UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
ý QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
OR
o TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to ..
Commission file number: 000-24207
ABGENIX, INC.
(Exact name of registrant as specified in its charter)
|
Delaware |
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94-3248826 |
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(State or other jurisdiction of |
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(IRS employer |
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|
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6701 Kaiser Drive, Fremont, CA |
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94555 |
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(Address of principal executive office) |
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(Zip Code) |
(510) 284-6500
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding in 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act. Yes ý No o
As of April 30, 2004 there were 88,721,364 shares of the Registrant’s Common Stock outstanding.
TABLE OF CONTENTS
2
ABGENIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
|
|
|
March 31, |
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December 31, |
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|
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|
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||
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ASSETS |
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|
|
|
|
||
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Current assets: |
|
|
|
|
|
||
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Cash and cash equivalents |
|
$ |
16,389 |
|
$ |
19,141 |
|
|
Marketable securities |
|
290,613 |
|
328,622 |
|
||
|
Interest receivable |
|
2,133 |
|
3,096 |
|
||
|
Accounts receivable, net |
|
505 |
|
2,174 |
|
||
|
Inventories |
|
1,796 |
|
— |
|
||
|
Prepaid expenses and other current assets |
|
11,072 |
|
12,546 |
|
||
|
Total current assets |
|
322,508 |
|
365,579 |
|
||
|
Property and equipment, net |
|
241,383 |
|
246,277 |
|
||
|
Long-term investments |
|
19,529 |
|
20,695 |
|
||
|
Goodwill |
|
34,780 |
|
34,780 |
|
||
|
Identified intangible assets, net |
|
81,925 |
|
83,716 |
|
||
|
Deposits and other assets |
|
28,864 |
|
29,146 |
|
||
|
|
|
$ |
728,989 |
|
$ |
780,193 |
|
|
|
|
|
|
|
|
||
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LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY |
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|
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||
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Current liabilities: |
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|
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|
|
||
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Accounts payable |
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$ |
9,143 |
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$ |
11,584 |
|
|
Deferred revenue |
|
10,326 |
|
10,919 |
|
||
|
Accrued liabilities |
|
16,525 |
|
13,974 |
|
||
|
Contract cancellation obligation |
|
15,640 |
|
22,749 |
|
||
|
Accrued interest payable |
|
311 |
|
2,061 |
|
||
|
Total current liabilities |
|
51,945 |
|
61,287 |
|
||
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Deferred rent |
|
6,547 |
|
6,153 |
|
||
|
Convertible subordinated notes |
|
249,870 |
|
200,000 |
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||
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Redeemable convertible preferred stock, $0.0001 par value; 5,000,000 shares authorized |
|
|
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|
|
||
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Series A-1 50,000 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively; liquidation preference $50,000,000 at March 31, 2004 and December 31, 2003, respectively |
|
49,869 |
|
49,869 |
|
||
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Series A-2 50,000 shares issued and outstanding at December 31, 2003; liquidation preference $50,000,000 at December 31, 2003; no shares outstanding at March 31, 2004 |
|
— |
|
49,868 |
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||
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Commitments |
|
|
|
|
|
||
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Stockholders’ equity: |
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|
|
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|
||
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Common stock, $0.0001 par value; 220,000,000 shares authorized; 88,366,871 and 88,262,457 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively |
|
9 |
|
9 |
|
||
|
Additional paid-in capital |
|
969,335 |
|
968,922 |
|
||
|
Accumulated other comprehensive income |
|
7,756 |
|
8,861 |
|
||
|
Accumulated deficit |
|
(606,342 |
) |
(564,776 |
) |
||
|
Total stockholders’ equity |
|
370,758 |
|
413,016 |
|
||
|
|
|
$ |
728,989 |
|
$ |
780,193 |
|
See accompanying notes
3
ABGENIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
|
|
|
Three Months Ended March 31, |
|
||||
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|
|
2004 |
|
2003 |
|
||
|
|
|
|
|
|
|
||
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Revenues: |
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|
|
|
|
||
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Contract revenue |
|
$ |
2,890 |
|
$ |
6,156 |
|
|
Operating expenses: |
|
|
|
|
|
||
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Research and development |
|
28,457 |
|
21,187 |
|
||
|
Manufacturing start-up costs |
|
7,346 |
|
11,583 |
|
||
|
Amortization of identified intangible assets, related to research and development |
|
1,792 |
|
1,815 |
|
||
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General and administrative |
|
6,888 |
|
6,850 |
|
||
|
Total operating expenses |
|
44,483 |
|
41,435 |
|
||
|
Loss from operations |
|
(41,593 |
) |
(35,279 |
) |
||
|
Other income (expense): |
|
|
|
|
|
||
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Interest and other income |
|
1,670 |
|
3,195 |
|
||
|
Interest expense |
|
(1,643 |
) |
(996 |
) |
||
|
Total other income (expense) |
|
27 |
|
2,199 |
|
||
|
Loss before income tax expense |
|
(41,566 |
) |
(33,080 |
) |
||
|
Foreign income tax expense |
|
— |
|
84 |
|
||
|
Net loss |
|
$ |
(41,566 |
) |
$ |
(33,164 |
) |
|
|
|
|
|
|
|
||
|
Basic and diluted net loss per share |
|
$ |
(0.47 |
) |
$ |
(0.38 |
) |
|
|
|
|
|
|
|
||
|
Shares used in computing basic and diluted net loss per share |
|
88,307 |
|
87,706 |
|
||
See accompanying notes
4
ABGENIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
Three Months Ended March 31, |
|
||||
|
|
|
2004 |
|
2003 |
|
||
|
Operating activities |
|
|
|
|
|
||
|
Net loss |
|
$ |
(41,566 |
) |
$ |
(33,164 |
) |
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
||
|
Depreciation |
|
7,799 |
|
5,899 |
|
||
|
Amortization of identified intangible assets |
|
1,791 |
|
1,815 |
|
||
|
Impairment of identified intangible asset |
|
— |
|
1,443 |
|
||
|
Amortization of debt issuance cost |
|
309 |
|
296 |
|
||
|
Changes for certain assets and liabilities: |
|
|
|
|
|
||
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Interest receivable |
|
963 |
|
183 |
|
||
|
Accounts receivable |
|
1,669 |
|
1,201 |
|
||
|
Inventories |
|
(1,796 |
) |
— |
|
||
|
Prepaid expenses and other current assets |
|
1,474 |
|
(2,888 |
) |
||
|
Deposits and other assets |
|
(15 |
) |
934 |
|
||
|
Accounts payable |
|
(2,441 |
) |
(9,421 |
) |
||
|
Deferred revenue |
|
(593 |
) |
2,424 |
|
||
|
Accrued liabilities |
|
2,627 |
|
(1,329 |
) |
||
|
Contract cancellation obligation |
|
(7,109 |
) |
— |
|
||
|
Accrued interest payable |
|
(1,750 |
) |
(1,750 |
) |
||
|
Deferred rent |
|
394 |
|
527 |
|
||
|
Net cash used in operating activities |
|
(38,244 |
) |
(33,830 |
) |
||
|
|
|
|
|
|
|
||
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Investing activities |
|
|
|
|
|
||
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Purchases of marketable securities |
|
(65,810 |
) |
(18,986 |
) |
||
|
Maturities of marketable securities |
|
18,427 |
|
16,183 |
|
||
|
Sales of marketable securities |
|
85,442 |
|
27,787 |
|
||
|
Purchases of property and equipment |
|
(2,980 |
) |
(16,400 |
) |
||
|
Net cash provided by investing activities |
|
35,079 |
|
8,584 |
|
||
|
|
|
|
|
|
|
||
|
Financing activities |
|
|
|
|
|
||
|
Net proceeds from issuances of common stock |
|
413 |
|
317 |
|
||
|
Net cash provided by financing activities |
|
413 |
|
317 |
|
||
|
Net decrease in cash and cash equivalents |
|
(2,752 |
) |
(24,929 |
) |
||
|
Cash and cash equivalents at beginning of period |
|
19,141 |
|
207,974 |
|
||
|
Cash and cash equivalents at end of period |
|
$ |
16,389 |
|
$ |
183,045 |
|
See accompanying notes
5
ABGENIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(unaudited)
1. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation - The unaudited condensed consolidated financial statements of Abgenix, Inc. (the “Company” or “Abgenix”) included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information or footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial information included therein. These financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2003, and accompanying notes included in the Company’s annual report as filed on Form 10-K with the Securities and Exchange Commission. The results of operations for the three months ended March 31, 2004, are not necessarily indicative of the results to be expected for the full year or for any other future period.
Foreign Exchange – Accounts denominated in foreign currency have been remeasured using the U.S. dollar as the functional currency. The aggregate exchange gain/loss included in determining net loss was a $0.7 million exchange loss in the three months ended March 31, 2004 and a $0.04 million exchange gain in the three months ended March 31, 2003.
Consolidation - In January 2003, the FASB issued Interpretation No. 46 (the “Interpretation”), Consolidation of Variable Interest Entities. The Interpretation requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. The interpretation was effective immediately for variable interests created after January 31, 2003. The Company adopted the remaining provision of the Interpretation, pertaining to variable interests existing prior to January 31, 2003, in the quarter ending March 31, 2004. The adoption of the Interpretation did not have a material impact on the results of operations and the financial position of the Company. Significant intercompany accounts and transactions have been eliminated.
Stock-Based Compensation - The Company accounts for stock-based awards to employees and directors using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, the Company does not recognize compensation expense for employee stock options granted at fair market value. For purposes of disclosures pursuant to Statement of Financial Accounting Standards (SFAS 123), as amended by SFAS 148, the estimated fair value of options is amortized to expense straight-line over the options’ vesting period. The following table illustrates what net loss would have been had the Company accounted for its stock-based awards under the provisions of SFAS 123. Pro forma amounts may not be representative of future periods.
|
|
|
Three
Months Ended |
|
||||
|
|
|
2004 |
|
2003 |
|
||
|
|
|
(in
thousands, except per |
|
||||
|
|
|
|
|
||||
|
Net loss |
|
$ |
(41,566 |
) |
$ |
(33,164 |
) |
|
Stock-based employee compensation costs that would have been included in the determination of net loss if the fair value based method had been applied to all awards |
|
(12,355 |
) |
(15,921 |
) |
||
|
Pro forma net loss as if the fair value based method had been applied to all awards |
|
$ |
(53,921 |
) |
$ |
(49,085 |
) |
|
|
|
|
|
|
|
||
|
Basic and diluted net loss per share as reported |
|
$ |
(0.47 |
) |
$ |
(0.38 |
) |
|
|
|
|
|
|
|
||
|
Pro forma basic and diluted loss per share |
|
$ |
(0.61 |
) |
$ |
(0.56 |
) |
6
The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the three months ended March 31, 2004 and 2003:
|
|
|
Three
Months Ended |
|
||
|
|
|
2004 |
|
2003 |
|
|
Risk-free interest rate |
|
3.07 |
% |
3.07 |
% |
|
Dividend yield |
|
0.00 |
% |
0.00 |
% |
|
Volatility factors of the expected market price of our Common Stock |
|
0.90 |
|
1.06 |
|
|
Weighted-average expected life of option (years) |
|
5.55 |
|
5.52 |
|
These same assumptions were applied in the determination of the option values related to stock options granted to non-employees, except the option life, for which the term of the consulting contracts, 1 to 5 years, were used. The value has been recorded in the financial statements.
Net Loss Per Share - Basic net loss per share is calculated based on the weighted-average number of shares outstanding during the period. The impact of common stock options, warrants and shares issuable upon the conversion of convertible subordinated notes, and the redeemable convertible preferred stock was excluded from the computation of diluted net loss per share, as their effect is antidilutive for the periods presented.
Reclassifications - Certain prior period balances have been reclassified to conform to the current period presentation.
2. Comprehensive Income (Loss)
Other comprehensive income/(losses) consist of unrealized gains or losses on available-for-sale securities. The components of comprehensive loss, net of tax, were as follows:
|
|
|
Three
Months Ended |
|
||||
|
|
|
2004 |
|
2003 |
|
||
|
|
|
(in thousands) |
|
||||
|
|
|
|
|
||||
|
Net loss |
|
$ |
(41,566 |
) |
$ |
(33,164 |
) |
|
Other comprehensive income (loss): |
|
|
|
|
|
||
|
Unrealized holding losses arising during period |
|
(1,105 |
) |
(2,750 |
) |
||
|
|
|
|
|
|
|
||
|
Comprehensive loss |
|
$ |
(42,671 |
) |
$ |
(35,914 |
) |
7
3. Segment Information
The operations of the Company and its wholly owned subsidiaries constitute one business segment.
Information about customers who provided 10% or more of contract revenues for the period is as follows:
|
Period |
|
Number of
Customers and Percentage of |
|
Three months ended March 31, 2004 |
|
4 customers, 42%, 16%, 15% and 12%, respectively |
|
Three months ended March 31, 2003 |
|
3 customers, 49%, 12% and 10%, respectively |
4. Convertible Subordinated Note
In October 2003, in connection with a collaboration agreement, the Company entered into a securities purchase agreement with AstraZeneca. Pursuant to the agreement, the Company issued to AstraZeneca $50.0 million of Series A-1 convertible preferred stock and $50.0 million of Series A-2 convertible preferred stock. The net proceeds from the securities were $99.7 million. Pursuant to its terms, the Series A-2 preferred stock was redeemed at the option of AstraZeneca on February 19, 2004 and the Company issued AstraZeneca a convertible subordinated note with a principal amount of $50.0 million, which matures on October 29, 2013. No interest is payable on the note except in the event of a payment default by the Company.
Conversion rights
The Company, subject to certain conditions, can convert the convertible subordinated note into shares of common stock at a conversion price equal to the lower of (a) the average market price for the 10 days prior to the trading day immediately preceding the conversion date (provided that the average market price shall in no event be higher than 101% of the market price on the trading day immediately preceding the conversion date) or (b) $30.00 per share.
AstraZeneca may convert the convertible subordinated note into shares of common stock at a conversion price of $30.00 per share, at any time prior to the repayment of the principal amount of the note.
Redemption rights and maturity
The convertible subordinated note matures on October 29, 2013, if still outstanding. The Company can, upon 15 days notice to the holder repay the principal amount of the convertible subordinated note in cash.
AstraZeneca has the right to require Abgenix to repay the convertible subordinated note at its face amount, upon the occurrence of a change in control of Abgenix after the completion of a defined research period. At its option, and subject to certain conditions, Abgenix may deliver shares of its common stock in lieu of cash upon such an event.
