ImmunoGen, Inc. Form 10-Q for the quarterly period ended March 31, 2006
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
|
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE
ACT OF 1934
|
|
|
|
For
the quarterly period ended March 31, 2006
|
|
|
|
OR
|
|
|
|
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE
ACT OF 1934
|
|
|
|
For
the transition period from
to
|
|
|
|
Commission
file number 0-17999
|
ImmunoGen,
Inc.
|
Massachusetts
|
|
04-2726691
|
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
128
Sidney Street, Cambridge, MA 02139
|
|
(Address
of principal executive offices, including zip code)
|
|
|
|
(617)
995-2500
|
|
(Registrant’s
telephone number, including area
code)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. ýYes o
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
|
Large
accelerated filer o
|
Accelerated
filer ý
|
Non-accelerated
filer o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
o
Yes ý No
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
Shares
of
common stock, par value $.01 per share:
41,399,755 shares outstanding as of May 5, 2006.
IMMUNOGEN,
INC.
TABLE
OF CONTENTS
|
PART
I.
|
|
FINANCIAL
INFORMATION
|
|
|
|
|
|
Item
1.
|
|
|
|
|
|
|
|
a.
|
|
|
|
|
|
|
|
b.
|
|
|
|
|
|
|
|
c.
|
|
|
|
|
|
|
|
d.
|
|
|
|
|
|
|
|
Item
2.
|
|
|
|
|
|
|
|
Item
3.
|
|
|
|
|
|
|
|
Item
4.
|
|
|
|
|
|
|
|
PART
II.
|
|
|
|
|
|
|
|
Item
1.
|
|
|
| |
|
|
|
Item
1A.
|
|
|
|
|
|
|
|
Item
2.
|
|
|
|
|
|
|
|
Item
3.
|
|
|
|
|
|
|
|
Item
4.
|
|
|
|
|
|
|
|
Item
5.
|
|
|
|
|
|
|
|
Item
6.
|
|
|
|
|
|
|
|
|
|
CERTIFICATIONS
|
IMMUNOGEN,
INC.
CONSOLIDATED
BALANCE SHEETS
AS
OF MARCH 31, 2006 AND JUNE 30, 2005
(UNAUDITED)
In
thousands, except per share amounts
| |
|
March
31,
2006
|
|
June
30,
2005
|
|
| |
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
4,050
|
|
$
|
3,423
|
|
|
Marketable
securities
|
|
|
78,715
|
|
|
87,142
|
|
|
Accounts
receivable
|
|
|
1,500
|
|
|
1,418
|
|
|
Unbilled
revenue
|
|
|
5,429
|
|
|
5,035
|
|
|
Inventory,
net
|
|
|
1,813
|
|
|
1,520
|
|
|
Prepaid
and other current assets
|
|
|
1,467
|
|
|
1,398
|
|
|
Total
current assets
|
|
|
92,974
|
|
|
99,936
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
9,503
|
|
|
9,883
|
|
|
Other
assets
|
|
|
265
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
102,742
|
|
$
|
110,132
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,477
|
|
$
|
2,099
|
|
|
Accrued
compensation
|
|
|
1,946
|
|
|
728
|
|
|
Other
current accrued liabilities
|
|
|
2,495
|
|
|
1,327
|
|
|
Current
portion of deferred revenue
|
|
|
6,661
|
|
|
5,072
|
|
|
Total
current liabilities
|
|
|
12,579
|
|
|
9,226
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
revenue, net of current portion
|
|
|
11,368
|
|
|
13,739
|
|
|
Other
long-term liabilities
|
|
|
374
|
|
|
325
|
|
|
Total
liabilities
|
|
|
24,321
|
|
|
23,290
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value; authorized 75,000 shares; issued and outstanding
45,074 shares and 44,695 shares as of March 31, 2006 and June 30,
2005, respectively
|
|
|
451
|
|
|
447
|
|
|
Additional
paid-in capital
|
|
|
321,187
|
|
|
318,300
|
|
|
Deferred
compensation
|
|
|
-
|
|
|
(13
|
)
|
|
Treasury
stock
|
|
|
(11,071
|
)
|
|
(11,071
|
)
|
|
Accumulated
deficit
|
|
|
(231,916
|
)
|
|
(220,727
|
)
|
|
Accumulated
other comprehensive loss
|
|
|
(230
|
)
|
|
(94
|
)
|
|
Total
stockholders’ equity
|
|
|
78,421
|
|
|
86,842
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
102,742
|
|
$
|
110,132
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
IMMUNOGEN, INC.
FOR
THE THREE AND NINE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
In
thousands, except per share amounts
| |
|
Three
Months Ended
March
31,
|
|
Nine
Months Ended
March
31,
|
|
| |
|
|
|
|
|
| |
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
| |
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development support
|
|
$
|
5,258
|
|
$
|
4,776
|
|
$
|
16,175
|
|
$
|
13,751
|
|
|
License
and milestone fees
|
|
|
3,275
|
|
|
3,040
|
|
|
5,811
|
|
|
5,615
|
|
|
Clinical
materials reimbursement
|
|
|
822
|
|
|
2,415
|
|
|
1,734
|
|
|
8,918
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
9,355
|
|
|
10,231
|
|
|
23,720
|
|
|
28,284
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of clinical materials reimbursed
|
|
|
779
|
|
|
2,286
|
|
|
1,778
|
|
|
7,822
|
|
|
Research
and development (1)
|
|
|
10,216
|
|
|
9,669
|
|
|
28,467
|
|
|
23,659
|
|
|
General
and administrative (1)
|
|
|
2,193
|
|
|
2,277
|
|
|
7,319
|
|
|
6,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
13,188
|
|
|
14,232
|
|
|
37,564
|
|
|
37,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(3,833
|
)
|
|
(4,001
|
)
|
|
(13,844
|
)
|
|
(9,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
875
|
|
|
509
|
|
|
2,351
|
|
|
1,257
|
|
|
Net
realized losses on investments
|
|
|
(7
|
)
|
|
(55
|
)
|
|
(33
|
)
|
|
(59
|
)
|
|
Gain
on sale of assets
|
|
|
-
|
|
|
-
|
|
|
3
|
|
|
-
|
|
|
Other
income (expense)
|
|
|
(15
|
)
|
|
1
|
|
|
351
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income tax expense
|
|
|
(2,980
|
)
|
|
(3,546
|
)
|
|
(11,172
|
)
|
|
(8,204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
1
|
|
|
5
|
|
|
17
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,981
|
)
|
$
|
(3,551
|
)
|
$
|
(11,189
|
)
|
$
|
(8,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
|
$
|
(0.07
|
)
|
$
|
(0.09
|
)
|
$
|
(0.27
|
)
|
$
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted average common shares outstanding
|
|
|
41,188,183
|
|
|
40,870,768
|
|
|
41,108,821
|
|
|
40,819,687
|
|
(1) Includes
the following stock compensation expense for the three and nine months ended
March 31,
| |
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
378
|
|
$
|
-
|
|
$
|
1,080
|
|
$
|
-
|
|
|
General
and administrative
|
|
|
215
|
|
|
(50
|
)
|
|
759
|
|
|
130
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
593
|
|
$
|
(50
|
)
|
$
|
1,839
|
|
$
|
130
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
IMMUNOGEN,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE NINE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
In
thousands
| |
|
Nine
Months Ended March 31,
|
|
| |
|
2006
|
|
2005
|
|
| |
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(11,189
|
)
|
$
|
(8,231
|
)
|
|
Adjustments
to reconcile net loss to net cash used for operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
2,024
|
|
|
1,625
|
|
|
Gain
on sale of fixed assets
|
|
|
(3
|
)
|
|
-
|
|
|
Loss
on sale of marketable securities
|
|
|
33
|
|
|
59
|
|
|
Inventory
reserve
|
|
|
(226
|
)
|
|
1,321
|
|
|
Stock
and deferred share unit compensation
|
|
|
1,839
|
|
|
130
|
|
|
Deferred
rent
|
|
|
30
|
|
|
4
|
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(81
|
)
|
|
1,496
|
|
|
Unbilled
revenue
|
|
|
(394
|
)
|
|
(522
|
)
|
|
Inventory
|
|
|
(66
|
)
|
|
3,494
|
|
|
Prepaid
and other current assets
|
|
|
(70
|
)
|
|
259
|
|
|
Other
assets
|
|
|
48
|
|
|
19
|
|
|
Accounts
payable
|
|
|
(622
|
)
|
|
1,133
|
|
|
Accrued
compensation
|
|
|
1,218
|
|
|
2,012
|
|
|
Other
current accrued liabilities
|
|
|
1,167
|
|
|
(172
|
)
|
|
Deferred
revenue
|
|
|
(781
|
)
|
|
(4,144
|
)
|
|
Net
cash used in operating activities
|
|
|
(7,074
|
)
|
|
(1,517
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from maturities or sales of marketable securities
|
|
|
459,593
|
|
|
783,402
|
|
|
Purchases
of marketable securities
|
|
|
(451,335
|
)
|
|
(779,570
|
)
|
|
Capital
expenditures
|
|
|
(1,644
|
)
|
|
(1,866
|
)
|
|
Proceeds
from sale of fixed assets
|
|
|
3
|
|
|
-
|
|
|
Net
cash provided by investing activities
|
|
|
6,617
|
|
|
1,966
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from stock options exercised
|
|
|
1,084
|
|
|
480
|
|
|
Net
cash provided by financing activities
|
|
|
1,084
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
|
627
|
|
|
929
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning balance
|
|
|
3,423
|
|
|
6,768
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, ending balance
|
|
$
|
4,050
|
|
$
|
7,697
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure:
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
17
|
|
$
|
16
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
IMMUNOGEN,
INC.
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
MARCH
31, 2006
A. Summary
of Significant Accounting Policies
Basis
of Presentation
The
accompanying consolidated financial statements at March 31, 2006 and June 30,
2005 and for the three and nine months ended March 31, 2006 and 2005 include
the
accounts of ImmunoGen, Inc. (the “Company”) and its wholly-owned
subsidiaries, ImmunoGen Securities Corp. and ImmunoGen Europe Limited. Although
the consolidated financial statements are unaudited, they include all of the
adjustments, consisting only of normal recurring adjustments, which management
considers necessary for a fair presentation of the Company’s financial position
in accordance with accounting principles generally accepted in the United States
for interim financial information. Certain information and footnote disclosures
normally included in the Company’s annual financial statements have been
condensed or omitted. The preparation of interim financial statements requires
the use of management’s estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the interim financial statements and the reported
amounts of revenues and expenditures during the reported period. The results
of
the interim periods are not necessarily indicative of the results for the entire
year. Accordingly, the interim financial statements should be read in
conjunction with the audited financial statements and notes thereto included
in
the Company’s Annual Report on Form 10-K for the year ended June 30,
2005.
Revenue
Recognition
The
Company enters into out-licensing and development agreements with collaborative
partners for the development of monoclonal antibody-based cancer therapeutics.
The Company follows the provisions of the Securities and Exchange Commission’s
Staff Accounting Bulletin No. 104 (SAB No. 104), Revenue
Recognition,
and
EITF 00-21, Accounting
for Revenue Arrangements with Multiple Elements
(EITF
00-21). In accordance with SAB No. 104 and EITF 00-21, the Company
recognizes revenue related to research activities as they are performed, as
long
as there is persuasive evidence of an arrangement, the fee is fixed or
determinable, and collection of the related receivable is probable. The terms
of
the Company’s agreements contain multiple elements which typically include
non-refundable license fees, payments based upon the achievement of certain
milestones and royalties on product sales. The Company evaluates such
arrangements to determine if the deliverables are separable into units of
accounting and then applies applicable revenue recognition criteria to each
unit
of accounting.
At
March
31, 2006, the Company had the following three types of collaborative contracts
with the parties identified below:
| |
•
|
License
to a single target antigen (single target
license):
|
Biogen
Idec, Inc.
Boehringer
Ingelheim International GmbH
Centocor, Inc.,
a wholly-owned subsidiary of Johnson & Johnson
Genentech, Inc.
(multiple licenses)
Millennium
Pharmaceuticals, Inc.
| |
•
|
Broad
option agreements to acquire rights to a limited number of targets
over a
specified time period (broad
license):
|
Amgen,
Inc. (formerly Abgenix, Inc.)
Genentech, Inc.
Millennium
Pharmaceuticals, Inc.
|
|
• |
Broad
agreement to discover, develop and commercialize antibody-based anticancer
products:
|
Sanofi-aventis
Group (sanofi-aventis)
Generally,
all of these collaboration agreements provide that the Company will
(i) manufacture preclinical and clinical materials for its collaborators,
at the collaborator’s request and cost, or in some cases, cost plus a profit
margin, (ii) receive payments upon the collaborators’ achievements of
certain milestones and (iii) receive royalty payments, generally until the
later of the last applicable patent expiration or 12 years after product launch.
The Company is required to provide technical training and any process
improvements and know-how to its collaborators during the term of the
collaboration agreements. Practically, once a collaborator receives U. S. Food
and Drug Administration (FDA) approval for any drug and the manufacturing
process used to produce the drug, the collaborator will not be able to
incorporate any process improvements or know-how into its manufacturing process
without additional testing and review by the FDA. Accordingly, the Company
believes that it is very unlikely that its collaborators will require the
Company’s services subsequent to FDA approval.
Generally,
upfront payments on single target licenses are deferred over the period of
the
Company’s substantial involvement during development. ImmunoGen employees are
available to assist the Company’s collaborators during the development of their
products. The Company estimates this development phase to begin at the inception
of the collaboration agreement and conclude when and if the product receives
FDA
approval. The Company believes this period of involvement is, on average, six
years. At each reporting period, the Company analyzes individual product facts
and circumstances and reviews the estimated period of its substantial
involvement to determine whether a significant change in its estimates has
occurred and adjusts the deferral period accordingly. In the event that a single
target license were to be terminated, the Company would recognize as revenue
any
portion of the upfront fee that had not previously been recorded as revenue,
but
was classified as deferred revenue at the date of such termination.
The
Company defers upfront payments received from its broad licenses over the period
during which the collaborator may elect to receive a license. These periods
are
specific to each collaboration agreement, but are between seven and
12 years. If a collaborator selects an option to acquire a license under
these agreements, any option fee is deferred and recorded over the life of
the
option, generally 12 to 18 months. If a collaborator exercises an option
and the Company grants a single target license to the collaborator, the Company
defers the license fee and accounts for the fee as it would an upfront payment
on a single target license, as discussed above. In the event that a broad
license agreement were to be terminated, the Company would recognize as revenue
any portion of the upfront fee that had not previously been recorded as revenue,
but was classified as deferred revenue at the date of such termination. In
the
event that a collaborator elects to discontinue development of a specific
product candidate under a single target license, but retains its right to use
the Company’s technology to develop an alternative product candidate to the same
target or a target substitute, the Company would cease amortization of any
remaining portion of the upfront fee until there is substantial pre-clinical
activity on another product candidate.
The
Company’s discovery, development and commercialization agreement with
sanofi-aventis included an upfront payment of $12.0 million that
sanofi-aventis paid to ImmunoGen in August 2003. The Company deferred the
upfront payment and recognizes it ratably over the period of the Company’s
substantial involvement. The Company estimates this period to be five years,
which includes the term of the collaborative research program of three years
and
two 12-month extensions that sanofi-aventis may exercise. The discovery,
development and commercialization agreement also provides that ImmunoGen will
receive committed funding of $50.7 million over the initial three-year period,
as determined in each of the three research program years. The committed
research funding is based upon resources that ImmunoGen is required to
contribute to the collaboration. The Company records the research funding as
it
is earned based upon its actual resources utilized in the collaboration. In
August 2005, sanofi-aventis exercised the first of the two 12-month extensions.
This extension will provide the Company with $18.2 million in additional
committed funding over the twelve months beginning September 1,
2006.
