research, including 19 years at Memorial Sloan-Kettering
Cancer Center, where he conducted major studies evaluating immunodeficiency in
cancer patients and helped pioneer the development of immunotherapy for these
patients.
Dr. Donald H. Marks has been Vice President, Clinical Research, since July
1996. From June 1995 through July 1996, he was Director, Clinical Research and
Regulatory Affairs at PerImmune Inc., a monoclonal antibody research company,
and prior thereto, Director, Clinical Research at Pasteur-Merieux-Connaught
from January 1992 through June 1995. From 1988 to 1991 he had been Associate
Director, Clinical Research for Hoffmann-LaRoche, Inc. Dr. Marks is a graduate
of the University of California at Los Angeles (M.D., Ph.D.) and is a board-
certified internal medicine physician.
15
PART II
ITEM 5--MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS
The Company's Common Stock is traded on The Nasdaq National Market under the
symbol "IMMU". The table below sets forth for the periods indicated the high
and low sales prices for the Company's Common Stock, as reported by The Nasdaq
Stock Market.
As of September 23, 1996, there were approximately 1,200 holders of record
of the Company's Common Stock.
FISCAL QUARTER ENDED HIGH LOW
- -------------------- ------ -----
September 30, 1994................................................. 5 3/8 3
December 31, 1994.................................................. 5 1/8 3
March 31, 1995..................................................... 4 1/8 2 3/4
June 30, 1995...................................................... 3 5/8 2 1/8
September 30, 1995................................................. 8 1/2 2 1/4
December 31, 1995.................................................. 8 1/4 3 3/4
March 31, 1996..................................................... 10 3/8 5 1/8
June 30, 1996...................................................... 9 7/8 6 1/2
ITEM 6--SELECTED FINANCIAL DATA (fiscal year ends June 30)
1996 1995 1994 1993 1992
-------- -------- -------- ------- -------
IN THOUSANDS EXCEPT PER SHARE AMOUNTS
Total revenues................. $ 1,700 $ 3,189 $ 4,237 $ 5,055 $ 8,810
Total operating expenses....... 15,000 14,593 19,293 14,482 10,198
Net loss....................... (13,300) (11,404) (15,056) (9,427) (1,388)
Net loss per share............. (0.40) (0.38) (0.50) (0.32) (0.05)
Weighted average shares out-
standing...................... 32,904 30,098 30,051 29,420 26,461
Cash, cash equivalents and mar-
ketable securities............ $ 28,691 $ 22,814 $ 25,230 $41,813 $50,288
Total assets................... 35,720 28,224 31,833 46,165 53,687
Stockholders' equity(1)........ 31,153 23,629 27,395 42,622 51,735
- --------
(1) The Company has not paid cash dividends on its Common Stock since its
inception.
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in "Business" and elsewhere
in this Annual Report on Form 10-K.
Since its inception, the Company has been engaged primarily in the research
and development of proprietary products relating to the detection, diagnosis
and treatment of cancer, and more recently infectious diseases. On June 28,
1996, the FDA licensed CEA-Scan(R) for the detection of recurrent and/or
metastatic colorectal cancer. In February 1992, the Company filed with the
Health Protection Branch ("HPB") to market CEA-Scan(R) in Canada. In March
1992, the Company filed with the Committee for Proprietary Medicinal Products
("CPMP") to market the product in Europe. On May 22, 1996, CEA-Scan(R) was
recommended for European approval in a unanimous opinion by the CPMP. This
constitutes the final regulatory step before marketing authorization is
granted by the European Commission for use of the product in the 15 countries
comprising the European Union. The Company also has filed for regulatory
approval with the EMEA, seeking approval to market LeukoScan(R) in all 15
countries which are members of the European Union (see "Business--
Introduction").
16
The Company is also engaged in developing other biopharmaceutical products,
which are in various states of development and clinical testing. The Company
has not achieved profitable operations and does not anticipate achieving
profitable operations during fiscal 1997. The Company will continue to
experience operating losses until such time, if at all, that it is able to
generate sufficient revenues from sales of CEA-Scan(R) and its other proposed
in vivo products. Further, the Company's working capital will continue to
decrease until such time, if at all, that the Company is able to generate
positive cash flow from operations or until such time, if at all, that the
Company receives an additional infusion of cash from the sale of the Company's
securities or from corporate alliances to finance the Company's operating
expenses and capital expenditures.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
of," which is effective for fiscal years beginning after December 15, 1995. In
October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which is also effective for fiscal years beginning after
December 15, 1995. Neither of these standards is expected to have any effect
on either the results of operations or financial position of the Company.
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
Revenues for fiscal 1996 were $1,700,000 as compared to $3,189,000 in fiscal
1995, representing a decrease of $1,489,000. The decrease was principally due
to a decrease in research and development revenue resulting from the
termination, in August 1995, of the Development and License Agreement with
Pharmacia. Accordingly, research and development revenues decreased by
$1,728,500 to $150,000 in fiscal 1996. In fiscal 1995, these revenues totaled
$1,878,500, of which $1,665,000 were received from Pharmacia. Partly
offsetting the decline in research and development revenue was increased
interest income of $254,000 in fiscal 1996, as compared to fiscal 1995,
primarily as a result of higher levels of cash available for investment
resulting from completion of two financing transactions (see "Liquidity and
Capital Resources").
Total operating expenses for fiscal 1996 were $15,000,000 as compared to
$14,593,000 in fiscal 1995, representing an increase of $407,000. The increase
was due to higher general and administrative expense, largely due to increases
in consulting, recruiting and employee benefits expenses of $178,000, $102,000
and $96,000, respectively. The higher consulting expenses were primarily due
to a strategic planning study undertaken in fiscal 1996. The higher employee
benefits expenses reflected higher payroll taxes, due in part to the exercise
of stock options by employees, and higher expenses for life insurance for an
Executive Officer of the Company. Research and development costs in fiscal
1996 were essentially unchanged from fiscal 1995.
Net loss for fiscal 1996 was $13,299,000, or $0.40 per share, as compared to
a net loss of $11,404,000, or $0.38 per share, in fiscal 1995. The greater net
loss resulted principally from lower research and development revenue and
increased general and administrative expense, as explained above. The net loss
per share for fiscal 1996 was impacted by the higher weighted average number
of shares outstanding during such period as compared to fiscal 1995, which
increase was principally due to the conversion of the Company's preferred
stock (see "Liquidity and Capital Resources").
FISCAL 1995 COMPARED TO FISCAL 1994
Revenues for fiscal 1995 were $3,189,000 as compared to $4,237,000 in fiscal
1994, representing a decrease of $1,048,000. Sales and royalties on the
Company's in vitro diagnostic products accounted for $193,000 of the decrease
in revenues for fiscal 1995 as compared to fiscal 1994. In June 1994, the
Company assigned, to an independent third party, all of the Company's
manufacturing and marketing rights associated with its in vitro diagnostic
products, excluding those rights relating to the Company's HAMA in vitro
diagnostic product. In exchange for assigning these rights, the Company will
receive royalty payments through June 2003 on annual sales derived from such
products and recorded $120,000 in royalties during fiscal 1995. Interest
income in
17
fiscal 1995 as compared to fiscal 1994 decreased by $321,000, primarily as a
result of reduced levels of cash available for investments (see "Liquidity and
Capital Resources"). Revenues in fiscal 1995 included $1,665,000 of research
and development payments received from Pharmacia, as compared to $2,250,000 of
such revenue recorded in fiscal 1994 (see "Liquidity and Capital Resources").