AstraZeneca has the right to require Abgenix to repay a specified portion of the convertible subordinated note upon the occurrence of (a) a material breach by Abgenix of a material obligation under the Collaboration Agreement between the Company and AstraZeneca or (b) a change in control of Abgenix or an acquisition by Abgenix in which the other party to the change in control or acquisition, as the case may be, is a competitor of AstraZeneca, in each case that occurs during a defined research period and results in AstraZeneca’s termination of all research programs and future programs under the
8
collaboration agreement. The amount that AstraZeneca may require Abgenix to redeem will be based upon the extent of completion of the research programs that are the subject of the collaboration between the Company and AstraZeneca. At its option, and subject to certain conditions, Abgenix may deliver shares of its common stock in lieu of cash upon such events.
Upon the occurrence of certain events of default, (1) the holders of the convertible subordinated note shall have the right to make the entire outstanding principal amount of the note due and payable and (2) if the event of default is a payment default, quarterly interest payments shall begin to accrue on the convertible subordinated note at a default rate equal to the 10-year U.S. treasury rate plus three percent (3%) compounded annually. Events of default for purposes of this provision include, but are not limited to, the following (i) a failure to make a required payment, or a breach by the Company of any of the Company’s other obligations under, the Series A-1 preferred stock, the convertible subordinated note or any subordinated promissory note that may be issued by the Company in the circumstances described below under “Aggregate ownership limitation”; (ii) a breach of the Company of specified obligations under the securities purchase agreement with AstraZeneca; (iii) the securities purchase agreement, or any other agreement or instrument contemplated by the securities purchase agreement, is asserted by the Company not to be a legal, valid and binding instrument; (iv) certain bankruptcy and insolvency events involving the Company; and (v) a cross-acceleration of $25 million or more of other indebtedness of the Company.
Liquidation and Voting rights
The convertible subordinated note has an aggregate principal amount of $50 million. The convertible note does not have any voting rights unless it is converted into common stock and will not bear any interest unless there is an occurrence of a default that is a payment default. Upon an event of default that is a payment default, the convertible note will bear interest at a rate equal to the 10-year U.S. treasury rate plus 3% compounded annually.
The convertible subordinated note is senior to the preferred stock and the common stock and is junior to all senior indebtedness and to the Company’s 3.5% convertible subordinated notes due in 2007.
Aggregate ownership limitation
At no time may any holder of the convertible subordinated note beneficially own, following the conversion of the convertible subordinated note, more than 19.9% of the Company’s common stock then outstanding. If any shares of common stock are issuable to a holder upon conversion of the convertible subordinated note that would result in any holder (together with its affiliates) owning common stock in excess of the ownership threshold described above, then the Company will be required to redeem the shares in excess of the ownership threshold for a price equal to (1) the number of such excess shares times (2) the average market price of the common stock for the 30 consecutive days ending on the 15th trading day prior to the conversion date (such price, the “Excess Shares Redemption Price”). Upon such a redemption of the shares issuable upon conversion of the convertible subordinated note, the Company will have the right, upon delivery of notice to the holder, to receive a loan from the holder in the form of interest-free subordinated promissory note. The face amount of the promissory note shall be the Excess Shares Redemption Price.
5. Inventories
Inventories consist of materials related to a production service contract with a collaborator. Inventory cost is computed on a weighted-average cost basis. Inventories at period end were as follows:
|
|
|
March 31, |
|
December 31, |
|
||
|
|
|
(in thousands) |
|
||||
|
|
|
|
|
|
|
||
|
Raw material |
|
$ |
38 |
|
$ |
— |
|
|
Work in process |
|
78 |
|
— |
|
||
|
Finished goods |
|
1,680 |
|
— |
|
||
|
|
|
$ |
1,796 |
|
$ |
— |
|
9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements based upon current expectations that involve risks and uncertainties. In this quarterly report on Form 10-Q, the words “intend,” “anticipate,” “believe,” “estimate,” “plan” and “expect” and similar expressions as they relate to Abgenix are included to identify forward-looking statements. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below and under the heading “Additional Factors that Might Affect Future Results”. In this quarterly report on Form 10-Q, references to “Abgenix,” we,” “us,” and “our” are to Abgenix, Inc. and its subsidiaries.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand our company.
Our Business
We are a biopharmaceutical company that is focused on the discovery, development and manufacture of human therapeutic antibodies for the treatment of a variety of diseases. We intend to use our proprietary technologies to build a large and diversified product portfolio that we expect to develop and commercialize largely through joint development and commercialization arrangements with pharmaceutical companies and others.
We are co-developing our most advanced proprietary product candidate, panitumumab (formerly known as ABX-EGF), with Immunex. Panitumumab is in pivotal trials, and we have two product candidates in early stage clinical trials. In addition, we have entered into a variety of contractual arrangements with pharmaceutical, biotechnology and genomics companies involving our technologies. We use our closely integrated process sciences and manufacturing capabilities for the manufacture of our own proprietary product candidates and also offer these services to our collaborators and others.
We intend to enter into co-development agreements in addition to our agreement for panitumumab. We generally expect to self-fund preclinical and clinical activities to determine preliminary safety and efficacy before entering into joint development and commercialization agreements. In some cases we may conduct product development entirely on our own. We have begun to implement our collaboration strategy through co-development arrangements with companies such as Chugai Pharmaceuticals Co., Ltd., U3 Pharma AG and Dendreon Corporation, and through a broad collaboration in oncology with AstraZeneca UK Limited. Our strategy is designed to diversify the risks associated with our research and development spending and to continue to focus our activities on product development and commercialization.
Under our collaboration with AstraZeneca, we are obligated to provide preclinical and clinical research support for the development of up to 36 product candidates by AstraZeneca and have an opportunity to co-develop products with AstraZeneca.
Our Financial Position and Liquidity
We derive our revenues from our technology out-licensing contracts, our proprietary product development agreements, our target sourcing contracts and our production services contracts. We expect that substantially all of our revenues for the foreseeable future will result from payments under these and similar arrangements and that payments we receive under these arrangements will continue to be subject to significant fluctuation in both timing and amount.
We have incurred and expect to continue to incur substantial expenses in connection with our product development activities, both under contractual arrangements with third parties and related to our
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independent research and development efforts. Regulatory and business factors will require us to expend substantial funds in the course of completing required additional research, preclinical testing and clinical trials of, and attaining regulatory approvals for, product candidates. The amounts of the expenditures that will be necessary to execute our business plan are subject to numerous uncertainties that may adversely affect our liquidity and capital resources.
We have incurred net losses since we were organized as an independent company, including a net loss of $ 41.6 million for the three months ended March 31, 2004. We expect to incur additional losses for the foreseeable future as a result of our research and development costs and manufacturing start-up costs, including costs associated with conducting preclinical development and clinical trials, and charges related to purchases of technology or other assets. We expect that the amount of our operating losses will fluctuate significantly from quarter to quarter.
As of March 31, 2004, we had cash, cash equivalents and marketable securities of $307.0 million. The amounts of the expenditures that will be necessary to execute our business plan are subject to numerous uncertainties that may adversely affect our liquidity and capital resources to a significant extent. We plan to continue to make significant expenditures to establish, staff and operate our own manufacturing facility and support our research and development activities, including preclinical product development and clinical trials. We expect that these activities will substantially increase our operating expenses over the next few years in comparison to prior periods.
Summary of Contractual Arrangements
We have entered into a variety of contractual arrangements covering numerous antigens with more than thirty customers to use our XenoMouse and XenoMax technologies to generate and/or develop the resulting fully human antibodies. Pursuant to our XenoMouse contracts, we and our customers intend to generate antibodies for development as product candidates for the treatment of cancer, inflammation, autoimmune diseases, cardiovascular disease, growth factor modulation, neurological diseases, metabolic diseases and infectious diseases. We have also entered into contracts with two customers to provide process sciences and manufacturing services. We expect that substantially all of our revenues for the foreseeable future will result from payments under these and other contracts. We have also licensed technology from third parties for use in conjunction with our proprietary technologies. The terms of our current contractual arrangements vary, but can generally be categorized as follows:
• Proprietary Product Development—In 2000, we entered into a joint development and commercialization agreement with Immunex for the co-development of ABX-EGF, now known as panitumumab, a fully human antibody we created. We amended this agreement in October 2003. Under the amended agreement, Immunex has decision-making authority for development and commercialization activities. As under the original agreement, we are obligated to pay 50% of the development and commercialization costs and are entitled to receive 50% of any profits from sales of panitumumab. Under the amended agreement, Immunex is required to make available up to $60.0 million in advances that we may use to fund a portion of our share of development and commercialization costs for panitumumab after we have contributed $20.0 million toward development costs in 2004. As of March 31, 2004, we had not received any advances from Immunex, but we expect to take advantage of this credit facility when it becomes available to us. The amount of any such advances, plus interest, may be repaid out of profits resulting from future product sales; however, we are not obligated to repay any portion of the advances if panitumumab does not reach commercialization. Under a separate agreement with Immunex, we will manufacture clinical supplies for the collaboration and, for the first five years after commercial launch, commercial supplies with Immunex’s support and assistance. The costs of manufacturing clinical and commercial supplies will also be shared. We have entered into co-development and commercialization arrangements for the development of proprietary products that are in various early stages with other collaborators, including Microscience Limited, Sosei Co., Ltd., Dendreon and Chugai. Development activities under these agreements are in various early stages.
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• Oncology Alliance – We entered into a collaboration and license agreement with AstraZeneca in October 2003 for the discovery, development and commercialization of fully human monoclonal antibodies to treat cancer. This alliance involves the joint discovery and development of therapeutic antibodies for up to 36 cancer targets to be commercialized exclusively worldwide by AstraZeneca. We will conduct early stage preclinical research on behalf of AstraZeneca with respect to some or all of these targets. For any resulting products, we may receive milestone payments at various stages of development and royalties on future product sales. AstraZeneca may make milestone payments to us of up to $51 million per candidate drug that is developed under the agreement, and for any drug we choose to develop to a target that is discontinued from the collaboration, we may pay AstraZeneca up to $15 million. Under the agreement, we also may conduct early clinical trials, process development and clinical manufacturing, as well as commercial manufacturing during the first five years of commercial sales, for which the agreement provides that AstraZeneca will compensate us at competitive market rates. The collaboration also gives us the right to select and develop an additional pool of antibodies against up to 18 targets, which the companies may elect to further develop on an equal cost and profit sharing basis. During the three-year period of selection of targets for development we will work exclusively with AstraZeneca to generate and develop antibodies for therapeutic use directed against antigens in the field of oncology, subject to various exceptions, including among others for antigens that are or become subject to existing collaborations, antigens that we and AstraZeneca decide not to pursue in the collaboration, and certain process development and manufacturing services. In connection with this collaboration, AstraZeneca made a $100.0 million investment in Abgenix securities. Upon the achievement of certain milestones, we may also require AstraZeneca to invest up to an additional $60.0 million in our convertible preferred stock.
• Antigen Sourcing Contracts—We have entered into several target sourcing contracts with genomics and biopharmaceutical companies that may enable us to generate a pipeline of proprietary fully human antibody therapeutic product candidates. Typically, pursuant to these contracts we generate fully human antibodies to the antigens provided or identified by our collaborators. The contracts typically contain provisions that allow either us or our collaborator to evaluate and select particular antibodies from the pool of generated antibodies for further development and commercialization. The party selecting an antibody for further development or commercialization will generally pay to the other party license fees, milestone payments and royalty payments on any eventual product sales, in exchange for rights to develop and commercialize the product. In connection with these arrangements, we may also agree to make equity investments in collaborators for strategic reasons. For example, we have made equity investments in CuraGen Corporation and MDS Proteomics Inc. in connection with our collaborations with those entities.
• Technology Out-Licensing—We have licensed our XenoMouse technology to third parties for the purpose of generating antibody product candidates to one or more specific antigens provided by the customer. Pursuant to these contracts, we and our customers intend to generate antibody product candidates for the treatment of cancer, inflammation, autoimmune diseases, cardiovascular disease, growth factor modulation, neurological diseases and infectious diseases. In some cases in which we license XenoMouse technology, we provide our mice to the customer, which then carries out immunizations with its specific antigens. In other cases, we immunize the mice with the customer’s antigens for additional compensation. We may also use our XenoMax technology on the customer’s behalf. The customer generally has an option for a period of time to acquire a product license for any antibody identified using XenoMouse technology that the customer wishes to develop and commercialize. The financial terms of these agreements may include license fees, option fees and milestone payments paid to us by the customers. Based on our agreements, these payments and fees would average from approximately $7.0 million to $10.0 million per antigen if our customer takes the antibody into development and ultimately to commercialization. Additionally, our license agreements entitle us to receive royalties on any
12
future product sales by the customer. We also have the right of first offer with regard to production services for antibodies developed pursuant to certain of these agreements. We may also agree to make equity investments in some of our customers, or they may agree to make equity investments in us, in connection with these licensing arrangements. As of March 31, 2004, we had entered into one agreement in which we licensed our SLAM technology to one party on a non-exclusive basis for the purpose of generating and using antibodies other than antibodies derived from XenoMouse technology or other technology that involves the use of non-human animals, and on a co-exclusive basis for the purpose of antigen discovery. We currently do not intend to license our SLAM technology for use by any other parties. We have also entered into an agreement in which we exclusively licensed to one party rights under patent applications and patents held by us to develop and commercialize therapeutic antibodies to parathyroid hormone-related protein.
• Production Services Contracts—We have entered into contracts with two customers under which we are currently providing process sciences and manufacturing services. One of these contracts is related to an antibody product candidate that we developed with the customer pursuant to an existing antigen sourcing contract. The other relates to an antibody the customer developed under a XenoMouse license agreement. Under these production services contracts we are delivering a variety of process development, cell banking and manufacturing services for selected antibody product candidates. The agreements provide for the customer to pay us certain fees for production services. Under one of these agreements we will be entitled to royalties on the sale of products subject to the agreement. We also have the right of first offer with regard to production services for additional antibodies developed by one of these customers. We intend to enter into agreements to provide process sciences and manufacturing services to other existing and new customers to absorb production services capacity we are not using for our proprietary product candidates.
• Technology In-Licensing—We also license technology from other parties that we use in conjunction with our proprietary technology to develop, manufacture and commercialize therapeutic antibody candidates. The other party may also agree to produce antibody therapeutic candidates for us using its own technology. For example, we have entered into license and options agreements with ImmunoGen, Inc. pursuant to which we may develop and commercialize products based upon certain proprietary immunotoxins. These agreements often obligate us to pay license fees, and milestone payments and royalty fees to the counterparty upon the occurrence of specified conditions, including upon our sale of products derived from use of the licensed technology. We may also agree to make an equity investment in the other party for strategic reasons in connection with these arrangements. For example, we purchased shares of common stock of ImmunoGen in connection with our agreement with that company.
Summary of Product Development
As of March 31, 2004, three of our antibody therapeutic product candidates were in ongoing clinical trials.
• Panitumumab (ABX-EGF). Our leading proprietary antibody therapeutic product candidate is panitumumab. Generated using our technology, panitumumab is a fully human antibody therapeutic product candidate for the treatment of a variety of cancers. We are co-developing this candidate with Immunex under a development and commercialization agreement. The status of clinical trials of panitumumab is as follows:
• Various cancers—We initiated a Phase 1 clinical trial for panitumumab in cancer in July 1999. In 2003, we expanded enrollment to investigate additional dose levels. Enrollment is closed and treatment is ongoing.