At
the
conclusion of the second sanofi-aventis research program year on August 31,
2005, a review of research activities during this period was conducted. This
review identified $1.1 million in billable research activities performed under
the program during the fiscal year ended June 30, 2005, which had not been
billed or recorded as revenue. Accordingly, the Company has included this
additional $1.1 million of research and support revenue in the accompanying
consolidated statement of operations for the nine months ended March 31, 2006.
The Company does not believe such previously unrecorded revenue was material
to
the results of operations or the financial position of the Company for any
interim period of 2005 or for the year ended June 30, 2005.
When
milestone fees are specifically tied to a separate earnings process, revenue
is
recognized when the milestone is achieved. In addition, when appropriate, the
Company recognizes revenue from certain research payments based upon the level
of research services performed during the period of the research contract.
Deferred revenue represents amounts received under collaborative agreements
and
not yet earned pursuant to these policies. Where the Company has no continuing
involvement, the Company will record non-refundable license fees as revenue
upon
receipt and will record milestone revenue upon achievement of the milestone
by
the
collaborative partner.
The
Company may produce preclinical and clinical materials for its collaborators.
The Company is reimbursed for its fully burdened cost to produce clinical
materials and, in some cases, fully burdened cost plus a profit margin. The
Company recognizes revenue on preclinical and clinical materials when it has
shipped the materials, the materials have passed all quality testing required
for collaborator acceptance and title has transferred to the
collaborator.
The Company also produces research material for potential collaborators under
material transfer agreements. Additionally, research activities are
performed, including developing antibody-specific conjugation processes, on
behalf of the Company’s collaborators and potential collaborators during the
early evaluation and preclinical testing stages of drug development. Generally,
the Company is reimbursed for its fully burdened cost of producing these
materials or providing these services. The Company records the amounts received
for the materials produced or services performed as a component of research
and
development support.
Marketable
Securities
The
Company invests its cash balances in marketable securities of highly rated
financial institutions and investment-grade debt instruments and limits the
amount of credit exposure with any one entity. The Company has classified its
marketable securities as “available-for-sale” and, accordingly, carries such
securities at aggregate fair value. Unrealized gains and losses, if any, are
reported as other comprehensive income (loss) in stockholders’ equity. The
amortized cost of debt securities in this category is adjusted for amortization
of premiums and accretion of discounts to maturity. Such amortization is
included in interest income. Realized gains and losses on available-for-sale
securities are included in net realized losses on investments. The cost of
securities sold is based on the specific identification method. Interest and
dividends are included in interest income.
Unbilled
Revenue
The
majority of the Company’s
unbilled revenue at March 31, 2006 represents (i) committed research
funding earned based on actual resources utilized under the Company’s discovery,
development and commercialization agreement with sanofi-aventis;
(ii) reimbursable expenses incurred under the Company’s discovery,
development and commercialization agreement with sanofi-aventis that the Company
has not yet invoiced; and (iii) research funding earned based on actual
resources utilized under the Company’s development and license agreements with
Biogen Idec and Centocor.
Inventory
Inventory
costs primarily relate to clinical trial materials being manufactured for sale
to the Company's collaborators. Inventory is stated at the lower of cost or
market as determined on a first-in, first-out (FIFO) basis.
Inventory
at March 31, 2006 and June 30, 2005 is summarized below (in
thousands):
| |
|
March
31,
2006
|
|
June
30, 2005
|
|
| |
|
|
|
|
|
|
Raw
materials
|
|
$
|
-
|
|
$
|
797
|
|
|
Work
in process
|
|
|
1,813
|
|
|
723
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,813
|
|
$
|
1,520
|
|
Inventory
cost is stated net of a valuation allowance of $3.5 million and $3.7 million
as
of March 31, 2006 and June 30, 2005, respectively. The valuation allowance
represents the cost of DM1, DM4 and ansamitocin P3 that the Company considers
to
be in excess of a 12-month supply based on current collaborator firm fixed
orders and projections.
DM1
and
DM4 are cell-killing agents used in all Tumor-Activated Prodrug (TAP) product
candidates currently in preclinical and clinical testing, and are the subject
of
the Company’s collaborations. DM1 and DM4 (collectively referred to as DMx) are
both
manufactured
from a precursor, ansamitocin P3.
The
actual amount of ansamitocin P3 and DMx that will be produced in future periods
under certain current and future potential agreements is highly uncertain.
As
such, the amount of ansamitocin P3 and/or DMx produced could be more than is
required
to
support the development of the Company’s and its collaborators’ products. Such
excess product, as determined under the Company’s inventory reserve policy, has
been charged to research and development expense to date.
The
Company produces preclinical and clinical materials for its collaborators either
in anticipation of or in support of clinical trials, or for process development
and analytical purposes. Under the terms of supply agreements with its
collaborators, the Company generally receives rolling six month firm-fixed
orders for conjugate that the Company is required to manufacture, and rolling
12-month manufacturing projections for the quantity of conjugate the
collaborator expects to need in any given 12-month period. The amount of
clinical material produced is directly related to the number of on-going
clinical trials for which the Company is producing clinical material for itself
and its collaborators, the speed of enrollment in those trials and the dosage
schedule of each clinical trial. Because these elements can vary significantly
over the course of a trial, significant differences between our collaborators’
actual manufacturing orders and their projections could result in our actual
12-month usage of DMx and ansamitocin P3 varying significantly from our
estimated usage at an earlier reporting period. To the extent that a
collaborator has provided the Company with a firm fixed order, the collaborator
is contractually required to reimburse the Company the full cost of the
conjugate and any agreed margin thereon, even if the collaborator subsequently
cancels the manufacturing run.
The
Company accounts for the DMx and ansamitocin P3 inventory as
follows:
a) That
portion of the DMx and/or ansamitocin P3 that the Company intends to use in
the
production of its own products is expensed as incurred;
b) To
the
extent that the Company has collaborator projections for up to 12 months of
firm fixed orders, the Company capitalizes the value of DMx and ansamitocin
P3
that will be used in the production of conjugate subject to these firm fixed
orders and/or projections;
c) The
Company considers more than a 12-month supply of ansamitocin P3 and/or DMx
that
is not supported by collaborators' firm fixed orders or projections to be
excess. The Company establishes a reserve to reduce to zero the value of any
such excess ansamitocin P3 or DMx inventory with a corresponding charge to
research and development expense; and
d) The
Company also considers any other external factors and information of which
it
becomes aware and assesses the impact of such factors or information on the
net
realizable value of the DMx and ansamitocin P3 inventory at each reporting
period.
At
March
31, 2006, the Company's on-hand supply of DMx and ansamitocin P3 (including
$2.1 million of DMx and $1.8 million of ansamitocin P3) represented more
than a 12-month supply based upon current collaborator firm fixed orders and
projections. In the year ended June 30, 2005, the Company recorded as research
and development expense $2.3 million of ansamitocin P3 and DMx that the Company
identified as excess based upon the Company's inventory policy as described
above. No additional amounts were recorded during the nine months ended March
31, 2006 related to excess inventory, as the total amount of the Company’s
on-hand supply of DMx and ansamitocin P3 was fully reserved. However, in the
nine months ended March 31, 2006, the Company recorded $153,000 to write down
certain batches of ansamitocin P3 and DMx and certain work in process amounts
to
their net realizable value. If the Company experiences an increase in on-hand
supply of DMx or ansamitocin P3, a corresponding change to the Company's
collaborators' projections could result in significant changes in the Company's
estimate of the net realizable value of DMx and ansamitocin P3 inventory.
Reductions in collaborators' projections could indicate that the Company has
additional excess DMx and/or ansamitocin P3 inventory and the Company would
then
evaluate the need to record further valuation allowances, included as charges
to
research and development expense.
Computation
of Net Loss Per Common Share
Basic
net
loss per common share is calculated based upon the weighted average number
of
common shares outstanding during the period. Diluted net loss per common share
incorporates the dilutive effect of stock options and warrants. The total number
of options and warrants convertible into ImmunoGen common stock and the
resulting ImmunoGen common stock equivalents, as calculated in accordance with
the treasury-stock accounting method, are included in the following table (in
thousands):
| |
|
Three
Months Ended
March
31,
|
|
Nine
Months Ended
March
31,
|
|
| |
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
Options
and warrants convertible into Common Stock
|
|
|
5,409
|
|
|
5,443
|
|
|
5,409
|
|
|
5,443
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Equivalents
|
|
|
1,086
|
|
|
1,723
|
|
|
1,382
|
|
|
1,622
|
|
ImmunoGen
common stock equivalents have not been included in the calculations of dilutive
net loss per common share calculations for the three and nine months ended
March
31, 2006 and 2005 because their effect is anti-dilutive due to the Company’s net
loss position.
Comprehensive
Loss
The
Company presents comprehensive income (loss) in accordance with Statement of
Financial Accounting Standards (SFAS) No. 130, “Reporting Comprehensive
Income.” For the three and nine months ended March 31, 2006, total comprehensive
loss equaled $3.1 million and $11.3 million, respectively. For the three
and nine months ended March 31, 2005, total comprehensive loss equaled $3.6
million and $8.3 million, respectively. Comprehensive loss comprises the
Company’s net loss and the change in its unrealized gains and losses on its
available-for-sale marketable securities for all periods presented.
Stock-Based
Compensation
As
of
March 31, 2006, the Company has one share-based compensation plan, which is
the
ImmunoGen, Inc. Restated Stock Option Plan. The compensation cost that has
been
incurred during the three and nine months ended March 31, 2006 under this plan
is $593,000 and $1.8 million, respectively.
The
Company’s Restated Stock Option Plan as amended, or the Plan, which is
shareholder-approved, permits the grant of share options to its employees,
consultants and directors for up to 8.55 million shares of common stock. Option
awards generally are granted with an exercise price equal to the market price
of
the Company’s stock at the date of grant. Options vest at various periods of up
to four years and may be exercised within ten years of the date of
grant.
Effective
July 1, 2005, the Company adopted the fair value recognition provisions of
Financial Accounting Standards Board (FASB) Statement 123(R), Share-Based
Payment (Statement
123(R)), using the modified-prospective-transition method. Under that transition
method, compensation cost recognized for the first nine months of 2006 includes:
(a) compensation cost for all share-based payments granted, but not yet vested
as of July 1, 2005, based on the grant-date fair value estimated in accordance
with the original provisions of Statement 123 (as defined below), and (b)
compensation cost for all share-based payments granted subsequent to July 1,
2005, based on the grant-date fair value estimated in accordance with the
provisions of Statement 123(R). Such amounts have been reduced by the
Company’s estimate of forfeitures of all unvested awards. Prior to July 1, 2005,
the Company accounted for its stock-based compensation plans under the
recognition and measurement provisions of Accounting Principles Board Opinion
No. 25, “Accounting for Stock Issued to Employees” (APB 25), and related
interpretations for all awards granted to employees. Under APB 25, when the
exercise price of options granted to employees under these plans equals the
market price of the common stock on the date of grant, no compensation expense
is recorded. When the exercise price of options granted to employees under
these plans is less than the market price of the common stock on the date of
grant, compensation expense is recognized over the vesting period. Results
for prior periods have not been restated. For stock options granted to
non-employees, the Company recognizes compensation expense in accordance with
the requirements of Statement of Financial Accounting Standards (SFAS)
No. 123, “Accounting for Stock Based Compensation” (Statement
123). Statement 123 requires that companies recognize compensation expense
based on the estimated fair value of options granted to non-employees over
their
vesting period, which is generally the period during which services are
rendered
by
such
non-employees.
As
a
result of adopting Statement 123(R) on July 1, 2005, the Company’s net loss for
the three and nine months ended March 31, 2006 is $574,000 and $1.8 million
greater, respectively, than if it had continued to account for share-based
compensation under APB 25. Basic and diluted net loss per share for the three
and nine months ended March 31, 2006 would have been $(0.06) and $(0.23),
respectively, had the Company not been required to adopt Statement 123(R),
compared to basic and diluted net loss per share of $(0.07) and $(0.27), as
reported.
The
following table illustrates the effect on net loss and net loss per share if
the
Company had applied the fair value recognition provisions of Statement 123
(2005) and 123(R) (2006) to options granted under the Company’s stock
option plans in all periods presented. For purposes of this pro-forma
disclosure, the value of the options is estimated using a Black-Scholes
option-pricing model and amortized to expense over the options’ vesting
periods (in thousands, except per share data).
| |
|
Three
Months Ended
March
31,
|
|
Nine
Months Ended
March
31,
|
|
| |
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
Net
loss, as reported
|
|
$
|
(2,981
|
)
|
$
|
(3,551
|
)
|
$
|
(11,189
|
)
|
$
|
(8,231
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add:
Total stock-based compensation expense determined under the intrinsic
value method for all employee awards
|
|
|
-
|
|
|
22
|
|
|
-
|
|
|
84
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deduct:
Total stock-based compensation expense determined under the fair
value
method for all employee awards
|
|
|
-
|
|
|
(694
|
)
|
|
-
|
|
|
(2,150
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss (pro forma 2005)
|
|
$
|
(2,981
|
)
|
$
|
(4,223
|
)
|
$
|
(11,189
|
)
|
$
|
(10,297
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share, as reported
|
|
$
|
(0.07
|
)
|
$
|
(0.09
|
)
|
$
|
(0.27
|
)
|
$
|
(0.20
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per common share (pro forma 2005)
|
|
$
|
(0.07
|
)
|
$
|
(0.10
|
)
|
$
|
(0.27
|
)
|
$
|
(0.25
|
)
|
The
fair
value of each stock option is estimated on the date of grant using the
Black-Scholes option-pricing model that uses the assumptions noted in the
following table. Expected volatility is based exclusively on historical
volatility data of the Company’s stock. The expected term of stock options
granted is based exclusively on historical data and represents the period of
time that stock options granted are expected to be outstanding. The expected
term is calculated for and applied to one group of stock options as the Company
does not expect substantially different exercise or post-vesting termination
behavior amongst its employee population. The risk-free rate of the stock
options is based on the U.S. Treasury yield curve in effect at the time of
grant
for the expected term period.
| |
|
Three
Months Ended March 31,
|
|
Nine
Months Ended March 31,
|
|
| |
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
Dividend
|
|
|
None
|
|
|
None
|
|
|
None
|
|
|
None
|
|
|
Volatility
|
|
|
81.60
|
%
|
|
87.30
|
%
|
|
81.60
|
%
|
|
87.30
|
%
|
|
Risk-free
interest rate
|
|
|
4.51
|
%
|
|
3.74
|
%
|
|
4.26
|
%
|
|
3.33
|
%
|
|
Expected
life (years)
|
|
|
6.0
|
|
|
5.5
|
|
|
6.0
|
|
|
5.5
|
|
Using
the
Black-Scholes option-pricing model, the weighted average grant date fair values
of options granted during the three months ended March 31, 2006 and 2005 were
$3.24 and $4.97, respectively, and $4.15 and $4.09 for options granted during
the nine months ended March 31, 2006 and 2005, respectively.
A
summary
of option activity under the Plan as of March 31, 2006, and changes during
the
nine month period then ended is presented below (in thousands, except
weighted-average data):
|
|
|
Number
of Stock Options
|
|
Weighted-average
Exercise
Price |
|
Weighted-average
Remaining Life in Yrs
|
|
Aggregate
Intrinsic Value
|
| |
|
|
|
|
|
|
|
|
| Outstanding
at June 30, 2005 |
|
|
5,862 |
|
$ |
6.73 |
|
|
|
|
|
|
| Granted |
|
|
148 |
|
|
5.61 |
|
|
|
|
|
|
| Exercised |
|
|
(379 |
) |
|
2.86 |
|
|
|
|
|
|
| Forfeited/Canceled |
|
|
222 |
|
|
11.42 |
|
|
|
|
|
|
| Outstanding
at March 31, 2006 |
|
|
5,409 |
|
|
6.84 |
|
|
5.64 |
|
$ |
4,356 |
| Exercisable
at March 31, 2006 |
|
|
3,883 |
|
$ |
7.32 |
|
|
3.99 |
|
$ |
4,263 |
A
summary
of the status of the Company’s nonvested shares as of March 31, 2006 is
presented below (in thousands, except weighted-average data):
|
|
|
Shares
|
|
Weighted-average
grant date fair value
|
| Nonvested
at June 30, 2005 |
|
|
1,612
|
|
$ |
4.43 |
| Granted
during the year |
|
|
148 |
|
|
4.15 |
| Vested
during the year |
|
|
(90 |
) |
|
5.09 |
| Forfeited
during the year |
|
|
(144 |
) |
|
4.94 |
| Nonvested
at March 31, 2006 |
|
|
1,526 |
|
$ |
4.23 |
As
of
March 31, 2006, the estimated fair value of unvested employee awards was $4.4
million net of estimated forfeitures. The weighted-average remaining vesting
period for these awards is approximately 2.0 years.