Total operating expenses for fiscal 1995 were $14,593,000 as compared to
$19,293,000 in fiscal 1994, representing a decrease of $4,700,000. Research
and development costs for fiscal 1995 decreased by $2,206,000 as compared to
fiscal 1994 due to decreased in vivo product manufacturing, clinical and
regulatory, and research and development costs of $1,263,000, $524,000 and
$419,000, respectively. The Company's decrease in manufacturing costs of
$1,263,000 was due principally to the completion of activities directed at the
validation and qualification of the Company's interim manufacturing process
and facility for CEA-Scan(R). The decrease in clinical and regulatory costs of
$524,000 resulted principally from the lower costs associated with patient
enrollment in Phase III clinical trials for LeukoScan(R) in fiscal 1995, as
well as the reduced costs associated with regulatory reviews for CEA-Scan(R).
The decrease in research and development costs of $419,000 was due, in part,
to reduced support for the Center for Molecular Medicine and Immunology
("CMMI") in fiscal 1995 as compared to fiscal 1994 (see "Business--
Relationship with The Center for Molecular Medicine and Immunology").
General and administrative expense for fiscal 1995 decreased by $2,333,000
as compared to fiscal 1994. This was largely due to a decrease in legal
expenses of $1,631,000, principally associated with patent-related activities.
Net loss for fiscal 1995 was $11,404,000, or $0.38 per share, as compared to
a net loss of $15,056,000, or $0.50 per share, in fiscal 1994. The lower net
loss resulted principally from decreased expenditures in manufacturing,
clinical, and legal activities. Lower revenues, as explained above, partly
offset the positive impact the lower operating expenses had on the net loss.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had working capital of $25,043,000,
representing an increase of $6,136,000 from June 30, 1995, and had no long-
term debt other than certain lease obligations (see Note 11 of Notes to
Consolidated Financial Statements). The increase in working capital resulted
principally from the cash received from financing transactions in September
1995 and June 1996, partially offset by the net loss during fiscal year 1996
of $13,299,000.
On June 27, 1996, the Company completed an equity financing pursuant to
Regulation S under the Securities Act of 1933 ("Regulation S"), pursuant to
which several foreign investors purchased 200,000 shares of 5% Series D
Convertible Preferred Stock (the "Series D Preferred") for $10,000,000. The
terms of the transaction allow the investors, at their discretion, to convert
the Series D Preferred into shares of the Company's common stock during a
twenty-four month period beginning in June 1996, at a price equal to 89% of
the average market price per share over a 20-day trading period surrounding
the date of conversion. Dividends on the Series D Preferred are payable
annually commencing June 30, 1997, on all shares of Series D Preferred that
have not been converted into common stock as of the dividend payment date. As
of September 23, 1996, 44,670 shares of Series D Preferred had been converted
into 333,809 shares of common stock.
On September 29, 1995, the Company completed an equity financing pursuant to
Regulation S, pursuant to which several foreign investors purchased 200,000
shares of non-dividend paying Series C Convertible Preferred Stock (the
"Series C Preferred") for $10,000,000. The terms of the transaction allowed
the investors, at their discretion, to convert the Series C Preferred into
shares of the Company's common stock during a twenty-two month period
beginning in September 1995, at pre-determined discounts from the average
market price per share over a 30-day trading period surrounding the date of
conversion. As of June 30, 1996, 171,585 shares of Series C Preferred had been
converted into 1,356,041 shares of common stock. In July 1996, the remaining
28,415 shares of Series C Preferred were converted into 182,646 shares of
common stock.
18
In addition, during fiscal 1996, the remaining 124,527 shares of the
Company's non-dividend paying Series B Preferred Stock (the "Series B
Preferred") were converted into 2,000,584 shares of the Company's common
stock. The Company had issued an aggregate of 150,000 shares of the Series B
Preferred in fiscal 1995 for $7,500,000.
On August 2, 1995, the Company announced that its Development and License
Agreement with Pharmacia was terminated and that the Company had regained the
North American marketing and selling rights for CEA-Scan(R) from Pharmacia
(see "Business--Marketing and Sales").
In March 1995, the Company entered into a license agreement with
Mallinckrodt Medical for distribution of CEA-Scan(R) in Europe and in April
1996, the Company entered into a distribution agreement with Mallinckrodt
Group for the distribution of CEA-Scan(R) in the United States (see
"Business--Marketing and Sales").
In February 1994, the Company entered into a master lease agreement, which
was subsequently amended, pursuant to which the Company may lease equipment
for research, development and manufacturing purposes having an aggregate
acquisition cost of up to $2,200,000. The basic lease payments under the
master lease agreement are determined based on current market rates of
interest at the inception of each equipment schedule take-down, and are
payable in monthly installments over a four-year period. The lease agreement
contains an early purchase option, at an amount which is deemed to be fair
value, exercisable for each equipment schedule take-down no later than ninety
days before the thirty-sixth installment is due. Under the lease agreement,
continued compliance with certain financial ratios is required and, in the
event of default, the Company will be required to provide an irrevocable
letter of credit which is generally equal to the outstanding balance of lease
payments due at the time of default. As of June 30, 1996, the Company has
leased equipment aggregating $2,014,000 under the master lease agreement and
recorded lease expense for fiscal 1996 of $406,000.
The Company's liquid asset position, as measured by its cash, cash
equivalents and marketable securities, was $28,691,000 at June 30, 1996,
representing an increase of $5,877,000 from June 30, 1995. It is anticipated
that working capital and cash, cash equivalents, and marketable securities
will decrease during fiscal 1997 as a result of planned operating expenses and
capital expenditures, offset in part by projected revenues from CEA-Scan(R) in
the U.S. and Europe. However, there can be no assurance, as to the amount of
revenues, if any, that CEA-Scan(R) will provide. At present, the Company
believes that its financial resources will be sufficient to fund anticipated
operating expenses and capital expenditures through calendar year 1997. The
Company intends to supplement its financial resources from time to time, as
market conditions permit, through additional financing and through
collaborative marketing and distribution agreements. In addition, the Company
continues to evaluate various programs to raise additional capital and to seek
additional revenues from the licensing of its proprietary technology. At the
present time, the Company is unable to determine whether any of these
activities will be successful and, in such cases, the terms and timing of any
definitive agreements or financing. There can be no assurance that the Company
will be able to obtain additional funds in the future.