• Renal cell cancer—We initiated a Phase 2 clinical trial evaluating the effect of
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panitumumab as monotherapy in patients with renal cell cancer in April 2001 and enrollment is ongoing.
• Non-small cell lung cancer— Immunex initiated a Phase 2 clinical trial for panitumumab in non-small cell lung cancer in combination with standard chemotherapy, compared to standard chemotherapy alone, in July 2001. Enrollment is closed and treatment is ongoing.
• Colorectal cancer— Immunex initiated a Phase 2 clinical trial evaluating the effect of panitumumab as monotherapy in patients with metastatic colorectal cancer who have previously failed chemotherapy in December 2001. Enrollment is closed and treatment is ongoing. Immunex initiated a separate Phase 2 clinical trial evaluating the effect of panitumumab in combination with standard chemotherapy, as first-line treatment in patients with metastatic colorectal cancer, in January 2002, in which enrollment is ongoing.
In January 2004 Immunex initiated a pivotal study of panitumumab as a third-line monotherapy in patients with colorectal cancer. The trial initiation followed the receipt of a Special Protocol Assessment letter from the U.S. Food and Drug Administration, or FDA, endorsing the design of the trial to support a regulatory submission for potential accelerated approval. At the same time Immunex initiated a second pivotal study outside the United States in support of a global registration program.
• Prostate cancer—We initiated a Phase 2 clinical trial evaluating the effect of panitumumab in patients with hormone resistant prostate cancer in January 2002, in which treatment is ongoing. Based on a preliminary analysis, we have recently closed enrollment in this trial. The preliminary findings do not meet our planned threshold to support pursuing the drug as a monotherapy in this indication.
• ABX-MA1. Generated using our technology, ABX-MA1 is a fully human antibody therapeutic product candidate for the treatment of a variety of cancers. We filed an investigational new drug application, or IND, in December 2001 and initiated a Phase 1 clinical trial evaluating the effect of ABX-MA1 in patients with metastatic melanoma in February 2002. Enrollment is closed and treatment is ongoing.
• ABX-PTH. Generated using our technology, ABX-PTH is a fully human antibody therapeutic product candidate for the treatment of a secondary hyperparathyroidism. We filed an IND in December 2003 and initiated a Phase 1 clinical trial evaluating the effect of ABX-PTH in patients with secondary hyperparathyroidism in February 2004. Enrollment is ongoing.
“Phase 1” indicates safety and pharmacokinetics testing in a limited patient population. “Phase 2” indicates safety, dosing and efficacy testing in a limited patient population. “Phase 3” indicates efficacy and safety testing in a larger patient population. A “pivotal study” is designed to meet registration requirements. Phase 3 studies designed for registration purposes are considered pivotal studies. Certain Phase 2 studies can be pivotal studies.
We have entered into a broad collaboration with AstraZeneca for the development of antibody therapeutics for the treatment of oncology pursuant to which we have an opportunity to co-develop products with AstraZeneca, as well as provide preclinical and clinical research support for the development of product candidates by AstraZeneca. In addition, we have entered into co-development agreements for the joint development of antibody product candidates with a variety of companies including Chugai and Sosei. We intend to enter into additional joint development agreements for other product candidates. We will expend significant capital to conduct clinical trials or share in the costs of conducting clinical trials for our proprietary product candidates. We expect that this will substantially
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increase our operating expenses over the next few years in comparison to prior periods.
In addition to our proprietary antibody therapeutic product candidates in clinical trials, there are four customer-developed antibodies generated with XenoMouse technology in clinical trials or the subject of an IND as follows:
• Pfizer Inc.—We generated two XenoMouse-derived fully human antibody therapeutic product candidates that Pfizer has advanced into clinical trials. In addition, Pfizer filed an IND to initiate clinical testing of a third XenoMouse-derived fully human antibody therapeutic product candidate in January 2004.
• Amgen—We generated a XenoMouse-derived fully human antibody therapeutic product candidate that binds to an undisclosed antigen that Amgen has advanced into clinical trials as a potential treatment for bone loss.
Results of Operations
Three Months Ended March 31, 2004 and 2003
Contract Revenues.
Contract revenues totaled $2.9 million and $6.2 million, respectively, in the three months ended March 31, 2004 and 2003. Because contract revenues depend to a large extent on the success or failure of research and development efforts undertaken by our collaborators and licensees, our period-to-period contract revenues can fluctuate significantly and are inherently difficult to predict.
The primary components of contract revenues for both periods were as follows:
• Technology Licensing
We recognized a total of $2.5 million and $5.5 million in the three months ended March 31, 2004 and 2003, respectively, from licensing our proprietary technologies. Revenues consisted primarily of the following:
• Pfizer – In the three months ended March 31, 2004, we recognized $1.2 million under a technology license agreement with Pfizer, consisting of a milestone for the filing of an IND, product license fees and research license and service fees. In the three months ended March 31, 2003, we recognized $0.8 million, which consisted of milestone and product license revenue.
• Chugai – In the three months ended March 31, 2003, we recognized $3.0 million under an agreement with Chugai in which we exclusively licensed to Chugai rights to methods of treatment of certain diseases with an antibody.
• Additionally, in the three months ended March 31, 2004 and 2003, we recognized various fees, such as research license and service fees, product license fees, product development and research milestone payments and option fees, under technology license agreements. We recognized fees from several collaborators, but primarily from PSMA Development Company, LLC and Amgen in the three months ended March 31, 2004, and primarily from CuraGen, Abbott Laboratories and Amgen in the three months ended March 31, 2003.
• Proprietary Product Development
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We recognized zero and approximately $621,000, respectively in the three months ended March 31, 2004 and 2003, respectively, pursuant to our joint development and commercialization agreements. In the three months ended March 31, 2003, the revenues consisted of reimbursement of development costs from the development of ABX-CBL. Revenue decreased in the three months ended March 31, 2004 as compared to the same period in 2003 primarily due to the discontinuation of the ABX-CBL program in 2003. We expect revenues pursuant to our joint development and commercialization agreements to be less in 2004 as compared to 2003 as we expect our collaborator’s costs for the panitumumab development program to exceed our costs and because of the discontinuance of the ABX-CBL development program.
• Production Services
We recognized a total of $432,000 in revenues during the three months ended March 31, 2004 for production services. These revenues consisted primarily of process sciences services and were generated from our manufacturing contract with CuraGen. In the first quarter of 2003 we did not recognize any revenues from production services.
Research and Development Expenses.
Research and development expenses were $28.5 million and $21.2 million, respectively, in the three months ended March 31, 2004 and 2003. The major components of research and development expenses were as follows:
Research and Development:
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March 31, |
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|
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2004 |
|
2003 |
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||
|
|
|
(in thousands) |
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||||
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Product development |
|
$ |
19,111 |
|
$ |
9,680 |
|
|
Research |
|
8,556 |
|
8,643 |
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||
|
In-licensing |
|
790 |
|
2,864 |
|
||
|
Total research and development costs |
|
$ |
28,457 |
|
$ |
21,187 |
|
Product development costs include costs of preclinical development, cell line development and conducting clinical trials. Additionally, product development includes costs related to cell line development activities we perform under our production services contracts. The primary components of product development include the costs of Abgenix personnel, drug supply costs, research fees charged by outside contractors, co-development costs, and facility expenses, including depreciation. In the three months ended March 31, 2004, our product development costs increased in comparison to the same period in 2003, primarily due to a significant increase in the development costs for the panitumumab program. To a lesser extent the increase was due to costs related to new product candidates including development costs under our production services agreements. Offsetting some of the increase in product development costs were decreases in development costs, primarily for ABX-CBL and ABX-IL8, for which we have discontinued development, and ABX-PTH due to the timing of certain development costs. Product development costs can vary from period to period significantly depending on the development activities in the period. Overall, we expect costs associated with product development in 2004 to be higher than 2003 as we and our co-developer Immunex initiate new trials and add patients to our existing panitumumab clinical trials.
Research costs include costs associated with research and testing of antibodies we generate, whether for ourselves or for our customers, prior to the development stage which begins with the commencement of preclinical activities. Research costs also include the costs of research relating to proprietary technologies, including enhancements to those technologies. The primary components of
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research costs include the costs of Abgenix personnel, facilities, including depreciation, and lab supplies. Our research costs in the three months ended March 31, 2004 were comparable to those incurred in the same period of 2003 and resulted from the activities related to new target validation, including preclinical evaluation of several targets related to collaborations such as our collaboration with AstraZeneca, and bioinformatics activities.
In-licensing costs include costs to acquire licenses to develop and commercialize various technologies and molecules. In the three months ended March 31, 2004, the in-licensing costs decreased significantly as compared to the same period in 2003. The largest component of this cost in the three months ended March 31, 2003 was related to licenses and research funding for the development of therapeutic antibodies to the complement protein properdin, which we licensed from Gliatech Inc. In the first quarter of 2003, we decided to discontinue the development of properdin and as a result we recorded an impairment charge of $1.4 million for previously capitalized costs and $600,000 of other related costs related to the license to develop and commercialize properdin.
Major components of research and development costs for the three months ended March 31, 2004 and 2003 were as follows:
• Costs of Abgenix Personnel — Costs of Abgenix personnel to support research and development activities increased 19% in the three months ended March 31, 2004 as compared to the same period in 2003. Personnel costs primarily include salary, fringe benefits, recruiting and relocation costs. The increase was primarily due to increased personnel costs for process sciences and preclinical research; and increased use of our manufacturing facility for development activities, including process validation for the manufacture of our conformance lots.
• Consulting and Outside Contractors — Costs of consulting and outside contractors to support research and development activities decreased 15% in the three months ended March 31, 2004 as compared to the same period in 2003. The decrease was primarily due to a reduction of activities performed by outside contractors related to toxicology studies.
• Clinical Research Fees – Clinical research fees, including clinical investigator site fees, monitoring costs and data management costs, increased 74% in the three months ended March 31, 2004 as compared to the same period in 2003. The increase was primarily the result of increased clinical trial activities for panitumumab and ABX-PTH.
• Drug Supply Costs – Drug supply costs increased 169% in the three months ended March 31, 2004 as compared to the same period in 2003. The increase was primarily due to clinical drug supply costs for panitumumab.
• Co-development costs – Co-development costs, which primarily consist of reimbursement to Immunex for our share of panitumumab development costs, increased significantly in the three months ended March 31, 2004 compared to the same period in 2003. The increase was primarily related to cost sharing for activities performed by Immunex associated with the co-development of panitumumab. The increase was also due to our increased activities for clinical trials related to the development of panitumumab.
• Facility and Other Overhead Related Costs – These costs consist of depreciation, rent and other facility related costs and increased 109%. The increase was primarily related to increased use of our manufacturing facility for development activities, including process validation activities related to the manufacture of panitumumab conformance lots.
The clinical trial status of product candidates included in product development costs is as follows as of March 31 for each of the years indicated:
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Proprietary Product |
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Clinical
Trial Status as of |
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Candidate |
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Indication |
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2004 |
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2003 |
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Panitumumab |
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Various cancers |
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Phase 1 |
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Phase 1 |
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Renal cell cancer |
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Phase 2 |
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Phase 2 |
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Non-small cell lung cancer |
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Phase 2(1) |
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Phase 2(1) |
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Colorectal cancer |
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Phase 2(1) |
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Phase 2(1) |
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Colorectal cancer (with chemotherapy) |
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|
Phase 2(1) |
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Phase 2(1) |
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Prostate cancer |
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Phase 2 |
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Phase 2 |
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Colorectal cancer (outside the US) |
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Pivotal(1) |
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Colorectal cancer |
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Pivotal(1) |
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ABX-MA1 |
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Metastatic melanoma |
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Phase 1 |
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Phase 1 |
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ABX-PTH |
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Secondary hyperparathyroidism |
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Phase 1 |
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(1) Clinical trial managed by Immunex.
Manufacturing Start-Up Costs.
Manufacturing start-up costs were $ 7.3 million and $11.6 million, respectively, in the three months ended March 31, 2004 and 2003, respectively. Manufacturing start-up costs include certain costs associated with our new manufacturing facility, including depreciation, outside contractor costs and personnel costs for activities such as quality assurance and quality control. The decrease in the three months ended March 31, 2004 as compared to the same period in 2003 was primarily due to the increased use of our manufacturing facility for development activities, including process validation for the manufacture of our conformance lots. The primary component of this cost in the first quarter of 2003 consisted of costs under a manufacturing supply agreement with Lonza Biologics plc for a production suite held exclusively for us, which we were not using. We canceled the Lonza agreement in the second quarter of 2003 and expensed the associated cancellation fee in that quarter.
We expect our manufacturing facility to be under-utilized in 2004 and therefore we will continue to incur manufacturing start-up costs in 2004. However, we expect manufacturing start-up costs to decrease in 2004 compared to 2003 as a result of expensing the Lonza cancellation fee in 2003 and the utilization of the facility in 2004 for the manufacture of panitumumab and potentially other product candidates under production services agreements.
Amortization of Identified Intangible Assets.
Our identified intangible assets consist primarily of existing technology (including patents and certain royalty rights) we acquired through the acquisitions of Hesed Biomed in 2001, Abgenix Biopharma and IntraImmune in 2000, and JT America’s interest in Xenotech in 1999. Amortization of intangible assets totaled $1.8 million in each of the three months ended March 31, 2004 and 2003.
General and Administrative Expenses.
General and administrative expenses include compensation, professional services, consulting, facilities, including depreciation, and other expenses related to legal, finance and information systems. General and administrative expenses totaled $ 6.9 million, in each of the three month ended March 31, 2004 and 2003. We expect general and administrative costs in the second quarter of 2004 to remain at the same level or slightly increase as compared to the first quarter.
Interest and Other Income.
Interest and other income consist primarily of interest from cash, cash equivalents and marketable securities. Interest and other income decreased to $1.7 million in the three months ended March 31, 2004, compared to $3.2 million in the three month ended March 31, 2003. The decrease was primarily the
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result of lower interest, and to a lesser extent, to lower average cash, marketable securities and cash equivalent balances in the first quarter of 2004 as compared to 2003.
Interest Expense.
Interest expense was primarily related to interest and amortization of issuance costs on our convertible subordinated notes due 2007. In the three months ended March 31, 2004, interest expense increased to $1.6 million, as compared to $996,000 in the same period in 2003, as a result of a decrease in the amount of capitalized interest. The amount of interest capitalized decreased in the first quarter of 2004 compared to the same period in 2003 because we placed into service a portion of our manufacturing facility in the second quarter of 2003 when we began manufacturing antibody therapeutic candidates in those portions of the facility. Interest expense was capitalized in the amount of $0.4 million and $1.1 million, respectively, in the three months ended March 31, 2004 and 2003. For each future quarterly period, we expect to accrue approximately $1.8 million of interest expense related to our convertible subordinated notes due 2007 until the debt matures, until we redeem or repurchase the debt or until all or part of the debt is converted into shares of our common stock.