A
summary
of option activity for shares vested during the nine month periods ended March
31, 2006 and 2005 is presented below (in thousands):
| |
|
Nine
Months ended March 31,
|
|
| |
|
2006
|
|
2005
|
|
| |
|
|
|
|
|
|
Total
fair value of shares vested
|
|
$
|
497
|
|
$
|
538
|
|
|
Total
intrinsic value of options exercised
|
|
|
707
|
|
|
817
|
|
|
Cash
received for exercise of stock options
|
|
|
1,084
|
|
|
480
|
|
On
February 1, 2006, the Company’s Board of Directors approved certain changes to
the ImmunoGen, Inc. Restated Stock Option Plan (the Plan). The amendments
provide that in the event of a Change of Control of the Company all options
outstanding under the Plan shall become fully vested and immediately exercisable
as of the date of the Change of Control. This provision shall apply to all
options currently outstanding under the Plan and all new options granted on
or
after the date of the amendment. Currently, the Company is not involved in
any
transactions or discussions thereof that would constitute a Change in Control.
The amendments did not have an impact on the Company’s statement of
operations.
During
the nine months ended March 31, 2006, holders of options issued under the Plan
exercised their rights to acquire an aggregate of 379,219 shares of common
stock
at prices ranging from $1.31 to $6.27 per share. The total proceeds to the
Company from these option exercises were approximately $1.1
million.
During
the three and nine months ended March 31, 2006, the Company recorded
approximately $31,000 of compensation expense related to the modification of
certain outstanding common stock options.
Reclassifications
Certain
prior period amounts have been adjusted to conform to the current year
presentation.
Segment
Information
During
the three and nine months ended March 31, 2006, the Company continued to operate
in one reportable business segment under the management approach of SFAS
No. 131, “Disclosures about Segments of an Enterprise and Related
Information,” which is the business of discovery of monoclonal antibody-based
cancer therapeutics.
Revenues
from sanofi-aventis accounted for approximately 65% and 70% of revenues for
the
three months ended March 31, 2006 and 2005, respectively, and 73% and 62% for
the nine months ended March 31, 2006 and 2005, respectively. Revenues from
Genentech accounted for approximately 27% and 5% of revenues for the three
months ended March 31, 2006 and 2005, respectively, and 16% and 6% for the
nine
months ended March 31, 2006 and 2005, respectively. Revenues from
Boehringer Ingelheim accounted for approximately 0% and 8% of revenues for
the
three months ended March 31, 2006 and 2005, respectively, and 0% and 16% for
the
nine months ended March 31, 2006 and 2005, respectively. Revenues from
Millennium Pharmaceuticals accounted for 1% and 10% of revenues for the three
months ended March 31, 2006 and 2005, respectively, and 2% and 13% for the
nine
months ended March 31, 2006 and 2005, respectively. There were no other
significant customers of the Company in the three and nine months ended March
31, 2006 and 2005.
Recent
Accounting Pronouncements
In
June
2005, the FASB issued SFAS No. 154, Accounting
Changes and Error Corrections,
which
will require entities that voluntarily make a change in accounting principle
to
apply that change retrospectively to prior periods’ financial statements, unless
this would be impracticable. SFAS No. 154 supercedes APB Opinion No. 20,
Accounting
Changes,
which
previously required that most voluntary changes in accounting principle be
recognized by including in the current period’s net income the cumulative effect
of changing to the new accounting principle. SFAS No. 154 also makes a
distinction between “retrospective application” of an accounting principle and
the “restatement” of financial statements to reflect the correction of an error.
Another significant change in practice under SFAS No. 154 will be that if an
entity changes its method of depreciation, amortization, or depletion for
long-lived, non-financial assets, the change must be accounted for as a change
in accounting estimate. Under APB No. 20, such a change would have been reported
as a change in accounting principle. SFAS No. 154 applies to accounting changes
and error corrections that are made in fiscal years beginning after December
15,
2005. We do not expect the adoption of this pronouncement to have a material
effect on the Company’s financial position or results of
operations.
B. Agreements
Sanofi-Aventis
In
August
2005, sanofi-aventis exercised the first of its two options to extend the term
of the research collaboration with the Company for another year, and committed
to pay the Company a minimum of $18.2 million in research support over the
twelve months beginning September 1, 2006. This funding is in addition to the
$50.7 million in research support already committed for the three-year period
ending August 31, 2006.
Genentech, Inc.
In
May 2000, the Company executed two separate licensing agreements with
Genentech. The first agreement grants an exclusive license to Genentech for
ImmunoGen's maytansinoid technology for use with antibodies, such as trastuzumab
(Herceptin®), that target the HER2 cell surface receptor. The second agreement
executed in May 2000 provides Genentech with broad access to ImmunoGen's
TAP technology, “Technology Access Agreement”, for use with Genentech's other
proprietary antibodies. This multi-year agreement provides Genentech with a
license to utilize ImmunoGen's TAP platform in its antibody product research
efforts and an option to obtain product licenses for a limited number of antigen
targets over the agreement's five-year term. The multi-year agreement included
a
provision that allowed Genentech to renew the agreement for one additional
three-year term by payment of a $2.0 million access fee. On April 27, 2005,
Genentech renewed the agreement and paid the related $2.0 million
technology access fee to ImmunoGen.
On
April
27, 2005, July 22, 2005 and December 12, 2005, Genentech licensed exclusive
rights to use ImmunoGen’s maytansinoid TAP technology with its therapeutic
antibodies to undisclosed targets. Under the terms defined in the May 2000
Technology Access
Agreement,
for each of these three licenses ImmunoGen received a $1.0 million license
fee,
and is entitled to receive milestone payments that total $38 million,
assuming all benchmarks are met; ImmunoGen also is entitled to receive royalties
on the sales of any resulting products. Genentech is responsible for the
development, manufacturing, and marketing of any products resulting from the
licenses.
On
January 27, 2006, Genentech notified the Company that the trastuzumab-DM1
Investigational New Drug (IND) application submitted by Genentech to the FDA
had
become effective. Under the terms of the May 2000 exclusive license agreement
for the HER2 target, this event triggered a $2.0 million milestone payment
to
the Company.
Millennium
Pharmaceuticals, Inc.
On
January 25, 2006, Millennium Pharmaceuticals, Inc. notified the Company that,
as
part of its ongoing portfolio management process and based on the evaluation
of
recent clinical data in the context of other opportunities in its pipeline,
Millennium had decided not to continue the development of its MLN2704 compound.
MLN2704 consists of a Millennium antibody to the Prostate-Specific Membrane
Antigen (PSMA) and ImmunoGen’s DM1 and was in development by Millennium under a
2002 license that gave Millennium exclusive rights to use ImmunoGen’s
maytansinoid TAP technology with antibodies targeting PSMA. Millennium retains
its right to use ImmunoGen’s maytansinoid TAP technology with antibodies
targeting PSMA. As a result, the Company anticipates that Millennium
Pharmaceuticals, Inc. will have no demand for conjugate material in the near
future. However, this anticipated reduction in demand did not result in any
further write-down of DM1 or P3 inventory. We have ceased amortization of the
remaining portion of the upfront fee paid by Millennium as they retain rights
to
develop and alternative product candidate with an antibody targeting PSMA.
On
March
27, 2006, Millennium extended the agreement that provides Millennium with
certain
rights to test ImmunoGen’s (TAP) technology with antibodies to specific targets
and to license the right to use the technology to develop products on the terms
defined in the agreement. This agreement was scheduled to expire March 30,
2006
unless extended by Millennium. It is now scheduled to expire March 30,
2007. In consideration for this extension, Millennium paid to the Company an
extension fee equal to $250,000.
The
Company has agreements with other companies with respect to its compounds,
as
described elsewhere in this Quarterly Report and in its Annual Report on
Form 10-K.
C. Capital
Stock
During
the three and nine months ended March 31, 2006, the Company recaptured
approximately $19,000 and $35,000 of previously recorded compensation expense,
respectively, related to stock units outstanding under the Company’s 2001
Non-Employee Director Stock Plan (a stock appreciation right plan). No stock
units have been issued under the 2001 Plan subsequent to June 30,
2004.
Under
the
Company’s 2004 Non-Employee Director Compensation and Deferred Share Unit Plan
(a stock appreciation right plan), approved in June 2004, the Company
issued 13,817 deferred share units during the nine months ended March 31, 2006.
The Company recorded approximately $6,000 and $54,000 in compensation expense
related to deferred share units outstanding under the 2004 Plan during the
three
and nine months ended March 31, 2006, respectively. The
Company recorded approximately $(5,100) and $39,900 in compensation (expense
reduction) and expense related to the issuance of 10,169 stock units for
director services rendered during the three and nine months ended March 31,
2005.
The
value
of stock units and deferred share units, discussed above, will fluctuate from
period to period as the market value of the Company’s common stock increases or
decreases at each reporting period.
OVERVIEW
Since
the
Company’s inception, we have been principally engaged in the development of
antibody-based anticancer therapeutics . The combination of our expertise in
antibodies and cancer biology has resulted in the development of both
proprietary product candidates and technologies. Our proprietary
Tumor-Activated Prodrug, or TAP, technology combines extremely potent small
molecule cytotoxic agents with monoclonal antibodies that bind specifically
to
cancer cells. Our TAP technology is designed to increase the potency of
tumor-targeting antibodies and kill cancer cells with only modest damage to
healthy tissue. The cytotoxic agents we use in our TAP compounds currently
involved in clinical testing are the maytansinoid DM1 and DM4 molecules,
chemical derivatives of a naturally occurring substance called maytansine.
We
also use our expertise in antibodies and cancer to develop other types of
therapeutics, such as naked antibody anticancer product candidates.
We
have
entered into collaborative agreements that enable companies to use our TAP
technology to develop commercial product candidates containing their antibodies.
We have also used our proprietary TAP technology in conjunction with our
in-house antibody expertise to develop our own anticancer product
candidates. Under the terms of our collaborative agreements, we are
entitled to upfront fees, milestone payments, and royalties on any commercial
product sales. In July 2003, we announced a discovery, development and
commercialization collaboration with Aventis Pharmaceuticals, Inc. (now the
sanofi-aventis Group). Under the terms of this agreement,
sanofi-aventis gained commercialization rights to three of the most advanced
product candidates in our preclinical pipeline and the commercialization rights
to certain new product candidates developed during the research program portion
of the collaboration. This collaboration allows us to access sanofi-aventis’
clinical development and commercialization capabilities. Under the terms of
the
sanofi-aventis agreement, we also are entitled to receive committed research
funding of approximately $50.7 million during the three-year research
program. In August 2005, sanofi-aventis exercised its contractual right to
extend the term of its research program with the Company and committed to fund
$18.2 million in research support over the twelve months beginning September
1,
2006. This funding is in addition to the research support already committed
for
the three years ending August 31, 2006. Should sanofi-aventis elect to exercise
its contractual right to extend the term of the research program for the second
additional 12-month period, we will receive additional research funding.
We
are
reimbursed our fully burdened cost to manufacture preclinical and clinical
materials and, under certain collaborative agreements, the reimbursement
includes a profit margin. Currently, our collaborative partners include
Amgen, Inc. (formerly Abgenix, Inc.), Biogen Idec, Boehringer Ingelheim
International GmbH, Centocor, Inc., Genentech, Inc., Millennium
Pharmaceuticals, Inc., and the sanofi-aventis Group. We expect that
substantially all of our revenue for the foreseeable future will result from
payments under our collaborative arrangements.
On
January 27, 2006, Genentech notified us that the trastuzumab-DM1 Investigational
New Drug (IND) application submitted by Genentech to the FDA had become
effective. Under the terms of the May 2000 exclusive license agreement for
antibodies to HER2, this event triggered a $2.0 million milestone
payment.
On
January 25, 2006, Millennium Pharmaceuticals, Inc. notified us that, as part
of
its ongoing portfolio management process and based on the evaluation of recent
clinical data in the context of other opportunities in its pipeline, Millennium
had decided not to continue the development of its MLN2704 compound. MLN2704
consists of a Millennium antibody to the Prostate-Specific Membrane Antigen
(PSMA) and ImmunoGen’s DM1 and was in development by Millennium under a 2002
license that gave Millennium exclusive rights to use ImmunoGen’s maytansinoid
TAP technology with antibodies targeting PSMA. Millennium retains its right
to
use ImmunoGen’s maytansinoid TAP technology with antibodies targeting PSMA. As a
result, we anticipate that Millennium Pharmaceuticals, Inc. will have no demand
for conjugate material in the near future. However, this reduction in demand
did
not result in any further write-down of DM1 or P3 inventory.
In
August 2003, Vernalis completed its acquisition of British Biotech. In
connection with this acquisition, the merged company, called Vernalis plc,
announced that it intended to review its merged product candidate portfolio,
including its collaboration with ImmunoGen on huN901-DM1. After discussion
with
Vernalis, in January 2004, we announced that we would take over further
development of the product candidate. Pursuant to the terms of the termination
agreement executed on January 7, 2004, Vernalis retained responsibility for
the conduct and expense of the study it initiated in the United States (Study
001) until June 30, 2004, and the study it had started in the United Kingdom
(Study 002) through completion. We took over responsibility for Study 001 on
July 1, 2004 and, in September 2005, we announced the initiation of our own
clinical trial with huN901-DM1 in multiple myeloma (Study 003). On December
15,
2005, we executed an amendment to the January 7, 2004 Termination Agreement
with
Vernalis. Under the terms of the amendment, ImmunoGen assumed responsibility
for
Study 002 as of December 15, 2005, including the cost of its completion. Under
the amendment, Vernalis paid ImmunoGen $365,000 in consideration of the expected
cost of the obligations assumed by ImmunoGen with the amendment. This
$365,000 has been recognized as other income in the accompanying Consolidated
Statements of Operations for the nine months ended March 31, 2006.
On
January 8, 2004, we announced that we intended to advance cantuzumab
mertansine into human testing to assess the clinical utility of the compound
in
certain indications. In October 2004, we decided to move forward huC242-DM4
into clinical trials instead of cantuzumab mertansine (huC242-DM1). We initiated
a Phase I clinical trial with huC242-DM4 in June 2005.
Based
upon the results of our clinical trials, if and when they are completed, we
will
evaluate whether to continue clinical development of huN901-DM1 and huC242-DM4,
and, if so, whether we will seek a collaborative partner or partners to continue
the clinical development and commercialization of either or both of these
compounds.
To
date,
we have not generated revenues from commercial product sales and we expect
to
incur significant operating losses for the foreseeable future. We do not
anticipate that we will have a commercially approved product within the
foreseeable future. Research and development expenses are expected to increase
significantly in the near term as we continue our development efforts, including
expanded clinical trials. As of March 31, 2006, we had approximately $82.8
million in cash and marketable securities. We anticipate that our current
capital resources and future collaboration payments, including the committed
research funding due us under the sanofi-aventis collaboration over the
remainder of the research program, will enable us to meet our operational
expenses and capital expenditures for at least the next two to three fiscal
years.