19
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
IMMUNOMEDICS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30,
--------------------------
1996 1995
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 13,646,000 $ 7,162,837
Marketable securities............................. 15,044,821 15,651,369
Inventory......................................... 193,672 --
Other current assets.............................. 725,291 687,674
------------ ------------
Total current assets............................. 29,609,784 23,501,880
Property and equipment, net of accumulated
depreciation of $5,372,000 and $4,427,000 at June
30, 1996 and 1995, respectively................... 6,110,191 4,722,604
------------ ------------
$ 35,719,975 $ 28,224,484
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................. 1,631,071 1,932,908
Other current liabilities......................... 2,935,698 2,662,401
------------ ------------
Total current liabilities........................ 4,566,769 4,595,309
------------ ------------
Commitments and contingencies
Stockholders' Equity:
Preferred stock; $.01 par value, authorized
10,000,000 shares;
Series B convertible, authorized 200,000 shares;
issued and outstanding 124,527 shares at June
30, 1995........................................ -- 1,245
Series C convertible, authorized 200,000 shares;
issued and outstanding 28,415 shares at June 30,
1996............................................ 284 --
Series D convertible, authorized 200,000 shares;
issued and outstanding 200,000 shares at June
30, 1996........................................ 2,000 --
Common stock; $.01 par value,
authorized 50,000,000 shares; issued and
outstanding
34,305,485 and 30,624,585 shares at June 30, 1996
and 1995, respectively........................... 343,055 306,246
Capital contributed in excess of par.............. 92,894,349 72,098,771
Accumulated deficit............................... (62,080,861) (48,781,384)
Accumulated net unrealized (loss)/gain on securi-
ties............................................. (5,621) 4,297
------------ ------------
31,153,206 23,629,175
------------ ------------
$ 35,719,975 $ 28,224,484
============ ============
See accompanying notes to consolidated financial statements.
20
IMMUNOMEDICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
REVENUES:
Product sales and royalties......... $ 185,887 $ 201,006 $ 394,039
Research and development............ 150,000 1,878,500 2,412,500
Interest............................ 1,364,205 1,109,721 1,430,276
------------ ------------ ------------
1,700,092 3,189,227 4,236,815
COSTS AND EXPENSES:
Cost of goods sold.................. 28,124 41,829 202,930
Research and development............ 12,503,837 12,491,847 14,698,025
General and administrative.......... 2,467,608 2,059,279 4,391,831
------------ ------------ ------------
14,999,569 14,592,955 19,292,786
------------ ------------ ------------
NET LOSS............................. ($13,299,477) ($11,403,728) ($15,055,971)
============ ============ ============
NET LOSS PER SHARE................... ($0.40) ($0.38) ($0.50)
============ ============ ============
Weighted average number of shares
outstanding......................... 32,903,764 30,097,584 30,051,434
============ ============ ============
See accompanying notes to consolidated financial statements.
21
IMMUNOMEDICS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
CONVERTIBLE CAPITAL ACCUMULATED
PREFERRED STOCK COMMON STOCK CONTRIBUTED UNREALIZED
------------------- -------------------- IN EXCESS ACCUMULATED (LOSS)/GAIN
SHARES PAR VALUE SHARES PAR VALUE OF PAR DEFICIT ON SECURITIES TOTAL
-------- --------- ---------- --------- ----------- ------------ ------------- -----------
Balance, at June 30,
1993................... -- $ -- 30,040,219 $300,402 $64,642,797 $(22,321,685) -- $42,621,514
Exercise of options to
purchase common stock. -- -- 15,250 153 34,160 -- -- 34,313
Net unrealized loss on
securities............ -- -- -- -- -- -- (204,435) (204,435)
Net loss............... -- -- -- -- -- (15,055,971) -- (15,055,971)
-------- ------- ---------- -------- ----------- ------------ -------- -----------
Balance, at June 30,
1994................... -- -- 30,055,469 300,555 64,676,957 (37,377,656) (204,435) 27,395,421
Issuance of convertible
preferred stock
(Series B), net....... 150,000 1,500 -- -- 7,371,000 -- -- 7,372,500
Issuance of common
stock in exchange for
convertible preferred
stock (Series B), net. (25,473) (255) 544,116 5,441 (5,186) -- -- --
Exercise of options to
purchase common stock. -- -- 25,000 250 56,000 -- -- 56,250
Net unrealized gain on
securities............ -- -- -- -- -- -- 208,732 208,732
Net loss............... -- -- -- -- -- (11,403,728) -- (11,403,728)
-------- ------- ---------- -------- ----------- ------------ -------- -----------
Balance, at June 30,
1995................... 124,527 1,245 30,624,585 306,246 72,098,771 (48,781,384) 4,297 23,629,175
Issuance of common
stock in exchange for
convertible preferred
stock (Series B), net. (124,527) (1,246) 2,000,584 20,006 (18,761) -- -- --
Issuance of convertible
preferred stock
(Series C), net....... 200,000 2,000 -- -- 9,980,500 -- -- 9,982,500
Issuance of common
stock in exchange for
convertible preferred
stock (Series C), net. (171,585) (1,716) 1,368,041 13,550 (11,844) -- -- --
Issuance of convertible
preferred stock
(Series D), net....... 200,000 2,000 -- -- 9,980,500 -- -- 9,982,500
Exercise of options to
purchase common stock. -- -- 324,275 3,243 865,183 -- -- 868,426
Net unrealized loss on
securities............ -- -- -- -- -- -- (9,918) (9,918)
Net loss............... -- -- -- -- -- (13,299,477) -- (13,299,477)
-------- ------- ---------- -------- ----------- ------------ -------- -----------
Balance, at June 30,
1996................... 228,415 $ 2,284 34,305,485 $343,055 $92,894,349 $(62,080,861) $ (5,621) $31,153,206
======== ======= ========== ======== =========== ============ ======== ===========
See accompanying notes to consolidated financial statements.
22
IMMUNOMEDICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
CASH FLOWS USED IN OPERATING
ACTIVITIES:
Net loss............................ $(13,299,477) $(11,403,728) $(15,055,971)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization...... 944,282 937,107 1,042,307
Amortization of bond premium....... 61,632 113,318 311,245
Changes in operating assets and li-
abilities:
Inventory......................... (193,672) -- --
Other current assets.............. (37,617) 399,778 444,619
Accounts payable.................. (301,837) (258,407) 716,747
Other current liabilities......... 273,297 416,102 206,591
------------ ------------ ------------
Net cash used in operating activi-
ties............................. (12,553,392) (9,795,830) (12,334,462)
------------ ------------ ------------
CASH FLOWS (USED IN)/PROVIDED BY
INVESTING ACTIVITIES:
Purchase of marketable securities... (32,047,487) (11,639,212) (20,493,754)
Proceeds from maturities of market-
able securities.................... 32,582,485 14,691,866 27,097,771
Proceeds from sale of marketable se-
curities........................... -- 250,000 5,274,821
Additions to property and equipment. (2,331,869) (143,982) (3,738,277)
------------ ------------ ------------
Net cash (used in)/provided by in-
vesting activities............... (1,796,871) 3,158,672 8,140,561
------------ ------------ ------------
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES:
Issuance of convertible preferred
stock, net......................... 19,965,000 7,372,500 --
Exercise of stock options........... 868,426 56,250 34,313
Principal payments of long-term
debt............................... -- -- (29,486)
------------ ------------ ------------
Net cash provided by financing ac-
tivities......................... 20,833,426 7,428,750 4,827
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................... 6,483,163 791,592 (4,189,074)
CASH AND CASH EQUIVALENTS, AT
BEGINNING OF YEAR................... 7,162,837 6,371,245 10,560,319
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, AT END OF
YEAR................................ $ 13,646,000 $ 7,162,837 $ 6,371,245
============ ============ ============
See accompanying notes to consolidated financial statements.