Foreign Income Tax Expense.
Foreign income tax expense was recorded reflecting an income tax provision on foreign contract research projects of zero and approximately $84,000, in the three months ended March 31, 2004 and 2003, respectively.
Liquidity and Capital Resources
At March 31, 2004, we had cash, cash equivalents and marketable securities of approximately $307.0 million. We invest our cash equivalents and marketable securities primarily in highly liquid, interest bearing, investment grade and government securities in order to preserve principal. We have also invested in certain marketable equity securities of ImmunoGen and CuraGen for strategic reasons. These securities had an aggregate fair value of $19.5 million at March 31, 2004.
Cash Used in Operating Activities. Net cash used in operating activities was $38.2 million and $33.8 million in the three months ended March 31, 2004 and 2003, respectively. The major components of the change in cash used in operating activities in the three months ended March 31, 2004, compared to the same period in 2003, were primarily the following:
• An increase of $8.7 million in research and development costs, net of depreciation related to the development of new products.
• A decrease of $6.4 million in manufacturing start-up costs, net of depreciation.
• A payment of approximately $7.8 million on the Lonza contract cancellation obligation in January 2004.
• A decrease of $5.8 million in customer payments due primarily to the timing of payments received under our contracts.
• A decrease of $10.6 million in the change in accounts payable and accrued liabilities, net.
• A decrease of $4.4 million in the changes in prepaid expenses and other current assets, net.
Cash Provided by Investing Activities. Net cash provided by investing activities was $35.1 million and $8.6 million in the three months ended March 31, 2004 and 2003, respectively. Cash was provided by and used in investing activities primarily as follows:
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• Capital expenditures of $3.0 million and $16.4 million in the three months ended March 31, 2004 and 2003, respectively. The investments reflect primarily investment in construction in progress and equipment for our new manufacturing facility.
• Maturities and sales, net of purchases, of marketable securities of $38.1 million and $25.0 million in the three months ended March 31, 2004 and 2003, respectively.
Cash Provided by Financing Activities. During the three months ended March 31, 2004 and 2003, net cash provided by financing activities was $0.4 million and $0.3 million, respectively, consisting of proceeds from the exercise of stock options.
In October 2003, in connection with a collaboration agreement, we entered into a securities purchase agreement with AstraZeneca. Pursuant to the agreement, we issued to AstraZeneca $50.0 million of Series A-1 convertible preferred stock and $50.0 million of Series A-2 convertible preferred stock. The net proceeds from the securities were $99.7 million. Pursuant to its terms, the Series A-2 preferred stock was redeemed at the option of AstraZeneca in February 2004 and we issued AstraZeneca a convertible subordinated note with a principal amount of $50.0 million, which matures on October 29, 2013. No interest is payable on the note xcept in the event of a payment default by us. The Series A-1 preferred stock matures 7 years from the date of issuance. Due to the redemption feature, we do not record the redeemable convertible preferred stock in stockholders’ equity on our consolidated balance sheet. Subject to various terms and conditions, if a certain milestone event is reached, we will have the option to issue to AstraZeneca up to $30.0 million of Series A-3 preferred stock and if a further milestone event is reached, we will have the option to issue to AstraZeneca up to $30.0 million of Series A-4 preferred stock. Each of the Series A-3 preferred stock and the Series A-4 preferred stock will have a maturity date that is five years from issuance.
Subject to certain conditions, we can convert the preferred stock and can convert the convertible subordinated note into shares of our common stock at a conversion price equal to the lower of (a) the average market price for the 10 days prior to the trading day immediately preceding the conversion date (provided that the average market price shall in no event be higher than 101% of the market price on the trading day immediately preceding the conversion date) or (b) $30.00 per share. AstraZeneca may convert the preferred stock into shares of common stock at a conversion price of $30.00 per share, at any time prior to the earlier of (a) the redemption date or (b) the maturity date. AstraZeneca may convert the convertible subordinated note into shares of common stock at a conversion price of $30.00 per share, at any time prior to the repayment of the principal amount of the note. We must redeem all outstanding shares of the Series A-1 preferred stock, if any, at a cash redemption price per share equal to the liquidation preference by October 29, 2010, the mandatory redemption date. The note matures on October 29, 2013, if still outstanding. In addition, we can, upon at least 15 days’ notice to the holder, redeem the shares of Series A-1 preferred stock for cash in an amount equal to its liquidation preference at any time prior to maturity. We can, upon at least 15 days’ notice to the holder, repay the principal amount of the convertible subordinated note in cash, at any time prior to maturity. In addition to the mandatory redemption and maturity dates of these securities, certain events can give rise to an earlier redemption. In certain circumstances, we have certain rights to convert the securities into common stock instead of redeeming the securities for cash.
In March 2002, we issued $200.0 million principal amount of convertible subordinated notes in a private placement. The notes are convertible into shares of our common stock at a conversion price of $27.58 per share subject to certain adjustments. The notes accrue interest at an annual rate of 3.5% and we are obligated to pay interest on March 15 and September 15 of each year. The notes will mature on March 15, 2007 and are redeemable at our option on or after March 20, 2005, or earlier if the price of our common stock exceeds specified levels. In addition, the holders of the notes may require us to repurchase the notes if we undergo a change in control. Proceeds from the sale of the notes, net of commissions payable to the initial purchasers of the notes but before subtracting other offering expenses payable by us, were $194.0 million.
20
In March 2000 and February 2001, we obtained stand-by letters of credit for $2.0 million and $3.0 million, respectively, from a commercial bank as security for our obligations under two facility leases. These were increased in January 2002 to $2.5 and $3.2 million, respectively, in connection with amendments to our facility leases. In 2003, the $3.2 million stand-by letter of credit increased to $3.5 million. The outstanding stand-by letters of credit are secured by an investment account, in which we must maintain a balance of approximately $7.0 million.
Financing Uncertainties Related to Our Business Plan. We plan to continue to make significant expenditures to establish, staff and operate our own manufacturing facility and support our research and development activities, including preclinical product development and clinical trials. We also intend to look for opportunities to acquire new technology through in-licensing, collaborations or acquisitions. Over the next nine months, we estimate that we will spend approximately $17.0 to $22.0 million on leasehold improvements, equipment, computer hardware and software for our new manufacturing and our research and development facilities. Additionally, we may spend additional amounts to support new production services contracts.
We currently intend to use our available cash on hand to finance these projects and business developments, but we might also pursue other financing alternatives, such as equity or equity-related financing, a bank line of credit, sale-lease back financing, funding by one or more collaborators or a mortgage financing, that may become available to us. Whether we use cash on hand or choose to obtain financing will depend on, among other things, the future success of our business, the prevailing interest rate environment and the condition of financial markets generally.
The amounts of the expenditures that will be necessary to execute our business plan are subject to numerous uncertainties that may adversely affect our liquidity and capital resources to a significant extent. As of March 31, 2004, three of our proprietary product candidates, panitumumab, ABX-MA1 and ABX-PTH were in various stages of clinical trials. The clinical trials of panitumumab, ABX-MA1 and ABX-PTH are expected to require significant expenditures in the foreseeable future. In October 2003, we entered into an amendment of our joint development and commercialization agreement with Immunex for the co-development of panitumumab. Under the agreement, Immunex is obligated to make available up to $60.0 million in advances that we may use to fund a portion of our share of development and commercialization costs after we have contributed $20.0 million toward development costs in 2004. We expect to take advantage of this credit facility when it becomes available. Completion of clinical trials may take several years or more, but the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product candidate. We estimate that clinical trials of the type we generally conduct are typically completed over the following timelines:
|
Clinical Phase |
|
Estimated |
|
|
|
|
|
|
|
Phase 1 |
|
1-2 Years |
|
|
Phase 2 |
|
1-2 Years |
|
|
Phase 3 |
|
2-4 Years |
|
However, the duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trials, including, among others, the following:
• the number of patients that ultimately participate in the trial;
• the duration of patient follow-up that seems appropriate in view of the results;
• the number of clinical sites included in the trials; and
• the length of time required to enroll suitable patient subjects.
21
We test our potential product candidates in numerous preclinical studies to identify disease indications for which they may be product candidates. We may conduct multiple clinical trials on our own or with our collaborators to cover a variety of indications for each product candidate. As we obtain results from trials, we may elect to discontinue clinical trials for certain product candidates or for one or more indications for a given product candidate in order to focus our resources on more promising product candidates or indications. For example, in January 2002 and May 2002, we announced that clinical trials of our proprietary product candidate ABX-IL8 as a treatment for rheumatoid arthritis and psoriasis, respectively, did not support further clinical studies of that product candidate. Additionally in February 2003, we announced that the clinical trial of our proprietary product candidate ABX-CBL as a treatment for graft versus host disease, did not support further clinical studies of that product candidate.
An important element of our business strategy is to pursue the research and development of a diverse range of product candidates for a variety of disease indications. We may enter co-development agreements, similar to our agreement with Immunex for panitumumab, and may enter into additional joint development agreements earlier in the development life cycle of product candidates. We have begun to implement our collaboration strategy through co-development arrangements with companies such as Chugai, U3 and Dendreon. Our strategy is designed to diversify the risks associated with our research and development spending. The decisions to terminate or wind down our clinical programs for developing ABX-IL8 and ABX-CBL have reduced the diversity of our product portfolio. We believe that this effect is temporary in view of the number and diversity of potential product candidates we have in preclinical development. For example, we recently advanced ABX-PTH from the preclinical stage into a clinical study in patients with secondary hyperparathyrodism. To the extent, however, that we are unable to maintain a diverse and broad range of product candidates; our success would depend to a greater extent on the success of one or a few product candidates.
Our proprietary product candidates also have not yet achieved FDA regulatory approval, which is required before we can market them as therapeutic products. In order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval, the FDA must conclude that our clinical data establish safety and efficacy. The number, size and type of clinical trials we conduct for a particular product candidate are also affected by the policies of the FDA and European regulatory agencies regarding the availability of possible expedited approval procedures, which we may seek to utilize. These policies may change from time to time. As we conduct clinical trials for a given product candidate, we may decide or the FDA may require us to make changes in our plans and protocols. Such changes may relate to, for example, changes in the standard of care for a particular disease indication, comparability of efficacy and toxicity of materials where a change in materials is proposed, or competitive developments foreclosing the availability of expedited approval procedures. We may be required to support proposed changes with additional preclinical or clinical testing, which could delay the expected time line for concluding clinical trials. In addition, the results from preclinical testing and early clinical trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals.
Furthermore, our business strategy includes the option of entering into arrangements with third parties to collaborate in the development and commercialization of our products. In the event that third parties take over the clinical trial process for one of our product candidates, the estimated completion date would largely be under the control of that third party rather than us. We cannot forecast with any degree of certainty which proprietary products or indications, if any, will be subject to future collaborative arrangements, in whole or in part, or the extent to which third parties may control clinical trials pursuant to such arrangements, and how such arrangements would affect our capital requirements.
As a result of the uncertainties discussed above, among others, the duration and completion costs of our research and development projects are difficult to estimate and are subject to considerable variation. Our inability to complete our research and development projects in a timely manner or our failure to enter into collaborative agreements when appropriate, could significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to seek
22
additional sources of financing from time to time in order to continue with our business strategy. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.
We also may be required to make further substantial expenditures if unforeseen difficulties arise in other parts of our business. In particular, our future liquidity and capital requirements also will depend on many factors other than our research and development activities, including:
• the scope and results of preclinical development and clinical trials;
• the retention of existing and establishment of further co-development, licensing, manufacturing and other agreements, if any;
• continued scientific progress in our research and development programs;
• the size and complexity of these programs;
• the cost of establishing our manufacturing capabilities and complying with good manufacturing practice regulations;
• the cost of conducting commercialization activities and arrangements;
• the time and expense involved in seeking regulatory approvals;
• competing technological and market developments;
• the time and expense of filing and prosecuting patent applications, and enforcing and defending against patent claims;
• our investment in, or acquisition of, other companies;
• the amount of product or technology in-licensing in which we engage; and
• other factors not within our control.
We believe that our current cash balances, cash equivalents, marketable securities, and the cash generated from our licensing and other agreements will be sufficient to meet our operating and capital requirements for at least one year. However, because of the uncertainties in our business discussed above, among others, we cannot assure you that this will be the case. In addition, we may choose to, or prevailing business conditions may require us to, obtain additional financing from time to time. We may choose to raise additional funds through public or private financing, licensing and other agreements or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us or at all. Furthermore, any additional equity or equity-related financing may be dilutive to our stockholders, and debt financing, if available, may subject us to restrictive covenants. We may also choose to obtain funding through collaborations, licensing and other contractual arrangements. Such agreements may require us to relinquish our rights to certain of our technologies, products or marketing territories. Our failure to raise capital when needed would harm our business, financial condition and results of operations.
History of Net Losses. We have incurred net losses since our organization as an independent company, including in the last five years net losses of $20.5 million in 1999, $8.8 million in 2000, $60.9 million in 2001, $208.9 million in 2002, $196.4 million in 2003 and $41.6 million in the three months ended March 31, 2004. As of March 31, 2004, our accumulated deficit was $606.3 million. Our losses to date have resulted principally from:
23
• research and development costs relating to the development of our XenoMouse and XenoMax technologies and antibody therapeutic product candidates;
• general and administrative costs relating to our operations;
• impairment charges relating to our strategic investments in CuraGen, ImmunoGen and MDS Proteomics; and
• manufacturing start-up costs relating to our new manufacturing facility including depreciation, outside contractor costs and personnel costs for activities such as quality assurance and quality control.
We expect to incur additional losses for the foreseeable future as a result of our research and development costs, including costs associated with conducting preclinical development and clinical trials, which will continue to be substantial, charges related to purchases of technology or other assets, and costs associated with establishing and operating our manufacturing facilities. We intend to invest significantly in our products prior to entering into licensing agreements. This will increase our need for capital and will result in losses for at least the next several years. We expect that the amount of operating losses will fluctuate significantly from quarter to quarter as a result of increases or decreases in our research and development efforts, the execution or termination of licensing and other agreements, and the initiation, and success or failure, of clinical trials.
Net Operating Loss Carryforwards. As of December 31, 2003, we had net operating loss carryforwards for federal and state income tax purposes of approximately $469.0 million and $102.0 million, respectively. Our net operating loss carryforwards exclude losses incurred prior to our formation in July 1996. Further, we have capitalized the amounts associated with the 1997 settlement and cross-license that we have expensed for financial statement accounting purposes and we are amortizing those amounts over a period of approximately 15 years for tax purposes. The federal and state net operating loss and credit carryforwards will expire in the years 2006 through 2023, if not utilized. Utilization of the net operating losses and credits may be subject to a substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.