We
anticipate that the increase in total cash expenditures will be partially offset
by collaboration-derived proceeds including milestone payments and the committed
research funding to which we are entitled pursuant to the sanofi-aventis
collaboration. Accordingly, period-to-period operational results may fluctuate
dramatically based upon the timing of receipt of the proceeds. We believe that
our established collaborative agreements, while subject to specified milestone
achievements, will provide funding to assist us in meeting obligations under
our
collaborative agreements while also assisting in providing funding for the
development of internal product candidates and technologies. However, we can
give no assurances that such collaborative agreement funding will, in fact,
be
realized on the time frames we expect, or at all. Should we or our partners
not
meet some or all of the terms and conditions of our various collaboration
agreements, we may be required to pursue additional strategic partners, secure
alternative financing arrangements, and/or defer or limit some or all of our
research, development and/or clinical projects.
Critical
Accounting Policies
We
prepare our consolidated financial statements in accordance with accounting
principles generally accepted in the United States. The preparation of
these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosure of contingent assets and liabilities. On an on-going
basis, we evaluate our estimates, including those related to our collaborative
agreements and inventory. We base our estimates on historical experience
and various other assumptions that we believe to be reasonable under the
circumstances. Actual results may differ from these
estimates.
We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our consolidated financial
statements.
Revenue
Recognition
We
estimate the period of our significant involvement during development for each
of our collaborative agreements. We recognize any upfront fees received from
our
collaborators ratably over this estimated period of significant
involvement. We generally believe our period of significant involvement
occurs between the date we sign a collaboration agreement and projected FDA
approval of our collaborators’ product that is the subject of the collaboration
agreement. We estimate that this time period is generally six years. The
actual period of our involvement could differ significantly based upon the
results of our collaborators’ preclinical and clinical trials, competitive
products that are introduced into the market and the general uncertainties
surrounding drug development. Any difference between our estimated period
of involvement during development and our actual period of involvement could
have a material effect upon our results of operations.
We
recognize the $12.0 million upfront fee we received from sanofi-aventis ratably
over our estimated period of significant involvement of five years. This
estimated period includes the initial three-year term of the collaborative
research program, the one 12-month extension sanofi-aventis exercised on August
2005, and one remaining 12-month extension that sanofi-aventis may exercise.
In
the event our period of involvement is less than we estimated, the remaining
deferred balance of the upfront fee will be recognized over this shorter
period.
Inventory
We
review
our estimates of the net realizable value of our inventory at each reporting
period. Our estimate of the net realizable value of our inventory is
subject to judgment and estimation. The actual net realizable value of our
inventory could vary significantly from our estimates and could have a material
effect on our financial condition and results of operations in any reporting
period. We consider quantities of DM1 and DM4, collectively referred to as
DMx, and ansamitocin P3 in excess of 12 months’ projected usage that is not
supported by collaborators’ firm fixed orders and projections to be excess. To
date, we have fully reserved any such material identified as excess with a
corresponding charge to research and development expense. Our estimate of 12
months’ usage of DMx and ansamitocin P3 material inventory is based upon our
collaborators’ estimates of their future clinical material requirements. Our
collaborators’ estimates of their clinical material requirements are based upon
expectations of their clinical trials, including the timing, size, dosing
schedule and maximum tolerated dose of each clinical trial. Our
collaborators’ actual requirements for clinical materials may vary significantly
from their projections. Significant differences between our collaborators’
actual manufacturing orders and their projections could result in our actual
12
months’ usage of DMx and ansamitocin P3 varying significantly from our estimated
usage at an earlier reporting period. During the nine months ended March
31, 2006, we recorded $153,000 to write down certain P3 and DMx batches and
certain work in process amounts to their net realizable value.
Stock
Based Compensation
Effective
July 1, 2005, we adopted the fair value recognition provisions of Financial
Accounting Standards Board (FASB) Statement 123(R), Share-Based
Payment,
using
the modified-prospective-transition method. Under that transition method,
compensation cost recognized for the first nine months of 2006 includes: (a)
compensation cost for all share-based payments granted, but not yet vested
as
of, July 1, 2005, based on the grant-date fair value estimated in accordance
with the original provisions of Statement 123 (as defined below), and (b)
compensation cost for all share-based payments granted subsequent to July 1,
2005, based on the grant-date fair value estimated in accordance with the
provisions of Statement 123(R). Such amounts are reduced by our
estimate of forfeitures of all unvested awards.
Prior
to
July 1, 2005, we accounted for our stock-based compensation plans under the
recognition and measurement provisions of Accounting Principles Board Opinion
No. 25, “Accounting for Stock Issued to Employees” (APB 25), and related
interpretations for all awards granted to employees. Under APB 25, when the
exercise price of options granted to employees under these plans equals the
market price of the common stock on the date of grant, no compensation expense
is recorded. When the exercise price of options granted to employees under
these plans is less than the market price of the common stock on the date of
grant, compensation expense is recognized over the vesting period. For
stock options granted to non-employees, we recognize compensation expense in
accordance with the requirements of Statement of Financial Accounting Standards
(SFAS) No. 123, “Accounting for Stock Based Compensation” (Statement
123). Statement 123 requires that companies recognize compensation expense
based on the estimated fair value of options granted to non-employees over
their
vesting period, which is generally the period during which services are rendered
by such non-employees.
As
a
result of adopting Statement 123(R) on July 1, 2005, our net loss for the nine
months ended March 31, 2006 is $1.8 million greater than if we had continued
to
account for share-based compensation under APB 25. Basic and diluted net loss
per share for the nine months ended March 31, 2006 would have been $(0.23)
had
we not adopted Statement 123(R), compared to basic and diluted net loss per
share of $(0.27), as reported. We estimated the fair value of share-based
payments to employees using the Black-Scholes model and related assumptions,
consistent with our fair value estimates made under Statement 123.
As
of
March 31, 2006, the estimated fair value of unvested employee awards was $4.4
million net of estimated forfeitures. The weighted average remaining vesting
period for these awards is approximately 2.0 years. The amount of stock
compensation expensed recognized in any future period cannot be predicted at
this time because it will depend on levels of share-based payments granted
in
the future. The adoption of SFAS 123(R) did not require any cumulative
adjustments to our financial statements.
RESULTS
OF OPERATIONS
Comparison
of Three Months ended March 31, 2006 and 2005
Revenues
Our
total
revenues for the three months ended March 31, 2006 were $9.4 million compared
with $10.2 million for the three months ended March 31, 2005. The $875,000
decrease in revenues in the quarter ended March 31, 2006 compared to the same
period in the prior year is primarily attributable to lower clinical materials
reimbursement, partially offset by higher research and
development
support, and to a lesser extent, license and milestone fees.
Research
and development support revenue was $5.3 million and $4.8 million in the three
months ended March 31, 2006 and 2005, respectively. These amounts primarily
represent committed research funding earned based on actual resources utilized
under our discovery, development and commercialization agreement with
sanofi-aventis. During the three months ended March 31, 2006 and 2005, this
revenue also includes amounts earned for actual resources utilized under our
development and license agreements with certain of our other collaborative
partners. These amounts are the result of certain process
development and research work performed by the Company on behalf of
collaborators, as well as samples of research-grade material shipped to
collaborators.
Fees for this material and service represent the fully burdened reimbursement
of
costs incurred in producing research-grade materials and developing
antibody-specific conjugation processes on behalf of our collaborators and
potential collaborators during the early evaluation and preclinical testing
stages of drug development. The fees that we earn associated with this material
and service are directly related to the number of our collaborators and
potential collaborators, the stage of development of our collaborators’ products
and the resources our collaborators allocate to the development effort. As
such, the amount of these fees may vary widely from quarter to quarter and
year
to year.
Revenues
from license and milestone fees increased $236,000 to $3.3 million in the three
months ended March 31, 2006 compared to $3.0 million in the three months ended
March 31, 2005. Included in license and milestone fees for the quarter
ended March 31, 2006 is $2.0 million of milestone revenue earned under the
Genentech collaboration. Included
in license and milestone fees for the quarter ended March 31, 2005 is $2.0
million
of milestone revenue earned under the sanofi-aventis collaboration. Total
revenue from license and milestone fees recognized from each of our
collaborative partners in the three-month periods ended March 31, 2006 and
2005
is included in the following table:
| |
|
Three
Months Ended March 31,
|
|
| |
|
2006
|
|
2005
|
|
| |
|
(in
thousands)
|
|
|
Collaborative
Partner:
|
|
|
|
|
|
|
|
|
Amgen
(formerly Abgenix)
|
|
$
|
100
|
|
$
|
112
|
|
|
Biogen
Idec
|
|
|
12
|
|
|
-
|
|
|
Boehringer
Ingelheim
|
|
|
-
|
|
|
14
|
|
|
Centocor
|
|
|
42
|
|
|
42
|
|
|
Genentech
|
|
|
2,452
|
|
|
161
|
|
|
Millennium
|
|
|
69
|
|
|
111
|
|
|
sanofi-aventis
|
|
|
600
|
|
|
2,600
|
|
|
Total
|
|
$
|
3,275
|
|
$
|
3,040
|
|
Deferred
revenue of $18.0 million as of March 31, 2006 primarily represents payments
received from our collaborators pursuant to our license and supply agreements
which we have yet to earn pursuant to our revenue recognition
policy.
Clinical
materials reimbursement decreased $1.6 million to $822,000 in the three months
ended March 31, 2006, compared to $2.4 million in the three months ended March
31, 2005. This decrease is primarily the result of a reduction in demand for
clinical material to support our collaborator programs, particularly the
Boehringer Ingelheim and Millennium programs. During the three months ended
March 31, 2006, we shipped clinical materials in support of AVE9633 clinical
trials as well as preclinical materials in support of the development efforts
of
our collaborators. During the same period in 2005, we shipped clinical materials
in support of bivatuzumab
mertansine, MLN2704, and AVE9633 clinical trials as well as preclinical
materials in support of the development efforts of other collaborators.
The
cost
of clinical materials reimbursed for the three months ended March 31, 2006
and
2005 was $779,000 and $2.3 million, respectively. We
are
reimbursed for our fully burdened cost to produce clinical materials plus,
under
certain collaborative agreements, a profit margin. The amount of clinical
materials reimbursement we earn, and the related cost of clinical materials
reimbursed, is directly related to (i) the number of on-going clinical
trials our collaborators have underway, the speed of enrollment in those trials,
the dosage schedule of each clinical trial and the time period, if any, during
which patients in the trial receive clinical benefit from the clinical
materials, and (ii) our production of clinical grade material on behalf of
our collaborators, either in anticipation of clinical trials, or for research,
development and analytical purposes. As such, the amount of clinical materials
reimbursement and the related cost of clinical materials reimbursed may continue
to vary significantly from quarter to quarter and year to year.
Research
and Development Expenses
We
report
research and development expense net of certain reimbursements we receive from
our collaborators. Our net research and development expenses relate to
(i) research to identify and evaluate new targets and to develop and
evaluate new antibodies and cytotoxic drugs, (ii) preclinical testing of
our own and, in certain instances, our collaborators’ product candidates, and
the cost of our own clinical trials, (iii) development related to clinical
and commercial manufacturing processes and (iv) manufacturing operations.
Our research and development efforts have been primarily focused in the
following areas:
• Our
activities pursuant to our discovery, development and commercialization
agreement with sanofi-aventis;
• Our
activities related to the preclinical and clinical development of huN901-DM1
and
huC242-DM4;
• Process
development related to production of the huN901 antibody and huN901-DM1
conjugate for clinical materials;
• Process
development related to production of the huC242 antibody and huC242-DM4
conjugate for clinical materials;
• Process
improvements related to the production of DM1, DM4 and strain development of
their precursor, ansamitocin P3;
• Operation
and maintenance of our conjugate manufacturing plant;
• Process
improvements to our TAP technology;
• Identification
and evaluation of potential antigen targets;
• Evaluation
of internally-developed and in-licensed antibody candidates; and
• Development
and evaluation of additional cytotoxic agents.
DM1
and
DM4 are the cytotoxic agents that we currently use in the
manufacture of our two TAP product candidates in clinical testing. We have
also investigated the viability of other maytansinoid effector molecules, which,
collectively with DM1 and DM4, we refer to as DMx. In order to make commercial
manufacture of DMx conjugates viable, we have devoted substantial resources
to
improving the strain of the microorganism that produces ansamitocin P3, the
precursor to DMx, to enhance manufacturing yields. We also continue to devote
considerable resources to improve other DMx manufacturing
processes.
On
January 8, 2004, we announced that pursuant to the terms and conditions of
a termination agreement between us and Vernalis, Vernalis relinquished its
rights to develop and commercialize huN901-DM1. As a result, we regained the
rights to develop and commercialize huN901-DM1. Under the terms of our January
7, 2004 Termination Agreement with Vernalis, we assumed responsibility of one
of
the studies underway with the compound, Study 001, on July 1, 2004. Since
then, we have expanded this study due to the occurrence of objective activity
among the initial patients enrolled and have expanded the number of clinical
centers participating in this study to expedite patient enrollment.
Additionally, we initiated a Phase I clinical trial with huN901-DM1 in
CD56-positive multiple myeloma (Study 003) in September, 2005. On December
15,
2005, we and Vernalis executed an amendment to the January 7, 2004 Termination
Agreement . Under the terms of the amendment, we assumed responsibility as
of
December 15, 2005, at our own expense, to complete the huN901-DM1 clinical
study
(Study 002) that had been initiated in the United Kingdom. Vernalis paid us
approximately $365,000 in consideration of the expected cost of
the obligations assumed by us under the amendment. Such consideration is
included in other income/expense in the accompanying consolidated statements
of
operations for the nine months ended March 31, 2006. We intend to evaluate
whether to out-license all or part of the development and commercial rights
to
this compound as we move through the clinical trial process.
In
January 2004, we announced that we planned to advance cantuzumab
mertansine, or an improved version of the compound, into a clinical trial that
we would manage. In October 2004, we decided to move forward in developing
a modified version of cantuzumab mertansine which we call huC242-DM4. Patient
dosing was initiated for the Phase I study of huC242-DM4 in June 2005. We
intend to evaluate whether to out-license all or part of the development and
commercial rights to this compound as we move through the clinical trial process
for this compound.
In
2003,
we licensed our then three most advanced product candidates in our preclinical
portfolio to sanofi-aventis under the terms of our discovery, development and
commercialization collaboration. These three product candidates are an anti-CD33
TAP compound for acute myeloid leukemia (AVE9633), an anti-IGF-1R antibody
(AVE1642), and an anti-CD19 TAP compound for certain B-cell malignancies
(SAR3419). In December 2004, sanofi-aventis filed an Investigational New
Drug Application (IND) for AVE9633. Clinical testing of this compound was
initiated in March 2005.
The
anti-IGF-1R antibody is a naked antibody directed against a target found on
various solid tumors, including certain breast, lung and prostate cancers.
At
March 31, 2006, pursuant to our collaboration research program with
sanofi-aventis, we were continuing to perform preclinical experiments to
evaluate candidate antibodies and have identified a lead antibody product
candidate and several alternate product candidates. The third potential product
candidate is directed at certain anti-CD19 B-cell malignancies, including
non-Hodgkin’s lymphoma, and is in preclinical development. Additional compounds
also are being developed as part of this collaboration.
During
the term of our research collaboration with sanofi-aventis, we are required
to
propose for inclusion in the collaborative research program certain antibodies
or antibody targets that we believe will have utility in oncology, with the
exception of those antibodies or antibody targets that are the subject of our
preexisting or future collaboration and license agreements. Sanofi-aventis
then
has the right to either include in or exclude from the collaborative research
program these proposed antibodies and antibody targets. If sanofi-aventis elects
to exclude any antibodies or antibody targets, we may elect to develop the
products for our own pipeline. Furthermore, sanofi-aventis may only include
a
certain number of antibody targets in the research program at any one time.
Sanofi-aventis must therefore exclude any proposed antibody or antibody target
in excess of the agreed-upon number. Over the original, three-year term of
the
research program and agreed-upon one-year extension, we will receive a minimum
of $68.9 million of committed research funding and will devote a
significant amount of our internal research and development resources to
advancing the research program. Under the terms of the agreement, we may advance
any TAP or antibody products that sanofi-aventis has elected not to either
initially include or later advance in the research program.