23
IMMUNOMEDICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.BUSINESS OVERVIEW
Immunomedics, Inc. (the "Company") is engaged in researching, developing,
manufacturing and marketing biopharmaceutical products, particularly antibody-
based diagnostics and therapeutics for cancer and infectious diseases.
The Company's operations encompass all the risks inherent in developing and
expanding a new business enterprise, including: (1) a limited operating
history and uncertainty regarding the timing and amount of future revenues to
be derived from the Company's technology; (2) obtaining future capital as
needed; (3) attracting and retaining key personnel; and (4) a business
environment with heightened competition, rapid technological change and strict
government regulation.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company considers all highly liquid investments with maturities of three
months or less, at the time of purchase, to be cash equivalents.
The Company's investments in marketable securities are available for sale to
fund growth in operations as the Company begins commercialization of its
products. The Company, subject to changes in market conditions, does not
intend to hold all marketable securities to their maturity dates and,
accordingly, the portfolio has been classified as a current asset. The
portfolio primarily consists of U.S. government securities, corporate bonds,
and equity securities.
CONCENTRATION OF CREDIT RISK
The Company invests its cash in U.S. government securities and debt
instruments of financial institutions and corporations with strong credit
ratings. The Company has established guidelines relative to diversification
and maturities that are designed to help ensure safety and liquidity. These
guidelines are periodically reviewed to take advantage of trends in yields and
interest rates.
INVENTORY
Inventory is stated at the lower of average cost (which approximates first-
in, first-out) or market, and includes materials, labor and manufacturing
overhead. Inventory at June 30, 1996 consists of the cost of vials of CEA-
Scan(R) which were produced following the Company's receipt on April 9, 1996
of an approvability letter from the U.S. Food and Drug Administration. Final
marketing clearance for this product was received on June 28, 1996.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated on a straight-
line basis over the estimated useful lives (5-10 years) of the respective
assets.
REVENUE RECOGNITION
Payments received under contracts to fund certain research activities are
recognized as revenue in the period in which the research activities are
performed. Payments received in advance which are related to future
performance are deferred and recognized as revenue when the research projects
are performed.
24
IMMUNOMEDICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Non-refundable payments received under licensing arrangements are recognized
as revenue in the period in which they are received.
Revenue from the sale of in vitro diagnostic products is recognized at the
time of shipment.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
INCOME TAXES
The Company utilizes Statement of Financial Accounting Standards Number 109
("SFAS No. 109") to account for income taxes. SFAS No. 109 requires the
recognition of deferred tax assets and liabilities relating to the expected
future tax consequences of events that have been recognized in the Company's
financial statements and tax returns. The Company has not recorded any tax
benefits associated with its net deferred tax assets.
NET LOSS PER SHARE
Net loss per share is based upon the weighted average number of common
shares outstanding. Common share equivalents, consisting of outstanding stock
options and convertible preferred stock, are not included in the computations
since the effect would be antidilutive.
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 date of financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
RECLASSIFICATION
Certain 1995 and 1994 balances have been reclassified to conform to the 1996
presentation.
3.MARKETABLE SECURITIES
The Company utilizes Statement of Financial Accounting Standards Number 115
("SFAS No. 115"), "Accounting for Certain Investments in Debt and Equity
Securities," to account for investments in marketable securities. Under this
accounting standard, securities for which there is not the positive intent and
ability to hold to maturity are classified as available-for-sale and are
carried at fair value. Unrealized holding gains and losses on securities
classified as available-for-sale are carried as a separate component of
stockholders' equity. The Company considers all of its current investments to
be available-for-sale. Consequently, pursuant to SFAS No. 115, a $6,000
unrealized holding loss and a $4,000 unrealized holding gain are recorded in a
separate component of stockholders' equity as of June 30, 1996 and 1995,
respectively. Marketable securities at June 30, 1996 and 1995 consist of the
following:
25
IMMUNOMEDICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FAIR UNREALIZED
COST MARKET HOLDING
JUNE 30, 1996 BASIS VALUE GAIN/(LOSS)
- ------------- ----------- ----------- -----------
Securities with contractual maturities
from date of
acquisition of one year or less:
U.S. Debt Securities...................... $ 2,934,000 $ 2,984,000 $ 50,000
Corporate Debt Securities................. 7,399,000 7,397,000 (2,000)
Equity Securities......................... 541,000 470,000 (71,000)
----------- ----------- --------
$10,874,000 $10,851,000 $(23,000)
=========== =========== ========
Securities with contractual maturities
from date of
acquisition greater than one year:
U.S. Debt Securities...................... $ 4,177,000 $ 4,194,000 $ 17,000
=========== =========== ========
Total Marketable Securities............... $15,051,000 $15,045,000 $ (6,000)
=========== =========== ========
FAIR UNREALIZED
COST MARKET HOLDING
JUNE 30, 1995 BASIS VALUE GAIN/(LOSS)
- ------------- ----------- ----------- -----------
Securities with contractual maturities
from date of
acquisition of one year or less:
U.S. Debt Securities...................... $ 5,631,000 $ 5,676,000 $ 45,000
Equity Securities......................... 541,000 479,000 (62,000)
----------- ----------- --------
$ 6,172,000 $ 6,155,000 $(17,000)
=========== =========== ========
Securities with contractual maturities
from date of
acquisition greater than one year:
U.S. Debt Securities...................... $ 6,722,000 $ 6,721,000 $ (1,000)
Corporate Debt Securities................. 2,753,000 2,775,000 22,000
----------- ----------- --------
$ 9,475,000 $ 9,496,000 $ 21,000
=========== =========== ========
Total Marketable Securities............... $15,647,000 $15,651,000 $ 4,000
=========== =========== ========
4.OTHER CURRENT ASSETS
Included in other current assets is accrued interest income earned on
marketable securities and cash equivalents of approximately $181,000 and
$231,000 at June 30, 1996 and 1995, respectively. Also included in other
current assets are prepaid expenses of $314,000 and $88,000 at June 30, 1996
and 1995, respectively.