Critical Accounting Estimates
The application of several accounting estimates that require us to make subjective and complex judgments impacts the financial results that we report. We are required to estimate the effect of matters that are inherently uncertain. Changes in our estimates or judgments could materially impact our results of operations, financial condition and cash flows in future years. We believe our most critical accounting estimates include revenue recognition, accounting for our equity investments, accounting for goodwill and intangible assets and income taxes. There have been no significant changes to our critical accounting estimates as reported in our annual report on Form 10-K for the year ended December 31, 2003.
Contractual Obligations and Commercial Commitments
As of March 31, 2004, future minimum payments for certain contractual obligations for years subsequent to December 31, 2003 were as follows:
|
|
|
Total |
|
Less than |
|
1 – 3 |
|
4 – 5 |
|
After 5 |
|
|||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Contractual Obligations |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Operating leases |
|
$ |
139,177 |
|
$ |
9,885 |
|
$ |
27,782 |
|
$ |
29,793 |
|
$ |
71,717 |
|
|
Convertible subordinated notes due 2007 & interest |
|
220,708 |
|
3,500 |
|
14,000 |
|
203,208 |
|
— |
|
|||||
|
Convertible subordinated note due 2013 |
|
50,000 |
|
— |
|
— |
|
— |
|
50,000 |
|
|||||
|
Redeemable convertible preferred stock |
|
50,000 |
|
— |
|
— |
|
— |
|
50,000 |
|
|||||
|
Lonza |
|
15,640 |
|
15,640 |
|
— |
|
— |
|
— |
|
|||||
|
Purchase orders |
|
1,800 |
|
1,800 |
|
— |
|
— |
|
— |
|
|||||
|
Total |
|
$ |
477,325 |
|
$ |
30,825 |
|
$ |
41,782 |
|
$ |
233,001 |
|
$ |
171,717 |
|
24
* Amounts represent total of minimum payments for the entire period.
In March 2002, we issued $200.0 million principal amount of convertible subordinated notes in a private placement. The notes are convertible into shares of our common stock at a conversion price of $27.58 per share subject to certain adjustments. The notes accrue interest at an annual rate of 3.5%. We are obligated to pay interest on March 15 and September 15 of each year. We expect to make interest payments on the notes of $7.0 million per year, for years 2003 through 2006, and $3.2 million in 2007, assuming all the notes remain outstanding until their maturity date. The notes will mature on March 15, 2007 and are redeemable at our option on or after March 20, 2005, or earlier if the price of our common stock exceeds specified levels. In addition, the holders of the notes may require us to repurchase the notes if we undergo a change in control. Therefore, in March 2007, or earlier if we undergo a change in control, we may use a significant portion of our cash, cash equivalents and marketable securities to repay the $200.0 million principal amount of our convertible debt. If our balance of cash, cash equivalents and marketable securities at any time is insufficient to meet our obligations under the notes, we would have to seek additional financing, if available, to support our obligations under the notes.
We issued to AstraZeneca as of February 19, 2004, in connection with a collaboration agreement, $50.0 million of Series A-1 convertible preferred stock and a convertible subordinated note with a principal amount of $50.0 million. The total net proceeds were $99.7 million. The Company, subject to certain conditions, can convert the Series A-1 convertible preferred stock and can convert the convertible note into shares of common stock at a conversion price equal to the lower of (a) the average market price for the 10 days prior to the trading day immediately preceding the conversion date (provided that the average market price shall in no event be higher than 101% of the market price on the trading day immediately preceding the conversion date) or (b) $30.00 per share. AstraZeneca may convert the Series A-1 convertible preferred stock and the convertible note into shares of common stock at a conversion price of $30.00 per share, at any time prior to the earlier of (a) the redemption date or (b) the maturity date, as applicable. The Company must redeem all outstanding shares, if any, at a cash redemption price per share equal to the liquidation preference by October 29, 2010, the mandatory redemption date. The note matures on October 29, 2013, if still outstanding. In addition, we can, upon at least 15 days’ notice to the holder, redeem the Series A-1 convertible preferred stock for cash in an amount equal to its liquidation preference and pre-pay the convertible note for its face amount, at any time prior to maturity. In addition to the mandatory redemption and maturity dates of these securities, certain events can give rise to an earlier redemption. In such circumstances, we have certain rights to convert the securities into common stock instead of redeeming the securities for cash.
Effective June 30, 2003, we canceled our agreement with Lonza for the exclusive use of a cell culture production suite. Upon canceling the agreement, we became obligated to pay Lonza four equal installments of 4,250,000 British pounds on October 1, 2003, February 1, 2004, May 1, 2004 and August 1, 2004, which eliminated our commitment to pay approximately $46.0 million in total monthly fees through August 2006. The value of the cancellation fee obligation on the effective date of June 30, 2003 was approximately $28.0 million. In September 2003 and January 2004, we made the first and second of four installment payments to Lonza. The balance of the obligation as of March 31, 2004 was approximately $15.6 million.
25
We have outstanding purchase orders totaling $1.8 million to contractors related to the purchase of equipment and design and construction of our new manufacturing facility.
Other significant commercial commitments include the following:
• A commitment to share equally all development and commercialization costs for panitumumab pursuant to our development and commercialization agreement with Immunex. As amended in October 2003, that agreement provides that Immunex will have decision-making authority for development and commercialization activities and will make available to us $60.0 million in advances that we may use to fund our share of development and commercialization costs for panitumumab after we have contributed $20.0 million toward development costs in 2004. The amount of any such advances, plus interest, may be repaid out of profits resulting from future product sales and we are not obligated to repay any portion of the loan if panitumumab does not reach commercialization.
Additional Factors That Might Affect Future Results
Risks Related to our Finances
We are an early stage company without commercial therapeutic products, and we cannot assure you that we will develop sufficient revenues in the future to sustain our business.
You must evaluate us in light of the uncertainties and complexities present in an early stage biopharmaceutical company. Our product candidates are in early stages of development. We will need to make significant additional investments in research and development, preclinical testing and clinical trials, and in regulatory and sales and marketing activities, to commercialize current and future product candidates. Our product candidates, if successfully developed, may not generate sufficient or sustainable revenues to enable us to be profitable.
We have a history of losses and we expect to continue to incur losses for the foreseeable future.
We have incurred net losses since we were organized as an independent company, including in the last five years net losses of $20.5 million in 1999, $8.8 million in 2000, $60.9 million in 2001, $208.9 million in 2002, $196.4 million in 2003 and $41.6 million in the three months ended March 31, 2004. As of March 31, 2004, our accumulated deficit was $606.3 million. Our losses to date have resulted principally from:
• research and development costs relating to the development of our XenoMouse and XenoMax technologies and antibody product candidates;
• general and administrative costs relating to our operations;
• impairment charges related to our strategic investments in CuraGen, ImmunoGen, and MDS Proteomics; and
• manufacturing start-up costs related to our new manufacturing facility including depreciation, outside contractor costs and personnel costs for activities such as quality assurance and quality control.
We expect to incur additional losses for the foreseeable future as a result of our research and development costs and manufacturing start-up costs, including costs associated with conducting preclinical development and clinical trials, which will continue to be substantial, and charges related to purchases of technology or other assets. We intend to invest significantly in our products prior to entering into licensing agreements. This will increase our need for capital and will result in losses for at least the next several years. We expect that the amount of operating losses will fluctuate significantly from quarter to quarter as a result
26
of increases or decreases in our research and development efforts, the execution or termination of licensing, manufacturing and other contractual arrangements, the progress or lack of progress of product development candidates in our collaboration with AstraZeneca and the initiation, success or failure of clinical trials.
We are currently unprofitable and may never be profitable, and our future revenues could fluctuate significantly.
Since our founding, we have funded our research and development activities primarily from private placements and public offerings of our securities and from revenues generated by our licensing and other contractual arrangements.
We expect that substantially all of our revenues for the foreseeable future will result from payments under licensing and other contractual arrangements and from interest income. To date, payments under licensing and other agreements have been in the form of option fees, reimbursement for research and development expenses, license fees and milestone payments. Payments under our existing and any future customer agreements will be subject to significant fluctuation in both timing and amount. Our revenues may not be indicative of our future performance or of our ability to continue to achieve contractual milestones. Our revenues and results of operations for any period may also not be comparable to the revenues or results of operations for any other period. Our revenues for any period may not be sufficient to cover our operating costs, including the costs of operating our manufacturing plant. We may not be able to:
• enter into further co-development, licensing, manufacturing or other agreements;
• successfully complete preclinical development or clinical trials;
• obtain required regulatory approvals;
• successfully manufacture or market product candidates; or
• generate additional revenues or profitability.
Our failure to achieve any of the above goals would materially harm our business, financial condition and results of operations.
We may require additional financing, and an inability to raise the necessary capital or to do so on acceptable terms would threaten the continued success of our business.
We will continue to expend substantial resources to support research and development and establish and operate our manufacturing facility, including costs associated with preclinical development and clinical trials. In the years ended December 31, 2003, 2002 and 2001, we incurred expenses of $99.6 million, $128.5 million and $96.2 million, respectively, on research and development. For the three months ended March 31, 2004, we spent $28.5 million on research and development. Regulatory and business factors will require us to expend substantial funds in the course of completing required additional development, preclinical testing and clinical trials of, and attaining regulatory approvals for, product candidates. The amounts of the expenditures that will be necessary to execute our business plan are subject to numerous uncertainties that may adversely affect our liquidity and capital resources. Our future liquidity and capital requirements will depend on many factors, including:
• the scope and results of preclinical development and clinical trials;
• the retention of existing and establishment of further co-development, licensing, manufacturing and other agreements, if any;
• continued scientific progress in our research and development programs;
27
• the size and complexity of these programs;
• the cost of establishing, validating and implementing our manufacturing capabilities and processes and complying with good manufacturing practice regulations;
• the cost of conducting commercialization activities and arrangements;
• the time and expense involved in seeking regulatory approvals;
• competing technological and market developments;
• the time and expense of filing and prosecuting patent applications, and enforcing and defending against patent claims;
• our investment in, or acquisition of, other companies;
• the amount of product or technology in-licensing in which we engage; and
• other factors not within our control.
We believe that our current cash balances, cash equivalents, marketable securities, and the cash generated from our licensing and other contractual arrangements, will be sufficient to meet our operating and capital requirements for at least one year. However, because of the uncertainties in our business, including the uncertainties listed above, we cannot assure you that this will be the case. In addition, we may choose to obtain additional financing from time to time. We may choose to raise additional funds through public or private equity or debt financing, licensing and other agreements, a bank line of credit, sale-lease back financing, mortgage financing or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us or at all. Furthermore, any additional equity or equity-related financing may be dilutive to our stockholders, and debt financing, if available, may subject us to restrictive covenants. We may also choose to obtain funding through licensing and other contractual arrangements. Such agreements may require us to relinquish our rights to certain of our technologies, products or marketing territories. Our failure to raise capital when needed would harm our business, financial condition and results of operations.
Our indebtedness may harm our financial condition and results of operations.
We have $200 million of convertible debt convertible subordinated notes due March 15, 2007 and debt service obligations related thereto. In February 2004, we incurred an additional $50.0 million of indebtedness to AstraZeneca, in the form of a convertible subordinated note, which we issued to AstraZeneca in connection with our redemption of the shares of our Series A-2 preferred stock we issued to AstraZeneca in October 2003. There is no interest payable on the note except in the event of a payment default. Our level of indebtedness will have several important effects on our future operations, including, without limitation:
• we will have additional cash requirements to support the payment of any interest or amortization required with respect to outstanding indebtedness;
• increases in our outstanding indebtedness and leverage will increase our vulnerability to adverse changes in general economic and industry conditions, as well as to competitive pressure; and
• depending on the levels of our outstanding debt, our ability to obtain additional financing for working capital, capital expenditures, general corporate and other purposes may be limited.
28
Our ability to make payments of principal and interest on our indebtedness depends upon our future performance, which will be subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control. If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required, among other things:
• to seek additional financing in the debt or equity markets;
• to refinance or restructure all or a portion of our indebtedness, including our convertible subordinated notes due 2007;
• to sell selected assets; or
• to reduce or delay planned capital expenditures.
Such measures might not be sufficient to enable us to service our debt. In addition, any such financing, refinancing or sale of assets might not be available on economically favorable terms.
Our strategic investments expose us to equity price risk and our investments in those companies may be deemed impaired, which would affect our results of operations.
We are exposed to equity price risk on our strategic investments in CuraGen and ImmunoGen and we may elect to make additional similar investments in the future. In 1999 and 2000, we purchased an aggregate amount of $80.0 million of the common stock of CuraGen and ImmunoGen as strategic investments. In 2002, declines in the fair value of the CuraGen and ImmunoGen common stock were deemed to be other than temporary, primarily because the stock of each company traded below our cost basis for more than six months. Accordingly, we recorded a total impairment charge for the year ended December 31, 2002 of $67.3 million. The public trading prices of the shares of both companies have fluctuated significantly since we purchased them and could continue to do so. If these shares trade below their new cost bases in future periods, we may incur additional impairment charges relating to these investments. As of March 31, 2004, these investments were recorded at fair value in long-term investments on the balance sheet, and any net unrealized holding gains and losses are reported as a component of stockholders’ equity.
Risks Related to the Development and Commercialization of our Products
Our XenoMouse and XenoMax technologies may not produce safe, efficacious or commercially viable products, which will be critical to our ability to generate revenues from our products.
Our XenoMouse and XenoMax technologies are new approaches to developing antibodies as products for the treatment of diseases and medical disorders. We have not commercialized any antibody therapeutic products based on our technologies. Moreover, we are not aware of any commercialized, fully human antibody therapeutic products that have been generated from any technologies similar to ours. Our antibody therapeutic product candidates are still in various stages of development and many are in an early development stage. We have initiated clinical trials with respect to four proprietary fully human antibody therapeutic product candidates, and our collaborators have initiated clinical trials with respect to three other fully human antibody therapeutic product candidates generated by XenoMouse technology and filed an IND to initiate clinical testing of a fourth. We cannot be certain that either XenoMouse technology or XenoMax technology will generate antibodies against every antigen to which they are exposed in an efficient and timely manner, if at all. Furthermore, XenoMouse technology and XenoMax technology may not result in any meaningful benefits to our current or potential customers or in product candidates that are safe and efficacious for patients. Our failure to generate antibody therapeutic product candidates that lead to the successful commercialization of products would materially harm our business, financial condition and results of operations.
29
If we do not successfully develop our products, or if they do not achieve commercial success, our business will be materially harmed.
Our development of current and future product candidates, either alone or in conjunction with collaborators, is subject to the risks of failure inherent in the development of new pharmaceutical products and products based on new technologies. These risks include:
• delays in product development, clinical testing or manufacturing;
• unplanned expenditures in product development, clinical testing or manufacturing;
• failure in clinical trials or failure to receive regulatory approvals;
• emergence of superior or equivalent product development technologies or products;
• inability to manufacture on our own, or through others, product candidates on a clinical or commercial scale;
• inability to market products due to third-party proprietary rights;
• election by our customers not to pursue product development;
• failure by our customers to develop products successfully; and
• failure to achieve market acceptance.