The
potential product candidates that have been or that may eventually be excluded
from the sanofi-aventis collaboration are in an early stage of discovery
research and we are unable to accurately estimate which potential products,
if
any, will eventually move into our internal preclinical research program. We
are
unable to reliably estimate the costs to develop these products as a result
of
the uncertainties related to discovery research efforts as well as preclinical
and clinical testing. Our decision to move a product candidate into the clinical
development phase is predicated upon the results of preclinical tests. We cannot
accurately predict which, if any, of the discovery research stage product
candidates will advance from preclinical testing and move into our internal
clinical development program. The clinical trial and regulatory approval
processes for our product candidates that have advanced or we intend to advance
to clinical testing are lengthy, expensive and uncertain in both timing and
outcome. As a result, the pace and timing of the clinical development of our
product candidates is highly uncertain and may not ever result in approved
products. Completion dates and development costs will vary significantly for
each product candidate and are difficult to predict. A variety of factors,
many
of which are outside our control, could cause or contribute to the prevention
or
delay of the successful completion of our clinical trials, or delay or failure
to obtain necessary regulatory approvals. The costs to take a product
through clinical trials are dependent upon, among other things, the clinical
indications, the timing, size and dosing schedule of each clinical trial, the
number of patients enrolled in each trial, and the speed at which patients
are
enrolled and treated. Product candidates may be found ineffective or cause
harmful side effects during clinical trials, may take longer to progress through
clinical trials than anticipated, may fail to receive necessary regulatory
approvals or may prove impracticable to manufacture in commercial quantities
at
reasonable cost or with acceptable quality.
The
lengthy process of securing FDA approvals for new drugs requires the expenditure
of substantial resources. Any failure by us to obtain, or any delay in
obtaining, regulatory approvals would materially adversely affect our product
development efforts and our business overall. Accordingly, we cannot currently
estimate, with any degree of certainty, the amount of time or money that we
will
be required to expend in the future on our product candidates prior to their
regulatory approval, if such approval is ever granted. As a result of these
uncertainties surrounding the timing and outcome of our clinical trials, we
are
currently unable to estimate when, if ever, our product candidates that have
advanced into clinical testing will generate revenues and cash
flows.
Research
and development expense for the three months ended March 31, 2006 increased
$547,000 to $10.2 million, from $9.7 million for the three months ended March
31, 2005, due to the reasons set forth below. The number of our research and
development personnel increased to 150 at March 31, 2006 compared to 134 at
March 31, 2005. Research and development salaries and related expenses increased
by $364,000 to $4.2 million in the three months ended March 31, 2006 compared
to
$3.8 million in the three months ended March 31, 2005. Included in salaries
and
related expenses for the three months ended March 31, 2006 is $346,000 of stock
compensation costs incurred with the adoption of SFAS 123(R) on July 1, 2005.
Contract service expense increased $967,000 substantially due to the manufacture
of and process development efforts related to materials for use in our clinical
trials during the three months ended March 31, 2006 as compared to the same
period ended March 31, 2005. Clinical trial costs increased by $279,000 in
the
three months ended March 31, 2006 as compared to the same period in the prior
year due to the advancement of our clinical trials. Facilities expense,
including depreciation, also increased $291,000 from $1.4 million to $1.7
million for the three months ended
March
31,
2006 compared to the same period for the prior year. This increase was due
to
capital additions and an increase in administrative expenses primarily resulting
from increased rent for the Norwood facility and higher utility costs. During
the three months ended March 31, 2005, we recorded $1.3 million of expense
to
reserve for excess quantities of ansamitocin P3 and DMx in accordance with
our
inventory policy. No similar expense was incurred during the three months ended
March 31, 2006. We expect future research and development expenses to increase
as we continue development of our and our collaborators’ product candidates and
technologies.
We
do not
track our research and development costs by project. Rather, we manage our
research and development expenses within each of the categories listed in the
following table and described in more detail below, since we use our research
and development resources across multiple research and development
projects.
| |
|
Three
Months Ended March 31,
|
|
| |
|
2006
|
|
2005
|
|
| |
|
(in
thousands)
|
|
| |
|
|
|
|
|
|
Research
|
|
$
|
3,373
|
|
$
|
3,097
|
|
|
Preclinical
and Clinical Testing
|
|
|
1,942
|
|
|
1,200
|
|
|
Process
and Product Development
|
|
|
1,657
|
|
|
1,189
|
|
|
Manufacturing
Operations
|
|
|
3,244
|
|
|
4,183
|
|
|
|
|
|
|
|
|
|
|
|
Total
Research and Development Expense
|
|
$
|
10,216
|
|
$
|
9,669
|
|
Research:
Research
includes expenses associated with activities to identify and evaluate new
targets and to develop and evaluate new antibodies and cytotoxic agents for
our
products and in support of our collaborators. Such expenses primarily include
personnel, fees to in-license certain technology, facilities, and lab supplies.
Research expenses for the three months ended March 31, 2006 increased $276,000
to $3.4 million from $3.1 million for the three months ended March 31, 2005.
The
increase in research expenses was primarily the result of an increase in
consulting fees, fees to in-license certain technology and an increase in
facilities expense.
Preclinical
and Clinical Testing:
Preclinical
and clinical testing includes expenses related to preclinical testing of our
own
and, in certain instances, our collaborators’ product candidates, and the cost
of our own clinical trials. Such expenses include personnel, patient enrollment
at our clinical testing sites, consultant fees, contract services, and facility
expenses. Preclinical and clinical testing expenses for the three months ended
March 31, 2006 increased $743,000 to $1.9 million compared to $1.2 million
for
the three months ended March 31, 2005. This increase is primarily due to an
increase in salaries and related expense, facilities expense, and clinical
trial
costs. The increase in salaries and related expense is the result of an increase
in personnel to support our own as well as our collaborators’ preclinical and
clinical activities, along with compensation costs incurred with the adoption
of
SFAS 123(R) as of July 1, 2005. Clinical trial costs increased due to expanding
trial activity.
Process
and Product Development:
Process
and product development expenses include
costs for development of clinical and commercial manufacturing processes. Such
expenses include the costs of personnel, contract services and facility
expenses. For the three months ended March 31, 2006, total development expenses
increased $467,000 to $1.7 million compared to $1.2 million for the three months
ended March 31, 2005. The increase was substantially due to increased contract
services and to a lesser extent an increase in salaries and related expenses.
Contract service expenses increased due to higher ansamitocin P3 and DMx
development expenses incurred during the three months ended March 31, 2006,
as
compared to the same period in the prior year.
Manufacturing
Operations:
Manufacturing operations expense includes costs to manufacture preclinical
and
clinical materials for our own product candidates and cost to support the
operation and maintenance of our conjugate manufacturing plant. Such expenses
include personnel, raw materials for our preclinical and clinical trials,
manufacturing supplies, and facilities expense. Manufacturing costs related
to
the production of material for our collaborators are recorded as cost of
clinical material reimbursed in our statement of operations. For the three
months ended March 31, 2006, manufacturing operations expense decreased $939,000
to $3.2 million compared to $4.2 million in the same period last year. During
the three months ended March 31, 2006, we did not record any expense related
to
ansamitocin P3 and DMx that we had identified as excess based upon our inventory
policy, as compared to $1.3 million of similar expense recognized during the
three months ended March 31, 2005. Overhead utilization from the manufacture
of
clinical materials on behalf of our collaborators increased during the three
months ended March 31, 2006 as compared to the same period prior year. These
decreases in expense were partially offset by an increase in contract service
expense resulting from increased
antibody
purchases made during the three month period ended March 31, 2006, as compared
to the same period in the prior year.
Reserve
requirements for excess quantities of ansamitocin P3 and DMx are principally
based on our collaborators’ forecasted demand compared to our inventory
position. Due to the lead times required to secure material and the changing
requirements of our collaborators, expenses to provide for excess quantities
have fluctuated from period to period and we expect that these period
fluctuations will continue in the future. (See “Inventory” within our Critical
Accounting Policies for further discussion of our inventory reserve
policy).
General
and Administrative Expenses
General
and administrative expenses for the three months ended March 31, 2006 decreased
$83,000 to $2.2 million, as compared to the three months ended March 31,
2005. This decrease is primarily due to a decrease in contract service
expense, partially offset by an increase in salaries and related expense.
Contract service expense decreased primarily due to lower consulting fees
related to corporate strategic planning incurred during the three months ended
March 31, 2006 as compared to the three months ended March 31, 2005. Salaries
and related expenses increased due to an increase in personnel, along with
compensation costs incurred with the adoption of SFAS 123(R) as of July 1,
2005.
Interest
Income
Interest
income for the three months ended March 31, 2006 increased $365,000 to $875,000
from $510,000 for the three months ended March 31, 2005. The difference is
due
to higher prevailing interest rates.
Net
Realized Losses on Investments
Net
realized losses on investments were $7,000 and $55,000 for the three months
ended March 31, 2006 and 2005, respectively. The difference is attributable
to
market conditions and the timing of investment sales.
Comparison
of Nine Months ended March 31, 2006 and 2005
Revenues
Our
total
revenues for the nine months ended March 31, 2006 were $23.7 million compared
with $28.3 million for the nine months ended March 31, 2005. The $4.6
million decrease in revenues in the nine months ended March 31, 2006 compared
to
the same period in the prior year is primarily attributable to a decrease in
clinical materials reimbursement revenue, partially
offset by higher research and development support, and to a lesser extent,
license and milestone fees.
Research
and development support revenue was $16.2 million and $13.8 million in the
nine
months ended March 31, 2006 and 2005, respectively. These amounts primarily
represent committed research funding earned based on actual resources utilized
under our discovery, development and commercialization agreement with
sanofi-aventis, as well as amounts earned for actual resources utilized under
our development and license agreements with Biogen Idec and Centocor. The
sanofi-aventis agreement provides that we will receive a minimum of $50.7
million of committed research funding during a three-year research program,
as
determined in each of the three research program years. At the conclusion of
the
second sanofi-aventis research program year on August 31, 2005, a review of
research activities during this period was conducted. This review identified
$1.1 million in billable activities performed under the program during the
fiscal year ended June 30, 2005 which had not been billed or recorded as
revenue. Accordingly, we have included this additional $1.1 million of research
and support revenue in the accompanying consolidated statement of operations
for
the nine months ended March 31, 2006. Also included in research and development
support revenue are fees
related to process development and research work performed by the Company on
behalf of collaborators, as well as samples of research-grade material shipped
to collaborators.
To
date, our development fees represent the fully burdened reimbursement of costs
incurred in producing research-grade materials and developing antibody-specific
conjugation processes on behalf of our collaborators and potential collaborators
during the early evaluation and preclinical testing stages of drug development.
The amount of development fees we earn is directly related to the number of
our
collaborators and potential collaborators, the stage of development of our
collaborators’ products and the resources our collaborators allocate to the
development effort. As such, the amount of development fees may vary widely
from quarter to quarter and year to year.
Revenues
from license and milestone fees increased $196,000 to $5.8 million in the nine
month period ended March 31, 2006 compared to $5.6 million in the nine month
period ended March 31, 2005. Included
in license and milestone fees for the nine months
ended
March 31, 2006 is $2.0 million of milestone revenue earned under the Genentech
collaboration. Included
in license and milestone fees for the nine months ended March 31, 2005 is $2.5
million of milestone revenue earned under the sanofi-aventis collaboration.
Total revenue from license and milestone fees recognized from each of our
collaborative partners in the nine month periods ended March 31, 2006 and 2005
is included in the following table:
| |
|
Nine
Months ended March 31,
|
|
| |
|
2006
|
|
2005
|
|
| |
|
(in
thousands)
|
|
|
Collaborative
Partner:
|
|
|
|
|
|
|
|
|
Amgen
(formerly Abgenix)
|
|
$
|
300
|
|
$
|
362
|
|
|
Biogen
Idec
|
|
|
36
|
|
|
-
|
|
|
Boehringer
Ingelheim
|
|
|
-
|
|
|
97
|
|
|
Centocor
|
|
|
125
|
|
|
42
|
|
|
Genentech
|
|
|
3,260
|
|
|
482
|
|
|
Millennium
|
|
|
290
|
|
|
332
|
|
|
sanofi-aventis
|
|
|
1,800
|
|
|
4,300
|
|
|
Total
|
|
$
|
5,811
|
|
$
|
5,615
|
|
Clinical
materials reimbursement decreased $7.2 million to $1.7 million in the nine
months ended March 31, 2006, compared to $8.9 million in the nine months ended
March 31, 2005. This decrease is primarily the result of a reduction in demand
for clinical material to
support our collaborator programs, particularly the Boehringer Ingelheim and
Millennium programs.
During
the nine months ended March 31, 2006, we
shipped clinical materials in support of the AVE9633 trial and in the
anticipation of the clinical trials to be conducted by our partners,
as
well
as preclinical materials in support of the development efforts of our
collaborators. During
the same period in 2005, we
shipped clinical materials in support of the bivatuzumab mertansine, MLN2704
and
AVE9633 clinical trials being conducted by partners, as well as preclinical
materials in support of the development efforts of our collaborators. The cost
of clinical materials reimbursed for the nine months ended March 31, 2006 and
2005 was $1.8 million and $7.8 million, respectively. Included in the cost
of
clinical materials reimbursed for the nine months ended March 31, 2006 and
March
31, 2005 is $153,000 and $186,000, respectively, of expense to write down
certain batches of ansamitocin P3 and DMx and certain work in process amounts
to
their net realizable value. We are reimbursed for our fully burdened cost to
produce clinical materials plus, under certain collaborative agreements, a
profit margin. The amount of clinical materials reimbursement we earn, and
the related cost of clinical materials reimbursed, is directly related to
(i) the number of on-going clinical trials our collaborators have underway,
the speed of enrollment in those trials, the dosage schedule of each clinical
trial and the time period, if any, during which patients in the trial receive
clinical benefit from the clinical materials, and (ii) our production of
clinical grade material on behalf of our collaborators, either in anticipation
of clinical trials, or for research, development and analytical purposes. As
such, the amount of clinical materials reimbursement and the related cost of
clinical materials reimbursed may continue to vary significantly from quarter
to
quarter and year to year.
Research
and Development Expenses
Research
and development expenses for the nine months ended March 31, 2006 increased
$4.8
million to $28.5 million from $23.7 million for the nine months ended March
31,
2005. The number of research and development personnel increased to 150 at
March 31, 2006 compared to 134 at March 31, 2005. Research
and development salaries and related expenses increased by $2.3 million to
$13.0
million in the nine months ended March 31, 2006 compared to $10.7 million in
the
nine months ended March 31, 2005. Included in salaries and related expenses
for
the nine months ended March 31, 2006 is $1.1 million of stock compensation
costs
incurred with the adoption of SFAS 123(R) on July 1, 2005. Overhead utilization
from the manufacture of clinical materials on behalf of our collaborators
decreased $439,000 in the nine months ended March 31, 2006 as compared to the
same period ended March 31, 2005. Contract service expense increased $1.9
million due primarily to the manufacture of and process development efforts
related to materials for use in our clinical trials. Clinical trial costs
increased $691,000 due to our increasing clinical trials activity. Facility
expense for the nine months ended March 31, 2006, including depreciation,
increased $947,000 to $5.0 million from $4.1 million in the nine months ended
March 31, 2005, due to the addition of capital equipment, an increase in
salaries and related expense due to an increase in headcount, and an increase
in
administrative expenses. In the nine months ended March 31, 2006 we did not
incur any
expense related to ansamitocin P3 and DMx that we had identified as excess
based
upon our inventory policy, as compared to $2.3 million of similar expense
recognized during the nine months ended March 31, 2005.