5.PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30:
1996 1995
----------- -----------
Machinery and equipment......................... $ 3,069,000 $ 2,936,000
Leasehold improvements.......................... 7,343,000 5,199,000
Furniture and fixtures.......................... 548,000 530,000
Computer equipment.............................. 522,000 485,000
----------- -----------
11,482,000 9,150,000
Accumulated depreciation and amortization....... (5,372,000) (4,427,000)
----------- -----------
$ 6,110,000 $ 4,723,000
=========== ===========
26
IMMUNOMEDICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6.OTHER CURRENT LIABILITIES
Included in other current liabilities are amounts payable to medical
institutions participating in the Company's clinical trial programs of
approximately $546,000 and $468,000 at June 30, 1996 and 1995, respectively.
Also included are amounts payable to various legal counsel of approximately
$177,000 and $284,000, and accrued health insurance liabilities of
approximately $246,000 and $252,000 at June 30, 1996 and 1995, respectively.
Further, included at June 30, 1996 and 1995 is $1,042,000 and $912,000,
respectively, received from a former corporate partner for the funding of
ongoing clinical trials (see Note 10).
7.STOCKHOLDERS' EQUITY
The Certificate of Incorporation of the Company authorizes the issuance of
10,000,000 shares of preferred stock at $.01 par value per share. The
preferred stock may be issued from time to time in one or more series, with
such distinctive serial designations, rights and preferences as shall be
determined by the Board of Directors.
On January 18, 1995, the Company completed an equity financing pursuant to
Regulation S under the Securities Act of 1933 ("Regulation S"), pursuant to
which several foreign investors purchased 150,000 shares of non-dividend
paying Series B Convertible Preferred Stock (the "Series B Preferred") for
$7,500,000. The terms of the transaction allowed the investors, at their
discretion, to convert the Series B Preferred into shares of the Company's
common stock during a twenty-two month period beginning in March 1995, at pre-
determined discounts from the average market price per share over a 40-day
trading period surrounding the date of conversion. As of June 30, 1996, all
150,000 shares of Series B Preferred had been converted into 2,544,700 shares
of the Company's common stock.
On September 29, 1995, the Company completed an equity financing pursuant to
Regulation S, pursuant to which several foreign investors purchased 200,000
shares of non-dividend paying Series C Convertible Preferred Stock (the
"Series C Preferred") for $10,000,000. The terms of the transaction allowed
the investors, at their discretion, to convert the Series C Preferred into
shares of the Company's common stock during a twenty-two month period
beginning in September 1995, at pre-determined discounts from the average
market price per share over a 30-day trading period surrounding the date of
conversion. As of June 30, 1996, 171,585 shares of Series C Preferred had been
converted into 1,356,041 shares of the Company's common stock. In July 1996,
the remaining 28,415 shares of Series C Preferred were converted into 182,646
shares of common stock.
On June 27, 1996, the Company completed an equity financing pursuant to
Regulation S, pursuant to which several foreign investors purchased 200,000
shares of 5% Series D Convertible Preferred Stock (the "Series D Preferred")
for $10,000,000. The terms of the transaction allow the investors, at their
discretion, to convert the Series D Preferred into shares of the Company's
common stock during a twenty-four month period beginning in June 1996, at a
price equal to 89% of the average market price per share over a 20-day trading
period surrounding the date of conversion. As of August 1, 1996, no shares of
Series D Preferred had been converted into shares of the Company's common
stock.
Under the terms of the Company's 1983 Stock Option, as amended (the "1983
Plan"), stock options were granted to employees and members of the Board of
Directors, as determined by the Compensation Committee of the Board of
Directors, at fair market value, become exercisable at 25% per year on each of
the first through fourth anniversaries of the date of grant, and terminate if
not exercised within ten years. In June 1993, the 1983 Plan expired, although
options granted under the 1983 plan which have not terminated may continue to
be exercised. On November 5, 1992, the Company's Annual Meeting of
Stockholders, adoption of the Company's 1992 Stock Option Plan (the "1992
Plan") was ratified. The basic terms of the 1992 Plan are substantially
similar to those under the Company's 1983 Plan. Under the 1992 Plan, 3,000,000
shares were originally reserved
27
IMMUNOMEDICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
for possible future issuance upon exercise of stock options, of which
1,101,525 were still available at June 30, 1996 for future grant. At June 30,
1996, 3,252,725 shares of common stock were reserved for possible future
issuance upon exercise of stock options outstanding and future stock option
grants.
Pursuant to the terms of the 1992 Plan, each outside Director of the Company
is granted, on the date he or she joins the Board of Directors, an option to
purchase 10,000 shares of the Company's common stock at fair market value. In
addition, each outside Director of the Company who had been a Director prior
to July 1 is granted, on the first business day of July of each year, an
option to purchase 10,000 shares of the Company's common stock (subject to
proration for Directors who have served less than a full year) at fair market
value. On July 1, 1996, 60,000 stock options were granted to these Directors,
and on June 26, 1996, the Company granted 10,000 stock options to a Director
who joined the board on such date.
On April 11, 1995, the Compensation Committee of the Board of Directors
granted the Company's employees the opportunity to terminate their existing
options and receive new options at fair market value of the Company's common
stock on April 11, 1995, with a corresponding recommencement of vesting.
Accordingly, options to purchase 790,000 shares were terminated and an equal
number of new options were issued, which is reflected in the table below.
Information concerning options for the years ended June 30, 1996, 1995 and
1994 is summarized as follows:
FISCAL 1996
------------------------------
SHARES OPTION PRICE RANGE
---------- ------------------
Outstanding, July 1, 1995.................. 1,800,000 $2.25 - 10.75
Granted.................................... 890,500 2.31 - 9.50
Exercised.................................. (324,275) 2.25 - 6.75
Terminated................................. (85,750) 2.63 - 6.63
---------- -------------
Outstanding, June 30, 1996................. 2,280,475 $2.25 - 10.75
========== =============
Exercisable, June 30, 1996................. 569,475
==========
FISCAL 1995
------------------------------
SHARES OPTION PRICE RANGE
---------- ------------------
Outstanding, July 1, 1994.................. 1,655,750 $2.25 - 10.75
Granted.................................... 1,214,000 2.63 - 3.38
Exercised.................................. (25,000) 2.25
Terminated................................. (1,044,750) 2.25 - 9.13
---------- -------------
Outstanding, June 30, 1995 1,800,000 $2.25 - 10.75
========== =============
Exercisable, June 30, 1995................. 558,750
==========
FISCAL 1994
------------------------------
SHARES OPTION PRICE RANGE
---------- ------------------
Outstanding, July 1, 1993.................. 1,675,500 $2.25 - 10.75
Granted.................................... 461,000 3.63 - 7.12
Exercised.................................. (15,250) 2.25
Terminated................................. (465,500) 2.25 - 10.75
---------- -------------
Outstanding, June 30, 1994................. 1,655,750 $2.25 - 10.75
========== =============
Exercisable, June 30, 1994................. 771,000
==========
28
IMMUNOMEDICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8.INCOME TAXES
The Company utilizes SFAS No. 109 to account for income taxes. Pursuant to
the accounting standard, the tax effects of temporary differences that give
rise to significant portions of the Company's deferred tax assets as of June
30, 1996 and 1995 are presented below:
1996 1995
------------ ------------
Deferred tax assets:
Net operating loss carryforwards.................. $ 24,362,000 $ 18,882,000
Research and development credits.................. 3,253,000 2,640,000
Property and equipment............................ 293,000 226,000
Other............................................. 422,000 62,000
------------ ------------
Total............................................. 28,330,000 21,810,000
Valuation allowance................................. (28,330,000) (21,810,000)
------------ ------------
Net deferred taxes.................................. $ -- $ --
============ ============
The valuation allowances for fiscal year 1996, 1995 and 1994 have been
applied to offset the deferred tax assets in recognition of the uncertainty
that such tax benefits will be realized. The valuation allowances as of June
30, 1996, 1995 and 1994 include $6,520,000, $4,851,000 and $6,500,000 relating
to fiscal years 1996, 1995 and 1994 operations, respectively.