Because of these risks, our research and development efforts and those of our customers and collaborators may not result in any commercially viable products. Our failure to successfully complete a significant portion of these development efforts, to obtain required regulatory approvals or to achieve commercial success with any approved products would materially harm our business, financial condition and results of operations.
In addition, our decisions to terminate our clinical programs for developing ABX-IL8, a fully human antibody product candidate for inflammatory disorders, and ABX-CBL, an in-licensed antibody product candidate for graft versus host disease, have reduced the diversity of our product portfolio. We hope to be able to make up for this loss of diversity through the number and variety of potential new product candidates we have in preclinical development. For example, ABX-PTH, which targets the action of parathyroid hormone in patients with chronic renal disease, is a new product candidate that we moved from the preclinical stage into a clinical study in 2004 in patients with secondary hyperparathyroidism. However, to the extent that we are unable to maintain a broad and diverse range of product candidates, our success would depend more heavily on one or a few product candidates.
Before we commercialize and sell any of our product candidates, we must conduct clinical trials, which are expensive and have uncertain outcomes.
Conducting clinical trials is a lengthy, time-consuming and expensive process. Before obtaining regulatory approvals for the commercial sale of any products, we must demonstrate through preclinical testing and clinical trials that our product candidates are safe and effective for use in humans. We have incurred and will continue to incur substantial expense for, and we have devoted and expect to continue to devote a significant amount of time to, preclinical testing and clinical trials.
Historically, the results from preclinical testing and early clinical trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals. Data obtained from preclinical and clinical activities are susceptible
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to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may encounter regulatory delays or rejections as a result of many factors, including changes in regulatory policy during the period of product development.
Completion of clinical trials may take several years or more. The length of time generally varies substantially according to the type, complexity, novelty and intended use of the product candidate. However, we estimate that clinical trials of the type we generally conduct are typically completed over the following timelines:
|
Clinical Phase |
|
Estimated |
|
Phase 1 |
|
1-2 Years |
|
Phase 2 |
|
1-2 Years |
|
Phase 3 |
|
2-4 Years |
Many factors may delay our commencement and rate of completion of clinical trials, including:
• the number of patients that ultimately participate in the trial;
• the duration of patient follow-up that seems appropriate in view of the results;
• the number of clinical sites included in the trials;
• the length of time required to enroll suitable patient subjects; and
• the availability of adequate supplies of the product candidate being tested.
We have limited experience in conducting and managing clinical trials. We rely on third parties, including our collaborators, to assist us in managing and monitoring clinical trials. Our reliance on these third parties may result in delays in completing, or in failure to complete, these trials if the third parties fail to perform under our agreements with them.
In addition, we have ongoing research projects that may lead to product candidates, but we have not submitted INDs nor begun clinical trials for these projects. Our ability to file additional INDs, and to build diversity and scale in our product portfolio, depends to a significant extent on our ability to identify additional potential product candidates through our preclinical research and to conduct preclinical research efficiently. Our preclinical or clinical development efforts may not be successfully completed, we may not file further INDs and clinical trials may not commence as planned.
Three of our proprietary product candidates, panitumumab, ABX-MA1 and ABX-PTH, are in various stages of clinical trials. We have discontinued development of two proprietary product candidates, ABX-CBL and ABX-IL8. To date, data obtained from these clinical trials have been insufficient to demonstrate safety and efficacy under applicable FDA guidelines. As a result, these data will not support an application for regulatory approval without further clinical trials. Clinical trials that we conduct or that third parties conduct on our behalf may not demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals for any of our product candidates. We expect to commence new clinical trials from time to time in the course of our business as our product development work continues. However, regulatory authorities may not permit us to undertake any additional clinical trials for our product candidates.
Our product candidates may fail to demonstrate safety or efficacy in clinical trials. For example, in 2002 we completed analysis of a Phase 2b clinical trial of ABX-IL8 in psoriasis, concluded that the results did not warrant continued development in psoriasis and decided not to proceed with studies in other disease indications. Similarly, in February 2003, we completed a preliminary analysis of the results from the Phase 2/3 clinical trial of ABX-CBL and concluded that the study did not meet its primary endpoint. Therefore, we and our co-developer, SangStat (now a subsidiary of Genzyme Corporation) do not plan any further
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development of ABX-CBL. Failures of clinical trials of any product candidate could delay the development of other product candidates or hinder our ability to obtain additional financing. In addition, failures in our clinical trials can lead to additional research and development charges. Any delays in, or termination of, our clinical trials could materially harm our business, financial condition and results of operations.
We may rely on third-party manufacturers, and we may have difficulty conducting clinical trials of our product candidates if a manufacturer does not perform in accordance with our expectations.
Until recently, we relied on a single contract manufacturer, Lonza, to produce ABX-CBL, ABX-IL8 and panitumumab under good manufacturing practice regulations for use in our clinical trials. In June 2003, we canceled our manufacturing supply agreement with Lonza, pursuant to which we had exclusive access to a cell culture production suite, because we determined that with the opening of our own manufacturing plant and changes in our product candidate portfolio, we no longer needed access to the Lonza facility. We have also relied on other contract manufacturers from time to time to produce our product candidates for use in our clinical trials. For example, Fred Hutchinson Cancer Research Center has produced ABX-MA1 for use in our clinical trials. While portions of our Fremont manufacturing facility are now operational and we are manufacturing material that we intend to use in clinical trials, we cannot assure you that we will be able to qualify this facility for regulatory compliance. For that reason or others, we may use Lonza or another third-party manufacturer if necessary in the future.
Third-party manufacturers may encounter difficulties in scaling up production, including problems involving production yields, quality control and assurance, shortage of qualified personnel, shortage of capacity, compliance with FDA and other applicable regulations, production costs, and development of advanced manufacturing techniques and process controls. If we continue to use third-party manufacturers, they may not perform as agreed or may not remain in the contract manufacturing business for the time required by us to successfully produce and market our product candidates. Any failure of third-party manufacturers to deliver the required quantities of our product candidates for clinical use on a timely basis and at commercially reasonable prices, and our failure to find replacement manufacturers or successfully implement our own manufacturing capabilities, would materially harm our business, financial condition and results of operations.
Our own ability to manufacture is uncertain, which may make it more difficult for us to develop and sell our products.
We are establishing our own manufacturing facility for the manufacture of product candidates for clinical trials and to support the potential early commercial launch of a limited number of products, in each case, in compliance with FDA and European good manufacturing practices. In May 2000, we signed a long-term lease for the building that contains this manufacturing facility. Construction has been completed and portions of the facility are operational. We are also conducting validation of the facility and completed significant stages of validation in 2003. In October 2003, following an inspection by the California State Department of Health Services, we received a State Drug Manufacturing License. The license permits us to manufacture and ship clinical material from our manufacturing facility. We expect the total cost of the facility, including design fees, permits, validation, construction, leasehold improvements and equipment, to be approximately $155.0 million. Validation of this facility may take longer than expected, and the planned and actual construction costs of building and qualifying the facility for regulatory compliance may be higher than expected. We currently have excess production services capacity and this condition may persist for an extended period. However, if the commercial launch of one or more of our product candidates proves successful, we will likely experience capacity shortages and may need to use one or more third-party facilities to produce these products in sufficient quantities.
The process of manufacturing antibody therapeutic products is complex. While the managers of the facility have gained extensive manufacturing experience in prior positions with other companies, we have limited experience in the clinical or commercial scale manufacturing of our existing product candidates, or any other antibody therapeutic products. We will need to hire, train and retain additional qualified manufacturing, quality control and quality assurance personnel. Also, we will need to manufacture such
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antibody therapeutic products in a facility and by an appropriately validated process that comply with FDA, European and other regulations. Our manufacturing operations will be subject to ongoing, periodic unannounced inspection by the FDA and state agencies to ensure compliance with good manufacturing practices. Our inability to complete the establishment of our manufacturing operations and maintain them in compliance with applicable regulations within our planned time and cost parameters could materially harm our business, financial condition and results of operations.
We also may encounter problems with the following:
• production yields;
• quality control and assurance;
• availability of qualified personnel;
• adequate training of new and existing personnel;
• on-going compliance with our standard operating procedures;
• on-going compliance with FDA regulations;
• production costs; and
• development of advanced manufacturing techniques and process controls.
We continually evaluate our options for commercial production of our antibody therapeutic products, which include use of third-party manufacturers, establishing a commercial scale manufacturing facility or entering into a manufacturing joint venture relationship with a collaborator or other third party. We are aware of only a limited number of companies on a worldwide basis that operate manufacturing facilities in which our product candidates can be manufactured under good manufacturing practice regulations, a requirement for all pharmaceutical products. It may take a substantial period of time for a contract manufacturing facility that has not been producing antibodies to begin producing antibodies under good manufacturing practice regulations. We may not be able to contract with any of these companies on acceptable terms, if at all.
In addition, the FDA and other regulatory authorities will require us to register any manufacturing facilities in which our antibody therapeutic products are manufactured. The FDA and other regulatory authorities will then subject the facilities to inspections to confirm compliance with FDA good manufacturing practice or other regulations. Our failure or the failure of our third-party manufacturers to maintain regulatory compliance would materially harm our business, financial condition and results of operations.
The successful growth of revenues from our manufacturing services depends to a large extent on our ability to find third parties who agree to use our services and our ability to provide those services successfully.
Enhancing our contract revenues depends to a significant extent on entering into agreements to provide antibody production services to third parties. Potential third parties include our existing collaborators, as well as other pharmaceutical and biotechnology companies, technology companies, academic institutions and other entities. We must enter into these agreements to successfully develop this aspect of our business. To date, we have entered into two production services agreements and we cannot assure you that we will be able to enter into additional agreements.
We may not be able to secure manufacturing agreements on favorable terms. If we do obtain such agreements, we may encounter difficulties in performing as agreed. We may encounter difficulties in scaling up production, including problems involving production yields, quality control and assurance, shortage of
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qualified personnel, training of personnel, compliance with FDA and other applicable regulations, production costs, and development of advanced manufacturing techniques and process controls. The failure to deliver required quantities of product on a timely basis and at commercially reasonable prices could materially harm our business, financial condition and results of operations.
The successful growth of our business depends to a large extent on our ability to find third-party collaborators to develop and commercialize many of our product candidates.
Our strategy for the development and commercialization of antibody therapeutic products depends, in large part, upon the formation of collaboration agreements with third parties. Potential third parties include pharmaceutical and biotechnology companies, technology companies, academic institutions and other entities. We must enter into these agreements to successfully develop and commercialize product candidates. These agreements are necessary in order for us to:
• access proprietary antigens for which we can generate fully human antibody products;
• fund research, preclinical development, clinical trials and manufacturing;
• seek and obtain regulatory approvals; and
• successfully commercialize existing and future product candidates.
Our ability to continue our current collaborations and to enter into additional third party collaborations is dependent in large part on our ability to successfully demonstrate that our XenoMouse technology is an attractive method of developing antibody therapeutic products. We have generated only a limited number of fully human antibody therapeutic product candidates pursuant to our collaboration agreements and only eight fully human antibody therapeutic product candidates generated with XenoMouse technology have entered the clinical stage. We have announced that one of these product candidates has not met our expectations. Our failure to maintain our existing collaboration agreements or to enter into additional agreements could materially harm our business, financial condition and results of operations.
Our dependence on licensing, collaboration, manufacturing and other agreements with third parties subjects us to a number of risks. These agreements may not be on terms that prove favorable to us, and we typically afford our collaborators significant discretion in electing whether to pursue any of the planned activities. Licensing and other contractual arrangements may require us to relinquish our rights to certain of our technologies, products or marketing territories. To the extent we agree to work exclusively with one collaborator in a given therapeutic area, our opportunities to collaborate with other entities could be curtailed. For example, our collaboration with AstraZeneca for the identification and development of therapeutic antibodies in oncology contains exclusivity provisions that significantly restrict our ability to enter into arrangements with third parties in the field of oncology as well as our ability to conduct research and development activities in that field. To the extent that our collaboration with AstraZeneca is not successful, our ability to develop antibodies for use in oncology applications through other collaborations will be severely curtailed. Our collaboration with AstraZeneca also limits our ability to develop such antibodies through our own independent development.
We cannot control the amount or timing of resources our collaborators may devote to the collaboration, and collaborators may not perform their obligations as expected. Additionally, business combinations or significant changes in a collaborator’s business strategy may adversely affect a collaborator’s willingness or ability to complete its obligations under the arrangement. Even if we fulfill our obligations under an agreement, typically our collaborators can terminate the agreement at any time following proper written notice. The termination or breach of agreements by our collaborators, or the failure of our collaborators to complete their obligations in a timely manner, could materially harm our business, financial condition and results of operations. If we are not able to establish further collaboration agreements or any or all of our existing agreements are terminated, we may be required to seek new collaborators or to undertake product development and commercialization at our own expense. Such an undertaking may:
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• limit the number of product candidates that we will be able to develop and commercialize;
• reduce the likelihood of successful product introduction;
• significantly increase our capital requirements; and
• place additional strain on our management’s time.
Existing or potential collaborators may pursue alternative technologies, including those of our competitors, or enter into other transactions that could make a collaboration with us less attractive to them. For example, if an existing collaborator purchases a company that is one of our competitors, that company could be less willing to continue its collaboration with us. In addition, a company that has a strategy of purchasing companies with attractive technologies might have less incentive to enter into a collaboration agreement with us. Moreover, disputes may arise with respect to the ownership of rights to any technology or products developed with any current or future collaborator. Lengthy negotiations with potential new collaborators or disagreements between us and our collaborators may lead to delays in or termination of the research, development or commercialization of product candidates or result in time-consuming and expensive litigation or arbitration. The decision by our collaborators to pursue alternative technologies or the failure of our collaborators to develop or commercialize successfully any product candidate to which they have obtained rights from us could materially harm our business, financial condition and results of operations.
We are subject to extensive government regulation, which will require us to spend significant amounts of money, and we may not be able to obtain regulatory approvals, which are required for us to conduct clinical testing and commercialize our products.