We
expect
our research and development expenses to continue to increase as we expand
our
clinical trial activity. We do not track our research and development costs
by
project. Rather, we manage our research and development expenses within each
of
the
categories
listed in the following table and described in more detail below, since we
use
our research and development resources across multiple research and development
projects.
| |
|
Nine
Months Ended March 31,
|
|
| |
|
2006
|
|
2005
|
|
| |
|
(in
thousands)
|
|
| |
|
|
|
|
|
|
Research
|
|
$
|
10,362
|
|
$
|
8,998
|
|
|
Preclinical
and Clinical Testing
|
|
|
5,534
|
|
|
3,659
|
|
|
Process
and Product Development
|
|
|
4,249
|
|
|
3,563
|
|
|
Manufacturing
Operations
|
|
|
8,322
|
|
|
7,439
|
|
| |
|
|
|
|
|
|
|
|
Total
Research and Development Expense
|
|
$
|
28,467
|
|
$
|
23,659
|
|
Research:
Research
includes expenses associated with activities to identify and evaluate new
targets and to develop and evaluate new antibodies and cytotoxic agents for
our
products and in support of our collaborators. Such expenses primarily include
personnel, fees to in-license certain technology, facilities and lab supplies.
For the nine months ended March 31, 2006, research expenses increased $1.4
million to $10.4 million, compared to $9.0 million in the nine months ended
March 31, 2005. The increase in research expenses for the period was primarily
the result of increases in salaries and related expenses, contract service
expense, and facilities expense. The
increase in salaries and related expense was the result of an increase in
personnel to support the sanofi-aventis collaboration and our own internal
projects, along with compensation costs incurred with the adoption of SFAS
123(R) as of July 1, 2005.
Preclinical
and Clinical Testing:
Preclinical
and clinical testing includes expenses related to preclinical testing of our
own
and, in certain instances, our collaborators’ product candidates, and the cost
of our own clinical trials. Such expenses include personnel, patient enrollment
at our clinical testing sites, consultant fees, contract services, and facility
expenses. For the nine months ended March 31, 2006, preclinical and clinical
testing expenses increased $1.9 million to $5.5 million, compared to $3.7
million in the nine months ended March 31, 2005. This increase in preclinical
and clinical testing expense is substantially due to increases in salaries
and
related expense, clinical trial costs and facilities expense, partially offset
by a decrease in contract service expense. The increase in salaries and related
expense is the result of an increase in personnel to support
our own as well as our collaborators’ preclinical and clinical activities, along
with compensation costs incurred with the adoption of SFAS 123(R) as of July
1,
2005. The decrease in contract service expense in the nine months ended March
31, 2006 is primarily a result of lower costs associated with huC242-DM4
preclinical studies.
Process
and Product Development:
Process
and product development expenses include costs for development of clinical
and
commercial manufacturing processes. Such expenses include the costs of
personnel, contract services and facility expenses. For the nine months ended
March 31, 2006, total development expenses increased $686,000 to $4.2 million,
compared to $3.6 million for the nine months ended March 31, 2005. This increase
was primarily the result of an increase in salaries and related expenses.
Salaries
and related expenses increased due to an increase in personnel, along with
compensation costs incurred related to option grants accounted for under SFAS
123(R).
Manufacturing
Operations:
Manufacturing operations expense includes costs to manufacture preclinical
and
clinical materials for our own product candidates and cost to support the
operations and maintenance of our conjugate manufacturing plant. Such expenses
include personnel, raw materials for our own preclinical and clinical trials,
manufacturing supplies, and facilities expense. A portion of these costs are
recorded as costs of clinical materials reimbursed in our statement of
operations. For the nine months ended March 31, 2006, manufacturing operations
expense increased $882,000 to $8.3 million, compared to $7.4 million for the
nine months ended March 31, 2005. The increase in expense for the current nine
month period compared to the same period in the prior year was primarily the
result of lower overhead
utilization from the manufacture of clinical materials on behalf of our
collaborators, and increases in
salaries
and related expenses, administrative expenses, contract services, and facilities
expense. These increases were partially offset by a decrease in expenses to
reserve for excess quantities of ansamitocin P3 and DMx in accordance with
our
inventory reserve policy.
During
the nine months ended March 31, 2005, we
recorded research and development expenses of $2.3 million of
ansamitocin
P3
and
DMx that we had identified as excess based upon our inventory policy, and
$186,000 to write down certain batches of ansamitocin P3 and DMx and certain
work in process amounts to their net realizable value. During the same period
in
the current year, we recorded only $153,000 in similar expenses. Reserve
requirements for excess quantities of P3 and DMx are principally determined
based on our collaborators’ forecasted demand compared to our inventory
position. Due to the lead times required to secure material and the changing
requirements of our collaborators, expenses to provide for excess quantities
have fluctuated from period to period and we expect that these period
fluctuations will continue in the future. (See “Inventory” within our Critical
Accounting Policies for further discussion of our inventory reserve
policy).
General
and Administrative Expenses
General
and administrative expenses for the nine months ended March 31, 2006 increased
$1.1 million to $7.3 million from $6.2 million for the nine months ended March
31, 2005. This
increase is primarily due to an increase in salaries and related expense, and
expanded patent filings. Salaries and related expenses increased due to an
increase in personnel, along with compensation costs incurred with the adoption
of SFAS 123(R) as of July 1, 2005.
Interest
Income
Interest
income for the nine months ended March 31, 2006 increased $1.1 million to $2.4
million from $1.3 million for the nine months ended March 31, 2005. The
difference is due to higher prevailing interest rates.
Net
Realized Losses on Investments
Net
realized losses on investments were $33,000 and $59,000 for the nine months
ended March 31, 2006 and 2005, respectively. The difference is attributable
to
market conditions and the timing of investment sales.
Other
Income
During
the nine months ended March 31, 2006, we recorded as other income $365,000
for
consideration of the expected cost of the obligations assumed by us
resulting from the Amendment to the January 7, 2004 Termination Agreement
executed by us and Vernalis. Under the terms of the Amendment, we assumed
responsibility as of December 15, 2005, at our own expense, to complete Study
002 for huN901-DM1.
LIQUIDITY
AND CAPITAL RESOURCES
We
require cash to fund our operating expenses, including the conduct of our
clinical programs, manufacture of material to support our clinical programs,
and
to make capital expenditures. Historically, we have funded our cash
requirements primarily through equity financings in public markets and payments
from our collaborators, including equity investments, license fees, milestone
payments and research funding. As of March 31, 2006, we had approximately
$82.8 million in cash and marketable securities. Net cash used for
operations during the nine months ended March 31, 2006 was $7.1 million,
compared to net cash used for operations of $1.5 million during the nine months
ended March 31, 2005. Cash used in operations is primarily to fund our net
loss.
The increased use of funds during the nine months ended March 31, 2006 is
principally due to the increased net loss, as a result of increased research
and
development costs and general and administrative expenses, for the period
compared to the same period last year, without the benefit of the reduction
in
working capital that occurred in the same period last year.
Net
cash
provided by investing activities during the nine months ended March 31, 2006
was
$6.6 million compared to net cash provided by investing activities of $2.0
million during the nine months ended March 31, 2005. Cash flows from investing
activities in the nine months ended March 31, 2006 and 2005 primarily reflects
the proceeds of sales and maturities of marketable securities and capital
expenditures. The variance primarily relates to an increase in the sale and
maturities of marketable securities to fund our operations. Capital
expenditures were $1.6 million and $1.9 million for the nine month periods
ended
March 31, 2006 and 2005, respectively.
Net
cash
provided by financing activities was $1.1 million for the nine month period
ended March 31, 2006 compared to net cash provided by financing activities
of
$480,000 for the nine months ended March 31, 2005. For the nine months
ended March 31, 2006, net cash provided by financing activities reflects the
proceeds to us from the exercise of 379,219 stock options under our Restated
Stock Option Plan, at prices ranging from $1.31 to $6.27 per share. For the
nine months ended March 31, 2005, net cash provided by financing activities
reflects the proceeds to us from the exercise of 217,315 stock options at prices
ranging from $0.84 to $6.78 per share.
We
anticipate that our current capital resources and future collaborator payments,
including committed research funding that we expect to receive from
sanofi-aventis pursuant to the terms of our collaboration agreement, will enable
us to meet our operational expenses and capital expenditures for at least the
next two to three fiscal years. We believe that our existing capital resources
in addition to our established collaborative agreements will provide funding
sufficient to allow us to meet our obligations under all collaborative
agreements while also allowing us to develop product candidates and technologies
not covered by collaborative agreements. However, we cannot provide assurance
that such collaborative agreement funding will, in fact, be received. Should
we
not meet some or all of the terms and conditions of our various collaboration
agreements, we may be required to pursue additional strategic partners, secure
alternative financing arrangements, and/or defer or limit some or all of our
research, development and/or clinical projects.
Recent
Accounting Pronouncements
In
June
2005, the FASB issued SFAS No. 154, Accounting
Changes and Error Corrections,
which
will require entities that voluntarily make a change in accounting principle
to
apply that change retrospectively to prior periods’ financial statements, unless
this would be impracticable. SFAS No. 154 supercedes APB Opinion No. 20,
Accounting
Changes,
which
previously required that most voluntary changes in accounting principle be
recognized by including in the current period’s net income the cumulative effect
of changing to the new accounting principle. SFAS No. 154 also makes a
distinction between “retrospective application” of an accounting principle and
the “restatement” of financial statements to reflect the correction of an error.
Another significant change in practice under SFAS No. 154 will be that if an
entity changes its method of depreciation, amortization, or depletion for
long-lived, non-financial assets, the change must be accounted for as a change
in accounting estimate. Under APB No. 20, such a change would have been reported
as a change in accounting principle. SFAS No. 154 applies to accounting changes
and error corrections that are made in fiscal years beginning after December
15,
2005.
We
maintain an investment portfolio in accordance with our Investment Policy.
The
primary objectives of our Investment Policy are to preserve principal, maintain
proper liquidity to meet operating needs and maximize yields. Although our
investments are subject to credit risk, our Investment Policy specifies credit
quality standards for our investments and limits the amount of credit exposure
from any single issue, issuer or type of investment. Our investments are also
subject to interest rate risk and will decrease in value if market interest
rates increase. However, due to the conservative nature of our investments
and
relatively short duration, interest rate risk is mitigated. We do not own
derivative financial instruments in our investment portfolio. Accordingly,
we do
not believe that there is any material market risk exposure with respect to
derivative or other financial instruments that would require disclosure under
this item.
ITEM
4. Controls
and Procedures
(a) Evaluation
of Disclosure Controls and Procedures
As
of the
end of the period covered by this report, the Company’s principal executive
officer and principal financial officer evaluated the effectiveness of the
Company’s disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and have concluded, based on such
evaluation, that the design and operation of the Company’s disclosure controls
and procedures were adequate and effective to ensure that material information
relating to the Company, including its consolidated subsidiaries, was made
known
to them by others within those entities, particularly during the period in
which
this Quarterly Report on Form 10-Q was being prepared.
(b) Changes
in Internal Controls
There
were no changes, identified in connection with the evaluation described above,
in the Company’s internal controls over financial reporting or in other factors
that could significantly affect those controls that have materially affected
or
are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
PART
II. OTHER INFORMATION
None.
Risk
Factors
THE
RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE THOSE THAT WE CURRENTLY BELIEVE
MAY MATERIALLY AFFECT OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES THAT
WE ARE UNAWARE OF OR THAT WE CURRENTLY DEEM IMMATERIAL ALSO MAY BECOME
IMPORTANT FACTORS THAT AFFECT OUR COMPANY.
If
our TAP technology does not produce safe, effective and commercially viable
products, our business will be severely harmed.
Our
TAP
technology yields novel anticancer product candidates for the treatment of
cancer. No TAP product candidate has obtained regulatory approval and all of
them are in early stages of development. The most advanced TAP product
candidates are only in the Phase I or Phase I/II stage of clinical trials.
Our/our collaborators’ TAP product candidates may not prove to be safe,
effective or commercially viable treatments for cancer and our TAP technology
may not result in any meaningful benefits to our current or potential
collaborative partners. Furthermore, we are aware of only one antibody-drug
conjugate that has obtained FDA approval and is based on technology similar
to
our TAP technology. If our TAP technology fails to generate product candidates
that are safe, effective and commercially viable treatments for cancer, and
fails to obtain FDA approval, our business is likely to be severely
harmed.
Clinical
trials for our product candidates will be lengthy and expensive and their
outcome is uncertain.
Before
obtaining regulatory approval for the commercial sale of any product candidates,
we and our collaborative partners must demonstrate through preclinical testing
and clinical trials that our product candidates are safe and effective for
use
in humans. Conducting clinical trials is a time-consuming, expensive and
uncertain process and may take years to complete. Our most advanced product
candidates are only in the Phase I or Phase I/II stage of clinical trials.
Historically, the results from preclinical testing and early clinical
trials often have not been predictive of results obtained in later clinical
trials. Frequently, drugs that have shown promising results in preclinical
or
early clinical trials subsequently fail to establish sufficient safety and
efficacy data necessary to obtain regulatory approval. At any time during the
clinical trials, we, our collaborative partners, or the FDA might delay or
halt
any clinical trials for our product candidates for various reasons,
including:
|
|
• |
ineffectiveness
of the product candidate;
|
|
|
• |
discovery
of unacceptable toxicities or side
effects;
|
|
|
• |
development
of disease resistance or other physiological
factors;
|
|
|
• |
insufficient
drug supply;
|
|
|
• |
delays
in patient enrollment; or
|
|
|
• |
other
reasons that are internal to the businesses of our collaborative
partners,
which reasons they may not share with us.
|
The
results of clinical trials may fail to demonstrate the safety or effectiveness
of our/our collaborators’ product candidates to the extent necessary to obtain
regulatory approval or to make the commercialization of the product worthwhile.
Any failure or substantial delay in successfully completing clinical trials
and
obtaining regulatory approval for our/our collaborators’ product candidates
could severely harm our business.
If
our collaborative partners fail to perform their obligations under our
agreements, or determine not to continue with clinical trials for particular
product candidates, our ability to develop and market potential products could
be severely limited.
Our
strategy for the development and commercialization of our product candidates
depends, in large part, upon the formation of collaborative arrangements.
Collaborations may allow us to:
|
|
• |
generate
cash flow and revenue;
|
|
|
• |
offset
some of the costs associated with our internal research and development,
preclinical testing, clinical trials and
manufacturing;
|
|
|
• |
seek
and obtain regulatory approvals faster than we could on our
own;
|
|
|
• |
successfully
commercialize existing and future product candidates;
|
|
|
• |
develop
antibodies for additional product candidates, and discover additional
cell
surface markers for antibody development;
and
|
|
|
• |
secure
access to targets which, due to intellectual property restrictions,
would
otherwise be unavailable to our
technology.
|
If
we
fail to secure or maintain successful collaborative arrangements, our
development and marketing activities may be delayed or scaled back. In
addition, we may be unable to negotiate other collaborative arrangements or,
if
necessary, modify our existing arrangements on acceptable terms. We have entered
into collaborations with Amgen (formerly Abgenix), Biogen Idec, Boehringer
Ingelheim, Centocor, Genentech, Millennium and sanofi-aventis. We cannot control
the amount and timing of resources our partners may devote to our products.
Our
partners may separately pursue competing products, therapeutic approaches or
technologies to develop treatments for the diseases targeted by us or our
collaborative efforts, or may decide for reasons not known to us to discontinue
development of products under our agreements with them. For example, in February
2005, Boehringer Ingelheim discontinued development of bivatuzumab mertansine.