At June 30, 1996, the Company has available net operating loss carryforwards
for Federal income tax reporting purposes of approximately $61,147,000, which
expire beginning in fiscal year 1998. The Company made no payments of Federal
or state income taxes during fiscal years 1996, 1995 and 1994.
9.RELATED-PARTY TRANSACTIONS
The Center for Molecular Medicine and Immunology ("CMMI") is a not-for-
profit corporation, established in 1983 by Dr. David M. Goldenberg, Chairman
of the Board, Chief Executive Officer, Treasurer, and the major shareholder of
the Company. CMMI is devoted primarily to cancer research.
Dr. Goldenberg currently serves as the President of CMMI pursuant to an
employment agreement and devotes substantially more of his working time to
CMMI than to the Company. Allocations between CMMI and the Company regarding
research projects are overseen by the Board of Trustees of CMMI and the Board
of Directors of the Company, excluding Dr. Goldenberg, to minimize potential
conflicts of interest. Certain employees of CMMI serve as consultants to the
Company, and certain Executive Officers of the Company are adjunct members of
CMMI.
CMMI is currently conducting basic research and patient evaluations in a
number of areas of potential interest to the Company. Effective in July 1995,
the Company amended its license agreement with CMMI to assist CMMI in
complying with Internal Revenue Service criteria for its then recently
completed tax-exempt financing. Under the original terms of the license
agreement, the Company had the right to an exclusive, worldwide license to
manufacture and market potential products developed by CMMI (other than those
funded by third parties) for specified royalty payments and on other specified
terms. Under the amended license agreement, the Company maintains the right of
first negotiation to obtain exclusive, worldwide licenses from CMMI to
manufacture and market potential products and technology covered by the
license agreement under terms representing fair market price, to be determined
at the time the license is obtained.
29
IMMUNOMEDICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amended license agreement terminates on December 31, 1999, with the
Company having the right to seek good-faith negotiation to extend the
agreement for an additional five-year period. The Company retains such amended
licensing rights to inventions made during the term of the agreement for a
period of five years from the time of disclosure. Prior to amendment, the
license agreement terminated on December 11, 2010, with the Company having the
right to extend the agreement for two additional five-year periods with
specified minimum annual royalties to be paid during these two periods. The
Company is in the process of evaluating what additional amendments to the
license agreement may be necessary to satisfy Federal laws and rules,
including National Institutes of Health Guidelines.
The Company has reimbursed CMMI for expenses incurred on behalf of the
Company, including amounts incurred pursuant to research contracts, in the
amount of approximately $64,000, $57,000 and $548,000 during the years ended
June 30, 1996, 1995 and 1994, respectively. The Company also provides CMMI
with laboratory materials and supplies in connection with research conducted
in areas of potential interest to the Company at no cost to CMMI.
During the years ending June 30, 1996, 1995 and 1994, the Board of Directors
of the Company authorized grants to CMMI of $200,000, $300,000 and $200,000,
respectively, to support research and clinical work being performed at CMMI,
such grants to be expended in a manner deemed appropriate by the Board of
Trustees of CMMI.
10.LICENSE AND DISTRIBUTION AGREEMENTS
On August 2, 1995, the Company announced that its Development and License
Agreement with Pharmacia, Inc. (which subsequently became Pharmacia & Upjohn
Inc.--"Pharmacia") was terminated and that the Company regained the North
American marketing and selling rights for CEA-Scan(R). The Company and
Pharmacia were subsequently unable to agree on the amount of a final payment
by Pharmacia to the Company to satisfy Pharmacia's remaining obligations. In
June 1996, the Company filed a claim against Pharmacia before the American
Arbitration Association, claiming damages for breach of contract and fiduciary
duty in the amount of $60 million plus punitive damages. Payments previously
received from Pharmacia to fund ongoing clinical trials for CEA-Scan(R) are
being recorded as income as the trials are conducted (see Note 6).
In March 1995, the Company entered into a License Agreement with
Mallinckrodt Medical B.V., ("Mallinckrodt Medical"), pursuant to which,
Mallinckrodt Medical will market, sell and distribute CEA-Scan(R) throughout
Western Europe and in specified Eastern European countries, subject to receipt
of regulatory approval in the specified countries. The Company will
manufacture CEA-Scan(R), for which Mallinckrodt Medical will pay the Company a
pre-determined royalty per vial or a pre-determined percentage of the net
selling price.
In April 1996, the Company signed a U.S. Marketing and Distribution
Agreement for CEA-Scan(R) with Mallinckrodt Group Inc. ("Mallinckrodt Group").
Under the terms of the agreement, Mallinckrodt Group will market, sell and
distribute CEA-Scan(R) in the U.S. on a consignment basis, and will commit
financial resources to this effort. The Company will retain manufacturing and
co-promotional rights, will pay Mallinckrodt Group a pre-determined amount or
percentage of the net selling price, and will potentially commit additional
financial resources to these activities.
In June 1994, the Company assigned to an independent third party all of the
Company's manufacturing and marketing rights associated with its in vitro
diagnostic products, excluding those rights relating to the Company's HAMA in
vitro diagnostic product. In exchange for assigning these rights, the Company
will receive royalty payments through June 2003 on annual sales derived from
such products. In fiscal years 1996 and 1995, the Company recorded royalty
income of $131,000 and $120,000, respectively.
30
IMMUNOMEDICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11.COMMITMENTS AND CONTINGENCIES
On November 1, 1993, the Company and Dr. Goldenberg entered into a five-year
employment agreement (the "Agreement") with an additional one-year assured
renewal and thereafter automatically renewable for additional one-year periods
unless terminated by either party as provided in the Agreement. Dr. Goldenberg
will receive an annual base salary of not less than $220,000, subject to
increases as determined by the Board of Directors. Effective July 1, 1996, the
Board of Directors increased Dr. Goldenberg's annual base salary to $250,000.
Pursuant to the Agreement, Dr. Goldenberg may engage in other business,
general investment and scientific activities, provided such activities do not
materially interfere with the performance of any of his obligations under the
Agreement, allowing for those activities he presently performs for CMMI. The
Agreement extends the ownership rights of the Company to, with an obligation
to diligently pursue all ideas, discoveries, developments and products in the
entire medical field, which, at any time during his past or continuing
employment by the Company (but not when performing services for CMMI), Dr.