Our product candidates under development are subject to extensive and rigorous domestic government regulation. The FDA regulates, among other things, the development, testing, manufacture, safety, efficacy, record-keeping, labeling, storage, approval, advertising, promotion, sale and distribution of biopharmaceutical products. If we market our products abroad, they will also be subject to extensive regulation by foreign governments. Neither the FDA nor any other regulatory agency has approved any of our product candidates for sale in the United States or any foreign market. The regulatory review and approval process, which includes preclinical studies and clinical trials of each product candidate, is lengthy, expensive and uncertain. Securing FDA approval requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each indication to establish the product candidate’s safety and efficacy. The approval process takes many years, requires the expenditure of substantial resources, and may involve post-marketing surveillance and requirements for post-marketing studies. As we conduct clinical trials for a given product candidate, we may decide or the FDA may require us to make changes in our plans and protocols. Such changes may relate to, for example, changes in the standard of care for a particular disease indication, comparability of efficacy and toxicity of materials where a change in materials is proposed, or competitive developments foreclosing the availability of expedited approval procedures. We may be required to support proposed changes with additional preclinical or clinical testing, which could delay the expected time line for concluding clinical trials. Regulatory requirements are subject to frequent change. Delays in obtaining regulatory approvals may:
• adversely affect the successful commercialization of any drugs that we or our customers develop;
• impose costly procedures on us or our customers;
• diminish any competitive advantages that we or our customers may attain; and
• adversely affect our receipt of revenues or royalties.
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Our product candidates may not be approved or may be approved with limitations or for indications that differ from those we initially target. If approved, certain material changes affecting a product such as manufacturing changes or additional labeling claims are subject to further FDA review and approval. The FDA may withdraw any required approvals after we obtain them. We may not maintain compliance with other regulatory requirements. Further, if we fail to comply with applicable FDA and other regulatory requirements at any stage during the regulatory process, we or our third-party manufacturers may be subject to sanctions, including:
• delays;
• warning letters;
• fines;
• clinical holds;
• product recalls or seizures;
• injunctions;
• refusal of the FDA to review pending market approval applications or supplements to approval applications;
• total or partial suspension of production;
• civil penalties;
• withdrawals of previously approved marketing applications; and
• criminal prosecutions.
In many instances we expect to rely on our customers and co-developers to file INDs and generally direct the regulatory approval process for products derived from our technologies. These customers and co-developers may not be able to or may choose not to conduct clinical testing or obtain necessary approvals from the FDA or other regulatory authorities for any product candidates. If they fail to obtain required governmental approvals, we will experience delays in or be precluded from marketing or realizing the commercial benefits from the marketing of products derived from our technologies. In addition, our failure to obtain the required approvals would preclude the commercial use of our products. Any such delays and limitations may materially harm our business, financial condition and results of operations.
We and our third-party manufacturers also are required to comply with the applicable FDA current good manufacturing practice regulations and other regulatory requirements. Good manufacturing practice regulations include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Manufacturing facilities are subject to inspection by the FDA and the facilities must pass an inspection by the FDA before we can use them in commercial manufacturing of any product. Manufacturing facilities in California, including our facility, are also subject to the licensing requirements of and inspection by the State of California Department of Health Services. In October 2003, following an inspection, we received a Drug Manufacturing License from the State of California. The license, which must be renewed annually, permits us to manufacture and ship clinical material. We or our third-party manufacturers may not be able to comply with the applicable good manufacturing practice requirements and other regulatory requirements. The failure of us or our third-party manufacturers to comply with these requirements would materially harm our business, financial condition and results of operations.
If our products do not gain market acceptance among the medical community, our revenues would greatly
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decline and might not be sufficient to support our operations.
Our product candidates may not gain market acceptance among physicians, patients, third-party payors and the medical community. We may not achieve market acceptance even if clinical trials demonstrate safety and efficacy, and the necessary regulatory and reimbursement approvals are obtained. The degree of market acceptance of any product candidates that we develop will depend on a number of factors, including:
• establishment and demonstration of clinical efficacy and safety;
• cost-effectiveness of our product candidates;
• their potential advantage over alternative treatment methods;
• reimbursement policies of government and third-party payors; and
• marketing and distribution support for our product candidates, including the efforts of our collaborators where they have marketing and distribution responsibilities.
Physicians will not recommend therapies using our products until such time as clinical data or other factors demonstrate the safety and efficacy of such procedures as compared to conventional drug and other treatments. Even if we establish the clinical safety and efficacy of therapies using our antibody product candidates, physicians may elect not to recommend the therapies for any number of other reasons, including whether the mode of administration of our antibody products is effective for certain indications. Antibody products, including our product candidates as they would be used for certain disease indications, are typically administered by infusion or injection, which requires substantial cost and inconvenience to patients. Our product candidates, if successfully developed, will compete with a number of drugs and therapies manufactured and marketed by major pharmaceutical and other biotechnology companies. Our products may also compete with new products currently under development by others. Physicians, patients, third-party payors and the medical community may not accept or utilize any product candidates that we or our customers develop. The failure of our products to achieve significant market acceptance would materially harm our business, financial condition and results of operations.
We do not have marketing and sales experience, which may require us to rely on others to market and sell our products and may make it more challenging for us to commercialize our product candidates.
Although we have been marketing our XenoMouse technology to potential customers and collaborators for several years, we do not have marketing, sales or distribution experience or capability with respect to our therapeutic product candidates. We intend to enter into arrangements with third parties to market and sell most of our therapeutic product candidates when we commercialize them, which may be as early as 2005. We may not be able to enter into these marketing and sales arrangements with others on acceptable terms, if at all. To the extent that we enter into marketing and sales arrangements with other companies, our revenues, if any, will depend on the efforts of others. These efforts may not be successful. If we are unable to enter into third-party arrangements, we will need to develop a marketing and sales force, which may need to be substantial in size, in order to achieve commercial success for any product candidate approved by the FDA. We may not successfully develop marketing and sales capabilities or have sufficient resources to do so. If we do develop such capabilities, we will compete with other companies that have experienced and well-funded marketing and sales operations. Our failure to enter into successful marketing arrangements with third parties and our inability to conduct such activities ourselves would materially harm our business, financial condition and results of operations.
Risks Related to Intellectual Property
Our ability to protect our intellectual property rights will be critically important to the success of our business, and we may not be able to protect these rights in the United States or abroad.
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Our success depends in part on our ability to:
• obtain patents;
• protect trade secrets;
• operate without infringing the proprietary rights of others; and
• prevent others from infringing our proprietary rights.
We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. We attempt to protect our proprietary position by filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business. However, the patent position of biopharmaceutical companies involves complex legal and factual questions, and, therefore, we cannot predict with certainty whether our patent applications will be approved or any resulting patents will be enforced. In addition, third parties may challenge, seek to invalidate or circumvent any of our patents, once they are issued. Thus, any patents that we own or license from third parties may not provide any protection against competitors. Our pending patent applications, those we may file in the future, or those we may license from third parties, may not result in patents being issued. Also, patent rights may not provide us with adequate proprietary protection or competitive advantages against competitors with similar technologies. The laws of certain foreign countries do not protect our intellectual property rights to the same extent as do the laws of the United States.
In addition to patents, we rely on trade secrets and proprietary know-how. We seek protection, in part, through confidentiality and proprietary information agreements. These agreements may not provide meaningful protection for our technology or adequate remedies in the event of unauthorized use or disclosure of confidential and proprietary information, and, in addition, the parties may breach such agreements. Also, our trade secrets may otherwise become known to, or be independently developed by, our competitors. Furthermore, others may independently develop similar technologies or duplicate any technology that we have developed.
We may face challenges from third parties regarding the validity of our patents and proprietary rights, or from third parties asserting that we are infringing their patents or proprietary rights, which could result in litigation that would be costly to defend and could deprive us of valuable rights.
Parties have conducted research for many years in the antibody and transgenic animal fields. The term “transgenic”, when applied to an animal, such as a mouse, refers to an animal that has chromosomes into which human genes have been incorporated. This research has resulted in a substantial number of issued patents and an even larger number of pending patent applications. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made. Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. Our technologies may unintentionally infringe the patents or violate other proprietary rights of third parties. Such infringement or violation may prevent us and our customers from pursuing product development or commercialization. Such a result could materially harm our business, financial condition and results of operations.
In March 1997, we entered into a cross-license and settlement agreement with GenPharm to avoid protracted litigation. Under the cross-license, we licensed on a non-exclusive basis certain patents, patent applications, third-party licenses and inventions pertaining to the development and use of certain transgenic rodents, including mice, that produce fully human antibodies that are integral to our products and business. Our business, financial condition and results of operations could be materially harmed if any of the parties breaches the cross-license agreement.
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GlaxoSmithKline, plc, or Glaxo, has a family of patents relating to certain methods for generating monoclonal antibodies that Glaxo is asserting against Genentech, Inc. in litigation that was commenced in 1999. On May 4, 2001, Genentech announced that a jury had determined that Genentech had not infringed Glaxo’s patents and that all of the patent claims asserted against Genentech are invalid. We understand that Glaxo has filed a notice of appeal with the Court of Appeals for the Federal Circuit. If any of the claims of these patents are finally determined in the litigation to be valid, and if we were to use manufacturing processes covered by the patents to make our products, we may then need to obtain a license should one be available. Should a license be denied or unavailable on commercially reasonable terms, we may have difficulty commercializing one or more of our products in any territories in which these claims were in force.
Genentech, Johnson & Johnson, Glaxo, Transkaryotic Therapies, Inc. and the Trustees of Columbia University in the City of New York each owns or controls a U.S. patent that relates to recombinant cell lines or methods of generating recombinant cell lines for the production of antibodies. If we were to use a production system covered by any of these patents, we may then need to obtain a license should one be available. Under these circumstances, our failure to obtain a license at all or on commercially reasonable terms could impede commercialization of one or more of our products in any territories in which these patent claims were in force.
Genentech owns a U.S. patent that issued in June 1998 relating to inhibiting the growth of tumor cells that involves an antibody that binds to an epidermal growth factor receptor, or an anti-EGF receptor antibody, in combination with a cytotoxic factor, which is a substance having a toxic effect on cells. ImClone Systems, Inc. owns or is licensed under a U.S. patent that issued in April 2001, relating to inhibiting the growth of tumor cells that involves an anti-EGF receptor antibody in combination with an anti-neoplastic, or anti-tumor, agent. A corresponding European patent was published for grant in March 2002 and Abgenix and others are opposing that patent in the European Patent Office. A corresponding patent has also issued in Canada. We do not believe based on our review that either the Genentech patent or any of the ImClone patents would be successfully asserted against any of our current or planned activities relating to panitumumab or future commercial sales of panitumumab. If a court determines that the claims of either the Genentech patent or the ImClone patent cover our activities with panitumumab and are valid, such a decision may require us to obtain a license to Genentech’s patent or ImClone’s patents, as the case may be, to label and sell panitumumab for certain combination therapies. Our failure to obtain a license, or to obtain a license on commercially reasonable terms, could impede our commercialization of panitumumab.
In 2000, the Japan Patent Office granted a patent to Kirin Beer Kabushiki Kaisha, one of our competitors, relating to non-human transgenic mammals. In October 2003, the United States Patent and Trademark Office issued a corresponding patent to Kirin. Kirin has filed corresponding patent applications in Europe and Australia. Our licensee, Japan Tobacco, has filed opposition proceedings against the Kirin patent. We cannot predict the outcome of those opposition proceedings, which may take years to be resolved.
Extensive litigation regarding patents and other intellectual property rights has been common in the biotechnology and pharmaceutical industries. The defense and prosecution of intellectual property suits, United States Patent and Trademark Office interference proceedings, and related legal and administrative proceedings in the United States and internationally involve complex legal and factual questions. As a result, such proceedings are costly and time-consuming to pursue and their outcome is uncertain. Litigation may be necessary to:
• enforce patents that we own or license;
• protect trade secrets or know-how that we own or license; or
• determine the enforceability, scope and validity of the proprietary rights of others.
Our involvement in any litigation, interference or other administrative proceedings could cause us
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to incur substantial expense and could significantly divert the efforts of our technical and management personnel. An adverse determination may subject us to loss of our proprietary position or to significant liabilities, or require us to seek licenses that may not be available from third parties. An adverse determination in a judicial or administrative proceeding, or a failure to obtain necessary licenses, may restrict or prevent us from manufacturing and selling our products, if any. Costs associated with these arrangements may be substantial and may include ongoing royalties. Furthermore, we may not be able to obtain the necessary licenses on satisfactory terms, if at all. These outcomes could materially harm our business, financial condition and results of operations.
Risks Related to Our Industry
We face intense competition and rapid technological change, and if we fail to develop products that keep pace with new technologies and that gain market acceptance, our product candidates or technologies could become obsolete.
The biotechnology and pharmaceutical industries are highly competitive and subject to significant and rapid technological change. We are aware of several pharmaceutical and biotechnology companies that are actively engaged in research and development in areas related to antibody therapy. These companies have commenced clinical trials of antibody therapeutic product candidates or have successfully commercialized antibody therapeutic products for use on their own or in combination therapies. Many of these companies are addressing the same diseases and disease indications as we or our customers are. Also, we compete with companies that offer antibody generation services to companies that have antigens. These competitors have specific expertise or technology related to antibody development and introduce new or modified technologies from time to time. These companies include GenPharm, a wholly owned subsidiary of Medarex, Inc., Medarex’s collaborator, Kirin Brewing Co. Ltd.; GenMab A/S; Cambridge Antibody Technology Group plc; Genentech; Protein Design Labs, Inc.; MorphoSys AG; Xenerex Biosciences Inc., a subsidiary of Avanir Pharmaceuticals; XLT Biopharmaceuticals Ltd.; and Alexion Pharmaceuticals, Inc. Finally, we compete with companies that currently offer antibody production services, and may compete with companies that currently only manufacture their own antibodies but could offer antibody production services to third parties.
Some of our competitors have received regulatory approval of or are developing or testing product candidates that may compete directly with our product candidates. ImClone, in collaborations with Bristol-Meyers Squib Company and Merck KgAa; AstraZeneca, plc; Glaxo; and a collaboration of OSI Pharmaceuticals, Inc., Genentech and Roche have potential antibody and small molecule product candidates in clinical development that may compete with panitumumab, which is also in clinical trials.
ImClone and Bristol-Myers Squibb have received approval to market Erbitux, ImClone’s antibody product candidate for the treatment of metastatic colorectal cancer, in the United States. ImClone and Bristol-Myers Squibb have also announced the submission of an application for approval to market Erbitux in Canada. Merck KgAa has announced that it has received approval to market Erbitux for the treatment of metastatic colorectal cancer in the European Union and that it has received approval to market Erbitux in Switzerland for treatment of metastatic colorectal cancer.
Genentech has received approval to market Avastin for use with chemotherapy as a first-line treatment for colorectal cancer.
AstraZeneca has received approval to market Iressa, a small molecule product candidate that may compete with panitumumab, in many markets in the world, including the United States, Japan, Australia and Canada, for the treatment of advanced non-small cell lung cancer.
Genentech and OSI have initiated the rolling submission of an NDA for Tarceva in the United States for the treatment of advanced non-small cell lung cancer.
In addition, Amgen has received approval to market Sensipar, or cinacalcet HCI, a small molecule
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product candidate for the treatment of secondary hyperparathyroidism, which may compete with ABX-PTH.
Many of these companies and institutions, either alone or together with their customers or collaborators, have substantially greater financial resources and larger research and development staffs than we do. In addition, many of these competitors, either alone or together with their customers or collaborators, have significantly greater experience than we do in:
• developing products;
• undertaking preclinical testing and human clinical trials;
• obtaining FDA and other regulatory approvals of products; and
• manufacturing and marketing products.
Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA approval or commercializing products before we do. If we commence commercial product sales, we will be competing against companies with greater marketing and manufacturing capabilities, areas in which we have limited or no experience.
We also face, and will continue to face, competition from academic institutions, government agencies and research institutions. There are numerous competitors working on products to treat each of the diseases for which we are seeking to develop therapeutic products. In addition, any product candidate that we successfully develop may compete with existing therapies that have long histories of safe and effective use. Competition may also arise from:
• other drug development technologies and methods of preventing or reducing the incidence of disease;
• new small molecules; or
• other classes of therapeutic agents.
Developments by competitors may render our product candidates or technologies obsolete or non-competitive. We face and will continue to face intense competition from other companies for agreements with pharmaceutical and biotechnology companies, for establishing relationships with academic and research institutions, and for licenses to proprietary technology. These competitors, either alone or with their customers, may succeed in developing technologies or products that are more effective than ours.
We also face competition from companies that provide production services. These include contract manufacturers, such as Lonza, Avid Bioservices, Inc., Diosynth Biotechnology, DSM N.V. and Goodwin Biotechnology Inc., and other pharmaceutical and biotechnology companies that manufacture their own product candidates but can make extra capacity available to collaborators and customers, such as Boehringer Ingelheim GmbH, Biogen Idec Inc., Cangene Corporation, ICOS Corporation, Abbott and Novartis AG.
We face uncertainty over reimbursement and healthcare reform, which, if determined adversely to us, could seriously hinder the market acceptance of our products.
In both domestic and foreign markets, sales of our product candidates will depend in part upon the availability of reimbursement from third-party payors, such as government health administration authorities, managed care providers and private health insurers. Third-party payors are increasingly challenging the price and examining the cost effectiveness of medical products and services. In addition, significant uncertainty exists as to the reimbursement status of newly approved healthcare products. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. In addition, domestic and foreign
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governments continue to propose and pass legislation designed to reduce the cost of healthcare, which could further limit reimbursement for pharmaceuticals. The failure of the government and third-party payors to provide adequate coverage and reimbursement rates for our product candidates could adversely affect the market acceptance of our products. The failure of our products to receive market acceptance would materially harm our business, financial condition and results of operations.
Other Risks Related to Our Company
The future growth and success of our business will depend on our ability to continue to attract and retain our employees and consultants.
For us to pursue product development, manufacturing, marketing and commercialization plans, we will need to hire additional qualified scientific, manufacturing, quality control and quality assurance personnel. We may also need to hire personnel with expertise in clinical testing, government regulation, manufacturing, marketing, law and finance. Attracting and retaining qualified personnel will be critical to our success. We may not be able to attract and retain personnel on acceptable terms given the competition for such personnel among biotechnology, pharmaceutical and healthcare companies, universities and non-profit research institutions. In addition, we experienced increased attrition rates in 2003. Further attrition could materially harm our business, financial condition and results of operations.
We grant stock options as a method of attracting and retaining employees, to motivate performance and to align the interests of management with those of our stockholders. Due to the decline in the trading price of our common stock during 2001 and 2002, a substantial portion of the stock options held by our employees have an exercise price that is higher than the current trading price of our common stock. We may elect to reprice or otherwise adjust the terms of these stock options, grant additional stock options at the current lower market price, pay higher cash compensation, or provide some combination of these alternatives to retain and attract qualified employees, but we cannot be sure that any of these actions would be successful. If we issue additional stock options, this would dilute existing stockholders.
As a result of these factors, we may have difficulty attracting and retaining qualified personnel, which could materially harm our business, financial condition and results of operations.
We may experience difficulty in the integration of any future acquisition with the operations of our business.
We may from time to time seek to expand our business through corporate acquisitions. Our acquisition of companies and businesses and expansion of operations, involve risks such as the following:
• the potential inability to identify target companies best suited to our business plan;
• the potential inability to successfully integrate acquired operations and businesses and to realize anticipated synergies, economies of scale or other expected value;
• incurrence of expenses attendant to transactions that may or may not be consummated; and
• difficulties in managing and coordinating operations at multiple venues, which, among other things, could divert our management’s attention from other important business matters.
In addition, our past and future acquisitions of companies and businesses and expansion of operations may result in dilutive issuances of equity securities, the incurrence of additional debt, U.S. or foreign tax liabilities, large one-time write-offs and the creation of goodwill or other intangible assets that could result in amortization expense or other charges to expense.
We have implemented a stockholder rights plan and are subject to other anti-takeover provisions, which could deter a party from effecting a takeover of us at a premium to our then-current stock price.
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In June 1999, our board of directors adopted a stockholder rights plan, which we amended and restated in November 1999 and May 2002, and amended in October 2003. The stockholder rights plan and certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. This could limit the price that certain investors might be willing to pay in the future for our common stock. Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws allow us to:
• issue preferred stock without any vote or further action by the stockholders;
• eliminate the right of stockholders to act by written consent without a meeting;
• specify procedures for director nominations by stockholders and submission of other proposals for consideration at stockholder meetings; and
• eliminate cumulative voting in the election of directors.
In October 2003, we entered into a collaboration and license agreement with AstraZeneca for the purpose of identifying and developing antibody products for use in oncology therapeutics. The collaboration agreement includes provisions that would allow AstraZeneca to accelerate its selection of target antigens and, in certain situations, terminate the collaboration agreement, or specific programs or activities conducted under it, in the event of a change in control in us, particularly if we were acquired by a competitor of AstraZeneca. In the event of a change in control of us, AstraZeneca could also acquire control over the development programs and various intellectual property rights in respect of antigens that are the subject of the collaboration agreement. This would result in a reduction in the royalties and milestones to be paid by AstraZeneca to us under the collaboration agreement and the release of AstraZeneca from certain exclusivity provisions. In addition, certain exclusivity provisions contained in the collaboration agreement would apply to an acquirer of our company and would restrict the acquirer’s ability to operate its business in the oncology field after the acquisition, except with respect to pre-existing development programs. These and other provisions of the collaboration agreement could make our company less attractive to a potential acquirer, particularly an acquirer that conducts or expects to conduct significant operations in the field of oncology therapeutics.
We are also subject to certain provisions of Delaware law which could also delay or make more difficult a merger, tender offer or proxy contest involving us. In particular, Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years unless the transaction meets certain conditions. The stockholder rights plan, the possible issuance of preferred stock, the procedures required for director nominations and stockholder proposals, our collaboration agreement with AstraZeneca and Delaware law could have the effect of delaying, deferring or preventing a change in control of us, including, without limitation, discouraging a proxy contest or making more difficult the acquisition of a substantial block of our common stock. The provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock.
We face product liability risks and may not be able to obtain adequate insurance, and if we are held liable for an uninsured claim or a claim in excess of our insurance limits, our business, financial condition and results of operations may be harmed.
The use of any of our product candidates, or of any products manufactured in our facility, in clinical trials, and the sale of any approved products, may expose us to liability claims resulting from such use or sale. Consumers, healthcare providers, pharmaceutical companies or others selling such products might make claims of this kind. We may experience financial losses in the future due to product liability claims. We have obtained limited product liability insurance coverage for our clinical trials and production services activities, under which the coverage limits are $15.0 million per occurrence and $15.0 million in the
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aggregate. We may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. If third parties bring a successful product liability claim or series of claims against us for uninsured liabilities or in excess of insured liabilities, our business, financial condition and results of operations may be materially harmed.
Our operations involve hazardous materials, and we could be held responsible for any damages caused by such materials.
Our research and manufacturing activities involve the controlled use of hazardous materials. In addition, although we maintain insurance for harm to employees and to our facilities caused by hazardous materials, we do not insure against any other harm (including harm to the environment) caused by the use of hazardous materials on our premises. We cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident or environmental discharge, we may be held liable for any resulting damages, which may exceed our financial resources and may materially harm our business, financial condition and results of operations.
We do not intend to pay cash dividends on our common stock.
We intend to retain any future earnings to finance the growth and development of our business and we do not plan to pay cash dividends on our common stock in the foreseeable future.
Our stock price is highly volatile, and you may not be able to sell your shares of our common stock at a price greater than or equal to the price you paid for them.
The market price and trading volume of our common stock are volatile, and we expect such volatility to continue for the foreseeable future. For example, during the period between March 31, 2003 and March 31, 2004, our common stock closed as high as $16.58 per share and as low as $7.80 per share. This may impact your decision to buy or sell our common stock. Factors affecting our stock price include:
• our financial results;
• fluctuations in our operating results;
• announcements of technological innovations or new commercial therapeutic products by us or our competitors;
• published reports by securities analysts;
• developments in our clinical trials and in clinical trials for potentially competitive product candidates;
• government regulation;
• changes in reimbursement policies;
• developments in patent or other proprietary rights;
• announcements that we have entered into new collaboration, licensing or similar arrangements with new collaborators, or amendments of the terms of our existing collaborations;
• developments in our relationship with customers;
• public concern as to the safety and efficacy of our products; and
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• general market conditions.
If we were deemed to be an investment company, we would become subject to provisions of the Investment Company Act that likely would have a material adverse impact on our business.
A company is required to register as an investment company under the Investment Company Act of 1940, or the 1940 Act, if, among other things, and subject to various exceptions:
• it is or holds itself out to be engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or
• it is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40 percent of the value of such company’s total assets (exclusive of Government securities and cash items) on an unconsolidated basis.
A major portion of our assets has been invested in investment grade interest-bearing securities. Such investments could in some circumstances require us to register as an investment company under the 1940 Act. Registration under the 1940 Act, or a determination that we failed to register when required to do so, could have a material adverse impact on us. We believe that we are and will remain exempt from the registration requirements, but absent interpretation by the courts or the SEC of the relevant exemption as applied to companies engaged in research and development, this result cannot be assured. In addition, a change in our allocation of assets on account of 1940 Act concerns could reduce the rate of return on our liquid assets.
Interest Rate Risk. We are exposed to interest rate sensitivity on our investments in debt securities and our outstanding fixed rate debt. The objective of our investment activities is to preserve principal, while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in highly liquid, investment grade and government debt securities. Our investments in debt securities are subject to interest rate risk. To minimize the exposure due to an adverse shift in interest rates, we invest in short-term securities and our goal is to maintain an average maturity of approximately one year. In addition, as of March 31, 2004, we had $200.0 million of outstanding 3.5% convertible subordinated notes due in 2007. The fair value of these convertible subordinated notes may fluctuate with changes in market interest rates, as well as changes in the market price of our common stock. A hypothetical 1.0% per annum decrease in interest rates would result in an adverse net change in the fair value of our interest rate sensitive assets and liabilities of approximately $3.2 million at March 31, 2004 and December 31, 2003.
Equity Price Risk. We are exposed to equity price risk on strategic investments, such as those we have made in CuraGen and ImmunoGen. We typically do not attempt to reduce or eliminate our market exposure on these securities. With respect to CuraGen and ImmunoGen, each of whose common stock is publicly traded, the aggregate market value of our investments in these securities was approximately $19.5 million and $20.7 million as of March 31, 2004 and December 31, 2003, respectively. Due to decreases in the market prices of the shares of CuraGen and ImmunoGen, we recorded impairment charges of $67.3 million in 2002 related to these investments. The trading prices of shares of CuraGen and ImmunoGen have fluctuated significantly since we purchased these securities. Each additional 10% decrease in market value of these securities would result in a decrease in value of approximately $2.0 million and $2.1 million from the fair value of those investments at March 31, 2004 and December 31, 2003, respectively. Additional price declines could cause us to record additional impairment charges in future periods.
Foreign Currency Risk. A substantial majority of our revenue, expense, and capital purchasing activities are transacted in U.S. dollars. However, we do enter into transactions in other currencies,
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primarily the British pound. As of March 31, 2004, we had a contract cancellation obligation to Lonza of approximately $15.6 million as compared to $22.7 million as of December 31, 2003, which is payable in British pounds. A hypothetical 10% adverse change in exchange rates would result in an increase in the U.S. dollar value of this obligation of approximately $1.6 million at March 31, 2004 as compared to $2.3 million at December 31, 2003.
Based on their evaluation of our disclosure controls and procedures, as that term is defined by Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as of the end of the period covered by this report, our chief executive officer and our Senior Director, Finance, have concluded that our disclosure controls and procedures are effective in ensuring that all material information required to be included in this quarterly report on Form 10-Q has been made known to them in a timely fashion.
Changes in Internal Controls Over Financial Reporting
There has been no change in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Not applicable.
On February 19, 2004, we issued to AstraZeneca UK Limited a convertible subordinated promissory note with a face amount of $50 million and a maturity date of October 29, 2013. The convertible subordinated note was issued to AstraZeneca in connection with the redemption by the Company of shares of the Company’s Series A-2 Convertible Preferred Stock with an aggregate liquidation preference of $50 million that were previously held by AstraZeneca. The offer and sale of securities in the transaction described above was deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act, as a transaction by an issuer not involving any public offering. In addition, appropriate legends were affixed to the securities issued in the transaction described above.
Not applicable.
Not applicable.
Not applicable.
(a) Exhibits
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Number |
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Description |
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3.1(1) |
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Amended and Restated Certificate of Incorporation of Abgenix, as currently in effect. |
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3.2(2) |
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Amended and Restated Bylaws of Abgenix, as currently in effect. |
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10.87++ |
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Amendment No. 1 to Collaboration and License Agreement, between Abgenix, Inc. and AstraZeneca UK Ltd., dated March 19, 2004. |
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31.1 |
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Certification of Raymond M. Withy, Ph.D. Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
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Certification of Barbara Riching Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1 |
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Certification of Raymond M. Withy, Ph.D. Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2 |
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Certification of Barbara Riching Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
++ Confidential treatment has been requested for portions of the exhibit. Omitted portions have been filed separately with the Commission.
(1) Incorporated by reference to the same exhibit filed with Abgenix’s Annual Report on Form 10-K for the year ended December 31, 2002.
(2) Incorporated by reference to the same exhibit filed with Abgenix’s Annual Report on Form 10-K for the year ended December 31, 2001.
(b) Reports on Form 8-K
We filed a Form 8-K on February 24, 2004, furnishing under “Item 12. Disclosure of Results of Operations and Financial Condition” a press release we issued on that date to report our financial results for the year ended December 31, 2003.
We filed a Form 8-K on April 27, 2004, furnishing under “Item 12. Disclosure of Results of Operations and Financial Condition” a press release we issued on that date to report our financial results for the quarter ended March 31, 2004.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: May 10, 2004
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ABGENIX, INC. |
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(Registrant) |
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/s/ RAYMOND M. WITHY |
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Raymond M. Withy, Ph.D. |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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/s/ BARBARA RICHING |
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Barbara Riching |
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Senior Director, Finance |
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(Principal Financial and Accounting Officer) |
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