Under our 2001 agreement with them, Boehringer Ingelheim retained its right
to
use ImmunoGen’s DM1 TAP technology and has exercised its right to create an
anticancer compound to a different antigen target. In addition, in January
2006,
Millennium announced that it had decided not to continue development of its
MLN2704 compound. Even if our partners continue their contributions to the
collaborative arrangements, they may nevertheless determine not to actively
pursue the development or commercialization of any resulting products. Also,
our
partners may fail to perform their obligations under the collaborative
agreements or may be slow in performing their obligations. Our partners can
terminate our collaborative agreements under certain conditions. The decision
to
advance a product that is covered by a collaborative agreement through clinical
trials and ultimately to commercialization is in the sole discretion of our
collaborative partners. If any collaborative partner were to terminate or
breach our agreements, or fail to complete its obligations to us in a timely
manner, our anticipated revenue from the agreement and from the development
and
commercialization of our products could be severely limited. If we are not
able
to establish additional collaborations or any or all of our existing
collaborations are terminated and we are not able to enter into alternative
collaborations on acceptable terms, our continued development, manufacture
and
commercialization of our product candidates could be delayed or scaled back
as
we may not have the funds or capability to continue these activities. If
our collaborators fail to successfully develop and commercialize TAP compounds,
our business will be severely harmed.
We
depend on a small number of collaborators for a substantial portion of our
revenue. The loss of, or a material reduction in activity by, any one of these
collaborators could result in a substantial decline in our
revenue.
We
have
and will continue to have collaborations with a limited number of companies.
As
a result, our financial performance depends on the efforts and overall success
of these companies. Also, the failure of any one of our collaborative partners
to perform its obligations under its agreement with us, including making any
royalty, milestone or other payments to us, could have a material adverse effect
on our financial condition. Further, any material reduction by any one of our
collaborative partners in its level of commitment of resources, funding,
personnel, and interest in continued development under its agreement with us
could have a material adverse effect on our financial condition. If
consolidation trends in the healthcare industry continue, the number of our
potential collaborators could decrease, which could have an adverse impact
on
our development efforts. If a present or future collaborator of ours were to
be
involved in a business combination, their continued pursuit and emphasis on
our
product development program could be delayed, diminished or terminated.
For example, in February 2005, Boehringer Ingelheim discontinued development
of
bivatuzumab mertansine. Under our 2001 agreement with them, Boehringer Ingelheim
retained its right to use ImmunoGen’s DM1 TAP technology and has exercised its
right to create an anticancer compound to a different antigen target. In
addition, in January 2006, Millennium announced that it had decided not to
continue development of its MLN2704 compound.
If
our collaborators’ requirements for clinical materials to be manufactured by us
are significantly lower than we have estimated, our financial results and
condition could be significantly harmed.
We
procure certain components of finished conjugate including ansamitocin P3,
DM1,
DM4, and linker on behalf of our collaborators. In order to meet our
commitments to our collaborators, we are required to enter into agreements
with
third parties to produce these components well in advance of our production
of
clinical materials on behalf of our collaborators. If our collaborators do
not require as much clinical material as we have contracted to produce, we
may
not be able to recover our investment in these components and we may suffer
significant losses. For example, in February 2005, Boehringer Ingelheim
discontinued development of bivatuzumab mertansine and in January 2006,
Millennium discontinued development of MLN2704. As a result, in the periods
subsequent to discontinuation of development, we have or expect to have reduced
demand for conjugated material. Specifically, the discontinuation of bivatuzumab
mertansine has contributed to the decrease in clinical materials reimbursement
in the current fiscal period.
In
addition, we operate a conjugate manufacturing facility. A significant
portion of the cost of operating this facility, including the cost of
manufacturing personnel, is charged to the cost of producing clinical materials
on behalf of our collaborators. If we produce fewer batches of clinical
materials for our collaborators, less of the cost of operating the conjugate
manufacturing facility will be charged to our collaborators and our financial
condition could be significantly harmed.
We
have a history of operating losses and expect to incur significant additional
operating losses.
We
have
generated operating losses since our inception. As of March 31, 2006, we had
an
accumulated deficit of $231.9 million. For the nine months ended March 31,
2006, and the fiscal years ended June 30, 2005, 2004 and 2003, we generated
losses of $11.2 million, $11.0 million, $5.9 million and $20.0 million,
respectively. We may never be profitable. We expect to incur substantial
additional operating expenses over the next several years as our research,
development, preclinical testing, clinical studies and collaborator support
activities increase. We intend to continue to invest significantly in our
product candidates. Further, we expect to invest significant resources
supporting our existing collaborators as they work to develop, test and
commercialize TAP and other antibody compounds, and we or our collaborators
may
encounter technological or regulatory difficulties as part of this development
and commercialization process that we cannot overcome or remedy. We may
also incur substantial marketing and other costs in the future if we decide
to
establish marketing and sales capabilities to commercialize our product
candidates. None of our product candidates has generated any commercial revenue
and our only revenues to date have been primarily from upfront and milestone
payments, research and development support and clinical materials reimbursement
from our collaborative partners. We do not expect to generate revenues from
the
commercial sale of our product candidates in the foreseeable future, and we
may
never generate revenues from the commercial sale of products. Even if we do
successfully develop products that can be marketed and sold commercially, we
will need to generate significant revenues from those products to achieve and
maintain profitability. Even if we do become profitable, we may not be able
to
sustain or increase profitability on a quarterly or annual basis.
We
and our collaborative partners are subject to extensive government regulations
and we and our collaborative partners may not be able to obtain necessary
regulatory approvals.
We
or our
collaborative partners may not receive the regulatory approvals necessary to
commercialize our product candidates, which could cause our business to be
severely harmed. Pharmaceutical product candidates, including those in
development by us and our collaborative partners, are subject to extensive
and
rigorous government regulation. The FDA regulates, among other things, the
development, testing, manufacture, safety, record-keeping, labeling, storage,
approval, advertising, promotion, sale and distribution of pharmaceutical
products. If our/our collaborators’ potential products are marketed abroad, they
will also be subject to extensive regulation by foreign governments. None of
our
product candidates has been approved for sale in the United States or any
foreign market. The regulatory review and approval process, which includes
preclinical studies and clinical trials of each product candidate, is lengthy,
complex, expensive and uncertain. Securing FDA approval requires the submission
of extensive preclinical and clinical data and supporting information to the
FDA
for each indication to establish the product candidate’s safety and efficacy.
Data obtained from preclinical and clinical trials are susceptible to varying
interpretation, which may delay, limit or prevent regulatory approval. The
approval process may take many years to complete and may involve ongoing
requirements for post-marketing studies. In light of the limited regulatory
history of monoclonal antibody-based therapeutics, regulatory approvals for
our
products may not be obtained without lengthy delays, if at all. Any FDA or
other
regulatory approvals of our product candidates, once obtained, may be withdrawn.
The effect of government regulation may be to:
|
|
• |
delay
marketing of potential products for a considerable period of
time;
|
|
|
• |
limit
the indicated uses for which potential products may be
marketed;
|
|
|
• |
impose
costly requirements on our activities;
and
|
|
|
• |
provide
competitive advantage to other pharmaceutical and biotechnology
companies.
|
We
may
encounter delays or rejections in the regulatory approval process because of
additional government regulation from future legislation or administrative
action or changes in FDA policy during the period of product development,
clinical trials and FDA regulatory review. Failure to comply with applicable
FDA
or other applicable regulatory requirements may result in criminal prosecution,
civil penalties, recall or seizure of products, total or partial suspension
of
production or injunction, as well as other regulatory action against our product
candidates or us. Outside the United States, our ability to market a product
is
contingent upon receiving clearances from the appropriate regulatory
authorities. This foreign regulatory approval process includes similar risks
to
those associated with the FDA approval process. In addition, we are, or may
become, subject to various federal, state and local laws, regulations and
recommendations relating to safe working conditions, laboratory and
manufacturing practices, the experimental use of animals and the use and
disposal of hazardous substances, including radioactive compounds and infectious
disease agents, used in connection with our research work. If we fail to comply
with the laws and regulations pertaining to our business, we may be subject
to
sanctions, including the temporary or permanent suspension of operations,
product recalls, marketing restrictions and civil and criminal
penalties.
Our/our
collaborators’ product candidates will remain subject to ongoing regulatory
review even if they receive marketing approval. If we fail to comply with
continuing regulations, we could lose these approvals and the sale of our
products could be suspended.
Even
if
we receive regulatory approval to market a particular product candidate, the
approval could be conditioned on us conducting additional costly post-approval
studies or could limit the indicated uses included in our labeling. Moreover,
the product may later cause adverse effects that limit or prevent its widespread
use, force us to withdraw it from the market or impede or delay our ability
to
obtain regulatory approvals in additional countries. In addition, the
manufacturer of the product and its facilities will continue to be subject
to
FDA review and periodic inspections to ensure adherence to applicable
regulations. After receiving marketing approval, the manufacturing, labeling,
packaging, adverse event reporting, storage, advertising, promotion and
record-keeping related to the product will remain subject to extensive
regulatory requirements. We may be slow to adapt, or we may never adapt, to
changes in existing regulatory requirements or adoption of new regulatory
requirements.
If
we
fail to comply with the regulatory requirements of the FDA and other applicable
U.S. and foreign regulatory authorities or previously unknown problems with
our
products, manufacturers or manufacturing processes are discovered, we could
be
subject to administrative or judicially imposed sanctions,
including:
|
|
• |
restrictions
on the products, manufacturers or manufacturing
processes;
|
|
|
• |
civil
or criminal penalties;
|
|
|
• |
product
seizures or detentions;
|
|
|
• |
voluntary
or mandatory product recalls and publicity
requirements;
|
|
|
• |
suspension
or withdrawal of regulatory
approvals;
|
|
|
• |
total
or partial suspension of production;
and
|
|
|
• |
refusal
to approve pending applications for marketing approval of new drugs
or
supplements to approved
applications.
|
We
rely on single source suppliers to manufacture the primary component for our
cell-killing agents, DM1 and DM4. Any problems experienced by either supplier
could negatively affect our operations.
We
rely
on third-party suppliers for some of the materials used in the manufacturing
of
TAP product candidates and cytotoxic agents. Our cell-killing agents include
DM1
and DM4 (collectively DMx). DM1 and DM4 are used in our TAP product candidates
in preclinical and clinical testing and are the subject of most of our
collaborations. One of the primary components required to manufacture DM1 and
DM4 is their precursor, ansamitocin P3. Currently, only one vendor manufactures
and is able to supply us with this material. Any problems experienced by this
vendor could result in a delay or interruption in the supply of ansamitocin
P3
to us until this vendor cures the problem or until we locate an alternative
source of supply. Any delay or interruption in our supply of ansamitocin P3
would likely lead to a delay or interruption in our manufacturing operations
and
preclinical and clinical trials of our product candidates, which could
negatively affect our business. We also have an agreement with only one
vendor to convert
ansamitocin
P3 to DMx. Any problems experienced by this vendor could result in a delay
or
interruption in the supply of DMx to us
until
this vendor cures the problem or until we locate an alternative source of
supply. Any delay or interruption in our supply of DMx could lead to a delay
or
interruption in our manufacturing operations and preclinical and clinical trials
of our product candidates or our collaborators’ product candidates, which could
negatively affect our business. We are currently in negotiations with a
potential additional supplier of these materials. We cannot assume that we
would
be able to reach agreement with this supplier on acceptable terms, or at
all.
Unfavorable
pricing regulations, third-party reimbursement practices or healthcare reform
initiatives applicable to our product candidates could limit our potential
product revenue.
The
regulations governing drug pricing and reimbursement vary widely from country
to
country. Some countries require approval of the sale price of a drug before
it
can be marketed and, in many of these countries, the pricing review period
begins only after approval is granted. In some countries, prescription
pharmaceutical pricing remains subject to continuing governmental control even
after initial approval is granted. Although we monitor these regulations, our
product candidates are currently in the development stage and we will not be
able to assess the impact of price regulations for at least several years.
As a
result, we may obtain regulatory approval for a product in a particular country,
but then be subject to price regulations that delay the commercial launch of
the
product and may negatively impact the revenues we are able to derive from sales
in that country.
Successful
commercialization of our products will also depend in part on the extent to
which coverage and adequate payment for our products will be available from
government health administration authorities, private health insurers and other
third-party payors. If we succeed in bringing a product candidate to the market,
it may not be considered cost-effective and reimbursement to the patient may
not
be available or sufficient to allow us to sell it at a satisfactory price.
Because our product candidates are in the development stage, we are unable
at
this time to determine their cost-effectiveness. We may need to conduct
expensive studies in order to demonstrate cost-effectiveness. Moreover,
third-party payors frequently require that drug companies provide them with
predetermined discounts from list prices and are increasingly challenging the
prices charged for medical products. Because our product candidates are in
the
development stage, we do not know the level of reimbursement, if any, we will
receive for any products that we are able to successfully develop. If the
reimbursement for any of our product candidates is inadequate in light of our
development and other costs, our ability to achieve profitability could be
affected.
We
believe that the efforts of governments and third-party payors to contain or
reduce the cost of healthcare will continue to affect the business and financial
condition of pharmaceutical and biopharmaceutical companies. A number of
legislative and regulatory proposals to change the healthcare system in the
United States and other major healthcare markets have been proposed and adopted
in recent years. For example, the U.S. Congress enacted a limited prescription
drug benefit for Medicare recipients as part of the Medicare Prescription Drug,
Improvement and Modernization Act of 2003. While the program established by
this
statute may increase demand for any products that we are able to successfully
develop, if we participate in this program, our prices will be negotiated with
drug procurement organizations for Medicare beneficiaries and are likely to
be
lower than prices we might otherwise obtain. Non-Medicare third-party drug
procurement organizations may also base the price they are willing to pay on
the
rate paid by drug procurement organizations for Medicare beneficiaries. In
addition, ongoing initiatives in the United States have and will continue to
increase pressure on drug pricing. The announcement or adoption of any such
initiative could have an adverse effect on potential revenues from any product
candidate that we may successfully develop.
We
may be unable to establish the manufacturing capabilities necessary to develop
and commercialize our potential products.
Currently,
we only have one in-house conjugate manufacturing facility for the manufacture
of conjugated compounds necessary for preclinical and clinical testing. We
do
not have sufficient manufacturing capacity to manufacture all of our product
candidates in quantities necessary for commercial sale. In addition, our
manufacturing capacity may be insufficient to complete all clinical trials
contemplated by us or our collaborators over time. We intend to rely in part
on
third-party contract manufacturers to produce sufficiently large quantities
of
drug materials that are and will be needed for clinical trials and
commercialization of our potential products. Third-party manufacturers may
not
be able to meet our needs with respect to timing, quantity or quality of
materials. If we are unable to contract for a sufficient supply of needed
materials on acceptable terms, or if we should encounter delays or difficulties
in our relationships with manufacturers, our clinical trials may be delayed,
thereby delaying the submission of product candidates for regulatory approval
and the market introduction and subsequent commercialization of our potential
products. Any such delays may lower our revenues and potential
profitability.
We
may
develop our manufacturing capacity in part by expanding our current facilities
or building new facilities. Either of these activities would require substantial
additional funds and we would need to hire and train significant numbers of
employees to staff these facilities. We may not be able to develop manufacturing
facilities that are sufficient to produce drug materials for clinical trials
or
commercial use. We and any third-party manufacturers that we may use must
continually adhere to current Good Manufacturing Practices regulations enforced
by the FDA through its facilities inspection program. If our facilities or
the
facilities of third-party manufacturers cannot pass a pre-approval plant
inspection, the FDA will not grant approval to our product candidates. In
complying
with
these regulations and foreign regulatory requirements, we and any of our
third-party manufacturers will be obligated to expend time, money and effort
on
production, record-keeping and quality control to assure that our potential
products meet applicable specifications and other requirements. If we or any
third-party manufacturer with whom we may contract fail to maintain regulatory
compliance, we or the third party may be subject to fines and/or manufacturing
operations may be suspended.
We
have only one in-house conjugate manufacturing facility and any prolonged and
significant disruption at that facility could impair our ability to manufacture
products for clinical testing.