Goldenberg has made or conceived or hereafter makes or conceives, or the
making or conception of which he has materially contributed to or hereafter
contributes to, all as defined in the Agreement (collectively "Goldenberg
Discoveries").
Further, pursuant to the Agreement, Dr. Goldenberg will receive, subject to
certain restrictions, incentive compensation of 0.5% on the first $75,000,000
of all defined annual net revenue of the Company and 0.25% on all such annual
net revenue in excess thereof (collectively "Revenue Incentive Compensation").
With respect to the period that Dr. Goldenberg is entitled to receive Revenue
Incentive Compensation on any given products, it will be in lieu of any other
percentage compensation based on sales or revenue due him with respect to such
products under this Agreement or the existing License Agreement between the
Company and Dr. Goldenberg. With respect to any periods that Dr. Goldenberg is
not receiving such Revenue Incentive Compensation for any products covered by
patented Goldenberg Discoveries or by certain defined prior inventions of Dr.
Goldenberg, he will receive 0.5% on cumulative annual net sales of, royalties,
certain equivalents thereof, and, to the extent approved by the Board, other
consideration received by the Company for such products, up to a cumulative
annual aggregate of $75,000,000 and 0.25% on any cumulative annual aggregate
in excess of $75,000,000 (collectively "Incentive Payments"). A $100,000
annual minimum payment will be paid in the aggregate against all Revenue
Incentive Compensation and Incentive Payments. Dr. Goldenberg will also
receive a percent, not less than 20%, to be determined by the Board of
Directors of the Company, of net consideration (including license fees) which
the Company receives for any disposition, by sale, license or otherwise
(discussions directed to which commence during the term of his employment plus
two years) of any defined Undeveloped Assets of the Company which are not
budgeted as part of the Company's strategic plan.
On February 1, 1994, the Company entered into a master lease agreement,
which was subsequently amended, pursuant to which the Company may lease
equipment for research, development and manufacturing purposes having an
aggregate acquisition cost of up to $2,200,000. The basic lease payments under
the master lease agreement are determined based on current market rates of
interest at the inception of each equipment schedule take-down, and payable in
monthly installments over a four-year period. The lease agreement contains an
early purchase option, at an amount which is deemed to be fair value,
exercisable for each equipment schedule take-down no later than ninety days
before the thirty-sixth installment is due. Under the lease agreement,
continued compliance with certain financial ratios is required and, in the
event of default, the Company will be required to provide an irrevocable
letter of credit which is generally equal to the outstanding balance of lease
payments due at the time of default. As of June 30, 1996, the Company has
leased equipment aggregating $2,014,000 under the master lease agreement and
recorded lease expense of $406,000 and $332,000 for fiscal years 1996 and
1995, respectively.
31
IMMUNOMEDICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is obligated under two operating leases for facilities used for
research and development, manufacturing and office space. The leases currently
expire in March 1997 and May 1999, with the latter containing renewal
provisions as specified in the respective lease. The lease expiring in May
1999 provides for escalating lease payments and an option to purchase the
facility, exercisable by the Company any time after December 1993, subject to
certain terms and conditions as specified in the lease. Lease expense was
approximately $453,000, $495,000 and $484,000 in fiscal years 1996, 1995 and
1994, respectively. Minimum lease commitments for facilities and equipment are
as follows:
1997................................ $975,000
1998................................ $988,000
1999................................ $699,000
Thereafter.......................... 0
The Company is involved in various claims and litigation arising in the
normal course of business. Management believes that the outcome of such claims
and litigation will not have a material adverse effect on the Company's
financial position and results of operations.
32
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Immunomedics, Inc.:
We have audited the accompanying consolidated balance sheets of
Immunomedics, Inc. and subsidiary as of June 30, 1996 and 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended June 30,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Immunomedics, Inc. and subsidiary as of June 30, 1996 and 1995, and the
results of its operations and its cash flows for each of the years in the
three-year period ended June 30, 1996, in conformity with generally accepted
accounting principles.
Short Hills, New Jersey
August 1, 1996 KPMG Peat Marwick LLP
33
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required for this item is incorporated herein by reference
to the 1996 Definitive Proxy Statement. See also "Executive Officers of the
Registrant" in Part I, following Item 4.
ITEM 11--EXECUTIVE COMPENSATION
The information required for this item is incorporated herein by reference
to the 1996 Definitive Proxy Statement.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required for this item is incorporated herein by reference
to the 1996 Definitive Proxy Statement.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required for this item is incorporated herein by reference
to the 1996 Definitive Proxy Statement.
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)DOCUMENTS FILED AS PART OF THIS REPORT:
1.Consolidated Financial Statements:
Consolidated Balance Sheets--June 30, 1996 and 1995
Consolidated Statements of Operations for the years ended June 30, 1996,
1995 and 1994
Consolidated Statements of Stockholders' Equity for the years ended June
30, 1996, 1995, and 1994
Consolidated Statements of Cash Flows for the years ended June 30, 1996,
1995, and 1994
Notes to Consolidated Financial Statements
Independent Auditors' Report--KPMG Peat Marwick LLP
2.Financial Statements Schedules:
All schedules have been omitted because of the absence of conditions under
which they would be required or because the required information is
included in the consolidated financial statements or the notes thereto.
3.Articles of incorporation and by-laws
3.1(a) Certificate of Incorporation of the Company, as filed with the
Secretary of State of the State of Delaware on July 6, 1982 [e]
3.1(b) Certificate of Amendment of the Certificate of Incorporation of the
Company, as filed with the Secretary of State of the State of
Delaware on April 4, 1983 [e]
34
3.1(c) Certificate of Amendment of the Certificate of Incorporation of the
Company, as filed with the Secretary of State of the State of
Delaware on December 14, 1984 [e]
3.1(d) Certificate of Amendment of the Certificate of Incorporation of the
Company, as filed with the Secretary of State of the State of
Delaware on March 19, 1986 [e]
3.1(e) Certificate of Amendment of the Certificate of Incorporation of the
Company, as filed with the Secretary of State of the State of
Delaware on November 17, 1986 [e]
3.1(f) Certificate of Amendment of the Certificate of Incorporation of the
Company, as filed with the Secretary of State of the State of
Delaware on November 21, 1990 [f]
3.1(g) Certificate of Designation of Rights and Preferences of the
Company's Series A Convertible Preferred Stock, as filed with the
Secretary of State of the State of Delaware on March 1, 1991 [g]
3.1(h) Certificate of Amendment of the Certificate of Incorporation of the
Company, as filed with the Secretary of State of the State of
Delaware on December 7, 1992 [k]
3.1(i) Certificate of Designation of Rights and Preferences of the
Company's Series B Convertible Preferred Stock, as filed with the
Secretary of State of the State of Delaware on December 21, 1994 (m)
3.1(j) Certificate of Designation of Rights and Preferences of the
Company's Series C Convertible Preferred Stock, as filed with the
Secretary of State of the State of Delaware on September 25,
1995 (q)
3.1(k) Certificate of Designation of Rights and Preferences of the
Company's Series D Convertible Preferred Stock, as filed with the
Secretary of State of the State of Delaware on June 26, 1996.