Currently,
we are contractually obligated to manufacture Phase I and non-pivotal Phase
II
clinical products for certain of our collaborators. We manufacture this
material in a conjugate manufacturing facility. We only have one such
manufacturing facility in which we can manufacture clinical products. Our
current manufacturing facility contains highly specialized equipment and
utilizes complicated production processes developed over a number of years
that
would be difficult, time-consuming and costly to duplicate. Any prolonged
disruption in the operations of our manufacturing facility would have a
significant negative impact on our ability to manufacture products for clinical
testing on our own and would cause us to seek additional third-party
manufacturing contracts, thereby increasing our development costs. Even though
we carry manufacturing interruption insurance policies, we may suffer losses
as
a result of business interruptions that exceed the coverage available under
our
insurance policies. Certain events, such as natural disasters, fire, political
disturbances, sabotage or business accidents, which could impact our current
or
future facilities, could have a significant negative impact on our operations
by
disrupting our product development efforts until such time as we are able to
repair our facility or put in place third-party contract manufacturers to assume
this manufacturing role.
Any
inability to license from third parties their proprietary technologies or
processes which we use in connection with the development and manufacture of
our
product candidates may impair our business.
Other
companies, universities and research institutions have or may obtain patents
that could limit our ability to use, manufacture, market or sell our product
candidates or impair our competitive position. As a result, we would have to
obtain licenses from other parties before we could continue using,
manufacturing, marketing or selling our potential products. Any necessary
licenses may not be available on commercially acceptable terms, if at all.
If we
do not obtain required licenses, we may not be able to market our potential
products at all or we may encounter significant delays in product development
while we redesign products or methods that could infringe on the patents held
by
others.
We
may be unable to establish sales and marketing capabilities necessary to
successfully commercialize our potential products.
We
currently have no direct sales or marketing capabilities. We anticipate relying
on third parties to market and sell most of our primary product candidates.
If
we decide to market our potential products through a direct sales force, we
would need to either hire a sales force with expertise in pharmaceutical sales
or contract with a third party to provide a sales force to meet our needs.
We
may be unable to establish marketing, sales and distribution capabilities
necessary to commercialize and gain market acceptance for our potential products
and be competitive. In addition, co-promotion or other marketing arrangements
with third parties to commercialize potential products could significantly
limit
the revenues we derive from these potential products, and these third parties
may fail to commercialize our potential products successfully.
If
our product candidates or those of our collaborators do not gain market
acceptance, our business will suffer.
Even
if
clinical trials demonstrate the safety and efficacy of our product candidates
and the necessary regulatory approvals are obtained, our product candidates
may
not gain market acceptance among physicians, patients, healthcare payors and
the
medical community. The degree of market acceptance of any product candidates
that we develop will depend on a number of factors, including:
• the
degree of clinical efficacy and safety;
• cost-effectiveness
of our product candidates;
• their
advantage over alternative treatment methods;
• reimbursement
policies of government and third-party payors; and
• the
quality of our or our collaborative partners’ marketing and distribution
capabilities for our product candidates.
Physicians
will not recommend therapies using any of our future products until such time
as
clinical data or other factors demonstrate the safety and efficacy of those
products as compared to conventional drug and other treatments. Even if the
clinical safety and efficacy of therapies using our products is established,
physicians may elect not to recommend the therapies for any number of other
reasons, including whether the mode of administration of our products is
effective for certain conditions, and whether the physicians are already using
competing products that satisfy their treatment objectives. Physicians,
patients, third-party payors and the medical community may not accept and use
any product candidates that we, or our collaborative partners, develop. If
our
products do not achieve significant market acceptance, we will not be able
to
recover the significant investment we have made in developing such products
and
our business would be severely harmed.
We
may be unable to compete successfully.
The
markets in which we compete are well established and intensely competitive.
We
may be unable to compete successfully against our current and future
competitors. Our failure to compete successfully may result in pricing
reductions, reduced gross margins and failure to achieve market acceptance
for
our potential products. Our competitors include pharmaceutical companies,
biotechnology companies, chemical companies, academic and research institutions
and government agencies. Many of these organizations have substantially more
experience and more capital, research and development, regulatory,
manufacturing, sales, marketing, human and other resources than we do. As a
result, they may:
|
|
• |
develop
products that are safer or more effective than our product
candidates;
|
|
|
• |
obtain
FDA and other regulatory approvals or reach the market with their
products
more rapidly than we can, reducing the potential sales of our product
candidates;
|
|
|
• |
devote
greater resources to market or sell their
products;
|
|
|
• |
adapt
more quickly to new technologies and scientific
advances;
|
|
|
• |
initiate
or withstand substantial price competition more successfully than
we
can;
|
|
|
• |
have
greater success in recruiting skilled scientific workers from the
limited
pool of available talent;
|
|
|
• |
more
effectively negotiate third-party licensing and collaboration
arrangements; and
|
|
|
• |
take
advantage of acquisition or other opportunities more readily than
we
can.
|
A
number
of pharmaceutical and biotechnology companies are currently developing products
targeting the same types of cancer that we target, and some of our competitors’
products have entered clinical trials or already are commercially available.
In
addition, our product candidates, if approved and commercialized, will compete
against well-established, existing, therapeutic products that are
currently
reimbursed by government health administration authorities, private health
insurers and health maintenance organizations. We face and will continue to
face
intense competition from other companies for collaborative arrangements with
pharmaceutical and biotechnology companies, for relationships with academic
and
research institutions, and for licenses to proprietary technology. In addition,
we anticipate that we will face increased competition in the future as new
companies enter our markets and as scientific developments surrounding
antibody-based therapeutics for cancer continue to accelerate. While we will
seek to expand our technological capabilities to remain competitive, research
and development by others may render our technology or product candidates
obsolete or noncompetitive or result in treatments or cures superior to any
therapy developed by us.
If
we are unable to protect our intellectual property rights adequately, the value
of our technology and our product candidates could be
diminished.
Our
success depends in part on obtaining, maintaining and enforcing our patents
and
other proprietary rights and our ability to avoid infringing the proprietary
rights of others. Patent law relating to the scope of claims in the
biotechnology field in which we operate is still evolving, is surrounded by
a
great deal of uncertainty and involves complex legal, scientific and factual
questions. To date, no consistent policy has emerged regarding the breadth
of
claims allowed in biotechnology patents. Accordingly, our pending patent
applications may not result in issued patents. Although we own several patents,
the issuance of a patent is not conclusive as to its validity or enforceability.
Through litigation, a third party may challenge the validity or enforceability
of a patent after its issuance.
Also,
patents and applications owned or licensed by us may become the subject of
interference proceedings in the United States Patent and Trademark Office to
determine priority of invention that could result in substantial cost to us.
An
adverse decision in an interference proceeding may result in our loss of rights
under a patent or patent application. It is unclear how much protection,
if any, will be given to our patents if we attempt to enforce them and they
are
challenged in court or in other proceedings. A competitor may successfully
challenge our patents or a challenge could result in limitations of the patents’
coverage. In addition, the cost of litigation
or
interference proceedings to uphold the validity of patents can be substantial.
If we are unsuccessful in these proceedings, third parties may be able to use
our patented technology without paying us licensing fees or royalties. Moreover,
competitors may infringe our patents or successfully avoid them through design
innovation. To prevent infringement or unauthorized use, we may need to file
infringement claims, which are expensive and time-consuming. In an infringement
proceeding a court may decide that a patent of ours is not valid. Even if the
validity of our patents were upheld, a court may refuse to stop the other party
from using the technology at issue on the ground that its activities are not
covered by our patents. Policing unauthorized use of our intellectual property
is difficult, and we may not be able to prevent misappropriation of our
proprietary rights, particularly in countries where the laws may not protect
such rights as fully as in the United States.
In
addition to our patent rights, we also rely on unpatented technology, trade
secrets, know-how and confidential information. Third parties may independently
develop substantially equivalent information and techniques or otherwise gain
access to or disclose our technology. We may not be able to effectively protect
our rights in unpatented technology, trade secrets, know-how and confidential
information. We require each of our employees, consultants and corporate
partners to execute a confidentiality agreement at the commencement of an
employment, consulting or collaborative relationship with us. However, these
agreements may not provide effective protection of our information or, in the
event of unauthorized use or disclosure, they may not provide adequate
remedies.
If
we are forced to litigate or undertake other proceedings in order to enforce
our
intellectual property rights, we may be subject to substantial costs and
liability or be prohibited from commercializing our potential
products.
Patent
litigation is very common in the biotechnology and pharmaceutical industries.
Third parties may assert patent or other intellectual property infringement
claims against us with respect to our technologies, products or other matters.
Any claims that might be brought against us relating to infringement of patents
may cause us to incur significant expenses and, if successfully asserted against
us, may cause us to pay substantial damages and limit our ability to use the
intellectual property subject to these claims. Even if we were to prevail,
any
litigation would be costly and time-consuming and could divert the attention
of
our management and key personnel from our business operations. Furthermore,
as a
result of a patent infringement suit, we may be forced to stop or delay
developing, manufacturing or selling potential products that incorporate the
challenged intellectual property unless we enter into royalty or license
agreements. There may be third-party patents, patent applications and other
intellectual property relevant to our potential products that may block or
compete with our products or processes. In addition, we sometimes undertake
research and development with respect to potential products even when we are
aware of third-party patents that may be relevant to our potential products,
on
the basis that such patents may be challenged or licensed by us. If our
subsequent challenge to such patents were not to prevail, we may not be able
to
commercialize our potential products after having already incurred significant
expenditures unless we are able to license the intellectual property on
commercially reasonable terms. We may not be able to obtain royalty or license
agreements on terms acceptable to us, if at all. Even if we were able to obtain
licenses to such technology, some licenses may be non-exclusive, thereby giving
our competitors access to the same technologies licensed to us. Ultimately,
we
may be unable to commercialize some of our potential products or may have to
cease some of our business operations, which could severely harm our
business.
We
use hazardous materials in our business, and any claims relating to improper
handling, storage or disposal of these materials could harm our
business.
Our
research and development activities involve the controlled use of hazardous
materials, chemicals, biological materials and radioactive compounds. We are
subject to federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of these materials and certain
waste
products. Although we believe that our safety procedures for handling and
disposing of these materials comply with the standards prescribed by applicable
laws and regulations, we cannot completely eliminate the risk of accidental
contamination or injury from these materials. In the event of such an accident,
we could be held liable for any resulting damages, and any liability could
exceed our resources. We may be required to incur significant costs to comply
with these laws in the future. Failure to comply with these laws could result
in
fines and the revocation of permits, which could prevent us from conducting
our
business.
We
face product liability risks and may not be able to obtain adequate
insurance.
The
use
of our product candidates during testing or after approval entails an inherent
risk of adverse effects, which could expose us to product liability claims.
Regardless of their merit or eventual outcome, product liability claims may
result in:
• decreased
demand for our product;
• injury
to
our reputation and significant media attention;
• withdrawal
of clinical trial volunteers;
• costs
of
litigation;
• distraction
of management; and
• substantial
monetary awards to plaintiffs.
We
may
not have sufficient resources to satisfy any liability resulting from these
claims. We currently have $5.0 million of product liability insurance for
products which are in clinical testing. This coverage may not be adequate in
scope to protect us in the event of a successful product liability claim.
Further, we may not be able to maintain our current insurance or obtain general
product liability insurance on reasonable terms and at an acceptable cost if
we
or our collaborative partners begin commercial production of our proposed
product candidates. This insurance, even if we can obtain and maintain it,
may
not be sufficient to provide us with adequate coverage against potential
liabilities.
We
depend on our key personnel and we must continue to attract and retain key
employees and consultants.
We
depend
on our key scientific and management personnel. Our ability to pursue the
development of our current and future product candidates depends largely on
retaining the services of our existing personnel and hiring additional qualified
scientific personnel to perform research and development. We will also need
to
hire personnel with expertise in clinical testing, government regulation,
manufacturing, marketing and finance. Attracting and retaining qualified
personnel will be critical to our success. We may not be able to attract and
retain personnel on acceptable terms given the competition for such personnel
among biotechnology, pharmaceutical and healthcare companies, universities
and
non-profit research institutions. Failure to retain our existing key management
and scientific personnel or to attract additional highly qualified personnel
could delay the development of our product candidates and harm our
business.
If
we are unable to obtain additional funding when needed, we may have to delay
or
scale back some of our programs or grant rights to third parties to develop
and
market our products.
We
will
continue to expend substantial resources developing new and existing product
candidates, including costs associated with research and development, acquiring
new technologies, conducting preclinical and clinical trials, obtaining
regulatory approvals and manufacturing products as well as providing certain
support to our collaborators in the development of their products. We believe
that our current working capital and future payments, if any, from our
collaboration arrangements, including committed research funding that we expect
to receive from sanofi-aventis pursuant to the terms of our collaboration
agreement, will be sufficient to meet our current and projected operating and
capital requirements for at least the next two to three years. However, we
may need additional financing sooner due to a number of factors
including:
|
|
• |
if
either we or any of our collaborators incur higher than expected
costs or
experience slower than expected progress in developing product candidates
and obtaining regulatory approvals;
|
|
|
• |
lower
revenues than expected under our collaboration agreements;
or
|
|
|
• |
acquisition
of technologies and other business opportunities that require financial
commitments.
|
Additional
funding may not be available to us on favorable terms, or at all. We may raise
additional funds through public or private financings, collaborative
arrangements or other arrangements. Debt financing, if available, may involve
covenants that could restrict our business activities. If we are unable to
raise
additional funds through equity or debt financing when needed, we may be
required to delay, scale back or eliminate expenditures for some of our
development programs or grant rights to develop and market product candidates
that we would otherwise prefer to internally develop and market. If we are
required to grant such rights, the ultimate value of these product candidates
to
us may be reduced.
Fluctuations
in our quarterly revenue and operating results may cause our stock price to
decline.
Our
operating results have fluctuated in the past and are likely to continue to
do
so in the future. Our revenue is unpredictable and may fluctuate due to the
timing of non-recurring licensing fees, decisions of our collaborative partners
with respect to our agreements with them, reimbursement for manufacturing
services, the achievement of milestones and our receipt of the related milestone
payments under new and existing licensing and collaboration agreements. Revenue
historically recognized under our prior collaboration agreements may not be
an
indicator of revenue from any future collaborations. In addition, our expenses
are unpredictable and may fluctuate from quarter-to-quarter due to the timing
of
expenses, which may include obligations to manufacture or supply product or
payments owed by us under licensing or collaboration agreements. It is possible
that our quarterly operating results will not meet the expectations of
securities analysts or investors, causing the market price of our common stock
to decline. We believe that quarter-to-quarter comparisons of our operating
results are not good indicators of our future performance and should not be
relied upon to predict the future performance of our stock price.
We
do not intend to pay cash dividends on our common stock.
We
have
not paid cash dividends since our inception and do not intend to pay cash
dividends in the foreseeable future. Therefore, shareholders will have to rely
on appreciation in our stock price, if any, in order to achieve a gain on an
investment.
ITEM
2. Unregistered
Sales of Equity Securities and Use of Proceeds.
None.
ITEM
3. Defaults
Upon Senior Securities.
None.
ITEM
4. Submission
of Matters to a Vote of Security Holders.
None.
ITEM
5. Other
Information.
(a)
Not
applicable.
(b)
Not
applicable.
(a) Exhibits
3.3 By-Laws,
as amended (2)
31.1 Certification
of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification
of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act
of
2002.
32. Certifications
of Chief Executive Officer and Principal Financial Officer under Section 906
of
the Sarbanes-Oxley Act of 2002.
(2)
Previously filed with the Commission as an exhibit to, and incorporated herein
by reference from, the Registrant's report on Form 8-K dated November 2,
2005.
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
|
ImmunoGen, Inc.
|
|
|
|
|
|
Date:
May 5, 2006
|
By:
|
/s/
Mitchel Sayare
|
|
|
|
Mitchel
Sayare
|
|
|
|
President
and Chief Executive Officer
(principal
executive officer)
|
|
|
|
|
|
Date:
May 5, 2006
|
By:
|
/s/
Daniel M. Junius
|
|
|
|
Daniel
M. Junius
|
|
|
|
Senior
Vice President and Chief Financial Officer
(principal
financial officer)
|