3.2 Amended and Restated By-Laws of the Company [k]
4.Instruments defining the rights of security holders, including indentures
4.1 Specimen Certificate for Common Stock [e]
10.Material contracts
10.1(a) 1983 Stock Option Plan, as amended [h]
10.1(b) Form of Stock Option Agreement [e]
10.2 Exclusive License Agreement with David M. Goldenberg, dated as of July
14, 1982 [a]
10.3 Agreement among The University of Medicine and Dentistry of New
Jersey, the Center of Molecular Medicine and Immunology, Inc. and
Immunomedics, Inc., dated September 16, 1983, including Lease
Agreement [a]
10.4 Agreement among the Company, David M. Goldenberg and the Center for
Molecular Medicine and Immunology, Inc. dated, May 1983 [a]
10.5 Memorandum of Understanding with David M. Goldenberg, dated September
10, 1984 [b]
10.6 Immunomedics, Inc. 401(k) Retirement Plan [c]
10.7 Executive Supplemental Benefits Agreement with David M. Goldenberg,
dated as of July 18, 1986 [c]
35
10.8 License Agreement between Hoffmann-La Roche, Inc. and David M.
Goldenberg, dated as of April 29, 1986 [c]
10.9 License Agreement with F. James Primus dated July 7, 1983 [d]
10.10 Employment Letter with Carl Pinsky dated April 29, 1989 [e]
10.11 Amended and Restated License Agreement among the Company, CMMI and
David M. Goldenberg, dated December 11, 1990 [h]
10.12 Development and License Agreement with Adria Laboratories Division of
Erbamont Inc. (Confidential treatment has been requested for certain
portions of the Agreement) [h]
10.13 Lease Agreement with Baker Properties Limited partnership, dated
January 16, 1992 [i]
10.14 Amendment to Lease between the University of Medicine and Dentistry
of New Jersey and Immunomedics, Inc., dated August 13, 1992 [j]
10.15 Immunomedics, Inc. 1992 Stock Option Plan [k]
10.16 Amended and Restated Employment Agreement, dated November 1, 1993,
between the Company and Dr. David M. Goldenberg [l]
10.17 Convertible Stock Purchase Agreement, dated January 6, 1995, between
the Company and purchasers named therein [n]
10.18 License Agreement, dated March 10, 1995, between the Company and
Mallinckrodt Medical, B.V. (Confidential treatment has been requested
for certain portions of the Agreement) [o]
10.19 Amendment, dated March 11, 1995, to the Amended and Restated License
Agreement among the Company, CMMI, and David M. Goldenberg, dated
December 11, 1990. [p]
10.20 Convertible Stock Purchase Agreement, dated September 29, 1995,
between the Company and the purchasers named therein [q]
10.21 Distribution and Marketing Agreement, dated April 4, 1996, between
the Company and Mallinckrodt Medical, Inc. (Confidential treatment
has been requested for certain portions of the Agreement) [r]
10.22 Manufacturing Agreement, dated June 14, 1996, between the Company and
Pharmacia & Upjohn Oncology Division (Confidential treatment has been
requested for certain portions of the Agreement)
10.23 Convertible Stock Purchase Agreement, dated June 27, 1996, between
the Company and the purchasers named therein
11. Statement re computation of per share earnings--Not required since such
computation can be clearly determined from the material contained in this
Annual Report on Form 10-K.
12. Statements re computation of ratios--Not applicable.
21. Subsidiaries of the registrant--Immunomedics, B.V.
23. Consent of Experts and Counsel
23.1 Consent of Independent Auditors--KPMG Peat Marwick LLP
27. Financial Data Schedule
----------------
36
[a] Incorporated by reference from the Exhibits to Registrant's Registration
Statement on Form S-1 effective October 6, 1983 (Commission File No. 2-84940).
[b] Incorporated by reference from the Exhibits to Registrant's Annual
Report on Form 10-K for the year ended June 30, 1985.
[c] Incorporated by reference from the Exhibits to Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1986.
[d] Incorporated by reference from the Exhibits to Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1988.
[e] Incorporated by reference from the Exhibits to Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1990.
[f] Incorporated by reference from the Exhibits to Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended December 31, 1990.
[g] Incorporated by reference from the Exhibits to Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1991.
[h] Incorporated by reference from the Exhibits to the Registrant's
Registration Statement on Form S-2 effective July 24, 1991 (Commission File
No. 33-41053).
[i] Incorporated by reference from the Exhibits to the Registrant's
Registration Statement on Form S-2 effective January 30, 1992 (Commission File
No. 33-44750).
[j] Incorporated by reference from the Exhibits to Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1992.
[k] Incorporated by reference from the Exhibits to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1993.
[l] Incorporated by reference from the Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1993.
[m] Incorporated by reference from the Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 1994.
[n] Incorporated by reference from the Exhibits to Amendment No. 1 to the
Registrant's Quarterly Report on Form 10-Q/A for the fiscal quarter ended
December 31, 1994.
[o] Incorporated by reference from the Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1995.
[p] Incorporated by reference from the Exhibits to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995.
[q] Incorporated by reference from the Exhibits to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1995.
[r] Incorporated by reference from the Exhibits to Amendment No. 1 to the
Registrant's Quarterly Report on Form 10-Q/A for the fiscal quarter ended
March 31, 1996.
(b)REPORTS ON FORM 8-K:
The Company filed a Current Report on Form 8-K dated June 28, 1996, with
respect to Item 5--Other Events.
37
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.
IMMUNOMEDICS, INC.
Date: September 26, 1996 By: /s/ DAVID M. GOLDENBERG
----------------------------------
David M. Goldenberg,
Chairman, Chief Executive Officer
and Treasurer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Date: September 26, 1996 By: /s/ DAVID M. GOLDENBERG
----------------------------------
David M. Goldenberg, Chairman
Chief Executive Officer, and
Treasurer
(Principal Executive Officer and
Principal Accounting Officer)
Date: September 26, 1996 By: /s/ ALBERT D. ANGEL
----------------------------------
Albert D. Angel, Director
Date: September 26, 1996 By: /s/ A.E. COHEN
----------------------------------
A.E. Cohen, Director
Date: September 26, 1996 By: /s/ ROLF H. HENEL
----------------------------------
Rolf H. Henel, Director
Date: September 26, 1996 By: /s/ MARVIN E. JAFFE
----------------------------------
Marvin E. Jaffe, Director
Date: September 26, 1996 By: /s/ RICHARD R. PIVIROTTO
----------------------------------
Richard R. Pivirotto, Director
Date: September 26, 1996 By: /s/ WARREN W. ROSENTHAL
----------------------------------
Warren W. Rosenthal, Director
Date: September 26, 1996 By: /s/ RICHARD C. WILLIAMS
----------------------------------
Richard C. Williams, Director
38